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Good afternoon. My name is Jenny, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sandstorm Gold Royalties 2023 Second Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise.
Please be aware that some of the commentaries 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].
Thank you. Mr. Watson, you may begin your conference.
Thank you, Jenny and good morning everyone. And thanks for calling into this Q2 earnings call. Shortly I'll hand it over to Erfan to discuss the Q2 results. But before I do that, I'd like to provide a corporate update and specifically briefly talk about five things being, one Sandstorm's updated production guidance methodology. Two, the sale by Glencore and Yamana of Pan American of the Sandstorm shares. Three share buybacks. Four, production growth. And five, debt repayment.
So starting with our updated production guidance methodology. Over the last couple of months, I've had some conversations with larger investors. And it's clear to me that our updated production guidance methodology is not yet fully understood, especially as it relates to how we have historically made our guidance, and how our royalty peer companies have guided the market.
Sandstorm and our peer companies have a challenge that when we are guiding future production, we have a large portfolio of royalties on development stage mines, and we have to make an educated guess as to which mines will be in production in the future. When you're projecting four years out, that can be hard to do if you have dozens of mines that have a chance of going into production. But on the balance of probabilities, many of them won't for various reasons, often relating to financing or permits.
Historically, Sandstorm and its mining [ph] peers, as well as smaller royalty companies have showed forward guidance that includes mines that in reality have a lower chance of getting into production soon, although they may well produce sometime in the future. The future guidance in this case is more of a statement of if everything goes perfect, and these mines and companies get the permits and the money they need, then this is what our production would be, when in reality, everything isn't going to go perfect.
This year, we made the decision to go to more of a meaningful measure of forward guidance and only include mines that are permitted or effectively permitted in the hands of companies that will definitely build or are actually building the mines, and who have almost certain access to the capital to build those mines. For example, if it's a permanent mine, but it's sitting in a company with only $100 million market cap and the CapEx for the mine is $300 million, we will not include that production in our guidance.
Fortunately for Sandstorm, we can show over 30% growth in production to 125,000 ounces per year by 2027 from assets we already have purchased, and mines that are already in construction or going into construction imminently, with the four primary mines being Greenstone, currently being built by Equinox, Platreef, which is currently being built by Ivanhoe, Hod Maden, which is going into construction next year by SSR, and the Robertson Mine, which is part of the Cortez trend and is being built by Barrick.
These are all impressive mines and important part of Sandstorm's future. The point I'm trying to make though, is that we may have other things. And in some cases, likely will have new mines come online that will happen, that will cause the production to be even higher than our guidance. And we have a list of those things in our corporate presentation, in our production chart slides. Those are all upside to our guidance. One such potential upside that I think is worth mentioning, is that we have an option to purchase a gold stream of 20% of gold produced at the MARA Project for $225 million.
As some of you may have seen this week Glencore just announced that it's purchasing the remaining 56% interest in MARA for $0.5 billion. Many people have assumed that this asset won't go into production anytime soon. It's not in our guidance. However, Glencore is a very intelligent mining company, and their purchase of this interest suggests to me that this project will be moving forward more quickly than people anticipate. That would further increase Sandstorm's production guidance beyond our current guidance numbers.
Moving on to the second topic, as many of you are aware, in the last quarter, we had to absorb $100 million of share sales. Within a one month period, both Pan American, who received Sandstorm shares when they acquired Yamana and Glencore who received Sandstorm shares in the BaseCore transaction both respectively sold for Sandstorm shares. We do have some insight into the buyers of those shares, who for the most part were long term large institutional investors. And so those shares have found their way into stronger hands. A few of the buyers of those shares were more short-term oriented funds. And when gold prices started dropping, they decided to sell them.
Which leads me to my third point of discussion being share buybacks. Fortunately for us, we had our share repurchase program in place and we were able to buy some shares at low prices, and we cancelled those shares and have tightened up our share structure a bit. Over the last quarter we purchased around 2.6 million shares. In addition, during the quarter, we had a very odd trading day on June 12, when we were notified by ICE Data Indices, the Index Manager for the NYSE Arca Index, they were unexpectedly removing Sandstorm from the index.
