Sandstorm Gold Royalties: Positioned for Significant Growth While Maintaining Financial Discipline

• Sandstorm Gold has hundreds of royalties around the world, many of which are operating and cash flowing. Institutional investors own about 60% of the company.
• Central banks are big net buyers of gold currently, looking to de-dollarize their reserves. This bodes well for future gold demand.
• Sandstorm will focus on paying down debt over the next couple years with free cash flow rather than new acquisitions. Growth will come from 4 mines under construction.
• Those 4 mines will increase production by 30%+ in the next few years, from 95k oz now to 125k oz, growing cash flow to $170M at $1800 gold.
• With an option to acquire a stream on Glencore's Mara project, Sandstorm is fully funded for growth with no plans for new equity financing in the near future. The strategy will be more "boring" going forward.

About Sandstorm Gold Royalties

Sandstorm Gold Royalties is a precious metals streaming and royalty company that provides upfront financing to mining companies in exchange for the right to purchase a percentage of gold and silver production from mines at reduced prices. The company has a diverse portfolio of over 250 royalties, with many of its key assets located in safe mining jurisdictions like Canada and the United States.

Sandstorm was founded in 2007 and is headquartered in Vancouver, Canada. The company is led by President and CEO Nolan Watson, who has extensive experience in metals streaming and mining finance. Sandstorm trades on the Toronto Stock Exchange under the ticker SSL and on the NYSE under SAND.

Interview with Nolan Peterson, CEO of Sandstorm Gold Royalties

Key Takeaways from Recent Corporate Update

In a recent corporate update, Sandstorm CEO Nolan Watson outlined several key points for investors:

• Significant near-term production growth expected: Sandstorm expects its attributable gold equivalent production to grow from around 95,000 ounces in 2022 to around 125,000 ounces by 2027, representing over 30% growth. This ramp up will be driven by four mines currently under construction.
• Focus on strengthening balance sheet: With rising interest rates, Sandstorm plans to focus on paying down debt and maintaining financial discipline rather than pursuing new acquisitions. The company may sell some non-core assets to accelerate debt repayment.
• Long-term growth option already secured: Sandstorm has an option to acquire a stream on Glencore's Mara project for $225 million starting around 2026, which would boost production further to around 150,000 ounces per year. This removes the need for dilutive acquisitions in the near term.
• Boring is good: Sandstorm expects its share price to be less volatile going forward as large institutional investors now hold a greater percentage of shares. Trading should be more tied to fundamentals like growing cash flow.

Financial Position

Sandstorm has taken on some debt to finance recent acquisitions, but maintains a reasonable balance sheet. As of Q2 2022, the company had around $50 million in cash and $340 million drawn on its $500 million revolving credit facility. With its growing operating cash flow, Sandstorm appears capable of paying down debt quickly while funding remaining construction capital for its four key mines.

Valuation

Sandstorm is currently trading around 12x estimated 2023 operating cash flow. This represents a discount to royalty/streaming peers like Franco-Nevada (FNV) and Wheaton Precious Metals (WPM) which trade above 15x cash flow. This discount appears justified given Sandstorm's smaller size and more concentrated portfolio.

As production increases 30%+ over the next 5 years, Sandstorm's cash flow and earnings should experience significant growth. If the company maintains discipline around capital allocation, valuation expansion towards royalty company averages seems likely. Trading above 15x cash flow in 2025 would imply 50%+ upside from current levels.

Conclusion

For investors looking at Sandstorm Gold Royalties, the company represents an opportunity to gain leveraged exposure to precious metals prices, while benefitting from near-term production growth and potential multiple expansion. The streaming/royalty model provides reduced risk compared to mining companies.

CEO Nolan Watson has clearly learned from some of the challenges of the past few years and seems intent on taking a more conservative approach focused on financial discipline. While the next couple years may be "boring" from an acquisition perspective, investors should see strong returns from organic growth and debt reduction. For those with a 3-5 year investment horizon, Sandstorm offers an attractive risk/reward at current valuations.