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spk00: Good morning. My name is Michelle and I will be your conference operator today. At this time, I would like to welcome everyone to the Sandstorm Gold Royalties Conference Call. All lines have been placed on mute to prevent any background noise. Please be aware that some of the commentary may contain forward-looking statements. There can be no assurance that forward-looking statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star then the number 1 on your telephone keypad. If you would like to withdraw your question, please press star 2. I would like to remind everybody that this call is being recorded today. November the 4th, 2021. And I would now like to turn the conference over to Mr. Nolan Watson. Please go ahead, sir.
spk05: Thank you, Michelle. Good morning, everyone, and thank you for calling into this third quarter earnings call for 2021. This morning, I'm going to provide an update on the company, including our official announcement about becoming a dividend-paying company, as well as answer some common questions that we've been getting from investors, and then Irfan, our CEFO, is going to walk us through the third quarter results, and then Dave Warren is going to provide a brief update on a few of the assets underlying our streams of royalties. After that, we'll turn it over to the operator for a question and answer, period. And if anyone has any questions that do not need to be part of a live Q&A, you can ask those through the web portal, and we'll ensure that each question we get there will get a direct response from us after the call. At this time, we'll be going through a prepared PowerPoint presentation on the web portal. So if you're able to, please turn your attention there now. First thing I would like to update everyone on, as it's usually the first question I get from investors during meetings, is the timing of the hog mod and EIA and the status of the project. My understanding is that the project has now successfully completed every single stage of the EIA process with flying colors and is simply awaiting a signature to be granted. As many of us who have been in the mining industry for a long time well know, Sometimes this last step takes a week, and sometimes it takes a few months, depending on how busy the government individuals are. Although we're disappointed with the delays, and as a Sandstorm shareholder myself, I'd much prefer to have that signature in hand, I'm happy that the project continues to move forward in many other ways, including other minor permits and government approvals that keep rolling in, and the project continues to take steps forward even during this time. In the meantime, Sandstorm continues to not only be realizing strong cash flow from our streaming and royalty portfolio, but we are finally at the long awaited point where our board has officially approved for Sandstorm to become a dividend paying company. This has been a long time coming, but I'm particularly excited to be able to share these details with you. What we've decided to do is initiate the quarterly dividend each and every quarter going forward. The first of these dividend payments will be paid to investors during Q1 of next year. The exact details of the record date as well as the payment date will be determined soon, and we'll send out a separate press release informing investors of those specific details. The dividend has been targeted initially at approximately a 1% yield per annum, which we feel walks the balance of us wanting to return some capital to shareholders and also sends the clear message that we are still a growth company. The bulk of our cash flow will still be used to grow the company aggressively. This 1% yield works out to approximately 2 cents Canadian per share per quarter, with Canadian shareholders receiving dividends in Canadian dollars and all of the shareholders receiving dividends in an equivalent value but denominated in U.S. dollars, meaning non-Canadian shareholders will be paid in U.S. dollars, but the amount will work out to be a bit less than 2 cents U.S. per share. Our plan with this dividend is to re-evaluate the payout ratio each and every year. with the belief that if we're able to execute our business model well over time, we will be able to demonstrate a long track record of annual dividend increases while maintaining ourselves as a growth company. I'm particularly excited about this milestone for Sandstorm, and I hope most of our shareholders are too. The next thing I would like to update shareholders on is another form of capital allocation that has continued to be relevant to Sandstorm, and that is share buybacks. As many of you know, we have a long track record of stepping into the markets, and purchasing our shares whenever we feel we're trading at an unjustifiably low valuation. And as our share prices come under pressure in recent months, we once again started repurchasing shares under our normal course issuer bid. In fact, we've now purchased approximately 4.4 million shares of Sandstorm during 2021, the vast majority of which have been purchased very recently in September and October. Over the past four years now, we have repurchased 19.9 million shares, which is over 10% of our company. We believe that the delay in the HODMOD and permit has provided us an opportunity to repurchase some shares at very cheap prices, and we've been very happy to do that over the past couple of months. And if our share price continues to stay in this range, we'll likely continue to pick away in the market. These shares we have repurchased over the past few years have been done at an average price of $5.40 U.S. per share, which we think is quite the bargain. The last common question I'll address this morning is what does our current deal pipeline look like and do we think we'll be able to continue to grow in this competitive environment? So I'll draw your attention to this next slide six. So far this year, we have completed three acquisitions for a total of $153 million U.S. From what I see in our pipeline, I think there's the possibility of another medium-sized deal in precious metals in the next two to three months. Depending on timing and if it closes by the year end, 2021 could be a record year of acquisitions for Sandstorm since inception. We have plans to continue to aggressively grow the company, and based on the potential deals we see in front of us, we're confident that we can do that. So far in 2021, we have allocated a total of $180 million U.S., with the bulk of that capital being for new acquisitions to grow the company, and with $27 million U.S. of that being allocated to share buybacks. Sandstorm's portfolio is generating enough cash flow that we can continue to grow the company and shrink the share float and initiate a dividend. I know that there's been a recent sell-off in gold equities around the world, and Sandstorm has been particularly hard hit, but we're pleased to be in the enviable position of growing the company and shrinking the share float and initiating a dividend. It isn't hyperbole to say that the fundamentals of Sandstorm's business are stronger than they have ever been and will continue to build up business for shareholders. With that, I'll hand it over to Irfan to discuss the quarterly results.