I spent the entire day reaching out to them and explaining that they clearly made a calculation error, literally a mistake. And at the end of the day, they announced they were reversing their decision, and we were appropriately -- we were appropriately put back into the Index. However, during the trading day, we traded nearly 19 million shares. And at some points were down over 10%. Again, fortunately for us, we had our share buyback program in place and we were able to buy the maximum allowable number of daily shares at a very cheap price on that day. It wasn't a fun day, but it worked out well in the end.
On a side note, we do have some insight into the fund that stepped in big and bought shares on that day, and they're great long term funds. So at the end of the day, we ended up with a stronger, better shareholder base and fewer shares outstanding.
The fourth topic I want to talk about, because I always get this question from investors is about growth. The point I want to make will be brief because it's simple. And it leads into my last topic of discussion. We have already bought our growth. Last year, we acquired a $1 billion worth of new streams and royalties, much of which is for mines that are in construction now. Those purchases are our future growth. And we have the MARA Stream option and a number of other potential development assets in the portfolio. We make no new acquisitions. We have a lot of solid, high confidence growth built in.
In order to get that growth we had to take on debt last year, which leads me to my last point, debt reduction. At the peak of last year if you took our debt, plus payments we have yet to make on streams that have been purchased by Nomad but not yet paid for such as Greenstone and Platreef, our debt or amounts Owed was close to $625 million. We have been diligently bringing that down. And we stand here today with net debt below $460 million. So it's come down massively.
You can see here on this chart, it shows that if we don't make any further acquisitions, and depending on the gold price, the debt will get to zero sometime in 2027. Now we have a revolving facility of $625 million that we can draw on for future acquisitions, but with interest rates where they are today, the most likely outcome is we will keep paying that down to save on interest.
I think it's also worth noting that sometimes in the past, we have purchased a gold stream, we may have lent a mining company money or in the case of the sale of the Antamina NPI to Horizon, one of the things we took back was a loan that was a cash loan [ph] on the NPI cash flows. And therefore Sandstorm has a portfolio of loans to other mining companies from which we receive interest income on. In total, the mark-to-market value of those loans that we have made is $234 million.
If you take Sandstorm's net bank debt of around $457 million, which has an interest expense to us, and you net that debt against the loans we have made to other companies which yield income to us, the net interest isn't that bad. Having said that our business is doing well. Our cash flows are strong, and we will be applying those cash flows against our debt as our first capital allocation priority.
It's very exciting to be in this position today with a strong portfolio, four amazing mines being constructed, and with debt falling rapidly. Quarter by quarter Sandstorm is becoming a bigger, stronger and more stable company.
With that, I'll hand it over to Erfan for the detail on the results.
Thanks, Nolan. It was another strong quarter in terms of financial results for the company. We set another record in quarterly revenues at $49.8 million, with attributable gold equivalent production of over 24,500 ounces in the second quarter, and nearly 53,000 ounces in the first half of 2023. Sandstorm is on track to comfortably achieve its production guidance of between 90,000 and 100,000 attributable ounces this year.
Our gold and silver prices during the second quarter helped boost revenues and the company realized an average gold price of $1,972 per equivalent ounce. This resulted in cash operating margins of $1,744 per attributable ounce sold. Comparing the three months ended June 30, 2023, to the comparable period in 2022, gold revenues and attributable gold equivalent production increased by 39% and 27% respectively. The increase in production and revenues was primarily driven by the assets added to Sandstorm's portfolio in the second half of 2022 via the Nomad and BaseCore transactions, as well as an increase in the average realized price of gold.
