Q1 2022 Sandstorm Gold Ltd Earnings Call
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 2020 to first quarter results conference call.
All lines have been placed on mute to prevent any background noise.
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, we will have a question and answer session and instructions on how to queue up will be provided at that time.
I would now like to turn the conference over to Mr. Watson You May begin your conference Sir.
Thank you Michelle.
Good morning, everyone and thank you for calling into this 2022 Q1 earnings call.
We're pleased to be able to once again talk about record results in a few minutes I'm going to hand, it over to <unk> because that they are.
So we've talked about the specifics of the Q1 results.
As many of you are aware last week, we announced two company transforming acquisitions totaling $1 $1 billion U S.
Those transactions were excited that.
These record revenue and cash flow results. This quarter will now be expecting new revenue and cash flow records going forward for years to come.
When we announced these transactions last week, we went through a comprehensive presentation at that time, but therefore I won't be going through it on today's call, but I would like to use this opportunity to remind everyone of a few key details of what the new sandstorm will look like to help investors better understand what they can expect from our financial results in the future.
We really do believe that with these acquisitions same store will be go to mid tier streaming and royalty company.
Not only will be approximately 90% precious metals revenue.
We have what I believe to be a portfolio with the highest quality assets underlying our streams and royalties in terms of how low cost the underlying volumes can produce their primary product quarter.
About 64% of sandstorms production will be coming from assets that produce in the bottom quartile of total all in sustaining costs.
Our portfolio is also now the most diversified in the entire industry with only 38% of our now coming from our top five assets.
Even the majors averaged 65% of their gas coming from only five assets.
Which one do you think about it is not really diversified.
Finally, we have the highest amount of growth now built into our portfolio.
As a quick reminder, and I won't go into detail on this.
This morning's call with the two transactions are an acquisition of one of our peer streaming companies called Nomad for an all share deal that was valued at approximately $590 million U S on announcements as.
As well as a $525 million U S acquisition of a portfolio of royalties from a company called base quarter.
Both of these portfolios are built on high quality low cost long life mines.
We're very pleased to be bringing them into our portfolio.
It's exciting that the answer will now be the largest highest growth and most liquid mid tier royalty company I've been talking to many of our institutional investors since the announcement of the transactions and 100% of the institutional shareholders that I've talked to are in favor of these deals.
It is rewarding to see that despite the broader stock market falling apart, despite all gold companies trading off including and especially sandstorm.
Our institutional investors are very supportive of these deals and they very much like what the new sandstorm is going to look like.
And speaking about the new Sandstorm will look like you can see from this chart that sandstorm will now be the largest intermediate royalty company by production, but.
But we also have a lot of growth to go before our growth year slowdown what would be kind of like one of the majors.
I believe we're moving into the most rewarding phase of sandstorms life, where we are large enough strong enough and diversified enough to be a safe stable and profitable company, but we still have enough accretive growth ahead of us to be able to add further value to shareholders in the years to come.
Once we close these acquisitions at $800 U S gold prices.
As far as cash flow after tax will be both substantial and diversified it by 2025, our cash flow is expected to exceed $180 million U S per year.
My expectation that our actual cash flow will be even higher than this for a couple of reasons, firstly, because I expect commodity prices to be even higher than they are now, but secondly, because we're going to be continuing to buy streams and royalties between now and then.
So with that I'll hand, it over to <unk> to talk about the quarterly results, but I hope that you can tell that I'm, both proud of what sandstorm has become.
And upon closing of these acquisitions sandstorm will be the largest the highest growth in the most liquid mid tier streaming and royalty company in the world.
Okay. Thanks Nolan.
He was certainly an exciting first quarter for sandstorm with the number of big announcements for the company. It was also another quarter, where sandstorm broke a number of record.
Let's look at some of these new records in more detail.
If you are joining us via our webcast. This first slide shows the revenue and production numbers from the last four quarters.
During the first quarter of 2022, sandstorm realized record revenue of $35 4 million.
And sold 18741 attributable gold equivalent ounces also a new record this compared to revenues of $31 million and approximately 17400 ounces in the same period of 2021.
The increase in revenue was due to a number of factors, including the additions of the valley of royalties and Nevada cooler gold stream.
