UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT
OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16
OF THE SECURITIES EXCHANGE ACT OF 1934
For the month of November,
2015
Commission File Number: 001-35617
Sandstorm
Gold Ltd.
(Translation of registrant’s name into English)
Suite
1400 - 400 Burrard Street
Vancouver, British Columbia
V6C 3A6 Canada
(Address of principal executive offices)
Indicate
by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate
by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
Indicate
by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information
to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
If “Yes” is marked, indicate
below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-
EXHIBIT INDEX
| Exhibit |
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Description of Exhibit |
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| 99.1 |
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Management’s Discussion and Analysis for the Period Ended September 30, 2015 and Condensed Consolidated Interim Financial
Statements of the Company for the Nine Months Ended September 30, 2015 |
| 99.1 |
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Printer Friendly Copy |
| 99.2 |
|
CEO Certification |
| 99.3 |
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CFO Certification |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
SANDSTORM GOLD
LTD. |
| |
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| |
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| Date: November 12, 2015 |
By: |
/s/ Erfan Kazemi |
| |
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Name: Erfan Kazemi |
| |
|
Title: Chief Financial Officer |
Exhibit 99.1
SANDSTORM
GOLD LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
Q3
/ 2015
For The Period Ended September 30, 2015
This management’s discussion and analysis
(“MD&A”) for Sandstorm Gold Ltd. and its subsidiary entities (“Sandstorm” or the “Company”)
should be read in conjunction with the unaudited condensed consolidated interim financial statements of Sandstorm for the three
and nine months ended September 30, 2015 and related notes thereto which have been prepared in accordance with International Accounting
Standards (“IAS”) 34: Interim Financial Reporting using accounting policies in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). Readers are encouraged to consult
the Company’s audited consolidated financial statements for the year ended December 31, 2014 and the corresponding notes
to the financial statements which are available on SEDAR at www.sedar.com. The information contained within this MD&A is current
to November 12, 2015 and all figures are stated in U.S. dollars unless otherwise noted.
company HIGHLIGHTS
Operating Results
| · | Attributable Gold Equivalent ounces sold, for the three months and nine months ended September 30, 2015 were 10,834 ounces
and 36,195 ounces, respectively, compared with 12,282 ounces and 34,397 ounces for the comparable periods in 2014. |
| · | Revenue for the three and nine months ended September 30, 2015 was $12.1 million and $42.8 million, respectively, compared
with $15.6 million and $44.0 million for the comparable periods in 2014. |
| · | Operating cash flows for the three and nine months ended September 30, 2015 were $8.2 million and $25.8 million, respectively,
compared with $10.0 million and $26.4 million for the comparable periods in 2014. |
| · | Average cash costs for the three and nine months ended September 30, 2015 of $307 1 and $311 1 per Attributable
Gold Equivalent ounce, respectively, compared with $308 1 and $325 1 per Attributable Gold Equivalent ounce
for the comparable periods in 2014. |
Yamana transaction
| · | On October 27, 2015, the Company entered into three agreements with Yamana Gold Inc. that included commodity streams from up
to five of Yamana's mining projects. For consideration of $152 million in cash and 15 million warrants of the Company, Sandstorm
received a multi-asset silver stream that includes production from Chapada, Minera Florida and Cerro Moro, a copper stream on Chapada,
and an early deposit gold stream on Agua Rica. The transaction provides: |
| o | Imminent Cash Flow: New silver and copper streams are expected to contribute $10 million of cash flow annually
starting in 2016, increasing to $20 million annually by 2019 representing a 55% increase in the Company’s 2019 forecasted
cash flow; |
| o | Asset Diversification: Multi-asset silver stream that includes production from Chapada, Minera Florida and Cerro
Moro, a copper stream on Chapada, and an Early Deposit Gold Stream on Agua Rica; |
| o | Downside Protection: 24-month silver stream backstop from the El Peñon mine if Cerro Moro does not reach
production by 2019 and an additional backstop from the Chapada mine under certain conditions; |
| o | Asset Quality: The projects underlying the transaction are low cost, economically robust assets with significant
exploration upside; |
| o | Improved Counterparty Profile: Approximately 90% of Sandstorm’s cash flow to come from majors, mid-tiers
and debt-free junior mining companies by 2019; and |
| o | Precious Metal Focus: Precious metals and diamonds to contribute over 80% of the Company’s cash flow by 2019. |
Financing
| · | On October 26, 2015, the Company amended its revolving credit agreement, to allow the Company to borrow up to $110 million
for acquisition purposes. As part the Yamana transaction, the Company fully drew on the $110 million in available credit. |
| · | On November 3, 2015, the Company completed an equity financing for aggregate gross proceeds of $28.8 million. Upon closing
of the equity financing, the majority of the net proceeds were used to reduce the balance of the Company’s revolving credit
facility. |
| 1) | Refer to section on non-IFRS measures of this MD&A. |
Overview
Sandstorm is a growth-focused company that seeks
to acquire gold and other precious metal purchase agreements (“Gold Streams” or “Silver Streams”) and royalties
from companies that have advanced stage development projects or operating mines. In return for making upfront payments to acquire
a Gold Stream, Sandstorm receives the right to purchase, at a fixed price per ounce, a percentage of a mine’s gold, silver,
or other commodity ("Gold Equivalent") production for the life of the mine. Sandstorm helps other companies in the resource
industry grow their businesses, while acquiring attractive assets in the process. The Company is focused on acquiring Gold Streams
and royalties from mines with low production costs, significant exploration potential and strong management teams. The Company
currently has 76 Gold Streams and net smelter returns royalties (“NSR”s), of which 16 of the underlying mines are producing.
Outlook
Based on the Company’s existing Gold Streams
and NSRs, attributable Gold Equivalent production (individually and collectively referred to as “Attributable Gold Equivalent”)
for 2015 is forecasted to be between 43,000 – 46,000 Attributable Gold Equivalent ounces. The Company is forecasting
Attributable Gold Equivalent production of approximately 65,000 ounces per annum by 2019.
Key Producing
Assets
Yamana Silver Stream
Yamana Gold Inc.
On October 27, 2015, the Company acquired a
Silver Stream on Yamana Gold Inc.’s (“Yamana”) gold-silver Cerro Moro project, located in Santa Cruz, Argentina
(the “Cerro Morro Project” or “Cerro Moro”) and interim silver deliveries during years 2016 to 2018 from
a number of Yamana’s currently operating mines.
In acquiring the Yamana Silver Steam, the Chapada
copper stream (refer to Chapada copper stream section) and a potential gold stream on the Agua Rica project, the Company agreed
to upfront consideration consisting of a cash payment of $152 million, of which $4 million is payable in April 2016, and 15 million
Sandstorm warrants. The warrants have a 5 year term, a strike price of $3.50 per Sandstorm common share and are exercisable upon
achievement of specific milestones with respect to the construction of the Cerro Moro mine.
Silver deliveries
Under the terms of the Yamana Silver Stream,
Sandstorm has agreed to purchase, for on-going per ounce cash payments equal to 30% of the spot price of silver, an amount of silver
from Cerro Moro equal to 20% of the silver produced (up to an annual maximum of 1.2 million ounces of silver), until Yamana has
delivered to Sandstorm 7.0 million ounces of silver; then 9.0% of the silver produced thereafter.
As part of the Yamana Silver Stream, during
the year 2016 through 2018, Sandstorm has also agreed to purchase, for on-going per ounce cash payments equal to 30% of the spot
price of silver, an amount of silver from:
| (i) | the Minera Florida mine in Chile equal to 38% of the silver produced (up to an annual maximum of 200,000 ounces of silver);
and |
| (ii) | the Chapada mine in Brazil equal to 52% of the silver produced (up to an annual maximum of 100,000 ounces of silver). |
Downside protection
If by January 1, 2019, the Cerro Moro processing
facility has not averaged 80% of its daily nameplate production capacity over a 30-day period (the "Commencement of Production"),
then Yamana´s producing El Peñon mine in Chile will provide a 24 month backstop until the Commencement of Production
has begun. During the 24 month backstop, if applicable, Sandstorm will purchase, for on-going per ounce cash payments equal to
30% of the spot price of silver, an amount of silver equal to 16% of El Peñon´s silver production up to a maximum
of 1.2 million ounces per annum.
About Cerro Moro
The Cerro Moro project is located approximately
70 kilometres southwest of the coastal port city of Puerto Deseado in the Santa Cruz province of Argentina. Cerro Moro contains
a number of high grade epithermal gold and silver deposits, some
of which will be mined via open pit and some
via underground mining methods. In February 2015, Yamana announced that it would proceed with the construction of the Cerro Moro
mine. The current plan indicates average annual production in the first three years of 135,000 ounces of gold and 6.7 million ounces
of silver, with the life of mine annual production averaging approximately 102,000 ounces of gold and 5 million ounces of silver
at a throughput of 1,000 tonnes per day.
The procurement of long lead items is underway
and Yamana anticipates that construction on Cerro Moro will begin in 2016.
Chapada Copper Stream
Yamana Gold Inc.
On October 27, 2015, the Company acquired a
copper Stream on Yamana’s open pit gold-copper Chapada mine located 270 kilometres northwest of Brasília in Goiás
state, Brazil (“Chapada” or the “Chapada Mine”). Under the terms of the Yamana copper stream, Sandstorm
has agreed to purchase, for on-going per pound cash payments equal to 30% of the spot price of copper, an amount of copper from
the Chapada Mine equal to:
| i) | 4.2% of the copper produced (up to an annual maximum of 3.9 million pounds of copper) until Yamana has delivered 39 million
pounds of copper to Sandstorm (the “First Chapada Delivery Threshold”); then |
| ii) | 3.0% of the copper produced until, on a cumulative basis, Yamana has delivered 50 million pounds of copper to Sandstorm (the
“Second Chapada Delivery Threshold”); then |
| iii) | 1.5% of the copper produced thereafter, for the life of the mine. |
Downside protection
If Cerro Moro has not achieved the Commencement
of Production and Sandstorm has not received cumulative pre-tax cash flow equal to $70 million from the Yamana Silver Stream, then
the First Chapada Delivery Threshold and the Second Chapada Delivery Threshold will cease to be in effect and Sandstorm will continue
to purchase 4.2% of Chapada’s payable copper production (up to an annual maximum of 3.9 million pounds of copper), until
such time as Sandstorm has received cumulative pre-tax cash flow equal to $70 million, or Cerro Moro has achieved the Commencement
of Production.
About Chapada
Chapada has been in production since 2007 and
is a relatively low-cost operation. The ore is treated through a flotation plant with capacity of 22 million tonnes per annum.
Yamana has benefitted from significant discoveries at Chapada in the past and expects to complete 10,000 metres of exploration
drilling and 12,000 metres of infill drilling over the course of 2015.
Diavik Royalty
Rio Tinto PLC
During the nine months ended September 30, 2015,
the Company acquired a 1% gross proceeds royalty based on the production from the Diavik mine located in Lac de Gras, Northwest
Territories, Canada (“Diavik” or the “Diavik Mine”) which is operated by Rio Tinto PLC (“Rio Tinto”).
For consideration the Company paid $52.5 million
in cash and 3 million warrants of Sandstorm to IAMGOLD Corporation (the previous owner of the 1% royalty). The warrants have a
5 year term, a strike price of $4.50 per Sandstorm common share and will be exercisable following initial production from the Diavik
Mine’s A21 pipe.
The Diavik Mine is Canada’s largest diamond
mine. The mine began producing diamonds in January 2003, and has since produced more than 90 million carats from three kimberlite
pipes (A154 South, A154 North, and A418). Rio Tinto recently approved the development of open pit mining from a fourth pipe (A21)
which is targeted for production in 2018.
Black Fox Gold Stream
Primero Mining Corp.
The Company has a Gold Stream to purchase 8%
of the life of mine gold produced from Primero Mining Corp.’s (“Primero”) open pit and underground Black Fox
mine, located in Ontario, Canada (the “Black Fox Mine”), and 6.3% of the life of mine gold produced from Primero’s
Black Fox Extension, which includes a portion of Primero’s Pike River concessions, for a per ounce cash payment equal to
the lesser of $518 and the then prevailing market price of gold.
The Black Fox Mine began operating as an open
pit mine and in 2010, development of an underground mine began. Both open pit and underground operations are now running concurrently,
feeding the 2,200 tonne-per-day mill.
Current activities at the Black
Fox Mine include:
| · | Based on its exploration activities to date, Primero expects to replace its estimated full-year production with the results
of exploration drilling. Additionally, the Company has approved $6.1 million in capital expenditures to advance a ramp to access
the deep central zone at the Black Fox Mine. |
| · | Recent drilling by Primero has discovered the Froome zone, which is located approximately 1 kilometer east of the current Black
Fox open pit. The zone continues to be a priority for surface exploration through the remainder of 2015 and 2016. |
Santa Elena Gold Stream
First Majestic Silver Corp.
The Company has a Gold Stream to purchase 20%
of the life of mine gold produced from First Majestic Silver Corp.’s (“First Majestic”) open-pit and underground
Santa Elena mine, located in Mexico (the “Santa Elena Mine”), for a per ounce cash payment equal to the lesser of $357
and the then prevailing market price of gold until 50,000 ounces of gold have been delivered to Sandstorm, at which time the on-going
per ounce payments will increase to the lesser of $450 and the then prevailing market price of gold.
The Santa Elena Mine was successfully transitioned
from an open pit heap leach operation to an underground mining and milling operation and commercial production for the 3,000 tonne
per day processing plant was declared in 2014.
Current activities at the Santa
Elena Mine include:
| · | First Majestic recently closed its previously announced transaction whereby it acquired SilverCrest Mines Inc. |
| · | A pre-feasibility study and open pit resource update was recently filed, showing 8 years of silver and gold production at the
Santa Elena Mine. |
Aurizona Gold Royalty
Luna Gold Corp.
The Company has a 3% – 5%
sliding scale NSR on the production from Luna Gold Corp.’s (“Luna”) open-pit Aurizona mine, located in Brazil
(the “Aurizona Mine”). At gold prices less than or equal to $1,500 per ounce, the royalty is a 3% NSR. In addition,
Sandstorm holds a 2% NSR on Luna’s 200,000 hectares of greenfields exploration ground. At any time prior to the commencement
of commercial production, Luna has the ability to purchase one-half of the greenfields NSR for a cash payment of $10 million.
Sandstorm holds a right of first refusal on
any future streams or royalties on the Aurizona project and greenfields.
Restructuring
On June 30, 2015, the Company restructured its
previously existing Gold Stream and loan agreement with Luna (the “Restructuring”). Under the terms of the Restructuring,
the Gold Stream was terminated and replaced by two NSRs (described above) and a convertible debenture.
The convertible debenture is a $30 million instrument
bearing interest at a rate of 5% per annum (the “Debenture”). The Debenture is payable in three equal annual tranches
of $10 million plus accrued interest beginning June 30, 2018. Luna will have the right to convert the principal and interest owing
under the Debenture into common shares of Luna, so long as Sandstorm does not own more than 20% of the outstanding common shares
of Luna. The quantum of
shares upon conversion will be dependent on
a 20 day volume weighted average price (“VWAP”) and if the VWAP is less than C$0.10 per share, the shares will be deemed
to have been issued at C$0.10 per share.
Under the loan amendment, the maturity date
of the existing $20 million Luna loan was extended from June 30, 2017 to June 30, 2021, and the interest rate was revised to 5%
per annum, payable in cash on the maturity date. In the event that Luna is in default, the applicable rate of interest will increase
to 10% per annum.
Under the terms of the Restructuring and until
September 30, 2015, Sandstorm continued to purchase 17% of the gold that results from the processing of the remaining stockpile
from the Aurizona Mine for a per ounce cash payment equal to the lesser of $408 and the then prevailing market price of gold.
The Company recognized a gain of $3.7 million
arising from the difference between the fair value of the Debenture and two NSRs and the carrying value of the Aurizona mineral
interest.
Current activities at the Aurizona
Mine include:
| · | Luna has initiated a pre-feasibility study for the restart of the Aurizona Mine and finalized preparations to place the processing
plant into care and maintenance following the processing of the stockpiled ore. |
| · | As part of the Restructuring, Luna completed a $30 million financing with Pacific Road Resources Funds. Concurrently with closing
of the Luna Restructuring, Luna repaid and settled its debt facility with Société Générale and Mizuho
Corporate Bank. Luna expects to use the remainder of the proceeds from the Luna Restructuring to commence an infill drilling program,
prepare engineering studies and submit updated permits at its Aurizona project and for general working capital and corporate purposes. |
Bachelor Lake Gold Stream
Metanor Resources Inc.
The Company has a Gold Stream to purchase 20%
of the life of mine gold produced from Metanor Resources Inc.’s (“Metanor”) Bachelor Lake gold mine located in
Quebec, Canada (the “Bachelor Lake Mine”), for a per ounce cash payment equal to the lesser of $500 and the then prevailing
market price of gold.
Bachelor Lake Mine is a long hole mining operation
with an operating mill and surface infrastructure, which began production in early 2013.
Current activities at the Bachelor
Lake Mine include:
| · | Metanor recently released positive drill results from its exploration activities at the Bachelor Lake Mine and the newly discovered
south zone. For more information refer to www.metanor.ca. |
Bracemac-Mcleod Royalty
Glencore-Xstrata PLC.
Sandstorm has a 3% NSR based on 100% of the
production from the Bracemac-McLeod development property located in Matagami, Quebec, Canada (“Bracemac-McLeod” or
the “Bracemac-McLeod Mine”) which is owned and operated by a subsidiary of Glencore Xstrata plc (“Glencore”).
The Bracemac-McLeod Mine is a high grade volcanogenic
massive sulphide deposit located in the historical and prolific mining district of Matagami, Quebec. Continuous mining and milling
operations have been active in the Matagami district for almost fifty years with ten previously operating mines and one other currently
producing mine. The Bracemac-McLeod Mine began initial production in the second half of 2013.
Ming Gold Stream
Rambler Metals & Mining PLC
The Company has a Gold Stream to purchase approximately
25% of the first 175,000 ounces of gold produced and 12% of the life of mine gold produced thereafter, from Rambler Metals &
Mining PLC’s (“Rambler”) Ming Copper-Gold mine, located in Newfoundland, Canada (the “Ming Mine”).
There are no ongoing per ounce payments required by Sandstorm in respect of the Ming Mine Gold Stream. In the event that the metallurgical
recoveries of gold at the Ming Mine are below 85%, the percentage of gold that Sandstorm shall be entitled to purchase shall be
increased proportionally. Based on 2014 metallurgical recoveries, Sandstorm’s 2015 gold purchase entitlement was adjusted
to 31%.
Current activities at the Ming Mine
include:
| · | Rambler recently provided a reserve and resource estimate update for the Ming Mine. The reserve update shows the replacement
of all tonnes mined from the 1807 Zone to-date; thereby, extending the mine life by one year. |
| · | Rambler released a favorable prefeasibility study (“PFS”) that identifies the potential for an expansion of the
Ming Mine into the Lower Footwall Zone. The PFS defines a staged, low capital strategy to optimize existing infrastructure to be
able to operate at approximately 1,250 metric tonnes per day by 2018. The PFS outlines a plan to have Lower Footwall Zone material
with current massive sulphide reserves. See www.ramblermines.com for more information. |
Other Producing
Assets
Emigrant Springs Royalty
Newmont Mining Corp.
The Company has a 1.5% NSR on the Emigrant Springs
mine (the “Emigrant Springs Mine”) which is located in the Carlin Trend in Nevada, U.S.A. and is owned and operated
by Newmont Mining Corp. (“Newmont”). The Emigrant Springs Mine is an open pit, heap leach operation. In the third quarter
of 2012, construction of the mine was completed and commercial production commenced.
Mine Waste Solutions Royalty
Anglogold Ashanti Ltd.
The Company has a 1% NSR on the gold produced
from Mine Waste Solutions tailings recovery operation (“MWS”) which is located near Stilfontein, South Africa, and
is owned and operated by AngloGold Ashanti Ltd. (“AngloGold”). MWS is a gold and uranium tailings recovery operation.
The operation processes multiple tailings dumps in the area through three production modules, the last of which was commissioned
in 2011.
Gualcamayo Royalty
Yamana Gold Inc.
The Company has a 1% NSR on the Gualcamayo gold
mine (the “Gualcamayo Mine”) which is located in San Juan province, Argentina and owned and operated by Yamana. The
Gualcamayo Mine is an open pit, heap leach operation encompassing three substantial zones of gold mineralization. An expansion
of the operation is expected to increase sustainable production.
