Q3 2020 Sandstorm Gold Ltd Earnings Call
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Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby thanks for your patience.
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Good morning, My name is Mike and I will be your conference operator today at this.
Time, I would like to welcome everyone to the Sandstorm Gold's conference call all lines have been placed on mute to prevent the background noise.
Please be aware that some of the commentary that contain forward looking statements. There can be no assurance that forward looking statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements.
After the speakers remarks, there will be a question answer session.
I would like to ask a question. During this time simply press Star then the number one on your telephone keypad if.
If you would like to withdraw your question press. The mielke. Thank you Mr. Watson you may begin your conference.
Thank you.
Good morning, everyone and thank you for calling into the third quarter earnings call for 20 2020.
Morning, Erfan, our CFO is going to walk us through the Q3 results and Dave will provide a brief update on our asset base and then as usual, we'll turn it over to the operator for a question and answer period.
If anyone has questions that don't need to be part of the like you and economic posted about portal and we'll make sure we get back to that each question it'll get a direct response from us after this call.
Before handing it over to her fan I want to provide a brief update on our Q3 sales were affected by coded and what were expecting based on what we're seeing for Q4, but.
I'd also like to take the time to provide a couple of updates, including a better expiring warrants Ahmad and timing and our deal pipeline, including the elephant in the room, which is the league deal information for a transaction that is not actually occurred.
At this time, we'll be getting going through my 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 how our Q3 results were affected by coded.
During Q2, nearly half of our producing assets were affected including but not limited to Santa Elena affected our military et cetera, and they're all shut down for most of the quarter.
During last quarter's earnings call I outlined how these mine shutdowns will also affect our Q3 numbers. Despite all of these mines being back up and running during Q3.
The main issue relates to how we recognize revenue for our streams as we do not recognize the sales until you've actually received for the goals from our Counterparties and actually sold it.
In most cases were delivered gold in the month following the actual production. However in the case of streams like Cerro Moro, we are delivered to silver once per quarter only.
Meaning that our Q3 ounces from Cerro Moro reflects what was actually produced in Q2 and the Cerro Moro operated at a reduced rate in Q2. It resulted in fewer ounces being received and sold by Siemens guar during the third quarter.
The good news is that we expect to be back to record revenue and record cash flow in this fourth quarter.
With respect to other brief updates I would like to provide I'll start with the soon to be expiring warrant.
There's still a couple of million warrants that are outstanding and will be expiring this coming Tuesday November threerd.
After which point sandstorm will no longer have any outstanding warrants and its capital structure and we were very pleased that Samsung will be 100% free of any warrant overhang going forward.
Which will be the first time in our 11 year history that will have no outstanding warrants and candidly I'm very excited about that.
It's worth noting that these warrants if not exercise we will fully expire next week for those people who have them in their accounts you will not be eligible for an extension. If you will need to exercise of warrants immediately or that value will be lost few entirely.
Last quarter on a future earnings call I provided a brief status update on hot Martin and stated that it was likely that the start date would get pushed back into 2023 and shortly thereafter, we put out a press release updating our official guidance for 2023 startup date.
The primary reason for these timeline changes are due to various delays.
That had been occurring because of coded combined with various longer lead time items that have been identified during the completion of the feasibility study, which we're hoping will be completed by the end of the first quarter of 2021 or Q2 at the latest.
And as I mentioned before we're pleased with our partner leading made until it is pushing the asset forward as quickly as possible towards production.
And we look forward to this incredible asset beginning to provide us gold soon.
You can see from this slide that the next six to nine months are very important for this project we.
We are hoping that in this time period, not only will the feasibility study be complete but ultimately it will be fully applied for and hopefully granted.
This will be a big milestone for the project as it is fast tracks towards production.
Moving onto the status of our deal pipeline.
Last quarter, I mentioned that as base metal prices have rebounded from their prior coated lows that there were a number of base metal companies had been looking at selling streams that no longer appear to require financing in this environment and.
And it appears that this continues to be true.
