Q2 2023 Sandstorm Gold Ltd Earnings Call
Ladies and gentlemen, please continue to stand by your conference will start in two minutes once again, ladies and gentlemen, please continue to standby your conference will start with two minutes. Thank you.
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Yes.
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Okay.
Okay.
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Good afternoon, My name is Jenny and I will be your conference operator today.
At this time I would now.
Welcome everyone.
<unk> gold royalties 2023 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.
Yes.
After the Speakers' remarks, there will be a question and answer session.
I would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
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Mr. Watson you may begin your conference.
Thank you Jenny and good morning, everyone and thanks for calling into this Q2 earnings call.
Shortly I'll hand, it over to her fan to discuss the Q2 results, but before I do that I'd like to provide a corporate update and specifically briefly talk about five things being one sandstorms updated production guidance methodology to the sale by Glencore and Humana are Pan American Sandstorm shares three share by.
Backs for production growth and five debt repayment.
So starting with our updated production guidance methodology and over the last couple of months I've had some conversations with larger investors and it's clear to me that our updated production guidance methodology has not yet fully understood, especially as it relates to how we have historically made our guidance and how our royalty peer companies have guided the market.
Sandstorm and our peer companies have a challenge that when we are guiding future production, we have a large portfolio of royalties on development stage mines, and we have to make an educated guess as to which mines will be in production in the future.
When you're projecting four years out that can be hard to do if you're a dozens of mines that have a chance of going into production, but on the balance of probabilities many of them won't for various reasons option relating to financing or permits.
Historically, sandstorm and its been cap peers as well as smaller royalty companies have showed forward guidance that includes mines that in reality, you have a lower chance of getting into production soon.
Although they may well produced sometime in the future.
The future guidance in this case, it's more of a statement of if everything goes perfect and these mines and companies get the permits and the money they need and this is what our production would be when in reality everything isn't going to go perfect.
This year, we made a decision to go to more of a meaningful measure of forward guidance and only include mines that are permitted or effectively permitted in the hands of companies that will definitely build or are actually building, the mines and who else almost certain access to the capital to build those mines.
For example, if it's a permitted mine, but it's sitting in a company with only $100 million market cap and the capex for the minus $300 million. We will not include that production in our guidance.
Fortunately for Sandstorm, and we can show over 30% growth in production to 125000 ounces per year by 2027 from assets. We already have purchased in our minds that are already in construction or going into construction imminently.
With the four primary mines being greenstone currently being built by Equinox flat reef, which is currently being built by Ivanhoe Hot modern which is going into construction next year by SSR and the Robertson mine, which is part of the Cortez trend and it's being built by Barrick.
These are all impressive mines and important part of sandstorms future.
The point I'm trying to make though is that.
We may have other things.
And in some cases likely will have new mines come online that will happen that will cause the production to be even higher than our guidance and we have a list of those things in our corporate presentation and our production chart slides.
Those are all upside to our guidance.
One such potential upside that I think is worth mentioning is that we have an option to purchase a gold stream of 20% of the Gulfport produced at Tomorrow project for $225 million.
And some of you may have seen this week on cordis announced that its purchasing the remaining 56% interest in mura for half a billion dollars.
Many people have assumed that this asset won't go into production anytime soon it's not in our guidance. However, glencore is a very intelligent mining company and their purchase of its interest suggest to me that this project will be moving toward more quickly than people anticipate that would further increase sandstorms production guidance beyond our current guidance numbers.
Moving onto the second topic as many of you are aware in the last quarter, we had to absorb a $100 million of share sales.
Within a one month period, both Pan-american, who received sandstorm shares when they acquired Humana and Glenn Carr, who receive sandstorm shares in the base core transaction, both respectively sold for Sandstorm shares.
We do have some insight into the buyers of those shares who for the most part of our long term large institutional investors.
So those shares have found their way into stronger hands.
A few of the buyers of those shares were more short term oriented funds and when gold prices started dropping they decided to sell them.
Which leads me to my third point of discussion being share buybacks.