San Andres Royalty
Aura Minerals Inc.
The Company has a 1.5% NSR on the San Andres
mine (the “San Andres Mine”) which is located in La Únion, Honduras and owned and operated by Aura Minerals
Inc. (“Aura Minerals”). The San Andres Mine is an open pit, heap leach operation. The mine has been in production since
1983 and has well-developed infrastructure, which includes power and water supply, warehouses, maintenance facilities, assay laboratory
and on-site camp facilities.
Development
Assets
Karma Gold Stream
True Gold Mining Inc.
The Company has a Gold Stream which entitles
it to purchase 25,000 ounces of gold over a five year period and thereafter 1.625% of the gold produced from True Gold Mining Inc.’s
(“True Gold”) open-pit heap leach Karma gold mine located in Burkina Faso, West Africa (“Karma” or the
“Karma Project” or the “Karma Mine”) for on-going per ounce cash payment equal to 20% of the spot price
of the gold.
The Gold Stream, which on a gross basis requires
True Gold to deliver 100,000 ounces of gold over a five year period starting March 31, 2016 and thereafter 6.5% of the equivalent
gold production at the Karma Project, is being syndicated between Franco-Nevada Corp. (“Franco-Nevada”) and Sandstorm
(the “Stream Syndicate”). Franco-Nevada will be providing 75% of the funding and Sandstorm will be providing the remaining
25% of the funding. In consideration for acquiring the Gold Stream, the Stream Syndicate will make a payment of $100 million. During
the three months ended September 30, 2015, Sandstorm remitted $3.5 million ($14.4 million during the year ended December 31, 2014)
of its commitment to fund $25 million of the upfront payment. In addition, the Stream Syndicate has provided True Gold with an
18 month option to increase funding by up to $20 million (the “Increase Option”) in exchange for eight quarterly deliveries
totaling 30,000 ounces of gold, or the pro-rata portion of the amount drawn thereunder, starting 18 months from when the first
tranche under the Increase Option is drawn down.
The Karma Project has five defined mineral deposits
that make up the Karma Project with probable mineral reserves of 949,000 ounces of gold. The mine is expected to produce an average
of 97,000 ounces of gold per year over 8.5 years. The mining operation is planned to employ conventional truck and shovel methods.
True Gold recently reported that mining had commenced at the Guolagou II deposit at the Karma Mine. Guolagou II is the first of
six deposits that will be mined and construction at the Karma Mine is rapidly progressing with nearly 1,000 staff and contractors
active on site. True Gold remains on track for gold production by the first half of 2016.
Hugo North Extension & Heruga Gold
Stream
Entrée Gold Inc.
Sandstorm has a Gold Stream with Entrée
Gold Inc. (“Entrée”) to purchase an amount equal to 6.76% and 5.14% of the gold and silver by-products produced
from the Hugo North Extension and Heruga deposits located in Mongolia, (the “Hugo North Extension” and “Heruga”,
respectively) for per ounce cash payments equal to the lesser of $220 per ounce of gold and $5 per ounce of silver and the then
prevailing market price of gold and silver, respectively. Additionally, Sandstorm has a copper stream to purchase an amount equal
to 0.5% share of the copper produced from Hugo North Extension and Heruga for per pound cash payments equal to the lesser of $0.50
per pound of copper and the then prevailing market price of copper.
The Company is not required to contribute any
further capital, exploration, or operating expenditures to Entrée.
Hugo North Extension is a rich copper-gold porphyry
deposit and Heruga is a copper-gold-molybdenum porphyry deposit. Both projects are located in the South Gobi desert of Mongolia,
approximately 570 kilometers south of the capital city of Ulaanbaatar and 80 kilometers north of the border with China. Hugo North
Extension and Heruga are part of the Oyu Tolgoi mining complex and are managed by Oyu Tolgoi LLC, a subsidiary of Turquoise Hill
Resources and the Government of Mongolia, and its project manager Rio Tinto PLC. Entrée retains a 20% interest in the resource
deposits of the Hugo North Extension and Heruga.
Entrée recently announced that an Oyu
Tolgoi underground mine development and financing plan had been signed by the Government of Mongolia, Entrée's joint venture
partner, Oyu Tolgoi LLC, Turquoise Hill Resources Ltd. and Rio Tinto. The plan provides a path forward to the eventual restart
of underground development, including Lift 1 of the Hugo North Extension.
Bomboré Royalty
Orezone Gold Corp.
On January 27, 2015, the Company acquired a
0.45% NSR on the Bomboré gold project (“Bomboré” or “Bomboré Project”) located in
Burkina Faso, West Africa and owned by Orezone Gold Corp. (“Orezone”) for consideration of $3.0 million (“Upfront
Royalty”). In addition, Sandstorm has committed to providing up to an additional $5.0 million in royalty financing (remittable
in cash and/or shares, subject to certain conditions) to Orezone on a drawdown basis until January 27, 2017 (the “Standby
Royalty”). The Standby Royalty, if fully exercised, would result in the granting of an additional 0.75% NSR. Orezone has
granted Sandstorm a right of first refusal on any future stream or royalty financings related to the Bomboré Project until
36 months following the achievement of commercial production at the mine. Orezone has the option to repurchase the Upfront Royalty
from Sandstorm for a period of 36 months, at a premium of 10% per year. The Standby Royalty can also be repurchased at a premium
of 10% per year if Orezone completes a gold stream financing and Sandstorm participates for no less than $30 million.
Orezone's 168 km2 Bomboré
project is the largest undeveloped oxide gold deposit in Burkina Faso, containing 4.6 million ounces of measured and indicated
gold resources.
Prairie Creek Royalty
Canadian Zinc Corp.
The Company has a 1.2% NSR on the Prairie Creek
project (“Prairie Creek” or the “Prairie Creek Project”) located in the Northwest Territories, Canada and
owned by Canadian Zinc Corporation (“Canadian Zinc”). The Prairie Creek Project is a zinc, silver and lead project
that is 100%-owned by Canadian Zinc and currently reports a proven and probable mineral reserve of 5.2 million tonnes grading 9.4%
zinc, 151 grams per tonne silver and 9.5% lead.
Canadian Zinc has provided Sandstorm with a
right of first refusal on any future royalty or commodity stream financing for the Prairie Creek Project.
Mt. Hamilton Royalty
Waterton Precious Metals Fund II
Cayman, LP
The Company has a 2.4% NSR on the Mt. Hamilton
gold project (the "Mt. Hamilton Project"). The Mt. Hamilton Project is located in White Pine County, Nevada, U.S.A. and
is owned by Waterton Precious Metals Fund II Cayman, LP (“Waterton”).
Sandstorm holds a right of first refusal on
any future royalty or gold stream financing for the Mt. Hamilton Project.
Acquisition
Gold Royalties Corp.
On April 28, 2015, the Company closed its previously
announced plan of arrangement pursuant to which Sandstorm Gold acquired all of the issued and outstanding shares (the “Gold
Royalties Shares”) of Gold Royalties Corporation (“Gold Royalties”). The transaction was implemented by way of
a statutory plan of arrangement (the “Arrangement”). Upon completion of the Arrangement, Sandstorm Gold issued to each
holder of a Gold Royalties Share 0.045 of a common share of Sandstorm Gold.
As a result of acquiring Gold Royalties, Sandstorm
has added a number of Canadian royalty assets to its portfolio along with over $1.0 million in cash.
In accordance with IFRS 3 – Business Combinations,
the total consideration of $4.8 million, consisting of (i) $4.3 million representing the value of the Sandstorm Gold common shares
issued (based on the April 28, 2015 closing price) and (ii) $0.5 million of Gold Royalties Shares previously owned by Sandstorm
Gold, was allocated to the identifiable assets acquired and liabilities assumed as follows:
| Consideration: | |
In 000s | |
| Sandstorm Shares issued (1,161,720 common shares) | |
$ | 4,281 | |
| Gold Royalties Shares owned by Sandstorm Gold | |
| 472 | |
| | |
$ | 4,753 | |
| Allocation of acquisition costs: | |
| |
| Cash and cash equivalents | |
$ | 1,288 | |
| Trade receivables and other | |
| 107 | |
| Mineral interests and royalties | |
| 1,852 | |
| Deferred income tax assets | |
| 1,592 | |
| Trade and other payables | |
| (86 | ) |
| | |
$ | 4,753 | |
Sandstorm Gold has estimated the fair value
of the assets acquired to be equal to their carrying value except for the mineral interests and royalties which were estimated
to have a fair value of $1.9 million and deferred tax assets of $1.6 million, respectively. An income approach (being the net present
value of expected future cash flows) was used to determine the fair values of the mineral interests and royalties. Estimates of
future cash flows are based on estimated future revenues and expected conversions of resources to reserves at each of the mineral
properties.
The allocation of the purchase price is based
on preliminary estimates and has not been finalized. The Company is currently in the process of determining the fair values of
identifiable assets acquired and liabilities assumed, measuring the associated deferred income tax assets and liabilities and potential
goodwill. The actual fair values of the assets and liabilities may differ materially from the amounts disclosed in the preliminary
purchase price allocation and are subject to change.
Revolving credit
facility
On October 26, 2015, the Company amended its
revolving credit agreement, allowing the Company to borrow up to $110 million (the “Revolving Loan”) from a syndicate
of banks including the Bank of Nova Scotia, Bank of Montreal, National Bank of Canada, and Canadian Imperial Bank of Commerce.
The amounts drawn on the Revolving Loan remain subject to interest at LIBOR plus 3.00% – 4.25% per annum, and
the undrawn portion of the Revolving Loan remains subject to a standby fee of 0.75% – 1.05% per annum, dependent
on the Company’s leverage ratio. On October 26, 2015 and as part of the Yamana transaction, the Company fully drew on its
credit facility.
equity financing
On November 3, 2015 the Company completed a
public offering of 10,087,800 units at a price of $2.85 per unit, for gross proceeds of $28.8 million. Each unit was comprised
of one common share of the Company and one-half of one listed warrant. In connection with the offering, the Company paid agent
fees of $1.4 million, representing 5% of the gross proceeds. The amount attributable to common shares was $27.1 million, with the
remainder allocated to the warrants. As previously announced, the net proceeds from the public offering were primarily used to
reduce the balance of the Company’s Revolving Loan.
NORMAL COURSE
ISSUER BID
On December 15, 2014, the Company announced
that it intended to proceed with a normal course issuer bid (“NCIB”). Under the NCIB, the Company may, until December
16, 2015, purchase up to 5,882,879 common shares, representing 5% of the Company’s issued and outstanding common shares of
117,657,587 as of December 11, 2014. The NCIB provides the Company with the option to purchase its common shares from time to time
when the Company’s management believes that the Common Shares are undervalued by the market.
During the nine months ended September 30, 2015
and pursuant to the NCIB, the Company purchased and returned to treasury an aggregate of 518,123 common shares.
Other
Tax
As a result of an ongoing assessment of the
Company’s assets held in foreign subsidiaries, during the nine months ended September 30, 2015, the Company recognized a
reduction of its deferred income tax asset relating to taxable income previously attributed to its Barbadian subsidiary. The assessment
is complex in nature and the reduction represents management estimates. The Company’s international transactions have not
been reviewed by the Canada Revenue Agency, and should such transactions be reviewed no assurances can be given that the tax authority
will concur with management’s estimates.
Gold Stream Settlement
As contemplated in the Deflector gold purchase
agreement, the Company provided notice to Doray Minerals Ltd. that it was requesting back the $6.0 million Sandstorm had advanced
under the purchase agreement. As part of a settlement agreement, the Company received $7.0 million in June 2015. The difference
between the $7.0 million received and the carrying value of the Deflector mineral interest of $6.3 million was recognized in other
income. As a result of the settlement, both parties’ obligations were extinguished under the Deflector gold purchase agreement.
Impairment
The lack of progress with respect to Santa Fe
Gold Corp. (“Santa Fe”) raising additional capital to satisfy the terms and conditions of the negotiated restructuring
of its senior secured indebtedness, prompted the Company to evaluate its investment in the Summit mine Gold Stream. As a result
of its review, the Company, during the three months ended June 30, 2015, recorded an impairment charge of $3.3 million for the
full balance of the mineral interest.
SUMMARY OF QUARTERLY RESULTS
(in accordance with IFRS)
Quarters Ended
| In $000s | |
Sep. 30, 2015 | | |
Jun. 30, 2015 | | |
Mar. 31, 2015 | | |
Dec. 31, 2014 | |
| Total revenue | |
$ | 12,086 | | |
$ | 15,429 | | |
$ | 15,285 | | |
$ | 12,488 | |
| Attributable Gold Equivalent ounces sold 1 | |
| 10,834 | | |
| 12,901 | | |
| 12,460 | | |
| 10,424 | |
| Gold sales | |
$ | 9,055 | | |
$ | 11,360 | | |
$ | 11,566 | | |
$ | 9,463 | |
| Royalty revenue | |
| 3,031 | | |
| 4,069 | | |
| 3,719 | | |
| 3,025 | |
| Average realized gold price per attributable ounce 1 | |
| 1,116 | | |
| 1,196 | | |
| 1,227 | | |
| 1,198 | |
| Average cash cost per attributable ounce 1 | |
| 307 | | |
| 304 | | |
| 323 | | |
| 308 | |
| Cash flow from operations | |
| 8,234 | | |
| 9,479 | | |
| 8,119 | | |
| 8,854 | |
| Cash flow from operations per share (basic) 1 | |
| 0.07 | | |
| 0.08 | | |
| 0.07 | | |
| 0.08 | |
| Cash flow from operations per share (diluted) 1 | |
| 0.07 | | |
| 0.08 | | |
| 0.07 | | |
| 0.07 | |
| Net (loss) income | |
| (5,470 | ) | |
| (13,451 | ) | |
| 825 | | |
| 2,608 | |
| Basic (loss) income per share | |
| (0.05 | ) | |
| (0.11 | ) | |
| 0.01 | | |
| 0.02 | |
| Diluted (loss) income per share | |
| (0.05 | ) | |
| (0.11 | ) | |
| 0.01 | | |
| 0.02 | |
| Total assets | |
| 408,170 | | |
| 415,944 | | |
| 425,154 | | |
| 431,070 | |
| Total long-term liabilities | |
$ | 4,768 | | |
$ | 5,316 | | |
$ | 5,341 | | |
$ | 5,892 | |
| In $000s | |
Sep. 30, 2014 | | |
Jun. 30, 2014 | | |
Mar. 31, 2014 | | |
Dec. 31, 2013 | |
| Total revenue | |
$ | 15,559 | | |
$ | 13,153 | | |
$ | 15,295 | | |
$ | 15,767 | |
| Attributable Gold Equivalent ounces sold 1 | |
| 12,282 | | |
| 10,149 | | |
| 11,966 | | |
| 12,415 | |
| Gold sales | |
$ | 11,571 | | |
$ | 9,724 | | |
$ | 12,932 | | |
$ | 13,360 | |
| Royalty revenue | |
| 3,988 | | |
| 3,429 | | |
| 2,363 | | |
| 2,407 | |
| Average realized gold price per ounce 1 | |
| 1,267 | | |
| 1,296 | | |
| 1,278 | | |
| 1,270 | |
| Average cash cost per ounce 1 | |
| 308 | | |
| 310 | | |
| 355 | | |
| 345 | |
| Cash flow from operations | |
| 9,962 | | |
| 9,383 | | |
| 7,025 | | |
| 8,138 | |
| Cash flow from operations per share (basic) 1 | |
| 0.08 | | |
| 0.08 | | |
| 0.07 | | |
| 0.08 | |
| Cash flow from operations per share (diluted) 1 | |
| 0.08 | | |
| 0.08 | | |
| 0.06 | | |
| 0.08 | |
| Net income (loss) attributable to shareholders of Sandstorm | |
| – | | |
| – | | |
| 3,792 | | |
| (39,863 | ) |
| Net income (loss) | |
| 2,076 | | |
| 3,039 | | |
| 3,792 | | |
| (39,863 | ) |
| Basic income (loss) per share | |
| 0.02 | | |
| 0.03 | | |
| 0.04 | | |
| (0.40 | ) |
| Diluted income (loss) per share | |
| 0.02 | | |
| 0.03 | | |
| 0.03 | | |
| (0.40 | ) |
| Total assets | |
| 445,368 | | |
| 456,050 | | |
| 400,299 | | |
| 379,703 | |
| Total long-term liabilities | |
$ | 6,161 | | |
$ | 5,922 | | |
$ | 5,837 | | |
$ | 6,134 | |
| 1) | See non-IFRS measures section below. |
Changes in sales, net income and cash flow from
operations from quarter to quarter are affected primarily by fluctuations in production at the mines, the timing of shipments,
changes in the price of gold, as well as acquisitions of Gold Stream and royalty agreements and the commencement of operations
of mines under construction. For more information refer to the quarterly commentary discussed below.
