Investment Analysis: Sandstorm Metals & Energy (CVE: SND) – See’s Candies at a Sanborn Maps Price

Investment Analysis: Sandstorm Metals & Energy (CVE: SND) – See’s Candies at a Sanborn Maps Price
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Investment Analysis: Sandstorm Metals & Energy (CVE: SND) – See’s Candies at a Sanborn Maps Price

“Value investing…as in, buy something when “all is quiet”. When the stock just drifts along…when no one seems to like it…when the company is trying to keep things quiet and insiders are accumulating…when the silence is designed to shake you out of your position.

I am learning…you don’t just throw money at an idea whatever the price. You also pay attention to the cycle of silence (accumulation), markup, and promotion. Some stocks scream accumulation when there is an almost unnatural silence for a long time, and unbelievably low volumes.

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Why buy a stock when it’s expensive and noisy when you can get it cheap and quiet?”

–  Mike Burry

A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.”

– Wayne Gretzky


Sandstorm Metals & Energy (SND) is an obscure, underappreciated, micro-cap franchise with a highly skewed, incredibly favorable risk/reward equation.

Investment Highlights:

An investment in Sandstorm Metals and Energy at or around the current price possesses nearly all the qualities we look for in a great long-term investment. In particular (1) an unsustainably low valuation (both absolute and relative to peers) (2) a good, fully incentivized management team (3) near to medium-term operating momentum (4) a highly attractive long-term business model and (5) multiple internal and external high probability catalysts (which we expect will drive substantial near to medium-term upside)

Other attractive attributes of Sandstorm M&E include…

  • A dominant competitive position in a rapidly growing niche market
  • An unlevered balance sheet
  • Improving economics on an attractive and fast growing asset base
  • Zero tax liability given Bermuda domicile
  • A high likelihood of experiencing meaningful improvements in near term profitability and cash flow
  • Opportunity to invest capital at (1) a very high rate and (2) for a very long time
  • A natural inflation hedge/low risk way to participate in minerals/commodity bull market


Opportunity Overview:

Why its Mispriced?

As an illiquid, Canadian micro-cap spinoff with a practically non-existent operating history and financials that offer a limited view of SND’s future earnings power – as to date they’ve shown the cost of acquiring 9 M&E streams but very limited revenue and cash flow given the natural lag between the initial investment and production – it’s not necessarily shocking that SND is mis-priced, nor that the majority of intelligent investors at this point are completely unaware the companies existence.

A Low-Risk High-Return Investment Opportunity:

What is a little shocking in my mind though is the magnitude of the mis-pricing and the opportunity to earn many multiples of your money over the next 3-5 years with practically no chance of permanent loss.

Rarely do I come across an opportunity to purchase a fast growing emerging franchise run by a visionary owner operator with an extraordinary record of value creation (and a better than average shot at being a 1B+ company in time) at a truly absurd ~4x normalized earnings and/or a conservative discount to its readily ascertainable liquidation value (defined here as a discount to the run-off value of SND’s senior secured, contractually guaranteed minimum cash flows.).

The Jockey:

Not often (practically never actually) have I been so impressed by, and frankly fired up to partner with such a visionary and capable CEO over the course of my investing career. Sandstorm’s President and CEO Nolan Watson is truly something special. As a chartered accountant and CFA who went on to become the first employee and CFO of value creating juggernaut Silver Wheaton, Watson proceeded to invent the commodity stream business model and developed one of the most impressive track records I’ve ever come across as a professional investor (before the ripe old age of 30). I mean, were talking about a guy who at 26 became the youngest CFO in the NYSE’s history. Not bad.

A few additional interesting highlights on Watson include his love of value investing, and his graduation from Canada’s elite, University of British Colombia at only 19. Post graduation, Watson worked for Deloitte’s corporate finance department doing business valuation and M&A, until leaving in 2004 to start SLW under the guidance of industry legend Ian Telfer. He was named one of the CFA magazine’s “most motivated” in 2008 and has been awarded countless other awards and distinctions such as Valedictorian of the Institute of Chartered Accountants of British Colombia.

