Q2 2020 Sandstorm Gold Ltd Earnings Call
[music].
At this time I would like to welcome everyone to the Sandstorm gold royalties second quarter 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 statement.
There can be no assurance that forward looking statements will prove to be accurate as actual results and put your future events could differ materially from those anticipated in such statements.
After the speaker's remarks, there will be a question answer session.
If you would like to ask a question. During this time simply press Star then the number one under telephone keypad.
If he would like to withdraw your question. Please use the pound he.
I would now let's turn the call over to Mr. Watson. Please begin.
Well, thank you Amy.
Good morning, everyone and thanks for calling into the second quarter earnings call for 2020.
This morning, Erfan, our CFO is going to walk us through the Q2 results Monday warm is going to provide a brief update of our asset base and then as usual, we'll turn it over to the operator, Amy for question and answer period, and if anyone has any questions that do not necessarily need to be part of life acuity you can ask those questions through the web portal.
And what's your that each question, we get there we'll get a direct response from us after this call.
Before I hand, it over to Erfan I want to provide an update on how our business has been impacted by coping 19, as well as answer some questions of investors about or deal pipeline pod model as well as my expectation for where the market is going.
At this time will be going through prepared Powerpoint presentation on the web portal. So if you're able to please turn your attention there now.
So starting with an update about her business was affected by cobot.
You can see on that slide.
Each of the producing assets in our portfolio that were affected by cobot related shut downs.
Nearly half of our producing assets were affected somewhere for short periods of others involved total shutdowns for most of the court.
Perhaps the most material impacts came from Santa Elena purchase they'll nortel, which were shut down for most of the quarter.
This is one of the reasons I loved being a royalty company because despite this we still had $13.4 million and operating cash flow before working capital adjustments, which is a testament to the robustness ever business.
[music] because of cobot, we pulled our production guidance for 2020, however, I would like to provide a bit of clarification as to how these mine shutdowns may also affect our Q3 numbers, it's worth noting that all of these mines are currently back up and running.
Which means for Q3, we'll be able to accrue revenue for the full quarter for each of our royalties. However for our streams, we do not recognize the sales until Weve actually received the gold from or Counterparties and Im actually sold it.
In most cases were delivered gold in the month following the actual production. However in the case with Cerro Moro were delivered silver once per quarter, only meaning that our Q3 ounces from Cerro Moro reflect what was actually produced in Q2 and the Cerro Moro operated at reduced rates in Q2 investors can expect for Q3 sales to be affected by coal.
Even though all mines are back up and running now.
The good news is that we expect to be back to record revenue and potentially record cash flow by Q4.
Moving onto a general corporate update I'll start with the current status of our deal pipeline.
Last quarter as the world felt like it was falling apart our deal pipeline became as whole than it ever been the majority of opportunities were from base metal companies that had gold or silver byproduct streams to so.
We're still working on a few of those potential transactions. However at the central bankers have stepped in and started printing money at a record setting pace based metal prices have rebounded in a number of based rental companies no longer require selling streamed therefore, a deal pipeline has been noted that.
Having said that with gold at record levels of the strong balance sheet, we're continuing to build the war chest of capital to prepare for next leg of growth.
As far as well capitalized to continue growing and her team is still working hard to find the next leg of growth.
Investors have also been asking questions about the status of Hogmanay. This will provide a quick status update.
Good morning feasibility study is moving quickly and the goal of having the results by the end of this year is still looking like an achievable goal.
Once the feasibility is complete will provide an update a timeline for its expected startup. However, it is worth noting that due to coated there have been some delays that will impact when the mine starts up and in addition, there some long lead items being identified in the feasibility study that may cause the official start date to be pushed back a bit further so it's possible that the start date, we'll get pushed into 2023.
But we'll provide much more detailed information once the feasibility study work is completed and has been announced.
Having said that we're very pleased with a partner Lydia made in silicon, how expeditiously, they're pushing out support including having already started some of the Earth works for the road from site nearby Highway. It's a very clear that aircraft striking this asset towards production.
That's kept me, particularly excited because when this asset comes online I personally expect gold prices to be even higher than where they are today, which leads me into the final topic, we're actually the market going it's clear to me the amount of debt in the world combined with the amount of damage Cobot has done and continues to do to the world economy, but the only way out of this debt trap as for central.
Anchors to continue printing money unless devalued the money to make it debt easier to repay I believe this will continue for a long period of time and will result in nearly all real assets in the world being materially revalued. Once this is all over.
