Nolan Watson - CEO Erfan Kazemi - CFO Dave Awram - SVP

Robert Carlson - Janney

Good morning. My name is Leonie and I'll be your conference operator today. At this time, I would like to welcome everyone to the Sandstorm Gold Fourth Quarter Results Conference Call. [Operator Instructions] Please be aware that some of the commentary 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. [Operator Instructions] Mr. Watson, you may begin your conference.

Yeah. Thank you, operator and good morning, everyone. As is typical on our earnings calls, this morning, Erfan will be going over the financial results in detail, including walking through a few slides in the webcast and then Dave Awram will provide a quick update on a couple of notable assets. So if you haven't already done so, you can go to the webcast and see those slides as we walk through them. Prior to handing the call over to Erfan however, I'd like to provide a general update on the company's activities and answer a few of the more prominent questions that we've been receiving from investors over the past quarter. Our 2017 results, which represent both a record in total attributable gold equivalent ounces sold of over 54,000 ounces as well as a record revenue of over USD68 million demonstrate that our portfolio of streams and royalties is performing well. One of the things that we're proud of is how we've been able to consistently expand and strengthen the portfolio, which includes our most recent acquisition of a 2% NSR on Endeavour's Hounde mine in Burkina Faso. This royalty was purchased for USD45 million and based on Endeavour's guidance, Sandstorm’s 2% of revenue should be about USD6 million in 2018, meaning that this acquisition is immediately accretive to cash flow and because we paid for the acquisition with a combination of cash on hand as well as drawing down USD35 million on our revolving debt facility, this acquisition will be materially accretive to cash flow per share because we didn't issue any shares to do the acquisition. We're particularly excited by the massive land package that this royalty covers with nearly 500 square kilometers and Endeavour has recently announced a very significant drill program to expand the resource and extend the mine life. It's worth noting that the transaction closed in January as the amount drawn on our debt facility did not occur until after year end. Having said that, because of the sale of Equinox securities as well as strong cash flow that we've had since year end, we've already repaid the debt down to $7.5 million and we expect it to be paid to zero and start rebuilding our cash position by next quarter, which means that in only a couple of months, our new USD150 million revolving debt facility will be totally undrawn and can be used for future acquisitions. You can see on this next slide the number of royalties that we have acquired over the years. In 2017, we acquired another 39 royalties, bringing the company total to 174 streams and royalties. Recently, we have also released the latest version of our asset handbook, which I would encourage investors and analysts to read through that outlines the details of all producing, development and advanced exploration royalties that Sandstorm owns and it outlines the right of first refusals that we have on potential future deals. And you can find the handbook on our website in the streams and royalties section. This next slide is hot off the press and illustrates the number of meters drilled on Sandstorm royalty projects each year. We're pleased to see that 2017 was another record year despite 2017 being slightly harder than 2016 for mining companies to raise capital. This year, there was over 500,000 meters drilled on Sandstorm properties, which is an incredible amount of exploration. And again, our investors get the benefit of that exploration, with no additional payments. Moving onto investor questions, the majority of the questions that investors have been asking over the past quarter primarily relates to what are our expectations going forward, things like what do we think 2018 will bring on the royalty acquisition side of things, what are our current views on capital allocation, including our thoughts of share buybacks and dividends and what is our thinking about the direction of the gold market. And I'd like to briefly touch on all three of these points and I will start with what we expect for royalty acquisitions in 2018. One of the things that I constantly stress with investors is that we never start a year with a specific goal of how much money to invest or how many royalties to acquire. I believe the companies that do this make significant mistakes by forcing investments during periods where gold prices are high and they tend to under invest when gold prices are low. For the next couple of months, our focus is getting debt to zero and recharging for the next material transaction. Based on the deal flow that we're seeing, I would expect that 2018 will be another year where we’re able to acquire a number of inexpensive royalties on properties with exciting exploration upside, which is an important part of our strategy is it also allows us to get rights of first refusals on future