Sandstorm Gold Ltd. is a Canadian company that provides funding to mining companies in exchange for royalties, principally in the form of net smelter returns, Volumetric production payments or royalties and streaming contracts. The company focuses on precious metals.
It works like this: contracts are made with companies involved in mineral exploration or mine development; as an alternative to debt financing or issuing additional shares, the mining company seeking capital funding may agree to a contract with the royalty company to pay a percentage of its future income or products from the mine.
For example, in Q1 2017 Sandstorm acquired 22 new net smelter return royalties for US$1.9 million. The Company completed transactions with multiple junior mining companies including Kivalliq Energy, Evrim Resources, Tower Resources, Copper Fox Metals, Millrock Resources and Condor Resources.
Sandstorm currently holds around 200 royalty streaming contracts with only 24 currently in production, this means sandstorms best days are still ahead as more of its 200 royalty streams start producing.
Nolan Watson founded sandstorm in 2007 and is currently its CEO, before this he was CFO of Wheaton precious metals which has a similar business model to Sandstorm, Nolan has proven himself quite well in the industry so far and we have high expectations for him going forward.
We like Gold royalty streaming businesses as an investment, royalty streaming businesses have a high profit margin when compared to the producing mining companies themselves, they simply provide the capital in exchange for a percentage of the product from the mine, so their costs are limited to their cost of capital and the basic administrative costs of their business.
In a bull market royalty streaming income and profitability goes up rapidly while all in costs of the business remain the same leading to great financials and a great return for early shareholders.
We especially like sandstorms future outlook with more or its royalty streams coming online relatively soon. Sandstorms share price hasn’t moved up as much as many in the last year or so, so perhaps it could still be considered a relative value buy.
We recommend buying shares in sandstorm gold either on The TSX under the ticker symbol “SSL”or on the NYSE under the ticker symbol “SAND”
Our buy up to price is $14 on the NYSE
We anticipate holding shares in sandstorm for a period measured in years, but will keep an eye on its fundamentals in case anything changes.
Until next time,
Frank