I expect the gold will continue to set all time highs that silver will increase dramatically along with things like copper or you can see record real estate markets within the not too distant future.
Real assets are going to go up materially in price and there may even become a bubble in real assets.
Because of that I'm incredibly bullish on gold and for the amount of money that our investors can expect earn from those increase in gold and silver prices.
We're excited at sandstorm to have a strong balance sheet, a strong portfolio and significant growth ahead as at this moment, we are entirely debt free we have $52 million in the bank.
These are good times for sandstorm, and I genuinely think they'll keep getting better.
That is going to handed over to urban.
Thanks, Nolan and Hello, everyone I'm grateful that you've taken time out every day to join us.
I'd like to walk through a second quarter financial going a bit a detailed to see how they compared to both 2090 and the previous quarter.
If you turn your attention slide eight in reference to chart on the left the black bars represent the number of attributable ounces sold over the last four quarters.
You will see the tandem totaled approximately 11000 attributable gold ounces during the second quarter 2020.
At an average realized gold price of 1700 $15 per hour.
Sandstorm realized total revenue of $18.7 million represented here as the gold bar.
You know first quarter conference call, we discuss your expectations of lower production numbers in Q2 due to the types of cobot 19.
Nolan third discussed, which sandstorm streams and royalties were affected and these delays are reflected here and our second quarter production numbers.
However, no noted 100% of the producing mines and sandstones portfolios that were other shut down or reduced operations have been back up and running since the beginning of July.
The silver lining in what was a difficult quarter for many mining operator can be seen in the chart on the right.
This shows the average realized gold price for the last four quarters illustrating a nice upward trend.
The good news is.
Now that all sandstorm producing assets are back online, we will be selling those gold ounces at significantly higher prices than we were able to just over a year ago.
Looking at the quarterly financials, a little closer the chart on slide nine compared to second quarter 2020, with the same period in 2019.
Attributable gold equivalent ounces sold decreased by 33% during the quarter, which was largely due to the operation mentioned that we've discussed.
The resulting revenue of $18.7 million represents a 13% decrease from the second quarter 2019.
The decrease as a true in attributable ounces sold was partially offset by a 31% increase in average selling price of gold.
The average cash cost per attributable ounce during the quarter with $257, which resulted in cash operating margin of $1458 per trueblue out.
That's an increase of nearly $450 brown compared to second quarter 2019.
I think this highlights one of the many strength of the royalty business model.
Even in theory is then a production delays sandstones cash flows are protected from the downside of rising operational costs and then it benefit from the upside of a strengthening gold market.
It's also important to note that although our mining partners expense lower production over the last few months SAS from still entitled to the gold ounces, a royalty revenue properties in mind.
As we mentioned on the last call. This has been a delay and not a law.
[noise] as a result of the increase in operating cash margins as well as an increase in the gains realized and recognized on the revaluation sandstorm investments, primarily driven by an increase in the fair value the Americas gold and silver convertible debenture and Equinox School warrant net income for the quarter was 7.1 mill.
In dollars up from 2.4 million in Q2 2019.
[noise] I'd like to highlight a few specific assets on this next slide that it provides a breakdown it sandstorms attributable gold equivalent ounces sold for the second quarter.
The man silver stream continues to be strong producing asset for sandstorm since the Cerro Moro mine reached commercial production in the second quarter of last year.
In addition to a temporary reduction operation Cerro Moro due to the pandemic the depressed, but the silver and there's also played a factor in sensor on sales revenue from the stream.
While silver did not experience the same run up the gold price did in the second quarter that trend seems to change over the last number of wheat.
The amount of silver stream remains a strong produced or not portfolio and we're looking forward to continued success. The project in this higher silver price environment.
The price of copper also struggled through much of the second quarter, a 21% decline in the average selling price of copper compared to the second quarter 2019 resulted in decreased sales revenue from the chip had a copper stream.
It's worth noting that the price of copper has rebounded since then the second quarter. So expect to see strong revenue from the chip how to copper stream by the end of the third quarter.
The Santa Elena mine with another larger operation affected by coated 19 and experienced a temporary suspension. This resulted in 77% decrease the number of gold ounces sold during the second quarter compared to the same period in 2019.
In late May the operator, first majestic silver and now they were beginning to resume operations and Santa Elena.
We expect stronger sales revenue from this mine for the remainder of the year.
For those who've been following sent them for a while you may notice. In addition to the chart their lease Candy mine, which contributed approximately 8000 gold equivalent ounces in the second quarter Sandstorm began receiving fixed payments from Americas gold and silver in May of this year.
