Sandstorm Gold: New Mega-Acquisitions Worth $1.1 Billion

Summary

• Vancouver-based Sandstorm Gold released its preliminary first-quarter production results on April 4, 2022.
• On May 2, 2022, Sandstorm Gold announced that it acquired Nomad Royalty and nine royalties, and one stream from BaseCore Metals LP.
• I recommend buying SAND at or below $6.75 with a possible low below $6.
• Looking for a helping hand in the market? Members of The Gold And Oil Corner get exclusive ideas and guidance to navigate any climate. Learn More »

Moussa81/iStock via Getty Images

Introduction

Vancouver-based Sandstorm Gold (NYSE:SAND) released its preliminary first-quarter production results on April 4, 2022. However, one crucial piece of news today stole the show.

On May 2, 2022, Sandstorm Gold announced that it acquired Nomad Royalty and nine royalties, and one stream from BaseCore Metals LP.

You can access the company presentation by clicking here.

1 - 1Q22 Production and Revenues

1.1 - Gold equivalent production in 1Q22

SAND: Quarterly Gold equivalent Production History (Fun Trading)

Attributable gold equivalent ounces sold for the quarter ended March 31, 2022, were 18,700 ounces, compared with 17,444 ounces for the comparable period in 2021 and 16,586 ounces in the preceding quarter.

Gold equivalent production was a multi-year record. The gold price realized was $1,888 per ounce.

SAND: Quarterly Gold price realized history (Fun Trading)

Sandstorm gold said that the cash operating margins were approximately $1,600 per attributable gold equivalent ounce. Thus, the profit margin for 1Q22 was about $288 per ounce.

Note: To get the price of gold realized, I have divided the revenues for 1Q22 by the gold equivalent production.

SAND: Quarterly margin history (Fun Trading)

1.2 - Revenues for the 1Q22

SAND: Quarterly Revenues history (Fun Trading)

Sandstorm Gold said that the revenues for 1Q22 were $35.3 million, up 13.5% from last year's quarter and up 18.4% sequentially. As shown in the chart above, it is a record.

2 - Acquisition of Nomad Royalty and another nine royalties plus one stream from BaseCore Metals LP

Sandstorm indicated that the transactions added an estimated $1.1 billion to its portfolio. The transaction is expected to close in H2 2022.

2.1 - Acquisition of Nomad Royalty

Sandstorm and Nomad Royalty Company Ltd. (NSR) have entered into a definitive agreement whereby Sandstorm will acquire all of the issued and outstanding common shares of Nomad pursuant to a plan of arrangement under the Canada Business Corporations Act. The implied equity value of the Nomad Acquisition is approximately $590 million.

Data by YCharts

As can often be the case, in this type of merger-acquisitions, the ones who suffer the most are the acquirer's shareholders. It is evident in the chart above, and I wonder what possible advantage we can find in this merger?

Bigger is not necessarily better, and I am afraid this transaction did not pass the smell test looking at the market reaction. The transaction is estimated at $590 million.

Nomad owns a portfolio of 20 royalty and stream assets, of which seven are producing mines. In 2021, the portfolio generated $27 million in revenue and approximately 16K GEOs.

Nomad’s 2021 production consists of 85% gold and silver assets, which match Sandstorm’s precious metals-focused acquisition strategy.

Note: Nomad shareholders will receive upfront consideration of 1.21 Sandstorm Shares for each Nomad Share held, which implies a consideration of C$11.57 per Nomad Share based on the closing price of Sandstorm Shares on the Toronto Stock Exchange (the “TSX”) on April 29, 2022.

SAND: Nomad transaction Presentation (Sandstorm Gold)

2.2 - Acquisition of nine royalties and one stream from BaseCore Metals LP.

Sandstorm has agreed to acquire nine royalties and one stream from BaseCore Metals LP for total consideration of $525 million, payable as to $425 million in cash and $100 million in common shares of the Company ,and together with the Nomad Acquisition.

Concurrent with the BaseCore Transaction, Sandstorm has partnered with Royalty North Partners Ltd. to sell a portion of a copper royalty acquired in the BaseCore Transaction and retain a silver stream on the asset.

It is a significant royalty and stream addition with a price tag of $525 million.