Notably, by the time Watson decided to leave in 2008 to build his own business in hopes of replicating Silver Wheaton’s success in other parts of the mining sector, he had raised over $1B in debt and equity, hit more than a few absolute grand slam streaming deals and been a key figure in SLW’s market cap growing from ~200m to over $3B over the course of his 4 year tenure. Not to shabby for four years of work no? As an aside, with Silver Wheaton’s current market cap at ~13B, the power of SND’s “mini SLW” business model should be readily apparent.

The key takeaway from all of this in my mind is that Nolan was an instrumental figure in building SLW into the company it is today and he appears well positioned to do it again, supported by an impressive board and a world class advisory/technical group and an open ended opportunity set. With an almost super-human work ethic and an unquenchable desire to truly build a business for the record books, I think we have all the ingredients here for substantial long-term success.

The following profiles and interviews should help paint the picture as far as sizing up the caliber of the extraordinary individual leading SND’s charge…

The Stakes

So with some basic familiarity with who this guy is, it’s comforting to know that Watson’s reputation, money, and career are all on the line here. Given that and the profiles/interview’s above, ya think he’s motivated to succeed? I’d say so.

So while success in life and business is never assured, I think its fair to say that this guy is one of the smartest, most intensely motivated leaders I’ve ever invested alongside and one would have to be border-line insane to bet against him (as SND’s price implies). Not to imply this guy doesn’t make mistakes (see the recent royal coal debacle), we all do and he certainly has – but all that said, he does seem to possess the passion, the magic if you will, that is the hallmark of all truly great business leaders and entrepeneurs. I read a VC article the other day that put it well – “what he does mixes with who he is, which is cooked and propelled by what he believes.”

It’s also worth noting that Watson’s on record saying that he believes SND will be a multi-billion dollar business and should ultimately become the biggest and best of his babies in time (fyi, he is also president and CEO of SND’s sister company Sandstorm Gold). I tend to agree to say the least. Perhaps more importantly, he’s on record saying how frankly stupid cheap SND is at or around today’s valuation and (unsurprisingly), has been actively adding to his already large stake in the open market.

Unique High Return Business Model

As the only pure play, publicly traded base metal and energy-streaming company of its kind, Sandstorm offers several benefits/unique characteristics to both investors of traditional mining companies and executives looking for optimal sources of financing. So, before we delve in to what makes this company so special, let quickly review how SND makes money.

Put simply, SND finances late stage junior miners with low cost operations and best in class management teams by buying future production of commodities at fixed prices. The typical price they pay is at or beneath that of the commodity in questions low cost producer. The producer gets needed financing to bring mines into production without massively diluting shareholders and SND in turn gets a percentage of their future production and usually a guaranteed principal repayment within 5 years (so far, all of their existing deals have this heads I win, tails I don’t lose provision).

Per Sandstorm’s website….

“Sandstorm Metals & Energy Ltd. is a growth focused resource based company that seeks to complete commodity purchase agreements with companies that have advanced stage development projects or operating mines. A commodity purchase agreement involves Sandstorm making an up-front cash payment to its partners and in exchange, Sandstorm receives the right to purchase a percentage of the commodity produced for the life of the asset, at a fixed price per unit. Sandstorm helps other companies in the resource industry grow their business, while acquiring attractive assets in the process.

Sandstorm is focused on low cost, profitable operations with excellent exploration potential and management teams focused on accretive growth in politically stable jurisdictions.”

For what its worth, I think the story is very much the same story as it was for SLW in 2004. We have an unknown, hugely underappreciated innovative business with fixed SG&A, network effects, significant operating leverage, minimal cap-ex, high ROIC, an effective tax shield, and no brainer multiple expansion once (1) the company is better known and (2) it reaches a level of scale where comparisons to the bigger royalty companies becomes fully appropriate/undeniable. All of which highlight the immense power of the business model to grow and create almost stupid amounts of shareholder value over time as it does.

