New Projects Like Greenstone Will Expand Gold Production Over Next 5 Years

Key Takeaways

• Sandstorm Gold is set for substantial growth with increased production from new projects expected to boost revenue and earnings.
  
• Strategic capital allocation toward debt reduction and share buybacks enhances financial stability, improving flexibility for dividends and acquisitions.
  
• Fluctuating commodity prices, production delays, and execution risks may impact Sandstorm Gold's revenue, earnings stability, and financial credibility.

Catalysts

Operates as a gold royalty company.

• Sandstorm Gold anticipates significant growth in gold equivalent production, expecting an increase to over 150,000 ounces annually over the next five years due to new production from projects like Greenstone and Platreef, impacting revenue and earnings positively.
  
• The company is undertaking substantial share buybacks, aiming to reduce the number of outstanding shares and increase EPS due to a higher ownership percentage by remaining shareholders in future growth.
  
• Production from significant projects coming online, such as Barrick's Robertson mine and Glencore's MARA mine, is expected to double and sustain high production levels, enhancing long-term revenue and cash flow.
  
• Sandstorm's strategic capital allocation towards debt reduction is lowering financial costs, projected to reduce their debt below $300 million by mid-2025, strengthening bottom-line earnings through reduced interest expenses.
  
• With plans to pay down debt significantly and the potential of increasing dividends, Sandstorm's financial flexibility will improve, allowing them to prioritize further share buybacks and/or acquisitions, which could enhance net margins.

Sandstorm Gold Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sandstorm Gold's revenue will grow by 6.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.1% today to 35.5% in 3 years time.
• Analysts expect earnings to reach $74.9 million (and earnings per share of $0.25) by about February 2028, up from $14.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $96.5 million in earnings, and the most bearish expecting $53.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 38.8x on those 2028 earnings, down from 124.2x today. This future PE is greater than the current PE for the CA Metals and Mining industry at 13.0x.
• Analysts expect the number of shares outstanding to decline by 0.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.42%, as per the Simply Wall St company report.

Sandstorm Gold Future Earnings Per Share Growth

Risks

• Fluctuations in gold and commodity prices can impact Sandstorm Gold's revenues and guidance accuracy, potentially leading to decreased investor confidence and missed production targets. This risks affecting their financial credibility and earnings.
  
• Delays in production ramp-up, such as those experienced at the Greenstone mine, can result in lower-than-expected gold equivalent ounces, adversely impacting revenue and net margins.
  
• Potential for operational or financial difficulties at partner mines (e.g., Bear Creek or Entree Resources), which could disrupt gold deliveries and affect cash flow forecasts and earnings stability.
  
• Dependency on new developments and project ramp-ups for future growth introduces execution risk. Any delays or cost overruns in projects like Oyu Tolgoi, MARA, or Gualcamayo can impact long-term production forecasts and future revenue streams.
  
• Rising debt, although currently managed, poses a risk if cash flow projections fall short. Changes in interest rates or market conditions might impact net margins and cash availability for planned buybacks or acquisitions.

Valuation

• The analysts have a consensus price target of CA$11.341 for Sandstorm Gold based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$13.5, and the most bearish reporting a price target of just CA$10.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $210.9 million, earnings will come to $74.9 million, and it would be trading on a PE ratio of 38.8x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of CA$8.51, the analyst price target of CA$11.34 is 25.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.