Q1 2020 Earnings Call
[music].
At this time I'd like to welcome everyone to the Sandstorm gold royalties first quarter results conference call.
All lines have been placed on mute to prevent any background noise.
Please be aware that somebody commentary may contain forward looking statements.
It can be no assurance that forward looking statements will prove to be accurate. It's actual results a future events could differ materially was anticipated in such statements.
After the speaker's remarks, there will be a question and answer session.
If you like to ask a question. During this time so be press Star then one on your telephone keypad and if you'd like to withdraw your question. Please press the pound Keith.
Thank you Mr. Watson, let me begin your conference.
Thank you operator.
Good morning, everyone and thank you for calling into the first quarter earnings call for 2020 [noise].
This morning are banner CFO, it's going to walk us through the Q1 results and Dave Warren will provide an update on the status of our material assets.
In the context of the Cobot 19 world and as usual, we're going to turn it over to the operator for a question and answer period.
And if anyone have any questions that do not necessarily need to be part of the like you anyway. You can ask those questions through the web portal will ensure that each question. We get there we'll get a direct response from us after this call.
Before handing it over to ERC and I want to provide an update on her business and answer some of the common questions that are investors have been asking recently.
This time, we're going to be going through it prepare powerpoint presentation of the web portal. So if you're able to please turn your attention there now.
Fair to summarize the investor questions I would say that the phone for broad categories.
The first being how was coping 19 affecting our business.
Second being how do we think about capital allocation right now.
The third being how do we view the current macroeconomic environment, and where do we see goals going.
And finally, what is our deal pipeline look like.
I'll try to specifically answer these questions and starting with the first one about how koby 19 is affecting our business.
I'm pleased to say that all sandstorms employees are safe and healthy had been successfully working entirely remotely over the past couple of months I.
I feel blessed to be working with so many high performing people, who were able to work harder from home.
With respect to our asset base most of the mines underlying or streams and royalties are still operating so sandstorm is still generating substantial free cash flow with gold prices being so strong I expect once all the assets are back up and running we will realize significant revenue and cash flow records, which I'm personally excited for.
In few minutes, Dave will provide a more complete update on the status of various mines I will say that cover 19 has made me more happy that I heard that our business model is a streaming and royalty business model because of other mining companies. The shutdown minds, maybe losing money, we still have material cash flows and expect to be having record cash flow soon.
[noise] and second question about capital allocation.
I see this code 19 hit the market started to tank and many of you will recall that sandstorm share price was also temporarily negatively affected.
At that time, we began using our normal course issuer bid to buyback the maximum number of shares per day that were allowed and in total we repurchased 4.6 million shares at an average price of $5.12, which we believe was an exceptional allocation of capital and now we're already up over 60% on the share purchases.
Now that a share prices quickly recover we're refocusing our capital allocation to acquisitions, which I'll talk more about in a minute.
I think as part of this discussion it's also worth noting that yesterday, we announced that we're putting in place an ATM financing program.
And I would like to make it abundantly clear. The currently we have absolutely no plans on issuing shares which is why we've been working hard to shrink our share flowed.
The only reason, we're putting ATM financing program in place was in case, we are trying to complete a large acquisition and we required the capital to ensure that we were not overlevered.
So I want to reiterate this does not mean that we've changed our thinking at all and we will not be using the ATM program unless it is needed in conjunction with an acquisition.
This is a really important point for investors to understand I.
I have already seen newsletter writers and comments from shareholders, saying why are you diluting yourself now so I want to say this a third time and say a loud and clear so that absolutely no one could possibly misunderstand, we do not plan on using this ATM unless it is in conjunction with a very large transaction.
The probability that we're about to just go randomly and issuing new shares simply because their share prices going up is zero that is eight and zero percent chance.
The third category of questions, which relate to the macroeconomic backdrop and expectations for gold prices a topic that I could talk about for hours I'm incredibly passionate about it but I'll try to be concise.
Basically I'm very bullish on goals for the next few years I've been saying for quite some time that the world has way too much debt relative to GDP and that it would necessitate the printing of money to devalued currencies in a fleet GDP to make the existing debt levels more manageable to pay off.