So what makes SND so special? In particular, Sandstorm benefits relative to traditional industrial commodity business in the following ways:

  • Leverage to increasing metal and energy prices (i.e. coal, oil, natural gas, and copper)
  • Low fixed operating costs (i.e. $75/t met coal, $55/t thermal, $15/bbl oil)
  • Exposure to production upside without associated costs (zero M Cap-ex)
  • Exposure to exploration upside without associated costs
  • No environmental or closure responsibilities

I also think it’s worth thinking about what SND’s operations actually consist of. Make no mistake, this isn’t your average industrial commodity business. SND’s operations consist of essentially a small office staff of finance experts/value investors who continue to add deals to the portfolio and hence production – all without significantly adding to overhead in the process. After all, sitting in a room arbitraging commodity cost/price differentials with very little (if any) risk while getting massive free upside optionality doesn’t require a lot of capital.

Win/Win Value Proposition:

Let’s take a look at the value proposition of SND’s platform. Sandstorm offers the traditionally more risk-averse mining investor with the ability to maintain exposure to exploration success, expansion possibilities, and metals and energy price movements, all while reducing risks typically associated with traditional metal and energy operating businesses. In other words, Sandstorm provides investors with a better way to gain meaningful leverage to the ongoing commodity super-cycle in a qualitatively superior, and materially less risky manner.

Of course it’s also a no brainer for Sandstorm’s resource company partners. I think about it like this, is this streaming transaction good or bad for the company in questions shareholders relative to the alternative?

After analyzing the alternatives, I have to say that the answer is almost always an unequivocal Yes. Not that there isn’t upside and downside to the transaction(s) (as there always is in every deal), that’s not the issue. The issue is whether or not SND’s solutions provide resource company executives with a better way, i.e. the ability to finance the last leg of a mine to production without share dilution (i.e. raising equity and/or taking on debt), as SND’s streams provide the capital to avoid exactly that outcome at a lower ultimate cost to shareholders vs. alternatives.

Now, while taking on debt and diluting your shareholders is an intuitive and somewhat obviously negative thing, lets not forget the rationale for why this is so. Remember that debt in these industries is often deadly given the nature of commodity businesses (i.e. high capital intensity) and the cyclicality of their industries/commodity prices in general. Oftentimes that debt would ultimately end up triggering additional dilution – read more debt – if say commodity prices unexpectedly drop below a set level, or if there are unexpected delays in mine development. Those risks are less onerous in the Sandstorm structure because the costs are known and the timeline to development less relevant.

There is also the fact that when issues arise, as they of always do (these are, after all, mining companies), Sandstorm has the expertise to be a much better, more flexible partner than your typical bank and can nearly always offer a more optimal solution to the issue at hand. That, and can someone tell me why any good management team operating a high quality, late stage resource company – who almost by definition are always constantly looking for the most optimal partner to source new mine and/or expansion financing – would prefer to work with a typical bank relative to working with a team like Nolan’s? What possible reason could there be to do so? I mean, SND is the ideal partner as they possess a proven track record, offers better terms, and are actually looking to establish long-term, constructive, win-win working relationships. Again, with a proven track record that has demonstrated a co-operative approach to ensuring business success time and time again, the choice seems clear.

Growth Drivers

Commodity Price Increases:

Now why I don’t expect the type of parabolic price rises in base metal and energy commodities that we’ve seen with silver and gold, I do expect structurally bottlenecked commodity prices (oil, met coal, iron ore, potash etc) to be higher 3, 5, 10 years from today on average. While anything is possible, I think we can all agree that the odds of prices not rising in a stable to growing, resource constrained world with negative real interest rates and where major developed western central banks are printing money like mad in hopes of averting a deflationary debt spiral, to be quite low all things considered. Unless global growth falls of a cliff and ceases to recover, its pretty inconceivable to me that a diversified basket of “moaty” commodities won’t cost more 5-10 years in the future.

I want to note that with SND’s cost’s to acquire its commodities fixed and substantially below both current market prices and that of the low cost producer, any future commodity price increases will result in perpetual gross margin expansion and fall straight to SND’s bottom line. Also, these deal structures are set up where it makes it essentially impossible for SND to ever generate a negative gross margin. Production volumes will therefore always be at least marginally profitable.

