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Operator
Good morning, my name is Joanna and I will be your conference operator today. At this time, I would like to welcome everyone to the Sandstorm Gold Royalty's 2024 Second Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. 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 this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star two. Thank you, Mr. Watson. You may begin your conference.
Watson
Thank you, Joanna. Good morning, everyone, and thank you for calling into our Q2 earnings call. As usual, in a few minutes, I'll hand things over to Irfan, our CFO, to review our quarterly financial earnings and highlights. And before I do that, I would like to give a brief update on our business and specifically hone in on four key points, those being number one, an explanation of our Q2 production, which was below budget, two, a status of where our debt is and is expected to be by the end of the year, three, an update on our share buyback plans, and four, and finally, I'd like to talk about our next steps of growth as a company. So with respect to number one in our Q2 production, I would describe it as an uncharacteristically weak and hopefully unlikely to reoccur quarter. During the second quarter, there were a number of temporary effects that caused the quarter to be below our expectations, including Arizona having problems with its Beaba pit, Cerro Moro and Chipada moderately underperforming, and Greenstone taking longer to begin delivering first gold to Sandstorm than originally budgeted. But I would like to reassure everyone that each of these items are all temporary and not only are we expecting these mines to rebound, the Greenstone mine is now up and running and delivering gold to Sandstorm under our stream. We did not receive any material amounts from Greenstone in Q2. However, even here in July and now into August, we're seeing the ounces starting to come from that gold stream. So Q3 should be our first quarter with some Greenstone production. And as they continue to commission and ramp up their mine, our gold sales will ramp up correspondingly. One of the other reasons for the dip in gold equivalent production in Q2 relates to the recent significant increase in the price of gold relative to silver and copper. Specifically, our annual gold equivalent ounce production estimates were based on $1,800 per ounce gold, which was close to the gold price at the time that we set our budgeted numbers. Now that the gold price has increased significantly above $2,400 an ounce, it means that our silver revenue and copper revenue turns into fewer gold equivalent ounces at this high gold price. In fact, our Q2 gold equivalent ounces are lower by more than 2,000 ounces just from this pricing effect of converting copper and silver into gold equivalent ounces. I, for one, though, am not going to complain about high gold prices. And as gold prices are now around $2,500 almost, we are still expecting, even with these high gold prices, our 2024 gold equivalent ounces to be between 75,000 to 85,000 ounces per year, with these figures expected to increase eventually to 155,000 ounces per year once both Hodd-Mudd and Anmara have been built. This is nearly a 100% increase in gold equivalent production over the next five years. Point number two, at the status of our debt, we continue to use the majority of our cash to pay down our debt. And as I sit here this morning, our debt balance is down to $383 million US. And therefore, our goal of getting debt down to $350 million by the end of the year is well on track. And that leads me to point number three, which is because of high gold prices, we've been able to not only bring our debt down as anticipated, we have also been able to simultaneously buy back some of our own shares. We have a small share buyback plan in place, which is approximately 10,000 shares per trading day, as long as we're not in blackout. For example, today we are in blackout because of the earnings release, so we can't buy shares today. But on Monday, we'll be back in the market buying small amounts of shares. This plan may change from time to time, as we're currently focusing the majority of our cash flow on paying down debt, and we'll continue to do so with the goal of getting our balance sheet ready for our next leg of growth. Which brings me to my final point four. We're in a fortunate position to already own growth assets in Greenstone, Platte Reef, Robertson, and Hodd-Modden, and we have the right to purchase the Maristream, which we anticipate doing. These assets should nearly double our production from where we are today, so the future is bright at Sandstorm. If you take a look at this slide, which is our current best estimate of our top seven assets by value, you can see that four of these seven assets were not even in production yet during this Q2 results that we're talking about this morning. Hodd-Modden, Platte Reef, Greenstone, and Marrow will all be very important contributors to Sandstorm's future, and we're looking forward to that very bright future. Another way of looking at it is that in Q2 of this year, only 55% of Sandstorm's NAV was in production. By the end of next year, that number should be up to 72% as Greenstone ramps up and Platte Reef comes online, and then by 2029, we expect 88% of our NAV to be in production. Our portfolio is maturing quickly. And as a reminder of the cash flow generating capacity of that portfolio, you can see that once those ramp ups do happen by 2029, we expect our portfolio to be able to generate after-tax cash flows of close to a quarter billion dollars per year. Now, we're continuing to pay down our revolving debt facility, and as we do that, we're opening up room on it for potential future acquisitions that would grow our production even further, and we're starting to once again look at such potential transactions. What I want to emphasize, however, is that we are not contemplating any transactions that would cause us to have to raise equity. We want to decrease our share count, not increase it, and also we're not contemplating any transactions that would cause us to have to draw down too much on our revolver to the point where we would no longer be comfortable buying back our own shares. Overall, I want to be clear that with our significant free cash flow, we are still predominantly focused on debt reduction with the purpose of recharging our balance sheet so we can eventually begin our next leg of acquisition growth and grow from a position of financial strength while avoiding dilution. We are very fortunate to be in this position to be able to do this while having a nearly 100% increase in production coming from our existing portfolio. It's a good place to be. And with that, I'll hand it over to Irvin.
