Q1 2020 Earnings Call
[music].
At this time wed 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 some of the commentary may contain forward looking statements.
It can be no assurance to forward looking statements will prove to be accurate.
Actual results of future events could differ materially was anticipated in such statements.
After the speaker's remarks, there will be a question answer session.
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Thank you Mr. Watsi you may begin your conference.
Thank you operator.
Good morning, everyone and thank you for calling into the first quarter earnings call for 2020.
This morning are banner Cfos can 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 then as you know we're going to turn it over to the operator for a question and answer period.
And if anyone have any questions the do not necessarily need to be part of the light Q and eight you can ask those questions through the web portal will ensure that each question. We got there we'll get a direct response from us after this call.
Before handing it over to or kind of went to provide an update on her business and answer some of the common questions on investors have been asking recently.
This time, we're going to be going through a prepare powerpoint presentation of the web portal. So if you're able to please turn your attention there now.
[music] bar to summarize the investor questions I would say that the phone for broad categories.
The first being how its coping 19 affecting our business.
Second being how do we think about capital allocation right now.
Third being how do we view the current macroeconomic environment, and where do we see going and finally, what is our deal pipeline look like.
I'll try to succinctly answer these questions and starting with the first one about how cobot 19 is affecting your business I.
I'm pleased to say that all sales trends employees are safe and healthy had been successfully working entirely remotely over the past couple of months.
I feel blessed to be working with so many high performing people, who are able to work hard from home.
[music] with respect to our asset base most of the mines underlying or streams and royalties are still operating sandstorm still generating substantial free cash flow.
Go 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.
And a few minutes, Dave will provide a more complete update on the status of the various mine.
I will say that cover 19 has made me more housekeeping I heard that our business model is a streaming and royalty business model because a lot of mining companies. The shutdown mines, maybe losing money, we still have material cash flows and expect to be having record cash flow soon.
On a second question about capital allocation.
So let's go with 19 hit the market started the tank and many of you will recall that sandstorm share prices also temporarily negatively affected.
At that time, we began using our normal course issuer bid to buyback the maximum number of shares per day, there were a loud 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 are share prices quickly recover we're refocusing our capital allocation to acquisitions.
I'll talk more about in a minute I.
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.
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 shuffled.
The only reason, we're putting ATM financing program in place was the case, we're trying to complete a large acquisitions 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 shareholder, saying why are you diluting yourself now so I want to say this a third time and say it loud and clear.
Oh, 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 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 book 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 wouldn't necessity the printing of money to devalued currencies in a fleet GDP to make the existing debt levels more manageable to pay off.
Well cover 19 is 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.
Expansion of the Feds balance sheet.
And if you look back at the expansion of its balance sheet in 2008 for the great recession under what the fed cold Q1.
During Q1, the fed increase its balance sheet, you effectively printed new money to the tune of a trillion dollars.
Which was unprecedented at that time.
Then a few years later it completely Q2, which is another one and a half trillion dollars and QB two took approximately one year to complete.
Well now 2020, the fed is launched Healy infinity.
We have created new money equaling Q E. One and queuing two combined and they have pushed all that money if the economy in its entirety all in seven weeks.
This is completely and entirely unprecedented in the history of the world.
Normally quantitative easing like this helps increase GDP and reduce debt debt to GDP levels.
At this time is truly different.
Governments around the world or borrowing more money at record rates to keep their economy to life companies are boring record amounts to keep themselves alive and individuals or bring record amounts just to pay the bills.
You can see on this next slide six.
That's really P is not going down.
Whether it's at record highs and it's still climbing fast.
In the U.S.
He levels are expected to hit 300% later this year, which is entirely unsustainable.
Sitting here in Canada, which is even worse with total touch TDP levels expected to approached 350%.
Which is effectively functional and solvency.
The amount of money printing and currency devaluation that will be required to close out of this mess will be substantial and I believe the real assets like gold will be propelled the record highs and stay there for quite awhile.