<unk> royalties were added the Samsung portfolio in June of last year, and Nevada, cooler Gulfstream began making deliveries to the company in December .
The increase in quarterly revenues is also part due to the rising commodity prices when compared to the same period in 2021.
In particular arrive in diamond prices increased royalty revenue attributable to the Diavik mine.
And an increase in the selling price of copper contributed to higher revenue from the <unk> copper stream.
The chip had a mine also had a 13% increase in the number of copper pounds sold.
This increase in revenues was partially offset by some decreases in production of certain assets, which I'll touch on in a moment.
It's exciting to see another record quarter for Sandstorm and this is before we had announced a transformative acquisitions in Nolan described.
Subject to closing those transactions Sandstorm has increased its 2022 production guidance range to be between 80000.
And 85000 gold equivalent ounces.
Increasing to 155000 ounces in 2025.
It is clear to see that this is shaping up to be a significant season of growth for sandstorm.
On the next slide you will see a summary of the first quarter results compared to the same period in 2021.
Revenues attributable gold equivalent ounces were up by 14% and 7% respectively.
The $35 4 million in revenue came from $22 million in sales and $13 4 million of royalty revenue.
Moving down the list the average realized gold price from the company's gold streams for the first quarter was <unk>.
$18 87 per ounce.
The average cash cost per attributable ounce of $283, which resulted in cash operating margins for the three months period of $604 per ounce.
In a time when we're seeing increasing inflationary cost on all fronts, it's remarkable to see operating margins like this.
It's a testament to the royalty business model there.
This quarter cash flows from operating activity, excluding changes in noncash working capital was up 16% from the first quarter of 2021 of $26 7 million.
It represents another new record for sandstorm.
Finally, net income was $9 1 million.
Which is an increase about 80% when compared to the same period. In 2021. This was primarily driven by the increase in revenue as well as an increase in the gains recognized on the revaluation of the company's investments that go through the P&L.
As you May know sandstorm began paying its first dividend this year and recently paid the second quarterly dividend out to shareholders.
We're very pleased to be able to add another way to allocate capital back to shareholders.
Looking at the contributing assets for the first quarter, we see the <unk> silver stream as the largest producer which is on the Cerro Moro mine at approximately 4500 attribute gold equivalent ounces.
Next to Cerro Moro as the <unk> copper mine with approximately 3200 ounces followed by relief Canyon, the valley of royalties and Diavik, which I discussed earlier.
The increase in gold equivalent ounces sold compared to the first quarter in 2021 was partially offset by a decrease in ounces sold from the Santa Elena mine and the Karma mine.
The decrease at Santa Elena was partly due to decrease in production at the mine as well as the timing of sales.
At Karma the decrease was primarily due to the conclusion of the five year fixed delivery period in accordance with the terms of the Gulfstream Sandstorm stream on the Karma mine is now at one 6% of production.
Portfolio diversification has been a key tenant underlying the previously discussed announcements this year.
As these transaction close over the course of 2022 I expect this list will look very different a year from now.
We'll be adding more high quality and low cost asset to sandstorms portfolio that I think will nicely complement these existing royalty and stream assets.
The next slide provides a breakdown of the quarters attributable gold equivalent ounces by region.
Samsung production continues to be largely weighted towards mining assets located in the Americas with South America contributing nearly two thirds of production.
Approximately one quarter was attributed to North America of which 18% came from mines in Canada.
Finally, I want to mention the Upsized credit facility that we announced alongside the base core Nomad transaction Sandstorm has secured a commitment to upsize, our existing revolving credit facility to $500 million.
Yes.
In addition.
We will have $125 million uncommitted accordion feature for total credit capacity $625 million U S. The upside is conditional on meeting the closing requirements for the base core transaction and the accordion featured contingent on closing the Nomad acquisition.
The credit facility also maintains the sustainably linked incentive pricing, which we announced last fall our first four royalty company.
This increase in credit capacity ensures the sandstorm continues to be positioned for future growth, even with the announcements we've made this quarter.
And with that I'll turn the mic over to Dave to highlight some of the new assets included in the transaction, we recently announced date.
Great. Thanks, Stefan obviously big quarter for new acquisitions, and lots of new assets in our portfolio.
<unk> been busy last six months trigger of travel for me and the sandstone technical team since we were lucky enough to see a bunch of these impressive assets in person.
