Denver Harris - IR Nolan Watson - President & CEO Erfan Kazemi - CFO David Awram - Senior EVP

Rahul Paul - Canaccord Genuity Dan Rollins - RBC Capital Markets

Good morning. My name is John, and I'll be your conference operator today. At this time, I would like to welcome everyone to Sandstorm Gold's Third Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session [Operator Instructions]. Denver Harris, you may begin your call.

Thanks very much. Good morning, everyone, and thank you for joining today's conference call. Speaking on today's call will be Sandstorm's President and CEO, Nolan Watson; CFO, Erfan Kazemi; and Senior Executive Vice President, David Awram. 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 the call over to Nolan.

Thanks, Denver, and good morning, everyone. We're going to be doing things a little bit differently this morning we had originally hoped to hold an Investor Call concurrently with the Yamana transaction to walk investors through all of that detail and due to the financing that we are doing simultaneously, we were unable to do that. So we're going to take the opportunity to walk through some of that detail now and also provide an opportunity at the end for Q&A both, on the business and the quarter, as well as the Yamana stuff. So with that what I'm going to do is hand the call over right away to Erfan Kazemi, our CFO to walk through the Q3 information and he is going to hand it back to me and we'll talk generally about the business before handing it over to David Awram to provide a technical update on various assets including a brief description of Chapada and Cerro Moro. So with that, Erfan take the lead.

Thanks, Nolan. During Q3 the company generated $12.1 million in revenue from the sale of 10,834 attributable gold equivalent ounces. The ounces were sold at an average realized price of $1,116 which was 12% lower than Q3 2014 negatively impacting our margin during the quarter. The company's average cash cost per ounce was consistent compared to Q3 2014 as $307 resulting in a cash operating margin of $809 per attributable ounce. I mentioned the Santa Elena mine during the company's last conference call and the project in Mexico was a standout performer yet again posting a 36% increase in ounces delivered compared to the same period in 2014. With the acquisition of SilverCrest mine's closing during Q3 2015, First Majestic Silver is now the owner and operator of the Santa Elena mine. Unfortunately the declines in production from Metanor Bachelor Lake mine that I talked about last quarter persisted in the second half of the year. Their operations had higher than expected dilution from some stopes which has impacted production. On the positive side Metanor has continued to report encouraging exploration results over the last number of months including positive results near surface. I'll let Dave discuss that more detail. Based on our figures from the first nine months of this year we have narrowed the band of our 2015 production guidance to between 43,000 and 46,000 attributable gold equivalent ounces. I'm happy to report that we have maintained a focus on cost reduction during 2015 and we're able to decrease our corporate admin costs by approximately $200,000 compared to the same three period months in 2014. The change was offset by an increase in project evaluation cost, largely driven by our efforts related to streaming and royalty transactions similar to the Yamana transaction which was announced subsequent to quarter end. As for operating cash flow, we booked $8.2 million during the period which increased our cash balance to $46.5 million as at September 30. Since the start of 2015 Sandstorm has accumulated $25.8 million of operating cash flow enabling the company to make a number of acquisitions, the most significant being the recent Yamana transaction. To fund the deal we increased our credit facility to $110 million which we fully drew down on. On November 3, we completed a public offering for gross proceeds of $28.8 million. The net proceeds from the public offering were primarily used to reduce the balance of the company's revolving credit facility. Going forward, we intend on using our existing cash on hand and ongoing operating cash flow to decrease the amounts drawn on the credit line. I thought it would draw your attention to a flight titled available capital in the most recent investor presentation on the company's website. The slide provides an estimate of the company's debt repayment schedule, in this point we believe that that debt will be exhausted by 2019. On to earnings, we recorded a $5.5 million loss during the quarter, primarily as a result of $4.4 million non-cash loss on the reevaluation of the company's investments. The majority of the loss was related to the quarterly revaluation of Luna gold convertible debenture which the company acquired as part of the Luna stream restructuring. Overall, I'd say it was a steady quarter for Sandstorm. And with that, I'll pass things over to Nolan.

