Sandstorm Gold Ltd.

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 Third Quarter Results 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 this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by the number two. Thank you. Mr. Watson, you may begin your conference.

Thank you, Joanna. Good morning, everyone, and thank you for calling into our Q3 earnings call. Before I hand things over to Irfan, our CFO, to review our quarterly earnings highlights, I'd like to give an update on a number of things in our business and specifically, number one, an explanation of our Q3 production and what we're seeing for Q4 so far, including colors to our guidance range. Number two, a brief update on our key development assets. And with that, a discussion of how we plan on running the company to ensure our trading multiples increase over time as these assets progress. Number three, an updated discussion of our capital allocation plans including debt repayment rates and why we see those significantly accelerating. So starting with number one and our third quarter, which I would characterize as having record margins with underlying production of ounces and pounds relatively close to budget. There were some drags on gold equivalent ounces, one of which was a slower than ramp at Greenstone, which is our newest stream to come online and is one of our most significant assets. It's a stream that we're still very excited about, and as it ramps up, we expect future Sandstorm Gold to Golden production to increase in the quarters to come, and for the Greenstone mine to be an important contributor to our production for many, many years. Subsequent to quarter end, we note that Equinox declared commercial production at Greenstone, and recent throughput averaged over 20,000 tons per day, which is 76% of design capacity, and we'd like to congratulate them on this milestone, and we look forward to the continued ramp-up of Greenstone production over time. The other main reason gold equivalent ounces were lower than originally budgeted, which we also experienced in Q2 and will continue to experience in Q4, is that gold prices are much higher than we originally budgeted for during the year, and our copper streams and royalties and our silver streams and royalties are turning into fewer gold equivalent ounces. In fact, according to our original budget at the beginning of the year, for which we assumed $1,800 per ounce gold prices, we were expecting Q3 gold equivalent production of 20,300 ounces. Based on the number of ounces of gold and silver and pounds of copper, et cetera, that we actually received payment for in Q3, if the gold price had averaged $1,800 an ounce like we budgeted and silver and copper prices were also what we budgeted, the number of gold equivalent ounces we would have recognized in Q3 would have been close to 1,900 ounces. So we were actually within 6% of budget if not for the gold price going up. and averaging $2,520 per ounce during the quarter. And all that to say, the underlying portfolio is actually performing quite close to what we planned, except for a slower ramp at Greenstone. And I, for one, am never going to complain about higher gold prices, because not only is it increasing our cash flow, but when you look at all of our major ramp-up growth projects, being Greenstone, Platte Reef, Mara, and Hodmodern, they are all 100% gold streams. You can see from this slide that 70% of our Q3 revenue is from precious metals, But once all of those assets have been built and we're receiving gold under those new streams, we expect over 85% of our production to be precious metals. So high gold prices means more cash flow now and a bright future for Sandstorm. In the short term, because gold prices have gone up even further in Q4 compared to Q3 and are now around $2,700 per ounce, we expect this issue to be even more pronounced in Q4. and therefore we're updating our guidance range for the year to between 70,000 and 75,000 ounces. We'll wait until the early part of Q1 2025 to give guidance for the 2025 year, but even with these strong gold prices, we expect our production to be closer to 80,000 ounces next year because Greenstone is ramping up and our Arizona royalty should be online for a full year. Over the next five years, we still see our production increasing materially and eventually increasing to 155,000 ounces per annum, which is more than double our current rate of production. We have significant confidence in our future and our value, and it's mornings like these where some shareholders are selling shares that are clearly not paying attention to our value, and when they sell, we're happy buyers of those shares, and we cancel those shares to shrink our share float, and we'll likely do so next week once we come out of blackout. We're happy on behalf of shareholders who are paying attention to take advantage of situations like today. And that brings me to the second thing I wanted to talk about, which is a brief update, a reminder of our key development assets, as well as our company's valuation and how we see improving over time. I've been traveling a lot over the past couple of months talking to institutional investors, and there's one thing that has stood out to me from many of those conversations, which is that there's still a material knowledge gap by the investing public about our key development assets, the quality of those assets, the stage of development of those assets, etc., In one conversation I had, I was asked by an investor, who's the operator of Platte Reef? And when I explained that it was being built by Ivanhoe Mines, a company with a $20 billion market capitalization, they were surprised to hear that because they were an Ivanhoe Mines investor and they hadn't heard of Platte Reef, which I find hard to believe. But the reality is we focus on our asset base every single day, and sometimes we forget that other people do not. And all that to say we see an opportunity to provide more information on our current and prospective investors, about the key development assets and help keep investors