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