SND.to - Sandstorm Metals & Energy

[ItsAValueTrap]

and am trying to look for obvious reasons not to take a stake in it.

 

Isn't it obvious that you should stay away from companies that are selling shares?  Typically, selling shares is really expensive.  The frictional costs run several percent for the underwriting fees alone.  (Plus there are additional costs in terms of management's time, legal costs, filing fees, stock promotion costs, etc. etc.) 

 

There are some exceptions to this rule.  Some companies do benefit from larger scale.... but Sandstorm doesn't (in the same way that Berkshire Hathaway's size hurts performance).  Some companies legitimately need to raise capital (e.g. the few exploration companies that actually find an economic deposit).  Some companies can arbitrage the valuation differences in their stock versus other companies.  Value is created when a well-managed company takes over a poorly-managed company (e.g. Capital Cities/ABC).

But it looks to me that Sandstorm is mining the capital markets.  Nolan is a smart guy... don't you think that he is selling shares because they are overvalued?

 

2- Look into the history of this industry.

 

Very few exploration-stage companies will actually find a promising deposit.

Maybe 2/3rds of all mining projects that go into production turn out to be commercially viable and profitable.  For various reasons, projects fail.  (This is a very rough figure.)

 

Very few companies will actually make a profit.  Yet almost every publicly-listed company will claim that they have an amazingly profitable project.  This is one explanation as to why commodity futures outperform commodity stocks.

[AchilliesValue]

and am trying to look for obvious reasons not to take a stake in it.

There are some exceptions to this rule.  Some companies do benefit from larger scale.... but Sandstorm doesn't (in the same way that Berkshire Hathaway's size hurts performance). 

 

I think in this case there is some benefit.  Right now the success of SND is appears largely based on copper's success (and indirectly can also economically fail if Zinc prices fall). A lot of people myself included are probably concerned about that exposure to copper. If the share issuance is to fund another stream that is a different commodity AND increases the overall value then I view it as beneficial. Your point about frictional costs is valid though. 

 

There is the possibility that SND already has diversified the risk with the Serra Pelada stream but its impossible for the public to put a value on the stream and we are forced to go with managements projections.  That's why while I bought a few shares it will remain a small position until further clarity is given on the project.

 

Grizzly thanks for sharing your insights

 

On another note there was a scary article in the journal today about Copper regarding its increasing popularity with commodity trading firms. http://online.wsj.com/article/SB10001424127887324125504578511852416454518.html?mod=ITP_moneyandinvesting_0

[GrizzlyRock]

and am trying to look for obvious reasons not to take a stake in it.

 

Isn't it obvious that you should stay away from companies that are selling shares?  Typically, selling shares is really expensive.  The frictional costs run several percent for the underwriting fees alone.  (Plus there are additional costs in terms of management's time, legal costs, filing fees, stock promotion costs, etc. etc.) 

 

There are some exceptions to this rule.  Some companies do benefit from larger scale.... but Sandstorm doesn't (in the same way that Berkshire Hathaway's size hurts performance.

 

Let's take a "standard" business that makes widgets and owns 1 factory. If we then sell shares of this factory we are diluting the other shareholders.  This is the main reason selling shares is poor.

 

In the case of Sandstorm Metals and Sandstorm Gold, management is sourcing attractive projects and then raising capital to deploy in to projects that have a higher IRR than Sandstorm's cost of capital. This is effectively building another factory as opposed to our straw-man example of diluting existing shareholders.  In this case it actually makes the cash flow stream to SND holders more diverse and robust therefor lowering SND's implied cost of capital.

 

I don't disagree that spending cash, management time, and underwriting fees is expensive. It just is what it is for SND in the near term. Share issuance is part of the model.

[netnet]

Let me start off by saying I'm neutral to slightly positive on this name.

 

As a general construct, let's just supposed that you just watched a young Warren Buffett stub his toe on buying either a department store or even worse, some broken down, but asset rich suit liner company.  Now what would your analysis of those deals tell you about Warren's progress over the next 35 years?  I would argue not much. 