up to date with progress. And with respect to Platte Reef, specifically later on this call, Dave Warren will give a brief update on that mine, which is being constructed now, and Dave will also talk a bit about what makes that mine so high quality. For our other two key development assets, being Mara and Hodmodern, we will also be finding ways to remind investors about their quality and help track their development. From Platte Reef, Mara, and Hodmodern, we expect eventual production to be between 70,000 to 85,000 ounces per year just from those three streams, which is as much or more production than we currently have from all 39 of our producing assets. Therefore, understanding the progress of these three assets is key to understanding Sandstorm and what will drive our share price in the future. Mara, for example, is perhaps the least well understood of these three assets. Because of its significant estimated mine life of close to 30 years, and significant annual estimated contributions to sandstorm between 20 000 to 30 000 ounces per year which at spot price would cash flow to sandstorm conservatively well over a billion dollars over its life this is set to become the most valuable asset in our portfolio and it's an asset that glencore has recently bought a hundred percent of and has publicly stated they plan on building it albeit without giving much guidance as to timing publicly Having said that, recent developments in Argentina have caused major mining companies to start moving forward in Argentina in a major way. Whether it be BHP entering into a $3.25 billion joint venture with Lundin Mining on Filo and Jose Maria, or whether it's Rio Tinto's acquisition of Arcadian Lithium for $6.7 billion, which has its main assets in Catamarca, the same province in Argentina that Glen Corzumara Project is in. One of the reasons for this big push, in addition to the change in government, is because there's a new large investment regime enacted in Argentina. It was enacted this last July, which fixes companies' tax rates at 25%, as well as provides for additional tax advantages, including accelerated depreciation, indefinite carry forward of tax losses, and under specific conditions, reduced withholding tax rates on dividends and cross-border payments, and provides mechanisms to prevent value-added tax from being a financial burden and also, under certain circumstances, provides exemptions from import and export duties, as well as certainties on foreign exchange. The catch is that in order to be eligible, you have to start your project by July 2026, which is in about a year and a half, and you have to be done 40% of your construction within the first two years of July 2026. The government is putting the pressure on companies to get these big projects like Mara moving forward, and although that's not a guarantee that Glencore will move Mara forward on that exact timeline, We do think the probability MARA moves forward on a reasonable timeline is high enough that we're continuing to prioritize debt repayments to get ready for the day when the MARA stream option is triggered. While I'm on the topic of MARA, I've received a comment from a few of our institutional investors that they think there's some misinformation in the market about how the timing of our cash payments on the MARA stream option would work. So I'd like to clear it up by emphasizing that at no time will we have to pay all $225 million up front when we exercise the MARA stream option. Rather, the way our agreement works with Glencore is that we pay the upfront deposit slowly over time with them as they construct the mine, which I would expect to take two and a half to three years, and the rate of those payments would be less than our operating cash flow. So at no time do we have to prepare our balance sheet for that payment, because even while we are making those payments, depending on the gold price, we expect to have excess operating cash flow to continue debt repayments or share repurchases. A new slide that we have added to our presentation is to show our expected 2024 guidance, represented by the gold bars here, compared to our mid-cap royalty piers, as well as what our growth looks like over the next five years, represented by the forest green bars, compared to the same royalty piers. And we specifically highlight the production growth expected from Platte Reef, which is already in construction, and Mara. which we think is easy for our investors to wrap their heads around with respect to timing than Hodmodern. And you can see from this chart, with Platte Reef and Mara alone, we would have similar growth profile to a Cisco growing to 120,000 ounces per year. So about the same production now, similar production in five years, even if Hodmodern is materially delayed. So that Hodmodern is pure upside to those numbers for us. To be clear, we still believe Hodmodern will be moving forward, but a common comment that we get from investors who are paying attention to Mara is they say, I can wrap my head around Glencore building Mara soon, but I struggle to know whether SSR will be moving Hodmodern forward on a timely basis. And given what's happened to SSR and the time delays Hodmodern has experienced, we understand that perspective. So at Sandstorm, we simply made this slide to say, okay, even if you take Hodmodern out, we are still trading at half the market cap for the same production as our closest peer. Having said all that, we noticed that SSR filed their quarterly financial statements yesterday in which they disclosed that they spent $10 million on Hodmodern during the quarter, progressing it, which is a ramp up in spend at that asset. And I'd encourage our investors to keep an eye on those numbers moving forward because they will be an indicator of the behind-the-scenes progress that's being made at Hodmodern. As I've mentioned, I've talked with many investors over the past two months and will be out of town traveling and talking to investors for three of the next five weeks. So I'll get to hear even more feedback. During those conversations, it