The most irritating from my perspective is that the company is paying part of the deal with ordinary shares of the company. It is about 14 to 15 million shares to be added to the shares outstanding. After the deals are completed, the share outstanding is expected to climb to 284 million shares.

SAND: Shares outstanding pro-forma (Sandstorm Gold)

The company initiated a buyback program in 2018 and bought more than 16.8 million shares at the end of 2021.

What was the purpose of such expense? All the benefits expected just vanished in one single massive transaction.

SAND: BaseCore Presentation (Sandstorm Gold)

2.3 - 2022 Guidance enhanced

The transactions increase Sandstorm's 2022 production guidance by approximately 22% from 65K–70K gold equivalent ounces GEO to 80K–85K GEO and increase long-term production guidance by 55% from 100K GEO to 155K GEO in 2025. It is too early to evaluate the real benefits and venture an estimated stock price from those new ranges.

3 - Stock Performance

Sandstorm Gold continues to be one of the worst performers in this segment and is down 9% on a one-year basis. The market punished the stock today.

Data by YCharts

4 - Investment Thesis

As I have said in my preceding article, SAND is an excellent trading tool. Still, I am not confident enough to consider the stock a proper long-term investment like Franco-Nevada (FNV), Royal Gold (RGLD), or Wheaton Precious Metals (WPM).

I was hoping for some respite after the Hod Maden near-miss experience, but SAND did it again. The company suffers from the syndrome called "folie des grandeurs," where they continuously try to bite off more than they can chew. It is noticeable in the presentation.

SAND: Chart growth comparison (Sandstorm Gold)

CEO Nolan Watson said in the press release:

Today’s announcement propels the Company forward in both size and scale while solidifying Sandstorm’s position amongst its peers as the highest-growth streaming and royalty company. We believe that precious metals and copper are poised to materially outperform the market in the coming years, and we are excited to provide investors with exposure to long-life, high quality, and low-cost assets focused on gold, silver and copper.

I am sorry to say, but investing in a company that does not seem to put its shareholders' interest first is incredibly challenging. The company waited years before finally starting paying a dividend, and those recurring deals tell me that I am not an essential part of the company.

Thus, one great strategy that I often recommend in this sector in my marketplace, "The Gold and Oil Corner," especially for SAND, is trading a minimum of 60% LIFO of your whole SAND position and keeping a core long-term position for a much higher stock price.

It is the best strategy (the backbone of my marketplace) that will shield you from "surprises" like the one today. However, only US investors can trade LIFO. Please read the note at the end of the article.

Technical Analysis and commentary

SAND: TA chart short-term (Fun Trading)

Note: The chart is adjusted for dividends.

SAND forms an ascending channel pattern with resistance at $9 and support at $6.75.

This week's trading strategy is to sell LIFO at a resistance range of $8.80 to $9.15, about 40% of your position. However, with the recent significant drop, I recommend trading in a lower range between $8 and $6.75. (see chart)

I consider $8 a mid-resistance, and I suggest selling a part of your trading position at this level. Selling about 20% at or above $8 and another selling move at or above $9 could be reasonable.

The gold price is weakening as we approach the Fed decision to hike interest, and I believe SAND might drop at or below $6.

In short, I recommend buying slowly SAND below $7 with a potential new low around $6-$5.75.

Note: The LIFO method is prohibited under International Financial Reporting Standards (IFRS), though it is permitted in the United States to generally accepted accounting principles (GAAP). Therefore, only US traders can apply this method. Those who cannot trade LIFO can use an alternative by setting two different accounts for the same stock, one for the long term and one for short-term trading.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

Author's note: If you find value in this article and would like to encourage such continued efforts, please click the "Like" button below as a vote of support. Thanks.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of SAND either through stock ownership, options, or other derivatives. 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.

I trade short-term SAND mostly.

Comments

[DanShirey]

All, todays conference call:
Best

seekingalpha.com/...

Sandstorm Gold Ltd. (SAND) CEO Nolan Watson on Q1 2022 Results - Earnings Call Transcript
May 12, 2022

Notice the copper

“an increase in the selling price of copper contributed to higher revenue from the Chapada copper stream. The Chapada mine also had a 13% increase in the number of copper pounds sold.”