The average cash cost per attributable ounce in the second quarter of '20 [ph] was $228, a 16% decrease compared to the same period in 2022, contributing to the strong cash operating margins that I mentioned earlier. As a result, the company had record cash flows from operating activities of $42.1 million or $38 million in operating cash flows excluding changes in non-cash working capital. These cash flows and the strong margins that underlay them really highlight the benefit of the royalty model business.
Over the last 12 months, we've added considerable scale to Sandstorm's cash flowing royalty portfolio, while also increasing our operating margins. Even in a high inflationary environment, Sandstorm continues to turn out exceptional operating results.
Net income for the three month period was $2.7 million compared to $39.7 million in the comparable period of 2022. This change was driven by approximately $35 million gains recognized in the second quarter of 2022, related to the sale of a portfolio of royalties, the Sandbox Royalties and the sale of the company's equity interest in Entrée Resources to Horizon Copper.
On the next slide, is a breakdown of attributable gold equivalent production sold from the company's top assets. At the top of the list, we have the Mercedes Mine in Mexico at almost 4,100 attributable ounces sold. Sandstone required a gold stream on Mercedes in April 2022, which pays fixed deliveries until nearly 30,000 ounces have been delivered, while in the Nomad acquisition last year, the company also acquired a silver stream on the asset along with fixed additional deliveries.
The AMORO [ph] continues to be a strong contributor to Sandstone production profile with over 3,300 attributable gold equivalent ounces sold during the quarter. July and August mark one year since the completion of the BaseCore and Nomad acquisitions respectively. As I look at the contributing assets on this list and compare it to this time last year, it's great to see so many significant cash flowing streams and royalties from those acquisitions, Antamina, Caserones, Bonikro, Blyvoor are just some of the assets that are contributing meaningful cash flow to Sandstorm this year, with many more in development.
Speaking of Antamina, in June, Sandstrom completed the final component of its transaction with Horizon Copper, whereby Sandstorm sold a portion of its net profits interest on the Antamina copper mine. In consideration for the NPI Sandstrom received a 1.66% stream on the silver produced at Antamina, as well as a $20 million cash payment, plus a combination of debt and equity and retained a portion of the NPI as a residual royalty. The cash received from this transaction contributed to strong quarterly cash flows that I mentioned earlier that helped further pay down the company's debt balance, while also investing in share buybacks Nolan discussed.
Operations in the Americas contribute significantly in terms of the majority of gold equivalent production to Sandstorm at 86% in the second quarter. Compared to the same period in 2022, attributed production from mines in North and South America is up 37% and 18% respectively. This is largely due to the regional exposure from mines acquired in 2022. Sandstorm remains a precious metal focused company. During the second quarter, approximately 75% of attributable production came from precious metals, and of the 25% production that came from base metals, about 20% was in copper.
And with that, I'll turn it over to Dave for updates on some of our development assets.
Great, thanks, Erfan. For the asset update today, I'd like to speak about two of the biggest development projects in the portfolio, and a few smaller updates.
Starting with Platreef and the fantastic progress towards phase one production, which is still expected for Q3 2024. Concentrator is well as schedule with much of the concrete work completed. 70% of all the orders for phase one mill have been placed with greater than 10% of the steelwork erected to date. And the groundwork has been focused on lateral development to the high grade Platreef ore body on three different levels. More than 2,000 meters of development has been completed today, with the cumulative advance rate expected to increase in September from 200 to 300 meters per day, and again, up to 500 meters per day by January 2024.
The 10 meter diameter shaft two for phase two mining continues to be advancing, and is expected to operate at 8 million tonnes per annum hoisting capacity by 2027. Once completed, the headframe will be approximately 100 meters tall. This will be among the largest hoisting shafts in the world.
As part of the optimization work, Ivanhoe is looking to convert a previously installed vent shaft into shaft three to accelerate underground mining activities associated with phase two. The existing shaft is currently being reamed to 5.1 meter in diameter, and is planned to have this project completed by Q4 2023. And it will be planned and be equipped with a winder and the appropriate headgear on it. As phase one and phase two move towards completion, management at Ivanhoe is speaking more and more about a potential phase three, which would take the mine up to 12 million tonnes per annum. Stay tuned for updates on that timeline.
