Q2 2021 Sandstorm Gold Ltd Earnings Call
Good morning, My name is grant and I'll be the conference operator today at this time I would like to welcome everyone to Sandstorm Gold royalties 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 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 and answer session.
If you'd like to ask the question. During this time simply press Star then the number 1 on your telephone keypad if.
If you'd like to withdraw your question. Please press the star followed by the 2 key. Thank you. Mr. Watson you May now begin your conference.
Well, Thank you grant and good morning, everyone and thank you for calling into the second quarter earnings call for 2021.
Its normal this morning, I'll provide a brief update on the company and then our fan of our CFO who's going to walk us through the second quarter results and then Dave will provide a more in depth look at some of the assets underlying the acquisitions that we made during the quarter.
After that I'll turn it over to the operator for a question and answer period and if anyone has a question the does not need to be part of the live Q&A you can ask those questions through the web portal and we'll be sure to make sure that everyone gets the direct response from us after this call.
At this time, we'll be going through the prepared Powerpoint presentation on the web portal. So if you're able to please turn your attention there now.
Overall sandstorm had another strong quarter in terms of production and cash flow and her from is going to walk us through those details momentarily.
As most of you are aware each quarter I'd like to take the most common questions that we're getting from investors during the quarter and provide answers for the publicly on these quarterly conference calls and during Q2 of the vast majority of the questions related to the acquisitions that we completed as well as the timing expectations for both of the heart of modest EIA being granted as well as timing ex.
Vacations for the hardware of the feasibility study of being released.
And as part of this investors have been asking questions of butter. Most recent understanding of timing for hardboard on construction and first production.
So I will address these questions now and I will hand things over to Erica.
Starting first with the acquisitions that we made during Q2 during the quarter sandstorm made more acquisitions than any other quarter over the last 4 years.
And so far of 2021 it's already been the third highest year in sandstorms history in terms of value of acquisitions made.
During the quarter Sandstorm first purchased for $7 million of royalty portfolio of 21 royalties on development advanced exploration and exploration stage projects in the U S. The vast majority of the value of which related to precious metal projects, then sandstorm purchased the $30 million gold stream on the operating medical the gold mine in PD, which has produced 7.
A million ounces of gold or of the past 80 years, and then finally, we invested $108 million of U S. Purchasing a royalty on the number of valleys producing an exploration assets in Brazil. They include revenue from iron ore copper and gold.
I've been purposefully telegraphing for a couple of quarters now that we believe that we were close to making a number of acquisitions.
Pleased that we were able to close the number of deals this quarter and later on this call day of on and we'll talk in more detail about the specific assets underlying those deals.
Having close these acquisitions, we're now on the process of restocking our deal pipeline and we already have some quite interesting things that we're working on for potential future acquisitions.
Candidly, if the fantastic to have been able to make a $150 million worth of acquisitions and still be sitting here with no debt and cash on hand, so the.
We can continue making acquisitions.
As our investors know, we're conscious of dilution and as a result, we have begun discussions with our banks about upsizing the revolving debt facilities and we'll continue working on that so it's available for potential future deals.
Now on the hot bought it.
It's clear to me that a number of our investors are wondering what's going on behind the scenes with respect of the timing of both the EIA on the feasibility study and I'd like to take the opportunity to talk through where the process is that in more detail on I believe that doing so will actually give investors a lot of comfort.
Starting with the EIA. The EIA was submitted originally ex the government quite some time ago.
As is normal in Turkey. The government departments involved in the permitting process of provided time to review of the EIA and make comments and ask questions.
Of this period of initial comments and questions was completed several months ago after which the linear has worked with the various departments to answer those questions and address any comments, but ive now been told that all comments have been cleared and all questions have been answered.
Once each of these departments signs off the EIA then goes out to a public comment period, where anyone can comment on the proposed the IAA and I've also been told that not only is each of the government Department signed off but also that this public comment period is now complete this literally zero comments coming from the public zero.
So the next and final step is the final government sign off which we have been told will hopefully be granted.
By the end of next month.
Overall, although there have been some delays largely due to COVID-19 lockdowns in Turkey. The process is now on the very final stages and appears to be going well.
Moving on to the timing of the Heartland. The feasibility studies I'm happy to report the feasibility study is nearly complete and the actual final reports on the final stages as we speak and we're hoping to have it both announced and filed around the time of the granting of the EIA.
