Nolan Watson - President and CEO Erfan Kazemi - CFO David Awram - SVP

John Tumazos - John Tumazos Very Independent Research

Good morning. My name is Leonie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sandstorm Gold Conference Call. All lines have been placed on mute to prevent any background noise. Please be aware that some of the commentary may contain forward-looking statements. There can be no assurance that forward-looking statements will be proved to be accurate as actual results and future events could differ materially from those anticipated in such statements. [Operator Instructions] Thank you. Mr. Watson, you may begin your conference.

Thank you and good morning, everyone. This morning, Erfan will be going over the financial results in detail, and he's going to walk us through a few slides on the webcast to illustrate those results. And then Dave Awram is going to be providing a brief update on various assets, including a few new royalties that we've recently purchased. But before I hand it over to them, I'm going to take a couple of minutes to provide a general update on the company's activities. You can see from our financial results that our portfolio of streams and royalties continues to perform well. During the third quarter, we realized approximately $12 million in operating cash flow, and we're on track for record gold equivalent ounces sold for 2017. The company has been very productive for the last few months, and not only we've been able to complete the Mariana acquisition, we've also acquired ten new royalties, bringing our total number of streams and royalties up to 171. We also completed an amendment on the Bachelor Lake stream whereby we received minimum deliveries of 6,000 ounces or under the new stream; we'll receive 6,000 ounces per year for the next couple of years. And we also received two separate 3.9% NSRs, one on the Bachelor Lake mine and one on the Barry project. And in addition, we received $2 million of equity at Metanor for free as part of that amendment. As many of you know, we've recently - and you've seen, we've also continued to monetize our noncore assets and we have agreed to sell a portion of debenture in Trek Mining as well as a small portion of our equity interest in Trek for a total of $18 million to Ross Beaty. This sale will close on the successful completion of the three-way merger that Trek has announced with NewCastle and Anfield, and the new company will be renamed Equinox Gold and will be headed by Ross Beaty as Chairman. As a reminder, we hold a sliding scale of 3% to 5% NSR on the Aurizona gold mine, for which construction is still scheduled to begin within a few months, and we look forward to receiving cash flow from the NSR once the mine has been built. On these quarterly calls, I'd like to provide brief updates on various things for which we've recently been receiving investor questions. And the questions that we've recently been receiving are as follows. Number one, when do we anticipate being complete the sale of the expiration properties that we received in the Mariana acquisition. Number two; is our increase in G&A in Q3 permanent or temporary. And if temporary, when will it return to normal. Number three, are there any material updates on the timing of the Hot Maden project. Number four, what's the status of Sandstorm's share buyback plan versus the payment of the dividend. And number five, what does the deal pipeline look like. So, for issue number one, although the dollar value related to the expiration properties we received as part of the Mariana transactions is not really material to our business, as many of you know, we're eager to get them sold, because we're not an exploration company and we're keen to eliminate additional G&A associated with these exploration projects. Therefore, we've been working diligently to get these assets sold and will be doing so in two separate transactions. The first transaction will be the sale of the exploration property in Africa, which we anticipate being completed before the end of the year. The second transaction will be the sale of the Argentinian assets, and we expect to have this completed by the end of Q1 at the latest. Both sale processes are moving quickly with documentation being fairly advanced. This leads me to the second question relating to Sandstorm's G&A and whether the increase in the Q3 G&A is permanent or temporary. And the answer is definitely temporary. About 85% of the increase in G&A from Q2 to Q3 is the result of the Mariana acquisition. And once the exploration assets are sold over the next few months, we anticipate G&A being very similar to what it was before the Mariana acquisition. So, it should return to a more normal figure by Q2 2018. With respect to question number three being Hot Maden timing, things appear very much on track. Dave and I recently met with Lidya Madencilik in Turkey last month, and based on those discussions, it appears that the pre-feasibility study is still on track for Q1 and permitting will begin shortly after that PFS is complete. With respect to question four relating to share buybacks versus dividends, as I discussed in our last conference call, we are maintaining our focus on share buybacks for now because we still believe that our shares are materially undervalued. So far, we have repurchased 3.3 million of our shares, but it is worth noting that because we've been in blackout, we've been unable to buy our shares for over a month now. We expect to resume the share repurchases before the end of the year to continue shrinking the number of outstanding shares. And one of the things that I think is important to note for everyone out there, especially people who are fond of a dividend concept, is these things are definitely linked. And the more we can shrink our share float now, the more casual there will be on a per-share basis when we eventually do decide to start paying a dividend. So finally, with respect to the fifth and last question relating to the deal pipeline, there are a number of transactions we're currently evaluating and doing due diligence on. However, we're being very selective and very price-sensitive. Sandstorm currently has more growth coming over the next few years than any other streaming and royalty company in the world. We expect our production to grow over 130% over the next five years. And although we still want to acquire more growth, we are not interested in growth for the sake of growth. The important thing is our growth in both cash flow and value per share. Overall, my expectation for the next year is that we will be able to buy back shares, as well as continue adding royalties to our portfolio. And so that's the high-level business update. With that, I'll turn things over to Erfan to discuss the third quarter financial results. Erfan?

