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Good morning. My name is Chris, and I will be your conference operator today. At this time, would like to welcome everyone to the Sandstorm Gold conference call. [Operator Instructions]Please be aware that some of the commentary may contain forward-looking statements. There can be no assurance that forward-looking statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. [Operator Instructions] Mr. Watson, you may begin your conference.
Thank you, operator, and good morning, everyone. We're pleased to be having an earnings call this morning where we're here to discuss record quarterly revenue. Shortly, Erfan will be going over the financial results in detail, and then Dave Awram will be providing an update on a couple of notable areas of future growth that will, hopefully, help us set new revenue records in the future. And we're going to be walking through a few slides this morning. So if you've not already done so, you can go to the webcast now to see them. Prior to handing the call over to Erfan, as usual, I'm going to provide a brief general update on the company's activities and answer few of the more prominent questions that we've been receiving from investors over the past quarter. From a high-level perspective, it's obvious that with record revenue that our portfolio is performing well. What I believe is an equally important point, however, is that we have a number of streams and royalties on assets that are at the development stage. Some of which are under construction right now, so we expect that revenue and cash flow will set new all-time records next year. In addition, we continue to add to our portfolio, which as of this morning, now includes 180 streams and royalties. And that number will continue to climb through 2018, because we're working on additional royalty acquisitions at the moment. During the quarter, the majority of the questions that we've been getting for investors relates to the following 3 topics: number one, the timing of the potential dividend; number two, the timing of the Hot Maden PFS; and number three, questions relating to understanding the exploration upside within our portfolio. Starting out with dividends. This is, perhaps, the most entertaining part of my job, as I've been listening to investors provide their opinion as to what they think we should do. And we've now received advice from, what seems like, hundreds of people and opinions range from, "Don't pay a dividend, I bought Sandstorm for its growth" to "Pay a 100% of your earnings out as a dividend because Sandstorm doesn't need to grow." The range of passionate opinions is impressive, but what I can confirm is that what I mentioned on the last quarterly call, which is that the board is actively analyzing this topic, continues to be true. And it's my expectation that by the end of the year, we would've made a decision about 2019 potential dividend. I would like to continue to be clear, however, that Sandstorm is, and will remain for many years to come, a growth company. And I do believe that if we do begin paying a dividend, it will be a small one to start, and its purpose would not be so that people would start buying Sandstorm's share, primarily, for their yield. But rather, it would be a signal that we know we're committed to the endgame of creating value for shareholders and trying to find ways to return back value to them. I expect that once we start paying a dividend, we will be able to create a very, very long history of continued dividend increases over time. Now moving onto the timing of the Hod Maden PFS. And yes, I said, Hod Maden instead of Hot Maden. During the quarter, Lidya Madencilik decided to change the T to a D, and so in the future, you'll see our references to its name change as well. Overall, we still expect that we'll be able to meet our previous guidance of having the results of the PFS study being made public during Q2. Work on the PFS is at a sufficiently advanced stage, though we anticipate being able to release it later in the quarter once AMC has completed their work, and Lidya has signed off on it. As a reminder, once this is complete, the mine will immediately move into its permitting phase, while the project will undergo continued technical work, including trade-off studies, a full definitive feasibility study, and detailed engineering. What I can say from the work that has been done so far, is that we continue to expect Hod Maden to be an impressive, high-quality, low-cost gold producer, and that Sandstorm's 30% profits interest will reward our shareholders for many years. The final thing I want to discuss is general exploration upside within Sandstorm's portfolio. Currently, we have many, many properties being actively explored by our mining partners. This is, perhaps, the single most important thing to understand in relation to Sandstorm. For every dollar an investor invests in Sandstorm, they get more exploration and more meters of drilling than any other streaming or royalty company in the world. Period. We can see this on Slide 5, that in 2017, similar to 2016, significantly more ounces were found attributable to Sandstorm under our royalty and stream agreements than were mined attributable to Sandstorm during the year. For those of you who are not familiar with this slide, this means that even when we exclude the ounces that we purchased when we made acquisitions, the organic growth of ounces from our existing portfolio is greater than the production. So not only are we receiving a significant amount of cash flow each year, our organic growth in gold ounces is impressive. Since we are now buying streams and royalties without having to issue new shares for each acquisition, we expect that actual reserves and resources on a per share basis will benefit from both exploration upside as well as from acquisitions. You can see how these new ounces are being found on this next Slide, 6. As we set another record for meters of drilling on properties that Sandstorm has a royalty or stream on, and based on the drilling budgets that we're seeing, 2018 could be another record year. The importance of this cannot be overstated. I acknowledge that the Q1 2018 cash flow and revenue certainly matters to shareholders, but the new ounces of free gold that are being found on Sandstorm's properties is one of the key things that sets us apart from our competitors. Overall, when we look at Sandstorm, what we see as a company were the exploration within our portfolio is impressive, the number of streams and royalties continues to grow, the revenue continues to set new records, and we expect even further records are just around the corner. In addition to that, we're 100% debt-free and positioned for future growth. And so with that, I'll hand it over to Erfan to discuss the first quarter results. Erfan?
