Q2 2022 Sandstorm Gold Ltd Earnings Call
Good morning, My name is Joanna and I will be your conference operator today.
At this time I would like to welcome everyone to the Sandstorm gold for LTE as 2022 second quarter results Conference call.
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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.
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Thank you Mr. Watson you may begin your conference.
Thank you Joe and.
Good morning, everyone and thank you for calling into this Q2 earnings call.
At Sandstorm, which had a very very busy summer so far and so as part of this Q2 earnings call I'd like to provide everyone with a brief corporate update before handing it over to around our CFO to go into specific Q2 results and then Dave to provide asset specific updates on a few of our streams.
There are four specific areas that I'd like to provide an update on this morning, and those are number one the base core royalty package acquisition number two the nomad royalty acquisition number three the surfacing of value through the sale of underappreciated the valuable assets to sandbox and number four the sale of the hot modern.
Interest and they're taking back of the Gulfstream from horizon copper.
So I'll start with the first one being the acquisition of base core.
That's what I'm successfully close the $525 million acquisition of the baseball royalty portfolio on July 12th that deal is now officially close as.
As part of that transaction, we successfully upsized, our revolving credit facility to $500, partially drew down on it to close the acquisition.
Once horizon copper was up and running which I'll talk more about shortly the next step will be to them in the Anthony of royalty into horizon and take back silver stream, a smaller portion of the copper royalty debenture and I figured that this transaction.
Staff will close sometime this fall.
Next moving on to the Nomad royalty company acquisition.
Weak, both nomad and sandstorm shareholders voted overwhelmingly to approve the acquisition and we now have all of the government approvals that are required for the transaction and we expect it to close on Monday August 15th So this coming Monday.
I have to say, having over 99% of voting shareholders support the acquisition for both sandstorm and for Nomad shows what a logical combination that is and we believe that the new sandstorm will become an even more attractive investment vehicle for large institutional investors looking for high quality high upside lower risk exposure to gold.
Moving on to the next update we have successfully surfaced a significant amount of shareholder value by selling underappreciated and undervalued royalties to sandbox and.
And that transaction officially closed on June 29th.
You may have noticed a substantial amount of net income and this quarter's financials due largely to a gain on the sale of royalties and it is this surfacing of value transaction with sandbox that was the source of most of that gain because we sold the royalties for more than what we paid for it.
And the final update which is an important one relates to the sale of our 30% Hod maden interest of horizon, and they're taking back of a gold stream and a debenture. This transaction required the approval of the TSMC and I am pleased to say that we now have that approval in hand, and we're expecting this transaction to close near the end of August .
Yeah.
But we had a lot of moving parts of the summer and going into summer. Our goal was that everyone else was on vacation and you would get all of these transactions completed.
But when everyone else came back to their desks in September the new and improved sandstorm would be ready to go with a clean and clear story.
And honestly I'm. So so proud of the work that our team has done over the summer and I'd like to take this opportunity to thank them because they had been working so hard to get all of these deals done and they know that both I and shareholders. Appreciate the hours they have been putting into get all these done.
So speaking of the new Sandstorm I just have two quick slides to remind investors what we looked like emerging from the summer not being we are a pure play streaming and royalty company by 2025 will have nearly 90% of our revenue coming from precious metals.
Our streams and royalties are on some of the highest quality assets in the industry with over 60% of our streams and royalties on mines that can produce the lowest cost quartile.
Out of the majors and mid tier royalty companies. We are the most diversified precious metals company in the world.
With respect to royalties.
But 138% of our value coming from our top five assets.
Every other major and mid tier royalty company has over 60% of their value coming from only five assets, which when you think about it is not very diversified at all.
And we have the highest growth amongst our peers.
Dramatic increase in production and cash flow coming over the next few years.
And you can see that increase in castle here with the cash flow generated by our portfolio, we're expecting that to increase to approximately $170 million to $180 million U S per year by 2025.
We are very excited for what lies in store for us going forward.
And with that I'm going to hand, it over to her fan to go over the specific results.
Thanks Nolan.
And thank you to everyone who has joined US this morning.
The second quarter of 2022 with another one for the record books.
As those of you joining us on the webcast today Youll see on this first slide the growth trend over the last four quarters in terms of revenue and production.
Sandstorm continues to grow our attributable production quarter after quarter end.