 

So I definitely appreciate the analysis Grizzly and not that one should not do the analysis, but go further, the question is the industry and the management right?  A growing royalty/streaming  business well executed at the right price looks pretty good to me.  So the fundamental question is does the analysis indicate that the operator, ie Nolan Watson is the real deal given his prior accomplishments?

 

 

Isn't it obvious that you should stay away from companies that are selling shares?...But it looks to me that Sandstorm is mining the capital markets.  Nolan is a smart guy... don't you think that he is selling shares because they are overvalued?

Yes, unfortunately, Nolan Watson helped build Silver Wheaton up by serial capital raises.  That did work and quite well, but may not have been the best lesson to learn.  Nevertheless, the arbitrage between raising somewhat expensive capital to deploy to get usurious rates is capitalism at its finest.  (Let's call it reputable payday lending!)

 

 

 

Look into the history of this industry.

 

Very few exploration-stage companies will actually find a promising deposit.

Maybe 2/3rds of all mining projects that go into production turn out to be commercially viable and profitable.  For various reasons, projects fail. 

 

Not really germane the industry in question is mine finance--royalty and streaming.

 

 

[valuecfa]

and am trying to look for obvious reasons not to take a stake in it.

 

Isn't it obvious that you should stay away from companies that are selling shares?  Typically, selling shares is really expensive. 

 

I was trying to be nice...

 

but i am interested in the model of loaning money for discounted streams of cash tied to commodities...I'd just be more interested if the money were already readily available.

[ItsAValueTrap]

but i am interested in the model of loaning money for discounted streams of cash tied to commodities

What you're interested in sounds a lot like gold loans (which I view as loans combined with a commodity forward contract).  That financial instrument isn't really popular right now, though I think it does have merit.  Would you rather hoard physical gold via GLD or would you rather own gold loans?  I think many people would rather own gold loans.  Then again, there aren't a lot of gold loans right now.

 

*Sandstorm's streaming deals resemble royalties more than gold loans (or the non-gold equivalent of gold loans). 

 

Not really germane the industry in question is mine finance--royalty and streaming.

When you analyze Sandstorm's assets, I think some skepticism is in order.  Sandstorm is doing business with juniors with extremely marginal projects that may not go through.  There is the risk that Sandstorm's streams won't pay out... which has currently been the case.

 

You have to be extremely careful with juniors.  They lie about their reserves all the time.  For example, add up all of the gold on the stock market.  e.g. Canada Lithium used to have a million ounces of gold, Barkerville has 65-90 million, etc.  There's way too much gold out there... most juniors are lying about their economics.

 

---

In any case, it's "obvious" to me that Altius Minerals is a better mining-related company than Sandstorm.  Better track record, better management, and they are buying back shares (not selling them).

 

Or to look at it a little differently.. I think that it's "obvious" that most economic projections thrown about are bogus and inflated.  Garbage in garbage out.  Anyways, I think I am beating a dead horse here so I will bow out.

[myvalueedge]

For those who follow SND closely (GrizzlyRock & AAOI) I have a few thoughts and would appreciate any input.

 

Q1 FY13 shows a cash balance of $11.1M (3/31/13).  Cash payment for Prairie Creek was $6.8 on 5/31/13.  From the 10Q on pg 6 regarding Gordon Creek they state "the remaining $7M upfront payment, which is scheduled to be paid on May 15, 2013, is still subject to certain funding conditions."  I am assuming the payment has not been made considering there as been no disclosure from mgmt and they would only have $4.8M of cash considering there is no cash flow coming in yet.

