Denver Harris - Investor Relations Nolan Watson - President, Chief Executive Officer and Director David Awram - Executive Vice President and Director Erfan Kazemi - Chief Financial Officer

Kevin Chiew - CIBC

At this time, I'd like to welcome you all to the Sandstorm Gold Q2 earnings conference call. (Operator Instruction) I would now like to turn the call over to our host, Mr. Denver Harris. You may begin your conference.

Good morning, everyone, and thank you for joining today's Q2 conference call. With me, I have Sandstorm's President and CEO, Nolan Watson; Senior Executive Vice President, David Awram; and CFO, Erfan Kazemi. Before we get started, please be advised that some of the commentary on today's call 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. I will now turn things over to Nolan.

Good morning, everyone. What I'd like to do on this mornings call, in addition to walking you through the Q2 financial results, is discuss a few items including how we're reviewing the opportunity landscape at the present time, and then provide a high-level business update on a number of different front. And then what I'll do is I'll hand it over to Erfan Kazemi our CFO for a more detailed financial review, and then over to Dave Awram for a more detailed technical update on few of the projects. Then we'll open it up for Q&A. So overall we had a good Q2. Gold ounces sold totaled approximately 7,500 ounces, excluding Premier. However, we received 1,800 ounces from Luna, a couple of days after the quarter end, and therefore they missed the cut off for recognition in Q2. And had these ounces been included in Q2, we would have had a record number of gold ounces sold in the second quarter. And since these ounces will be recognized in Q3, we expect a strong Q3 as well. As a result of this, we are maintaining our annual gold sales guidance of 33,000 to 40,000 ounces for 2013, which is exclusive of any ounces we recognize from Premier. The Q2 gold sales, when added to our royalty revenue, resulted in revenue of $13.4 million, and most importantly operating cash flow of $8.4 million. And it's also worth noting that this quarter we decided to a similar tax, as last quarter with respect to the goodwill in Premier and in the current tougher gold market with lower gold prices, we were able to justify eliminating the remainder of the Premier goodwill, and so it's now completely gone from our balance sheet for good. With respect to the opportunity landscape, four months ago, the market started making a more pronounced churn for the work. And although we're working flat-out on a corporate development side of things, we began pulling back from potential acquisitions, as the investment landscape was getting riskier and the gold price was falling. We decided therefore to pullback on some of the larger acquisitions that we were looking at, and rather opted to complete the purchase of a couple of smaller NSRs, primarily because it came with right to first refusal for largest stream financings down the road. These are the type of projects that aren't ready for a stream yet, but they have the potential to one day be world-class deposits. Deposits in our projects, for example, recently completed a drill program with only 15,000 meters to drilling, resulting in a multi-million ounce increase in the resource to 5.4 million ounces of gold, and we believe it has the potential to increase that dramatically again. Right now, Sandstorm has a strong balance sheet with no debt, lots of cash flow. We've got an enviable position in the market. This is in environment where there are lots of companies struggling, trying to figure out how to pay off debt. And Sandstorm I believe is in a very enviable position. Having said that, I want to be clear to all of our investors that we will continue to work as hard as ever to find new accretive gold streams and hope that we find the same that has the potential to be game changers for our shareholders. The main message is that we are not closed for business, but we do have a strong preference to continue accumulating cash and bolstering in all ready strong balance sheet. With that, I will now move into a more detailed update on a number of fronts. And what I'd like to do on these calls is answer some of the more commonly recurring questions that our investors are asking. In over the past few months, some of those questions include: what is the status of the Mutiny transaction? What is the status of Colossus? How is the Luna ramp up going? How is the SilverCrest underground mine coming along in a sense from going to exercise its option? And finally, how do we feel about the strengths of our counterparties in these current lower gold prices? So with respect to Mutiny transaction, in accordance with our agreement, Mutiny had to meet certain funding conditions by May 31, and these conditions were primarily related to funding matter that were not met. As a result, Sandstorm has not obligated to provide the upfront payment to Mutiny. I would like to reiterate, as I have done in the past, that we think that this project has a lot of legitimacy and should one day be one of lower cost gold mines in Australia. However, in this environment, cash is a valuable asset, and therefore we are not likely to move forward with funding Mutiny unless the gold price in the market has a material