Sandstorm Gold Ltd. (NYSEMKT:SAND)
Q2 2016 Earnings Conference Call
August 4, 2016 11:00 ET
Denver Harris - IR
Nolan Watson - President & CEO
Erfan Kazemi - CFO
David Awram - Senior EVP
Robert Carlson - Janney Montgomery Scott
Good morning. And welcome to Sandstorm Gold Q2 Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Thursday, August 4, 2016. I would now like to turn the conference over to Mr. Denver Harris, please go ahead.
Good morning, everyone, and thank you for joining today's conference call. Sandstorm's President and CEO, Nolan Watson; our CFO, Erfan Kazemi; and Senior Executive Vice President, David Awram will be contributing to the discussion of the second quarter results today.
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. I'd like to bring to your attention that a slide presentation has been prepared to accompany our executive's remarks. Slides are viewable on the conference call webcast and are also available on the Sandstorm website.
I will now turn the call over to Nolan.
Thanks, Denver. Good morning, everyone and thank you for taking the time to join us this morning as we walk you through our second quarter results and provide a brief update about the business.
We're again pleased that we had another solid quarter which included operating cash flow of $8.9 million and operating cash would have been $10 million if not for a $1 million change in non-cash working capital. It's also important to remember that as we have now made all payments due to our partners for various streams and royalties, 100% of this cash flow going forward is now free cash flow and I'll talk about this in a bit more detail in a few minutes before I hand the call over to Erfan Kazemi, our CFO, to walk through the quarterly results. And then to David Awram to provide a couple of other updates.
As you know in quarterly calls I like to take the opportunity to summarize some of the more common questions that we get from investors and share the answers with all investors. Over the past quarter the most common questions that investors have been asking are; number one, now that gold prices are higher and companies are more easily able to raise equity, does that mean that it's harder for us to find deals, and if so, what does the current pipeline look like? Question two is, why does Sandstorm raise equity rather than pay up its debt with operating cash flow? And question three is, where do we see the gold market going?
So starting with the first question about whether the availability of equity is making it harder to find deals; it's clear that increasing gold prices have increased the amount of equity capital available to mining companies. Overall, that's a good thing for Sandstorm because our gold prices mean higher cash flow for us and for our investors; and it also means higher exploration spending at the projects which we don't have to pay for. Then it also means that there are some projects that will start moving forward more quickly than they otherwise would have because of that available capital, and Dave's going to talk to this point later on in the presentation.
From a deal pipeline perspective, there are mixed implications to this environment. on the negative side, the number of companies in desperate need of repairing their balance sheet has decreased materially, although there are still a few companies that we're aware of that are looking to complete stream financing to repair balance sheets. Including a couple of deals that we're currently evaluating, the majority of these types of opportunities seem to have temporarily abated.
At the same time there are now a number of mining companies who are able to start pushing their project forward and are considering building mines again, and for the first time in a long time, some equity capital is available for them to do so but often the amount of equity available is not sufficient for 100% to the project CapEx or if it is, it's too diluted to fund 100% of the project CapEx with equity, and this is where we're seeing opportunities coming to life that did not exist a year ago.
So looking at the deal pipeline from a high level perspective, we're still seeing a number of deals in our pipeline, it's just that the composition of the types of deals is changing. As I've been discussing on our last investor calls, all of the growth built into Sandstorm between now and 2019 does not require that any new mines be built and we want to ensure that the strong majority of our nap [ph] continues to be at this lower risk profile. However, we do believe that in this market we can potentially add one or two development type asset in the portfolio to be able to continue growing in this environment.
With respect to the second question about the reason for raising equity; as we have stated in the past, we believe that raising equity should only be done in order to facilitate a potential transaction that we can at least name internally. Over the course of the last couple months, we've been working on a transaction that although the opportunity is not exclusive to Sandstorm, it was one for which we did not have sufficient capital to complete, even if we fully drew out our revolving facility, knowing that we would not be considered as a counterparty for the transaction without raising equity capital. We made a calculated decision to raise the capital so that we could continue to pursue the transaction knowing that there was still a material risk that we did not end up being the chosen counterparty.
We were comfortable with this risk because we had debt, and the worst case scenario of this decision is that we would end up being debt-free and cashed up and ready to continue to look for new acquisitions, and had the opportunity not come up, we would not have raised the equity. I should emphasize that the deal is still far from certain and we're also working on other deals which we could decide that we prefer those other deals to complete them instead. That's one of the things that I love being -- about being an investor and in a management team of a growth-oriented company because although uncertain, the future is exciting.
