2019
Annual Report
For The Year Ended December 31, 2019
THE GOLD STANDARD IN ROYALTY INVESTMENTS
CORPORATE & SHAREHOLDER INFORMATION
Stock Exchange Listings
Toronto Stock Exchange
TSX: SSL
New York Stock Exchange
NYSE.AMERICAN: SAND
Transfer Agent
Computershare Investor Services
2nd Floor, 510 Burrard Street
Vancouver, British Columbia
V6C 3B9
T 604 661 9400
Corporate Secretary
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
Board of Directors
Andrew T. Swarthout
David Awram
David E. De Witt
John P. A. Budreski
Mary L. Little
Nolan Watson
Vera Kobalia
Corporate Offices
Vancouver Head Office
Suite 1400, 400 Burrard Street
Vancouver, British Columbia
V6C 3A6
T 604 689 0234
F 604 689 7317
info@sandstormgold.com
www.sandstormgold.com
Toronto Office
Suite 1110, 8 King Street
Toronto, Ontario
M5C 1B5
T 416 238 1152
SECTION 01
SECTION 02
Corporate Profile
Timeline: A Decade of Deals
A Message to Our Shareholders
Global Assets Map
Management Team
Board of Directors
04
04
08
13
16
17
Management's Discussion & Analysis
Company Highlights
Overview and Outlook
Key Producing Assets
Other Producing Assets
Development Assets
Summary of Annual Results
Summary of Quarterly Results
Quarterly Commentary
SECTION 03
Consolidated Financial Statements
Financial Position
Income (Loss)
Comprehensive Income (Loss)
Cash Flows
Changes in Equity
19
20
22
23
28
30
35
38
41
69
70
71
72
73
74
Notes to the Consolidated Financial Statements 75
In 2008, Nolan Watson and David Awram co-founded
Sandstorm Resources. It was the beginning of a growth story
that would exceed a billion-dollar market cap in less than
ten years. As Sandstorm heads into a new chapter of growth,
we’re looking back at some of the significant milestones over
the last decade of deals.
2009
ROYALTIES ------------------------------------- 3
PRODUCTION* ------------------------------ 0
2010
ROYALTIES ------------------------------------- 5
PRODUCTION* ---------------------- 2,322
First Stream and Royalty Deals
First Year of Gold Production
In spring 2009, Sandstorm announced its
By the end of 2010, Sandstorm had royalties
first gold streaming deals on the Aurizona
on three producing assets and marked its first
and Santa Elena projects. Both projects con-
year of cash flow from operations.
tinue to be integral to Sandstorm’s produc-
tion through 2020 and beyond.
2011
ROYALTIES ------------------------------------- 7
PRODUCTION* -------------------- 18,516
2012
ROYALTIES ----------------------------------- 12
PRODUCTION* -------------------- 33,514
Record Cash Flow and Production
New US$50 Million Credit Facility
In 2011, Sandstorm’s gold equivalent ounces
grew exponentially, initiating a trend of record
In early 2012, Sandstorm announced a new
credit facility of US$50 Million. The increase
production growth for each subsequent year.
in available capital allowed the company to
act quickly on new investment opportunities.
Listed on NYSE American
In the summer of 2012, Sandstorm Gold
Ltd. began trading in the US on the NYSE
American under the ticker symbol SAND.
The company was also listed on the TSX as
SSL, an up-listing from the TSX Venture.
04 SANDSTORM GOLD LTD.
Annual Report 2019Company ProfileSECTION 01 2012 — Sandstorm ringing The Opening Bell
at the New York Stock Exchange
2013
ROYALTIES ----------------------------------- 33
PRODUCTION* -------------------- 36,146
2014
ROYALTIES ----------------------------------- 45
PRODUCTION* -------------------- 44,821
2015
ROYALTIES ----------------------------------- 75
PRODUCTION* -------------------- 45,146
Premier Royalty Acquisition
First Syndicated Gold Stream
The acquisition of Premier Royalty Inc.
The Karma project gold stream marked
added 22 gold royalties to Sandstorm’s
Sandstorm’s first syndicated stream financ-
portfolio. This provided significant growth to
ing. The partnership with Franco-Nevada
Sandstorm’s production profile and further
provided US$100 Million in initial funding
Santa Elena Operator Acquired
by First Majestic Silver
With the acquisition of Silvercrest by First
Majestic Silver, the trend of Sandstorm’s ju-
nior partners being acquired by larger, better
diversification of the portfolio.
to the project operator. The Karma project
capitalized companies began, decreasing the
continues to be a significant producing asset
company’s counterparty risk.
in Sandstorm’s portfolio.