turnaround. So it's important to note that if this removal, specifically of Mutiny, which has had it's update or longer-term sales guidance, which previously was approximately 70,000 ounces per annual and we've revised that to, over 60,000 per annum. So to be clear, that change in longer-term production guidance relates solely here to Mutiny. So on the positive side, the reduction in sales guidance finally comes obviously with cash that we'll now be seeing on our balance sheet, which can be used at the right time to purchase streams or royalties in the future that's increasing our future guidance again. With respect to Colossus during the rainy season and with the number of pump failures they had additional challenges staying ahead of the dewatering of mine resulting in a further production delay until the end of the year. And as a result they announced they required additional working capital. And I'll let Dave speak the issue from a technical perspective, however, from a working capital perspective, Colossus has launched a $33 million financing and it's my understanding that it was fully subscribed for in 24 hours, so we suspect and are now just working through the perspective from closing matters. This equity financing should take Colossus through the fall season and with the above ground infrastructures waiting to be completed to be in the next couple of months, we are much more comfortable with the Colossus situation than we were a couple of weeks ago and it's a situation that we will stay on top of. With respect to the Luna ramp up, Luna is now approximately half way done. The spending on that ramp up, the ramp up appears to be on track to still be completed by the end of the year. And they are also appear to be on track with respect to the actual budget, which was originally $50 million. So that ramp up is going well and it has been recorded by a couple of analyst out there that they think that Luna has a cash flow fall to fund that ramp up. We did not believe that to be the case. So to be clear Sandstorm under the September 2012 amendment that we made with them that we are obligated to provide them additional $10 million. We've done and provided them with $3 million of that. So Luna still has another $7 million coming from Sandstorm. And Luna still has the $20 million revolving facility that they have from Sandstone that they can use to complete the ramp up and that is all of the cash that they require to complete the ramp up. So Luna is in a good position financially to complete this ramp up and is going well and we're very excited about it. With respect to SilverCrest, so just last week they put out the pre-feasibility study on their underground mine. We're very pleased with the results. It shows a very low cost, eight year initial mine life, and again, I think this illustrate the low cost nature of most of the assets that we have done deals with. To refresh everyone's memory this is an epithermal vein system and this underground mine plan that they have just put out is just based on one part of one vein that is still open to depth and is still open to long strikes. So we believe it has the potential to be a very, very long life mine. And Sandstorm is going to be exercising its underground mine options, so again we're excited about that upside as well for our shareholders. And finally the strength of our counter parties, in this lower gold price environment, we get a lot of questions about that and I like to reiterate that currently approximately 75% of our production comes from either Luna or SilverCrest or Brigus. And those three assets have cash cost that averaged around $700 per ounce and all-in sustaining cost of around a $1,000 per ounce. And so even in this environment, Sandstorm shareholders are in a good position and that they have most of their production coming from low cost assets. And yes, there are companies like Santa Fe and Donner, which have well documented plans for struggles, but those struggles represent only 3% of the net asset value underlying our assets. And then if you move into companies like Colossus, even in a terrible market like the one that we currently have Colossus is able to get significant demand for equity financing with only 24 hours notice. And most companies can't do that in this environment. So let's say, on the whole Sandstorms partners are doing well. We're positioned well. And in summary Sandstorm is a company we have, again, a strong balance sheet. We have significant cash flow from operations. We have good partners. We have assets that are ramping up and we are excited for the future. Over the last year, I have been fairly public in the lot of news media and on TV and the various interviews that I have done, I was embarrassed in the short-term on the gold price and quite bullish in the long-term. And although I am still cautious in the short term, I am still very bullish in the long-term. And because of that view, at Sandstorm we are going to be reflecting our balance sheet very closely here in the short-term, but we're still working very hard in the long-term to find additional gold streams that are going to have significant amount of exploration upside through reward our investors when this market turns around. And so with that, I'm going to hand it over to Erfan Kazemi, our CFO to talk in more detail about the financial results.

