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Sandstorm: Safety in the Storm

08/19/2019 5:00 am EST

Focus: COMMODITIES

Mike Larson

Editor, Weiss' Safe Money Report and Under-the-Radar Stocks

Rising volatility, rising credit risk, and rising recession risk all fuel demand for “chaos insurance” investments like gold, explains Mike Larson, editor of the industry-leading Safe Money Report.

Given how long gold consolidated in a sideways pattern, and the clear technical breakout in June, we should be in for one heck of a move. An intermediate-term target of around $1,700-an-ounce looks very reasonable to me. And ultimately, gold could top $2,000 if the right monetary, geopolitical and economic forces come together.

I recommend you scoop up shares of one of my favorites: Sandstorm Gold Ltd. (SAND). This Canadian firm operates in the precious metals streaming sub-industry. It provides exploration and production financing to mining companies in exchange for cash flow “streams,” or royalties, based on the output of those mines.

The firm started with just five royalty deals back in 2010. But it has over 185 today, spread across companies that are already producing to those in the development and exploration stages.

Many of those properties are in North and South America, though there are others in Africa, Australia, and Turkey. Roughly 80% of its revenue comes from gold and silver royalties, with the remainder coming from diamonds and base metals like copper.

Kim Forgaard, SAND’s director of capital markets, told me the firm’s growth-oriented approach is one thing that sets it apart from competitors. Sandstorm is also focusing more on larger producers and those closer to cash-flowing production versus those in the earlier exploration phase. “We have a lot more upside in our portfolio,” Forgaard added.

“When we look at a deal, we want to make sure the mine life they have is there, but we also want there to be more. We want more ounces to be discovered.”

The stock was recently up 33% year-to-date. But you won’t see a dividend yield. That’s because it doesn’t currently have a payout. Forgaard says the board believes the stock has been undervalued and has focused on share buybacks as a result instead (with 7.9 million shares repurchased through June).

However, cash flow is forecast to rise substantially over the next few years, even assuming no further increases in metals prices. Throw further gains into the mix, and it’s likely that Sandstorm will join its larger, dividend-paying peers. That, in turn, could be yet another catalyst to power the stock higher.

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