Q4 2021 Sandstorm Gold Ltd Earnings Call
Good morning, My name is Dennis and I'll be conference operator today at this time I would like to welcome everyone to the <unk> 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.
Could 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 a question. During this JM simply press Star then the number one on your telephone keypad. If you would like to withdraw your question. Please press <unk>.
Mr. Watson you may begin your conference.
Thank you operator.
Everyone and thank you for calling into this 2021 earnings call.
We have a lot of things to review, including the 2021 annual results as well as the announcements that we made yesterday relating to the creation of horizon copper and the turning of our cloud model interest into traditional strength.
I have to admit that it feels good to be sitting here today discussing record annual revenue and record annual cash flow, while simultaneously being able to lay out an elegant path forward with our hot modern street. So that sandstorm continues to set even higher records in the future.
Sandstorm back into a pure play precious metals streaming and royalty company.
In a few minutes I'll hand, it over to <unk> to talk about the specific 2021 results, but prior to that I would like to explain both the specifics of the transaction with returning our hardboard interest into a traditional stream, but more importantly, I wanted to discuss the Y and specifically why this way.
For those retail investors, who may listen today I can tell you that every single time.
With one of our large institutional shareholders that own millions of dollars of our shares.
Every single time, the first two questions they ask or tell me about hot modern when it's getting it's permits when youre turning it into a stream and then they ask do you think you can grow sandstorm with so much competition in the streaming space, that's driving down the average returns on streams.
I've answered those two questions over the last couple of years literally hundreds of times.
The truth is.
They're good questions that should be asked.
Fortunately for US hard modern CIA was granted last quarter and through this transaction. We are now turning it directly into a stream, which we believe will trade at a higher value in sandstorms portfolio. Because we were once again, becoming a pure play streaming and royalty company and <unk>.
Through this transaction, we are putting the risk of Capex overruns and the risk of operating cost overruns into this new company horizon copper <unk>.
The reason as to why we're doing it this way as a response to the second question that those institutional investors keep asking but how does sandstorm grow in a competitive environment.
And Sandstorm in addition to growing in the way we have in the past we believe that the marketplace will get us higher rates of return we can get higher returns for our shareholders. If we work with a select group of growth oriented mining companies and become their streaming partner of choice so that when they buy new mines.
We are the only streaming company that they are talking to about the financing of that mine acquisition.
We're currently in conversations with a couple of existing mining companies that may become future partners of Sandstorm will buy a gold stream on the next mine they purchase.
In addition to talking to existing growth oriented mining companies, we decided to actually create one horizon copper.
On copper.
I personally am a big believer in copper.
I believe it's needed desperately to help electrified the world and to help reduce climate change and I believe that by the year 2030, which isn't too far away there will be a 20% structural deficit of copper production around the world relative to demand and therefore, the copper industry is going to have to grow to fix that and the price of copper.
Definitely going to have to rise in the process.
Fortunately for us the majority of the worlds gold byproduct production comes from copper mines.
So I see a great symbiotic opportunity to create horizon copper. It goes forward partner directly with sandstorm, where horizon copper will look to acquire copper mining interest around the world.
Sandstorm can help make those acquisitions, a reality by buying a gold stream or a silver stream upfront upon acquisition to help pay for the acquisition.
I believe it will have the potential to get sandstorm much much higher rates of returns on the streams that purchases, but also it allows sandstorm to help horizon copper grow its business.
The world needs copper now more than ever and it just so happens that I believe gold streaming companies such as Sandstorm will play an important role in that industry and we can be a part of the solution to climate change, while staying a pure play precious metals streaming and royalty company.
That is the why we're doing it this way.
I want to emphasize to investors that this is only the baby first step for horizon copper we're already in the background is looking for such acquisitions that we can make together, where sandstorm will have the precious metal stream and rising copper will have the copper mining interests.
So stay tuned for more deals in the future with this partnership model for growth.
Now to dig into the details of the transaction, we're selling our 30% Hoffmann stake to horizon, and we're taking back three things.
The first is <unk>.
<unk> on 20% of the gold produced at heart modern myth.
The second is a 34% equity stake in horizon copper and a third is the $95 million IOU or debenture from rising copper to be paid to sandstorm in the future.
We're also contributing our equity stake in the equity shares we hold in entre resources to horizon copper. However, sandstorm will continue to hold and own the stream that we already have on the turquoise hill through on free resources.
