The Gold Report - Thu, May 11, 2017

Sandstorm Gold's Mariana Acquisition Is Focus for Analysts

The first quarter results for Sandstorm Gold are in and the focus for analysts is on the agreement to acquire Mariana Resources.

Hot Maden Sandstorm gold.jpg

In a May 8 announcement, Sandstorm Gold Ltd. (SSL:TSX; SAND:NYSE.MKT) released its first quarter results with "record attributable gold equivalent ounces sold of 15,558," which is up from 11,381 ounces sold in Q1/16. Sandstorm also acquired 22 royalties for $1.9 million during the first quarter, which, according to the company, "adds exploration potential in stable jurisdictions while increasing the optionality with the Company's stream and royalty portfolio." Sandstorm also highlighted the April 26 agreement to acquire all the "issued and ordinary share capital of Mariana Resources Ltd. (MARL:TSXV; MARL:LSE)."

Sandstorm President and CEO Nolan Watson stated that "the record production numbers and strong operating cash flow helped grow our cash balance to more than $32 million by quarter-end, enabling us to add a number of new streams and royalties to the portfolio and agree to terms on the proposed combination with Mariana announced in late April." Watson also stated that he believes the Mariana transaction "will transform Sandstorm into a leading mid-tier streaming and royalty company."

Andrew Kaip of BMO Capital Markets wrote in a May 8 report that "guidance for 2017 was maintained, and Q1/17 gold eq. deliveries were pre-announced. Looking ahead, we expect investors will focus on the recently announced Mariana Resources acquisition and that this will drive investor sentiment regarding SAND for the foreseeable future."

Kaip points out that Sandstorm "has embarked upon an ambitious plan to build a core gold stream on the Hot Maden project through the acquisition of Mariana Resources. We see the transaction as accretive, but recognize it will take time for investors to understand the opportunity given the uncertain time frame to realize the opportunity."

In a May 9 report CIBC analyst Cosmos Chiu rated Sandstorm as an "Outperformer," with a target price of $6.00. The shares are currently trading around $4.85.

Chiu stated that "Q1/17 attributable production has provided Sandstorm Gold with a good start towards meeting its 2017 attributable production guidance of 45,000-55,000 GEO" and that "management indicated it expects to be debt-free after close of the Mariana transaction."

Chiu noted that "the Mariana transaction continues to be a focus, with the preproduction Hot Maden project accounting for ~33% of our NAV for the company. We reiterate our initial view of the transaction: success depends on Sandstorm Gold's ability to convert its equity participation in the JV to a gold stream."

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