The Company’s operating segments for the
three months ended September 30, 2015 are summarized in the table below:
| In $000s | |
Attributable
ounces sold | | |
Sales and
royalty
revenues | | |
Cost of sales
(excluding
depletion) | | |
Depletion | | |
Income (loss)
before taxes | | |
Cash flow
from
operations | |
| Aurizona | |
| 2,527 | | |
$ | 2,818 | | |
$ | 1,031 | | |
$ | 299 | | |
$ | 1,488 | | |
$ | 1,787 | |
| Bachelor Lake | |
| 1,559 | | |
| 1,751 | | |
| 780 | | |
| 927 | | |
| 44 | | |
| 971 | |
| Black Fox | |
| 1,381 | | |
| 1,529 | | |
| 715 | | |
| 1,062 | | |
| (248 | ) | |
| 814 | |
| Diavik Mine | |
| 1,228 | | |
| 1,370 | | |
| - | | |
| 1,342 | | |
| 28 | | |
| 2,054 | |
| Ming | |
| 425 | | |
| 481 | | |
| - | | |
| 507 | | |
| (26 | ) | |
| 481 | |
| Santa Elena | |
| 2,226 | | |
| 2,476 | | |
| 795 | | |
| 1,503 | | |
| 178 | | |
| 1,681 | |
| Royalties | |
| 1,488 | | |
| 1,661 | | |
| - | | |
| 2,416 | | |
| (755 | ) | |
| 1,963 | |
| Corporate | |
| - | | |
| - | | |
| - | | |
| - | | |
| (5,857 | ) | |
| (1,517 | ) |
| Consolidated | |
| 10,834 | | |
$ | 12,086 | | |
$ | 3,321 | | |
$ | 8,056 | | |
$ | (5,148 | ) | |
$ | 8,234 | |
The Company’s operating segments for the
three months ended June 30, 2015 are summarized in the table below:
| In $000s | |
Attributable
ounces sold | | |
Sales and
royalty
revenues | | |
Cost of sales
(excluding
depletion) | | |
Depletion | | |
Impairment
of mineral
interest | | |
Income (loss)
before taxes | | |
Cash flow
from
operations | |
| Aurizona | |
| 2,921 | | |
$ | 3,519 | | |
$ | 1,192 | | |
$ | 346 | | |
$ | - | | |
$ | 1,981 | | |
$ | 2,327 | |
| Bachelor Lake | |
| 2,125 | | |
| 2,537 | | |
| 1,063 | | |
| 1,263 | | |
| - | | |
| 211 | | |
| 1,474 | |
| Black Fox | |
| 1,378 | | |
| 1,630 | | |
| 714 | | |
| 985 | | |
| - | | |
| (69 | ) | |
| 916 | |
| Diavik Mine | |
| 1,345 | | |
| 1,609 | | |
| - | | |
| 1,665 | | |
| - | | |
| (56 | ) | |
| 1,409 | |
| Ming | |
| 416 | | |
| 488 | | |
| - | | |
| 497 | | |
| - | | |
| (9 | ) | |
| 488 | |
| Santa Elena | |
| 2,659 | | |
| 3,186 | | |
| 948 | | |
| 1,943 | | |
| - | | |
| 295 | | |
| 2,238 | |
| Royalties | |
| 2,057 | | |
| 2,460 | | |
| - | | |
| 3,522 | | |
| - | | |
| (1,062 | ) | |
| 2,152 | |
| Other | |
| - | | |
| - | | |
| - | | |
| - | | |
| (3,323 | ) | |
| (3,323 | ) | |
| - | |
| Corporate | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 674 | | |
| (1,525 | ) |
| Consolidated | |
| 12,901 | | |
$ | 15,429 | | |
$ | 3,917 | | |
$ | 10,221 | | |
$ | (3,323 | ) | |
$ | (1,358 | ) | |
$ | 9,479 | |
The Company’s operating segments for the
three months ended March 31, 2015 are summarized in the table below:
| In $000s | |
Attributable
ounces sold | | |
Sales and
royalty
revenues | | |
Cost of sales
(excluding
depletion) | | |
Depletion | | |
Income (loss)
before taxes | | |
Cash flow
from
operations | |
| Aurizona | |
| 3,112 | | |
$ | 3,857 | | |
$ | 1,263 | | |
$ | 368 | | |
$ | 2,226 | | |
$ | 2,594 | |
| Bachelor Lake | |
| 2,033 | | |
| 2,473 | | |
| 1,016 | | |
| 1,208 | | |
| 249 | | |
| 1,457 | |
| Black Fox | |
| 1,858 | | |
| 2,288 | | |
| 954 | | |
| 1,327 | | |
| 7 | | |
| 1,334 | |
| Diavik Mine | |
| 1,223 | | |
| 1,500 | | |
| - | | |
| 1,458 | | |
| 42 | | |
| - | |
| Ming | |
| 202 | | |
| 240 | | |
| - | | |
| 242 | | |
| (2 | ) | |
| 240 | |
| Santa Elena | |
| 2,224 | | |
| 2,708 | | |
| 786 | | |
| 1,354 | | |
| 568 | | |
| 1,922 | |
| Royalties | |
| 1,808 | | |
| 2,219 | | |
| - | | |
| 2,841 | | |
| (622 | ) | |
| 2,664 | |
| Corporate | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,100 | ) | |
| (2,092 | ) |
| Consolidated | |
| 12,460 | | |
$ | 15,285 | | |
$ | 4,019 | | |
$ | 8,798 | | |
$ | 1,368 | | |
$ | 8,119 | |
THREE MONTHS
ENDED September 30, 2015
COMPARED TO THE THREE MONTHS ENDED Septemeber 30, 2014
For the three months ended September 30, 2015,
net loss and cash flow from operations were $5.5 million and $8.2 million, respectively, compared with net income and cash flow
from operations of $2.1 million and $10.0 million for the comparable period in 2014. The change is attributable to a combination
of factors including:
| · | A $4.4 million non-cash loss on the revaluation of the Company’s investments; and |
| · | A $0.2 million increase in project evaluation costs, during the three months ended September 30, 2015, resulting from increased
corporate activity; partially offset by |
| · | A $0.2 million decrease in corporate administration expenses largely driven by the Company’s implementation of a cost
reduction program. |
For the three months ended September 30, 2015,
revenue was $12.1 million compared with $15.6 million for the comparable period in 2014. The decrease is largely attributed to
a number of factors including:
| · | 12% decrease in the average realized selling price of gold; and |
| · | 12% decrease in the number of Attributable Gold Equivalent ounces sold, due to: |
| i. | 35% decrease in gold ounces sold from the Bachelor Lake Mine primarily related to the mine experiencing lower feed grade largely
driven by higher than expected dilution from some stopes; |
| ii. | 15% decrease in gold ounces sold from the Aurizona Mine as Luna finished processing ore from a stockpile; partially offset
by |
| iii. | 36% increase in gold ounces sold from the Santa Elena Mine primarily attributed to solid production from the property and an
improvement in the mining of underground stopes. |
Nine MONTHS
ENDED September 30, 2015
COMPARED TO THE Nine MONTHS ENDED September 30, 2014
For the nine months ended September 30, 2015,
net loss and cash flow from operations were $18.1 million and $25.8 million, respectively, compared with net income and cash flow
from operations of $8.9 million and $26.4 million for the comparable period in 2014. The change is attributable to a combination
of factors including:
| · | A $8.1 million non-cash income tax expense related to a reduction of the Company’s deferred income tax asset relating
to taxable income previously attributed to its Barbadian subsidiary which was recognized during the three months ended June 30,
2015; |
| · | A $6.1 million non-cash increase in depletion expense largely driven by an increase in Attributable Gold Equivalent ounces
sold; |
| · | A $6.0 million non-cash loss on the revaluation of the Company’s investments; |
| · | A $3.3 million non-cash impairment relating to the Santa Fe Gold Stream; |
| · | A $0.7 million increase in administration expenses largely driven by the vesting of previously granted stock based compensation; |
| · | A number of non-recurring items recorded during the nine months ended September 30, 2014, including a one-time gain of $2.6
million recognized on the acquisition of Sandstorm Metals & Energy which was partially offset by a non-cash impairment charge
of $1.2 million relating the Company’s Bracemac-McLeod royalty; |
| · | A $0.6 million increase in project evaluation costs resulting from increased corporate activity; partially offset by |
| · | A $5.0 million gain on the settlement of mineral interests largely driven by the Luna Gold Stream and loan restructuring; and |
| · | A foreign exchange gain of $1.7 million largely driven by the consolidation of subsidiary entities with a different functional
currency than the parent entity. |
For the nine months ended September 30, 2015,
revenue was $42.8 million compared with $44.0 million for the comparable period in 2014. The decrease is largely attributable to
a number of factors including:
| · | 8% decrease in the average realized selling price of gold; partially offset by |
| · | 5% increase in the number of Attributable Gold Equivalent ounces sold, due to: |
| i. | 80% increase in gold ounces sold from the Santa Elena Mine primarily attributed to solid production from the property and an
improvement in the mining of underground stopes; |
| ii. | An additional 3,796 Attributable Gold Equivalent ounces arising from the Company’s recently acquired Diavik royalty; |
| iii. | 6% increase in gold ounces sold from the Black Fox Mine primarily driven from greater investments in underground development
in an effort to improve mining and processing targets going forward; partially offset by |
| iv. | 25% decrease in gold ounces sold from the Bachelor Lake Mine primarily related to the mine experiencing lower feed grade largely
driven by higher than expected dilution from some stopes. |
three MONTHS
ENDED September 30, 2015
COMPARED TO THE REMAINING QUARTERS
When comparing net loss of $5.5 million and
cash flow from operations of $8.2 million for the three months ended September 30, 2015 with net income and operating cash flow
for the remaining quarters, the following items impact comparability of analysis:
| · | A $8.1 million non-cash income tax expense related to a reduction of the Company’s deferred income tax asset relating
to taxable income previously attributed to its Barbadian subsidiary which was recorded during the three months ended June 30, 2015; |
| · | A $3.7 million gain on the settlement of the Luna Gold Stream and loan which was recognized during the three months ended June
30, 2015; |
| · | A $3.3 million non-cash impairment relating to the Santa Fe Gold Stream recognized during the three months ended June 30, 2015; |
| · | A one-time gain of $2.6 million recognized on the acquisition of Sandstorm Metals & Energy which was recorded during the
three months ended June 30, 2014; |
| · | A non-cash impairment charge of $1.2 million relating the Company’s Bracemac-McLeod royalty recognized during the three
months ended June 30, 2014; |
| · | A non-cash impairment charge of $52.2 million and a corresponding $13.3 million tax recovery relating to the Serra Pelada Gold
Stream recognized during the three months ended December 31, 2013; |
| · | A non-cash goodwill impairment charge of $19.9 million and $15.9 million arising from the Premier Royalty business combination
during the three months ended March 31, 2013 and three months ended June 30, 2013, respectively; |
| · | A non-cash impairment charge of $3.2 million arising from the conversion of the Company’s Bracemac-McLeod Gold Stream
into a NSR recognized during the three months ended September 30, 2013; |
| · | A general decrease in administration expenses when compared to previous quarters primarily driven by (i) the implementation
of cost reduction programs when the Company acquired 100% of the common shares of Premier Royalty and (ii) the elimination of duplicated
costs that were previously being consolidated; |
| · | As a result of consolidating Premier Royalty’s financial results, the Company began recognizing royalty revenue in the
first quarter of 2013; |
| · | Overall, Gold Attributable Equivalent ounces sold have increased over the course of the last three years as result of various
assets producing including: (i) the Aurizona Mine and the Santa Elena Mine began initial production late in 2010; (ii) the Company
acquired the Diavik royalty during the three months ended March 31, 2015; and (iii) the Company began purchasing gold from the
Black Fox Mine in 2011. |
Change in Total
Assets
Total assets decreased by $7.8 million from
June 30, 2015 to September 30, 2015 primarily resulting from depletion expense, which was partially offset by operating cash flows.
Total assets decreased by $9.2 million from March 31, 2015 to June 30, 2015 primarily resulting from (i) the reduction of the Company’s
deferred tax assets; and (ii) depletion expense; partially offset by operating cash flows. Total assets decreased by $5.9 million
from December 31, 2014 to March 31, 2015 primarily resulting from (i) depletion expense; and (ii) a decline in the fair value of
investments; partially offset by operating cash flows. Total assets increased by $51.4 million from December 31, 2013 to December
31, 2014 primarily resulting from (i) the assets acquired from the Sandstorm Metals & Energy business combination; (ii) operating
cash flows and (iii) the exercise of warrants; which were partially offset by (i) depletion expense; (ii) a decline in the fair
value of investments; and (iii) by a non-cash impairment charge on the Bracemac-McLeod royalty.
Non-IFRS Measures
The Company has included, throughout this document,
certain non-IFRS performance measures, including (i) average cash cost per attributable ounce; (ii) cash flow from operations per
share (basic and diluted); and (iii) average realized gold price per attributable ounce.
| i. | Average cash cost per ounce is calculated by dividing the Company’s cost of sales (excluding depletion) by the number
of Attributable Gold Equivalent ounces sold. The Company presents average cash cost per ounce as it believes that certain investors
use this information to evaluate the Company’s performance in comparison to other companies in the precious metals mining
industry who present results on a similar basis. Figure 1.1 provides a reconciliation of average cash cost of gold on a
per ounce basis. |
Figure 1.1
| | |
3 Months Ended
Sep. 30, 2015 | | |
3 Months Ended
Sep. 30, 2014 | | |
9 Months Ended
Sep. 30, 2015 | | |
9 Months Ended
Sep. 30, 2014 | |
| Cost of Sales (excluding depletion) | |
$ | 3,321 | | |
$ | 3,780 | | |
$ | 11,257 | | |
$ | 11,171 | |
| | |
| | | |
| | | |
| | | |
| | |
| Cash cost of sales is comprised of: | |
| | | |
| | | |
| | | |
| | |
| Total cash cost of gold sold | |
| 3,321 | | |
$ | 3,780 | | |
| 11,257 | | |
$ | 11,171 | |
| Divided by: | |
| | | |
| | | |
| | | |
| | |
| Total Attributable Gold Equivalent ounces sold 1 | |
| 10,834 | | |
| 12,282 | | |
| 36,195 | | |
| 34,397 | |
| Equals: | |
| | | |
| | | |
| | | |
| | |
| Average cash cost of gold (per attributable ounce) | |
$ | 307 | | |
$ | 308 | | |
$ | 311 | | |
$ | 325 | |
| 1) | The Company’s royalty income is converted to an Attributable Gold Equivalent ounce basis
by dividing the royalty income for that period by the average realized gold price per ounce from the Company’s Gold Streams
for the same respective period. These Attributable Gold Equivalent ounces when combined with the gold ounces sold from the Company’s
Gold Streams equal total Attributable Gold Equivalent ounces sold. |
| ii. | Cash flows from operations per share (basic and diluted) is calculated by dividing cash generated by operating activities by
the weighted average number of shares outstanding (basic and diluted). The Company presents operating cash flows per share as it
believes that certain investors use this information to evaluate the Company’s performance in comparison to other companies
in the precious metals mining industry that present results on a similar basis. Figure 1.2 provides a reconciliation of
cash flow from operations per share (basic and diluted). |
Figure 1.2
| | |
3 Months Ended
Sep. 30, 2015 | | |
3 Months Ended
Sep. 30, 2014 | | |
9 Months Ended
Sep. 30, 2015 | | |
9 Months Ended
Sep. 30, 2014 | |
| Cash generated by operating activities | |
$ | 8,234 | | |
$ | 9,962 | | |
$ | 25,831 | | |
$ | 26,374 | |
| | |
| | | |
| | | |
| | | |
| | |
| Divided by: | |
| | | |
| | | |
| | | |
| | |
| Basic weighted average number of shares outstanding | |
| 118,218,267 | | |
| 117,573,079 | | |
| 117,922,428 | | |
| 111,169,043 | |
| Diluted weighted average number of shares outstanding 1 | |
| 118,597,902 | | |
| 118,998,596 | | |
| 119,071,159 | | |
| 119,825,223 | |
| Equals: | |
| | | |
| | | |
| | | |
| | |
| Operating cash flow per share - basic | |
$ | 0.07 | | |
$ | 0.08 | | |
$ | 0.22 | | |
$ | 0.24 | |
| Operating cash flow per share - diluted | |
$ | 0.07 | | |
$ | 0.08 | | |
$ | 0.22 | | |
$ | 0.22 | |
| 1) | The diluted weighted average number of shares includes stock options and share purchase warrants
that would have been dilutive if the Company had positive net income for the period. |
| iii. | Average realized gold price per ounce is calculated by dividing the Company’s sales by the number of Attributable Gold
Equivalent ounces sold. The Company presents average realized gold price per attributable ounce as it believes that certain investors
use this information to evaluate the Company’s performance in comparison to other companies in the precious metals mining
industry that present results on a similar basis. Figure 1.3 provides a reconciliation of average realized gold price per
ounce. |
Figure 1.3
| | |
3 Months Ended
Sep. 30, 2015 | | |
3 Months Ended
Sep. 30, 2014 | | |
9 Months Ended
Sep. 30, 2015 | | |
9 Months Ended
Sep. 30, 2014 | |
| Total revenue | |
$ | 12,086 | | |
$ | 15,559 | | |
$ | 42,800 | | |
$ | 44,006 | |
| | |
| | | |
| | | |
| | | |
| | |
| Divided by: | |
| | | |
| | | |
| | | |
| | |
| Total Attributable Gold Equivalent ounces sold | |
| 10,834 | | |
| 12,282 | | |
| 36,195 | | |
| 34,397 | |
| Equals: | |
| | | |
| | | |
| | | |
| | |
| Average realized gold price per ounce | |
$ | 1,116 | | |
$ | 1,267 | | |
$ | 1,182 | | |
$ | 1,279 | |
The Company has also used the non-IFRS measure
of operating cash flows excluding changes in non-cash working capital. This measure is calculated by adding back the decrease in
changes in non-cash working capital to cash generated by operating activities. These non-IFRS measures do not have any standardized
meaning prescribed by IFRS, and other companies may calculate these measures differently.
The presentation of these non-IFRS measures
is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance
prepared in accordance with IFRS.
Liquidity and
Capital Resources
As of September 30, 2015, the Company had cash
and cash equivalents of $46.5 million (December 31, 2014 – $90.2 million) and working capital of $46.5 million
(December 31, 2014 – $89.3 million).
During the nine months ended September 30, 2015,
the Company generated operating cash flows of $25.8 million compared with $26.4 million during the comparable period in 2014, with
the increase being primarily attributable to an increase in Attributable Gold Equivalent ounces sold; which was partially offset
by a decrease in the average realized selling price of gold.
During the nine months ended September 30, 2015,
the Company had cash outflows from investing activities of $66.8 million, which were primarily the result of: (i) the payment of
$52.5 million to IAMGOLD Corporation in connection with the Diavik
royalty and $3.0 million to Orezone in connection
with the Bomboré royalty; (ii) a $3.5 million upfront payment related to the Karma Gold Stream; (iii) a loan of $2.7 million
and (iv) the acquisition of investments and other assets; partially offset by (i) the receipt of $7 million as a result of the
Doray Minerals Ltd Gold Stream settlement agreement and (ii) the proceeds from the sale of other investments. During the nine months
ended September 30, 2014, the Company had cash outflows from investing activities of $65.9 million, which were primarily the result
of (i) Sandstorm exercising the Santa Elena underground mine option by making an upfront payment of $10.0 million; (ii) the acquisition
of Sandstorm Metals & Energy Ltd.; (iii) a $10.0 million loan to Luna; (iv) the $9.3 million upfront payment related to the
Karma Gold Stream; (v) the acquisition of investments totaling $25.6 million; and (vi) providing a $2.9 million loan.
During the nine months ended September 30, 2015,
the Company had net cash outflows from financing activities of $1.6 million largely as a result of the redemption of the Company’s
common shares under the NCIB. During the nine months ended September 30, 2014, the Company had net cash inflows from financing
activities of $32.8 million, which were primarily comprised of the proceeds from the exercise of warrants.
Contractual
Obligations
In connection with its commodity
streams, the Company has committed to purchase the following:
| Stream |
|
% of Life of Mine Gold or Relevant
Commodity5,6,7,8,9 |
|
Per Ounce Cash Payment:
lesser of amount below and the then
prevailing market price of the gold (unless
otherwise noted) 1, 2, 3, 4 |
| Aurizona |
|
17% |
|
$408 |
| Bachelor Lake |
|
20% |
|
$500 |
| Black Fox |
|
8% |
|
$518 |
| Chapada |
|
4.2% |
|
30% of copper spot price |
| Entrée Gold |
|
6.76% on Hugo North Extension and 5.14% on Heruga |
|
$220 |
| Karma |
|
25,000 ounces over 5 years and 1.625% thereafter |
|
20% of gold spot price |
| Ming |
|
25% of the first 175,000 ounces of gold produced, and 12% thereafter |
|
$nil |
| Santa Elena |
|
20% |
|
$357 |
| Yamana Silver Stream |
|
Varies |
|
30% of silver spot price |
| 1) | Subject to an annual inflationary adjustment except for Ming. |
| 2) | For the Entrée Gold Stream, after approximately 8.6 million ounces of gold have been produced
from the joint venture property, the price increases to $500 per gold ounce. |
| 3) | For the Entrée Silver Stream, percentage of life of mine is 6.76% on Hugo North Extension
and 5.14% on Heruga which the Company can purchase for the lesser of the prevailing market price and $5 per ounce of silver until
40.3 million ounces of silver have been produced from the entire joint venture property. Thereafter, the purchase price will increase
to the lesser of the prevailing market price and $10 per ounce of silver. |
| 4) | For the Santa Elena Gold Stream, the Company can purchase for a per ounce cash payment equal to
(i) the lesser of $357 and the then prevailing market price of gold for the open-pit mine and (ii) the lesser of $357 and the then
prevailing market price of gold until 50,000 ounces of gold have been delivered to Sandstorm (inclusive of ounces already received
from open-pit production), at which time the on-going per ounce payments will increase to the lesser of $450 and the then prevailing
market price of gold for the underground mine. |
| 5) | For the Entrée Gold and Silver Stream, percentage of life of mine is 6.76% on Hugo North
Extension and 5.14% on Heruga if the minerals produced are contained below 560 metres in depth. |
| 6) | For the Entrée Gold and Silver Stream, percentage of life of mine is 10.15% on Hugo North
Extension and 7.7% on Heruga if the minerals produced are contained above 560 metres in depth. |
| 7) | For the Entrée copper stream, the Company has committed to purchase an amount equal to 0.5%
of the copper produced from the Hugo North Extension and Heruga deposits. If the minerals produced are contained above 560 metres
in depth, then the commitment increases to 0.75% for both the Hugo North Extension and Heruga deposits. Sandstorm will make ongoing
per pound cash payments equal to the lesser of $0.50 and the then prevailing market price of copper, until 9.1 billion pounds of
copper have been produced from the entire joint venture property. Thereafter, the on-going per pound payments will increase to
the lesser of $1.10 and the then prevailing market price of copper. |
| 8) | For the Chapada copper stream, the Company has committed to purchase an amount equal to 4.2% of
the copper produced (up to an annual maximum of 3.9 million pounds of copper) until Yamana has delivered 39 million pounds of copper
to Sandstorm; then 3.0% of the copper produced until, on a cumulative basis, Yamana has delivered 50 million pounds of copper to
Sandstorm; then 1.5% of the copper produced thereafter, for the life of the mine. If Cerro Moro has not achieved the Commencement
of Production and Sandstorm has not received cumulative pre-tax cash flow equal to $70 million from the Yamana Silver Stream, then
the First Chapada Delivery Threshold and the Second Chapada Delivery Threshold will cease to be in effect and Sandstorm will continue
to purchase 4.2% of Chapada’s payable copper production (up to an annual maximum of 3.9 million pounds of copper), until
such time as Sandstorm has received cumulative pre-tax cash flow equal to $70 million, or Cerro Moro has achieved the Commencement
of Production. |
| 9) | Under the terms of the Yamana Silver Stream, Sandstorm has agreed to purchase an amount of silver
from Cerro Moro equal to 20% of the silver produced (up to an annual maximum of 1.2 million ounces of silver), until Yamana has
delivered to Sandstorm 7.0 million ounces of silver; then 9.0% of the silver produced thereafter. As part of the Yamana Silver
Stream, during the year 2016 through 2018, Sandstorm has also agreed to purchase an amount of silver from: (i) the Minera Florida
mine in Chile equal to 38% of the silver produced (up to an annual maximum of 200,000 ounces of silver); and (ii) the Chapada mine
in Brazil equal to 52% of the silver produced (up to an annual maximum of 100,000 ounces of silver). |
In connection with the Karma Gold Stream, the
Company has agreed, subject to certain financing conditions, to provide remaining upfront payments totaling $3.9 million. In addition,
the Stream Syndicate has provided True Gold with an 18 month option to increase funding by up to $20 million whereby Sandstorm’s
commitment would be 25% of the increase.