Well go over 19 has definitely caused those world that problems to hit home.
And now record amounts of quantitative easing and currency devaluation or taking place.
You can see from this chart the expansion of the Feds balance sheet.
And if you look back at the expansion of its balance sheet in 2008 from the great recession under what the fed called Q1.
During Q1, the fed increase its balance sheet effectively printed new money to the tune of a trillion dollars.
Which was unprecedented at that time.
Then a few years later it completed QB, two which is another one and a half trillion dollars in QB two took approximately one year to complete.
Well now in 2020, the fed is launched Keeley infinity.
And have created new money equaling Q E. One and queuing two combined and they have pushed all that money into the economy in its entirety Olin seven weeks.
This is completely and entirely unprecedented in the history of the world.
And normally quantitative easing like that helps increase GDP and reduce debt debt to GDP levels.
But this time is truly different.
Governments around the world, our borrowing more money at record rates to keep their economies alive.
Things are boring record amounts to keep themselves alive and individuals reporting record amounts just to pay the bills.
You can see on this next slide six the debt to GDP is not going down.
Rather it's at record highs and is still climbing fast.
In the U.S. total debt to GDP levels are expected to hit 300% later this year, which is entirely unsustainable.
I'm sitting here in Canada, which is even worse with total to TDP levels expected to approached 350%.
Which is effectively functional insolvency.
Amount of money printing and currency devaluation that will be required to close out of this mess will be substantial and I believe that real assets like gold will be propelled a record highs and stay there for quite awhile, especially because the thing that normally kills the bull market and gold is rising interest rates.
When debts GDP levels are over 300% in a country you can't raise interest rates without destroying the economy.
Gold isn't a massive bull market and sandstorm shareholders are positioned very well the profit from it.
Is because of this belief that we've been so keen to buyback our own shares at low prices.
And it's because of this belief that we're keen to make material acquisitions in 2020.
Which brings me to the fourth and final topic of questions.
Which is what to sandstorms deal pipeline look like.
I can confidently say that industry wide more streams are currently in the works compared to anytime in the last five years, there billions of dollars worth the stream processes that are currently being run virtually all of them because base metal companies need capital and they have precious metal byproduct stream they can sell I.
I believe this is just the beginning of based rental companies coming to market to get capital and I believe this trend will continue for a while although there are no guarantees sandstorm is actively pursuing a number of different transactions any one of which would be a record size for a company and we will continue to be active behind the scenes attempting to make us more acquisition for our shareholders.
Overall now is a great time to be in the goal business and especially the streaming and royalty gold business and expect it will be good times for several years ahead.
With that I'll hand, it over to urban.
Thank you Nolan.
Hello, everyone.
I'm glad you joined US today I'd like to start by looking at a summary of sandstones quarterly results.
And you know we made the decision to withdraw our 2020 guidance back in March as we began to see the increasing impact of the cobot 19 pandemic on many mine operators around the world. Despite this Samsung had a solid quarter production, having sold 13393 gold equivalent ounces.
This represents a 17% decrease from the previous quarter, an approximately 5% decrease from the first quarter 29 team.
We do expect some delays and deliveries and royalty payments to continue throughout the year as the full affected the pandemic remains to be seen.
However, we know that sandstone business model designed to weather extraordinary situations like this and we view these delays just that delayed not losses.
The next slide to the summary of the first quarter results compared to the same period in 2019.
Despite the small decrease in production that's on realized $21.3 million in total revenue.
This was primarily driven by the increase in the gold price.
There's no one has already discussed the uncertainty of the global financial outlook has continued to push the price of gold higher as investors seek traditional safe Haven.
To answer on the average realized gold price during the first quarter was 1500 $93 per house, which is 23% higher when compared to the same period.
A year ago.
More importantly, our cash cost per attributable held remain modest at $314.
Resulting in cash operating margin up 1200 $79 per ounce for the quarter.
At the bottom of the slide you'll note that sansom had a net loss of $10.3 million than the first quarter.
This was primarily due to certain items that were recognized during the quarter, including a noncash impairment charge from the Diavik Diamond mine royalty.