Credit Facility Increase to
US$100 Million
An increase in Sandstorm’s credit facility
Cerro Moro and Chapada Streams
Sandstorm entered into a multi-stream
deal with Yamana Gold Inc. in 2015, which
included production streams on the Cerro
provided additional capital available for
Moro project and Chapada mine as well as
acquisitions.
a royalty / early deposit gold stream on the
Agua Rica project. The deal brought immedi-
ate cash flow to Sandstorm while ensuring
further asset diversification and an improved
counterparty profile.
*
Attributable Gold Equivalent Ounces Sold
Refer to section on non-IFRS and other measures of the MD&A.
SANDSTORM GOLD LTD. 05
2019 Annual ReportSECTION 01Company Profile Site visit at Hod Maden
2016
ROYALTIES --------------------------------- 135
PRODUCTION* -------------------- 49,731
2017
ROYALTIES --------------------------------- 174
PRODUCTION* -------------------- 54,633
2018
ROYALTIES --------------------------------- 187
PRODUCTION* -------------------- 57,646
Royalty Package Purchased
from Teck Resources
Largest Acquisition to Date
Hod Maden PFS Released
The acquisition of Mariana Resources in-
The Hod Maden Pre-Feasibility Study out-
The package added 56 new royalties to
cluded a 30% Net Profits Interest on the Hod
lined a high-grade underground mine pro-
Sandstorm’s portfolio, including four produc-
ing assets and nine in development. In addi-
tion to the immediate cash flow, the package
brought long-term optionality through sev-
Maden project. Sandstorm had previously
ducing an average of 266k AuEq oz annually
acquired a 2.0% NSR royalty on the project in
at a cost of US$374/oz over an initial 11-year
the Teck Resources royalty package. The high-
mine life. The PFS confirmed that Hod Maden
grade asset is estimated to double Sandstorm’s
stands to be one of the world’s lowest-cost
eral exploration-stage properties.
production guidance within 3 years.
gold mines when it reaches production.
Endeavour Mining Acquired
Karma Mine Operator
Credit Facility Increase to
US$150 Million
Credit Facility Increase to
US$225 Million
In the theme of strengthening Sandstorm’s
counterparty profile, Karma’s operator,
True Gold, attracted the likes of Endeavour
Mining. Endeavour saw the mine through
its initial gold pour and into commercial
production in 2016.
A further increase in available capital.
An increase in Sandstorm’s credit facility
provided additional capital available for
acquisitions.
Houndé Gold Mine Royalty
Acquisition
Sandstorm announced the purchase of
an existing 2.0% NSR royalty on the pro-
ducing Houndé gold mine. This solidified
Sandstorm’s acquisition strategy of focusing
on near-term cash-flowing assets.
06 SANDSTORM GOLD LTD.
Annual Report 2019Company ProfileSECTION 01 2019
ROYALTIES --------------------------------- 190
PRODUCTION* -------------------- 63,829
Fruta del Norte Royalty Acquisition and First Gold Pour
The purchase of a 0.9% NSR royalty on Lundin Gold’s Fruta del Norte
project added another near-term cash flowing asset to Sandstorm’s
portfolio from a quality operator. First gold pour was announced in
Q4 of 2019.
Chapada Mine Sold to Lundin Mining
The Chapada mine aligned with Lundin Mining’s strategic goals of
acquiring high-quality, long-life mines with expandable production
at an attractive cost. The deal strengthened both Lundin Mining and
Yamana Gold’s relative positions as operators.
Largest Stream Begins Production
In spring 2019, Sandstorm received its first silver delivery from Cerro
Moro under the Yamana silver stream agreement. This represents the
largest producing precious metals stream in Sandstorm’s portfolio.
Accordion Feature Added to Credit Facility for
Increase up to US$300 Million
The amended credit facility allows Sandstorm to borrow up to US$225
million with an additional uncommitted accordion of up to US$75
million, for a total facility of up to US$300 million.
In addition to the highlighted deals
listed, Sandstorm has acquired dozens
of royalties over the last ten years and
now holds a portfolio of nearly 200
royalty assets.
SANDSTORM GOLD LTD. 07
2019 Annual ReportSECTION 01Company Profile Nolan Watson
President and CEO
Sandstorm announced its first gold streaming deal in March
2009. Ten years is a momentous milestone for any company
and for Sandstorm it has been a decade of significant growth.
As we reflect on the past decade of deals, it’s worth taking a
moment to recall what the world was like back then.