Next to Cerro Moro is the Chapada copper mine with approximately 3,200 ounces,

I'd like to talk about Antamina, the main asset of the BaseCore package of royalties. For those that don't know about this amazing asset, it's jointly owned by Glencore, BHP, Teck and Mitsubishi. A skarn deposit that produces primarily copper and zinc concentrates, but is a true polymetallic mine that ranks within the top 10 mines in the world in terms of production volume.

Antamina is now the second largest producer of silver in Peru in addition to the sale of copper, zinc, lead and molybdenum products. All of the concentrates produced are transported to port by an approximately 300-kilometer pipeline rather than by truck or train. This is one of the key aspects to the low-cost production of the mine.

Platreef is an enormous platinum group metal deposit with significant gold, nickel and copper content as well.

On the copper side, it's hard not to get excited about the Caserones in Chile, which is operated by the Japanese group, Nippon. This mine lies near the emerging new district that straddles the border with Argentina that the lending group of companies has been so successful in making discoveries over just the last few years.

And the El Pilar project operated by Southern Prove Copper is expected to be getting a $310 million spent on its development by 2023 and is a key part of their near-term growth.

Lastly, it would behoove me not to mention the largest copper mine in our home province in British Columbia and Teck Highland Valley. Despite Sandstorm being 13 years old, this is the first cash flow and royalty in the portfolio that comes from our home province. And what in mind to have that cash flow from.

Great. And maybe that transitions a bit into my question about Horizon Copper. Just curious on that transaction, you've said that you expect that to close in the second half of this year. There's a number of details that need to be completed. I just wondered -- and forgive me if you've already answered this, but do you have any further color on the timing of, say, Q3 versus Q4 on getting that finalized?

Erfan Kazemi
Yes, I'd be happy to answer that. There's a couple of things that are going through the process. One is regulatory process with the TSX fee, which is going well. There's a shareholder vote required with Horizon Copper's existing shareholders. And so we anticipate that once that shareholder meetings held the closing of the transaction with respect to the Hod Maden [indiscernible] and the Antamina will occur towards middle to late Q3.

Trevor Turnbull
Okay. So obviously, the shareholder vote for the Horizon Copper entity would be happening, obviously, in Q3 some time? So, it sounds like it's all on track to happen fairly soon?

Erfan Kazemi
Yes, it's going well. Certainly, the announcement of the Antamina transaction kind of resets the timetable respective to having that shareholder vote. But we've had a lot of cooperation with the Venture Exchange and things are going well.

[DanShirey]

Another update:

www.sandstormgold.com/...

MAY 26, 2022 | VANCOUVER, BC
SANDSTORM GOLD ROYALTIES AND EQUINOX GOLD LAUNCH SANDBOX ROYALTIES: A DIVERSIFIED METALS ROYALTY COMPANY

Ross Beaty, Chairman of Equinox Gold, commented: “Sandbox Royalties will create immediate and future value for Equinox Gold from our portfolio of royalties and will continue our close relationship with Sandstorm.

*
5/26/22
Sandstorm Gold Ltd. (“Sandstorm Gold Royalties”, “Sandstorm” or the “Company”) (NYSE: SAND, TSX: SSL) is announcing that further to the February 17, 2022 announcement, Sandstorm is divesting its approximately 25% stake in common shares (the “Entrée Shares”) of Entrée Resources Ltd. (“ETG” or “Entrée”) to 1363013 B.C. Ltd., a wholly-owned subsidiary of Royalty North Partners Ltd. (“Horizon Copper” or “RNP”).

Nolan just keeps "rolling",,,

Best to all.

[ppstudent]

www.bnnbloomberg.ca/... Sounds like Nolan is bullish on commodities and wants to go all in early before they are priced out. If he's wrong, could halved the stock price.

[Ordinary Average Guy]

@ppstudent I still see at least one more bombshell coming in H2-2022 involving Horizon Copper. I have written down the details of the deal that I THINK they will be making in H2, and sealed it away in my little black box. I'll open this and reveal the details AFTER the Horizon Copper deals is closed and complete. The never-Nolan's will jump all over this one!

Anyway, the new SAND is positioned well within the sector, but if gold, silver, and copper prices are pushed lower for sustained periods, the entire pm royalty sector will lose market cap, but by 2025; as it stands right now, look for SAND to outperform the top-6 in the sector...or look for the other-5 to under perform SAND through 2025.

