Nov 9, 2010

A Game Changer - Sandstorm Resources

Aside From Silver Wheaton ( my favorite royalty company), I have talked about Sandstorm Resources in recent posts. They are a small cap (approx 175m) gold streaming company, with excellent management in Nolan Watson (former CFO of Silver Wheaton). It was trading at a substantial discount to their net asset value (approximately 30%) before the big news of the day. They acquired a 12% interest in the Black Fox Mine, Run by Brigus Gold for 58m in cash for the right to purchase gold at $500 ounce for the life of the mine. Inclusive in the deal was the right to acquire an additional 10% interest in the expansion zone of Black Fox, which has extremely high potential to add 40k+ ounces within the next few years.. This also gives Sandstorm great upside exploration potential as more drilling is undertaken at no additional cost. 

This acquisition was a transformational purchase, adding their potentially biggest royalty stream as well as helping diversify their source of revenue among their four previous streams. This is the time for shareholders to be getting it as this business model has shown to ideal relative to actual mining as if diverts a large portion of the risk inherent to the industry, Sandstorm now traded at appropriately 40-45% of their net asset value.

NAV Multiple 1.2 - $1.95 
DCF - $1.72
OCF Multiple - $1.65
Blended Value - $1.77/share
Current Price - .76/share

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