Sandstorm Gold Ltd. (“Sandstorm” or the “Company”) (NYSEAMERICAN: SAND, TSX: SSL) has released its results for the third quarter ended September 30, 2017 (all figures in U.S. dollars).
Third Quarter Highlights
•Attributable gold equivalent ounces sold1 of 14,293 ounces (Q3 2016 – 12,588 ounces);
•Revenue of $17.9 million (Q3 2016 - $16.8 million);
•Average cash cost per attributable gold equivalent ounce of $246 resulting in cash operating margins1 of $1,009 per ounce (Q3 2016 - $255 per ounce and $1,081 per ounce respectively);
•Operating cash flow of $11.9 million (Q3 2016 – $10.3 million);
•Net income of $4.8 million (Q3 2016 – net income of $6.9 million);
•New Anchor Asset: Sandstorm completed its previously announced arrangement to acquire all the issued and ordinary share capital of Mariana Resources Ltd. (“Mariana”). Under the terms of the arrangement and as consideration for the acquisition, the Company issued 32.7 million common shares and paid an additional $47.3 million in cash. The transaction and the addition of the 30% Hot Maden profit interest to the Company’s portfolio of royalties provides for: ?approximately 100% increase in estimated future production for only 19% dilution;
?an anchor asset that is high-grade and low-cost with significant exploration upside;
?a strong local partner with experience in exploring, developing, permitting and operating projects in Turkey; and
?exploration properties in Côte d’Ivoire, Turkey, and Argentina. Sandstorm has begun the process to sell the exploration properties and expects to retain net smelter returns (“NSR”) royalties as well as equity in the spin-out.
•Newly Acquired Royalties: Since September 2017, the Company has acquired 10 separate NSR royalties on properties located in Peru, Botswana and South Africa. These royalties, which were purchased for an aggregate of $2.3 million, cover more than 1,000,000 hectares of property.
•Amended the Bachelor Lake gold stream with Metanor Resources Inc. Beginning October 1, 2017, Sandstorm will purchase 20% of the gold produced from the Bachelor Lake mine at an ongoing cost of $500 per ounce, until 12,000 ounces of gold have been purchased by the Company at which time the gold stream will convert into a 3.9% NSR royalty. As part of the amendment, Metanor has agreed it will sell a minimum of 1,500 ounces of gold to Sandstorm on a quarterly basis until the 12,000 ounce threshold has been reached. The amendment allows Sandstorm to maintain meaningful exposure to production from the Bachelor Lake mine while adding a royalty on the Barry project, an advanced exploration-stage asset located in the emerging Urban-Barry camp. In consideration for the amendment, Sandstorm received ?a 3.9% NSR royalty on Metanor’s Barry project; and
?$2.0 million in the common shares of Metanor.
•Under Sandstorm’s normal course issuer bid, the Company is able to purchase approximately 7.6 million common shares until April 4, 2018. During the nine months ended September 30, 2017, the Company purchased approximately 3.3 million common shares.
On October 25, 2017, the Company agreed to sell $18.2 million in debt and equity securities of Trek Mining Inc. (“Trek Mining”) to Ross Beaty. The sale is conditional upon the closing of the announced business combination between Trek Mining, NewCastle Gold Ltd. and Anfield Gold Corp. The combined entity intends to operate under the name Equinox Gold Corp. and will be led by Ross Beaty as Chairman. Sandstorm has existing royalties on properties that would be part of the Equinox Gold entity, and the combined company would be well financed to advance their assets into production.
Based on the Company’s existing royalties, attributable gold equivalent production for 2017 is forecast to be between 53,000 and 55,000 ounces. The Company is forecasting attributable gold equivalent production of approximately 130,000 ounces per annum in 2022.
Sandstorm’s revenue in the third quarter of 2017 was 7% higher than the third quarter of 2016, driven by a 14% increase in attributable gold equivalent ounces sold from the Company’s stream and royalty portfolio. The change was driven by increases from the Company’s streams with Yamana Gold Inc. (“Yamana Gold”), specifically the silver stream on the Minera Florida mine in Chile and the silver and copper streams on the Chapada mine in Brazil. Additional gold equivalent ounces sold were also reported from the Company’s gold streams on the Santa Elena mine in Mexico and the Black Fox mine in Canada. The increases in attributable production and revenue ultimately led to a 15% increase in cash flow from operations, partially offset by a 6% decrease in the average realized selling price of gold.