With the adverse diamond market condition, which has been somewhat exacerbated by the coded 19 pandemic, we took an impairment on this asset.
It is also worth noting the insolvency of diabetic minority owner Dominion Diamond was announced in April.
However, Rio Tinto, the operator majority owner of die of it continues to operate the mine in sandstorms royalty remains registered on title.
Other factors impacting net income include a 5.9 million dollar loss recognized on the revaluation of become these investments.
Particularly a change in fair value of the emeritus gold and silver convertible debenture.
On the next slide we have our production broken out by.
Producing assets.
The amount of silver stream, which includes the Cerro Moro Silver mine continues to be our production leader you may recall that deliveries from Cerro Moro came online in the second quarter last year and has been one offense from top producing assets. Each subsequent quarter. Once again sandstorm received the Mac.
Some quarterly amount on the streaming agreement of 300000 silver ounces in the first quarter of this year.
Santa Elena was the second largest contributor at 2161 gold equivalent ounces.
34% increase and the number of ounces sold when compared to the first quarter of 29 team.
It is worth noting that as of April 3rd the operator first Majestic silver has temporarily suspended operations Santa Elena in accordance with guidelines for Mexico's Ministry of health to mitigate the spread of Cobot 19. So we expect the delayed in ounces that will impact the second quarter production figures.
Other notable changes in the production lineup includes the decrease in health with both the latter Lake stream, which concluded its six ounce delivery in the fourth quarter 2019 as per the streaming agreement.
Sandstorms interest that since converted to 3.9 NSR royalty on the property consistent with the agreement.
There was also a reduction in else's delivered from the Karma mine when compared to the first quarter 2019.
Which was due to timing delay of the March delivery.
Finally, I think it's worth mentioning the production flora, though no. This is the third quarter Sandstorm has receive royalties from the order billing to mine after reached commercial production last year.
Brazil and it is a good example, the optionality built into sandstones portfolio. Our royalty is a sliding scale between three and 5% depending on the gold price.
In the fourth quarter 2020 gold price of the average above $1500 barrel, which resulted in the 4% royalty payments from ortho now.
This will increase the 5% when gold prices averaged about $2000 per hour.
Which we may not have to wait long for given the global financial outlook.
The next slide summarizes the first quarter sales the royalty revenue by region.
Streams and royalties on Canadian mine contributed 16% of sales revenues in the first quarter.
This 62% fewer gold equivalent ounces to sandstorm when compared to the first quarter of 2019.
The changes primarily due to decrease in production from Diavik and the Bachelor Lake Mine.
The decrease was partially offset by an increase in gold equivalent ounces sold in the box offline, Ontario.
Operations within the rest of North America contributed another 19% this quarter, which had 66% increase in sales and revenue compared to the first quarter in 2019.
Largely driven by an increase in ounces sold through both defense Atlanta in San Andreas mines.
Or zona, Cerro Moro and foods del Norte to help to drive a 144% increase announced with both from operation in South America compared to the previous year.
Operations in South America Rep represented half of fans from sales and revenues for the fourth quarter.
Meanwhile, the delayed delivery from the Karma mine resulted in the 47% decrease in ounces sold from other countries in compared to same period in 2019.
That is home continues to hold the geographically diverse portfolio with the majority of sales the royalty revenue coming from the Americas.
Overall I'm encouraged to see the strength of sandstones financial position subsequent to quarter end. The company completed the early warrant exercise program that was announced earlier this year with proceeds of over $50 million.
This is puts they have permanent debt free cash positive position.
I believe this will self serve sandstorm shareholders wells, we enter a market that is full of opportunities for new acquisitions and transactions.
Now I'd like to turn over to Dave for comments on some sense of the asset Dave.
Great. Thanks.
For the corporate development update this quarter offers speak on how the Covidien 19 health crisis has affected significant material assets in our portfolio.
Ill also provide a bit of an update on specific assets in the portfolio and of course, please feel free to ask us and the Kunaev session of any questions you might have in the projects are mines.