Especially because the thing that normally kills the bull market and gold is rising interest rates.
But when debts GDP levels are over 300% in a country you can't raise interest rates without destroying the economy.
The old isn't a massive bull market in sandstorm shareholders are positioned very well the profit from it.
Because of this belief that we have been so keen to buyback her own shares at low prices and.
And it's because of this belief that your team to make material acquisitions in 2020.
Which brings me to the fourth and final topic of questions.
Which is what to transform deal pipeline look like.
I can confidently say that industrywide workstreams are currently in the works compared to anytime 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 streams. They can sell I.
I believe this is just the beginning a base metal 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 and size for a company and we will continue to be active behind the scenes attempting to make us more acquisition for our shareholders.
Overall that was 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.
[noise]. Thank you know one.
Hello, everyone.
Did you joined US today I'd like to start by looking at a summary of sandstones quarterly results.
As you know we made the decision to withdraw our 2020 guidance back in March of two began to see the increasing impact at the cobot 19 pandemic on many mine operators around the world.
Despite this sets on how to 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 2019.
We do expect some delays in deliveries and royalty payments to continue throughout the year. The full affected the pandemic remain to be seen however, we know that sandstone business model designed to weather extraordinary situations like this and we view these delays just that delays not losses.
The next slide to the summary of the first quarter results compared the same period in 2019.
Despite the small decrease in production sandstorm realized $21.3 million in total revenue.
This was primarily driven by the increase in the gold price.
No one has already discussed the uncertainty on the global financial outlook has continued to push the price of both higher as investors seek traditional safe Haven.
Santorum's average realized gold price during the first quarter, what 1500 $93 per house, which is 23% higher when compared to the same period.
A year ago.
Perhaps more importantly, our cash cost per attribute what helps remain modest at $314, resulting in cash operating margins up 1200 $79 per ounce for the quarter.
At the bottom of the slide you'll note that sandstorm 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 non cash impairment charge and the Diavik Diamond mine royalty.
With the adverse diamond market conditions, which had been somewhat exacerbated by the cobot 19 pandemic, we took an impairment on this out that.
It is also worth noting the insolvency of diabetic minority owner Dominion Diamond was announced in April.
However, Rio Tinto the operate a majority owner of diabetic continues to operate the mine and sandstone royalty remains registered on title.
[noise] 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 Americas gold and silver convertible debenture [noise].
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 third Morrow came online in the second quarter last year, and there's been one sandstorm top producing assets each subsequent quarter. Once again, that's a received the Mac.
Some quarterly amount on the stream 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 the number of ounces sold when compared to the first quarter of 2019.
It is worth noting that as of April 3rd the operator first majestic silver has temporarily suspended operations Santa laying it in accordance with guidelines for Mexico's Ministry of health to mitigate the spread of Cobot 19. So we expect the delay in ounces that will impact the second quarter production figures.
Other notable changes in the production line up include the decrease and help with both from Bachelor Lake stream, which concluded its fixed out delivery in the fourth quarter 2019, as part of the stream agreement.
I had sort of interest to since converted to 3.9 NSR royalty on the property consistent with the agreement.
There was also reduction announces delivered from the Karma mind, 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 from Arizona. This is the third quarter to add some hasn't seen proceeds from the orders, though in a mine after reached commercial production last year.
Or is that when it is a good example of 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 browser, which resulted in a 4% royalty payments more though.
This will increase the 5% when gold prices averaged about $2000 per out, 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.
It's 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 from the box talk mine, Ontario.
[noise] operations within the rest of North America contributed another 19% this quarter, which at 66.
The increase in sales and revenue compared to the first quarter in 2019.
Largely driven by an increase in ounces sold from both the Santa Elena and San Andreas minds.
Or zona Cerro Moro inputs del Norte to help to drive a 144% increase and ounces sold from operation in South America compared to the previous year.