Actually in South Africa, right now attending the mining and data getting a chance to speak to the operators of our new South African assets of LIBOR flat rates.
Both of which I'll speak about today.
But first I'd like to talk about answer Nina the main asset the base core package of royalties.
For those that don't know about this amazing asset. It is jointly owned by Glencore BHP Teck and Mitsubishi.
Ah scarring deposit that produces primarily copper and zinc concentrates but is it true poly metallic mining that ranks within the top 10 mines in the world in terms of production volume.
Any chance to meet the ALLETE team that operation mine was a great pleasure as always meeting their executive and ESG teams in Lima.
The mine is located in the end cash region of Peru, and commonly regarded as the best mining operation in the entire country. The management team is proud of the fact that they are regarded as the top mining employer and have a great relationship with all the local and regional communities.
Since the mine started commissioning almost exactly 21 years ago. This has always been a world class mine.
With a large expansion in 2010 and to me and is now the second largest producer of silver in Peru. In addition to the saleable copper zinc lead and molybdenum products.
All of the concentrates produced are transported support by an approximately 300 kilometer pipeline.
And then by truck or training. This is one of the key aspects to the low cost production of the mine.
The current reserves are limited by tailing storage, which is being addressed by the entity that team.
The options. They are looking at there is likely to be ample space to provide decades of group for tailings, which is good because the team is already planning additional expansions.
With decades of open pit material is still available the MTBE.
Anthony and his preliminary planning future underground mine to extend the mine life, even further and to meet our mine is two treasurer to the Peruvian people and sandstorm is proud to have a small stake alongside them.
Moving on to plant. This project is located on the northern Lynn the famous Bushveld complex of South Africa, and fifth year to some of the largest platinum group element producers in the world.
<unk> is an enormous platinum group metal deposit with significant gold nickel and copper content as well the deposit has PGM plus gold equivalent measured and indicated resource close to 42 million ounces and another 53 million ounces of inferred resources reserves or just a frac.
Action of this resource, but already the project has a 24 year mine life.
Production is currently set to begin in Q3 or Q4 2024 with shaft one completed already in shaft two construction has begun.
The first lateral blast blaschke of lateral development was completed in April 2022, and Ivanhoe is planning on spending $150 million for the remainder of 2022.
On the ESG front plant reef will become Africa's first electric only mining fleet with equipment already ordered also they will rely heavily on solar power throughout the development and mining with <unk> units to be installed this year.
With 770000 tons per annum throughout plant throughput plan in phase, one 3 million tonnes per annum in phase two and future potential plans of up to 12 million tonnes per annum throughput.
<unk> reef operation will be amongst the largest PGM mines in the world.
Potentially producing more than 24000 tonnes of nickel and one 1 million ounces of palladium rhodium platinum and gold per year.
The plant reef projects ore body is up to 60 meters thick in places with 26 meters on average this ore body thickness allows for low bulk tonnage mining methods, we potentially much higher productivity levels and neighboring PGM mines it.
It will be no small task getting this asset into production, but Fortunately the project is being built and operated by one of the most accomplished mining groups in the world today.
Even whole mining team is discovering is responsible for discovering developing some of the best world by Martin projects. The last 25 years, and we hope plant will rank amongst the top of those this is a great asset to add to our portfolio.
So the last slide I'll touch on a few of the other highlights in the portfolio sandstorms purchasing.
On the precious metals side of the equation. The first one I am excited to talk about it so robertson projects within Nevada Gold mines Cortez complex. This is the latest mine to be developed in the Cortez complex with first production expected Q4 2020 for conditional on the permits.
Creators don't elaborate publically too much on the asset, but Barrett does categorize this as a tier two gold asset which is defined as a gold project designed to deliver a minimum 10 year mine life annual production of at least 250000 ounces of gold per year and total cash cost over.
The life of mine that in the lower half of the industry curve.
Greenstone is an asset in Ontario currently constructed by Equinox gold.
With over 400000 ounces of annual production expected per year in the first five years equinox sees this asset as a key part of their growth.
<unk> portfolio, and we expect to see lots of news as they build and one of Canada's largest gold mines.
<unk> is an ex newcrest asset in Cote d'ivoire.
It's operated by private company Allied goal with a currently back underway new resources are exposed and it should make a big contribution to the ounces delivered from it in the next few years.
