Excerpt from a 'Gold Report'Please note the text highlighted in bold. These points are a huge benefit of being in SND.
Enjoy!
CM: I'll talk about a few larger ones. I am really into the streaming and royalties companies because of the fixed cost structure, which will prevent margin contraction should input costs start to rise. One is Silver Wheaton. Another is Franco-Nevada Corp. (FNV:TSX), which is trading on the TSX. It's larger than Royal Gold Inc. (RGL:TSX; RGLD:NASDAQ). The federal government just accepted a refilling for the necessary permitting of one of its streaming acquisitions, Prosperity, that didn't get permitted initially. It will be run by Taseko Mines Ltd. (TK:TSX; TGB:NYSE.A), and it will add 66,000 oz./year attributable to Franco, which is pretty large for a streaming company at a $400/oz. ongoing purchase price. It's up-listing on September 8. The good thing about it is it has a monthly dividend, so you get the compounding effect as opposed to the quarterly dividend.
Fortuna is also a good play. Its San Jose mine just came on-line. One of my favorites for the last two years has been Sandstorm Resources, which split into two companies: Sandstorm Gold Ltd. (SSL:TSX.V) and Sandstorm Metals & Energy Ltd. (SND:TSX.V). Sandstorm Gold is headed by the former chief financial officer of Silver Wheaton. It spun out a sister company with metals (base metals) and energy, so it is the first to apply the streaming concept into the base metals and energy sector. In one year, it has already managed 10 legitimate streams.
TGR: Is that fraught with more risk, given the base metal crisis?
CM: Sandstorm Metals & Energy only has one base metal stream to date, but its purchase price is
.80/lb. of copper, and if the price of copper drops below $2.75/lb., the purchase price per pound drops to
.55/lb. Sandstorm has guaranteed minimum cash flows negotiated in several of its streaming agreements. It has met coal, thermal coal, oil and gas, copper and natural gas streams, and is looking to add uranium, iron-ore, geothermal and other base metals. Sandstorm Metals & Energy recently did an equity offering, and is currently suffering from the equity offering hangover, but it gives it plenty of ammunition if lucrative deals present themselves. Nolan Watson was the one who pioneered the streaming concept (along with Peter Barnes and others at Silver Wheaton), so this management is just incredible. Sandstorm Gold and Sandstorm Metals & Energy both have fewer than 15 people working. They have low selling, general and administrative expenses and pay minimal income tax. They have found high-quality assets that have already shown a lot of exploration upside. Sandstorm Gold is the only 100% gold royalty/streaming company aggressively seeking additional gold purchase agreements on top the seven already in place. In other words, they have figured out how to create companies highly involved in capital intensive industries without the heavy capital requirements, making them free cash flow machines, which will translate into dividend juggernauts within a few years.