Fortunately for US we had our share repurchase program in place and we were able to buy some shares at low prices and we canceled those shares and have tightened up our share structure of it.
Over the last quarter, we purchased around $2 6 million shares.
In addition, during the quarter, we had a very odd trading day on June 12, when we were notified by ice data industries. The index manager for that I see Arca Gold index.
Unexpectedly removing sandstorm from the index.
Spent the entire day, reaching out to them and explain the big clearly made a calculation there literally a mistake and at the end of the day they announced they were reversing their decision and we're appropriately we were appropriately put back into the index. However, during the trading day, we traded nearly 19 million shares and at some points were down over 10%.
Again, Fortunately for US we had a share buyback program in place and we were able to buy the maximum allowable number of daily shares at a very cheap price on that day.
It wasn't a monday, but it worked out well in the end.
On a side note, we do have some insight into the funds the stepped in big and bought shares on that day and they're great long term funds. So at the end of the day, we ended up with a stronger better shareholder base and fewer shares outstanding.
The fourth topic I want to talk about because I always get this question from investors is about growth.
Point I want to make will be brief because it's simple and it leads into my last topic of discussion.
We have already bought our growth last year, we acquired a $1 billion worth of new streams and royalties.
Each of which is for mines that are in construction now.
Purchases are our future growth and we have the Moro stream auction and number of other potential development assets in the portfolio.
Make no new acquisitions, we have locked the solid high confidence growth built in.
In order to get that growth.
We had to take on debt last year, which leads me to my last point debt reduction.
At the peak of last year, if you took our debt plus payments, we had yet to make on streams that have been purchased by nomad, but not yet paid for such as greenstone impart reef, our debt or amounts owed was close to $625 million.
We've been diligently bring bringing that down and we stand here today with net debt below $460 million. So its come down massively.
You can see here on this chart. It shows that if we don't make any further acquisitions and depending on the gold price to that we'll get to zero sometime in 2027.
Now we have a revolving facility of 625 million that we can draw on for future acquisitions, but with interest rates, where they are today. The most likely outcome is it will keep paying debt down to save on interest.
Yeah.
I think it's also worth noting.
It sometimes in the past we have purchased a gold stream.
Lent a mining company money or in the case of the sale of the Anthony the MPI to horizon, one of the things we took back was alone.
That is a cash sweep on the MPI cash flows and therefore, Samsung has a portfolio of loans to other mining companies from which we receive interest income on.
In total the mark to market value of those loans that we have made is $234 million U S. C.
So if you take same storms net bank debt of around $457 million, which has an interest expense to us.
Net debt debt against the loans, we have made to other companies, which yield income to us the net interest isn't that bad having.
Having said that our business is doing well our cash flows are strong and it will be applying those cash flows against our debt as our first capital allocation priority.
It's very exciting to be in this position today with a strong portfolio for amazing mines being constructed.
And with that falling rapidly quarter by quarter, Sandstorm is becoming a bigger stronger and more stable company.
And with that I'll hand, it over to <unk> for the detailed results.
Thanks Nolan.
It was another strong quarter in terms of financial results for the company.
Set another record in quarterly revenues of $49 $8 million.
With attributable gold equivalent production of over 24500 ounces in the second quarter.
And nearly 53000 ounces in the first half of 2023.
Sandstorm is on track to comfortably achieve its production guidance of between 90 and 100000 attributable ounces this year.
Higher gold and silver prices during the second quarter helped boost revenues and the company realized an average gold price of 19, <unk> hundred $72 per ounce.
This resulted in cash operating margins of 17 $844 per attributable ounce sold.
Comparing the three months ended June 30th 2023 to the comparable period in 2022 gold revenues and attributable gold equivalent production increased by 39% and 27% respectively.
Increase in production in revenues was primarily driven by the assets added to sandstorms portfolio in the second half of 2020 to be the nomad and base core transactions as well as an increase in the average realized price of gold.
The average cash cost per attributable ounce in the second quarter of 'twenty was $228, a 16% decrease compared to the same period in 2022.