Although we are still working on a number of transactions is clear that for larger deals the motivation to complete stream deals buyer Counterparties has decreased on average as always our team is working hard behind the scenes to find intelligent and attractive acquisitions, and we will continue to endeavor to do so however.
However, we will not rush ourselves into acquisitions to grow for the sake of grilling.
We learned over the years that being methodical and patients is what pays off for our shareholders in the long run.
From this available capital Slide you can see the substantial resources that sandstorm has at its disposal to grow the company.
Only nine months ago, sandstorm had $45 million of debt over into banks and almost no cash.
Today Sandstorm is debt free and has over $75 million in cash nearly $70 million in non core securities that we can sell and 300 million in available credit.
By early next year, we therefore expect to have access to nearly half a billion dollars with which to grow our company, which is more available capital than sandstorm has ever had in the history of the company.
Also to address the elephant in the room as many of you may be aware a number of weeks ago. Another company mistakenly made public information about a conceptual precious metal stream acquisition that involve sandstorm.
Causing us to have to put out a press release clarifying that no such transaction had been completed and that no assurances existed at the transaction would be completed ever.
The statement continues to be true we've.
We've been asked by a number of investors. If we would put out press releases. If the deal were to officially die and the answer is no we.
We don't put out press releases for deals that we never announced in the first place and for which we won't be completing.
I believe it is reasonable for investors to assume that although this specific transaction might not be completed that eventually and over time, our management team will find intelligent transactions that make sense from an even better investment for shareholders and I can assure investors that were working very hard behind the scenes to continually improve this company.
And moving it forward.
I personally am very bullish on precious metals over the next 10 plus years.
Sandstorm is well positioned based on our existing portfolio of assets to profit from this but we.
We're working hard to get even more precious metals exposure and I believe that our balance sheet is well positioned with no debt and substantial cash to make further acquisitions going forward.
With that I'll hand, it over to Erfan.
Thank you know on.
I'd like to take some time now to highlight a few key points from the third quarter financial.
Well I think a general theme for 2017 has been on 30 cents on third quarter results. So the positive trends that hopefully indicative of the mining industry returning to some some normal.
The Big news in the mining industry. This years has been the continued rise in the price of gold resource.
The chart on the right of this slide shows the Samsung average realized gold price the third quarter was 1900 $20 per attributable ounce.
That's a 12% increase compared to the second quarter of 2020, and nearly a 30% increase since the third quarter last year.
In the chart on the left you can see the increase in gold price resulted in higher revenue for the third quarter and 23 million.
Despite decreases in gold attributable ounces sold over the last three quarters.
This is good the demonstration of the exposure to the gold price that lives within Samsung portfolio royalty assets.
The rising gold CLO has that other positive effects on the Companys financials and I'll highlight a few year on this next slide.
Thats some sold approximately 12000 attributable gold equivalent ounces in the third quarter down from 17000 ounces from the previous quarter.
In the previous year.
The decrease was partly due to the lingering effects of the restrictions related to the pandemic, which I will discuss in a bid.
As I mentioned at an average realized gold price of 1900 $28 per Jew Allen total revenue for the third quarter was $23.3 million.
The average cost for sandstorm itself each attributable ounce remained very low for the quarter, averaging $258 per to drill out.
This low cash costs combined with the higher gold price resulted in strong cash operating margin.
1600 $70 per to go out.
This was a new record for the company.
Cash flows from operating activities was also strong at 18.1 million, resulting in six and a half million of net income for the quarter up slightly from the same period in 2019.
The next slide shows the breakdown of Goldman ounces sold from Samsung producing assets.
As we discussed overall production continues to be affected by various operational restrictions implement implemented because of copaxone team.
While all the effective operation Samsung portfolio were back online in some capacity by the end of the second quarter. Several months continued to ramp up operations throughout the third quarter.
Another important factor to note is the delay in the realized production from several miles and as Nolan just mentioned on.
Cerro Moro is no exception. So when you look at silver deliveries from Cerro Moro identified here under the amount of silver screen it.