Thank you, Nolan. And hello to everyone who is listening into the call today. For those of you who've not joined a Sandstorm conference call before, what I'd like to do during my section is to walk through the key financial results and provide some commentary as to how this quarter stacks up to the same period from last year. So let's dive in. On Slide 8, we have listed some of the 2018 first quarter numbers beside the comparable figures that Sandstorm reported in Q1 of 2017. On the top line, we posted record revenue of $19.5 million, which was a slight increase from Q1 of last year. The record was driven by our second highest quarterly total production of attributable ounces of gold that's sold as well as an increase in the realized selling price per ounce of gold. You can see on the chart, that our average realized gold price per ounce was more than $1300, something we haven't seen since back in 2016. As far as costs are concerned, we reported average cash cost of $276 per ounce, resulting in cash operating margins of $1,050 per ounce. After deducting administrative, [ project ] evaluation and other costs, cash flow from operating activities before changes in noncash working capital was $13.4 million, compared to $13.2 million in 2017. The strong cash flow was a big reason why we were able to repay $14 million on our revolving credit facility during the quarter. Another $2 million in debt remained as of the end of March, but we subsequently paid that debt down to 0 in early April, and have been accumulating cash ever since. The reason that we drew down the $16 million from our credit facility was to pay for the Houndé royalty acquisition. Total cost of the Houndé deal was $45 million. And we were fortunate enough that on top of our cash flow, we were able to monetize debt and equity investments during the quarter, bringing in an additional $23.3 million in cash, which we put to work the Houndé royalty acquisition. As a result of operating cash flow and the sale of noncore investments, we were able to pay down the debt very quickly. Before I discuss the production figures and revenue in a bit more detail, it's worth touching on the difference in net income during Q1 2018 versus the first quarter of 2017. The reason for the decline being an aftertax noncash impairment charge of approximately $3 million related to the Gualcamayo royalty. Yamana is currently putting the project up for sale, and we think there is upside potential of Gualcamayo. Ideally, with the eventual purchase of Gualcamayo and a position to invest, the necessary capital will push the project forward. As a royalty holder, we just continue to collect the royalty check from production of the mine, while we wait for the situation to develop. Okay, onto the next slide. The chart on Slide 9 shows gold equivalent ounces sold, sales and royalty revenue as well as the average realized gold price over the last 4 quarters. You can see that all 3 categories have been trending up and although there's been some variability, when you look at the longer time horizon, the results have been in step with our expectations and our guidance. And speaking of guidance, we've narrowed the lower end of our guidance range for 2018 based on Q1 results, and are now forecasting $53,000 to $60,000 attributable gold equivalent ounces sold for the year. To give you a sense for our top 10 contributors by gold equivalent ounces sold in Q1 2018, we have paired the chart on Slide 10. Now as I go down the list and think about the operators at each of these projects, it's encouraging that our top 10 royalty counterparties are a well-capitalized bunch. They are generating free cash flow at current commodity prices and are reinvesting the capital into their operations. Chapada is a great example of it, and Yamana is pursuing a number of development opportunities at the mine, and they are looking to invest tens of millions of dollars to improve the operation. Also, worthy of note is the Houndé project, jumping in the top 5 after being in the portfolio for just 1 quarter. Houndé is located in Burkina Faso and is the flagship asset of Endeavour Mining, another well-capitalized solid operator. With strong performances from projects like Houndé, Karma, Chapada and others, we've seen an overall increase in sales and royalty revenue from operations outside of North America, when we look at the jurisdictional breakdown relative to previous quarters. As you can see on Slide 11, the total revenue coming from North American operations is approximately 54% down from an average of about 65%, previously. We're seeing higher contributions from South America and from Africa, primarily Burkina Faso. Okay, that's all for me in the financial discussion. So now I'll pass the call over to Dave to discuss a few of the many encouraging developments that are happening at the projects in our royalty portfolio. Dave?
