Amid the doom and gloom of the ongoing gold price correction (and yes, we still and stubbornly believe that this is what we are experiencing; no bear market; no broken bull market; a simple and healthy correction it is for now in our opinion); where were we, oh yes, amid all the doom and gloom we felt it was time to spread some good vibes for suffering investors in Sandstorm Gold (NYSEMKT:SAND) and its sibling Sandstorm Metals & Energy (OTCPK:STTYF).
These two companies employ the so-called streaming business model whereby Sandstorm provides upfront cash in exchange for a streaming agreement. This streaming agreement allows Sandstorm to purchase metals at strongly discounted prices once the mine is operational. Sandstorm Gold specializes in gold streams, and Sandstorm Metals & Energy has a broader scope including base metals, but also oil and gas.
There were a couple of news items recently that we found encouraging, a couple being three to be precise.
Firstly, Colossus Minerals (OTC:COLUF) put out a development update confirming their plan to start initial production at their Serra Pelada mine in Q3 of this year. In the same announcement, Colossus Minerals also announced the potential discovery of a lower grade halo to the high-grade normalization which could boost reserves of this mine in the future. Considering this newly discovered normalization, the scope for the bulk sample has been increased and processing of the bulk sample will take place on-site now rather than sending the material abroad. Colossus is also re-evaluating their intended mining methods on the back of encouraging and better-than-expected ground conditions which could lead to cost savings in the future. Underground development is progressing faster than expected and the company is confident to start initial production as early as Q3/2013 and to reach 1000 tpd design capacity in Q1/2014. Colossus Minerals have also just announced a $25M bought deal which should see the company through to production. For Sandstorm Gold, and also for the sibling company Sandstorm Metals & Energy this news release is very positive and reinforces the expectation of yet another metal stream coming alive for both companies since Sandstorm Gold has a streaming agreement regarding the gold and platinum production at Serra Pelada and Sandstorm Metals & Energy has an agreement concerning the Paladium output.
Secondly, it was announced that production has started at the Bracemac-McLeod mine for which Sandstorm Gold has a streaming agreement regarding the gold production and Sandstorm Metals & Energy has a copper stream. Speaking for Sandstorm Metals & Energy Nolan Watson, CEO of both Sandstorm siblings, commented:
"The copper sold from Bracemac-McLeod is expected to generate Sandstorm's first material cash flow. We expect to begin receiving our portion of the copper during the fourth quarter of this year and we believe the mine has the potential to produce for a significant number of years."
If his expectation proves correct, then Sandstorm Gold will also reap a small benefit adding weight to our suspicion that Sandstorm Gold might exceed guidance for gold production in 2013.
And thirdly, Mutiny Gold (OTC:MTYGF) announced today that new data received during a recent Sub-Audio Magnetics ("SAM") survey indicates strong potential for more than doubling the strike length of the mineralized host structure that includes the Deflector deposit for which Sandstorm Gold has signed a streaming agreement. Mutiny's share price jumped by more than 40% before settling at 24% up for the day upon release of the news. Mutiny Gold is presently negotiating financing of the Deflector mine at their Gullewa property and has received an additional bridging loan from Sandstorm Gold recently in order to fund ongoing activities in the lead-up to the completion of financing with banks. Closing of bank financing is one condition for the payment of Sandstorm Gold's portion of mine financing with a dead line looming on May 31. The exploration update hopefully provides the much-needed momentum to push bank financing over the line. The new exploration results represent significant upside for Sandstorm Gold since Sandstorm would benefit from additional ounces without having to make additional payments.
We believe that all three listed news items are decidedly positive for the Sandstorm siblings underpinning both their enormous growth potential. At present levels, we remain buyers of Sandstorm Gold below $7.00 and we are eyeing Sandstorm Metals & Energy after its recent 10 for 1 share consolidation.
Disclosure: I am long SAND, OTC:MTYGF. 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.