Good article from Seeking Alpha re: Sandstorm and Metanor
I don't think Sandstorm will let Metanor go bankrupt, at least not anytime soon... Sandstorm Posts Solid Q4 Earnings, But A Few Concerns Remain Mar. 19, 2015 11:32 AM ET | 3 comments | About: Sandstorm Gold Ltd. (SAND), Includes: FNV, LGCUF, RGLD, SLW Disclosure: The author is long SAND, FNV, SLW. (More...) Summary •Sandstorm recently announced its fourth quarter and full-year 2014 financial results. •The results were solid: Sandstorm earned $8.9 million in operating cash flow and $2.6 million in net income for the quarter, despite lower gold prices. •However, several question marks remain on two of Sandstorm's main streams. Sandstorm Gold SAND Chart SAND data by YCharts Sandstorm Gold (NYSEMKT:SAND) recently announced its fourth quarter and full-year 2014 financial results, and the company basically met my expectations. But issues on a few of the company's main streams are keeping me concerned. For the fourth quarter, the company reported gold equivalent production of 10,424 ounces, revenue of $12.5 million, average cash costs per ounce of $308 (leading to margins of $890 per ounce), operating cash flow of $8.9 million and net income of $2.6 million. For the full-year 2015, results were similar as Sandstorm earned $35.2 million in operating cash flow and $11.5 million in net income on 44,821 gold ounces sold. What's more: Sandstorm ended the year with $90 million in cash and zero debt. With a $100 million undrawn credit facility, the company has up to $190 million it can spend on new deals to grow the business. Despite the solid results, a few big question marks remain. One concern is on the company's Bachelor Lake stream (20% of gold production), which produced $7.23 million in cash flow in 2014. The operator, Metanor Resources, announced on Feb. 24 that it would amend its $10 million convertible debentures, extending the maturity date by 24 months, to August of 2017. However, the amendment is conditional upon an equity financing of a minimum of $3 million being completed and immediate repayment of $1 million in principal and interest. Metanor announced that it will be offering by private placement through Secutor Capital Management Corp. and Marquest Capital Markets a maximum of 66,666,667 units priced at $0.06 each, which consist of one common share and one half (1/2) of one common share purchase warrant. However, no such transaction has taken place since that announcement, so I'm a little worried Metanor will be able to raise the money via equity. MTO Chart MTO data by YCharts The company carries a market cap of just $11 million and recently had quite a poor quarter, with lower than expected production and higher cash costs, leading to a net loss of $3.74 million. So despite recent exploration success at Bachelor Lake, including high-grade drill results and a new gold corridor discovery, there's no guarantee the company will complete a financing here, although it's certainly possible Sandstorm would provide financing should no one else. The other main concern is the Aurizona Stream (17% of gold production), with Luna Gold (OTCQX:LGCUF) the operator. This stream provided Sandstorm with $10.54 million in cash flow for 2014. However, as I previously mentioned in an article, Luna Gold's new mine plan calls for the shutdown of operations later this year and a potential restart of operations by 2017. But that is contingent upon financing and a gold stream negotiation with Sandstorm. Raising money in this gold environment is proving to be a very difficult thing for Luna, because no deal has been announced yet. I'm optimistic the issues at the Bachelor Lake mine will be worked but I'm still uncertain what will become of the Aurizona mine. Still, Sandstorm remains an attractive stock, with 39% of its gold production coming from its royalties, according to the annual report. And you could argue that the issues mentioned are already priced in. With a market cap of $365 million and $90 million in cash, Sandstorm's enterprise value is just $275 million, which gives the company an EV/EBITDA of 8.26 - far lower than peers Royal Gold (NASDAQ:RGLD) at 17.5, Franco Nevada (NYSE:FNV) at 18.8, and Silver Wheaton (NYSE:SLW) at 19.4. I wouldn't recommend selling shares of Sandstorm here, but I wouldn't buy either as I think there could be a better entry point for investors in the next month or so, and I'd like to see Metanor resolve its issues first. Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.