Additonal Stream Acquisitions:

As the leading and only commodity and base metal streaming finance company, SND’s pioneering management team is uniquely positioned to grow. Given SND’s ability to raise capital regardless of the market environment, I believe value accretive growth through the purchase of additional commodity streams going forward is likely to be substantial and should actually accelerate the bigger the company gets. The fact that the company has already done 9 deals in its short existence is a testament to management’s ability to aggressively grow its stream count. Again, it’s entirely reasonable in my mind given the early stage nature of the opportunity (and the proven jockey at its helm), that SND will grow its present portfolio to many, many multiples of its current size looking out 3-5 years.

Embedded Reserves & Resources Optionality:

Another crucial point when thinking about the growth opportunity here is the fact that most companies go into production on a resource calculation that is typically representative of the smaller portion of a larger deposit whose reserves and resources are typically enhanced over time through continuing exploration.

So SND get’s an embedded free call option on any additional exploration upside thrown in at no cost to the company. Think about it like this, if SND does a streaming deal with a company that’s oil asset starts initial production at ~5k barrels/day but is actually capable of a mature run-rate of over ~20k/day once the asset has been fully proved up and developed, the reward for SND and shareholders is amplified exponentially. So in every deal, SND gets both a downside protection put (i.e. a minimum guaranteed payment) and a potentially multi-bagger free upside call option.

For some great perspective on just how much this upside optionality can be worth, I would advise taking the time to examine some of the deals done at Silver Wheaton over the course of Watson’s time at the company. I certainly found it enlightening regarding the type of moonshot homeruns that are possible with this type of deal structure. The asymmetry can be stunning.


Note: I’ve left out an in depth NAV analysis and/or a discussion of SND’s individual properties given the discount to the run-off value of its contractual minimum payment guarantees. I don’t feel it’s really all that important to do so at this point, as investors are essentially getting the entire value of SND’s proved and probable reserves for free at the current market cap. That, and even a cursory analysis of the respective properties should highlight the quality of these assets. I think you’ll find that the potential production and NAV growth of the existing asset base (as they are proved out and fully developed over time) is much, much higher than what is reflected in SND’s forward production estimates and its current proved and probable reserve profile. For what its worth, I think the Donner, Terrex, Thunderbird, and Rex streams could in and of themselves be worth more than SND’s current EV.

Capital Structure

Market Cap                C$133.4m

S/Price                       C$0.42

S/O                             C$317.8m

Options                       C$14.6m

Warrants                    C$155.5m

F/D S/O                      C$487.9m

Current Cash             C$44.7m

F/D Cash Adds          C$115.9m

Working Capital        C$44.7m

Long-term Debt         C$0.00m

Book Value                 C$140.5m

Total Enterprise Value (EV)      C$88.7m

*EV = Market Capitalization – Working Capital + Long-term Debt C$

*All #’s in CAD

Base Case: Range of Values

On an absolute basis, companies like SND with 50%+ normalized operating margins that operate in large/growing markets with zero maintenance cap-ex requirements and no tax liabilities should by definition trade at very high multiples of its EBITDA & CF. I would propose that Sandstorm’s ability to grow sales and cash flow at high rates without needing any capital to do so is the essence of a high multiple business and thus should be priced accordingly. So logically then, it follows a business like SND should trade at a premium market multiple (anything less than 10-15x seems hard to intellectually justify in my mind).

So, given SND’s a high quality business very early in its evolution, I think an EV/FCF multiple of 12x is reasonably conservative. At 12x SND’s ~$25m in expected 2014 FCF, the implied valuation is ~$300m or over 3x the current EV. At an almost unreasonable 10x, SND’s implied valuation is ~$250m or over 2.5x it’s current price.

On a relative valuation basis, it’s even cheaper. If we use the average of Sandstorm’s appropriate comparables (Franco Nevada, Silver Wheaton, & Royal Gold), SND would trade at 14x 2014 FCF. At 14x the company would be worth ~$350m or nearly four times it’s current EV.

Summing up the base case, we have a great business currently trading hands at ~3x 2014 EBITDA and ~4x ‘14 expected FCF on its existing asset base. You could cut those already reasonably conservative estimates in half and Sandstorm would still be too cheap on an earnings basis.