On slide 13 will show how each of our producing assets have been affected by various shutdowns and slowdowns at the mine level.
As you can see most of the assets in our portfolio had little or no impact to production from the reaction to the global pandemic.
Of course universally all the operators have had to adapt to the new working conditions and they've been up to the task wondering aspects and never fails to impress me with the industry is how resourceful and adapt to the mining partners are making changes they need in order to remain operating in a safe and successful manner.
Also on the slide you'll see a section of resuming the operations Mexico to back in Ecuador remote notable jurisdictions, where mining operations were deemed non essential in shutdown of those only qubec has seen the projects get up and going again, Bracemac Mcleod and triangles on were shut down but are now off.
Operating again.
Some of the Ontario assets shutdown on a voluntary basis, but as we've seen most of those mining projects have restarted in some form.
Moving to slide 14, you see a categorization of our more material producing assets, so far or zone on Japan, I have not had any slowdowns for operation, but we are looking closely at how the cobot 19 situation changes in Brazil, One day, and Karma have not had slowed down issues either.
Cerro Moro is one of our more important ashu assets and while it did reduce operations temporarily it's now back up to full productions.
Really this significant assets that are still shutdown, our Santa Atlanta, and Fruta del Norte day sense Atlanta like most Mexican assets is currently expected continue operating again at the end of this month. However, we'll need to get guidance from first majestic as to whether that will happen at the time.
In Ecuador prudent done more to has been put into temporary shutdown with less guidance for startup indicated through the was just beginning to ramp up so it's too bad debt to project had to take a break from mining. However, it looks like they are working well with authorities in helping address the health crisis in local area and are in a good position to get back to.
Business when they get the all clear.
Once we find out about either the these two projects will let everybody know.
Overall, our portfolio portfolio looks fairly secure with regards to potential future lockdowns. If they are to occur considering this lot of current lock down took most of our partners bump mostly by surprise, we expect most operators to be much better prepared if the health crisis extends into further locked down.
Yes.
So for the first update I'll briefly speak about how MME our biggest growth profile project. This project continues to proceed down the path feasibility and permitting the studies continue but some of the field work critical to completing the feasibility study has shutdown due to the health crisis. There is no.
Timeline, yet as to when that work resumes. So the best estimate for completion of the feasibility study is in Q4 this year.
However, our partner on the project continues to proceed with the studies permitting and land acquisition strategy, which are critical pass. Some early works begin beginning in 2020 are not out of the question. Yes. When we are hopeful at Hama, Dan gets up and running for the beginning of 2023, despite the delays related to covert nine.
Team.
Relief Canyon.
Like many nevadan mines has been able to adapt well and quickly through the pandemic.
Big poured gold in February this year and they continue to stack the heap leach pads and ramp up production.
As many heap leach operations experience a few problems and delays have occurred through the startup and pads stacking I've spent time every week speaking with management about improvements and I'm comfortable that the project is honest way to commercial production and full ramp up despite a little delaying seeing the gold come out we have received the first payments on the fee.
Fixed amount just two days ago, well done to America's gold and silver getting their projects up and going in these challenging times.
Now before I get to the Q and I also wanted to mention that Aquinox gold released a PE a on the orange down a underground expansion.
Study revealed good economics on that underground portion illustrating up greater than eight year mine life.
With more than 80000 ounces per year, taking the total production at ore zone on to over 200000 ounces per year at its peak.
We're certainly glad that the cable management equity DOCSIS finally, getting this deposit operating properly. So we can reach its full potential that we saw since first being involved in this project 11 years ago.
So with that I'm going to pass over the call back to Chris the operator for the Q.
Thank you.
Thank you.
As a reminder, if you'd like to ask your question. Please press Star then one on your telephone and to withdraw your question press the pound or hash key.
And by while we've compiled acuity roster.
Our first question is from Mark Johnson with optimum investment Advisors. Your line is open.
Hey, good morning, guys congrats on a good quarter despite everything.
Just a question for you guys.
Regarding the ramp up and closed out of mines.
Can you just described.
Disruption the cost.
Just kind of give a better flavor for how seamless to ramp up could be or how difficult it might be.