Finally, the third question about the gold market; over the past three years, if you track my comments about the gold price I've repeatedly warned that although I was longer term optimistic, I was short of term bearish and believe that the gold price would continue to go lower before it went higher. And in fact it did go lower but it now appears to be finally making a robust move higher.
Gold trades like a currency, and like many currencies the value is set by supply and demand fundamentals which are based on a narrative of what is happening with the world; and more specifically, in the case of gold that narrative is based on what is happening with financial risks, with levels of government debt, with levels of corporate debt, with solvency of banks, with interest yields or more specifically, negative yields. And it's hard to find a person who is not slowly coming around to the legitimacy of the argument that there is risk nearly everywhere you turn. There is a record level of risk related to total global indebtedness with the world with substantially more debt today than prior to the credit crisis of 2008.
In fact, there was a great report that was put out by McKinsey last year which illustrates that global debt has increased $57 trillion from 2008 to 2015 and such growth in debt has dramatically outpaced gains in global GDP. Every single advanced economy in the world without exception has increased their government debt to GDP ratio since 2008. Worldwide household debt has reached new peaks, debt in China has quadrupled since 2008, and now European bank liquidity risk is coming back into the equation with various European banks recently failing their stress test.
Interest yields around the world have never been lower with $12.5 trillion of government debt currently trading around the world with negative yields. And as in a side note, I find it particularly enlightening or even entertaining when trying to explain this concept of negative yields to non-financial people. Nearly every time they sum it up by saying something like; so, you're saying that I would have to lend the government money and then that would have to pay them for the privilege of lending it to them, that's crazy, which candidly it really is. Usually they're next comment to something like well, I'm sure that no one is crazy enough to actually do that and when you go and explain to them that actually $12.5 trillion is already trading in our financial system on that basis. So the vast quantities of people managing very large amounts of money are in fact doing this. And these people aren't really crazy it's just that they see risks everywhere in our system and they are simply paying for the right to protect the majority of their investment.
So we stand here today with a record financial risk and at the same time assets prices have never been higher, equity markets are at or near all-time highs, bond prices are at all-time highs, real estate prices are all-time highs because of all the money that's being pumped into the system to attempt to amend that broken system. So not only is there a record level of indebtedness in our economic system and therefore high risk, we are also at record assets valuations. So if things go south, we have a long way to fall and it's for these reasons that people are turning to real assets including gold and gold-linked investments. It's very challenging to predict over the next couple of quarters how the sentiment may change. However, it seems clear that unless some worldwide financial miracle occurs, the gold is a better asset class to own than many others. And for that reason, I think over the next five to ten years, we're going to see gold go well over $2,000 per ounce.
The integrity of gold's narrative over the next five to ten year timeframe is as strong as I have ever seen it. This is a very exciting time to be a cash flowing gold company, and it's for these reasons that Sandstorm has worked hard to build much more optionality into our business than any other streaming royalty companies have. So there is gold and its narrative continues to play out, our shareholders will be rewarded.
And with that I would like to drive around attention to the webcast presentation online. And I'll just briefly talk to one slide we're pointing out before handing it over to Erfan.
So if you put Slide 3, you can see that we are now officially debt-free. And even at $1,300 gold price let's assume on it the slide deck we'll be generating cash flow quickly which will be able to deploy for acquisitions. What's more is that due to the increase of the price of gold and the increase in the value of the non-core equity and debt investments that we're holding, the value of these non-core assets have shot up to U.S. $84 million without us making any new net investments.
The increase in value of our non-core investments has been solely a function of the strong price performance of the underlying instruments. And so over the next few years as we monetize these investments, this will also be a source of available capital for us to make future streaming royalty acquisitions with. We really are in a very strong position from which to grow.
And with that, I will hand it over to Erfan to walk through the quarterly results.
Thanks, Nolan. Sandstorm production in cash flow diversification was once again on display in the second quarter. We purchased gold and received royalty payments from 19 assets. And with the exception of the Santa Elena Gold Stream, no stream of royalty contributed more than 15% over 12,517 gold equivalent ounces during Q2.