A couple of quick thoughts…

I think excessively anchoring relative valuations to the metal &energy operating companies isn’t really all that rational – meaning, because base metals companies trade at 5x than SND should trade at 7x or something like that. While I get it that SND’s results are in a certain, very real sense tied to commodity businesses, the differences in operating profitability, capital intensity, growth potential, avg. mine life etc. vs. the average industrial commodity business are so different that it makes the comparison specious at best. A fast growing tax advantaged compounding machine should never trade at a slight premium to a basket of bad businesses and/or a mid to low single digit multiple to FCF for any reason.

I also think that once the company reaches critical mass stream wise (both in number and diversification by commodity type) it should garner an equal to higher multiple relative to appropriate comps. The three most obvious reasons in my mind being (1) M&E has a much larger total addressable market than the precious metal companies (2) because a diversified portfolio of structurally bottlenecked commodity streams provides superior cash flow stability and is inherently more defensive than a pure play precious metals business and (3) the diversified model provides Nolan and Co. with a multi-tool toolbox so to speak. With SND, management can allocate capital towards only the most mis-priced metal and/or energy commodities at any given time – such opportunistic flexibility is just as powerful of an advantage in streaming as it is in any other form of investing.

Also, my ~$25m in normalized free cash flow estimate assumes zero growth in the # of streams, as well as zero growth in production and reserve value above and beyond their partners initial production estimates. The estimate is based on a reasonably conservative commodity price deck and production estimate outlined well in the company’s most recent presentation linked below.

Best Case Scenario

Given the captain at the helm and the sheer size of the markets Sandstorm operates in, it’s worth considering what SND could reasonably be worth in 7-10 years time.

With that in mind, I think it’s entirely reasonable to assume that commodity prices will generally be higher on average 7-10 years from today. I also think its reasonable to assume that Nolan and his team could acquire 5x the total streams and hence generate at least 5x the cash flow in 2019 that I expect it will conservatively do in 2014 (which is admittedly simplistic but also almost certainly unreasonably conservative, as it doesn’t give any credit for the additional operational leverage, probable production and resource base growth optionality, etc.).

So, under that scenario SND would be generating something in the ballpark of $125m in 2019 FCF. At a reasonable 12x, that’s an implied EV of $1.5B or about 15x todays EV. Now that’s what I call big boy upside Investment Analysis: Sandstorm Metals & Energy (CVE: SND) – See’s Candies at a Sanborn Maps Price .

Again, I’ve rarely come across opportunities where you have a reasonably decent shot at a 15 bagger in 7-10 years at a discount to liquidation value. I like that risk/reward (to say the least), and expect the market will as well as SND becomes better known.  As it does, I expect the market will quickly award this high quality business with an appropriate (i.e., 10-15x EV/FCF) multiple much more reflective of the quality of this business and its high return, above average growth prospects.

Downside Protection:

When thinking about downside protection, I think investors need to realize that at or around today’s price, SND actually has cash and minimum cash-flow guarantees that are equal to ~100% of the current market cap. Now cash is cash but I think the guarantees need some minor explanation, as they are a relatively recent innovation within the stream finance business model.

Essentially these minimum cash-flow guarantee’s are exactly what they sound like, i.e. senior secured contractual guarantees that ensure SND will at least break even on the transaction in question over a ~5 year time horizon. Intuitively then, these minimum cash flow guarantees act as a put of sorts and therefore should provide the company’s equity with a floor (valuation wise). This should be the case because both (1) we are talking about a market leading high quality business with tremendous underlying economics and above average long-term growth prospects that should trade at a significant premium to its assets and (2) because one way or another it’s a near certainty SND will ultimately get their principal back (as even if the client fails in its entirety, SND’s investment is collateralized by assets worth considerably more than the initial investment).

So with cash + minimum cash flow guarantees higher than the actual market cap, what we have here is a rapidly growing emerging franchise that is currently priced at a meaningful discount to what I believe is its worst-case run-off value. Safe to say I think this is crazy/unsustainable on a whole host of different levels.

