Q4 2019 Earnings Call
Good morning, My name is all right and that will be your conference operator today at this time I would like to welcome everyone to be sandstorm gold royalties, a fourth quarter conference call.
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Please be aware that some of the commentary may contain forward looking statements. There can be no assurance that forward looking statements will prove to be accurate as actual results and future events could differ materially from does anticipate in such statements. After the speaker's remarks, there will be a question answer session. If you'd like to ask a question. During this time simply press Star then.
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Star and then the number one Keith.
Thank you Mr. Nolan Watson you may begin your conference.
[music]. Thank you operator, good morning, everyone and thank you for calling into 2019 fourth quarter earnings call.
Morning, Erfan, our CFO is going to walk us through the Q4, an annual results. They warm will provide a brief update on appeal the assets and then as usual I'll turn it over to the operator for question and answer period.
Yeah anyone has a question that does not need to be part of Allied queuing. They you can ask those questions for the web portal and well make sure that we get back to each person what the direct response Ross after this call.
[music] before I hand, it over to Erfan I want to provide a brief business updates at this time, we're going to walk her prepared Powerpoint presentation on the web portal. So if you're able to do so please turn your attention there now.
The first thing I'd like to do is provide a comparison of our 2020 guidance whether 2019 actual results.
Provide context for what we see unfolding in 2020.
As we know 2019 was a record in terms of alpha so the revenue operating cash flow.
20, what we're currently expecting it somewhere gold equivalent production levels as 2019.
So we're giving the same guidance range for production that we did at the beginning at <unk>, which is 60000 70000 attributable gold equivalent ounces.
It's worth noting that as the gold price continues to increase which is something that we're excited about the number of quote gold equivalent ounces, we get from silver stream the center copper stream much about our.
Streamline diabetic results in fewer gold equivalent ounces.
The way to put that is that for example, we're gonna have the same number of silver ounces year over year, but the gold price goes up more than the silver price, which is what has been happening the silver sales converted to pure gold equivalent ounces.
Our overall guidance for 2020 is the same as what it was for 2019 in terms of gold equivalent ounces, but the actual amount of metal we're expecting to sell is higher in 2020.
It's also important to note that in Q4 2019, we had 1500 ounces from our Bachelor Lake.
Downstream and adds is stipulated in the contract those fixed ounce deliveries are now done and the stream has turned into a royalty.
Our Q1 2020 production is expected to be lower than our Q4 2019 production by approximately that 1500 ounces, but our quarterly production is expected to immediately jump in Q2 and going forward when Americas gold and silver start delivering their contractually required fixed ounces.
And we expect to be hitting quarterly production records by the end of year.
[noise] other investors are all the where the majority of our revenue is from gold.
And if the gold price goes up it gives us higher overall revenue and higher operating cash flow.
Based on a 1500 dollar per ounce gold price that would translate into an estimated $97.5 million a revenue for 2020, which would be a record for a company.
Operating cash flow, which is capital after DNA and after taxes I eat basically free cash flow is expected to be approximately $70 million U.S., which would also be a substantial record for the company.
Moving onto the next slide.
As we have discussed in the past in both 2018 and 2019, you some of our cash flow to repurchase some of our shares on the open market as part of a normal course issuer bid.
We have subsequently canceled those shares.
One question were often getting from investors is what did we paid on average for those shares.
Well. This graph you can see that in 2018, we repurchased a total of 2.3 million shares at an average price support hours and 29 cents per share and in 2019, we repurchased a total 8.7 million shares at an average price for $5.36 per share, which is materially below todays current share price. So we believe that these repurchase.
This is where the rate decision and in the shareholders' best interest.
Going forward, we'll continue to evaluate the benefits of share buybacks versus dividends and will provide a further update on our slots in the latter half of this year.
And although I know investor opinions on this topic are split if my personal goal to become a dividend paying company in the not too distant future.
[laughter] Sandstorm I believe has hit its inflection point both in terms of cash flow, but also in terms of available capital to do new deals and grow the company.
As we sit here today, our debt has been nearly paid off.
And my next quarter, we will have the full 300 million dollar debt facility to drawn for future acquisitions.
When you combine that with some plans noncore asset sales.
Plus expected proceeds of further warrant exercises and cash flow from operations, we have nearly half a billion dollars firepower to grow the company.
Never before sandstorm beam is well positioned to materially grow and although we will be patient to find the acquisitions that are in the shareholders' best interest. We now have sufficient financial capacity when we do find those right acquisitions.
Overall, the business is performing well, we're hoping that 2020 brings us another.
Cash flow record, we're optimistic about our ability to continue adding streams and royalties this year.
So that's the business update with that I'm going to hand things over to Erfan to discuss the financial results.
Thank you Nolan and good morning, everyone I'm glad you're here with us.