Economically, the world was in tur-
jurisdiction and improve the strength
moil. In the wake of the subprime
of our counterparties. The quality
mortgage crisis, the Dow Jones hit
of our team and their execution of
a market low in March 2009, hav-
our strategic vision has resulted in
ing lost over 54% of its value since
record gold equivalent ounces sold
October 2007. Governments around
year after year. And we are proud to
the world were pumping trillions of
say that this year was no different.
dollars into the financial system in
an attempt to avoid another Great
Depression. Not by coincidence,
the price of gold was beginning its
ascension toward an all-time high,
as market fears pushed investors
into proven safe havens. On this
backdrop, Sandstorm forayed into
the gold royalty business. Over the
last ten years, Sandstorm has grown
its portfolio from nothing to over
190 royalties. Each year we have
continued to diversify our assets by
In 2019, Sandstorm sold 63,829 at-
tributable gold equivalent ounces
and realized $89.4 million in revenue.
Production came from 23 produc-
ing assets, including three assets
that came online during the year.
We added nine new royalties to the
portfolio for a total of 190 by the end
of 2019.
A MESSAGE TO OUR SHAREHOLDERS
08 SANDSTORM GOLD LTD.
Annual Report 2019Company ProfileSECTION 01 TOTAL NUMBER OF ROYALTY ASSETS
2009
3
2010
5
2011
7
2012
12
2013
33
2014
45
2017
174
2018
187
2019
190
2016
135
2015
75
“The quality of our team and their execution
of our strategic vision has resulted in record
gold equivalent ounces sold year after year.”
GOLD EQUIVALENT OUNCES SOLD
2,322
18,516
33,514
36,146
44,821
2009
2010
2011
2012
2013
2014
45,146
49,731
54,633
57,646
63,829
2015
2016
2017
2018
2019
SANDSTORM GOLD LTD. 09
2019 Annual ReportSECTION 01Company Profile In last year’s annual report I dis-
Gold. Exploration potential at the
cussed a shift in our strategy to
project remains excellent, with mul-
acquire assets that are or will be
tiple early and advanced exploration
cash-flowing within 12–24 months.
targets already identified.
We continued to execute on this plan
throughout 2019, kicking off the year
with the purchase of a 0.9% NSR
royalty on precious metals produced
at Lundin Gold’s Fruta del Norte
mine. Fruta del Norte is one of the
most significant gold discoveries of
the past 20 years and is expected to
produce an average of 310,000 ounces
of gold annually for an initial 15-year
mine life. In November, Lundin Gold
announced the production of first
gold at the mine and Sandstorm
began receiving royalty revenue.
Commercial production is expected
to be reached in the second quarter
of 2020.
Another significant acquisition in
2019 was a stream and royalty on
Americas Gold and Silver’s Relief
Canyon project in Nevada. Included
was a precious metal stream with
fixed deliveries, a variable NSR roy-
alty, a convertible debenture, and
an equity financing. This bespoke
financing package is a good example
of the creative ways Sandstorm ap-
proaches the royalty business. We
were able to provide the capital
required to move Relief Canyon into
production, with as little burden on
the operator as possible. The market
reacted favourably to the announce-
ment, and both Americas Gold and
In addition to imminent cash flow,
Silver and Sandstorm shareholders
this royalty represents significant
have benefited. First gold pour is
optionality for Sandstorm. It covers
expected in the first quarter of 2020
more than 644 square kilometres
and delivery to Sandstorm is ex-
at Fruta del Norte, including all 30
pected to begin this April.
mining concessions held by Lundin
ABOVE
RIGHT
Aerial view of the Fruta
del Norte mine site.
Ore from Fruta del Norte
traveling by conveyer to
the primary SAG mill.
10 SANDSTORM GOLD LTD.
Annual Report 2019Company ProfileSECTION 01 In addition to these new acquisitions,
Commercial production at the
Sandstorm’s portfolio experienced
Aurizona project was another sig-
significant growth from other notable
nificant milestone. Aurizona is a
projects this year. In early April,
past-producing mine that recently
Sandstorm received its first silver
underwent upgrades to its processing
delivery from Cerro Moro under the
facilities. These upgrades allow the
Yamana silver stream agreement.
mill to accommodate all ore-types,
Cerro Moro was added to Sandstorm’s
which was essential to expanding the
portfolio in 2015 as part of a deal with
life of the mine. Aurizona was one of
Yamana Gold and represents the larg-
Sandstorm’s first deals in 2009, and a
est producing stream in Sandstorm’s
decade later the project has new life
history. Earlier in 2019, Yamana an-
and our royalty is cash flowing again.
nounced a $15 million exploration
Sandstorm’s 3%–5% NSR royalty
budget at the Cerro Moro mine; a
varies based on the price of gold and
33% increase over the 2018 budget.
we anticipate seeing royalty revenue
Production from Cerro Moro is a
of more than $5 million per year from
welcomed addition to Sandstorm’s
Aurizona given the stronger gold
revenue, and we are encouraged by
market. With significant exploration
Yamana’s exploration commitment
upside on the property we anticipate
and what that will mean for the
Aurizona to consistently replace its
project in the future.
depleted reserves. These are the
LEFT
RIGHT
Construction of crusher at
the Aurizona mine.
