Sandstorm Gold
Annual Report 2016

Plain-text annual report

2016 Annual Report Sandstorm Gold Ltd. ― Corporate & Shareholder InformatIon Stock ExchangE LiS tingS Board of dirEctorS toronto Stock Exchange Andrew T. Swarthout TSX: SSL new York Stock Exchange NYSE.MKT: SAND David Awram David E. De Witt John P. A. Budreski Mary L. Little Nolan Watson tranSfEr a gEnt computershare investor Services corporatE officES 2nd Floor, 510 Burrard Street Vancouver head office Vancouver, British Columbia Suite 1400, 400 Burrard Street V6C 3B9 Vancouver, British Columbia t 604 661 9400 corporatE SEcrEtar Y Christine Gregory auditorS pricewaterhousecoopers LLp PricewaterhouseCoopers Place Suite 1400, 250 Howe Street Vancouver, British Columbia V6C 3S7 t 604 806 7000 f 604 806 7806 V6C 3A6 t 604 689 0234 f 606 689 7317 info@sandstormltd.com www.sandstormgold.com toronto office Suite 1110, 8 King Street Toronto, Ontario M5C 1B5 t 416 238 1152 Barbados 10 Graeme Hall Maxwell, Christ Church Barbados BB15050 2016 annual r eport  Sandstorm Gold Ltd. SEction 01 02 company profile 03 A Message to our Shareholders 06 Global Assets Map 07 Board of Directors 07 Management Team SEction 02 08 Management's discussion & analysis 09 Company Highlights 11 12 17 18 25 27 Overview and Outlook Key Producing Assets Other Producing Assets Development Assets Summary of Annual Results Summary of Quarterly Results 29 Quarterly Commentary SEction 03 53 consolidated financial Statements 54 55 56 57 58 59 Financial Position Income (Loss) Comprehensive Income (Loss) Cash Flows Changes in Equity Notes to the Consolidated Financial Statements 01 — Sandstorm Gold Ltd. SEction 01 SEction 01 company profile Sandstorm gold Ltd. provides financing to mining companies through stream and royalty agreements. Stream and royalty finance involves Sandstorm making an upfront payment to a mining partner that is in need of capital to build their mine, refinance their obligations, complete an acquisition or for various other reasons. In exchange for that upfront payment, Sandstorm receives the right to purchase a percentage of the gold produced from the mine (in the case of a stream) or a portion of the revenue generated from the mine (in the case of a royalty). Since 2009, Sandstorm has compiled a portfolio of 142 streams and royalties, of which 21 of the underlying mines are currently producing. Sandstorm plans to continue growing the company through accretive acquisitions of gold streams and royalties. — 02 2016 annual r eport  Sandstorm Gold Ltd. a Message to our Shareholders It would be an understatement to say that 2016 was a year of surprises. From referendums, to election results to financial markets, we learned not to underestimate the unexpected. The gold sector had some surprises of its own during the year with gold price volatility and volatility in gold mining stocks near 5 year highs. Demand for gold, notably in gold ETFs, drove prices above $1,350 per ounce peaking near mid-year, and causing a rapid recovery in gold stocks as well as material in-flows of capital into an industry that had been starved of funds for several years. That the sector was fundamentally undervalued and poised for a lift was widely presumed but the speed and extent of the recovery came as a shock to many. By the beginning of August, the average gold projects began to make meaningful progress company (as measured by the GDX) was up towards production and geologists were given over 120% and even more significant, the junior a budget to launch aggressive exploration gold universe (as measured by the GDXJ) programs after years of idled drills. saw average gains of more than 150%. It was a welcome change from the struggle of the The effects of a rising gold price and access to previous lean years that required companies capital for mining companies benefitted Sand- to high-grade production, sell assets, cut costs, storm in several ways. Firstly, the development reduce debt, and shelf projects. The much and exploration activity that ramped up during needed infusion of cash created a dramatic the year affected dozens of projects over which shift as producing mines invested capital into Sandstorm has a stream or royalty interest. upgrades and repairs, development-stage Development stage projects like Aurizona, 03 — Company Profileasset Summary as of february 21, 2017 21 producing 21 27 73 development advanced exploration exploration cash flow from operations year ended R o y a l t ies r e h t O Bachelor Lake Black Fox Chapada Diavik $39 million Ming Karma Yamana silver stream Santa Elena — 04 Cerro Moro, Coringa, Hugo North Extension to name a few, have gone from limited activ- ity to full blown construction causing us to re-evaluate our future cash flow projections. With regards to exploration specifically, the drill bit added over 84,000 gold equivalent ounces to Sandstorm’s credit through success- ful exploration programs during 2016, more than replacing the approximately 49,700 gold equivalent ounces that we sold during the year. We believe that exploration will continue to replace mined ounces in 2017 as more than 30 properties underlying Sandstorm’s streams and royalties have exploration programs planned. Our financial results were also impacted by the upward trending gold price as cash operating margins were at a three year high, just under $1,000 per ounce, in a year where we had record gold equivalent production. That translated into $39 million in cash flow from operations in 2016. One of the key strengths of our business model is that Sandstorm is not required to contribute any additional capital to a project after making an upfront payment to acquire a stream or royalty, so the vast majority of the aforementioned cash flow is being used to grow the business and to add value for shareholders. The rising tides effect was not the only story to play out during 2016 given that the year was bookended by materially lower gold prices, below $1,150 per ounce, which put a damper on the sector’s recovery. Companies were struggling to raise capital and share prices were languishing but it was during these times that Sandstorm was able to make meaningful acquisitions, adding 60 royalties to the port- folio. We began the year with an acquisition of a royalty package from Teck Resources, a deal that was transformational for the company. The transaction added 52 royalty assets, many on high quality projects, and our near-term cash flow, medium-term growth pipeline and our long-term optionality dramatically improved. Sandstorm Gold Ltd.SECTION 01One of the key themes of our marketing and exploration stage projects. We think we efforts this year has been to draw attention to can continue uncovering quality projects that the optionality or unrecognized value in the are unknown or misunderstood by the market Sandstorm portfolio of over 140 streams and in this way. royalties. To give you a few examples, there are 15 development-staged projects that are Going into 2017, I see the risk reward equation not currently represented in our cash flow related to Sandstorm as asymmetric. The mines projections, several of which we believe will contributing cash flow to the company have advance towards production in an improved survived some challenging years, our growth commodity price environment. In addition we profile and corporate development pipeline have 99 royalties that we own on exploration is as robust as it has ever been and we have stage properties, over 25% of which are at an cash at the ready to repurchase shares of the advanced stage. These exploration acorns may company during seasons of market weakness. In be small and insignificant in some cases, but the coming years I expect there will be several they have the potential to turn into sources positive surprises for Sandstorm shareholders of lasting growth and value. Lastly, we have as the portfolio of streams and royalties that accumulated over 30 right of first refusal and we are building continues to grow and develop. royalty buyback contracts (not included in our stream and royalty count of 142) that in nolan Watson president, Ceo and founder many cases give Sandstorm the perpetual right to acquire new streams and royalties on fixed terms, at our option. Add it all up and there is a significant amount of nascent value represented, and investors are beginning to take notice. As we move forward, I am excited about our prospects for growth. We have come a long way from our humble origins as a junior streaming company. In 2016, 74% of our gold equivalent production came from operations run by major and mid-tier mining companies (compared to 12% in 2013) and we expect that percentage to rise to 90% in the coming years. We are pursuing large anchor deals to provide near-term, stable cash flow that will add to our already enviable cash flow base, but as we saw during 2016, value will also be created organically through exploration and the development successes on projects that we have a stream or royalty interest in. We also intend to deploy relatively small amounts of capital to our equity/royalty financing strategy that we have used to fund junior companies 05 — Sandstorm Gold Ltd.2016 Annual Report  Company ProfileSandstorm Gold Ltd. SEction 01 global assets asset Summary by location 60% 60 20 3 2 12 9 4 3 1 1 11 3 4 2 1 1 5 Canada USA Mexico Honduras Peru Brazil Argentina Chile French Guiana Paraguay Turkey Sweden Mongolia South Africa Burkina Faso Ghana Australia — 06 21% 12% 3% 4% NORTH AMERICA SOUTH AMERICA EUROPE/ASIA AFRICA AUSTRALIA DiavikKarmaAltintepeChapadaSao FranciscoMingSheernessBachelor LakeBracemac-McLeodBlack FoxThunder Creek & 144 GapCopper MountainMWSFlying FoxEmigrantSanta ElenaMagmontSan AndresKoricanchaMinera FloridaGualcamayo PRODUCINGBoard of directors Management team david awram John p. a. Budreski Director Director david e. de Witt mary l. little C hai rman Director andrew t. Swarthout nolan Watson Director Director nolan Watson fCpa, fCa, Cfa President and CEO david awram B.Sc, Geologist Sr. Executive Vice President erfan Kazemi Cpa, Ca, Cfa tom Bruington p. eng.,m.Sc. Chief Financial Officer Executive VP of Project Evaluation Keith laskowski mining Geologist, mSc, Qp adam Spencer Cfa VP of Technical Services Sr. VP of Corporate Development Sandstorm’s management team has an optimal balance of deal making and technical expertise. The Company’s founders, Nolan Watson and David Awram, have been completing stream and royalty financings for over 12 years. Erfan Kazemi and Adam Spencer round out our senior management team and together the group has executed close to $2.0 billion in transactions. Our in-house technical team consists of Tom Bruington and Keith Laskowski who individu- ally have over 30 years experience evaluating resource projects and have each worked in or conducted project evaluations in over 60 countries. Needless to say, our technical team has seen it all and they work hard to ensure that Sandstorm invests in quality projects with exploration upside. 07 — Sandstorm Gold Ltd.2016 Annual Report  Company ProfileSandstorm Gold Ltd. SEction 02 Management's Discussion & Analysis SEction 02 Management’s discussion and analysis for the Year Ended december 31, 2016 This management’s discussion and analysis (“MD&A”) for Sandstorm Gold Ltd. and its subsidiary entities (“Sandstorm”, “Sandstorm Gold” or the “Company”) should be read in conjunction with the audited consolidated financial statements of Sandstorm for the year ended December 31, 2016 and related notes thereto which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The information contained within this MD&A is current to February 21, 2017 and all figures are stated in U.S. dollars unless otherwise noted. — 08 company highlights opErating rESuLtS record attributable Gold equivalent ounces sold (as defined hereinafter), for the three months and year ended december 31, 2016 were 13,245 ounces and 49,731 ounces, respectively, compared with 8,951 ounces and 45,146 ounces for the comparable average cash costs for the three months and year ended december 31, 2016 of $250 1 and $258 1 per attributable Gold equivalent ounce, respectively, compared with $258 1 and $300 1 per attributable Gold equivalent ounce for the comparable periods periods in 2015. in 2015. 1 Refer to section on non-IFRS and other measures of this MD&A revenue for the three months and year ended de- cember 31, 2016 was $16.5 million and $62.4 million, respectively, compared with $9.9 million and $52.7 Significant acQuiSitionS million for the comparable periods in 2015. Cash flows from operating activities for the three months and year ended december 31, 2016 were $10.1 million and $39.0 million, respectively, com- pared with $5.0 million and $30.8 million for the comparable periods in 2015. Cost of sales, excluding depletion for the three months and year ended december 31, 2016 were $3.3 million and $12.8 million, respectively, compared with $2.3 million and $13.6 million for the comparable periods in 2015. during the year ended december 31, 2016, the Company acquired a royalty portfolio consisting of 52 royalties from teck resources limited and its affiliates for consideration of $16.8 million, of which $1.4 million was paid in cash and $15.4 million in common shares of the Company. the transaction provides asset diversification; immediate cash flow and significant cash flow growth potential with estimated cash flow of over $10 million per year over the long term; and strong counterparties including Barrick Gold Corporation, Glencore plc, KGhm polska miedz Sa, newmont mining Corporation and Kinross Gold Corporation. 09 — Sandstorm Gold Ltd.MD&A2016 Annual Report  company highlights aVaiLaBLE capitaL Strong balance sheet with over $20 million in cash of the Company’s revolving credit facility. as a result, and when combined with an undrawn revolving the Company currently has no bank debt and the credit facility of $110 million, the Company has over entire $110 million revolving credit facility remains $130 million in available capital to invest in future available for acquisition purposes. Gold Streams. during 2016, Sandstorm recognized a fair value increase of $39 million within the Company’s invest- ment portfolio. With over $80 million in investments and loan receivables, the Company is well positioned to add future Gold Streams and royalties upon the monetization of these balances. on June 1, 2016, Sandstorm amended its revolving credit facility, extending the term to four years (maturing in July 2020). the revolving credit facility allows the Company to borrow up to $110 million for acquisition purposes, from a syndicate of banks including the Bank of nova Scotia, Bank of montreal, national Bank of Canada and Canadian Imperial Bank of Commerce. on July 6, 2016, the Company completed an equity financing for aggregate gross proceeds of $57.5 million. Upon closing of the financing, the majority of the net proceeds were used to reduce the balance othEr on January 26, 2017, orezone Gold Corporation exercised its option to repurchase the royalty on the Bomboré gold project for $3.6 million, representing a 20% premium to the original upfront payment. Sandstorm retains a right of first refusal on any future stream or royalty financings related to the Bomboré gold project. on february 1, 2017, luna Gold announced a merger with Jdl Gold Corp, which if completed will create a multi-asset mining company with over $70 million in cash. this would place the newly merged company in a position to advance the aurizona gold project wherein Sandstorm holds a 3% to 5% sliding scale nSr. Concurrent with the closing of the transaction, the term debt facility that is owed by luna Gold to Sandstorm, in the amount of $20 million plus accrued interest, is expected to be settled in equity, or a combination of cash and equity of the newly combined entity. — 10 Sandstorm Gold Ltd.SECTION 02Management's Discussion & AnalysisMD&A 2016 annual r eport  Sandstorm Gold Ltd. overview outlook Sandstorm is a growth-focused company Based on the Company’s existing Gold Streams that seeks to acquire gold and other met- and nSrs, attributable Gold equivalent pro- als purchase agreements (“Gold Streams” or duction (individually and collectively referred "Streams") and royalties from companies that to as “attributable Gold equivalent”) for 2017 have advanced stage development projects or is forecasted to be between 45,000 – 55,000 operating mines. In return for making upfront attributable Gold equivalent ounces. the payments to acquire a Gold Stream, Sandstorm Company is forecasting attributable Gold receives the right to purchase, at a fixed price equivalent production of over 65,000 ounces per ounce or at a variable price based on spot, per annum by 2020. a percentage of a mine’s gold, silver, or other commodity ("Gold equivalent") 1 production for the life of the mine. Sandstorm helps other companies in the resource industry grow their businesses, while acquiring attractive assets in the process. the Company is focused on acquiring Gold Streams and royalties from mines with low production costs, significant exploration potential and strong management teams. the Company currently has 142 Gold Streams and net smelter returns royalties (“nSr”s), of which 21 of the underlying mines are producing. 1 Refer to section on non-IFRS and other measures of this MD&A 11 —  ― KeY prodUCInG a SSetS Yamana Silver Stream YAMANA GOLD INC. ↘ The Company has a silver stream on Yamana Gold Inc.’s (“Yamana”) gold-silver Cerro Moro project, located in Santa Cruz, Argentina (the “Cerro Morro Project” or “Cerro Moro”) and an agreement to receive interim silver deliveries during years 2016 to 2018 from a number of Yamana’s currently operating mines. SiLVEr dELiVEriES Under the terms of the Yamana silver stream, Sandstorm has agreed to purchase, for on-going per ounce cash payments equal to 30% of the spot price of silver, an amount of silver from Cerro Moro equal to 20% of the silver produced (up to an annual maximum of 1.2 million ounces of silver), until Yamana has delivered to Sandstorm 7.0 million ounces of silver; then 9% of the silver produced thereafter. As part of the Yamana silver stream, during the years 2016 through 2018, Sandstorm has also agreed to purchase, for on-going per ounce cash payments equal to 30% of the spot price of silver, an amount of silver from: i. the Minera Florida mine in Chile equal to 38% of the silver produced (up to an annual maximum of 200,000 ounces of silver); and ii. the Chapada mine in Brazil equal to 52% of the silver produced (up to an annual maximum of 100,000 ounces of silver). downSidE protEction If by January 1, 2019, the Cerro Moro processing facility has not averaged 80% of its daily nameplate production capacity over a 30-day period (the "Com- mencement of Production"), then Yamana´s producing El Peñon mine in Chile will provide a 24 month backstop until the Commencement of Production has begun. During the 24 month backstop, if applicable, Sandstorm will purchase, for on-going per ounce cash payments equal to 30% of the spot price of silver, an amount of silver equal to 16% of El Peñon's silver production up to a maximum of 1.2 million ounces per annum. aBout cErro Moro The Cerro Moro project is located approximately 70 kilometers southwest of the coastal port city of Puerto Deseado in the Santa Cruz province of Argentina. Cerro Moro contains a number of high grade epithermal gold and silver deposits, some of which will be mined via open pit and some via underground mining methods. The current plan indicates average annual production in the first three years of 150,000 ounces of gold and 7.2 million ounces of silver, with the life of mine annual production averaging approximately 130,000 ounces of gold and 6.4 million ounces of silver at a throughput of 1,000 tonnes per day. — 12 Sandstorm Gold Ltd.SECTION 02Management's Discussion & AnalysisFollowing the formal decision to proceed with the construction of the Cerro Moro mine in 2015, Yamana is progressing well with respect to site construction activities, the continuation of detailed engineering, as well as the advancement of underground mining in order to gain a better understanding of in-situ mining conditions. chapada c opper Stream YAMANA GOLD INC. ↘ The Company has a copper stream on Yamana’s open pit gold-copper Chapada mine located 270 kilometers northwest of Brasília in Goiás State, Brazil (“Chapada” or the “Chapada Mine”). Under the terms of the Yamana copper stream, Sandstorm has agreed to purchase, for on-going per pound cash payments equal to 30% of the spot price of copper, an amount of copper from the Chapada Mine equal to: i. 4.2% of the copper produced (up to an annual maximum of 3.9 million pounds of copper) until Yamana has delivered 39 million pounds of copper to Sandstorm (the “First Chapada Delivery Threshold”); then ii. 3.0% of the copper produced until, on a cumulative basis, Yamana has delivered 50 million pounds of copper to Sandstorm (the “Second Chapada Delivery Threshold”); then iii. 1.5% of the copper produced thereafter, for the life of the mine. downSidE protEction If Cerro Moro has not achieved the Commencement of Production and Sand- storm has not received cumulative pre-tax cash flow equal to $70 million from the Yamana silver stream, then the First Chapada Delivery Threshold and the Second Chapada Delivery Threshold will cease to be in effect and Sandstorm will continue to purchase 4.2% of Chapada’s payable copper production (up to an annual maximum of 3.9 million pounds of copper), until such time as Sandstorm has received cumulative pre-tax cash flow equal to $70 million, or Cerro Moro has achieved the Commencement of Production. aBout chapada Chapada has been in production since 2007 and is a relatively low-cost South American operation. The ore is treated through a flotation plant with capacity of 22 million tonnes per annum. Yamana has benefitted from significant discoveries at Chapada in the past and in 2016 it announced an updated reserve statement which increased proven and probable copper mineral reserves to 3.033 billion pounds of copper contained in 520.7 million tonnes at 0.26% copper (see www. yamana.com for more information on this and recent drill results). Yamana recently announced positive drill results from its exploration program which is primarily focused on defining and expanding the Sucupira mineral resource immediately adjacent to the main Chapada pit. In addition, Yamana announced that it has 13 — Sandstorm Gold Ltd.MD&A2016 Annual Report  discovered a new continuous, low to moderate grade copper and gold mineral body above and immediately north of the Sucupira mineral body. The newly discovered Baru target is under review by mine geologists and engineers for further work, particularly given its proximity to the plant infrastructure. diavik diamond r oyalty RIO TINTO PLC ↘ The Company has a 1% gross proceeds royalty based on the production from the Diavik mine located in Lac de Gras, Northwest Territories, Canada (“Diavik” or the “Diavik Mine”) which is operated by Rio Tinto PLC (“Rio Tinto”). The Diavik Mine is Canada’s largest diamond mine. The mine began producing diamonds in January 2003, and has since produced more than 100 million carats from three kimberlite pipes (A154 South, A154 North, and A418). Rio Tinto recently approved the development of an open pit mine on a fourth pipe (A21) which is targeted for production in 2018. Recent public announcements have indicated that the development of A21 pipe continues to progress according to plan. currEnt actiVitiES In accordance with the project plan, the completion of the A21 dike construction and the start of dewatering are expected during calendar 2017. Santa Elena gold Stream FIRST MAJESTIC SILVER CORP. ↘ The Company has a Gold Stream to purchase 20% of the life of mine gold produced from First Majestic Silver Corp.’s (“First Majestic”) open-pit and underground Santa Elena mine, located in Mexico (the “Santa Elena Mine”), for a per ounce cash payment equal to the lesser of $361 and the then prevailing market price of gold until 50,000 ounces of gold have been delivered to Sandstorm, at which time the on-going per ounce payments will increase to the lesser of $450 and the then prevailing market price of gold. The