Summary
- It was another solid quarter, with a significant gold equivalent production of 21,753 Au Eq. Oz (16,586 Au Eq. Oz last year) and high revenues of $38.45 million.
- As of February 21, 2023, the Company had 298.9 million common shares outstanding.
- I recommend buying SAND at or below $5.
Introduction
Vancouver-based Sandstorm Gold Ltd. (SAND) released its fourth quarter 2022 and FY22 results on February 21, 2023.
Note: This article updates my previous article on Sandstorm Gold, published on January 13, 2023. I have been following SAND quarterly results since 2015.
As of December 31, 2022, 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.
SAND Asset portfolio 2023 (SAND Presentation)
1 - 4Q22 and FY22 Production and Revenues Snapshot
It was another solid quarter, with a significant gold equivalent production of 21,753 Au Eq. Oz (16,586 Au Eq. Oz last year) and high revenues of $38.45 million, with an average price per GEO down significantly from $1,798 per ounce in 4Q21 to $1,746 per ounce.
The average cash costs for the three months ended December 31, 2022, were $253 per Attributable Gold Equivalent ounce.
Net loss was $2.36 million in 4Q22 compared to an income of $7.40 million in the comparable quarter a year ago.
The company underwent a big change on a year-to-year basis, as shown below:
SAND Quarterly production per mine 4Q21 versus 4Q22 (Fun Trading)
Sandstorm Gold underwent a fundamental business transformation in 2022 with the acquisitions of Nomad Royalty in August and nine royalties from BaseCore Metals LP in July.
SAND Transformative acquisitions (SAND Presentation)
As I said in my preceding article, this transformational process has significantly changed the company's fundamental landscape.
However, it has not been something that shareholders were able to celebrate, showing that there is no shortcut to a successful path to expansion. The result is a complicated balance sheet without generating sufficient free cash flow, at least for the next few quarters, and a head-scratching "catching up to the majors" strategy.
However, on the plus side, those acquisitions are expected to increase gold equivalent production significantly by 2026.
Sadly, the company already cut significantly expected production from 2023 to 2026 by 37K GEOs since the last presentation, questioning the relevance of such an exercise, while outstanding shares are up significantly.
SAND Outlook until 2026 (SAND Presentation)
2 - Investment Thesis
As I said in my preceding article, these new transactions and the merger with Nomad have created a significant financial event for Sandstorm Gold and its shareholders. The CEO, Nolan Watson, is an acceptable CEO, but his razor focus on rapid expansion makes no sense at the shareholders' level. The stock languishes while production increases artificially at the cost of significant dilution and elevated risks.
Unfortunately, this accelerated expansion has coincided with the continued uncertainty surrounding the gold price due to the FED's action on interest rates. The combination of the two and the risks attached to a weak industry fundamental outlook until the FED turns dovish later in 2023 or 2024 is not helping the long-term narrative.
I believe SAND continues to be an outstanding trading tool. However, I am still not confident about investing a significant stake long-term in the company, always expecting another aggressive move to acquire more assets. However, I have started a long-term accumulation that I will feed with my short-term gains, hoping for some late payoff down the road.
Thus, I recommend starting a medium long-term position while trading a large part of your position. My only two favorites in this segment are Franco-Nevada ( FNV ) and Wheaton Precious Metals ( WPM ).
One excellent strategy that I often recommend in this sector in my marketplace, "The Gold and Oil Corner," is trading a minimum of 60% LIFO of your SAND position, which allows you to keep a core long-term for a much higher stock price.
3 - Stock Performance
Sandstorm Gold is still lagging behind its peers and is down 26% on a one-year basis. This strategy of expansion by acquisition is not working as expected.