Contributing to the strong cash operating margins that I mentioned earlier.
As a result, the company had record cash flows from operating activities of $42 1 million or <unk> $38 million in operating cash flows excluding changes in noncash working capital.
These cash flows and our strong margins that underlay them really highlight the benefit of the royalty model business.
Over the last 12 months, we've added considerable scaled SaaS storms cash one royalty portfolio, while also increasing our operating margins.
Even in a high inflationary environment Sandstorm continues to turn out exceptional operating results.
Net income for the three months period.
$2 7 million compared to $39 $7 million in the comparable period of 2022.
This change was driven by approximately $35 million in gains recognized in the second quarter of 2022 related to the sale of a portfolio of royalties sandbox royalties on the sale of the company's equity interest in entre resources to horizon copper.
On the next slide is a breakdown of attributable gold equivalent production sold from the company's top assets.
At the top of the list we have the Mercedes mine in Mexico at almost 41 attributable ounces sold SaaS.
Sandstorm required a gold stream on Mercedes in April 2022, which phase six deliveries until nearly 30000 ounces have been delivered.
The Nomad acquisition last year. The company also acquired a silver stream on the asset along with six additional deliveries.
Cerro Moro continues to be a strong contributor to sandstorm production profile with over 3300 attributable gold equivalent ounces sold during the quarter.
July and August marked one year since the completion of the base core nomad acquisitions, respectively.
As I look at the contributing assets on this list and compare it to this time last year, it's great to see so many significant cash flowing streams and royalties from those acquisitions and to me in a cast erroneous monochrome LIBOR or just some of the assets that are contributing meaningful caseloads sandstorm this year with many more in development.
Speaking of and to me that in June Sandstorm completed the final component of its transaction with horizon copper whereby sandstorm sold a portion of its net profits interest on the <unk> copper mine in consideration for the MPI Sandstorm received a $1 six 6% stream on the silver produced and to me that as well as the <unk>.
$20 million of cash payment plus a combination of debt and equity and retained a portion of the NPI is a residual royalty.
The cash received from this transaction contributor to the strong strong quarterly cash flows that I mentioned earlier that helped further pay down the company's debt balance while also investing in share buybacks as Nolan discussed.
<unk> operations.
In the Americas contribute.
Significantly in terms of the majority of gold equivalent production to sandstorm.
86% in the second quarter.
Compared to the same period in 2022 attributable production from mines in North and South America is up 37, and 18% respectively.
This is largely due to the regional exposure.
For mines acquired in 2022.
Sandstorm remains a precious metals focused company during the second quarter, approximately 75% of attributable production came from precious metals.
Of the 25% production that came from base metals about 20% was in copper.
And with that I'll turn it over to Dave for updates on some of our development assets.
Great. Thanks, everyone for the asset update today I'd like to speak about two of the biggest development projects in the portfolio and a few smaller assets, starting with plat Reis and the fantastic progress towards phase one production, which is still expected for Q3 2024.
Concentrator as well on schedule with much of the concrete computed.
70% of all the orders phase one mill had been plays with greater than 10% of the steelworker active today.
On the groundwork has been focused on lateral development to the high grade flat ore body on three different levels.
More than 2000 meters of development has been completed to date with a cumulative advance rates expected to increase in September from 200 to 300 meters per day, and again up to 500 meters per day by January 2024.
The 10 meter diameter shaft two for phase two mining continues to be advanced and is expected to operate at 8 million tonnes per annum hoisting capacity by 2027.
Once completed the head frame will be approximately 100 meters tall. This will be among the largest hoisting chefs in the world.
As part of the optimization work Ivanhoe is looking to convert our previously installed bench.
Into chefs III to accelerate underground mining activities associated with phase III. The existing shaft is currently being resumed to a five one meter in diameter and is planned to have this project completed by Q4 of 2023.
It will be plan to be equipped with a winder and appropriate headgear.
As phase one and phase two move towards completion management at Island Hall is speaking more and more about the potential phase III, which would take the mine up to 12 million tons per annum, we will stay tuned for updates on that timeline.