Thank you, Nolan, and hello to everyone who's joined the conference call today. We appreciate you taking the time. Well, the third quarter was an eventful one to say the least. Here at Sandstorm, the core of our business is allocating capital. And during the three-month period that we're discussing today, there was a significant amount of capital invested in a number of different places. The most material meaningful investment that we made was obviously the acquisition of Mariana Resources and our interest at Hot Maden, which we closed at the beginning of Q3. The transaction has been discussed at length, so I'll just say that from a financial reporting perspective, you'll notice Hot Maden and the exploration assess that came with Mariana as a new line item on the balance sheet. As Nolan mentioned, we are in the process of selling the exploration properties and expect that we'll have them off on our books in the near-term. In addition to the Mariana acquisition, we were busy buying back shares, acquiring royalties on close to 1 million hectares of prospective property, and we amended our gold stream on Bachelor Lake, which resulted in a minimal interest gain on income statement. I thought it I would add to Nolan's comments about share buyback program as it is a topic that has generated a fair share of questions from investors. It's worth noting that we are often blacked out from buying back shares, which does limit us to a certain extent. As an example of that, we've been in a recent blackout period for the last month and are generally blacked out at the end of every quarter until we file our financial statements. But as of tomorrow, that blackout will be lifted, and we will be positioned to buy back shares again. We believe that the fundamental value of Sandstorm is significantly higher than where it is today, and that the value-creating use of our cash is to repurchase our own shares at these levels. Even with all the activity and capital deployed during Q3, we ended the quarter with about 6.1 million in cash and no debt. Since the beginning of October that cash balance has been growing, primarily from operating cash flow as well as option to warrant exercises. So, we currently have about 10 million in cash to work with in addition to our 110 million revolving credit facility that is completely undrawn. Over the last year or so, we've talked a lot about monetizing our debt and equity investments in order to build our cash balance, so I'm glad that we were able to enter into an agreement to sell more than $18 million worth of securities to Ross Beaty as part of the Equinox Gold transaction. We expect to receive that cash during the month of December when that transaction closes or is expected to close, and that puts us in a good position to continue doing what we've been doing, deploying capital, acquiring royalties and building fundamental value for shareholder. Now I'm going to take a couple of minutes to discuss the financial results. And if you have the slide deck in front of you, you can follow along on Slide 5. Sandstorm's portfolio of royalties and streams has provided a stable base of production and revenue from 20 producing mines during 2017. In fact, the 42,600 ounces that we sold since the beginning of the year is only about 7,130 ounces away from an annual record. And the third quarter production numbers were the second-highest total of gold equivalent ounces sold in company history. It's a similar story with revenue. The first three quarters of the year have generated 52.8 million in revenue sort of about 9.5 million away from a record year. Given the results to-date, we've tightened up our guidance to between 53,000 and 55,000 gold equivalent ounces sold for 2017. And as I mentioned, we don't have far to go to get there. On the next slide, we've broken down the revenue figures by metal and by region. You'll notice on the left-hand side of the slide, the pie chart display, that 41% of our revenue was generated from mines located in Canada, 27% from the rest of North America, and the balance from South America, Africa and Australia. On the topic of our Canadian operation, it's been nice to see the Bachelor Lake and Black Fox projects in improved financial situation. These are projects that investors have had concerns about over the last couple of years. And with McEwen Mining acquiring Black Fox and the restructuring that has taken place at Metanor, the operators have never been better at these projects. Sandstorm's royalty counterparties have continued to improve both through intentional acquisitions with larger companies, but also by royalty projects being acquired by major mid-tier miners, as with the case of Black Fox. It is a trend that has validated our ability to find projects that are unknown or misunderstood by the market, and we're working hard to keep that trend going. Over to Slide 7, you can see here, we've clipped the summaries of some of the key quarterly results from Q3 2017 and from Q3 2016 for comparison. You'll notice that the increase in gold equivalent ounces sold in revenue drove a 15% improvement in cash flow from operations compared to the same quarter in 2016. The cash operating margin per ounce was slightly lower in Q3 2017 as we made about $1,009 per ounce of gold compared to $1,081 per ounce in 2016. Our reported net income was lower when compared to last year. The main drivers were a temporary increase in administration expenses, partly related to the Mariana acquisition which Nolan has touched upon; and some items that occurred in Q3 2016 that did not reoccur in 2017. For example, we reported a $5.8 million gain on the revaluation of the company's investments in 2016 compared to $0.5 million loss on the revaluation of investments in Q3 2017. The main difference was a gain on the mark-to-market change in the Trek convertible debenture during 2016. The Bachelor Lake gold stream amendment helped to offset the change in net income as we booked a $3 million gain from the deals. On to my last slide which shows the changes in cash flow from Q3 2016 to Q3 2017 as well the first nine months of 2016 versus the nine months of 2017. As you can see, there's been a 15% and 21% increases this year over the last year. Overall, I liked our diversified cash flow base, and we have some nice growth coming from a number of development stage assets as well as significant optionality from many of our royalties on exploration projects. That's it for me. Now I'll turn the call over to Dave to give us an update on assets. Dave?