In connection with the Bomboré royalty,
Sandstorm has committed to providing up to an additional $5.0 million in royalty financing (remittable in cash and/or shares, subject
to certain conditions) to Orezone on a draw down basis until January 27, 2017.
Share Capital
As of November 12, 2015, the Company had 128,308,458
common shares outstanding. As disclosed previously, the funds from the issuance of share capital have been used to finance the
acquisition of Gold Streams and royalties (recent acquisitions are described earlier in greater detail), with the net proceeds
of the 2015 equity financing being used to reduce the balance of the Company’s Revolving Loan.
A summary of the Company’s share purchase
options as of November 12, 2015 are as follows:
| Number outstanding | |
Vested | |
Exercise Price per Share (C$) | | |
Expiry Date |
| 1,238,500 | |
1,238,500 | |
|
$ 3.40 | | |
November 26, 2015 |
| 66,000 | |
66,000 | |
|
$ 6.30 | | |
August 25, 2016 |
| 1,129,000 | |
1,129,000 | |
|
$ 6.35 | | |
November 25, 2016 |
| 27,000 | |
27,000 | |
|
$ 18.33 | | |
August 22, 2017 |
| 5,850 | |
5,850 | |
|
$ 18.33 | | |
October 4, 2017 |
| 402,133 | |
402,133 | |
|
$ 16.35 | | |
December 11, 2017 |
| 150,000 | |
100,002 | |
|
$ 11.78 | | |
December 21, 2017 |
| 10,875 | |
10,875 | |
|
$ 11.31 | | |
February 19, 2018 |
| 3,625 | |
3,625 | |
|
$ 10.62 | | |
March 1, 2018 |
| 12,375 | |
12,375 | |
|
$ 8.89 | | |
December 13, 2018 |
| 25,000 | |
8,334 | |
|
$ 6.03 | | |
May 16, 2019 |
| 3,737,474 | |
- | |
|
$ 2.93 | | |
November 13, 2019 |
| 2,250 | |
2,250 | |
|
$ 15.00 | | |
March 30, 2022 |
| 6,810,082 | |
3,005,944 | |
| 6.82 | | |
|
A summary of the Company’s warrants as
of November 12, 2015 are as follows:
Shares to be Issued Upon Exercise of the
Warrants |
|
|
Exercise Price Per Warrant |
|
|
Expiry Date |
| 83,700 |
|
|
C$ |
11.11 |
|
|
Nov. 29, 2015 |
| 88,200 |
|
|
C$ |
8.89 |
|
|
Dec. 6, 2015 |
| 1,738 |
|
|
C$ |
8.89 |
|
|
Dec. 6, 2015 |
| 72,500 |
|
|
C$ |
17.24 |
|
|
Feb. 28, 2016 |
| 32,400 |
|
|
C$ |
11.11 |
|
|
May 1, 2016 |
| 1,155,873 |
|
|
C$ |
13.79 |
|
|
Dec. 4, 2016 |
| 5,002,500 |
|
|
$ |
14.00 |
|
|
Sep. 7, 2017 |
| 3,000,000 |
|
|
$ |
4.50 |
|
|
Mar. 23, 2020 |
| 15,000,000 |
|
|
$ |
3.50 |
|
|
Oct. 26, 2020 |
| 5,043,900 |
|
|
$ |
4.00 |
|
|
Nov. 3, 2020 |
| 29,480,811 |
|
|
|
|
|
|
|
The Company has 619,935 Restricted Share Rights
(“RSRs”) outstanding as at November 12, 2015.
Key Management
Personnel Compensation
The remuneration of directors and those persons
having authority and responsibility for planning, directing and controlling activities of the Company are as follows:
| | |
3 Months Ended
Sep. 30, 2015 | | |
3 Months Ended
Sep. 30, 2014 | | |
9 Months Ended
Sep. 30, 2015 | | |
9 Months Ended
Sep. 30, 2014 | |
| Short-term employee salaries and benefits | |
$ | 543 | | |
$ | 591 | | |
$ | 1,508 | | |
$ | 1,670 | |
| Share-based payments | |
| 548 | | |
| 390 | | |
| 1,667 | | |
| 1.123 | |
| Total key management compensation expense | |
$ | 1,091 | | |
$ | 981 | | |
$ | 3,175 | | |
$ | 2,793 | |
Financial Instruments
The Company’s financial instruments
consist of cash and cash equivalents, trade receivables and other, investments, loan receivable, receivables and other and trade
and other payables. All financial instruments are initially recorded at fair value.
Credit Risk
The Company’s credit risk is limited to
cash and cash equivalents, trade receivables and other, loans receivable, and receivables and other in the ordinary course of business.
The Company sells gold exclusively to large corporations with strong credit ratings. The Company’s trade receivables and
other is subject to the credit risk of the counterparties who own and operate the mines underlying Sandstorm’s royalty portfolio.
The Company’s loan receivable and convertible debenture due from Luna is subject to Luna’s credit risk and the Company’s
ability to realize on its security.
Currency Risk
Financial instruments that impact the Company’s
net income (loss) or other comprehensive income (loss) due to currency fluctuations include: cash and cash equivalents, trade receivables
and other, investments and trade and other payables denominated in Canadian dollars. Based on the Company's Canadian dollar denominated
monetary assets and monetary liabilities at September 30, 2015, a 10% increase (decrease) of the value of the Canadian dollar relative
to the United States dollar would increase (decrease) net income (loss) by $0.3 million and other comprehensive income (loss) by
$1.8 million, respectively.
Other Risks
Sandstorm holds common shares, convertible debentures,
and warrants of other companies with a combined market value as at September 30, 2015, of $34.8 million (December 31, 2014 – $24.0
million). The daily exchange traded volume of these shares, including the shares underlying the warrants, may not be sufficient
for the Company to liquidate its position in a short period of time without potentially affecting the market value of the shares.
The Company is subject to default risk with respect to any debt instruments. Aside from the outstanding balance on the Company’s
revolving credit facility, the Company is not subject to significant interest rate or other price risks. Except for the Company’s
exposure to liquidity risk with respect to the Luna Debenture and the revolving credit facility, the Company’s exposure to
these risks has not changed significantly from the prior year.
Risks to Sandstorm
The primary risk factors affecting the Company
are set forth below. For additional discussion of risk factors, please refer to the Company’s annual information form dated
March 17, 2015, which is available on www.sedar.com.
Risks Relating To Mineral Projects
To the extent that they relate to the production
of gold from, or the operation of, the Chapada Mine, the Cerro Moro Project, the Diavik Mine, the Aurizona Mine, the Santa Elena
Mine, the Karma Project, the Ming Mine, the Black Fox Mine, the Bachelor Lake Mine, the Hugo North Extension and Heruga projects,
the Mt. Hamilton Project, the Gualcamayo Mine, the Emigrant Springs Mine, MWS, the San Andres Mine, the Bomboré Project,
the Prairie Creek Project, the Bracemac-McLeod Mine, the Serra Pelada Mine or other royalties in Sandstorm’s portfolio (the
“Mines”), the Company will be subject to the risk factors applicable to the operators of such Mines. Whether the Mines
will be commercially viable depends on a number of factors, including cash costs associated with extraction and processing, the
particular attributes of the deposit, such as size, grade and proximity to infrastructure, as well as metal prices which are highly
cyclical and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing
and exporting of minerals and environmental protection. The Mines are also subject to other risks that could lead to their shutdown
and closure including flooding and weather related events, the failure to receive permits or having existing permits revoked, collapse
of mining infrastructure including tailings pond, as well as community or social related issues. The exact effect of these factors
cannot be accurately predicted, but the combination of these factors may result in the Mines becoming uneconomic resulting in their
shutdown and closure. The Company is not entitled to purchase gold if no gold is produced from the Mines.
No Control Over Mining Operations
The Company has no contractual rights relating
to the operation or development of the Mines. Except for any payments which may be payable in accordance with applicable completion
guarantees or cash flow guarantees, the Company will not be entitled to any material compensation if these mining operations do
not meet their forecasted gold or other production targets in any specified period or if the Mines shut down or discontinue their
operations on a temporary or permanent basis. The Mines may not commence commercial production within the time frames anticipated,
if at all, and there can be no assurance that the gold or other production from such properties will ultimately meet forecasts
or targets. At any time, any of the operators of the Mines or their successors may decide to suspend or discontinue operations.
The Company is subject to the risk that the Mines shut down on a temporary or permanent basis due to issues including, but not
limited to economics, lack of financial capital, floods, fire, mechanical malfunctions, social unrest, expropriation and other
risks. There are no guarantees the Mines will achieve commercial production, ramp-up targets or complete expansion plans. These
issues are common in the mining industry and can occur frequently.
Government Regulations
The Mines are subject to various foreign laws
and regulations governing prospecting, exploration, development, production, exports, taxes, labour standards, waste disposal,
protection and remediation of the environment, reclamation, historic and cultural resources preservation, mine safety and occupation
health, handling, storage and transportation of hazardous substances and other matters. It is possible that the risks of expropriation,
cancellation or dispute of licenses could result in substantial costs, losses and liabilities in the future. The costs of discovering,
evaluating, planning, designing, developing, constructing, operating and closing the Mines in compliance with such laws and regulations
are significant. It is possible that the costs and delays associated with compliance of such laws and regulations could become
such that the owners or operators of the Mines would not proceed with the development of or continue to operate the Mines. Moreover,
it is possible that future regulatory developments, such as increasingly strict environmental protection laws, regulations and
enforcement policies thereunder, and claims for damages to property and persons resulting from the Mines could result in substantial
costs and liabilities in the future.
International Operations
The Chapada Mine and the Aurizona Mine are located
in Brazil, the Santa Elena Mine is located in Mexico, the Emigrant Springs Mine and the Mt. Hamilton Project are located in the
United States of America, the Gualcamayo Mine and the Cerro Moro Project is located in Argentina, MWS is located in South Africa,
the Hugo North Extension and Heruga projects are located in Mongolia, the Karma Project and Bomboré Project are located
in Burkina Faso, the San Andres Mine is located
in Honduras and each of the Diavik Mine, the
Ming Mine, the Black Fox Mine, Bachelor Lake Mine, Prairie Creek Project and the Bracemac-McLeod Mine are located in Canada and
as such, the Mines are exposed to various levels of political, economic and other risks and uncertainties. These risks and uncertainties
include, but are not limited to, terrorism, hostage taking, military repression, crime, political instability, currency controls,
extreme fluctuations in currency exchange rates, high rates of inflation, labour unrest, the risks of war or civil unrest, expropriation
and nationalization, renegotiation or nullification of existing concessions, licenses, permits, approvals and contracts, illegal
mining, changes in taxation policies, restrictions on foreign exchange and repatriation, and changing political conditions, and
governmental regulations. Changes, if any, in mining or investment policies or shifts in political attitude in Mexico, Brazil,
Mongolia, the United States of America, Burkina Faso, Argentina, Honduras, French Guiana or Canada may adversely affect the operations
or profitability of the Mines in these countries. Operations may be affected in varying degrees by government regulations with
respect to, but not limited to, restrictions on production, price controls, export controls, currency remittance, income taxes,
expropriation of property, foreign investment, maintenance of claims, environmental legislation, land use, land claims of local
people, water use, mine safety and the rewarding of contracts to local contractors or require foreign contractors to employ citizens
of, or purchase supplies from, a particular jurisdiction. Any changes or unfavorable assessments with respect to (i) the validity,
ownership or existence of the Entrée concessions; as well as (ii) the validity or enforceability of Entrée’s
joint venture agreement with Oyu Tolgoi LLC may adversely affect the Company’s profitability or profits realized under the
Entrée Gold Stream. The Serra Pelada royalty cash flow or profitability may be adversely impacted if the Cooperative de
Mineracao dos Garimpeiros de Serra Pelada, which hold a 25% interest in the Serra Pelada Mine, continue to take unfavorable actions.
In addition, Colossus’ Brazilian subsidiary has payables in excess of $30 million and accordingly, there is a risk that they
may be unable to repay their debts, resulting in insolvency and loss any rights to the Serra Pelada Mine. Moreover, there is no
certainty that the Karma Project will achieve its intended production and/or construction timeline, if ever. A failure to comply
strictly with applicable laws, regulations and local practices relating to mineral right applications and tenure, could result
in loss, reduction or expropriation of entitlements, or the imposition of additional local or foreign parties as joint venture
partners with carried or other interests. The occurrence of these various factors and uncertainties cannot be accurately predicted
and could have an adverse effect on the Mines.
Income Taxes
The Company has a subsidiary in Barbados, Sandstorm
Gold Bank Limited, which entered into Gold Streams in connection with the Aurizona, Karma, and Santa Elena transactions. No assurance
can be given that new taxation rules will not be enacted or that existing rules will not be applied in a manner which could result
in the Company’s past and future profits being subject to increased levels of income
tax (refer to discussion earlier). The Company’s
international transactions have not yet been reviewed by the Canada Revenue Agency, and should such transactions be reviewed no
assurances can be given that the tax matters will be resolved favorably. The Company’s Gold Streams and royalties in connection
with Chapada, Cerro Moro, Diavik, Black Fox, Ming, Hugo North Extension and Heruga, MWS, Bachelor Lake, Mt. Hamilton, Prairie Creek,
San Andres and Bracemac-McLeod transactions have been entered into directly by Canadian based subsidiaries and will therefore,
be subject to Canadian, and/or U.S. taxation, as the case may be. The Gualcamayo NSR was entered into through an Argentinian subsidiary
and therefore, may be subject to Canadian, and/or Argentinian taxation, as the case may be. The Emigrant Springs NSR was entered
into through a US subsidiary and therefore, may be subject to Canadian, and/or US taxation, as the case may be.
Gold and Silver Prices
The price of the common shares, warrants, and
the Company’s financial results may be significantly adversely affected by a decline in the price of gold and silver. The
price of gold and silver fluctuates widely, especially in recent years, and is affected by numerous factors beyond the Company’s
control, including but not limited to, the sale or purchase of gold and silver by various central banks and financial institutions,
interest rates, exchange rates, inflation or deflation, fluctuation in the value of the U.S. dollar and foreign currencies, global
and regional supply and demand, and the political and economic conditions of major gold and silver producing countries throughout
the world. In the event that the prevailing market price of gold is less than $518 per ounce in the case of the Black Fox Gold
Stream, $500 per ounce in the case of the Bachelor Lake Gold Stream, $408 per ounce in the case of the Aurizona Gold Stream, $357
or $450 per ounce in the case of the Santa Elena Gold Stream, and $220 per ounce in the case of the Hugo North Extension and Heruga
Gold Stream, the purchase price will be the then prevailing market price per ounce of gold and the Company will not generate positive
cash flow or earnings on those Gold Streams. Furthermore, if the gold or silver price drops below the cost of producing gold or
silver at the Mines, then the Mines may not produce any gold or silver. As a result, the Company will not be entitled to purchase
any gold or silver.
Diamond Prices and Demand for Diamonds
The price of the common shares, warrants, and
the Company’s financial results may be significantly adversely affected by a decline in the price and demand for diamonds.
Diamond prices fluctuate and are affected by numerous factors beyond the control of the Company, including worldwide economic trends,
worldwide levels of diamond discovery and production, and the level of demand for, and discretionary spending on, luxury goods
such as diamonds. Low or negative growth in the worldwide economy, renewed or additional credit market disruptions, natural disasters
or the occurrence of terrorist attacks or similar activities creating disruptions in economic growth could result in decreased
demand for
luxury goods such as diamonds, thereby negatively
affecting the price of diamonds. Similarly, a substantial increase in the worldwide level of diamond production or the release
of stocks held back during recent periods of lower demand could also negatively affect the price of diamonds. In each case, such
developments could have a material adverse effect on the Company’s results of operations.
Copper Prices
The price of the common shares, warrants, and
the Company’s financial results may be significantly adversely affected by a decline in the price of copper. Copper prices
fluctuate widely and are affected by numerous factors beyond the Company’s control, including global supply and demand, expectations
with respect to the rate of inflation, the exchange rates of the U.S. dollar to other currencies, interest rates, forward selling
by producers, central bank sales and purchases, production and cost levels in major producing regions, global or regional political,
economic or financial situations and a number of other factors. Furthermore, if the copper price drops below the cost of producing
copper at the Mines, then the Mines may not produce any copper. As a result, the Company will not be entitled to purchase any copper.
Solvency Risk
The price of the common shares and the Company’s
financial results may be significantly affected by the Mines operators’ ability to continue as a going concern and have access
to capital. The lack of access to capital could result in these companies entering bankruptcy proceedings and as a result, Sandstorm
may not be able to realize any value from its respective streams or royalties.
Other
Critical Accounting Estimates
The preparation of consolidated financial statements
in conformity with IFRS requires management to make estimates and assumptions that affect the reported amount of assets and liabilities
and disclosure of contingent liabilities at the date of the consolidated financial statements, and the reported amounts of revenues
and expenditures during the periods presented. Notes 2 and 4 of the Company’s 2014 annual consolidated financial statements
describes all of the significant accounting policies as well as the significant judgments and estimates.
Disclosure Controls and Procedures
Disclosure controls and
procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management,
including the Company’s Chief Executive Officer and the Chief Financial Officer, on a timely basis so that appropriate decisions
can be made regarding
public disclosure. The
Company’s system of disclosure controls and procedures includes, but is not limited to, the Disclosure Policy, the Code of
Conduct, the Stock Trading Policy, Corporate Governance, the effective functioning of the Audit Committee and procedures in place
to systematically identify matters warranting consideration of disclosure by the Audit Committee.
As at the end of the period
covered by this Management’s Discussion and Analysis, management of the Company, with the participation of Chief Executive
Officer and the Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures
as required by applicable rules of the Canadian Securities Administrators (or Canadian securities regulatory authorities). The
evaluation included documentation review, enquiries and other procedures considered by management to be appropriate in the circumstances.
Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of the end of the
period covered by this management’s discussion and analysis, the disclosure controls and procedures (as defined in Rule 13(a) – 15(e)
under the Securities Exchange Act of 1934) were effective to provide reasonable assurance that information required to be disclosed
in the Company’s interim filings and other reports filed or submitted under applicable securities laws, is recorded, processed,
summarized and reported within time periods specified by those laws and that material information is accumulated and communicated
to management of the Company, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
Management’s Report on Internal Control
Over Financial Reporting
Management of the Company
is responsible for establishing and maintaining effective internal control over financial reporting as such term is defined in
the rules of the United States Securities and Exchange Commission and the Canadian Securities Administrators. The Company’s
internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of the Company’s
financial reporting for external purposes in accordance with IFRS as issued by the IASB.
The Company’s internal
control over financial reporting includes:
| · | maintaining records, that in reasonable detail, accurately and fairly reflect our transactions and dispositions of the assets
of the Company; |
| · | providing reasonable assurance that transactions are recorded as necessary for preparation of the consolidated financial statements
in accordance with IFRS as issued by the IASB; |
| · | providing reasonable assurance that receipts and expenditures are made in accordance with authorizations of management and
the directors of the Company; and |
| · | providing reasonable assurance that unauthorized acquisition, use or disposition of Company assets
that could have a material effect on the Company’s consolidated financial statements would be prevented or detected on a
timely basis. |
The Company’s internal
control over financial reporting may not prevent or detect all misstatements because of inherent limitations. Additionally, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because changes
in conditions or deterioration in the degree of compliance with the Company’s policies and procedures.
Changes in Internal Controls
During the nine months ended September 30, 2015,
there has been no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial reporting.
Limitations of Controls and Procedures
The Company’s management, including the
Chief Executive Officer and the Chief Financial Officer, believe that any disclosure controls and procedures or internal controls
over financial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that
the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all
control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Company
have been prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty,
and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by unauthorized override of the control. The design of any systems
of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent
limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.