Irvin
Thanks, Nolan. Looking at the financial results for the three-month period ended June 30th, gold equivalent production totaled just over 17,400 trivial ounces. I can only mention there were a few factors that resulted in slightly softer production numbers when compared to the previous quarters. Some of these I'll discuss in a little minute, but the company remains on track to achieve a trivial production between 75,000 and 85,000 gold equivalent ounces in 2024. Stronger gold prices boosted revenues during the second quarter, with the company recognized over $41 million. Elevated commodity prices have been a welcome tailwind against the mining industry in the first half of this year. While during the second quarter, the Sandstorm realized average gold prices of $2,313 per ounce from the company's gold streams and achieved a new record for cash operating margins of over $2,040 per trivial ounce. As Nolan discussed, shareholders have a lot to look forward to over the next few years as the company's portfolio continues to mature. Over the near term, we anticipate stronger production as the Greenstone mine continues to ramp up following its first gold four in May. The Greenstone gold stream was purchased as part of the company's acquisition of Nomad Royalties in 2022 and is one of the most material development assets from that acquisition to come online. Once fully ramped up, Greenstone expected to contribute between 8,000 and 10,000 gold ounces annually to Sandstorm. Quarterly revenue was comprised of $25.8 million in sales from streaming contracts and $15.5 million in royalty revenue. With strong operating margins, the company had $32.6 million in cash flow from operating activities, excluding changes in non-cash working capital. These exceptional cash flows continue to support our effort in de-leveraging the company's balance sheet. Debt repayment has been our primary focus over the last 24 months following various asset acquisitions in 2022. During the second quarter, the company made net debt repayments of $27 million on its revolving credit facility. And as Nolan mentioned, we have $383 million debt outstanding as of now and an undrawn and available balance of $242 million. Net income for the quarter was $10.5 million compared to $2.7 million for the comparable period in 2023. The increase was partially driven by a fair value revaluation gain of approximately $7 million as a result of the settlement of the company's debenture due from Versamette Royalties, which was formerly known as Sandbox Royalties. The debenture was settled by way of conversion to common shares of Versamette resulting in a $2.7 million gain. In June, Versamette announced a transaction with B2 Gold, which subsequently valued Versamette at nearly $300 million. The settlement of Sandstorm's debenture highlights the next step in daylighting value for Sandstorm shareholders, which was the underlying investment thesis back in 2022. As previously disclosed, Sandstorm renewed its normal course issuer bid in May and was actively buying back shares throughout the second quarter. For the three months end of June 30th, the company bought back and canceled nearly 460,000 common shares for total consideration of $2.5 million. Subsequent to quarter end, the company has purchased approximately 90,000 additional shares while not in blackout. We expect this level of buyback activity to continue for the remainder of the year, as Nolan mentioned, and we're pleased to once again be able to return capital to shareholders via share buyback in addition to our quarterly cash dividend. Gold equivalent ounces for Q2 reflected lower production at some of the underlying assets in the portfolio when compared to the second quarter in 2023. Attributable production at Ceramoro reflected decrease in head grades and the corresponding decrease in silver sales. This was partially offset by an increase in the average realized selling price of silver, which is approximately $28 compared to $25 per ounce in the second quarter of 2023. The realized selling price of silver is reflective of the silver market in early April, as Sandstorm typically receives its material silver deliveries, including deliveries from Ceramoro early in the quarter. In April, Equinox reported displacement of material in the Piappa pit at the Arizona mine, resulting in restricted access to the pit. As a result, Equinox paused mining at Piappa to establish a remediation plan. Milling and gold production continued from Ore stockpile through April, while mining activity commenced at the Ore-Azona Tata-Juba pit, which is also within Sandstorm's royalty claim. Equinox anticipated ramp-up of mining activities at Tata-Juba to Bruce Ore for plant feed in June going forward. Partially offsetting these decrease in sales and royalty revenue was the 56% increase in the number of copper pounds sold from the Chapada copper mine. The average realized selling price of copper also increased to $4.22 per pound compared to $4 per pound in the same period in 2023. Finally, taking a quicker look or a quick look at a breakdown of our attributable gold equivalent ounce sold during the second quarter, over 80% of our ounces sold came from operations in the Americas, 17% of which came from operations in Canada. We expected this to increase over the coming months and years as the greenstone ramps up to commercial production. Sandstorm continues to be a precious metal focused company with nearly 70% of attributable production coming from precious metal and only increasing more with time. While our material copper assets, Chapada, Antimida, and Caseronis continue to provide excellent exposure to our preferred base metal. With that, I'll pass it over to Dave for a few updates. Dave.