Great. Thank you, Erfan. First up for me, just a quick description of some of the recently closed acquisitions, royalties for Sandstorm summarized on Slide 10. Of course, the most important acquisitions here have been the 30% profit interest in Hot Maden. We've spoken about that project a number of times already this year. But as a reminder and as Nolan said before, pre-feasibility report is due early next year and all the related studies to advance that report are well underway. We've had a chance for our geologist to visit the project, and we've made a number of trips to see Lidya Madencilik, the operator of our assets ourselves to stay up-to-date on the project as it progresses. So far, we're very happy with our partner in this project. Every time we interact with Lidya, we're impressed as to how they push that project forward on exploration, engineering and CSR fronts. Beyond that, we've completed a transaction on three assets owned by Tsodilo Resources, primarily targeting diamonds and base metals in Botswana. The BK16 kimberlite pipe is located in the prolific Orapa Kimberlite Field where over 14 million carats of diamonds are produced every year, including diamonds from the Karowe mine, operated by Lucara, which has produced some of the most spectacular large diamonds in the past few years worldwide. BK16 is diamondiferous and one of the larger kimberlites in the field at six hectares in size at surface. An ongoing large diameter drilling program is happening right now, and in addition to this diamond assets there are some very promising, early-stage base metals targets located in northern parts of Botswana. Also new this quarter are seven royalties on some promising proven properties owned by a private but soon-to-be-public company called Pucara Resources, these are primarily gold targets with some copper gold porphyry targets, some of which may be optioned out larger companies in the coming months. Pucara has been operating on its prospect generator model over the last several years. But with our investment, they'll begin operating some of these exciting exploration projects on their own. So now, altogether, Sandstorm is up to 171 royalties and streams, and just these 11 assets add close to 1 million hectares of new royalty ground to our portfolio. And as always, we continue to look for new transactions both at the production and exploration stages. The second point I'd like to discuss is how the projects in our portfolio are progressing. Moving to Slide 11, I just want to highlight a few of the projects that have been moving up the development curve. Prairie Creek is an exciting high-grade zinc, silver, lead project in Northwest Territories, but has its premise for construction but has recently updated feasibility and received a key recommendation for obtaining permits for construction of an all-weather road. This is a fundamental item as it means it can transport concentrates for more than three months of a year under the current winter road permit. Once that permit is received, all it will take is a final financing to get this mine rebuilt and ready to reopen. Montagne d'Or is the most advanced project in French Guiana, a country whose growth and exploration interest by major gold companies is unrivaled in South America. This project, operated by Nordgold, had a feasibility recently released, has ongoing successful exploration work and is about to reach a point for construction decision in the coming quarters. The Bradshaw property in northern Ontario is now fully permitted. It's in construction and Gold West Gold is expecting to reach commercial production at this asset in 2019. And despite the fact that Glencore has made a point of not building through the mines and Hackett River, the rising zinc price must have made plans on development too tempting as they have disclosed that they are working on a pre-feasibility study on that project. And finally, here at BC, Skeena Resources recently released PEA on their Spectrum-GJ porphyry project in the Golden Triangle. This project has excellent economics and is well located near Highway 37, adjacent to a 287-kilovolt power line. So, this is just the selection of our projects that have moved up the development curve. Of our portfolio of 171 royalties and streams, many more are receiving drilling and economic studies to push them to the next stage. I've said it before, but I really believe that our portfolio of royalties is completely unrivaled amongst our peers in providing this new potential growth. The package of assets we have is dynamic, growing and has tremendous optionality value that won't cost us another dollar to see benefits from. Lastly, I'm going to touch on some of the exploration stories on the portfolio. The first to highlight is Cerro Moro. As we have discussed before, that mine is set to begin production next year, but in addition to that, there have also been substantial exploration at Cerro Moro both as infill and in new zones. Yamana has stated that the goal over the next four years is to discover 1 million gold equivalent ounces, and they are well on their way. As you can see from the table of drill results on Slide 12, the infill results on the Escondida's and Zoe veins, already part of the resource have some very impressive assays and widths grading quite a bit higher than the current resource grades. On Slide 13, you can see results from Yamana's exploration efforts on splays off of the main Escondido vein. These are new zones that are demonstrating high grades at mineable widths, so we hope that they're going to become part of the resource and eventually reserve this project. This initial drill program is illustrating the upside that we have always believed was part of the Cerro Moro complex. We can expect more of these results even before the end of the year and into next year as Yamana is drilling this project as - and using it as one of the highest exploration targets in their portfolio. Moving onto our - one of our junior partners, Alexandria Minerals and their Orenada Zone 4 project. This project is part of a large land package on the Cadillac Break in Val d'Or. And Alexandria has mostly completed a 45,000-meter drill program, and as the results flow in, we are impressed. On Slide 14, you can see a long section of Zone 4. The green outline in the center of the section illustrates boundary of the previous resource from 2009. The outline in diode red illustrates how the new drilling has created mineralized halo above the previously used 0.5-gram cut-off grade. You can see how successful their drilling has been over this project with both shorter high-grade intercepts like 8.6 grams over 17.5 meters, and lower grade larger intercepts like 1.65 grams over 95 meters. This section shows some of the more recent results, but more to come because assays from 70 drill holes are yet to come out on this project. What I like so much about these types of results, this prolific late nature of low-grade mineralization points to the strength of the system that deposited the gold here. This can be very exciting to see how Alexandria continues to explore and reveal some of the hidden treasures on this project. So, with that, I'm going to turn it over to the operator, and we can begin the Q&A session.

