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speedybure (< 20)

Sandstorm Gold Update



July 22, 2012 – Comments (6) | RELATED TICKERS: SSL , FNV , RGLD

I hope everyone who recieved my Sandstorm Gold report liked what they read. Even more upside has been realized since initial publication as well as one deal more than likely to be completed within 12 months.

Ming Mine; While many, including myself thought Sandstorm paid more than they should have initially, including myself albeit I did expect some gold zones to be discovered at some point. I didn;t think they would be identified so quickly but it has been a pleasant surprize as gold production from ming will be more than double initial forecasts. While gold production is expected to contract in 2013, Sandstorm has been on the aggressive with acquisitions, thus the generation of approximately 11m or so in free cash flow for 2012 is extremely beneficial is value creation.

Bracemac-Mcleod; Xstrata announced Bracemac will increase mill throughput, increasing gold and silver production to approximately 14,000 Gold-Equivalent Oz by 2014 [This is under the assumption the gold to silver ratio contracts to 40 or below]. If you assume we average $2,000 gold in 2014, Sandstorm would have paid back the entire cost of the stream by Jan 1, 2015. While this isn;t a game changer, this is just another example of yet another brilliant deal by the company.

Aurizona ~ This has probabaly been the most impressive deal made thus far. For just 17m upfront, Sandstorm has seen this become a cornerstone asset. Initial production forecasts were for 60,000 oz/yr, quickly followed by a new 100,000 oz. forecast. Luna the increased its resource base 350%, giviing Aurizona a 10-year mine life. Most recently, undetaking a scoping study for an U.G mine, currently forecast to result in an additional 100,000-200,000+ Oz./Yr. Assuming the study shows reaching the midpoint is possible, 17% x 250,000 = 42,500 attributable Oz. But even the base scenario would result in 34,000 attributable Oz.

Mt. Hamilton ~ Although I know several people who merely glanced over this piece of news, the details of the contract tell a different story. The contract says Solitario can buy back the 2.4 NSR royalty up to 30 months(for 12m) from the date the deal was made IF a stream is sold to Sandstorm Gold of at least $30m is made. Given the current predicament Solitario is in financially, would constrain them [unless severe dilution were to take place] when the permits are in place and Solitario is expected to put up 80% of initial capital costs for mine construction, amounting to approx 56m. Currently, they have less than 1/3 of that amount, thus making the sale of a 15-25% stream to Sandstorm the logical financing route to take. My guess is a 40-45m deal is made for a 20% stream. But only time will tell. Mt. Hamilton is currently forecast to produce to 48,000 oz Au & 330,000 Oz Ag for 8+ years, although to me at least, several optimization and expansion measures can be taken to increase output to at least 60,000 Au and 500,000 Ag.

Coringa & Cuiu Cuiu ~ The acquisiton of a 2.5% NSR from Coringa and a 1% NSR from Cuiu Cuiu also looks as if Sandstorm will be able to acquire a stream [likely from Coringa as Cuiu Cuiu will have higher cash costs due to being a low-grade, bulk tonnage mine in the future]. Like Solitario, Magellan Minerals doesn;t have the capital to construct a mine and the decision to turn to the market in order to finance the project {construction supposed to begin in late 2013], would dilute the company substancially.

More deals are definitely in the works as Sandstorm has significant capital at its disposal ~ 30m in cash, 50m revoler + ability to call in the 2014 and 2015 warrants in early, bringing in more than another 60m+ if warrants are called in early.

Q2 2012 production estimate : 9,100 Oz.

Peak Production FY 2016/2017 ~ Aurizona (40,000) + Black Fox (18,000) + Bachelor Lake(13,000) + St. Elena (12,500) + Ming (5,000) + Summit (2,000) + Bracemac (2,300) + Mt Hamilton, Coringa, Cuiu Cuiu (13,000) = 105,800

6 Comments – Post Your Own

#1) On July 23, 2012 at 12:12 AM, awallejr (51.86) wrote:

Nice write up.  This has been 1 of my 3 picks for 2012 (sdrl and xrx are the other 2). 

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#2) On July 23, 2012 at 1:17 PM, SN3165 (< 20) wrote:

Good write up but are you sure they have 30m in cash still after doing the Magellan/Solitario deals?

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#3) On July 23, 2012 at 1:44 PM, speedybure (< 20) wrote:

they didn;t but after q2 + 3 weeks of the new quarter  and keep in mind they;ve only remitted 4m to Solitario thus far. I;m guessing when they release results thursday/friday, itll show they have 26-28m but thats only till the end of june.

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#4) On July 23, 2012 at 2:22 PM, SN3165 (< 20) wrote:

Very good... in your opinion what should be their next deal or what companies do you think they have their eyes on?

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#5) On July 23, 2012 at 4:26 PM, speedybure (< 20) wrote:

Like I said in the short write up, I think Mt. Hamilton will very likely become a stream in 6-8 months or so. Remeber, they have to contribute 17% & 20% to Luna and Silvercrest for the U.G mines. Silvercrest will likely need payment mid 2013 +/- and Luna late 2013-mid 2014 +/-.

I submitted a proposal tothe company which they liked regarding Kimber and the Monterde project. From the sound of it, looks like they will at least look further into it. It fits perfectly into the asset portfolio in terms of a smaller company, which will need to do financing and a project with significant upside potential.

Like Mt. Hamilton, they received a right of frist refusal on Coringa and Cuiu Cuiu. If i were a bettin man, I;d definitely wager they either use this right with Solitario and/or Magellan. Assuming they make one or two more acquisition and are able to convert at least one of the NSR;s into a stream, they will propel themselves up there with Franco and Royal Gold in 4-5 years.

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#6) On July 24, 2012 at 7:44 PM, eeibbay (< 20) wrote:

Excellent update, thank you Speedy. Will just post the blog link up on the fool boards as there are some interested in Sandstorm.

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