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Good morning. My name is Leonie, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Sandstorm Gold Ltd. Second Quarter Results 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. And thank you, for calling into the second quarter call. This morning I'm going to be providing a brief update on the business and answer typical investor questions as normal. And then Erfan will discuss the financial results. And after that David Awram will walk through the few asset updates. After that, we will turn it over to the operator for questions and for a general question-and-answer period as normal. But with respect to questions from the web portal, in order to make things go more smoothly and quickly, but also to get to every investor answers to their questions, we're going to directly reply in e-mail or if you leave your number with a follow-up call to any questions that come in from the online portal. So feel free to take as many questions into that portal. And if you have questions that you want us to follow-up on, we'll do that directly with you next week. So as everyone can see from these second quarter results our portfolio is continuing to perform very well. During the second quarter, we recognized operating cash flow, excluding changes and working capital, of $12.3 million and with Cerro Moro and Aurizona kicking in early next year. It won't be long until we're sitting new quarterly cash flow records. Very briefly, I would like to address a few of the more common questions that we've been getting from investors lately. And I then want to actually walk through some of the recent small royalty purchases that we've made. So I'll try and answer these questions quickly in order to keep things moving. So I got 4 questions here: the first is, how are things going on the Hot Maden project? Second is, does Sandstorm have the same tax risks as other streaming companies that are being reassessed by the CRA? The third question is what does the deal pipeline look like? And the fourth question is what are these royalties that we've recently purchased?So to start with the first question about Hot Maden, things are going very well at site. As you know, we recently put out a PFS, which illustrates a project with all-in sustaining cost and a coproduct basis of less than $400 per ounce. The permitting process has now officially begun. The project is in full trade-off study mode before the feasibility begins early next year. Our technical team actually just got back from the project. They did a site visit last week and are very encouraged by the progress that our partner Lidya Madencilik is making. So overall, things are going very well there. There've been absolutely 0 negative surprises for us, either technically or socially or even politically as our partner has a very healthy relationship with the government. With respect to question 2 regarding taxes, the answer is Sandstorm does not have the same type of tax risk as some of our competitors. The main issue is some of the other streaming and royalty companies are having is that a material portion of their income is earned in offshore tax havens, they're not being tax on that income. And it's important to note that 100% of Sandstorm Streams and Royalties are structured, so that we will be paying tax either in Canada or in the local mining country. But we don't have that same risk that the CRA comes in, asks us to attribute offshore income into Canada. And although this means that we pay more tax, I believe it makes Sandstorm a safer investment than the other streams and royalty companies. With respect to question 3, regarding the deal pipeline, the pipeline is great. Right now, the markets are so bad for raising equity that there is a very long list of companies that would like capital from Sandstorm. And what we're working on, behind the scenes is a number of deals, and we're -- but we're ensuring that we do our due diligence. We're being picky to ensure that we invest into quality projects. And doing so takes time. But it's safe to say the deal pipeline is incredibly robust right now. Small glimpse of what I'm talking about can be seen from the royalties that we've recently purchased over the last couple of months. And so that was, sort of, the fourth question. And if you turn your attention to the webcast, we'll walk through a few of those slides. I am pleased that because of these acquisitions, our total royalty count went up, but because we're also buying back shares in the market, our share count went down. So I think it's a good quarter if you can purchase royalties and buy back shares during the same quarter. I think one of the things that we believe that sets Sandstorm apart, is that for every dollar invested in Sandstorm you get more exploration upside than any other streaming and royalty company out there, and that's why we continue to buy exciting royalty on large-land packages. And so turning our attention to this webcast now, you can see that we've purchased a total of 8 royalties recently. Each one is listed here on the slide that you can see. They're in various countries throughout Africa. One of the things, that I think is worth noting, is the size of the land packages. We've got a column there. The number of square kilometers of each of these land packages, and put it into perspective, the average size or the average mining interest or claim area that comes across our desk is probably around 40 square kilometers. And you can see from these land packages these are huge land packages. There's only one land package in here that's about average. Every other one is hundreds of square kilometers. And a walk-through more -- a few of the more intriguing ones. And one of the deals that we did was with the company called Aton. And you can see from this