SND.to - Sandstorm Metals & Energy

[ItsAValueTrap]

I find the press release misleading.

 

Sandstorm says the reason why they avoiding taking over the joint venture is because they didn't want to dilute shareholders.  Yet they decided to pay Donner in shares instead of cash.  The smart capital allocators out there will use shares as currency when shares are overvalued.  This suggests that Sandstorm is overvalued.

 

From Donner's perspective, they will probably prefer cash.  Donner is about to enter liquidation as it will be unable to repay its debt.  It will need to sell the shares to fund its current cash needs.

[GrizzlyRock]

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.

 

As I am somewhat reticent to discuss SND in a public forum, allow me to post the above referenced report as below for investors to perform their own valuation work.

 

One note: this report uses values for silver of $12 per oz and $1,000 per oz gold as well as below market levels for Cu and Zn. If you want to sell me those metals at those prices please call me - I'll ring you back immediately...

 

Lastly, note the aforementioned report contains 2.6 million measured tons of ore (Table 1-3-1 on page 30 of the PDF). While the report does assume a 4 year mine life, a quick calc using 320 days of drilling per year and the current 3,000 tons per day currently being mined equals ~24 years.

 

I post this not to continue the thread - simply to provide fellow investors the source doc and a touch of context. Cheers!

Bracemac-McLeod_feasibility_report.pdf

[ItsAValueTrap]

Yes the feasibility study is old.  The current plan is for the ore to be mined at a faster rate and it is anticipated that the overall revenues will be much higher.  And as you rightly point out, commodity prices are higher.

 

Unfortunately I am too lazy to do the calculations/estimates.  Usually in the mining world, mines don't reach their nameplate capacity and mining companies don't make as much money as they said they would.  That's something I would worry about.  It has certainly been the case for almost every company in Sandstorm's portfolio (*some of it is legitimately due to bad luck from falling commodity prices)... they've made promises and have yet to deliver.

[Liberty]

http://seekingalpha.com/article/2114733-sandstorm-metals-destroying-shareholder-value-for-3-years

[augustabound]

Sandstorm Gold acquiring their little brother.  Each M&E share will convert to .178 Sandstorm Gold shares and 35 cents.

 

http://sandstormgold.com/news/release/index.php?content_id=387

 

The value of the Consideration represents a 43% premium over the closing price of the Sandstorm Metals Shares on the TSX Venture

[moustachio]

I can't seem to easily find out how much of each company the CEO owned. Is this self dealing? Either way, it is tough to see how this would be a positive move for you as a shareholder of Sandstorm Gold. Nolan Watson seemed to have a lot of followers. I don't think he quite deserves(deserved?) the positive reputation that he has(had?).

[ItsAValueTrap]

On SEDAR, you can find management information circulars that state Nolan's ownership.

 

Canadian Insider summarizes insider trading (it's easier to use than sedi.ca).  There hasn't been significant insider buying of Sandstorm Metals and Energy since they painted the tape a while back.

 

2- Nolan owns more of Sandstorm Metals and Energy than Gold I believe.

 

3- M&E and Gold are intertwined in some ways.  In some cases, Gold entered into a streaming deal.  Then they took that deal and stripped away part of the deal, which was resold to M&E so that Sandstorm Gold gets the gold royalty and M&E gets a royalty (or stream) on other metals.

 

I haven't figured out if a M&E bankruptcy would negatively affect Gold, or if M&E is close to entering bankruptcy.

 

3b- Because M&E is so small now, its overhead will be a massive headwind for M&E shareholders.  So the synergy of a merger kind of makes sense.

 

4- As I pointed out before, you should stay away from companies that have recently sold stock in a secondary offering or private placement or bought deal!  Either (A) they're stupid for paying so much money to sell shares or (B) shares are overpriced.

[augustabound]

Sandstorm Gold management information circular shows he owns $6.4M or just shy of $1M shares.

Metals and Energy 1.4M shares as of last years MIC.