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

Good morning. My name is Phoenix, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sandstorm Gold’s Second 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]. I would now like to turn the call over to Denver Harris. You may begin your conference.

Thanks, Phoenix. Good morning, everyone, and thank everyone for joining today’s conference call. Speaking today 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, and thanks for joining this call. We're pleased to be reporting record quarterly sales of 12,900 ounces of gold and strong operating cash flow of $9.5 million. In a few minutes, I'll turn this call over to Erfan Kazemi, our CFO, to further discuss these results, and then to David Awram to discuss a few updates of the projects underlining some of our strengths and royalties. Before I do that though, I'll take the opportunity to provide an update on a number of specific things, including, the completion of the Luna restructuring, share buybacks under our Normal Course Issuer Bid, tax matters, the acquisition of 10% of the shares of AuRico Metals and the acquisition of various royalties over the past few months. So to start off with the Luna restructuring. During the quarter, Luna’s shareholders voted in favor of both the Stream restructuring and the Pacific Road’s investment. Since then we’ve completed the full restructuring and Luna has closed their $30 million financing with the Pacific Road, of which $10 million is equity and $20 million is a debenture with a five-year term. Luna is now beginning an approximately 18 months’ work program that is anticipated to include significant drilling and updated geological model and new resource estimate, a new mine plan in an update pre-feasibility study that will include a hard rock crushing and grinding system, as well as update permits required for this new plan, at which point, Luna will begin the capital raising efforts to effect the plan. Also during the period, Luna added significant bench strength to its Board of Directors by adding Dan Wilton Pacific Road, who is the former Managing Director and Head of Global Mining and Metals at National Bank Financial, and by adding, Rob Pease, who is the past President of Sabina Gold & Silver and the past President of Terrane Metals, and they've also added Greg Smith, who is the current President and CEO of Anthem United, the past President and CEO of Esperanza Resources and the former CFO of Minefinders. Overall, we’re very pleased that Luna is now on a much more solid footing, both from a financial capital, as well as human capital perspective. As a reminder, in addition to us owning just over 19% of Luna’s equity, Sandstorm now holds the following assets associated with Luna. We have a 3% to 5% NSR on Luna’s Aurizona mine; at 2% NSR of Luna’s Greenfields project, which consist of approximately 190,000 hectares of perspective lines. We have a $30 million debenture, which will convert to equity at various intervals over the next five years at a price equal to the greater of CAD$0.10 per share, and at the time and we have a $23 million debenture bearing 5% interest. It should be noted that as the milling activities wind down in Q3, our production associated with Luna will obviously decrease next quarter. However, it's also important to note that even though our Stream has been restructured, we continue to get 17% of what is produced next quarter, and at the end of Q3, the 17% will no longer apply and the NSRs will become effective. Moving onto the topic of share buybacks. Over the past quarter, we repurchased approximately 330,000 shares. This is a challenging market. We continued to weigh the deep value we can get from purchasing new royalties and the deep value we can get from repurchasing shares. Ultimately, we are a growth company, and we remain committed to acquiring attractive royalties at depressed valuations. Fortunately, due to our cash flow and our strong balance sheet, we’re in a position where we’re able to pick up a few shares along the way. It should be noted that we are considering preparing a self-perspectives, and I bring this up only to state that we have no intention of raising money at this time and that we are considering filing it simply because we believe it’s prudent for us to have at all times simultaneously an active normal course issuer bid, so we can buyback our own shares when they are undervalued and a self-perspective, so we can - if we find the accretive acquisitions, for which we have insufficient capital, we can act accordingly. To be clear, based on what we see before us,only to state that we have no intention of raising our plan is to acquire assets with our cash on hand, while repurchasing some of our shares, and we do not plan on using the self-perspectives in the coming few months. The next topic I would like to discuss relates to income tax matters. As our investors are aware, the vast majority of Sandstorm’s streams and royalties have been purchased in Canada. Therefore we don't believe we have the exposure to tax risk than other streaming and royalty companies might have. In addition, we have material loss carryforwards that we can use in the future. And you can see this from the set of financial statements that we don't believe we have cash tax exposure to income-based taxes as we have adjusted our future income tax assets to what it would be if 100% of our streams were in Canada. And although this is a conservative approach, you can see that this merely has a small non-cash basis accounting implication and therefore we don't believe it's a material issue for Sandstorm. With respect to AuRico Metals, as we announced earlier this week, we have purchased a 10% stake in the company. We generally like their assets including their royalty at Young Davidson, but we want to be clear, we don't currently intent on acquiring the company. The share price is low in the context of the market, which we’ll continue to evaluate. We might acquire more shares, but if the share price isn't low in the context of the market, we won't acquire more shares. Finally, I would like to discuss the acquisition of a couple of small royalty packages that we’ve made recently. As the gold prices recently hit multiyear lows, this had depressed the market valuations of all gold-based companies and assets. And we’re using this as an opportunity to pick up royalties at seriously depressed valuations, including the royalty portfolio of gold royalties and we have also recently purchased a package of royalties, which includes a 1.65% royalty on Skeena Resources’ Spectrum Gold project in Canada. It's an interesting asset. It's in a good location. It's got multiple ore grade intercepts in the recent drilling, and Skeena just raised over $8 million last month to continue that drilling. We’re able to acquire this royalty for a few hundred thousand dollars and we believe in normal markets, it would be worth substantially more. Although these acquisitions are clearly not game-changers individually, to us they represent acorns that can grow into much larger things over time. And when you combine enough acorns together, it can become very material, especially when markets return to normal. At Sandstorm, we have a strong balance sheet, a diversified mix of currently cash flowing royalties and a tremendous amount of exploration optionalities now been dealt into our system for the next market turnaround. We understand that if the market continues to fall, our existing cash flow and our share price will continue to be under pressure. However, our goal is to be the most spring-loaded royalty company in the business, whose share price will perform the best and reward shareholders once the market normalizes. And with that, I will hand it over to Erfan, so he can discuss and walk us through the specific quarterly results. Erfan?

