2023-08-14 11:54:01 ET
Summary
- Sandstorm Gold's Q2 2023 results showed solid performance, with gold equivalent production of 24,504 ounces and high revenues of $49.84 million.
- The company's expansion strategy has not been well-received by investors, leading to a decline in stock performance compared to its peers.
- Sandstorm Gold's cash position was $24.95 million with a debt of $467 million, and it expects 90K to 100K gold equivalent ounces in 2023.
- I recommend buying SAND between $5.29 and $5.00, with potential lower support at $4.85.
Introduction
Vancouver-based Sandstorm Gold Ltd. ( SAND) released its second quarter 2023 results on August 3, 2023.
Note: This article updates my previous articles on Sandstorm Gold, published on June 16 and July 10, 2023 . I have been following SAND quarterly results since 2015.
As of June 30, 2023, Sandstorm's portfolio totals 250 streams and royalties, of which 39 of the underlying assets are cash-flowing, with no asset contributing more than 15% to the Company's consensus net asset value.
Note: In June 2023, Sandstorm closed the final component of its previously announced arrangement with Horizon Copper Corp. to sell a portion of the Company's Antamina royalty in consideration for a silver stream, debt, equity, and cash.
1 - 2Q23 Results Snapshot
It was another solid quarter but a bit lower than I expected, with a significant gold equivalent production of 24,504 Au Eq. Oz (19,276 Au Eq. Oz last year) and high revenues of $49.84 million, with $31.269 million in sales and $18.566 million in royalty.
The average GEO price increased this quarter from $1,866 per ounce in 2Q22 to $1,972 per ounce .
The average cash costs for the three months ended June 30, 2023, were $228 per Attributable Gold Equivalent ounce.
Net income was $2.05 million or $0.01 per share in 2Q23, compared to an income of $39.70 million in the comparable quarter a year ago.
Below: SAND Quarterly Gold Equivalent Production per Mine - 1Q23 versus 2Q23
SAND Quarterly Production per Mine 1Q23 versus 2Q23 (Fun Trading)
As we can see, Chapada, Cerro Moro, and Antamina, among others, were down nearly 14% this quarter. Production was lower than my 25.5K GEOs expected, even if the drop in production sequentially can be explained in part by approximately 5.3K GEOs benefit received in 1Q23 from the Mt. Hamilton one-time payment of $10 million.
Also, Relief Canyon production was 2,952 GEOs in 2Q23, including the 1Q23 production.
2 - Investment Thesis
I have never been a fan of the expansion strategy promoted by SAND management for many years.
It is dazzling and impressive on paper, but from an investor's perspective, it has provided nothing positive. A simple look at the chart shows what I mean. Since November 2020, SAND had a significant descending trend with lower lows.
A possible winning strategy is to trade LIFO about 60% of your entire position.
However, I recommend starting a medium-term SAND position and trading LIFO, expecting lower lows for new investors who want to try the streaming and royalty segment. SAND seems quite low now and may soon find solid support.
3 - Stock Performance - Worse performance amongst its peers.
Sandstorm Gold is still lagging behind its peers and is down 17% on a one-year basis. It seems that the market is not convinced by the company's expansion strategy and is waiting until SAND shows a fundamental turnaround, illustrated by stronger quarterly production.
Sandstorm Gold - Financial Results history Snapshot ending 2Q23 - The Raw Numbers
Note: All numbers are in US$.
Sandstorm Gold | 2Q22 | 3Q22 | 4Q22 | 1Q23 | 2Q23 |
Revenues in | 35.97 | 38.95 | 38.45 | 43.98/53.98* | 49.84 |
Net Income to shareholders in | 39.70 | 31.68 | -2.36 | 15.67 | 2.05 |
EBITDA in $ million | 56.19 | 53.02 | 30.36 | 43.77 | 33.30 |
EPS Diluted | 0.20 | 0.13 | -0.05 | 0.05 | 0.01 |
Cash From Operating Activities in $ million | 33.20 | 25.09 | 26.27 | 39.92 | 42.14 |
CAPEX in | 40.02 | 489.01 | 88.65 | 3.35 | 11.83 |
FCF in | -6.82 | -463.92 | -62.38 | 36.57 | 30.32 |
Total cash in $ million (incl. short-term note) | 23.83 | 12.56 | 10.80 | 7.92 | 24.95 |
Bank Debt in $ million | 0.0 | 524.0 | 497.5 | 475.0 | 467.0 |
Shares outstanding diluted in millions | 195.40 | 244.75 | 301.28 | 301.26 | 300.67 |
Dividend per share in $ | 0.015 | 0.015 | 0.015 | 0.015 | 0.015 |
Production | 2Q22 | 3Q22 | 4Q22 | 1Q23 | 2Q23 |
In K Au Eq. | 19.3 | 22.61 | 21.75 | 28.37 | 24.50 |
Gold price | 1,866 | 1,706 | 1,746 | 1,882 | 1,972 |
Source: Company report analysis by Fun Trading (data are available since 2015 only for subscribers).