That's from acquired the stream as part of a larger financing package with really Ken.
Back in April 2019, part of the stream agreements answer most eve 32000 gold ounces over the next five and a half year, followed by 4% stream on the gold and silver production from the mine.
Finally, I'd like to look at Sandstorm capital position sandstorm exited the quarter with the strong balance sheet with zero debt in over $40 million in cash quite a reversal from the previous quarter, when we had $50 million in debt.
How do we do this well during the quarter Sandstorm completed in early one call in April with proceeds of over $50 million.
In addition, the company realize over $25 million in cash from the sale the redemption of a portion of the sensor equity and debt investments.
This monetization investments as part of our corporate strategy, selling noncore asset and using that capital rate continue going our streamer royalty portfolio. In fact that strategy continues to be successful as Nolan mentioned, we have over $50 million in cash as of today.
In addition to our cash position that's from still has over $70 million, an equity and debt investment and an undrawn revolving credit credit facility of $225 million with a $75 million accordion feature.
As you can see in a season of uncertainty for many businesses around the world sandstones financial position remains robust it's exciting to see the precious metals continue do well and how that benefit sandstorm shareholders.
We're looking forward to the remainder of the year as their mining partners returned to some sense of normality.
And as we continue look for new opportunities for growth and with that I'll turn things over to Dave for an asset update.
Great. Thanks, everyone.
So despite the challenge you start to year, there's been lots of updates in Q2 for a portfolio of royalties as mentioned earlier in the call. Our operating partners have adapted well for cobot 19 and have resumed operations.
Many jurisdictions have also deemed exploration as an essential service. So many drill programs have resumed.
With frothy Mark capital markets in the exploration space, we're seeing remarkable amount of capital raise for exploration on projects held by junior companies more projects than ever our being drilled which is great. Because we are keen on demonstrating the exploration potential in our asset base.
I'll start with Hyundai operate by endeavor mining this asset has been incredible and how is the expanded since our involvement in the beginning in 2019, when we purchased the royalty there was under 1.9 million ounces measured and indicated resources less than two years later, there's 4.4 million ounces in M&A.
Okay, and it's clearly still growing now not all of this new resources are in a royalty ground, but much or most of it is an aggressive drilling continues to expand the project.
Endeavor has operated this project exceptionally well and we expect to reserve update soon more discussion on the expansion of the mining and milling and of course further exploration success.
Next is brief update on Fruta del Norte day right at the beginning of July Lundeen goal, we started operations at the Ecuadorian Gold mine.
They were the last of are producing partners to get back into operations, they've given strong guidance for the rest of the year projecting a 150 270000 ounces for the second half of 2020. This is quite a bit higher six month total than the original guidance at the started years. So you can see the team is focused on knocking it out of the parks.
The rest of the year.
Next time off was not wasted.
As lending went out to raise over $55 million for resource expansion and to steady increase throughput scraped to have partners like that we're focused on growth even before they ramp up production.
The one exploration or project I'll speak about is close to my heart in the Melej project by some peak metals. Some peak has been private for the last few years, three and a half years and are just about to go public on the TSX venture under the ticker symbol peak.
Off the back of the financing in late 2019, the managed to get some drill holes completed on their Ethiopian projects support cobot head.
The subject team is led by Greg Davis and is comprised of a group that has worked together for over 17 years and are responsible for discovering and defining two of the biggest vms deposits found worldwide in the last 20 years.
Craig and his team hone their skills at the beach and as Mark projects in the new being Arabian Shield, where I believe they are unparalleled in experience. They are added again in Ethiopia looking for the next world class Vms deposit in one of the most on under explored jurisdictions in the world.
Some peak spent the last three and a half years searching in acquiring over 1000 square kilometres of prime property along trend of their previous discoveries initial drill results in the Meli project have over 50 meters 3.2 grams 25 grams silver.
2.2% copper at 1.4% zinc in the first hole in over 37 meters to 2.5 grams gold 29, Gram silver, 2.4% copper and 1.3% zinc excellent results, but as far as I'm concerned secondary targets and an overall property portfolio.
As they get the chance to begin drilling again later this year I'm very much looking forward to seen the results from their multiple primary targets. This is the right team with the write property at the right time and those are the exploration group sandstorm wants to be attached to.
Bind Hyundai is project that we've been attached to the better part of a decade, but haven't talked about much for some time. The project is operated by or Dean resources and based in Mongolia, We want to involve shortly afterwards discovery and are happy to see it proceed all the way through its current feasibility study.