 

From a capital standpoint, potentially raising over $90M before 11/2015 considering a current market cap of $105M seems to be a bit of a stretch at the moment (reference to agreement with Canadian Zinc).  Meanwhile you currently have no cash available to deploy if potentially lucrative streaming deals present themselves.  Nolan Watson mentioned that they didn't expect cash flow from Bracemac-Mcleod until 4Q FY13.  You have Thunderbird struggling for capital and most likely will not meet the minimum cash flow ($2.3M) in 2013.  Serra Pelada is not due to start production until Q4 2014.  Long story short you have to raise cash and clearly Nolan will do that via equity rather than debt.  Problem is the stock is hovering close to its all time low.  I am not too concerned about raising equity as much as I am concerned with the issues surrounding current streams (Gordon Creek) and lack of cash flow in the near term.

 

Another issue with raising equity is the credibility for SND.  The deals with Terrex & Novadx have both soured and it has been two and a half years since inception without any significant cash flow coming in quarterly.  So when SND goes to issue shares I am not certain how receptive the market will be.

 

Now that the coal assets are out of the picture and the natural gas stream is in trouble we are left with a large exposure to copper, palladium, and the NSR on the Prairie Creek base metals as the only commodity exposure.  I would be more comfortable when SND has a more diversified set of streams as stated by GrizzlyRock.

 

I am a bit concerned with a potential negative move when SND goes to raise capital as I think it is necessary.  I am confident that Nolan Watson will steer the company in the right direction over the long haul, but may consider getting out for a bit.  Considering there is no near term cash flow or potential stream acquisitions (no money to invest) I think there are more catalysts to the downside at the moment.

 

 

 

http://sandstormmetalsandenergy.com/_resources/financials/2013/SND-Q1-2013.pdf

 

 

[GrizzlyRock]

"The future is never clear, and you pay a very high price in the stock market for a cheery consensus. Un-certainty is the friend of the buyer of long-term values.”    - Warren Buffett

myvalueedge - Sandstorm Metals is currently sitting on their cash flow inflection point with cash beginning to flow at Donner's Brace mine this month and cash flow 5 to 6 quarters away at Colossus' Serra Pellada.  In the meantime, the company has no necessary payments in the interim. They could sit on their hands in perpetuity with no need to deploy cash.

 

Gordon Creek's wells remain under water and thus SND doesn't have to fund the last $7 million. WRT the Canadian Zinc, any potential stream will be considered upon Canadian Zinc's receipt of final approval from the government (expected Q4 2013). Lastly, you give no effect to the in-progress workout assets which will can be monetized in the short term if SND desires?

 

Are there going to be future equity raises? Yes.  But now we're back around to last month's straw man argument...

[myvalueedge]

Many thanks for your comments.  I did not mention the workout assets.  You have Novadx, the approx. $3M in equipment from Terrex, Thunderbird shares, and Anterra shares & convertible debt.

 

Do you know where SND is at with Novadx?  I tried to find some additional information online besides the announced acquisition alongside Novadx Ventures.

 

http://www.goldseiten.de/artikel/158869--Sandstorm-and-Novadx-Announce-the-Completed-Acquisition-of-Additional-Rex-Coal-and-Related-Assets-in-Tennessee.html

 

I am concerned about the capital needs for Thunderbird.  As of 1/31/13 they had $658K of cash on their balance sheet.  Approx. $9M in debentures due 10/31/13 plus what is owed to SND.  The wells are currently full of water and it does not seem like they have the cash to drill anymore wells until the others start producing cash flow.  Any idea how you see this playing out?

 

 

[Otsog]

ummmmmmm........... wat just happened  ???

 

 

edit: something to do with colossus? CSI up 20% today

[PlanMaestro]

Sandstorm Metals & Energy Amends Donner Copper Stream

http://www.newswire.ca/en/story/1195631/sandstorm-metals-energy-amends-donner-copper-stream

 

A stream is just another contract that can be renegotiated?

[Liberty]

Sandstorm Metals & Energy Amends Donner Copper Stream

http://www.newswire.ca/en/story/1195631/sandstorm-metals-energy-amends-donner-copper-stream

 

A stream is just another contract that can be renegotiated?

