Valuation The value of Sandstorm can be calculated by using the discounted net present value of future streams. A multiple on the operational cash flow for next year is another method used frequently. I prefer the first method as it not only looks at the cash flow for next year, but also includes the cash flows further ahead. I am well aware of the inevitable uncertainty that goes along with this. For both methods however, the current cash balance should be added to the number calculated. A lot of people tend to forget this.
In case you have two identical streaming companies, but one has $ 120 million in cash and the other not, the difference in valuation should correspondingly be the same $ 120 million.
I put all numbers of all streams in a spreadsheet and reached a bottom line DCF of $ 876 million for Sandstorm. Add $ 125 million for cash at the bank and the total enterprice value is $ 1 billion. This equals $ 11.90 a share, which is probably disappointing for most people. To achieve the same valuation based on the operational cash flow (the other method), the multiple should have been 12.5.
If we now assume that gold remains at $ 1,700 and Sandstorm will not sign new deals, the share price in two years, based on this second method, will be $ 16.00 (this includes warrant conversion). Another two years down the road, the share price would reach $ 18.00. The rise of the share price while the price of gold and the numbers of streaming deals remain the same, is caused by the fact that more streams come online and or some streams further develop in this period of time. After those four years the growth stagnates (with the assumption no new deals will be made).
Another interesting observation is that the Aurizona deal with Luna Gold contains over 50% of Sandstorms total value. Great to see that they managed to arrange this deal with Luna Gold and I am happy with this homerun, but I would love to see Sandstorm being less depending on one or a few streams but have a broader variation in its portfolio instead.