Thanks, Erfan. Over the past number of months and over the last year both, on these conference calls and investor presentations I have walked investors through what our stated objectives are which had increased the size, the diversification, the quality of our profile upstream are royalties, and to upgrade our company and turn Sandstorm into a world-class streaming company. And I want to talk a little bit right now about the Yamana transaction because I think it is a significant milestone along the path to turning Sandstorm into that world-class company. This transaction brought to us multiple assets in multiple countries with a proven inexperienced operating partner on quality assets with tremendous exploration upside. And the majority of those assets are already in production. I'm going to talk briefly about each of the three major components in the transaction. The first is a copper stream on Yamana's Chapada asset in Brazil. It's an asset that's up and running, it's profitable; it's a high quality cornerstone asset for Yamana. Our transaction is to purchase upto 4.2% of the copper produced at the mine up to a maximum of 3.9 million pounds and based on the current like mine plan, we expect to hit that 3.9 million maximum every year for the next ten years. Once we've received 39 million pounds then the percentage drops to 3% until we've cumulatively received 50 million pounds and then there is a further drop down after that and I'll come back to those dropdown concepts because they're relevant in relation to the Cerro Moro stream. So that transaction or that part of the transaction will get us what we feel approximately $7 million of cash flow a year for many, many years to come. The next portion of the transaction was a Silver Stream and the Silver Stream although it may appear to be complicated for those reading the press release; the reality is it's actually fairly simple. The first portion of it is really an interim Silver Stream that kicks in on December 1, so starting two weeks from now and that is production of silver from Chapada and Minera Florida upto a maximum of 300,000 ounces a year and based on the current life of mine projections we expect to hit that 300,000 ounces a year maximum, that would give us another few million dollars of cash flow year. It's worth noting the timing of that interim portion of the stream, is that because the majority of the material is being shipped in concentrates and Sandstorm does not get paid from Yamana until Yamana gets paid after the quotational period, that means that there will be a little bit of a delay between the time the material is shipped in December the time that we actually get paid, I would expect we'll only get a partial Q1 but that difference will be made up on the back end. So it's just a tiny matter. So based on that interim stream our total incremental cash flow to Sandstorm from the copper and the interim silver stream should be approximately $8 million in 2016 and then $10 million in 2017 and 2018. After 2018, the silver stream turns in -- the interim Silver Stream turns into a life of mine silver stream on Yamana's Cerro Moro asset in Argentina which is being constructed by Yamana. They're pushing that asset forward fairly quickly. And Yamana has publicly stated that they plan on having the asset up and running in 2018. We have built a number of protection mechanisms into this contract which I'll go into later but one of them is that if Cerro Moro is not up and running by 2019 than the silver stream reverts to El Peñon for both 2019 and 2020, upto a maximum of 1.2 million ounces per year which again based on like of mine plans we would expect to hit that 1.2 million ounce. So that would work out to approximately 20 million in total cash flow between the copper stream and the silver stream by 2019 and 2020. That amount of cash flow is very material to our company as investors would know right now a $20 million increase by 2019 represents approximately 50% increase in our total cash flow and really to complete this transaction with only 8% dilution to shareholders. We've talked a lot about diversification and we've talked a lot about downside risk mitigation over the last year and that's something that we feel that we've been able to get in this transaction. We feel that the downside protection mechanisms we've been able to build in adequately protects Sandstorm and its shareholders from anything that may go on in relation to, for example, country risk. So we've already talked about Cerro Moro and how for 2019 and 2020 it's backstopped by El Peñon. One of the other protection mechanisms we've built in is that if Cerro Morro is not built after 2020, we wait a few years and then once the chip had a dropdown would naturally happen in the Chapada copper stream, Cerro Moro is still not yet been built, that net dropdown doesn't occur. And the percentage goes back up to 4.2% and Sandstorm continues to purchase the higher amounts of copper from Chapada until we've gotten all $70 million back from our silver stream. So we're not taking risk that we don't get paid back with respect to Cerro Moro or whether or not it goes into production. One other important thing to note in this transaction is that we have structured it between Sandstorm parent company in Canada and Yamana entities outside of South America so that in this transaction Sandstorm is not assuming any tax risk associated with any countries in South America and we are not assuming any foreign currency risk associated with those countries either those are keeping of our philosophy of downside risk mitigation. And I'll let Dave talk a little bit more about the exploration upside but these assets have absolutely tremendous exploration upside. So we feel that we've been able to get a transaction that gives us upside and gives us downside risk mitigation. I am getting a lot of questions from investors about where do we go from here at Sandstorm, what sort of growth plans do we have now that we have about $85 million dollars of net debt. And I want to be very clear with investors, make no mistake; we plan on continuing to grow. We want to be very careful with our debt, many investors know how adverse I am personally to debt, and therefore we want to pay that debt down as quickly as we possibly can and for that reason -- because we want to grow and we want to pay down debt we are going to focus our corporate development efforts really on two types of transactions over the next year. And those would be transactions on high quality assets with good counterparties and significant exploration upside, assets that would allow us to accretively raise equity on the back of those transactions for Sandstorm shareholders to better off if we are able to complete those transactions. And then on the other side, the other type of transactions we'll be working on will be smaller purchases of royalty and building in further optionality into the portfolio on very small transactions that would not hurt our ability to pay down our debt quickly. And so we're going to manage that balance sheet but we're going to continue to grow. We're very excited about what we've been able to do over the last year. We've allocated over $200 million of capital, we've taken Sandstorm from a company that had only 15 streams in royalties two years ago on six producing assets, and today we sit here with 76 streams in royalties on 16 producing assets. Over 90% of our production by 2019 is going to be coming from majors, mid-tears and debt-free juniors. And although this is just one step towards turning Sandstorm into the company that we want it to be and we know that it will be, we believe that this was an important step. And so Dave's going to talk a little bit technically about Cerro Moro and Chapada and then he's going to provide a bit of an update. And then we're going to turn this call over to investors to ask questions.