It's not a big project, but keeping with our favorite ones, it's very low cost and hold some excellent upside potential. The feasibility study released the mid July outlines a high grade open pit operation.
With all in sustaining costs below $740 U.S. construction sustaining capex is under $65 million. So it's a low cost project for almost 64000 ounces of gold production per year.
Of course, we also like the exploration potential and believers that this project could extend well block beyond the current six year mine life.
We'll be watching very closely in future.
With that I'll pass the call over to Amy for the Q in a pill. Please feel free to ask questions about any of our royalties and streams.
At this time, ladies and gentlemen, if you would like to ask a question. Please go ahead. Please press Star then one on your telephone keypad.
Well pause for just a moment to compile the Q and a roster.
Your first question today comes from the line of Robert Carlson with Janney Montgomery Scott Your line is open.
Hey, guys. Congratulations on what's been happening I, just looked to screen here and I notice you today, you're up 29.9%.
Well done.
There is always been talk of initiating a dividend.
No no since we've got a cash position anymore thoughts on that.
Yeah. Thanks, Thanks for those remarks, yeah definitely feels good to be sounds from these days and and as our friend noted our cash position has changed dramatically from.
$50 million, a debt little cash to over $50 million of cash and no debt and the cash flows.
Coming in at quite strong.
Right now we are my personal opinion is that next year, we should be a dividend paying company. However, there are other factors at play including some of these larger transactions that are in our deal pipeline right now we want to see how those play out before we make any.
No long term capital allocation decisions because once we start paying a dividend our goal is to pay one forever and to increase it every year. So we just want to.
See how some of the stuff flushes out before we make that decision.
Thank you.
And again not a star then one to ask a question.
Your next question comes the line of John Tumazos.
Please proceed with your question.
Okay.
I apologize I've never been TPC hope you're Mongolia.
Could you tell us a little more about each of the projects.
When do you think they'll be a maiden resource.
Yes.
Could you update us.
How documented the project is in Mongolia.
What do you think the timeframe might be for first outputs.
Sure.
So.
On Ethiopia some peak.
So it's very early stage still for them they've really just did.
Drill that a couple of these targets.
So, saying when a resource could get flushed out on their it's hard to say.
I would expect if they can get in and begin drilling again, which they hope to this fall.
Initial resource could come out sometime next year.
Ethiopia has.
Not been a popular destination, but it's a very good destination, even for Africa, there's been a lot of infrastructure money spent there there's very very cheap power for all of Africa, an abundance of it.
Compared to most jurisdictions in that continent.
The government is is really revise the way it's.
It's doing business again, an exploration companies to work there.
And of course, it's.
It's a free and competitive markets.
For work there and so we'll we'll certainly be anxiously watching then I think it's really more of a discovery story at first and then it would be about really a resource story soon after that as they start to flesh it out.
For Mongolia, where Theyre Dean.
So that project or Dean has been working I think in Mongolia for over 20 years now so it's a management team thats very familiar with the jurisdiction.
This is the feasibility study was published has not yet been published.
The results of the study had been I'll put it.
Derek going to be working on permits and putting together financing package for the construction of this asset they already got a big.
A big uplift because they received over $30 million in an equity so far.
Soon after they announced that results from the feasibility study.
So.
What kind of stay tuned for timing on permits but certainly.
With the feasibility studies done a relatively low capex project not a large mine to begin with you know it only 1800 tonnes per day as an open pit operation that indicates that it's a it's quite small so that type of operations. So it's a should be a relatively straight project too.
And to construct.
So the timeline will be when they're able to firm up the permits should be relatively straight forward on them.
[noise] switch thank you very much switching to model.
Does the you talked about the road building.
As the permit process been completed and.
Our all the legal details in order.
Yes, so so the road is.
It's been most of the road upgrades are going to be completed by the government.
And that program is expected to other than the upgrades that have been done so far by the company.
Those those upgrades are expected to begin this fall.
In terms of permits for the mine. The EA is kind of its been submitted and that's in process. It kind of works in conjunction with a feasibility study it's expected to be completed.
Towards the end of this year after the feasibility study has come out.
Once that Eas is done that gives you most of the permits that are in place, but you still need the forestry permit on top of that.
And.
Lydia made in Chile has just completed another forestry permit on a one are there other mines get accept bay, which actually has much more forestry ground associated with it and it took them year to get that permit.
So we'll wait we'll have to wait until the is completed to understand really where they think the position on forestry permits, but we've had discussions with Lydia made until look about it and they have been relatively.
