Sandstorm Metals & Energy: 2012 Update
Sandstorm Metals & Energy has quietly been adding value over the last several months, which when looked upon as a whole, shows 2012 has been a rather transformational year for the company. While it has had its share of problems early on in the company;s infancy, it seems to have taught mgmt a lesson regarding what assets it will pursue going forward.
Sandstorm has or is in the process of amending its NovaDx deal, whereby it will receive 20m, 10m in equity and a 10m debenture as well as a sliding scale gross overriding royalty on the Rex and Rosa coal mines. Sandstorm is also in great position for 2013 as it will see both its conerstone assets as well as two smaller assets come onstream. I would suspect by Q2 of the new year, Sandstorm becomes cash flow positive for the first time in company history, ramping up over the following several years.
Serra Pelada ~ Sandstorm completed its first Palladium Stream by acquiring a 35% streaming interest in this exceptionally high grade deposit. Based on analyst estimates and my own calaculations, Serra Pelada wil be ramped up and by 2015, will produce 65,000 oz.'s Pd or 23,000 attributable, however, this will be reduced as Colossus wil likely buy back half the stream or 11,500 attrituable. While this doesn;t seem like that much, it cost just 15m.
Bracemac-Mcleod ~ Two pieces of great news came out regarding this stream in 2012. First, it would operate at 30% above that outlined in the PEA/Feasibility Study, for average annual output of 28m Lbs. Second, Sandstorm increased its initial 17.5% stream by 7% to 24.5%. While Donner, who sold the stream is likely to do very well going forward, it isn;t very financially sound, at least at this time. Xstrata, the operator, however, is in excellent financial shape and has a long history of doing a great job brining mines online. In other words, Sandstorm was able to take advantage of Donner;s financial distress while at the same time not having to worry about that fact as far as its stream goes. Production will commence in Q1 and likely be ramped up in Q4/Q1 of 2012/2013.
Gordon Creek ~ This stream is set to begin production this year, although it will not reach capacity until Q1 2014. It has significant exploration upside, which will likely be realized in the not too distant future. Sandstorm has the right to buy 35% of production for $1/mcf, giving Sandstorm great leverage to rising natural gas prices.
The net asset value calculation has the following assumptions: $3/Cu, $600 Pd, $3.50 lng, $85 barrel oil
Serra Pelada NAV ~ $14c/share. Applying the avg NAV multiple of 1.5x = .22c/share
Brace Mcleod NAV ~ $.32/share, Applying 1.5x Multiple = $.47c/Share
Gordon Creek NAV ~ $.12c/share, 1.5x multiple $.18c/share
Cash, Debenture, Investments ~ $.11c/Share
Two Creek, Strathmore, Rex, Rosa ~ $.08c/share, 1.5x multiple = $.12c/Share
Total ~ $1.10 Share