And with the addition of the base core Nomad assets. The company is on track for another record breaking year in terms of financial results.
Let's look at the quarterly results in a bit more detail.
Samsung revenue for the second quarter was approximately $36 million, an increase of 36% compared to the second quarter of 2021.
The increase was driven by several factors, including a 7% increase.
And the attributable gold ounces sold totaling over 19000 ounces.
As well as a 4% increase in the average realized selling price of gold.
Revenue was comprised of $23 $8 million in sales for midstream assets and $12 $2 million in royalty revenues.
When comparing the same period in 2021, the company has several new capsule an asset in our portfolio this year named.
Namely the Mercedes mine, which began stream deliveries in April 2022.
Nevada Gold III, which began making deliveries in December 2021.
The valley of royalties that were purchased in June of last year also contributed to higher revenue this quarter.
Our corporate development team has been very busy over the last 12 months and it's nice to see the recent acquisition, providing meaningful contribution to sandstorm.
Despite the softening gold market in the latter half of the second quarter Sandstorms average realized gold price was $866 per ounce for the three months ended June 30th.
The average cash cost per ounce has remained below $300 for the last several quarters, which is indicative of the high quality and low cost assets that are underlying our stream and royalty portfolio.
Cash flows from operating activities, including changes in noncash working capital totaled $21 9 million.
In the quarter, resulting in cash operating margin of $593 per attributable ounce.
Net income for the quarter was nearly $40 million.
Net income was higher compared to the same period in 2021, driven by higher revenue as well as the $22 $9 million gain mostly driven by the disposal royalty assets that were sold the sandbox royalties in June 2022.
For consideration for the portfolio nine royalties Samsung the 34 million shares sandbox, a $15 million cash payment and the $31 4 million convertible promissory note.
No mention with accretion in sandbox royalties SaaS on the specs to surface value from certain assets that were not receiving their warranted value in our existing portfolio.
Additionally, sandstorm recognized a $12 5 million gain resulting from the sale of the company's equity interest in entre resources to horizon copper, which was completed in may.
During the second quarter Sandstorm sold 19276 attributable gold equivalent ounces.
This slide lists the top assets by production.
Under the Yamana silver stream Cerro Moro mine with a top contributor for the quarter, followed by the chip had a copper mine.
Chip had a copper stream benefited from an increase in the average realized selling price of copper in the second quarter of 2022 compared to the second quarter of 2021.
As well the 64% increase in the number of copper pounds sold.
As previously mentioned we've added a few new assets to this list over the past year, which has contributed to the increase in attributable gold production.
Namely.
The addition of the Mercedes embarrassed cooler gold streams, along with the valley of royalties.
Production attributable to the Diavik royalty.
<unk> contributed to the increase compared to the same period in 2021, which was driven by an increase in diamond prices as well as some nuances of the timing of sales.
Taking a look at the regional breakdown on the next slide.
Nearly 90% of production in the second quarter was attributed to operations in the Americas.
Cerro Moro, Japan puts about nor came valet were the primary drivers.
Production in South America, while relief Canyon, Santa Elena Diamond Mercedes a black box, where the larger contributors our production in North America.
Geographical diversification has always been an important consideration when building growing SaaS portfolio, we have some incredible royalty assets around the world and with the asset from the base core Nomad transactions. We've added a number of high quality assets located several stable 90 jurisdiction.
And with that I'll turn it over date for an asset update David.
Thanks, Stefan will devote finalized on the acquisition of Nomad behind us and with the imminent Finalization that transaction in the coming days I'd like to focus on some of the bigger growth assets from the nomad portfolio, but first I'll speak a little bit about the Permian situation at <unk> <unk>.
Great News is is that our men has received all the major permits for the construction of hard bought in Turkey.
Yeah. It was approved last year and the final permit from the Forest Ministry of forests has been received this means that permits required to begin construction had been received completely including the infrastructure at tailings deposit in the <unk> valley to the North a.
I'm also pleased to report that Chew up for early works projects are well underway at site the road and pad preparation for the electrical substation are almost complete and the road upgrades in Silicon Valley is well underway once installed substation will tie into the existing overhead high voltage.
All lines. So once this project is complete it will make a huge difference to the energy available not just for the construction of hanmi item that the surrounding area as well.
