Sandstorm: Another One Is Coming

| About: Sandstorm Metals (STTYF)
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The Sister Company of Sandstorm Gold (NYSEMKT:SAND) is trimming the fat and getting down to business. The last 15 months have been extremely transformational for Sandstorm Metals & Energy (OTCPK:STTYF) as it restructured its low-quality streaming agreements, giving it ammo to acquire higher quality assets. Over this time frame, Sandstorm Metals & Energy also added some attractive assets to its portfolio. It seems that Nolan Watson and company have learned from their mistakes, which they made in applying the streaming model to resources in general instead of a strict focus on precious metals.

On February 14, 2012, Sandstorm Metals & Energy amended its agreement with Thunderbird Energy, whereby all minimum cash flow guarantees will be deferred by 1 year and the $10m Sandstorm was to remit in May 2012 will now have a remittance date of May 2013. Furthermore, In March 2013, Thunderbird issued $2.55m worth of Thunderbird shares. It also remitted, $3m mid-year, therefore they only need remit an additional $7m this May.

While the prospects for Gordon Creek were rather dim at the time Sandstorm amended its agreement, good news came out in the months afterward. Thunderbird began production from eight new wells on the property with a concurrent rebound in natural gas prices. The development of the 50 new wells will take place over the course of 2013 and it is set to be complete by Q1 2014. Starting in 2014, Gordon Creek should produce a total a 5 Bcf's of natural gas per annum, 1.75 Bcf's being attributable to Sandstorm. With natural gas prices currently hovering around $4/mcf and Sandstorm's ongoing purchase price per unit at $1, this will provide annual gross revenues of 1.75 x $3 or $5.25m.

Serra Pelada ~ In Mid September 2012, Sandstorm Gold and Metals & Energy did their second joint deal, this time with Colossus Minerals, which is developing the world-class Serra Pelada mine. Sandstorm Gold paid Colossus $75m upfront, which included Sandstorm Metals & Energy cost, whereby Metals & Energy is carrying a $15m promissory note, due 1 year following the deal. In exchange for the $15m, Sandstorm M&E has the right to purchase 35% of all the palladium produced for the LOM. However, this comes with one caveat, that being a buyback clause. Colossus has until April 1, 2015, to remit a payment of $9.75m in order to buy back half the stream, reducing Sandstorm's palladium stream to 17.5%. Although production numbers are unknown, using analysts forecasts of 60-75k oz.'s p.a. , 21k - 26k oz.'s would be attributable to Sandstorm and 10.5k - 13k oz.'s (should the stream be reduced to 17.5%). Each attributable oz.'s purchase price is just $100/oz, making this a very high margin stream. With Palladium trading at $755/oz. at the time of this writing and using a price deck of $700/oz, average annual gross revenue will be between 6.3m - 15.6m. starting in mid 2014, though Serra Pelada will reach commercial production in mid-2013.

Bracemac-Mcleod - Perhaps Sandstorm's most lucrative asset, It had a 17.5% stream (on copper production) on this primary Zinc mine, which will be operated by Xstrata. Production is scheduled to begin within the next month, ramping up at reaching capacity in the latter part of the year. Sandstorm was able to increase its copper stream to 24.5% due to Xstrata's Jv partner (Donner Metals) struggling financially. Early in 2012, Xstrata announced it would run the mill at 30% higher capacity than initially forecast. Average annual copper production will be between 26 - 28m lbs. , of which 6.37 - 6.86m lbs. will be attributable to Sandstorm Metals & Energy at the $0.80c/lb. ongoing purchase price. Average annual gross revenue will amount to $16.5 - $17.8m (assuming $3.40/lb. copper).

Oyu Tolgoi - Sandstorm acquired a 2.5% copper stream on Entree Gold's 20% share in the world class Oyu Tolgoi copper deposit. This is more like a lottery ticket compared with all its other deals as The Mongolian Government is not to be trusted, wanting a larger stake in the project for itself. Sandstorm made an upfront payment of $5m for the stream, so in terms or risk/reward, it was definitely worth it as this 2.5% copper stream would actually be quite massive. The first 9.1m lbs. will be sold at $0.50c/lb., increasing to $1.10/lb.

Just Recently Sandstorm announced the dissolution of its Terrex oil streams, whereby Sandstorm will receive;

  • $3.26m cash
  • the delivery of certain Terrex equipment having an approximate value of $3m
  • a $4m secured debenture with a 5-year term, bearing interest at 6%.
  • Some Shares in the "new company," Anterra.

Available Capital : Cash at 9/30/2012: $37.7m, less increase in Bracemac-Mcleod for $7m, less $7m payment remaining to Thunderbird, plus $3.26m from Terrex restructuring, less $5m Oyu Tolgoi, less $15m restricted cash for Serra Pelada = approx $7m.

Disclosure: I am long SAND, OTCPK:STTYF. 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.