Sandstorm Back of the Napkin Valuation

We last discussed Sandstorm (SAND) here:

I did a back of the envelope valuation here: Sand Report

3 responses to “Sandstorm Back of the Napkin Valuation

  1. John, thanks for the great write-up.
    One comment: mining properties are finite depletable assets. Operating cash flow from mining property should provide not only return on the capital invested, but also return of the capital invested and comparison with bond yields may be a bit misleading. If the mine life is, say, just 1o years, than 9% cash flow yield is not that attractive.

    • Yes, you are correct, but bonds have a finite life (a due date).

      Think of Sandstorm’s royalties/streams on properties like several leaky buckets (depletion) where growth in reserves replenishes (refills the bucket) and hopefully gives you another bucket or two.

      If you look at some of Sandstorm’s deals the initial returns seem just average, but if more drilling and exploration are successful then a home-run. If Sandstorm did not have specialized, experienced hardrock geologists incentived to be with the company, then any finance team could compete.

      You are buying assets and capital allocators. There is no franchise. You gotta buy cheaply or no premium to the assets. Sandstorm’s share (30%) of Hot MAden (Turkey) was valued at $400 million in a Preliminary Economic Assessment by a reputable firm or about $2.10 per share. Some consider Hot MAden one of the best deposits in the world today. If so and the market wakes up IF further drilling creates more certainty, then much more upside–but no guarantee. At 3.75 a differnet risk than at $5.25. Price increase INCREASES your risk.

      My analogy with bonds is not technically equal but sort of.

      Anyway, if I can buy a long-dated option for “free” or very cheaply then good things CAN happen, but impossible to predict how much and when.

  2. Sorry. This adds nothing to the discussion but I can’t get it out of my head when I see the word sandstorm:

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