Other early works projects that are permanent set to begin the road upgrade in the access tunnel to the North Valley. We expect that all four early works projects will be underway or completed by the start of Q4 2022.
It's great news to see.
Project is finally, starting to take shape and move towards towards the construction mode.
Moving on to greenstone.
With the latest update from equinox, stating that the project is 35% complete and currently on time and construction efforts detailed engineering is effectively complete highlights of the construction milestones that are.
Procurement earthworks and structural concrete are all above or approaching 40% completion.
Tailings storage facilities close to 30% complete and some of the first mining trucks, our onsite being assembled as we approach the end of the year. The water treatment plant is expected to be commissioned and the majority of the buildings will be enclosed with some of the preproduction mining activities set to begin.
<unk> mining.
As part of their integrated team on the project and they are motivated to prove their skills and complete this project to.
To move on on time and on budget as they will next be moving onto their own my construction in Brazil until contingent project. As a reminder, greenstone is expected to produce more than 5 million ounces over a 14 year mine life with first gold production expected in the first half of 2024.
Equinox seized this asset as a key part of their growth gross portfolio and we expect to see lots of news as they put into production one of Canada's largest gold mines.
Perhaps the most exciting growth project in the Nomad portfolio as the Robertson mine, which is part of Nevada Gold mines operated by Barrick. This will be the latest mine in the Cortez complex projects and sits just north east of the current pipeline operations as well.
The last update the record of decision on this project is expected by Q2 2023 with initial production in Q4 2024.
Attic gold mines is in the enviable position of utilizing the existing mining fleet at that crossroads operation to start this mine and also using the existing pipeline oxide mill to process the higher grade.
Material in addition to lower grade heap Leach operation at the mine site.
The asset is expected to begin production in Q4 of 2024 and right now is expecting 260000 ounces per year for eight year mine life. However.
Article mind continues to point to the additional exploration potential that exists here and if robertson continuous exploration success typically found in that Cortez region. We're hopeful that the asset has a life of mine well beyond 10 years, it's great to have a royalty and a great growth projected largest gold producer.
Complex in the world.
Also I would be remiss not to mention Plaid reef operated by adding a whole minds, which is another important asset within the group gross portfolio Nomad. They continue to develop the flat reef ore body with phase one production expected in Q3 2024, where they expect.
To be operating one of the world's largest and lowest cost.
Primary PGM producers.
So with that I'll pass over the call to the operator to Joanna for Q&A. Please feel free to ask any kind of 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 a question. Please press the star followed by the one on your Touchtone phone.
Well here I think Tom prompted knowledge and you have a question.
You are using a speaker phone please lift the handset before pressing any key.
First question comes from Michael <unk>.
<unk> at H C. Wainwright. Please go ahead.
Hi, everyone, Mr. Marcus Giannini, calling in for Heiko, Thanks for taking our questions.
With the Nomad and base core transactions now essentially complete given the recent approval.
Just thinking out loud here have you been getting phone calls from larger scale investors given the transformational nature of the deal I guess, what I'm asking is do you feel that there is now more interest in the firm, which may lead to an increased trading multiple given its increased size in the near future.
Okay.
We certainly expected that going into it which is one of the reasons. We did these transactions in the first place.
Anecdotally, what I'm hearing from sales desk right now is that they were telling their clients all summer long, there's a lot of moving pieces here.
It's going to get nasty wait until it's all done and then go by Sandstorm and I think youre going to see that happening here over the next couple of months.
Okay, perfect that makes sense.
And then there's probably no scientific answer to this but based on the horizon transaction that you had to estimate.
How do you see the breakdown of your attributable ounces in terms of precious metals versus base metals in the next five years versus where they are today.
Yeah, we're we're closer to 20 or 25% of our cash flow has been coming from non precious metals, although a lot of that's coming from copper and we do those copper too, but by 2025 will be 90% precious metals exposure once online is up and running.
Okay perfect.
Thanks for taking my questions Thats. It for me thanks, guys.
Thank you next question comes from Trevor Turnbull Scotiabank. Please go ahead.
Yes. Thank you.
I appreciate the update David provided with respect to some of the nomad projects and how that feeds into the to the company going forward I was just wondering if there.
So if you could touch a little bit on some of the producing assets within nomad I'm, just wondering maybe specifically how.
<unk> performed in the second quarter, and if theres any update on <unk> as well.
Yeah, Brian .