Dave
Great. Thanks, Sir Fen. Good morning, everyone. Today, I'll speak to Troilus' new feasibility study, Endeavor's expanded drill program at Hyundai, and also an interesting chart regarding the big increase in attributable reserves and resources Sandstorm has realized in the last couple of years. But first, a quick discussion on drilling at Hugo North Extension. So, Entrez resources recently released drilling results from both surface and underground locations at Hugo North Extension on the Oitoagoy joint venture ground. Although the drilling took place in 2022 and 2023, Entrez received results only a few weeks ago, but they're definitely worth the wait. Highlights from surface drilling include one hole with 398 meters of about 2% copper equivalent and another with 400 meters of about .4% copper equivalent. Highlights from underground drilling include two holes that graded about .7% copper equivalent, one being 124 meters and a separate one being 114 meters. There was also a number of very wide intercepts underground with two notably wide ones, one over 574 meters, grading almost .9% copper equivalent, and one almost 365 meters of .5% copper equivalent. Of course, each of these had higher grade intervals within, but when you look at all the holes and where they sit relative to the current reserve and resource, it paints a great picture of how special this deposit is and how Rio Tinto, the operator, is finally looking to expand the ore body. A primary direction is to the north along trend, which is, of course, the ground on which our streams apply. In addition to the eye-watering drill results, Entrez also offered an update on the underground development. Shafts three and four have reached their final depths. These shafts are key for support of panels one and two of the block game and will allow for a greater level of development. Entrez is also guiding that development work on the JV ground begins in Q4 2024, which is exciting to see the very first underground work beginning in the area covered by the stream. After a long wait, Sandstorm has started to see the light at the end of the tunnel, and I expect to see more regular updates on work and ultimately production from that OU Togo joint venture ground. So, moving on to the recently announced feasibility study on the Troy List deposit in Quebec, which we own a 1% NSR on. The study revealed 6.7 million ounces of gold equivalent to be mined over 22 years from this past producer. Troy List is looking to produce and sell a concentrate that has average annual production of 303,000 gold equivalent ounces over those 22 years, with a peak of production of over 536,000 gold equivalent ounces. The overall MPV 5 using April 20, 2024 average prices for gold, copper and silver is over $1.5 billion U.S. So, the economics are great for this project. Troy List is shaping up to be another big Canadian gold project, and we can't wait to see it move forward. Next steps on the project is finalization of the environmental and social impact assessment and continued exploration of the property. Moving on to Hyundai, I certainly want to speak to the success of exploration that Endeavour Mining is having on the project. Now, our royalty does not cover all the areas that they've been exploring, but so far it seems that there has been an important focus on the ground that our royalty does cover. Endeavour had originally budgeted $7 million for exploration at Hyundai in 2024. However, with the success at Vindaloo, they have increased that to $10 million for the year. It seems that the Vindaloo deeps target is looking very promising for potential underground operation, but they also stress exploration success and resource delineation at Coho portfolio through its acquisitions of Basecore and Nomad. The first important point is that post the acquisitions of these companies, we now have an average mine life of 25 years for our top 10 assets in the portfolio. And as the years pass, those mine lives are increasing with exploration success rather than just depleting. Second, with the reserves and resources that these two major transactions and the success of subsequent exploration at the underlying assets, we've seen attributable reserve royalty, gold equivalent ounces almost double. And resources, both measured and indicated and inferred categories, have almost doubled as well. We like to use this indicator as a way of demonstrating how important and effective those acquisitions were to a creative growth sandstorm. So, with that, I'll hand over the call to Joanna, the operator, for a Q&A session. Please feel free to ask questions about any of our royalties and streams. Thank you.
