National Bank increased target to $0.45 from $0.35 Below is their latest bulletin on SND:
September 20, 2012 The NBF Daily Bulletin
Metals & Mining
Sandstorm Metals & Energy Ltd.
SND Broadens Commodity Exposure
SND Acquires 35% of Palladium from Serra
Pelada
Stock Data:
52-week range (Cdn$) $ 0.25 - $ 0.49
Current Price (Cdn$) $0.32
Bloomberg/Reuters: Canada SND CV / SND.TO
(Year-End Dec. 31) 2011e 2012e 2013e
EPS (US$) $0.00 ($0.00) $0.03
P/E --11.9x
CFPS (US$) $0.00 $0.00 $0.06
P/CF --5.5x
EBITDA (US$ Mln) $1.8 $2.7 $17.9
EV/EBITDA -22.5x 3.4x
Met. Production ('000's tons) 4.0 5.0 0.0
Met. Cash Cost (US$/t) $75 $75 $0
Financial Data:
Shares Outstanding (mln) 317.8
Market Capitalization (Cdn$ mln) $102
Fully Diluted (mln) 332.4
Book Value per Share (Cdn$) $0.40
Price/Book Ratio 0.8x
Net Asset Value per Share (Cdn$) $0.43
Price/NAV 0.7x
Total Debt (Cdn$ mln) $0.0
Total Cash (Cdn$ mln) $41.6
Source: NBF Estimates / Thomson
.
SND acquires palladium stream from Colossus Minerals
Inc. (CSI-T; Not Rated). SND agreed to acquire 35% of future
palladium production from the Serra Pelada development
property in Para, Brazil. SSL has made an up-front payment of
US$15 mln which is repayable in 12 months time through
cash or shares. SND will also make ongoing payments equal
to the lesser of US$100/oz palladium and spot. We model a
10-year mine life at Serra Pelada with LOM average
production of 38 Koz/yr beginning in Q4 2013.
.
Buyback option for CSI. Until April 1, 2015, CSI has the
option to purchase up to 50% of the palladium purchase
obligation by making a US$9.75 mln payment. Exercise of this
option would decrease the percentage of palladium
purchased by SND to 17.5% from 35% - we don’t include the
exercising of this buyback in our estimates.
.
Expecting palladium grades to be a positive surprise
once mining begins. An initial resource estimate for Serra
Pelada is anticipated in Q1 2013, following ongoing
underground definition drilling and a bulk sample (to be
completed by year end). A historical non-compliant resource
estimate included Pd grades of approximately 4.09 g/t, but
with some intersections of +500 g/t Pd – there exists the
potential for an increase in mined grades.
.
Cash balance unchanged given agreement to defer
payment with SSL. We forecast SND’s cash position to be
approximately US$41 mln (essentially unchanged from June
30, 2012). With Bracemac-McLeod Cu stream set to start
production in H1 2013 and the Serra Pelada palladium stream
coming online in Q4 2013, our modeled cash flow is set to
increase to US$36 mln by 2014 from US$0.4 mln in 2012.
Industry Rating: Market Weight
(NBF Economics & Strategy Group)
Company Profile:
Sandstorm Metals & Energy is a growth focused junior
royalty company looking to acquire base metal, bulk
commodity and energy production streams from advanced
stage development projects or operating mines. The royalty
framework is attractive to investors looking to maintain
.
Incorporating Serra Pelada boosts target. We are
increasing our target price to $0.45 (was $0.35) and maintain
our Sector Perform rating. We’ll look to upgrade our rating with
future deals structured in this fashion.
Stock Performance
exposure to exploration success, expansion possibilities
and metal price movements while reducing risks typically
associated with operating companies.