Moving on to Oyu, Tolgoi, and the joint venture ground to which we hold.
A couple of the streams.
Over three weeks ago, Rio Tinto hosted an investor site visit which focused on the underground progress since their takeover turquoise Hill.
The operations continue to improve every year as they work to transition to underground operations for most of the supply of ore for the rest of the life of mine shafts, three and four are increasing seeking rich and the concentrator conversions, making progress with completion expected in each one and 2025.
The seven eight kilometer long conveyor to surface is well on track and expected to be completed in each to 2024. According to their presentation. Togo team has exceeded planned performance in almost all productivity and production metrics, including development meters and hoisted tons.
<unk> is finally, hitting its stride as it pushes hard to production from the block caves.
This all points to positive progress optimizing the plants to mind panel one of lift one which is where SaaS one schools in Cork Street supply.
With the latest update for me it looks like access to the ore from that panel may deem moved up as much as one year to another.
Another important note from site visit with a focus on Hugo North lift two as you can see on this slide the <unk> view of the reserves and resources Zero you told boy there are enormous amounts of resources in the salmon color compared to the relatively small reserves in red but without conversion.
To reserves you can already see in the like Crazy that Rio has already worked on the development design of lift two they have said that the new resource model can be expected by mid 2024, and an order of magnitude study to be commenced this year is keen to continue to fill the mill.
Beyond 2043.
This update along with the Mongolian Prime Minister's optimistic comments on his recent trip to Washington D. C. Regarding the near resolution of the ongoing tax issues with Rio Tinto leads us to believe that will go toward though is very positive position.
Fair to just a few years ago.
Progress at Oyu Tolgoi is feeling very tangible now.
So before I hand over for the Q&A I thought it might be worth and added on to really what Nolan said earlier about consolidation of the <unk> project fully into the hands of Glencore they've moved quickly consolidate the ownership from Newmont and now Pan America and.
Our hoping they're pushing this project to development.
We'll see if glencore has an update on timing of this project before the end of the year.
Also worth mentioning is a congratulations to lundin gold and the amazing the initial results of the 43000 meter drill program at <unk> del Norte.
Just yesterday in the release assay results from the conversion program that were well above the kind of third grade, but also results from SDN itself and buzzer sore that are in line with the grades achieved through that itself.
So with that I'll pass over the call to Jerry the operator for Q&A. Please.
Please feel free 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 the star followed by the one on your Touchtone filings you will hear me three telecoms acknowledging your request questions will be taken in the order receipt should you wish to cancel your request.
Please press the star followed by the two.
Once again that the star one should you wish to ask a question.
Your first question is from Josh Wolfson from RBC capital markets. Please ask your question.
Thank you very much.
Our first question most of my questions I should say has to do with the capital allocation side of things.
In addition to the $12 million.
Upstream investments there is also a $12 million investments.
Titles of the acquisition of investments and other assets.
Are there any disclosures that can be provided what those investments were for the quarter.
We made a few small investments.
And various things that are not being disclosed at this point, but I think in terms of capital allocation going forward, it's important to note that.
I recently did a large out of marketing talking to institutional investors.
Prior to that round of.
Marketing was sort of thinking in my mind would be allocating future capital, probably 70% to debt reduction and 30% to share buybacks.
And the overwhelming message that came back to me from.
Our large investors is not just don't worry about share buybacks. So much just just pay down debt as fast as you can because interest rates are high and so capital allocation going forward I don't think youll see us doing any of these smaller deals per se and pure share buybacks and really just walking down the debt.
Okay.
Yeah, I would just sort of.
This isn't so much a question more so a confirmation.
And $8 million of debt repayment this quarter is relatively light versus.
The debt load and the cash generation and.
But that could be repaid by 2027, our forecast I agree with that but.
We'll take significantly longer maybe a decade or more.
If the current pace of debt repayment.
Was extrapolate so so.
I look forward to next quarter's update thank you.
Yes, and then just to emphasize that it is.