slide, so this land package is got the black outline. It is hundreds of square kilometers. Every single one of those gold or yellow dots is another area where there is target for potential goldmine. So there's -- it's hugely prospective. But I'm going to draw your attention to Rodruin, which is in the middle at the bottom of that land package. And you can see on the next slide, this is zooming into Rodruin and some of the surface sampling that's been done. All of those red inverted triangles are surface samples that range from 1 to 5 grams gold just sitting on top. All the purple inverted triangles are samples that are greater than 5 grams. So I think you get the sense that this land package is highly prospective. There's gold sitting right at the surface. They're just mobilizing drills right now, in fact I just saw them put out a press release saying that drills are getting ready to start turning at this project. They're -- we're excited to be able to have this added to our portfolio. Another one of the deals we did was with the company called Nexus Gold, and they've got some assets in Burkina Faso. And you can see this, we bought 3 royalties from them. Bouboulou is an interesting one. It's one of the ones that they're going be drilling here over the next few months. They just raised a bunch of capital. You can see some of the drilling results that they got last drilling season. They hit 23 meters of 1 gram right at surface. They hit another 1 meter of 15 grams in drill hole #7. They hit another 1 meter of 23 grams in drill hole 8. Though it's maybe a bit more early stage project, but it's very, very interesting from our perspective. One of the things that we like about this project and some of the next ones that I'll talk about is that all of these targets are right at surface. So the drilling is very inexpensive. And for a very few dollars, you can get a lot of meters put in and it makes a lot easier to find significant gold resources. Another one of the transactions we did was with a company called Progress Minerals. They are a private company that's about to go public here in the next 12 months. And they have some very interesting land packages. Bobosso is in Côte d'Ivoire. And they are going to be drilling that -- Progress just raised, and they're doing in 2 tranches about a total of $10 million, which is incredible for a private company doing exploration in this market. It's very hard to raise equity right now. But you can see some of the historical drill results they had. Last drill season they hit 15 meters, of 1.9 grams. And then, again, the stuff comes right up to surface, this is mineralization. They hit 14 meters of 2.4 grams. They hit 57 meters of 1.6 grams. So these are not royalties that we're purchasing on moose pasture. These are the royalties that are hitting ore grade mineralization over and over and over again, and land packages are hundreds of square kilometers. Another one of the land packages that Progress has that we have a royalty on now to our transaction is on an asset called [ Buru ], which is, again, hundreds of square kilometers. It has gold and arsenic anomalies all over the place. There is an 11-kilometer trend in part of the property, another 13-kilometer trend in another part of the property. And it's not just anomalous soil samples, they've hit it with RC drilling. And they've already hit 20 meters of 1.3 grams, 14 meters of 2.4 grams, 24 meters of 1 gram. And this project is going to get tens of thousands of meters of drilling here over the next year or 1.5 year. And moving onto just one more from Progress, you can get a sense that Progress has a lot of very interesting projects inside our company. Tambiri, this is another one that they're likely going to be drilling here in the next number of months. They've hit 3 meters of 13.9 grams, 5 meters of 17 grams, 6 meters of 16 grams, 3 meters of 28 grams. These are all historical drill holes that are going to go back in and start drilling on this property. Now hopefully, you get the sense that we're buying very interesting things and over -- I think, the -- if I take a step back and actually analyze these transactions, what we effectively did was purchase some equity in each of these companies. When you add up the total amount of -- that we paid for all the royalties plus all of the equity, it adds up to approximately $4 million. And one of the things that, I think, it's particularly interesting is that despite the fact that the markets have dropped precipitously over the last couple of months, the equity that we bought in these companies today is worth more than $4 million, which means we've effectively gotten all 8 of these royalties on massive land packages for effectively free. And it's something that, I think, is an important part of our business strategy. I know that moving forward, we have a number of substantial deals in our pipeline that we hope to close before year-end that will be near term, cash flowing things. And we know we're very focused on increasing our cash flow and doing larger deals. And doing those deals on assets that also have exploration upside. But we're also very excited about the totality of the royalty portfolio that we're assembling, because when investors invest in Sandstorm, what they're effectively getting is a piece of all 189 royalties, all wrapped up into one investment. And we've got a lot of very exciting small things within that portfolio of 189 royalties. So our management team is very excited about the business, the deal pipeline is doing well. Our significant assets are moving forward. We think we're only a few months away from record quarters, and we're few quarters away from record quarters. And so we're very pleased with that. So now I'm going to hand it over to Erfan. And he's going to discuss the financial results. Erfan?
