2023-06-16 18:05:22 ET
Summary
- It was another solid quarter for Sandstorm Gold Ltd., with a significant gold equivalent production of 28,368 Au Eq. Oz (22,606 Au Eq. Oz last year) and high revenues of $43.978 million.
- Net income was $15.67 million in Q1 2023 compared to an income of $9.14 million in the comparable quarter a year ago.
- I recommend buying Sandstorm Gold, between $5.00 and $4.85 is reasonable, with potential lower support at $4.60.
Introduction
Vancouver-based Sandstorm Gold Ltd. ( SAND ) released its first quarter 2023 results on May 10, 2023.
Note: This article updates my previous articles on Sandstorm Gold, published on February 22 and April 6 , 2023. I have been following SAND quarterly results since 2015.
One recent news that shook SAND:
On Friday, June 9, 2023, the Index Manager announced that Sandstorm would be deleted from the NYSE Arca Gold Miners Index effective for the rebalancing period ending June 20, 2023. The stock dropped as much as 15% that day on June 12, 2022, but recovered the following days after Sandstorm announced that:
is pleased to report that further to the Company's press release earlier today, the ICE Data Indices, LLC has issued a rebalancing update for the NYSE Arca Gold Miners Index effective for the rebalancing period ending June 20, 2023. According to the update, due to a reassessment of the Company's revenue exposures, Sandstorm will not be deleted from the Index.
As of March 31, 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.
SAND Assets Portfolio (SAND Presentation)
On June 16, 2023, Sandstorm Gold updated its assets portfolio.
1 - 1Q23 Results Snapshot
It was another solid quarter, with a significant gold equivalent production of 28,368 Au Eq. Oz (22,606 Au Eq. Oz last year) and high revenues of $43.978* million, with an average price per GEO down slightly from $1,888 per ounce in 1Q22 to $1,882 per ounce .
* Total revenues for 1Q23 were $53.978 million after receiving a one-time contractual payment of $10.0 million relating to the Mt. Hamilton royalty included in Other Income.
The average cash costs for the three months ended March 31, 2023, were $230 per Attributable Gold Equivalent ounce.
Net income was $15.67 million in 1Q23 compared to an income of $9.14 million in the comparable quarter a year ago.
The company underwent a big change on a year-to-year basis, as shown below:
SAND Gold Equivalent Production comparison 4Q22 versus 1Q23 (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. For more information about those acquisitions, please read my preceding article.
As I said in my preceding article, this transformational process has significantly reshaped the company's fundamental landscape. Whether it is beneficial or not for shareholders remains to be seen despite the company's bullish comments.
Those acquisitions are anticipated to increase gold equivalent production significantly by 2026.
2 - Investment Thesis
M. Nolan Watson is an acceptable CEO, but his razor focus on rapid expansion makes no sense at the shareholder level. The stock languishes while production increases artificially at the cost of significant dilution and elevated risks. A simple look at the SAND chart shows these painful facts.
It is why SAND continues to be an outstanding trading tool with a predictable trading chart pattern. On the other hand, investing a significant stake long-term in the company is risky due to the unpredictability of the management strategy regarding the artificial expansion of the assets portfolio that seems never to end.
Despite this unfortunate fact, about a year ago, I started a long-term accumulation that I fed with my short-term gains, accumulating nicely and rendering my position de-risked.
Thus, I recommend starting a medium long-term position while trading a large part of your position.
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 - Worse performance amongst its peers.
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 1Q23 - The Raw Numbers
Sandstorm Gold | 1Q22 | 2Q22 | 3Q22 | 4Q22 | 1Q23 |
Revenues in | 35.37 | 35.97 | 38.95 | 38.45 | 43.98/53.98 |
Net Income to shareholders in | 9.14 | 39.70 | 31.68 | -2.36 | 15.67 |
EBITDA in $ million | 25.72 | 56.19 | 53.02 | 30.36 | 43.77 |
EPS Diluted | 0.05 | 0.20 | 0.13 | -0.05 | 0.05 |
Cash From Operating Activities in $ million | 22.36 | 33.20 | 25.09 | 26.27 | 39.92 |
CAPEX in | 3.11 | 40.02 | 489.01 | 88.65 | 3.35 |
FCF in | 19.25 | -6.82 | -463.92 | -62.38 | 36.57 |
Total cash in $ million (incl. short-term note) | 31.61 | 23.83 | 12.56 | 10.80 | 7.92 |
Total Debt in $ million | 0.0 | 0.0 | 524.0 | 497.5 | 475.0 |
Shares outstanding diluted in millions | 194.84 | 195.40 | 244.75 | 301.28 | 301.26 |
Dividend per share in $ | 0.015 | 0.015 | 0.015 | 0.015 | 0.015 |
Production | 1Q22 | 2Q22 | 3Q22 | 4Q22 | 1Q23 |
In K Au Eq. | 18.7 | 19.3 | 22.61 | 21.75 | 28.37 |
Gold price | 1,887 | 1,866 | 1,706 | 1,746 | 1,882 |
Source: Company report analysis by Fun Trading (data are available since 2015 only for subscribers).
Part I - Balance Sheet Details
1 - Quarterly Revenues and Trends: Total revenues of $43.98 million in 1Q23
SAND Quarterly Revenues History (Fun Trading)
Sandstorm Gold posted revenues of $43.98 million for the three months that ended March 31, 2023, compared with $35.37 million for the comparable period in 2022.
The net income was $15.67 million in 1Q23, or $0.05 per diluted share, compared to an income of $9.14 million or $0.05 per diluted share in the same quarter a year ago.
The cash costs per ounce are down to $230 per ounce, resulting in cash operating margins of $1,652 per ounce for the first quarter. Good progress this quarter compared with the $283 per ounce in 1Q22.
SAND Quarterly Cash Costs History (Fun Trading)
2 - Free Cash Flow was $36.57 million in 1Q23
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 $36.57 million in the first quarter of 2023, and the trailing 12-month free cash flow was a loss of $496.55 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 1.1%
3 - Total shares outstanding diluted are increasing again.
During the past year, SAND bought back over $21 million (since 2018). 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 above 300 million shares outstanding.
SAND Quarterly Shares Outstanding History (Fun Trading)
Note: In April 2023, Sandstorm renewed its normal course issuer bid, allowing the Company to purchase up to 24.0 million of the Company’s common shares from time to time when Sandstorm’s management believes that the market undervalues the shares.
4 - Cash position was $7.92 million with a debt of $475 million at the end of March 31, 2023.
SAND Quarterly Cash versus Debt History (Fun Trading)
The total cash includes the cash & cash equivalent and short-term investments of $7.92 million , while debt is now $475.0 million .
Cash has dropped significantly, and I fear SAND management may use the stock again through a public offering.
Part 2 - Gold Production Details and 2023 Guidance
SAND Quarterly Gold Equivalent Production History (Fun Trading)
SAND 1Q23 Production per Mine (Fun Trading) SAND Quarterly Gold Price History (Fun Trading)
Sandstorm Gold expects 90K to 100K GEOs in 2023:
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.
Technical Analysis and Commentary
SAND TA Chart Short-Term (Fun Trading StockCharts)
Note: The graph is adjusted from dividends.
SAND forms a descending channel pattern with resistance at $5.43 and support at $4.92.
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 in my marketplace, "The gold and oil corner," 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 $5.40 to $5.64, with higher resistance at $6.20. Conversely, buying and accumulating between $5 and $4.85 is reasonable, with potential lower support at $4.60.
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: The Stock Outperformance Is An Issue