Interview with Nolan Watson, CEO of Sandstorm Gold … on Gold, mining and BitGold

We are talking to Nolan Watson, CEO of Sandstorm Gold.

Can you provide a small overview of where Sandstorm is in these difficult markets? You seem to have grown a lot to 70 streams and royalties.

 Over the last few years (exactly during this challenging period in the market cycle) Sandstorm very intentionally managed its balance sheet such that we have accumulated cash and remained debt free, putting ourselves in a position to aggressively target high-quality stream and royalty opportunities. It is no secret that mining companies have had a difficult time attracting capital, and the discipline that we put in place has given us the opportunity to deploy capital at attractive valuations. In fact, since the beginning of 2015 we have acquired 24 new royalties, the most significant being a 1% royalty on the Rio Tinto operated Diavik Diamond mine in the Northwest Territories, Canada. The Diavik royalty will cash flow around USD$7 million to USD$8 million per year and adds a world class producing asset to our stream and royalty portfolio.


Why should one invest into Sandstorm gold instead of other streaming companies?

Relative to the other streaming companies Sandstorm has the most compelling valuation as we have been trading at a discount to our net asset value whereas our larger peers have traded at significant premiums to their inherent value. Sandstorm has streams and royalties on 15 cash flowing assets, 13 development assets and another 42 exploration projects. Our goal is to continue to diversify our cash flow base such that no asset accounts for more than 10% of our annual cash flow, while continuing to add early stage optionality. As we execute on that goal, I believe that we will be able to close the valuation gap between us and our streaming and royalty peers.



What is your forecast on the gold price in the short and long-term?

I think that gold is near a bottom but US dollar strength could push the price lower in the short-term. In the long-term, I see higher gold prices given the physical gold demand trends, a reduction of supply and fears related to government indebtedness.


What impact has cheap oil and a strong USD on you and the companies you work with?

Cheap oil and the strong US dollar have positively impacted several of the mining companies that we work with. For example, Canadian gold miners have their costs dominated in Canadian dollars and sell their gold in U.S. dollars. As a result, their costs have declined and their margins have expanded in U.S. dollar terms.


Is it difficult as a smaller streaming company to get the attention required to get into the best deals?

 For the most part, we do not compete with the larger streaming and royalty companies. Given their multi-billion dollar market capitalizations, they need to complete large acquisitions in order for it to be meaningful to their shareholders. For Sandstorm, we can do $5 million to $50 million sized deals and add significant value.


The large transactions tend to be less attractive in terms of return potential. We focus on assets that we believe to have extraordinary exploration upside, where we can see potential scenarios that will return multiples of our invested capital. Often, these assets are located within smaller companies that tend to be off the radar for most of our competitors.


What is the short and long-term future of Sandstorm gold?

In the short-term, we are going to continue to deploy our available capital (currently US$140 million) into new streaming and royalty acquisitions, diversify our cash flow base and generate strong risk-adjusted returns for our shareholders. In the long-term, we expect to be a large, cash flowing machine that pays a dividend but continues to opportunistically provide financing to the mining sector in a way that provides accretive growth.


What is the key criteria you want for a company you are doing deals with?

  • Asset quality
  • Realistic development/operating plan
  • Ability to raise capital
  • Proven management team
  • Conservative capital structure


 What would you recommend young enthusiastic people that want to go into mining?

 The cyclical nature of the mining sector provides a lot of opportunities for success. If you are responsible in the tough times and shrewd in the good times, it is an industry where you can create large wealth for shareholders.


 Lastly, can you tell us anything more about Bitgold? We read that you invested in BitGold. Do you like Bitcoins?

 The reason that I do not like Bitcoin is the reason that I like BitGold. The inherent problem with Bitcoin is that although it is an electronic means of exchange and a unit of account, it is not a store of value because it is backed by nothing and therefore will never be a mainstream currency.  BitGold however, has created a platform that makes gold a medium of exchange again which has huge implications for the global gold and currency markets. I am excited to watch the company develop.

Nolan, thank you very much for your time and great insights. 

More background on Sandstorm Gold::

Categorised as: precious metals

Posted by: Kramer

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