Operations in South America Rep represented half a cent from sales and revenues for the first quarter.
Meanwhile, the delayed delivery from the Karma might resulted in the 47% decrease in ounces sold from other countries compared to same period in 2019.
That's from continues to hold the geographically diverse portfolio with the majority of sale 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 this puts that somebody a debt free cash positive position.
I believe this will sell.
Serve sandstorm shareholders well as 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 assets Dave.
Great. Thanks Stefan.
For the corporate development update this quarter offer speak on how the Cobot 19 health crisis has affected significant material assets in our portfolio.
I'll also provide a bit of an update on some specific assets in the portfolio and of course, please feel free to ask us in the QNX session.
Any questions might have in the projects are much.
Slide 13 will show how each of our producing assets have been affected by various shutdown some slowdowns at the mine level.
As you can see most of the assets in a portfolio of had little or no impact to production from the reaction to the global pandemic.
Of course universally all the operators have had to adopt 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 money 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 next scope to back in Ecuador remote notable jurisdictions, where mining operations were deemed non essential and shutdown.
Of those only Qubec has seen the projects get up and going again, Bracemac Mcleod and triangles on worse shutdown, but are now operating again.
Some of the Ontario assets shut down 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 worse I want to Japan, I have not had any slowdowns operation, but we are looking closely at how the cobot 19 situation changes in Brazil, One day and car might have not had slowed down issues either.
Cerro Moro is one of our more important shoot 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.
Santa Elena like most Mexican assets is currently expected to continue operating again at the end of this month. However, we'll need to get guidance from first majestic as whether that will happen at the time in Ecuador, Fruta del Norte. There has been put into temporary shutdown with less guidance for startup indicated fluid. It was just.
Turning to ramp up so it's too bad that the project had to take a break from mundane. However, it looks like they are working well with authorities and 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 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 much our biggest growth profile project. This project continues to proceed down the path the feasibility in permitting the studies continue but some of the field work critical to completing the feasibility study has shut down due to the health crisis. There is no.
Timeline, yet as to when that worked resumes so the best estimate for completion of the feasibility study using 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 or not out of the question, Yes, and we are hopeful that Hama, Dan gets up and running for the beginning of 2023, despite the delays related to covert nine.
Teen.
Relief Canyon.
Like many nevadan lines has been able to adapt well and quickly through the pandemic.
Big CT gold in February this year, and they continue to stack, the heap leach pads and ramp up production.
As many hot heap Leach operations experience, a few problems and delays have occurred through the start up and Pat stacking I spent time every week speaking when management about improvements and I'm comfortable that the project is on its way to commercial production and full ramp up despite a little Blaine seen 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 given that project up and going in these challenging times.
Now before I get to the Q and I also want to to mentioned that Aquinox gold released a P.A. on the ore zone 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 or to over 200000 ounces per year at its peak.
We're certainly glad that the cable management equinox is 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 well then I'm going to pass over the call back to Chris the operator for the Q.
Thank you.
Thank you.
And as a reminder, if you'd like to ask a question. Please press Star then one on your telephone and withdraw your question press the pound or hash key.
Please stand by while we compiled acuity roster.
Our first question is from Mark Johnson with optimum investment Advisors. Your line is open.
Hi, Good morning, guys. Congrats on a good core despite everything.
Just a question for you guys.
Regarding the ramp up in closed out of mines.
You just described.
Disruption the cost.
Just kind of give a better flavor for how seamless to ramp up could be or how difficult that might be.
The cost incurred.
The financial status of the partners that you're working whether they're able to finance the shortfalls things like that.
Thank you.
Yes from a high level perspective, so obviously sandstorm doesn't have to incur any of those costs and in terms of our partners. The.
All of the partners, where there's really only two main material partners that up mine still shutdown and that's lending gold on posted 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'll have to go into the assets, but 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 on 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 the month after they sell their goals.
We kind of a month, where they're ramping up.