In the second quarter of 2013, we reported revenue of $13.4 million, which was largely generated from the sale of approximately 7,500 gold ounces at an average realized gold price of $1,416 per ounce. Our average cash cost per ounce was slightly lower than Q1 2013 at $417. It was due to the decline in the stock price of gold. Our cash operating margin is down 17% from Q1 2013. Even with the lower operating margin, cash flow from operation was $8.5 million, an increase of approximately 20% from Q1 2013, partially related to changes in non-cash working capital. As Nolan mentioned, it's worth noting that we have approximately 1,800 ounces of gold sales carried over to third quarter because of the timing of shipments. As those ounces have been recorded during the second quarter, we would have posted a record for gold ounces sold. As far as the breakdown of ounces sold by mine the results were more diversified than previous quarters. Approximately 2,400 ounces were attributable to Luna Gold Aurizona Mine, which is located in Brazil and represent a 31% of production in Q2. 23% of ounces sold came from Brigus's Black Fox Mine in Ontario, Canada. 20% of gold sales came from SilverCrest Santa Elena Mine in Mexico and 21% came from Bachelor Lake Mine in Quebec, and lastly 5% of gold sales were attributable to Rambler Ming Mine in Newfoundland, Canada. As of the end of June, we had approximately $65 million, which does not include Premier Royalty's cash position that was consolidated on to our balance sheet. And we have available credit facility that we can draw it upon at the entire a $100 million. Nolan mentioned, our net loss of $17.1 million was due to a $16 million non-cash impairment charge on goodwill arising from Premier Royalty's acquisition. With that impairment Sandstorm is no longer has any goodwill in the balance sheet. Now I will turn it over the things to Dave.

Thanks Erfan. So today I am going to focus on Serra Pelada, Santa Elena and a brief update on the expansion efforts at Aurizona within the gold. And of course, for any kind of specific questions on the other assets, feel free to ask at the end, the questions portion of the call. So for Serra Pelada, one of the recurring questions we have received since the July update on this asset is the viability of it as a mine with regards to the recent problems of water inflows. The short answer is yes. We do believe it is as a very strong mine. But to give it in some further detail, the main problem lies with sandy units within the typical grade siltstone that makes up the hinge zone that host the bulk of the currently outlined mineralized zone. When encountered these sand units can bleed higher amount of water than the rest of ore body. This is not an unusual phenomenon in underground operations. This year, it was a bit unexpected based on the original hydrological studies that they have done on the project. More work does need to be conducted and is being conducted, but many mines and accounted as (inaudible) very efficiently as to deal in it. Colossus has implemented their first try at the solution and we should know within six days how well they are going to be able to deal with this water problem. Other than that, development in the red and gray siltstone with the underground is better than expected and the surface mill and infrastructure should have no problem getting completed before there is ore to be delivered to these. So these portions of the mine are well ahead. I think it is important to point out that our guidance for timing of production has not changed since the announcement of transaction on Serra Pelada. The project is very still, very much viable and expected to become a very producing asset. We fully expected a number of issues to pop up as with every new underground mine, especially, that ultimately delayed the start of the ramp up. As for the water issue while we do feel the issue does need to be further investigated is unpinned, but the current problem should be successfully addressed with the current pump equipment and the water management studies. On to Santa Elena, as previously SilverCrest recently has released its finding, after the pre-feasibility study on the underground portion of the mine and the milling operations for Santa Elena and the factor are actually well underway in both of those. They have constructed a large portion of the mill and the substantial amount of underground development has already been completed. SilverCrest is expecting to have completed all of their capital build by early 2014. And began operating the mills soon after. From first blush, it seems the asset holds very strong economics and lots of exploration potential going forward. If you look at Magellan and the subsequent long sections today, there appears to be a number of trench mineralization that are open, including total expansion of the ramps to the west portion of the vein under the current open pit, and then also down plunge along a high grade rake of the current vein. Even with the costlier milling and underground mining methods as opposed to the heap leach operation that operates on it, Santa Elena is still expected to be one of the lowest cost gold and silver producers around. We have very good confidence in the CapEx budget and in the OpEx cost. The additional gold ounce that has been entered into life of mine trend are significant and potential for exploration success that could extend the life of mine is very promising. For now, the economics is great and they certainly do support our further investment into Santa Elena. Their solid management team has continuously delivered since the first involvement with them, so we have confident in their execution on this portion of it. Both of these aspects are strongly supporting our investment. Here is some of the statistics on the pre-feasibility study. The new pre-feasibility study is expecting to produce over 262,000 ounces of gold. They are estimating cash operating cost averaging $11 per ounce, silver equivalent through the mine life. With lower cost in initial years, they are expected to get pay back for this investment in one year. Recoveries are going to 92% or are expected to be 92% for the gold and 68% for the silver. So the expected revenues from this new mine plan seem to be split 50-50 between the gold and silver. We're not exactly sure what our portion of the CapEx will be when we proceed in this investment, but it should be less than $10 million. So on to Luna and the expansion efforts that are going there. Nolan gave you a little bit of road down, what's happening there. They have had, even in the Q1, which was a lower production quarter for them, they did have all-in cost of $1,100 in 2013 and based on cash cost of about $750. But that $1,100 also included an exploration cost to the Greenfield's exploration, which was pretty substantial, which from this point going forward is that program is on hold. The Phase 1 expansion is still in schedule. Close to $60 million has been spent, in fact a little bit more than that. And the total budget still does remain, including the contingency, at around $50 million. A couple of the expansion items are very, very close, it's not already completed. And the last item, thickeners are to be completed in late Q4 this year. The expansion is expected to allow the orders on a mill to achieve processing throughput of 10,000 tons of ore per day. They've also done some work on the Phase 2 expansion of the PFS, it is well underway by Micon, and is expected before the end of year. And this Phase 2 expansion is really contemplating what an expansion scenario would look going from the what is over a 130,000 ounce of annual production up to 200,000 to 300,000 ounces of production. So with that, I will turn it back over to the operator, and we can begin our question-and-answer session.