2019 has been a great year for sandstorm I like to take you from time to highlight a few of the things that contributed to making this another record year for the company.
For those of you joining us on the webcast I'd like to turn your attention to slide eight. This bar chart shows Santorum's annual gold equivalent ounces sold every year since 2010.
It's encouraging to see I'm very clear growth trend over the last decade.
And up until now Sandstorm has recorded record production every year personally I'm looking forward to think that chart in just a few years when sandstorm is expected to reach 125000 gold equivalent ounces.
In 2024.
I've known mentioned sandstone sold approximately 64000 gold equivalent ounces in 2019, which represents approximately 11% growth over 20 eighteens production numbers.
I'll discuss a few contributing factors to this in a moment, but first I'd like to take you through how this translated into revenue.
[noise] sandstorm realized $89.4 million in revenue for the year end did 29 team.
This is a 22% increase over 2018 and an all time record for the company.
The increase in the price of gold over the course of the year to the amplified these production results.
We saw on average realized gold price of just over $1400 per out.
Which is a significant bump when compared with the last four years.
If the current trend in the gold price continues sandstorm is well positioned to benefit from the stronger gold market.
This is highlight a further on the next slide in the summary table sandstorms year end result.
About halfway down you'll see that sandstorms average cash cost per cube out in 2019 with $286.
Up slightly from 2018, however, with the higher gold price our net margin per attributable gold ounces was $1115 an increase of approximately $125 brown when compared to the previous years.
This increase in operating margin combined with record production resulted in cash flow from operating activities a $57.3 million.
20% increase in castle compared to 2018.
It's certainly nice to see some excitement around the price the gold again and I anticipate that we'll be seeing this trend continue for the next while.
Next.
Let's look at Sandstorm, 2019 production and a little bit more detail and highlight some specific asset.
Production came from 23, producing assets and 29 team.
And you can see the breakout by asset on slide 11.
If you've already familiar with sandstorms portfolio, you may notice significant growth in a few asset.
The most notable change in production wells from your man a silver stream under the stream agreement Sandstorm began receiving silver ounces from your Mad at Cerro Moro mine and the second quarter of 2019.
This is an exciting milestone for the company as it represents the largest stream to come online in the history of sandstorm.
And it nearly 11000 gold equivalent ounces. It was the largest contributor to the production this year.
In 2020, we anticipate even greater number of ounces from Cerro Moro since we'll be receiving ounces for a full four quarters.
Another asset that I'd like to highlight on this list of the orders Ono.
First goal poor was announced at the ore zone of mine in May 2019.
And sandstone began receiving royalty revenue in the third quarter.
Or zone of the past producing mine operated by Equinox gold or the auto was one it sounds from the very first deal back in 2009, and it's encouraging to see this project back online.
The mine is expected to produce over 130 ounces annually over the initial six and a half year mine life.
That sounds royalty on ore zone is on a sliding scale between three and 5%.
Gold prices between 1500 dollar and $2000 per ounce, our royalty is 4% above that they become five.
[noise] with commercial production at or Zona, coinciding with the rise in the gold price. This year. We're excited about this assets contribution to santorum's revenue over the coming years.
One final project that I think it's worth mentioning the fruit till dawn nor team mine.
Around this time last year Sandstorm announced the purchase of a 0.9% NSR royalty on precious metals produced at Lundeen Gold's Fruta del Norte Day project.
And less than a year later, we're starting now to receive our Firth royalty payment from the mine.
Lending gold has announced that expect commercial production to starting the second quarter 2020. So we anticipate more royalty revenue from this project over the coming year.
We often get asked about the geographical diversification of our portfolio of producing assets.
On this next slide we have a chart the breaks down our sales the royalty revenue by jurisdiction.
In 2019, the majority of Sandstorms revenue came from mine located in North America at approximately 47%.
30% of revenue coming from minds right here in Canada.
With the addition of Cerro Moro an ore zone is this your sales and revenue from South America increased to 34%, while the remaining 19% came from other jurisdictions around the world.
[noise] I'd now like to turn our attention to the fourth quarter results.
Slide 13 is a summary of gold equivalent ounces sold total revenue and the average realized gold price for the quarter there's ended.
During Q4 Sandstorm sold just over 16000, a triple gold equivalent ounces, resulting in nearly $24 million in revenue.
This was another strong quarter for sandstorm.
Back to the last three quarters of 2019, where the three backward isn't the history of staff from in terms of gold production and revenue.
The next slide.
It's a summary of the fourth quarter financial results.
As mentioned total revenue for the quarter with $24 million the company sold over 16000 attributable gold equivalent ounces.
This represents a 37% increase in revenue and a 14% increase in ounces sold over the same period in 2018.
Largely due to the new assets that I previously mentioned.
Cash flows from operating activities totaled $15.7 million, a 45% increase from the fourth quarter and 2018.