SND (T-VEN) Cdn$0.32
Stock Rating: Sector Perform
(Unchanged)
Target: Cdn$0.45
(Was Cdn$0.35)
Risk Rating: Above Average
(Unchanged)
Est. Total Return 41%
HIGHLIGHTS
Shane Nagle, CFA - (416) 869-7936
shane.nagle@nbc.ca
Associate:
Craig Thompson - (416) 869-6538
craig.thompson@nbc.ca
Victor Cheung, B.H.Sc. - (416) 869-8042
victor.cheung@nbc.ca
Page 2
Transaction Overview
This morning, Sandstorm Metals & Energy announced an agreement to purchase 35% of
future palladium production from Colossus Minerals Inc.’s (CSI-T; Not Rated) Serra Pelada
mine in Para State, Brazil. The deal comes via a back-to-back agreement between
Sandstorm Gold (SSL-T; $15.25 TP, OP) and CSI. As part of the transaction, SSL funded the
initial US$15 million up-front payment on SND’s behalf, which is scheduled to be repaid in 12
months time in either cash or shares (priced as of yesterday’s close). We are modeling a
cash repayment of US$15 million in Q3 2013.
SND will also make ongoing payments equal to the lesser of US$100/oz palladium and spot.
Additionally, CSI will have the option, until April 1, 2015, to purchase in whole or in part, up to
50% of the palladium agreement by making a US$9.75 million payment to SND, whereupon
the percentage of palladium to be purchased shall decrease to 17.5% from 35%.
The deal is expected to generate approximately US$13.5 million in annual operating cash
flow once in production (Q4 2013).
FIGURE 1: ESTIMATED OPERATING CASH FLOW FOR SND
US$ mln
$40
$35
$30
$25
$20
$15
$10
$5
$0
2012 2013 2014 2015 2016 2017
Source: NBF Estimates
Terrex Energy
Thunderbird
Energy
Colossus Minerals
Donner
Metals
Serra Pelada Property
Serra Pelada is located in the Carajas region, near the towns of Curionopolis and
Parauapebas in Para State, northern Brazil. Colossus has been developing the project since
2007 and in March 2010, expanded its land package by acquiring 774 hectares of additional
ground neighbouring to Serra Pelada.
FIGURE 2: SERRA PELADA
Source: Company Reports
Page 3
The project currently does not have a NI-43-101 compliant resource estimate. However, an
underground exploration development program was initiated in mid-2010 to further define the
deposit and Colossus is advancing the development of an underground decline to provide
access for detailed exploration and definition drilling. We are modeling a 4.0 million tonne
resource, grading 12 g/t gold, 2 g/t Pt and 4 g/t Pd which is comparable to a historical
non-compliant resource estimate completed in November 2008. An underground bulk
sample from the deposit is expected to be carried out prior to year end and an initial 43-101
compliant resource estimate is anticipated in Q1 2013.
FIGURE 3: SERRA PELADA RESOURCE
NBF Estimates
Tonnes, 000's Metal Grade, g/t Contained, oz 000's
4,000 Au 12.00 1,543
Pt 2.00 257
Pd 4.00 514
November 11, 2008 Non-Compliant Resource Estimate
Tonnes, 000's Metal Grade, g/t Contained, oz 000's
3,700
Au 15.20 1,808
Pt 1.89 225
Pd 4.09 487
Source: NBF Estimates, Metals Economics Group
Due to the nature of the deposit, a compliant resource estimate has never been determined.
Drilling through the sandstones has been difficult – primarily causing poor core recoveries
and increased drilling costs. The bulk sample will help Colossus better understand the
characteristics of the orebody, which will aid in mine planning and give a better sense of how
grades reconcile with previous drilling. The difficulty in estimating the overall resource is likely
a significant benefit to SND, as grades (particularly PGMs) are likely understated. The PGMs
in the deposit occur along fractures and are associated with intense hydrothermal carbon and
an argillic (kaolinite-mica) alteration. With some drill intersections returning significant widths
grading in excess of 500 g/t Pd – we suspect there’s significant upside to our 4 g/t estimate
once mining is underway.
FIGURE 4: CROSS SECTION OF THE CMZ AT 00
Source: Company Reports
Page 4
We are modeling initial production in Q4 2013, ramping up to a rate of 60,000 oz of palladium
per year by 2014. Over our modeled 10-year mine life, annual production is expected to
average 38,000 ounces of palladium at our mined grade assumptions of 4 g/t (assuming
recoveries of 75% and a 1,000 tpd milling rate).