The cost incurred.
The financial status of the partners that you're working whether they're able to to finance the shortfall seems like that.
Thank you.
Yes from a high level perspective, so obviously sandstrom doesn't have to incur any of those costs and on and in terms of our partners. The.
All of the partners, where there's really only two main the material partners that up mines still shutdown and Thats lending gold on for today on our day, which is in a good financial position.
And first majestic on Santa Elena and they're in a decent financial position to be able to start those backup. So they will have some re startup costs with some working capital that will have to go into the assets that they do have that access to that capital.
And because the mines are being kept on an active.
Care and maintenance, where they're just ready to flip the switch back line I believe they will ramp up very quickly what I would say is it's important to note, though that there is a delay from the time that they ramp back up to the time that we get paid we usually get paid for the month after they sell their goals, so there'd be kind of a month, where they're ramping up.
And it will be the following months that we get those ounces therell be a bit of a leg on sands turns earnings.
Okay.
No. One can you just talked a little bit more on the timing of the ATM what drove you to do it now obviously, there's a lot of activity out there.
Just a little bit more color on why you did it now is there anything in particular that from a timing perspective, maybe you want to do it.
Yes, it's something that we've been talking about for the last couple of years and.
We've been been working on it we were going to do it kind of late last year early this year, but realize we needed to get a new based shelf prospectus up before we could make the ATM program and amendment to that and so.
We just we got the paperwork done we got the syndicate lined up but it just happened to be now there is nothing special about this timing it could have been last year, we kind of waiting till next year.
Theres nothing special about the timing.
Okay. Thank you.
The next question is from John Tumazos with John Tumazos is very independent research. Your line is open.
Thank you for your service so the combination presentations, taking my questions.
First question is sort of an accounting technical mechanical question.
Your mineral interests Hogmanay trust and investment accounts during the quarter.
On the balance sheet fell by about 45 million.
For the two items taken through the income statement were 14.8.
Plus another eight plus of depletion was 23 million.
Could you walk us through the roughly 22 million.
Decline on the balance sheet to go through the income statement.
About 10 million of it was the hogmanay nitrous, maybe that was due to the Turkish lira collapsing.
And there were other drops and mineral interests.
Investments.
<unk>.
Yes, John happy to take it high level through it and feel pretty unique call on specific details, but as you pointed out.
The a large driver of the decrease in the balance sheet was related to the hot modern interest and that's purely counting.
So what happens with that interest was held in an entity in Turkey and so.
Functional currency by accounting standard is the Turkish lira.
Each reporting period, because we're a USA.
Functional currency company get value up and down depending on how the Turkish lira appreciates or depreciates against the U.S. dollar. So in some other quarters that appreciate it this quarter depreciated until that different and it's about.
$16 million doesn't go through the income statement. It go through other comprehensive income and so thats. The statement. After your income statement. So you'll see that flow through there that will account for the the largest difference that you're seeing.
Reflect on the balance sheet been on income statement.
Okay second question.
Concerning the amount of time it takes.
To build hot model and watch the permits are granted.
Feasibilities.
Funding is changed.
Is it roughly 24 months.
What are the big building blocks for example, or the initial sounds.
Cropping open pit was no stripping.
Oh.
When would the underground zones start.
Just walk us through the nuts and bolts.
So we know how close we are trying to get the early 2023 output.
Yes so.
Hum and Dan as as we all know always underground going to be an underground only mine at this point.
The honest, it's a fairly simple mine to build.
Getting through the feasibility in permitting like I stated around we expect both of those items.
Right now around Q4 of this year to two beach.
Some of I think it and when you actually get into the full build up a mill and the development of the underground.
That all really kind of takes a little bit over a year to complete.
At least to be as some kind of functional.
Level.
The real items that they're looking to get done early is perhaps get it exploration portal started on the project.
Thats one of the things that will help.
Keep the project on track I think.
And then also though need to do some infrastructure built in and around where the mill will be those are our fundamental parts and critical points really kind of getting this forward.