* $10.0 million in contractual income from stream, royalty, and other interests due to a contractual payment relating to the Mt. Hamilton royalty during the three months ended March 31, 2023.
Part I - Balance Sheet Details
1 - Quarterly Revenues and Trends: Total Revenues of $49.84 Million in 2Q23
SAND Quarterly Revenue History (Fun Trading)
Sandstorm Gold posted revenues of $49.84 million for the three months that ended June 30, 2023, compared with $35.97 million for the comparable period in 2022.
The net income was $2.05 million in 2Q23, or $0.01 per diluted share, compared to an income of $39.70 million or $0.20 per diluted share in the same quarter a year ago.
The cash costs per ounce are down to $228 per ounce , resulting in cash operating margins of $1,744 per ounce for the second quarter. Good progress this quarter compared with the $273 per ounce in 2Q22.
SAND Quarterly Cash Cost History (Fun Trading)
2 - Free Cash Flow was $30.32 Million in 2Q23
SAND Quarterly Free Cash Flow History (Fun Trading)
Note: Generic free cash flow is cash from operating activities minus CapEx.
The free cash flow was $30.32 million in the second quarter of 2023, and the trailing 12-month free cash flow was a loss of $459.41 million.
The quarterly dividend is now $0.015 per share or a dividend yield of 1.1%
Also, the company said that during the six months ended June 30, 2023, it purchased and canceled approximately 2.8 million common shares for a total consideration of $14.2 million . The share buyback program is making no sense to me.
3 - Total Shares Outstanding Diluted are Still Above 300 Million Now.
SAND Quarterly Shares Outstanding History (Fun Trading)
A potential dilution is coming. The company said in the financial statement:
In June 2023, the Company re-established an at-the-market equity program (the "ATM Program") whereby the Company is permitted to issue up to an aggregate of $150 million worth of common shares from treasury at prevailing market prices to the public through the Toronto Stock Exchange, the New York Stock Exchange or any other marketplace on which the common shares are listed, quoted or otherwise trade.
4 - Cash Position was $24.95 Million with a Debt of $467 Million at the End of June 30, 2023.
SAND Quarterly Cash versus Bank Debt History (Fun Trading)
The total cash includes the cash & cash equivalent and short-term investments of $24.95 million (including total short-term investments), while Bank debt is now $467.0 million .
The company expects to repay the debt by 2027 or 2028.
Part 2 - Gold Production Details and 2023 Guidance
SAND Quarterly Production History (Fun Trading)
SAND Quarterly Gold Equivalent Production per Mine in 2Q23 (Fun Trading)
SAND Quarterly Gold Price History (Fun Trading)
Sandstorm Gold expects 90K to 100K GEOs in 2023. Nothing has changed here:
Based on the Company’s existing royalties, attributable gold equivalent ounces for 2023 are forecasted to be between 90,000 and 100,000 ounces. The Company’s production forecast is expected to reach approximately 125,000 attributable gold equivalent ounces within the next five years, with a sustainable average annual production of approximately 110,000 attributable gold equivalent ounces over the next 15 years.
SAND Guidance (SAND Presentation)
Technical Analysis and Commentary
SAND TA Chart Short-Term (Fun Trading)
Note: The graph is adjusted from dividends.
SAND forms a descending channel pattern, with resistance at $5.45 and support at $5.10.
Descending channel patterns are short-term bearish in that a stock moves lower within a descending channel, but they often form within longer-term uptrends as continuation patterns. Higher prices usually follow the descending channel pattern but only after an upside penetration of the upper trend line.
The overall strategy I regularly promote is to keep a core long-term position and use about 60% to trade LIFO while waiting for a higher final price target for your core position.
The trading strategy for SAND is to sell at a resistance range of $5.45 to $5.70, with higher resistance at $6.15. Conversely, buying and accumulating between $5.29 and $5 is reasonable, with potential lower support at $4.85.
Watch gold like a hawk.
Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.
For further details see:
Sandstorm Gold: A Solid Quarter But Not Solid Enough