Completed crushing
facility allows Aurizona to
process various mill feed
at 8,000 tpd.
SANDSTORM GOLD LTD. 11
2019 Annual ReportSECTION 01Company Profile types of projects we continually
Over the years, Sandstorm has been
strive to add to our portfolio; projects
purposeful in crafting a portfolio that
that start with a modest mine life and
includes significant optionality. This
end up producing for substantially
year we saw renewed interest in the
Agua Rica project in Argentina. In
March, an integration agreement was
signed between Glencore, Newmont,
and Yamana Gold that would see the
project developed and operated using
existing infrastructure and facilities
of the nearby Alumbrera Mine. This
announcement was followed by a
positive Pre-Feasibility Study that
outlined an NPV of $1.9 billion and
an after-tax IRR of 19.7%. This is a
move in the right direction for the
project and we’re looking forward to
the results of the full Feasibility Study,
expected to be completed in 2020.
Agua Rica represents considerable
value for Sandstorm shareholders.
Sandstorm has the option to convert
its 0.25% NSR royalty into a gold
stream with the right to purchase
20% of the gold produced for the life
of mine. An advanced payment for
the stream option is between $135
million and $225 million and is calcu-
lated using the price of gold. At a gold
price of $1,450/oz or above, our gold
stream option continues to increase
in value while Sandstorm’s upfront
purchase price remains fixed at $225
million. This is a good example of the
type of optionality that is already
built into Sandstorm’s portfolio.
LEFT
RIGHT
Sandstorm economic
geologist examining a
core sample from the
Chapada project.
Tom Bruington (EVP) in
front of the Chapada SAG
mill during a site tour.
longer.
Another notable event during 2019
was Lundin Mining’s acquisition of
the Chapada copper mine in Brazil.
Sandstorm has a copper stream
agreement on the producing mine
with the right to purchase 4.2% of
the copper produced at Chapada up
to 3.9 million pounds annually.†
Lundin Mining has assumed several
performance improvements at the
Chapada processing plant, one of
which is expected to increase copper
and gold recoveries. Furthermore,
Lundin Mining is assessing plant
expansion opportunities to increase
the processing rate and the reloca-
tion of plant infrastructure to allow
for further deposit development.
This focus on upside and mine life
expansion should serve Sandstorm
well in the future.
†
Refer to Key Producing Assets section in the MD&A for
details about the Chapada copper stream agreement.
12 SANDSTORM GOLD LTD.
Annual Report 2019Company ProfileSECTION 01 GLOBAL ASSETS MAP
Cash Flowing Assets
Exploration/Development Projects
Diavik
Sheerness
Ming
Emigrant
Gold Bar
Santa Elena
San Andres
Fruta del Norte
Thunder Creek & 144 Gap
Black Fox
HM Claim
Triangle Zone
Bracemac-McLeod
Altintepe
Karma
Houndé
Aurizona
Chapada
MWS
Forrestania
Gualcamayo
Cerro Moro
SALES & ROYALTY REVENUES BY REGION
30% Canad
a
47%
34%
19%
North America
South America
Other
SANDSTORM GOLD LTD. 13
2019 Annual ReportSECTION 01Company Profile 2019 GOLD PRICE (US$/OUNCE)
$1,600
$1,550
$1,500
$1,450
$1,400
$1,350
$1,300
$1,250
SHARE BUYBACK PROGRAM
NOVEMBER 15, 2018 TO FEBRUARY 13, 2020
10.9M
Total Shares Purchased
$5.13
Average Purchase Price
J A N
F E B
M A R
A P R
M A Y
J U N
J U L
A U G
S E P
O C T
N O V
D E C
Capital allocation is an important
It has been a good year for Sandstorm
role that our team approaches with
and a great decade for the company.
thought and care. I’ve already men-
As we anticipate what lies ahead for
tioned the near-term cash-flowing
the next 10 years, we find ourselves
assets we’ve invested in this year, but
in an economic environment similar
another way we have generated value
to that of 2009. Governments around
for shareholders is through our share
the world have again started pumping
buyback program, announced in late
hundreds of billions of dollars into
2018. By the end of 2019, we had pur-
the financial system to help sustain
chased 10.9 million shares. Between
an unprecedented bull market.
the buyback announcement and the
Fears of geopolitical instability and
end of 2019, Sandstorm’s share price
negative real interest rates have
increased by nearly 90%. While a
investors looking to safe havens like
few factors can be attributed to the
gold once more. We saw the price of
increase, we are encouraged to see
gold hit multi-year highs over the
positive results for our shareholders.
last 12 months, and I would suggest
As we move forward into 2020, we
we have not seen the top. I believe
will continue to assess the best use
the fundamentals for gold are solid,
of capital and are looking forward to
and as a Sandstorm shareholder you
creating further value.
are positioned well to capitalize on
a strong gold market.
