Sandstorm Gold .(SAND) - 2023 Q3 - Quarterly Report

Management's Discussion and Analysis Company Highlights & Overview The company achieved strong Q3 and nine-month results, renewing its $625 million credit facility, prioritizing debt reduction, and maintaining shareholder returns and production forecasts Q3 & 9M 2023 Operating Results (vs. 2022) | Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $41.3M | $39.0M | $135.1M | $110.3M | | Attributable Gold Equivalent Ounces | 21,123 | 22,606 | 73,995 | 60,623 | | Net Income | $0.0M | $31.7M | $18.3M | $80.5M | | Operating Cash Flow (excl. WC) | $33.9M | $31.3M | $114.6M | $79.9M | | Avg. Cash Cost per GEO | $220 | $323 | $227 | $295 | - Debt Reduction: De-levering the balance sheet is a top priority. The company is monetizing $40–$100 million in non-core assets by the end of 2024, with proceeds directed to debt repayment. An agreement to sell the El Pilar and Blackwater Royalties for $25.0 million was reached in October 2023[11] - Credit Facility: Renewed its revolving credit facility in September 2023, providing access to $625 million and extending the term to September 2027[11] - Shareholder Returns: Purchased and cancelled approximately 2.8 million common shares for $14.4 million YTD under its NCIB and declared a quarterly dividend of CAD0.02 per share[11] - Business Model: Sandstorm acquires royalties and streams from mining companies, receiving a percentage of a mine's production in return for upfront payments. The portfolio currently consists of 245 streams and royalties, with 42 of the underlying mines in production[13] - 2023 Outlook: Forecasts 90,000–100,000 Attributable Gold Equivalent ounces for 2023[14] - Long-Term Outlook: Production is expected to reach approximately 125,000 Attributable Gold Equivalent ounces within the next five years, with a sustainable average of ~110,000 ounces over the next 15 years[14] Asset Portfolio The company's diversified portfolio includes key producing assets like Cerro Moro and Chapada, alongside development projects such as Hod Maden and Greenstone, driving future growth Key Producing Assets This section details core producing assets, including silver streams on Cerro Moro and Antamina, a copper stream on Chapada, and royalties on Vale's iron ore systems - Cerro Moro Silver Stream: Right to purchase 20% of silver produced (up to 1.2M oz/year) until 7.0M oz are delivered, then 9% thereafter, for 30% of the spot silver price[18] - Chapada Copper Stream: Right to purchase 4.2% of copper produced (up to 3.9M lbs/year) until 39M lbs are delivered, then decreasing percentages, for 30% of the spot copper price[20][21] - Antamina Silver Stream and NPI: Entitled to receive silver ounces equal to 1.66% of all silver production for 2.5% of the spot price. Also holds an NPI calculated as one-third of Horizon Copper's 1.66% Antamina NPI[22] - Vale Royalties: Holds various net sales royalties on Vale's assets in Brazil, including a 0.05% NSR on the Northern System's iron ore sales and a future 0.05% NSR on a portion of the Southeastern System, expected to commence in 2025[24][30][31] Other Producing Assets This section details additional cash-flowing assets, including the Aurizona NSR, Fruta del Norte NSR, and the restructured Mercedes streams, which provide a new Corani NSR - Aurizona Gold Royalty: A 3%-5% sliding scale NSR based on the gold price ($1,500-$2,000+ per ounce)[37][38] - Mercedes Precious Metal Streams (Restructured): Agreed in Q3 2023 to restructure its streams. Effective Jan 1, 2024, the gold stream changes to 275 oz/month through April 2028, then 4.4% of production. The silver stream is suspended until April 2028, then becomes 100% of production. In exchange, Sandstorm receives a 1.0% NSR on the Corani project and $10M in other consideration[46][47][49] - Relief Canyon Gold Stream: Entitled to receive 38,784 ounces of gold over a 6.5-year period, after which it converts to a 4% stream on gold and silver[55][57] - Bonikro Gold Stream: Allied Gold, the operator, closed a business combination and raised ~$267 million in financing. An updated reserve estimate shows 645,000 gold ounces[62][64] Development Assets The development portfolio is key to future growth, featuring several world-class projects, with Hod Maden advancing, Platreef targeting H2 2024 production, and Greenstone on track for H1 2024 gold pour - Hod Maden Gold Stream: SSR Mining acquired up to a 40% operating interest and is advancing the project to a full construction decision in 2024, with commercial production anticipated in 2027[74][78] - Platreef Gold Stream: Ivanhoe Mines is focusing on construction to bring Phase 1 into production by the second half of 2024[80] - Greenstone Gold Stream: The project was approximately 90% complete