Santa Elena Mine was successfully transitioned from an open pit heap leach operation to an underground mining and milling operation and commercial production for the 3,000 tonne per day processing plant was declared in 2014. currEnt actiVitiES First Majestic is continuing the development of the new San Salvador ramp. Once completed, the transportation of ore via trucks is expected to reduce haulage bottlenecks and increase underground production capacity. — 14 Sandstorm Gold Ltd.SECTION 02Management's Discussion & AnalysisBlack fox gold Stream PRIMERO MINING CORP. ↘ The Company has a Gold Stream to purchase 8% of the life of mine gold produced from Primero Mining Corp.’s (“Primero”) open pit and underground Black Fox mine, located in Ontario, Canada (the “Black Fox Mine”), and 6.3% of the life of mine gold produced from Primero’s Black Fox Extension, which includes a portion of Primero’s Pike River concessions, for a per ounce cash payment equal to the lesser of $531 and the then prevailing market price of gold. The Black Fox Mine began operating as an open pit mine in 2009 (depleted in 2015) and transitioned to underground operations in 2011. Primero recently announced that (i) it had achieved initial produc- currEnt actiVitiES tion from the Deep Central Zone and (ii) recent exploration drilling west of the Deep Central Zone returned positive results. For more information refer to www.primeromining.com. Bachelor Lake gold Stream METANOR RESOURCES INC. ↘ The Company has a Gold Stream to purchase 20% of the life of mine gold produced from Metanor Resources Inc.’s (“Metanor”) Bachelor Lake gold mine located in Quebec, Canada (the “Bachelor Lake Mine”), for a per ounce cash payment equal to the lesser of $500 and the then prevailing market price of gold. The Bachelor Lake Mine is an underground mining operation with an operating mill and surface infrastructure, which began production in early 2013. Metanor recently released positive drill results from its exploration currEnt actiVitiES activities at the Bachelor Lake Mine and the recently discovered Moroy zone. For more information refer to www.metanor.ca. karma gold Stream ENDEAVOUR MINING CORP. ↘ The Company has a Gold Stream which entitles it to purchase 25,000 ounces of gold over a five year period and thereafter 1.625% of the gold produced from Endeavour Mining Corporation (“Endeavour”)’s, the successor to True Gold Mining Inc., open-pit heap leach Karma gold mine located in Burkina Faso, West Africa (“Karma” or the “Karma Mine”) for on-going per ounce cash payment equal to 20% of the spot price of the gold. 15 — Sandstorm Gold Ltd.MD&A2016 Annual Report  The Gold Stream, which on a gross basis requires Endeavour to deliver 100,000 ounces of gold over a five year period starting March 31, 2016 and thereafter 6.5% of the equivalent gold production at the Karma Project, is being syndicated 75% and 25% between Franco-Nevada Corp. and Sandstorm, respectively (together the “Stream Syndicate”). During the year ended December 31, 2016, the Stream Syndicate provided True Gold Mining Inc. with a one-time $5 million increase in funding. In consideration, the Stream Syndicate will receive, on a gross basis and subject to the on-going per ounce cash payments, eight quarterly deliveries totaling 7,500 ounces of gold starting in July 2017. The Karma Mine has five defined mineral deposits that make up the Karma project with total proven and probable mineral reserves of 949,000 ounces of gold contained in 33.2 million tonnes at 0.89 grams per tonne (see www.endeavourmining.com). The operators of the Karma Mine expect to convert resources into reserves through further drilling and studies, in order to extend the mine-life beyond its currently stated 8.5 year life. currEnt actiVitiES Endeavour recently announced that commercial production at the Karma Mine had been achieved on October 1, 2016 and that capacity at the processing plant is expected to increase to 4 mil- lion tonnes per annum by the second half of 2017. A 60,000 meter exploration drilling program, at Kao North, was completed in 2016, the results of which are expected to be compiled and released in early 2017. A further 30,000 meter drill program is planned in 2017 to drill near-mill target such as Rambo West and Yabonsgo. Bracemac-McLeod royalty GLENCORE PLC ↘ Sandstorm has a 3% NSR based on 100% of the production from the Bracemac- McLeod property located in Matagami, Quebec, Canada (“Bracemac-McLeod” or the “Bracemac-McLeod Mine”) which is owned and operated by a subsidiary of Glencore plc (“Glencore”). The Bracemac-McLeod Mine is a high grade volcanogenic massive sulphide deposit located in the historical and prolific mining district of Matagami, Quebec. Continuous mining and milling operations have been active in the Matagami district for over fifty years with ten previously operating mines and one other currently producing mine. The Bracemac-McLeod Mine began initial production in the second half of 2013. — 16 SECTION 02Management's Discussion & AnalysisSandstorm Gold Ltd. Ming gold Stream RAMBLER METALS & MINING PLC ↘ The Company has a Gold Stream to purchase approximately 25% of the first 175,000 ounces of gold produced and 12% of the life of mine gold produced thereafter, from Rambler Metals & Mining PLC’s (“Rambler”) Ming Copper-Gold mine, located in Newfoundland, Canada (the “Ming Mine”). There are no ongoing per ounce payments required by Sandstorm in respect of the Ming Mine Gold Stream. In the event that the metallurgical recoveries of gold at the Ming Mine are below 85%, the percentage of gold that Sandstorm shall be entitled to pur- chase shall be increased proportionally. Based on 2016 metallurgical recoveries, Sandstorm’s 2017 gold purchase entitlement was adjusted to 32%. By the end of 2017, Rambler expects to implement an expansion currEnt actiVitiES to become a 1,250 tonne per day operation. ― other prodUCInG a SSetS Emigrant Springs royalty NEWMONT MINING CORP. ↘ The Company has a 1.5% NSR on the Emigrant Springs mine (the “Emigrant Springs Mine”) which is located in the Carlin Trend in Nevada, U.S.A. and is owned and operated by Newmont Mining Corp. (“Newmont”). The Emigrant Springs Mine is an open pit, heap leach operation that has been in production since the third quarter of 2012. gualcamayo r oyalty YAMANA GOLD INC. ↘ The Company has a 1% NSR on the Gualcamayo gold mine (the “Gualcamayo Mine”) which is located in San Juan province, Argentina and owned and oper- ated by Yamana. The Gualcamayo Mine is an open pit, heap leach operation encompassing three substantial zones of gold mineralization. An expansion of the operation is expected to increase sustainable production. Yamana recently announced exploration success in Cerro Condor and Potenciales which, Yamana believes, provides support for extending the life of the open pit. Mine waste Solutions royalty ANGLOGOLD ASHANTI LTD. ↘ The Company has a 1% NSR on the gold produced from Mine Waste Solutions tailings recovery operation (“MWS”) which is located near Stilfontein, South Africa, and is owned and operated by AngloGold Ashanti Ltd. (“AngloGold”). MWS is a gold and uranium tailings recovery operation. The operation re-processes multiple tailings dumps in the area through three production modules, the last of which was commissioned in 2011. 17 — MD&A2016 Annual Report  San andres r oyalty AURA MINERALS INC. ↘ The Company has a 1.5% NSR on the San Andres mine (the “San Andres Mine”) which is located in La Únion, Honduras and is owned and operated by Aura Minerals Inc. (“Aura Minerals”). The San Andres Mine is an open pit, heap leach operation. The mine has been in production since 1983 and has well-developed infrastructure, which includes power and water supply, warehouses, maintenance facilities, assay laboratory and on-site camp facilities. ― development aSSet S aurizona gold r oyalty LUNA GOLD CORP. ↘ The Company has a 3% – 5% sliding scale NSR on the production from Luna Gold Corp.’s (“Luna”) open-pit Aurizona mine, located in Brazil (“Aurizona” or the “Aurizona Mine”). At gold prices less than or equal to $1,500 per ounce, the royalty is a 3% NSR. In addition, Sandstorm holds a 2% NSR on Luna’s 190,073 hectares of greenfields exploration ground. At any time prior to the commence- ment of commercial production, Luna has the ability to purchase one-half of the greenfields NSR for a cash payment of $10 million. A recent Aurizona pre-feasibility study included proven and probable mineral reserves of 969,000 ounces of gold (contained in 18.6 million tonnes at 1.62 grams per tonne gold — for more information see www.lunagold.com). It was also recently announced that Luna had entered into an exploration agreement with AngloGold covering the greenfields exploration property. Sandstorm holds a right of first refusal on any future streams or royalties on the Aurizona project and greenfields property. Luna recently announced a merger with JDL Gold Corp, which if completed would create a multi-asset mining company with over $70 million in cash. — 18 Sandstorm Gold Ltd.SECTION 02Management's Discussion & Analysishugo north Extension & heruga gold Stream ENTRÉE GOLD INC. ↘ On March 1, 2016, Sandstorm amended its Gold Stream with Entrée Gold Inc. (“Entrée”) such that the Company will now purchase an amount equal to 5.62% and 4.26% of the gold and silver by-products produced from the Hugo North Extension and Heruga deposits located in Mongolia, (the “Hugo North Extension” and “Heruga”, respectively) for per ounce cash payments equal to the lesser of $220 per ounce of gold and $5 per ounce of silver and the then prevailing market price of gold and silver, respectively. Additionally, Sandstorm amended its copper stream such that the Company will now purchase an amount equal to 0.42% of the copper produced from Hugo North Extension and Heruga for per pound cash payments equal to the lesser of $0.50 per pound of copper and the then prevailing market price of copper. In consideration for the amendment and during the year ended December 31, 2016, Sandstorm received consideration of $7.0 million (of which $5.5 million was paid in cash and $1.5 million was received by way of Entrée common shares). The Company is not required to contribute any further capital, exploration, or operating expenditures to Entrée. The Hugo North Extension is a rich copper-gold porphyry deposit and Heruga is a copper-gold-molybdenum porphyry deposit. Both projects are located in the South Gobi desert of Mongolia, approximately 570 kilometers south of the capital city of Ulaanbaatar and 80 kilometers north of the border with China. The Hugo North Extension and Heruga are part of the Oyu Tolgoi mining complex and are managed by Oyu Tolgoi LLC, a subsidiary of Turquoise Hill Resources Ltd. (“Turquoise Hill”) and the Government of Mongolia, and its project manager Rio Tinto PLC. Entrée retains a 20% interest in the resource deposits of the Hugo North Extension and Heruga. Entrée recently announced that an Oyu Tolgoi underground mine development and financing plan had been signed by the Government of Mongolia, Entrée's joint venture partner, Oyu Tolgoi LLC, Turquoise Hill and Rio Tinto. The plan provides a path forward to the eventual restart of underground development, including Lift 1 of the Hugo North Extension. Entrée’s joint venture partner, recently announced that it had signed a $4.4 billion finance facility for underground mine develop- ment at the Oyu Tolgoi project. The facility is being provided by a syndicate of international financial institutions and export credit agencies representing the governments of Canada, the United States and Australia, along with 15 commercial banks. Recently, Turquoise Hill and Rio Tinto formally announced their intent to proceed with the re-start of the Oyu Tolgoi underground development, including plans for the Hugo North Extension. In October 2016, Turquoise Hill released a technical report on the Oyu Tolgoi deposits including Hugo North Extension and Heruga deposits. This represents the first time since 2010 that investors have had access to an early stage economic analysis of these deposits. 19 — Sandstorm Gold Ltd.MD&A2016 Annual Report  hot Maden r oyalty MARIANA RESOURCES LTD. ↘ On January 19, 2016, the Company acquired a 2% NSR on the Hot Maden gold- copper project which is located in the Artvin Province, northeastern Turkey (the “Hot Maden Project”). The project is co-owned by Mariana Resources Ltd. and its Turkish partner, Lidya Madencilik Sanayi ve Ticaret A.S., which owns a 70% interest in the project. hackett river r oyalty GLENCORE PLC ↘ On January 19, 2016, the Company acquired a 2% NSR on the Hackett River property located in Nunavut, Canada (the “Hackett River Project” or “Hackett River”) which is owned by a subsidiary of Glencore. Hackett River is a silver-rich volcanogenic massive sulphide project and is one of the largest undeveloped projects of its kind. The property is made up of four massive sulphide deposits that occur over a 6.6 kilometer strike length. A preliminary economic assessment updated in 2010 evaluated a possible large- scale open pit and underground operation, processing up to 17,000 tonnes per day. The most recent technical report, completed in 2013, reported 25.0 million tonnes of Indicated Resources containing 4.2% zinc and 130.0 grams per tonne silver plus 57.0 million tonnes of Inferred Resources with 3.0% zinc and 100.0 grams per tonne silver. For more information refer to the technical reports dated July 26, 2010 and July 31, 2013 under Sabina Gold & Silver Corp’s profile on www.sedar.com. Lobo-Marte royalty KINROSS GOLD CORP. ↘ On January 19, 2016, the Company acquired a 1.05% NSR on production from the Lobo-Marte project located in the Maricunga gold district of Chile (the “Lobo- Marte Project” or “Lobo-Marte”) which is owned by Kinross Gold Corp. (“Kinross”). Kinross completed a pre-feasibility study at Lobo-Marte that contemplated an open-pit/ heap-leach operation. As a result of changes in the plan of operations and other factors, Kinross withdrew its previously submitted permit application. Future development and operations at Lobo-Marte will require the re-initiation of the permitting process. For more information refer to www.kinross.com. agi dagi & kirazli r oyalty ALAMOS GOLD INC. ↘ On January 19, 2016, the Company acquired a $10/ounce royalty based on the production from the Agi Dagi and the Kirazli gold development projects located in the Çanakkale Province of northwestern Turkey (“Agi Dagi” and “Kirazli”, respectively) which are both owned by Alamos Gold Inc. (“Alamos Gold”). The royalty is payable by Newmont and is subject to a maximum of 600,000 ounces from Agi Dagi and a maximum of 250,000 ounces from Kirazli. — 20 Sandstorm Gold Ltd.SECTION 02Management's Discussion & AnalysisA 2012 pre-feasibility study on Agi Dagi and a 2017 feasibility study on Kirazli contemplated both projects as stand-alone open-pit, heap-leach operations. Under the study, Agi Dagi is expected to produce an average of 143,000 ounces of gold per year over a 7 year mine life while Kirazli is expected to produce an average of 104,000 ounces of gold per year over a 5 year mine life. For more information refer to www.alamosgold.com. prairie creek r oyalty CANADIAN ZINC CORPORATION ↘ The Company has a 1.2% NSR on the Prairie Creek project (the “Prairie Creek Project”) located in the Northwest Territories, Canada and owned by Canadian Zinc Corporation (“Canadian Zinc”). The Prairie Creek Project is a zinc, silver and lead project that is 100%-owned by Canadian Zinc and currently reports a proven and probable mineral reserve of 7.6 million tonnes grading 8.9% zinc, 127.6 grams per tonne silver and 8.3% lead. Canadian Zinc entered into sale agreements with both Boliden and Korea Zinc for the sale of the zinc and lead concentrates produced at the Prairie Creek mine. This represents a significant step forward in the development of the mine. For more information refer to www.canadianzinc.com. Mt. hamilton r oyalty WATERTON PRECIOUS METALS FUND II CAYMAN, LP ↘ The Company has a 2.4% NSR on the Mt. Hamilton gold project (the "Mt. Hamilton Project"). The Mt. Hamilton Project is located in White Pine County, Nevada, U.S.A. and is owned by Waterton Precious Metals Fund II Cayman, LP (“Waterton”). Sandstorm holds a right of first refusal on any future royalty or gold stream financing for the Mt. Hamilton Project. 21 — Sandstorm Gold Ltd.MD&A2016 Annual Report   ― aCQUISItIon teck royalty package During the year ended December 31, 2016, the Company acquired a royalty portfolio consisting of 52 royalties from Teck Resources Limited and its affiliates (“Teck”). The portfolio was acquired for consideration of $16.8 million, of which $1.4 million was paid in cash and $15.4 million in common shares. The portfolio provides: aSSEt diVErSification the royalty package consists of assets in North America (32), Asia (10), South America (7) and Europe (3) and includes producing as- sets (4), development-stage projects (8), advanced exploration-stage projects (7) and exploration-stage properties (33); Significant ca Sh fL ow growth potEntiaL the Company has estimated over $10 million in cash flow per year over the long term; Strong countErpartiES royalty counterparties include Barrick Gold Corporation, Glencore plc, KGHM Polska Miedz SA, Newmont Mining Corporation and Kinross Gold Corporation; and Long-tErM optionaLitY over two dozen royalties on exploration-stage properties, several of which are undergoing active exploration programs. ― revolvInG CredIt f aCIlItY On June 1, 2016, Sandstorm amended its revolving credit agreement (the “Re- volving Facility”), extending the term to four years (maturing in July 2020). The Revolving Facility allows the Company to borrow up to $110 million for acquisition purposes, from a syndicate of banks including the Bank of Nova Scotia, Bank of Montreal, National Bank of Canada and Canadian Imperial Bank of Commerce. As part of the amendment, the Company improved its leverage ratio covenant such that it is now required to maintain a leverage ratio (defined as net debt divided by EBITDA) of less than or equal to 4.00:1 for calendar 2016 and calendar 2017; 3.50:1 for calendar 2018; and 2.75:1 for the remainder of the life of the Revolving Facility. As at December 31, 2016, the Company had not drawn down on its credit facility and therefore, the full balance remains available for future acquisitions. — 22 Sandstorm Gold Ltd.SECTION 02Management's Discussion & Analysis ― eQUItY fInanCInG On July 6, 2016 the Company completed a public offering of 12,921,400 common shares at a price of $4.45 per common share, for gross proceeds of $57.5 million. In connection with the offering, the Company paid agent fees of $2.9 million, representing 5% of the gross proceeds. Upon closing of the equity financing, the majority of the net proceeds were used to reduce the balance of the Company’s Revolving Facility. ― normal CoUrSe ISSUer BId Under the Company’s normal course issuer bid (“NCIB”), the Company is able until April 3, 2017, to purchase up to 6,896,539 common shares. The NCIB provides the Company with the option to purchase its common shares from time to time. ― ImpaIrment S While assessing whether any indications of impairment exist for mineral proper- ties and royalties, consideration is given to both external and internal sources of information. The lack of progress with respect to the advancement of some of the properties which Sandstorm holds royalties on within Sandstorm’s mineral interest portfolio and other factors, prompted the Company to evaluate its investment in these specific assets. As a result of its review, the Company, during the year ended December 31, 2016, recorded an impairment charge of $2.5 million for these specifically identified mineral royalties. ― SUBSeQUent event S On January 26, 2017, Orezone Gold Corporation exercised its option to repurchase the royalty on the Bomboré gold project for $3.6 million, representing a 20% premium to the original upfront payment. Sandstorm retains a right of first refusal on any future stream or royalty financings related to the Bomboré gold project. On February 1, 2017, Luna announced a merger with JDL Gold Corp, which if completed will create a multi-asset mining company with over $70 million in cash. This would place the newly merged company in a position to advance the Aurizona gold project wherein Sandstorm holds a 3% to 5% sliding scale NSR. Concurrent with the closing of the transaction, the term debt facility that is owed by Luna to Sandstorm, in the amount of $20 million plus accrued interest, is expected to be settled in equity, or a combination of cash and equity of the newly combined entity. Sandstorm will continue to hold the $30 million convertible debt facility that is due from Luna. 23 — Sandstorm Gold Ltd.MD&A2016 Annual Report  Sandstorm Gold Ltd. SEction 02 Management's Discussion & Analysis Summary of results attributable gold Equivalent ounces 1 revenue in $000's 49,731 44,821 45,146 42,709 33,514 59,836 55,943 56,494 52,663 62,371 9 6 $ 1, 6 0 1 $ 1, 4 0 6 $ 1, 2 7 $ 1,1 6 4 5 $ 1, 2 — 24 1 Refer to section on non-IFRS and other measures of this MD&A.Summary of annual r esults YEar EndEd in $000s Total revenue Attributable Gold Equivalent ounces sold 1 Sales Royalty revenue Average realized gold price per attributable ounce 1 Average cash cost per attributable ounce 1 Cash flows from operating activities Net income (loss) Basic income (loss) per share Diluted income (loss) per share Total assets Total long-term liabilities 1 Refer to section on non-IFRS and other measures of this MD&A. dec. 31, 2016 dec. 31, 2015 dec. 31, 2014 $ $ 62,371 49,731 41,634 20,737 1,254 258 38,991 25,254 0.18 0.17 534,882 3,288 $ $ 52,663 $ 45,146 38,585 $ 14,078 1,167 300 30,819 (43,056) (0.36) (0.36) 496,873 86,779 56,494 44,821 43,690 12,804 1,260 321 35,224 11,515 0.10 0.09 431,070 5,892 FOR THE YEAR ENDED DECEMBER 31, 2016 attributable gold Equivalent ounces Sold by asset Other Royalties Yamana silver stream Bachelor Lake Black Fox Chapada Santa Elena Diavik Ming Karma Sales & royalty revenues Sales & royalty revenues by region by metal 45% Canada 29% North America excl. Canada 18% South America 8% Australia and West Africa 73% Precious Metals 9% Diamonds 18% Base Metals and Other 25 — Sandstorm Gold Ltd.MD&A2016 Annual Report  the Company’s operating segments for the year ended december 31, 2016 are summarized in the table below: attributable gold Equivalent ounces sold Sales & royalty revenues cost of sales, excluding depletion depletion impairment of Mineral, royalty and other interests income (loss) before taxes cash flow from operations $ 9,183 $ 3,494 $ 4,411 $ in $000s Bachelor Lake Black Fox Chapada Diavik Karma Ming Santa Elena Yamana silver stream 7,358 4,500 4,839 4,669 3,334 1,586 9,419 2,323 5,617 6,075 5,856 4,272 2,025 11,772 2,926 Other Royalties 11,522 14,419 Other Corporate 181 - 226 - 2,354 1,843 - 860 - 3,385 876 4 18 - 2,011 2,737 5,519 2,095 792 2,001 1,427 6,592 69 - - - - - - - - - 2,507 - - $ 1,278 $ 1,252 1,495 337 1,317 1,233 6,386 623 5,316 139 10,409 5,481 2,951 4,232 5,901 3,314 2,025 8,460 2,050 14,073 208 (9,704) Consolidated 49,731 $ 62,371 $ 12,834 $ 27,654 $ 2,507 $ 29,785 $ 38,991 the Company’s operating segments for the year ended december 31, 2015 are summarized in the table below: attributable gold Equivalent ounces sold Sales & royalty revenues cost of sales, excluding depletion depletion impairment of Mineral, royalty and other interests income (loss) before taxes cash flow from operations 9,061 $ 10,773 $ 3,690 $ 1,072 $ 7,101 5,891 4,863 1,651 9,171 7,242 166 - 8,285 6,856 5,656 1,855 10,640 8,422 176 - 3,550 3,041 - - 3,266 - 19 - 4,220 4,281 6,273 1,994 6,115 11,292 65 - - - - - - - 18,322 3,323 - $ 6,011 $ 515 (466) (617) (139) 1,259 (21,192) (3,231) (16,084) 7,083 4,735 3,815 4,480 1,855 7,374 8,679 161 (7,363) in $000s Aurizona Bachelor Lake Black Fox Diavik Ming Santa Elena Other Royalties Other Corporate Consolidated 45,146 $ 52,663 $ 13,566 $ 35,312 $ 21,645 $ (33,944) $ 30,819 — 26 Sandstorm Gold Ltd.SECTION 02Management's Discussion & AnalysisSummary of Quarterly results QuartErS EndEd $ $ $ $ in $000s Total revenue Attributable Gold Equivalent ounces sold 1 Sales Royalty revenue