All right. Thank you very much, Nolan, and thanks, again, to everyone, that have joined the call today. We appreciate you taking the time. I'm going to take a few minutes to discuss some of the meaningful financial numbers from the second quarter. I'll talk about how they compared Q2 2017 as well as how we're trending in terms of our outlook for the year. Well, the revenue that was generated from Sandstorm's royalty assets during the quarter totaled $18.9 million. This was the second highest total in company history. On Slide 12, you'll notice a chart comparing some of the key figures from Q2 2018 to Q2 2017, showing that our attributable gold equivalent ounces sold are up by more than 10% when compared to same quarter last year. Solid production numbers combined with an average gold price of more than $1,300 per ounce realized during the period. And it's no surprise that revenue came in strong. The average cost per attributable ounce to Sandstorm was $296, resulting in cash operating margins of more than $1,000 per ounce. After deducting quarterly cash expenses for admin, project evaluation alike, we ended up with $12.3 million in cash flow from operating activities. This $12.3 million figure excludes changes in noncash working capital and is more than $2 million greater than what we posted in Q2 of 2017. This cash flow figure represents the cash that we've been able to direct towards growing the company and building shareholder value. In the last row of the chart on Slide 12, you can see that we've reported about $0.7 million in after-tax net income during the period, an improvement over the second quarter of 2017, primarily due to a nonrecurring middle -- impairment charge that occurred last year. Moving on to Slide 13, we've provided the attributable production and ounces sold for the revenue of the last 4 quarters to give you a sense of how things are trending, and to show how the first half of 2018 compares to the back half of 2017. Things are certainly trending in the right direction, as you can see from the trajectory of this chart, which shows that overall revenue is up 15% and attributable production up 11% compared to the last 6 months of 2017. We've broken out the top royalty contributors by mine on the next slide, Slide 14. As you can see the Santa Elena mine in Mexico took the top spot, delivering approximately 3,000 attributable ounces to Sandstorm during the quarter, a 46% increase compared to Q2 2017. The Chapada mine in Brazil was #2 and also contributed an additional gold equivalent ounces when compared to last year, up about 14%. I won't go through the entire list, but for those of you who aren't aware, almost all of the operations listed here are run by multibillion-dollar mining companies, including the likes of Glencore, Rio Tinto, Yamana Gold and Endeavour Mining. We're very happy with the counter-party strength that underlies our royalty revenue and cash flow. There are few royalty assess that delivered less ounces to Sandstorm than in 2017, which partially offset our growth. One of those assets was a Bachelor Lake mining Québec, due to timing and shipments, ended up delivering 50% less gold when compared to the figures from Q2 2017. Under the current gold stream contract, Sandstorm is due 1,500 ounces from -- gold from Bachelor Lake per quarter, so we expect additional ounces in Q3 to make up the difference. And in fact, we've we actually received those ounces as I speak. Bachelor Lake is owned by a junior mining company called Metanor Resources and in late July, Metanor announced a definitive agreement with Bonterra resources to combine their companies.Metanor's Barry property is adjacent to Bonterra's large land position in urban-Barry camp in Québec, just south of the Osisko's Windfall deposit, which is likely familiar to some of you on the call. The Urban-Barry camp has seen an extraordinary amount of exploration over last 12 to 18 months. And the merger of Metanor and Bonterra puts the combined company in a great position with one of the best land positions in this exciting district. Sandstorm has a royalty on Bonterra's Gladiator deposit as well, so we're keen to watch the combined company progress and expect that with time it will hopefully grow into a multi-asset producer. My last slide provides a regional breakdown of our royalty revenues. The pie chart illustrates that 52% of sandstorms Q2 revenue came from North America, including 28% from Canada and other 24% came from South America and the balance from Africa and Australia. So in the bigger picture, when I put the Q2 results in the context of our outlook and forecast, I'm glad to say that we're on track to meet our 2018 guidance and have narrowed the range of a forecasted attributable ounces sold to 54,000 gold equivalent ounces sold on the low end. And we've left the high-end of our guidance to 60,000 gold equivalent ounces for the year. We've also recently given guidance for 2019 and expect to be in the range of 63,000 to 73,000 gold equivalent ounces growing to 140,000 in 2023. That's all for me this time, now over to you, Dave, for a few asset updates.