1 of the things that become clear is it due to the slight delays on the EIA as well as a couple of of the longer lead items that were identified of the feasibility study, possibly taking a few months longer than originally anticipated. We are updating our guidance for the start of production from hard bought into the mid 2024 and accordingly, we have updated our guidance for the company.
In terms of our company wide gold production to 125000 ounces in 2025.
We've always believed the hot buttons with of permitted the projects that will be exceptionally profitable and we're hoping that by the end of September we will have both the EIA and the feasibility study that illustrates both points.
1 last thing that I would like to address before handing it over to her fan is the possibility of sandstorm paying a dividend of the future.
As our shareholders know all too well I've been telegraphing that I believe it makes sense for the company to eventually become a dividend paying company and that the.
This is something that obviously needs to be approved by the board of directors.
SaaS storm is the very well diversified royalty company with strong diversified cash flow is coming from a variety of assets around the world, which has been further bolstered by the acquisitions that we've made during the quarter.
Yesterday as part of our Q2 board meetings, we discuss at length of the possibility of sandstorm becoming of dividend paying company.
And for the first time I have permission from the board to publicly state that they also agree the sandstorm should become a dividend paying company and that the declaration of such a dividend policy is imminent and we expect to have the full details of our policy publicly announced by the end of this year.
Year after year of SaaS revenue continued to prove that it's a growth focused company and I believe we've proved that yet again this quarter.
Excited with the royalty portfolio that we built and.
And we will endeavor to continue along the same path of the benefit of our shareholders.
With that I'll hand, it over to <unk> to discuss in detail of the quarterly results.
Thanks Nolan.
Hello, everyone. Thank you for joining US today. This was an exciting quarter for sandstorm in terms of new acquisitions and financial results.
This first slide provides the snapshot of the company's financial results over the last 4 quarters. We've included the third bar on this chart, which in addition to sales of royalty revenue includes income from other interest.
The income from other interest of the gain related to the recently acquired valley royalties.
Some of you may know the payment for the value of royalties from the first half of 2021 will be payable the sandstorm on September 30th reflecting a net sales royalty for the period January 1.2021 to June 30 of 2021.
The majority of the sales that occurred prior to sandstorm the acquisitions out of the royalties sandstorm has recognized the the cruise amount accrued amounts as the pre acquisition receivable.
I think it's important to clarify that in subsequent quarters and going forward. The income received from the value of royalties will be classified as revenue and operating cash flow similar to how our other royalty interest are treated and how you would normally expect.
With that in mind total sales royalty revenue came at $26.4 million from the second quarter and $32.3 million include the income from other interest. This represents an increase of 41% from 73% respectively when compared to the same period in 2020.
Sandstorm set of new record of approximately 18000 attributable gold equivalent ounces during the quarter when compared to last year's second quarter. When we were at the height of the operational shutdowns due to COVID-19. This represents 65% increase in gold equivalent ounces quarter over quarter.
The average realized gold prices remain relatively constant over the first half of 2021, which has helped support the strong attributable ounce numbers.
As the management team. We've continued the bullish on the long term price of the Golden certain other metal prices given the current global economic outlook and so I anticipate sandstorms financial results the benefits of strong precious metal prices for the foreseeable future.
We can dive a little deeper into the quarter over quarter comparison on the next slide.
Revenue was comprised of $17.5 million in sales of 9 million of royalty revenue. If you direct your attention of the third line from the bottom average cash cost per ounce was $227.
As a result, sandstorm realized cash operating margin of 1500 and $69 per ounce during the second quarter.
Which is an 8% increase when compared to the same period in 2020.
Cash flow from operating activities, excluding changes in noncash working capital totaled $17.6 million of 31% increase the same period in 2020.
Net income was $8.6 million up from $7.1 million in Q2 last year.
The increase was attributable to an increase in revenue as well as of $5.9 million gain on the revaluation of the company's financial instrument related to the valley of royalties, which was the both the entered into and disposed of during the second quarter.
The game was partially offset by an increase from the cost of sales and.
And the increase in tax expense and a decrease in gains recognized on the revaluation of other investments.
Moving on to the next slide we see a breakdown of attributable gold equivalent ounces by asset Cerro Moro under the amount of silver stream agreement continues to lead the portfolio attributable production. The stream agreement benefited from the 58 per cent increase in the average realized selling price of silver compared to the same quarter of 2020.
As well there was the 10% increase in the number of silver ounces sold when compared to the same quarter last year.
As we've discussed the majority of the 34 <unk>.
100 gold equivalent ounces attributable the valley of royalties package are represented by the gain on the revaluation of the value of royalties financial instrument with respect to the second quarter Valley of royalty of receivable royalty payments are paid by valley on a semiannual basis, reflecting production in the preceding half calendar year period.