Our estimated production profile for Serra Pelada is outlined in Figure 5 below
FIGURE 5: SERRA PALEDA PRODUCTION PROFILE
0
5
10
15
20
25
Attributable Production, ounces 000's$-
$50
$100
$150
$200
$250
Total Cash Costs, US$/oz
2013
2014
2015
2016
2017
2018
2019
2020
2021
Palladium
Palladium Cash Costs
Source: NBF Estimates, Company Reports
Target Price & Rating
We revised our valuation by incorporating the palladium stream from Serra Pelada and the
associated US$15 mln payment to SSL in Q3 2013. Based on our production estimates, the
acquisition increased our NAV for SND to US$144.5 million (was US$110 million) or $0.43
per fully diluted share (was $0.33/sh).
SND has been off to a rough start given liquidity problems with the operators of its two coal
streams, Novadx and Royal Coal Corp. (compounded by a period of depressed coal prices).
With Bracemac-McLeod set for initial production in H1 2013 and Serra Pelada coming online
in Q4 2013, two cash-producing royalties are set to increase cash flow. With these streams
not reaching full production until 2014, we adjusted our multiple to include a proportion of
NAV and now use a target multiple of 4.0x EV/2013E EBITDA (50%) + 1.25x NAV (50%),
which yields a target of $0.45. Our previous target of $0.35 was based solely on a multiple of
4.0x EV/2013E EBITDA.
With cash flow coming from the Serra Pelada stream as soon as Q4 2013, this is the type of
transaction that can help SND get off the ground and we’re encouraged that future
transactions may occur with the support of SSL. For now, we are maintaining our Sector
Perform rating, but will look to increase our rating with the announcement of future deals.
Page 5
STOCK RATING Sector Perform TICKER SND-V
TARGET PRICE (C$) $0.45 CURRENT PRICE (C$) $0.32
RETURN TO TARGET 41% 52-WEEK HIGH (C$) $0.49
RISK RATING Above Average 52-WEEK LOW (C$) $0.25
SECTOR RATING Market Weight SHARES OUTSTANDING (mln) 317.8
MARKET CAPITALIZATION (C$ mln)
FINANCIAL DATA STOCK CHART
Capital Structure Avg. Strike Price (C$) Shares (mln)
Shares Outstanding 317.8
Options $0.48 14.6
Warrants $0.70 155.5
Fully Diluted Shares 332.4
Balance Sheet (NBF Estimates US$M US$/sh C$M C$/sh
Current Cash $41.6 $0.13 $41.6 $0.13
F/D Cash Adds $115.9 $0.36 $115.9 $0.36
Working Capital $41.6 $0.13 $41.6 $0.13
Long-term Debt $0.0 $0.00 $0.0 $0.00
Book Value $125.7 $0.40 $125.7 $0.40
Enterprise Value (EV) $60.1 $0.19 $60.1 $0.19 Source: Thomson
EV = Market Capitalization - Working Capital + Long-term Debt RECENT FINANCINGS / ACQUISITIONS
C$/US$ FX Rate: 1.00
Financial Forecast 2010A 2011A 2012E 2013E 2014E
Met. Coal Price, US$/tonne $179 $219 $211 $200 $195
Thermal Coal Price, US$/tonne $62 $75 $59 $70 $70
Oil Price, US$/bbl $79 $81 $80 $90 $90
Natural Gas Price, US$/mcf $4.43 $4.12 $2.16 $3.00 $4.50 CORPORATE AFTER-TAX NAV SUMMARY AND SENSITIVITY
Copper Price, US$/lb $3.42 $4.00 $3.56 $3.50 $3.25
C$/US$ FX Rate $1.03 $0.99 $1.00 $0.98 $0.98 Spot
Shares O/S, millions 4.4 251.0 317.8 317.8 317.8 $2.00 $3.50 $5.00 $3.75
In US$ million $300 $600 $900 $675
Revenue $0.0 $5.2 $3.2 $26.2 $48.3 $100 $200 $300 $155
