Q4 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 fourth quarter and annual financial 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 can be no assurance that forward looking statements will prove to be accurate.

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 Star then the number one on your Touchtone phone.

If you would like to withdraw your question. Please press. The Star then the number two thank you. Mr. Watson you may begin your conference.

Thank you Michelle.

Everyone and thank you for calling into this 2022 Q4 and year end earnings call.

Over the last 12 months SaaS Carb has achieved several transformative milestones, which started with the creation of our strategic partner.

Growing with horizon copper along with the sale of our hotline interests to horizon and taking back a a pure gold stream on a hot button asset, making sandstorm, a pure play precious metal streaming company.

We finished the year by making acquisitions of approximately $1 billion for new streams and royalties to transform sandstorm into a world class streaming company with not only industry, leading diversification, but also industry, leading quality with respect to operating costs underlying those mines.

It truly was a transformational year and before I turn it over to <unk> to go through the financial statements I will provide a brief corporate update and answer some of the common questions. We're getting from shareholders to take a look at where our business is now and where we're going over the next year.

As part of our annual internal process, we make a one year budget approved by the board of directors for the current year plan, along with a five year financial plan based on information from our operating partners and we have a recently completed that internal process and I'd like to quickly show a graph the graph of what that means in terms of our new portfolio is the ability to.

Generate cash flow.

Only two years ago, our portfolio is generating $76 million per year before DNA.

But you can see here that <unk> portfolio is expected to generate nearly a $150 million this year, when including repayments by horizon under its cash suites from Anthony <unk>.

With this amount growing to over $180 million per year, once greenstone and hot button in a couple of other assets or complete construction and this is only using $17 50 gold prices, which is not only below the current spot price, but well below what I'm expecting gold prices to increase to over the next several years.

For our Canadian investors. This works out to approximately a quarter of $1 billion a year of cash flow per year Canadian.

Now as you know we try to make acquisitions first with available credit.

Before we consider equity and therefore, we took on some debt to complete these acquisitions in 2022.

Originally we took on over $600 million use of debt.

Through a combination of a small equity financing and using cash flow from operations. We have already had that debt pay down to approximately $487 million at today and dropping quickly.

Even with the fed increasing interest rates and even with those interest rates.

They stay high for another couple of years, you can see on this slide and in the absence of any further gold stream acquisitions, we see that coming down to very quickly and being fully extinguished sometime towards the end of 2026 or beginning of 2027 and again. This is using $17 50 gold and $3 75, copper and if commodity prices.

Stay where they are today.

This debt will get paid off even more quickly which is what I expect will happen.

Based on the questions that we will get some shareholders. There are a handful of other items that I'd like to quickly answer and then hand it over to <unk> for the detailed results.

First of those questions relates to grow through acquisitions versus debt repayment and what is our priority and what exactly do you see over the next couple of quarters and beyond.

To be extremely candid with a better having hike interest rates at an unprecedented rate and we've been continuing to hike rates. It's my belief that debt repayment is likely the most intelligent allocation of capital.

When I look at our potential acquisitions. There is only one small gold stream that we're looking at which we could do without raising any equity and outside of that potential Gulfstream for which I believe the probability of landing is low we plan on aggressively paying down our debt. So that we can both save on interest, but also so that overtime, we can recharge our balance sheet.

If 2022 was the year of aggressive transformation I think 2023, and perhaps 2024 will be the years of calm consolidations, where we take time to pay down our debt consider the odd small stream to work with horizon to Washington built themselves up and to start looking at long lead deals together with horizon.

For the future such deals of course being with horizon buying copper mining interests.

Hence we are buying gold streams on those mines at the time of acquisition.

Speaking of Horizon that brings me to the next question that investors have been asking which is when will horizon.

Raising its next $20 million in hand that over to sandstorm to complete the answer.

Nina transaction, whereby sandstorm will sell its NPI, Tanzania on anthem, United to Horizon, and how sandstorm take back silver stream and Anthony.

055 percent NPI royalty on Anthony <unk> from Horizon.

It's my understanding that Verizon has selected a capital provider for the $20 million is now just working through the details and as soon as that transaction is closed horizon will pay sands from the $20 million, which we will use to repay debt and enhancing your transaction will automatically be completed as anticipated.

This will take another one or two months for this to be completed.

Closing should be fairly straightforward and from what I can see it should be a better company.

