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Good day. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sandstorm Gold Royalties 2022 Fourth Quarter and Annual Financial 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 of 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, Michelle. Good morning, everyone, and thank you for calling into this 2022, Q4 and year-end earnings call. .
Over the last 12 months, Sandstorm has achieved several transformative milestones, which started with the creation of our strategic partner that we will be growing with Horizon Copper along with the sale of our Hod Maden interest to Horizon and taking back of a pure gold stream of the Hod Maden asset, making Sandstorm a pure-play precious metal streaming company.
And then we finished the year by making acquisitions of approximately $1 billion for new streams and royalties to transform Sandstorm into a world-class streaming company with not only industry-leading diversification but also industry-leading quality with respect to operating costs underlying those mines. It truly was a transformational year. And before I turn it over to Erfan to go through the financial statements, I'll provide a brief corporate update and answer some of the common questions we are getting from shareholders to take a look at where our business is now and where we're going over the next year.
As part of our annual internal process, we make a 1-year budget approved by the Board of Directors for the current year plan, along with a 5-year financial plan based on information from our operating partners. And we have recently completed that internal process, and I'd like to quickly show the graph of what that means in terms of our new portfolio's ability to generate cash flow.
Only 2 years ago, our portfolio is generating $76 million per year before G&A. But you can see here that Sandstorm's portfolio is expected to generate nearly $150 million this year when including repayments by Horizon under its cash suits from Antamina. With this amount growing to over $180 million per year once Greenstone and Hod Maden and a couple of other assets are complete construction. And this is only using $1,750 gold prices, which is not only below the current spot price, but well below what I'm expecting gold prices to increase to over the next several years.
For our Canadian investors, this works out to approximately CAD 0.25 billion a year of cash flow per year. Now as you know, we try to make acquisitions first with available credit before we consider equity, and therefore, we took on some debt to complete these acquisitions in 2022. Originally, we took on over USD 600 million of debt. But then through a combination of a small equity financing and using cash flow from operations, we have already had that debt paid down to approximately $487 million as of today and dropping quickly.
Even with the Fed increasing interest rates and even with those interest rates, if they stay high for another couple of years, you can see on this slide that in the absence of any further gold stream acquisitions, we see debt coming down very quickly and being fully extinguished sometime towards the end of 2026 or beginning of 2027.
And again, this is using $1,750 gold and $375 copper. And if commodity prices stay where they are today or go up, the step will get paid off even more quickly, which is what I expect will happen. Based on the questions that we'll get from shareholders, there are a handful of other items that I'd like to quickly answer and then hand it over to Erfan for the detailed results.
The first of those questions relates to growth or acquisitions versus debt repayment and what is our priority, and what exactly do we see over the next couple of quarters and beyond. To be extremely candid with the bet having hiked interest rates at an unprecedented rate and with them continuing to hike rates, it's my belief that debt repayment is likely the most intelligent allocation of capital.
When I look at our potential acquisitions, there's only 1 small gold stream that we are looking at, which we could do without raising any equity. And outside of that potential gold stream for which I believe the probability of landing is low, we plan on aggressively paying down our debt so that we can both save on interest, but also so that over time, we can recharge our balance sheet.
If 2022 was the year of aggressive transformation, I think 2023 and perhaps 2024 will be the years of calm consolidation, where we take time to pay down our debt, consider the odd small stream to work with Horizon to watch them build themselves up and to start looking at long lead deals together with Horizon for the future.
Such deals, of course, being with Horizon buying copper mining interest and Sandstorm buying gold streams on those mines at the time of acquisition. Speaking of Horizon, that brings me to the next question that investors have been asking, which is when will Horizon complete raising its next $20 million and hand that over to Sandstorm to complete the Antamina transaction, whereby Sandstorm will sell its NPI to Antamina -- on Antamina to Horizon and have Sandstrom take back its silver stream in Antamina at 0.55% NPI royalty on Antamina and the IOU from Horizon. It's my understanding that Horizon has selected a capital provider for the $20 million and is now just working through the details. And as soon as that transaction is closed, Horizon will pay Sandstorm the $20 million, which we will use to repay debt and then the Antamina transaction will automatically be completed as anticipated.
I expect this will take another 1 or 2 months for this to be completed but the closing should be fairly straightforward. And from what I can see, it should be a fairly complete. The third thing I want to talk about, which is not so much a question from investors as it is a statement by me of a commitment to investors with our plan on being much more involved in direct communication and plan of being abnormally candid with how I see things unfolding going forward.