Operating Cost $0.0 $2.9 $0.9 $6.2 $10.0 $65 $80 $95 $60
G&A Expense $0.4 $2.3 $2.0 $2.0 $2.0 $75 $100 $125 $95
EBITDA ($0.6) $1.8 $2.7 $17.9 $35.1 $2.00 $3.00 $4.00 $2.80
DD&A $0.0 $0.9 $0.8 $5.6 $9.7 $26.6 $26.6 $26.6 $26.6
Earnings ($0.5) $1.5 ($0.9) $8.7 $19.0 $0.0 $0.0 $0.0 $0.0
Operating Cash Flow ($0.6) $0.1 $0.4 $18.9 $36.1 $0.0 $0.0 $0.0 $0.0
Investment $8.0 $90.9 ($1.4) $19.5 $0.0 $20.7 $29.7 $38.5 $27.9
Proceeds from Equity $92.7 $46.6 $0.0 $0.0 $0.0 $23.6 $39.0 $56.2 $41.9
Proceeds from Debt $0.0 $0.0 $0.0 $0.0 $0.0 $23.8 $23.8 $23.8 $23.8
Debt Repayment $0.0 $0.0 $0.0 $0.0 $0.0 $5.4 $29.5 $52.6 $35.3
Free Cash Flow $84 ($44) $2 ($1) $36 $95 $119 $145 $120
$0.08 $0.08 $0.08 $0.08
EPS (F/D), US$ ($0.00) $0.00 ($0.00) $0.03 $0.06 $0.00 $0.00 $0.00 $0.00
CFPS (F/D), US$ ($0.00) $0.00 $0.00 $0.06 $0.11 $0.00 $0.00 $0.00 $0.00
CFPS (F/D) Sensitivity, US$ -$0.00 $0.00 $0.00 $0.00 $0.06 $0.09 $0.12 $0.08
FCPS (F/D), US$ $0.25 ($0.13) $0.01 ($0.00) $0.11 $0.07 $0.12 $0.17 $0.13
CFPS sensitivity based on a US$50/t change in met. coal price. $0.07 $0.07 $0.07 $0.07
$0.02 $0.09 $0.16 $0.11
SALES PROFILE (ATTRIBUTABLE TO SND) $0.28 $0.36 $0.44 $0.36
1.1x 0.9x 0.7x 0.9x
2011A 2012E 2013E 2014E RLOM 1.6x 1.3x 1.0x 1.2x
Sales $0.00 $0.00 $0.00 $0.00
Copper, mln lbs --4.7 4.7 23 $0.03 $0.06 $0.09 $0.06
Palladium, oz 000's --2.6 21.0 135
Met. Coal, tons 000's 3 5 ---COMPARABLES (CONSENSUS)
Thermal Coal, tons 000's 46 ----
Oil, bbl 000's 12 27 65 90 852 Share EV
Natural Gas, mcf 000's -18 875 2,363 28,137 (US$m) 2012E 2013E 2012E 2013E
Franco Nevada FNV-T C$ 58.00 $4,657 26.9x 24.4x 14.5x 13.2x
Costs Royal Gold RGLD-US US$ 93.86 $5,537 27.5x 21.6x 27.2x 21.4x
Copper Costs, US$/lb --$0.80 $0.80 $0.76 Silver Wheaton SLW-T C$ 38.79 $10,040 20.2x 15.8x 14.4x 11.2x
Palladium, US$/oz --$100 $100 $102 Anglo Pacific APF-LN £2.80 $438 15.4x 19.2x 13.5x 16.9x
Met. Coal Costs, US$/ton $75 $75 ---Average 22.5x 20.2x 17.4x 15.7x
Thermal Coal Costs, US$/ton $55 $55 $55 $55 $55
Oil Costs, US$/bbl $15 $15 $15 $15 $15 Sandstorm (NBF) SND-T $0.32 $60 249.1x 5.5x 140.4x 3.2x
Natural Gas Costs, US$/mcf --$1.00 $1.00 $1.00
C$/US$: 0.98
Serra Pelada NAV(5%), C$ / F/D share $0.10
Nat. Gas Price (Nymex), US$/mcf
Terrex Assets NAV (10%), US$M
Terrex NAV(10%), C$ / F/D share $0.08
$26.1
Corporate NAV, US$M
EV/CF P/CFPS TickerCompany
$0.00
$0.06
2012E CFPS (F/D), US$
2013E CFPS (F/D), US$
Target Price / Corporate NAV 1.05x
$0.00
$0.00
Corporate NAV, C$ / F/D share
Current Price / Corporate NAV
Royal Coal NAV(8%), C$ / F/D share
0.74x
NovaDX NAV(8%), C$ / F/D share
$0.43
NovaDX Assets NAV (8%), US$M
Royal Coal Assets NAV (8%), US$M
$0.0
$0.0
Met. Coal Price, US$/t
Thermal Coal Price, US$/t
Corporate Adjustments, US$M
Oil Price (WTI), US$/bbl
Sept 19/12 - acq. 35% LOM Pd production from Serra Pelada for US$15M + US$100/oz
Aug 3/11 - acq. 17.5% LOM Cu production from Bracemac-McLeod for US$20M + US$0.80/lb
Aug 2/11 - acq. 35% of natural gas production from Thunderbird for US$10M + US$1.00/mcf
Aug 3/11 $49M (88.65M units @ $0.55 - 1 unit = 1 share + 1/2 $0.75 warrant exp. Dec 23/12)
FINANCIAL AND OPERATING SUMMARY: SANDSTORM METALS & ENERGY
