Q3 2021 Sandstorm Gold Ltd Earnings Call
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Good morning, My name is Michelle and I will be your conference operator today.
At this time I would like to welcome everyone to the 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. 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 and answer session.
If you would like to ask a question during that time simply press Star then the number one on your telephone keypad if.
If you would like to withdraw your question. Please press star two.
I would like to remind everybody that this call is being recorded today November 4th 2021.
And I would now like to turn the conference over to Mr. Nolan Watson.
Please go ahead Sir.
Thank you Michelle.
Everyone and thank you for going into this third quarter earnings call for 2021.
I am going to provide an update on the company, including our official announcements about becoming a dividend paying company as well as answers to questions that we've been getting from investors and then our.
Our CFO is going to walk us through the third quarter results.
And then Dave one of them is going to provide a brief update on a few of the assets underlying our streams and royalties.
After that we'll turn it over to the operator for a question and answer period.
Anyone have any questions that do not need to be part of the live Q&A you can ask those through the web portal and we'll ensure that each question. We get there will get a direct response from us.
Joel.
At this time, we'll be going through a prepared powerpoint presentation on the web portal. So if you're able to turn your attention there now.
First thing I would like to update everyone on.
It's usually the first question I get from investors during meetings.
The timing of the high margin.
And the status of the project.
My understanding of the project is now successfully completed every single stage of the EIA process with flying colors.
<unk> awaiting a signature to be granted.
As many of US who have been in the mining industry for a long time, well know sometimes this last step takes.
Takes a week and sometimes it <unk>.
Takes a few months depending on how busy the government individuals are.
Although we are disappointed with the delays and as the sandstorm shareholder myself, we'd much prefer to have that signature in hand, I'm happy that the project continues to move forward.
Any other ways, including other minor permits and government approvals to.
They keep rolling in the project continues to take steps forward even during this time.
In the meantime, sandstorm continues to not only be realizing strong cash flow from a streaming and royalty portfolio, but we are finally at the long awaited point, where our board has officially approved for sandstorm to become a dividend paying company.
This has been a long time coming but I'm, particularly excited to be able to share. These details with you.
What we've decided to do is initiated quarterly dividend each and every quarter going forward.
The first of these dividend payments will be paid to investors during Q1 of next year.
The exact details of the record date as well as the payment date will be determined soon.
The separate press release informing investors at those specific details.
Dividends has been targeted.
Initially at approximately a 1% yield per annum, which we feel walks the balance of us wanting to return some capital to shareholders and also sends a clear message that we are still a growth company. The bulk of our cash flow will still be used to grow the company aggressively.
This 1% yield works out to approximately <unk> Canadian per share per quarter with Canadian shareholders, receiving dividends in Canadian dollars and all of the shareholders receiving dividends in an equivalent value, but denominated in U S dollars, meaning non Canadian shareholders will be paid in U S dollars, but the amount of work.
Out to be a bit less than <unk> <unk> per share.
Our planet this dividend is to reevaluate the payout ratio.
Each and every year with the belief that if we're able to execute our business model well over time, you'll be able to demonstrate a long track record of annual dividend increases, while maintaining ourselves as a growth company.
I'm, particularly excited about this milestone for sandstorm and I hope most of our shareholders are too.
The next thing I would like to update shareholders on is another form of capital allocation has continued to be relevant to sandstorm and that is share buybacks.
As many of you know we have a long track record of stepping into the market and purchasing our shares whenever we feel we're trading at and unjustifiably low valuation and as our share prices come under pressure in recent months. We once again started repurchasing shares under our normal course issuer bid in.
In fact, we've now purchased approximately four 4 million shares in sandstorm during 2021.
The majority of which have been purchased very recently in September and October.
Over the past four years now we have repurchased $19 9 million shares which is over 10% of our company.
We believe that the delay in the hardboard permit has provided us an opportunity to repurchase some shares at very cheap prices and we've been very happy to do that over the past couple of months.
If our share price continues to stay in this range will likely continue to pick away in the market.
These shares we have repurchased over the past few years have been done at an average price of $5 40 U S per share, which we think is quite the bargain.
The last caller's question I'll address this morning is what is our current deal pipeline look like and do we think we'll be able to continue to grow in this competitive environment.
So I'll draw your attention to this next slide six.
So far this year, we have completed three acquisitions for a total of $153 million U S.
From what I see in our pipeline I think there is the possibility of another medium sized deal in precious metals in the next two to three months, depending on timing and if it closes by year end.