Average realized gold price per attributable ounce 1 Average cash cost per attributable ounce 1 Cash flows from operating activities Net (loss) income Basic (loss) income per share Diluted (loss) income per share Total assets Total long-term liabilities in $000s Total revenue Attributable Gold Equivalent ounces sold 1 Sales Royalty revenue Average realized gold price per attributable ounce 1 Average cash cost per attributable ounce 1 Cash flows from operating activities Net (loss) income Basic (loss) income per share Diluted (loss) income per share Total assets Total long-term liabilities 1 Refer to section on non-IFRS and other measures of this MD&A dec. 31, 2016 Sep. 30, 2016 Jun. 30, 2016 Mar. 31, 2016 16,463 $ 16,815 $ 15,709 $ 13,245 12,588 12,517 10,970 $ 11,302 $ 10,858 $ 5,493 1,243 250 10,058 (19) (0.00) (0.00) 534,882 3,288 5,513 1,336 255 10,313 6,915 0.05 0.04 540,419 3,320 4,851 1,255 261 8,935 5,199 0.04 0.04 525,353 62,854 13,384 11,381 8,504 4,880 1,176 267 9,685 13,159 0.10 0.10 531,160 80,130 dec. 31, 2015 Sep. 30, 2015 Jun. 30, 2015 Mar. 31, 2015 9,863 $ 12,086 $ 15,429 $ 8,951 10,834 12,901 6,604 $ 9,055 $ 11,360 $ 3,259 1,102 258 4,987 (24,960) (0.20) (0.20) 496,873 86,779 3,031 1,116 307 8,234 (5,470) (0.05) (0.05) 408,170 4,768 4,069 1,196 304 9,479 (13,451) (0.11) (0.11) 415,944 5,316 15,285 12,460 11,566 3,719 1,227 323 8,119 825 0.01 0.01 425,154 5,341 27 — Sandstorm Gold Ltd.MD&A2016 Annual Report  Changes in sales, net income and cash flow from operations from quarter to quarter are affected primarily by fluctuations in production at the mines, the timing of shipments, changes in the price of commodities, as well as acquisitions of Streams and royalty agreements and the commencement of operations of mines under construction. For more information refer to the quarterly commentary discussed below. the Company’s operating segments for the three months ended december 31, 2016 are summarized in the table below: in $000s Bachelor Lake Black Fox Chapada Diavik Karma Ming Santa Elena Yamana Silver Stream Other Royalties Other Corporate in $000s Aurizona Bachelor Lake Black Fox Diavik Ming Santa Elena Other Royalties Other Corporate attributable gold Equivalent ounces sold Sales & royalty revenues cost of sales, excluding depletion depletion impairment of Mineral, royalty and other interests income (loss) before taxes cash flow from operations 1,920 1,270 1,725 935 833 684 1,638 716 3,381 143 - $ 2,364 $ 1,595 2,144 1,161 1,053 855 2,018 889 4,203 181 - 907 666 651 - 216 - 591 267 4 14 - $ 1,552 $ 568 917 1,573 524 405 302 436 1,572 54 - - - - - - - - - - - - - $ (95) $ 361 576 (412) 313 450 1,125 186 2,627 113 1,375 957 1,493 1,330 739 855 1,500 622 3,920 168 (5,560) (2,901) $ (316) $ 10,058 Consolidated 13,245 $ 16,463 $ 3,316 $ 7,903 $ the Company’s operating segments for the three months ended december 31, 2015 are summarized in the table below: attributable gold Equivalent ounces sold Sales & royalty revenues cost of sales, excluding depletion depletion impairment of Mineral, royalty and other interests income (loss) before taxes cash flow from operations 501 $ 579 $ 1,383 1,274 1,067 608 2,062 1,890 166 - 1,523 1,409 1,176 645 2,270 2,083 178 - $ 204 692 660 - - 736 - 17 - $ 59 822 908 1,808 749 1,314 2,512 65 - - - - - - - 18,322 - - $ 316 $ 9 (159) (632) (104) 220 (18,751) 96 (9,801) 375 831 749 1,016 645 1,534 1,899 161 (2,223) 4,987 Consolidated 8,951 $ 9,863 $ 2,309 $ 8,237 $ 18,322 $ (28,806) $ — 28 Sandstorm Gold Ltd.SECTION 02Management's Discussion & AnalysisFOR THE THREE MONTHS ENDED DECEMBER 31, 2016 attributable gold Equivalent ounces Sold by asset Other Royalties Yamana silver stream Bachelor Lake Black Fox Chapada Santa Elena Diavik Ming Karma Sales & royalty revenues Sales & royalty revenues by region 48% Canada 20% North America excl. Canada 23% South America 9% Australia and West Africa by metal 68% Precious Metals 7% Diamonds 25% Base Metals and Other three Months Ended december 31, 2016 compared to the three Months Ended december 31, 2015 For the three months ended December 31, 2016, net loss and cash flow from operations were $0.0 million and $10.1 million, respectively, compared with net loss and cash flow from operations of $25.0 million and $5.0 million for the comparable period in 2015. The change is attributable to certain items recognized during the three months ended December 31, 2015 which did not occur during the three months ended December 31, 2016 including (i) a $18.3 million non-cash impairment charge relating to the Company’s mineral interests with respect to the Serra Pelada project, the Emigrant Springs Mine and MWS; and (ii) a $6.5 million non-cash loss on the revaluation of the Company’s investments. For the three months ended December 31, 2016, revenue was $16.5 million compared with $9.9 million for the comparable period in 2015. The increase is largely attributed to a number of factors including: ↳ 13% increase in the average realized selling price of gold; and ↳ 48% increase in the number of Attributable Gold Equivalent ounces sold, due to: i. An additional 2,441 Attributable Gold Equivalent ounces sold from the Company’s recently acquired Yamana silver stream and Chapada copper stream; ii. An increase of 79% in Attributable Gold Equivalent ounces sold from the Company’s other royalties portfolio largely related to recent asset acquisi- tions including the Teck royalty package; 29 — Sandstorm Gold Ltd.MD&A2016 Annual Report  iii. An additional 833 gold ounces sold from the Karma Mine which announced its first gold production in April 2016; iv. An increase of 39% in gold ounces sold from the Bachelor Lake Mine largely related to higher feed grade; Partially offset by: v. A decrease of 501 gold ounces sold from the Aurizona Mine as Luna has finished processing ore from the stockpile and ceased mining operations; and vi. A 21% decrease in gold ounces sold from the Santa Elena primarily related to the timing of shipments whereby 573 ounces were received by December 31, 2016, but were sold subsequent to quarter end. Year Ended december 31, 2016 compared to the Year Ended december 31, 2015 For the year ended December 31, 2016, net income and cash flow from operations were $25.3 million and $39.0 million, respectively, compared with net loss and cash flow from operations of $43.1 million and $30.8 million for the comparable period in 2015. The changes are attributable to a combination of factors including: ↳ A $22.1 million gain on the revaluation of the Company’s investments primar- ily driven by the change in fair value of the Luna convertible debenture and Luna warrants; ↳ A $7.7 million decrease in depletion expense largely driven by a resetting of the number of ounces in the depletable base due to various factors including the conversion of exploration upside into resources and reserves; ↳ Certain items recognized during the year ended December 31, 2015 did not occur during the year ended December 31, 2016 including (i) a $8.1 million non-cash income tax expense primarily related to a reduction of the Company’s deferred income tax asset arising from taxable income previously attributed to its Barbadian subsidiary; (ii) a $21.6 million non- cash impairment charge relating to the Company’s mineral interests with respect to the Serra Pelada project, the Emigrant Springs Mine, MWS and the Santa Fe Gold Stream; partially offset by (i) a $5.0 million gain on the settlement of mineral interests largely driven by the Luna Gold Stream and loan restructuring; and (ii) a foreign exchange gain of $1.5 million largely driven by fluctuations in the foreign exchange rate; Partially offset by: ↳ A $2.5 million non-cash impairment charge relating to certain of the Company’s mineral royalties; and — 30 Sandstorm Gold Ltd.SECTION 02Management's Discussion & Analysis ↳ A $2.4 million increase in finance expense and other as the Company drew on its Revolving Facility in October 2015 and subsequently repaid the full balance in the third quarter of 2016. For the year ended December 31, 2016, revenue was $62.4 million compared with $52.7 million for the comparable period in 2015. The increase is largely attributed to a number of factors including: ↳ 7% increase in the average realized selling price of gold; and ↳ 10% increase in the number of Attributable Gold Equivalent ounces sold, due to: i. An additional 7,162 Attributable Gold Equivalent ounces were sold from the Company’s recently acquired Yamana silver stream and Chapada copper stream; ii. An additional 3,334 gold ounces sold from the Karma Mine which an- nounced its first gold production in April 2016; iii. An increase of 59% in Attributable Gold Equivalent ounces sold from the Company’s other royalties portfolio partly related to recent asset acquisitions including the Teck royalty package; Partially offset by: iv. A decrease of 9,061 gold ounces sold from the Aurizona Mine as Luna has finished processing ore from the stockpile and ceased mining operations; and v. A 24% decrease in gold ounces sold from the Black Fox Mine primarily related to the timing of shipments whereby 597 ounces were received by December 31, 2016, but were sold subsequent to year end. three Months Ended december 31, 2016 compared to the other Quarters presented When comparing net loss of $0.0 million and cash flow from operations of $10.1 million for the three months ended December 31, 2016 with net income/loss and operating cash flow for the remaining quarters, the following items impact comparability of analysis: ↳ The Company recognized gains and losses with respect to the revaluation of its investments, which were primarily driven by changes in the fair value of the Luna Gold Corp. convertible debenture. In the first three quarters of 31 — Sandstorm Gold Ltd.MD&A2016 Annual Report  2016 the Company, these gains amounted to $13.4 million, $6.0 million and $5.8 million, respectively and in the fourth quarter of 2016 the Company recognized a loss of $3.1 million; ↳ An $8.1 million non-cash income tax expense related to a reduction of the Company’s deferred income tax asset relating to taxable income previously attributed to its Barbadian subsidiary which was recorded during the three months ended June 30, 2015; ↳ An $18.3 million non-cash impairment charge relating to the Company’s mineral interests with respect to the Serra Pelada project, the Emigrant Springs Mine and MWS which was recognized during the three months ended December 31, 2015; ↳ A $4.3 million gain on the settlement of the Luna Gold Stream and loan which was recognized during the three months ended June 30, 2015; ↳ A $3.3 million non-cash impairment relating to the Santa Fe Gold Stream recognized during the three months ended June 30, 2015; ↳ A general decrease in administration expenses when compared to previ- ous quarters primarily driven by (i) the implementation of cost reduction programs when the Company acquired 100% of the common shares of Premier Royalty Inc. and (ii) the elimination of duplicated costs that were previously being consolidated; and ↳ Overall, Gold Attributable Equivalent ounces sold have increased over the course of the last three years as a result of the acquisition of various assets including: (i) the Diavik royalty which was acquired during the three months ended March 31, 2015; and (ii) the Yamana silver stream and copper stream which were acquired in the three months ended December 31, 2015. ― ChanGe In t otal aSSet S Total assets decreased by $5.5 million from September 30, 2016 to December 31, 2016 primarily resulting from depletion expense and a decrease in the value of the Company’s investments; partially offset by operating cash flow. Total assets increased by $15.1 million from June 30, 2016 to September 30, 2016 primarily resulting from operating cash flow and an increase in the value of the Company’s investments; partially offset by depletion expense. Total assets decreased by $5.8 million from March 31, 2016 to June 30, 2016 primarily resulting from depletion expense; partially offset by an increase in the value of the Company’s invest- ments. Total assets increased by $34.3 million from December 31, 2015 to March 31, 2016 primarily resulting from the acquisition of the Teck royalty package and an increase in the fair value of the Company’s investments, partially offset by depletion expense and a non-cash impairment charge on certain mineral interests. Total assets increased by $88.7 million from September 30, 2015 to December 31, 2015 primarily resulting from the acquisition of the Yamana silver — 32 Sandstorm Gold Ltd.SECTION 02Management's Discussion & Analysisstream and copper stream which were largely funded by utilizing the Company’s Revolving Facility; the increase was partially offset by depletion expense and a non-cash impairment charge on certain mineral interests. Total assets decreased by $7.8 million from June 30, 2015 to September 30, 2015 primarily resulting from depletion expense, which was partially offset by cash flows from operating activities. Total assets decreased by $9.2 million from March 31, 2015 to June 30, 2015 primarily resulting from (i) the reduction of the Company’s deferred tax assets; and (ii) depletion expense; partially offset by operating cash flow. ― non-IfrS and o ther mea SUreS The Company has included, throughout this document, certain performance measures, including (i) average cash cost per attributable ounce and (ii) aver- age realized gold price per attributable ounce. The presentation of these non-IFRS measures is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These non-IFRS measures do not have any standardized meaning prescribed by IFRS, and other companies may calculate these measures differently. i. Average cash cost per attributable ounce is calculated by dividing the Company’s cost of sales, excluding depletion by the number of Attribut- able Gold Equivalent ounces sold. The Company presents average cash cost per ounce as it believes that certain investors use this information to evaluate the Company’s performance in comparison to other streaming companies in the precious metals mining industry who present results on a similar basis. figure 1.1 provides a reconciliation of average cash cost of gold on a per ounce basis. figure 1.1 Cost of Sales, excluding depletion 1 cash cost of sales is comprised of: Total cash cost of gold sold divided by: Total Attributable Gold Equivalent ounces sold 2 Equals: Average cash cost of gold (per attributable ounce) $ $ $ 3 Months Ended dec. 31, 2016 3 Months Ended dec. 31, 2015 Year Ended dec. 31, 2016 Year Ended dec. 31, 2015 3,316 $ 2,309 $ 12,834 $ 13,566 3,316 $ 2,309 $ 12,834 $ 13,566 13,245 8,951 49,731 45,146 250 $ 258 $ 258 $ 300 1 Cost of Sales, excluding depletion, includes cash payments made for Gold Equivalent ounces associated with commodity streams. 2 The Company’s royalty and other commodity stream income is converted to an Attributable Gold Equivalent ounce basis by dividing the royalty and other commodity income for that period by the average realized gold price per ounce from the Company’s Gold Streams for the same respective period. These Attributable Gold Equivalent ounces when combined with the gold ounces sold from the Company’s Gold Streams equal total Attributable Gold Equivalent ounces sold. 33 — Sandstorm Gold Ltd.MD&A2016 Annual Report  ii. Average realized gold price per attributable ounce is calculated by divid- ing the Company’s sales by the number of Attributable Gold Equivalent ounces sold. The Company presents average realized gold price per attributable ounce as it believes that certain investors use this information to evaluate the Company’s performance in comparison to other streaming companies in the precious metals mining industry that present results on a similar basis. figure 1.2 provides a reconciliation of average realized gold price per ounce. 3 Months Ended dec. 31, 2016 3 Months Ended dec. 31, 2015 Year Ended dec. 31, 2016 Year Ended dec. 31, 2015 $ 16,463 $ 9,863 $ 62,371 $ 52,663 figure 1.2 Total revenue divided by: Total Attributable Gold Equivalent ounces sold 13,245 8,951 49,731 45,146 Equals: Average realized gold price per attributable ounce $ 1,243 $ 1,102 $ 1,254 $ 1,167 ― lIQUIdItY and CapItal reSoUrCeS As of December 31, 2016, the Company had cash and cash equivalents of $21.4 million (December 31, 2015 – $5.3 million) and a working capital of $23.8 million (December 31, 2015 – $1.8 million). On July 6, 2016, the Company completed a public financing resulting in gross proceeds of $57.5 million. Upon closing of the financing, the majority of the net proceeds were used to reduce the balance of the Company’s Revolving Facility. As a result, the Company currently has no bank debt and the entire $110 million revolving credit facility remains available for acquisition purposes. During the year ended December 31, 2016, the Company generated cash flows from operating activities of $39.0 million compared with $30.8 million during the comparable period in 2015, with the increase being primarily attributable to both an increase in the average realized selling price of gold and an increase in Attributable Gold Equivalent ounces sold. During the year ended December 31, 2016, the Company had net cash inflows from investing activities of $3.8 million which were primarily the result of: (i) $18.4 million cash inflow largely consisting of the disposition of a portion of the Company’s investments and the receipt of $5.5 million related to the Company’s amendment of the Entrée commodity streams; and (ii) the repayment of a $3.0 million loan; which were partially offset by (i) the acquisition of investments and other assets; (ii) the payment of $4.0 million and $5.2 million in connection with the Yamana commodity streams and the Karma Gold Stream, respectively; and — 34 Sandstorm Gold Ltd.SECTION 02Management's Discussion & Analysis(iii) a $1.4 million payment related to the Teck transaction. During the year ended December 31, 2015, the Company had cash outflows from investing activities of $221.4 million, which were primarily the result of: (i) the payment of $148 million to Yamana in connection with the Yamana commodity streams; (ii) the payment of $52.5 million to IAMGOLD Corporation in connection with the Diavik royalty and $3.0 million to Orezone Gold Corporation in connection with the Bomboré royalty; (iii) a $6.7 million upfront payment related to the Karma Gold Stream; (iv) a loan of $2.0 million and (v) the acquisition of investments and other assets; partially offset by (i) the receipt of $7 million as a result of the Doray Minerals Limited Gold Stream settlement agreement and (ii) the proceeds from the sale of other investments. During the year ended December 31, 2016, the Company had net cash outflows from financing activities of $26.9 million largely related to $83.5 million in the net repayment of debt under the Company’s Revolving Facility; partially offset by (i) $57.5 million raised in gross proceeds from the Company’s July 2016 equity financing and (ii) $5.5 million in proceeds from the exercise of stock options. During the year ended December 31, 2015, the Company had net cash inflows from financing activities of $107.5 million largely related to: (i) drawing $110 mil- lion under the Company’s Revolving Facility to finance the Yamana commodity streams; and (ii) $28.8 million raised in gross proceeds from the Company’s November 2015 equity financing; which were partially offset by (i) the repayment of $26.5 million under the Company’s Revolving Facility; (ii) share issuance and deferred financing costs of $3.1 million; and (iii) $1.7 million in the redemption of the Company’s common shares under the NCIB. 35 — Sandstorm Gold Ltd.MD&A2016 Annual Report   ― ContraCtUal oBlIGatIonS In connection with its commodity streams, the Company has committed to purchase the following: Stream Bachelor Lake Black Fox Chapada Entrée Gold Karma Ming % of Life of Mine gold or relevant commodity 5, 6, 7, 8, 9 per ounce cash payment: lesser of amount below and the then prevailing market price of the commodity (unless otherwise noted) 1, 2, 3, 4 20% 8% 4.2% 5.62% on Hugo North Extension and 4.26% on Heruga 26,875 ounces over 5 years and 1.625% thereafter 25% of the first 175,000 ounces of gold produced, and 12% thereafter $500 $531 30% of copper spot price $220 20% of gold spot price $nil $361 30% of silver spot price Santa Elena Yamana silver stream 20% Varies 1 2 Subject to an annual inflationary adjustment except for Ming. For the Entrée Gold Stream, after approximately 8.6 million ounces of gold have been produced from the joint venture property, the price increases to $500 per gold ounce. 3 For the Entrée silver stream, percentage of life of mine is 5.62% on Hugo North Extension and 4.26% on Heruga which the Company can purchase for the lesser of the prevailing market price and $5 per ounce of silver until 40.3 million ounces of silver have been produced from the entire joint venture property. Thereafter, the purchase price will increase to the lesser of the prevailing market price and $10 per ounce of silver. 4 For the Santa Elena Gold Stream, the Company can purchase for a per ounce cash payment equal to (i) the lesser of $361 and the then prevailing market price of gold for the open-pit mine and (ii) the lesser of $361 and the then prevailing market price of gold until 50,000 ounces of gold have been delivered to Sandstorm (inclusive of ounces already received from open-pit production), at which time the on-going per ounce payments will increase to the lesser of $450 and the then prevailing market price of gold for the underground mine. 5 For the Entrée Gold and silver stream, percentage of life of mine is 5.62% on Hugo North Extension and 4.26% on Heruga if the minerals produced are contained below 560 metres in depth. 6 For the Entrée Gold and silver stream, percentage of life of mine is 8.43% on Hugo North Extension and 6.39% on Heruga if the minerals produced are contained above 560 metres in depth. 7 For the Entrée copper stream, the Company has committed to purchase an amount equal to 0.42% of the copper produced from the Hugo North Extension and Heruga deposits. If the minerals produced are contained above 560 metres in depth, then the commitment increases to 0.62% for both the Hugo North Extension and Heruga deposits. Sandstorm will make ongoing per pound cash payments equal to the lesser of $0.50 and the then prevailing market price of copper, until 9.1 billion pounds of copper have been produced from the entire joint venture property. Thereafter, the on-going per pound payments will increase to the lesser of $1.10 and the then prevailing market price of copper. 8 For the Chapada copper stream, the Company has committed to purchase an amount equal to 4.2% of the copper produced (up to an annual maximum of 3.9 million pounds of copper) until Yamana has delivered 39 million pounds of copper to Sandstorm; then 3.0% of the copper produced until, on a cumulative basis, Yamana has delivered 50 million pounds of copper to Sandstorm; then 1.5% of the copper produced thereafter, for the life of the mine. If Cerro Moro has not achieved the Commencement of Production and Sandstorm has not received cumulative pre-tax cash flow equal to $70 million from the Yamana silver stream, then — 36 Sandstorm Gold Ltd.SECTION 02Management's Discussion & Analysisthe First Chapada Delivery Threshold and the Second Chapada Delivery Threshold will cease to be in effect and Sandstorm will continue to purchase 4.2% of Chapada’s payable copper production (up to an annual maximum of 3.9 million pounds of copper), until such time as Sandstorm has received cumulative pre-tax cash flow equal to $70 million, or Cerro Moro has achieved the Commencement of Production. 