as of September 2023 and remains on track to pour gold in the first half of 2024[82] - Robertson Royalty: Barrick Gold is qualifying Robertson as an emerging tier two asset, with first production expected in 2027, subject to permitting[87] Financial Review This section analyzes the company's financial performance, noting a 6% Q3 2023 revenue increase, a net income decline due to non-recurring 2022 gains, and solid liquidity with $114.0 million in nine-month operating cash flow Summary of Quarterly Results This section summarizes quarterly financial and operational metrics, highlighting Q3 2023 revenue of $41.3 million and a near break-even net income due to the absence of prior-year one-time gains Quarterly Financial Summary (Selected Quarters) | Metric (In $000s) | Sep. 30, 2023 | Jun. 30, 2023 | Mar. 31, 2023 | Sep. 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $41,324 | $49,835 | $43,979 | $38,951 | | Attributable Gold Eq. oz | 21,123 | 24,504 | 28,368 | 22,606 | | Net income (loss) | $14 | $2,684 | $15,552 | $31,681 | | Basic (loss) income per share | $(0.00) | $0.01 | $0.05 | $0.13 | Q3 2023 Attributable Gold Equivalent Ounces Breakdown | By Metal | % | By Region | % | | :--- | :-: | :--- | :-: | | Precious Metals | 74% | North America | 45% | | Base Metals | 24% | South America | 30% | | Diamonds | 2% | Canada | 14% | | | | Other | 11% | Quarterly Performance Analysis Q3 2023 revenue rose 6% to $41.3 million due to higher gold prices, though net income declined significantly due to non-recurring gains in 2022; nine-month revenue increased 22.5% to $135.1 million - Q3 2023 vs Q3 2022 Analysis: - Revenue: Increased by $2.4 million (6%) due to a 13% rise in the average realized gold price, partially offset by a 7% decrease in attributable gold equivalent ounces sold[116] - Net Income: Dropped from $31.7 million to $0.0 million. The decrease was primarily due to a $24.9 million gain on the sale of the Hod Maden interest in Q3 2022 which did not recur, a $5.9 million decrease in gains on investment revaluations, and a $3.3 million increase in finance expense[117] - 9M 2023 vs 9M 2022 Analysis: - Revenue: Increased by $24.9 million (22.5%) to $135.1 million, driven by a 13% increase in gold equivalent ounces sold and a 6% higher average gold price[119] - Net Income: Decreased from $80.5 million to $18.3 million. The decline was mainly due to significant one-time gains in 2022, including the Hod Maden sale ($24.9M), a royalty portfolio sale ($22.7M), and the sale of an equity interest ($12.5M), which were not repeated in 2023[120][121] Liquidity and Capital Resources As of September 30, 2023, the company maintained $3.5 million cash and $21.1 million working capital, with $182 million available on its credit facility, generating $114.0 million in nine-month operating cash flow Liquidity Position as of September 30, 2023 | Item | Amount | | :--- | :--- | | Cash and cash equivalents | $3.5 million | | Working capital | $21.1 million | | Revolving Facility Drawn | $443 million | | Revolving Facility Available | $182 million | - 9-Month Cash Flow Summary (2023 vs 2022): - Operating Cash Flow: Increased to $114.0M from $80.7M, driven by more ounces sold and higher gold prices[142] - Investing Cash Outflow: Decreased to $18.3M from $538.5M, as 2022 included major acquisitions (BaseCore, Mercedes Stream)[145] - Financing Cash Outflow: $98.7M outflow in 2023 (debt repayment) versus a $449.6M inflow in 2022 (debt drawdown for acquisitions)[146] Commitments, Capital, and Risks This section outlines the company's contractual stream commitments, share capital, and significant risks, including lack of control over mining operations, commodity price volatility, international political risks, and potential CRA tax reassessments Commitments and Contingencies The company has ongoing stream purchase commitments and contractual obligations, including $443 million in bank debt, alongside contingencies like an $8 million legal proceeding in Brazil Selected Stream Purchase Commitments | Stream | % of Production | Per Ounce/Pound Cash Payment | | :--- | :--- | :--- | | Cerro Moro | 20% of silver | 30% of silver spot price | | Chapada | 4.2% of copper | 30% of copper spot price | | Hod Maden | 20% of gold | 50% of gold spot price (then 60%) | | Platreef | 37.5% of gold | $100/oz (then 80% of spot) | Contractual Obligations (as of Nov 6, 2023) | Obligation (in $000s) | Total | Less than one year | 1 – 3 years | 4 – 5 years | | :--- | :--- | :--- | :--- | :--- | | Bank debt | $443,000 | — | — | $443,000 | | Estimated Interest | $120,735 | $31,515 | $60,829 | $28,391 | - A legal proceeding in Brazil involves an estimated $8 million claim for severance owed to former employees of a counterparty, which Sandstorm