Great. Thanks Erfan. So before I get into specific updates on the assets, just want to reiterate what Nolan had said earlier about the pipeline, because it is really probably the most common question that we get. And I'm sure as all of you in the audience know far too well, the poor state of the equity capital markets in the industry today and the poor state capital infusion, in general, to our industry is very pervasive. And so here, at Sandstorm, we're seeing an unprecedented amounts of new opportunities. We're seeing our due diligence and tactical due diligence team stretched to the edges of really being able to find and go through these opportunities as well as our corporate development team. Pipeline is strong, and we're going to do everything we can to sort through to find those quality assets. And it's a tough time for the market, but it's a great time to be sourcing deals. So on first asset, I'll talk about is Black Fox, which is now in the hands of a well-funded management team. Project has been inputting more capital than ever to further exploration and the results to-date have been very worthwhile at cost. The overall budget from McEwen Mining for 2018 exploration is $15 million, both in new targets and infield drilling. As we enter the third quarter, there's going to be particular focus on converting resources, accenting exploration development underground and a focus on the prolific deep central zone, which has produced some of the best drilling on the property to-date. On Slide 17, you can see a few of the ounced, multi-ounced results, over which 2.5 to 7.5 meters. These are all intercepts at depth -- and deep central zone. Drilling has demonstrated, previously, this area of the deposit is tending to have the highest phase over mineable widths, which is very typical of these orogenic deposits in Ontario and Québec. In addition to these hits in deep central zone, McEwen has been having success following up on the Froome Zone. On Slide 18, you can see an image representing the resource at Froome, and also the work that's been completed around it. There's evidence for repetition of the mineralization proximal to the resource in a number of different clusters and also down depth, not going to take that much more additional resource in this area to make it profitable, and it has the potential to provide higher tonnage over the mill. It's great to see that this prospective deposit is receiving the good geologic work that are warrants. Next project, I'd like to give an update on, is the rock door east extension on Slide 19, or more commonly known as Triangle zone, a key part of the Lamaque [indiscernible] start previously owned by a Integra Gold, but now operated by ElDorado. ElDorado has begun developing into the Triangle zone where we hold 2% NSR over about 20% of the resource. We're expecting to begin receiving payments from this royalty this year as a development and soon mining starts in that zone. Over this year, over $120 million has been invested in this project and in 2019 it should take commercial production. We have not integrated any of the revenue from this royalty into our cash flow projections to anything that we receive this year or in the following years will be incremental to the guidance on the production -- of projections that we provide. This is great example of how picking up packages royalties years ago, all of a sudden lead -- begin to lead to payback. Lastly, flip to Slide 20, and I'll discuss some of the latest results at our Bayan Khundii project of Mongolia. They continue to get great drill results on the program, and they're finally getting close to developing a full global resource, and then later, a PEA on the projects. Already, they have come up with a preliminary resource in the north to the Altan Nar project. Soon, they will be looking to develop the resource over the greater project, including the Bayan Khundii, which we believe is going to be pretty significant. But they still continue to hit new results, expand the project and the mineralized body continues to improve and expands from there. So with that, I'm going to pass it over to Leone, the operator, and I think, we'll begin our Q&A session.
[Operator Instructions] Your first question is from, [ Lawrence Staney ], private investor.