14 SANDSTORM GOLD LTD.
Annual Report 2019Company ProfileSECTION 01 Sandstorm remains a growth company with the goal of
curating a stable, diversified, cash-flowing portfolio of royalty
assets. For 2020, we anticipate production between 60,000
and 70,000 attributable gold equivalent ounces. With more
mines coming online in the near future and a credit facility of
up to $300 million, we are primed with the available capital to
act on new acquisitions, share buybacks and future dividends.
We anticipate another exciting year of growth and we are glad
you are with us as we head into our next decade.
Thank you for your commitment to Sandstorm.
NOLAN WATSON
PRESIDENT & CEO
SANDSTORM GOLD LTD. 15
2019 Annual ReportSECTION 01Company Profile SENIOR MANAGEMENT & TECHNICAL TEAM
— YEAR STARTED
TOP ROW
Nolan Watson FCPA, FCA, CFA
President and CEO
David Awram B.Sc, Geologist
Sr. Executive Vice President
Erfan Kazemi CPA, CA, CFA
Chief Financial Officer
— 2008
— 2008
— 2011
Tom Bruington P.Eng., MSc
Executive Vice President,
Project Evaluation
— 2013
BOTTOM ROW
Adam Spencer CFA
Sr. Vice President, Corporate
George Darling P.Eng., ICD.D
Sr. Vice President,
Ron Ho CPA, CA, CFA
Sr. Vice President, Finance
Keith Laskowski Geologist, MSc, QP
Vice President, Technical
Development
Engineering
— 2013
— 2018
— 2009
Services
— 2015
16 SANDSTORM GOLD LTD.
Annual Report 2019Company ProfileSECTION 01 BOARD OF DIRECTORS
— YEAR STARTED
TOP ROW
David E. De Witt
Chairman
Mary L. Little
Director
John P. A. Budreski
Director
Vera Kobalia
Director
— 2008
— 2014
— 2009
— 2018
BOTTOM ROW
Andrew T. Swarthout
Director
Nolan Watson
Director
David Awram
Director
— 2009
— 2008
— 2008
SANDSTORM GOLD LTD. 17
2019 Annual ReportSECTION 01Company Profile Management's Discussion and Analysis
SECTION 02
SECTION 02
Management's Discussion
and Analysis
For The Year Ended December 31, 2019
This management’s discussion and analysis (“MD&A”) for Sandstorm Gold Ltd.
and its subsidiary entities (collectively “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, 2019 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
13, 2020 and all figures are stated in U.S. dollars unless otherwise noted.
SANDSTORM GOLD LTD. 19
2019 Annual Report SECTION 02
Management's Discussion and Analysis
OPERATING RESULTS
A record year in terms of production,
revenue and cash flow
и
Average cash costs 1 for the three months and year
ended December 31, 2019 of $309 and $286 per
Attributable Gold Equivalent ounce, respectively,
compared with $292 and $278 per Attributable
Gold Equivalent ounce for the comparable periods
и
Attributable Gold Equivalent ounces sold 1 (as
in 2018.
defined hereinafter), for the three months and year
ended December 31, 2019 were 16,113 ounces and
63,829 ounces, respectively, compared with 14,182
and 57,646 ounces for the comparable periods in
2018. Attributable Gold Equivalent ounces sold for
the most recently completed year represented a
record for the Company.
и
Cash operating margins1 for the three months
and year ended December 31, 2019 of $1,180 and
$1,115 per Attributable Gold Equivalent ounce,
respectively, compared with $939 and $991
per Attributable Gold Equivalent ounce for the
comparable periods in 2018.
и
Revenue for the three months and year ended
December 31, 2019 was $24.0 million and $89.4
million, respectively, compared with $17.5 million
SIGNIFICANT ACQUISITIONS
and $73.2 million for the comparable periods in
2018. Revenue for the most recently completed
year represented a record for the Company.
