Mr. Nolan Watson reports
SANDSTORM GOLD ANNOUNCES 2017 FOURTH QUARTER AND ANNUAL RESULTS
Sandstorm Gold Ltd. has released its results for the fourth quarter and year ended Dec. 31, 2017 (all figures in U.S. dollars).
Fourth quarter highlights:
Attributable gold equivalent ounces sold (1) of 12,032 ounces (Q4 2016 -- 13,245 ounces); Revenue of $15.4-million (Q4 2016 -- $16.5-million); Operating cash flow of $9.9-million (Q4 2016 -- $10.1-million); Net income of $700,000 (Q4 2016 -- net loss of $20,000); Credit facility amendment: The company's revolving credit facility was increased to $150-million and amended such that the facility can be used for general corporate purposes. The tenure of the facility is four years;Royalty acquisition: The company agreed to acquire a 2-per-cent net smelter return (NSR) royalty on the Hounde gold mine in Burkina Faso, operated by Endeavour Mining Corp. The royalty was acquired from Acacia Mining PLC for $45-million in cash and covers the Kari North and Kari South tenements, representing approximately 500 square kilometres of the Hounde property package.
Full-year highlights:
Record attributable gold equivalent ounces sold(1) of 54,633 ounces (fiscal year (FY) 2016 -- 49,731 ounces); Record revenue of $68.3-million (FY 2016 -- $62.4-million); Average cash cost per attributable gold equivalent ounce of $280, resulting in cash operating margins (1) of $970 per ounce (FY 2016 -- $258 per ounce and $996 per ounce, respectively); Record operating cash flow of $44.8-million (FY 2016 -- $39.0-million);Net income of $10.5-million (FY 2016 -- $25.3-million);Royalty acquisitions: During 2017, the company acquired 39 NSR royalties on properties located in Canada, Mexico, Peru, Botswana, Burkina Faso, Cote d'Ivoire and South Africa. The acquisitions added NSR royalties on operating mines, development-stage assets and exploration-stage projects;Hot Maden Anchor asset: Sandstorm added a 30-per-cent net profits interest on the Hot Maden project in Turkey by acquiring Mariana Resources Ltd. The addition of Hot Maden to the company's portfolio of royalties provides for: Approximately 100-per-cent increase in estimated future production for only 19-per-cent dilution;An anchor asset that is high grade and low cost with significant exploration upside;A strong local partner with experience in exploring, developing, permitting and operating projects in Turkey; Exploration properties in Cote d'Ivoire, Turkey and Argentina which Sandstorm intends on selling and retaining NSR royalties. Sandstorm has sold a number of these assets and continues to make progress in divesting of the remaining properties;Monetization of securities: More than $14-million of non-core assets were monetized and reinvested into royalty acquisitions during 2017 and an additional $18.3-million in securities was sold subsequent to quarter-end; Gold stream amendment: The Bachelor Lake gold stream with Metanor Resources Inc. was amended such that Sandstorm will purchase 20 per cent of the gold produced from the Bachelor Lake mine until 12,000 ounces of gold have been purchased by the company, at which time the gold stream will convert into a 3.9-per-cent NSR royalty. In consideration for the amendment, Sandstorm also received a 3.9-per-cent NSR royalty on Metanor's Barry project and $2.0-million in the common shares of Metanor. The amendment allows Sandstorm to maintain meaningful exposure to production from the Bachelor Lake mine while adding a royalty on the Barry project, an advanced exploration-stage asset located in the emerging Urban-Barry camp; Normal course issuer bid: Under Sandstorm's normal course issuer bid, the company is able to purchase approximately 7.6 million common shares until April 4, 2018. During the year ended Dec. 31, 2017, the company purchased approximately 4.1 million common shares.
Sandstorm's president and chief executive officer, Nolan Watson, reflected: "When looking back on the 2017 year, I'm glad to say that we accomplished our objectives and exceeded our goals. As we move forward, the company has a strong cash flow base and a number of exciting projects advancing towards production that will bring substantial growth in the coming years. We've seen another very active period on the exploration side of things with more than 500,000 metres drilled on Sandstorm properties. This represents a huge amount of potential upside for our shareholders. In 2018, our continued focus will be to make royalty acquisitions in order to grow and diversify our portfolio."
Outlook
Based on the company's existing royalties, attributable gold equivalent production for 2018 is forecast to be between 50,000 and 60,000 ounces. The company is forecasting attributable gold equivalent production of approximately 125,000 ounces per annum in 2022.
Financial results
Over the course of the full 2017 year, gold sales reached a record driving annual records for both revenue and cash flow of $68.3-million and $44.8-million, respectively. The records represent a 9-per-cent increase in revenue and a 15-per-cent increase in cash flow compared with the 2016 year. A notable contributor to the record gold sales and revenue figures was the Chapada copper stream as 82 per cent more gold equivalent ounces were delivered to Sandstorm and rising copper prices added 29 per cent to the average realized selling price per pound of copper when compared with 2016. The company also saw annual attributable production increases from the Karma gold stream, the Minera Florida and Chapada silver streams, and the Black Fox gold stream among others.
During the fourth quarter of 2017, there was a 9-per-cent decline in attributable gold equivalent ounces sold compared with the fourth quarter of 2016, due to a temporary reduction in revenue recognized on the company's Emigrant Springs royalty. The decrease in production resulted in a 6-per-cent-lower revenue and a 2-per-cent decrease in cash flow compared with the fourth quarter of 2016. An increase in the average realized selling price per ounce of gold partially offset the decline in ounces.