FORWARD LOOKING STATEMENTS
This MD&A and any exhibits attached hereto
and incorporated herein, if any, contain “forward-looking statements”, within the meaning of the U.S. Securities Act
of 1933, as amended, the U.S. Securities exchange Act of 1934, as amended, the United States Private Securities Litigation Reform
Act of 1995, and applicable Canadian and other securities legislation, concerning the business, operations and financial performance
and condition of Sandstorm. Forward-looking information is provided as of the date of this MD&A and Sandstorm does not intend,
and does not assume any obligation, to update this forward-looking information, except as required by law.
Generally, forward-looking information can be
identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”,
“is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”,
“anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases
or statements that certain actions, events or results “may”, “could”, “would”, “might”
or “will be taken”, “occur” or “be achieved”. Forward-looking information is based on reasonable
assumptions that have been made by Sandstorm as at the date of such information and is subject to known and unknown risks, uncertainties
and other factors that may cause the actual results, level of activity, performance or achievements of Sandstorm to be materially
different from those expressed or implied by such forward-looking information, including but not limited to: the impact of general
business and economic conditions; the Chapada Mine, the Cerro Moro Project, the Ming Mine, the Gualcamayo Mine, the Karma Project,
the Emigrant Springs Mine, MWS, the Hugo North Extension and Heruga deposits, the mines underlying the Sandstorm portfolio of royalties,
the Bachelor Lake Mine, the Diavik Mine, the Mt. Hamilton mine, the Prairie Creek Project, the San Andres Mine, the Bomboré
Project or the Bracemac-McLeod Mine; the absence of control over mining operations from which Sandstorm will purchase gold and
risks related to those mining operations, including risks related to international operations, government and environmental regulation,
actual results of current exploration activities, conclusions of economic evaluations and changes in project parameters as plans
continue to be refined; problems inherent to the marketability of minerals; industry conditions, including fluctuations in the
price of metals, fluctuations in foreign exchange rates and fluctuations in interest rates; government entities interpreting existing
tax legislation or enacting new tax legislation in a way which adversely affects Sandstorm; stock market volatility; competition;
as well as those factors discussed in the section entitled “Risks to Sandstorm” herein and those risks described in
the section entitled “Risk Factors” contained in Sandstorm’s most recent Annual Information Form for the year
ended December 31, 2014 available at www.sedar.com and www.sec.gov and incorporated by reference herein.
Forward-looking information in this MD&A
includes, among other things, disclosure regarding: Sandstorm’s existing 10 Gold Streams and 62 royalties as well as its
future outlook, the mineral reserve and mineral resource estimates for each of the Chapada Mine, the Cerro Moro Project, the Diavik
Mine, the Aurizona Mine, the Serra Pelada Mine, the Gualcamayo Mine, the Emigrant Springs Mine, MWS, the Santa Elena Mine, the
Ming Mine, the Black Fox Mine, the Hugo North Extension and Heruga deposits, the Karma Project, the mines underlying the Sandstorm
portfolio of royalties, the Bachelor Lake Mine, the Mt. Hamilton Mine, the Prairie Creek Project, the San Andres Mine, the Bomboré
Project and the Bracemac-McLeod Mine. Forward-looking information is based on assumptions management believes to be reasonable,
including but not limited to the continued operation of the mining operations from which Sandstorm will purchase gold, no material
adverse change in the market price of commodities, that the mining operations will operate in accordance with their public statements
and achieve their stated production outcomes, and such other assumptions and factors as set out therein.
Although Sandstorm has attempted to identify
important factors that could cause actual actions, events or results to differ materially from those contained in forward-looking
information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended.
There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially
from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information.
SANDSTORM GOLD LTD.
CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS (unaudited)
Q3 / 2015
CONDENSED CONSOLIDATED
INTERIM STATEMENTS OF FINANCIAL POSITION (unaudited)
Expressed in U.S. dollars ($000s)
| ASSETS | |
Note | |
September 30, 2015 | | |
December 31, 2014 | |
| Current | |
| |
| | | |
| | |
| Cash and cash equivalents | |
| |
$ | 46,508 | | |
$ | 90,224 | |
| Trade receivables and other | |
| |
| 3,862 | | |
| 2,746 | |
| | |
| |
$ | 50,370 | | |
$ | 92,970 | |
| Non-current | |
| |
| | | |
| | |
| Mineral interests and royalties | |
5 | |
$ | 279,333 | | |
$ | 261,882 | |
| Investments | |
6 | |
| 34,825 | | |
| 23,989 | |
| Deferred financing costs | |
| |
| 1,959 | | |
| 2,138 | |
| Loan receivable | |
5 | |
| 24,196 | | |
| 21,155 | |
| Deferred income tax assets | |
| |
| 16,142 | | |
| 27,600 | |
| Receivables and other | |
| |
| 1,345 | | |
| 1,336 | |
| Total assets | |
| |
$ | 408,170 | | |
$ | 431,070 | |
| | |
| |
| | | |
| | |
| LIABILITIES | |
| |
| | | |
| | |
| Current | |
| |
| | | |
| | |
| Trade and other payables | |
| |
$ | 3,869 | | |
$ | 3,631 | |
| Non-current | |
| |
| | | |
| | |
| Deferred income tax liabilities | |
| |
| 4,768 | | |
| 5,892 | |
| | |
| |
$ | 8,637 | | |
$ | 9,523 | |
| | |
| |
| | | |
| | |
| EQUITY | |
| |
| | | |
| | |
| Share capital | |
7 | |
$ | 459,631 | | |
$ | 456,670 | |
| Reserves | |
7 | |
| 23,327 | | |
| 21,132 | |
| Deficit | |
| |
| (35,967 | ) | |
| (17,870 | ) |
| Accumulated other comprehensive loss | |
| |
| (47,458 | ) | |
| (38,385 | ) |
| | |
| |
$ | 399,533 | | |
$ | 421,547 | |
| Total liabilities and equity | |
| |
$ | 408,170 | | |
$ | 431,070 | |
Contractual
obligations (Note 12)
Subsequent
events (Note 14)
ON BEHALF OF THE BOARD:
| “Nolan Watson”, Director |
“David DeWitt”, Director |
- The accompanying notes
are an integral part of these condensed consolidated interim financial statements -
condensed CONSOLIDATED
interim STATEMENTS OF (loss) INCOME (unaudited)
Expressed in U.S. dollars ($000s)
| | |
Note | |
3 Months Ended
Sep. 30, 2015 | | |
3 Months Ended
Sep. 30, 2014 | | |
9 Months Ended
Sep. 30, 2015 | | |
9 Months Ended
Sep. 30, 2014 | |
| Sales | |
13 | |
$ | 9,055 | | |
$ | 11,571 | | |
$ | 31,981 | | |
$ | 34,227 | |
| Royalty revenue | |
13 | |
| 3,031 | | |
| 3,988 | | |
| 10,819 | | |
| 9,779 | |
| | |
| |
$ | 12,086 | | |
$ | 15,559 | | |
$ | 42,800 | | |
$ | 44,006 | |
| | |
| |
| | | |
| | | |
| | | |
| | |
| Cost of sales, excluding depletion | |
| |
$ | 3,321 | | |
$ | 3,780 | | |
$ | 11,257 | | |
$ | 11,171 | |
| Depletion | |
| |
| 8,056 | | |
| 8,209 | | |
| 27,075 | | |
| 21,013 | |
| Total cost of sales | |
| |
$ | 11,377 | | |
$ | 11,989 | | |
$ | 38,332 | | |
$ | 32,184 | |
| | |
| |
| | | |
| | | |
| | | |
| | |
| Gross Profit | |
| |
$ | 709 | | |
$ | 3,570 | | |
$ | 4,468 | | |
$ | 11,822 | |
| | |
| |
| | | |
| | | |
| | | |
| | |
| Expenses and other (income) | |
| |
| | | |
| | | |
| | | |
| | |
| · Administration
expenses 1 | |
9 | |
$ | 1,940 | | |
$ | 2,052 | | |
$ | 6,119 | | |
$ | 5,416 | |
| · Project
evaluation | |
| |
| 247 | | |
| 49 | | |
| 998 | | |
| 366 | |
| · Foreign
exchange loss (gain) | |
| |
| 306 | | |
| (1,096 | ) | |
| (1,666 | ) | |
| (1,099 | ) |
| · Loss
on revaluation of investments | |
6 | |
| 4,437 | | |
| 343 | | |
| 6,000 | | |
| 289 | |
| · Finance
income | |
| |
| (855 | ) | |
| (371 | ) | |
| (1,125 | ) | |
| (1,506 | ) |
| · Finance
expenses | |
| |
| 305 | | |
| 340 | | |
| 923 | | |
| 997 | |
| · Gain
on restructuring of mineral interest, bargain purchase and other | |
| |
| (523 | ) | |
| - | | |
| (4,966 | ) | |
| (2,565 | ) |
| · Mineral
interest impairments | |
5(b) | |
| - | | |
| - | | |
| 3,323 | | |
| 1,215 | |
| (Loss) income before taxes | |
| |
$ | (5,148 | ) | |
$ | 2,253 | | |
$ | (5,138 | ) | |
$ | 8,709 | |
| | |
| |
| | | |
| | | |
| | | |
| | |
| Current income tax expense | |
8 | |
$ | - | | |
$ | 91 | | |
$ | 814 | | |
$ | 865 | |
| Deferred income tax expense (recovery) | |
8 | |
| 322 | | |
| 86 | | |
| 12,145 | | |
| (1,063 | ) |
| | |
| |
| 322 | | |
| 177 | | |
| 12,959 | | |
| (198 | ) |
| Net (loss) income for the period | |
| |
$ | (5,470 | ) | |
$ | 2,076 | | |
$ | (18,097 | ) | |
$ | 8,907 | |
| | |
| |
| | | |
| | | |
| | | |
| | |
| Basic (loss) earnings per share | |
| |
$ | (0.05 | ) | |
$ | 0.02 | | |
$ | (0.15 | ) | |
$ | 0.08 | |
| Diluted (loss) earnings per share | |
| |
$ | (0.05 | ) | |
$ | 0.02 | | |
$ | (0.15 | ) | |
$ | 0.07 | |
| | |
| |
| | | |
| | | |
| | | |
| | |
| Weighted average number of common shares outstanding | |
| |
| | | |
| | | |
| | | |
| | |
| · Basic | |
7(e) | |
| 118,218,267 | | |
| 117,573,079 | | |
| 117,922,428 | | |
| 111,169,043 | |
| · Diluted | |
7(e) | |
| 118,218,267 | | |
| 118,998,596 | | |
| 117,922,428 | | |
| 119,825,223 | |
| 1 Equity
settled stock based compensation (a non-cash item) is included in administration expenses | |
| |
$ | 548 | | |
$ | 488 | | |
$ | 1,810 | | |
$ | 1,337 | |
- The accompanying notes
are an integral part of these condensed consolidated interim financial statements -
condensed CONSOLIDATED
interim STATEMENTS OF COMPREHENSIVE (Loss) INCOME (unaudited)
Expressed in U.S. dollars ($000s)
| | |
Note | |
3 Months Ended
Sep. 30, 2015 | | |
3 Months Ended
Sep. 30, 2014 | | |
9 Months Ended
Sep. 30, 2015 | | |
9 Months Ended
Sep. 30, 2014 | |
| Net (loss) income for the period | |
| |
$ | (5,470 | ) | |
$ | 2,076 | | |
$ | (18,097 | ) | |
$ | 8,907 | |
| | |
| |
| | | |
| | | |
| | | |
| | |
| Other comprehensive loss for the period | |
| |
| | | |
| | | |
| | | |
| | |
Items that may subsequently be re-classified
to net income (loss): | |
| |
| | | |
| | | |
| | | |
| | |
| · Currency
translation differences | |
| |
$ | (564 | ) | |
$ | (3,302 | ) | |
$ | (5,169 | ) | |
$ | (4,311 | ) |
Items that will not subsequently be re-classified
to net income (loss): | |
| |
| | | |
| | | |
| | | |
| | |
| · Unrealized
loss on investments | |
| |
| (1,256 | ) | |
| (9,585 | ) | |
| (3,904 | ) | |
| (7,718 | ) |
| · Total
other comprehensive loss for the period | |
| |
$ | (1,820 | ) | |
$ | (12,887 | ) | |
$ | (9,073 | ) | |
$ | (12,029 | ) |
| Total comprehensive loss for the period | |
| |
$ | (7,290 | ) | |
$ | (10,811 | ) | |
$ | (27,170 | ) | |
$ | (3,122 | ) |
- The accompanying notes
are an integral part of these condensed consolidated interim financial statements -
condensed CONSOLIDATED
interim STATEMENTS OF CASH FLOWS (unaudited)
Expressed in U.S. dollars ($000s)
| Cash flow from (used in): | |
Note | |
3 Months Ended
Sep. 30, 2015 | | |
3 Months Ended
Sep. 30, 2014 | | |
9 Months Ended
Sep. 30, 2015 | | |
9 Months Ended
Sep. 30, 2014 | |
| Operating activities | |
| |
| | | |
| | | |
| | | |
| | |
| · Net
(loss) income for the period | |
| |
$ | (5,470 | ) | |
$ | 2,076 | | |
$ | (18,097 | ) | |
$ | 8,907 | |
| Items not affecting cash: | |
| |
| | | |
| | | |
| | | |
| | |
| · Mineral
interest impairments | |
5(b) | |
| | | |
| - | | |
| 3,323 | | |
| 1,215 | |
| · Depletion
and depreciation and financing amortization | |
| |
| 8,220 | | |
| 8,574 | | |
| 27,562 | | |
| 21,489 | |
| · Deferred
income tax (recovery) expense | |
8 | |
| 112 | | |
| (176 | ) | |
| 12,092 | | |
| (1,115 | ) |
| · Share-based
payment | |
| |
| 548 | | |
| 488 | | |
| 1,810 | | |
| 1,337 | |
| · Loss
on revaluation of investments | |
| |
| 4,437 | | |
| 328 | | |
| 6,000 | | |
| 289 | |
| · Unrealized
foreign exchange loss (gain) | |
| |
| 216 | | |
| (1,164 | ) | |
| (1,602 | ) | |
| (1,220 | ) |
| · Interest
on loan receivable and other | |
| |
| (298 | ) | |
| - | | |
| (298 | ) | |
| (853 | ) |
| · Gain
on restructuring of mineral interest, bargain purchase and other | |
5(b) | |
| (564 | ) | |
| - | | |
| (5,052 | ) | |
| (2,565 | ) |
| · Changes
in non-cash working capital | |
10 | |
| 1,033 | | |
| (164 | ) | |
| 93 | | |
| (1,110 | ) |
| | |
| |
$ | 8,234 | | |
$ | 9,962 | | |
$ | 25,831 | | |
$ | 26,374 | |
| Investing activities | |
| |
| | | |
| | | |
| | | |
| | |
| · Acquisition
of mineral interests and royalties | |
5 | |
$ | (3,552 | ) | |
$ | (9,740 | ) | |
$ | (64,135 | ) | |
$ | (21,186 | ) |
| · Acquisition
of investments and other assets | |
5 (b), 6 | |
| (8,592 | ) | |
| (18,176 | ) | |
| (12,180 | ) | |
| (25,575 | ) |
| · Proceeds
from disposition of investments and other assets | |
| |
| 1,710 | | |
| - | | |
| 10,968 | | |
| - | |
| · Acquisition
of Sandstorm Metals & Energy Ltd., net of cash acquired of $4.1M | |
| |
| - | | |
| - | | |
| - | | |
| (6,242 | ) |
| · Acquisition
of Gold Royalties Corp., net of cash acquired of $1.3M | |
4 | |
| - | | |
| - | | |
| 1,288 | | |
| - | |
| · Loan
issuance | |
| |
| (2,243 | ) | |
| - | | |
| (2,743 | ) | |
| (12,893 | ) |
| | |
| |
$ | (12,677 | ) | |
$ | (27,916 | ) | |
$ | (66,802 | ) | |
$ | (65,896 | ) |
| Financing activities | |
| |
| | | |
| | | |
| | | |
| | |
| · Proceeds
on exercise of warrants and options | |
7 | |
$ | 133 | | |
$ | 479 | | |
$ | 298 | | |
$ | 34,937 | |
| · Share
issue and deferred financing costs | |
| |
| (131 | ) | |
| (910 | ) | |
| (149 | ) | |
| (1,000 | ) |
| · Redemption
of common shares (normal course issuer bid) | |
7 | |
| (86 | ) | |
| (1,164 | ) | |
| (1,708 | ) | |
| (1,164 | ) |
| | |
| |
$ | (84 | ) | |
$ | (1,595 | ) | |
$ | (1,559 | ) | |
$ | 32,773 | |
| | |
| |
| | | |
| | | |
| | | |
| | |
| Effect of exchange rate changes on cash and cash equivalents | |
| |
$ | (563 | ) | |
$ | (707 | ) | |
$ | (1,186 | ) | |
$ | (1,056 | ) |
| Net decrease in cash and cash equivalents | |
| |
| (5,090 | ) | |
| (20,256 | ) | |
| (43,716 | ) | |
| (7,805 | ) |
| Cash and cash equivalents – beginning of the period | |
| |
| 51,598 | | |
| 111,387 | | |
| 90,224 | | |
| 98,936 | |
| Cash and cash equivalents – end of the period | |
| |
$ | 46,508 | | |
$ | 91,131 | | |
$ | 46,508 | | |
$ | 91,131 | |
| | |
| |
| | | |
| | | |
| | | |
| | |
| Cash and cash equivalents, at the end of the period | |
| |
| | | |
| | | |
| | | |
| | |
| Cash at bank | |
| |
$ | 30,199 | | |
$ | 25,404 | | |
$ | 30,199 | | |
$ | 25,404 | |
| Short-term deposit | |
| |
$ | 16,309 | | |
$ | 65,727 | | |
$ | 16,309 | | |
$ | 65,727 | |
Supplemental
cash flow information (note 10)
- The accompanying notes
are an integral part of these condensed consolidated interim financial statements -
condensed CONSOLIDATED
interim STATEMENTS OF CHANGES IN EQUITY (unaudited)
Expressed in U.S. dollars ($000s)
| | |
| |
Share Capital | | |
Reserves | | |
| | |
| | |
| |
| | |
Note | |
Number | | |
Amount | | |
Share
Options | | |
Share
Purchase
Warrants | | |
Retained
Earnings (Deficit) | | |
Accumulated Other
Comprehensive
Income (Loss) | | |
Total | |
| At January 1, 2014 | |
| |
| 100,028,138 | | |
$ | 383,082 | | |
$ | 8,083 | | |
$ | 20,105 | | |
$ | (29,385 | ) | |
$ | (11,749 | ) | |
$ | 370,136 | |
| Shares issued on exercise of warrants | |
7 (c) | |
| 11,041,020 | | |
| 41,013 | | |
| - | | |
| (7,796 | ) | |
| - | | |
| - | | |
| 33,217 | |
| Options exercised | |
7 (b) | |
| 862,000 | | |
| 2,291 | | |
| (570 | ) | |
| - | | |
| - | | |
| - | | |
| 1,721 | |
| Vesting of restricted stock rights | |
| |
| 28,213 | | |
| 328 | | |
| (328 | ) | |
| - | | |
| - | | |
| - | | |
| - | |
| Share issue costs | |
| |
| - | | |
| (27 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| (27 | ) |
| Share based payment | |
| |
| - | | |
| - | | |
| 1,337 | | |
| - | | |
| - | | |
| - | | |
| 1,337 | |
| Expiration of unexercised warrants | |
| |
| - | | |
| 192 | | |
| - | | |
| (192 | ) | |
| - | | |
| - | | |
| - | |
| Shares issued on acquisition of Sandstorm Metals & Energy Ltd. | |
| |
| 5,698,216 | | |
| 30,078 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 30,078 | |
| Issuance of replacement equity awards | |
| |
| - | | |
| - | | |
| 129 | | |
| - | | |
| - | | |
| - | | |
| 129 | |
| Net income for the period | |
| |
| - | | |
| - | | |
| - | | |
| - | | |
| 8,907 | | |
| - | | |
| 8,907 | |
| Other comprehensive loss | |
| |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (12,029 | ) | |
| (12,029 | ) |
| At September 30, 2014 | |
| |
| 117,657,587 | | |
$ | 456,957 | | |
$ | 8,651 | | |
$ | 12,117 | | |
$ | (20,478 | ) | |
$ | (23,778 | ) | |
$ | 433,469 | |
| Vesting of restricted stock rights | |
| |
| 42,685 | | |
| 395 | | |
| (395 | ) | |
| - | | |
| - | | |
| - | | |
| - | |
| Redemption of common shares (normal course issuer bid) | |
7 (a) | |
| (222,090 | ) | |
| (682 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| (682 | ) |
| Share based payment | |
| |
| - | | |
| - | | |
| 759 | | |
| - | | |
| - | | |
| - | | |
| 759 | |
| Net income for the period | |
| |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,608 | | |
| - | | |
| 2,608 | |
| Other comprehensive loss | |
| |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (14,607 | ) | |
| (14,607 | ) |
| At December 31, 2014 | |
| |
| 117,478,182 | | |
$ | 456,670 | | |
$ | 9,015 | | |
$ | 12,117 | | |
$ | (17,870 | ) | |
$ | (38,385 | ) | |
$ | 421,547 | |
| Options exercised | |
7 (b) | |
| 90,000 | | |
| 397 | | |
| (99 | ) | |
| - | | |
| - | | |
| - | | |
| 298 | |
| Vesting of restricted stock rights | |
| |
| 8,879 | | |
| 99 | | |
| (99 | ) | |
| - | | |
| - | | |
| - | | |
| - | |
| Redemption of common shares (normal course issuer bid) | |
7 (a) | |
| (518,123 | ) | |
| (1,708 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,708 | ) |
| Issuance of warrants | |
7 (c) | |
| - | | |
| - | | |
| - | | |
| 583 | | |
| - | | |
| - | | |
| 583 | |
| Share issuance costs | |
| |
| - | | |
| (108 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| (108 | ) |
| Shares issued on acquisition of Gold Royalties Corporation | |
(4) | |
| 1,161,720 | | |
| 4,281 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 4,281 | |
| Share based payment | |
| |
| - | | |
| - | | |
| 1,810 | | |
| - | | |
| - | | |
| - | | |
| 1,810 | |
| Net loss for the period | |
| |
| - | | |
| - | | |
| - | | |
| - | | |
| (18,097 | ) | |
| - | | |
| (18,097 | ) |
| Other comprehensive loss | |
| |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (9,073 | ) | |
| (9,073 | ) |
| At September 30, 2015 | |
| |
| 118,220,658 | | |
$ | 459,631 | | |
$ | 10,627 | | |
$ | 12,700 | | |
$ | (35,967 | ) | |
$ | (47,458 | ) | |
$ | 399,533 | |
- The accompanying notes
are an integral part of these condensed consolidated interim financial statements -
Notes to the Condensed Consolidated
Interim Financial Statements (unaudited)
September 30, 2015
Expressed in U.S. dollars
Sandstorm Gold Ltd. was incorporated
under the Business Corporations Act of British Columbia on March 23, 2007. Sandstorm Gold Ltd. and its subsidiary entities ("Sandstorm"
or the "Company") is a resource-based company that seeks to acquire gold and other precious metal purchase agreements
(“Gold Streams” or “Silver Streams”) and royalties from companies that have advanced stage development
projects or operating mines. In return for making an upfront payment to acquire a Gold Stream, Sandstorm receives the right to
purchase, at a fixed price per unit, a percentage of a mine’s production for the life of the mine.
