Summary
- Sandstorm has set plenty of records in 2022.
- Unfortunately, these records do not apply on a per-share basis.
- We question certain corporate decisions made in 2022.
The term " record " was omnipresent in Sandstorm Gold's ( SAND ) news release summarizing Q4 and full-year 2022 results. The title itself read "Sandstorm Gold Royalties Announces Record 2022 Annual Results" and the leading bullet points also made good use of the R-word:
And indeed, those records have been set by Sandstorm Gold in 2022 thanks to a flurry of dealings and wheelings which have transformed this royalty and streaming company into a much bigger beast over the course of 2022. The acquisition of Nomad Royalty comes to mind, as does the acquisition of the so-called Basecore portfolio; or the inception of Sandbox Royalty, and of course the deals that have led to Horizon Copper ( RYTTF ) becoming Sandstorm's single most important counterparty. We will comment on all of that, but first, let us look at some of the data points provided by the Q4 report.
Sandstorm Gold Q4 And Full Year 2022 Results
Quarterly sales have almost doubled from just above 10,000 gold-equivalent ounces in early 2016 to well over 20,000 ounces after the closure of the mentioned deals in late 2022. And revenues even outpaced this trend thanks to compliant metal prices.
If growth was the goal for 2022, then Sandstorm Gold has earned the bragging rights put on full display in the mentioned news release and also in the earnings call . However, if we look at the arguably more important metric of growth per share, then bragging rights are a bit harder to justify. Consider the chart below, and note how quarterly gold sales and quarterly revenues per share have remained stagnant for several years, and attributable gold ounces per share were in fact lower at the end of 2022 than they were in early 2016.
Similar chart pairings can be produced for the other records mentioned in the company's news release. Unfortunately, there is little benefit to be seen on a per share basis for any of the records claimed.
The large increase in attributable metals resulted in a large number of newly issued shares on the one hand, and it has stretched the balance sheet on the other. The company has taken on the highest debt load in the company's history by far making balance sheet repair a high priority for the foreseeable future. This in turn cements the current status as there is little if any room for acquisitions in the near-term.
Expanding Registry
The main reason for the lack of growth per share is Sandstorm's ballooning share count. Much of the mentioned growth was paid for with shares, and as it turned out, the associated acquisitions have not been accretive on a per-share basis. Certain corporate decisions didn't exactly help in this context. For example, the company re-purchased about 10M shares at an average price of $5.74 in 2020 and 2021 and Sandstorm CEO Mr. Nolan Watson is on record calling this price an "unjustifiably low valuation". Yet, only a few months later in early 2022 the company turned around and issued 15.7M new shares at a price of $5.10. In a note to subscribers at the time, we rhetorically asked: why buy yourself low, and then sell yourself even lower ? Or, rather than quoting ourselves, let's hear it from Mr. Warren Buffett ( BRK.B ):
The math isn't complicated: When the share count goes down, your interest in our many businesses goes up . Every small bit helps if repurchases are made at value-accretive prices . Just as surely, when a company overpays for repurchases, the continuing shareholders lose . At such times, gains flow only to the selling shareholders and to the friendly, but expensive, investment banker who recommended the foolish purchases.
We could go on, but in essence, we call Hot Air on all this Q4 record talk until we see these records manifest on a per-share basis. And until that happens all these alleged records are for naught as far as individual investors are concerned, and so-called growth is accomplished merely for growth's sake. And if that sounds harsh, then note how the market seems to share this view. Peers have handsomely outperformed Sandstorm in 2022 with a clear divergence at the time Sandstorm's creative dealmaking came on full display.
Sandstorm advertises itself as " A Brighter Way to Invest in Gold "; however, in 2022 this claim has fallen woefully short. Simply buying the metal at the start of 2022 would at least have preserved value; buying Sandstorm on the other hand resulted in a staggering 31% loss for the year.
Summary & Investment Thesis
Sandstorm Gold has closed a number of deals in 2022, lifting the company onto a new level in terms of size. Unfortunately, this growth in overall size has not transferred into growth per individual shares. In fact, when measured by attributable gold-equivalent ounces sold the value per share is lower now than it was at the start of 2016. Other metrics paint a similar picture, and we conclude that shareholders have so far not benefitted from the increase in company size.
We mentioned Horizon Copper earlier in this post. This junior company has been installed as the counterparty for Sandstorm's single most valuable asset, the Hod Maden stream, and also as the owner of the net profit interest on the Antamina mine. We won't reproduce the rant we had on this topic for our subscribers, but will say that we do not see this structure as a net-positive for Sandstorm shareholders. It only adds another party to benefit from these assets if they are successful, while it does little to shield Sandstorm shareholders from the associated risks.
2023 will be a year to digest last year's acquisition and tend to the stretched balance sheet. The company has taken on an unprecedented debt load, and repaying this debt will take until early 2027 assuming the current asset base and metal price deck. Acquisitions will most likely have to wait until this debt load is at least partially repaid. The guidance indicates similar numbers as for 2022, and without any meaningful catalysts in sight there is little reason for the market to change its few anytime soon.
Long-term guidance indicates a significant increase in attributable metals by 2025 -- assuming that Hod Maden in Turkey comes online until then and Horizon Copper fulfills its role as the counterparty in charge of Sandstorm's interest in this project. This leaves plenty of time to sit back and watch Sandstorm tread water while it repairs its balance sheet. There are more attractive options in the royalty and streaming segment in our view, and consequently we are calling SELL on Sandstorm at this point in time.
For further details see:
Sandstorm Gold's Record Year Bypasses Investors