I would like to clarify a couple of points about this $95 million debenture or IOU.
That will be owned by horizon copper sandstorm.
I have already noticed a couple of analysts that are discounting the value of that debenture by using a high discount rate and assuming a bullet repayment in 10 years.
Although this transaction is still at the letter of intent or LOI stage and the final debenture is yet to be entered into the LOI specifies that horizon must payback the debenture with excess cash flow from hot model.
At rising copper cannot simply sit on the cash it makes sense to wait to get paid back.
We structured it this way so that in the first few years of the mine life Sandstorm will still effectively be receiving all of the cash flow from op margin either through the stream or through the repayment of the IOU.
It's also worth mentioning that the LOI also states that as long as sandstorm maintains a material equity ownership position. It has a right of first refusal on streams sold by horizon copper now as horizon copper grows its business and issues more shares it starts dilute sandstorms ownership position we have.
Structure, the IOU, such that sandstorm can elect to convert portions of the IOU to shares to ensure that it doesn't get overly diluted.
So that sandstorm can keep its right of first refusal without sandstorm, having to contribute any further cash we thought this would be good flexibility for sandstorm behalf.
Overall this transaction will have many regulatory hurdles to cross and it will take several months to complete.
Necessary shareholder votes, the exchange approvals et cetera, and we believe that the actual closing of this transaction is likely to happen in the second half of this year.
So worth noting that our investor relations team is uploaded a video that goes into much more detail on the transaction, but I have time for on this call. So I would encourage anyone who wants to know more and truly understand this transaction to go to our website and watch that video.
Briefly I think it's worth mentioning details about rising copper and who will own it.
As noted sandstorm will be taking a 34% ownership stake and I will sit on the board as chairman as.
As part of this transaction, there will be a $20 million financing for horizon and anyone including the public and people listening on this call can participate in those new share and those shareholders will own approximately 40% sorry, 47% of horizon.
This $20 million combined with the cash already in the company combined with the $10 million at Sandstorm is contributing will be the amount of hard modern capex at horizon will be required to contribute to get the mine up and running.
There are some existing investors in that entity.
Including myself.
And it's important to note that because my reputation is very very important to me we ensured that the value of the shares at sandstorm is receiving.
It has no implied shell value or lift as some people call it.
Normally in transactions like these there would be a shell value, meaning there might be no assets or no cash in the vehicle and sandstorm would effectively have to pay a few million dollars in value to take control of the public vehicle that had no real assets. In this case, however, the shell value with $0, meaning sandstorm got to you.
Used vehicle with no leakage in Nab.
The implied value of the existing shares that sandstorm is receiving a horizon is equal to the cash in the company plus a conservative value estimate of the one asset the shallow company has which is a royalty that pays approximately $1 million a year every year.
And as I said, we've structured this transaction. So there will be a $20 million financing that will be done at the same implied price per share. So if there are people out there who are bullish on copper you can invest at the same value per share.
And on that note we.
<unk> had a very strong amounts of interest in this horizon copper financing already and literally within an hour of the press release going out yesterday, we had millions of dollars of investor demand sort of immediately coming in.
I'm not the only one here that's bullish on copper as well as Gould.
Now in terms of the specifics of what does this gold stream look like.
The stream will be for 20% of the gold produced by the Hot modern mine with a purchase price of 50% of the spot price of gold.
This mine should be able to produce gold for five or $600 an ounce. So even on the ounces that sandstorm is buying horizon copper should have some profit on those ounces plus the gold ounces that are entirely horizon as well of olive horizons interest in copper.
One sandstorm has purchased 405000 ounces of gold the stream will drop to 12% of production for the life of the mine.
Some investors will note that this transaction brings down our production guidance in the future, but what's important to note is two things one sandstorm no longer has to pay the capex.
So, whereas before transfer I'm still had ongoing financial obligations to the mine.
Now it no longer does.
To transfer them is getting back a considerable IOU and the transaction that is just shy of 10% of the value of our entire company.
So from an overall NAV perspective, but NAV is approximately the same it's just that sandstorms risk is materially reduced and we are once again, a pure play streaming and royalty company.
I think it's also important to note that our cost when we originally bought this 30% interest in hot model was approximately $180 million.
