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 Updates:

• Growing Asset base: 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 encouraging as it would expand the company’s mine operations in the coming quarters. Notably, the company expects its gold production to grow to 130,000 oz in FY25, from an estimated 65,000 oz in FY21.

• Robust margin profile:The company reported a slide in average cash cost per attributable gold equivalent ounce at USD 238 in Q3FY21, as compared to USD 258 per ounce in Q3FY20. Hence, EBITDA margin and operating margin stood at 73.5% and 39.8%, respectively, in Q3FY21, stood significantly above the industry median of 41% and 27%, respectively. Moreover, the company reported its net margin at 24%, as compared to the industry median of 13.8%.

• Higher cash from operations: At the end of 9MFY21, the company reported higher cash flow from operations of USD 61.634 million, as compared to USD 45.810 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.

Q3FY21 Financial Highlights:  

• SSL announced quarterly result, wherein the group posted its total revenue of USD 596 million, jumped from USD 23.267 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 278 million, surged from USD 12.452 million in pcp. The growth was driven by higher revenue, partially offset by an increase in the cost of sales (USD 12.318 million v/s USD 10.815 million in pcp).

• The company net income of USD 622 million, increased from USD 6.518 million in pcp. The quarter witnessed a rise in administrative expense, higher project evaluation costs and an increase in foreign exchange loss.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks: The company’s operations are correlated with the international gold prices, and price volatility would impact the group’s margins and cash flows.  

Valuation Methodology (Illustrative): Price to Cash flow based

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. We have valued the stock using the Price to CF-based relative valuation approach and arrived at a target price offering double-digit upside potential (in % terms). We have considered peers like Yamana Gold Inc, Franco-Nevada Corp etc. Hence considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of SSL at the last trading price of CAD 7.58 on December 08, 2021. 

*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 December 08, 2021). Analysis by Kalkine Group

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

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