In 2023, [indiscernible] implement some new changes that will result in me providing more information through videos, et cetera, directly to investors as well as more formal feedback mechanisms for investors to provide their thoughts to me and Sandstorm's management team. I won't dwell on this on the earnings call, but we have an incredible investor base that is not only intelligent, it is also diverse in its opinion. I believe our company can and will be better. If I share more regularly, what we are seeing as a management team and what we're thinking about, and if we pay more attention to the variety of feedback that we receive when our investors may disagree, even if they disagree with each other, I believe our management team will make the better decisions that way.
Finally, before I turn it back over to Erfan, I want to make a brief comment about Sandstorm's 2022 share price performance relative to peers and especially relative to our royalty mid-cap peers. A year ago, Sandstrom was the only royalty mid-cap peers trading above NAV, with both triple-play and Cisco trading near or below NAV. As I mentioned, 2022 was a transformative year for Sandstorm, and I'm very proud of what we achieved.
Having said that, Sandstorm is by mile, the largest part of my personal network, and it was disappointing for me and I'm sure for other shareholders to see our peer share prices have outperformed us during 2022. And if you now look at where we are trading relative to them, Sandstorm is the only material precious metals royalty company trading below NAV. Why? As you know, share prices don't only trade on fundamentals, but also trade based on supply and demand of shares. And candidly, the demand for virtually all shares in the world of all companies decreased in 2022 as the Fed started its quantitative tightening and increasing interest rates, and there were a few exceptions. But generally speaking, companies and including Sandstorm and our investors, such as myself, had to take the pain of that decrease spend for shares, resulting in downwards pressure on our share price.
At the same time, Sandstorm had to issue shares for the transactions. For example, when we announced the acquisition of Nomad, despite our shareholders loving this deal and voting overwhelmingly in favor of it, the shares that we issued to Nomad shareholders were almost immediately sold, putting downward pressure on the stock, which was exacerbated when we issued some equities to take pressure off of our debt load, That's a bad news.
The good news is that we have been meeting with a number of what I would call large and fundamental long-term investors over the past 6 months who have been informing us that they have begun building position in Sandstorm, including some very large pension points in Canada as well as some large institutional investors in the U.S. The good news is that they are now a source of demand for our shares going forward, and I can confidently say we do not plan on issuing shares in 2023. So it's my hope that the demand-supply imbalance in Sandstorm shares is in the process of swinging the other way. And I do believe that in the same way we underperformed our peers in 2022, we will equally outperform them in 2023. We built an amazing company over the years, and I'm confident that our share price will begin to reflect that.
And with that, I'll hand it over to Erfan for the detailed results. Erfan?
Thanks, Nolan, and thank you to everyone who is joining us today. 2022 was an exciting and busy year at Sandstorm with some truly transformational corporate help activities. I'd like to take a few moments and walk through the financial results for both the fourth quarter and year-end.
If you're joining us on the webcast today, I'll turn your attention to the first slide where we've charted Sandstorm's year-over-year production and revenue results. I'm pleased to report that in 2022, Sandstorm not only achieved its guidance comfortably but also broke a number of records, including revenue, operating cash flow and attributable gold equivalent production. The company sold over 82,000 gold equivalent ounces and realized revenues of $148.7 million.
Compared to the full year 2021, that's an increase of 22% and 29%, respectively. These increases in production and revenue are reflective of some of the new assets acquired during the year, namely the Nomad Royalty and BaseCore portfolio acquisition. We'll look at the top contributing assets for the year in just a moment. The chart on the right-hand side of this slide highlights the company's average realized selling price of gold per ounce year-over-year.
Despite a struggling commodities market in the latter half of the year, the yearly average of $1,795 per gold ounce is relatively consistent with the past few years. 2022 was certainly an interesting year with rapidly rising interest rates and concerns of an impending recession. I believe that a lot of macroeconomic factors are bullish since for the long-term price of gold. And I rest assured that Sandstorm's strong portfolio is ready to benefit from rising gold and commodity prices.
The next slide provides a bit more detail on the year-end highlights. Total revenue of $148.7 million consisted of $97.8 million in revenue from the company stream sales and $15.9 million from royalty revenue. The average cash cost per attributable ounce for the year was $284, resulting in cash operating margins of $1,511 per attributable ounce. Sandstrom achieved a new record and milestone, generating nearly $110 million in cash flow from operating activities, excluding changes in noncash working capital.