The previously sandstorm will accrue the royalty revenue on a quarterly basis going forward.
During our last conference call I discussed the the first quarter of 2021, Mark the end of the 5 year fixed out of deliberate periods from the Karma mine.
As of April 1st Sandstorm Gold stream of entitlement is now 1625 per cent of gold produced of the Karma mine for an ongoing per ounce payment equal to 20% of the spot price.
These terms will continue for the life of the mine the ounces sold from the Karma on the second quarter of representative of these updated terms.
Looking at the top producers I'm encouraged by the diverse portfolio of that Sandstorm has built with strong counterparties and a range of stable jurisdictions subs.
Subject to closing conditions in the second half of the year, we will see production from the battery cooler gold stream added to the slip further diversifying our cash flow.
The final slide provides the breakdown of attributable gold equivalent ounces by region and metal site approximately 60% of ounces came from operations in South America, largely attributed Cerro Moro and the new Valley royalties.
With only 3 months the value of royalties revenue being recognized in Q3.2021, I expect the weighting of production from South America in base metals, we reduced in the third quarter.
Sandstorm remains of precious metals focused royalty company and this year, we anticipate approximately 3 quarters of revenue from Golden silver increasing to more than 80% by 2024.
With the addition of the valley embedded cooler transaction Sandstorm has increased its production guidance and is now forecasting between 62000 of 69000 in the Triple gold ounces in 2021.
And the Nolan mentioned, we expect production to be over 125000 ounces in 2025.
I'll leave it there and pass the mic over to Dave.
Thanks, Jeff on.
So as Nolan said this asset update is going to focus on the 2 new acquisitions in Q2 of VAT of Cola and the valley royalties.
That of coal assets or the Emperor of mine, which is which has been known as for a longer period of time is in the northwest region of Fiji's main island, the VT level the <unk>.
Mine has been operated from the 85 years and has produced more than 7 million ounces of gold with 25 of those years producing more than 100000 ounces of gold per annum.
We had sandstorm had our eye on the project from his 10 years when the opportunity to create a gold stream was presented to US late last year SaaS.
Sandstorm will receive fixed deliveries of gold of almost 26000 ounces over a 6 year period, and then at 2.9% or $2.5 5% of the production over the life of mine dependent on whether or not the mine produces over 100000 ounces per year.
What really makes us so excited about that of callout is the exploration of potential as you can see on slide 12. The stream itself is of 5 kilometer area of interest around the existing mining license illustrated black BR.
Beyond that we have additional royalty on the exploration ground with an interest area of interest as well, which isn't gold on that same map the.
The deposit itself as of caldera hosted at the thermal deposit with mineralization only a few million years old historical mining of the 7 million ounces come from only what would amount to a less slice of less than a quarter of that caldera. However, we do know that mineralization has occurred many other part.
Of the 7 kilometer diameter caldera.
There was a very large gold bearing system with several phases of the gold mineralization in this area.
Intersect visit this spring we saw new type of mineralization recently discovered within the existing mine workings that is reminiscent of a more typical hydrothermal brecciate epicentral deposits of perhaps even a feeder zone.
This mineralization has allowed the operators John zone to develop higher tonnage of more easily mineable stopes that had historically been found when looking at a more regional basis. This mineralization style may be more extensive and allow for more of.
Now for a new type of target to pursue property wide.
Part of the funds we provided in the stream will be used to investigate this opportunity.
And it's also not just John <unk>, who is the identified this either as of last week. It was announced that Zijin mining will purchase of 70% interest and will commit to spending $20 million of it on the exploration licenses on which we have royalties again, that's the air is the area of gold on slide 2.
<unk> of course, having such interest in 1 of the world's largest gold mining companies will have a huge impact on future discoveries.
Moving on to slide 13 for a quick description of the valet royalties.
From a technical perspective, we really like these assets because of the diversity of assets and the quality of product, particularly from the northern system assets with an approximate 65% iron grade share Sewell, Sarah nor taints or less day of such high quality assets. We can expect these mines to produce.
Almost any price environment.
Combined with valet being the largest iron ore producer in the world lowest quartile of iron ore production in the world and the World class infrastructure for transported shipping gives us reassurance that these assets will be able to produce to the end of their reserve lives.
And the reserve life, certainly could extend substantially for this royalty because in addition to covering these 2 very large areas of current line. There is a total of over 15000 kilometer square of ground covered in addition to the iron ore is of course exposure to copper and gold.
