It has been a demoralizing year for investors in the precious metals space, with each rally encountering a monsoon of selling pressure and a negative real rate environment doing nothing to support the price of gold. One name that is more punished than its peers is Sandstorm Gold (SAND), which is down 20% year-to-date, massively underperforming its royalty / streaming peers. However, with an environmental impact study [EIA] In the hands of Lidya and Hod Maden finally progressing, the stock continues to look reasonably priced below $ 6.00. Based on Sandstorm’s strong organic growth profile and a very reasonable valuation, I would view any downturn below $ 5.25 as a low risk buy opportunity.

(Source: Company presentation)

Sandstorm Gold has released its long-awaited feasibility study [FS] for its Hod Maden project last week and also announced that Lidya, its Turkish partner on Hod Maden, has received final environmental impact assessment approval. Both of these catalysts are important to Sandstorm as they offer a much clearer path to start construction on the Turkish project and ultimately significant growth in Sandstorm’s annual gold equivalent ounce sales. Indeed, Lidya can now apply for final permits and has just started the forest permit application process. Let’s take a closer look at the more important news, the recently released feasibility study:

(Source: company press release)

Starting with the resource base, Hod Maden is home to an impressive ~ 3.53 million GEO at an average grade of 13.5 grams per tonne of gold equivalent (10.6 grams per tonne of gold, 1.8 % of copper). Within this resource base, the company has developed approximately 3.11 million GEO of reserves to support the life of the mine, with an average gold equivalent grade of 11.1 grams per tonne. This would make Hod Maden the 5th highest grade mine in the world once it goes into production, just behind Kainantu in Papua New Guinea, operated by K92 Mining (OTCQX: KNTNF).

(Source: Company deposits, author’s table)

Based on life-of-mine production of approximately 2.03 million ounces of gold and 255 million pounds of copper, Hod Maden expects mine life 13 years old, with an average annual production profile of approximately 195,000 GEO per year. The plan calls for an underground mine with a single portal north of the deposit to access the lower mine area and two shallow shafts to access materials from the upper mine. Compared to the 2018 pre-feasibility study, the throughput has been reduced to 800,000 tonnes per year compared to 900,000 tonnes previously, with an overhead grade also lower (11.1 grams per tonne of gold equivalent against 11, 1 grams per tonne of gold equivalent). This largely explains the decline in average annual production (~ 195,000 GEO per year versus ~ 266,000 GEO) compared to the previous study.

(Source: Company presentation)

Based on Sandstorm’s 30% net interest and 2% net smelter return royalty, this will translate into attributable production of around 60,000 GEO per year, compared to an estimated 80,000 GEO per year. previously. During this time, project costs fell from $ 97 / oz on a by-product basis to $ 334 / oz. While this is a significant increase, it would make Hod Maden one of the cheapest gold mines in the world, ahead of Kumtor and with costs similar to Fosterville. Compared to undeveloped projects around the world, we can see that even with higher costs the project still compares very well with the only more attractive project being the Skouries project of Eldorado (EGO) in Greece.

(Source: Company deposits, author’s table)

If we take a look at the costs of commissioning, the updated estimate of the initial investment stands at $ 309 million, an increase of more than 10% from the $ 272 million in the 2018 PFS. However, this Not surprisingly given the inflationary pressures we’ve seen across the industry, and that’s actually lower than my estimate of $ 340 million. If we compare this figure to the construction costs of projects of a similar size, we can see that Hod Maden ranks very well. In fact, the average project of this size costs over $ 390 million to build, and most of those numbers (below the graph) are based on dated studies. This means that it will be a snap to fund both Lidya and Sandstorm, without the need to dilute the shares for Sandstorm.

(Source: Company deposits, author’s table)

Based on the current schedule, Sandstorm noted that production is expected to begin in the second half of 2024, allowing Sandstorm to double its annual GEO sales in fiscal 2025 from FY 2021 levels. This assumes that the company is not acquiring any new royalties or streams in the interim, which seems unlikely, given that the company will likely be looking for short-term growth to offset lower production attributable to Santa Elena. So while GEO’s annual sales appear to stagnate or decline over the next three years, I wouldn’t be surprised to see growth added here, with a surge from 125,000 to 130,000 GEO in fiscal 2025.

(Source: Company presentation)

By now, Sandstorm already enjoys exposure to the world’s cheapest mines, a major differentiator from its peers. This is based on each company’s all-inclusive sustaining cost profile among its top ten assets and where they fall in each quartile. As we can see, the closest peer based on this metric is Wheaton Precious Metals (WPM), which is far from Sandstorm, with Franco Nevada lagging behind. However, while Sandstorm may be exposed to lower-cost assets, it lags against its peers in the short-term growth department, with most of its peers growing by FY 2024. In the In the case of Sandstorm, this growth is very erratic and the company can no longer afford to see further delays, as production is already expected to start years after the initial estimate.

(Source: Company presentation)

Initially, the target was around 135,000 GEO by 2022, and it looks like Sandstorm will have the chance to do 135,000 GEO in FY 2025 at this rate. This still represents very respectable growth, but with many eggs in Hod Maden’s basket and no other significant growth on the horizon, it’s no surprise that the stock is trading at a steep discount to its peers. . That said, with Sandstorm now at over 45% below last year’s highs, the stock is now trading just below 1.0x P / NAV and a steep haircut to its peers, on the base with an estimated net asset value of approximately $ 1.25 billion and a market cap of approximately $ 1.14 billion. This is a very reasonable estimate for a story with significant organic growth, and it finally looks like this path to achieving that growth is risk-free, with a FS and EIA in hand.

(Source: Nomad Royalty Company Presentation)

So, is the action a buy?

While Sandstorm is cheap, the technical situation remains under pressure with Sandstorm recently breaking through key support at $ 5.95 on the weekly close. The next strong support level only comes in at $ 4.95, and with a new resistance level above $ 6.65, Sandstorm is trading in the middle of its current trading range. This doesn’t mean that Sandstorm needs to go all the way down to $ 4.95 or that it can’t bottom here, but with $ 0.90 up against resistance and $ 0.80 on the downside for support, the reward / risk ratio is only 1.13 to 1.0, and I generally prefer at least a 4 to 1 reward / risk ratio for small cap stocks. Therefore, the stock would have to drop below $ 5.25 to become technically attractive.

(Source: TC2000.com)

Sandstorm and Lidya have finally seen significant progress when it comes to starting construction at Hod Maden, and if things go as planned, the company has one of the most attractive growth profiles in the industry. This makes the stock a solid bet for investors preferring royalty / streaming names over producers, given that royalty / streamers are more insulated from inflationary pressures and generally see lower stock dilution. Given the improving outlook, offset by a weaker technical outlook, I would view any pullbacks below $ 5.25 as low risk buying opportunities.