2021 could be a record year of acquisitions for sandstorm since inception.
We have plans to continue to aggressively grow the company and based on the potential deals we see in front of US we're confident that we can do that.
So far in 2021 that we have allocated a total of $180 million of use with the bulk of that capital for new acquisitions to grow the company and with $27 million of that being allocated to share buybacks.
Sandstorms portfolio is generating enough cash flow that we can continue to grow the company.
Answering shrink the share flowed and initiate a dividend.
I know that Theres been a recent sell off in gold equities around the world and Sandstorm has been particularly hard hit.
We're pleased to be in the enviable position of <unk>.
Growing the company.
Answering some this year flows and initiating a dividend.
It isn't hyperbole to say that the fundamentals of sandstorms business are stronger than they've ever been and we.
We will continue to build our business for shareholders.
With that I'll hand, it over to <unk> to discuss the quarterly results.
Thanks Nolan.
And thank you to everyone who tuned in this morning, and let me take a few moments and review the highlights from the third quarter financials.
On this first slide we see the trend in revenue attributable gold production and average realized gold price over the last four quarters.
During the third quarter Sandstorm generated $27 6 million in sales and royalty revenue from its cash flowing asset.
This represents an increase of approximately 19% compared to the third quarter in 2020.
The company sold.
Approximately 15500 attributable gold equivalent ounces at an average realized gold price of $17 79.
The slight reduction in ounces sold this quarter compared to Q2 with previously anticipated due to a few changes in production schedules of certain assets, which I will discuss in a minute.
Regardless sandstorm is on track for another record year of production with nearly 51000 gold equivalent ounces sold for the nine month period ended September 32021.
Back we're increasing the bottom end of our guidance and believe we will hit 64 to 69000 gold equivalent ounces in 2021.
The next slide compared to the third quarter of 2021 with the results of the third quarter in 2020.
As I've mentioned sandstorm realized a 19% increase in revenue and filled 29% more gold equivalent ounces when compared to the third quarter in 2020.
The increases were largely due to revenue attributable to the recently acquired valley royalty package.
And an increase in revenue from various assets such as the crude to adult Naughty mine.
In addition, the average price of copper and silver have increased by 49% and 36% respectively when compared to the same period in 2020.
Which contributed to the increase in gold equivalent ounces sold at our copper and silver royalty and streaming assets.
Moving down the list cash costs.
Per attributable ounce with $238 for the third quarter, resulting in cash operating margin of $541 per ounce.
Cash flows from operating activities, excluding changes in noncash working capital increased by 16% compared to third quarter in 2020.
And net income was up slightly at $6 6 million.
Taking a look at the production breakdown by asset on the next slide you will note that the amount of silver stream with a top contributor for the quarter.
Cerro Moro the underlying asset of the amount of silver stream contributed over 2300 gold equivalent ounces in Q3.
Despite leaning the portfolio and production silver deliveries were down slightly.
Under the stream agreement there is a lag of one quarter for silver deliveries from the Cerro Moro mine.
For example, the attributable ounces in the third quarter is based on the mines production in Q2.
Cerro Moro second quarter production was down slightly compared to the previous period, partially due to site improvement that were originally slated for.
For the second half of the year.
This decrease in production was partially offset by the increase in silver price that I mentioned previously.
It is worth noting that there is an annual cap of $1 2 million ounces of silver under the stream agreement.
Which works out to 300000 ounces per quarter.
At Sandstorm hits this cap in one quarter, but not all quarters there.
There is a truck delivery that occurs at the end of the year, which will be realized in our first quarter production figures.
The Japan copper stream with another strong contributor to third quarter production.
Compared to the third quarter in 2020, Japan contributed over 80% more gold equivalent ounces.
This was largely due to the increase in average selling price of copper over the last year.
As I mentioned earlier, the newly acquired Valley, a royalty package, which a large contributor to the Companys production results.
The long life assets underlying the royalty package, where a welcome addition to Samsung portfolio in June of this year.
The other part of the deal announced in June with Nevada cooler gold stream.
This transaction is expected to close in the fourth quarter and we expect the fixed gold deliveries to begin soon thereafter.
The next slide provides a breakdown of the third quarter production by region and metal type.
Nearly 40% of gold equivalent ounces were attributable to North America and over half coming from South America, largely driven by Cerro Moro Chip Hatter and the valley a royalty package.
Looking at metal type two thirds of production came from precious metals.
Over half of which was gold.