Thank you, Erfan. On the corporate development front, it has been a busy start of the year for us at Sandstorm. As we've completed the 1 large transaction, Houndé, and several smaller transactions with groups like Cold Play -- or Goldplay in Mexico and [ Ethan ] in Africa, now taking us up to 180 assets under management. As we've moved into Q2, our pipeline, our potential large, medium and smaller deals are just as busy as we have ever been, especially in the medium to small deal size. We've been effective and continually sourcing deals in this space. And we have not seen any indication that the pipeline is slowing for us at Sandstorm. Onto our project updates. I'm going to focus on a couple of recent developments. First, I'll speak about our HM claim, that is within the boundaries of the Macassa mine operated by Kirkland Lake mine. This is a relatively small claim within the boundaries of what Kirkland calls the South Mine Complex, and is a royalty that we purchased for a very low price about 4 years ago. Before we purchased the royalty, Kirkland had completed very little exploration earlier in the complex, but it begun to development of an exploration drift that is illustrated at the bottom of this map on Slide 13. That exploration drift approximately marks the boundary of the HM claim, as it goes to the north. Subsequent to its development is where the bulk of the drilling for this ore body has been made over the last 3 years. As you can see on this map, drill success has been good. And much, if not the bulk, of the successful drilling has occurred on the HM claim. The recently announced [ shaft ] 4 Macassa will be used, amongst other uses, to help access, develop, explore and eventually mine material that is within the boundaries of the HM claim. Kirkland Lake had not -- has not yet disclosed when or how much they will mine from this area, but over the next few years, we're beginning to expect to see multiples of the original $250,000 investment to be provided back to us in royalty payments for every year that they mine from that level. This is a great example of how we are able to utilize our expensive network to get access to great deals like this that provide substantial value to Sandstorm shareholders. Moving to Yamana and their Chapada project on Slide 14. Yamana recently announced their intent to expand production in Chapada in 3 different phases. Phase 1 should be a relatively simple improvement to mill, which is anticipated to improve overall copper recoveries and expected to be completed over the next year or so. Phase 2 is an overall mine and mill expansion from 23.5 million tons per annum to 32 million tons per annum of 37% throughput increase. No definitive timing has been made for the expansion with only the date for the feasibility study to complete it by the end of 2019. However, we anticipate that by the time this expansion is completed, Sandstorm will be in a position to receive a direct benefit of this expansion. The third phase is focused on weight stripping program to reveal the Sucupira ore body, which is currently higher grade than most material currently in the mine plan.Overall, these improvements will reflect positively delivered copper to our stream than we are receiving on this quality deposit. Lastly, I'm going to mention Black Fox, now in the hands of McEwen Mining. This is a project that we were paid back 2 years ago, but it has seen a resurgence under the new management. McEwen Mining is partway through a $15 million exploration investment. Clearly, McEwen believes there is plenty of life in this project. And despite the fact we made back much more than our original investment, we now expect to see much more production from this asset. Another demonstration of strength in our model is Sandstorm's ability to choose the right investments. That's it from my updates. Other potential catalysts over the last couple of quarters are with Cerro Moro and Aurizona, as they reach production over the next few, and also results from a growing stable, quality exploration projects, plus like Nolan mentioned before, the PFS for Hod Maden. Now I will pass it over to Chris, the operator, for questions.
