Ramping Up At Greenstone And Platreef Will Boost Future Production

Key Takeaways

• Anticipated production growth and completion of key projects could significantly enhance Sandstorm Gold's revenue stream and operational efficiency.
  
• Focused capital allocation strategies, including share buybacks, aim to optimize shareholder returns and improve earnings per share.
  
• Conservative guidance and reliance on third-party operations create investor risks, while asset performance challenges and buyback priorities may impact financial flexibility and margins.

Catalysts

Operates as a gold royalty company.

• Sandstorm Gold anticipates significant production growth over the next five years from ramp-ups at Greenstone, Ivanhoe's Platreef mine, Barrick's Robertson mine, and the Hod Maden mine. This growth is expected to impact revenue positively as production could increase to over 150,000 gold equivalent ounces annually.
  
• The completion of transformational projects like Glencore's MARA mine and Rio Tinto's development on the Entree joint venture grounds at Oyu Tolgoi could significantly enhance Sandstorm's revenue stream in the coming years.
  
• Initiatives to increase throughput and optimize operations at existing mines like Fruta del Norte and Chapada can lead to better production efficiency, potentially enhancing operational margins.
  
• The company's strategy to allocate capital towards share buybacks, particularly when stocks are undervalued, aims to enhance earnings per share by reducing the number of outstanding shares, potentially lifting investor sentiment and stock value.
  
• Sandstorm's strengthening balance sheet, enabling increased share buybacks and less emphasis on debt repayment, alongside robust cash flows from potential high gold prices, could enhance future net earnings and shareholder returns.

Sandstorm Gold Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sandstorm Gold's revenue will grow by 6.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.1% today to 36.0% in 3 years time.
• Analysts expect earnings to reach $76.6 million (and earnings per share of $0.26) by about April 2028, up from $14.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $100.6 million in earnings, and the most bearish expecting $46.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 41.2x on those 2028 earnings, down from 175.6x today. This future PE is greater than the current PE for the CA Metals and Mining industry at 14.7x.
• Analysts expect the number of shares outstanding to decline by 0.57% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.13%, as per the Simply Wall St company report.

Sandstorm Gold Future Earnings Per Share Growth

Risks

• The company's 2024 gold equivalent production was negatively impacted by higher gold prices, which led to fewer gold equivalent ounces from silver and copper, impacting revenue and earnings.
  
• There is a potential risk associated with conservative 2025 guidance, which if actual production deviates, could lead to expectations management issues, impacting investor confidence and stock price.
  
• Delays or challenges in ramping up production at key mines such as Greenstone and issues with asset deliveries could further affect gold equivalent output and revenue.
  
• Reliance on the performance and financial stability of third-party mining operations exposes Sandstorm to operational risks, impacting future cash flows if these partners do not perform as expected.
  
• The company’s decision to prioritize share buybacks over debt repayment could face scrutiny if market conditions change or if asset performance underwhelms, impacting long-term financial flexibility and net margins.

Valuation

• The analysts have a consensus price target of CA$12.234 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$10.64.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $213.0 million, earnings will come to $76.6 million, and it would be trading on a PE ratio of 41.2x, assuming you use a discount rate of 7.1%.
• Given the current share price of CA$11.75, the analyst price target of CA$12.23 is 4.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.