The head office, principal address
and registered office of the Company are located at Suite 1400, 400 Burrard Street, Vancouver, British Columbia, V6C 3A6.
These condensed consolidated interim
financial statements were authorized for issue by the Board of Directors of the Company on November 12, 2015.
| 2. | Summary of Significant Accounting Policies |
| A. | Statement of Compliance |
These condensed consolidated interim
financial statements, including comparatives, have been prepared in accordance with International Accounting Standards (“IAS”)
34 Interim Financial Reporting using accounting policies in accordance with International Financial Reporting Standards as issued
by the International Accounting Standards Board (“IFRS”). These condensed consolidated interim financial statements
have been prepared on the basis of accounting policies and methods of computation consistent with those applied in the Company’s
annual December 31, 2014 consolidated financial statements.
These condensed consolidated interim
financial statements have been prepared on a historical cost basis except for certain financial instruments which are measured
at fair value.
These condensed consolidated interim
financial statements are presented in United States dollars, and all values are rounded to the nearest thousand except as otherwise
indicated.
The fair value hierarchy establishes
three levels to classify the inputs of valuation techniques used to measure fair value. The three levels of the fair value hierarchy
are described below:
Level 1 | Unadjusted
quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Investments in common shares and warrants held that have direct listings on an exchange are classified as Level 1.
Level 2 | Quoted
prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, or inputs that are observable,
either directly or indirectly, for substantially the full term of the asset or liabilities. Investments in warrants and convertible
debt instruments held that are not listed on an exchange are classified as Level 2.
Level 3 | Prices
or valuation techniques that require inputs that are both significant to fair value measurement and unobservable (supported by
little or no market activity).
The following table sets forth the
Company's financial assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy
as at September 30, 2015. As required by IFRS 13, assets and liabilities are classified in their entirety based on the lowest level
of input that is significant to the fair value measurement.
| In $000s | |
Total | | |
Quoted prices in
active markets for
identical assets
(Level1) | | |
Significant other
observable inputs
(Level 2) | | |
Unobservable inputs
(Level 3) | |
Long-term investments
– common shares held | |
$ | 17,860 | | |
$ | 17,860 | | |
$ | - | | |
$ | - | |
Long-term investments
– warrants debt | |
| 70 | | |
| - | | |
| 70 | | |
| - | |
Long-term investments
– convertible debt | |
| 16,895 | | |
| - | | |
| 16,895 | | |
| - | |
| | |
$ | 34,825 | | |
$ | 17,860 | | |
$ | 16,965 | | |
$ | - | |
The fair value of the Company's other
financial instruments which include cash and cash equivalents, trade receivables and other, loans receivable, receivables and other
and trade and other payables approximate their carrying values at September 30, 2015.
The Company’s credit risk is
limited to cash and cash equivalents, trade receivables and other, loans receivable, and receivables and other in the ordinary
course of business. The Company sells gold exclusively to large corporations with strong credit ratings. The Company’s trade
receivables and other is subject to the credit risk of the counterparties who own and operate the mines underlying Sandstorm’s
royalty portfolio. The Company’s loan receivable and convertible debenture due from Luna are subject to Luna’s credit
risk and the Company’s ability to realize on its security.
Financial instruments that impact
the Company’s net (loss) income or other comprehensive (loss) income due to currency fluctuations include: cash and cash
equivalents, trade receivables and other, investments and trade and other payables denominated in Canadian dollars. Based on the
Company's Canadian dollar denominated monetary assets and monetary liabilities at September 30, 2015, a 10% increase (decrease)
of the value of the Canadian dollar relative to the United States dollar would (decrease) increase net (loss) income by $0.3 million
and other comprehensive (loss) income by $1.8 million, respectively.
On April 28, 2015, the Company closed
its previously announced plan of arrangement pursuant to which Sandstorm Gold acquired all of the issued and outstanding shares
(the “Gold Royalties Shares”) of Gold Royalties Corporation (“Gold Royalties”). The transaction was implemented
by way of a statutory plan of arrangement (the “Arrangement”). Upon completion of the Arrangement, Sandstorm Gold issued
to each holder of a Gold Royalties Share 0.045 of a common share of Sandstorm Gold.
As a result of acquiring Gold Royalties,
Sandstorm has added a number of Canadian royalty assets to its portfolio along with over $1.0 million in cash.
In accordance with IFRS 3 –
Business Combinations, the total consideration of $4.8 million, consisting of (i) $4.3 million representing the value of the Sandstorm
Gold common shares issued (based on the April 28, 2015 closing price) and (ii) $0.5 million of Gold Royalties Shares previously
owned by Sandstorm Gold, was allocated to the identifiable assets acquired and liabilities assumed as follows:
| Consideration: | |
In 000s | |
| Sandstorm Shares issued (1,161,720 common shares) | |
$ | 4,281 | |
| Gold Royalties Shares owned by Sandstorm Gold | |
| 472 | |
| | |
$ | 4,753 | |
| Allocation of acquisition costs: | |
| |
| Cash and cash equivalents | |
$ | 1,288 | |
| Trade receivables and other | |
| 107 | |
| Mineral interests and royalties | |
| 1,852 | |
| Deferred income tax assets | |
| 1,592 | |
| Trade and other payables | |
| (86 | ) |
| | |
$ | 4,753 | |
Sandstorm Gold has estimated the
fair value of the assets acquired to be equal to their carrying value except for the mineral interests and royalties which were
estimated to have a fair value of $1.9 million and deferred tax assets of $1.6 million, respectively. An income approach (being
the net present value of expected future cash flows) was used to determine the fair values of the mineral interests and royalties.
Estimates of future cash flows are based on estimated future revenues and expected conversions of resources to reserves at each
of the mineral properties.
The allocation of the purchase price
is based on preliminary estimates and has not been finalized. The Company is currently in the process of determining the fair values
of identifiable assets acquired and liabilities assumed, measuring the associated deferred income tax assets and liabilities and
potential goodwill. The actual fair values of the assets and liabilities may differ materially from the amounts disclosed in the
preliminary purchase price allocation and are subject to change.
Had the acquisition of Gold Royalties
been effected on January 1, 2015, the consolidated revenue and net loss for the nine month period ended September 30, 2015 would
have been $42.9 million and $18.1 million, respectively. The Company considers these “pro-forma” numbers to represent
an approximate measure of the performance of the combined group up to the period end date and to provide a reference point for
comparison to future periods.
| 5. | Mineral Interests and Royalties |
As of and for the nine months ended
September 30, 2015:
| | |
Cost | | |
Accumulated Depletion | | |
| |
| In $000s | |
Opening | | |
Additions | | |
Foreign
exchange
translation | | |
Ending | | |
Opening | | |
Depletion | | |
Impairment | | |
Disposals | | |
Ending | | |
Carrying
Amount | |
| Aurizona, Brazil | |
| 27,358 | | |
| (16,358 | ) | |
| - | | |
| 11,000 | | |
| 5,756 | | |
| 1,013 | | |
| - | | |
| (6,518 | ) | |
| 251 | | |
| 10,749 | |
| Bachelor Lake, Canada | |
| 22,671 | | |
| - | | |
| - | | |
| 22,671 | | |
| 10,458 | | |
| 3,398 | | |
| - | | |
| - | | |
| 13,856 | | |
| 8,815 | |
| Black Fox, Canada | |
| 37,758 | | |
| - | | |
| - | | |
| 37,758 | | |
| 17,836 | | |
| 3,374 | | |
| - | | |
| - | | |
| 21,210 | | |
| 16,548 | |
| Diavik Mine, Canada | |
| - | | |
| 53,111 | | |
| - | | |
| 53,111 | | |
| - | | |
| 4,465 | | |
| - | | |
| - | | |
| 4,465 | | |
| 48,646 | |
| Hugo North Extension and Heruga, Mongolia | |
| 42,493 | | |
| - | | |
| - | | |
| 42,493 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 42,493 | |
| Karma Gold Project, Burkina Faso | |
| 14,456 | | |
| 3,478 | | |
| - | | |
| 17,934 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 17,934 | |
| Ming, Canada | |
| 20,068 | | |
| - | | |
| - | | |
| 20,068 | | |
| 5,628 | | |
| 1,245 | | |
| - | | |
| - | | |
| 6,873 | | |
| 13,195 | |
| Santa Elena, Mexico | |
| 23,342 | | |
| - | | |
| - | | |
| 23,342 | | |
| 11,087 | | |
| 4,801 | | |
| - | | |
| - | | |
| 15,888 | | |
| 7,454 | |
| Royalties 1 | |
| 189,970 | | |
| 5,984 | | |
| (2,602 | ) | |
| 193,352 | | |
| 76,907 | | |
| 8,652 | | |
| - | | |
| - | | |
| 85,559 | | |
| 107,793 | |
| Other 2 | |
| 12,393 | | |
| (2,282 | ) | |
| - | | |
| 10,111 | | |
| 955 | | |
| 127 | | |
| 3,323 | | |
| - | | |
| 4,405 | | |
| 5,706 | |
| Total
3 | |
| 390,509 | | |
| 43,933 | | |
| (2,602 | ) | |
| 431,840 | | |
| 128,627 | | |
| 27,075 | | |
| 3,323 | | |
| (6,518 | ) | |
| 152,507 | | |
| 279,333 | |
| 1) | Includes Bracemac-McLeod, Coringa, Mt. Hamilton, Paul Isnard, Prairie Creek, Ann Mason, Serra Pelada,
Gualcamayo, Emigrant Springs, Mine Waste Solutions, San Andres, Sao Francisco, Sao Vicente, Thunder Creek, Bomboré, and
the Gold Royalties royalty portfolio. |
| 2) | Includes Summit and other. |
| 3) | Total mineral interest and royalties includes $116.2 million of assets located in Canada, $42.5
million in Mongolia, $28.8 million in Brazil, $27.9 million in the United States, $21.1 million in Burkina Faso, $7.5 million in
Mexico, $9.3 million in South Africa, $5.1 million in French Guiana, $3.1 million in Honduras, $1.0 million in Ghana, and $16.8
million in South America. |
As of and for the year ended December
31, 2014:
| | |
Cost | | |
Accumulated Depletion | | |
| |
| In $000s | |
Opening | | |
Additions | | |
Foreign
exchange
translation | | |
Ending | | |
Opening | | |
Depletion | | |
Impairment | | |
Inventory
Depletion
Adjustment | | |
Ending | | |
Carrying
Amount | |
| Aurizona, Brazil | |
| 25,820 | | |
| 1,538 | | |
| - | | |
| 27,358 | | |
| 4,293 | | |
| 1,463 | | |
| - | | |
| - | | |
| 5,756 | | |
| 21,602 | |
| Bachelor Lake, Canada | |
| 22,671 | | |
| - | | |
| - | | |
| 22,671 | | |
| 4,917 | | |
| 5,541 | | |
| - | | |
| - | | |
| 10,458 | | |
| 12,213 | |
| Black Fox, Canada | |
| 37,758 | | |
| - | | |
| - | | |
| 37,758 | | |
| 13,916 | | |
| 3,920 | | |
| - | | |
| - | | |
| 17,836 | | |
| 19,922 | |
| Hugo North Extension and Heruga, Mongolia | |
| 37,580 | | |
| 4,913 | | |
| - | | |
| 42,493 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 42,493 | |
| Karma Gold Project, Burkina Faso | |
| - | | |
| 14,456 | | |
| - | | |
| 14,456 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 14,456 | |
| Ming, Canada | |
| 20,068 | | |
| - | | |
| - | | |
| 20,068 | | |
| 4,017 | | |
| 1,611 | | |
| - | | |
| - | | |
| 5,628 | | |
| 14,440 | |
| Santa Elena, Mexico | |
| 13,342 | | |
| 10,000 | | |
| - | | |
| 23,342 | | |
| 7,731 | | |
| 3,356 | | |
| - | | |
| - | | |
| 11,087 | | |
| 12,255 | |
| Royalties 1 | |
| 169,855 | | |
| 23,505 | | |
| (3,390 | ) | |
| 189,970 | | |
| 63,885 | | |
| 11,807 | | |
| 1,215 | | |
| - | | |
| 76,907 | | |
| 113,063 | |
| Other 2 | |
| 10,345 | | |
| 2,048 | | |
| - | | |
| 12,393 | | |
| 740 | | |
| 215 | | |
| - | | |
| - | | |
| 955 | | |
| 11,438 | |
| Total
3 | |
| 337,439 | | |
| 56,460 | | |
| (3,390 | ) | |
| 390,509 | | |
| 99,499 | | |
| 27,913 | | |
| 1,215 | | |
| - | | |
| 128,627 | | |
| 261,882 | |
| 1) | Includes Bracemac-McLeod, Coringa, Mt. Hamilton, Paul Isnard, Prairie Creek, Ann Mason, Serra Pelada,
Gualcamayo, Emigrant Springs, Mine Waste Solutions, San Andres, San Francisco, Sao Vicente, Thunder Creek, and Bomboré. |
| 2) | Includes Deflector, Summit and other. |
| 3) | Total mineral interest and royalties includes $77.4 million of assets located in Canada, $42.5
million in Mongolia, $39.6 million in Brazil, $33.3 million in the United States, $14.5 million in Burkina Faso, $12.3 million
in Mexico, $10.4 million in South Africa, $6.3 million in Australia, $5.1 million in French Guiana, $4.3 million in Honduras, $0.4
million in Ghana, and $15.8 million in South America. |
| B. | Acquisitions and Update |
ACQUISITION | Diavik
Royalty
In March 2015, the Company acquired
a 1% gross proceeds royalty based on the production from the Diavik mine located in Lac de Gras, Northwest Territories, Canada
(“Diavik” or the “Diavik Mine”) which is operated by Rio Tinto PLC (“Rio Tinto”).
For consideration, the Company paid
$52.5 million in cash and 3 million warrants of Sandstorm to IAMGOLD Corporation (the owner of the 1% royalty). The warrants have
a 5 year term, a strike price of $4.50 per Sandstorm common share and will be exercisable following initial production from the
Diavik Mine’s A21 pipe.
In assessing the fair value of the
warrants, a probability weighted approach was used that incorporated a number of factors including the timing of production from
the A21 pipe. As part of this assessment, the values of the warrants in the various scenarios was determined using the Black-Scholes
model and utilized the following assumptions: grant date share price of $3.31, exercise price of $4.50, expected volatility of
30%, risk free interest rate of 0.49% and expected life of 5 years. The Company also utilized a discounted cash flow analysis using
a 7% discount rate and analyst price projections. Both analyses resulted in a fair value of a $0.6 million for the warrants.
ACQUISITION | Bomboré
Royalty
On January 27, 2015, the Company
acquired a 0.45% NSR on the Bomboré gold project (“Bomboré” or “Bomboré Project”)
located in Burkina Faso, West Africa and owned by Orezone Gold Corp. (“Orezone”) for consideration of $3.0 million
(“Upfront Royalty”). In addition, Sandstorm has committed to providing up to an additional $5.0 million in royalty
financing (remittable in cash and/or shares, subject to certain conditions) to Orezone on a drawdown basis until January 27, 2017
(the “Standby Royalty”). The Standby Royalty, if fully exercised, would result in the granting of an additional 0.75%
NSR. Orezone has granted Sandstorm a right of first refusal on any future stream or royalty financings related to the Bomboré
Project until 36 months following the achievement of commercial production at the mine. Orezone has the option to repurchase the
Upfront Royalty from Sandstorm for a period of 36 months, at a premium of 10% per year. The Standby Royalty can also be repurchased
at a premium of 10% per year if Orezone completes a gold stream financing and Sandstorm participates for no less than $30 million.
UPDATE | Aurizona
Mine
The Company has a 3% – 5%
sliding scale NSR on the production from Luna Gold Corp.’s (“Luna”) open-pit Aurizona mine, located in Brazil
(the “Aurizona Mine”). At gold prices less than or equal to $1,500 per ounce, the royalty is a 3% NSR. In addition,
Sandstorm holds a 2% NSR on Luna’s 200,000 hectares of greenfields exploration ground. At any time prior to the commencement
of commercial production, Luna has the ability to purchase one-half of the greenfields NSR for a cash payment of $10 million.
On June 30, 2015, the Company restructured
its previously existing Gold Stream and loan agreement with Luna (the “Restructuring”). Under the terms of the Restructuring,
the Gold Stream was terminated and replaced by two net smelter return royalties (“NSR”) and a convertible debenture.
The convertible debenture is a $30
million instrument bearing interest at a rate of 5% per annum (the “Debenture”). The Debenture is payable in three
equal annual tranches of $10 million plus accrued interest beginning June 30, 2018. Luna will have the right to convert principal
and interest owing under the Debenture into common shares of Luna, so long as Sandstorm does not own more than 20% of the outstanding
common shares of Luna. The quantum of shares upon conversion will be dependent on a 20 day volume weighted average price (“VWAP”)
and if the VWAP is less than C$0.10 per share, the shares will be deemed to have been issued at C$0.10 per share.
Under the loan amendment, the maturity
date of the existing $20 million Luna loan was extended from June 30, 2017 to June 30, 2021 and the interest rate was revised to
5% per annum, payable in cash on the maturity date. In the event that Luna is in default, the applicable rate of interest will
increase to 10% per annum. The fair value of the loan was determined by utilizing a cash flow model incorporating the contractual
cash flows and a 7% discount rate.
