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Is Sandstorm Gold Too Bullish On Hot Maden?


  • Sandstorm's latest deal with Hot Maden has closed.
  • The company now owns a 30% interest in the ultra high-grade asset, and still plans on converting it into a gold stream.
  • The company is forecasting some pretty strong returns from the asset, including 100% production growth in 5 years.
  • I'm a little more confident of this transaction after spending more time processing it, although the risk is still there. I give more thoughts below.

This article was first available to subscribers of the Gold Bull Portfolio, a premium service offered by Gold Mining Bull.

It's official: Sandstorm Gold's (NYSE:SAND) deal to acquire Mariana Resources (OTC:MRLDF) has closed.

For some background, Sandstorm paid $175 million to acquire Mariana, mainly to buy its 30% interest in the Hot Maden project, located in Turkey. Sandstorm issued 32,832,813 new shares plus $48 million in cash to close the deal; Sandstorm paid a substantial 84% premium to Mariana's previous closing price.

As I pointed out in a previous article, I felt the deal was a little confusing since Sandstorm already owned a 2% royalty on Hot Maden and had never acquired one of its royalty or streaming partners outright before. The company has gotten a little creative, as Sandstorm now owns 30% of Hot Maden with the rest owned by partner Lidya (a Turkish company), but it plans on converting its interest into a gold stream. After all, Sandstorm is a streaming and royalty company, not a gold miner.

Sandstorm also gains several other exploration assets, including the 100% owned Las Calandrais gold-silver project in Argentina (500K+ gold ounces), and the earlier-stage, 80% owned Bondoukou gold project in Cote D'Ivoire. The exploration assets will be spun off into a new company, which Sandstorm will own, and Sandstorm will gain royalties on each asset.

However, Hot Maden is really the prize in this deal. A Preliminary Economic Assessment released on the 3.43 million ounce indicated resource projects an after-tax NPV and IRR of $1.37 billion and 153% respectively (100% basis) with estimated all-in-sustaining costs of less than $400 per gold equivalent ounce. That puts Sandstorm's share worth $411 million, significantly higher than the price paid in the deal.

I've had a lot more time to process the deal since that

This article was written by

Gold Mining Bull profile picture

With over a decade of experience in the investment industry, I am a highly skilled private investor with a proven track record of success in the commodities and hard assets sector. My areas of expertise include investing in gold and silver miners, royalty and streaming companies, pure exploration companies, as well as oil and gas producers and MLPs. My comprehensive understanding of these markets and my ability to identify and capitalize on profitable opportunities have enabled me to consistently deliver strong returns for my subscribers.

Analyst’s 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (43)

Ivan K. Wu profile picture
Doing my due diligence on SAND. Can someone point me to the previous mistakes made by management? A simple timeline of all the investing hiccups would be greatly appreciated!
Take the latest one as the time they assessed that half a 'diversified' streamer's cash flow should come from mining (....) a single asset located in Turkey. Share price now touching $4 against a prior $4.40. Prices are supposed to move upwards on value transactions. Not in Turkey, it seems.
It's a combination of valuation and risk/reward!
The risks are getting bigger and bigger IMHO.
I'm curious about one thing and maybe you guys can help.
Whats the rationale in these kind of companies not to use debt as the main source to finance M&A?
SAND now hitting $4. The market clearly does not see value in this transaction.
Good Stocks profile picture
$GYA.V Guyana Goldstrike Reported 51.7 g/t Gold at Marudi Gold Project

Canadian Fund sees Gold Rising to $1,400 an ounce by year end

DanShirey profile picture


round table discussion
Video July 2017
Good Stocks profile picture
Fyi, GYA.V - Guyana Goldstrike Reports 880,000 ounces of Gold

Buy it while it still cheap!! Its going up.
'Still going up'? it was $4.43. Now it is $4.16. How is that 'going up'?
Simont profile picture
It will go up, but not tomorrow and certainly not every day. SAND is NOT for short term speculators but for long term investors.
hulubalang profile picture
Whether you like the Mariana deal or not, Hot Maden is one hell of a project.