The fact that an investor can purchase SND’s guaranteed cash flow flows at roughly par and essentially receive all of SND’s reserves and exploration upside for free is frankly an anomaly that doesn’t come around too often given SND’s qualitative characteristics and huge high margin/high growth runway. I mean for the market to price Sandstorms equity at a level that implies (1) that the fully incentivized, best in class management team that actually pioneered commodity stream financing in the first place (and who notably has created literally billions of dollars of shareholder value as they’ve honed and perfected the craft) is actually value destructive (who knew?) and (2) the equally preposterous proposition that there is zero value above and beyond the minimum guarantees in any of SND’s 9 existing commodity streams. Again, this is preposterous.

Even if we assume that over the next five years management does literally nothing other than collect on the fully-secured cash-flow guarantees on our existing commodity streams (and hence never does another deal) – an investment purchased today would almost certainly get our money back when all is said and done. Framed this way, I think the magnitude of the downside protection here becomes clear and highlights the idea that an investment in SND is in many ways akin to a fully collateralized, senior secured bond that offers (1) a free call option on a diversified basket of “moaty” commodities (i.e. those commodities with structurally bottlenecked supply/demand dynamics) (2) inflation protection and (3) a similar duration and rate of return as a “risk-free” gov’t bond.

Also, any downturn in the base metal and energy markets or across all of them as a whole not only wouldn’t be the end of SND, it would almost certainly make them materially stronger. In a sense, the profitability of new streaming acquisitions is inversely correlated with the health of the industries in question and its access to capital. While the ROIC on new deals are always attractive (management underwrites for IRR’s in the mid 20’s), the real moon shots are made in this business when there’s blood in the streets (sound familiar?).

There are many reasons for this. The biggest reason is that SND’s terms of trade would substantially improve as capital becomes more expensive/scare. The size of the opportunity set would also expand, as more junior M&E companies would find themselves in need of the capital that banks have stopped providing. Put simply, in the worst of times, SND has the financing power that junior’s lack and that banks won’t provide. Oh, and there is the tens of millions in readily deployable cash (net of commitments) on SND’s books that’s worth roughly a quarter of the current market cap. So as the ideal white knight for best in class resource companies looking to grow, Nolan and his team should able to treat any oncoming dislocation as an opportunity to step in and fund some enormously appealing mining and energy projects on good terms. Looking out longer-term then, any near-term market crash is more likely than not to be a material positive for Sandstorm M&E shareholders.

I think the above reality is an important aspect to keep in mind as far as thinking about what happens to SND’s intrinsic business value in the near to medium-term future in today’s highly uncertain global economic environment, given the stock is already priced for depression. Also, the advantages of Nolan’s relationships, capital raising abilities, and overall deal-flow are substantial and key competitive advantages. I think Watson’s demonstrated ability to raise large amounts of capital in both good times and bad, but especially bad is an important point to comprehend (interestingly, Watson was able to raise funds for Sandstorm right in the teeth of the great recession). Again, there is very little doubt in my mind that Watson possesses the street cred, track record, and network of relationships to raise large amounts of money even in the worst of times, and equally as importantly, the investment acumen to make the most of it. So the takeaway in this respect is that SND offers impressive low risk, high return growth in normal times, but potentially supernormal low risk, high return growth in bad times – and investors can get it all at a valuation that implies the company is essentially worth more dead than alive (talk about a cherry on top). Not a bad combination given the state of things.


For this section I’m primarily just going to quote management’s thoughts on risk, but first I wanted to address a common – and erroneous – concern I’ve heard revolving around SND’s periodic equity issuance’s that have taken place since the company was spun-off from sister company Sandstorm Gold. Also feel free to comment on any additional risks in the comments section and I would be glad to address it.

In regard to the equity issuance, the worry here is quite understandably that these deals are dilutive. There not – they are actually very accretive on an NAV basis and I think you have to look at share issuance here completely different from the way you would look at it with regular mining or E&P business. In those instances, the proceeds are used for things like new machinery or a speculative new deposit or any of the myriad of other truly dilutive reasons that these highly capital intensive and inherently bad businesses typically raise funds for. In SND’s case, essentially 100% of the proceeds raised are directly invested into additional (and again, materially value accretive) commodity stream agreements (agreements of which have senior secured contractual guarantees that 100% of the invested capital will be paid back, usually within a ~5 year period). I would also mention that these raises have always been done above book value.