 

Looks like it. Since the coal deals went south, it seems like almost none of the stream deals have stayed what they originally were supposed to be.

 

I understand that the flexibility is part of what attracts deals vs borrowing from banks or equity, and that there's no much benefit for SND in squeezing and bankrupting its partners... But at the same time, if the stream deals don't actually provide any real predictability and SND's only practical protection ends up being when things go all the way to a bankruptcy, this makes the model less attractive IMO.

[Liberty]

I don't own any SND, but I like to keep an eye on it. This is from a message board, someone called the company's IR guy:

 

called Denver Harris. He said Donner underestimated the amount for cash calls from Xstrata. So, SND is giving them time to get going. He did predict SND getting money from the stream some time in 1st quarter 2014.

    I asked him re: TBD. He said that TBD underestimated the size of pumps needed to pump out water. Only one well is really producing, but he did say they were "very close to production". As we know, SND did not give them the 7 million in May 2013. This would decrease the stream from 35% to  25%, which SND rationalizes would decrease the burden on TBD. TBD is trying to raise funds.

    we'll see.

[AchilliesValue]

Hard to believe they'd give them more time for nothing. I read it as a terms were not disclosed when the report came out but I guess that was a mistake.

[Otsog]

Me

Sandstorm Investor Relations

 

 

Do you know if there is going to be any further information released on the amendment to the Donner deal?

 

At this point, there really isn’t any further information to share about the amendment. Sandstorm waived Donner’s requirement to sell us copper in 2013 because Donner is in a position where they were not going to be able to meet their joint venture cash calls to Xstrata and the commitments under the Sandstorm copper stream this year. The amendment gives Donner more time to complete their financing so that they can put the funds in place to meet their joint venture commitments ahead of receiving cash flow from production.

 

We are supporting Donner so that they can get over this last financing hurdle and reach positive cash flow from their joint venture interest, which will allow Sandstorm to purchase our 24.5% of the copper in the first quarter of 2014.

 

 

Will Sandstorm's share of the 2013 copper be considered in arrears to be made up at a later date? 

 

Any copper that is produced and sold in 2013 will not be considered in arrears to be made up, but the cash flow guarantees that were part of the streaming agreement were deferred by one year (i.e. the cash flow guarantee for 2013 is now the guarantee for 2014 etc.). We were not anticipating the copper sales and cash flow to be overly material to Sandstorm until 2014 due to the timing delays that will occur between production at Bracemac-McLeod, the sale of the produced copper concentrate and Sandstorm receiving its share from Donner.

 

Will there be a release outlining the estimated financial effect of the amendment?

 

The financial effect of the amendment will likely prove to be somewhere around $1 million to $1.5 million.

[ItsAValueTrap]

Donner is extremely distressed right now.

 

http://donnermetals.com/donner-metals-financing-update/

 

They are selling shares at 5 cents/unit... far below the originally announced price.  At 4 cents/share, Donner's current market capitalization before selling the shares is around $10M. 

 

2- In hindsight, Sandstorm's decision to get shares in Donner doesn't look like a smart move.  It looks like Nolan sold Sandstorm shares when they were overvalued.

 

3- I think that most of the parties involved privately see Donner as being close to bankruptcy.  It's in most parties' interest to stave off bankruptcy since the bankruptcy process is very expensive.

 

4- I think that Sandstorm's model was to make streaming deals with juniors with marginal projects.  If the juniors are able to raise capital for their derpy projects, then Sandstorm stands to benefit.  This model doesn't work that well when commodity prices drop (their marginal projects are heavily affected) and when juniors have difficulty raising money.  It's been an absolute bloodbath for juniors this year... they will have a tough time raising capital in this environment.

[myvalueedge]

Current market cap is approx. $63M.  At inception 12/23/10 SND raised $99M.  I believe they raised additional capital at some point but I did not go through the filings to figure it out.