When you look back and compare our current diversification to what the asset base look like during the second quarter of 2015, you'll see that our three largest streams made up 60% percent of our gold ounces sold last year. And it's also clear that we have made dramatic progress in our stated goal by producing or counterparty risk through diversification. To further my point, I thought it was worth highlighting the segmented information in note 12 [ph] to the financial statements. What I'm alluding to is the chart the breaks down eight of our key streams in royalties and then once the rest of the producing assets into other royalty. Interestingly, that diverse basket of other royalties have led the way in terms of attributable to gold equivalent ounces and cash flow from operations during the first six months of 2016.
Approximately 40% of the ounces were produced at mines located in Canada, 34% from the rest of North America, and 26% from South America and other countries. 77% of those ounces came from operations run by major and mid-tier mining companies. We were just under 400 ounces away from a record quarter in Q2 and we actually received initial 1,400 ounces of gold before June 30 that were not sold until after quarter end. This was partly due to timing shipments related to Bachelor Lake, the main mine. When comparing the production numbers in second quarter of last year there was also a noticeable decline due to the shutdown of the Aurizona mine. However, the loss production from Aurizona and the timing issues were offset by the recent addition of the Yamana silver and copper stream, and the gold stream from Karma mine. It's worth noting the metal deliveries under the Yamana stream are subject to monthly mass [ph], and therefore prone to significant volatility with respect to timing of shipments.
For example, in one month we could significantly see that maximum but due to the timing of shipments, we would be significantly under the threshold the following month. Contractually, we have an annual threw up mechanism which takes in account the timing of these shipments. And if you take the copper stream as example, year-to-date we would anticipate a true-up such that we would hit our total maximum entitlement for that same period.
With regard to the Black Fox in Aurizona mine specifically, we are encouraged by Primero's progress of the Froome zone and we expect to know soon whether the company plans to develop the Froome deposit as the medium-term or so for the blast [ph] mill. In the case of Aurizona, even though gold is progressing with their feasibility study for the restart of the mine which is expected to be released during the fall of this year. As a reminder, we have no further capital commitments to these projects and we've recouped our national upfront payments for the Black Fox in Aurizona stream.
The Q2 gold equivalent ounces we're sold in average price of $1,255 per ounce which is the highest average selling price in almost two years. The gold price has been consistently about $1,300 per ounce in July. So the upward trend in our average selling price is continuing. Revenue came in a $15.7 million, slightly higher than Q2 2015 after cost of sales which averaged $261 per ounce. And inductions from other expense, our cash flow from operations was a solid $8.9 million. Taking into account our non-cash items and non-cash tax expense, our net income for the period was $5.2 million.
In the first six months of this year, Sandstorm's streams and royalties, as well as the company's investments have generated $18.6 million in operating cash flow, and $23 million in earnings. We are on-track to meeting our 2016 projections and we've narrowed our production guidance on the lower end which is now 43,000 ounces. So our total guidance for the year is now $43,000 to $50,000 gold equivalent ounces. We are happy to be a debt-free company with strong capital coming from a highly diversified asset base along with significant availed capital to continue our growth objectives.
Now I'll turn over the call over to David Awram.
Great, thank you Erfan. Given the relatively rapid rise in gold and silver prices in the first six months of the year, while highlighting the optionality of the Sandstorm experiences, for some of the lesser known royalties and streams within the portfolio.
The first item I'd like to highlight on this call is which of our relatively unrecognized assets have received financing to push into the next level of development. On Slide 6, we have some of the assets in which the parent companies have received funding for further development. As you can see in just a few months, many of the assets in the portfolio have had significant funds raised for further work like Aurizona's Bambore, we've seen a large pool of funds raised to fund permitting and the advanced design work for construction. Others like Coringa have transacted into very good hands of distinguished mining entrepreneurs and had large sums raised for their development. Still others like Kinross Gold have done well to clear up their balance sheet to make one distant prospects like global market become realities in today's mining market.
I think it is worthwhile focusing in on Hugo North and our stream in the Oyu Tolgoi joint venture area. On Slide 7 we're highlighting some of the key developments with Turquoise Hill and Rio Tinto, the operators of this mega project. They've had in the first half of this year, the open pit operation has been very successful to-date and now together with Mongolian government there are working furiously to get on with the second phase and into the underground blockade mining. Approvals and EPCM contractors are in place, and it's time for them to begin construction.
Flipping onto Slide 8, you can see a little bit more specifically where our gold and copper stream supply and how they plan on mining. The slide is taken directly from the current Turquoise Hill presentation. In the area there our team supply to is beyond the red lines in Hugo North and to the south for Harga [ph], well it takes some time before they begin extracting ore from the Hugo North extension, you can see that there is a lot of ore to mine. Also interesting to note is that Turquoise Hill states that Harga, an even bigger ore by that our stream covers is within their development plans.
