Sandstorm picks up 56 royalties from Teck

VANCOUVER — Business has been booming for outfits in the precious metal-streaming and royalty game, with the latest deal seeing Sandstorm Gold (TSX: SSL) amass another 56 royalties from Teck Resources (TSX: TCK.B; NYSE: TCK).

The junior royalty company is paying US$1.2 million in cash and US$20.6 million in shares priced at $3.57 per share for a diversified, international package from the major miner, which includes four producing assets, nine development projects, eight advanced projects and 35 exploration properties.

The acquisitions will inject Sandstorm with up to US$2 million in immediate cash flow for 2016, growing potentially to US$15 million in cash flow per year.

Nolan Watson, Sandstorm’s president, CEO and chairman, told The Northern Miner during a phone interview — while on a business trip in London — that the deal provides his company with a diversified asset base with strong upside potential, backed by major counterparties, including Barrick Gold (TSX: ABX; NYSE: ABX), Glencore, Newmont Mining (NYSE: NEM) and Kinross Gold (TSX: K; NYSE: KGC).

In this Q&A session, Watson shares his thoughts on how the transaction enhances Sandstorm’s portfolio, and why he believes the company is well-positioned going forward.

The Northern Miner: Fifty-six royalties is quite the number of assets. Why did Sandstorm make this size of a deal?

Nolan Watson: The attraction for us was on a few fronts — the first being the significant number of royalties in the package. If there’s one thing I’ve learned in the royalty business, it’s that you never know where the exploration upside surprises come from. The more exposure you have, the probability of looking smart and having done a good transaction dramatically increases.

TNM: Which assets drew your interest?

NW: There are a number of royalties that we’re particularly drawn to — the Hot Maden gold-copper deposit in northeastern Turkey being one of them. It’s potentially the discovery of the year in 2015, with a 3 million equivalent oz. gold resource at 10 grams per tonne, and a 2.2% copper by-product — and it’s still growing — so we believe it’s going to be a highly economic asset.

It’s owned by joint-venture partners Mariana Resources (TSX: MRY; US-OTC: MRLDF; LSE: MARL) and Lidya, which is a large Turkish conglomerate that knows how to operate in Turkey and has the financial backing to move the project forward.

Other assets include the Hackett River silver-rich massive sulphide deposit in Nunavut, owned and operated by Glencore (LSE: GLEN).It’s a ways off and still needs the infrastructure, so we’re not sure when it’ll go into production, but it’s a large, economic silver-zinc mine that — at long-term analysts’ average commodity prices — could provide US$8 million a year to Sandstorm in royalty. And to put it in perspective, we’ve only allocated US$5 million towards the purchase price, so we get all of our capital back, and more every single year of its operation.

Kinross Gold’s Lobo-Marte project in Chile is another interest to us. We can get US$4 million in cash flow a year, yet only allocated US$2 million to the purchase of the royalty. That’s 200% of our capital paid back every year once the asset is up and running.

There are a number of other assets in the portfolio that were attractive, so overall, the deal was bit of a no-brainer for us.

TNM: With equity markets freezing up and companies not being able to access debt, have you noticed an uptick in precious metal deals, even with seasoned developers?

NW: This challenging market is somewhat of a blessing and a curse, with our share prices being lower … and with commodity prices being lower. It’s been a bit of a challenge and headwind, but at the same time the market has brought us incredible opportunities.

In the last three years, we’ve acquired over 100 royalties and streams and, as of recently, have done it with tremendous value. We would not have put together the company we have today with 130-plus streams and royalties if the market had not been this bad.

It has brought us to a place where we’re going to build a pretty incredible company. We just need to be patient and wait for the market to appreciate it, which I’m sure they will in time.

TNM: It was a busy year in 2015 for Sandstorm: you struck a diamond royalty at the Diavik mine and a multi-asset stream deal with Yamana Gold (TSX: YRI; NYSE: AUY) for US$152 million, along with a number of others. Can we expect to see an equally busy 2016?

NW: We’ll probably slow down the pace of deals. There are more and more deals coming to us, and we’re somewhat in a cat-bird seat where we don’t have to do deals as much anymore. We’ve now built ourselves a large enough and diversified portfolio, and we’re happy with it.

We’re only going to add to it when we think it’s going to be a creator for our shareholders on a per-share basis — we don’t like growth for the sake of growth, we only like it when it makes sense for our shareholders. We’ll continue to grow, but we’ll do so at a selective pace.

TNM: Can you update us on the company’s financial position?

NW: We have US$85 million in debt. That debt is a revolving facility from a syndicate of Canadian banks, and we still have room to draw US$25 million further. Having said that, I don’t really like debt, so our plan is to pay it off over the next two to three years and be debt-free, and sit in a cash position.

We also have a number of non-core financial assets — we own US$15 million of stock of other mining companies and we have US$40 million in other mining companies’ debt, for a total of close to US$60 million in other financial assets.

On a net of financial debt we own of other companies, versus ours, we’re not really carrying much ourselves.

TNM: What are your thoughts on the gold market ahead?

NW: The gold market will continue to be volatile. We’re sort of in a mid range where we’re going to bounce around, and I wouldn’t be surprised to see it go lower — but I also wouldn’t be surprised to see it go higher, and fluctuate back and forth this year.

I’m bullish on the gold price five to 10 years out, but for the next two to three years, there will be a lot of treading water and bouncing around.