[Operator Instructions] Your first question comes from Sherry Deng Scotiabank.
Just a quick question. So you are forecasting 125 kilograms of gold equivalent ounces in 2022. Now most of this growth will come from Hod Maden. Can you talk about other new streams or royalties that are in this growth projection?
So the main increases in production between now and then come from Aurizona coming online, Cerro Moro coming online and Hod Maden coming online. Both Aurizona and Cerro Moro are scheduled to come online for us in 2019. So once those 2 mines come online, the growth is predominantly Hod Maden. There's couple of other very small royalties in there that are in those projections, but they don't move the needle very much individually.
All right. Another question, switching gears, have you ever considered offtake agreements?
We've considered them, but we decided to stick to our core business of buying streams and royalties.
Okay. What are -- are there pros and cons to like the offtake agreements and eventually that you guys did not pursue?
We just simply decided to stick to the core business that we understand. We know that there are a variety of types of offtake agreements. And so although I'm not sure which ones you're specifically referring to, we know that some of our competitors like Orions of the world and [indiscernible] of the world have offtake agreements as part of their offering to mining companies, but that's just something that we think is not our core business and so we'll stick to what we do best.
Your next question comes from Dan Rollins, RBC Capital Markets.
David, Nolan, I was wondering if you could provide a little bit of color on the opportunity set that you're seeing out there for precious metals, potential size of the transactions, the depth of the opportunity set? And then maybe, secondary to that, are you looking at any other nonprecious metal-type opportunities, right now?
Yes. So the bulk of the deals that we are seeing is more of these development assets, assets that are ready to go into that construction phase, and owned by single-asset companies. So we are seeing a number of deals that are between $25 million to $50 million size range for streams, so that's a great size for us. There is a few very, very large deals out there. I don't know if we're going to be stretching too hard to do some of those very large deals. Another thing that we're seeing almost the endless stream of, is these earlier-stage exploration type of projects. And if you've seen some of the talks that either Nolan or I have presented to at various different conferences, we see this as a part to segment of the industry that it really has been orphaned by the capital markets. And so we get to really first pick of many of these, what we -- potentially are quality exploration-stage projects.
Okay. Perfect. And then, are you looking at anything -- would you be looking at any sort of the more speculative type metals right now, the battery metals or other type of opportunities outside of precious?
Well, typically not. We did pick up 1 asset that was -- had a cobalt alongside of some high-grade gold, but primarily, we are still focused on precious metals, almost all of the deals originally somehow in precious metals, occasionally, when there is a copper, zinc, lead that might come along side of it. We're certainly not focused on lithium. We only really ended up with this cobalt thing just because it came alongside some gold.
Okay, perfect. And then just at Hod Maden. I know post the transaction, you were potentially thinking of seeing if you could convert that to a royalty. Obviously, still early days with a lot of good exploration success there, but would it be your intent, potentially, to put that into a stream down the road? Or you're pretty comfortable with the current structure of that 30% interest, and the way that deal is actually structured as a bit of cash sweep every year?
Yes, the answer is both. We are comfortable with the current legal firm that it's in. But as we continue to work through and better understand the tax situation in Turkey and then nuance and implications of what it would look like turning into a stream, we will be having those conversations with Lidya Madencilik, and we'll see where we land, whether it returns into a formal stream or it stays in its current net profit interest form.
Perfect, and look forward to seeing your announcement on a dividend later this year. I think a small dividend wouldn't be a bad start to just really demonstrate the free cash flow of the business now that you've done a lot of work over the last few years grow it as you grow as a company. But look forward to seeing that in, maybe, Q4 announcement.