The 30% of production from base metals is largely driven by the Companys copper assets in the valley royalty package.
Sandstorm remains focused on precious metals, and we continue to anticipate approximately 80% of revenue coming from Golden Silver by 2024.
Finally, I want to highlight the company's increased revolving credit facility that was announced in October.
Sandstorm amended its revolving credit facility agreement, allowing the company to borrow up to $350 million to the U S.
Was it new loan Sandstorm became the first royalty company to establish an ESG linked credit facility.
And one of the first mining companies to have an internally customized kpis based facility.
This loan incorporate sustainability linked incentive pricing terms that allow us to reduce the borrowing costs of the company's sustainability performance targets are met.
These performance targets include increasing the percentage of our investments that align with sustainability and climate related reporting standard as.
As well as maintaining or improving certain external ESG ratings and diverse representation amongst senior management and board members.
Since the beginning of Sandstorm manager has been committed to taking actual instead to improve ESG factors that our industry and that's why we continue to be highly rated across so many different metric that.
Right the companies in the industry.
And I am, particularly pleased to be part of innovative solutions like this that benefits shareholders, while also improving corporate responsibility.
With that I'll pass the mic over to Dave for some asset update.
Thanks, Stephane as this quarter and will focus on developments on three of our larger projects that have all had great exploration success a trend we expect to continue for all of them.
In September <unk> announced the results of the pre feasibility study on a future expansion or zone that the project is now expected to produce an average of 137000 ounces of gold per year over 11 years with the extra life coming from an underground mine under the curve.
And two satellite open pits.
Whats really exciting about this new plan is that at least door open for.
Additional satellite pits and of course additional underground material, both <unk> and <unk> were discovered years ago, but other more recently discovered zones like coach Toro may strategical at <unk> North trend are still yet to be folded into potential mine plan, but all remain legitimate.
Candidates for further development.
Beyond that area are the greenfields areas to the south which hosts the same perspective rocks underground there yet remains opportunities to explore at depth.
Equinox has done a great job of revealing of the potential of this asset and with any luck. We may see the mine life extend much longer than the current 11 years.
Moving on to lending gold and proved up more tape, we see some great operational results from the mine with now at least five quarters in a row of beating expectations on production.
<unk> has been talking about this year's mill expansion from 3500 tons to 4200 tonnes per day operation for almost a year and as of today. They are mining at a rate of 4200 tonnes per day.
The stockpile in with your speaks to their confidence of completing the expansion and processing at the higher higher rates soon.
Lending also continues to focus on resource expansion of particular interest is the current inferred resource which is being drilled from the underground.
Sites, hopefully this will add meaningful life to the mine.
In addition, they are well into their long awaited regional exploration program of our basketball and <unk> Princess up within the Suarez pull apart basin.
This exploration is focused on finding a lookalike prudent deposits previously untested, but prospective areas other regional targets will be pursued once permits are obtained.
Initial assay results are expected this quarter on at least of our basket target, but by early next year. We should know whether these are new discoveries within the basin.
For Cerro Moro speak a little bit about how the deliveries of work quarter to quarter and then a little on some new plans for expanded production.
In Q3 high clay content cause clarification challenges, but despite this production was 86% higher than Q2.
And a further increase as expected into the fourth quarter, a new method of feed blending in of new supply a feedwater had been implement implemented which seem to have increased recoveries overall will go a long way to addressing this problem humana.
Humana has also opened more mining phases to increase mill feed which is another trend expected to continue.
Q4 is expected to have the strongest quarter of the year and the mines should get back to normal rates compared to the beginning of the year and as our Fad pointed out earlier, there was one quarter delay in delivery. So expect this better this better Q4 performance at Cerro Moro to be reflected later on for SaaS one.
As for expansions Humana has comment on and the ability to scale up to as high as 2200 tonnes per day, which is double the original design and they expect to do this at a minimal cost the additional tonnage may come from existing material that is currently below cutoff grade.
But could be become economic based on the increased throughput. In addition to the expanded milling scenario under study Cerro Moro is also contemplating a potential heap leach scenario recognizing that there are lower grade oxides presence allows for the opportunity to examine this potential new by a method and <unk>.
<unk> study has begun and middle <unk> work is ongoing as they studied. This addition to the overall production at Cerro Moro.
Exploration work continues to focus on the Escondida Zoe structural corridor with success, along strike and down dip the bulk of the samples taken this year is still out for assay. However results received have indicated that they are seeing strong success within this quarter ago.
