Hitting Pay Dirt in the
21st Century Gold Rush
We’d like to tell you about a “private vault…”
It contains nearly one million ounces of .999 pure gold bars ready for market, ready to sell for nearly $1.4 billion at today’s spot price.
This golden vault is out west in Vancouver. Not many know about it, or the “bank” that it sits in, secure, walled off from the public. That’s because it’s no ordinary vault, and no ordinary bank.
They don’t take deposits, or have ATM machines, or hand out mortgage loans, or play with dangerous derivatives or any of that Wall Street flimflam.
They do just one very unique thing.
They buy a portion of a mine’s production in advance, and get gold in return.
And not just any gold – highly discounted gold. Obtained for as a low as $444 an ounce, which is around one-third the current spot price. Then they turn around and sell that gold at current spot.
So right out of the gates they book a 200% return on capital. We’d take that all day long, and we imagine you would too.
Well, you can. You can buy in the same way a banker buys in – at a steep discount.
You can own the most valuable commodity in all the land, obtained at almost a steal.
This "Gold Bank" Will Ride the Run-Up Beautifully
As you may have guessed this “bank” is not really a bank at all. It’s a gold royalty company.
What makes a royalty company so attractive is that it leaves all the risky – and dirty – work of finding, building, and extracting to the miners. The royalty holders just collect payments for the gold that’s churned out by the mine.
It’s a business model that’s extremely safe way to compound gains for investors with significant upside potential.
It also has very limited risk, because a royalty company only puts out its money when a mine is ready to go into production and pull actual gold out of the ground for sale.
But Sandstorm Gold Ltd. (TSXV:SSL) is more than just a typical royalty company. It’s also a precious metals streaming company. (And it’s the only pure 100% gold streaming company around.)
The difference is that a streaming company receives payment in kind. Whether it’s gold, silver, platinum, or palladium, the producers that Sandstorm invests with make their payments to Sandstorm in the actual precious metals.
There are at least three things to like about this business model.
For one, tax treatment in many jurisdictions means that payment in kind leads to lower taxable profits for Sandstorm.
Secondly, the company can take the actual hard asset over the paper money equivalent. If Sandstorm’s management chooses, they can keep the delivered metal in storage, perhaps waiting to resell it at a later date, perhaps at a higher price.
And here’s the third advantage: Streaming companies have a specific claim on the mine’s metals in the ground (to be received as future precious metals payments) as their asset, whereas royalty companies only claim the right to a payment from the smelter output.
But there’s one thing that really puts the cherry on top of this recommendation…
The guys running the show at Sandstorm have done this before.
Company President, CEO, and Director Nolan Watson is the former CFO of Silver Wheaton Corp. (NYSE:SLW). A chartered accountant himself, Watson helped to perfect Silver Wheaton’s business model and raised more than $1 billion to finance streaming investments. In the four years Watson spent at Silver Wheaton, the company’s market cap grew tenfold – from $300 million to $3 billion.
Once promoted to CFO at Silver Wheaton, Watson became the youngest CFO ever (at age 26) of a NYSE-listed company.
In 2008, he left to form Sandstorm. He managed to guide it safely through the treacherous waters of the 2008 to 2009 stock panic and credit crisis… to emerge even stronger.
Another Sandstorm executive, David Awram, comes from Silver Wheaton, too. He was previously director of investor relations there and is now executive vice president at Sandstorm.
Together, Watson and Awram form a unique – and very dynamic – duo.
What sets this team apart is their ability to source, understand, tailor, and broker large and complex financial deals with mining companies. What’s more, they’ve already spent more than $10 million developing legal expertise and tax structures as the framework for their financial transactions.
Now, most streaming companies are spinoffs – separated from existing mining companies in the hopes of achieving full recognition of their underlying assets in the market.
But Sandstorm is unique. It’s the first streaming company that’s ever been built from the ground up to be a streamer.
And that’s a testament to the entrepreneurialism and expertise that is so exclusive to the Watson and Awram team.
That’s why they are worthy of not only our attention, but of our investment capital, too.
There are several good reasons to own Sandstorm instead of owning a mining company.
As you can see below, both have leverage to the price of the gold (and other precious and platinum group metals), exploration upside, and increased production upside.
But here’s what makes Sandstorm so much more attractive. It’s not exposed to construction cost overruns, sustaining capital expenditures, exploration costs, and rising production costs. Its cash costs are fixed – forever.
|MINING COMPANY||STREAMING COMPANY|
|Leverage to Gold Price||Exploration Upside||Production Upside||No Upfront Capex Overruns||No Sustaining Capex||No Exploration Costs||Fixed Cash Costs Forever|
Sandstorm recently locked up its seventh gold stream purchase in only the last two years.