$101.7
Corporate Adjustments, C$ / F/D share
$144
$26.6
$0.08
Serra Pelada NAV (5%), US$M $33.1
Copper Price, US$/t
Bracemac-McLeod NAV (10%), US$M
Thunderbird NAV (10%), US$M
$34.8
$23.8
Palladium Price, US$/oz
Base Case
Bracemac-McLeod NAV(10%), C$ / F/D share
Thunderbird NAV(10%), C$ / F/D share
$0.10
$0.07
$0.00
$0.05
$0.10
$0.15
$0.20
$0.25
$0.30
$0.35
$0.40
$0.45
$0.50
9/19/201111/19/20111/19/20123/19/20125/19/20127/19/20129/19/2012
Price $
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Volume (000s)
Source: NBF Estimates, Bloomberg, Reuters, Company Data
Page 6
DISCLOSURES:
Ratings And What They Mean: PRIMARY STOCK RATING: NBF has a three-tiered rating system that is relative to the coverage universe of the
particular analyst. Here is a brief description of each: Outperform – The stock is expected to outperform the analyst’s coverage universe over the next 12
months; Sector Perform – The stock is projected to perform in line with the sector over the next 12 months; Underperform – The stock is expected to
underperform the sector over the next 12 months. SECONDARY STOCK RATING: Under Review . Our analyst has withdrawn the rating because of
insufficient information and is awaiting more information and/or clarification; Tender . Our analyst is recommending that investors tender to a specific
offering for the company’s stock; Restricted . Because of ongoing investment banking transactions or because of other circumstances, NBF policy and/or
laws or regulations preclude our analyst from rating a company’s stock. INDUSTRY RATING: NBF has an Industry Weighting system that reflects the view
of our Economics & Strategy Group, using its sector rotation strategy. The three tiered system rates industries as Overweight, Market Weight and
Underweight, depending on the sector’s projected performance against broader market averages over the next 12 months. RISK RATING: NBF utilizes
a four-tiered risk rating system, Low, Average, Above Average and Speculative. The system attempts to evaluate risk against the overall market. In
addition to sector-specific criteria, analysts also utilize quantitative and qualitative criteria in choosing a rating. The criteria include predictability of financial
results, share price volatility, credit ratings, share liquidity and balance sheet quality.
General – National Bank Financial (NBF) is an indirect wholly owned subsidiary of National Bank of Canada. National Bank of Canada is a public company
listed on Canadian stock exchanges.
The particulars contained herein were obtained from sources which we believe to be reliable but are not guaranteed by us and may be incomplete. The
opinions expressed are based upon our analysis and interpretation of these particulars and are not to be construed as a solicitation or offer to buy or sell
the securities mentioned herein.
Research Analysts – The Research Analyst(s) who prepare these reports certify that their respective report accurately reflects his or her personal opinion
and that no part of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views as to the securities or
companies.