Q3 2019 Earnings Call
Good morning, My name is Sherry and I will be a conference operator today at this time I would like to welcome everyone to Sandstorm gold royalties third quarter conference call. All lines have been placed I needed to prevent any background noise. Please be aware that some of the commentary may contain forward looking statements there could be no assurance.
Such forward looking statements for proved to be accurate.
As actual result of future events could differ materially from those anticipated in such statements. After speakers remarks, there will be a question and answer session. If he would like to ask a question. During this time simply press. The Star then the number one on your telephone keypad. If he would like to withdraw your question press the star and the number two.
Thank you Mr. Watson you may begin your conference.
Thank you Gerry and good morning, everyone and thank you for calling into this third quarter earnings call.
This morning are bank, because MRC opposed can walk us through the Q3 results and then they warms going to provide a.
Brief update on a few of the assets and then as usual, we'll turn it over to the operator for the question and answer period, and if anyone has questions that don't necessarily need to be part of like you and eight they can be out through the web portal and will ensure that each question. We get there we'll get a direct response after this call.
Before we do that I'd like to provide a brief business update at this time, we're gonna be walking through our prepared Powerpoint presentation on the web portal. So if you're able to please turn your attention there now.
From a high level perspective, our gold equivalent ounces produced this quarter were up approximately 20% over the same quarter in 2018, and we had record production of approximately 17300 ounces, which when combined with the increase the gold price resulted in over $25 million.
U.S. in terms of revenue.
It's increased production came from strong results throughout the entire portfolio, including from new assets that we recently had come on line such as Aquinox is scores on the project.
Next slide number five it's encouraging to see the complete transformation year over year, and our operating cash flow adjusted for changes in working capital from over $11 million in Q3 2018 to now over $18 million in Q3, 2019, [laughter], but we've been purposely building at sandstorm is.
As a business capable of generating substantial amounts of free cash flow.
And quite candidly, we're excited to see it coming to fruition with record cash flow this quarter.
[laughter] over the last few months most of the questions that we have been getting from investors relate to how we're going to allocate discounts were going forward with four main ways. We can allocate it being number one more acquisitions number two debt repayment number three share buybacks and number four dividends and although it's hard for even need to know how.
We're going to allocate or on a monthly basis I do believe over the next few years, we will be allocating cash flow to all four of those auctions [laughter] last quarter I mentioned on our quarterly call that we've taken a brief pause in our share buybacks and shortly after I said that the price of gold pulled back and sort of the share price of most gold companies, including ours and what our share price pulled.
Back, we began resuming or share repurchases.
You can see from this graph that we've now completed or repurchasing nearly 11 million shares, leaving just over 7 million shares remaining to complete our stated objective of repurchasing 18.3 million shares.
Our share price where to pull back again, we would not hesitate to step into the market and repurchase shares and we do hope we can complete this entire share repurchase program [laughter]. Once that's complete sometime next year, we will look at instituting a dividend and we'll wait out of potential share buybacks, depending on our share price.
Because our free cash flow is now significant we believe we can both return capital to shareholders and continue to grow our portfolio streams and royalties in fact during the third quarter, we did exactly that and we now have over 190 streams and royalties.
And that number and it will continue to grow.
Our corporate development team is currently quite busy looking at a variety of potential acquisitions, and we're confident that we'll be able to continue to make smart acquisitions that are accretive to our shareholders.
And although it's true the gold prices are higher now than they were just like last year, and therefore gold mining companies with active operating assets are less likely to sell gold streams and royalties.
What we're seeing as the base metal companies are still struggling and looking for streams and royalties and exploration companies, even most precious metal exploration companies are not able to raise enough capital to continue exploring their assets at a reasonable pace and we're seeing the opportunity to purchase royalties unexciting assets [laughter] overall I'm excited with the business that we built.
The amounts of cash flow that we're now generating the amount of growth that we have already purchased and we expect to come online over the next few years as well as the acquisition opportunities that we plan on taking advantage of in the future [laughter] and so that's the business update with that I'm going to hand things over to Erfan to discuss the quarterly results.
Thank you Nolan and thank you to everyone who's joining us today.
On our last quarterly conference call, we discussed a record gold production revenue for Q2, and I mentioned that I felt that we wouldn't need to wait long before we saw the next to record well.
Here, we are already has no imagine this has been another record breaking quarter for sandstorm the number of areas.
Dart by looking at some key financials. So if you could please refer to slide eight I'll walk you through a summary of the result.
[noise] production for the quarter totaled 17289 attributable gold equivalent ounces sold resulting in total revenue of approximately 25.8 million. This represents a 21% increasing ounces and a 49% increase in revenue when compared to the third quarter of 2018.
The increase in production was partially due to the commencement of commercial production at the order they want to mine.
Which was announced back in July with this project coming online Sandstorm now has 23 producing assets and its portfolio.