And as of the fourth quarter of 2011, five of those assets have already started to flow. Sandstorm is focused on low cost operations with excellent exploration potential and strong management teams. Take a look at the estimates:
Project #1: Aurizona Project (Luna Gold Corp.):
Luna Gold was expected to produce 54,000 ounces of gold annually and churn out 240,000 over the life of this Brazilian mine. But in December 2011, it raised its estimate to 700,000 ounces. Sandstorm will now get 17% or 119,000 ounces of gold production at $489/ounce (which includes its original investment). The new estimates represent an 80% increase in Sandstorm Gold's company-wide measured and indicated resources.
Project #2: Santa Elena Project (Silvercrest Mines):
Located in northwest Mexico, this mine uses heap leaching to recover the gold. It should produce 35,000 ounces annually for the next six years. And there’s potential for more production from underground sources. Sandstorm will get 20% of the life of mine gold production at $617/ounce, for as much as 54,000 ounces in total.
Project #3: Summit Mine (Santa Fe Gold):
This is an underground silver-gold mine located in New Mexico. It’s expected to produce 10,000 ounces annually for 10+ years. Sandstorm gets 50% of the first 10,000 ounces produced and 22% of any production thereafter for the life of mine.
Project #4: Ming Mine (Rambler Metals & Mining):
This copper-gold underground mine in Newfoundland, Canada, just started production from its flagship project, the Ming Copper-Gold Mine. The mine should produce 13,000 ounces annually. But there’s potential upside from exploration, which will be advanced during development. Sandstorm gets 25% to 32% (depending on the metallurgical recovery rate of gold) of the first 175,000 ounces of gold and 12% thereafter. We expect Sandstorm to receive some 54,000 ounces in total at a total cost of $444/ounce.
Project #5: Bachelor Lake Mine (Metanor Resources):
This Quebec mine is an underground gold producer set to begin production in early 2013, with full production ramping up to 60,000 ounces of gold per year. This mine has considerable exploration upside. Sandstorm gets 20% of the life of mine gold production. We forecast Sandstorm to receive a total of 72,000 ounces at $888/ounce.
Project #6: Black Fox Mine (Brigus Gold Corp.):
This open pit and underground mine located in Ontario, Canada, was expected to produce 77,000 to 85,000 ounces in 2012. But that figure will jump to 110,000 ounces annually in the coming years. What’s more, Black Fox has considerable exploration upside. We expect Sandstorm to receive as much as 132,000 ounces, and for their costs to run about $1,009/ounce in ongoing payments.
Project #7: Bracemac-McLeod Mine (Donner Metals):
In July 2011, Sandstorm entered into a gold stream agreement with Donner Metals to purchase 17.5% of the life of mine gold and gold equivalents produced from the Bracemac-McLeod Mine. The property is a high-grade volcanic deposit located in the historical and prolific mining district of Matagami, Québec. The company initially expects to receive 15,673 ounces of gold from the mine, with considerable upside potential.
At current prices, Sandstorm is quite cheap.
But as Sandstorm becomes more established, we expect their market value to rise significantly.
They’re already on the way.
According to our estimates, this company is trading as low as the total cash flow from just the next three years.
You could see it easily double over the next 12 to 18 months, with the potential to quadruple soon after.
And if gold's price surpasses most projections – and we expect it easily could – that would make this a serious candidate for a "ten-bagger." Putting gains of 10 times its current price, or 1,000% in YOUR pocket for $100 invested.
But keep in mind, this is all about maximum profit AND minimum risk.
Sandstorm only holds mines that are producing, or about to start. So there's very little risk of a mine going bust or getting red-tagged by regulators. And if one does run into trouble, the company is the Senior Secured Creditor and first in line for the gold.
Plus, the mines are located in Canada, Mexico, Brazil, and the U.S. – as safe as it gets.
There's no risk of some crackpot dictator trying to nationalize them.
And don't forget this: The exploration upside could boost production output (of which SSL gets a percentage) and therefore push the profits above the current estimates.
So if you're bullish on precious metals, and particularly gold for the years ahead (and we think you should be), make Sandstorm an integral part of your portfolio today.
Action to Take: Buy Sandstorm Gold Ltd. (TSXV:SSL) at market and use a 50% trailing stop to protect your principal and your profits. Please note: We review and update our recommendations on a daily basis to reflect ever-changing market conditions. So for the most up-to-the-minute research, including trailing stop adjustments, please visit www.moneymappress.com and check the online portfolio. .
Please Note: From time to time, Money Map Press will recommend stock investments that will not be included in our portfolios. There are certain situations where we feel a company may be an extraordinary value but may not necessarily fit within the selection guidelines of these existing portfolios. In these cases, the recommendations are to be considered as speculative and should not be considered as part of Money Map Press philosophy.
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