To the next slide, a quick word on Lobo-Marte. This asset owned by Kinross and it's wedged between the Maricunga and La Coipa mine from Chile. This is an asset that had begun the permitting process in 2012 but was suspended due to the low commodity prices. In our new gold price environment, we expect to see much more interest in pursuing bigger assets that Lobo-Marte represents, simply because of the lack of projects of this size available for investment. My point is that this project is certainly worth following if we see further increases in the gold price and larger companies further increase their access to capital.
Another project worth highlighting is the Aurizona Greenfields; many of you are familiar with the Aurizona Main prospect where the mine is, and where we had that very profitable gold stream operated by Luna Gold. The Greenfield is a separate project to the south which previous to the restructure with Luna we held no stake or royalty upon. However, now we hold the 2% NSR on what is most of the Greenstone belt that exist in the district coming in at close to 190,000 hectares in size. It's highlighted on the map on Slide 10, you can see the partially blocked area in north in yellow which represents Aurizona Main area, where the mine. Surrounding that into the south in the green is the Greenfields area.
We just illustrated in this relatively busy map our number of prospective areas that Luna had done a tremendous amount of work in geochemistry, geophysical work, and even some drilling. At Sandstorm, we've always felt that this area represented a tremendous amount of exploration upside but Luna just couldn't afford the time and money considering hands full with mine. That's all changed very recently with the option agreement that Anglo Gold had struck with Luna regarding exploration work on this property. Beginning this year, Anglo Gold has dedicated $7 million in exploration work to earn into the asset, that's great news for this under explored area.
Lastly, I'm going to speak about Columbus Gold and Nordgold's Montagne d'Or project. Since last year the JV partners have done a great job in advancing the project and understanding that we're buying much better. On Slight 11 you will see a map which illustrates a planned view of the deposit along with some of the surface geochemistry for gold. You will also notice the two blue-shaded polygons labeled exploration permit. These two new areas have been recently approved by the government in French Guiana, they effectively more than quadrupled the length of existing strike of the deposit given the operators much more room to extend the mineralization. In fact, they've already done some drilling and they also have some more geochemistry to help them do that. Thanks to our area of interest clause in the original contract, this area falls automatically into the contract expanding our exposure to this exciting project.
So that's all the updates I have on the operating side and the optionality side. I'm going to pass it over the Q&A to the operator but we're happy to answer any of your questions on any of the specific assets. Operator?
Thank you. [Operator Instructions] Your first question comes from Cals Mojo [ph] from CIBC. Please go ahead.
Thanks Nolan, David and Erfan. A few questions here, maybe first-off on the guidance here, I know you've narrowed the bottom-end of your guidance for the year. Is this still too conservative from that perspective given what you've done in Q1 and Q2 and considering that you have Karma coming in or has already come in in April and should contribute in a bigger way in the second half.
So the guidance range of 43,000 to 50,000 ounces for the year I would say is relatively conservative. Every year we have hit within our guidance range for every year in the history of the company, so we tend to maintain a wider range and then narrow it the year progress and so our preference is to narrow it in ways where we're increasing that bottom number rather decreasing the top number. So as long as Q3 comes in line with our expectation, hopefully we'll be in a position to make another jump with the guidance next quarter by raising that bottom number.
Yes, I just want to make sure that I'm not missing anything in terms of potential drop-offs in any of your royalty streams. But maybe as follow-on to that, one of your counterparties is Primero Mining and today they've cut their production guidance for the year by 15% and certainly they've made a cautionary statement on their evolving line of credit. Maybe from Sandstorm perspective, anything that you're concerned about and maybe if you can remind us in terms of the security that you have on the Black Fox stream?
I think they are actually in still fairly strong position, they just raised $50 million not too long ago here, a couple of months ago if memory serves me correct. So we're not worried about that situation, we do have security on the asset and I know they're having some tax issues in Mexico but that doesn't affect us, and that doesn't affect their Canadian operations. And we're also expecting continuous to come from the Froome zone in the latter half of this year, so we're not too worried about that. We actually have a long history of -- when we put out our guidance, we put out the numbers that we think various mining companies are going to hit not necessarily their public guidance, so we had already -- actually hair-cutted Black Fox's production compared to what Primero had put out. So those changes that they announced this morning won't impact our guidance at all.
