Q3 2022 Sandstorm Gold Ltd Earnings Call
Good day 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 2022 third quarter results 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.
There will 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 this time simply press. The Star then the number one on your telephone keypad.
If you would like to withdraw your question. Please press the Star then the number two thank you.
Mr. <unk> you may begin your conference.
Thank you Michelle.
And thank you to everyone who is joining us today.
This has been another record quarter not just in terms of results, which I'll get into later, but it's also been a record in terms of transactions and acquisitions.
As we mentioned over the last few conference call.
All of us at Sandstorm, we are truly excited about the foundation of portfolio, we're creating.
Over the last 10 months, we've made some big moves in terms of acquisitions and improving our royalty portfolio.
Behind the scenes the team has been working tirelessly as we continue to build the new sandstorm and solidify a clear vision for the company going forward.
Right now as we speak Nolan Watson is that a global summit meeting with various world leader, Scott and see how sandstorm can play a role in an ever advancing world.
One where energy transition is playing a more central role in business and industry.
As much as the regret not being here today exciting things are happening for the company and our shareholders.
We're excited to continue to share updates and videos and our progress so youll see more of those over the coming months.
As you can see in the third quarter, we completed multiple significant transactions adding.
Adding several new assets to the portfolio.
In the financial results that we released yesterday are an early reflection of the hard work that has gone into increasing the size and quality of the company's portfolio.
I'd like to start with a quick look at sensor with balance sheet.
The first column on this slide highlight sandstorm bank debt as of yesterday.
And investments in other mining companies.
It is important to note that since we closed the nomad acquisition there were two large payments owed under the streaming agreement.
One for approximately $56 million for the Platt reef stream and another for 82 million under the greenstone screen well.
While the exact timing of those payments, we are dependent on certain milestone being achieved I'm happy to report that both of those statements have now been made and there are no further upfront payments remaining.
The $505 million drawn on our revolving credit facility not only accounts for the equity financing that the company completed in October .
But as well as the two payments I mentioned earlier, meaning sandstorm has over $120 million and credit capacity.
As a management team, we're committed to focusing our efforts to debt repayment, while also assessing any new accretive opportunities that may present themselves.
It's also worth noting that the significant investments.
Sandstorm has and other mining companies.
Included in the $152 million worth of investment is the first debenture with horizon copper, which form part of the consideration for the transfer of the modern interest and entre resorts of the equity stake.
The column on the right shows estimated pro forma figures after the final component of the horizon copper deal closes.
As you can see after the <unk> sale sandstorm will hold nearly $300 million of investments and other mining companies.
These investments are in addition to the portfolio of cash flows that are brought and paid for in our existing royalty portfolio.
The third quarter of 2022 with another record for Sandstorm in terms of both revenue and gold equivalent production.
The company realized $39 million in revenue, a 41% increase compared to the same period in 2021.
And so 22606 attributable gold equivalent ounces.
46% increase from the comparable period in 2021.
These strong operating results, where despite a decreasing commodity price environment.
The average realized gold price in the company stream was approximately $700 per ounce.
Which is nearly a 10% decrease from the second quarter in 2022.
Rapidly rising interest rates around the world and depressed commodity prices can make for a very challenging market for many companies.
However, I find some comfort in the fact that Samsung continue to break New records even in this environment.
Im also excited for when the tide inevitably turn and we see Samsung portfolio benefit from more bullish commodity markets.
Looking at the quarterly results in a bit more detail on the next slide.
Of the $39 million in total revenue approximately $24 million was attributable to sales from the Companys stream agreement and approximately $15 million with royalty revenue.
Average cash cost for the three months ended September 2022, with $323 per attributable ounce.
This resulted in cash operating margins up 13 $183 per ounce.
A 10% decrease when compared to the third quarter of 2021.
Cash flows from operating activities, excluding changes in noncash working capital was 50% higher than the comparable period in 2021.
Coming in at around $31 million.
Sandstorms net income for the quarter was $31 7 million, which included a $24 $9 million gain resulting from the sale of the company's Hoffmann and interest to horizon copper.
Sandstorm received a flagship Gulfstream on the modern project along with a portion of that equity in horizon copper and consideration for the transfer.
With the base core Nomad transaction Sandstorm added 30, new streams and royalties to its portfolio.
10 of which are now cash flowing to the company.
This slide shows the breakdown of sandstorm streaming and royalty assets.
And Youll see that we have several new additions.
Right.
Beginning with the largest contributor to gold equivalent production during the quarter. The Cerro Moro mine under the amount of silver stream agreement SaaS.
Sandstorm received and sold 122% more silver ounces from Cerro Moro during the third quarter when compared to the same periods in 2021.
This increase was partially offset by a decrease in the average selling price of silver.
The second biggest contributor where the Mercedes mine in Mexico.
Any of you will recall that sandstorm completed transaction with Bear Creek mining at the end of 2021, which included a gold stream agreement on the Mercedes mine.
Deliveries to Sandstorm commenced in April 2022 under this agreement and.
In addition to the Sandstorm gold stream the company acquired additional streaming contract through the Nomad acquisition.