<unk> is a reemerging mine with an exceptionally well experienced team and a tremendous expansion potential we have high hopes that this project continues to ramp up and sees its past past glory and the South African mining space.
On the copper side, it's hard not to get excited about the customer one is in Chile, which is operated by the Japanese group Dupont.
This mine lives near the emerging new district that straddles the border with Argentina that the lending group of companies has been so successful in making discoveries over just the last few years.
And the El Pilar project operated by Southern Peru, copper is expected to begin in the $310 million spent on its development by 2023 and is a key part of their near term growth.
Lastly, it would behoove me not to mention the largest copper mine in our home province of British Columbia and tax Highland Valley.
Spike sandstorm being 13 years old.
The first cash flow and royalty in the portfolio that comes from our home province.
I don't mind to have that cash flow from.
Anyhow, Thanks for bearing with me on this brief overview as you can tell we're really excited about these and all of the assets and our new portfolio. It's great to have so much growth on such high quality asset.
It helps set us up wonderfully for next phase of growth beyond even this so with that I'll pass over the call to the operator, Michelle for the Q&A. Please feel free to ask questions about any of our royalties and streams.
Thank you Sir.
Ladies and gentlemen, we will now begin the question and answer session.
I would like to ask a question. Please press star followed by the number one on your telephone keypad.
If you would like to withdraw your question. Please press the star followed by the number too.
Please standby one moment for your first question.
Your first question comes from Trevor Turnbull of Scotiabank. Please go ahead.
Hi, Thank you guys I just had a couple of questions on timing and next steps.
First with respect to hard Madden.
You mentioned you are moving into that final phase of permitting since you've gotten the environmental approvals and I just wondered if you could provide a little more detail on what that entails and maybe give us a sense of the milestones we should be watching for with hotbed.
Yes, absolutely.
There's a few things that'll be going on one is there going to be working on getting the finalization of the forestry permit by all accounts is going well and my understanding is they expect to hit that by the end of this year based on our conversations with the government that they are already getting there by her perhaps from the department of forestry on some small.
Things like how to upgrade.
Electrical transformers and those types of things. So the permits are already coming in from that department, which is a good sign.
They are looking to complete putting together their syndicated that providers are processes.
Is well advanced.
They are looking at pulling the trigger on the long lead items.
Construction towards the end of this year building out of the tunnel.
<unk>.
<unk> milestones to watch for.
Yeah.
We can actually see in advance when they give us cash call notices of the planet.
Actually doing those things for the first time ever they actually have dividends.
Cash draw. This is her spending that won't mean.
So things are tracking pretty well there.
Great and maybe that.
Transitions a bit into my question about horizon copper just curious on that transaction. You said that you expect that to close in the second half of this year Theres a number of kind of details that need to be completed.
Wondering and forgive me if you've already answered this but.
Do you have any further color on the timing of say Q3 versus Q4 on getting that finalized.
Yes, the guidance both of the Oems with respect to that is Airbus.
You want to.
Yes, I'd be happy to answer that.
Or things.
Things that are going through the process. One is regulatory process with the TSA fee, which is going well, there's a shareholder vote required with horizon.
Horizon conference existing shareholders and so we anticipate that once that shareholder meetings held the closing of the transaction with respect to the hotline and spit out and to me that will occur towards the middle to late Q3.
Oh, Okay. So obviously the.
The shareholder vote for.
The horizon copper entity would be happening obviously in Q3 sometime so it sounds like it's all on track to happen fairly soon.
Yes, it's going well.
Certainly the announcement to the end to meet a transaction kind of resets the timetable with respect to having that shareholder vote, but.
<unk> had a lot of cooperation with.
The venture exchange and things are going well.
Great. Thank you very much that's all I had.
Okay.
Once again, ladies and gentlemen, if you would like to ask a question. Please press star one now.
There are no further questions from the phone lines I would now like to turn the conference back over to Mr. Watson for closing remarks.
Great. Thanks, Michelle and thanks, everybody for calling into today's call and as always we are here and ready to answer questions. If you have any follow up questions. Thank you very much have a great day.
Ladies and gentlemen, this does conclude your conference call for today.
I'd like to thank you for participating and ask that you. Please disconnect your lines.
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