This provides substantial at the beginning of each quarter. This means attributable ounces sold in the current quarter a representative assets production from the previous quarter. Alsace. We also received from there are more on the third quarter represent the operational impact that actually occurred in the second quarter.
Speaking of Cerro Moro, although the number of silver ounces sold was down for the quarter by 47% compared to the previous year the quarter.
The decrease was partially offset other rising price of silver fast.
To add some realized an average price of $19.12 per silver ounce up 27% when compared to the third quarter of 2019.
The increase in silver price should correlate nicely with the returns they are more full production capacity in the coming quarters.
Well, Santa Elena contributed the largest number of ounces sense on production in the third quarter essentially in a mine was also impacted by opened 19 restrictions in the second quarter. This partly resulted in a 40% decrease in attributable ounces sold compared to the same period in 2019.
As with other operations impacted by the pandemic that Atlantic continued to ramp up production throughout the third quarter.
So operator first Majestic announced in October the mine saw a 100% increase in gold production compared to the previous quarter.
I am optimistic that this trend will continue in Samsung, we'll see production return.
Higher levels in the coming quarters.
Another notable last and the like to highlight on this slide is really Canyon, Operator America gold and silver announced first gold pour it relieves canyon back in February and as for the streaming agreement six deliveries. This aslam began in may making this the first full quarter, where we received ounces from the stream.
I guess in conclusion I believe this quarter's financial results represent a trend in the right direction.
Even in times of uncertainty the royalty business model continues to prove its resilience and strength.
As Nolan mentioned earlier sandstorm is in a strong position with plenty of available capital dock quickly on new opportunities.
And with rising commodity prices and operations returning to normal capacity I believe Samsung shareholders have reason to be optimistic for the future.
And with that I'll turn it over to Dave to some specific asset uptick.
Great Thank air bonds.
So as far as cost for the mining industry, we've begun to see the effects of more capital coming into the space for development and exploration within our entire industry that portfolio and sandstorm is no exception to that.
Many companies to begin to formulate plans on further work and as opposed to the years 2013 to 2019 capital is available to execute on those plans.
Our portfolio of royalties and streams is seen the benefit of this period. We are in right now is what we wait for as a royalty company.
Sandstorm has spent years patiently cultivating small pieces of this quarter.
And accumulating packages of low priced or no price optionality that are now seen.
Progress has been rapidly.
As a royalty company, we're value based on our existing cash flow and near term development. However, we still love the value of more than 170 other royalties that have been sitting on background that are now starting to get the money spent on them and are beginning to graduate to higher and higher levels of development, which we hope will evolve.
Finally get to cash flow stage can solve the true value of a great royalty purchase is seen the projects progressed to cash flow without spending that capital it takes to get that valuable progress.
So with that introduction ill into quick overview, Fruta del Norte and that speaks about the entire portfolio in general.
Since the restart of Fruta del Norte in Q3, Great progress has been made with both exploration and development programs something that we have been eagerly anticipating since our.
Per purchase of the fruit of royalty in early 2019 is the prospect of exploration outside of the mine itself in the Suarez pull apart basin.
Gary prospective area has had virtually no exploration for 13 years, despite having many tantalizing exploration targets.
Finally lending gold has received permits to drill the first target on the list of at least 10 within that total presentation.
Approach that project is for Vasco great geotechnical, our sorry, geochemical and geophysical target 6000 meters of drilling plans in 2020. The strike length of this target alone is currently 3.8 kilometers long and rock samples of surface of grading up to 10.4 grams per tonne, making this as.
Large as a target has proved itself.
In addition to the greater regional exploration program lending continues to push expansion plans at the mine further it had a great Q3 production number with over 94000 ounces being almost all expectations and now they're ours.
Speaking of speeding up previously announced expansions current nameplate capacity sits at 3500 tonnes per day, but expansions up four to 5000 tonnes per day in operation are being studied with some of these inc. pieces of throughput potentially achievable as early as next year.