9 Under the terms of the Yamana silver stream, Sandstorm has agreed to purchase an amount of silver from Cerro Moro equal to 20% of the silver produced (up to an annual maximum of 1.2 million ounces of silver), until Yamana has delivered to Sandstorm 7.0 million ounces of silver; then 9.0% of the silver produced thereafter. As part of the Yamana silver stream, during the year 2016 through 2018, Sandstorm has also agreed to purchase an amount of silver from: (i) the Minera Florida mine in Chile equal to 38% of the silver produced (up to an annual maximum of 200,000 ounces of silver); and (ii) the Chapada mine in Brazil equal to 52% of the silver produced (up to an annual maximum of 100,000 ounces of silver). ― Share CapItal As of February 21, 2017, the Company had 151,931,282 common shares outstanding. As disclosed previously, the funds from the issuance of share capital have been used to finance the acquisition of Gold Streams and royalties (recent acquisitions are described earlier in greater detail), with the net proceeds of the 2015 and 2016 equity financings used to reduce the balance of the Company’s Revolving Facility. a summary of the Company’s share purchase options as of february 21, 2017 are as follows: number outstanding 27,000 5,850 402,133 150,000 10,875 3,625 12,375 25,000 2,976,072 1,084,000 200,000 1,336,000 2,250 Vested 27,000 5,850 402,133 150,000 10,875 3,625 12,375 16,667 1,730,258 361,338 66,667 - 2,250 Exercise price per Share C$ 18.33 18.33 16.35 11.78 11.31 10.62 8.89 6.03 2.93 3.60 3.64 4.96 Expiry date August 22, 2017 October 4, 2017 December 11, 2017 December 21, 2017 February 19, 2018 March 1, 2018 December 13, 2018 May 16, 2019 November 13, 2019 December 9, 2020 December 22, 2020 December 12, 2021 15.00 March 30, 2022 6,235,180 2,789,038 C$ 5.72 37 — Sandstorm Gold Ltd.MD&A2016 Annual Report  a summary of the Company’s warrants as of february 21, 2017 are as follows: number outstanding 5,002,500 3,000,000 15,000,000 5,043,900 28,046,400 Exercise price per Share $ $ $ $ 14.00 4.50 3.50 4.00 Expiry date September 7, 2017 March 23, 2020 October 27, 2020 November 3, 2020 The Company has 1,944,818 Restricted Share Rights (“RSRs”) outstanding as at February 21, 2017. ― KeY mana Gement perSonnel CompenS atIon the remuneration of directors and those persons having authority and respon- sibility for planning, directing and controlling activities of the Company are as follows: in $000s Employee salaries and benefits Share-based payments Total key management compensation expense Year Ended dec. 31, 2016 Year Ended dec. 31, 2015 $ $ 1,699 $ 2,041 3,740 $ 2,345 1,837 4,182 ― fInanCIal InS trUment S The fair value of the Company's financial instruments which include cash and cash equivalents, trade receivables and other, loans receivable, receivables and other, and trade and other payables approximate their carrying values at December 31, 2016. All financial instruments are initially recorded at fair value. credit risk The Company’s credit risk is limited to cash and cash equivalents, trade receivables and other, loan receivable, and receivables and other in the ordinary course of business. The Company’s trade receivables and other is subject to the credit risk of the counterparties who own and operate the mines underlying Sandstorm’s — 38 Sandstorm Gold Ltd.SECTION 02Management's Discussion & Analysis royalty portfolio. The Company’s loan receivable and convertible debenture due from Luna is subject to Luna’s credit risk and the Company’s ability to realize on its security. currency risk Financial instruments that impact the Company’s net income (loss) or other comprehensive income (loss) due to currency fluctuations include: cash and cash equivalents, trade receivables and other, investments and trade and other payables denominated in Canadian dollars. Based on the Company's Canadian dollar denominated monetary assets and monetary liabilities at December 31, 2016 a 10% increase (decrease) of the value of the Canadian dollar relative to the United States dollar would increase (decrease) net income by $1 million and other comprehensive income by $2 million, respectively. other risks Sandstorm holds common shares, convertible debentures, and warrants of other companies with a combined fair market value as at December 31, 2016 of $61.3 million (December 31, 2015 – $26.6 million). The daily exchange traded volume of these shares, including the shares underlying the warrants, may not be sufficient for the Company to liquidate its position in a short period of time without potentially affecting the market value of the shares. The Company is subject to default risk with respect to any debt instruments. The Company is exposed to equity price risk as a result of holding long-term investments in other mining companies. The Company does not actively trade these investments. Based on the Company's long-term investments held as at December 31, 2016 a 10% increase (decrease) in the equity prices of these investments would increase (decrease) net income by $1.2 million and other comprehensive income by $2.9 million. ― rISKS to SandStorm The primary risk factors affecting the Company are set forth below. For additional discussion of risk factors, please refer to the Company’s annual information form dated March 30, 2016, which is available on www.sedar.com. risks r elating to Mineral projects To the extent that they relate to the production of gold or applicable commod- ity from, or the operation of, the Chapada Mine, the Cerro Moro Project, the Diavik Mine, the Aurizona Mine, the Santa Elena Mine, the Karma Project, the Ming Mine, the Black Fox Mine, the Bachelor Lake Mine, the Hugo North Exten- sion and Heruga deposits, the Mt. Hamilton Project, the Gualcamayo Mine, the 39 — Sandstorm Gold Ltd.MD&A2016 Annual Report  Emigrant Springs Mine, MWS, the San Andres Mine, the Prairie Creek Project, the Bracemac-McLeod Mine, the Hot Maden Project, the Hackett River Project, the Lobo-Marte Project, Agi Dagi and Kirazli or other royalties or commodity streams in Sandstorm’s portfolio (the “Mines”), the Company will be subject to the risk factors applicable to the operators of such Mines. Whether the Mines will be commercially viable depends on a number of factors, including cash costs associated with extraction and processing, the particular attributes of the deposit, such as size, grade and proximity to infrastructure, as well as metal prices which are highly cyclical and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. The Mines are also subject to other risks that could lead to their shutdown and closure including flooding and weather related events, the failure to receive permits or having existing permits revoked, collapse of mining infrastructure including tailings pond, as well as community or social related issues. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in the Mines becom- ing uneconomic resulting in their shutdown and closure. The Company is not entitled to purchase gold, other commodities or receive royalties, if no gold or applicable commodity is produced from the Mines. no c ontrol over Mining operations The Company has no contractual rights relating to the operation or development of the Mines. Except for any payments which may be payable in accordance with applicable completion guarantees or cash flow guarantees, the Company will not be entitled to any material compensation if these mining operations do not meet their forecasted gold or other production targets in any specified period or if the Mines shut down or discontinue their operations on a temporary or permanent basis. The Mines may not commence commercial production within the time frames anticipated, if at all, and there can be no assurance that the gold or other production from such properties will ultimately meet forecasts or targets. At any time, any of the operators of the Mines or their successors may decide to suspend or discontinue operations. The Company is subject to the risk that the Mines shut down on a temporary or permanent basis due to issues including, but not limited to economics, lack of financial capital, floods, fire, mechanical malfunctions, social unrest, expropriation and other risks. There are no guarantees the Mines will achieve commercial production, ramp-up targets or complete expansion plans. These issues are common in the mining industry and can occur frequently. government r egulations The Mines are subject to various foreign laws and regulations governing pros- pecting, exploration, development, production, exports, taxes, labour standards, waste disposal, protection and remediation of the environment, reclamation, historic and cultural resources preservation, mine safety and occupation health, handling, storage and transportation of hazardous substances and other matters. — 40 Sandstorm Gold Ltd.SECTION 02Management's Discussion & AnalysisIt is possible that the risks of expropriation, cancellation or dispute of licenses could result in substantial costs, losses and liabilities in the future. The costs of discovering, evaluating, planning, designing, developing, constructing, operat- ing and closing the Mines in compliance with such laws and regulations are significant. It is possible that the costs and delays associated with compliance of such laws and regulations could become such that the owners or operators of the Mines would not proceed with the development of or continue to operate the Mines. Moreover, it is possible that future regulatory developments, such as increasingly strict environmental protection laws, regulations and enforcement policies thereunder, and claims for damages to property and persons resulting from the Mines could result in substantial costs and liabilities in the future. international operations The Chapada Mine and the Aurizona Mine are located in Brazil, the Santa Elena Mine is located in Mexico, the Emigrant Springs Mine and the Mt. Hamilton Project are located in the United States of America, the Gualcamayo Mine and the Cerro Moro Project is located in Argentina, MWS is located in South Africa, the Hugo North Extension and Heruga projects are located in Mongolia, the Karma Project is located in Burkina Faso, the San Andres Mine is located in Honduras, the Hot Maden Project, Agi Dagi and Kirazli are located in Turkey, the Lobo-Marte Project is located in Chile, and each of the Diavik Mine, the Ming Mine, the Black Fox Mine, Bachelor Lake Mine, Prairie Creek Project, the Hackett River Project and the Bracemac-McLeod Mine are located in Canada and as such, the Mines are exposed to various levels of political, economic and other risks and uncertainties. These risks and uncertainties include, but are not limited to, terrorism, hostage taking, military repression, crime, political instability, currency controls, extreme fluctuations in currency exchange rates, high rates of inflation, labour unrest, the risks of war or civil unrest, expropriation and nationalization, renegotiation or nullification of existing concessions, licenses, permits, approvals and contracts, illegal mining, changes in taxation policies, restrictions on foreign exchange and repatriation, and changing political conditions, and governmental regulations. Changes, if any, in mining or investment policies or shifts in political attitude in Mexico, Brazil, Mongolia, the United States of America, Burkina Faso, Argentina, Honduras, French Guiana, Chile, Turkey or Canada may adversely affect the operations or profitability of the Mines in these countries. Operations may be affected in varying degrees by government regulations with respect to, but not limited to, restrictions on production, price controls, export controls, currency remittance, income taxes, expropriation of property, foreign investment, mainte- nance of claims, environmental legislation, land use, land claims of local people, water use, mine safety and the rewarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. Any changes or unfavorable assessments with respect to (i) the validity, ownership or existence of the Entrée concessions; as well as (ii) the validity or enforceability of Entrée’s joint venture agreement with Oyu Tolgoi LLC may adversely affect the Company’s profitability or profits realized under the Entrée Gold Stream. The Serra Pelada royalty cash flow or profitability 41 — Sandstorm Gold Ltd.MD&A2016 Annual Report  may be adversely impacted if the Cooperative de Mineracao dos Garimpeiros de Serra Pelada, which hold a 25% interest in the Serra Pelada Mine, continue to take unfavorable actions. In addition, Colossus’ Brazilian subsidiary has payables in excess of $30 million and accordingly, there is a risk that they may be unable to repay their debts, resulting in insolvency and loss any rights to the Serra Pelada mine. A failure to comply strictly with applicable laws, regulations and local practices relating to mineral right applications and tenure, could result in loss, reduction or expropriation of entitlements, or the imposition of additional local or foreign parties as joint venture partners with carried or other interests. The occurrence of these various factors and uncertainties cannot be accurately predicted and could have an adverse effect on the Mines. income taxes The Company has a subsidiary in Barbados, Sandstorm Gold (Barbados) Limited, which entered into Gold Streams in connection with the Aurizona, Karma, and Santa Elena transactions. No assurance can be given that new taxation rules will not be enacted or that existing rules will not be applied in a manner which could result in the Company’s past and future profits being subject to increased levels of income tax. The Company’s international transactions have not yet been audited by the Canada Revenue Agency, and should such transactions be audited, no assurances can be given that the tax matters will be resolved favorably. The Company’s commodity streams and royalties in connection with Chapada, Cerro Moro, Diavik, Black Fox, Ming, Hugo North Extension and Heruga, MWS, Bachelor Lake, Mt. Hamilton, Prairie Creek, San Andres, Hot Maden Project, Hackett River Project, Lobo-Marte Project, Agi Dagi, Kirazli and Bracemac-McLeod transactions have been entered into directly by Canadian based subsidiaries and will therefore, be subject to Canadian, and/or U.S./international taxation, as the case may be. The Gualcamayo NSR was entered into through an Argentinian subsidiary and therefore, may be subject to Canadian, and/or Argentinian taxation, as the case may be. The Emigrant Springs NSR was entered into through a US subsidiary and therefore, may be subject to Canadian, and/or US taxation, as the case may be. gold and Silver prices The price of the common shares, warrants, and the Company’s financial results may be significantly adversely affected by a decline in the price of gold and silver. The price of gold and silver fluctuates widely, especially in recent years, and is affected by numerous factors beyond the Company’s control, including but not limited to, the sale or purchase of gold and silver by various central banks and financial institutions, interest rates, exchange rates, inflation or deflation, fluctuation in the value of the U.S. dollar and foreign currencies, global and regional supply and demand, and the political and economic conditions of major gold and silver producing countries throughout the world. In the event that the prevailing market price of gold is less than $531 per ounce in the case of the Black Fox Gold Stream, $500 per ounce in the case of the Bachelor Lake Gold Stream, $361 or $450 per ounce in the case of the Santa Elena Gold Stream, — 42 Sandstorm Gold Ltd.SECTION 02Management's Discussion & Analysisand $220 per ounce in the case of the Hugo North Extension and Heruga Gold Stream, the purchase price will be the then prevailing market price per ounce of gold and the Company will not generate positive cash flow or earnings on those Gold Streams. Furthermore, if the gold or silver price drops below the cost of producing gold or silver at the Mines, then the Mines may not produce any gold or silver. As a result, the Company will not be entitled to purchase any gold or silver. diamond prices and demand for diamonds The price of the common shares, warrants, and the Company’s financial results may be significantly adversely affected by a decline in the price and demand for diamonds. Diamond prices fluctuate and are affected by numerous factors beyond the control of the Company, including worldwide economic trends, worldwide levels of diamond discovery and production, and the level of demand for, and discretionary spending on, luxury goods such as diamonds. Low or negative growth in the worldwide economy, renewed or additional credit market disrup- tions, natural disasters or the occurrence of terrorist attacks or similar activities creating disruptions in economic growth could result in decreased demand for luxury goods such as diamonds, thereby negatively affecting the price of diamonds. Similarly, a substantial increase in the worldwide level of diamond production or the release of stocks held back during recent periods of lower demand could also negatively affect the price of diamonds. In each case, such developments could have a material adverse effect on the Company’s results of operations. copper prices The price of the common shares, warrants, and the Company’s financial results may be significantly adversely affected by a decline in the price of copper. Copper prices fluctuate widely and are affected by numerous factors beyond the Company’s control, including global supply and demand, expectations with respect to the rate of inflation, the exchange rates of the U.S. dollar to other currencies, interest rates, forward selling by producers, central bank sales and purchases, production and cost levels in major producing regions, global or regional political, economic or financial situations and a number of other factors. Furthermore, if the copper price drops below the cost of producing copper at the Mines, then the Mines may not produce any copper. As a result, the Company will not be entitled to purchase any copper. Solvency risk of c ounterparties The price of the common shares and the Company’s financial results may be significantly affected by the Mines operators’ ability to continue as a going concern and have access to capital. The lack of access to capital could result in these companies entering bankruptcy proceedings and as a result, Sandstorm may not be able to realize any value from its respective streams or royalties. 43 — Sandstorm Gold Ltd.MD&A2016 Annual Report   ― other critical accounting Estimates The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenditures during the periods presented. Notes 2 and 4 of the Company’s 2016 annual consolidated financial statements describes all of the significant accounting policies as well as the significant judgments and estimates. disclosure c ontrols and procedures Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management, including the Company’s Chief Executive Officer and the Chief Financial Of- ficer, on a timely basis so that appropriate decisions can be made regarding public disclosure. The Company’s system of disclosure controls and procedures includes, but is not limited to, the Disclosure Policy, the Code of Conduct, the Stock Trading Policy, Corporate Governance, the effective functioning of the Audit Committee and procedures in place to systematically identify matters warranting consideration of disclosure by the Audit Committee. As at the end of the period covered by this Management’s Discussion and Analysis, management of the Company, with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as required by National Instrument 52-109 in Canada (“NI 52-109”) and under the Securities Exchange Act of 1934, as amended, in the United States. The evaluation included documentation review, enquiries and other procedures considered by management to be appropriate in the circumstances. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of December 31, 2016, the disclosure controls and procedures (as defined in Rule 13(a) – 15(e) under the Securities Exchange Act of 1934) were effective to provide reasonable assurance that information required to be disclosed in the Company’s annual and interim filings and other reports filed or submitted under applicable securities laws, is recorded, processed, summarized and reported within time periods specified by those laws and that material information is accumulated and communicated to management of the Company, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. — 44 Sandstorm Gold Ltd.SECTION 02Management's Discussion & AnalysisManagement’s report on internal c ontrol over financial r eporting Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting as such term is defined in the rules of the National Instrument 52-109 in Canada (“NI 52-109”) and under the Securities Exchange Act of 1934, as amended, in the United States. The Company’s internal control over financial reporting is designed to provide reasonable assur- ance regarding the reliability of the Company’s financial reporting for external purposes in accordance with IFRS as issued by the IASB. The Company’s internal control over financial reporting includes: ↳ maintaining records, that in reasonable detail, accurately and fairly reflect our transactions and dispositions of the assets of the Company; ↳ providing reasonable assurance that transactions are recorded as necessary for preparation of the consolidated financial statements in accordance with IFRS as issued by the IASB; ↳ providing reasonable assurance that receipts and expenditures are made in accordance with authorizations of management and the directors of the Company; and ↳ providing reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on the Company’s consolidated financial statements would be prevented or detected on a timely basis. The Company’s internal control over financial reporting may not prevent or detect all misstatements because of inherent limitations. Additionally, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because changes in conditions or deterioration in the degree of compliance with the Company’s policies and procedures. In connection with the assessment of effectiveness of the Company's internal control over financial reporting as of December 31, 2015, a material weakness was identified relating to the review control over the impairment of long-lived assets. Since then, the Company successfully implemented a remediation plan whereby it hired additional resources to assist in the documentation and review of internal controls and in particular, enhanced accounting processes and controls to prevent or detect errors over impairments of long-lived assets. Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2016 based on the criteria set forth in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has concluded that, as of December 31, 2016, the Company's internal control over financial reporting is effective and no material weaknesses were identified. 45 — Sandstorm Gold Ltd.MD&A2016 Annual Report  changes in internal c ontrols During the year ended December 31, 2016, management remediated the previously identified material weakness in the Company’s internal control over financial reporting. Except for the remediation efforts described above, there were no other changes in internal controls of the Company during the year ended December 31, 2016 that has materially affected, or is likely to materially affect, the Company’s internal control over financial reporting. Limitations of controls and procedures The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, believe that any disclosure controls and procedures or internal controls over financial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objec- tives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of the control. The design of any systems of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limita- tions in a cost effective control system, misstatements due to error or fraud may occur and not be detected potential future conditions. Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected. future changes in a ccounting policies The IASB has issued the following new standard but it is not yet effective. Pronouncements that are not applicable to the Company have been excluded from this note. IFRS 15 Revenue from Contracts with Customers — The final standard on revenue from contracts with customers was issued on May 28, 2014 and is effective for annual reporting periods beginning after January 1, 2018 for public entities with early application permitted. Entities have the option of using either a full retrospective or a modified retrospective approach to adopt the guidance. The Company is assessing the impact of this standard. — 46 Sandstorm Gold Ltd.SECTION 02Management's Discussion & Analysisforward Looking StatEMEnt S This MD&A and any exhibits attached hereto and incorporated herein, if any, contain “forward- looking statements”, within the meaning of the U.S. Securities Act of 1933, as amended, the U.S. Securities exchange Act of 1934, as amended, the United States Private Securities Litigation Reform Act of 1995, and applicable Canadian and other securities legislation, concerning the business, operations and financial performance and condition of Sandstorm. Forward-looking information is provided as of the date of this MD&A and Sandstorm does not intend, and does not assume any obligation, to update this forward-looking information, except as required by law. Generally, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. Forward-looking information is based on reasonable assumptions that have been made by Sandstorm as at the date of such information and is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Sandstorm to be materially different from those expressed or implied by such forward-looking information, including but not limited to: the impact of general business and economic conditions; the Chapada Mine, the Cerro Moro Project, the Ming Mine, the Gualcamayo Mine, the Karma Project, the Emigrant Springs Mine, MWS, the Hugo North Exten- sion and Heruga deposits, the mines underlying the Sandstorm portfolio of royalties, the Bachelor Lake Mine, the Diavik Mine, the Mt. Hamilton mine, the Prairie Creek Project, the San Andres Mine, the Hot Maden Project, the Hackett River Project, the Lobo-Marte Project, Agi Dagi and Kirazli or the Bracemac-McLeod Mine; the absence of control over mining operations from which Sandstorm will purchase gold and risks related to those mining operations, including risks related to international operations, government and environmental regulation, actual results of current exploration activities, conclusions of economic evaluations and changes in project parameters as plans continue to be refined; problems inherent to the marketability of minerals; industry conditions, including fluctuations in the price of metals, fluctuations in foreign exchange rates and fluctuations in interest rates; government entities interpreting existing tax legislation or enacting new tax legislation in a way which adversely affects Sandstorm; stock market volatility; competition; as well as those factors discussed in the section entitled “Risks to Sandstorm” herein and those risks described in the section entitled “Risk Factors” contained in Sandstorm’s most recent Annual Information Form for the year ended December 31, 2015 available at www.sedar.com and www.sec. gov and incorporated by reference herein. Forward-looking information in this MD&A includes, among other things, disclosure regarding: Sandstorm’s existing Gold Streams and royalties as well as its future outlook, the mineral reserve and mineral resource estimates for each of the Chapada Mine, the Cerro Moro Project, the Diavik Mine, the Aurizona Mine, the Gualcamayo Mine, the Emigrant Springs Mine, MWS, the Santa Elena Mine, the Ming Mine, the Black Fox Mine, the Hugo North Extension and Heruga deposits, the Karma Project, the mines underlying the Sandstorm portfolio of royalties, the Bachelor Lake Mine, the Mt. Hamilton Mine, the Prairie Creek Project, the San Andres Mine, the Hot Maden Project, the Hackett River Project, the Lobo-Marte Project, Agi Dagi and Kirazli and the Bracemac-McLeod Mine. Forward-looking information is based on assumptions management believes to be reasonable, including but not limited to the continued operation of the mining operations from which Sandstorm will purchase gold, other commodity or receive royalties from, no material adverse change in the market price of commodities, that the mining operations will operate in accordance with their public statements and achieve their stated production outcomes, and such other assumptions and factors as set out therein. Although Sandstorm has attempted to identify important factors that could cause actual actions, events or results to differ materially from those contained in forward-looking information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information. 47 — Sandstorm Gold Ltd.MD&A2016 Annual Report  ManagEMEnt'S rESponSiBiLitY for financiaL rEporting The accompanying consolidated financial statements of Sandstorm Gold Ltd. and all the information in this annual report are the responsibility of management and have been approved by the Board of Directors. The consolidated financial statements have been prepared by management on a going concern basis in accordance with International Financial Reporting Standards (“IFRS”) as issued by the Interna- tional Accounting Standards Board (“IASB”). When alternative accounting methods exist, manage- ment has chosen those it deems most appropriate in the circumstances. Financial statements are not exact since they include certain amounts based on estimates and judgments. Management has determined such amounts on a reasonable basis in order to ensure that the financial statements are presented fairly, in all material respects. Management has prepared the financial information pre- sented elsewhere in the annual report and has ensured that it is consistent with that in the financial statements. Sandstorm Gold Ltd. maintains systems of internal accounting and administrative controls in order to provide, on a reasonable basis, assurance that the financial information is relevant, reliable and accurate and that the Company's assets are appropriately accounted for and adequately safe- guarded. The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the financial state- ments. The Board carries out this responsibility principally through its Audit Committee. The Audit Committee is appointed by the Board, and all of its members are independent directors. The Committee meets at least four times a year with management, as well as the external auditors, to discuss internal controls over the financial reporting process, auditing matters and financial reporting issues, to satisfy itself that each party is properly discharging its responsibilities, and to review the quarterly and the annual reports, the financial statements and the external auditors' re- port. The Committee reports its findings to the Board for consideration when approving the financial statements for issuance to the shareholders. The Committee also considers, for review by the Board and approval by the shareholders, the engagement or reappointment of the external auditors. The consolidated financial statements have been audited by PricewaterhouseCoopers LLP, Chartered Professional Accountants, in accordance with Canadian generally accepted auditing standards and standards of the Public Company Accounting Oversight Board (United States) on behalf of the shareholders. PricewaterhouseCoopers LLP have full and free access to the Audit Committee. “nolan watson” “Erfan kazemi” president & chief Executive officer chief financial officer february 21, 2017 — 48 Sandstorm Gold Ltd.SECTION 02Management's Discussion & AnalysisindEpEndEnt auditor’S rEport To the Shareholders of Sandstorm Gold Ltd. We have completed an integrated audit of Sandstorm Gold Ltd. and its subsidiaries’ 2016 consoli- dated financial statements and their internal control over financial reporting as at December 31, 2016. Our opinions, based on our audits are presented below. rEport on thE conSoLidatEd financiaL S tatEMEnt S We have audited the accompanying consolidated financial statements of Sandstorm Gold Ltd. and its subsidiaries’, which comprise the consolidated statement of financial position as at December 31, 2016 and the consolidated statement of income (loss), consolidated statement of comprehensive in- come (loss), consolidated statement of cash flows and consolidated statement of changes in equity for the year then ended, and the related notes, which comprise a summary of significant accounting policies and other explanatory information. ManagEMEnt’S rESponSiBiLitY for thE conSoLidatEd financiaL S tatEMEnt S Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the Inter- national Accounting Standards Board and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. auditor’S rESponSiBiLitY Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing stan- dards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. Canadian generally accepted auditing standards also require that we comply with ethical requirements. An audit involves performing procedures to obtain audit evidence, on a test basis, about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting principles and policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion on the consolidated financial statements. 49 — Sandstorm Gold Ltd.MD&A2016 Annual Report  opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the finan- cial position of Sandstorm Gold Ltd. and its subsidiaries as at December 31, 2016 and their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. othEr MattEr The financial statements of Sandstorm Gold Ltd. and its subsidiaries’ for the year ended December 31, 2015, were audited by another auditor who expressed an unmodified opinion on those state- ments on March 30, 2016. rEport on intErnaL controL o VEr financiaL rEporting We have also audited Sandstorm Gold Ltd. and its subsidiaries’ internal control over financial report- ing as at December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). ManagEMEnt’S rESponSiBiLitY for intErnaL controL o VEr financiaL rEporting Management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. auditor’S rESponSiBiLitY Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accor- dance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control, based on the assessed risk, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our audit opinion on the company’s internal control over financial reporting. dEfinition of intErnaL controL o VEr financiaL rEporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions — 50 Sandstorm Gold Ltd.SECTION 02Management's Discussion & Analysisare recorded as necessary to permit preparation of financial statements in accordance with gener- ally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial state- ments. inhErEnt LiMitationS Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. opinion In our opinion, Sandstorm Gold Ltd. and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as at December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO. /S/ pricewaterhousecoopers LLp chartered professional accountants Vancouver, British columbia february 21, 2017 51 — Sandstorm Gold Ltd.MD&A2016 Annual Report  rEport of indEpEndEnt rEgiS tErEd puBLic accounting firM To the Board of Directors and Shareholders of Sandstorm Gold Ltd. We have audited the accompanying consolidated financial statements of Sandstorm Gold Ltd. and subsidiaries (the “Company”), which comprise the consolidated statement of financial position as at December 31, 2015, and the consolidated statement of loss, consolidated statement of compre- hensive loss, consolidated statement of changes in equity, and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. ManagEMEnt'S rESponSiBiLitY for thE c onSoLidatEd financiaL StatEMEnt S Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the Inter- national Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. auditor'S rESponSiBiLitY Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those stan- dards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclo- sures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consoli- dated financial statements in order to design audit procedures that are appropriate in the circum- stances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a basis for our audit opinion. opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the fi- nancial position of Sandstorm Gold Ltd. and subsidiaries as at December 31, 2015, and their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. /S/ deloitte LLp chartered professional accountants March 30, 2016 Vancouver, canada — 52 Sandstorm Gold Ltd.SECTION 02Management's Discussion & AnalysisSEction 03 consolidated financial Statements for the Year Ended december 31, 2016 53 — Sandstorm Gold Ltd.FS2016 Annual Report  consolidated Statements of financial p osition assets current Cash and cash equivalents Trade receivables and other non-current Mineral, royalty and other interests Investments Deferred financing costs Loans receivable Deferred income tax assets Receivables and other Total assets Liabilities current Trade and other payables non-current Bank debt Deferred income tax liabilities Equity Share capital Reserves Deficit Accumulated other comprehensive loss Total liabilities and equity Contractual obligations (Note 14) Subsequent events (Note 16) ON BEHALF OF THE BOARD: “nolan watson”, Director “david dew itt”, Director — 54 note december 31, 2016 december 31, 2015 6 7 8 6 (b) 10 8 10 9 9 $ $ $ $ $ $ $ $ $ $ 21,434 $ 6,663 28,097 $ 5,346 3,876 9,222 402,785 $ 414,363 61,293 1,935 23,357 16,934 481 26,580 2,220 23,821 19,650 1,017 534,882 $ 496,873 4,289 $ 7,443 - 3,288 3,288 7,577 $ $ 573,085 $ 23,915 (35,672) (34,023) 527,305 534,882 $ $ 83,500 3,279 86,779 94,222 491,769 23,368 (60,926) (51,560) 402,651 496,873 ↗ The accompanying notes are an integral part of these consolidated financial statementsExpressed in U.S. Dollars ($000s)consolidated Statements of income (Loss) Sales Royalty revenue Cost of sales, excluding depletion Depletion Total cost of sales Gross profit Expenses and other (income) ‣ Administration expenses 1 ‣ Project evaluation 1 ‣ Foreign exchange loss (gain) ‣ (Gain) loss on revaluation of investments ‣ Finance income ‣ Finance expenses and other ‣ Gain on restructuring of mineral interest ‣ Mineral, royalty and other interests impairments Income (loss) before taxes Current income tax expense Deferred income tax expense Net income (loss) for the year Basic earnings (loss) per share Diluted earnings (loss) per share weighted average number of common shares outstanding ‣ Basic ‣ Diluted 1 Equity settled stock based compensation (a non-cash item) is included in administration expenses and project evaluation note 15 15 $ $ $ $ $ Year Ended december 31, 2016 Year Ended december 31, 2015 41,634 $ 20,737 62,371 $ 12,834 $ 27,654 40,488 $ 38,585 14,078 52,663 13,566 35,312 48,878 21,883 $ 3,785 11 $ 5,031 $ 7 6 (c) 10 10 9 (e) 9 (e) $ $ $ $ $ $ 5,064 87 (22,093) (2,598) 4,100 - 2,507 5,690 4,346 (1,532) 12,463 (1,610) 1,693 (4,966) 21,645 29,785 $ (33,944) 306 $ 4,225 4,531 871 8,241 9,112 25,254 $ (43,056) 0.18 0.17 $ $ (0.36) (0.36) 144,159,678 149,961,923 119,622,450 119,622,450 3,106 $ 2,706 55 — Expressed in U.S. Dollars ($000s)↗ The accompanying notes are an integral part of these consolidated financial statements consolidated Statements of comprehensive income (Loss) note Year Ended december 31, 2016 Year Ended december 31, 2015 Net income (loss) for the year other comprehensive income (loss) for the year items that may subsequently be re-classified to net income (loss): Currency translation differences items that will not subsequently be reclassified to net income (loss): Gain (loss) on investments, including a tax recovery of $514 (Prior year – nil) 7 Total other comprehensive income (loss) for the year Total comprehensive income (loss) for the year $ $ $ $ 25,254 $ (43,056) 121 $ (5,668) 17,416 17,537 42,791 $ $ (7,507) (13,175) (56,231) — 56 ↗ The accompanying notes are an integral part of these consolidated financial statementsExpressed in U.S. Dollars ($000s)consolidated Statements of cash flows cash flow from (used in): operating activities ‣ Net income (loss) for the year items not affecting cash: note Year Ended december 31, 2016 Year Ended december 31, 2015 $ 25,254 $ (43,056) ‣ Depletion and depreciation and financing amortization ‣ Mineral, royalty and other interests impairments ‣ Deferred income tax expense ‣ Share-based payment ‣ (Gain) loss on revaluation of investments ‣ Unrealized foreign exchange loss (gain) ‣ Interest on loan receivable ‣ Loss (gain) on restructuring of mineral interest and loan receivable and other ‣ Changes in non-cash working capital investing activities ‣ Acquisition of mineral, royalty and other interests ‣ Acquisition of investments and other assets ‣ Proceeds from disposition of mineral, royalty and other interests, investments and other assets ‣ Loan issuance ‣ Loan repayment ‣ Acquisition of Gold Royalties Corp., net of cash acquired of $1.3M financing activities ‣ Bank debt drawn ‣ Bank debt repaid ‣ Proceeds on exercise of warrants and options ‣ Proceeds from issuance of common shares net of financing costs ‣ Acquisition and cancellation of common shares (normal course issuer bid) and other Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents — beginning of the year Cash and cash equivalents — end of the year Supplemental cash flow information (note 12) 6 (c) 10 12 6 (b) 7 8 8 9 9 9 $ $ $ $ $ $ $ $ 28,489 2,507 4,225 3,106 (22,093) - (1,528) 655 (1,624) 38,991 $ (10,806) $ (5,731) 18,391 (1,000) 2,993 - 35,998 21,645 8,116 2,706 12,463 (1,687) (674) (4,966) 274 30,819 (217,345) (14,398) 11,039 (1,993) - 1,288 3,847 $ (221,409) 5,000 $ (88,500) 5,455 53,453 (2,280) (26,872) $ 122 $ 16,088 5,346 21,434 $ 110,000 (26,500) 39 25,622 (1,708) 107,453 (1,741) (84,878) 90,224 5,346 57 — Expressed in U.S. Dollars ($000s)↗ The accompanying notes are an integral part of these consolidated financial statementsconsolidated Statements of changes in Equity Share capital reserves note number amount Share options Share purchase warrants deficit accumulated other comprehensive income (Loss) total At January 1, 2015 117,478,182 $ 456,670 $ 9,015 $ 12,117 $ (17,870) $ (38,385) $ 421,547 Shares issued 10,087,800 27,136 Options exercised 9 (b) 155,000 Vesting of restricted stock rights 77,138 684 725 - (170) (725) 1,614 - - Expiration of unexercised warrants Acquisition and cancellation of common shares (normal course issuer bid) and other Issuance of warrants Share issuance costs (net of deferred tax of $1.0 million) Shares issued on acquisition of Gold Royalties Corporation and other Share based payment Total Comprehensive loss for the year - 4,388 - (4,388) 9 (a) (518,123) (1,708) (475) - - - - (1,561) 1,600,317 5,435 - - - - - - - 2,706 - 3,674 - - - - - - - - - - - - - - - - - - - - - - 28,750 514 - - (2,183) 3,674 (1,561) 5,435 2,706 (43,056) (13,175) (56,231) At December 31, 2015 128,880,314 $ 491,769 $ 10,351 $ 13,017 $ (60,926) $ (51,560) $ 402,651 Shares Issued 12,921,400 57,500 - Options exercised 9 (b) 1,516,402 7,609 (2,199) Vesting of restricted stock rights 79,858 360 (360) Acquisition and cancellation of common shares (normal course 9 (a) (619,999) (2,280) issuer bid) Share issuance costs (net of deferred tax of $986) Shares issued for acquisition of royalties and other Share based payment Total Comprehensive income for the year - - - 9 (a) - (2,807) 6 (b) 9,153,307 20,934 - - - - 3,106 - - - - - - - - - - - - - - - - - - - - - - - 57,500 5,410 - (2,280) (2,807) 20,934 3,106 25,254 17,537 42,791 At December 31, 2016 151,931,282 $ 573,085 $ 10,898 $ 13,017 $ (35,672) $ (34,023) $ 527,305 — 58 ↗ The accompanying notes are an integral part of these consolidated financial statementsExpressed in U.S. Dollars ($000s)notes to the c onsolidated financial Statements December 31, 2016 Expressed in U.S. Dollars 1 naturE of opErationS c principles of Consolidation Sandstorm Gold Ltd. was incorporated under the Busi- ness Corporations Act of British Columbia on March 23, 2007. Sandstorm Gold Ltd. and its subsidiary entities (collectively "Sandstorm", “Sandstorm Gold” or the "Company") is a resource-based company that seeks to acquire gold and other metals purchase agreements (“Gold Streams” or "Streams") and royalties from companies that have advanced stage development projects or operating mines. In return for making an upfront payment to acquire a Gold Stream or royalty, Sandstorm receives the right to purchase, at a fixed price per unit or at a variable price based on spot, a percentage of a mine’s production for the life of the mine (in the case of a stream) or a portion of the revenue generated from the mine (in the case of a royalty). The head office, principal address and registered office of the Company are located at Suite 1400, 400 Burrard Street, Vancouver, British Columbia, V6C 3A6. These consolidated financial statements include the accounts of the Company and its subsidiaries (all wholly owned) Sandstorm Gold (Barbados) Limited, Sandstorm Gold (Canada) Holdings Ltd., Bridgeport Gold Inc., Inversiones Mineras Australes Holdings (BVI) Inc., Inversiones Mineras Australes S.A., Premier Royalty U.S.A. Inc., SA Targeted Invest- ing Corp., Sandstorm Metals & Energy (Canada) Holdings Ltd, Sandstorm Metals & Energy (Canada) Ltd. and Sandstorm Metals & Energy (US) Inc. Subsidiaries are fully consolidated from the date the Company obtains control, and continue to be consolidated until the date that control ceases. Control is achieved when the Company is exposed to, or has rights to, variable returns from its involve- ment with the entity and has the ability to affect those returns through its power over the entity. All intercompany balances, transactions, revenues and expenses have been eliminated on consolida- These consolidated financial statements were au- thorized for issue by the Board of Directors of the tion. Company on February 21, 2017. d Business Combinations 2 SuMMarY of Significant accounting poLiciES a Statement of Compliance These consolidated financial statements, including comparatives, have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). B Basis of presentation On the acquisition of a business, the acquisition method of accounting is used, whereby the pur- chase consideration is allocated to the identifiable assets and liabilities on the basis of fair value at the date of acquisition. Provisional fair values allocated at a reporting date are finalized as soon as the relevant information is available, within a period not to exceed twelve months from the acquisition date with retrospective restatement of the impact of adjustments to those provisional fair values ef- fective as at the acquisition date. Incremental costs related to acquisitions are expensed as incurred. When the amount of purchase consideration is These consolidated financial statements have been contingent on future events, the initial cost of the prepared on a historical cost basis except for certain acquisition recorded includes an estimate of the financial instruments, which are measured at fair fair value of the contingent amounts expected value. The consolidated financial statements are presented in United States dollars, and all values are rounded to the nearest thousand except as otherwise indicated. to be payable in the future. When the fair value of contingent consideration as at the date of ac- quisition is finalized before the purchase price allocation is finalized, the adjustment is allocated to the identifiable assets and liabilities acquired. 