Operator
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. If you would like to withdraw your question, please press star followed by two. And if you are using a speakerphone, please lift the handset before pressing any keys. The first question comes from Hiko Eli at HC Rainway. Please go ahead.
Hiko Eli
Hey there. Thank you all for taking my questions on a very interesting stock market.
spk03
Can you hear
Hiko Eli
me?
spk03
Yep.
Hiko Eli
Your stated goal is to get the debt down to 350 million bucks by the end of the year. I mean, goals effectively at an all-time high, especially if you look at some non-USD currencies. You mentioned your share of the BAPI client at 550, that seems quite appealing. But with the debt and given current gold prices and the commensurate cash flow, is there any a stretch goal that you think is achievable given the cash flow that you're getting with the current commodity prices? Do you think we could get this to call it 330, 335 by the end of the year?
Watson
Yeah, I'm not going to throw dart boards with changing commodity prices and stuff like that. But the goal of getting it to below 350 by the end of the year, originally the goal was to get it to 350 and then start buying back our own shares. Because the gold price has gone up so much and our cash flow has been higher than was anticipated, we're buying back shares even before we get there and we're still going to get it to below 350 by the end of the year. And if we continue to get these strong commodity prices, hopefully we get it below there and continue to buy back shares and just recharge that balance sheet. There is a lot of cash flow coming in and it's kind of a fun job having to allocate it between a bunch of intelligent ways to do so.
spk03
That's fair.
Hiko Eli
I know you stated you don't intend to monetize assets in the press release. But nonetheless, have there been some conversations at least, even just early stage with mine operators that want to buy back streams on their own assets, even though they may not have the contractual right to do it, just given that the current gold prices have changed their internal calculations a bit?
Watson
No, not at all. It's something that we don't really engage in. If a mining company ever asks to buy back a streaming royalty, we say no very quickly. And I think all the other streaming royalty companies do as well. And people know that. They stop asking.
Hiko Eli
Okay, here enough. That's what I assume you would say. Thanks so much. I'll get back to you.
Operator
Thank you. Next question comes from Delvin Lee at Scotiabank. Please go ahead.
Delvin Lee
Hey, good morning. Mel and Dave, thank you for taking my question. So following on with that reduction, so you're probably in $315 million by year. And do you have any longer term comments beyond 2024?
Watson
Yeah, the way we look at it is once we're below $350 million, we're just going to continue to pay off that debt as quickly as possible because it's a revolving line of credit. And we can redraw on it at any time to make acquisitions. So our goal is to get that number as low as possible before we start swinging big for our next series of transactions because we want to grow methodically. We want to do it from a position of strength. We never want to be viewed as over levered again. So we're really focusing on just getting that number as low as possible while we continue to look for deals.
Delvin Lee
Right, that's good. Thank you. In terms of the M&A strategy, personally, is your deal size still mostly around -$300 million?
Watson
Yeah, in terms of things that we think we could do now without over levering ourselves, it would certainly be things that are $100 million or less. As we continue to pay down our debt, that number grows.
Delvin Lee
All right. I think the core dev team is spending like half time on cash flowing assets, something that we are to have on long-term, at an earlier stage, optionality assets. Do you guys still hold true?
Watson
Right now, we've given our corporate development team the guidance that if we're going to do a material transaction, it needs to be something that's either cash flowing now or is being built and will be cash flowing within a year or so. We're not looking at deploying material amounts of capital for things that are long-dated optionality. What we are looking for simultaneously, though, are really small dollar, small royalty transactions, trying to find them at the point of discovery where we can build in rights of first refusal to do the stream financing if and when they eventually go to build the mine. So those contracts are small dollars, but they do take a lot of time to find those opportunities that are hard to find. So we're looking sort of both ends of the spectrum that way.