The third thing I wanted to talk about which is not so much a question from investors as it is a statement by any of our commitments to investors and I plan on being much more involved in direct communication and plot them being abnormally candid with how I see things unfolding going forward.

In 2023 and implement some new changes that will result in providing more information through videos et cetera directly to investors as well as more formal feedback mechanisms for investors to provide their thoughts to me in sandstorms management team.

I won't dwell on this on the earnings call, but we have an incredible investor base that is not only intelligence. It is also diversity in its opinions and I believe our company can and will be better if I assure more regularly what we are seeing as a management team and what we're thinking about and if we pay more attention to the variety of feedback that we receive when our investors may disagree even if he disagrees.

With each other.

I believe our management team will make it better.

<unk> that way.

Finally, before I turn it back over to Herb and I want to make a brief comment about <unk> 2022 share price performance relative to peers, and especially relative to our royalty mid cap peers.

A year ago, Sandstorm would be only royalty net GAAP you're trading above NAV.

Both triple play and Cisco trading near or below AAV.

As I mentioned 2022 was a transformative year for sandstorm and I'm very proud of what we achieved having said that sandstorm is by by all the largest part of my personal network and it was disappointing for me and I'm sure for other shareholders to see our peer share prices have outperformed us during 2022 and.

And if you now look at where we are trading relative to them.

SaaS revenue the only material precious metals royalty company trading below NAV why as you know share prices don't only trade on fundamentals.

So trade based on supply and demand of shares and candidly the demand for virtually all shares in the world of all companies decrease in 2020 'twenty two.

<unk> started its quantitative tightening and increasing interest rates and there were a few exceptions, but generally speaking companies and including sandstorm and our investors such as myself had to take the pain of that decrease demand for shares resulting in downward pressure on our share price.

At the same time sandstorm had to issue shares for the transactions.

For example, when we announced the acquisition of Nomad, Despite our shareholders loving us deal and voted overwhelmingly in favor of it the shares that we issued to <unk> shareholders were almost immediately sold putting downward pressure on the stock which was exacerbated when we issued some equity to take pressure off of our debt load.

That is the good news is that we have.

Meeting with a number of what I would call large and fundamental long term investors over the past six months, we've been informing us that they've begun building positions in sandstorm, including some very large pension plan in Canada as well as some large institutional investors in the U S.

The good news that they are now a source of demand for our shares going forward.

Can confidently say that we do not plan on issuing shares in 2023. So it's my hope that the demand supply imbalance in sandstorm shares is in the process of swinging the other way and I do believe that in the same way, we underperformed our peers in 2022.

Equally outperformed them in 2023.

We built an amazing company over over the years and I'm confident that our share price will begin to reflect that.

And with that I'll hand, it over to Earth and pretty detailed results okay.

Thanks, Nolan and thank you to everyone who is joining US today 2022 was an exciting and busy year at sandstorm with some truly transformational corporate development activities.

I'd like to take a few moments and walk through the financial results for both the fourth quarter and year end.

If you are joining us on the webcast today I'll turn your attention to the first slide where we charted sandstorm year over year production and revenue results.

I am pleased to report that in 2022 sandstorm not only achieved this guidance comfortably, but also broke a number of records, including revenue operating cash flow and attributable gold equivalent production.

The company sold over 82000 gold equivalent ounces and realized revenues of a $148 $7 million.

Compared to the full year 2021, that's an increase of 22% and 29% respectively.

These increases in production and revenue are reflective of some of the new assets acquired during the year, namely the nomad royalty base core portfolio acquisition.

We will look at the top contributing assets through the year in just a moment.

The chart on the right hand side of this slide highlights the company's average realized selling price of gold per ounce a year over year.

Despite a struggling commodities market in the latter half of the year. The yearly average of 17 $95 per gold ounce is relatively consistent with the past few years 2022 was certainly an interesting year with rapidly rising interest rates and concerns of an impending recession.

I believe that a lot of them.

Macroeconomic factors are bullish signs for the long term price of gold and I rest assured that sandstorm strong portfolio is ready to benefit from rising gold in commodity prices.

The next slide provides a bit more detail on the year end highlights total revenue of $148 $7 million consisted of $97 8 million in revenue from the Companys stream sales and $59 million from royalty revenue the average cash cost per ounce for the year.

With $284, resulting in cash operating margin of $511 per attributable ounce.

Sandstorm achieved a new record and milestone generating nearly $110 million in cash flow from operating activities, excluding changes in noncash working capital.