spk03: Thanks, Nolan. And thank you to everyone who's tuned in this morning. I'm going to take a few moments and review the highlights from the third quarter financials. On this first slide, we see the trend in revenue, attributable gold production, and average realized gold price over the last four quarters. During the third quarter, Sandstrom generated $27.6 million in sales and royalty revenue from its cash-flowing assets. This represents an increase of approximately 19% compared to the third quarter in 2020. The company sold approximately 15,500 attributable gold-equivalent ounces at an average realized gold price of $17.79. The slight reduction in ounces sold this quarter compared to Q2 was previously anticipated due to a few changes in production schedules of certain assets, which I will discuss in a minute. Regardless, Sandstorm is on track for another record year of production, with nearly 51,000 gold equivalent ounces sold for the nine-month period ended September 30, 2021. In fact, we're increasing the bottom end of our guidance and believe we'll hit 64,000 to 69,000 gold equivalent ounces in 2021. The next slide compares the third quarter of 2021 with the results of the third quarter in 2020. As I've mentioned, Sandstorm realized a 19% increase in revenue and sold 29% more gold equivalent ounces when compared to the third quarter in 2020. The increases were largely due to revenue attributable to the recently acquired Valley Royalty package. and an increase in revenue from various assets, such as the Fruita del Norte mine. In addition, the average price of copper and silver have increased by 49% and 36%, respectively, when compared to the same period in 2020, which contributed to the increase in gold equivalent ounces sold at our copper and silver royalty and streaming assets. Moving down the list, cash costs Per tribulant ounce was $238 for the third quarter, resulting in cash operating margins of $1,541 per ounce. Cash flows from operating activities, excluding changes in non-cash working capital, increased by 16% compared to third quarter in 2020, and net income was up slightly at $6.6 million. Taking a look at the production breakdown by asset on the next slide, you will note that the Yamana Silver Stream was a top contributor for the quarter. Cerro Morro, the underlying asset of the Yamana Silver Stream, contributed over 2,300 gold equivalent ounces in Q3. Despite leading the portfolio in production, silver deliveries were down slightly. Under the stream agreement, there is a lag of one quarter for silver deliveries from the Cerro Morro mine. For example, The attributable ounces in the third quarter is based on the mine's production in Q2. There are more of second quarter production was down slightly compared to the previous periods, partially due to site improvements that were originally slated for the second half of the year. This decrease in production was partially offset by the increase in silver price that I mentioned previously. It is worth noting that there's an annual cap of 1.2 million ounces of silver under the stream agreement. which works out to 300,000 ounces per quarter. If Sandstorm hits this cap in one quarter, but not all quarters, there is a true-up delivery that occurs at the end of the year, which will be realized in our first quarter production figures. The Chapada Copper Stream was another strong contributor to third quarter production. Compared to the third quarter in 2020, Chapada contributed over 80% more gold-equivalent ounces. This was largely due to the increase in the average selling price of copper over the last year. As I mentioned earlier, the newly acquired Valley Royalty Package was a large contributor to the company's production results. The long-life assets underlying this Royalty Package were a welcome addition to Sandstone's portfolio in June of this year. The other part of the deal announced in June was the Vatacoola Gold Stream. This transaction is expected to close in the fourth quarter, and we expect the fixed gold deliveries to begin soon thereafter. The next slide provides a breakdown of the third quarter production by region and metal type. Nearly 40% of gold accrual ounces were attributable to North America, and over half coming from South America, largely driven by Cerro Moro, Chapada, and the Valley Royalty Package. Looking at metal type, two-thirds of production came from precious metals, over half of which was gold. The 30% of production from base metals is largely driven by the company's copper assets in the Vale royalty package. Sandstrom remains focused on precious metals, and we continue to anticipate approximately 80% of revenue coming from gold and silver by 2024. Finally, I want to highlight the company's increased revolving credit facility that was announced in October. Sandstorm amended its revolving credit facility agreement, allowing the company to borrow up to $350 million U.S. With this new loan, Sandstorm became the first royalty company to establish an ESG-linked credit facility, and one of the first mining companies to have an internally customized KPIB-based facility. This loan incorporates sustainability-linked incentive pricing terms that allow us to reduce the borrowing costs as the company's sustainability performance targets are met. These performance targets include increasing the percentage of our investments that align with sustainability and climate-related reporting standards, as well as maintaining or improving certain external ESG ratings and diverse representation amongst senior management and board members. Since the beginning of Sandstorm, management has been committed to taking actual steps to improve ESG factors in our industry. And that's why we continue to be highly rated across so many of the different metrics that rate the companies in the industry. And I'm particularly pleased to be part of innovative solutions like this that benefit shareholders while also improving corporate responsibility. With that, I'll pass the mic over to Dave for some asset updates.