Thanks Nolan. As mentioned previously, we posted a record in terms of gold sales in Q2, generating revenue of $15.4 million and allowing us to reiterate our annual guidance of 40,000 to 50,000 attributable gold equivalent ounces. Our average selling price per ounce of gold was down slightly to $1,196 and with average cash cost around $300. Our margin came in just under $900 per ounce. The bulk of our gold came from the Americas, specifically 71% from North America and 26% from South America. A project worth highlighting is SilverCrest’s Santa Elena mine in Mexico, which had a record quarter in Q2, and so our gold stream delivered 20% more ounces compared to the first quarter of this year. The SilverCrest team has done an excellent job increasing throughput and improvement mill efficiency, which has increased the recovery of gold and silver. Moving onto earnings. We recorded net loss of $13.5 million during the period, which is attributable to a number of factors with the main items being; the record gold ounces that we sold, but partially offset by $8.1 million in non-cash increase in income tax expense, which Nolan discussed earlier, a non-cash impairment charge of $3.3 million related to Summit Goal Stream and a $3.5 million non-cash increase in depletion expense, largely driven by the increase in number of gold ounces sold. With regard to Summit impairments, we decided to write-down the full balance of the mineral interest related to Gold Stream because Santa Fe Gold Corp, the company that owns the mine has struggled to raise capital in order to satisfy the term of a debt restructuring with their senior lender. As far as capital is concerned, we had a strong quarter with $9.5 million in cash flow from operations. During the quarter, we also had a $7 million cash inflow from a settlement of the Deflector Gold Stream, which we had previously purchased for $6 million, increasing our cash position to $51.6 million at quarter end. Overall with $50 million cash on hand as of June 30, combined with an undrawn $100 million revolving line of credit and free cash flow coming in on a monthly basis, Sandstorm is well positioned to take advantage in these current market conditions. With that, I'll turn it over to Dave.