On a more regional basis, they are employing more geologic mapping geochemical sampling and C. S. M T geophysics to identify targets so.
So far Scott Julian has found some promising targets and are in mind you that this is a very large area over 2000 kilometer square under our AI. So we hope much more high grade materials to be discovered on the property.
So with that I'll pass over the call to the operator, Michelle for a Q&A. Please feel free to ask questions about any of our royalties and streams.
Thank you Sir.
Ladies and gentlemen.
I would like to ask a question. Please press star followed by the one on your Touchtone phone.
If you would like to withdraw your question. Please press star followed by the channel.
Please standby for your first question.
Your first question comes from <unk>.
Of H C. Wainwright. Please go ahead.
Hey, its cycle how are you.
You already answered my first question in relation to help my Dan in your prepared remarks, but I got just two more a little quick one's for you there.
Can you elaborate a bit on the environmental social and governance linked credit facility I've never really heard of anything like that from.
And Google searching earlier today and are rolling fuel results frankly.
A few banks and firms what exactly are the terms and benefits I mean, you mentioned various targets earlier on this call, but maybe just in more detail.
And also assuming you hit these targets what does that do to the rate that you have to pay versus just having a normal facility I guess in other words I'm trying to say is this mostly punishment cesc's Orange Smith or what's your upside if you actually deliver.
Yes, thanks, so much for that question and.
Yes, I agree that not many companies, especially in North America familiar with ESG linked loans something that original mainly in Europe, and it's slowly made its way into the markets here and so you can see that that being the first that theres a lot of questions on it.
I'll maybe address the last point of your question about what is the impact the impact of the facility and the ESG ratings.
If we're able to hit those ratings the impact on our pricing is about five basis points from weather.
Whether it's drawn or standby on basis and the extent, we are very off side on those.
<unk> metrics then you can.
Unfavorable pricing of the same amount of five basis points. So.
It's not a material impact on our cost of capital, but I think signals the things that we care about and the things that are important and those specific metrics are one as entity that get to deploy capital. We can encourage the people that we deploy capital to and meeting certain reporting standard from a carbon sustainable.
<unk> perspective, and so theres some formula as a percentages there to get there, but as you can see her as our portfolio matures and the quality and strength of our Counterparties improve you can see that we.
We will hopefully be hitting a lot of those metrics the other one being.
Standard and Poor's, they do a rating of a company based on essentially various metrics from from water usage and carbon impact to governance.
And the social impact that the company has and then they give you a score and that score.
Like AAA or <unk>, all the way to be similar to other rating agencies and sandstorm were actually rated double a and I don't believe any other mining company out there that has a higher rating than us and so the key is maintaining that rating.
And then the third component is as we start sandstorm many years ago over the last decade.
We've ensured that our workforce senior management and board is diverse and we have about 40% of our senior management board members that have that diverse mix of thoughts and opinions and.
And makeup and the metric under the ESG loan is improving that or maintaining that threshold. So that's the summary of the ESG linked loan.
Got it and then just just thinking conceptually here I mean, you are initiating the dividend and you also have a quite meaningful share repurchase program.
Thinking out loud here do you think the shareholder returns from the dividend are going to be in addition to returns from the share repurchase program or do you think the repurchase figures that we saw in Q3 and frankly also in Q4, thus far are likely to shrink in the longer term as the dividend keeps growing.
So the way we look at it as now we're a dividend paying company, we're going to have that dividend repayments to shareholders be a permanent thing and hopefully growing year over year over year. So when it comes to share repurchases the way, we're going to be evaluated as Wayne.
The capital allocation of share repurchases versus the capital allocation of acquiring new streams and royalties.
It's my hope that over time as we continue to build the company that our share price will re rate and trade more in line with our peers in which case, we will probably stop buying back shares and refocus all of that capital to aggressively growing the company.
It takes time and we continue to trade at these low multiple youll see some of that capital being allocated to share repurchases.
The interplay of those two is going to determine how much capital gets allocated to share repurchases.
Makes sense, thanks for taking my questions I'll get back in queue.
Yes.
Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press star one on your telephone keypad now.
Mr. Watson there are no further questions from the phone lines, Sir I'll turn the conference back over to you.
That's great. Thanks, Michelle and thanks, again, everybody for calling into today's call and as always we're going to be here in the office. All day. If you have any further questions feel free to just one of US here at the office and we'll answer them.
Have a great day.
Ladies and gentlemen that does conclude your conference call for today, we thank you for participating Kenneth such please disconnect your lines.
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