Okay. And maybe a question for David, David you know -- thanks for chatting about the optionality on the back half of the presentation but I just want to -- maybe right now it's a bit too early but what's the potential timeline in terms of some of this blue sky potential? We're talking year 2020 plus or year 2025 or is it at this point in time still too early to tell? And in terms of the projects that you've pointed out, given the current strength in the commodity prices is there one or two that could potentially have their timeline shortened based on what we're seeing in the gold, silver and even base metal prices today?
Well, I think a lot of it depends on the timeline and when they push things forward. Projects like Bambore for an instance; you know Bambore is quickly proceeding and it's going through the permitting process right now. It should be -- if everything goes according to their plan, it could be in a construction-ready state, not that far distance and then you need to build time on an asset like that, it's not terribly high. Similar to something like Coringa as well to. Coringa is not a large mine, it's not a difficult project to get into production, we've already purchased that mill table to get it moving forward. So those are the types of projects that relatively, quickly, potentially even before 2020 period you could get them up and going. Other things like Lobo-Marte of course, I think they're a little bit more distant term; things like Prairie Creek -- Prairie Creek is ready to go into construction, it's a matter of figuring out how to get it financed. Obviously, a price of zinc of over $1 per pound is going to help increase their chances of being able to get the rest additional financing on to that.
And then also things like Aurizona; Aurizona is a project that they are working on the feasibility study right now to get the asset up and going again, and before 2020 that could get up and going as well to, probably by 2019, it's probably a good estimation for that. So I think they do vary from time to time -- other interesting projects of course is the Hutna Dan [ph] project which said Lidya Madencilik is working on as well. There we did a site test with them, they are really pushing to try and get their permuting, to get everything put in place, to get out their plans, create their feasibility slated for next year. And that would be a relatively small mine, relatively easy-built compared to some of the other projects, so you could see that coming on by 2020 certainly.
I would think a lot of these ones probably a date to start thinking about it is, if we still see increased commodity prices, it's about that 2020-2021 period. But it's a sort of thing that we clearly are keeping a very close eye on and we can give updates on that as we see a changing from quarter-to-quarter.
Great. And maybe one last question for Erfan, looking at the monthly maximum under Yamana streams and as you've mentioned, there is NO true-up to it. So would the impact of the true-up come through in Q4, is that how timing works Erfan?
Yes, that the way the timing would work -- it would happen in Q1 of the following year.
Q1 of the following your, okay, great. That's it, thanks. And congrats on a good quarter.
Thank you. [Operator Instructions] Your next question comes from Robert Carlson from Janney Montgomery Scott. Please go ahead.
First, thanks for the good. And Nolan, thank you for the introductions with questions from the field, I find it was very informative. But could you comment a little about the process of the streams with Yamana. I know they had sort of a hiccup in the quarter. Did that penalize us a little bit this quarter to be -- I guess rewarded next quarter because I think that crusher is now up and running?
Great question. So the transaction with Yamana has a certain mechanism whereby it's a percentage of production upto a certain maximum per year. And then you calculate monthly maximum as well. And if you're -- there are some months where you might be in less than that maximum and so you get that lesser number and in some months where you might be more than the maximum. We only get the maximum and then the difference you get trued up at the end of the year. So that those monthly maximums aren't penalizing you relative to the annual maximum. So all those maximums eventually drop away at some point in the contract and in a number of years.
So this quarter what happened was they hit the total maximums for the quarter, so any impact that they had with crushers and things I'd say that do not impact the amount of copper that we were due but because of the timing of shipments, we ended up actually technically being delivered left in the maximum for which the difference is going to be trued up as Erfan mentioned in Q1. So what that means for the Q2 earnings is that we received lower numbers and we're going to get that extra copper at the beginning of next year, and that the crushing issues they had won't have any impact on that.
Thank you. One other -- just general question, I believe now we have like 131 streams, we have cash flow projects like 20, and I foresee this sort of -- like an iceberg. We see what's the 20 above the water but we got this immense -- call it what you will, under the water line. And how do you as a company sort of manage this vast number of projects? I look at it as a brokerage account with 131 different companies -- how do you manage this?