And we are monetizing it for a $200 million stream and shares and a large IOU. So we're crystallizing a considerable amount of profit over and above our cost base.
Looking now at our track record of growth over the years, we've had a new production record every single year since inception with the only exception being during the dark days of Covid, one some of the mines temporarily curtailed operations.
You can see that consistent growth from this production charge.
What this chart doesn't show however is the complete transformation over the years of the quality of our portfolio as well as the average mine life in our portfolio and.
In 2016 for example, with around 50000 ish ounces of production per year. Our average mine life was only about eight years.
Only five years later fast forward to today, we not only increase our production of 68000 ounces, but the average mine life in our portfolio now stands at 16 plus years.
Literally doubled in the last five years.
So we're not only growing our production per year, but we're also increasing dramatically and growing the average mine life underlying our streams.
It is not an easy feat to grow both of these things at the same time, but we have managed to do it.
Samsung is a growth company and I personally find it exciting to be in this position with our production growing from 68000 ounces last year to over 100000 ounces in a few years with absolutely no additional cost to sandstorm. This is all now bought and paid for growth.
If you compare how much growth, we now have fully bought and paid for compared to the peers in our industry. It is clear that sandstorm has more growth built in than anyone else and now as of this moment is that growth is largely permitted and has officially in the form of our stream.
I'm excited about the state of our company.
Excited about the growth coming from within the portfolio I am very bullish on the gold price.
And I'm excited that we have both the opportunity in front of us to grow and the balance sheet flexibility to do so so shareholders can expect further growth through acquisitions this year.
Before I turn it over to <unk> I would like to take a minute to thank the sandstorm employees for working so hard these past few months.
Normally I wouldn't do this on an investor call in fact, I've never done this before on an investor call.
I know our employees do listen to these and I can say I have never before been part of a team that has put in so many hours of work.
Day after day.
These transactions are not only hard to put together and to complete in their own right, but they are only the tip of the iceberg on the number of deals that we're working on behind the scenes. Our team has been putting in <unk> 16 hour workdays literally for months now and because we are a small team. It may be months more of work like this so I just wanted to take the opportunity to thank them.
I'm proud to be working with these people as part of the sandstorm team and I think if our investors saw how hard they are working they would be proud to.
I'm very excited about where we're going with this company and with that I'll hand, it over to <unk> to talk about the 2021 results.
Thanks, Nolan and I Echo those comments as well.
'twenty two is certainly shaping up to be an exciting year for sandstorm shareholders and.
I want to take the next one to look back at 2021 and cover a few of the financial highlights.
2021 continued the trend of record revenue and production at Sandstorm for those joining us on the webcast. The chart on the left hand side of this slide shows this trend over the last four years.
Revenue in 2021 came in at $114 9 million and attributable gold equivalent ounces were 67548.
This is approximately 23% and 29% increase respectively compared to the year previous.
It's worth reminding investors that 2020 production was affected by temporary shutdowns at certain operations due to the pandemic.
But this year all cash flowing operations appear to be back on track.
Okay.
The second chart on this slide shows the year over year trend of the average realized gold price.
Each remained relatively constant at around 1700 and $80 per attributable ounce.
This next slide provides a bit more detail on the financial results for the year ended December 31 2021.
Along with the year over year comparison.
The total revenue figure I mentioned with comprised of $71 $7 million in sales from our stream agreement and $43 $1 million in royalty revenue.
These top line figures were driven in part by the increase in silver and copper prices in 2021, when compared to 2020.
In particular, the amount of silver stream that chip had a copper stream as well as the addition of the valley royalties package that we acquired in June all contributed to the increase in revenue this year.
In a moment, we will walk through more detail regarding a few of these assets.
Continuing down the list with an average realized gold price per attributable ounce of 17 88, the average cash cost for the year with $249 per attributable ounce.
This resulted in strong cash operating margins of 15, <unk> hundred $39 per triple gold equivalent ounce.
Sandstorm also set a new record for cash flow from operation, excluding changes in working capital at $83 $5 million.
This is an increase of 22% compared to 2020.
Finally, net income for the year was $27 $6 million almost double the company's net income in the previous year and another record for the company.
Yeah.
Looking at the quarterly results in more detail total revenue for the three months ended December 31, 2021 was $29 $8 million.
And attributable gold ounces for the quarter totaled 16586.