That's a 32% increase from the full year 2021. Annual net income was also a new record for the company, coming in at $78.5 million for the full year. A few factors driving the increase in net income when compared to 2021 included a $25.8 million gain on the disposal of streams, royalty and then interest primarily from the sale of a portfolio to Sandbox Royalty, a new diversified metals royalty company that was created in partnership with Equinox Gold in June 2022.
There is also a $24.9 million gain and a $12.5 million gain, resulting from the sale of the company's equity interest in the Hod Maden project and an Entree resources to Horizon copper. Net income was partially offset by an increase in depletion expense, largely due to an increase in attributable gold production and an increase in financing expense related to the interest paid on the company's revolving credit facility, which was drawn down to finance part of the transactions I mentioned earlier.
Looking at the fourth quarter results, the company sold over 21,700 attributable gold equivalent ounces and realized revenues of $38.4 million. This represents an increase of 31% and 29%, respectively, when compared to the same period in 2021. The average cash cost per attributable ounce for the fourth quarter was $253, resulting in cash operating margins of $1,493 per attributable ounce. Cash flow from operating activities, excluding changes in noncash working capital was nearly $30 million for the quarter.
The company had a net loss of $2.1 million in the fourth quarter, largely driven by an increase in depletion expense and financing expense that I mentioned earlier. On the next slide, we see a breakdown of attributable gold equivalent ounces sold from our top-producing assets over the course of 2022. When we look at this list and see the diversification and quality assets here, I'm encouraged to see how far Sandstorm's portfolio has developed in the last few years.
In fact, nearly 30% of production from these top producing streams and royalties came from assets that Sandstorm purchased within the last 24 months. Our technical and corporate development teams have been working incredibly hard to strengthen Sandstrom's portfolio, not just in terms of overall production, but also in the quality and diversification of the underlying assets.
What I find more exciting is how different this list will look in the next few years. We have several new assets expected being cash flowing to Sandstorm between now and the next few years, including Greenstone and the Platreef project and Hod Maden. These assets, along with others, will further strengthen Sandstrom's production profile. Some of the more recent additions to the list include the Bonikro Blyvoor Gold Stream, the Antamina and Caserones royalties and additional streaming agreement on the Mercedes mine, all of which were acquired as part of the Hod Maden BaseCore transactions.
The 3 months ended December 31 was the full first quarter that these assets were cash flowing to sandstone post the closing of the transaction. Sandstorm continues to receive the full payment from the 1.66% Antamina NPI royalty until the second part of the Horizon copper transaction complete, which, as Nolan mentioned earlier, expect to occur in the first half of this year. Once the transaction is complete, Sandstorm will hold a 1.66% silver stream with Horizon copper on the Antamina asset as well as 1/3 of the residual NPI royalty.
This final slide provides the breakdown of the company's 2022 production in terms of jurisdiction and commodity type. 37% of attributable gold equivalent production came from assets located in North America, where 16% located in Canada, nearly half of Sandstorm production came from assets located in South America with the remaining production coming from assets in other parts of the world.
Sandstorm retains the precious metal focused company with 70% of its 2022 production coming from precious metals. We continue to have good exposure to copper as well, making up the majority of the [indiscernible] 25% gold equivalent production from assets. Based on the company's existing streams and royalties, we are forecasting attributable gold ounces of between 85,000 and 100,000 ounces in 2023.
And with that, I'll turn things over to Dave for updates on some of our assets. Dave?
Great. Thanks, Erfan. For this quarter, I thought it would be interesting to take a look at the development pipeline and the amount of capital being put into some of the larger and smaller projects of our partners.
On Slide 15, you'll see a list of assets that are currently being built or commissioned. We'll also see the total capital to be spent on those projects until they start producing and the date of the expected start. As a reminder, Sandstorm has made all of its payments for this list of development assets and now awaits the beginning of cash flow. The first thing that should be noticed from the list is the number of assets that are hovering at or above the $1 billion mark of total capital cost. Being Equinox' Greenstone just gave a recent update that they are 70% completion rate with the first production expected in just about 1 year's time. Ivanhoe has given an update on capital spending on Phase I of Platreef and that is expected to begin to operate in 2024, but are also beginning Phase II expansion of the project by started construction of Shaft 2. And of course, Oyu Tolgoi now fully in the hands of Rio Tinto continues to develop on the Block Caves lift 0 and 1 on Hugo North, eventually making it to the Hugo North Extension of the JB ground in 2027, 2028.
