Summary
- Sandstorm Gold indicated preliminary revenues of $38.9 million for the three months ended September 30, 2022, compared with $27.6 million for the comparable period in 2021.
- Sandstorm Gold Royalties reported that it sold approximately 22,600 attributable gold equivalent ounces in 3Q22.
- I recommend buying SAND at or below $4.85 with possible lower support at $4.35.
Introduction
Vancouver-based Sandstorm Gold ( SAND ) released its preliminary 3Q22 production results on October 6, 2022.
Note: This article updates my previous article on Sandstorm Gold, published on August 15, 2022. I have been following SAND's quarterly results since 2015.
1 - 3Q22 Production and preliminary revenues.
- Sandstorm Gold Royalties reported that it sold approximately 22,600 attributable gold equivalent ounces and realized preliminary revenue of $38.9 million for 3Q22, representing a record for the Company.
- The preliminary cost of sales, excluding depletion for the three months, was $7.3 million, resulting in cash operating margins of approximately $1,383 per attributable gold equivalent ounce.
- Sandstorm's 2022 production guidance has been raised by approximately 22% from 65K-70K gold equivalent ounces GEO to 80K-85K GEO and increased long-term production guidance by 55% from 100K GEO to 155K GEO in 2025.
- The Company's Gold price for the 3Q22 was $1,706.
2 - Stock Performance
Sandstorm Gold is still one of the worst performers in this segment and is down 15% on a one-year basis.
3 - Investment Thesis
SAND is an excellent trading tool, but I am not confident enough to consider the stock a proper long-term investment like Franco-Nevada ( FNV ), Royal Gold ( RGLD ), or Wheaton Precious Metals ( WPM ).
To illustrate my lack of confidence, on September 27, 2022, Sandstorm Gold launched a bought deal financing for 15.7 million common shares at $5.10/share. Furthermore, the Company granted the underwriters an option to buy up to an additional 15% of the offering to cover any over-allotments.
Sandstorm said it plans to use the net proceeds for future acquisitions of streams and royalties, the repayment of amounts drawn under its revolving credit facility, and other general working capital purposes.
Many shareholders have considered this decision a slap in the face and a blatant waste of cash.
Since 2018, the Company has repurchased about 19 million shares over the past several years at an often higher price than negotiated here. The last shares bought in 2021 were at $6.25 per share.
Furthermore, the recent merger with Nomad and the acquisition of nine royalties plus one stream from BaseCore Metals LP announced last quarter would increase the outstanding shares from 194.8 million in 1Q22 to probably well over 300 million shares, including the bought deal.
This obsession with growing bigger faster is hurting the Company's shareholders, despite the recent decision to pay a small quarterly dividend of C$0.02.
Thus, one great strategy I often recommend in this sector, especially for SAND, is trading LIFO about 50%-70% of your total position and keeping a core long-term position for a much higher payday down the road. Doing so allows you to take advantage of the short-term volatility while positioning for a possible future uptrend.
Gold Production And Balance Sheet Details
1 - Quarterly Revenues and Trends - Preliminary Revenues were $38.9 million in 3Q22
Sandstorm Gold indicated preliminary revenues of $38.9 million for the three months ended September 30, 2022, compared with $27.6 million for the comparable period in 2021.
The estimated cash costs per attributable ounce have increased this quarter to about $323 after applying a cash operating margin of $1,383 per ounce indicated by SAND. The gold price realized by Sandstorm Gold is $1,706 per ounce.
2 - Gold production details
Attributable gold equivalent ounces sold for the quarter that ended September 30, 2022, were a record 22,600 ounces, compared with 15,514 ounces for the comparable period in 2021. It was a new production record, as shown in the chart above.
The quarterly cash costs increase to $323 per GEO, a significant jump sequentially.
Technical Analysis And Commentary
SAND forms a descending channel pattern, with resistance at $6.25 and support at $4.80. Descending channel patterns are short-term bearish.
The trading strategy is to sell at a resistance range of $5.84 to $6.50, about 50%-60% of your position, and sell another part on any pattern breakout above $7.
I recommend buying SAND at or below $4.85 with possible lower support at $4.35. The recent FED's action to fight rampant inflation has been adverse for the gold industry, and I believe the FED will hike interest by another 75-point in November, which will hurt even more the gold industry.
Note: The LIFO method is prohibited under International Financial Reporting Standards (IFRS), though it is permitted in the United States by Generally Accepted Accounting Principles (GAAP). Therefore, only US traders can apply this method. Those who cannot trade LIFO can use an alternative by setting two different accounts for the same stock, one for the long term and one for short-term trading.
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.
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For further details see:
Sandstorm Gold: Record Gold Equivalent Production In Q3