is clear to me that most investors agree there are four primary reasons we are trading at that discount. And I think it's important for investors to understand these reasons so they can understand the drivers that will remove them over time. The first reason is a legacy debt perception when we took on $640 million of debt to do those large deals two years ago. Our debt is now down to $369 million and dropping quickly. and that issue is going away now and will continue to dissipate further with time. In fact, I'm even starting to hear comments from some investors that since the debt is not at all an area of concern anymore, they wish we were buying back more shares. Although debt repayment is still our primary focus of cash flow, it's refreshing to hear that sentiment turning as it will help drive our stock price higher. The second reason relates to Orion Mine Finance, which became our largest shareholder through the acquisition of Nomad, becoming a 16.3% shareholder of Sandstorm. And since they are a private equity fund, people knew that as the specific fund that we were owned in is coming to an end, that Orion would have to sell its shares in Sandstorm eventually. And our investors were expecting them to do so in a large secondary offering of their shares at a big discount. Some of you may have noticed, and I am happy to report, they did not do a large secondary, and they have already sold enough shares to get them down below 10%. So this discount will be lifting as people realize that there is not a large secondary offering coming and will continue to lift as we find new institutional shareholders to take the remaining shares off Orion's hands. I am very appreciative with how Orion has sold so far, and it's been effectively seamless in large block trades to new institutional shareholders. The third reason I believe we traded a discount is that some investors are scared that we will ruin this beautiful setup for Sandstorm by doing an equity offering. I can assure people that we will not do that. We have built the portfolio that we are proud of, which we can get cash flow from to not only pay down our debt and buy back shares, but the portfolio's production has 100% growth coming in the future. I believe that this third issue will take time to dissipate because when we grew Sandstone over the past 15 years, for the first 13 years, we needed to raise equity when we found new deals. This is no longer the situation. We have reached our critical mass. We have been shrinking our share float, and we will either merge our company, sell it, or grow organically within our means. As we stick to this plan over time, I believe people will gain confidence that we have a shrinking share float over time and not a growing one. The fourth issue is the one that I'm talking about right now about development projects, specifically that our three key development projects are not as well understood as we would like them to be, and therefore people's confidence in them and their timing affects our valuations. This issue will naturally dissipate as these projects move forward, and we find better ways to articulate such progress to shareholders. Anyway, as I've said, for shareholders who want to understand Sandstorm and what will drive our share price going forward, in addition to debt reduction and increasing production from Greenstone, it's important to watch the progress of the Platte Reef mine as it's being built and the progress of MARA and the Hot Modern project. Now I'll move on to the third and final item I want to talk about this morning. which is capital allocation plans and debt repayment rates. As I've stated in the past, our main priority for capital allocation after paying our dividend each quarter is debt repayment, with the potential for some share buybacks. We do not plan on allocating material capital in the next year to new transactions as we continue to focus on debt repayment. During Q3, our debt repayment of $9 million was slower than in past quarters. However, the rate we are now repaying our debt is rapidly accelerating, and I expect that to continue to accelerate in 2025. In Q3 specifically, we had some timing issues with non-cash working capital that reduced our operating cash flows by $4.5 million, and we bought back $5.2 million of our shares at an average price of $5.50 per share U.S., which is materially below our current share price, and we canceled those shares. And I think those share repurchases at that price were a good allocation of capital. At the end of the quarter, we had less debt and fewer shares outstanding. Already in Q4, we can see that our debt repayment is accelerating because we've already repaid $10 million of debt in the first five weeks of Q4, and our debt is now down to $369 million as of today. The reason for this quicker pace of debt reduction is that gold prices are up, and we haven't had working capital go against us as well as reduced share repurchases. With these higher gold prices, our cash flow is increasing, and as our key development assets come online in the coming years, this will only increase even further. You can see on this updated slide, we show that what our cash flow would be after tax once these assets have ramped up, calculated both at $2,300 gold as well as $2,800 gold. And at $2,800 gold, cash flow gets up to just shy of $300 million per year. Even at $2,300 gold, which is well below today's gold price, our cash flow would be a quarter of a billion dollars per year. So we're now in a position where we're expecting production to increase next year as Greenstone ramps up. Our debt is declining at an accelerating rate. We have fewer outstanding shares than we did last quarter and last year, and we have large development projects that should be doubling our production and increasing our cash flow in the coming years. Of those projects, Platte Reef is already in construction, and I would expect to see movement in at least one, if not both, of our other two major development projects over the next 12 to 18 months. And with that, I'll hand it over to Irfan.