Other notable growth factors include the second silver deliveries from the Cerro Moro silver stream and an increase in ounces sold from the Santa Elena mine.
In addition to the increase in gold equivalent ounces sold a stronger gold market throughout the quarter contributed to a record revenue.
You will see in the chart that average realized gold price for the quarter with 1400 $91 per attributable Alan.
This is the highest average gold price we've seen in over six years and an increase of nearly $300 per ounce compared to Q3 2018.
On the opposite sides of the equation, our average cash cost per two real alloy increased slightly to $288 compared to last year.
However, this still provided healthy margin of over 1200 dollar.
Hurt your bill out an increase from $960 per out during the same quarter last year.
The last two line show cash flow from operations for the quarter at $14.3 million, an increase from the previous year and net income of 6.2 million.
In addition to the revenue increases I've already mentioned, a 2.1 million dollar increase in Gainesville recognized on the revaluation of the company's investments, partially driven by the change in fair value of the Americas gold and silver convertible debenture.
This was partially offset by three and a half million increase in noncash depletion expense and a 1.4 million dollar increase in cost of sales.
Primarily driven by an increase in the number of attributable gold equivalent ounces sold.
On the next slide we have our top 10 producing assets.
For the second quarter in a row Humana Cerro Moro mine came out on tall coming online in April this year the amount of silver stream added over 3000 attributable ounces to our production.
This was followed by close that come from Santa Elena 2900 ounces.
The notable addition here is the previously mentioned orders on a mine, which reached commercial production in July .
The company has a sliding scale NSR royalty on the orders on a mine ranging between three and 5%.
A gold prices equal or less than $1500.
The answer on the NSR, a 3% and a gold prices between 1500 in $2000 the royalty increases to 4%.
Oh, we're excited about this addition of another producing asset from a quality operator equinox goal expects the project to produce 75000 to 90000 ounces in 2019.
We're also optimistic about the exploration upside order Bono and equinox gold has already indicated their focus on exploring various targets to extend the mine life.
Sandstorms 23, producing assets provide good diversification across our portfolio.
This next slide show, how these assets breakdown by jurisdiction.
51% the majority over revenues coming from North America. This quarter was 35% came from South America and 14% from other countries.
Finally, my last chart shows a summary of results from the last four quarters.
As you can see we're trending in the right direction in terms of both production numbers and revenue.
We're also seeing a nice upward trend in the gold price, which has contributed to making this another strong quarter for sandstorm.
I believe we're seeing the fruit from a lot of hard work that has gone into building the company over the last several years.
And with more projects coming online in the near future is certainly an exciting time to be sandstorm shareholder.
Based on these financials I'm pleased to say that we're on track to achieving our guidance and our reiterating our forecast of 60 363000, the 70000 attributable gold ounces sold in 2019.
Our long term forecast the 140000 to triple gold ounces in 2023, and with that I'll pass it over to Dave.
Great. Thanks, very much your fan so in Q2, we had Cerro Moro come on line in Q3 or zone has begun in Q4, we're expecting to see Fruta del Mar tape core goal. So sandstorm has had a relatively stable growth over the year and seeing those record sales have been discussed however.
I'm going to discuss a few of the new changes to a couple of bigger projects this quarter.
Start with Japan.
Which lundin mining completed their acquisition of in July .
Lundeen, haz waste that little time, and outline and the importance of the asset to their future growth now focus with copper as a priority one day and his group.
Proving recovery isn't doing more exploration based on really the red metal as opposed to your men who is focused on the goal is great news for us as our stream is clearly on the call from project.
Lundeen is ramping up an already greste of exploration programs. They can successfully plan for future production expansion. There is a planned investor trip for November which will likely provider provides additional insight as to what lundeen is focusing on a future Japan has been and still remains one of our most important revenue stream.
Yes.
So onto one of my favorites, and the portfolio or zone, where equinox had their first full quarter full quarter commercial production.
Here are they produce primarily from lower grade stockpile, but as the throughput rate higher than the nameplate capacity of 8000 tonnes per day.
Q4, we'll see more or sourced from the main pit. So a higher grade is expected despite the lower grade material. The horizontal Q3, all in sustaining costs was $1053 per ounce. So next quarter, we expect to mine to be even more profitable for backlogs.
That's great to hear since they are back to focusing on exploration in the eastern extension of the property an area called how to Juba. This is for kilometer strike length target, where mineralization is roughly the same is what they see at the current piano open pit.
Our next expects to complete a 6000 meter drill program here with the goal of maiden resource in Q1, 2020 personally I walk this ground as far back in 2009.
I can tell at that time at how did you buy it was clear extension on the mineralization.
Just to the east Java, but because of permitting issues. It has sat for almost a decade. The first drilling that aquinox performing their showed results as good or higher than found up yabba. So I can't wait to see a first resource from that area.