Your next question comes from [ Kerry McCreery ], Canaccord.
Just on the Hod Maden PFS. With the drilling you've done, is that mostly focused on upgrading the resource? Or is there an opportunity to grow the resource with the PFS?
Yes. So I guess, to be clear, we haven't done any drillings. We don't operate any projects. But the drilling that Lidya Madencilik has done has been focused primarily on bulking out the main part of the deposit for purposes of better understanding of definitive prefeasibility and definitive feasibility studies, and they're going to continue to drill that to be able to include ore blocks that are not currently in the plan. So the idea is whatever we come out with the PFS, about the time we get to a DFS, hopefully it's even more ounces in that plan.
And there will be -- we do expect further exploration and looking at new zones, but that's still not over the next year -- till the next year or so.
Your next question comes from John Tumazos, Very Independent Research.
First, could you just walk us through the milestones on Hod Maden that we should be watching for permitting and production? And second, could you talk about share buybacks, which is something you did last year. Some of the other good gold stocks get sold down on anyway from bad news, and generally, as the gold stocks have been under some pressure, could be an opportunity [indiscernible]
Yes. Thanks, John. So quickly on Hod Maden. I guess the most eminent thing that's going to happen here is, we're going to put out the PFS, then permitting is going to start immediately. I would expect to begin hearing about the results of permitting probably later next year is when we expect some of those milestones to start coming in. We will be going through or Lidya Madencilik going through a period of trade-off studies and a full definitive feasibility study. We don't have the exact timing from them as to when they expect to be done that yet. Based on what we're saying we think it would be reasonable if that was completed towards the end of next year. And then, depending on where you were in permitting, you would go into detailed engineering and then start construction. So we'll be coming out and continuing to update all shareholders on time lines and I think it's worth continuing to watch our corporate presentations because every corporate presentation we put out will have a definitive time line for each of those key metrics as to what our most recent thinking is. That's something to watch. With respect to share buybacks, so we, over the last quarter, had been focusing the vast majority of our capital to pay down debt and we've now started building out cash again, so we are in a position where we could buy back shares. We're also working on one of a few deals right now which would use all of that cash that we have. So the plan is to attempt to close those deals here over the next several months, and we do have enough flexibility though that if our share price did drop a bit, that we would be able to step into the market and use that softness to continue to accumulate shares. So I think the plan is be in a position to be able to buy back shares but, additionally, try to focus on growth.
Can you explain the timetable in terms of mining technical studies? Could you explain the Hod Maden regulatory timetable vis-à-vis the government agencies?
Yes, there's 2 parts to the timetable. One is the permitting timetable, and one is the land purchase agreement timetable, which does have some government involvement. We don't anticipate -- in conversation with Lidya Madencilik, they don't anticipate challenges from a permitting perspective. So that time line, we think it's reasonable by the end of 2019 to be done the bulk of the permitting. Land acquisition might take a little bit longer because the government time lines are a little bit longer for that. The permitting process, there are 23 different governmental agencies that Lidya Madencilik is going to have to navigate, but they are multibillion dollar conglomerate and have demonstrated in the past, a very good job of being able to get those permits on a more timely manner than other mining companies and we've actually been able to see firsthand how they've been able to do it. So for example, when you go and you attempt to get a power permit, or moving power lines, if it's a Canadian company attempting to navigate the permitting process for moving power lines in Turkey, which is a foreign jurisdiction, it can take a very long period of time. But it just so happened, the Lidya Madencilik has their own power department. So it's not the mining subsidiary itself that's going to get those permits, they actually outsource that to their own power entity within their larger conglomerate and they get those permits much faster because they're much more used to getting them and they do them on a weekly basis. So we do think that, that will be a faster part of the process.
[Operator Instructions] Your next question comes from Robert Carlson, Janney Montgomery Scott.