Also the inferred resources in the South zone of Frida continued to get upgraded and potentially will be converted to reserves.
Like our investment in Hyundai operated by Endeavour mining lending is pushing expansions as quickly as possible. This.
This is what happens when you make investments in the best gold projects in the World.
Next I'd like to talk about slides 13 and presentation. This is a little bit of days of data that I'm grateful that our team was able to put together what you see is a quantitative assessment of the number of apartment projects that are receiving active exploration work in 2020.
Each one of the bars represent percentage of assets.
That over seeding active exploration work.
As I discussed in my introduction, we're really starting to see a portfolio of projects receive a lot of investment for producing assets, 67% of the projects are competing explorations. These.
Our programs beyond the typical resource and reserve conversion and development work that is required.
On an annual basis, its variety of near mine and regional exploration programs, taking place also the bulk of development projects that we own royalties on or having additional work being completed number is 71%.
65% of assets with existing resources that are in our advanced exploration category received an additional exploration work and 34% of our projects in the early exploration. So.
Stage are getting work performed on them keep in mind that because most of these royalties were purchased and packages. The dean cost of most is zero or near zero, but many are working this year with budgets of millions.
Deploying it.
Is that as long as this cycle continues and exploration projects and junior developers continue to have access to capital. We will see many of these projects graduate to successively higher stages year over year, essentially meaning we'll start cash flowing without us having to spend a dollar on them, although we have lots of capital to grow purchase.
See cash flowing royalties and streams.
Sandstorm has a great organic pipeline of projects that will add to our growth in future.
So with that I'll pass over the call to Mike for Q and a please feel free to ask questions, but any of our royalties and streams.
As a reminder, each you ask a question you will need to press star one on your telephone.
To withdraw your question press, the pound or cash.
Please stand by what we can pile gets you many roster.
Your first question comes from Heiko Ya Li from HC Wainwright. Please go ahead.
Hey, guys. Thanks for taking my questions.
Good morning.
Good morning.
In regards to.
Little bit more broad based question or more specific one in regards to your earlier stage projects and things that you're looking at what are you seeing with operators wanting to move their projects for at the present time and be willing to sell streams that we have very strong gold price environment, obviously, which I assume at least for Dan.
This would be somewhat offset by the impact to covert and do you fairly low interest rates to be folks want to get to build their minds and I still think to this day that you provided very good source of capital has anything changed in regards to interest levels in the last call. It 60 90 days.
So in terms of really kind of.
Partners and potential deals that are out there for.
For sure gold prices are strong there seems to be more equity available and in the industry, but still streaming and royalty cash flow going into projects is a very good form of capital and it really is low risk.
Interest rates are low but availability of debt is is not as high I think has been has been in periods in the past I think what we're seeing a lot of the single assets developers are looking together put together packages and honestly those groups have been effectively orphaned by the capital markets.
For for years.
And so there still is an ability to really kind of look in and look.
Look at streams and royalties on those single asset developers for your bigger companies.
For sure they have access to capital base metal companies of course too.
Although they are seeing.
Some relief in pricing and higher commodity prices and they saw at the beginning of this year still I think their ability to access debt is not as great. As it is I think the market would assume it is at this time and there certainly are opportunities there.
But it is of course, the competitive landscape in that side.
Yes.
There are transactions available to us.
Cash flowing ones and there certainly are a lot of assets and packages of royalties that that are available.
We are in a competing landscape, but like Nolan talked about before earlier, we need to be patient, we need to make sure that we're allocating capital and right way, making the right choices for our shareholders and we are absolutely willing to be patient.
Fair enough good answer.
I went through your Mdna. This morning, which is always has been quite expenses and was sort of briefly remind on the impairment that you have on by the earlier this year and more importantly, the weighted you broke down the impairment between mine life and the price of the diamonds pure.
Purely out of curiosity and again I assume the answer is no are there any other assets the purest, where we might see an impairment in the next quarter or two.
I mean gold prices with strong silver pricing is pretty strong, but I figured I just I just.
Thank you.
