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. 

Why Should Investors book profit?

• Lower Operational metrics in Q4FY21: In Q4FY21, the company reported lower gold sales of USD 15.7 million, versus USD 17.5 million in pcp. This is primarily due to a lower average realized gold price of USD 1,798 per ounce in Q4FY21, as compared to USD 1,880 per ounce in pcp. Moreover, the company also reported a lower net profit of USD 7.3 million in Q4FY21, as compared to USD 10.5 million in pcp.

• Significant decline in Cash balance: In Q4FY21, the company reported its cash balance of USD 16.1 million, as compared to USD 113.7 million in Q4FY20. Moreover, cash flow from operating activity stood lower at CAD 19.5 million in Q4FY21, as compared to CAD 19.8 million in Q4FY20. Continuation of the above trend might lead to liquidity crunch.

• Surge in input costs: In FY21, the company reported a surge in cost of sales (USD 16.8 million v/s USD 14.0 million in pcp), increase in administrative expense (USD 10.1 million v/s USD 8.3 million in pcp) coupled with a higher project evaluation expense (USD 7.7 million in FY21, vs USD 5.5 million in FY20). Moreover, due to rising inflation, the company might witness the continuation of the above trend in the coming days, which remains a key concern for the group.
  

Valuation Methodology (Illustrative): Price to CF based

Analysis By Kaline Group

 Stock Recommendation:

Despite a surge in gold prices, the company’s operational metrics in Q4FY21 stood lower than the previous corresponding period, which remains a major concern for the company. Notably, revenue from USD from gold sales stood at USD 15.7 million, which is the lowest in the last four quarters. We have valued the stock using Price to CF based relative valuation approach and arrived at a target price offering double-digit downside potential (in % terms). Considering the above-mentioned facts, we give a ‘Sell’ rating on the stock at the last closing price of CAD 11.03 on April 18, 2022.

One-Year Technical Price Chart (as on April 18, 2022). Source: REFINITIV, Analysis by Kalkine Group

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