Taking into consideration all four quarters of 2021, we noticed a relatively consistent stable trend in revenue and production throughout the year.
Comparing the three months ended December 31, 2021, with the same period in 2020 total revenue and attributable gold ounces were up slightly.
The latter representing a 5% increase year over year.
The average cash cost per triple ounce for the fourth quarter with $224, resulting in cash operating margins of $15 34 per attributable ounce.
This was down from 16 $132 per ounce in the same period of 2020.
Cash flows from operating activity exclude excluding changes in noncash working capital were comparable to the fourth quarter in 2020 at $22 1 million, while net income for the fourth quarter with $7 4 million.
The decrease in net income compared to the fourth quarter. In 2020 was partially attributable to a decrease in gains recognized on the revaluation of the company's investment during the three months ended December 31 2021.
On the next slide we see the top contributors in the portfolio for 2021.
The amount of silver stream, which is from production at the Cerro Moro mine contributed over 14000 gold equivalent ounces in 2021.
In January the amount of Golden ounce production at Cerro Moro continued to benefit from access to additional mining faces, which supported the increase in mill feed coming from higher grade underground ore and stable throughput.
According to the company the mine had its strongest quarter of the year producing over 58000 gold equivalent ounces.
Due to the timing of when sandstorm received deliveries from Humana Sandstorm would expect to see strong first quarter production delivered from this asset in 2022.
As I mentioned earlier, Cerro Moro with the key beneficiary of the nearly 30% increase in sandstorms average realized selling price of silver between 2020 in 2021.
The Japan copper stream with another strong contributor Sam term in 2021 with nearly 8500 gold equivalent ounces sold.
Recently, Lundin mining reported that Japan had exceeded copper guidance for the year.
Similar to Cerro Moro sales from the Japan copper stream benefited from a rise in our average realized selling price of copper, which increased from an average of $2 73 per pound. During the year ended December 31, 2020 to an average of $4.04 per pound during the equivalent period in 2021.
Other assets to highlight on this list includes the addition of the valley of royalties package.
Sandstorm purchased the valley royalties in June 2021, and the transaction was the largest royalty transaction our acquisition of the year.
The royalties contributed over 5700 gold equivalent ounces sandstorms production. These are long life and low cost assets are expected to produce for several decades.
The last asset I want to touch on is the origin of mine.
<unk> contributed just over 5500 gold equivalent ounces for the year.
Operator, Equinox gold released a pre feasibility study in September 2021.
This PFS outline an expansion to <unk> through the development of underground mine and additional satellite open pit deposits.
Which would be operated concurrently with the existing open pit mine.
The assessment outlines a total production of one 5 million ounces of gold over 11 year mine life.
As a sandstorm shareholders and encouraging to see this study.
Outline further upside or zona.
As a reminder.
<unk> has a 3% to 5% sliding scale MSR royalty on the Oregon project at current gold prices between $502000 per ounce. The royalty is a 4% MSR increasing to 5% MSR when the gold price is above $2000 per ounce.
The next slide provides a breakdown of sandstorms attributable gold equivalent ounces for the year ended December 31, 2021 broken out by region and metal type.
Over 90% of production came from asset operating in the Americas with over half coming from South America.
Sandstorm remains a precious metal focus royalty company with nearly 70% of attributable gold ounces from precious metals.
A few final highlights from the year before I wrap up.
As many of you are aware sandstorm declared its first dividend in 2021, which was paid out to shareholders in January of this year.
With a stable and consistent growth to sandstorm has demonstrated over the last several years. It feels great to be able to include the dividend is another way of returning capital shareholders.
This is in addition to the $5 5 million shares of the company purchased and canceled two with active share buyback program in 2021.
Another highlight this year with regards to our continued efforts to ensure sandstorm is a leader in sustainability.
Sandstorm became the first royalty company with our credit facility tied to various sustainability goal.
Incorporating incentive pricing based on the company meeting certain ESG related criteria improve their sustainability efforts, while benefiting shareholders at the same time.
The $350 million revolving credit facility represents an increase of approximately 55% and sandstorm credit capacity further expanding the company's available capital for future acquisition.
And as Nolan mentioned earlier, we're quite busy working on a number of opportunities.
2021 was a busy year for sandstorm in many ways and with today's announcement that Nolan discussed earlier I expect that 2022 will be truly transformative and with that I'll turn things back over to Nolan.