Net income was higher in the fourth quarter of 2017 compared with the same period in 2016, partly due to a $7.6-million increase in gains recognized on the revaluation of the company's investments and a $1.4-million decrease in depletion expenses due to the decrease in attributable gold equivalent ounces sold. The gain on the revaluation of investments was driven by the change in fair value of the Equinox Gold Corp. convertible debenture. The increases during the quarter were offset by a $4.6-million non-cash impairment charge relating to the Emigrant Springs royalty and a decrease in financing income as a result of the repayment of a loan receivable.
Net income was lower when comparing the 2017 year with the 2016 year due to factors such as a decrease in gains recognized on the revaluation of investments, non-cash impairment charges relating to some of the company's royalties and a temporary increase in administration costs related partly to the acquisition of Mariana Resources. These declines were offset by gains related to the Bachelor Lake gold stream amendment, the settlement of Equinox debt and the Orezone royalty repurchase.
Streams and royalties
Of the gold equivalent ounces sold by Sandstorm during the fourth quarter of 2017, approximately 45 per cent was attributable to mines located in Canada, 11 per cent from the rest of North America, and 44 per cent from South America and other countries.
Three months ended Dec. 31, 2017 Year ended Dec. 31, 2017 Revenue (in millions)Gold equivalent ouncesRevenue (in millions)Gold equivalent ouncesCanada $6.95,378 $28.4 22,784North America excluding Canada $1.61,310 $14.8 11,882South America and Other$6.95,344 $25.1 19,967Total $15.4 12,032 $68.3 54,633
Canada
Streams and royalties on Canadian mines contributed 15 per cent fewer gold equivalent ounces to Sandstorm when compared with the fourth quarter of 2016. The change is primarily due to a decrease in gold equivalent ounces sold from the Bachelor Lake mine in Quebec and the Ming mine in Newfoundland, offset by increases from the Diavik mine in the Northwest Territories and the Bracemac-McLeod mine in Quebec.
North America excluding Canada
The gold equivalent ounces sold from operations located within North America, but outside of Canada, decreased by 46 per cent compared with the same period in 2016.The changes were driven by a decrease in royalty revenue from the Emigrant Springs mine in Nevada, offset by an increase in the gold ounces sold from the Santa Elena mine in Mexico. At Emigrant, an update to the life-of-mine production plan reduced the ounces expected to be produced from areas of the mine subject to Sandstorm's royalty and required a one-time reversal of royalty revenue in the amount of $1.9-million.
South America and other
Operations in South America and other countries contributed 24 per cent more gold equivalent ounces when compared with the fourth quarter of 2016. The copper stream on the Chapada mine in Brazil and the gold stream on the Karma project in Burkina Faso were responsible for the bulk of the gains.
Cerro Moro silver stream
Sandstorm has a silver stream with Yamana Gold Inc., whereby it will purchase silver from the Cerro Moro mine in Argentina beginning in 2019. Yamana recently reported that construction is on schedule at Cerro Moro with mill commissioning expected in early 2018 and commercial production expected by midyear. Expenditures at Cerro Moro totalled $172-million in 2017.
Hounde royalty
In early 2018, Sandstorm completed the purchase of a 2-per-cent NSR royalty on the Hounde mine in Burkino Faso. The Hounde royalty is a natural fit for the Sandstorm portfolio as the asset meets all of the criteria that the company pursues in an acquisition including immediate increase on a cash-flow-per-share basis, a strong counterparty in Endeavour and significant exploration upside. Endeavour expects the operation to produce between 250,000 and 260,000 ounces of gold in 2018, which will contribute to Sandstorm's 2018 first quarter production figures. Hounde is also a focus project for exploration activities by Endeavour, with $40-million committed over the next four years.
Webcast and conference call details
A conference call will be held on Friday, Feb. 16, 2018, starting at 8:30 a.m. PST, to further discuss the fourth quarter and annual results. To participate in the conference call, use the following dial-in numbers and conference ID, or join the webcast.
Local/international: 1-416-764-8688
North American toll-free: 1-888-390-0546
Conference ID No.: 36509816
Webcast: A webcast will be available.
The Sandstorm management discussion and analysis (MD&A) and financial statements for the year ended Dec. 31, 2017, will be accessible on the company's website and on SEDAR. The company has also completed a Form 6-K filing withthe U.S. Securities and Exchange Commission that will be accessible on EDGAR. Shareholders can request a hard copy of the MD&A and financial statements by emailing info@sandstormltd.com.
(1) Sandstorm has included certain performance measures in this press release that do not have any standardized meaning prescribed by international financial reporting standards (IFRS), including average cash cost per ounce of gold and cash operating margin. Average cash cost per ounce of gold is calculated by dividing the total cost of sales, less depletion, by the ounces sold. In the precious metals mining industry, this is a common performance measure but does not have any standardized meaning. The company believes that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the company's performance and ability to generate cash flow. Cash operating margin is calculated by subtracting the average cash cost per ounce of gold from the average realized selling price per ounce of gold. The company presents cash operating margin as it believes that certain investors use this information to evaluate the company's performance in comparison with other companies in the precious metals mining industry that present results on a similar basis. The company's royalty income is converted to an attributable gold equivalent ounce basis by dividing the royalty income for that period by the average realized gold price per ounce from the company's gold streams for the same respective period. These attributable gold equivalent ounces when combined with the gold ounces sold from the company's gold streams equal total attributable gold equivalent ounces sold. The presentation of these non-IFRS measures is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Other companies may calculate these non-IFRS measures differently.
About Sandstorm Gold Ltd.
Sandstorm is a gold royalty company. Sandstorm provides upfront financing to gold mining companies that are looking for capital and, in return, receives the right to a percentage of the gold produced from a mine, for the life of the mine. Sandstorm has acquired a portfolio of 174 royalties, of which 21 of the underlying mines are producing. Sandstorm plans to grow and diversify its low-cost production profile through the acquisition of additional gold royalties.
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