by Travis Johnson, Stock Gumshoe | July 17, 2013 5:19 pm
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Just curious why you are still holding SAND?
Because SAND still offers good exposure to gold, I think — they have not had the same kind of snakebitten experience as SND.V, they haven’t made deals with so many weak players and they are in better financial condition. My decision to sell Sandstorm Metals was not a “stop loss” decision, it was based on my analysis that even after falling, they’re very precarious and the shares are not discounted enough to reflect the challenges they face if things don’t go well with Bracemac-McLeod or if copper prices continue to be weak.
This is my first comment on this site which I enjoy greatly.
I recently made a painfull foray into the streaming space by buying Silver Wheaton. I bought at about $30 then sold out at $24 before it fell below $20. I liked the diversification across producers and lack of exposure to the mining issues you mention above. What I’ve learned from this investment is not to pick anything that’s fully leveraged to any one single thing for which its nigh impossible to predict how the value will play out i.e. for this one the silver price.
Having said that I do have investments in the oil industry which don’t meet this rule so its not a golden rule. I am no expert at predicting the oil price but I guess I have more confidence that its not going to crater – we’ll see. I also generally avoid the explorers for the same reason as miners. Many of the service companies have low valuations right now.
Sandstorm may have hit a rocky patch and their share price definetly reflects this but it does have very solid management and they do have some potential aces in the hole to get them back onto the pavement. Canadian Zinc alone will pay their bills and then some as this one is probably their only rising star at the moment. Others like Ely Gold have yet to even sprout let alone blossom but watch this one in the near future. The Nevada Dept. of Mines should have Ely’s permit nearly processed in the near future which will be excellant news not only for Sandstorm but Ely’s share holders as well. If anything Sandstorm is a very good bell weather for the mining industry. I’m going to watch it close over the next few months and if the sideways trend breaks upward then it will eventually test its highs again.
Canadian Zinc is a potential boost, though it’s limited unless they opt to turn it into a larger streaming deal — and they’d have to raise a lot of money at depressed prices to do that. At current metal prices, I figure that their royalty on 1.2% of the lead and zinc at Prairie Creek (I keep calling it the Cadillac Mine, sorry, that’s the old mine from the Hunt Brothers days) would be about $1.7 million a year on average, with the first year of production being probably less than half of that level but a quick rampup from there. Assuming the mine is put into operation, which is likely but certainly not guaranteed, the $6+ million paid for the royalty is reasonable and I wouldn’t argue with adding that to the asset value of Sandstorm Metals. Canadian Zinc seems to be doing pretty well right now, finally, with water permits expected soon after a very long and contentious environmental review (the mine is surrounded by a park), and they may well get ramped up pretty quickly once they do get permits, since much of the infrastructure is in place, so that could create some cash flow for them. What Sandstorm really wants from Canadian Zinc, though, is a big streaming deal — they will give back the royalty if CZN signs a deal of at least $90 million, and CZN will probably want to make such a deal because according to their presentations they’re going to need at least $180 million or so in capital to get the mine to some kind of sustaining level of production. My concern there is that if Sandstorm tries to raise that $90 million in this environment, the shares would get decimated. If they had $90 million sitting around, that would be a different story and they’d be undervalued, but their capital is almost entirely tied up in the current streams.
I really enjoy reading your knowledge of both sides of Sandstorm and would admit it was just luck that I got in them so early and did very well. listening to your analysis is always more detailed than what my diligence is and I thank you for your honesty and your honest opinion. I don’t know why but hindsight did help me here because I sold a good part of my metals side when it peaked and was on there dime for the reverse split so my dime is really there’s but I think in time the small side will grow but as I said in time, it will be and I really say that in talks with them that there management is still well experienced and to me and just me talking to them, but there metals and energy side where more I guess you would say like a hobby and that was in the early days before they rang the bell. Plus some reporters trying to make a name for them self questioning Nolan that they should have done there home work first, I think he has some personnel sentiment which could be a little factor in that side, almost like your person earlier questioning your owning Sand yet, Nolan and his team will weather that storm on the Gold side they know that game, but I think it is more personal the metals and gas side I have already taken my profit way before the revers split , but I think that side is more of a challenge personally to him which could be good or not so good but he is a winner’s always work harder and he goes after that thrill and usually quite well. I think it will not take to much for the gold to get shall we say a small fever or a big fever any day to change that world. Good article as usual , and I still have a lot of faith and fun in your reporting keep it up!
Thanks!
“In the past several days Roumell Asset Management, LLC (RAM) has acquired over 1.5 million shares of Sandstorm Metals & Energy Ltd. (TSX-V:SND) common stock, taking its ownership to 14.48% of the company’s outstanding shares. This is a passive investment based on RAM’s analysis of the company’s underlying asset value and a strong belief in the leadership of Nolan Watson, President and CEO, and the Sandstorm management team”. This is a direct quote from a press release by RAM on July 24, 2013. Acquiring 2.6 million dollar worth of SND shares on the open market is not a move that an investment manager would make, without a strong belief in the underlying value of that stock. My question, Travis, is what (if anything) do you make of this very recent share acquisition? What am I missing here?
Hadn’t paid much attention to that, but there’s certainly a reasonable argument to be made that the shares are undervalued. I just think the risk has also climbed.