Thanks are fine.
We're going to turn it over in the second year to a question and answer period after the operator, but because the transaction that we're going to be talking about I'm guessing we're going to have a lot of questions and I do want to be sensitive to People's time. So what we're going to do is we'll only take questions right now from analysts that cover sandstorm and so.
All of our investors, we're all sitting here in the office phone Us E Mail us. After this meeting and will give us all the time and attention that's required to answer any and all questions from investors, so with that I'll hand, it over to the operator.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on you touched on film.
We'll hear from Brian the cloud generic question. Your question was will be bold in there. The day received should do we should decline from the polling process. Please press star followed by two if you're using a speaker phone. Please lift the handset before pressing any keys.
One moment. Please for your first question.
Your first question comes from Josh Wolfson with RBC capital markets. Please go ahead.
Thanks very much.
So when you think about the overall risk from this transaction ultimately theres no additional risks that's created or reduced its ultimately sort of declined.
On a.
Sandstorms basis, but increased four for.
For the RTL company horizon so.
In the event that there is a.
Default or crime.
Crunch for Horizon, what is the seniority of the stream at the IOU in in that capital structure.
Yeah, Great question so.
Horizon is going to be going and doing its own equity financings.
Two.
Yeah.
Putting the capex to build the mine and those types of things and as horizon grows at all.
Through further acquisitions, it will be able to sort of bear the brunt of those risks and the interim step Youre right <unk> is the main asset so.
Its ability to absorb shocks is going to be based on how much money. It raises and how much money is capable of raising going forward. The good news for horizon is that the asset is hot modern and and the pricing that we have moved the asset overrun already leaves some buffer for capex overruns, and it's still to be good.
Transaction for investors in horizon copper.
In terms of the hierarchy of the debenture it will be the only debt in the entity.
So that that will be secured by hard modern interest.
And the all the cash flows from hot modern whatever they may be have to be paid back either to sandstorm stream or that IOU first.
Okay.
And then the seniority of the.
Actual stream.
So the stream is senior secured against the 30% on a lot of interest.
Okay.
And you mentioned horizon looking for external capital and I assume that partially with face original or the initial financing.
The initial structure indicate something like $30 million ish of cash, but theres going to be $100 million of capital required for its pro rata.
Initial capital score card Madden, plus the $95 million debenture payables. The same storm. So it's a pretty levered structure and as you identify it will likely look to raise equity. So when you think about the path forward for horizon and its equity financings.
<unk> storm going to consider maintain.
Maintaining its pro rata stake or contributing to that or is this is the motivation to diluted interest down over time.
As I mentioned in the comments before so one of the reasons for starting horizon is so that we can make future acquisitions, together and sandstorm, having a greater efficiencies on any screams and it issues.
And that right of first refusal would be lost if we diluted our interest down too much. So certainly our rosemont to do with the interest and lose that that would sort of defeat the whole purpose of why we're doing this.
Way in terms of the actual capital upfront.
We just had a meeting with our partners made in selected again last week.
And they reconfirmed that the plan for the assets, which is well underway.
For financing is to finance it two thirds of the Capex.
At the asset level, which means that horizon will not have to contribute.
Portion of the capital that was debt finance so its contribution as it currently stands is only expected to be $30 million and so horizon in order to complete this transaction with sandstorm has to do a financing large enough so that they'll have that $30 million in hand.
Is there any overruns on Capex and horizon, we'd have to go in and raise additional capital for that.
Okay.
I guess that that creates sort of issues down the road.
Given that the stream will be payable to sandstorm when production starts but the cash from the assets can be repaying the debt.
For at least the first couple of years.
No.
That's a good point so we've actually done this on a number of our streams before it's actually pretty normal when you are.
Financing the construction of the mine so take a step back with horizon copper, we're going to be looking at situations, where we're buying existing mines going forward, but if you are if you're paying for the construction of the mine and he turned the mine on it almost never actually makes any money in his first year, usually doesn't even start Washington faithful year, two and start making money by year.
Three so we've been in situations a number of times where.
The Companys OSV hold under our stream.
They don't have the cash because theres still fixing the mine and so what we do is we give them a temporary loan that says here's the money to pay us the goals.
But you would know also owe us the money back as soon as you get cash flow next year. So it will probably look to do that in this particular situation during the period of time, where at the asset level in Turkey. They are paying back the debt.