Just a real quick question. I know it's difficult to do, but how do -- what would you estimate our book to be at the present time? And the second question is, Erdene put a press release out today, what's your involvement with them currently?
I'll answer the second question first, Erdene, we have a 2% NSR on their project. It's one that we bought couple of years ago, and we're pleased that's sort of a secondary project, Altan Nar, that they put out their updated resource on. Bayan Khundii is the larger of the 2 projects that we also have a 2% -- we have a 2% NSR on both projects. I think it's next quarter that they plan on updating their resource for Bayan Khundii. I didn't quite catch your first question. You asked -- it sounded like you asked about what we think our book value is?
Correct.
Our book value is in the financial statements that we just put out. It's -- it fluctuates all the time, but it's just over USD 600 million, USD 700 million.
Okay. And what's your share count presently?
Share count is around 183 million shares outstanding, on a basic basis.
There are no further questions at this time. Please proceed.
Well, right now, we're going to answer a couple of questions that came through the webcast. I'll answer the first one, and then I'll hand it over to Erfan for the second one. One of the questions relates to Entrée Gold, and the question says it was once considered the cornerstone investment, and as that asset continues on in its development, what's our view on Entrée Gold. And now that the preliminary economics are out and what does it mean for Sandstrom?So as a refresher, this is a -- Entrée Gold is a company that we have a stream with. Their main asset is a joint venture with Rio Tinto, the legal entity, their joint venture is with -- it's called OTT LLC and Mongolia is part of the Turquoise Hill project and it's an absolutely incredible asset. Our stream, the way it's structured is that in the early years, when work is being done on that land by Rio Tinto, metal accrues to Sandstorm and it continues to add interest until the point where all of the capital has been paid back by Entrée to Rio, which we don't think will take that long once they really start in full force in effect to mining on Entrée's joint venture property. We think it's as early as 2 years from now that we're going to start actually accruing ounces of gold and pounds of copper owed to us under that stream, but it probably won't be until 2026, let's call it 8 years, maybe even a year after that, that all the capital has been paid back by Entrée to Rio Tinto. And at that point, we start getting cash flow. The amount of cash flow that we anticipate getting from it will be huge. I think we just ran a undiscounted cash flow analysis of that recent PEA that was put out and when you look at the Hugo North and the Heruga deposits in their entirety, the cash flow is somewhere north of $0.5 billion in total for Sandstrom, which is just more than half of our market capital. In fact, we'd still be getting USD 20,000 a year free cash flow in the year. I think it's 2097, we're still getting cash flow from that asset. So it's just a -- it's an enormous deposit, and we're very excited for when it starts kicking in.The next question I'll hand it over to Erfan to answer because it relates to accounting.
Thanks, Nolan. From what I understand, the question is asking explaining the changes in our balance sheet with respect to Hod Maden. There's some commentary in there that says the reduction in the Hod Maden interest due to devaluation of the Turkish lira relative to U.S. dollars. And so when you look at the balance sheet, you'll notice as of December 31, with respect to the Hod Maden interest, it was approximately $178 million and then going into end of Q1, it's about $170 million. So I think the question relates to why the difference between those 2 figures? And that's really related to a uniqueness in IFRS where our Hod Maden interest is held in an entity that has its functional currency as a Turkish lira, and our functional currency here at Sandstorm is the U.S. dollar. And so, what you have is changes in the valuation of the Turkish lira relative to the U.S. dollar when we actually consolidate that entity shows up fluctuations in our balance sheet, the difference going into cumulative translation adjustments and other kinds of income. So you'll see those fluctuations each period. It might be a few million dollars less next period, it might be a few million dollars more, but that's the accounting reasons of why that statement is in our commentary.
Thanks, Erfan. And those are all the questions that we'll be taking right now. We will be providing a written e-mail to answers to anyone else who put in questions on through the webcast. I'd just like to thank everybody for joining us this morning, and as always, if you have any other further questions that you want to ask, feel free to call us at the office and hope everyone has a good day. Thank you, operator.
Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.