It's a 32% increase from the full year of 2021.

Annual net income was also a new record for the company coming in at $78 5 million for the full year.

A few factors driving the increase in net income when compared to 2021 included a $25 8 million dollar gain on the disposal of streams royalty interest.

Primarily from the sale of a portfolio to sandbox royalties, new diversified metals royalty company that was created in partnership with Equinox Gold in June 2022.

There was also $24 $9 million gain in the $12 $5 million gain resulting from the sale of the company's equity interest in the hot modern project and an entre resources to horizon copper.

Net income was partially offset by an increase in depletion expense largely due to an increase in attributable gold production.

An increase in financing expense related to the interest paid on the company's revolving credit facility.

Which were drawn down to finance part of the transactions I mentioned earlier.

Looking at the fourth quarter results. The company sold over 21700 attributable gold equivalent ounces and realized revenues of $38 4 million.

This represents an increase of 31% and 29% respectively.

Compared to the same period in 2021.

The average cash cost per equivalent ounce for the fourth quarter with $253, resulting cash operating margin of 14 $193 per attributable ounce.

Gaslog from operating activities, excluding changes in noncash working capital with nearly $30 million for the quarter.

The company had a net loss of $2 1 million in the fourth quarter, largely driven by an increase in depletion expense and financing expense that I mentioned earlier.

On the next slide we.

We see a breakdown of <unk> gold equivalent ounces sold from our top producing assets over the course of 2022.

When look at this list and see the diversification and quality of the asset.

Purchase see how fourth Anthrone portfolio has developed in the last few years.

In fact, nearly 30% of production from the top producing streams and royalties came from assets at sandstorm purchased within the last 24 months.

Our technical and corporate development teams have been working incredibly hard to strengthen sandstorms portfolio not just in terms of overall production, but also in the quality and diversification of the underlying assets.

What I find more exciting this how different.

Well look in the next few years.

We have several new assets expected being castle sandstorm between now and the next few years, including greenstone in the pot re projects in our core thought modern.

These assets along with others will further strengthen Samsung production profile.

Some of the more recent addition to the list include the <unk> gold stream and to meet and catheter royalties and additional streaming agreement on the Mercedes mine all of which were acquired as part of the no Madam based core transactions.

The three months ended December 31, with the full <unk>.

First quarter that these assets were cash flowing to sandstorm post the closing of the transaction.

Continues to receive the full payment from the 166% and to meet an NPI royalty until the second part of the horizon copper transaction complete which as Nolan mentioned earlier that could occur in the first half of this year.

Once the transaction is complete sandstorm will hold the one 6% silver stream with Verizon copper on the anthem asset as well as one third of the residual NPI royalty.

This final slide provides a breakdown of the company's 2022 production in terms of jurisdiction and commodity type <unk>.

37% of attributable gold equivalent production came from assets located in North America was 16% located in Canada nearly half of Sandstorm production came from assets located in South America with the remaining production coming from assets in other parts of the world.

Its own retains a precious metal focused company with 70% of its 2022 production coming from precious metals. We continue to have good exposure to copper as well, making up the majority of that 25% gold equivalent production from base metal assets.

Based on the company's existing streams and royalties, we are forecasting a triple gold.

Ounces are between 85, and 100000 ounces in 2023 and with that I'll turn things over to Dave for updates on some of our assets.

Great. Thanks for.

So this quarter I thought it would be interesting to take a look at the development pipeline and the amount of capital being put in some of the larger and smaller projects of our partners on slide 15, Youll see a list of assets that are currently being built or commission. We will also see the total capital to be spent on those projects.

Until they start producing and the date of the expected start.

As a reminder, sandstorm sandstorm has made all of its payments to this list of development assets and now await that beginning of cash flow.

The first thing that should be noticed from the list because the number of assets that are hovering at or above the $1 billion Mark of total capital cost.

Equinox greenstone, just given recent update that they are 70% completion rate with first production expected just about one year's time.

Ivanhoe has given an update on capital spending on phase one of <unk>.

That is that is expected to begin operating in 2024, but are also beginning the phase two expansion of the project by starting construction of shaft two.

And of course, well you told boy now fully in the hands of Rio Tinto.

T news to develop on the block caves lift zero and one on Hugo North eventually, making it to the Hugo North extension of the JV ground in 2027 2028.

No less important disease, but much lower overall capex spend as hardliners, which continues down the early works projects.

