Sandstorm Gold (TSE:SSL) has benefited from the market conditions pressuring so many precious metals miners, garnering an “outperform” rating from Stonecap Securities in an analyst note released on Thursday.
The gold streaming company, being covered by Stonecap for the first time, was also awarded a 12-month target price of $7.00 per share, with the analyst, Christos Doulis, saying he was influenced by the fact that “current market conditions in the precious metals space have enhanced the position of streaming/royalty companies as providers of capital for new mining projects.”
Also contributing to the recommendation, which indicates that the stock's risk adjusted total return is expected to materially outperform sector peer returns over the next 12 months, was the fact that Sandstorm was assured of continuing cash flow from the company’s existing streaming portfolio, and that this cash position, coupled with an available line of credit, would enable the company to undertake additional streaming/royalty transactions in the near future.
Sandstorm, described as “a non-operating gold mining company”, provides financing to gold mining companies seeking capital and in return, receives a gold streaming agreement, that is, a contract which stipulates the purchase of a certain percentage of the gold produced from the mine for its entire life at a fixed per unit cost.
Crucially, Doulis pointed out in his note that streaming and royalty companies do not have to contend with "cost creep" and the various mine planning issues that can limit margin expansion for miners and thus can enjoy expanding margins during periods of increasing precious metals prices.
In addition – and especially timely in light of recent events on the precious metals futures markets -- Sandstorm’s cost structure, at around $400 per ounce of gold, “is one of the lowest in the precious metals space and the company can weather a low precious metals price environment much better than many precious metal mining companies.”
“With a portfolio of cash flowing streams, the company offers investors a compelling way to gain exposure to gold while avoiding many of the risks associated with owning precious metals producers. The company has a strong balance sheet (with approximately $70m in cash) that should allow it to opportunistically acquire additional streams and royalties over the medium term.”
Shares in Sandstorm Gold Ltd. were trading down on the TSX today, hitting as low as $5.11 per share from a previous close of $5.41.