Of course all of the top-6 in the sector will be completing more deals and there certainly can be more consolidation coming in the sector.

[brucemurison]

At the deal's stated rate of 1.21 Sandstorm shares for each Nomad share, NSR holders would get $8.349 in SAND shares based on today's closing price. NSR closed at 8.11, a small 2.86% discount for a takeover that won't be completed for a few months. Does the tight spread indicate the potential for a higher competing offer?

[Fun Trading]

@brucemurison

I would be very surprised but it is good thinking. Thank you for sharing, always appreciate your comments.

[Sorgenfrei]

I would say this is a good aquisition by Sandstorm Gold.
As a $NSR shareholder I do not like the deal (it's great for $SAND). The most exciting aspect of Nomad was the massive built-in growth the company had between several high-value assets (Greenstone, Robertson, Ivanplats, Blyvor, and Caserones). The GEOs for the company were expected to more than double over the next 3 - 5 years making $NSR a good continued buy as the accretion would have been significant.
We also have to remember that the bulk of Greenstone and Platreef is not paid for yet when doing the multiple calculations. Most forget that. Smart of Nomad to sign up deals, defer payment and then sell.
I don't really know the Basecore portfolio, other than Antimina, which is one of two assets to have the blessings of both Wheaton $WPM and Franco $FNV. NPI`s aren't royalties but 1.66% on a massive mine looks pretty good.

[Fun Trading]

@Sorgenfrei

Thank you, instructive comment,

[Stockboss16]

@Sorgenfrei
Sandstorm has bought and paid for future GEOs too. Over 100k by 2025.

[Excelsior!]

@Sorgenfrei - Great comment and agreed. Sandstorm did quite well in this acquisition with so much growth in revenues and gold equivalent ounces on tap with Nomad for the next 2-3 years. As both an NSR and SAND shareholder, I guess it works for me, but I was more excited about Nomad's potential to get rerated higher more in line with peers and this deal steals a bit of that thunder and transfers it over to Sandstorm's growth, but it won't have as big of an impact inside the larger entity as it would have stand alone.

It was the same for Ely Gold had they not be scooped up by Gold Royalty Corp on their buying binge, with GROY then going to nab Abitibi Royalties / Golden Valley, and now trying to still get their deal through to acquire Elemental Royalties. With NSR off the menu now, the question will be happens to Maverix and Metalla, (which would make for an interesting combined company by the way), but it would be interesting to see if we get more consolidation in the royalty space which of the big boys may grab them (Triple Flag, Wheaton, Royal, Franco, Osisko?) I actually think the team at Osisko, preferring to create their own royalties off incubator projects has more in alignment, from a strategy standpoint, with EMX royalty, so that would make an interesting merger as well. Regardless, it will be interesting to follow the combined Sandstorm/Nomad company now, with the extra kicker from the Glencore royalties through their subsidiary Basecore.

Here was a recent interview we did with Vince at Nomad that was a nice recap of their assets and slated growth:

www.kereport.com/...

[ppstudent]

I think sandstorm gold is a slightly safer buy here. It dropped more than 10% compared to the next mid-tier company. o.t. I noticed a several posts yesterday disappeared from several commenters on this chat.

[DanShirey]

@ppstudent
The author may have removed them?

[Fun Trading]

@ppstudent

It is strange?

[ppstudent]

@Fun Trading Let's make a case for spam bots that didn't like certain keywords.

[Norman Bates at Disneyland]

FT,

Interesting reminder of why SAND is such a fun company, thanks.

Following HM, the 'jam for tomorrow' saga continues. Fine for (very) LT investors maybe but I'm not sure many realise that, while investors get delayed jam, Nolan and the Boys and Girls extracted $9.2m in 2021 alone in salaries, benefits, share based compensation and corporate admin. Not bad for a coy with no new royalties that year and a final total comprehensive loss (...) of $17m. Who needs jam if your bread is so well buttered?

The coy had a HM 'high risk' discount for years with the reward being eventual explosive income. That $1bn NPV project (apparently) was converted into a $200m stream, a share of Someone's Pet Project and a $95m debenture. So it went from a 'high octane' growth batmobile to a eh, debenture (2% above Libor - currently at a negative real rate) - the equivalent of my 3 wheeled bicycle. " Nolan Watson- Nuls Points" as they say in the Eurovision every time an Albanian song is performed.