(Operator Instructions) Your first question comes from Kevin Chiew. Kevin Chiew - CIBC: This is Kevin Chiew calling from CIBC. So my first question I guess just pertains to the depreciation for this quarter. I guess it's a bit high and primarily I guess it came from Premier Royalty. Just wanted to confirm that that's a product of the ore mineral assets being depreciated faster?

So what we've done is as part of the allocation of our consideration for the acquisition, we added the pump-up in assets and what we do is we've been depleting it at accelerated rate. So we are seeing is an increased depletion with respect to not only the underlying assets, but ore assets as well. Kevin Chiew - CIBC: So I guess for the rest of 2013 and this should kind of be the go-forward rate?

Yes, that's correct. Kevin Chiew - CIBC: Just a question on the realized gold price, just because from what we've seen with some of the other producers, that's a hell of a math you guys actually did quite well. I guess my question is how much control do you guys have over the timing of the sales? And just how much of a focus you guys put on trying to control it?

So chances are that question will be candid, that we have very little control over, when we actually receive the ounces, and we tend to not hold those ounces for more than call it two or there days. So we don't have an active program to try to manage getting higher gold prices in average. There has been part of such programs in the past that other companies that have been out and you tend to spend a lot of time and money on those programs, and it tends not to yield much fruit. So if we believe that there has been, for example, if we just got gold ounces delivered to us in a day and the prices had a massive drop that day and gold price tends to bounce back after a massive drop, we'll hold it for a couple of days, before we sell it again. But that's about the expense of that program. Kevin Chiew - CIBC: And just one final question on Colossus, I do see that you guys have minimum kind of guarantee starting in 2013. I guess with the last update, production looks like it will come in towards the very end of 2013. Just wondering what your sense is in terms of whether or not there will be any sort of minimum kicking-in there.

Yes, so to refresh peoples' memory on the Colossus transaction, a vast majority of what we'll be getting will be from platinum. And the platinum is never anticipated to be ready until the end of 2014, just because they're going to have to actually go and build the flotation plant. And so the vast majority of the minimums don't kick in until the end of 2014. There is a little bit, as you said, minimums in 2013, and that just relates to a very small portion related to gold and it's not a very material amount. So whether we get that 1,000 ounces or not, so whether we bump it into the following year, I'm really concerned about that right now.

Your next question comes from (Robert Mullen).

I was wondering, you had mentioned you stepped away from a couple of larger deals in the second quarter. And I wanted to know what you hope to see from the broader market to make you more comfortable to go forward on some of those transactions, and whether it's a stabilizing or higher gold price or lowered expectations from the Royalty or stream sellers. Just give us a little insight into what you're thinking?

Really it comes to down whenever you're making investment, whether it'd be a mining or anything else you're looking at trying to get bulk average of risk adjusted returns. And in this market the cost of acquisitions is coming down, and therefore the potential reward is higher. But at the same time, because the capital market have gone completely missing in action, the risk have gone up as well because the riskier time of investing at a mining company or a mining project is when they are going to put that project into production, is almost every single situation we've ever encountered there has been CapEx overruns along the way. It's just an inherent part of the mining industry. And therefore the risk is if you don't have properly functioning capital market with respect to mining investments, when the day comes that the mining company comes up short, if they cannot raise their capital to get the asset into production, it's very, very risky. So in this environment, the risk has gone up disproportionately because the capital markets have completely fallen away. So we're not as really concerned so much with the gold price, it's not a $1,300 gold price that gives us concern, it's just this current status of the capital markets. And so in order for us to make an acquisition in this environment it would either have to be such a high upside potential opportunity that it's worth a risk or more likely what we'll be doing is waiting for the capital markets to have some resemblance of functioning before we step back in a material way.