Yes, Great question, we go through a detailed impairment analysis every single quarter as part of our internal control processes.
And so.
If something hasn't been written down at this moment, it's not impaired and its I think at your.
Your point about full prices being higher is exactly right I don't see anything in our own portfolio right now that I see as a candidate for anything that would need to be written down Diavik was the only thing that was recent and thats because the diamond market got hit really hard because of covance so outside of that at all.
Seeing anything material coming down the Pike.
Wonderful stay safe everybody be good figure but.
Yes.
Your next question comes from Derrick from TD Securities. Please go ahead.
Thank you two questions from me first agenda question as result of the enterprise disclosure.
Action is there more of an appetite or eagerness amongst the players in the space to syndicate larger deals.
And with that as a partner.
Yes, we've had a number of conversations with.
Various competitors and I would say.
I have met personally with all of the Ceos in our streaming and royalty industry at least of material streaming and royalty companies and the vast majority of them are looking to syndicate transactions, where the size of the transactions larger than they want to focus that.
That much risk on and and so although you havent seen a lot of syndicated transactions actually get over the line yet.
I expect it will become a normal operating procedure for the streaming royalty space for large deals.
That's good to hear and probably Couldnt answer stands for one more question on chip pasta.
Lending is obviously examining various expansion scenarios there have they reached at the same time in terms of a potential conversion of the copper stream.
And if so or would that be something manageable management is amenable to it.
That's.
Not something that we are having conversations on right now.
Okay appreciate that thank you.
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Your next question comes from Hillary Shack from Canaccord. Please go ahead.
Hi, So you mentioned that the hot Noninferiority is expected to be completed at the end of Q1 I'm. Just wondering is there any change on how you plan financing the project.
Yes, great question.
No we've been in contact with the Lady Amazing chart. She is the ones that make that decision at the end and we're in contact with them regularly and there.
Current plan for project financing is the exact same as it was two three years ago. So its nothing's changed there.
Which is still 70% debt financing at the project level in about 30% equity contribution by the partners.
Okay. Thank you.
Your next question comes from John Tumazos from John.
Tumazos very independent research. Please go ahead.
Thank you I just wanted to congratulate you on that.
Total assets to equity ratio of 1.01.
I think that's the strongest ive ever seen for an operating company.
Deferred tax asset, there's no goodwill its real well Doug.
Thank you.
So I look at the quarterly production.
Of.
Of course, there's the two new producing assets.
Sure like.
Not producing.
Some.
Maybe had a lower grade ore.
Tons like Black Fox.
As well as some assets, where there was virus impact.
How many ounces two years. Thank you launched in the third quarter to fire as opposed to Felicia.
I would say I cant pick an exact number and I would be absolutely guessing, but I think what you'll see come through in the fourth quarter is more representative of what production would have been if no coated.
And I.
I think that would be an extra two or 3000 ounces just from covered.
Back to the ongoing or I was looking at five companies that reported this morning.
2.2 thousand.
Ounces would be Bachelor Lake.
Andy.
And then something for.
Black Fox or others.
Well.
Diavik diamonds.
As opposed to.
Yes.
No Jamie.
So.
When do you say.
You will be back to 16000 ounces of production.
And when do you think will be at a new higher threshold of say 20000 ounces in the quarter.
I think although it's hard to predict exactly when we'll have 16000 ounces again I wouldn't be surprised that in a quarter next year.
And depending on how things go with respect to hitting a new threshold of say 20000 ounces in the quarter or say 80000 ounces a year.
My personal belief is that that's going to happen. After we make our next acquisition. Obviously, if we don't make a material acquisition. It will be on top line was up and running in 2023, but it Wouldnt surprise me if we don't make an acquisition of an asset that gets cash flowing before them. So.
I would say stay tuned for that acquisition.
Congratulations again on the balance sheet.
This too long I can't remember.
[laughter]. Thank you.
Our and our last question.
Yes. Thank you operator that said I hope everyone has a fantastic day and thanks again for calling into this call.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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