In addition to exploration that surface for additional open pit material Aquinox was also advancing studies for potential underground mining at ore zone. So we'll keep our eyes.
For news on that aspect of the project too.
For my last project update I'd like to speak about one of the exploration companies sandstorms involved with.
Some peak metals is a new company with projects in northern Ethiopia, Although new company with projects in the new being Arabian shield their experience there is nothing but extensive Greg Davis and his team had been discovering vms deposits just to the north of the board in Eritrea for over 15 years.
Team. It's on peak was responsible for the discovery of the Fame Bisha mine and the large Asmara project. Both of these are greater than 50 million ton Vms deposits and rank among the largest vms the protests discovered worldwide in the last 20 years.
Some pick team is that again, but in a jurisdiction that is far better for costs and taxation in Ethiopia.
Over the last three years, they've accumulative for great properties in a set of rocks that are not just the same nubian shield, but actual extensions of the rock units in which they discovered mines before.
Some peak has been completed surface work generating high priority targets and it's now using their tried and trusted trusted.
Discovery methods to come up with new drill targets drilling a well begin at the end the 2019, but continue into 2020, and we're really excited to see the results coming in from their team Sandstorm is purchase royalties on the properties.
In the portfolio and has roper's on future streams and royalties if they are to discover another huge deposits.
So with that I'll pass the call over to share eight to begin with the QNX session.
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Oh.
Okay. Our first question is from John .
Tim Let John was very independent research. Please proceed.
I want to just thank you for your good results your service as a company.
Congratulations on all the good news.
I'd like to encourage you to institute a dividend because it will help the market recognize sure.
Good performance.
Could you give us an update on.
Todd margins.
[noise] regulatory progress Prefeasibility study or other developments.
Yeah first of all thanks very much on we appreciate it.
Hi, Martin continues to move forward and maybe Dave can walk conservative an update on.
Sure so.
There through.
They've been accumulate property in the area, they're going to the permitting process as we speak and then working on the feasibility study.
So.
Everything is really kind of progress well I think we talked about this on last call.
They have submitted anyway on the idea Permian the underground.
Concentrate producing mine.
So they are currently working on that with with the with the government. The feasibility studies are well underway they've established really what the sites.
We will look like and they've locked in some of these processes. So everything it really is on track for that.
For 2020, Q1 2020 to complete the feasibility at this point.
So, it's really kind of but it's moving along on the process, it's kind of not a lot of.
New news tends to come out for any project that gets at this at this time, but it's moving along to the schedule that we've we've been talking about over the last several quarters there.
If I could ask a second question.
Could you.
Give us a flavor.
For how you monitor.
The project you've invested in.
And I know you're not supposed to manage the projects, but you offer suggestions or help.
I'm thinking of another company, whose call was two hours ago.
Didn't do well.
I think they changed out the management and now it's doing even worse.
Yes.
And.
Fortunately you don't have a case study like that.
How do you monitor and helps the companies.
Whenever they fall on a rough patch.
Yeah. So it's it's quite a balancing act the we have because we me personally we want our corporate development team.
Have access to our technical team for future acquisitions, where growth company, we're always growing and we have limited resources, we have a very high quality technical team and so balancing the timing attention and that team between things that we're looking to acquire and offering advice and help to companies, where we've already acquired a stream royalty.
The balancing act that we normally do because of that we tend to focus only on helping the companies that we have larger stakes in that are more economic to us.
And our our team goes through a process of identifying areas where companies are struggling and we'll do site visits to understand why they might be struggling right now Fortunately the majority of things that our portfolio performing very very well, which is why we're having record quarters there's not.
Really any any problem children in the portfolio that we're actively helping any of our partners on but in the past we have had to do that we'll do that again in the future and so I.
I guess to summarize we focus on things that are larger more material for us and we do it when they start getting into trouble, we offer helped the companies and sometimes they listen and sometimes they don't and and that's okay.
Thank you very much.
As a reminder to star one and your telephone keypad, if he would like to ask a question. Our next question is from <expletive> Van Beurden private Investor. Please proceed.
Thank you.
Several.
Several.
Observations or questions do you do a revaluation.
An asset these revaluation on a quarterly basis.
Noticed it for the last several quarters.
It's had significantly positive impacts.
On the bottom line and both of those quarters.
Yes, so we got a lot of accountants in here and and we would love to answer questions like that on a detail.
Basis, but we don't want aboard everybody with all the accounting.
From a high level perspective, all of our streams and royalties are held on a historical cost basis in the currency the functional currency of the operating subsidiaries. So those things don't move around and our functional currencies.
Things in Turkey for example at model does move around.
Because of currency translation adjustments and those changes go through other comprehensive income not through net income.
The only assets that get mark to market, our derivatives and other short term securities and so we had a little bit of a mark to market gain on.