Considering the available streams, workout assets, and management I believe this to be an excellent opportunity to acquire additional shares.  I think the downside is minimal with potential for excess returns.

 

My main concern is cash.  Thunderbird and Donner need more of it and could potentially enter bankruptcy.  I believe SND has less than $5M cash on their balance sheet.  With the delay in cash flow from Bracemac-Mcleod they will have no cash flow until 2014 so they will be unable to provide additional capital to Thunderbird and Donner.

 

I am certain Nolan Watson will raise additional capital via equity.  At the current share price it is much less attractive.  Possibly he extends a loan, takes additional equity, or issues warrants funded from his personal wealth.

 

[myvalueedge]

Total equity raised excl. financing costs since inception = $139.17M

 

Current market value = 33,360,280 shares x C$1.31/share (TSX: SND) = C$43.7M

 

Current Streams (company - mine - total investment to date)

1) Donner Metals - Bracemac-Mcleod - $27M

2) Colossus Minerals - Serra Pelada - $15M

3) Entrée Gold - Hugo North Extension & Heruga - $5M

4) Thunderbird Energy - Gordon Creek - $20.6M

5) Canadian Zinc - Prairie Creek - $3.6M

 

Total invested in current streams: $71.2M

 

Workout Assets (company - total invested - value on balance sheet)

1) Novadx - $38.5M - $2M

2) Royal Coal - $14M - $2.2m

 

Current Assets

1) approximate cash = $7M

2) investments (shares in Donner, Thunderbird, Anterra) - $1.1M

3) Anterra Convertible Debenture = $4M

4) Equipment held for sale (fair value on balance sheet) = $2.924M

 

Total current assets = $15.024M

Promissory Note = $3M

Net assets = $12.024M

 

Shares have fallen over 40% over the past 3 weeks.  Roumell Asset Management (value shop with around $300M in assets) on 7/24 announced a 14.48% passive stake.  CEO announced on the conference call back in March "I will be buying shares on 3/28 until my trading restrictions are put on at quarter end."  Shares were trading around $4/share then.  SND does not have to make disclosures on the workout assets (coal assets) given their low carrying value on the balance sheet.  Considering their senior position written into the streaming contracts I imagine there must be some value out of the $52.5M total investment.

 

There are several catalysts at the moment: goods news out of the current streams (especially Donner or Thunderbird), any news on the workout assets, possibly raising money via debt, loan from Sandstorm Gold, or equity to enter more streams, possibly buy out the Donner Metals joint venture (Donner is strapped for cash and just struggled to raise around $3M in a private placement)

[myvalueedge]

 

SND should file their 10Q on Tuesday or Wednesday next week hopefully with some updates.

[ItsAValueTrap]

You can track insider trading here:

http://www.canadianinsider.com/node/7?menu_tickersearch=snd

 

I don't see a lot of insider buying.

[Liberty]

Q2: http://sandstormmetalsandenergy.com/_resources/financials/2013/SND-Q2-2013.pdf

[Liberty]

Going back to penny stock status despite the recent reverse split, it looks like  :P

[myvalueedge]

Sandstorm M&E put out their 10Q Monday evening providing updates on the current streams. The most pertinent information pertains to the Bracemac-Mcleod stream with Donner Metals.

 

On Tuesday, Donner Metals put out a press release stating they were unable to make a cash call in the amount of $4.3M to Glencore Xstrata.

 

http://donnermetals.com/wp-content/uploads/2013/08/NR13AUG13-Bracemac-McLeod-Interest.pdf

 

In the Metal Purchase Agreement between Sandstorm M&E and Donner Metals dated as of July 12, 2011, it states "Sandstorm Metals shall have the right to cure any event of default of Donner under the Development Agreement." A statement from the 10Q below regarding the Donner deal:

 

"In the event that Donner defaults on its joint venture agreement with Glencore Xstrata, Sandstorm has the option to assume Donner's 35% interest in the joint venture by remedying such defaults ("JV Option"). If Sandstorm exercises the JV Option, Glencore Xstrata has the ability to repurchase the 35% interest in the joint venture from Sandstorm in exchange for $49.0 million."