Delvin Lee
So my last question is about shared buybacks. Is it fair to assume that you continue to buy back too much, two million, two and a half million for quarter, to the rest, 24 and 25 on the buyback? Would that be a fair assumption?
spk03
If the two fans know David, I'm sure until the end.
Watson
Yeah, our plan right now is we're sticking with sort of 10,000 shares a day. If we see big swings in our share price, for example, today's a big down day, even though gold is really strong and fundamentals are strong. You know, we reserve the right to change that and make decisions on the fly that we think are intelligent capital allocation decisions. But right now, the plan is to use the bulk of the capital to pay down debt and a small portion of it for buying back shares.
spk03
All right. Appreciate it, Thomas. Thank you so much. Those are all my questions. Thank you.
Operator
Thank you. Ladies and gentlemen, as a reminder, should you have any questions? Please press star one. Shun comes from Derek Ma at TD Cowan. Please go ahead.
Shun
Thank you. In terms of Arizona, what is the company's expectation for Geos in the second half of the year?
Watson
Yeah, we have some internal numbers that we're not going to give specific guidance on on that mine. But my understanding is that Arizona, they have opened up and have started mining Tata Juba and they are turning back on the mail. And so we are expecting production to get back, maybe not quite up to normal, but closer to normal for the back half of the year.
Shun
Closer to Q1 levels.
Watson
Potentially, but not necessarily. And we'll see how it goes. We just don't have the data to tell us.
Shun
OK, fair. And then in terms of the valley royalties, the South Eastern system, when in 2025 should we expect Samsung to start receiving royalty payments on that?
spk03
I'll have to double check, but. Yeah, yeah,
Dave
the time
spk03
the
Dave
timing happens on those payments kind of on a rotating basis, so it should be, I think, in keeping with almost where it's been for the last several
Watson
years. We get paid semi-annually, so when that when that kicks in, it'll get caught up in whatever is the next semi-annual.
Shun
Right, so if it's second half, that could happen in 2026. Yeah, got it. OK, and then finally on the evolved royalty sales, the remaining portion of the cash proceeds that you expect to receive. What is the correspondence that you're having with green technologies? Do they have a right to buy back the royalty or is it something else?
Watson
It's something else which I'm not going to get into the details of, but that's the last remaining five million dollar piece of that transaction. We're trying to close it and there's a chance that it may not and I'm not going to get into the details of it.
spk03
Yeah, OK, all right. Thank you very much.
Operator
Thank you. And the next question comes from Brian MacArthur at Lehman James. Please go ahead.
Brian MacArthur
Good morning and thank you for taking my question. One of mine is around evolved too. Where is it on the balance sheet given this uncertainty? Is it in short term investments or is it in something else at the moment? In cash. So even the five million is in cash? So if you don't get it, the cash goes back out? No.
Watson
So the original transaction was 20 million dollars all cash in two payments. The first one is 15 million of cash. The second is five of cash. They paid 15. We've closed that part and it's the second part that may or may not close. If it doesn't close, there will be no shares. So there's no evolved sitting in our investments anywhere. OK,
Brian MacArthur
thank you. And just my second one goes back to VersaMet because you mentioned it was 300 million dollar valuation right now. But I'm just trying to match it again to the financials because you're carrying value 65 and I think you own 28 percent, which imply it's worth more than 85. Has there been something that's happened since quarter end that's changed that? Because I thought the other convertible was done in the quarter. I'm just trying to reconcile where the 300 comes from.
Irvin
Yeah, that's referencing enterprise value and the amounts that you see in investment associates are carried at cost. So they don't get into a revaluation of your initial investments and accounting kind of unique components of market to market.
spk03
OK, great. Thank you very much. That's very helpful.
Operator
Thank you. We have no further questions. You may proceed.
Watson
All right. Well, thank you, everyone, for calling in. And as usual, if you have any questions, feel free to phone us here at the office and have a good day.
Operator
Ladies and gentlemen, this concludes your conference for today. We thank you for participating and we ask that you please disconnect your lines.
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