Positive about where they think the process is going to go.
And the timing for that forestry permit, which is really the ultimate permit to make sure that can get into that full full scale construction prior to that though they do hope to get some early works down on that.
Including the road and including some some of the mill and mine site areas.
Yes, one last one.
A couple of your smaller projects are black Fox Gold bar.
They've had a little tough luck in both of those locations tons in grade of God soften a big.
What is your philosophy.
[noise] toward operations.
[noise] have hard times.
In terms of.
Maybe your revenue royalties too small to make a difference.
Restructuring.
Do you think it would help if you restructured.
Yes, good question.
Black box is a good example of one that's an asset that's gone well past its original reserve life with.
I made a lot of money off that deal and continue to make money, albeit less when the grades are lower like this.
Our deal there as well as on gold bar is small enough that it doesn't materially impact the operations of the mine, so, whereas sandstorm, maybe four or five years ago had to do a couple of amendments on streams, where we were taking too much. The economics, we don't have any of those situations right now so we're not looking to amend anything.
Thank you.
Relations on all the progress despite the Oscars.
Yeah. Thank you.
And again, ladies and gentlemen ask a question. Please press Star then one on your telephone.
Your next question comes from the line of Matthew Williams, a private Investor. Please proceed with your question.
Hey, Thanks, guys. Appreciate you taking a few additional questions here so Dave I believe it's been a little while since you're right.
I know, what's a ways into the future, although I'm interested to understand what does your base case view on when you will see when you will receive first revenue on Oyu Tolgoi and then Nolan on a related front.
It seems to me that the investment in entre would be seen as a core rather than a non core equity holdings.
I'm just kind of curious how do you delineate between core and non core equity investments.
How you think about them internally.
Yes, so it's an all and I'll just give the the update here on expected timeline to production. So the last public guidance that they had given as expected timeline to production chemo just over a year ago and it was 2027.
I expect that date to be pushed back maybe a year based on the the timeline delays that they've had at turquoise Hill getting all your totally up and running.
With that situation is progressing well and it's funny I think once they do eventually get into cash flow, though probably castle their entire market cap every single year.
For a number of years. So it's it's an asset that were very keen on.
Having said that to answer your question about equity investments in what is core versus non core.
Our business is streaming and royalties all equity investments are non core.
Yes.
This is a more material investment for us and it's probably a longer term hold than other equity investments in our portfolio, but.
That is.
Not a core part of our business, we are strictly a royalty companies. So we just cost by everything as noncore.
Okay. Thanks appreciate it.
Your next question comes from the line of Alfred Heinrich well, a private Investor. Please proceed with your question.
Hello, I'm quoting from Switzerland, I'm not sure what I understood able to think correctly, but let me talk to us.
Well the cold Rolling off I mean, do you had some locked down what this the ball, but believe Ti that you will have sold or locked out because we are going to ask a second wave.
All have you made a technological advancement old changes that you couldn't do business outlook thousand. That's my first question well My second one if ive been then the shareholder individual shareholder flow about seven yeah fulfill.
How about dividend you've got some bad at all in the call no value tough investing again and again and again.
All my questions.
Yes. Thank you so I'll start with the dividend one first because.
Like I said earlier, our I believe a dividend should be paid eventually with a company like ours and that's our goal.
We are going to make that decision next year, if we're going to pay a dividend next year and so I can't give a definitive answer but I.
Personally would vote for it it's my personal opinion.
With respect to covert 19 shutdowns, we don't get to say in those because were just a royalty company and so we.
Nothing that we do matters as to whether or not there asset is going to shut down or stay open having said that I can't predict what's going to happen with cobot going for anymore than anybody else can so I won't prognosticate as to what co what's going to do but what I can say is what we're seeing across the entire mining industry.
His mining companies getting a lot better at dealing with the realities of operating when people do get infected by coded and I would say at most of the mining assets around the world. There are one or more employees that habit and they get isolated and they keep on mining in the that keep moving forward. So I think that if there is another flare up and coated fewer mines will shut down.
And then they did the first time and either way because we're extremely royalty company, we'll still have positive cash flow and keep building war chest to keep growing our company. So it doesn't materially affect us that much.
Okay.
Thank you.
Yeah.
Great well. Thank you very much everyone for joining this call and thank you for the questions and Amy Thanks for.
For helping us on this call and we're going to wrap it up rate here and we have seen some questions that came through the web portal and so we're going to make sure everyone gets an answer to that thanks event very much everybody.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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