59 — Subsequent changes to the estimated fair value relates, which is estimated using available infor- of contingent consideration are recorded in the mation of proven and probable reserves and the consolidated statement of income (loss). portion of resources expected to be classified as mineral reserves at the mine corresponding to the When the cost of the acquisition exceeds the fair values of the identifiable net assets acquired, specific agreement. the difference is recorded as goodwill. If the fair The acquisition costs of acquired resources and value attributable to the Company’s share of the exploration potential is recorded as an asset (non- identifiable net assets exceeds the cost of acquisi- depletable interest) on the acquisition date. The tion, the difference is recognized as a gain in the value of the exploration potential is classified as consolidated statement of income (loss). non-depletable and accounted for in accordance Non-controlling interests represent the fair value of net assets in subsidiaries, as at the date of acquisi- tion, which are not held by the Company and are presented in the equity section of the consolidated statement of financial position. with IFRS 6, Exploration and Evaluation of Mineral Resources until such time as the technical feasibility and commercial viability have been established at which point the value of the asset is accounted for in accordance with IAS16, Property, Plant and Equipment. E Goodwill The Company allocates goodwill arising from busi- ness combinations to each cash-generating unit or group of cash-generating units that are expected to receive the benefits from the business combination. Irrespective of any indication of impairment, the recoverable amount of the cash-generating unit or group of cash-generating units to which goodwill has been allocated is tested annually for impairment and when there is an indication that the goodwill may be impaired. Any impairment is recognized as an expense immediately. Any impairment of goodwill is not subsequently reversed. f mineral, royalty and other interests g Impairment of mineral, royalty and other interests Evaluation of the carrying values of each mineral property is undertaken when events or changes in circumstances indicate that the carrying values may not be recoverable. If any indication of impairment exists, the recoverable amount is estimated to determine the extent of any impairment loss. The recoverable amount is the higher of the fair value less costs of disposal and value in use. Estimated values in use are calculated using estimated produc- tion, sales prices, and a discount rate. Estimated production is determined using current reserves and the portion of resources expected to be clas- sified as mineral reserves. Estimated sales prices are determined by reference to an average of Mineral, royalty and other interests consist of ac- long-term metal price forecasts by analysts and quired royalty interests and stream metal purchase management’s expectations. The discount rate is agreements. These interests are recorded at cost estimated using the average discount rate used by and capitalized as tangible assets with finite lives. analysts to value precious metal royalty companies. They are subsequently measured at cost less ac- If it is determined that the recoverable amount is cumulated depletion and accumulated impairment less than the carrying value then an impairment losses, if any. Project evaluation costs that are not is recorded with a charge to net income (loss). related to a specific agreement are expensed in the period incurred. An assessment is made at each reporting period if there is any indication that a previous impair- Producing mineral, royalty and other interests are ment loss may no longer exist or has decreased. depleted using the units-of-production method If indications are present, the carrying amount over the life of the property to which the interest of the mineral interest is increased to the revised — 60 Sandstorm Gold Ltd.SECTION 03Notes to the Consolidated Financial Statements estimate of its recoverable amount, but so that the Bridgeport Gold Inc., Inversiones Mineras Australes increased carrying amount does not exceed the Holdings (BVI) Inc., Premier Royalty U.S.A. Inc., carrying amount net of depletion that would have SA Targeted Investing Corp., Sandstorm Metals & been determined had no impairment loss been Energy (Canada) Holdings Ltd, Sandstorm Metals recognized for the mineral interest in previous & Energy (Canada) Ltd. and Sandstorm Metals & periods. Energy (US) Inc. the functional currency is the h revenue recognition Revenue comprises of revenue earned in the period from royalty and mineral stream interests. Revenue is measured at the fair value of the consideration received or receivable when management can reliably estimate the amount, pursuant to the terms of the royalty and/or stream agreements. In some instances, the Company will not have access to sufficient information to make a reasonable estimate of revenue and, accordingly, revenue recognition is deferred until management can make a reasonable estimate. Differences between estimates and actual amounts are adjusted and recorded in the period that the actual amounts are known. For royalty interests, revenue recognition gener- ally occurs in the month of production from the royalty property. For stream agreements, revenue U.S. dollar. For Inversiones Mineras Australes S.A., the func- tional currency of this subsidiary is the Argentine Peso. To translate Inversiones Mineras Australes S.A. to the presentation currency of the U.S. dol- lar, all assets and liabilities are translated using the exchange rate as of the reporting date and all income and expenses are translated using the average exchange rates during the period. All resulting exchange differences are recognized in other comprehensive income (loss). Transactions in foreign currencies are initially recorded in the entity’s functional currency as the rate on the date of the transaction. Monetary assets and liabilities denominated in foreign cur- rencies are translated using the closing rate as at the reporting date. recognition occurs when the relevant commodity J financial Instruments received from the stream operator is physically delivered and then sold by the Company to its third party customers. The Company’s financial instruments consist of cash and cash equivalents, trade receivables and other, investments, loans receivable, trade and Under the terms of certain royalty agreements, other payables, commodity price derivatives and revenue may be subject to adjustment upon final bank debt. All financial instruments are initially settlement of estimated metal prices, weights, and recorded at fair value and designated as follows: assays. Provisionally-priced revenues are initially recognized based on forward prices. Adjustments to revenue from metal prices are recorded at each reporting period and other adjustments are re- corded on final settlement and are offset against revenue when incurred. i foreign Currency translation The functional currency of the Company and its subsidiaries is the principal currency of the eco- nomic environment in which they operate. For the Company and its subsidiaries Sandstorm Gold (Barbados) Limited, Sandstorm Gold (Canada) Ltd., Cash and cash equivalents, trade receivables and other, and loans receivable are classified as financial assets at amortized cost and trade and other payables and bank debt are classified as financial liabilities at amortized cost. Both financial assets at amortized cost and financial liabilities at amortized cost are measured at amortized cost using the effective interest method. Investments in common shares are held for long- term strategic purposes and not for trading. Upon the adoption of IFRS 9, the company made an irrevocable election to designate these investments as fair value through other comprehensive income 61 — Sandstorm Gold Ltd.FS2016 Annual Report  (“FVTOCI”) in order to provide a more meaningful L Cash and Cash equivalents presentation based on management’s intention, rather than reflecting changes in fair value in net income. Such investments are measured at fair value at the end of each reporting period, with any gains or losses arising on re-measurement recognized as a component of other comprehensive income under the classification of gain (loss) on revaluation of investments. Cumulative gains and losses are not Cash and cash equivalents include cash on account, demand deposits and money market investments with maturities from the date of acquisition of three months or less, which are readily convert- ible to known amounts of cash and are subject to insignificant changes in value. subsequently reclassified to profit or loss. M Income taxes Investments in warrants, convertible debt instru- Current income tax assets and liabilities are mea- ments, and forward contracts are classified as sured at the amount expected to be recovered from fair value through profit or loss (“FVTPL”). These or paid to the taxation authorities. The tax rates warrants, convertible debt instruments and forward and tax laws used are those that are substantively contracts are measured at fair value at the end of enacted at the reporting date. each reporting period, with any gains or losses aris- ing on re-measurement recognized as a component of net income (loss) under the classification of gain (loss) on revaluation of investments. Deferred income taxes are provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for account- Transaction costs on initial recognition of financial ing. The change in the net deferred income tax instruments classified as FVTPL are expensed asset or liability is included in income except for as incurred. Transaction costs incurred on initial deferred income tax relating to equity items which recognition of financial instruments classified as is recognized directly in equity. The income tax loans and receivables, FVTOCI and other financial effects of differences in the periods when revenue liabilities are recognized at their fair value amount and expenses are recognized in accordance with and offset against the related loans and receivables Company accounting practices, and the periods or capitalized when appropriate. Financial assets are derecognized when the con- tractual rights to the cash flows from the asset expire. Financial liabilities are derecognized only when the Company’s obligations are discharged, cancelled or they expire. On derecognition, the difference between the carrying amount (measured at the date of derecognition) and the consideration received (including any new asset obtained less any new liability obtained) is recognized in profit or loss. k Inventory they are recognized for income tax purposes are reflected as deferred income tax assets or liabili- ties. Deferred income tax assets and liabilities are measured using the substantively enacted statutory income tax rates which are expected to apply to taxable income in the years in which the assets are realized or the liabilities settled. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available for utilization. Deferred income tax assets and liabilities are offset only if a legally enforceable right exists to offset current tax assets against liabilities and the deferred When refined gold or the applicable commod- tax assets and liabilities relate to income taxes ity, under the Gold Stream, is delivered to the levied by the same taxation authority on the same Company, it is recorded as inventory. The amount taxable entity and are intended to be settled on recognized as inventory includes both the cash a net basis. payment and the related depletion associated with that commodity. — 62 Sandstorm Gold Ltd.SECTION 03Notes to the Consolidated Financial StatementsThe determination of current and deferred taxes to employees, officers and directors based on requires interpretations of tax legislation, estimates the fair values of the share purchase options and of expected timing of reversal of deferred tax assets RSRs at the date of grant. The fair values of share and liabilities, and estimates of future earnings. purchase options and RSRs at the date of grant n Share Capital and Share purchase Warrants The proceeds from the issue of units are allocated between common shares and share purchase war- rants (with an exercise price denominated in U.S. dollars) on a pro-rata basis based on relative fair values at the date of issuance. The fair value of common shares is based on the market closing price on the date the units are issued and the fair value of share purchase warrants is determined using the quoted market price or if the warrants are not traded, using the Black-Scholes Model (“BSM”) as of the date of issuance. Equity instruments issued are expensed over the vesting periods of the share purchase options and RSRs, respectively, with a corresponding increase to equity. The fair value of share purchase options is determined using the BSM with market related inputs as of the date of grant. Share purchase options with graded vesting schedules are accounted for as separate grants with different vesting periods and fair values. The fair value of RSRs is the market value of the underlying shares at the date of grant. At the end of each reporting period, the Company re-assesses its estimates of the number of awards that are expected to vest and recognizes the impact of any revisions to this estimate in the consolidated to agents as financing costs are measured at their statement of income (loss). fair value at the date the services were provided. Upon exercise, the original consideration is real- located from share purchase warrants reserve to issued share capital along with the associated exercise price. Original consideration associated with expired share purchase warrants is reallocated to issued share capital. o earnings per Share Basic earnings per share is computed by dividing the net income available to common sharehold- The BSM requires management to estimate the expected volatility and expected term of the equity instrument, the risk-free rate of return over the term, expected dividends, and the number of equity instruments expected to ultimately vest. Volatility is estimated using the historical stock price of the Company, the expected term is estimated using historical exercise data, and the number of equity instruments expected to vest is estimated using historical forfeiture data. ers by the weighted average number of common Q related party transactions shares issued and outstanding during the period. Diluted earnings per share is calculated assuming that outstanding share options and share purchase warrants, with an average market price that exceeds the average exercise prices of the options and war- rants for the year, are exercised and the proceeds are used to repurchase shares of the Company at the average market price of the common shares for the year. Parties are considered related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered related if they are subject to common control or significant influ- ence. A transaction is considered a related party transaction when there is a transfer of resources or obligations between related parties. p Share Based payments r Segment reporting The Company recognizes share based compen- sation expense for all share purchase options and restricted share rights (“RSR’s”) awarded An operating segment is a component of the Company that engages in business activities from which it may 63 — Sandstorm Gold Ltd.FS2016 Annual Report  earn revenues and incur expenses. The Company’s a attributable reserve and resource operating segments are components of the Company’s estimates business for which discrete financial information is available and which are reviewed regularly by the Company’s Chief Executive Officer to make decisions about resources to be allocated to the segment and assess its performance. 3 futurE changES in accounting poLiciES The IASB has issued the following new standard but it is not yet effective. Pronouncements that are not applicable to the Company have been excluded from this note: The Company’s business is the acquisition of Gold Streams and royalties. Each mineral, royalty and other interest agreement has its own unique terms and judgement is required to assess the appropriate accounting treatment. Mineral, royalty and other interests are a significant class of assets of the Company, with a carrying value of $402.8 million at December 31, 2016 (2015: $414.4 million). This amount represents the capitalized expenditures related to the acquisition of the metal interests net of accumulated depletion and any impairments. The Company estimates the reserves IFRS 15 Revenue from Contracts with Custom- and resources relating to each agreement. Reserves ers— The final standard on revenue from contracts are estimates of the amount of metal that can be with customers was issued on May 28, 2014 and is economically and legally extracted from the mining effective for annual reporting periods beginning properties at which the Company has precious metal after January 1, 2018 for public entities with early purchase agreements, adjusted where applicable application permitted. Entities have the option to reflect the Company’s percentage entitlement of using either a full retrospective or a modified to metal produced from such mines. The Company retrospective approach to adopt the guidance. The estimates its reserves and resources based on infor- Company has completed a preliminary analysis and mation compiled by appropriately qualified persons is assessing the impact of this standard. relating to the geological data on the size, depth 4 kEY SourcES of ES tiMation uncErtaintY and criticaL accounting JudgMEntS The preparation of the Company’s consolidated fi- nancial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during and shape of the ore body, and requires complex geological judgments to interpret the data. The estimation of recoverable reserves is based upon factors such as estimates of foreign exchange rates, commodity prices, future capital requirements, and production costs along with geological assumptions and judgments made in estimating the size and grade of the ore body. Changes in the reserve or resource estimates may impact the carrying value of the Company’s mineral, royalty and other interests and depletion charges. the reporting period. Estimates and assumptions The Company’s mineral and royalty interests are are continuously evaluated and are based on man- depleted on a units-of-production basis, with es- agement’s experience and other factors, including timated recoverable reserves and resources being expectations of future events that are believed to used to determine the depletion rate for each of be reasonable under the circumstances. However, the Company’s mineral and royalty interests. These actual outcomes can differ from these estimates. calculations require the use of estimates and assump- Information about significant areas of estimation uncertainty and judgments made by management in preparing the consolidated financial statements are described below. — 64 tions, including the amount of recoverable reserves and resources to be converted into reserves. Changes to depletion rates are accounted for prospectively. Sandstorm Gold Ltd.SECTION 03Notes to the Consolidated Financial Statements B Investments In the normal course of operations, the Company invests in equity interests of other entities. In such circumstances, management considers whether the facts and circumstances pertaining to each such investment result in the Company obtaining control, joint control or significant influence over the investee entity. In some cases, the determination of whether or not the Company controls, jointly controls or significantly influences the investee entities requires the application of significant management judgment to consider individually and collectively such factors as: which shipments of gold are made requires the use of judgment. Differing interpretation of these laws or regulations could result in an increase in the Company’s taxes, or other governmental charges, duties or impositions. In addition, the recoverability of deferred income tax assets, including expected periods of reversal of temporary differences and expectations of future taxable income, are assessed by management at the end of each reporting period and adjusted, as necessary, on a prospective basis. d Impairment of assets Assessment of impairment of mineral, royalty and ↳ The purpose and design of the investee entity. other interests requires the use of judgments, as- ↳ The ability to exercise power, through substan- tive rights, over the activities of the investee entity that significantly affect its returns. ↳ The size of the company’s equity ownership and voting rights, including potential voting rights. ↳ The size and dispersion of other voting interests, including the existence of voting blocks. ↳ Other investments in or relationships with the investee entity including, but not limited to, current or possible board representation, royalty and/or stream investments, loans and other types of financial support, material transac- tions with the investee entity, interchange of managerial personnel or consulting positions. ↳ Other relevant and pertinent factors. If it is determined that the Company neither has control, joint control or significant influence over an investee entity, the Company accounts for the corresponding investment in equity interest at fair value through other comprehensive income as further described in note 2. c Income taxes The interpretation of existing tax laws or regulations in Canada, Barbados, the United States of America, Australia, Argentina, Chile or any of the countries in which the mining operations are located or to sumptions and estimates when assessing whether there are any indicators that could give rise to the requirement to conduct a formal impairment test as well as in the assessment of fair values. Under the Fair Value approach, the net present value (“NPV”) methodology is used. NPV is esti- mated by using a discount rate to calculate the present value of expected future cash flows. The discount rate is based on the Company’s weighted average cost of capital, adjusted for various risks. The expected future cash flows are management’s best estimates of expected future revenues and costs. Under each method, expected future rev- enues reflect the estimated future production for each mine at which the Company has a Gold Stream or royalty based on detailed life of mine plans received from each of the partners. Included in these forecasts is the production of mineral resources that do not currently qualify for inclusion in proven and probable ore reserves where there is a high degree of confidence in its economic extraction. This is consistent with the methodol- ogy that is used to measure value beyond proven and probable reserves when determining the fair value attributable to acquired mineral and royalty interests. Expected future revenues also reflect management’s estimated long term metal prices, which are determined based on current prices, forward pricing curves and forecasts of expected long-term metal prices prepared by analysts. These estimates often differ from current price levels, but are consistent with how a market participant would 65 — Sandstorm Gold Ltd.FS2016 Annual Report  assess future long-term metal prices. Estimated full term of the asset or liabilities. Investments in future cash costs are fixed based on the terms of warrants and convertible debt instruments held each Gold Stream or royalty, as disclosed in note that are not listed on an exchange are classified 14 to the financial statements. as Level 2. During the year ended December 31, 2016, the Company recorded an impairment charge of $2.5 Level 3 | Prices or valuation techniques that re- quire inputs that are both significant to fair value million ($21.6 million- year ended December 31, 2015). measurement and unobservable (supported by 5 financiaL inS truMEntS a Capital risk management little or no market activity). The following table sets forth the Company's fi- nancial assets and liabilities measured at fair value on a recurring basis by level within the fair value The Company manages its capital such that it hierarchy as at December 31, 2016 and December 31, endeavors to continue as a going concern while 2015. As required by IFRS 13, assets and liabilities maximizing the return to stakeholders through are classified in their entirety based on the lowest the optimization of the debt and equity balance. level of input that is significant to the fair value The capital structure of the Company consists of measurement. $527.3 million ($402.7 million – December 31, 2015) of equity attributable to common shareholders, comprising of issued capital (note 9), accumulated reserves and deficit. The Company was not subject to any externally imposed capital requirements with the exception of complying with certain covenants as at december 31 2016: under the credit agreement governing bank debt in $000s total Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) un- observable inputs (Level 3) (note 8). The Company is in compliance with the debt covenants described in note 8 as at December 31, 2016. B fair value estimation The fair value hierarchy establishes three levels to classify