Great, thanks Nolan. So as Nolan said, I'll talk briefly about the Yamana assets. To begin with, I'll start off with Cerro Moro because Yamana has not really given any updated technical reports on that asset since they made the acquisition of it. But rest assured Yamana is currently planning to begin construction on Cerro Moro with the goal of production in. Cerro Moro project is located down in Santa Cruz province of Argentina, and it contains a number of high grade epithermal gold and silver deposits, some of which will be mined via open pit and some are going to be via underground mining methods. Current plan indicate average annual production of the first three years of full production of 135,000 ounces of gold and 6.7 million ounces of silver with life a mine estimates for annual production of 102,000 ounces of gold and 5 million ounces silver. The expected throughput through the planned mill is 1,000 tons per day, and all-in sustaining costs $547 to $557 per ounce of gold and $7.60 to $7.80 per ounce of silver projected by Yamana at this time. Life of mine production estimates consider only current mineral reserves and do not have the benefit of additions from exploration and discovery. So in addition to really the very high overall grade, one of the strongest aspects that we appreciate at Cerro Moro is the exploration potential. The main Escondido [ph] zone is where the current resource has been established and La Negrita zones in the north is where the only additional exploration program has been focused. However, our streaming contract encompasses number of other perspective claims that together are more than 10X the size of the area that is currently been prospected by Yamana and its predecessors. I think at this stage it's really been difficult for the general market to fully understand the potential that awaits this district, and this very large land package of prospective geology that Yamana currently uses. We see the Cerro Moro district is having exceptional potential and expect to see Yamana focus some exploration efforts on this area in the years to come. Once Cerro Moro reaches production, we expect Yamana to more comprehensively demonstrate the aspects that we think will make this project such an impressive long-term producer. Also no one should forget that Cerro Moro is located less than 100 kilometers away from Anglogold Ashanti at Cerro Vanguardia which shows a very similar geologic and mineralization model and operates at 3,000 ton per day from both open pit and underground operations. So unto Chapada, many of you are likely already familiar with the Chapada open pit gold/copper mine located in outside of Brasilia which has been producing since 2007. This is a project that was built and constructed by Yamana to relatively low cost operation and contribute significantly to Yamana's favorable cost structure or is treated in a flotation plant capable of treating 22 million tons annually and in 2014 the asset produced 113,000 ounces of gold equivalent and over 133 million pounds of copper. We were impressed by the recently overhauled management team on site focused on optimization was clearly taking effect, in our opinion there is a lot of low hanging fruit for Yamana to take advantage of to reach Cerro optimization goals. To our analysis we believe that the [indiscernible] are very promising and the ongoing ore exploration within the district is perspective for launch of attractive targets beyond the current resources. And as with Cerro Moro the area of influence under our streaming agreement goes well beyond the existing mineral tenure of project. And as Cerro Moro we see this is really an exceptional exploration potential, in fact, we feel that exploration potential in both of these projects is much higher than we've typically received in many of the other projects that we've done in the recent past. So we're very pleased and we're looking forward to seeing what Yamana comes up with in the next few years with their exploration. Okay, so what I will do is I will give some project updates on a few of the other assets in our stream of royalty portfolio. And