 

Here is the problem....Sandstorm M&E only has $2.841M of cash on its balance sheet! So right now it could not make the $4.3M payment to Glencore Xstrata that is owed by Donner.

 

Their most recent streaming deal on May 31, 2013, was done with Canadian Zinc for $6.8M with cash flow from the stream not expected until the end of 2015. The deal was done knowing the cash issues surrounding Thunderbird and Donner Metals. In fact, SND took an impairment to the Thunderbird assets of $12.1M for the quarter. So now SND is in a position where no cash is coming in, little ability to liquidate stock holdings to raise cash, G&A expenses are running around $2M for the first 6 months of 2013, a stock price that is down around 60% since May 2013, and the need to raise money. So any equity raised (if they could raise it) would be massively dilutive considering the stock price drop and any debt will most likely be very expensive considering the lack of cash flow. The best way to raise cash in my opinion would be a loan from Sandstorm Gold if it were feasible.

 

The Canadian Zinc deal has frustrated me. Donner Metals has been out raising cash via private placements and could only come up with $3M. SND had to have been aware of the cash flow issues and the probability that Donner would be unable to make some cash calls. This is evident when SND deferred any of the copper production from Bracemac-Mcleod for the full year 2013 even though production began May 2013.

 

Is SND not concerned about their own cash flow problems? Could they have skipped the deal to ensure they had plenty of cash on hand to step in to remedy the deal with Donner and Glencore Xstrata? SND must have known a severe drop in the stock price could be warranted since they have no cash coming in, almost 3 years and not one stream has worked out (wrote off coal assets and sale of Terrex), operational and cash flow issues at Thunderbird, cash flow issues with Donner, limited options with less than $3M in cash and limited ability to liquidate investment holdings.

 

I am left contemplating the rational for deploying capital in the Canadian Zinc deal considering the cash that is needed to support the current streams.

 

I think at the current price SND is undervalued. Roumell Asset Management, a value investing firm, took a 14.48% stake on July 24th. There are several catalysts at the moment: goods news out of the current streams (especially Donner or Thunderbird), any news on the workout assets, possibly raising money via debt or equity (if they can), loan from Sandstorm Gold, potential opportunity to buy out the Donner Metals joint venture.

 

Total equity raised excl. financing costs since inception = $139.17M

 

Current market value = 33,360,280 shares x C$1.20/share (TSX: SND) = C$40.03M

 

Current Streams (company - mine - total investment to date)

1) Donner Metals - Bracemac-Mcleod - $27M

2) Colossus Minerals - Serra Pelada - $15M

3) Entrée Gold - Hugo North Extension & Heruga - $5M

4) Thunderbird Energy - Gordon Creek - $20.6M

5) Canadian Zinc - Prairie Creek - $6.8M

 

Total invested in current streams: $71.2M

 

Workout Assets (company - total invested - value on balance sheet)

1) Novadx - $38.5M - $2M

2) Royal Coal - $14M - $2.2m

 

Current Assets

1) cash = $2.841M

2) investments (shares in Donner, Thunderbird, Anterra) - $1.1M

3) Anterra Convertible Debenture = $3.942M

4) Equipment held for sale (fair value on balance sheet) = $2.924M

 

Total current assets = $10.807M

Promissory Note = $3M

Net assets = $7.807M

 

[Otsog]

Sandstorm Metals & Energy Converts Bracemac-McLeod Stream Into 3% NSR Royalty

 

http://www.newswire.ca/en/story/1218219/sandstorm-metals-energy-converts-bracemac-mcleod-stream-into-3-nsr-royalty

 