fair value measurements based upon the observability of significant inputs used in the valuation techniques. The three levels of the fair value hierarchy are described below: Level 1 | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Long-term investments ‣ common shares held $ 28,850 $ 28,850 $ - $ ‣ warrants ‣ convertible debt 3,404 29,039 - - 3,404 29,039 $ 61,293 $ 28,850 $ 32,443 $ - - - - as at december 31 2015: Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) un- observable inputs (Level 3) in $000s total Investments in common shares and warrants held Long-term investments that have direct listings on an exchange are clas- ‣ common shares held $ 14,990 $ 14,990 $ - $ sified as Level 1. Level 2 | Quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, or inputs that are observable, either directly or indirectly, for substantially the ‣ warrants ‣ convertible debt 35 11,555 - - 35 11,555 $ 26,580 $ 14,990 $ 11,590 $ - - - - — 66 Sandstorm Gold Ltd.SECTION 03Notes to the Consolidated Financial StatementsThe fair value of the Company's financial instruments E liquidity risk which include cash and cash equivalents, trade re- ceivables and other, loans receivable, receivables and other, forward purchase contracts and trade and The Company has in place a planning and budgeting process to help determine the funds required to other payables approximate their carrying values at support the Company’s normal operating require- December 31, 2016. c Credit risk The Company’s credit risk is limited to cash and cash equivalents, trade receivables and other, loans receivable, and receivables and other in the ordinary course of business. The Company’s trade receivables and other is subject to the credit risk of the counterparties who own and operate the mines underlying Sandstorm’s royalty portfolio. In order to mitigate its exposure to credit risk, the Company closely monitors its financial assets and maintains its cash deposits in several high-quality financial institutions. The Company’s loan receivable and convertible debenture due from Luna Gold Corp. ("Luna") are subject to Luna’s credit risk and the Company’s ability to realize on its security. Refer to note 16 – Subsequent Events of the Financial Statements for additional information. d Currency risk Financial instruments that impact the Company’s net income (loss) or other comprehensive in- come (loss) due to currency fluctuations include: cash and cash equivalents, trade receivables and other, investments and trade and other payables denominated in Canadian dollars. Based on the Company's Canadian dollar denominated monetary assets and monetary liabilities at December 31, 2016 a 10% increase (decrease) of the value of the Canadian dollar relative to the United States dollar would increase (decrease) net income by $1 million and other comprehensive income by $2 million, respectively. ments on an ongoing basis. In managing liquidity risk, the Company takes into account the available undrawn available balance on its Revolving Facility, anticipated cash flows from operations and its hold- ing of cash and cash equivalents. As at December 31, 2016, the Company had cash and cash equivalents of $21.4 million (December 31, 2015 – $5.3 million). Sandstorm holds common shares, convertible de- bentures, and warrants of other companies with a combined fair market value as at December 31, 2016, of $61.3 million (December 31, 2015 – $26.6 million). The daily exchange traded volume of these shares, including the shares underlying the warrants, may not be sufficient for the Company to liquidate its position in a short period of time without potentially affecting the market value of the shares. f other price risk The company is exposed to equity price risk as a result of holding long-term investments in other mining companies. The Company does not actively trade these investments. The equity prices of long term investments are impacted by various underly- ing factors including commodity prices. Based on the Company's long-term investments held as at December 31, 2016 a 10% increase (decrease) in the equity prices of these investments would increase (decrease) net income by $1.2 million and other comprehensive income $2.9 million. 67 — Sandstorm Gold Ltd.FS2016 Annual Report  6 MinEraL, roYaLtY and othEr intErES tS a Carrying amount as of and for the year ended december 31, 2016: in $000s opening cost additions (disposals) accumulated depletion Ending opening depletion inventory depletion adjustment impairment Ending carrying amount Aurizona BRA $ 11,000 $ 33 $ 11,033 $ 310 $ - $ - $ - $ 310 $ 10,723 22,671 1,301 23,972 14,678 4,411 Bachelor Lake Black Fox Chapada CAN CAN BRA 37,758 69,520 Diavik Mine CAN 53,111 3 8 - 37,761 22,117 69,528 - 53,111 6,273 Hugo North Extension and Heruga Karma Gold Project MNG 42,493 (7,142) 35,351 BFA 21,174 5,115 26,289 - - Ming CAN 20,068 Santa Elena MEX 23,342 ARG 74,229 - - 5 20,068 7,622 792 23,342 17,202 2,001 74,234 - 1,427 2,011 2,737 5,519 - 2,095 206,724 21,191 227,915 106,393 6,592 11,339 (614) 10,725 4,471 69 Yamana silver stream Royalties 1 Other 2 Total 3 250 267 - - - 524 171 105 - - - - - - - - - - - - 19,339 4,633 24,395 13,366 2,737 66,791 11,792 41,319 - 35,351 2,619 23,670 8,585 11,483 19,308 4,034 1,427 72,807 2,507 115,492 112,423 - 4,540 6,185 $ 593,429 $ 19,900 $ 613,329 $ 179,066 $ 27,654 $ 1,317 $ 2,507 $ 210,544 $ 402,785 1 Includes Bracemac-McLeod, Coringa, Mt. Hamilton, Paul Isnard, Prairie Creek, Ann Mason, Serra Pelada, Gualcamayo, Emigrant Springs, Mine Waste Solu- tions, San Andres, Sao Francisco, Thunder Creek, Bomboré, the Early Gold Deposit, Hot Maden, Hackett River, Lobo-Marte, Agi Dagi & Kirazli, Forrestania 2 3 and others. Includes JDL Stream and other. Total Mineral, royalty and other interests includes $99.7 million of assets located in Canada, $95.2 million in Argentina, $85.4 million in Brazil, $36.6 million in Mongolia, $26.8 million in Burkina Faso, $21.4 million in the United States, $10.3 million in Turkey, $4.1 million in South Africa, $4.0 million in Mexico, $5.2 million in French Guiana, $4.9 million in Peru, $3.3 million in Australia and $5.9 million in other countries. — 68 Sandstorm Gold Ltd.SECTION 03Notes to the Consolidated Financial Statementsas of and for the year ended december 31, 2015: cost accumulated depletion in $000s opening additions (disposals) foreign exchange translation Ending opening depletion impairment disposals Ending carrying amount Aurizona BRA $ 27,358 $ (16,358) $ Bachelor Lake CAN 22,671 Black Fox CAN 37,758 - - Chapada BRA CAN Diavik Mine Hugo North - - 69,520 53,111 Extension MNG 42,493 - and Heruga Karma Gold Project Ming Santa Elena Yamana silver stream BFA 14,456 6,718 CAN 20,068 MEX 23,342 - - ARG - 74,229 - - - - - - - - - $ 11,000 $ 5,756 $ 1,072 $ 22,671 10,458 4,220 37,758 17,836 4,281 69,520 53,111 42,493 21,174 - - - - - 6,273 - - 20,068 5,628 1,994 23,342 11,087 6,115 74,229 - - - - - - - - - - - - Royalties 1 189,970 19,348 (2,594) 206,724 76,907 11,164 18,322 12,393 (1,054) - 11,339 955 193 3,323 $ (6,518) $ 310 $ 10,690 - - - - - - - - - - - 14,678 7,993 22,117 15,641 - 69,520 6,273 46,838 - - 42,493 21,174 7,622 12,446 17,202 6,140 - 74,229 106,393 100,331 4,471 6,868 $ 390,509 $ 205,514 $ (2,594) $ 593,429 $ 128,627 $ 35,312 $ 21,645 $ (6,518) $ 179,066 $ 414,363 Other 2 Total 3 1 Includes Bracemac-McLeod, Coringa, Mt. Hamilton, Paul Isnard, Prairie Creek, Ann Mason, Serra Pelada, Gualcamayo, Emigrant Springs, Mine Waste Solutions, San Andres, Sao Francisco, Thunder Creek, Bomboré, the Gold Royalties Corporation royalty portfolio and the Early Gold Deposit. 2 3 Includes Summit, JDL Stream and other. Total Mineral, royalty and other interests royalties includes $111.3 million of assets located in Canada, $88.1 million in Brazil, $98.1 million in Argentina, $42.5 million in Mongolia, $21.8 million in the United States, $24.3 million in Burkina Faso, $6.1 million in Mexico, $6.9 million in South Africa, $5.1 million in French Guiana, $3.1 million in Honduras, $1.0 million in Ghana, and $6.1 million in other South American countries. 69 — Sandstorm Gold Ltd.FS2016 Annual Report  B Significant acquisitions and other transactions during the year ended december 31, 2015: Yamana Streams ACQUISITION ↘ during the year ended december 31, 2016: Silver Stream Royalty Portfolio ACQUISITION ↘ During the year ended December 31, 2016, the Company acquired a royalty portfolio consisting of 52 royalties from Teck Resources Limited and its affiliates. The portfolio was acquired for consid- eration of $16.8 million, of which $1.4 million was paid in cash and $15.4 million in common shares of the Company. Hugo North Extension and Heruga Gold Stream UPDATE ↘ On October 27, 2015, the Company acquired a silver stream on Yamana Gold Inc.’s (“Yamana”) gold-silver Cerro Moro project, located in Santa Cruz, Argentina (the “Cerro Morro Project” or “Cerro Moro”) and interim silver deliveries during years 2016 to 2018 from a number of Yamana’s currently operating mines. In acquiring the Yamana silver stream, the Chapada copper stream (refer to Chapada copper stream section) and a potential Gold Stream on the Agua Rica project, the Company agreed to upfront con- On March 1, 2016, Sandstorm amended its Gold sideration consisting of a cash payment of $152 Stream with Entrée Gold Inc. (“Entrée”) such that million, of which $148 million was paid in 2015 and the Company will now purchase an amount equal to $4 million was paid in April 2016, and 15 million 5.62% and 4.26% of the gold and silver by-products Sandstorm warrants. The warrants have a 5 year produced from the Hugo North Extension and term, a strike price of $3.50 per Sandstorm com- Heruga deposits located in Mongolia, (the “Hugo mon share and became exercisable in 2016 based North Extension” and “Heruga”, respectively) for upon the achievement of specific milestones with per ounce cash payments equal to the lesser of respect to the construction of the Cerro Moro mine. $220 per ounce of gold and $5 per ounce of silver and the then prevailing market price of gold and sil- ver, respectively. Additionally, Sandstorm amended its copper stream such that the Company will now purchase an amount equal to 0.42% of the copper produced from Hugo North Extension and Heruga for per pound cash payments equal to the lesser of $0.50 per pound of copper and the then prevailing market price of copper. In consideration for the amendment Sandstorm received consideration of $7.0 million (of which $5.5 million was paid in cash and $1.5 million was received by way of Entrée common shares), which the Company recognized as a disposal of mineral interest. Under the terms of the Yamana silver stream, Sandstorm has agreed to purchase, for on-going per ounce cash payments equal to 30% of the spot price of silver, an amount of silver from Cerro Moro equal to 20% of the silver produced (up to an annual maximum of 1.2 million ounces of silver), until Yamana has delivered to Sandstorm 7.0 million ounces of silver, then 9.0% of the silver produced thereafter. As part of the Yamana silver stream, during the year 2016 through 2018, Sandstorm has also agreed to purchase, for on-going per ounce cash payment equal to 30% of the spot price of silver, an amount of silver from: i. the Minera Florida mine in Chile equal to 38% of the silver produced (up to an annual maximum of 200,000 ounces of silver); and ii. the Chapada mine in Brazil equal to 52% of the silver produced (up to an annual maximum of 100,000 ounces of silver). — 70 Sandstorm Gold Ltd.SECTION 03Notes to the Consolidated Financial Statements If by January 1, 2019, the Cerro Moro processing until the earlier of Sandstorm having received facility has not averaged 80% of its daily nameplate cumulative pre-tax cash flow equal to $70 million, production capacity over a 30-day period (the or Cerro Moro having achieved the Commencement "Commencement of Production"), then Yamana´s of Production. producing El Peñon mine in Chile will provide a 24 month backstop until the Commencement of Production has begun. During the 24 month backstop, if applicable, Sandstorm will purchase, for on-going per ounce cash payments equal to 30% of the spot price of silver, an amount of silver equal to 16% of El Peñon´s silver production up to a maximum of 1.2 million ounces per annum. copper Stream On October 27, 2015, the Company acquired a copper stream on Yamana’s open pit gold-copper Chapada mine located 270 kilometres northwest of Brasília in Goiás state, Brazil (“Chapada” or the “Chapada Mine”). Under the terms of the Yamana copper stream, Sandstorm has agreed to purchase, for on-going per pound cash payments equal to 30% of the spot price of copper, an amount of copper from the Chapada Mine equal to: In assessing the fair value of the Yamana Silver, Copper and Early Gold Deposit, the Company utilized a discounted cash flow analysis using discount rates from 3.5% to 5.0% and analyst price projections. The excess of the fair value of the Yamana Silver, Copper and Early Gold Deposit of $155.1 million and the total cash consideration of $152.0 million of $3.1 million was ascribed to the 15 million warrants issued to Yamana as consideration for the transaction. Diavik Royalty ACQUISITION ↘ In March 2015, the Company acquired a 1% gross proceeds royalty based on the production from the Diavik mine located in Lac de Gras, Northwest Territories, Canada (“Diavik” or the “Diavik Mine”) which is operated by Rio Tinto PLC (“Rio Tinto”). For consideration, the Company paid $52.5 mil- i. 4.2% of the copper produced (up to an annual lion in cash and 3 million warrants of Sandstorm maximum of 3.9 million pounds of copper) to IAMGOLD Corporation (the owner of the 1% until Yamana has delivered 39 million pounds royalty). The warrants have a strike price of $4.50 of copper to Sandstorm (the “First Chapada per Sandstorm common share, an expiration date Delivery Threshold”); then of March 23, 2020 and will only be exercisable following initial production from the Diavik Mine’s ii. 3.0% of the copper produced until, on a cumu- lative basis, Yamana has delivered 50 million A21 pipe. pounds of copper to Sandstorm (the “Second In assessing the fair value of the Diavik royalty, Chapada Delivery Threshold”); then iii. 1.5% of the copper produced thereafter, for the life of the mine. If Cerro Moro has not achieved the Commencement of Production and Sandstorm has not received the Company utilized a discounted cash flow analysis using a 7% discount rate and analyst price projections. The excess of the fair value of the Diavik royalty of $53.1 million and the total cash consideration of $52.5 million being $0.6 million was ascribed to the 3 million warrants issued to IAMGOLD Corporation as consideration for the cumulative pre-tax cash flow equal to $70 million transaction. from the Yamana silver stream, then the First Chapada Delivery Threshold and the Second Cha- Aurizona Mine UPDATE ↘ pada Delivery Threshold will cease to be in effect and Sandstorm will continue to purchase 4.2% of Chapada’s payable copper production (up to an annual maximum of 3.9 million pounds of copper), The Company has a 3% – 5% sliding scale NSR on the production from Luna Gold Corp.’s (“Luna”) open-pit Aurizona mine, located in Brazil (the “Aurizona Mine”). At gold prices less than or equal 71 — Sandstorm Gold Ltd.FS2016 Annual Report  to $1,500 per ounce, the royalty is a 3% NSR. In of up to 80,000 ounces of gold for an estimated addition, Sandstorm holds a 2% NSR on Luna’s 7 to 10 year mine life and a 5% discount rate. 190,073 hectares of greenfields exploration ground. The fair value of the Debenture was determined At any time prior to the commencement of com- using a discounted cash flow model incorporating mercial production, Luna has the ability to purchase the contractual cash flows of the Debenture, a one-half of the greenfields NSR for a cash payment 9% discount rate and an option pricing model to of $10 million. On June 30, 2015, the Company restructured its previously existing Gold Stream and loan agreement with Luna (the “Restructuring”). Under the terms of the Restructuring, the Gold Stream was terminated and replaced by two net smelter return royalties (“NSR”) and a convertible debenture. The convertible debenture is a $30 million instru- ment bearing interest at a rate of 5% per annum (the “Debenture”). The Debenture is payable in three equal annual tranches of $10 million plus accrued interest beginning June 30, 2018. Luna will have the right to convert principal and interest owing under the Debenture into common shares of Luna, so long as Sandstorm does not own more than 20% of the outstanding common shares of Luna. The quantum of shares upon conversion will be dependent on a 20 day volume weighted aver- age price (“VWAP”) and if the VWAP is less than C$0.10 per share, the shares will be deemed to have been issued at C$0.10 per share. The Debenture is included in investments (note 7). Under the loan amendment, the maturity date of the existing $20 million Luna loan was extended from June 30, 2017 to June 30, 2021 and the inter- value the prepayment and convertibility feature embedded in the Debenture. Key assumptions in the option pricing model included an exercise price of $0.10 per share, a volatility rate of 45%, a term of 5 years and an interest free rate of 1.3%. The resulting fair value of the Debenture and two NSRs was $13 million and $11 million, respectively. The Company recognized a gain of $4.3 million arising from the difference between the fair value of the Debenture and the two NSRs and the carrying value of the Aurizona mineral interest. Deflector Mine UPDATE ↘ As contemplated in the Deflector gold purchase agreement, the Company provided notice to Doray Minerals Ltd. that it was requesting back the $6.0 million the Company had advanced under the purchase agreement. As part of a settlement agree- ment, the Company received $7.0 million in June 2015. The difference between the $7.0 million received and the carrying value of the Deflector mineral interest of $6.3 million was recognized in other income. As a result of the settlement, both parties’ obligations were extinguished under the gold purchase agreement. est rate was revised to 5% per annum, payable in c Impairments cash on the maturity date. In the event that Luna is in default, the applicable rate of interest will increase to 10% per annum. The fair value of the during the year ended december 31, 2016: loan was determined by utilizing a cash flow model incorporating the contractual cash flows and a 7% While assessing whether any indications of impair- discount rate. The fair value of the two NSRs was determined using a discounted cash flow model to estimate the fair value less costs to sell. Key assumptions incorporated into the cash flow model included the estimated long-term price of gold of $1,150, annual production volumes at the Aurizona Mine ment exist for mineral properties, consideration is given to both external and internal sources of information. The lack of progress with respect to the advancement of some of the properties which Sandstorm holds royalties on within Sandstorm’s mineral interest portfolio, prompted the Company to evaluate its investment in these specific assets. As part of assessment, the Company recorded an — 72 Sandstorm Gold Ltd.SECTION 03Notes to the Consolidated Financial Statementsimpairment charge of $1.4 million for the full balance Emigrant Springs of those royalties that were specifically identified as lacking significant progress. The recoverable amount of the assets, for impairment assessment purposes, was determined using the fair value less costs of disposal method and considered whether the mining operator had dropped certain mineral claims. Key assumptions used in the analysis to determine fair value included a liquidation scenario and management’s best estimates of the value of the underlying royalty assets. In addition to these impairments, the Company recorded an additional impairment charge of $1.1 million relating to other royalties within the Company’s royalty portfolio. This impairment charge was prompted by changes in the underlying operations of the assets including estimated production. The recoverable amount of the assets, for impairment assessment purposes, was determined using the fair value less costs of disposal method. Key assumptions used in the discounted cash flow analysis to determine fair value included a long term gold price of $1,300 and a 4% discount rate. As a result of the impairment assessment, the Company recognized an impairment charge of $5.8 million with respect to its mineral interest in the Emigrant Springs mine. The recoverable amount of $5.3 million was determined using a discounted cash flow calculation to estimate the fair value less costs to sell. Key assumptions used in the cash flow forecast to determine the fair value included a long term gold price of $1,200 and an estimated 4 year mine life and a 5% discount rate. Mine Waste Solutions As a result of the impairment assessment, the Company recognized an impairment charge of $2.4 million with respect to its mineral interest in the Mine Waste Solutions project. The recoverable amount of $6.9 million was determined using a discounted cash flow calculation to estimate the fair value less costs to sell. Key assumptions used in the cash flow forecast to determine the fair value included a long term gold price of $1,200 and an estimated 8 year mine life and a 5% discount rate. during the year ended december 31, 2015: Summit As a result of a decline in the Company’s market Corp. raising additional capital to satisfy the terms capitalization during the year ended December and conditions of the negotiated restructuring 31, 2015, the Company performed an impairment of its senior secured indebtedness prompted the analysis of the Company’s mineral interests. As Company to evaluate its investment in the Summit part of this and other assessments, the Company mine Gold Stream. The recoverable amount of the The lack of progress with respect to Santa Fe Gold recognized the following impairments: Serra Pelada As a result of the lack of progress at the Serra Pe- lada project, the Company recorded an impairment charge of $10.1 million with respect to its interest in the mineral interest resulting in a $nil balance as at December 31, 2015. The recoverable amount of the asset was determined for impairment purposes using management’s best estimate of the fair value of the underlying assets and Sandstorm’s ability to realize on those assets during an insolvency proceeding. asset, for impairment assessment purposes, was determined using a liquidation scenario to estimate the fair value less costs to sell. Key assumptions used in the analysis to determine fair value included management’s best estimates of the value of the underlying assets and Sandstorm’s ability to realize on these assets during an insolvency proceeding. As a result of its review, the Company, during the year ended December 31, 2015, recorded an impairment charge of $3.3 million for the full balance of the mineral interest. 