AMP portfolio: Sandstorm target $15.25Sandstorm Gold Ltd.
SSL : TSX-V : C$11.50
Target: C$15.25
COMPANY DESCRIPTION:
Sandstorm Resources is a gold stream royalty company with gold streams on the Aurizona mine (17%, Brazil), Santa Elena mine (20%, Mexico), Black Fox mine (12%, Canada), Ming project (10%, Canada), Bachelor Lake project (20%, Canada), Summit mine (50%, USA) and the Bracemac-McLeod project (17%, Canada). Combined, Sandstorm’s share of annual gold production should grow to 34,000 ounces of gold per year by 2012 up to 50,000 ounces by 2014. All amounts in C$ unless otherwise noted.
Investment highlights
Sandstorm announced that it has entered into an agreement with Mutiny Gold Ltd. (MYG:ASX:Not Rated) to purchase 15% of the gold produced from its Deflector project in Australia.
The deal calls for SSL to make an upfront payment of US$9 million to MYG with an additional US$29 million payment upon receipt of the mine permits and certain funding conditions. In exchange, Sandstorm is to receive 15% of gold produced from the Defector project at a cash cost of US$500 per ounce. If the project produces more than 85,000 ounces in a year, SSL is to make a one-time additional payment of US$4 million to MYG.
MYG has the option to buy-back 50% of SSL’s precious metals stream within 36 months, from the date of the second payment, for the greater of US$24.7 million or 14,472 ounces of gold.
Valuation
The deal marks SSL’s first venture into the Australian mining space. After adjusting our model for the Defector project stream, our estimate of peak gold price NAVPS (5%, US$2,000/oz) has increased marginally to C$11.73, up from C$11.66 previously. We continue to value the shares of SSL based on a 1.30x multiple to our estimate of peak gold price NAVPS (5%, US$2,000).