2nd Qtr Drop due to Wuhan VirusSandstorm Gold — Second quarter production drop due to Wuhan Virus
Back in April, reasons for the company’s drop in quarterly production to 13,400 ounces, which, when annualized, would have been ~20% below its annual production guidance for 2020, which was subsequently withdrawn.
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At the time, we noted that the COVID-19 pandemic would probably have a more significant impact on Q2 production from the operations that underlie the company’s streams and royalties, including, among others,
Cerro Moro in Argentina (Yamana Gold,AUY.NYSE, YRI.T),
Fruta del Norte in Ecuador (Lundin Gold, LUG.T), and
Santa Elena in Mexico (First Majestic, AG.NYSE, FR.T).
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Production has been in decline since a peak in the third quarter of 2019 (17.3 koz).
In the end, Sandstorm’s production for the second quarter of 2020 (10.9 koz) was 18-19% below
the first quarter (13.4 koz) and 33% lower than the same quarter last year (16.4 koz).
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For comparison purposes, Barrick Gold (GOLD.NYSE, ABX.T) had expected a 15% drop
in Q2 gold production versus the same quarter in 2019 due, in part, to coronavirus-induced
disruptions at its Veladero mine in Argentina.
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Sandstorm Gold performed in-line with the GDXJ (147% vs. 151%) since the middle of
March, when the gold price began its rebound.
However, the royalty/streaming company underperformed both Pan American Silver Corp. (PAAS.T, PAAS.NASDAQ) and Premier Gold (PG.T, PIRGF.OTC), which were up 170-180%, respectively, during the same period.
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Despite the negative production numbers, we hold Sandstorm Gold due to its leverage to the gold price (6-7x) and its ability to take advantage of the prevailing volatile market.
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We expect it to avail itself of its significant war chest (US$385 M) and, potentially, the at-the-money (ATM) facility, to purchase precious metals streams on longlife base metals assets owned by producers battling with low commodity prices.
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Acknowledgment: Exploration Insights Newsletter - Joe Mazumdar & Brent Cook - 07/19/2020
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RJ