и
Cash flows from operating activities, excluding
Near term cash flow, strong
counterparties and significant
exploration upside
changes in non–cash working capital 1, for the
и
In January 2019, the Company acquired a 0.9%
three months and year ended December 31, 2019
NSR on the precious metals produced from the
were $15.2 million and $60.7 million, respectively,
Fruta del Norte gold project in Ecuador, which is
compared with $11.2 million and $49.1 million for
owned and operated by Lundin Gold. The Fruta
the comparable periods in 2018. Cash flows from
del Norte Mineral Reserve contains an estimated
operating activities, excluding changes in non–cash
5.0 million ounces of gold in 17.8 million tonnes of
working capital1 for the most recently completed
ore with an average grade of 8.7 grams per tonne,
year represented a record for the Company.
ranking it amongst the highest–grade gold projects
и
Cost of sales, excluding depletion, for the three
months and year ended December 31, 2019
were $5.0 million and $18.3 million, respectively,
in the world. Lundin Gold recently produced its
first doré bar and exported its first shipment of
concentrate and continues to focus on completing
commissioning and moving towards commercial
compared with $4.1 million and $16.0 million for the
production in the second quarter of 2020.
comparable periods in 2018.
20 SANDSTORM GOLD LTD.
Annual Report 2019COMPANY HIGHLIGHTSCOMPANY HIGHLIGHTS Management's Discussion and Analysis
SECTION 02
и
In April 2019, the Company announced that it had
и
Under the Company’s normal course issuer bid, the
entered into a $42.5 million financing package
Company purchased and cancelled approximately
with Americas Gold which includes a $25 million
8.7 million common shares in 2019 for total
precious metal stream and an NSR on the Relief
consideration of $46.5 million.
1
Refer to section on non-IFRS and other measures of this MD&A.
Canyon gold project in Nevada, U.S.A., a $10
million convertible debenture and a $7.5 million
private placement. Under the terms of the precious
metals stream, Sandstorm is entitled to receive
32,022 ounces of gold over a 5.5 year period, after
which, the Company will purchase 4% of the gold
or silver produced from the Relief Canyon project
for ongoing per ounce cash payments equal to
30%–65% of the spot price of gold or silver. In
addition, Sandstorm will receive a 1.4%–2.8% NSR
on the area surrounding the Relief Canyon mine.
OTHER NOTABLE EVENTS
и On July 1, 2019, Equinox Gold achieved commercial
production at the Aurizona Gold Mine. Sandstorm
has a 3%–5% sliding scale NSR royalty on the
project. At gold prices less than or equal to $1,500
per ounce, the royalty is a 3% NSR. At gold prices
between $1,500 and $2,000 per ounce, the royalty
is a 4% NSR.
и
In December 2019, the Company amended its
revolving credit facility allowing the company
to borrow up to $225 million with an additional
uncommitted accordion of up to $75 million, for a
total facility of up to $300 million for acquisitions
and general corporate purposes. The tenure of the
facility is four years and is extendable by mutual
consent of Sandstorm and the banking syndicate.
SANDSTORM GOLD LTD. 21
2019 Annual ReportCOMPANY HIGHLIGHTSCOMPANY HIGHLIGHTS SECTION 02
Management's Discussion and Analysis
OVERVIEW
OVERVIEW
OUTLOOK
OUTLOOK
Sandstorm is a growth–focused company
Based on the Company’s existing Gold Streams
that seeks to acquire royalties and gold and
and royalties, attributable Gold Equivalent
other metals purchase agreements (“Gold
ounces sold (individually and collectively re-
Streams” or “Streams”) from companies that
have advanced stage development projects or
ferred to as “Attributable Gold Equivalent”)
are forecasted to be between 60,000–70,000
operating mines. In return for making upfront
ounces in 2020. The Company is forecasting
payments to acquire a Gold Stream, Sandstorm
Attributable Gold Equivalent production of
receives the right to purchase, at a fixed price
125,000 ounces in 2024.
per ounce or at a fixed percentage of the spot
price, a percentage of a mine’s gold, silver, or
other commodity (“Gold Equivalent”) 1 produc-
tion 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 191 Streams
and royalties, of which 23 relate to properties
where the underlying mines are producing.
1
Refer to section on non-IFRS and other measures of this MD&A.
22 SANDSTORM GOLD LTD.
Annual Report 2019 Management's Discussion and Analysis
SECTION 02
― KEY PRODUCING ASSETS
Yamana Silver Stream
◀ YAMANA GOLD INC.
The Company has a silver stream on Yamana Gold Inc.’s (“Yamana”) gold–silver
Cerro Moro Mine, located in Santa Cruz, Argentina (the “Cerro Moro Mine” or “Cerro
Moro”). Under the terms of the Yamana silver stream, Sandstorm has agreed to
purchase for ongoing 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.
Based on the cumulative ounces of silver purchased to–date, the Company’s current
silver entitlement is 20%.