gold streams from those projects, when they eventually move into production. However with larger companies relatively cashed up, the probability of landing a large deal in 2018 would be lower than a typical year, but we will be diligently working to try to find more material deals. And if we do find one, we have the capital resources available to us to complete such a transaction. On the topic of share buybacks versus dividends, as you can see from this slide, we have been busy buying back our shares during the last past 2017 and although our short term goal is to repay our debt to zero, we will shortly be in a position to redeem share repurchases, should our share price face any softness in the first part of 2018. And although our current repurchase program and the permission to do so from the TSX expires in April of this year, we do plan on renewing it, so that we have a normal course issuer bid active at all times. Meanwhile, our board has begun actively analyzing the potential of becoming a dividend paying company by 2019. We have moved out of the phase of haphazardly thinking about it into the phase of actively analyzing it. This was also one of the motivations for us changing and updating our revolving debt facility. Our old revolving debt facility had a specific provision that prevented us from paying dividends, which meant that if we became a dividend paying company and we've found a new acquisition that we wanted to use our revolver for, we would be prevented from doing so. With our new revolving facility, not only do we have a larger facility in amount of USD150 million, we have also eliminated the prohibition of dividends, meaning that once we become a dividend paying company, if we see an attractive acquisition that would require the temporary use of the revolving facility, we can make that acquisition and stay a dividend paying company. This is an important point for us because even once we start paying a dividend, Sandstorm is and will continue to be a growth company. Now with respect to the gold market, I'm currently more excited than I've been in nearly a decade. You can see on the chart on slide 8 the worldwide debt to GDP ratio and how it has increased over time. This is a very important measure of systemic economic risk, because the more debt relative to GDP, the more fragile the financial system is to changes. The more debt there is in a system, the less able that system is able to adapt to changes. Right now, there is not only more debt in the world relative to GDP than there's ever been, we have completely blown past the record debt levels of 2008 before the last credit crisis. Now, this does not at all mean that we're going to get another credit crisis in short order, however, what it does mean is that due to this debt level, our system is less able to deal with changes than it has been in the past. That seemed fine in 2017 where it seemed like nothing was changing. But 2018 and going forward is a very different story. Things are changing at a rapid pace. Not only is the Fed increasing short term interest rates, but they're also removing $20 billion every single month from the economy by reversing the previous quantitative easing. In addition, the US government is running what many people expect to be a near $1 trillion budget deficit, which has caused the 10-year treasury rates to rise materially. And when the long term rates rise and new debt is issued, it sucks money out of other asset classes, all at a time when the Fed is shrinking its balance sheet. There is no doubt that the underlying economy is doing well, which makes the situation all the more interesting for gold. Inflation is starting to tick up with tighter labor markets, rising wages and increasing commodity prices. I believe it would be an act of pure magic if the central banks of the world can get themselves out of the situation without letting inflation run hot. Meaning that either we're about to get some actual inflation, which is fantastic for gold and Sandstorm’s shareholders will profit from increasing gold prices or the attempts to calm inflation, combined with increasing long term rates required to feed huge government deficits will cause cracks in the financial system and drive people [indiscernible] out of fear. This will also be good for gold prices in the medium term and Sandstorm’s shareholders will profit from the eventual increases in the prices of gold. I really do believe that for the first time in nearly a decade, we're in a win-win situation for gold. Yes, there will be lots of volatility, including volatility in the gold price, but with a strong balance sheet and low fixed operating costs, we're in a position to profit from that volatility instead of being afraid from it. This is all happening at a time when Sandstorm’s portfolio is performing well and it's more growth built into our portfolio over the next several years than any streaming or royalty company in the world. I really am very excited for what we've got going on at Sandstorm and the gold markets going forward. So that's the high level business update. With that, I will turn things over to Erfan and he's going to discuss the fourth quarter and annual results. Erfan?

