Sandstorm Gold Ltd.

Sandstorm Gold Ltd. (TSX: SSL) provides financing to companies engaged in gold mining through gold stream and royalty. Geographically, the company has operational footprints in North America, South & Central America, Africa, and Asia & Australia.

Key Highlights

• Management shared preliminary sales numbers for 3Q 2021: The company recently reported that for the three months ending September 30, 2021, it sold approximately 15,500 attributable gold equivalent ounces and generated preliminary revenue of USD 27.6 million. The company's sales increased sequentially, which is a big plus.

• Growing assets base will auger production and cash flows: The company has a diversified asset-base, which are located across several important mining areas across the globe. Since 2010, asset-base of the company has grown from 5 mines to 229 mines in 2021. The above is mentioned worthy as it would lead to improved prospects for the company. Notably, the company expects its gold production to grow to 130,000 oz in FY25, while the cash flow from operations will be around USD 163 million respectively.

Source: Company

• Industry beating margins: Despite the second wave of the Covid-19 Pandemic, the Company maintained its pace and witnessed spirited performance across its margin matrix. In addition, the management’s solid determination helped them to leap the industry median margins on many fronts in Q2 2021, which exhibits the competitive advantage of the company within the industry. The chart below gives a glimpse of this.

• Recent acquisitions to spur growth: In Q2FY21, the company made some meaningful acquisitions, which are likely to provide immediate cash flow growth, exposure to quality assets and additional exploration opportunities. The group acquired Vale royalties which operates in the Vatukoula gold mine in Fiji. Notably, Vale Royalties is known for long-life, low-cost assets, which is expected to contribute to the prospects of SSL.

Financial Overview of Q2 2021     (Expressed in U.S. Dollars (000s)

Source: Company

• SSL announced its quarterly result, wherein the group posted total revenue of USD 4 million, up from USD 18.7 million in the previous corresponding period (pcp). The increase was driven by a higher average realized gold price (1,796 /ounce v/s 1,715/ounce). Moreover, the company reported a higher royalty revenue of USD 8.9 million, as compared to USD 6.1 million in pcp also supported the company’s top-line.
• Gross profit was recorded at USD 5 million, surged from USD 7.5 million in pcp. The growth was driven by higher revenue partially offset by an increase in the cost of sales (USD 12.8 million v/s USD 11.1 million in pcp).
• The company reported net income of USD 6 million, increased from USD 7.1 million in pcp mainly due to gain on revaluation of Vale Royalties during the quarter.

Risks associated with investment

The company’s financial performance is correlated with the international gold prices; hence, volatility in gold price would impact the group’s margins and cash flows. 

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation  

The company’s operations were benefitted from higher commodity prices, which has further resulted in elevated net profit and increase in cash from operations. Notably, cash from operations stood at USD 43.720 million in H1FY21, jumped from USD 27.725 million in pcp. For FY21, the company expects its gold equivalent production within the range of 62,000 and 69,000 ounces. Recently the management shared its preliminary sales numbers for Q3 2021, registering a sequential growth, which is a key positive. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating on the stock at the closing price of CAD 8.23 on October 14, 2021. We have considered Altius Minerals Corp, Maverix Metals Inc, Osisko Gold Royalties Ltd, etc. as the peer group for the comparison.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached. 

Technical Analysis Summary

One-Year Technical Price Chart (as on October 14, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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