I wrote a couple months back about opening a small position in Sandstorm Metals and Energy because of the management team and business model, even though I didn’t have much of a handle on an appropriate valuation … and then when the stock came close to doubling in a matter of days I sold half of that position. The shares have since fallen well below my original buy point, and I’ve gotten several questions from readers about this stock, so I thought now would be a good time to check up on them and see if I’m interested in adding to my position again.
If you don’t know Sandstorm Metals and Energy, it is a spinoff of Sandstorm Resources (which itself was recently renamed Sandstorm Gold). Sandstorm Metals and Energy (SND in Canada, STTYF on the pink sheets) was formed by splitting off some cash and a small prospective uranium royalty position to Sandstorm Resources shareholders last year — so actually, though I “opened” my position very recently I have technically held, as a Sandstorm Resources shareholder, a small handful of Sandstorm Metals shares since inception. By small I mean really, really small, roughly $100 in value.
The Sandstorm companies are headed by Nolan Watson, who was the CFO of Silver Wheaton (SLW) and decided to take that “streaming” concept to other metals. Streaming is a little bit different from royalties, not least because it has some tax advantages, but it works very similarly — like Silver Wheaton, the Sandstorm companies make deals with mining firms to buy a portion of their output at a set price, in exchange for an up-front payment that helps to fund the mine construction (or expansion, or whatever) and some ongoing payment that is generally well below the then-current market price. For example, in the case of Sandstorm Gold they have a handful of gold streaming deals, and they have typically agreed to buy something like 20% of the gold output from the mine (depending on the size and other factors) at a set price of something like $400-500/ounce.
Unlike Silver Wheaton, I should note, these streaming companies are built on streaming the primary product of a mine — Silver Wheaton has deals with a number of big silver mines now, of course, but back in the beginning part of their appeal for miners was that they would buy the ...