after I've completed that I would be happy to answer any questions on any of our assets in the Q&A session. I'll talk of Black Fox. Primero has a very good drilling success, not only from the Deep Central Zone but also from the new Froome zone to the west of the current open pit. In the Deep Central Zone, Primero continues to intercept high grade zones during exploration but as always also completed a lot of delineation drilling which is increasing the confidence in the wide high grade mineralization that characterizes its own. Current drilling of mineralized intercepts is over current reserve grades and is expected to provide mountable targets to pursue for underground operations. Perhaps more exciting is the recent drilling on the Froome zone to the west following up on a long intercept from the 2014 drilling program, Primero has discovered a new zone near surface which has already delivered very prospective mineralization and has the potential to be accessed by surface mining or potentially bulk mining underground techniques. Although the work is still early, recently released drill results and cross sections are making us excited that this target can be developed into legitimate old volume. Bachelor Lake, not too far away a Bachelor Lake mine operated by Metanor, we have seen a similar target emerge in a newly discovered zone. What is being dubbed as Soffain [ph] is located approximately one kilometer to the south of the Bachelor Lake mill off the east/west trend of the current mineralization. Over the last few weeks Metanor has been releasing the assay results from the first exploration drill holes on the asset and an intriguing target is being revealed. So far and wide zones of mineralization have been discovered starting at surface and extended to depth. Follow-up drilling has been successful in duplicating the ore grade results and a distinct zone is emerging. Metanor has just closed the first trench of its latest equity financing and parts of the proceeds are expected to use to follow-up on this new target. So a little bit on Thunder Creek, we're going to look at Lake Shore's gold deposit where we currently hold an extensive royalty obtained through the takeover premier royalty. Many of you have heard of the success that Lake Shore has had with their drilling focused on the TC-144 trend to the southwest of the current operating mine at Timmins West. In particular, the target described as the 144 gap zone. Our NSR covers Thunder Creek also covers the majority of the TC-144 that has been identified to-date. The $25 million budget in drilling for 2015 is being spent in an area that our 1% royalty covers. So we'll be eagerly anticipating the early, the additional drill results and the resource expected to be released in early 2016. And I think this is a great example of how one of our 76 royalties and streams can add substantial value even at the bottom part of the cycle. As time goes on, we expect more of our high quality royalty portfolio to get upgraded like the Thunder Creek royalty has, like we are also seeing with the Paul Isnard, Bomboré, Prairie Creek, HM Claim, Spectrum and others. The last project I'll update is True Gold's Karma deposit; mining has now begun at True Gold's Goulagou II deposit at the Karma Gold Mine at Burkina Faso. This will be the first to six deposits that would be mined over the period of -- and it will be mined over a period of two years. As of the last update, the project was approximately 73% complete excavation of the initial cells of the heap leach pad is mostly completed with the installation of the liner beginning. Much of the ADR plants is completed and all components of the various ponds are on-schedule. True Gold has stated that construction is not time and the budget is being meet. Like many of the other projects we have streaming our royalty interests in, we anticipate that a big part of the story at Karma will be the exploration upside as True Gold taps into the potential in its large land package. So that's it for my project updates. With than I'll pass it over to the operator and we can begin our question-and-answer period.