Thank you, Nolan and hello, everyone. It's good to be with you today and walk you through some of the specifics of the 2017 financial results in what was a fantastic year for the company. We were pleased with the royalty acquisitions that we were able to complete during the year and our pre-existing streams and royalties really delivered for us with annual record posted for gold equivalent ounces sold, revenue and cash flow. On slide 10 of the presentation, there are two charts to give you a visual representation for how our attributable gold ounces sold and revenue have changed since 2014. As you can see, we've had a steady growth and when we compare the 2017 figures to 2016, there was a 10% increase in gold equivalent ounces sold and a 9% increase in revenue. Some of the notable assets that drove the record results were the Chapada copper stream, the Karma gold stream, the Yamana silver stream as well as the Black Fox gold stream. At Chapada in particular, we saw an increase of 4.9 million in sales revenue during the year, which was partially due to additional copper being delivered under the stream agreement, but interestingly, more than half of the increase was related to rising copper prices. In fact, we saw our average realized selling price of copper increase by about 29% compared to 2016. In terms of production, we sold approximately 3.9 million pounds of copper in 2017, which was the maximum under the streaming contract. Assuming Chapada continues to perform as it has over the last year, we should be receiving similar amounts of copper in 2018 under that stream. The positive results in production and revenue were partially offset by decreases from the Emigrant Springs royalty as well as from the Ming Gold stream and the Bachelor Lake gold stream. I thought I’d touch on Emigrant for a moment as we ran into a rather unique situation with the asset in Q4. Emigrant is categorized as one of our other royalties in MD&A and financial statements and it’s a mine in Nevada operated by Newmont Mining. Along the way, it was determined that Newmont had paid Sandstorm a royalty on production that came from mining concessions that were not covered by our royalty agreement. So to adjust for the overpayment that occurred throughout 2017, we took a one-time reversal of 1.9 million to royalty revenue in Q4, which contributed to the 6% decline in quarterly revenue when compared to the fourth quarter of 2016. This one-time adjustment partly skewed our results for the quarter. Moving on to slide 11, we've broken down the annual revenue by region and by commodity. As you can see from the pie chart on the left, a large portion of our revenue continues to be generated by assets in North America with 42% of the total coming from Canada and another 22% coming from the US and Mexico. South American operations accounted for about 25% of the 2017 revenue, which include countries like Brazil, Argentina, Chile and Peru. The other countries that are listed at 11% are made up of Burkina Faso, South Africa and Australia. We’re fortunate to have strong, well established operators in those jurisdictions, including the likes of Endeavour Mining and AngloGold Ashanti. When looking at revenue by commodity, we were just under 80% precious metals and diamonds with the balance mostly attributed to copper as you can see in the chart. So the production and revenues that I've been talking about translated into 44.9 million in annual cash flow after cost of sales and expenses, which was about 50% higher than the 2016 year. That strong, stable cash flow base together with the more than 32 million in cash generated by non-core asset sales gave us the healthy balance sheet that we needed to take advantage of the opportunities that were in front of us. And as a result, we've deployed 240 million in royalty acquisitions since the beginning of 2017. But the fact that we spent hundreds of millions of dollars on new royalties doesn't tell the whole story, because as you know, we're not really interested in making acquisitions for acquisition sake. But when you have a chance to do deals on an anchor assets, like Hot Maden and Hounde, you want to be in a position to act and we were. Now moving on to net income, you'll notice that we reported 10.5 million in net income for the 2017 year, a decrease from 2016. The primary reasons for the decline were the decrease in gains from the revaluation of the company’s investments. We ended up posting a gain of 5.8 million in 2017, but that was 16.3 million less than the 2016 result. 2016 was a particularly strong year for mining equities and that success was difficult to repeat in 2017. Also contributing to the decrease to net income was 9.1 million worth of non-cash impairment charges relating to a number of the company's underlying royalties. To end my section, I wanted to highlight the company’s production outlook for 2018. Based on our existing portfolio of royalties and streams, we’re forecasting between 50,000 and 60,000 attributable gold equivalent ounces sold. And we see that growing to 125,000 ounces per year in 2022. I look forward to seeing what 2018 has in store as I believe it will be quite a catalyst year for Sandstorm. I will now pass the call over to Dave.

