Sandstorm Whips up Profits in Gold Royalties

12/13/2019 5:00 am EST

Focus: COMMODITIES

Gordon Pape

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

Sandstorm Gold Royalties (SAND) is a gold royalty company that provides upfront financing to mining companies that are looking for capital, explains Gordon Pape, editor of Internet Wealth Builder.

In return, it receives the right to a percentage of the gold produced from a mine, for the life of the mine. The business concept is similar to that of Franco-Nevada (FNV), but on a smaller scale.

Gold has been trading in a narrow range in recent weeks, but good third-quarter results pushed up the price of the stock to an all-time high of $9.47, before it pulled back to the current level.

Sandstorm recently reported record third-quarter results. The company sold 17,289 gold equivalent ounces (GEO) in the quarter, up more than 20% from the same period a year ago.

The average cash cost per GEO was $288, resulting in cash operating margins of $1,203 per ounce. The comparable operating margin last year was $960. (Note that the company reports in U.S. dollars.)

Revenue was $25.8 million, a 49% year-over-year advance. Earnings were $6.2 million, up from $2.1 million in the same period last year. The big jump was driven partially by an increase in gold prices and by a $2 million increase in gains recognized on the revaluation of the company's investments.

The company said it expects to sell between 63,000 and 70,000 GEO this year. Management forecasts this will rise to 140,000 ounces in 2023.

Sandstorm does not pay a dividend. However, the company has been buying back shares under a normal course issuer bid. During the third quarter, 2.4 million shares were purchased and cancelled.

The company expects to double its sales by 2023. If the price of gold holds at current levels or moves higher, the effect will be a huge boost to the bottom line, which should be reflected in the share price. My recommendation is a "buy".

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