Sandstorm Gold Shares Have More Upside Potential

Sandstorm Gold has done extremely well on the stock market in the past six months, with shares appreciating nearly 40%. But investors who have enjoyed the ride so far should consider holding the stock in the future as Sandstorm is capable of delivering more upside on account of recent developments.

Sandstorm’s New Streaming Agreement Will Boost Output  

Sandstorm Gold has struck a $42.5 million financing agreement with Americas Silver Corporation. This agreement includes a $25 million gold streaming and royalty from the Nevada Relief Canyon Project.

This deal should prove to be accretive to Sandstorm going forward. That’s because Americas Silver is expected to pour its first gold at the Relief Canyon mine by the end of the year, delivering annual production of 91,000 ounces with an all-in sustaining cost (AISC) of $801 an ounce.

As a part of the financing agreement, Sandstorm stands to 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.

Sandstorm expects that the agreement will boost its gold equivalent ounces to the tune of 7% next year and 9% in 2021. The good part is that Relief Canyon has a sizable acreage that’s still unexplored, and Sandstorm’s agreement covers those areas as well.

Another advantage for Sandstorm is that the jurisdiction of Relief Canyon is a favourable one. Also, Americas Silver already has the required mining and processing permits that it needs to kick-off production at the mine in place already.

The deliveries of the gold streams are expected to begin in April 2020. Sandstorm will receive 492 ounces of gold each month during the first 60 months of the delivery period, which will eventually drop to 417 ounces a month by the end of the period.

The stream might not appear to be really big, but it is important for Sandstorm to keep striking such deals in a bid to boost output since the company’s overall revenue growth is expected to slow down in 2020. Analysts expect a 4.7% increase in Sandstorm’s revenue in 2020 after a 12.2% jump this year.

Sandstorm Can Take Advantage of Higher Gold Prices

Sandstorm looks well-placed to achieve a solid increase in its top line this year.

Sandstorm Gold delivered production of 14,100 attributable gold equivalent ounces in the first quarter of 2019. The company anticipates that its production will increase during the second quarter on the back of additional contribution from Aurizona and Cerro Morro, and will remain at elevated levels for the remainder of the year.

As a result, Sandstorm looks well-placed to achieve a solid increase in its top line this year. At the same time, the company’s earnings per share are expected to triple in 2019 to $0.09 from $0.03 last year. This isn’t surprising as Sandstorm will benefit from the recent uptick in gold prices. Moreover, the price of gold could keep rising on account of constrained production, higher demand, and macroeconomic uncertainty.

As such, it makes sense to keep holding Sandstorm Gold shares as it could potentially deliver more upside in the future.

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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
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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