[Operator Instructions] And our first question comes from the line of Rahul Paul. Your line is open.

Hi Nolan and team. You've done a great job diversifying and now creating a platform with the last twelve months but with the amount of transaction you've drawn most of your available borrowing capacity and you indicated that you would keep looking for further deals. Now I'm just wondering with the added cash flow from the Yamana stream have you spoken to your lenders about a possible increase in the size of your facility.

We believe that that would potentially be available, we're pretty dead averse and so the reason that we raised equity is because we wanted to have low levels of debt, we wanted to continue to get that debt down as quickly as possible which is why the real two types of growth that we're looking at are either small transactions that will add lots of optionality and exploration upside to us but won't really impair our ability to pay down our debt quickly or larger transactions on high quality assets that are already cash flowing where those transactions will be two things, they would need to both increase our debt capacity or specifically bring their own debt capacity for that incremental transaction, as well as be attractive enough to make it worthwhile raising equity to complete that transaction.

Okay, thanks Nolan. And then, mostly I'm wondering could you talk about the new streams acquired from Yamana from a tax perspective to what extent and when would you expect to pay taxes?

Yes, great question. So the transaction is structured in Canada and we believe we will be able to deduct all $152 million dollars in Canada before we start paying any taxes. After we have deducted $152 million of cost base then we would be able to begin eating into tax pools that we have built up over the years in Canada and still continue to pay no taxes in Canada. Once those tax poser rate improved then these streams and royalties or the streams particularly would be taxable at our applicable rate which is currently 27%.

Okay. So assuming you keep doing additional transactions, you'll be keep pushing that out further down the road?

Yes.

Okay. And then you mentioned in the past that the focus is on gold transactions but now you have the Chapada copper stream. Was that something that you had to drill in order to make sure you've got the deal done? And going forward would you still look at copper?

So without going into too much detail about the negotiations of the process, the copper stream was part of it from the very beginning at Yamana's quest. Having said that, the reason we were able and willing to do that piece of the transaction was because Chapada is a pretty incredible asset, it is 700 square kilometers approximately area of interests with tremendous amounts of exploration upside and drill holes all over the place. We think we're going to make a lot of money on that stream and we're able to do it the way that precious metals and diamond revenue is over 80% of our production by 2019 even with that Chapada copper. And so we are still focused on precious metals, we're a precious metals company we're going to continue to be a precious metals company. One of the things that I got comfort from in this transaction was that we're getting a very material value in silver and silver has been disproportionately been beaten down relative to gold, so I have the feeling that when the gold markets eventually come back that silver is going to disproportionately benefit from the upside. And therefore this transaction is very lever to the gold price I believe.

Okay, thanks. And then last question for me Metanor seems to be struggling a bit here. Do you see the need to maybe renegotiate the stream?

As I mentioned in past calls that is, the existing streams or royalties we have, that is the only one where we do see the need to renegotiate the stream eventually. We're comfortable with all of our streams and royalties on all of the assets except for the way that one is structured. We're not in any negotiations on that but I would imagine sometime over the next two years that something investors could expect.

Okay, thanks, Nolan. That's all that I had.

Our next question comes from the line of Jamie Wigan [ph].

Yes, hi, thanks for taking my question. Actually I have two questions. The first one, on the recent equity raise, I feel like the warrants might have been potentially undervalued as part of the deal. Just wondering if you guys felt you really needed to go out with the market with the price discount you did given that warrant looked pretty valuable. What are your thoughts were on that?

Another really good question. So our view when we were discussing this transaction internally and at the Board level we spent a lot of time analyzing debt and debt implications to debt. We were very, very conservative here so we wanted to ensure that gold go below $900 an ounce and that we would not trip our covenants within our projected cash flows in that scenario. And we came up to the conclusion that we needed to raise $25 million to be able to survive, to call it $850 goal without tripping covenants. Even an $850 gold, we don't anticipate any problem repaying our debt, we just want it ensure that we don't trip covenants along the way and so that's the reason we decided internally that if we were going to do this transaction we wanted to raise $25 million to be able to ensure that we are a stable and safe investment for our shareholders and that we're not taking on risks associated with that. Our view given the current market is that because there have been 15 mining deals that we're aware off in the last year and 13 of those deals have gotten hung and three of those, the other -- two of the other three were mostly pre-sold even though that's not appropriate with securities regulations and we had not done that. That we wanted to air on the side of safety and take a slightly larger discount and ensure that the deal got done and then it got done fast, the investors didn't have to worry about either hung about deal and they also didn't have to worry about a deal that had fallen apart so that we would have the higher debt levels and then be in a riskier position. And candidly, I'm very glad that we did that because gold price dropped almost $100 an ounce in the ensuing week after we did the financing. And we would be in a very, very messy situation if we had not sold that deal quickly. So I think it was the right call.