spk02: Thanks, Stefan. This quarter, we'll focus on developments on three of our larger projects that have all had great exploration success, a trend we expect to continue for all of them. In September, Equinox announced the results of a pre-feasibility study on a future expansion in Arizona. The project is now expected to produce an average of 137,000 ounces of gold per year over 11 years, with the extra life coming from an underground mine under the current Piava PED and two satellite open pits. What's really exciting about this new plan is that it leaves the door open for additional satellite pits and, of course, additional underground material. Both Tetejuba and Janepapo were discovered years ago, but other more recently discovered zones, like Mokoch, Toro, Maestro Chico, and Piaba North Trend, are still yet to be folded into a potential mine plan, but all remain legitimate candidates for further development. Even beyond that area are the Greenfields area to the south, which hosts the same prospective rocks. Underground, there yet remains opportunities to explore at depth. Equinox has done a great job of revealing the potential of this asset, and with any luck, we may see the mine life extend much longer than the current 11 years. Moving on to Lending Gold and Peruta del Norte, we see some great operational results from the mine with now at least five quarters in a row of beating expectations on production. Lundeen has been talking about this year's mill expansion from 3,500 tons to 4,200 tons per day operation for almost a year. And as of today, they are mining at a rate of 4,200 tons per day. The stockpiling of the ore speaks to their confidence of completing the expansion and processing at the higher rates soon. Lundeen also continues to focus on resource expansion. A particular interest is the current inferred resource, which is being drilled from the underground sites. Hopefully, this will add meaningful life to the mine. In addition, they are well into their long-awaited regional exploration program on Barbasco and Puente Princesa within the Suarez pull-apart basin. This exploration is focused on finding a lookalike fruit of deposits, previously untested but prospective areas. Other regional targets will be pursued once permits are obtained. Initial assay results are expected this quarter on at least the Barbasco target, but by early next year we should know whether these are new discoveries within the basin. For Cerro Moro, I'll speak a little bit about how the deliveries have worked quarter to quarter and then a little on some new plans for expanded production. In Q3, high clay content caused clarification challenges, but despite this, production was 86% higher than Q2, and a further increase is expected into the fourth quarter. A new method of feed blending and a new supply of feed water have been implemented, which seem to have increased recoveries overall. We'll go a long way to addressing this problem. Yamana has also opened more mining phases to increase mill feed, which is another trend expected to continue. Q4 is expected to have the strongest quarter of the year, and the mine should get back to normal rates compared to the beginning of the year. And as our friend pointed out earlier, there was one quarter delay in delivery, so expect this better Q4 performance at Saramaro to be reflected later on for Sandstorm. As for expansions, Humana has commented on the ability to scale up to as high as 2,200 tons per day, which is double the original design, and they expect to do this at a minimal cost. The additional tonnage may come from existing material that is currently below cut-off grade, but could become economic based on the increased throughput. In addition to the expanded milling scenario under study, Cerro Moro is also contemplating a potential heap leach scenario. Recognizing that there are lower-grade oxides present allows for the opportunity to examine this potential new mining method. An initial study has begun and metallurgical work is ongoing as they study this addition to the overall production at Cerro Moro. Exploration work continues to focus on the Escondida-Zoe structural corridor, with success along strike and down dip. The bulk of the samples taken this year are still out for assay. However, results received have indicated that they are seeing strong success within this corridor. On a more regional basis, they are employing more geologic mapping, geochemical sampling, and CSAMT geophysics to identify targets. So far, Scout Drilling has found some promising targets, and I remind you that this is a very large area, over 2,000 kilometres square under our AOI, so we hope much more high-grade material to be discovered on the property. So, with that, I'll pass over the call to the operator, Michelle, for a Q&A. Please feel free to ask questions about any of our royalties and streams.