Moving on to Oyu Tolgoi and the joint venture ground which we hold a couple of streams. Just over three weeks ago, Rio Tinto hosted an investor site visit which focused on the underground progress on the asset since their takeover of Turquoise Hill. The operations continue to improve every year as they work to transition to underground operations for most of the supply of ore for the rest of the life of mine.
Shaft three and four are increasing seeking rates and the concentrator conversion is making progress with completion expected in each one in 2025. The 7.8 kilometer long conveyor to surface is well on track and expected to be completed in H2 2024. According to their presentation, the Oyu Tolgoi team has exceeded planned performance in almost all productivity and production metrics, including development meters and hoisted tonnes. Project is finally hitting its stride as it pushes hard to production from the block cave.
This all points to positive progress optimizing the plans to mine into panel one of lift one, which is where Sandstone gold and copper stream apply. With the latest update from Rio [ph] it looks like access to the ore from that panel may be moved up as much as one year possibly two. Another important note from site visit was the focus on Hugo North Lift 2. As you can see on this slide the 3d view of the reserves and resources of Oyu Tolgoi, there are enormous amounts of resources in the salmon color compared to the relatively small reserves in red. But without conversion to reserves you can already see in the light gray that Rio has already worked on the development design of lift 2.
They have said that the new resource model can be expected by mid-2024 and an order of magnitude study to be commenced this year. Rio is keen to continue to fill the mill beyond 2043. This update, along with the Mongolian Prime Minister's optimistic comments on his recent trip to Washington DC regarding the near resolution on the ongoing tax issues with Rio Tinto leads us to believe that Oyu Tolgoi is in very positive position compared to just a few years ago. The progress at Oyu Tolgoi is feeling very tangible now.
So before I hand over for the Q&A, I thought it might be worth adding on to really what Nolan said earlier about the consolidation of the MARA project fully into the hands of Glencore. They've moved really quickly consolidate the ownership from Newmont and now Pan America. And we are hoping they're pushing this project to development. We'll see if Glencore has an update on timing of this project before the end of the year.
Also worth mentioning is a congratulations to Lundin Gold on the amazing initial results of the 43,000 meter drill program at Fruta del Norte. Just yesterday, they released assay results from the conversion program that were well above the current grade, but also results from FDN South, and [indiscernible] that are in line with the grades achieved at Fruta itself.
So with that, I'll pass over the call to Jenny, the operator for Q&A. Please feel free to ask questions about any of our streams and royalties.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. [Operator Instructions]. Your first question is from Josh Wolfson from RBC Capital Markets. Please ask your question.
Thank you very much. First question, most of my questions, I should say have to do with the capital allocation side of things. In addition to the $12 million of upstream investments, there is also a $12 million investment, tied to acquisition of investments and other assets. Are there any disclosures that can be provided what those investments were for the quarter?
We made a few small investments in various things that are not being disclosed at this point. But I think in terms of capital allocation going forward, it's important to note that I recently did a large round of marketing talking to institutional investors. And prior to that round of marketing was sort of thinking, to my mind, we'd be allocating future capital, probably 70% to debt reduction and 30% share buybacks. And the overwhelming message that came back to me from our large investors is not just, don't worry about your buybacks so much, just pay down debt as fast as you can, because interest rates are high.
And so capital allocation going forward, I don't think you'll see us doing any of these smaller deals per se, and fewer share buybacks and really just whacking down the debt.
Okay. Yeah, I would just sort of -- this isn't so much a question more a confirmation, an $8 million debt repayment this quarter is relatively light versus, the debt load and the cash generation and the debt could be repaid by 2027. Our forecasts agree with that, but will take significantly longer maybe a decade or more if the current pace of debt repayment was extrapolated. So I look forward to next quarter's update. Thank you.