Sandstorm Gold - Financial Results history Snapshot ending 4Q22 - The Raw Numbers
Sandstorm Gold | 4Q21 | 1Q22 | 2Q22 | 3Q22 | 4Q22 |
Revenues in | 29.82 | 35.37 | 35.97 | 38.95 | 38.45 |
Net Income to shareholders in | 7.40 | 9.14 | 39.70 | 31.68 | -2.36 |
EBITDA in $ million | 20.67 | 25.72 | 56.19 | 53.02 | 165.29** |
EPS Diluted | 0.04 | 0.05 | 0.20 | 0.13 | -0.01 |
Cash From Operating Activities in $ million | 19.51 | 22.36 | 33.20 | 25.09 | 26.27 |
CAPEX in | 22.69 | 3.11 | 40.02 | 489.01 | 88.65 |
FCF in | -3.19 | 19.25 | -6.82 | -463.92 | -62.38** |
Total cash in $ million (incl. short-term note) | 21.17 | 31.61 | 23.83 | 12.56 | 10.80 |
Total Debt in $ million | 0.0 | 0.0 | 0.0 | 524.0 | 497.5 |
Shares outstanding diluted in millions | 194.96 | 194.84 | 195.40 | 244.75 | 298.86* |
Dividend per share in $ | 0 | 0.015 | 0.015 | 0.015 | 0.015 |
Production | 4Q21 | 1Q22 | 2Q22 | 3Q22 | 4Q22 |
In K Au Eq. | 16.6 | 18.7 | 19.3 | 22.61 | 21.75 |
Gold price | 1,789 | 1,887 | 1,866 | 1,706 | 1,746 |
Source: Company report analysis by Fun Trading (data are available since 2015 only for subscribers)
* As of February 21, 2023, the Company had 298,858,328 common shares outstanding. As disclosed previously, the funds from the issuance of share capital have been used to finance the acquisition of Streams and royalties (recent additions are described earlier in greater detail) and pay down debt
** Estimated by Fun Trading.
Part I - Balance Sheet Details
1 - Quarterly Revenues and Trends: Total revenues of $38.45 million in 4Q22
SAND Quarterly revenues history (Fun Trading)
Sandstorm Gold posted revenues of $38.45 million for the three months that ended December 31, 2022, compared with $29.82 million for the comparable period in 2021.
The net loss was $2.36 million in 4Q22, or $0.01 per diluted share, compared to an income of $7.40 million or $0.04 per diluted share in the same quarter a year ago.
The cash costs per ounce are down to $253 per ounce, resulting in cash operating margins of $1,493 per ounce for the fourth quarter. Good progress this quarter compared with the $323 per ounce in 3Q22.
SAND Quarterly Cash cost history (Fun Trading)
2 - Free Cash Flow was a Loss estimated at $ 62.38 million in 4Q22
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 a loss estimated at $62.38 million in the fourth quarter of 2022, and the trailing 12-month free cash flow was a loss of $513.87 million. The significant loss in free cash flow is due to acquisitions that I discussed earlier.
The quarterly dividend is now $0.015 per share, or a dividend yield of 1.15%
3 - Total shares outstanding diluted are increasing again.
This recurring topic is critical for Sandstorm's shareholders because of the systematic use of the company stock to finance this forced-feed expansion policy.
Also, during the past year, SAND bought back over $21 million (since 2018), and it appears the company wasted this precious cash on a futile exercise that made no sense based on its expansion strategy. The result is that we are now close to 300 million shares outstanding.
SAND Quarterly Shares outstanding history (Fun Trading)
4 - Cash position was $10.80 million with a debt of $497.5 million at the end of December 31, 2022.
SAND Quarterly Cash versus Debt history (Fun Trading)
The total cash includes the cash & cash equivalent and short-term investments of $10.80 million, while debt is now $497.5 million.
Note from the company:
On October 4, 2022, the Company completed a public offering of 18,055,000 common shares at a price of $5.10 per common share for gross proceeds of $92.1 million. In connection with the offering, the Company paid agent fees of $4.6 million, representing 5% of the gross proceeds. Upon closing of the equity financing, the majority of the net proceeds were used to reduce amounts drawn under the Company's Revolving Facility
Part 2 - Gold Production details
SAND quarterly Gold equivalent production history (Fun Trading) SAND 4Q22 production per mine (Fun Trading) SAND Quarterly Gold price history (Fun Trading)
Technical Analysis and commentary
SAND TA Chart short-term (Fun Trading StockCharts)
The trading strategy for SAND is to sell at a resistance range of $5.25 to $5.5, with higher resistance at $5.65. Conversely, it is reasonable to buy and accumulate between $5.05 and $4.95, with potential lower support at $4.65.
One crucial caveat is gold and silver prices are at $1,836 and $21,81, but it is fragile support due to the Fed's hawkish position. Any downside could hurt SAND significantly.
SAND gold, silver, copper 1-year chart (Fun Trading StockCharts)
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: Questionable Relevancy Of 'Catching Up To The Majors' Strategy