This was largely due to both an increase announced the sold and the gold price.
From the fourth quarter. It's also worth noting the addition of the 75 million dollar. According feature this adds from 225 million dollar credit facility.
It's uncommitted portion get sandstorm access to up to $300 million.
As Nolan laid out at the beginning of this call. This is facilities. In addition to our expected operating cash flows as well as our debt and equity investment that we can monetize to support our corporate development efforts.
Lastly, as we noted in our press release, we're up listening to the New York Stock Exchange. This February. This is another step on a long list of milestones as we continue our evolution and becoming a world class investment vehicle.
I believe the sandstorms and a strong position as we enter a new decade and as a management team. We're looking forward to continuing growing the company. We're glad to have the support of shareholders like you and appreciate your commitment to sandstorm and with that I'll turn things over to Dave for an asset update.
Great. Thanks upon.
The asset update this quarter will be brief as I touched on exploration some of our larger deals as you. All know it's exploration upside that adds additional free value towards streams and royalties. So we pay a lot of attention as to how it unfolds on projects.
So for first Lundeen company Lundin mining, we're going to speak about Chicago.
We all the copper stream over the entire asset grid is 650 square kilometres area for 2020, a 10 million dollar exploration program is in place, including a 50000 meter drill program. The focus is near mine targets as displayed on this map on slide 16.
You can see their nonres area. So we're looking at.
We're just recently back from site visit and we're just as excited as their team is on the potential that they see there.
Got it continues to examine options a plan to processing expansion I'm sure that the plans for expansion will help determine by exploration success over the next couple of years.
[noise] next we look over to the other lending company lending gold, where Fruta del Norte day has ramped up to commercial status with production of almost 29000 ounces in 2019.
What is really remarkable buffer to del Norte, Adam is that despite having exploration concessions of over 664000 hectares, they've only been 18 holes drilled outside of the food a deposit ever done.
Lundeen has a budget for an extensive exploration and has developed drill ready targets and it's just waiting on permits a primary focus is the suarez pull apart basin, where food is hosted too far north north after extensive mapping geochemistry infant geophysics programs three drill ready targets are ready and.
Vasco went to <unk>, Princess and got test cells baggy.
There is almost a there's an almost 16000 meter probe drill program planned in this area targeting the same epithermal gold silver target that food as known as this major trend that proof as part of it is under is very underexplored. So we expect lending goal to has some great success over the next few years as they continue their work.
And with that I'll pass it over to Omer to begin the Q in a session.
At this time will be conducting a question answer session if you'd like to ask your question. Please press star one and your telephone keypad a confirmation total indicate your line is in the question Q you May Press Star too if you would like to remove your question from the Q4 participant using speaker speaker equipment, and maybe not started to pick up your handset before present Stark is one another please while.
Both questions.
Our first question is from Lauren spanning private Investor. Please proceed with your question.
Morning, gentlemen, thanks for all your hard work and the great results.
So with the expanded credit line.
I know you can't say too much but do you have any.
Sales in the works that we may see close in the next quarter.
Yes. Thanks. Thanks for the question. So we're always working on deals. It's it's a part of what we do and about half of our employees are.
Devoted solely to corporate development. So we are working on a number of things. There's one thing that I've learned over the years, it's that it's almost impossible to predict which deals are going to close in which ones aren't.
So I won't speculate on whether something we'll close next quarter the quarter after that but what I will say is that not only do we have the firepower financially to do more and larger deals than we have in the past and we are looking at a number of them and I do think over the next year or two youre going to see Sandra.
Grow quite a bit.
Thank you can I ask another quick one.
Sure.
I know, it's the board of directors decision decision, but do you think Brad you ended the year, we could see a dividend.
So I'm gonna have to defer to them because I don't know what that final decision will be.
And candidly I'm not quite sure what acquisitions, we're going to make and what our definition is going to be at the end of the year. When we have to make that decision about a potential dividend I.
I would say that if we haven't done a lot of deals.
Paying dividends to me would make a lot of sense.
And so my my vote on that issue would be yes, but there's more information that we just don't know about yet and so that decision they may change.
Great. Thanks, so much.
Our next question from Alfred Correct private Investor. Please proceed with your question.
Hello.
It's highly from Switzerland.
I would like to know what are the conditions I feel quite did lighten speech you always use.
That's the one and the second question is how many number of shale I call them the outstanding.
Yes, so what I would refer people to the TSX for exact numbers of shares outstanding is that number is changing on a weekly basis.
Sometimes or share buybacks were not actively in the share buy backs right now, but it also warrants being exercised.
So I prefer to people to to look at X that numbers is changing.
Dramatically and we have had a bunch of warrant exercises recently in terms of the credit line. There's two parts of it Theres a base part that's $225 million and then there's a 75 million dollar accordion feature what that means is there are no conditions effectively for drawing down. The first 225, we just have to give the banks notice.