Horizon is having to deliver to sandstorm.
On storm stream now, having said that horizon copper is very successful and it gets very large and it doesn't need that backs up and we will provide it.
Great Alright, those are all my questions. Thank you very much.
Thank you. Your next question comes from Brian Macarthur with Raymond James. Please go ahead.
Hi, Good morning, two more questions just within the horizon offer if the copper price goes to say five years fixed box will you hedge in there to kind of protect the cash flows coming out therefore accelerate debt repayment and stuff I mean, what the general thinking on that structuring and the second question is there.
Any.
Tax benefit or leakage in this transaction.
Im not quite sure how it's structured before you would have owned a.
Assume a dividend stream coming out now youre going to be taking a.
Stream.
And then payments out of horizon as I understand it from the data as you go forward any color on that would be helpful.
Okay.
Okay.
Yes, so on the first question.
If we're right on the copper price and cost prices go up I mean, you mentioned $5 I wouldn't be surprised if I.
The late 2020, that's $10.
But certainly the way we've structured this deal is that Theres, a cash sweep on any additional dividends until that ious paybacks. So copper prices go up and horizon <unk> cash Ling <unk>.
Dramatically more than anticipated that accelerates to payback of the Iou's of sandstorm would get that net cash flow upfront.
In terms of the the.
Second question, sorry, its already escape in my mind here.
Just prior beyond me to figure it out any tax efficiently or leakage in the.
Slow given before you owned 30%.
A dividend now youre getting stream versus.
Jeff back from whatever.
Just conceptually is there any tax leakage and all of this structure.
There is almost no tax leakage, it's actually one of the reasons why this took us so long to get here is we've spent a lot of time and a lot of money.
Tax advice.
Good.
Enact this entire transaction without anyone asking for tax upfront.
You've got certain cost bases that already exist in certain entities that we inherited when we bought Mariana so.
We're doing a very very careful step by step a series of transactions behind the scenes to make sure. There's no tax invoked upfront on this transaction.
And the way we're doing it as you get a full depreciation tax shield in Canada on the $200 million.
<unk>, so that it's shielding sandstorm golds from having to pay tax on midstream.
Right. So the stream on have basically zero percent tax is that correct.
Pretty close it'll have a tiny bit of toxins incrementally, but not very much at all.
Great. Thanks, very much NOLA and Thats very helpful. Thanks, Rob.
Exploration all of this as it is.
Yes.
That's somewhat complex transaction.
Yes.
Thank you. Your next question comes from Derick MA with TD Securities. Please go ahead.
Thank you.
Question.
Okay.
That would be great.
All right.
Yeah.
Future.
Okay.
Sure.
I Couldnt hear you, it's not coming through very clear.
Alright et cetera.
Hello.
That's better.
Okay, sorry about that.
Broader question why would a growth company looking for copper asset the Greek to bilateral negotiations on streams with Samsung whats the benefit to them.
So we've found this a couple of times already is if you're a company that's going out trying to acquire mines, sometimes even if you're close to being the high bidder.
It's not clear to the seller of that mind that you have the financial capacity to complete that acquisition you lose the process.
And so walking hand in hand, with sandstorm, where sandstorm can actually have be in the data room. During the mining sale process and say definitively here is what we are able to contribute and provide.
A letter to them so that the seller of the mine knows that the entity is good for the cash portion of the transactions. These transactions aren't always just cast sometimes they are sometimes it'll be a combination of shares of the acquirer and cash and sandstorm would be coming in with the cash portion of that and giving them an advantage there.
And.
And sandstorm quite candidly, we being a streaming and royalty company, where in the deal flow of the industry more so than any one individual mining company, we see more than they do.
And often you think it'll be us and our team actually taking the acquisition opportunities to that partner company.
Does that mean, Samsung Google Enterprise shares.
<unk> capital as well as in those kind of situations.
So in the case of Horizon for example, we would own one third of the company and because we have ious, we have the ability to not provide equity capital, but to avoid dilution. We can convert the IOU into shares if we want with the decision that we would have the rights to make at that time, an individual circumstances, but.
But I think youll see and just being candid here is for the first transaction or two with horizon Youll, probably see sandstorm come in by the precious metal stream and.
