Sandstorm Gold Ltd.
Q1 2021 Earnings Call Transcript

Published: 30 Apr 2021

[Operator:]

Good morning. My name is Kreda and I will be your conference operator today. At this time, I would like to welcome everyone to the Sandstorm Gold Royalties' First Quarter 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 as actual results and future events could differ materially from those anticipated in such statements. After the speakers' remarks, there'll be a question-and-answer session.

[Nolan Watson:]

Thank you, Kreda. Good morning, everyone, and thank you for calling into this first quarter earnings call for 2021. As normal this morning, I'll provide a brief update on the company and then Erfan, our CFO, is going to walk us through the first quarter results, and then Dave Awram will provide an update on some of the assets. After that, we'll turn it over to the operator for the question-and-answer period. And if anyone has any questions, that does not need to be part of the live Q&A, you can ask those questions through the web portal. And we'll ensure that each question we get there will get a direct response from you after this call. At this time, we're going to be going through a prepare PowerPoint presentation on the web portal. So, if you're able to please turn your attention there now. Overall, the first quarter for Sandstorm was fantastic. We had a record number of gold equivalent ounces sold of over 17,000 ounces; we had record revenue of $31 million, and we had record operating cash flows excluding working capital into the $23 million. By all accounts, our business is performing well. And it's for this reason that we're raising the bottom end of our annual production guidance, up to 55,000 ounces so that our revised guidance range is between 55,000 to 62,000 gold equivalent ounces. So, we're still on track for another record year of annual sales. It's important to note that starting now in the second quarter, the gold stream that we have on the Karma mine in Burkina Faso has done the six delivery period of the contract. Advanced firm now has an effect of 1.6% NSR. So, the deliveries from Karma are expected to be lower by the 1,000 ounces per quarter going forward. However, many of you are aware we have a number of other development assets at various stages of development and we're expecting more growth in annual production over the next years in any of our other streaming and royalty competitors. Now, Sandstorm has record amounts of capital available to allocate to either new deals or dividends or share buybacks. And as we stand here today, Sandstorm has over $150 million in the bank, plus we have approximately $60 million of equity and debt investments and other mining companies that can all be liquidated if need be. We are going to be allocating capital to what I mentioned on the last quarter earnings call, was all three alternatives, the new deals and dividends and share buybacks. And we've got a slide here that you can see, this discusses the share buyback part.

[Erfan Kazemi:]

Great, thank you, Nolan. Hello to everyone joining us today. It's been a great quarter for Sandstorm as Nolan mentioned. I'd like to take some time to walk through the financial results in more detail. The chart on the left of this slide, so Sandstorm's attributable gold equivalent ounces sold as well as sales and royalty revenue for the last four quarters. If you've been tuning into these conference calls for a while, you may recall at the end of 2019 that Sandstorm was realizing quarterly records on a regular basis. At the time, I mentioned that we were excited for this record breaking trend to continue. After a year of unprecedented change and global upheaval, I'm pleased to say that Sandstorm has once again hit a new quarterly record. Moving to the next slide, we can make a few comparisons between the first quarter of 2020 and 2021. By all metrics listed here, Sandstorm's financial performance was stronger in the first quarter of this year, compared to the first quarter of last year. Total revenue was a record $31 million, an increase the 45% compared to the same period in 2020. Attributable gold equivalent ounces sold with a new quarterly record at 17,444 ounces, an increase of 30% compared to the same period in 2020. These results were supported by a relatively strong gold market in the first quarter, with an average realized gold price of $1,777 per ounce. For comparison, the average realized gold price in the first quarter of 2020 was just under $1,600 per ounce.

[David Awram:]

Thanks, Erfan. My asset updates will be brief this quarter as I focus on two projects that are back in the limelight after a couple of years of us not talking much about them. The first project is the nascent project with Hudbay. This asset was once an Entrée Resources, but has spun out into its own vehicle and was eventually purchased by Hudbay in 2018. Fast forward two years later, along with a $2 per pound increase in copper price. And we are one of the largest Greenfield copper projects in the Americas and potentially the third largest copper mine in the United States. Hudbay recently released the results of the PA on the 2.2 billion tonne measured in indicated resource at 3.10 copper and using a 10% discount rate. The project carries after tax NPV of almost $520 million. The current mine life is expected to be 27 years, but they're still working on additional exploration that could extend that. Obviously, we're working on the asset and assets will need to be achieved. But Hudbay is expected to put it into the development pipeline once rose line is up and operating. However, it does have the potential to almost double Hudbay’s copper output. So clearly, it could be one of the most important growth projects in the pipeline. With ARPU 0.4% NSR on the project Sandstorm could collect up to $75 million in proceeds based on the PDA study at $4.50 copper price, obviously that's going to be a lot higher. This is another great example of how Sandstorm has been effective at accessing low cost early stage deals on the right assets. And sometimes like this one, even we're surprised that doesn't take nearly as much time as we originally thought to show that great value for Sandstorm. The other projects, I want to talk about now are Barry, Moroy and Gladiator. These are all now part of what was originally The Bachelor Lake goldmine stream, which provided us with a tremendous amount of cash flow for over the last 10 years.