Yes, it's challenging to acquire streams in royalties and that certainly takes time and that's where we focus the bulk of the effort of running our business. Once you actually own a stream or royalty, it doesn't take very much time to manage. It really only takes a couple of employees to sort of systematically go through and review on a quarterly basis. But you think you might be able to track the progress of the various assets that we at least internally know what's going on and we get that information in our internal management reports. So it's not very hard to manage once you want it which is one of the great things about our business because it allows to just grow and grow and grow and continue to diversify. And that's one area where I think actually it's important to -- is adding value to the company by buying those things that are, as you put it below the surface, that's where you really can get the value. So we always want to ensure that a significant portion of the capital that we're investing is the head of the iceberg, the point there the above the water portion where it's safe, it's stable, it's diversified, it's cash flowing but where we really do add value and increase the average rate of return to investors is being smart about what we add under the water.
Again, thanks again.
Thank you. There are no further questions from the phone line. Please proceed.
Okay. So we have a couple questions that are coming through online and I'll take the time here to stay answer a couple of them. Very quickly, one of the first ones -- we've actually got a couple questions people asking about the political situation in Turkey and what's going on there. So I had the opportunity to go to Turkey with a few other Sandstorm people last month and I would say that although Turkey certainly faces its political challenges which are well documented in the media and including a an attempted coup a few weeks ago.
We're actually fairly positive on Turkey despite all of that, it's a place that is much more developed and advance than most people assume. It has a much more sophisticated governmental infrastructure than most people assume that Turkey has been notoriously challenging to get permits in. And I think a lot of people assume that because of development country take corruption issues and that's not the case at all, it's very much a situation of the same reason that takes a long time to get permits in Canada, there is 29 different governmental agencies that you have to deal with systematically and bureaucratically to go through and they've designed permitting system that is as first class or first world and it's complicated as a country like Canada which actually gives me quite a bit of comfort when you actually walk through that.
So Turkey certainly, as I said has its challenges, Erdoğan seems to have a strong grip on things and that group is getting stronger. My understanding is that Erdoğan and his cohort of people are supportive of Lidya Madencilik which is the majority joint venture partner on the Mariana project that we've invested in. And so if anything that just put the political standing of the project actually in stronger hand then it was two weeks ago despite that temporary instability. So we're actually pretty optimistic and pretty keen on how things are working out there.
So I will move on to the next question that's coming through the online Q&A. And there is a question here about whether or not we are seeing silver streams that can be purchased on operating assets from precious metals mines versus base metal mines. And I think the questioner is trying to ask is it just base metal mining companies that are selling byproduct or precious metal companies that are currently operating also selling precious metal stream.
So I can say that because precious metal companies are much more easily able to raise equity in this market environment than number of precious metal companies that have operating minds that are currently looking to sell streams has decreased quite a bit. And where we're still seeing some deal flow is on base metal companies where the base metal prices have not recovered as much in the equity available to those the company has not come back as much that they are still looking to monetize precious metal byproduct credits and even sometimes an operating mine. So we have a couple of deals in our pipeline that are byproducts from base metal assets but where we would be purchasing the precious metals potentially.
And so for the final question that we're going to take from online is; one here and I'm just reading it as we speak which is do we have a view on the diamond market and its outlook given our investment in Diavik.
So diamonds is one of those markets where the price tends to be relatively stable denominated in global currencies and not necessarily the U.S. dollar. So it's very much an international market despite the fact that the U.S. is an important part of the total worldwide demand. And so diamond prices have gone down last year when the U.S. dollar strengthened dramatically. And when the U.S. dollar started pulling back a little bit, diamond prices started increasing again.
And although there are more dynamics that play in the diamond market, including availability of credit in the supply chain and solvency and liquidity of various diamond players which I won't get into all of the details of which but the diamond market is looking much more robust now over the last couple of months than it has been before and we're seeing prices come back a little bit and the actual fundamentals are looking pretty strong and we're seeing -- we're actually seeing that flow through on the dividend checks that we're getting from Rio Tinto on Diavik.
So the actual check sizes are starting to go up and the asset is cash flowing strong which is actually something that we're particularly pleased with given the fact that at the same time they are having conversion of resource to reserves success in a bit of exploration success. And last year, for example, Diavik was able to replace 100% of all of the reserves that they mined during the year. So we got all of the cash flow last year plus at the end of the year the reserves were the same as the beginning of the year. So that combined with the market is making us continue to be pleased with that acquisition.
So those are all of the questions for now and I would always encourage everyone that feel free to call us any time, either Erfan or Dave or myself or Denver; we're happy to answer questions any time in person and we hope everyone has a good day.
And thanks again, everyone for calling in to today's call.
Ladies and gentlemen, this concludes your conference call today. We thank you for participating and ask that you please disconnect your lines.
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