Great. Thank you, Erfan. So today’s asset update is going to be relatively brief, as I’m just going to cover off a few of the larger assets in the portfolio. So starting off with Aurizona, as many of you know, Aurizona had a very transformative year with the creation of Equinox headed by Mr. Ross Beaty. Aurizona has become their premier asset and represents the first producing asset of this new growing company. Aurizona is set to begin production and port gold before the end of 2018. Initial production is guided at 136,000 ounces per year and our royalty at $1,350 gold price would provide us $5 million per year in cash flow from this asset. Over the past year, Equinox has had success in expanding the deposit in Piaba West. It’s had some great exploration results on the Eastern portion of the project. In 2017, Equinox completed 22,000 meters of drilling and for 2018, the exploration team is planning over 34,000 meters of drilling, including drilling on the Tatajuba licensed to the west, which has gone completely untouched for years and it has gone through the process of transforming into a mining license. 2018 marks the year when Aurizona begins to reach its potential that we have been expecting for almost a decade. We have never been more positive on its prospects since Trek and now Equinox Gold got involved in the asset. On to Cerro Moro. 2018 is the year when we see Cerro Moro move into commercial production. With the guidance that Yamana has provided, they expect Cerro Moro to be its lowest cost producer as it reaches commercial production. $61 million is yet to be spent on construction CapEx for this year with an additional 21 million in sustaining capital. As we speak, Yamana has begun open pit operations and has begun stockpiling underground ore from development. Studies on optimization and sequencing have been ongoing at Cerro Moro with a goal of seeing silver production up to 8 million ounces per year by 2020. In 2017, Yamana spent 7.7 million on exploration and its guidance has been 9 million in 2018. Their goal is to add 1 million gold equivalent ounces over less than four years and they have a budget designed for that. As a reminder, Cerro Moro represents a biggest growth profile going into 2019. Together with Aurizona, we anticipate to see more than a 20% growth in gold equivalent ounces sold in 2019. With that, I'm going to pass it over to Leonie, the operator for the Q&A portion of the call.

[Operator Instructions] Your first question is from Robert Carlson.

Just I’ve got a couple of questions for you here. But it seems like we're guiding lower on production from the January presentation. We were talking, like 60,000. Now, we’re talking between 50 and 6 for the year. Going out to 22, 130,000. Now, we’re talking 125,000. Am I interpreting this right?

So for 2018, thanks for the question Robert. For 2018, what we typically try to do is give a guidance range that would allow for unforeseen things to happen at an asset that were not in our internal budget. So our internal budgets are much closer to that 60,000 ounce number than the 50,000 ounce number. So when we guide 50,000 to 60,000 ounces, we're not thinking 50 as the number that we're going to hit, but we've been around the mining business long enough to know that mining companies are giving us negative surprises and we don't want to pretend like we never expected negative things to happen. So, we give ourselves a lot of room on the downside. So, our expectation is still closer to that 60,000 ounces and we’ll continue to update our guidance quarter-by-quarter as we do. So Q2 will shrink that guidance range so on and so forth, but our hope is that it’s the bottom end of the range coming out of the top end of the range coming down. Does that answer your question?

The other question I had was, if we go back to like this past quarter, we did 12,000. If we go to the first quarter of last year, we did 15,500. Can we expect a big jump up in the existing quarter when you report the first quarter three months from now?

Yeah. Although we don't give specific guidance quarter-by-quarter, as Erfan mentioned when he was walking through the financial results, Q4 was artificially affected by a one-time event related to Emigrant Springs. So that will not be, we’re not expecting something like that to be repeating in Q1. So the expectation is that Q1 would be a more normal higher quarter.

How many employees does Sandstorm have? Monitoring streams, et cetera?

It depends on how you count monitoring. We have one person whose job, it is full time to monitor it only, but I would say probably 12 of our 20 employees are monitoring them in various capacities on a regular basis.

I'm just wondering, as our streams go up now, like 174 streams, where is the saturation point. How many streams can Sandstorm handle, to put it that way? You can’t do them all. Where is the saturation point I guess? That’s what I’m trying to say.