And maybe help with some of the other purchased costs to be paid back again in the future and then once because horizon needs to get to a critical mass. So that it can go out and swing big and try to buy really awesome World class large copper mines and be able to raise the equity to do that after the first couple of transactions. What we're envisioning is a situation where.
Horizon is on the hook for all of the purchase price except for the value of the precious metal stream and Sandstorm does Watson right to check for the Gulfstream and the silver stream and Thats all were contributing.
Alright, Thanks Alan.
Thank you. Your next question comes from John Tumazos with John Tumazos Independent Research. Please go ahead.
Thank you congratulations and thank you for the hard work.
First could you explain.
The 50%.
Participation in the gold stream.
<unk> stepped on where are you.
Retained 40% of the gold price.
Well as terms of any gold stream I'm aware of.
Has the.
The cash cost in the early studies.
Thank you.
Copper was going to cover all of the direct cost.
Cash cost of the mine risen.
So that at four and a half dollar copper is not generating as much as a $3 copper.
Or is the reinvestment more or is this just a way of transferring economics to horizon copper to make them a stronger company.
So I would say that.
From the pre feasibility study to the feasibility study there were.
Changes to the assumptions on the underground mining costs, particularly with the top half of the ore body. So the cost per ounce in the feasibility study were higher such that the copper does no longer cover all of all of the operating costs.
This deal was done sort of in line with the feasibility study estimates of operating costs, that's kind of why we picked it I've been.
In the streaming industry since it's existed and have been a part of a number of situations where the.
The streams were too high.
You got into so I've seen a multiple situations, where the streamer was taking more than 100% of the free cash flow of the entity.
And it's a situation I never want to get into again, it just creates a very unhealthy relationship that's not sustainable.
If if horizon is going to be successful, which we what needed to be if we're going to be able to use it for this new model.
And then we need to make sure that we're never in a situation, where sandstorm is taking more than 100% of the free cash flow.
At Horizon is getting so that's why we did it that way now youre correct that the value of the stream is less than the value of the 30% hop out and interest which is why we're making horizon <unk> back in <unk> of $95 million to sort of recapture that.
Value.
Hi can I ask a second question on.
You increased share.
Our line of credit.
And your.
Can you describe the rationale for the horizon transaction.
And.
Yeah.
My impression is speaking to many investors over several years is that people were uncomfortable.
With the size of the Mariana This acquisition it was too big a fraction of your company and one bet.
Yeah.
As well as permitting.
Risk in Turkey, more so than just the structure of it not being stream.
We are from the line of credit being increased should we still worry that theres going to be a pad thats a quarter or half of the company on one asset.
Some portfolio managers want you to be well diversified.
Yes, if we look in fact, that's one of the things that we track very closely and actually in our public investor presentation. We've got a slide that speaks to it sort of looking at diversification of.
All of the streaming and royalty companies of any material size in terms of asset concentration risk in our top assets.
Sandstorm is the second most diversified company in terms of the volume tied up in our top five assets versus value tied up in other people's top five assets.
So we think we've done a good job of that I would echo your concerns with respect to.
I've heard all the investor feedback over the years and I'm, well aware that the general feeling which I agree with was that it's not just a big batch. It was a big bet on a mine that was on permitted and riskier.
Our secured jurisdictions and with a partner that was.
Not not well known.
And so that gave people foster can shed and I understand that Fortunately today, we're here in a situation where they've got their EIA that project is going into construction and now we've turned that that asset directly into a stream store or pure play streaming royalty company again, what I can do and can say is.
We will not.
Again at purchase our largest asset in the Formula is not a stream.
You'll see sandstorm do that again.
I won't make a promise that we won't go buy a big stream that is 25% of the value. We think it makes a lot of sense and it's at this training makes central's portfolio better, but certainly if we're swinging big it'll be for streams and royalties for other interests.
If I could just follow up.
Look at the current quarters.
Cerro Moro was almost a quarter of the revenue.
For the year.
And the horizon value now.
34% of its common stock for $200 million stream.
And the 95 million debenture is probably.
Big a chunk or bigger chunk or in the same magnitude.
Sure.
You still got a couple of.
A big asset in the horizon related value.
Cerro Moro and the other stuff.
Small cell.
It's not perfect diversification benefits.
It is an improvement certainly.
Yes, I would echo that that this is one step towards achieving that diversification is an important step but certainly.
We need horizon copper to grow and get its own the legitimacy so that it's not.