Under the terms of the Restructuring,
Sandstorm continued to purchase 17% of the gold that resulted from the processing of the remaining stockpile from the Aurizona
Mine for a per ounce cash payment equal to the lesser of $408 and the then prevailing market price of gold.
The fair value of the two NSRs was
determined using a discounted cash flow model to estimate the fair value less costs to sell. Key assumptions incorporated into
the cash flow model included the estimated long-term price of gold of $1,150, annual production volumes at the Aurizona Mine of
up to 80,000 ounces of gold for an estimated 7 to 10 year mine life and a 5% discount rate. The fair value of the Debenture was
determined using a discounted cash flow model incorporating the contractual cash flows of the Debenture, a 9% discount rate and
an option pricing model to value the prepayment and convertibility feature
embedded in the Debenture. Key assumptions
in the option pricing model included an exercise price of $0.10 per share, a volatility rate of 45%, a term of 5 years and an interest
free rate of 1.3%. The resulting fair value of the Debenture and two NSRs was $13 million and $11 million, respectively.
The Company recognized a gain of
$3.7 million arising from the difference between the fair value of the Debenture and two NSRs and the carrying value of the Aurizona
mineral interest.
UPDATE |
Deflector Mine
As contemplated in the Deflector
gold purchase agreement, the Company provided notice to Doray Minerals Ltd. that it was requesting back the $6.0 million Sandstorm
had advanced under the purchase agreement. As part of a settlement agreement, the Company received $7.0 million in June 2015. The
difference between the $7.0 million received and the carrying value of the Deflector mineral interest of $6.3 million was recognized
in other income. As a result of the settlement, both parties’ obligations were extinguished under the gold purchase agreement.
UPDATE |
Summit Mine
The lack of progress with respect
to Santa Fe Gold Corp. (“Santa Fe”) raising additional capital to satisfy the terms and conditions of the negotiated
restructuring of its senior secured indebtedness, prompted the Company to evaluate its investment in the Summit mine Gold Stream.
The recoverable amount of the asset, for impairment assessment purposes, was determined using a liquidation scenario to estimate
the fair value less costs to sell. Key assumptions used in the analysis to determine fair value included management’s best
estimates of the value of the underlying assets and Sandstorm’s ability to realize on these assets during an insolvency proceeding.
As a result of its review, the Company, during the nine months ended September 30, 2015, recorded an impairment charge of $3.3
million for the full balance of the mineral interest.
As of and for the nine months ended
September 30, 2015:
| In $000s | |
Fair Value
December 31, 2014 | | |
Net Additions (Disposals)
September 30, 2015 | | |
Fair Value Adjustment
September 30, 2015 | | |
Fair Value
September 30, 2015 | |
| Common shares | |
$ | 14,254 | | |
$ | 7,510 | | |
$ | (3,904 | ) | |
$ | 17,860 | |
| Warrants | |
| 70 | | |
| 378 | | |
| (378 | ) | |
| 70 | |
| Convertible debt instruments | |
| 9,665 | | |
| 12,852 | | |
| (5,622 | ) | |
| 16,895 | |
| Total | |
$ | 23,989 | | |
$ | 20,740 | | |
$ | (9,904 | ) | |
$ | 34,825 | |
During the three months ended September
30, 2015, the Company acquired common shares of AuRico Metals Inc. for total consideration of $8.6 million and recognized a gain
in other comprehensive income of $0.9 million on these shares during the period ended September 30, 2015.
As of and for the nine months ended
September 30, 2014:
| In $000s | |
Fair Value
December 31, 2013 | | |
Net Additions (Disposals)
September 30, 2014 | | |
Fair Value Adjustment
September 30, 2014 | | |
Fair Value
September 30, 2014 | |
| Common shares | |
$ | 8,804 | | |
$ | 23,642 | | |
$ | (7,718 | ) | |
$ | 24,728 | |
| Convertible debt instruments | |
| 4,185 | | |
| 6,287 | | |
| (289 | ) | |
| 10,183 | |
| Total | |
$ | 12,989 | | |
$ | 29,929 | | |
$ | (8,007 | ) | |
$ | 34,911 | |
| 7. | Share Capital and Reserves |
The Company is authorized to issue
an unlimited number of common shares without par value.
On December 15, 2014, the Company
announced that it intended to proceed with a normal course issuer bid (“NCIB”). Under the NCIB, the Company may, until
December 16, 2015, purchase up to 5,882,879 common shares, representing 5% of the Company’s issued and outstanding common
shares of 117,657,587 as of December 11, 2014. The NCIB provides the Company with the option to purchase its common shares from
time to time when the Company’s management believes that the Common Shares are undervalued by the market.
During the nine months ended September
30, 2015 and pursuant to the NCIB, the Company purchased and returned to treasury an aggregate of 518,123 common shares.
| B. | Stock Options of the Company |
The Company has an incentive stock
option plan (the “Option Plan”) whereby the Company may grant share options to eligible employees, officers, directors
and consultants at an exercise price, expiry date, and vesting conditions to be determined by the Board of Directors. The maximum
expiry date is five years from the grant date. All options are equity settled. The Option Plan permits the issuance of options
which, together with the Company's other share compensation arrangements, may not exceed 10% of the Company’s issued common
shares as at the date of the grant.
A summary of the Company’s
options and the changes for the period are as follows:
| | |
Number of Options | | |
Weighted Average
Exercise Price (C$) | |
| Options outstanding at December 31, 2013 | |
| 3,987,133 | | |
| 5.70 | |
| Granted | |
| 3,762,474 | | |
| 2.95 | |
| Exercised | |
| (862,000 | ) | |
| 2.25 | |
| Forfeited | |
| (35,000 | ) | |
| (6.31 | ) |
| Options outstanding at December 31, 2014 | |
| 6,852,607 | | |
| 4.69 | |
| Addition of outstanding Gold Royalties’ Options (note 4) | |
| 47,475 | | |
| 15.71 | |
| Exercised | |
| (90,000 | ) | |
| (3.39 | ) |
| Options outstanding at September 30, 2015 | |
| 6,810,082 | | |
| 4.87 | |
A summary of the Company’s
share purchase options as of September 30, 2015 is as follows:
| Number outstanding | |
Exercisable | | |
Exercise Price per Share (C$) | | |
Expiry Date |
| 1,238,500 | |
| 1,238,500 | | |
| $3.40 | | |
November 26, 2015 |
| 66,000 | |
| 66,000 | | |
| 6.30 | | |
August 25, 2016 |
| 1,129,000 | |
| 1,129,000 | | |
| 6.35 | | |
November 25, 2016 |
| 27,000 | |
| 27,000 | | |
| 18.33 | | |
August 22, 2017 |
| 5,850 | |
| 5,850 | | |
| 18.33 | | |
October 4, 2017 |
| 402,133 | |
| 402,133 | | |
| 16.35 | | |
December 11, 2017 |
| 150,000 | |
| 100,002 | | |
| 11.78 | | |
December 21, 2017 |
| 10,875 | |
| 10,875 | | |
| 11.31 | | |
February 19, 2018 |
| 3,625 | |
| 3,625 | | |
| 10.62 | | |
March 1, 2018 |
| 12,375 | |
| 12,375 | | |
| 8.89 | | |
December 13, 2018 |
| 25,000 | |
| 8,334 | | |
| 6.03 | | |
May 16, 2019 |
| 3,737,474 | |
| - | | |
| 2.93 | | |
November 13, 2019 |
| 2,250 | |
| 2,250 | | |
| 15.00 | | |
March 30, 2022 |
| 6,810,082 | |
| 3,005,944 | | |
| $6.82 | | |
|
| C. | Share Purchase Warrants |
A summary of the Company’s
warrants and the changes for the period are as follows:
| | |
Number of Warrants | | |
Shares to be Issued Upon
Exercise of the Warrants | |
| Warrants outstanding at December 31, 2013 | |
| 83,305,390 | | |
| 22,490,095 | |
| Exercised | |
| (55,205,100 | ) | |
| (11,041,020 | ) |
| Expired unexercised | |
| (2,331,018 | ) | |
| (1,223,522 | ) |
| Warrants outstanding at December 31, 2014 | |
| 25,769,272 | | |
| 10,225,553 | |
| Addition of Gold Royalties’ Warrants (note 4) | |
| 368,038 | | |
| 368,038 | |
| Issued (note 5 (b)) | |
| 3,000,000 | | |
| 3,000,000 | |
| Expired unexercised | |
| (108,750 | ) | |
| (108,750 | ) |
| Warrants outstanding at September 30, 2015 | |
| 29,028,560 | | |
| 13,484,841 | |
A summary of the Company’s
warrants as of September 30, 2015 are as follows:
| | |
Number of
Warrants on a
Pre-consolidated
Basis | | |
Pre-
Consolidated
Exercise Price
Per Warrant | | |
Number of
Warrants on a
Post-
Consolidated
Basis | | |
Post-
Consolidated
Exercise Price
Per Warrant | | |
Shares to be
Issued Upon
Exercise of
the
Warrants | | |
Adjusted
Exercise
Price
Per Share | | |
Expiry Date |
| SSL.WT.A | |
| 19,429,649 | | |
$ | 1.00 | | |
| - | | |
| - | | |
| 3,885,930 | | |
$ | 5.00 | | |
Oct.
19, 2015 |
| | |
| - | | |
| - | | |
| 162,000 | | |
C$ | 11.11 | | |
| 162,000 | | |
C$ | 11.11 | | |
Oct.
28, 2015 |
| | |
| - | | |
| - | | |
| 83,700 | | |
C$ | 11.11 | | |
| 83,700 | | |
C$ | 11.11 | | |
Nov.
29, 2015 |
| | |
| - | | |
| - | | |
| 88,200 | | |
C$ | 8.89 | | |
| 88,200 | | |
C$ | 8.89 | | |
Dec.
6, 2015 |
| | |
| - | | |
| - | | |
| 1,738 | | |
C$ | 8.89 | | |
| 1,738 | | |
C$ | 8.89 | | |
Dec.
6, 2015 |
| | |
| - | | |
| - | | |
| 72,500 | | |
C$ | 17.24 | | |
| 72,500 | | |
C$ | 17.24 | | |
Feb.
28, 2016 |
| | |
| - | | |
| - | | |
| 32,400 | | |
C$ | 11.11 | | |
| 32,400 | | |
C$ | 11.11 | | |
May
1, 2016 |
| | |
| - | | |
| - | | |
| 1,155,873 | | |
C$ | 13.79 | | |
| 1,155,873 | | |
C$ | 13.79 | | |
Dec.
4, 2016 |
| SSL.WT.B | |
| - | | |
| - | | |
| 5,002,500 | | |
$ | 14.00 | | |
| 5,002,500 | | |
$ | 14.00 | | |
Sep.
7, 2017 |
| | |
| - | | |
| - | | |
| 3,000,000 | | |
$ | 4.50 | | |
| 3,000,000 | | |
$ | 4.50 | | |
Mar.
23, 2020 |
| | |
| 19,429,649 | | |
| | | |
| 9,598,911 | | |
| | | |
| 13,484,841 | | |
| | | |
|
| D. | Restricted Share Rights |
The Company has a restricted share
plan (the “Restricted Share Plan”) whereby the Company may grant restricted share rights to eligible employees, officers,
directors and consultants at an expiry date to be determined by the Board of Directors. Each restricted share right entitles the
holder to receive a common share of the Company without any further consideration. The Restricted Share Plan permits the issuance
of up to a maximum of 2,800,000 RSRs.
During the nine months ended September
30, 2015, the Company granted 50,480 RSRs with a fair value of $0.2 million, a three year vesting term, and a weighted average
grant date fair value of C$4.16 per unit. As at September 30, 2015, the Company had 619,935 RSRs outstanding.
| E. | Diluted Earnings Per Share |
Diluted earnings per share is calculated
based on the following:
| In $000s | |
3 Months Ended
Sep. 30, 2015 | | |
3 Months Ended
Sep. 30, 2014 | | |
9 Months Ended
Sep. 30, 2015 | | |
9 Months Ended
Sep. 30, 2014 | |
| Net (loss) income | |
$ | (5,470 | ) | |
$ | 2,076 | | |
$ | (18,097 | ) | |
$ | 8,907 | |
| | |
| | | |
| | | |
| | | |
| | |
| Basic weighted average number of shares | |
| 118,218,267 | | |
| 117,573,079 | | |
| 117,922,428 | | |
| 111,169,043 | |
| Effect of dilutive securities | |
| | | |
| | | |
| | | |
| | |
| · Stock
options | |
| - | | |
| 769,040 | | |
| - | | |
| 1,454,401 | |
| · Warrants | |
| - | | |
| 619,804 | | |
| - | | |
| 7,163,918 | |
| · Restricted
share rights | |
| - | | |
| 36,673 | | |
| - | | |
| 37,861 | |
| Diluted weighted average number of common shares | |
| 118,218,267 | | |
| 118,998,596 | | |
| 117,922,428 | | |
| 119,825,223 | |
The Company has a net loss for the
three and nine months ended September 30, 2015; however, the following lists the stock options and share purchase warrants that
would have been included in the computation of diluted weighted average number of common shares if the Company had net earnings
as they would have been dilutive:
| | |
3 Months Ended
Sep. 30, 2015 | | |
3 Months Ended
Sep. 30, 2014 | | |
9 Months Ended
Sep. 30, 2015 | | |
9 Months Ended
Sep. 30, 2014 | |
| Stock Options | |
| 379,635 | | |
| 566,633 | | |
| 1,142,855 | | |
| 1,796,633 | |
| Warrants | |
| - | | |
| 7,286,270 | | |
| | | |
| 7,286,270 | |
| RSRs | |
| - | | |
| 294,332 | | |
| 5,876 | | |
| 314,666 | |
The income tax expense (recovery)
differs from the amount that would result from applying the federal and provincial income tax rate to the net income before income
taxes.
These differences result from the
following items:
| In $000s | |
3 Months Ended
Sep. 30, 2015 | | |
3 Months Ended
Sep. 30, 2014 | | |
9 Months Ended
Sep. 30, 2015 | | |
9 Months Ended
Sep. 30, 2014 | |
| (Loss) income before income taxes | |
$ | (5,148 | ) | |
$ | 2,253 | | |
$ | (5,138 | ) | |
$ | 8,709 | |
| Canadian federal and provincial income tax rates | |
| 26.0 | % | |
| 26.0 | % | |
| 26.0 | % | |
| 26.0 | % |
| Income tax (recovery) expense based on the above rates | |
$ | (1,338 | ) | |
$ | 586 | | |
$ | (1,336 | ) | |
$ | 2,264 | |
| Increase (decrease) due to: | |
| | | |
| | | |
| | | |
| | |
| ·
Non-deductible expenses | |
| 132 | | |
| 126 | | |
$ | 387 | | |
$ | 348 | |
| · Permanent
difference for gain on bargain purchase | |
| - | | |
| - | | |
| - | | |
| (667 | ) |
| ·
Change in deductible temporary differences | |
| 520 | | |
| - | | |
| 5,060 | | |
| - | |
| ·
Change in deferred taxes related to attributing taxable income from Barbadian subsidiary | |
| - | | |
| - | | |
| 8,060 | | |
| - | |
| ·
Difference between statutory and foreign tax rates | |
| (457 | ) | |
| (601 | ) | |
| (1,592 | ) | |
| (1,726 | ) |
| ·
Other | |
| 1,465 | | |
| 66 | | |
| 2,380 | | |
| (417 | ) |
| Income tax expense (recovery) | |
$ | 322 | | |
$ | 177 | | |
$ | 12,959 | | |
$ | (198 | ) |
As a result of an ongoing assessment
of the Company’s assets held in foreign subsidiaries, during the three months ended June 30, 2015, the Company recognized
a reduction of its deferred income tax assets relating to taxable income previously attributed to its Barbadian subsidiary. A corresponding
non-cash income tax expense of $8.1 million was accordingly recognized. The assessment is complex in nature, and the reduction
and corresponding expense represent management estimates. The Company’s international transactions have not been reviewed
by the Canada Revenue Agency, and should such transactions be reviewed no assurances can be given that the tax authority will concur
with management’s estimates.
| 9. | Administration Expenses |
The administration expenses for the
Company are as follows:
| In $000s | |
3 Months Ended
Sep. 30, 2015 | | |
3 Months Ended
Sep. 30, 2014 | | |
9 Months Ended
Sep. 30, 2015 | | |
9 Months Ended
Sep. 30, 2014 | |
| Corporate administration | |
$ | 310 | | |
$ | 487 | | |
$ | 1,103 | | |
$ | 1,055 | |
| Employee benefits and salaries | |
| 732 | | |
| 800 | | |
| 2,382 | | |
| 2,374 | |
| Professional fees | |
| 300 | | |
| 243 | | |
| 665 | | |
| 521 | |
| Depreciation | |
| 50 | | |
| 34 | | |
| 159 | | |
| 129 | |
| Administration expenses before share based compensation | |
$ | 1,392 | | |
$ | 1,564 | | |
$ | 4,309 | | |
$ | 4,079 | |
| | |
| | | |
| | | |
| | | |
| | |
Equity settled share based compensation
(a non-cash expense) | |
| 548 | | |
| 488 | | |
| 1,810 | | |
| 1,337 | |
| Total administration expenses | |
$ | 1,940 | | |
$ | 2,052 | | |
$ | 6,119 | | |
$ | 5,416 | |
| 10. | Supplemental Cash Flow Information |
| In $000s | |
3 Months Ended
Sep. 30, 2015 | | |
3 Months Ended
Sep. 30, 2014 | | |
9 Months Ended
Sep. 30, 2015 | | |
9 Months Ended
Sep. 30, 2014 | |
| Change in non-cash working capital: | |
| | | |
| | | |
| | | |
| | |
| ·
Trade receivables and other | |
$ | 1,267 | | |
$ | 212 | | |
$ | (886 | ) | |
$ | (1,638 | ) |
| ·
Inventory | |
| - | | |
| 275 | | |
| - | | |
| - | |
| ·
Trade and other payables | |
| (234 | ) | |
| (651 | ) | |
| 979 | | |
| 528 | |
| Net increase (decrease) in cash | |
$ | 1,033 | | |
$ | (164 | ) | |
$ | 93 | | |
$ | (1,110 | ) |
| Significant non-cash transactions: | |
| | | |
| | | |
| | | |
| | |
| ·
Restructuring of mineral interest and loan receivable | |
$ | - | | |
| - | | |
$ | 26,000 | | |
$ | - | |
| ·
Issuance of common shares for Gold Royalties acquisition (note 4) | |
| - | | |
| - | | |
| 4,281 | | |
| - | |
| ·
Issuance of warrants for Diavik royalty acquisition
(note 5 (b)) | |
$ | - | | |
$ | - | | |
$ | 583 | | |
$ | - | |
| 11. | Key Management Compensation |
The remuneration of directors and
those persons having authority and responsibility for planning, directing and controlling activities of the Company are as follows:
| In $000s | |
3 Months Ended
Sep. 30, 2015 | | |
3 Months Ended
Sep. 30, 2014 | | |
9 Months Ended
Sep. 30, 2015 | | |
9 Months Ended
Sep. 30, 2014 | |
| Short-term employee salaries and benefits | |
$ | 543 | | |
$ | 591 | | |
$ | 1,508 | | |
$ | 1,670 | |
| Share-based payments | |
| 548 | | |
| 390 | | |
| 1,667 | | |
| 1,123 | |
| Total key management compensation expense | |
$ | 1,091 | | |
$ | 981 | | |
$ | 3,175 | | |
$ | 2,793 | |
| 12. | Contractual Obligations |
In connection with its Gold Streams,
the Company has committed to purchase the following:
| Gold Stream | |
% of Life of Mine Gold 5,6,7 | |
Per Ounce Cash Payment:
lesser of amount below and the then
prevailing market price of gold 1, 2, 3, 4 |
| Aurizona | |
17% | |
$408 |
| Bachelor Lake | |
20% | |
$500 |
| Black Fox | |
8% | |
$518 |
| Entrée Gold | |
6.76% on Hugo North Extension and 5.14% on Heruga | |
$220 |
| Karma | |
25,000 ounces over 5 years and 1.625% thereafter | |
20% of gold spot price |
| Ming | |
25% of the first 175,000 ounces of gold produced, and 12% thereafter | |
$nil |
| Santa Elena | |
20% | |
$357 |
| 1) | Subject to an annual inflationary adjustment except for Ming. |
| 2) | For the Entrée Gold Stream, after approximately 8.6 million ounces of gold have been produced
from the joint venture property, the price increases to $500 per gold ounce. |
| 3) | For the Entrée Silver Stream, percentage of life of mine is 6.76% on Hugo North Extension
and 5.14% on Heruga which the Company can purchase for the lesser of the prevailing market price and $5 per ounce of silver until
40.3 million ounces of silver have been produced from the entire joint venture property. Thereafter, the purchase price will increase
to the lesser of the prevailing market price and $10 per ounce of silver. |
| 4) | For the Santa Elena Gold Stream, the Company can purchase for a per ounce cash payment equal to
(i) the lesser of $357 and the then prevailing market price of gold for the open-pit mine and (ii) the lesser of $357 and the then
prevailing market price of gold until 50,000 ounces of gold have been delivered to Sandstorm (inclusive of ounces already received
from open-pit production), at which time the on-going per ounce payments will increase to the lesser of $450 and the then prevailing
market price of gold for the underground mine. |
| 5) | For the Entrée Gold and Silver Stream, percentage of life of mine is 6.76% on Hugo North
Extension and 5.14% on Heruga if the minerals produced are contained below 560 metres in depth. |
| 6) | For the Entrée Gold and Silver Stream, percentage of life of mine is 10.15% on Hugo North
Extension and 7.7% on Heruga if the minerals produced are contained above 560 metres in depth. |
| 7) | For the Entrée copper stream, the Company has committed to purchase an amount equal to 0.5%
of the copper produced from the Hugo North Extension and Heruga deposits. If the minerals produced are contained above 560 metres
in depth, then the commitment increases to 0.75% for both the Hugo North Extension and Heruga deposits. Sandstorm will make ongoing
per pound cash payments equal to the lesser of $0.50 and the then prevailing market price of copper, until 9.1 billion pounds of
copper have been produced from the entire joint venture property. Thereafter, the on-going per pound payments will increase to
the lesser of $1.10 and the then prevailing market price of copper. |
In connection with the Karma Gold
Stream, the Company has agreed, subject to certain financing conditions, to provide remaining upfront payments totaling $7.1 million.