Yeah. That’s the benefit of being a streaming and royalty company is that there's not a saturation point. So companies like Franco-Nevada, so I think operate their business very well. They have several hundred streams and royalties. Their stated objective is to eventually get up to 1000 and they have a very manageable size workforce and seem to be managing that portfolio full and I would expect that we would be able to do the same. So I don't anticipate, during my career, we’ll reach a saturation point.

My last question was to one of the lines in your press release in 2018, continued focus will be to make royalty acquisitions. Does that mean we're going away from streams or?

We’ll be continuing to buy both streams and royalties. The larger percentage of number of things that we buy tend to be royalties though and so the acquisitions that we anticipate in 2018, most of them will be royalties, but there likely will be some streams as well.

[Operator Instructions]

Operator, it’s okay. Right now, what we’ll do is take a couple of questions that have been coming through the online portal. And so one of those question is from an investor who has been investor for a long period of time and states that right now he believes that Sandstorm is not only larger, but more diversified than it's ever been. And why isn’t the market valuation reflecting that. And is he thinking about it appropriately? And I think the answer is yes. He is thinking about it appropriately. Sometimes, these things take time for the market to understand that what we've built here that is part of our jobs at Sandstorm is to make sure investors understand and we spend a lot of our time flying around the world, explaining that to investors. I do think the market is starting to understand it. People who have looked at Sandstorm in the last six to nine months are much more excited about what we've built and very complementary of the portfolio that we've built than people who haven't looked at Sandstorm in the last four, five, six years. And so part of our job is getting people who had looked at Sandstorm six years ago to refresh their view and understanding. And we think the company has been rerating its valuation and will continue to do so as more people really look at Sandstorm. And as we get new investors to look at Sandstorm as well. So we're optimistic that given enough time that that will resolve itself. One of the other questions that was asked is, through the online portal is with all the drilling that's being done on Sandstorm properties, do we anticipate a continued period of reserve expansion? And the way I would answer that is that yes, there's a huge amount of drilling going on in our properties. We are seeing a substantial amount of reserve replacement in 2016. It was a year where more answers were found on Sandstorm properties than were mind on Sandstorm properties. 2017, the number is -- reserve updates are and yet it will take quite a while for the companies to turn that drilling into new reserve and resource reports. But as they do, I would expect that a lot of the reserves that were mined during 2017 will have been replaced and that large percentage of correction going forward will be replaced as people continue to drill on these properties. Having said all of that, the reserve expansion, we think will also happen when we’re acquiring new reserves and resources from acquisitions of new streams and royalties that we make. So two years from now, I absolutely expect our reserves and resources of the company to be higher than they are today on a per share basis. One of the questions that we have and I’ll hand it over to Dave to answer this is what updates can we provide regarding developments at Hot Maden and how that’s going through. Dave?

Sure. So we've been in contact consistently with Lidya Madencilik as they push the project forward. There has been a lot of drilling happening over the last year. We've been disclosing a lot of those drill results, as they come out. But obviously the most important item is really progress as they get through their preliminary feasibility studies on the asset. So we've had some updates on them. They're working on it. They're beginning to send us draft portions of that, so we do expect that over the next coming months, we'll have the pre-feasibility completed. We will be filing that as a technical report, so everybody can see the progress that they've made on it. In the meantime, they'll be using that pre-feasibility study as a way of filing their EIA, which is the main document used for the permitting of this asset. So 2018 will be an important year for the project as we get the initial reserves and resources of the project. We get some of the more detailed engineering off of the asset, plus we also make sure that we see the beginning of the permitting of the EIA process, all of which we don't anticipate is going to cause really too much problem in terms of or any kind of delays. We're very pleased with how the project is moving forward. And we will have disclosure over the next coming months as to -- update as to all these different things that mentioned are going to happen at Hot Maden.

[Operator Instructions] There are no questions from the phone lines.

Okay. Well thanks very much everyone and thank you operator. There are a number of other questions that have come through the portal, but they’re probably too many to answer here on this call right now. So if anyone has an unanswered question, I'd encourage them to just call us at our office and happy to answer the questions in person and we thank everyone for calling in to today's call and hope everyone has a great day.

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