Sandstorm: Streaming Gains in Gold

08/31/2016 8:00 am EST


Gordon Pape

Editor and Publisher, The Income Investor and the Internet Wealth Builder

It has been a good year for most gold stocks. They are all rebounding from multi-year lows and the prospects for at least the next few months look positive, asserts Gordon Pape, editor of Internet Wealth Builder.

Rather than buy traditional mining stocks, I prefer the smaller group of royalty companies because they don't incur the risks involved with exploration, development, environmental protection, etc. Rather, they provide the financing in exchange for royalty income.

Franco Nevada (FNV) is the most successful company of this type in Canada. We continue to like that stock but the price may be expensive for some readers.

For a cheaper alternation, consider Sandstorm Gold Ltd. (SAND), which provides upfront financing to gold mining companies that are looking for capital.

In return, it receives the right to a percentage of the gold produced from a mine, for the life of the mine.

Sandstorm has a portfolio of 131 streams and royalties, of which 20 of the underlying mines are producing.

The company plans to grow and diversify its low cost production profile through the acquisition of additional gold streams and royalties.

The stock has been publicly traded since 2008. The shares hit a peak of about C$14 in late 2012 before going into a prolonged decline when the price of gold tumbled. They reached a low of C$2.82 in January before rebounding.

Sandstorm is well positioned to expand its portfolio, with a fat war chest ($110 million) available for new acquisitions.

The company is focused on acquiring gold streams and royalties from mines with low production costs, significant exploration potential, and strong management teams.

The price of gold is the obvious risk. Interest rate risk is another issue. Other risks relate to the output from the mines in which it holds royalties, as SAND has no control over mining operations -- it just collects its money.

The company reported revenue of $29.1 million for the six months to June 30, down slightly from $30.7 million the year before (Sandstorm reports in US dollars).

Sandstorm expects production to be between 43,000 and 50,000 gold equivalent ounces in 2016. It forecasts that will increase to 65,000 by 2020. The stock is a Buy for aggressive investors.

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