VANCOUVER, Sept. 3, 2013 /CNW/ - Sandstorm Metals & Energy Ltd. ("Sandstorm Metals" or the "Company") (TSX-V: SND) is pleased to announce that it has converted its copper stream (the "Copper Stream") along with Sandstorm Gold Ltd.'s ("Sandstorm Gold") gold stream (the "Gold Stream") on the Bracemac-McLeod Mine ("Bracemac-McLeod") into a 3% net smelter returns royalty ("NSR") based on 100% of production from Bracemac-McLeod. Bracemac-McLeod is located in Matagami, Quebec and is owned and operated by a subsidiary of Glencore Xstrata plc ("Glencore"). The 3% NSR will be split between Sandstorm Metals and Sandstorm Gold (together "Sandstorm") based on the respective funds contributed to Donner Metals Ltd. ("Donner") in relation to the Copper Stream and Gold Stream, resulting in Sandstorm Metals receiving 80% of the proceeds from the 3% NSR (equivalent to a 2.4% NSR) and Sandstorm Gold receiving 20% of the proceeds from the 3% NSR (equivalent to a 0.6% NSR).

 

Sandstorm Metal's Copper Stream agreement with Donner entitled the Company to purchase 24.5% of the copper produced from Bracemac-McLeod at US$0.80 per lb. Donner held a 35% participating interest in Bracemac-McLeod (the "Joint Venture") but recently announced its inability to meet the cash calls under their Development and Operating Agreement with Glencore (see Donner press release dated August 13, 2013). Sandstorm Metals had the option to remedy the default by making the cash call payments to Glencore however this would have required Sandstorm Metals to raise a significant amount of equity.  In order to avoid diluting shareholders, Sandstorm Metals and Sandstorm Gold have agreed the following with Donner and Glencore:

 

Glencore has issued a 3% NSR to Sandstorm Metals on 100% of production from Bracemac-McLeod, which will be split 80% Sandstorm Metals and 20% Sandstorm Gold, in exchange for Donner's 35% participating interest in the Joint Venture and an option to acquire the Donner shares held by Sandstorm Metals.

 

Sandstorm Metals and Sandstorm Gold have relinquished the Copper Stream and the Gold Stream respectively.

 

Sandstorm Metals will issue 1,333,334 shares of Sandstorm Metals (at a deemed price of $1.50 per share) to Donner and Donner has provided each of Glencore and Sandstorm Metals with an irrevocable and unconditional release and discharge of any claim by Donner against Glencore or Sandstorm Metals and Donner agreed to an orderly completion of the transactions.

 

After the proceeds from the 3% NSR exceed $49 million, from that point forward, Sandstorm will pay a 1% NSR to Donner out of the proceeds of the 3% NSR.

Sandstorm's President and CEO Nolan Watson commented, "Although Sandstorm had the ability to assume and maintain ownership of the 35% joint venture in the event of a Donner default, the ongoing capital requirements would have required raising a considerable amount of capital resulting in significant dilution for shareholders. This transaction allows us to avoid dilution and the 3% NSR will begin generating cash flow in the fourth quarter of this year, transitioning Sandstorm Metals into a cash flowing company."

[ItsAValueTrap]

Ok so here's some information to figure out the value of the new royalty.

 

In Sept 2010, Genivar created a feasibility study for Xstrata, Donner's joint venture partner.  This is a very old feasibility study since there has been subsequent exploration.  The companies haven't issued a new feasibility study since (to me, that's a red flag; if the economics of a project are really bad, then they are less likely to update their feasibility studies).

http://www.sedar.com/GetFile.do?lang=EN&docClass=24&issuerNo=00022586&fileName=/csfsprod/data111/filings/01646195/00000001/g%3A\Sedar\DON\2010\BMFeas.pdf

 

Total revenues generated by the Bracemac-McLeod Project stand at US$496.1 millions, and profits before capital costs total US$229.2 M. Using a discount rate of 7%, the project has a net present value of US$3.4 million.

 

$496M times 3% = $14.88M.  If the mine operates longer then the royalty will see more revenues.