The gold equivalent production attributable to Mercedes shown here includes deliveries from the nomad agreements as well, which combined after the completion of the acquisition in August 2022.
And do you mean, the royalty is another addition to this list which was acquired in the base core transaction that closed in July of this year.
I would highlight the fact that Samsung currently owns the full $1 six 6% net profits interest.
As the company announced in May 2022, and further discussed in our second quarter Conference call.
Anthem has agreed to transfer the <unk> royalty horizon copper and retain a silver stream and a residual royalty on the project as part consideration.
This component of the horizon copper deal is expected to close in the coming months.
In the interim sandstorm is receiving payments under the <unk>.
NPI.
Other notable additions to this list other barnacle Gulfstream and asset located in Cote d'ivoire, with LIBOR Gulfstream in South Africa, and the catheter <unk> royalty in Chile.
In total the new assets acquired in the new amount of base core transaction account for approximately 30% of sandstorm that production for the third quarter.
Thats, an immediate meaningful increase to revenue, which show an increase of other assets from these transactions begin to cash flow to SaaS.
Over the next several years.
In terms of geographical breakdown of the third quarter the attributable.
40% of production came from operations located in North America with nearly half of that coming from Canadian mine.
In total the Americas accounted for over 85% of gold equivalent production.
Clearly it was a strong quarter for sandstorm and I am pleased to say that the company is on track to meet its guidance of between 80000 to 85000 attributable gold equivalent ounces in 2022.
Sandstorm continues to be a growth oriented company and we are forecasting over 80% growth by 2025, we anticipate attributable gold equivalent production to be over 150000 ounces.
And with that I'll turn it over Dave for some asset update.
Great. Thanks, everyone.
So with the recent takeover activity on your mono.
Thought it would make sense to discuss two important assets. We have that are operated by them.
Starting with the <unk> project in Argentina, with just over 56% owned by Yamana and the rest of 44% just under 44% owned by Glencore just recently consolidated from Newmont.
With feasibility study on published until next year, we have yet to have an estimated timeframe to production. However in the background activity is dynamic and it's clear that a number of groups beyond sandstorm are keen on pushing this project forward aggressively.
For reasons like the uncertainty of timing from Mara that we wanted to ensure sandstorms financial capability to make the ongoing stream payment when the project gets into construction.
Looking back at the end of 2015. When this option was purchased we did not have the balance sheet to do this on our own but since then SaaS <unk> grown our credit facility achieved a great cash flow growth profile.
Having the foresight to negotiate this gold stream in 2015 prices, even though we didn't have the financial capacity to time to completed we find ourselves today in a position to handle the complete quarter billion dollar transactions because of our long term focused financial planning.
This is a very deep investment for us and a great bit of Optionality for our shareholders. As a reminder, the Mara project is the amalgamation of the Eggo Rica project and the <unk> mine utilizing the processing infrastructure and tailing storage at olive Brera mined materials from Agri Rico will be transport.
By conveyor to the mill.
This project is a fundamental growth projects within your modest portfolio and has been key and justification of the offered takeover premiums.
The balance of 2022, the Mars joint venture is completing the feasibility study for release in the first half of 2023. However, more importantly, the JV is busily working on that.
The Intergovernmental Commission of Catamarca on the environmental and social impact assessment definition of this document is expected to be filed by the end of 2022 with a final ESI a filed at a later date.
<unk> will be among the top 25 copper projects in the world when in production and expect it to be one of the lowest capital intensity copper projects globally.
Moving on I'll give a bit of an update on Cerro Moro also within the amount of portfolio assets Humana has been speaking at length regarding the expansion potential of the project over the past year. Cerro Moro is a key component of what your amount of calls one five plan.
Self funded expansion of 50 to 60000 ounces of gold equivalent production at the mine.
The objective at Cerro Moro is to create a sustainable 10 years of production at a minimum of 160000 ounces of gold equivalent per year.
They are planning to achieve this through ore sorting plant expansion and potentially heap Leach operations.
Exploration success would also be required for this plan to be executed, but that's one of the aspects of Cerro Moro that we appreciated the most when we first looked at the project.
The plant the first plant expansion is underway with some small modification is expected to increase throughput to 500 tons per day.
Further expansion to 2200 tonnes per day is also planned as a phase II program total capital for both expansion programs are estimated to be $30 million to $40 million.
<unk> to the plant expansions that are ongoing tests to the heap leach potential at site. This would open up an entire new category mineralization at the site that's never been considered resource.
So what is emerging as a vision that we had of Cerro Moro way back in 2015, when we completed this deal with Yamana at the center of a number of takeover bids clearly others are seeing the potential of having these assets within the portfolios of large companies. This continues to demonstrate how sandstorm takes an ultra long term.
<unk> view of our investments attempting to envision how they perform under new management and new ownership, so with that I'll pass over the call back to the operator, Michelle to begin the Q&A. Please feel free of course to ask questions about any of our streams and royalties.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone.
You will hear a three tone prompt acknowledging your request and your questions will be pulled in the order they are received.
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One moment. Please for your first question.
Your first question comes from Trevor Turnbull of Scotiabank. Please go ahead.
