Another Record-Breaking Quarter For Sandstorm Gold

Nov. 04, 2019 4:44 AM ETSandstorm Gold Ltd. (SAND)LUGDF20 Comments10 Likes

Summary

  • Sandstorm Gold sold 17,289 toz gold in Q3.
  • The operating cash flow, and earnings set a new record high, the EPS climbed up to $0.03.
  • The company repurchased 2.4 million shares.
  • Gold equivalent sales of 15,000-22,000 toz gold are expected in Q4.
  • After the earnings release, Sandstorm Gold's share price reached the highest level since 2014.

Sandstorm Gold (NYSE:SAND) set several new records in Q3 2019. Sandstorm's Aurizona mine royalty and Cerro Moro mine stream started delivering more gold and silver at the right time so that Sandstorm's gold equivalent production can grow along with growing metals prices which leads to rapidly improving financial results.

In Q3, Sandstorm sold 17,289 toz of gold equivalent. It means a 5.7% improvement in comparison to Q2 and a 20.8% improvement in comparison to Q3 2018. As the average realized gold price grew from $1,314/toz in Q2 to $1,491/toz in Q3, or by 13.5%, Sandstorm's revenues experienced a nice growth too. While in Q3 2018, the revenues equaled $17.5 million and in Q2 2019 $21.5 million, in Q3 2019, they climbed to $25.8 million, setting a new record high.

Source: Sandstorm Gold and Seeking Alpha

Sandstorm set a new record also in terms of operating cash flow, net income and EPS. The operating cash flow climbed to $18.2 million which means that it increased by 43.3% quarter-over-quarter. The net income jumped up to $6.2 million which means a 158% improvement. The EPS increased to $0.03, compared to $0.01 in Q2.

Source: Sandstorm Gold and Seeking Alpha

Although the operating cash flow reached a new record high, Sandstorm's cash position has worsened. As can be seen in the chart below, the volume of cash, cash equivalents and short-term investments held by the company decreased from $21.6 million as of the end of Q2 to $19.4 million as of the end of Q3. The decline was caused especially by the fact that under the normal course issuer bid, Sandstorm purchased and canceled approximately 2.4 million of its own shares, worth $13.34 million.

The volume of total debt increased to $40.7 million and the net debt increased to $28.7 million. It is probable that the share buybacks will not continue in the near future, as the shares are not cheap anymore. If Sandstorm manages to maintain the current quarterly EPS also over the coming quarters, the annual EPS will be $0.12. At the current share price of $7.04, the P/E ratio would equal almost 59. And after annualizing the Q3 operating cash flow of $18.2 million to $72.8 million, the price-to-operating cash flow equals almost 17. Although Sandstorm expects the production growth to continue in the coming years, the shares don't look too cheap right now.

Source: Sandstorm Gold and Seeking Alpha

Sandstorm expects the 2019 volume of gold equivalent ounces sold to be 63,000-70,000 toz. As 47,716 toz of gold equivalent were sold over the first three quarters, 15,284-22,284 toz gold should be sold in Q4. It is expected that the production at the Aurizona mine will increase, as higher-grade ore should be processed in Q4. Moreover, Lundin Gold's (FTMNF) Fruta del Norte mine should start gold production by the end of this year. Sandstorm owns a 0.9% NSR which should lead to deliveries of approximately 2,700 toz gold per year after the mine reaches full production.

What is positive, Sandstorm's CEO also reiterated the long-term growth targets during the earnings call:

Based on these financials, I'm pleased to say that we are on track to achieving our guidance and are reiterating our forecast of 63,000 to 70,000 attributable gold equivalent ounces sold in 2019. Our long-term forecast is 140,000 attributable gold equivalent ounces in 2023.

The Q3 earnings release helped to push Sandstorm Gold's share price up to new highs, above the $7 resistance level. Although the RSI is approaching the overbought levels, it still has some room to go. Sandstorm's share price is in an uptrend since late 2018. As can be seen, the pattern of higher highs and higher lows keeps on continuing. Given the positive Q3 results, it is possible to expect the upward movement to continue in the near future. The next resistance level is in the $7.5-8 area, however, its strength is questionable, as it was last tested back in 2014.

What I like about Sandstorm Gold's Q3:

  • A new record level of gold equivalent ounces sales was set.
  • The revenues, operating cash flow and earnings reached a new record high as well.
  • The technical picture looks good.

What I don't like about Sandstorm Gold's Q3:

  • The net debt increased, however, it is not too high.

This article was written by

Peter Arendas profile picture
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An in-depth analysis of the royalty and streaming industry

I am an associate professor at the University of Economics in Bratislava, Department of Banking and International Finance. My dissertation was focused on commodity markets and my habilitation was focused on the calendar anomalies. I have more than 15 years of investing experience. My investments mostly focus on small- and mid-cap companies in the resource sector. Since May 2019, I have been preparing regular monthly reports focused on the precious metals royalty & streaming industry. Based on positive feedbacks and numerous inquiries, I decided to launch a Marketplace Service named "Royalty & Streaming Corner", which provides an in-depth analysis of this exciting market segment, as well as investment ideas from the mining industry.


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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

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