And we're entitled to drawn at for any purpose. We can use it for acquisitions, we can either for share buybacks, we can either anything we want.
The other 75 million the banks a pre agreed to allow us to have a 300 million dollar total credit facility, but we would have to get the commitment from other banks, which we would anticipate taking no more than a couple of weeks. So we would have to give the banks a couple of weeks notice to get them to answer yet for the other 75 million.
Does that answer the question I see.
Thank you.
Our next question from Hillary Jack Canaccord Genuity. Please proceed with your question.
Hi, I'm congrats on a great where I just kind of question about.
So I eat aren't in the device.
So 125 June.
2024 from on your previous estimate which was one.
<unk>.
In 2023, and I assume a lot is attributed to not just wondering if you can explain why that was revised.
Yes so.
Towards the end of this year beginning of next year, we're going to have a feasibility study completed on Hudman and then we will update more accurately what we anticipate our long term guidance to be in the meantime, we actually haven't changed our long term guidance. So our policy for the past couple of years is to guide for the current year and then to guide.
For years out. So for example last year, we gave guidance broken we thought 2019 would be and what we thought 2023 would be 2023 was up 240000 ounces.
And 2023 happens to be based on the Prefeasibility study in hot button, a year, where they were mailing higher grade ounces and in that same Prefeasibility study 2024 was going to be slightly lower grade and slightly lower production from hard Martin.
And so we're continuing to keep that policy going forward of guiding the current year I'd be 2020, and then for you. So which is now 2024. So we havent changed our internal models are still saying hundred 40000 ounces in 2023 were just sticking with our our policy of guiding for years.
Okay perfect. Thank you.
As a reminder, if you would like to ask your question. Please press star one under telephone keypad, a confirmation tolling <unk>. Your line is and the question Q you May press Star too if you like to remove your question from the Q4 partisans using speaker equipment, and maybe not sort of pick up your handset before presence turkeys one other piece, while we pull for questions.
My first questions from our next question is from kept the Keane S&P Global market Intelligence. Please proceed with your questions.
Hey, guys. Thanks for taking the questions.
I just wondered if you might give a general commentary on.
Appetite for.
The.
Uptake or financing.
From Switzerland screens and act passed through streams and royalties say versus.
Now a traditional or.
Traditional equity markets just done in a sense of what you're seeing out there. We can the nice pickup in the gold price, obviously, a bit more clients not to be in late 2019, but nothing.
Just a.
Speaking a sense that.
So you're referring to the appetite by other companies a in the industry to use streaming and royalty financing as an alternative to present.
Yeah.
I would say that.
It depends in the market right now, we're seeing a bit of a bifurcation between gold companies in the industry and base metal comes straight. So go prices are higher.
Equity is becoming slightly more available to the average gold company.
And lending capacity of gold companies as a little bit higher ticket hedge at higher prices. When they are doing project development financing. We still are seeing some appetite with if we look at our internal deal pipeline. There are some things in there that our precious metal companies looking for streams and royalties financings, but I would say that that deal flow is lower today than it was a.
A year or two or three years ago, but where we're seeing things change dramatically is base metal companies, which on average are much larger than precious metal companies.
Lets base metal prices are down.
Those based little companies have more stressed balance sheets and so we're seeing some larger companies look at doing.
Our product stream financings on their gold or silver bike products.
And so I would say the total amount.
Deal flow in the collective streaming industries pipeline is probably higher today than it was a year ago, but it's more oriented towards those baseball companies.
Would you say that sense on pad.
[noise] would you say that the base metal market the byproduct market of the place where you guys can play with.
Capital you have available or [noise].
In Q2 big today.
So.
With close to half a billion dollars of capital that we have available to us over the next year, we think that that goes a long way to being able to do some of those larger transactions.
That available capital to us assumes that what we buy does not bring any additional lending capacity, but I can guarantee you. If we are doing a half a billion dollar size stream. It is not going to be one that is several years away from production. It would be something that is in production immediately or the mine is currently being built so it would bring more.
Lending capacity, so we would be able to do technically even larger deals that just those half a billion dollars and size. So.
Sandstorm is very quickly, becoming I think a serious player in those.
Larger potential transactions, having said that they are both transactions are very hard to land and so I'm not saying, we will be able to land one but theoretically if we found what we like and we wanted to do it in the past our diligence and with your bite at the right price, we think we can't when some of those.
Excellent.
We have reached the end of the question answer session. Now, we'll now turn the call back over to Mr. Nolan Watson for closing remarks.
Great. Thank you Omar and thanks, everyone for phoning in today's earnings call I know that there's a lot of earnings call happening out there right now so I appreciate you taking the time and as always if anyone has any further questions over here at the office feel free to call Us and hope everyone has great day.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.