Hi, Thank you for taking the question I just wanted to ask about debt reduction going forward you talked about it in the intro and Theres certainly a significant amount of value from the equity Stakes that you hold in horizon.
Copper and sandbox and so forth I was just wondering if you could give us a bit of an update on on windows potentially would be.
Free trading and you would be in a position to to think about those as ways to potentially reduce debt.
Yes. Thanks for the question Trevor and there are some investments that we hold that are.
Not just a horizon in sandbox.
For the for some of those transactions with respect to the horizon component there is.
Requirement that sandstorm retains a certain ownership percentage to maintain its roper on existing or future streams and royalties.
So for the near term, we don't anticipate selling any of those those blocks, but some of our another noncore investments certainly.
<unk> liquidity over the last year, and we will continue to be liquidating over that time as well and as you can see we do have some cash flow coming in from the.
A reduction in the stream for <unk>, which we announced just in the last week.
Right and.
And then is there anything else that we should be thinking about other than the operational cash flow, which which obviously is.
We see that continuing to grow.
And like you said there is the odd thing like the buyback that comes in or are there other kind of things that we should think about just.
Moving forward I guess, how aggressive are you thinking about being in terms of reducing debt is that is that something you're comfortable just kind of.
Pay it as operations allow or are there other things that youre thinking about.
Yes, with the financing that was completed last month, we don't feel any pressure to reduce debt aside from operating cash flow and liquidation noncore investments you saw us.
Spin out a couple of royalties that people hadn't given us any value for them, we receive some cash for that.
So you may see some of that on the sidelines, but predominantly cash flows that we bring in are going to use that to pay down debt, we're comfortable with those levels that exist now.
Okay, Great I appreciate the color. Thank you.
Thank you.
Once again, ladies and gentlemen, if you do have a question. Please press star one at this time.
The next question comes from <unk> <unk> of H C. Wainwright. Please go ahead.
Hello, everyone. Thanks for taking my questions.
Yes, yes, thank you for calling it.
I understand that your cash costs are only a very small fraction of metals prices, obviously streaming model at all.
Nonetheless, knowing fully well you don't actually need to do this given recent volatility in the price of gold is there a price where you would consider entering into some sort of cashless collars on at least some of euro attributable ounces I mean, I know you want to keep the exposure to the metal and so I am not meaning anything you know.
Close to spot price, but call it something fairly wide, reaching plus 100 miners adar from swap something like that.
Yeah, Hi, thanks for the question.
Certainly I think over the last several years, we've done research and to colors and the use of them I think the industry as a whole has had very mixed results on its success.
I would say that if we had significantly higher levels of debt.
Looking at the colors would be something that we.
Consider researching more but based on our existing debt levels, even as commodity prices decline, we are still comfortable with the risk associated with not entering to callers and we're quite bullish in the long run with respect to commodity prices.
Fair enough asphalt <unk> to.
Life of the mining analyst.
Your balance sheet.
That's actually a good layover into into my next question as well your balance sheet is extremely healthy, especially after the recent capital raise there was some talk about distressed asset sales in the market.
In fact, just going through mental calls I've had with our calls I've had with people mentally I don't think I've heard this many rumors or assets being for sale in quite a long time.
Is it fair to assume again given that you know I have all this new fault cash that youre lists of targets has increased and sizing dollar sizing that is and building on that given recent geopolitical trends in Latin America is it fair to think that your focus might be slightly less Latin America going forward.
Okay.
Yes, Hi, Hi, Calder I'll answer that one.
I think the overall.
Feeling that we have and I think the strategy that we have for growth and we still are focused on further growth.
It still is in terms of jurisdictional I'll address that first.
It's really asset base for us we do have great diversification amongst our assets amongst jurisdictions. So we're really more concerned at the asset level, how well, it's going to perform of course as always it needs to we need to be able to administer the streaming or the royalty contract going forward, we do see.
Though.
We certainly see the market opening up and more financings being required for a lot of projects, especially as.
A lot of these bigger projects really figure out how they're going to get to this decarbonization.
Market Thats coming up in the capital required for that.
A big part of the strategy going forward and really the reason why we wanted to have horizon created.
A good strategic partner going forward, what we are focused on in the future is really avoiding more and more of those typical processes for your standard precious metal streams that are coming off of assets and really focusing on more accretive and really.
<unk>.
Putting in the hard work to really kind of get these more accretive transactions, where we're working with groups like horizon going forward. So for us for sure strategy going forward jurisdictional and we have great diversification, which allows us to focus more on really the technical aspects that we like on projects.
The exploration success that we've been so famous for being able to achieve on our transactions in the past.
That really helps to encapsulate I think our strategy going forward.
It was a very comprehensive answer thank you very much I'll get back in queue.
Thank you.
There are no further questions at this time, please continue with closing remarks.
Great well. Thank you everyone for taking the time and joining US for this conference call recognizing it's a busy week for earnings and companies releasing the results and to the extent there are any other further questions feel free to reach out to Dave and myself and Mark to get your questions answered will be.
Certainly at our desks.
Britain, you're able to answer them. Thank you everyone.
Ladies and gentlemen, this does conclude your conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.
Yes.
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Yes.
Sure.