On convertible debentures held in companies like Economics, and America silver and so that helped net income a little bit this quarter, but but the vast majority of our balance sheet does not get mark to market.
Thank you.
Well I see what's going on with the goal.
The sales of gold what impact did the silver sales.
On the bottom line this quarter.
Yes, so divestment, a basically all of our silver sales or from the Cerro Moro stream and we're getting the maximum quarterly deliveries from that stream and so it was an important contributor to this quarter, but we got the same number of ounces. This quarters. We did last quarter. So records that we received were not.
Not because of the silver.
Okay. So that the maximum this quarter was the same with was last quarter and projected to be similar in the future.
Correct.
Okay and is that Turkey situation.
Pretty vulnerable.
We're not seeing any evidence of anything that would negatively affect the project if anything things that are going on in Turkey, or maybe slightly negatively affecting their currency, which is making it cheaper for our partner Lydia mange elect to operate and get things done.
And the feasibility study is.
As on budget.
Moving forward on time, so we haven't noticed anything positive effects from what's going on in Turkey. So far.
Thanks I appreciate it.
Thank you.
Our next question is from cost.
Yes.
IVC. Please proceed.
Hi, Thanks, Nolan David orphan.
Maybe just one question for me here in terms of it all the overall competitive landscape.
No longer talked about opportunities you talked about development projects given base metal companies.
I'm just wondering how would you categorize does the quality of some of these opportunities.
And then the second part of my question is when I talk to some of the bigger royalty and streaming companies. It seems like there are coming down size in terms of what they're looking at or you see any kind of competitive.
Increased competitiveness.
Competition coming from some of those for the bigger streaming royalty companies and India and what's your sweet spot in terms of what sandstorm is looking at in terms of deal size.
Yes, I guess I'll answer the last part first and we're looking at deals anywhere from.
A million dollars or to all the way up to several hundred million dollars and we're looking at we're looking only at things right now that we can do with our existing balance sheet, we're not looking to raise any equity, but we've got to do.
Deal pipeline, that's quite full I guess to answer your question.
The first part of the question, we walk our board through like we do every quarter corporate development update and it is about six pages long of things that we're looking at and various conversations.
So I would I would categorize the competition in our industry is fairly high.
It's higher than it was three years ago, but the other forms of capital that are out there are less available including equity to those companies. So streaming and royalty is becoming a bigger bigger.
Important part of how the mining industry finances itself and so although there are more streaming and royalty companies.
The need for our capital is even higher than it was a few years ago. So the pipeline is robust.
We've grown the number of streams and royalties that we've had every single year in the history of our company and we don't see based on our current deal pipeline that being a problem going forward.
For sure.
Maybe switching gears, a little bit now that Japan under lendings ownership no do you see any kind of potential changes in terms of how we should look good streaming lundeen is planning to developed the Japan as more of a primary copper assets.
Is there any kind of potential in terms of improvement and near term copper deliveries under this scenario.
I would say that we will expect to get the same amount of copper that we've been receiving going forward for the next few years. There is a maximum number of copper pounds. This can be delivered to us under that contract for a finite period of time and there's a small step down in that copper stream in terms of percentage that we purchased when that step down happens.
The maximum go away and so I think there increased production will become a good thing for us because on the step down happens our actual production might be more similar to what we're receiving today, which is a good thing and it's a very very long mine life. So we're encouraged to see them investing in both exploration, but also.
Plant expansion et cetera.
For sure.
Maybe one last question from me here in terms of dividends you know you talked about capital allocation dividend being one of the options out there.
I guess is still very fairly early stage, but is there is there a yield that you're targeting you know some of your competitors out there.
They always target to say plus 1% dividend yield to make sure that they can appeal to certain investors out there.
You know how would you look at look at that Nolan.
Yes, I want to be careful not to put the car before a horse in the sense that puts you report.
To ensure dividend and then they'll have to decide what form they do it in I think that the discussions that we've had internally so far more along the lines of what you'd see from a Franco Nevada or ROE gold as opposed to trying to get to fancying calculation mechanisms about how to pay the dividend and I think the block.
I think the Royal Gold and Franco Nevada had for years was start with a low dividend thats around 1% yield, but they've increased at every single year over and over and over again for very long periods of time.
So we want to make sure that when we do start paying a dividend even if it's not hi, it's one that we're confident that we can continue to grow our business continued to grow our dividend every year.
Alright, Thanks, again, Nolan, Dave and orphan.
That's all I think you've got excess loss.
Thank you. This concludes our question and answer so should I would like to turn the conference back over to management for closing remarks.
Well, thanks, Jerry and thanks, everyone for calling into the call today and as normal will be around here. If you have any questions.
Please give us a call and hope you have a great day.
Thank you. This concludes today's conference you may disconnect your lines at this time and thank you for your participation.