is defending as meritless[159] Share Capital As of November 6, 2023, the company had 296.2 million shares outstanding, having repurchased 2.8 million shares for $14.4 million under its NCIB, and declared a CAD0.02 quarterly dividend - Outstanding Shares: 296,182,421 common shares as of November 6, 2023[164] - Normal Course Issuer Bid (NCIB): Purchased and cancelled ~2.8 million common shares for $14.4 million during the nine months ended September 30, 2023[165] - Dividends: Declared a dividend of CAD0.02 per share in September 2023, paid in October 2023[166] Other Risks to Sandstorm The company faces significant risks from lack of control over mining operations, international political instability, commodity price fluctuations, and potential adverse tax rulings from the CRA's ongoing audit - No Control Over Mining Operations: Sandstorm is subject to risks of the mine operators, including shutdowns, operational failures, and decisions to suspend or discontinue operations, without having direct control[184] - International Operations Risk: Assets are located in numerous countries, exposing the company to political instability, expropriation, changes in tax policies, and other governmental risks[187] - Income Tax Risk: The Canada Revenue Agency (CRA) is currently conducting an international tax audit of the company's 2019 and 2020 taxation years. The CRA has taken positions with similar companies that could adversely affect the tax treatment of stream agreements, though Sandstorm believes its position is correct[189] - Commodity Price Risk: Financial results are significantly affected by fluctuations in the prices of gold, silver, copper, and other metals, which are influenced by numerous factors beyond the company's control[190] Condensed Consolidated Interim Financial Statements Financial Statements The unaudited condensed consolidated interim financial statements for the period ended September 30, 2023, show total assets of $1.917 billion, total liabilities of $490.3 million, and nine-month net income of $18.3 million Statement of Financial Position (as of Sep 30, 2023 vs. Dec 31, 2022) | In $000s | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $1,916,819 | $1,974,777 | | Total Current Assets | $44,594 | $32,727 | | Stream, royalty and other interests | $1,597,772 | $1,781,256 | | Total Liabilities | $490,251 | $533,372 | | Bank debt | $456,000 | $497,500 | | Total Equity | $1,426,568 | $1,441,405 | Statement of Income (9 Months Ended Sep 30, 2023 vs 2022) | In $000s (except per share) | 9M 2023 | 9M 2022 | | :--- | :--- | :--- | | Total Revenue | $135,138 | $110,284 | | Gross Profit | $62,257 | $52,285 | | Net Income for the period | $18,250 | $80,518 | | Net Income Attributable to Shareholders | $17,477 | $80,719 | | Diluted Earnings Per Share | $0.06 | $0.38 | Notes to the Financial Statements These notes provide detailed explanations for financial statement figures, including accounting for the Antamina NPI sale, Bear Creek stream restructuring, financial instrument valuations, share capital movements, and segmented revenue breakdowns Stream, Royalty and Other Interests (Note 4) This note details the $1.60 billion carrying value of primary assets, including the Antamina NPI partial sale resulting in a $2.0 million loss, and the Bear Creek stream restructuring - Antamina Transaction (June 2023): Sold a portion of the Antamina NPI to Horizon Copper. In return, Sandstorm received a silver stream (fair value $101.4M), a debenture (fair value $122.7M), $20M cash, and $1.4M in shares. The transaction resulted in a $2.0M loss[262][263][264] - Bear Creek Restructuring (September 2023): Agreed to amend gold and silver streams on the Mercedes mine. In exchange for revised stream terms, Sandstorm will receive a 1.0% NSR on the Corani project and $10.0 million in non-royalty consideration (shares and increased debenture principal). The deal is expected to close in Q4 2023[265][266][268] Segmented Information (Note 14) This note details Q3 2023 segmented financial performance, highlighting key revenue contributors like Cerro Moro ($6.0M), Mercedes ($5.8M), and Chapada ($2.3M), with the corporate segment showing a $19.8 million loss before tax Segment Revenue and Income (Loss) Before Taxes - Q3 2023 (in $000s) | Segment | Sales & Royalty Revenue | Income (Loss) Before Taxes | | :--- | :--- | :--- | | Cerro Moro, Argentina | $5,976 | $1,625 | | Mercedes, Mexico | $5,823 | $1,427 | | Antamina, Peru (Silver Stream & Royalty) | $3,366 | $1,944 | | Aurizona, Brazil | $2,631 | $2,495 | | Caserones, Chile | $2,428 | $1,489 | | Chapada, Brazil | $2,270 | $1,106 | | Bonikro, Côte d'Ivoire | $1,847 | $447 | | Total Segments | $41,324 | $20,396 | | Corporate | — | ($19,814) | | Consolidated | $41,324 | $582 |