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Summary

  • Sandstorm Gold reported Q2 Revenues of $13.2 million and net income of $3.0 million.
  • Sold 10,149 gold equivalent ounces.
  • Average cash costs were down 6% per gold equivalent ounce sold year-over-year to $310, netting an average margin of $986 per ounce.
  • Attributable gold equivalent production guidance of 40,000 to 50,000 ounces of gold is reiterated.
  • The stock is still a value buy as gold prices languish under $1300 and the stock trades under $6.00--wait for pullbacks and accumulate.

Sandstorm Gold (NYSEMKT:SAND) just reported its second-quarter earnings figures. It was not the best quarter, and since the release shares are down 8% at the time of this writing, presently trading at $5.70. Revenues were down year-over-year. They came in at $13.2 million on sales of 10,149 gold equivalent ounces. Unfortunately, this represents a 1.5% decrease from the $13.4 million of revenue last year. This is mostly due to a lower year-over-year gold price. In fact, average gold prices at sale were down 8% year-over-year. One key difference in the present report compared to the comparable 2013 report is that last year, Sandstorm reported a loss of $17.1 million, whereas this year, net income was $3.0 million. This represents a massive improvement year-over-year and I am quite pleased with the results. Another positive piece of news is that the average cash costs for the company were $310 per gold equivalent ounce, which is a 6% decline compared to the nearly $330 per gold equivalent ounce last year. The margins were an average $986 per gold equivalent ounce, contributing substantially to the net income figure in conjunction with a decrease in administrative expenses of $1.7 million as well as higher royalty revenues.

In my last opinion piece on Sandstorm this winter, I urged investors not to panic over the failed deal with Colossus Minerals (OTC:COLUF). When I questioned what shareholders should do following the selloff that hit shares, I stated that:

"It's simple. DO NOT PANIC. Shares are down to bargain basement pricing of $3.95 at the time of this writing. The key thing is that although there is a delay in production and a halt of the deal at Serra Pellada, it WILL NOT impact Sandstorm's 2013 production guidance of 33,000 to 40,000 attributable gold equivalent ounces…Shareholders of SAND need to remember that revenues were not heavily reliant on this project. Instead of panicking, realize that there is still massive upside in SAND given its business model. Revenues will still be derived from many other projects, including Santa Elena Mine ran by Silvercrest Mines (NYSEMKT:SVLC) Deflector Mine operated by Mutiny Gold, Bachelor Lake Mine operated by Metanor Resources (OTCPK:MEAOF), Ming Mine operated by Rambler Metals and Mining (OTC:RBMTF) among numerous others including the flag ship deal with Luna Gold's. I am not panicking. You should not either. Instead, use this temporary setback as an opportunity to expand holdings in this quality company while it is on sale." [Note: I added the bold here for emphasis].

Thus far, my call to not panic and the subsequent urging of investors to pick up shares at a huge discount was correct, and the stock literally hit its bottom of $3.94 the day I wrote that article. Shares were at $3.95 and now trade at $5.70, good enough for a 44% return to-date. Despite the present sell-off following this so-so earnings report, I think the stock remains attractive under $6.00. Take advantage of languishing gold and silver prices which are depressing the share price of this quality company. You do not have to dive right in. Wait for days with a pullback and add to the position. I maintain my long-term buy rating, given that Sandstorm is taking the necessary steps to grow its royalty and smelter agreements. It should be noted that since the company relies on the margin difference between its costs and sale prices, the company needs support that can only come from a higher price of gold. Thus I am not expecting stellar earnings for Q3 as gold prices have been stagnant, with the company getting costs under control, it should not lose money. Wait for pullbacks and continue to accumulate.

Source: Update: How Sandstorm Gold's Q2 Earnings Impact My Call