Behold into all of the risks of just hop modern and Thats the plan right now.
So there is other transactions around Mike Macewan copper.
It is getting advanced in two or three years from now they might offer to sell it maybe yamana keeps all of the marrow copper gold project in Argentina, maybe divest 10 or 20 ownership points.
Are those the kinds of things.
You should think about horizon copper.
Looking at several years down the road or wanting to be financially strong enough to be in the game with where each of these has a gold credits that maybe would be something.
SaaS storm would be.
Horizon for the copper is that.
Sort of the model.
To a certain extent what I would say, though is certainly in the next few years. We are focused almost exclusively on trying to purchase operating interests in volumes or minus minus interest and mines that are already operating.
And.
We want to do that because we see it over in Illinois again development companies, even if you've got a good asset is you've got a massive capex overhang you perpetually traded at massive discounts until you solve that capex overhang and in the risk inherent in building mines, and we don't want horizon copper to get stuck in evaluation.
Trapped because it bought development assets to begin with we wanted to become strong robust exciting cash flowing copper vehicle that can directly participate in increases in copper prices and so and at sandstorm gold and we're really trying to focus our acquisitions on gold streams that.
Our producing too.
So I think if you see us make acquisitions for the first few years together it will be on operating assets.
Thank you congratulations.
Thank you.
Thank you. Your next question comes from Heiko <unk> with a H H C. Wainwright. Please go ahead.
Hello, everybody. Thank you for taking my questions.
I will stress that paragraph three of the strategic partner relief starts with streamline is a key theme percent storm. This year. When you start talking about the hot mill dancing earlier on the call here.
I mean, the average returns for streams tend to be going down clearly all of you and frankly also myself are firm believers in the streaming industry I mean that said again.
Last five years things has been yes.
Yes.
It's been tough to buy new assets essentially.
What are you seeing in the current risk off environment I mean, all of a sudden we worry about raising rates, we worried about invasions, we worry about geopolitical risk factor is that no one really considered six months ago and all of a sudden they're a reality.
And I mean that also noted earlier on this call you did mentioned that this transaction reduces your overall risk. So clearly it seems to be something in your mind, maybe just.
Open ended answer.
Open ended answer just in terms of.
Not quite sure what.
Comments on that.
I mean, youre, saying, youre, saying youre, reducing your risk.
Clearly.
Something on your mind has anything changed internally half's.
Stricter risk standards has been implemented for potential future acquisitions that kind of stuff.
Yes.
Ed.
So.
One of the things that is consistent feedback that I've been getting from investors is hey.
The reason, we buy Australian royalty company is because the streaming and royalty company does not have the risk of operating cost overruns on capex over household room full stop and we would like you to get that risk out of the company and be a pure plays champion royalty company. So.
We wanted to do that all the way along when we first announced the hard modern acquisition, where you came out with a video that said, we're going to try to turn this into a stream and how it took longer.
It would but we certainly recognize that that is a hallmark of wide generalist investors, specifically prefer to buy streaming and royalty companies over mining companies and so.
This step is a derisking, but it's also a signal to the market that we're not going to put that risk in sandstorm gold ever again, we wanted to be a low risk diversified streaming and royalty company focus on gold that is who we are that's what we're going to be and we're not going to.
Take steps like we did in the hot button.
Previously, having said that <unk> worked out fantastic for us in the end will create a $180 million for it and today, we are crystallizing the $300 million of value approximately and so it's.
And ask that they never would have had a stream on it so no one ever was going to get a stream on it but we not only got us to remodel we made money on the transaction.
But having said that thats certainly our valuation lumps in the processing and don't want to do so.
That's why we're focusing on derisking, it's not really any changes in the industry as just a sandstorm specifically.
Got it got it.
More general.
Just to clarify the revised agreement there is no minimum no maximum figures for the initial 50% da Vinci <unk>, 60% of the spot gold price right.
Correct.
Okay Perfect and my third question is already been answered so I'll get back in queue. Thank you.
Thank you. Thank you there are no further questions at this time Mr. Watson you May proceed.
Great well. Thanks, everybody. Appreciate you taking the timing of this call took a little bit longer than they traditionally do.
But there is lots of stuff to go through as always we're here ask us any questions any office senescent emails.
Get back to you and thanks, again and have a good day.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.
Okay.