In addition, the Stream Syndicate has provided True Gold with an 18 month option to increase funding by up to $20.0 million whereby
Sandstorm’s commitment would be 25% of the increase.
In connection with the Bomboré
royalty, Sandstorm has committed to providing up to an additional $5.0 million in royalty financing (remittable in cash and/or
shares, subject to certain conditions) to Orezone on a draw down basis until January 27, 2017.
The Company’s reportable operating
segments, which are components of the Company’s business where separate financial information is available and which are
evaluated on a regular basis by the Company’s Chief Executive Officer, who is the Company’s chief operating decision
maker, for the purpose of assessing performance, are summarized in the tables below:
For the three months ended September
30, 2015
| In $000s | |
Sales | | |
Royalty
revenue | | |
Cost of sales
(excluding depletion) | | |
Depletion | | |
Impairment
of mineral
interests | | |
Income (loss)
before taxes | | |
Cash from
operations | |
| Aurizona, Brazil | |
$ | 2,818 | | |
$ | - | | |
$ | 1,031 | | |
$ | 299 | | |
$ | - | | |
$ | 1,488 | | |
$ | 1,787 | |
| Bachelor Lake, Canada | |
| 1,751 | | |
| - | | |
| 780 | | |
| 927 | | |
| - | | |
| 44 | | |
| 971 | |
| Black Fox, Canada | |
| 1,529 | | |
| - | | |
| 715 | | |
| 1,062 | | |
| - | | |
| (248 | ) | |
| 814 | |
| Diavik Mine, Canada | |
| - | | |
| 1,370 | | |
| - | | |
| 1,342 | | |
| - | | |
| 28 | | |
| 2,054 | |
| Ming, Canada | |
| 481 | | |
| - | | |
| - | | |
| 507 | | |
| - | | |
| (26 | ) | |
| 481 | |
| Santa Elena, Mexico | |
| 2,476 | | |
| - | | |
| 795 | | |
| 1,503 | | |
| - | | |
| 178 | | |
| 1,681 | |
| Royalties 1 | |
| - | | |
| 1,661 | | |
| - | | |
| 2,416 | | |
| - | | |
| (755 | ) | |
| 1,963 | |
| Corporate | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (5,857 | ) | |
| (1,517 | ) |
| Consolidated | |
$ | 9,055 | | |
$ | 3,031 | | |
$ | 3,321 | | |
$ | 8,056 | | |
$ | - | | |
$ | (5,148 | ) | |
$ | 8,234 | |
| 1) | Includes royalty revenue from Bracemac-McLeod, Gualcamayo, Emigrant Springs, Mine Waste Solutions,
San Andres, and Thunder Creek. Includes royalty revenue from royalty interests located in Canada of $0.7 million, in the United
States of $0.5 million, and other of $0.5 million. |
For the three months ended September
30, 2014
| In $000s | |
Sales | | |
Royalty
revenue | | |
Cost of sales
(excluding depletion) | | |
Depletion | | |
Impairment
of mineral
interests | | |
Income (loss)
before taxes | | |
Cash from
operations | |
| Aurizona, Brazil | |
$ | 3,785 | | |
$ | - | | |
$ | 1,204 | | |
$ | 353 | | |
$ | - | | |
$ | 2,228 | | |
$ | 2,581 | |
| Bachelor Lake, Canada | |
| 3,079 | | |
| - | | |
| 1,204 | | |
| 1,431 | | |
| - | | |
| 444 | | |
| 1,592 | |
| Black Fox, Canada | |
| 1,976 | | |
| - | | |
| 792 | | |
| 1,112 | | |
| - | | |
| 72 | | |
| 1,184 | |
| Ming, Canada | |
| 667 | | |
| - | | |
| - | | |
| 437 | | |
| - | | |
| 230 | | |
| 667 | |
| Santa Elena, Mexico | |
| 2,064 | | |
| - | | |
| 580 | | |
| 998 | | |
| - | | |
| 488 | | |
| 1,607 | |
| Royalties 1 | |
| - | | |
| 3,988 | | |
| - | | |
| 3,878 | | |
| - | | |
| 110 | | |
| 3,557 | |
| Corporate | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,319 | ) | |
| (1,226 | ) |
| Consolidated | |
$ | 11,571 | | |
$ | 3,988 | | |
$ | 3,780 | | |
$ | 8,209 | | |
$ | - | | |
$ | 2,253 | | |
$ | 9,962 | |
| 1) | Includes Bracemac-McLeod, Gualcamayo, Emigrant Springs, Mine Waste Solutions, San Andres, Sao Francisco,
Sao Vicente, and Thunder Creek. Includes royalty revenue from royalty interests located in Canada of $1.8 million, in the United
States of $0.6 million, and other of $1.6 million. |
For the nine months ended September
30, 2015
| In $000s | |
Sales | | |
Royalty
revenue | | |
Cost of sales
(excluding depletion) | | |
Depletion | | |
Impairment
of mineral
interests | | |
Income (loss)
before taxes | | |
Cash from
operations | |
| Aurizona, Brazil | |
$ | 10,194 | | |
$ | - | | |
$ | 3,486 | | |
$ | 1,013 | | |
$ | - | | |
$ | 5,695 | | |
$ | 6,708 | |
| Bachelor Lake, Canada | |
| 6,762 | | |
| - | | |
| 2,859 | | |
| 3,398 | | |
| - | | |
| 505 | | |
| 3,903 | |
| Black Fox, Canada | |
| 5,447 | | |
| - | | |
| 2,382 | | |
| 3,374 | | |
| - | | |
| (309 | ) | |
| 3,065 | |
| Diavik Mine, Canada | |
| - | | |
| 4,480 | | |
| - | | |
| 4,465 | | |
| - | | |
| 15 | | |
| 3,463 | |
| Ming, Canada | |
| 1,210 | | |
| - | | |
| - | | |
| 1,245 | | |
| - | | |
| (35 | ) | |
| 1,210 | |
| Santa Elena, Mexico | |
| 8,368 | | |
| - | | |
| 2,530 | | |
| 4,801 | | |
| - | | |
| 1,037 | | |
| 5,838 | |
| Royalties 1 | |
| - | | |
| 6,339 | | |
| - | | |
| 8,779 | | |
| - | | |
| (2,440 | ) | |
| 6,779 | |
| Other | |
| - | | |
| - | | |
| - | | |
| - | | |
| (3,323 | ) | |
| (3,323 | ) | |
| - | |
| Corporate | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (6,283 | ) | |
| (5,135 | ) |
| Consolidated | |
$ | 31,981 | | |
$ | 10,819 | | |
$ | 11,257 | | |
$ | 27,075 | | |
$ | (3,323 | ) | |
$ | (5,138 | ) | |
$ | 25,831 | |
| 1) | Includes royalty revenue from Bracemac-McLeod, Gualcamayo, Emigrant Springs, Mine Waste Solutions,
San Andres, and Thunder Creek. Includes royalty revenue from royalty interests located in Canada of $2.5 million, in the United
States of $1.5 million, and other of $2.3 million. |
For the nine months ended September
30, 2014
| In $000s | |
Sales | | |
Royalty
revenue | | |
Cost of sales
(excluding
depletion) | | |
Depletion | | |
Impairment
of mineral
interest | | |
Income (loss)
before taxes | | |
Cash from
operations | |
| Aurizona, Brazil | |
$ | 11,845 | | |
$ | - | | |
$ | 3,755 | | |
$ | 1,102 | | |
$ | - | | |
$ | 6,988 | | |
$ | 8,090 | |
| Bachelor Lake, Canada | |
| 9,879 | | |
| - | | |
| 3,821 | | |
| 4,542 | | |
| - | | |
| 1,516 | | |
| 6,058 | |
| Black Fox, Canada | |
| 5,535 | | |
| - | | |
| 2,207 | | |
| 3,100 | | |
| - | | |
| 228 | | |
| 3,328 | |
| Ming, Canada | |
| 1,933 | | |
| - | | |
| - | | |
| 1,255 | | |
| - | | |
| 678 | | |
| 1,933 | |
| Santa Elena, Mexico | |
| 5,035 | | |
| - | | |
| 1,388 | | |
| 2,398 | | |
| - | | |
| 1,250 | | |
| 3,832 | |
| Royalties 1 | |
| - | | |
| 9,779 | | |
| - | | |
| 8,616 | | |
| (1,215 | ) | |
| (52 | ) | |
| 9,060 | |
| Corporate | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,899 | ) | |
| (5,927 | ) |
| Consolidated | |
$ | 34,227 | | |
$ | 9,779 | | |
$ | 11,171 | | |
$ | 21,013 | | |
$ | (1,215 | ) | |
$ | 8,709 | | |
$ | 26,374 | |
| 1) | Includes Bracemac-McLeod, Gualcamayo, Emigrant Springs, Mine Waste Solutions, San Andres, Sao Francisco,
Sao Vicente, and Thunder Creek. Includes royalty revenue from royalty interests located in Canada of $3.5 million, in the United
States of $1.7 million, and other of $4.6 million. |
Total assets as of:
| In $000s | |
September 30, 2015 | | |
December 31, 2014 | |
| Aurizona | |
$ | 10,749 | | |
$ | 21,602 | |
| Bachelor Lake | |
| 8,814 | | |
| 12,213 | |
| Black Fox | |
| 16,548 | | |
| 19,922 | |
| Diavik Mine | |
| 49,662 | | |
| - | |
| Entrée | |
| 42,493 | | |
| 42,493 | |
| Karma | |
| 17,934 | | |
| 14,456 | |
| Ming | |
| 13,194 | | |
| 14,440 | |
| Santa Elena | |
| 7,454 | | |
| 12,255 | |
| Royalties 1 | |
| 113,782 | | |
| 150,120 | |
| Other 2 | |
| 5,704 | | |
| 11,438 | |
| Corporate | |
| 121,836 | | |
| 132,131 | |
| Consolidated | |
$ | 408,170 | | |
$ | 431,070 | |
| 1) | Includes Bracemac-McLeod, Coringa, Mt. Hamilton, Paul Isnard, Prairie Creek, Ann Mason, Serra Pelada,
Gualcamayo, Emigrant Springs, Mine Waste Solutions, San Andres, Sao Francisco, Sao Vicente, Thunder Creek, Bomboré, and
the Gold Royalties royalty portfolio. |
| 2) | Includes Summit and other. |
On October 27, 2015, the Company
acquired a Silver Stream on Yamana Gold Inc.’s (“Yamana”) gold-silver Cerro Moro project, located in Santa Cruz,
Argentina (the “Cerro Morro Project” or “Cerro Moro”) and interim silver deliveries during years 2016 to
2018 from a number of Yamana’s currently operating mines.
In acquiring the Yamana Silver Steam,
the Chapada copper stream (refer to Chapada copper stream section) and a potential gold stream on the Agua Rica project, the Company
agreed to upfront consideration consisting of a cash payment of $152 million, of which $4 million is payable in April 2016, and
15 million Sandstorm warrants. The warrants have a 5 year term, a strike price of $3.50 per Sandstorm common share and are exercisable
upon achievement of specific milestones with respect to the construction of the Cerro Moro mine.
Under the terms of the Yamana Silver
Stream, Sandstorm has agreed to purchase, for on-going per ounce cash payments equal to 30% of the spot price of silver, an amount
of silver from Cerro Moro equal to 20% of the silver produced (up to an annual maximum of 1.2 million ounces of silver), until
Yamana has delivered to Sandstorm 7.0 million ounces of silver; then 9.0% of the silver produced thereafter.
As part of the Yamana Silver Stream,
during the year 2016 through 2018, Sandstorm has also agreed to purchase, for on-going per ounce cash payment equal to 30% of the
spot price of silver, an amount of silver from:
| (i) | the Minera Florida mine in Chile equal to 38% of the
silver produced (up to an annual maximum of 200,000 ounces of silver); and |
| (ii) | the Chapada mine in Brazil equal to 52% of the silver produced (up to an annual maximum of 100,000 ounces of silver). |
If by January 1, 2019, the Cerro
Moro processing facility has not averaged 80% of its daily nameplate production capacity over a 30-day period (the "Commencement
of Production"), then Yamana´s producing El Peñon mine in Chile will provide a 24 month backstop until the Commencement
of Production has begun. During the 24 month backstop, if applicable, Sandstorm will purchase, for on-going per ounce cash payments
equal to 30% of the spot price of silver, an amount of silver equal to 16% of El Peñon´s silver production up to a
maximum of 1.2 million ounces per annum.
On October 27, 2015, the Company
acquired a copper stream on Yamana’s open pit gold-copper Chapada mine located 270 kilometres northwest of Brasília
in Goiás state, Brazil (“Chapada” or the “Chapada Mine”). Under the terms of the Yamana copper stream,
Sandstorm has agreed to purchase, for on-going per pound cash payments equal to 30% of the spot price of copper, an amount of copper
from Chapada Mine equal to:
| i) | 4.2% of the copper produced (up to an annual maximum of 3.9 million pounds of copper) until Yamana has delivered 39 million
pounds of copper to Sandstorm (the “First Chapada Delivery Threshold”); then |
| ii) | 3.0% of the copper produced until, on a cumulative basis, Yamana has delivered 50 million pounds of copper to Sandstorm (the
“Second Chapada Delivery Threshold”); then |
| iii) | 1.5% of the copper produced thereafter, for the life of the mine. |
If Cerro Moro has not achieved the
Commencement of Production and Sandstorm has not received cumulative pre-tax cash flow equal to $70 million from the Yamana Silver
Stream, then the First Chapada Delivery Threshold and the Second Chapada Delivery Threshold will cease to be in effect
and Sandstorm will continue to purchase
4.2% of Chapada’s payable copper production (up to an annual maximum of 3.9 million pounds of copper), until the earlier
of Sandstorm having received cumulative pre-tax cash flow equal to $70 million, or Cerro Moro having achieved the Commencement
of Production.
| C. | Revolving credit facility |
On October 26, 2015, the Company
amended its revolving credit agreement, allowing the Company to borrow up to $110 million (the “Revolving Loan”) from
a syndicate of banks including the Bank of Nova Scotia, Bank of Montreal, National Bank of Canada, and Canadian Imperial Bank of
Commerce. The amounts drawn on the Revolving Loan remain subject to interest at LIBOR plus 3.00% – 4.25% per
annum, and the undrawn portion of the Revolving Loan remains subject to a standby fee of 0.75% – 1.05% per
annum, dependent on the Company’s leverage ratio. On October 26, 2015 and as part of the Yamana transaction, the Company
fully drew on its credit facility.
On November 3, 2015 the Company completed
a public offering of 10,087,800 units at a price of $2.85 per unit, for gross proceeds of $28.8 million. Each unit was comprised
of one common share of the Company and one-half of one listed warrant. In connection with the offering, the Company paid agent
fees of $1.4 million, representing 5% of the gross proceeds. The amount attributable to common shares was $27.1 million, with the
remainder allocated to the warrants. As previously announced, the net proceeds from the public offering were primarily used to
reduce the balance of the Company’s Revolving Loan.
Exhibit 99.2
Form
52-109F2
Certification
of Interim Filings
Full
Certificate
I, NOLAN WATSON, Chief Executive
Officer of SANDSTORM GOLD LTD., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together,
the “Interim Filings”) of SANDSTORM GOLD LTD. (the “Issuer”) for the interim period
ended SEPTEMBER 30, 2015. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence,
the Interim Filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated
or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to
the period covered by the Interim Filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence,
the interim financial report together with the other financial information included in the Interim Filings fairly present in all
material respects the financial condition, financial performance and cash flows of the Issuer, as of the date of and for the periods
presented in the Interim Filings. |
| 4. | Responsibility: The Issuer’s other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR),
as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings,
for the Issuer. |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3,
the Issuer’s other certifying officer(s) and I have, as at the end of the period covered by the Interim Filings |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance
that |
| (i) | material information relating to the Issuer is made known to us by others, particularly during
the period in which the Interim Filings are being prepared; and |
| (ii) | information required to be disclosed by the Issuer in its annual filings, interim filings or other
reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods
specified in securities legislation; and |
| (b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with the Issuer’s GAAP. |
| 5.1 | Control framework: The control framework the Issuer’s other certifying officer(s)
and I used to design the Issuer’s ICFR is Internal Control – Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. |
| 5.2 | ICFR – material weakness relating to design: N/A. |
| 5.3 | Limitation on scope of design: N/A |
| 6. | Reporting changes in ICFR: The Issuer has disclosed in its interim MD&A any change
in the Issuer’s ICFR that occurred during the period beginning on July 1, 2015 and ended on September 30, 2015 that has materially
affected, or is reasonably likely to materially affect, the Issuer’s ICFR. |
Date: NOVEMBER 12, 2015.
| “Nolan Watson” |
|
| NOLAN WATSON |
|
| Chief Executive Officer |
|
Exhibit 99.3
Form
52-109F2
Certification
of Interim Filings
Full
Certificate
I, ERFAN KAZEMI, Chief Financial
Officer of SANDSTORM GOLD LTD., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together,
the “Interim Filings”) of SANDSTORM GOLD LTD. (the “Issuer”) for the interim period
ended SEPTEMBER 30, 2015. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence,
the Interim Filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated
or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to
the period covered by the Interim Filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence,
the interim financial report together with the other financial information included in the Interim Filings fairly present in all
material respects the financial condition, financial performance and cash flows of the Issuer, as of the date of and for the periods
presented in the Interim Filings. |
| 4. | Responsibility: The Issuer’s other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR),
as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings,
for the Issuer. |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3,
the Issuer’s other certifying officer(s) and I have, as at the end of the period covered by the Interim Filings |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance
that |
| (i) | material information relating to the Issuer is made known to us by others, particularly during
the period in which the Interim Filings are being prepared; and |
| (ii) | information required to be disclosed by the Issuer in its annual filings, interim filings or other
reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods
specified in securities legislation; and |
| (b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with the Issuer’s GAAP. |
| 5.1 | Control framework: The control framework the Issuer’s other certifying officer(s)
and I used to design the Issuer’s ICFR is Internal Control – Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. |
| 5.2 | ICFR – material weakness relating to design: N/A. |
| 5.3 | Limitation on scope of design: N/A |
| 6. | Reporting changes in ICFR: The Issuer has disclosed in its interim MD&A any change
in the Issuer’s ICFR that occurred during the period beginning on July 1, 2015 and ended on September 30, 2015 that has materially
affected, or is reasonably likely to materially affect, the Issuer’s ICFR. |
| “Erfan Kazemi” |
|
| ERFAN KAZEMI |
|
| Chief Financial Officer |
|
This regulatory filing also includes additional resources:
v424368_ex99-1.pdf
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