spk00: Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star, followed by the one on your touch-tone phone. And if you would like to withdraw your question, please press star, followed by the two. Please stand by for your first question. Your first question comes from Hakio Eel of H.C. Wainwright. Please go ahead.
spk04: Hey, it's Heiko. How are you? You already answered my first question in relation to Hot Moderna, your prepared remarks, but I got just two more little quick ones for you there. Can you elaborate a bit on the environmental, social, and governance link credit facility? I've never really heard of anything like it, and I did some Google searching earlier today, and there's only a few results, frankly, with just a few banks and firms. what exactly are the terms and benefits? I mean, you mentioned various targets earlier on this call, but maybe just in more detail and also assuming you hit these targets, what does that do to the rate that you have to pay versus just having a normal facility? I guess, in other words, I'm trying to say, is this mostly punishment if the ESGs aren't met or what's your upside if you actually deliver?
spk03: Yeah, thanks so much for that question. And, um, And yes, I agree, not many companies, especially in North America, are familiar with ESG-linked loans. It's something that originated mainly in Europe and it slowly made its way into the markets here. And so you can see that being the first, there's a lot of questions on it. I'll maybe address the last point of your question about what is the impact. The impact of the facility on the ESG ratings If we're able to hit those ratings, the impact on our pricing is about five basis points, whether it's a drawn or standby basis. And the extent we are very offside on those performance metrics, then you can have unfavorable pricing of the same amount of five basis points. So it's not a material impact on our cost of capital, but it, I think, signals the things that we care about and the things that are important And those specific metrics are, one, as an entity that gets to deploy capital, we can encourage the people that we deploy capital to in meeting certain reporting standards from a carbon sustainability perspective. And so there's some formulas and percentages there to get there, but as you can see, as our portfolio matures and the quality and strength of our counterparties improve, you can see that we'll hopefully be hitting a lot of those metrics. The other one being Standard & Poor's, they do a rating of a company based on essentially various metrics from water usage and carbon impact to governance and the social impact that the company has. And then they give you a score. And that score is like AAA or AA all the way to B, so similar to other rating agencies. And Sandstorm, we're actually rated AA, and I don't believe there's any other mining company out there that has a higher rating than us. And so the key is maintaining that rating. And then the third component is as we started Sandstorm many years ago over the last decade, we've ensured that our workforce senior management board is diverse, and we have about 40% of our senior management board members that have that diverse mix of thoughts and opinions. And and make up and the metric under the ESG loan is improving that or maintaining that threshold. So that's the summary of the ESG link loan.
spk04: Got it. And then just thinking out loud conceptually here, I mean, you're initiating the dividend and you also have a quite meaningful share repurchase program. Thinking out loud here, do you think the shareholder returns from the dividend are going to be in addition to returns from the share repurchase program? Or do you think the repurchase figures that we saw in Q3 and frankly also in Q4 thus far are likely to shrink in the longer term as the dividend keeps growing?
spk05: So the way we look at it is now that we're a dividend-paying company, we're going to have that dividend repayment to shareholders be a permanent thing and hopefully growing year over year over year. So when it comes to share repurchases, the way we're going to be evaluating it is weighing the capital allocation of share repurchases versus the capital allocation of acquiring new streams and royalties. It's my hope that over time, as we continue to build the company, that our share price will re-rate and trade more in line with our peers, in which case we will probably stop buying back shares and refocus all of that capital to aggressively growing the company. If that takes time, and we continue to trade these low multiples, you'll see some of that capital being allocated to share repurchases. And the interplay of those two is going to determine how much capital gets allocated to share repurchases.
spk01: Makes sense. Thanks for taking my questions. I'll get back to you. Thank you.
spk00: Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star 1 on your telephone keypad now.
spk01: Mr. Watson, there are no further questions from the phone line, sir.
spk00: I'll turn the conference back over to you.
spk05: That's great. Thanks, Michelle. And thanks again, everybody, for calling in to today's call. And as always, we're going to be here in the office all day. If you have any further questions, feel free to just phone us here at the office and we'll answer them. Have a great day.
spk00: Ladies and gentlemen, that does conclude your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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