Watson on risk…

“JT: Wow, that’s excellent. I mean it doesn’t sound like there’s a ton of risk. What risk do you guys run into? I mean if gold tanks I guess that would be a big risk for you but in general, it doesn’t seem like there’s too much.

NW: Yeah, although there is quite a bit of risk in the sense that you’re right, if gold or the commodity prices decrease that’s a risk to us. Another risk to us is that the assets themselves don’t perform so if you invest a significant amount of money into a mine and then the mine doesn’t work, and that’s actually a fairly common scenario in the mining industry when mines don’t work quite as they were originally intended to, but we put a number of mitigating factors into the contracts and so far we’ve never lost money on one of them.

One of the key focuses that we try to do in our business is focus on getting an above-average risk adjusted return for our investors. So more of the risk we take on, we try to get an even better return than that and comparing ourselves and our risk profile to an actual mining company, we’re a lot lower risk because one of the biggest risks in the mining industry right now is that costs are going up, you know, a tire for a mining truck which may have cost $5,000 a few years ago costs $35,000 today. The cost of actually producing its material is going up dramatically whereas if we negotiate a contract or buy gold at $500 an ounce we know we’re buying it at $500 now, this year, next year and for several years to come. So that really decreases the risk to the operating process for our investors.”

JT: Wow. Excellent. Well it’s funny, I heard you say on an interview that you know out of like 100 mines you’ll invest in one of them. That sounds like an amazing amount of due diligence on your part. What makes you guys do that?

NW: Well there’s no shortage of poor quality mines out there and/or management teams that get a hold of the poor quality mine and try to put it into production or try to just spend more money to keep going even though it’s losing money. So our team is focused solely on trying to identify those assets that are going to produce well and they’re going to produce for a longer period of time. I won’t get into technical nature but there is so many different things that can go wrong at different types of mines. So we sort of built the due diligence process that’s focused on just identifying these types of things up front. What are the key risk factors and making sure we stay away from anything that’s just too much risk for us or for our investors and I think any type of risk that’s really the key is ensuring that you’re building your asset base with strong assets. So we’re focused on doing that and I think our shareholders are happy because of it.


Sandstorm is a leader in innovation with an ability to grow rapidly over time from its present small base of revenue and profits and perhaps even more importantly, has a very high probability of earning multiples of what it earns today looking out a few years hence. It is lead by a uniquely capable owner/operator with a long and impressive paper trail of success and substantial equity ownership who’s been adding of late in the open market. It also happens to be unsustainably cheap. I think the combination of these factors should provide investors with the opportunity to earn 2-15x their money with very little risk of permanent capital loss under any reasonable future scenario we can imagine looking out 3, 5, or 10 years time.

I believe these returns will be driven on the back of a combination of a multi year production ramp-up and the significant multiple expansion associated with (1) increasing earnings visibility (as existing streams come on line)(2) the announcement of additional acquisitions of value accretive streaming agreement(s) (3) the company’s fixed cost operating leverage begins to take hold (4) the gradual optimization of SND’s unlevered capital structure begins and (5) the recognition that this is a truly great business is realized. As management executes (as they have always done), the positive inertia of the “lollapalooza effects” listed above should start gain steam. As they do I expect value creation to accelerate markedly, driving dramatic and sustained increases in per share value for years to come.

The bottom line here then is that I believe Sandstorm Metals & Energy is a classic low-risk, high-return fat pitch and it’s only a matter of time before the market wake’s up and comes around to a saner point of view (my guess is sooner rather than later).

So be like Burry, and get it at or around today’s price, when insiders are still acquiring, its insanely cheap and all is quiet. It won’t be like this for long.  It never is.


(1) Increasing earnings visibility as existing streams come on line

(2) The announcement of additional value accretive streaming agreements

(3) The announcement of positive reserve and production estimate revisions on existing streams

(4) Realized critical mass stream-wise and the operational leverage and accelerating stream acquisition capacity that will result

(5) Increasing investor recognition of a great business


Insider Activity

Property Updates/outlines, etc.

Nolan Watson Profiles/Interviews:

Miscellaneous Articles on SSL & the Stream Finance Model: Presentation

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