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

• 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 filings

• Higher cash from operations: At the end of 9MFY21, the company reported higher cash flow from operations of USD 61.6 million, as compared to USD 45.8 million in pcp. The increase in cash flows is primarily due to significant rise in the profit. The above is expected to support the company’s overall liquidity.

• 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 leap the industry median margins on many fronts in Q3 2021, which exhibits the competitive advantage of the company within the industry. The chart below gives a glimpse of this. 

Source: REFINITIV, Analysis by Kalkine Group

• Declares inaugural dividend: Recently, the Board of Directors has declared the Company's first cash dividend in the amount of CAD 0.02 per common share for the first quarter of 2022, to shareholders of record as of the close of business on January 18, 2022. The dividend will be paid on January 28, 2022.
  

Risks associated with investment

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

Financial Overview of Q3 2021     Expressed in U.S. Dollars (000s)

Source: Company Filing

• SSL announced its quarterly result, wherein the group posted its total revenue of USD 5 million, jumped from USD 23.2 million in the previous corresponding period (pcp). The increase was driven by both increase in royalty revenue and higher income from commodity sales. 
• Gross profit was recorded USD 2 million, surged from USD 12.4 million in pcp. The growth was driven by higher revenue, partially offset by an increase in the cost of sales (USD 12.3 million v/s USD 10.8 million in pcp).

• The company reported net income of USD 6 million, increased from USD 6.5 million in pcp. The quarter witnessed a rise in administrative expense, higher project evaluation costs and an increase in foreign exchange loss.

Valuation Methodology (Illustrative): EV to EBITDA

Analysis by Kalkine Group

Stock recommendation 

Despite the rising input costs and ongoing inflation, the company has successfully lowered its cash costs in Q3FY21, which is a commendable and has resulted to a strong margin and higher cash flows. The above is supported by the low-cost mines which are included under the company’s portfolio. 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. Furthermore, the group announced an inaugural dividend of CAD 0.02 per share, which will be paid on January 28, 2022, and we believe down the time as it grows its cash flows the company will increase its dividend distribution. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating on the stock at the closing price of CAD 7.65 as on January 04, 2022. We have considered Altius Minerals Corp, Nomad Royalty Company Ltd, 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 Summary Analysis

One-Year Technical Price Chart (as on January 4, 2022). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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