Sandstorm Gold Reports Hot Maden Drill Results: Intercepts 105.5 Metres of 17.39 g/t Au and 2.34% Cu

Gold Mining Bull profile picture
These are great results but please also keep in mind these drill results may not represent "true widths"
Einherjar profile picture
+3M high grade ounces and counting
Gold Mining Bull profile picture
I like the project and potential but please also keep in mind that these are resources, not reserves, more drilling is needed.
Isn't Hot Madden in the Kurdish part of Turkey?
Topwatr profile picture
Barely. This map (link) is pretty good. Hot Maden is a bit NW of town of Kars, which on the map is to left and above the name "Armenia."
Do you have concerns about the political risk in Turkey. Lots of stuff going on there now and relations with other countries seem to be deteriorating.
Gold Mining Bull profile picture
I don't see Turkey as a risky mining jurisdiction, it's not Canada or the U.S. but it isn't a terrible place to do business, and Lidya has a lot of experience/expertise operating in the country.
You don't see Turkey as a risky mining jurisdiction? Please look again!
I gues all the news about Turkey isn't a big issue in the US.
I live in Europe. And I can tell you. That Turkey did completely change in the last year. It's a dictator that is running the show now. It's a dangerous place now. I would not invest in Turkey.
I had SAND on my watchlist. In my opinion they made a very big mistake.
Simont profile picture
Erdogan is a dictator, no doubt. Politically Turkey is indeed in dire straights, and its status of an Islamist democracy has been eliminated by Erdogan's power grab. The question relative to Mariana/Sandstorm is whether he is a business/mining friendlily dictator or not. I do not believe anyone knows the answer to that. BUT, the fact that the majority owner of the mine is a Turkish company probably means that the risk is low for an expropriation, etc.
Would be surprised for the market to see 100% optimism in this deal, until the project is more advanced. Concentration risk is still quite high, and Nolan is more bullish then I'd like him to be. Either way I know the team has other plans in doing other deals in the interim, and for me its more important to see how that aspect will develop. As a shareholder I want to see further diversification away from turkey.
Yes, there is a risk, but the potential return far offsets it. Sandstrom will have to spend $70m (if I remember it correctly) to fund its share of capex. Once operational, it expects a 10 month payback as they will receive 30% of the gold. With the copper credits it receives it expects its AISC for gold to be $0!!! The drilling results keep getting better and better. Also, look at its valuation compared to the other streamers. It is really undervalued - significantly. You're right though, the market doesn't get it. They prefer 2-3% IRRs on the normal streaming deals (yes they are often that low, run the numbers). I do appreciate the market's misunderstanding of the company, my average Sandstrom price, after selling my Mariana shares, is about $3.40 vs today's $4+. Nolan made a lot of early mistakes but in recent years has put together an outstanding team. They know what they're doing. I'll probably pick up more shares.
Gold Mining Bull profile picture
The 2% - 3% IRR figure is a little deceiving, for one I'm not convinced that is the case with the Osisko deal based on the producing assets, and that deal Osisko made landed it a ton of royalties and streams (both producing and in development/exploration) so it's hard to put a value on all of those assets. Plus that deal gives it a ton of diversification, whereas this deal with Mariana is a one-shot deal. I agree the potential returns are huge here, but the risk is real too.
Sorry, I wasn't referring to Osisko. I was referring to many of the big ticket streaming deals I have seen over the past year which were done by Franco Nevada and others. Based on the public info that's disclosed, most of those streams - when you run the numbers - have extremely low IRRs based on the current gold price. That's what I believe Nolan was referring to when he said that Sandstorm doesn't want to do 2-3% IRR streaming deals. Now that the transaction closed and Sandstrom can talk, the videos that Sandstrom is now releasing are starting to wake up the investors as seen by today's stock price jump.
DanShirey profile picture
One fact that hasn’t been mentioned by most writers and commenters is that Sandstorm has had a representative on Mariana’s board of directors for a while. This has given them access to invaluable information about Hot Maden and the other properties. I feel this lessons the risk substantially to Sandstorm shareholders.