Brian <unk> and its really kind of.
<unk> been having continued success over this year 2022, starting to hit its metrics a little bit more we still do.
See it.
Progressing to really kind of getting up to the.
Projected number of faces by early next year to really kind of getting into more of a steady state.
If we do see an increase in gold price, that's going to be huge benefit to really kind of speeding that on.
As we.
We have more capital to really continue to add to their workforce.
And increase the number of panels that they are able to access at any given time.
Over a thorn accrual a big part is really completing this.
Yeah.
The stripping on the next phase of mining from there.
That is completing in 2022, which will open up a lot more material. So as we get into 2023.
Accessing that next phase of production from <unk>, which should provide a number of years.
Some good cheap tonnage to be able to start putting through the mill there.
So it <unk> really 2023 years.
We will start seeing that really start ramping up from that next phase of mining and I think the same thing for <unk> is fly for really kind of gets into.
<unk>.
Higher number of overall panels really with a goal of getting into 'twenty panels operating once.
That'll get them closer into this beyond 50 to 60 to even potentially as high as 80000 ounces per year.
Okay. That's helpful.
And then just the last question I had while we're talking about some of these nomad assets.
Woodlawn in Australia, it seemed like it was getting closer and closer to them.
<unk>.
It could be redeveloped with with new management and new owners can.
Can you remind us kind of where that is in the process.
Yeah, I think there is still really kind of going through.
We completed now that hole.
Take over.
Asset so.
They will start to see the investment going back into Woodlawn.
And really that idea if you're getting on timeline I don't think we've seen.
Huge.
The new timeline really pop up on Woodlawn, but as we get into the second half of the year I'm sure that's zelle.
They will have a more defined timeline when they expect that project to get up and going.
Okay.
Alright, I appreciate it David Thank you.
Sure.
As a reminder, ladies and gentlemen, please press star one if you have any questions.
Next question comes from Jack MA at TD Securities. Please go ahead.
Thank you.
Looking ahead, given the inflationary environment.
Faced by mine operators today could you provide us with some insights to the effects of any of these margins and higher Capex would have on our proposed synthetic silver stream on anthem, you know with horizon, and then I believe the situation might be slight different what's hard madam.
You could touch on that as well that's great. Thank you.
Specifically with respect to the silver stream on <unk> I mean at the silver screen was a very small part of the overall royalty and so it is not impacted.
Would it have an impact on the <unk> side, I mean, I'm just thinking about.
Horizon has an entity, having cash flows to pay down the silver streams.
And that kind of situation.
In terms of.
Operating costs at Sandstorm doesn't bear any of those risks and Theres a lot of margin. It's a super low cost assets, it's going to be able to produce school there one of the lowest cost mines in the entire world.
And so.
Kris in operating costs would affect horizon before sandstorm.
Having said that because it's producing gold at such a low cost if inflation is 10% and Costco up 10%.
We're producing gold for $400, an ounce 400 becomes 440 <unk> like it's just that's one of the reasons, we love the asset in the first place it just doesn't affect.
The cash flow rate.
And then sticking with hard Madden and perhaps I missed this are there any other hurdles regulatory or otherwise for the project to go ahead or is it simply about funding in a full construction decision, but at Lithia and trying to get at this point.
Yes in terms of government regulation there's.
Permitting there is none.
They are in the very final stages of coring surface rights and Thats very advanced and expected this year and that's the reason.
<unk> started those construction items in roads and whatnot, they werent willing to do it until they knew it was a certainty that everything was to go and now they started those.
Okay, Great and then one last question.
I know previously you said the company is going to take a breather, while it closes a series of transactions and you guys have been very busy and I'm not suggesting that you guys need more growth.
At this point in time, but with the acquisitions closing the transactions closing is debt reduction can be the primary objective for the company over the next six months to 12 months or is the mindset shift back to growth relatively quickly.
Okay.
Both I mean in absence of good deals, we're going to just keep paying down debt and reloading the balance sheet for the next round of deals and otherwise we will walk that walk that line as we see potential deals and figure out how we finance them.
Alright, great. Thank you.
Yes.
Thank you there are no further questions you may proceed.
Well. Thank you very much everybody for calling in and hope you have a good day.
Ladies and gentlemen, this concludes our conference call for today, we thank you for participating and we ask you. Please disconnect your lines.