ABOUT CERRO MORO
The Cerro Moro Mine, which commenced commercial production in 2018, is
located approximately 70 kilometres southwest of the coastal port city of Puerto
Deseado in the Santa Cruz province of Argentina. Cerro Moro contains several
high–grade epithermal gold and silver deposits, some of which will be mined
via open pit and some via underground mining methods. Yamana has also set
an exploration objective of adding one million gold equivalent ounces to the
mineral inventory at Cerro Moro over the next several years.
Chapada Copper Stream
◀ LUNDIN MINING CORPORATION
The Company has a copper stream on Lundin Mining Corporation’s (“Lundin
Mining”) 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 Lundin Mining copper stream, Sandstorm has agreed to purchase,
for ongoing per pound cash payments equal to 30% of the spot price of copper,
an amount of copper from the Chapada Mine equal to:
и 4.2% of the copper produced (up to an annual maximum of 3.9 million
pounds of copper) until the mine has delivered 39 million pounds of copper
to Sandstorm; then
и 3.0% of the copper produced until, on a cumulative basis, the mine has
delivered 50 million pounds of copper to Sandstorm; then
и 1.5% of the copper produced thereafter, for the life of the mine.
Based on the cumulative pounds of copper purchased to–date, the Company’s
current copper entitlement is 4.2%.
SANDSTORM GOLD LTD. 23
2019 Annual Report SECTION 02
Management's Discussion and Analysis
ABOUT CHAPADA
In July 2019, Lundin Mining completed its previously announced agreement to
acquire the Chapada Mine from Yamana. Chapada has been in production since
2007 and is a relatively low–cost South American copper–gold operation. The ore
is treated through a flotation plant with processing capacity of 24 million tonnes
of ore per annum. Yamana, the previous owners, discovered additional resources
at Chapada and as a result began examining a potential plant expansion that
would increase the processing rate up to 32 million tonnes of ore per annum.
Lundin Mining is currently evaluating these and other scenarios for expansion. In
October 2019, an updated technical report was filed which outlines production
through 2050. For more information, visit the Lundin Mining website at www.
lundinmining.com.
Houndé Royalty
◀ ENDEAVOUR MINING CORPORATION
The Company has a 2% net smelter returns royalty (“NSR”) based on the
production from the Houndé gold mine located in Burkina Faso, West Africa
(“Houndé” or the “Houndé Mine”) which is owned and operated by Endeavour
Mining Corporation (“Endeavour”).
The royalty covers the Kari North and Kari South tenements, representing
approximately 500 square kilometres of the Houndé property package, and
includes a Mineral Reserve of 1.7 million ounces (27.5 million tonnes at 2.0 grams
per tonne using a cut–off grade of 0.5 grams per tonne gold, as of December
2018), including the Vindaloo deposit and the Bouéré deposit.
ABOUT HOUNDÉ
Houndé is an open pit gold mine with a 3.0 million tonne per year processing
plant using a gravity circuit and a carbon–in–leach plant. Endeavour recently
announced that it has successfully extended the Kari Pump mineralized zone
along with discovering additional mineralized zones. A number of the high–priority
targets are on the Sandstorm royalty ground.
Endeavour also announced the results of a successful drilling campaign. See
www.endeavourmining.com for more information.
Diavik Diamond Royalty
◀ 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). In the fourth
quarter of 2018, Rio Tinto announced that it had achieved commercial production
at its fourth open pit diamond pipe (A21).
24 SANDSTORM GOLD LTD.
Annual Report 2019 Management's Discussion and Analysis
SECTION 02
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 $455 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.
First Majestic recently announced that it has installed a new high intensity grind-
ing mill with a design capacity of 3,000 tonnes per day. First Majestic further
anticipates that the new mill will improve overall metallurgical recoveries and
lower energy costs compared to traditional ball milling.
Aurizona Gold Royalty
◀ EQUINOX GOLD CORP.
The Company has a 3%–5% sliding scale NSR on the production from Equinox
Gold Corp.’s (“Equinox”) 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. At gold prices between $1,500 and $2,000 per ounce,
the royalty is a 4% NSR. The royalty is calculated based on sales for the month
and the average monthly gold price. In addition, Sandstorm holds a 2% NSR on
Equinox’s greenfields exploration ground. At any time prior to the commence-
ment of commercial production at the greenfields exploration ground, Equinox
can purchase one–half of the greenfields NSR for a cash payment of $10 million.