Ron Ho
(Age 38) CPA, CA, CFA

Ron Ho has been with Sandstorm Gold for the past 7 years, focused on structuring mine financing transactions and corporate development. Prior to Sandstorm, he served as the Chief Financial Officer for SNS Silver Corporation, where he contributed to equity capital raises and project evaluation and development and was an Equity Analyst at Raymond James Ltd. where he was responsible for sector institutional research. Mr. Ho began his career at Deloitte & Touche, focusing on public company financial reporting in both the U.S. and Canada. Mr. Ho is a Chartered Accountant, holds the designation of Chartered Financial Analyst charter holder and received a Bachelor of Commerce from the University of British Columbia.

"After all, Sandstorm is a streaming and royalty company, not a gold miner".

Indeed, and the market agrees with you. If per-acquisition holders had wanted a gold miner they would have bought gold miner shares. Price is still way below the per-acquisition price, indicating investor ambivalence over this deal. And isn't EOG now having severe problems with its Turkish mine? Hardly good timing for SAND and investor confidence.
"If per-acquisition holders had wanted a gold miner they would have bought gold miner shares. Price is still way below the per-acquisition price, indicating investor ambivalence over this deal."

I am guessing you mean pre-acquisition price?

Sandstorm Gold announced the intention to close this deal on April 26, 2017. The share price in the U.S. closed at $4.04 on April 25, 2017 the day before the deal was announced. The current share price is $4.09 at the time of my reply on July 10, 2017. How do you come up with the price being way below the pre-acquisition price? Especially if you just responded today?

Oh, and yeah - as I type, Gold is actually close to the bottom range of it's trading in 2017. Not trading at $1260 - $1270 area it was trading when the deal was announced on April 26, 2017. It's trading a good $50 dollars per ounce less.

Given the above, I believe the market doesn't agree with you, kind sir!
I believe we are reading off different charts - it went from over $4.4 down to $3.4, awarding existing shareholders with an immediate 23% loss. When the price regains $4.4 I will assume investors are finally convinced (or at least hopeful). However the point remains that investors originally bought into a streaming company and not a mining company. They are supposed to have different risk profiles.
Ordinary Average Guy profile picture
ViperED's chart is accurate. Please see the April 25th close for SAND. You might also notice that the Mariana stock rose simultaneous with the drop in SAND and I believe the combined market caps of the two was neutral during the period as gold/silver was also dropping. In other words, the market did not revalue Mariana during this transaction.

Also during this period GDXJ sold off a lot of SAND shares in a re-balance with had a negative impact on SAND and other stocks held within GDXJ. You may also want to note the price of GDXJ, April 12-May 4. The April 12 close was $38.04 and the May 4 close was down to $29.65 indicating falling prices for SAND and this juniors fund during this time period.

For those that have misunderstood this transaction and did not listen to the limited information from SAND that they released during this transaction, and have explained a little further since this transaction closed, here is a FAQ video that explains SAND's position as a royalty/streaming company. http://bit.ly/2v8kRF8
In particular, listen to the questions/answers at 1:30 & 2:18 of the video. You may want to actually watch the whole video as it may address other false rumors that you may be using to make your investment decisions on SAND.

SAND and/or the streaming/royalty business isn't for everyone. It is however better to evaluate this with facts instead of emotion and distortions of what is being said and done or not done by SAND management.
Chancer profile picture
Watson has a tendency to get overly bullish with his gambles and then some do not work out that well. Possibly, not enough attention to detail?

The location alone is enough to make me pause. Watson fails to factor in location risk. Been there before.
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