[Operator Instructions] Your first question comes from John.

This is John Tumazos. I hope you're inviting me to call. Could you just review which of your current producing royalties is the shorter mine lives? Is it Black Fox, is it Metanor, is it Santa Elena? Just so that we have a correct view as to where the shorter reserve lives are at the moment prior to the new drilling, new owners, new cash?

The shortest mine life would be on the Bachelor Lake amendment. Having said that that mine is a mine that's been operating for a while now without reserves. So, by definition, that's a shorter mine life. The geologists feel that - both internally at Sandstorm and at the company think that the mine could actually run for over ten years. Our stream is now structured so that it goes for two more years and then turns into a 3.9%, and it's our thereafter. And I would say, after that, you hit on Black Fox, but Black Fox does have a pretty long reserve life. Santa Elena has a longer reserve life already upwards of eight years and continuing to grow beyond that. And a number of our projects are mine lives into the 10 to 20 to 30 year range with exploration upside. And then of course, we've got the [indiscernible] stream on the Turquoise Hill project, which is about an eight-year mine life and that will be starting up hopefully in the next five to seven years here. So, I think on average, projects have very long mine lives, but those couple you hit on there that currently, assuming their exploration upside there, they're shorter mine life once.

Trying to ask this next question in a way that you can answer legally. I noticed after the Bachelor Lake restructuring, maybe two weeks, they announced a real sweet hole that was over [indiscernible]. Did you feel sandbagged that you made all those concessions, and then two weeks later they had this great intercept?

We've seen a number of great intercepts come out of both projects, and one of the things that we are keen on for the [indiscernible]. So, the answer to your question, the short answer is no. But the longer answer would be, we're actually quite encouraged by the underground exploration upside at Barry. I think most people don't realize that they're in the process of completely reinventing how to think about that project from being a low-grade open pit mine to being something that is as good as the Bachelor Lake mine. And we think that there's going to be some good exploration upside coming from that as well. So, it's one of reasons we were keen to get that additional 3.9% royalty on that other project as well. We knew that eventually we had to change the existing stream, because we were taking too much of the profits out of it and it was sort of our last remaining stream that needed to be amended and we have talked about it publicly for quite some time. So, we're glad to have that amendment done. And we're still glad that we have a 3.9% NSR on the Bachelor Lake mine going on forever.

If I can ask a final question, thank you. Should we expect an extra 4 million share or so increase in the buyback authorization with the 18 million of cash coming in from Ross Beaty?

So, we are authorized right now by the TSX to repurchase about 7.5 million shares. So, we repurchased 3.3 million of those, and the balance of the share is being 4 million in change. The plan is to buy it back. And it just so happens that the $18 million that we're receiving from Ross is close to the dollar value required to repurchase those shares. So, our plan is to begin repurchasing shares again by the end of the year.

[Operator Instructions] There are no further questions at this time, please proceed, Mr. Watson.

That's great. Well thanks everyone, again for calling in. I know it's busy with the earnings season underway, and thanks again. Again, if anybody has any questions, feel free to just call us here at the office and happy to answer them any time.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.