Having received full permits for construction the operators are looking to finalize the project financing and complete the last of the property acquisition were acquired for the mill site construction.

Robertson in the Cortez trends in the hands of Nevada Gold mines doesn't specify the amount of capital being spent but the project adjacent to current pipeline operations continues to grow with current resources, greater 2 million ounces and potential more than 1 million ounces on top of that in <unk>.

A schedule of getting into production that a permanent at 2027.

Not to be forgotten or some of the smaller projects like Carina, which began to pay on the royalty late last year and has some very high grade underground systems that may have good potential for long life also in this category is buying one day, which are Dean has now found a good Mongolian partner to help develop.

Honest sized project, but will likely be quite profitable and we believe could extend its mine life rather dramatically over time.

I guess the point that I'm trying to make with this list is that there are multiple billions of dollars being spent on our pipeline of growth.

For us the pipeline is already paid for but still get the benefit of our partners build in these very high quality projects that will add to our already impressive portfolio.

Not included on this list our other assets like global markets, Barry Copper Mountain <unk> deposit and the Mar approach at each one of these assets are expected to start producing on a royalty or streaming area of interest.

I have yet to solidify timelines yet each should be significant contributors to sandstorms future cash flows.

That's the benefit of owning a company like sandstorm, the diversity and breadth of our portfolio is so sensitive that they're always huge sums of capital being spent to progress the asset base to forward to production.

A huge testament to the effectiveness of the strategy, we have pursued to grow the company so with that I'll pass over the call to Michelle the operator for Q&A. Please feel free to ask any 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 star followed by the one on your Touchtone phone.

Youll hear with Frito prompt acknowledging your request should you wish to decline from the polling process. Please press the star followed by the <unk>.

If you are using a speaker phone please lift the handset for pressing any keys one moment. Please for your first question.

Yeah.

First question comes from Derek <unk> TD Securities. Please go ahead.

Good morning, and thank you I'm looking at the four year outlook honing our presentations.

140000 ounces in 2025, but then a step down to $1 22000, and 2026 appreciating.

Appreciating that the slightly changed by the time, we get there, but could you walk us through what's behind the drop off in 2026. Thank you.

Yes, its nolan here Theres, a handful of smaller things that are are some of our shorter life mines I think right now our average mine life is getting close to 20 years, but that is comprised of some really long mine life and some some shorter ones in there.

Everyone's drop off.

Those years.

And to add to that please.

Sorry.

Got it.

Unexpected stepped out in Cerro Moro as well here.

Okay.

As thousands Horne five included in that play outlook.

Alright, I didn't hear that.

Oh, sorry, southwest Horne five included in that for your outlook.

No it's not.

Okay.

And if I had.

Asked another question a lot of your competitors have been talking about bilateral deals can you talk about the role of bilateral discussions in your strategy and pipeline and high yield leveraged our partnerships with horizon and sandbox as part of those discussions.

Yeah. So I guess, if I understand you correctly, you are asking sort of our strategic partners, including horizon and what the role for those transactions if I were to broadly.

Classify the type of competition that we see in our industry I would say, it's fairly high ticket.

<unk> or just plain vanilla streams that are highly competitive are fairly low and our counterparties are doing I don't believe that thats a good business model to just to sit there and play the game of highest bidder Whitney therefore lowest IRR wins, it's our job as a management team is to get good rates of return for our shareholders in a long period of time and so we're trying to.

<unk> worked hard with bilateral partners horizon, specifically too.

Find situations, where they can go acquire strategic mine.

And we can be a large source of the capital to allow them to do that but I suggest buying the gold stream at the time of acquisition and we will be working hand in hand with them, where they would not be floating Franco, nevada, or royal Gold's or weekend or the other party. So that the rate of return that we would get would be much higher than the average rate of return on pure gold streams.

Our partners are that our competitors are getting in the industry.

The plan.

And is the expectation that those would be near production assets or development assets.

Yeah, I would say virtually all of the things that we're looking at are.

They are currently operating.

Great. Thank you very much.

Thank you.

Once again, ladies and gentlemen, if you do have a question. Please press star one at this time.

There are no further questions at this time I'll turn the call back to you for closing remarks.

Alright, well. Thank you Michelle thanks, everyone for calling in again and I. Appreciate it's a busy morning with lots of earnings calls. So I. Appreciate you calling in and hope everyone has a good day likewise will be here to answer questions. If anyone has any follow up questions throughout the day.

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.

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Thanks.

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