Okay. Just one more question, thanks for that. I just wanted to ask about Diavik. Looks like Dominion on their last call said that they are expecting the mine to be done by 2023, they seemed pretty confident in that. I know in your last slide deck that you issued you still got a 10-plus year mine life for that. So I'm wondering have your feelings changed about the potential to go beyond 2023.

Well, so the 2023 number is based on the existing mine plan without pulling some of the inferred into it. Still I would agree that that's the case if you don't pull that inferred into it. I think that come five years from now with iron prices where they are and some additional drilling, I would be surprised if they didn't extend that.

Yes, it Dave here. I mean Diavik has done a very good job of really converted those improved resources over the past and even replacing reserves on an annual basis. So I think stalking for 42,101 reserve numbers that's really where it sits but historically if you look at the way the mine has operated it's had a very successful ability to really convert reserves and replace reserves on an annual basis.

Yes, I guess I was just surprised the Dominion wouldn't have echoed those comments. You know what might they feel differently?

Well, I haven't heard the comments frankly, so I can't comment on them.

Okay, it was just their last call. Anyway, thank you.

Our next question comes from the line of Dan Rollins.

Yes, thanks very much. Guys I was wondering if you could maybe just give us some update on a couple things. With respect to the debt is there a level which you'd like it to get it down to over the next two years before you'd be comfortable with that level going forward or is it the gold really to get this down to zero and then use it to sort of fund a new deal farther down and just continue to repay it.

Yes, we've always viewed that we want zero debt as a part of our per net capital structure. And that our debt capacity or revolver should be used for strategic purposes that we can complete transactions like this one that we just did. So the gold is zero [ph].

Okay. And then right now for another high quality opportunity came to the market. What do you think the largest size you could put cash to work right now would be?

I think the answer is it depends on the equity market conditions but my gut feel is the largest we could do right now is around $100 million in this market and that $100 million would be drawing a portion on our existing revolver plus maybe a little bit of an upside there, as well as some cash flow from operations and some equity.

Okay. And just what do you guys see as your cost of capital right now for the company?

That is a long complicated question that I would be happy to answer over a period of an hour offline.

Not a problem. And then just with respect to the smaller opportunities, what are you seeing out there right now? Are they sort of the pre-production, exploration style royalties or are you seeing some packages that could give you some small incremental cash flow immediately?

Yes, all of them. In particular we've seen a lot of packages of royalties out there, there is a lot of groups that are looking to liquidate anything really to get to get funds and so there's a number of those in particular that we're looking for.

Okay, perfect. Thanks guys, have a great weekend.

Thanks.

[Operator Instructions] Our next question comes from the line of Norman Hale [ph].

It's Greens [ph], guys you're doing a great job up there. A question, if one of the companies that you have either royalty or streaming with into up-selling that specific property let's say we get into financial trouble and have to sell the property, do all of the existing terms that you guys have a range, do they -- are they required to have that package go to the next owner?

The answer is yes, each of the streams and royalties are contractually designed to follow the properties wherever the properties go.

Okay. So it does matter who own it, it's going to remain the same as you originally worked out the terms of that particular deal. What if the company -- now this is probably not going to happen but what if a company goes bankrupt?

So the answer to that is, it depends on what country you're in and what the rule of law is in that country, and it depends on whether it's a stream or royalty and it depends on what your security package is. So I would broadly say that in Canada and the United States, if it's a royalty it survives bankruptcy and it runs with us biting on the property in all scenarios. And in the US are anomalies -- most other countries, royalties and streams are treated the same where what you have to do is get a mortgage charge. In the case of the amount of transaction for example what we've done is, we've gotten the security guarantees from the subs, we've also got parent company guarantees, so if something goes wrong with the subsidiary we can go deal with our parent company to get that value elsewhere. And so we -- in every situation that we're doing a transaction on, we look at what's the law, what's the structure of the contract, how do we need to protect ourselves.

Got it, great. Okay that's all I have, thank you very much.

Thank you.

At this time we have no further questions. I turn the call back over to Mr. Watson.

Thanks very much everyone for calling in, and I assume there will be some questions that people want to ask us offline. So as always, feel free to call us and we'll be at our desk today. And have a great weekend.

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