Thanks, Nolan. Despite lower geos, I would characterize the third quarter financial performance as continued strength in commodity prices, driving higher revenues and record operating margins. The company recognized revenues of $44.7 million for the three-month-ended September 30, 2024, supported by higher prices for gold, silver, and copper. At an average realized gold price of $2,520 per trivial ounce, the company had cash operating margins of $2,215 per ounce, marking a record for the second consecutive quarter this year. And with gold prices continuing to reach all-time highs thus far in the fourth quarter, I expect we'll see another record set at the end of this year. Of approximately $45 million in revenues, $26.7 million was attributable to the company's streaming contracts. and $18 million from royalties. Cash flow from operating activities, excluding non-cash working capital, were $37 million, increasing from $33.9 million in the same period of 2023. Net income was $5.8 million compared to close to nil in the third quarter of 2023. The increase in net income was driven by higher revenues lower depletion expense, which was in line with a decrease in gold equivalent ounces sold, and a $1.1 million decrease in finance expense related to the company's revolving credit facility. Sandstorm made net repayments of $9 million on its revolving credit facility during the third quarter, but as Nolan mentioned, we have made an additional $10 million in repayments so far in Q4, and our debt balance as of yesterday was $369 million. A tributal production for the third quarter was approximately 17,400 gold equivalent ounces, which was lower than anticipated, which was in part due to the effect of higher gold prices relative to other commodities, as Nolan outlined earlier. However, when comparing year-over-year production from individual assets, there are a few items to highlight. In Canada, greenstone continues to ramp up, and Equinox just announced commercial production based on operating progress in October. Sandstorm received and sold nearly 1,200 gold ounces attributable to Greenstone in the third quarter, which offset a year-over-year decrease in attributable production from the Copper Mountain mine in B.C. Sandstorm received a true-up payment from Copper Mountain in the third quarter of 2023. In South America, a 55% increase in the number of copper pounds sold from the Chapada Copper mine in Brazil and higher realized copper prices offset a decrease in the number of silver ounces sold from the Cerro Moro mine in Argentina, due to expected lower grades as a result of mine sequencing. The decrease in silver ounces sold from Cerro Moro was also offset by a 33% year-over-year increase in the average realized selling price of silver during the third quarter. Stronger royalty revenue was recognized from the Fucha del Norte mine in Ecuador. Lundin Gold, the operator of Fucha del Norte, has released several impressive drill results from the 2024 near-mine drilling program, which includes intercepts from the new Bonza sewer gold deposit. A metallurgical study is planned for 2024 and a maiden mineral resource estimate for Bonza sewer deposit is expected by mid-2025. At the Arizona mine in Brazil, Equinox Gold resumed mining following the displacement of material at the Piaba Pit in the first quarter, following persistent heavy rain. Royalty revenues of Tribula Sandstorm in the second and third quarters of 2024 were negatively affected as the processing plant in Arizona was idle for May and June. Equinox began mining at the Tatejuba Pit in May, which was originally scheduled to commence in the fourth quarter. The Tata Juba Pit, which is within Sandstorm's royalty claim, is expected to provide most of the ore feed for the remainder of 2024. The Bonnecrow Gold Stream in Cote d'Ivoire drove increased production to tributal mines outside of the Americas. Following the closing of the third-party financing package, Allied Gold, Bonnecrow's operator, plans to allocate a total of $16.5 million in 2024 to to advance high-priority targets located within Sandstorm's Bonnecro Stream claim. Allied expects to accelerate projects that aim to optimize operations, extend mine life, and increase asset value by unlocking additional upside potential. These are just a few highlights from the 41 producing mines underlying our financial performance this quarter. I continue to be impressed with Sandstorm's portfolio of assets, and we look forward to certain key development mines ramp up and come online in 2025 and beyond. As Nolan discussed in detail, based on the company's existing streams and royalties and year-to-date outperformance of gold price relative to other commodities, we are forecasting attributable gold equivalent ounces for 2024 to be between 70,000 and 75,000 gold equivalent ounces. We continue to anticipate Sandstorm's production forecast to reach approximately 125,000 attributable ounces within the next five years. based solely on streams and royalties that the company has already bought and paid for. And with that, I'll turn it over to Dave to discuss one of our key development assets.