I’ve got some notes (mostly brief, I hope) to share about the various quarterly earnings reports that have hit my Real Money Portfolio stocks this week… but I have gotten a pile of reader questions so I wanted to start with a look at Sandstorm Gold (SAND), which announced a pretty big deal earlier in the week and has taken a significant tumble as a result.
Sandstorm announced on Wednesday that they intend to combine with Mariana Resources (MARL.V in Canada) to “create a leading mid-tier streaming company.” That’s sort of a nebulous concept, since Sandstorm was already arguably a mid-tier streaming company and Mariana has no current streaming deals — what is really happening here is that Sandstorm is buying Mariana for its 30% ownership of the Hot Maden project, and hoping to turn that junior equity position into a streaming deal on the Hot Maden mine, which is expected to be a very profitable and low-cost copper/gold mine for decades.
So what happened to the shares? Well, Sandstorm’s market cap has dropped about $85 million in the three trading days after the deal was announced… and Mariana Resources increased in value, thanks to the steep 80% premium offered by Sandstorm, by about $55 million. So there’s a certain logic to that, if you pay a steep price for an acquisition then your shareholders almost always punish you, at least in the short term. Sandstorm was already a shareholder in Mariana, with about a 7% stake before this announcement, and already had a substantial 2% NSR royalty on the Hot Maden
Whether or not they really overpaid, of course, depends on what happens with Hot Maden, the proposed mine in Turkey that is Mariana’s major asset (they own 30%, which they acquired when they bought Aegean Resources about two years ago… Aegean was the junior who did the initial sampling in this past-producing area, then made a deal with Turkish miner Lidya Madencilik to take majority ownership in exchange for funding the initial exploration, Lidya is still the 70% owner and operator of the project).
Sandstorm CEO Nolan Watson says that his intent is to get out of the joint venture (Sandstorm’s share would require about $50 million in capex if the mine is built) and exchange it for a streaming deal that will generate cash flow without direct participation in the mine’s development or operations. ...