Currently it's the cigar is our copper and gold exposure in the northern system, but future copper and gold projects developed by valet, which fall under this royalty as well this royalty will likely be filled with positive surprises over the years.
Iron ore is not our technical expertise, but it is hard to argue with having a diverse royalty diversified royalty on these assets as the poor strategy, especially when you have such quality upside potential operated by 1 of the largest mining companies in the world on their home ground.
And with that I'm going to pass the call over to grant the operator for some Q&A.
Of course, please feel free to ask questions about any of our royalties and streams.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have the question. Please press the star followed by the 1 on your Touchtone phone.
You will hear 3 tone prompt acknowledging your request on your questions will be pulled in the order that they are received.
Should you wish to decline from the polling process. Please press the star followed by the 2 if you're using a speaker phone. Please lift the handset before pressing any keys.
Your first question comes from Heiko from H C. Wainwright. Please go ahead.
Hey, everybody. Thanks for taking my questions and I hope everybody is staying safe the feeling well.
Thank you.
The delay at the heart of my then walk us through what else could either accelerate or possibly slow down on the process from this point on.
And also if this question doesn't make perfect sense, I'm, sorry, because I'm not sure I exactly to ask it but what point are your prices for construction more influx in other words is there a point, where our pricing agreements run out or you know like inflationary things start kicking in anything like that.
Yeah, I mean, I would say that's the first part of the question in terms of things that could accelerate or slow things down.
We don't think of the construction is overly complex of the asset and we think that's a fairly.
Straightforward mine to build it doesn't take that long there aren't very many long lead time items, but 1 of those long lead times of items is the road.
That needs to go to the highway and.
My understanding of where that's at as of day sent that road contract out to tender they've got the pits back I believe.
They are in the process of finalizing because theyre going to choose to do that on the road hopefully you'll get the other construction by the end of this year and if if it does get under construction by the end of this year then the mine will stay on track outside of the idea of just the normal things like permitting.
I don't think we've seen any other potential.
The delays in construction of of the mine in terms of costs. This is a really interesting time to be building mines.
On a place for a higher around the world than it has been historically.
1 of the things that we I think benefit from an in country of that even though there's substantial inflation theres also a devaluation of the local lira.
And that helps to keep inflation under control there are still subject to increasing input costs associated with steel and.
And other commodities that are that are your input costs, but having said all of that.
Some of those increases were taken into accounts and the feasibility study that we're going to be putting forward and.
If we were to look at some of those cost say a month ago I would say some of the raw input costs a month ago. We're looking more extensive than what what was price in the feasibility study, but a lot of those drive the costs are already starting to Peel back and come down now we're starting to see.
Cement come off in some places and steel come off and some places in some energy cost come off in some places.
Certainly lumber prices around the world, they're down over the last month so.
We're starting to see some of those extreme increases in raw input costs dissipate and so I think.
Think there's a reasonable amount of conservatism built into the feasibility study. So when we when we release that I think it's at the shipyard fairly healthy reasonable conservative Doctor.
Fair enough no that was a very detailed very good answer thank you.
You have of chart on the bottom of page 22 of your MD&A that breaks down on your Geos by region.
South America of 61% North America is 31, let me to a question that keeps coming up in the Investor calls where people were thinking out loud.
In regards to Covid I know I'm the guy that brings it up have you have you seen an overall larger impact from Covid in Q3, thus far from the South American assets have results in any area of lagged expectations from the past call. It 1 to 3 months in any area of more than the others. Thank you.
Yeah. Good question, Thanks for asking it and certainly you know we are monitoring operations.
In fact, it but candidly the impacts that we find are related to timing.
Shipments and sales. So we do have some operations, where there is a quarter lag and depending on whether or not they meet the shipment that quarter.
We get that delivery in the if we don't the there.
The true up with with with respect to of contracts that true up in the subsequent year.
But an actual impacts so far we haven't noticed in any of our results in the material way.
Got it wonderful I'll get back in queue. Thank you very much.
Thank you.
Your next question comes from Matt Farwell from Roth Capital. Please go ahead.
My question I was just curious about the the valley royalty. If you can provide some background about how this came about and what valleys incentive was true.
2.
Zalviso.
That's true.
Rally of royalties adjusted for a long period of time of actually came many years ago when the.
The government privatized valley and they issued some of these royalties and they did another issuance more recently.
Predominantly to Brazilian funds and hedge funds and a few things and we were able to per.