Great. Thank you, Erfan. So for the call today, I thought it would be worthwhile to touch on some of the advancements made on the projects underline our streams and royalties, and the value we believe that's been added to the portfolio. I'm going to break down my discussion based on the categories of exploration, counterparty upgrades and development phase. Beginning with exploration results. I realized that the market barely pays attention to drilling these days, but nonetheless, there have been some pretty significant results recently released that indicates that real legitimate zones of potential ore have been accessed in many of our partner’s assets. Starting with Black Fox. In addition to the infill drilling that Primero expects to lead to replacement of production, Black Fox also released impressive results that look to expand the deep central zone of the asset. Drilling indicates that the zone continues to exhibit wider zones and higher grades at the 600 to 800 meter levels. Results have been strong enough to encourage the early development of an access ramp into the zone of mineralization with further exploration zone will take place. At Bachelor Lake, towards the end of Q2, Metanor released a number of encouraging drill results that led to the creation of additional stope resources and some tantalizing new zones of mineralization. The heap from the west zone is quickly being established as an excellent target for drilling new potential resources, and Metanor will deploy additional drills to attempt to demonstrate that. In addition to what you see from results, some new mineralized veins have been discovered close to the existing Bachelor Lake workings, but in completely unknown zones, demonstrating the blue sky potential in this perspective deposit. Onto Prairie Creek, Canadian Zinc has released impressive results from drill program that has discovered mineralization approximately 75 to 95 meters into the footwall of Main Quartz Vein with current resources based. Initially recorded grades are similar to the rest of the Main Quartz Vein. These results and additional drilling are expected to be used to update resources and revised mine plan in a not too distant future. In Santa Elena again here, SilverCrest has accelerated its program of underground exploration into El Cholugo zone and the Alejandra vein, two obliquely intersecting structures to be main mineralized zone that is currently being mined. Underground drifting into these new zones have revealed minable widths in grades higher than discovered elsewhere in the deposit, and they are expecting to pull this into the mine plan sooner than previously thought. So on to acquisitions. A key aspect that has been adding value to our royalties and streams is when projects get in - we get involved in, get acquired by or partnered with larger lower risk counterparties, like what's happened in previous years with groups like Primero, Nordgold and Glencore, taking control of assets from the junior operators that we have originally struck transactions and deals with. To fit in that, I just finish speaking of Santa Elena because that is the most recent asset to get picked up by mid-sized multi-asset producer, First Majestic Silver. Upon successful completion of the SilverCrest takeover, that will mean that 8 of our 14 cash flowing assets are now in the hands of mid-sized or senior miners, and greater than 50% of our revenue is coming from counterparties that have stronger balance sheets and greater reach into capital markets than the junior companies that we first completed the royalty or stream transactions with. In addition to the very recently announced First Majestic takeover, another asset that was acquired by a larger party was the Mt. Hamilton heap-leach project in Nevada. Waterton Global Resource Management is a private investment firm that has been accumulating assets throughout Nevada and has very strong balance sheet that it is utilizing to create a Nevada gold producing company. We're looking forward to see how they decide to perceive in this asset. Onto development studies. Although the Ming Mine is already producing from its massive sulphide zone, they have recently produced pre-feasibility study on the lower footwall zone. The lower footwall zone represents an area that could provide over 21 years of life to the current reserves from minimal amounts of capital into the projects. So far the economics were good on the presented plan and Rambler is looking at options to finance the additional capital required. Columbus Gold and partner Nordgold have announced that they will be taking over the Montagne d´Or deposit to feasibility level studies after recent positive PEA study on the asset. The PEA revealed excellent economics with plan to produce an average of 273,000 ounces of gold production in the first 10 years with over 3.2 million ounces in the current pit shell. The metrics outlined in the PEA at a $1,200 gold price demonstrate a very, very economic deposit. Overall, it's been a very successful quarter for upgrading and moving projects forward. Together with the acquisitions we've been making, we feel we are continually decreasing the overall risk of our portfolio in these difficult markets. So with that, I'll pass it over to Phoenix, the operator, for questions.

[Operator Instructions] And your first question comes from the line of Jay Mecklinger [ph]. Your line is open.

My question revolves around the royalty purchase on the Diavik diamond mine, wherein the terms are that you paid US$52.5 million and 3 million warrants of Sandstorm with a five-year term that strike at 450. What I don't - perhaps you could elaborate on where the value proposition is, because if it’s US$7 million to US$8 million per annum, and in the bottom of the release where you talk about the Diavik mine, it says the mine plan is expected to take the mine’s production to at least 2023. Perhaps you can explain the value proposition, because I don't see it here?

Yes, I apologize. We have explained it on past investor calls, so happy to do it again here. So the transaction was about $52.5 million of cash. We actually backdated the original agreements, so that its effective date was before the date we actually closed the agreement and made the consideration of the payments, so that the net payment by us was just around $50 million. So if you get $7 million or $8 million of cash flow for a number of years, that works out to about a seven year payback, and right now the reserves are eight-plus years, but there is a tremendous amount of infill drilling that we believe inferred resources will then convert into the mine plan, because they are part of that pie, they just need to be infill drilled. So we see several years of mine life well beyond that. So we think it will be very profitable acquisition for us. And I think when we look at the return that we anticipate getting on that transaction relative to the return that some of the larger royalty companies are getting on the transactions that they are doing with companies of the quality of the Rio Tinto is whenever you get an asset that's based in Canada, it's a low-cost producer, it’s operated by a world-class organization, our major royalty peers are bidding those contracts 3% to 4% cost of capital. We think we're going to get substantially high rate of return than that. So overall, I think we’re fairly pleased with it.

It's David here. So in addition to that, there is also over a dozen different kimberlites that have been identified on the royalty ground. We don't know the status of exploration, but we know that exploration is ongoing on those targets.

Okay, fair enough. Thank you.

[Operator Instructions] And there are no further questions at this time. I turn the call back over to Nolan Watson.

Great. Well, thanks again everybody for calling in. I know it’s busy during earning season, lots of companies are reporting and having conference calls today. So I appreciate the people that have called in. And feel free, as always, to contact us directly at the officer here if you have any further questions and we’d be happy to answer them. Thanks, and have a good day.

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