Sandstorm Gold Stock Is All Set to Deliver More Upside

Sandstorm Gold [stock_market_widget type="inline" template="generic" color="default" assets="SSL.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] has enjoyed a nice run on the stock market this year and it looks all set to keep that momentum up as its latest results suggest. Though the company delivered mixed results as per Wall Street’s expectations, there was a lot to like about what lies ahead.

Let’s take a closer look at Sandstorm’s performance last quarter and see what investors can expect from the company going forward.

A Closer Look at the Results

Sandstorm Gold’s attributable gold equivalent ounces sold during the first quarter came in at 14,071. This was a slight dip over the year-ago period’s sales of 14,685 ounces. The lower production impacted the company’s top line, which fell from $19.5 million in the year-ago quarter to $18.2 million in the first quarter of 2019.

The company’s net income more than quadrupled to $2.5 million as compared to just $0.4 million in the year-ago period.

Its cash flow from operations dipped slightly to $12.1 million as compared to $13.4 million in the prior-year period. But the upside for Sandstorm Gold investors is that the company’s average cash cost per attributable gold equivalent ounce dropped to $241 from $276 in the year-ago period. This allowed Sandstorm to maintain its cash operating margins at $1,050 an ounce.

Also, the company’s net income more than quadrupled to $2.5 million as compared to just $0.4 million in the year-ago period.

But investors seem to be excited with what lies ahead for Sandstorm as the company’s output should rise thanks to some recent developments.

What Next for Sandstorm?

Sandstorm Gold struck a net smelter return royalty agreement for 0.9% of the precious metal that is produced at the Fruta del Norte project in Ecuador in January this year. This project is being constructed by Lundin Gold.

Sandstorm has paid $32.8 million for the royalty covering an area of over 644 square kilometres, which includes all the 30 mining concessions Lundin holds in the area.

In April this year, Sandstorm had struck another agreement with Americas Silver for a precious metal stream and net smelter returns royalty. As I had mentioned in an earlier article, Sandstorm will “receive 32,022 ounces of gold over the next five and a half years. This will be followed by a precious metals stream of 4% after the expiry of the period.”

This agreement will increase Sandstorm Gold’s output of gold by 7% in 2020 and 9% the year after.

In all, Sandstorm Gold projects total output between 63,000 ounces and 70,000 ounces this year, and forecasts output of 140,000 ounces by 2023. The company has already started receiving silver deliveries from the Cerro Morro mine under the streaming agreement with Yamana Gold.

Sandstorm received 300,000 ounces of silver deliveries from Cerro Morro, which was the maximum that it could have received during the quarter under the streaming agreement.

So it won’t be surprising to see Sandstorm’s revenue and earnings pick up the pace in the coming years. Analysts expect its top line to increase over 12% this year, followed by a 6.8% increase next year. Its earnings are expected to triple this year, followed by an increase of a penny next year.

But don’t be surprised if the company’s top and bottom lines grow at a faster pace once its royalty streams come into effect, delivering more upside in the future.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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