[Operator:]

And our first question comes from Heiko Ihle with H.C. Wainwright.

[Heiko Ihle:]

Hi, there. Thanks for taking my questions. I'm glad you made it that on the call.

[Nolan Watson:]

Me too.

[Heiko Ihle:]

I know you're still working diligently on the feasibility study for Hod Maden. And the prior outlook was read to be completed in the first half of the year, obviously, with production by the end of 2023. And this timeline was from in the MD&A that you guys just put out. In contrast, early on the call, you said that Turkey went into a lockdown. And there may be a delay to this, but I mean, just thinking ahead, not 30 days, but you know, six months, nine months, 12 months? How much the impact is this delay, really pose to you getting first production by the end of 2023. And building on that, can you maybe pride some color on longer lead time issues that you're particularly concerned about?

[Nolan Watson:]

Yes. So the lockdown was just announced a couple days ago. So it's a bit early for us to tell some of those answers, because it's only been -- in effect for a couple of days. At the moment, we don't foresee it changing when we think the asset will get into production. Some of the long lead items, which are still working their way through the system would be things like forestry permits, but also EPCM contractors getting them signed up and ready to go. And that work is still ongoing full force. And most of that work is digital work where people are submitting their bids and phone calls are being had. And then that's still going ahead irrespective of the lockdown. So a lot of these long lead items are not, in fact slowing down. It's just if EIA permit was expected to be granted next month, and nobody's showing up at their desk at the government for the next month that might slow down. But that was never really a long lead item. So we're just waiting to see how or if any, it'll impact it. And at the moment, we're not updating our guidance, because we don't think -- it'll be to material.

[Heiko Ihle:]

Okay. Yes. That's what I figured. Because I mean, there's a so far in the future, and even if they locked down for 90 days. I just don't see how that will change the 2023 timeline.

[Nolan Watson:]

Yes. And a lot of the work that the project is at the stage right now is, is at the desktop level, and so people are still pushing more work forward, at the same pace even though they happen to be in their homes.

[Heiko Ihle:]

Got it. Second question, I'm not sure how much of this you're willing to say. I mean, you're obviously renewed your NCIB. And I think that's the right move especially, when I saw the 520 average priced that you paid over the past few years and the presentation that you had. You actually use the program reasonably aggressively in Q1. Have you done anything in Q2 so far, I mean, we're a third way through the quarter. I don't know if you're willing and able to comment on that.

[Nolan Watson:]

In Q2, we haven't most activities so far, we were in blackout because of preparing financial statements. So we weren't allowed to legally anyway, so.

[Q – Unidentified Analyst:]

Fair enough. I'll get back to queue. Thank you.

[Nolan Watson:]

Thank you.

[Operator:]

And our next question comes from Hilary Chak with Canaccord Genuity.

[Hilary Chak:]

Hi. Thanks for taking my question. So actually just had a question on Entrée gold, I see that you've been increasing the size of the investment. And I was wondering if you're able to speak about the rationale behind that?

[Nolan Watson:]

Yes. It's a question that we get every now and then and answered in on some of our past calls. Suggest is that we found a very significant percentage of their company already based on their liquidity, selling out at a reasonable price is not very feasible at the moment. And we think that there's actually a tremendous amount of value there, we think that company's worth a lot more than what it's trading at. We have not been shy to say that publicly in the past. And so we think that picking away shares that are well below value, gives us the benefit of building a stronger position, if someone wants to come along and buy them, and making sure we get their value for our shares. Or if nobody buys them then we own effectively 25% of the company in a partially diluted basis, we get 25% of their dividends from their equity interests. And we'll see how it goes. So either way, whatever the outcome is, we're happy. And we think it's intelligent capital allocation good enough capital we have available to us and the volume you see there.

[Hilary Chak:]

Okay. Thanks. That makes sense. And one last question on guidance, you increased the bottom end of the guidance, and based on Q1 that implies an annual run rate about 68,000 ounces, which is above the high end of guidance. I know, you said that Karma is expected to decrease in the coming quarters that are expecting any other assets to decline? Or is this just like a conservative estimate?

[Nolan Watson:]

I would say, we try to be I think conservative in our estimates, sometimes it's tough to tell. We -- I wouldn't say that there's any imminent declines that we're expecting from many of our other assets other than Karma, and Erfan I don't know if you have anything to comment on the conservativeness of our guidance.

[Erfan Kazemi:]

I think our guidance is fair potentially on the conservative side, but we have more than just one commodity in our mix and that impacts our guidance figures. So as the year goes on, we'll provide more clarity on that.

[Hilary Chak:]

Okay. Awesome. Thanks. That's it for me.

[Operator:]

And our next question comes from Derick Ma with TD Securities.

[Derick Ma:]

Thank you. My question relates to Chapada land inputs from pretty positive exploration results to their Q1 earnings, 90% increase in land division. Looking at the maps, we believe most of the property is still covered by the stream area, but can you confirm that the Southwest near Monterey exploration areas are covered and more specifically, I guess, the four mega areas of their lives now you’re looking at?

[Nolan Watson:]

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