And it will be the following months that we get those answers to there'll be a bit of a leg on sandstorms 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.
Yeah, 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 be shelf prospectus up before we could make the ATM program, an amendment to that and so.
We just we got the paperwork done we got the syndicate lined up and 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 as a company presentation, 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.
Were 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.
Decline on the balance sheet.
Through the income statement.
About 10 million of it was the hogmanay, Chris maybe that was due to the Turkish lira collapsing.
And there were other drops and mineral interests.
Investments.
<unk>.
Yeah, John how happy to take it a high level through feel pretty unique on specific details.
But as you pointed out.
The large driver of the decrease in the balance sheet was related to the hot modern interest and that's purely a counting.
So what happens is that interest is held in an entity in Turkey, and so it's a functional currency by counting standard is the Turkish lira.
Each reporting period, because we're a us.
Functional currency company gets valued up and down depending on how the Turkish lira appreciates or depreciates against the U.S. dollar so in some other quarters. The depreciate. It this quarter depreciated, so that difference and it's about.
$16 million doesn't go through the income statement. It go through other comprehensive income and so that's 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, but on the income statement.
Okay second question.
Concerning the amount of time it takes.
To build hot model and watch the permits are granted.
Feasibilities done funding is changed.
Is it roughly 24 months.
What are the big building blocks for example, or the initial sounds outcropping open pit was no stripping.
Uh huh.
When would the underground zones start.
It's just walk us through the nuts and bolts.
So we know how close we are trying to get the early 2023 output.
Yes so.
Hi, Dan as as we all know is underground going to be an underground only mine at this point to be honest, it's a fairly simple mine to build.
Getting through the feasibility in permitting like I stated amount, we expect both of those items right now around Q4 this year to beach.
Some of I think and when you actually get into the full build at the 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 some kind of functional.
Level.
The real items that they're looking to get done early is perhaps get exploration portal started on the project.
Thats one of the things that will help.
Keep the project on track I think.
And then also need to do some infrastructure built in and around where the mill will be those are our fundamental parts 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 that right now is making sure that gets do it once the 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, but 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.
Initial exploration portal gets put in place for the project that'll that'll give us.
A much more certain timeframe as to when we expect the production to begin.
The production be from a ramp and not a shaft.
It will be around 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 up there.
And.
Our Turks partners are good at that type of infrastructure built that they've had a lot of experience doing it. So we're confident that.
The right way to proceed.
Hi, guys get final question.
Patient explanations.
Currently it was travel restrictions.
Very hard to do due diligence transactions.
Presumably the very big.
1 billion dollar transactions.
And Franco Nevada, we precious metals class.
They can find an expert who knows the property already and doesn't need a site visit.
But in the.
[noise] 10, 2030, 5000 million dollar clash some of those expenses and logistics harder to get through.
Are you finding the market is less efficient and there's more finding opportunities now because of the challenges.
The virus imposes on.
Getting anything done.
Yes cover 19 has 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 month 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 like because it done whether it be buying a remote I pads and virtual tours and whatnot, but still talking to the technical people at the mine.
So one of the things that we have right down Thats an advantage to us that'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 mines.
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 and world starving for for income how are you currently thinking about.
For dividends.
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 but yes, I think over 19 may have delayed to that but it does not stop that so what we said to our investors in the past we are going to become a dividend paying company, we're going to do it sooner rather than later and right now we're just trying to assess the exact right timing.
All right. Thank you.
The 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.
Yes.
Yes, we are I've.
And Chief Financial Officer, multibillion dollar companies before and I.
Erfan has and I together are well acquainted with how to deal with any foreign currencies.
We have so thank you.
Is that the kind of thing where.
There's there's inherent risk 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 were 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.
Were evenly 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.
That's that's pretty clean line when it comes in in US dollars. It goes out in us dollars stays in the us dollars and our bank account.
Thank you.
Thank you.
We have no further questions at this time I'll 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.
[music].