73 — Sandstorm Gold Ltd.FS2016 Annual Report  7 inVEStMEntS as of and for the year ended december 31, 2016: in $000s Common shares 1 Warrants 2 Convertible debt instruments 2 Total $ $ fair Value January 1, 2016 net additions (disposals) december 31, 2016 fair Value adjustment december 31, 2016 fair Value december 31, 2016 14,990 $ (3,042) $ 16,902 $ 35 11,555 (1,240) - 4,609 17,484 28,850 3,404 29,039 26,580 $ (4,282) $ 38,995 $ 61,293 1 2 Fair value adjustment recorded within Other Comprehensive Income (loss) for the year Fair value adjustment recorded within Net Income (loss) for the year During the year ended December 31, 2016 the Company disposed of common shares of AuRico Metals Inc. for total consideration of $10.4 million and recognized a fair value adjustment in other comprehensive income of $2.0 million on these shares. as of and for the year ended december 31, 2015: in $000s Common shares 1 Warrants 2 Convertible debt instruments 2 Total fair Value January 1, 2015 net additions (disposals) december 31, 2015 fair Value adjustment december 31, 2015 fair Value december 31, 2015 $ $ 14,254 $ 8,243 $ (7,507) $ 70 9,665 438 13,880 (473) (11,990) 23,989 $ 22,561 $ (19,970) $ 14,990 35 11,555 26,580 1 2 Fair value adjustment recorded within Other Comprehensive (Loss) Income for the year Fair value adjustment recorded within Net (Loss) income for the year — 74 Sandstorm Gold Ltd.SECTION 03Notes to the Consolidated Financial Statements8 rEVoLVing faciLitY and dEfErrEd financing co StS On June 1, 2016, the Company amended its revolving credit agreement, extending the term to four years, maturing in July 2020 (“Revolving Facility”). The Revolving Facility allows the Company to borrow up to $110 million for acquisition purposes from a syndicate of banks including the Bank of Nova Scotia, Bank of Montreal, National Bank of Canada and Canadian Imperial Bank of Commerce. The amounts drawn on the Revolving Facility remain subject to interest at LIBOR plus 3.00% – 4.25% per annum, and the undrawn portion of the Revolving Facility remains subject to a standby fee of 0.75% – 1.05% per annum, dependent on the Company’s leverage ratio. Under the credit agreement, the Company is required to maintain a leverage ratio of net debt divided by EBITDA (as defined in the credit facility agreement) of less than or equal to 4.00:1 for calendar 2016 and calendar 2017; 3.50:1 for calendar 2018; and 2.75:1 for the remainder of the life of the Revolving Facility. The Company is further required to maintain a tangible net worth greater than the aggregate of $109.7 million and 50% of positive net income for each fiscal quarter after September 30, 2012. The Revolving Facility is secured against the Company’s assets, including the Company’s mineral interests and royalties and investments. As of December 31, 2016, the Company was in compliance with the covenants and the balance of the Revolving Facility was nil. Deferred financing costs are amortized on a straight-line basis over the term of the Revolving Facility as presented below: as of december 31, 2016: in $000s opening cost additions accumulated amortization carrying amount Debt issuance costs $ 3,933 $ 320 $ (2,318) $ 1,935 as of december 31, 2015: in $000s opening cost additions accumulated amortization carrying amount Debt issuance costs $ 3,377 $ 556 $ (1,713) $ 2,220 75 — Sandstorm Gold Ltd.FS2016 Annual Report  9 SharE capitaL and rESEr VES a Shares Issued B Stock options of the Company The Company is authorized to issue an unlimited The Company has an incentive stock option plan number of common shares without par value. (the “Option Plan”) whereby the Company may On July 6, 2016 the Company completed a public offering of 12,921,400 common shares at a price of $4.45 per common share, for gross proceeds of $57.5 million. In connection with the offering, the Company paid agent fees of $2.9 million, represent- ing 5% of the gross proceeds. Upon closing of the equity financing, the majority of the net proceeds were used to reduce the balance of the Company’s Revolving Facility. Under the Company’s normal course issuer bid (“NCIB”), the Company is able until April 3, 2017, to purchase up to 6,896,539 common shares. The NCIB provides the Company with the option to purchase its common shares from time to time. During the year ended December 31, 2016 and pursuant to the NCIB, the Company purchased and cancelled an aggregate of 619,999 common shares. grant share options to eligible employees, officers, directors and consultants at an exercise price, expiry date, and vesting conditions to be determined by the Board of Directors. The maximum expiry date is five years from the grant date. All options are equity settled. The Option Plan permits the issuance of options which, together with the Company's other share compensation arrangements, may not exceed 8.5% of the Company’s issued common shares as at the date of the grant. During the year ended December 31, 2016, the Company issued 1,336,000 options with a weighted average exercise price of C$4.96 and a fair value of $1.7 million or $1.27 per option. The fair value of the options granted was determined using a Black-Scholes model using the following weighted average assumptions: grant date share price and exercise price of C$4.96, expected volatility of 49%, risk-free interest rate of 0.76 % and expected life of 3 years. Expected volatility is determined by considering the trailing 3 year historic average share price volatility of the Company and similar companies in the same industry and business model. a summary of the Company’s options and the changes for the period are as follows: options outstanding at december 31, 2014 Granted Addition of outstanding Gold Royalties’ Corporation options Exercised Forfeited options outstanding at december 31, 2015 Granted Exercised Expired unexercised options outstanding at december 31, 2016 — 76 number of options 6,852,607 1,284,000 47,475 (155,000) (1,173,500) 6,855,582 1,336,000 (1,516,402) (440,000) 6,235,180 weighted average Exercise price (c$) 4.69 3.61 15.71 (3.39) (3.40) 5.45 4.96 (4.63) (6.35) 4.71 Sandstorm Gold Ltd.SECTION 03Notes to the Consolidated Financial StatementsThe weighted-average share price at the time of exercise for the year ended December 31, 2016 was C$7.16 per share (C$3.78 – year ended December 31, 2015). The weighted average remaining contractual life of the options for the year ended December 31, 2016 was 3.35 years (3.38 years – year ended December 31, 2015). a summary of the Company’s share purchase options as of december 31, 2016 is as follows: number outstanding Exercisable Exercise price per Share Expiry date 27,000 5,850 402,133 150,000 10,875 3,625 12,375 25,000 2,976,072 1,084,000 200,000 1,336,000 2,250 6,235,180 27,000 5,850 402,133 150,000 10,875 3,625 12,375 16,667 1,730,258 361,338 66,667 - 2,250 C$ 18.33 18.33 16.35 11.78 11.31 10.62 8.89 6.03 2.93 3.60 3.64 4.96 15.00 2,789,038 C$ 5.72 August 22, 2017 October 4, 2017 December 11, 2017 December 21, 2017 February 19, 2018 March 1, 2018 December 13, 2018 May 16, 2019 November 13, 2019 December 9, 2020 December 22, 2020 December 12, 2021 March 30, 2022 c Share purchase Warrants a summary of the Company’s warrants and the changes for the period are as follows: number of warrants Shares to be issued upon Exercise of the warrants warrants outstanding at december 31, 2014 Addition of Gold Royalties Corporation warrants Issued Expired unexercised warrants outstanding at december 31, 2015 Expired unexercised Exercised Warrants outstanding at December 31, 2016 25,769,272 368,038 23,043,900 (19,874,037) 29,307,173 (1,256,662) (4,111) 28,046,400 10,225,553 368,038 23,043,900 (4,330,318) 29,307,173 (1,256,662) (4,111) 28,046,400 77 — Sandstorm Gold Ltd.FS2016 Annual Report  a summary of the Company’s warrants as of december 31, 2016 are as follows: number outstanding Exercise price per Share Expiry date 5,002,500 3,000,000 15,000,000 5,043,900 28,046,400 $14.00 $4.50 $3.50 $4.00 September 7, 2017 March 23, 2020 October 27, 2020 November 3, 2020 d restricted Share rights The Company has a restricted share plan (the “Restricted Share Plan”) whereby the Company may grant restricted share rights to eligible employees, officers, directors and consultants at an expiry date to be determined by the Board of Directors. Each restricted share right entitles the holder to receive a common share of the Company without any further consideration. The Restricted Share Plan permits the issuance of up to a maximum of 2,800,000 restricted share rights (“RSR”). During the year ended December 31, 2016, the Company granted 628,000 RSRs with a fair value of $2.4 million, a three year vesting term, and a weighted average grant date fair value of $3.80 per unit. As at December 31, 2016, the Company had 1,944,818 RSRs outstanding. E diluted earnings p er Share diluted earnings per share is calculated based on the following: in $000s net income (loss) Basic weighted average number of shares Basic earnings (loss) per share Effect of dilutive securities ‣ Stock options ‣ Warrants ‣ Restricted share rights Diluted weighted average number of common shares Diluted earnings (loss) per share — 78 Year Ended december 31, 2016 Year Ended december 31, 2015 25,254 $ (43,056) 144,159,678 119,622,450 0.18 $ (0.36) 1,903,699 2,709,987 1,188,559 - - - 149,961,923 119,622,450 0.17 $ (0.36) $ $ $ Sandstorm Gold Ltd.SECTION 03Notes to the Consolidated Financial StatementsThe following table lists the number of stock options, warrants and RSRs excluded from the computation of diluted earnings per share because the exercise prices exceeded the average market value of the com- mon shares of C$5.55 during the year ended December 31, 2016 (December 31, 2015 — C$4.43) or because a performance obligation had not been met as at December 31, 2016. The Company had a net loss for the year ended December 31, 2015; however, the following lists the stock options and share purchase warrants that would have been included in the computation of diluted weighted average number of common shares if the Company had net earnings as they would have been dilutive. Stock Options Warrants RSRs 10 incoME taxES Year Ended december 31, 2016 Year Ended december 31, 2015 1,213,208 8,064,894 - - - 64,973 The income tax expense differs from the amount that would result from applying the federal and provincial income tax rate to the net income (loss) before income taxes. these differences result from the following items: in $000s Income (loss) before income taxes Canadian federal and provincial income tax rates Income tax expense (recovery) based on the above rates increase (decrease) due to: ‣ Non-deductible expenses and permanent differences ‣ Change in deductible differences ‣ Change in unrecognized temporary differences ‣ Non-taxable portion of capital gain ‣ Change in deferred taxes related to attributing taxable income from Barbadian subsidiary ‣ Difference between statutory and foreign tax rates ‣ Other Income tax expense Year Ended december 31, 2016 Year Ended december 31, 2015 $ $ $ $ $ $ 29,785 26.0% 7,744 815 - (1,261) (3,244) - - 477 $ 4,531 $ (33,944) 26.0% (8,825) 621 6,073 3,632 - 8,060 (2,172) 1,723 9,112 79 — Sandstorm Gold Ltd.FS2016 Annual Report  As a result of an ongoing assessment of the Company’s assets held in foreign subsidiaries, during the year ended December 31, 2015, the Company recognized a reduction of its deferred income tax assets relating to taxable income previously attributed to its Barbadian subsidiary. A corresponding non-cash income tax expense of $8.1 million was accordingly recognized. The assessment is complex in nature, and the reduction and corresponding expense represent management estimates. The Company’s international transactions have not been audited by the Canada Revenue Agency, and should such transactions be audited no assurances can be given that the tax authority will concur with management’s estimates. the deferred tax assets and liabilities are shown below: in $000s deferred income tax assets ‣ Non-capital losses ‣ Share issue costs and other ‣ Mineral, royalty and other interests Total deferred income tax assets deferred income tax Liabilities ‣ Mineral, royalty and other interests Total deferred income tax liabilities Total deferred income tax asset, net Year Ended december 31, 2016 Year Ended december 31, 2015 $ $ $ $ $ 31,410 $ 1,906 (16,382) 16,934 (3,288) (3,288) 13,646 $ $ $ $ 31,701 1,253 (13,304) 19,650 (3,279) (3,279) 16,371 Deferred tax assets and liabilities have been offset where they relate to income taxes levied by the same taxation authority and the Company has the legal right and intent to offset. Non-capital losses have been recognized as a deferred income tax asset to the extent there will be future taxable income against which the Company can utilize the benefit prior to their expiration. The Company recognized deferred tax assets in respect of tax losses as at December 31, 2016 of $120.8 million (2015: $122.4 million) as it is probable that there will be future taxable profits to recover the deferred tax assets. movement in net deferred income taxes: in $000s Balance, beginning of the year ‣ Recognized in net income (loss) for the year ‣ Recognized in equity ‣ Recognized in other comprehensive income (loss) for the year ‣ Recognition and movement of purchase price allocation ‣ Currency translation differences Balance, end of year Year Ended december 31, 2016 Year Ended december 31, 2015 $ $ 16,371 $ (4,225) 986 514 - - 13,646 $ 21,708 (8,240) 1,010 - 1,592 301 16,371 — 80 Sandstorm Gold Ltd.SECTION 03Notes to the Consolidated Financial Statementsthe Company has deductible unused tax losses expiring as follows: in $000s Location amount Expiration Non-capital loss carry-forwards Canada $ 120,808 2030 - 2036 The aggregate amount of deductible temporary differences associated with capital losses and other items, for which deferred income tax assets have not been recognized as at December 31, 2016 are $27.9 million (2015: $48.7 million). No deferred tax asset is recognized in respect of these items because it is not probable that future taxable capital gains or taxable income will be available against which the Company can utilize the benefit. 11 adMiniStration ExpEnSES the administration expenses for the Company are as follows: in $000s Corporate administration Employee benefits and salaries Professional fees Depreciation Administration expenses before share based compensation Equity settled share based compensation (a non-cash expense) Total administration expenses 12 SuppLEMEntaL ca Sh fLow inforMation in $000s change in non-cash working capital: ‣ Trade receivables and other ‣ Trade and other payables Net (decrease) increase in cash Significant non-cash transactions: ‣ Shares and warrants issued for acquisition of mineral, royalty and other interests (note 6 (b)) ‣ Restructuring of mineral interest and loan receivable ‣ Issuance of common shares for Gold Royalties Corporation acquisition and other $ $ $ $ $ $ $ Year Ended december 31, 2016 Year Ended december 31, 2015 1,275 $ 1,570 819 231 3,895 $ 1,136 5,031 $ 1,471 1,695 798 212 4,176 1,514 5,690 Year Ended december 31, 2016 Year Ended december 31, 2015 (1,847) 223 (1,624) 20,892 - - $ $ $ $ (540) 814 274 3,674 24,000 5,435 81 — Sandstorm Gold Ltd.FS2016 Annual Report  13 kEY ManagEMEnt coMpEnS ation the remuneration of directors and those persons having authority and responsibility for planning, directing and controlling activities of the Company are as follows: in $000s Employee salaries and benefits Share-based payments Total key management compensation expense Year Ended december 31, 2016 Year Ended december 31, 2015 $ $ 1,699 2,041 3,740 $ $ 2,345 1,837 4,182 14 contractuaL oBLigationS In connection with its commodity streams, the Company has committed to purchase the following: Streams Bachelor Lake Black Fox Chapada Entrée Gold Karma Ming % of Life of Mine gold or relevant commodity 5, 6, 7, 8, 9 20% 8% 4.2% 5.62% on Hugo North Extension and 4.26% on Heruga 26,875 ounces over 5 years and 1.625% thereafter 25% of the first 175,000 ounces of gold produced, and 12% thereafter Santa Elena Yamana silver stream 20% Varies Subject to an annual inflationary adjustment except for Ming. per ounce cash payment: lesser of amount below and the then prevailing market price of commodity (unless otherwise noted) 1, 2, 3, 4 $500 $524 30% of copper spot price $220 20% of gold spot price $nil $361 30% of silver spot price For the Entrée Gold Stream, after approximately 8.6 million ounces of gold have been produced from the joint venture property, the price increases to $500 per gold ounce. 1 2 3 For the Entrée silver stream, percentage of life of mine is 5.62% on Hugo North Extension and 4.26% on Heruga which the Company can purchase for the lesser of the prevailing market price and $5 per ounce of silver until 40.3 million ounces of silver have been produced from the entire joint venture property. Thereafter, the purchase price will increase to the lesser of the prevailing market price and $10 per ounce of silver. 4 For the Santa Elena Gold Stream, the Company can purchase for a per ounce cash payment equal to (i) the lesser of $361 and the then prevailing market price of gold for the open-pit mine and (ii) the lesser of $361 and the then prevailing market price of gold until 50,000 ounces of gold have been delivered to Sandstorm (inclusive of ounces already received from open-pit production), at which time the on-going per ounce payments will increase to the lesser of $450 and the then prevailing market price of gold for the underground mine. 5 For the Entrée Gold and silver stream, percentage of life of mine is 5.62% on Hugo North Extension and 4.26% on Heruga if the minerals produced are contained below 560 metres in depth. 6 For the Entrée Gold and silver stream, percentage of life of mine is 8.43% on Hugo North Extension and 6.39% on Heruga if the minerals produced are contained above 560 metres in depth. 7 For the Entrée copper stream, the Company has committed to purchase an amount equal to 0.42% of the copper produced from the Hugo North Extension and Heruga deposits. If the minerals produced are contained above 560 metres in depth, then the commitment increases to 0.62% for both the Hugo North Extension and Heruga deposits. Sandstorm will make ongoing per pound cash payments equal to the lesser of $0.50 and the then prevailing market price of copper, until 9.1 billion pounds of copper have been produced from the entire joint venture property. Thereafter, — 82 Sandstorm Gold Ltd.SECTION 03Notes to the Consolidated Financial Statementsthe on-going per pound payments will increase to the lesser of $1.10 and the then prevailing market price of copper. 8 For the Chapada copper stream, the Company has committed to purchase an amount equal to 4.2% of the copper produced (up to an annual maximum of 3.9 million pounds of copper) until Yamana has delivered 39 million pounds of copper to Sandstorm; then 3.0% of the copper produced until, on a cumulative basis, Yamana has delivered 50 million pounds of copper to Sandstorm; then 1.5% of the copper produced thereafter, for the life of the mine. If Cerro Moro has not achieved the Commencement of Production and Sandstorm has not received cumulative pre-tax cash flow equal to $70 million from the Yamana silver stream, then the First Chapada Delivery Threshold and the Second Chapada Delivery Threshold will cease to be in effect and Sandstorm will continue to purchase 4.2% of Chapada’s payable copper production (up to an annual maximum of 3.9 million pounds of copper), until such time as Sandstorm has received cumulative pre-tax cash flow equal to $70 million, or Cerro Moro has achieved the Commencement of Production. 9 Under the terms of the Yamana silver stream, Sandstorm has agreed to purchase an amount of silver from Cerro Moro equal to 20% of the silver produced (up to an annual maximum of 1.2 million ounces of silver), until Yamana has delivered to Sandstorm 7.0 million ounces of silver; then 9.0% of the silver produced thereafter. As part of the Yamana silver stream, during the year 2016 through 2018, Sandstorm has also agreed to purchase an amount of silver from: (i) the Minera Florida mine in Chile equal to 38% of the silver produced (up to an annual maximum of 200,000 ounces of silver); and (ii) the Chapada mine in Brazil equal to 52% of the silver produced (up to an annual maximum of 100,000 ounces of silver). 15 SEgMEntEd inforMation The Company’s reportable operating segments, which are components of the Company’s business where separate financial information is available and which are evaluated on a regular basis by the Company’s Chief Executive Officer, who is the Company’s chief operating decision maker, for the purpose of assessing performance, are summarized in the tables below: for the year ended december 31, 2016 in $000s Sales royalty revenue cost of sales, excluding depletion depletion interest before taxes operations and other income (loss) cash from impairment of mineral, royalty Bachelor Lake, Canada Black Fox, Canada Chapada, Brazil Diavik, Canada Karma, Burkina Faso Ming, Canada Santa Elena, Mexico Yamana silver stream, Argentina $ 8,721 $ 462 $ 3,494 $ 4,411 $ 5,617 6,075 - - - 5,856 4,272 2,025 11,772 2,926 - - - - 2,354 1,843 - 860 - 2,011 2,737 5,519 2,095 792 3,385 2,001 876 1,427 - - - - - - - - $ 1,278 $ 5,481 1,252 1,495 337 1,317 1,233 2,951 4,232 5,901 3,314 2,025 6,386 8,460 623 2,050 Other Royalties 1 - 14,419 Other Corporate 226 - - - 4 18 - 6,592 2,507 5,316 14,073 69 - - - 139 208 10,409 (9,704) Consolidated $ 41,634 $ 20,737 $ 12,834 $ 27,654 $ 2,507 $ 29,785 $ 38,991 1 Where a mineral interest represents less than 10% of the Company’s sales, gross margin or aggregate asset book value and represents a royalty on gold, silver or other metal, the Royalty interest has been summarized under Other Royalties. Other Royalties includes royalty revenue from Bracemac-McLeod, Gualcamayo, Emigrant Springs, Mine Waste Solutions, San Andres, Thunder Creek, Copper Mountain, Forrestania and Sheerness. Includes royalty revenue from royalty interests located in Canada of $5.6 million, in the United States of $2.5 million, in South America of $5.6 million and other of $0.7 million. 83 — Sandstorm Gold Ltd.FS2016 Annual Report  for the year ended december 31, 2015 in $000s Sales royalty revenue cost of sales, excluding depletion mineral, royalty income (loss) cash from depletion and other interest before taxes operations impairment of Aurizona, Brazil $ 10,773 $ $ 3,690 $ 1,072 $ $ 6,011 $ 7,083 Bachelor Lake, Canada Black Fox, Canada Diavik, Canada Ming, Canada Santa Elena, Mexico Other Royalties 1 Other Corporate - - - 8,285 6,856 - 5,656 1,855 10,640 - 176 - - - 8,422 - - - - - - - - 515 (466) (617) (139) 1,259 4,735 3,815 4,480 1,855 7,374 8,679 161 11,292 18,322 (21,192) 3,323 (3,231) - (16,084) (7,363) 3,550 3,041 - - 3,266 - 19 - 4,220 4,281 6,273 1,994 6,115 65 - Consolidated $ 38,585 $ 14,078 $ 13,566 $ 35,312 $ 21,645 $ (33,944) $ 30,819 1 Where a mineral interest represents less than 10% of the Company’s sales, gross margin or aggregate asset book value and represents a royalty on gold, silver or other metal, the Royalty interest has been summarized under Other Royalties. Other royalties includes royalty revenue from Bracemac-McLeod, Gualcamayo, Emigrant Springs, Mine Waste Solutions, San Andres, and Thunder Creek. Includes royalty revenue from royalty interests located in Canada of $0.7 million, in the United States of $0.5 million, and other of $0.5 million. total assets as of: in $000s Aurizona Bachelor Lake Black Fox Chapada Diavik Mine Entrée Karma Ming Santa Elena Yamana silver stream Other Royalties 2 Other 3 Corporate Consolidated december 31, 2016 1 december 31, 2015 1 $ 10,723 $ 5,268 13,946 66,791 42,450 35,351 24,389 11,653 4,345 72,807 114,662 6,190 126,307 10,690 7,993 15,641 69,520 48,013 42,493 21,174 12,446 6,140 74,229 103,634 6,868 78,032 $ 534,882 $ 496,873 1 Includes related accounts receivables in relation to the respective properties. 2 Where a mineral interest represents less than 10% of the Company’s sales, gross margin or aggregate asset book value and represents a royalty on gold, silver or other metal, the Royalty interest has been summarized under Other Royalties. Includes Bracemac-McLeod, Coringa, Mt. Hamilton, Paul Isnard, Prairie Creek, Ann Mason, Gualcamayo, Emigrant Springs, Mine Waste Solutions, San Andres, Sao Francisco, Sao Vicente, Thunder Creek, Bomboré, Hot Maden, Hackett River, Lobo-Marte, Agi Dagi & Kirazli and other. 3 Includes JDL Stream and other. — 84 Sandstorm Gold Ltd.SECTION 03Notes to the Consolidated Financial Statements16 SuBSEQuEnt EVEnt S On January 26, 2017, Orezone Gold Corporation exercised its option to repurchase the royalty on the Bomboré gold project for $3.6 million, representing a 20% premium to the original upfront payment. On February 1, 2017, Luna announced a merger with JDL Gold Corp. Concurrent with the closing of the transaction, which is anticipated to be in March 2017, the term debt facility that is owed by Luna to Sandstorm, in the amount of $20 million plus accrued interest, is expected to be settled in equity, or a combination of cash and equity of the newly combined entity. Sandstorm will continue to hold the $30 million convertible debenture that is due from Luna. 85 — Sandstorm Gold Ltd.FS2016 Annual Report  

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