To be honest I think our partner is is feeling that getting through permitting the land acquisition is some of the critical path items. So that's way of lot of their focus has been at right now is making sure that gets do it once the infrastructure is mostly in place and the actual construction of the mill.
Ill and you get into the development underground development work.
That's a relatively quick process, because it's not a big mine in the end.
And there is nothing overly complicated about what's really getting built into there.
But we'll have a much better idea once those infrastructure items are in place and we get a good idea as to when the the initial exploration portal gets put in place for the project that'll that'll give us.
He is much more certain timeframe as to when we expect the.
The production to begin with a production be from a ramp and not a shaft.
It'll be a ramp yeah, I mean, the ore body really at this point extends only to about 400 meters at Max 400 meters underground.
So it should be relatively easy simple to get a ramp from there.
And.
Our Turks partners or are good at that type of infrastructure build that they've had a lot of experienced doing it. So we're confident that that's the right way to proceed.
Hi, guys. Good final question. Thank you for your patient explanations.
Currently was travel restrictions.
It's very hard to do due diligence on transactions.
Presumably the very big half billion billion dollar transactions.
And Franco Nevada, we precious metals class.
They can find an expert who knows the property already.
Neither site visit.
But in the.
[noise] 10, 2030 5000 million dollar clash some of those expenses logistics are a little harder to get through.
Are you finding the market is less of fish.
And there's more hunting opportunities now because of the challenges.
The virus imposes on.
Getting anything done.
Yeah I cover 19 is definitely made the market less efficient and as you pointed out partly because.
Of the challenges associated with doing due diligence if I look at how we do due diligence at sandstorm. This site visit maybe three days at the due diligence.
There will be month in months of desktop work, sometimes we can still do all of that desktop desktop work now that doesn't hold us back and we have to be a creative as to how we actually get that that's safe has had done whether it be buying a remote I pads and virtual tours and whatnot, but still talking to the technical people at them.
I'd say one of the things that we have right now that's an advantage to us it's made that less of an issue is that the larger streams and royalties that we're looking at at the moment are all operating line.
So we don't have to do too much work on whether or not the plants going to work because it's already working.
So that's made it a bit easier.
Thank you very much.
The next question is from Wally Walker with had a road capital your line is open.
Thank you good morning, Thanks for taking my question.
And away from a very successful stock repurchase and ER and world starving for for income how are you currently thinking about.
Patrick for dividends.
Okay.
Yes, it's something that we've been thinking about for a long period of time now if you would have asked me in January whether we'd be declaring a dividend by the end of the year I would have bad yes, I think over 19 may have delayed to that but it has not stopped it. So what we said to our investors in the past we are going to become a dividend paying company and we're going to do it sooner rather than.
Later and right now, we're just trying to assess the exact right timing.
Okay alright, thank you.
Your next question is from Laurence steady a private investor Your line is open.
Good morning, gentlemen, thanks for all your hard work and diligence.
I sent an email couple of days ago about a new article on the importance of a dollar swap line.
I tried to send it to knowns email are you guys familiar with a dollar swap wants.
Yeah.
Yes, we are I've.
In Chief Financial Officer, multibillion dollar companies before and I.
That erfan has and I together are well acquainted with how to deal with any foreign currency needs.
We have so thank you.
Is that the kind of thing where.
There's there's inherent risks and investing in foreign operations.
And you just can't worry about stuff that may not never happened is it that kind of thing.
No. We don't have any challenges because we're a U.S. dollar functional currency company, because we get paid in us dollars.
All gold is transacted around the world.
At least by the majority of companies in Us dollars.
We're even the U.S. dollar functional currency for paying taxes in Canada.
So we're just our whole businesses us dollars, except for the people salaries up here in Canada. So.
So that's pretty clean line the money comes in in US dollars goes out in us dollars stays in the us dollars interbank count.
Thank you [noise].
Thank you.
We have no further questions at this time will turn the call back to the presenters for any closing remarks.
Great well, thanks, again, everyone for calling in and as usual feel free to call us at the office here. If you have any questions. We are all in the office today. So I hope everyone has a great day.
Ladies and gentlemen. This concludes today's conference call you may now disconnect. Thank you.
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