The acquisition of those new loyalties, I love the thinking on that. Quick questions. So I know that Nolan alluded to a dividend in the near future, what part of the year next year do you think that might happen?
I loved how you frame that question.
Well, I didn't say what quarter. I'll gave you a little room.
Yes. So we -- it's funny. We're actually right now at a -- we're coming to you on this call from a Board strategy session off-site. And that's on the agenda for tomorrow. So the Board continues to discuss it. And I don't know the answer to that question today, but we're going to continue to refine our thinking, and we will provide more guidance by the end of this year as to timing.
So is it safe to say, sometime next year?
I don't control that decision, so I'm going to refrain from saying yes. But...
All right. That's a bold decision. That's right, it's a bold decision.
Your next question is from John Tumazos from John Tumazos Independent Research.
With the U.S. dollar being a little firm and the gold price softening there, obviously, scenarios in both directions. If gold were to dip to $1,100 or retest the 2015 December lowest -- low $1,100, your opportunities to invest will not only, of course, improve of course, improve, as juniors need, but need more money and have less access to capital markets. What is your program to improve your capital availability as all these wonderful opportunities appear?
Yes. So it's interesting. We actually did some analysis recently. And I think, that's a very good question and something that we spent a lot of time thinking about. .One of the exercises that we recently gone through is we compared ourselves to Franco-Nevada, Royal Gold, Wheaton Precious Metals. And we said, what percentage of their market cap do each of us have in terms of available liquidity. So you take cash available plus any available room on lines of credit. And we're actually above average in terms of available liquidity relative to our size. In addition to that, we have 2 things that are going to be increasing that over time. One is our lending group has indicated to us that we can increase the size of our revolver, if we want to, based on only our existing asset base, and not including any acquisitions. And the acquisitions, if they are large ones, but, obviously, come with their own credit capacity. And secondly, we have more cash flow coming in as a percentage of our market cap than any of our peers. That's partially because our valuation is lower relative to theirs. And over the next couple of years, we also have some warrants that had been issued years ago. And it's interesting, the warrant holders have already shorted most of those shares into the market. So wouldn't actually -- when they get exercised, it's not going to be a net new issuance of shares of the market because it have already been effectively presold through a short sale. But that will bring in another $80 million. So we think we have a lot of capital to grow even if gold prices stay low. I think, for me, the question is gold prices do test lows, which I don't think they're going to, but if they do, the challenge will be how much capital do we allocate to buying really smart, undervalued, acquisitions versus buying back our own shares. Because in those markets share prices tend to get undervalued. So that'll be the tough thing that we struggle with.
So Nolan, if I could follow up, how much is the cash in from the warrant exercise?
If they all get exercised it should be about $80 million, they all have different exercise prices. The highest series is at $450 million, so it's basically right close to at the -- USD 450 million. So it's very close to at the money right now and the rest of them right in the money.
And how much is the unused credit lines?
Probably, USD 150 million. And I think we could increase that to USD 200 million, if we wanted to.
That gets us to $280 million. And I guess, the cash flow is roughly about $10 million a quarter, maybe a little more. So it sounds like you have so many good opportunities that maybe you should procrastinate instituting a dividend. And these geologists that need their prospecting money or development money, you're probably more undervalued than Sandstorm, so should we be basically expecting that there's going to be $300 million or $400 million invested in the next year or 2. And you're going to really grow your asset base?
We definitely are really going to grow our asset base.One thing that I've always been hesitant to do, because I can't control the markets, and they can change fast is to start predicting how much capital we're going to allocate over any individual period of time. But as Dave said, the technical team is working overtime right now, trying to assist with all the things that are coming into -- they help us try to find the best things to buy, and we will be working hard to do that.
[Operator Instructions] There are no further questions at this time. Please proceed.
Well thanks, operator, and thanks, everyone, for calling in today. And as normal feel free to follow up with our Sydney office either by e-mail or phone, and we'll answer any other further questions that you have. Hope everyone has a good day. Thank you.
Ladies and gentleman, this concludes your conference call today. We thank you for participating, and ask that you please disconnect your lines.