Sandstorm, Brimming With Confidence Despite Tepid Q2 Performance

Sandstorm Ltd SAND announced it would finally become a dividend-paying company by the end of this year. And despite this being some long-awaited news by its shareholders, the gold royalties firm from Canada had a lukewarm second quarter with revenues lower than expected.

However, the company might offer investors a solid opportunity to capitalize on this year’s –possible– gold craze in the country, following the steps of Wheaten Precious Metals Corp WPM and Franco-Nevada Corp FNV.

How will things unfold for Sandstorm amid the unimpressive Q2 2021 results and the Hod Maden’s –the gold and copper mine in Turkey– updated feasibility?

Re-aiming for 2024

According to an RBC Capital Markets report, financial results for Sandstorm in the second quarter were somewhat weaker than expectations, showing lower revenues compared to pre-released figures. 

“The company reiterated 2021 guidance, but updated timelines for its Hod Maden development project (43% of NAV), which has revised 2024/25 growth production forecasts by -29%/+13%.”

The impact of COVID-19 is felt in the updated feasibility of Hod Maden, now guided for the second half of this year. This means that the initial production expected in the last quarter of 2023, is now anticipated to 2024.

Guidance for said year has been down-adjusted to 89,000 ounces from 125,000. Guidance for the following year is now set to 130,000 ounces from 115,000. “Hod Maden's updated feasibility study is now expected for the remainder of the year,” says the report. 

Still, RBC asserts that the advancement of Sandstorm’s Hod Maden project has the potential to be a major catalyst for the company, “but also is balanced by permitting and development uncertainties.”

During the conference call with investors, CEO Nolan Watson said: “We've always believed the Hod Maden was a permittable project that will be exceptionally profitable. And we're hoping that by the end of September, we'll have both the EIA and the feasibility study that illustrates both points.”

Healthy financial liquidity

Nolan further said that total sales royalty revenue came at $26.4 million for the second quarter, and $32.3 million including income from other interests. 

“This represents an increase of 41% and 73% respectively when compared to the same period in 2020. Sandstorm set a new record of approximately 18,000 attributable gold equivalent ounces during the quarter.”

Further, RBC states that, given the company’s acquisitions in the second quarter, net cash declined to $46 million after $143 million in the first quarter. Sandstorm’s total available liquidity is down to $46 million in cash and available credit of $225 million. 

RBC’s take on the firm’s financial liquidity is positive despite declining “on prior completed transactions.” 

The firm has clawed back part of its losses, and is on the right way to seeing further gains as its mining operations return to normal after Covid restrictions, Business Insider reports.

Stock performance

In terms of stocks, according to Seeking Alpha, Sandstorm’s earnings per share were below expectations, hitting $0.04 in the second quarter, while gold equivalent production reached 18,004 Au Eq. ounces.

“The stock is down 23% on a one-year basis and is one of the group’s worst performers.”

Despite the company being a solid trading tool and completely debt-free, its stock is yet to be considered as a proper long-term investment like that of Franco Nevada Corp, Royal Gold Inc RGLD, or Wheaton Precious Metals Corp.

Nolan Watson remains confident: “We’re excited at Sandstorm to have a strong balance sheet, a strong portfolio, and significant growth ahead … We have $52 million in the bank. These are good times for Sandstorm and I genuinely think they'll keep getting better.”

Disclousre: No positions in any companies mentioned.