No less important than these, but much lower overall CapEx spend is Hod Maden, which continues down the early works projects. Having received full permits for construction, the operators are looking to finalize the project financing and complete the last of the property acquisition were acquired for the mill site construction. Robertson in the Cortez trends in the hands of Nevada Gold Mines doesn't specify the amount of capital being spent, but the project adjacent to current pipeline operations continues to grow with current resources of greater 2 million ounces and potential for more than 1 million ounces on top of that. And has a schedule of getting into production that it permits in 2027. Not to be forgotten are some of the smaller projects, like Coringa, which began to pay on the royalty late last year and have some very high-grade underground systems that may have good potential for long life.
Also in this category is buying Hounde, which has now found a good Mongolian partner to help develop a monetized project but will likely be quite profitable, and we believe could extend its mine life rather dramatically over time. I guess the point that I'm trying to make with this list is that there are multiple billions of dollars being spent on our pipeline of growth.
And for us, that pipeline is already paid for, but we still get the benefit of our partners, building these very high-quality projects that will add to our already impressive portfolio. Not included on this list are other assets like , Copper Mountain, Chapada Suruca deposit and the MARA project. Each one of these assets are expected to start producing on a royalty or scheming area of interest but have yet to solidify time lines, yet each should be significant contributors to Sandstorm's future cash flows.
That's the benefit of owning a company like Sandstorm, the diversity and breadth of our portfolio is so extensive that there are always huge sums of capital being spent to progress the asset base to or to production. A huge testament to the effectiveness of the strategy we have pursued to grow the company.
So with that, I'll pass over the call to Michelle, the operator, for Q&A. Please feel free to ask any questions about any of our royalties and streams.
[Operator Instructions]. First question comes from Derick Ma, TD Securities.
I'm looking at the 4-year outlook one of your presentations. And we have 140,000 ounces GEOs in 2025, but then a step down to 122,000 in 2026. Appreciating that has likely changed by the time we get there, but could you walk us through what's behind the trough off in 2026?
Yes, it's Nolan here. There's a handful of smaller things that are some of our shorter-life mines. I mean, right now, our average mine life is getting close to 20 years, so that's comprised of really long mine life and some shorter ones and a few of the shorter ones drop off in those years. And that little bit of an expected step down in [indiscernible].
Okay. And is included in that for your outlook?
Sorry, couldn't hear that.
Sorry, is included in that for your outlook?
No, it's not. No, it's not.
Okay. If you ask another question, a lot of your competitors have been talking about bilateral deals. Can you talk about the role of bilateral discussions in your strategy and pipeline? And how you could leverage your partnerships with Horizon and Sandbox as part of those discussions? .
Yes. So I guess if I understand you correctly, you're asking sort of our strategic partners, including Horizon and what the role would be for those transactions. If I were to broadly classify the type of competition that we see in our industry, I would say it's fairly high typical IRRs for just [indiscernible] streams that are highly competitive or fairly low that our counterparties are doing.
I don't believe that that's a good business model to just sit there and play the game of highest bidder wins, therefore, lowest IRR wins. Our job as a management team is to get good rates of return for our shareholders in a long period of time. And so we're trying to work hard with bilateral partners, Horizon specifically to find situations where they can go out and acquire a strategic line.
And we can be a large source of capital to allow them to do that, but ask just buying the gold stream at the time of acquisition, and then we'll be working hand in hand with them where they will not be phoning [indiscernible] of that or Royal Gold or Region or the other party, so that the rate of return that we would get would be much higher than the average rate of return on pure gold streams that our partners -- that our competitors are getting in the industry. So that's the plan.
And is the expectation that those would be near production assets or development assets?
Yes. I would say virtually all of the things that we're looking at are assets that are currently operating. .
[Operator Instructions]. There are no further questions at this time. I'll turn the call back to you for closing remarks.
All right. Well, thank you, Michelle. Thanks, everyone, for phoning in again, and I appreciate it's a busy morning with our earnings call. So I appreciate you calling in. And I hope everyone has a good day. And likewise, we'll be here to answer questions if anyone has any follow-up questions throughout today. .
Ladies and gentlemen, this does conclude your conference call for today. We thank you for your participation, and ask that you please disconnect your lines.