And then just, sort of, walk through your fire power you've got and the $100 million credit line is undrawn, is that correct?

Yes, the current line of credit is completely undrawn, so we're debt free. So right now we have $60 million unchanged on our balance sheet, plus the $30 million that gets consolidated through Premier and we have a $20 million line of credit that would go out to Luna. So let's call it net $40 million to $70 million depending on how you look at it with Premier, plus the $100 million on our line of credit, that's available to do future deals when we're ready to do them.

And it looks like the cash flow is coming in and that if you normalize for the volume deferral this quarter, sort of, coming in it, call it, $10 million a quarter and then you have a couple of warrants exercising, $3 and $5 warrants I think over the next couple of years.

Yes, that's exactly right.

Your next question comes from (inaudible)

Nolan, firstly on the gold sales issue and give me your commentary regarding your long-term bullishness on the gold price and the amount of flexibility you have on the balance sheet today, would you consider holding gold ounces on a long-term basis, not as a trading strategy to reflect that outlook?

So it's a fairly common question that we get. And certainly I was back at (inaudible) to do that and view it sort of inventory as gold. And I think there is lot of legitimacy to that view point. Certainly I think the gold price is going up and I think if you have gold now and you decided that you wanted to hold it and sell it at a higher price in the future. That does make a lot of sense. For us it's a little bit counter intuitive in the sense that the times that people tend to wants to allow us to make a really good stream acquisition into their company is the time of usually desperation for them to a certain extent. And the lower gold price goes the better our opportunities get. And so we think that from an acquisition perspective, because we know that we want to eventually make acquisitions with our financial resources, that having the money held in cash is probably a better bet in terms of being able to act quickly and getting that really good stream because if we hold it in gold and if there is a significant and strong negative sharp in the gold market and a really amazing stream comes along our away. But 30% of our cash run away, because there was a temporary 30% drop in the gold price, we wouldn't be able to do that deal whereas if we hold it in cash, we can be more opportunistic. There is no question at the end of the day our goal is to provide our shareholders with the most upside to the price of gold. We just feel that that upside is better provided through a stream than actually holding the gold and that's why we hold cash as to get those streams.

And then looking at some of the royalty acquisitions that you guys did this quarter and the size range would seem to fit within the Premier wheelhouse, can you explain sort of how you decided those were appropriate for Sandstorm rather than Premier.

So if they were just royalties and they didn't come with rights of first refusal that would definitely be a Premier type thing. We're not in the business of going out and getting $3 million or $5 million royalties just for the sake of those royalties. What we saw, in particularly with the Paul Isnard gold project is that it has the potential to be a world class gold mine one day and it's going to be one of those project that would cost several hundred million dollars to build and it could end up being a couple of hundred million dollars stream done on it one day. And so what we're really doing here with this transaction more than buying the 1% royalty is we're getting a right to first refusal to be the party that provides that gold stream if and when that project ever gets to a point when someone goes to build it. So we really see it more as the potential for $100 million or $200 million deal than a $5 million.

Your next question comes from (inaudible).

Just a quick question, can you comment on the increasing share count and dilution that we've seen about the past few quarters in regards to whether that's been allocated to outstanding warrants or options? And, kind of, how those are structured and what the would be going forward and your expectations for future dilution?

Over the last couple of quarters, any dilution that we've had is related to a transaction authority that's been publicly announced. And those would primarily be at the Premier acquisition, where we have had some exercise of warrants that have come in. The warrants that we talked about earlier on this call, they are deep in the money and they will be coming in. And so we've got all of that information laid out very nice and pretty in some charts in our financial statements. And that is I would say the primary sources at least than that you're referring to that.

There are no further questions queued up at this time.

Well, thank you very much everyone for calling in to today's call. And as normal, feel free to call either Dave or Erfan, or myself, or Denver directly if you have any other questions, whether be on the technical nature of the assets or just from a general investor relations perspective, or even if you have questions on the accounting, and we'll be happy to take those calls. I hope everyone has a good day, and we'll talk to you soon.

This concludes today's conference call. You may now disconnect.