Yeah, yeah. And then just to emphasize next -- it's all going to debt repayment at the moment, everything.
Thank you. Your next question is from Heiko Ihle from H.C. Wainwright. Please ask your question.
Hey, guys. This is Marcus Giannini calling in for Heiko. Thanks for taking our questions. You sort of touched on the capital allocation question we had in terms of, share repurchases versus dividends. I guess to tweak that question a bit, going forward. Debt repayment is a priority. And so in effect will the share repurchase program slow down, and what effect will the dividend program be change, based on that near term goal.
We don't have any plans to change the dividend policy, once we put we said when we put the data into place, it's going to maintain and stay in place as is and then we'll evaluate once a year, whether or not it makes sense to raise the dividend at the end of the year. I think with debt levels, where they are with interest rates where they are, we'll probably just continue to keep that steady for the meantime, until either interest rates are coming down or debt comes down or both.
And in terms of debt reduction versus share buybacks, we are prioritizing the vast majority of our capital to debt reduction, just because interest rates are so high. And we're not worried about our debt levels at all. But interest rates are generational highs, and we want to save the money.
Okay, yeah, makes sense. And then speaking of using funds, this may be more of a question for Erfan. You're at $9.1 million in cash the end of June, slightly off compared to the $7 million at the end of 2022. The figure still isn't all that high. Obviously, your actual liquidity is much higher given your working capital and revolver. But at what point do you get a little concerned with actual cash on the balance sheet? Is there a minimum cash figure you simply cannot or will not go under?
Yeah, thanks for the question. There's no hard rule. There's no specific reason why you keep a certain level of balance, some of its just working capital, some of its paying for stream deliveries and timing of deliveries associated with it. It has to do with also quarter end where we expect payments of receivables coming but there's no covenant requirements in terms of minimum cash balances or otherwise. But you'll just see us maintain low levels of cash and just save interest on the debt that we have outstanding.
That's why it's actually one of the benefits of being a streaming royalty company with a business model. The way that contracts are structured is that when G&A is so immaterial to the company, you don't really need to keep much cash on hand. And when we get -- our main cash outflow items are paying for the gold that is delivered to us under streams. But the way our contracts are structured is we get the gold and we sell it and we get the revenue before we have to pay for it.
So you never have to keep cash on hand to buy the gold and then sell it because you sell the gold and then buy it.
Okay, perfect. Now that makes sense. Thanks for taking our questions.
Thank you. [Operator Instructions] Your next question is from Derick Ma from TD Securities. Please ask your question.
Hi, thank you for taking my question and apologize if these questions were answered. I was dropped at the beginning of Q&A. But could you speak to the rationale on why the company re-established the ATM program and how it intends to use ATM going forward?
Yeah, no, that's a great question. I'm glad you brought it up. So years ago, the Board of Directors decided that it was prudent to always have the flexibility to have a share buyback program in place simultaneously with an ATM to give maximum flexibility, just in case. We have never ever used our ATM in the several years that we've had in place, including to this day, we've never used our ATM. It is there in sort of a break glass in case of emergency scenario, and we have no plans to use it.
Okay, great. And then just a couple points of clarification on the MARA stream option, if I could. The conversion granted 20% gold stream on the entire project or just a portion of the project?
The whole project.
The entire project. And is there an expiration, an expiry date on the option and terms that govern when you can actually exercise that option?
There's no calendar-based expiration date on the option. The option is given to us at a point in time when they make their Board decision to construct the mine and have financing. That's when we get the phone call to say do you elect yes or no? If we elect, yes, then we're in and then we pay over time as they built the mine.
Got it. Thank you very much.
Thank you. [Operator Instructions]
All right. Well, if there are no more questions, I think we can end the call and I appreciate everybody calling in. And as always we're around to answer questions that people may have as follow-up questions. So thank you. Have a great day.
Thank you. Ladies and gentleman, the conference has now ended. Thank you all for joining. You may all disconnect.