Some of those entities and purchase them purchased them off of them.
We're pleased with the amount that we purchased but it's.
It's a royalty that we think makes a lot of sense and it's been around for a long period of time.
Great. That's all I have thanks.
Your next question comes from John Tumazos from John Tumazos, very independent research.
Thank you very much.
Could you refresh us as to.
What percentage of your stock is on did.
Gold specialist funds.
And the extent to which.
Having.
Certain fraction of your revenue of our assets in gold and silver.
Continues to be the goal.
My impression is that.
Old stocks or get into the single digit cash flow multiples.
Might even be out of favor.
And the iron ore business is pretty good.
On.
I wouldn't have any problem. If you did another transaction the size of.
What you just did in iron ore on the ratios.
Toward base metals, Scott a little bigger.
Cash flow is cash flow.
Yeah I appreciate that so we historically have had the rule, where we want to make sure that.
At least 80 per cent of more of our revenue long term is coming from precious metals gold and silver.
And with the Sally acquisition, I think our long term member of show or 85% precious metals as well within that.
We have more room to take on some of them.
Additional of on precious metals, having said that where we are of precious metal company and we're focused on acquiring more precious metals on the bulk of our the deal opportunities that we're looking at right now are of precious metals. The we're not afraid when it makes sense like you said.
To make acquisitions, where they just it's a good rate of return on our mining asset that's got a long life of exploration upside. So we'll continue to operate that way and I would agree with the comments.
With respect to sorry, what was the the last part of the question.
Do you want to keep that 80% goal of long term.
Yes, hi, guys.
A little bit Nolan changed the name of the copy the sandstorm cash flow yeah.
We do want to keep that 80% of long term.
But.
We're in what I would like to think of intelligent business people that were going on if a really really smart deal of sitting in front of us I think we'll likely take it but we are of precious metal company. The first before most of all continue to be of precious metal company.
And in terms of who owns S and gold specialty funds, but I would say in terms of actively managed institutional investors that our goals book of specialty funds. It is of very very low percentage.
Of the Sandstorm shareholder base, we do have.
<unk> managed so of Etfs. So we're in the Gtx wherein the Gtx Jay.
We've been in a number of other gold related Etfs, specifically in the U S.
But I would say is we have a lot of retail following in the gold space. So we didn't have a lot of I think the U S base retail investors that are focused on golden.
And as we said, we're a well diversified.
Gold royalty company and so we'll continue through the year well diversified gold royalty company.
Thank you.
The next question comes from Brian Macarthur from Raymond James. Please go ahead.
And good morning, just 2 questions on the valley situation there that the statement in the MD&A talking about another $8.1 million.
After the balance sheet, I guess with that in the original deal or is that additional.
I mean, I know it was announced after the quarter and it is that in addition to what's already been announced in your press release and my second question relates just to how do you and I get it going forward, it's going to come in with revenue.
All of the provisional pricing that can go on an iron ore do you get.
When you put your 5 point whatever million dollars in for that quarter is that true up until the June 30th or will there'll be another of job growth.
Going forward, if they have material.
That's being shipped in and there is an adjustment just trying to figure out the volatility we may get around it the.
Going forward. Thank you.
Yes, thanks for that so the original announcement of the transaction of $108 million of U S.
Of this royalty so we acquired that.
The.
The conversations with the number of different entities that all of it and so that was the total that we were able to acquire at that time subsequent to the announcement.
We found in other a couple of people to sell us of small amounts of the royalty. So we purchased another $8 million subsequent to that so the total is $116 million as it stands today so you're on.
But more of it today than we did on.
On announcement.
Date in terms of.
On the true ups, the there will be some sponsor ups going forward, but it's.
It's payable semi annually.
So there will be the some volatility, but we get paid in September for the first half of this year.
And sorry, just that's very helpful on just to be clear on the $8..1 does that get back data at 2 <unk>.
January 1st or because of with post quarter end that you'll only get 1 quarter on that I assume right.
The board from the date of acquisition right.
Correct.
Back data to January 1 so.
We will get the whole payment for that okay. Great. Thanks, very much that's very helpful.
Okay, operator, I think that's it for Q&A right now, but I would.
I recommend that if anyone has any other questions that they want to ask is where here of around I feel free to call us or email us and we'll make sure everybody gets the answers to the questions that they need just want to thank everybody for taking the time to listen to us.
We'll keep working hard to add value for shareholders and like I said feel.
Feel free to call us if you have questions. Thank you everyone.
Thank you ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask the please disconnect your lines.
Okay.