The quarter saw an increase of $0.8 million in administration expenses when compared to the same period in 2016, partly driven by the acquisition of Mariana and the related operating costs. These costs are expected to decline as the Company executes on its strategy of selling the exploration properties which were acquired as part of the Mariana acquisition. The reported decline in net income from $6.9 million in Q3 2016 to $4.8 million in Q3 2017 was related to the aforementioned increase in administration expenses but also certain items recognized during the third quarter of 2016 did not reoccur in 2017. Specifically, there was a $5.8 million gain on the revaluation of the Company’s investments in 2016 compared to a $0.5 million loss on the revaluation of investments in Q3 2017. The decrease in net income was partially offset by a $3.4 million gain primarily resulting from the Bachelor Lake gold stream amendment.
Streams & Royalties: Q3 Updates
Of the gold equivalent ounces sold by Sandstorm, approximately 41% were attributable to mines located in Canada, 27% from the rest of North America and 32% from South America and other countries.
Three months ended Sept. 30, 2017
Revenue (in millions)
Gold Equivalent Ounces
Canada $ 7.3 5,855
North America excl. Canada $ 4.9 3,859
South America & Other $ 5.7 4,579
Total $ 17.9 14,293
Streams and royalties on Canadian mines contributed 4% fewer gold equivalent ounces to Sandstorm when compared to the third quarter of 2016. The change is primarily due to a decrease in gold equivalent ounces sold from the Bachelor Lake mine in Quebec offset by an increase from the Black Fox mine in Ontario.
On October 6, 2017, McEwen Mining Inc. (“McEwen”) completed its previously announced acquisition of the Black Fox Mine from the previous owner, Primero Mining Corp. McEwen is a proven mine operator with a strong balance sheet and the transaction represents an increase in counterparty strength with respect to Sandstorm’s gold stream on the Black Fox mine.
McEwen intends to continue underground exploration and definition drilling programs with the intention to upgrade and expand resources in the Deep Central, High Quartz Vein, Far West and Far East Zones, at depths ranging from approximately 500 to 850 metres. Exploration drilling will also focus on expanding the gold resources to depth at the Black Fox mine and the Froome deposit, which is located 800 metres west of the mine. The Froome deposit is currently drilled to a depth of 350 metres and remains open at depth. Multiple other exploration targets exist on the Black Fox property. McEwen reported that the targets will be ranked during Q4 2017 for drilling in 2018.
North America Excluding Canada
The gold equivalent ounces sold from operations located within North America, but outside of Canada, increased by 32% compared to the same period in 2016. The changes were driven by an increase in gold equivalent ounces sold from the Santa Elena mine in Mexico as well as increased royalty revenue from the Emigrant mine in Nevada, USA and the San Andres mine in Honduras.
South America & Other
Operations in South America and other countries contributed an additional 987 gold equivalent ounces when compared to the third quarter of 2016, representing a 27% increase. The silver and copper streams on the Minera Florida mine in Chile and the Chapada mine in Brazil were responsible for 1,125 more ounces than during Q3 2016.
Yamana Silver Streams
Sandstorm has a silver stream with Yamana Gold whereby it will purchase silver from the Cerro Moro mine in Argentina beginning in 2019. Up until 2019, Sandstorm is purchasing silver from Yamana’s Minera Florida and Chapada mines.
At Cerro Moro, Yamana Gold recently reported that construction remains on schedule and completion is expected during the first quarter of 2018. At the end of the third quarter, 673 metres of underground development were completed, in line with the 992 metres planned for 2017. Of the $233 million to be spent in 2017 and 2018, $178 million is budgeted to be spent in the current year. Expenditures of $123 million have been incurred up to the end of the third quarter, leaving approximately $55 million to be spent in the fourth quarter of this year. Commissioning is on track for completion by the end of the first quarter of 2018, with the production ramp-up to commence thereafter.
Sandstorm Gold Yesterday Vol. 483.400
Time X Price Chg Vol Buyer Seller Markers
16:00:00 T 5.46 -0.10 93 36 Latimer 80 National Bank Q
16:00:00 T 5.46 -0.10 1,100 39 Merrill Lynch 80 National Bank KQ
16:00:00 T 5.46 -0.10 100 53 Morgan Stanley 80 National Bank KQ
Sandstorm Gold Today (2/11)Vol. 317.700
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10:41:02 T 5.70 +0.24 300 79 CIBC 1 Anonymous
10:41:02 T 5.70 +0.24 100 79 CIBC 79 CIBC
10:41:02 T 5.70 +0.24 100 79 CIBC 79 CIBC