Anyway Nomad is actually a good company so maybe he has done better this time, but if he again expects investors to suffer another long wait for solid price appreciation (while pulling out $10m pa for himself and his buddies) he is definately not being fair, IMO. Not sure what this will do to the newly introduced dividend per share either.

I sold about 70% of my SAND position at the recent uptick because, well, that's what you do with SAND. Might go back in again - we'lll see how things go. Actually, I'm surprised the price didnt fall further, TBH.

[Fun Trading]

@Norman Bates at Disneyland

Congrats on your gain... Glad to read you again.

[Ordinary Average Guy]

@Norman Bates at Disneyland
You raise some good points.
Yes, although my hope is that SAND is a good investment for me, it has been a fun company.

But, it is good to be reminded that this is a $1.4B pm stock with total company annual salaries, benefits, and share based benefits of <$7M annually (2021)! One of the many benefits of a royalty & streaming company!

Taxable income in 2021 for SAND was $44.8M. It is nice (and legal), that SAND is able to take an annual depletion expense right off of total revenue figures, so this was a nice $35.7M deduction in 2021.

I will correct you however, in that 2021 was a record year for SAND with a total of $213M (new!) streaming and royalty deals completed in 2021. Of course here we are 5-months into 2022, and this record has been shattered already and I suspect they are not done with additional transactions.

The HM transaction actually started back in 2017; and this latest part of this transaction finally converts HM into a large stream, which was managements stated intention from the onset. When you look at the bottom line of what SAND invested in the purchase and now sale of this 30% NPI, SAND was able to pick up this streaming agreement dirt cheap as compared to simply negotiating a streaming agreement on a similar sized project with similar terms. SAND took a risk on this and it is now benefiting on this project as it is now fully permitted, under construction, and significantly de-risked as compared to its status in 2017 when this 30% NPI was acquired.

A lot of the critics of this HM transaction were very critical in that SAND's long term production projections up until recently showed over 50% of SAND's total production coming from HM. HM is projected to be SAND's largest producing asset in 2025; at 13% of SAND's overall production.

With this latest pending transaction announced this past Monday, SAND's projected growth by 2025 is 90% over 2021 production! This is much larger than the other major-mid tier pm royalty companies. And growth begins in 2022 extending right into 2025. Yes. We agree that the Nomad portion of this deal was a great acquisition for SAND.

For now, let's hope that SAND can keep its quarterly dividend contribution between $3M - $4M (or less), because as you indicate, with depressed share prices not only for SAND, but for the entire sector, this is fundamentally a bad time to introduce a dividend. But the range I indicated would seem appropriate to keep institutional investors happy anyway.

And finally, if you were able to sell ~70% of your position, hopefully ~$9.00; congratulations! I am happy for anyone making that deal a few weeks ago. Hopefully you are fully invested for the next move upward and do not miss out on the next move.

[Effen]

@Ordinary Average Guy Thanks for the comment. I agree that the equity offers a better risk/reward with Hod Maden derisked and a much smaller portion of revenues going forward will be at risk to political developments in Turkey. I sold out of my NSR and bought SAND today.

[ImpatientValueInvestor]

I was a shareholder, I did well here over time here and I wish them well but I am more and more convinced this is run to benefit Nolan not shareholders.

[Fun Trading]

@ImpatientValueInvestor

Not much illusion here as well. But trading has been quite suitable, and I do not complain.

[ImpatientValueInvestor]

@Fun Trading I hear you

[blackberryman]

Thanks, Fun. I'm in line with you on this one.

I sold SAND at 9 recently and started a new position yesterday at 6.76 and will add as you recommend. I also prefer WPM as my long term hold.

Do you think we've seen the near-term bottom for gold?

[Fun Trading]

@blackberryman

Thank you—good strategy on your part. I believe gold is about to reach $1,840 as short-term support. It may be some up and down in between, but the real test will come with the FED decision and the "minutes."
I think many gold miners and streamers have retraced more than the gold price and could be at intermediate support. However, I do not believe we are done with the slide yet. If you trade, you will be fine...

Best regards,

[DanShirey]

@blackberryman
I added some at $6.7343 on the 2nd.
:)
I am not a "trader" though.
Best