I'll go into debt repayment at the moment and everything.
Thank you.
Your next question is from Heiko Gila from H C. Wainwright. Please ask your question.
Hey, guys. This is Marcus Giannini, calling in for Brian Thanks for taking my questions.
You sort of touched on the capital allocation.
Question, we had in terms of.
Share repurchases.
Dividends.
I guess to tweak that question a bit.
Going forward debt repayment is a priority.
Okay.
<unk>.
The share repurchase program slowdown.
What effect well.
Our dividend program.
Changed based on that.
Near term goal.
Yes, we don't have any plans to change the dividend policy.
We said when we put the dividend in place that's going to maintain and stay in place as is and then we'll reevaluate once a year, whether or not it makes sense to raise the dividend at the end of the year I think with debt levels, where they are and with interest rates, where they are we'll probably just continue to keep that.
That steady for the meantime until either interest rates are coming down or debt comes down or both.
And in terms of debt reduction versus share buybacks.
We are prioritizing the vast majority of our capital to debt reduction.
Just because interest rates are so high we're not worried about our debt levels at all but interest rates are at generational highs and we want to save that money.
Okay, Alright makes sense and then <unk>.
<unk> using funds.
May be a more of a question for.
You are at $9 1 million in cash at the end of June .
Slightly up compared to the 7 billion at the end of 2022.
Figure still isn't all that high obviously your actual liquidity is much higher given your working capital revolver at what point do you get a little concerned with actual cash on the balance sheet. Rather is there a minimum cash figure you simply cannot or will not go under.
Yeah. Thanks for the question.
No hard rule.
No specific reason why you would keep a certain level of balanced some of its just working capital some of it.
Paying for dream deliveries and timing of deliveries associated with it has to do with also quarter end, where we expect pay.
Payments.
Consumables coming but theres no covenant requirement in terms of minimum cash balances or otherwise.
But youll just see us maintain low levels of cash you just saved interest on the debt that we have outstanding.
That's why it's actually one of the benefits of being a streaming and royalty company with a business model of the way. The contracts are structured is that when G&A. So immaterial to the company you don't really need to keep that cash on hand, and when we get.
Our main cash outflow items are paying for the gold that is delivered to us under streams, but the way our contracts are structured is we get the goal then we sell it and we get the revenue before we have to pay for it.
So you never have to keep cash on hands to buy the gold and then sell it because he felt the Golden then buy it.
Okay, perfect that makes sense, thanks for taking our questions.
Thank you once again, please press star one should you wish to ask a question.
Our next question is from Derek <unk> from TD Securities. Please ask your question.
Hi, Thank you for taking my question and I apologize.
These questions have been asked that would drop at the beginning Q&A, but could you speak to the rationale on why the company reestablished the ATM program and how it intends to keep the ATM going forward.
Yes, no. That's a great question I'm glad you brought it up.
So.
Years ago.
The board of directors decided that it was prudent to always have the flexibility to have a share buyback program in place simultaneously with an ATM to give maximum flexibility.
Just in case.
We have never ever used our ATM in the several years that we've had it in place.
To this day, we've never had used our ATM.
It is there and sort of break glass in case of emergency scenario and we have no plans to use it.
Yes.
Okay, Great and then.
A point of clarification on the Mars stream option, if I could.
The conversion granted 20% gold stream on the entire project or just a portion of the project.
The whole project.
The entire project and it is their exploration.
An expiry date on the option in terms that govern when you can actually exercise that option.
There is no calendar based exploration date on the option the option is given to us at a point in time when they make their board decision to construct the mine and have financing that's when where we get the phone call to say do you feel like yes or no.
If we elect yet.
Then we are in and then we pay over time as they built the mine.
Got it.
Thank you very much.
Thank you once again, please press star one should you wish to ask a question.
Alright, well if there are no more questions I think we can and the call and I appreciate everybody, calling in and as always we're around to answer questions that people may have his follow up question. So thank you have a great day.
Thank you ladies and gentlemen, the conference has now ended thank you all for joining you may all disconnect.