Sandstorm Gold December Update
Sandstorm Gold (SAND) recently announced that it has amended its existing $225 million revolving credit facility, to include an accordion of up to $75 million, which gives it total availability of up to $300 million.
I believe this could mean that Sandstorm is gearing up for a new royalty/stream acquisition (or two), especially following the news that Maverix Metals (MMX) will buy a royalty portfolio from Kinross Gold (KGC).
Sandstorm also recently provided a positive update on several of its key assets, including first gold production at the Fruta del Norte mine and a planned expansion at the Chapada mine.
Here’s a breakdown of this recent news at Sandstorm Gold.
Sandstorm’s Firepower Is Growing
Sandstorm can now technically borrow up to $300 million from its revolver, minus any debt outstanding. Any draws on the line of credit are subject to interest at LIBOR plus 1.875% to 3.0% per year, and the undrawn portion of the revolver is subject to a standby fee of 0.422-0.675% per year. It has a term of four years, and matures in December 2023.
Sandstorm is in good financial shape, in my opinion. As of last quarter, it had $46 million drawn on its credit facility (labeled as bank debt on its financial report), leaving $179 million undrawn, and $5.1 million cash and cash equivalents, according to its Q3 financial statement.
However, this doesn’t take into account the cash it’s earned since then – Sandstorm is producing approximately $15 million per quarter ($5 million a month) in operating cash flow at current gold prices. It also doesn’t factor in short-term investments, which totaled $14.2 million in Q3.
Sandstorm has $400+ million in available capital to complete new acquisitions, according to the company’s December corporate presentation. To give you a sense of how much capital this is, the company’s largest-ever acquisition of the Hod Maden mine cost $213 million, while its second-largest deal for Yamana Gold (AUY) royalties cost $152 million.
Also keep in mind that this doesn’t include roughly $70 million of non-core investments it holds in mining companies, which it may look to monetize in the future.
With this increased credit facility, and Sandstorm’s CEO recently commenting in a Kitco interview that he believes gold will reach $2,000 per ounce within two years, I think it’s safe to assume that Sandstorm is going to be aggressive and on the hunt to complete a new deal (or two) in the near future, perhaps before year-end.
I believe Sandstorm will likely continue to focus on the acquisition of near-term cash-flowing assets, similar to the Relief Canyon and Fruta del Norte deals, rather than early-stage exploration royalties, which carry greater potential returns, but more risk.
Sandstorm: A Growth Machine
(Sandstorm is forecasting strong growth. Credit: Sandstorm Gold presentation).
Sandstorm has been a growth machine since its inception in 2010, growing its annual production from just 2,000 ounces per year to 58,000 ounces in 2018.
While Sandstorm has plenty of future growth coming from its existing asset base – the company is forecasting 140,000 gold equivalent ounces by 2023, a 115% rise from 2019 – I’d like to see the company get more aggressive, because I feel like it may be missing out on some good deals (like the Kinross royalty portfolio acquisition made by Maverix).
Like many other investors, I’d also like to see Sandstorm diversify its cash flow because a lot of its future growth depends on a single asset in Hod Maden – check out the second chart above (“record cash flow”), which shows a breakdown of estimated future cash flow broken down by asset (Hod Maden is the middle tan bar).
Also, Maverix is getting more than just royalties in its latest deal. Kinross has agreed to provide Maverix with an opportunity to acquire certain metal streams or metal royalties which Kinross may contemplate selling in the future, so Maverix will get first dibs on such deals before the competition. It struck the same deal with Gold Fields (NYSE:GFI) and Newmont Mining (NEM). This could end up being a key competitive advantage for Maverix.
Sandstorm Asset Updates
Sandstorm did also recently provide some positive asset updates that are worth noting. Here are some of the highlights of that update:
The company reported that Lundin Gold (OTCPK:FTMNF) has announced first gold production at the Fruta del Norte mine (commercial production is expected in the second quarter of 2020). Sandstorm has a 0.9% NSR royalty on the precious metals produced from the project. The mine has probable reserves of 5.02 million ounces of gold grading at 8.74 grams per tonne and a mine life of 15 years. Sandstorm bought this royalty in January for $32.75 million.
Lundin Mining (OTCPK:LUNMF) has announced that it is evaluating options to expand the Chapada mine and plant, while exploration efforts have also increased with a 50,000 metre drill program planned for 2020. Sandstorm has a copper stream agreement to purchase 4.2% of the copper produced at Chapada up to a maximum of 3.9 million pounds annually. Sandstorm will make payments of 30% of the spot price of copper. Sandstorm originally bought the stream from Yamana Gold, which sold Chapada to Lundin.
Finally, Americas Gold and Silver Corporation (USAS) reported that the Relief Canyon mine development is on track for first gold pour by the end of 2019, while commercial production is expected by Q1 2020. Sandstorm will receive approximately 32,000 ounces of gold from the Relief Canyon mine over 5.5 years starting in April 2020. It purchased the stream, various royalties on exploration ground, and a convertible debenture and equity, at a total cost of $42 million.
Sandstorm Gold: What’s in Store for 2020
I think that the increased credit facility capacity is a sign that Sandstorm Gold will aggressively seek new royalties and streams in 2020. I also think the company will continue to buy back some of its shares under its normal course issuer bid, although purchases may be reduced if gold prices head higher.
For 2020, keep an eye on several of its near-term cash-flowing assets, such as the Relief Canyon gold stream and continued development of the Hod Maden mine.
What do you think of Sandstorm Gold? Let me know in the comments.
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Disclosure: I am/we are long SAND. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.