On July 1, 2019, Equinox achieved commercial production at the Aurizona Gold
Mine. A Feasibility Study on the Aurizona project, which was released on July
31, 2017, included estimated Proven and Probable Mineral Reserves of 971,000
ounces of gold (contained in 19.8 million tonnes at 1.5 grams per tonne gold with
a cut–off grade of 0.4 grams per tonne from Boa Esperanza and 0.6 grams per
tonne from Piaba) with expected annual production of 136,000 ounces. In March
2019, Equinox announced an updated mineral resource estimate whereby the
total Measured & Indicated Resources (exclusive of reserves) increased to an
estimated 692,000 ounces contained in 12.8 million tonnes at 1.7 grams per tonne
gold (cut–off grade of 0.6 grams per tonne for open pit and 1.0 grams per tonne
for underground resources). For more information refer to www.equinoxgold.com.
SANDSTORM GOLD LTD. 25
2019 Annual Report SECTION 02
Management's Discussion and Analysis
Fruta Del Norte Royalty
◀ LUNDIN GOLD INC.
In January 2019, the Company acquired a 0.9% NSR on the precious metals
produced from Lundin Gold Inc.’s (“Lundin Gold”) Fruta del Norte gold project
located in Ecuador (“Fruta del Norte” or “Fruta del Norte Mine”).
The royalty was acquired from a private third party for $32.8 million in cash and
covers more than 644 square kilometres, including all 30 mining concessions held
by Lundin Gold. The Fruta del Norte Mineral Reserve contains an estimated 5.0
million ounces of gold in 17.8 million tonnes of ore with an average grade of 8.7
grams per tonne, as of September 2018, ranking it amongst the highest–grade
gold projects in the world (based on cut–off grade of 3.8 grams per tonne and 5.0
grams per tonne depending on mining method). Acquisition highlights include:
▶ Near-Term Cash Flow: Lundin Gold poured first gold at Fruta del Norte
in the fourth quarter of 2019, with commercial production expected in
the first half of 2020. Fruta del Norte’s average annual production is
expected to exceed 300,000 ounces of gold per year over the initial mine
life. Current reserves support a 15–year initial mine life.
▶ Exploration Upside: The royalty covers precious metals production from
all 644 square kilometres of concessions held by Lundin Gold, plus an
additional one kilometre area of interest around the property. Exploration
potential at Fruta del Norte remains excellent, with multiple early and
advanced exploration targets already identified. Exploration is currently
focused on the Suarez pull–apart basin, the structure that hosts the Fruta
del Norte gold deposit.
▶ Strong Partner: Lundin Gold is backed by Mr. Lukas Lundin, an established
mining entrepreneur, and its management team has significant mine
development and operating experience.
Black Fox Gold Stream
◀ MCEWEN MINING INC.
The Company has a Gold Stream to purchase 8% of the life of mine gold produced
from McEwen Mining Inc.’s (“McEwen”) 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 McEwen’s Black Fox Extension, which includes a portion
of McEwen’s Pike River concessions, for a per ounce cash payment equal to the
lesser of $561 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. McEwen continues
to invest in an exploration program which includes surface and underground
drilling. For more information on the recently announced positive drill results,
refer to www.mcewenmining.com.
26 SANDSTORM GOLD LTD.
Annual Report 2019 Management's Discussion and Analysis
SECTION 02
Bachelor Lake Gold Stream & Royalties
◀ BONTERRA RESOURCES INC.
The Company agreed to purchase 20% of the gold produced from Bonterra
Resources Inc.’s (“Bonterra”) 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. Under the terms of the
agreement, once a cumulative 12,000 ounces of gold were purchased by the
Company, during the period between October 1, 2017 and October 1, 2019, the
Gold Stream converted into a 3.9% NSR (the “Conversion Threshold”). During
the year ended December 31, 2019, the Conversion Threshold had been met and
accordingly, when combined with Sandstorm’s existing royalties, the Company
now holds a total 4.9% NSR on the Bachelor Lake Mine, a 3.9%–4.9% NSR on
Bonterra’s Barry gold project and a 1% NSR on a portion of Bonterra’s Gladiator
gold project.
Bonterra has the option to reduce the respective NSRs on the Bachelor Lake
Mine or the Barry gold project by making a $2.0 million payment to Sandstorm
in each case (the “Purchase Option”). Upon exercising either of the Purchase
Options, the respective NSR will decrease by 2.1%.
The Bachelor Lake Mine is an underground mining operation with an operating
mill and surface infrastructure, which began production in early 2013. The Barry
gold project and the Gladiator gold deposit are advanced exploration–stage
assets located in the emerging Urban Barry camp.
Bonterra recently announced a company–wide mineral resource estimate for
all of its Urban Barry exploration assets, including the Gladiator, Barry and
Moroy deposits. The combined mineral resource estimate is part of Bonterra’s
strategy to fast track the development of the three deposits simultaneously
and to optimize feed to the Urban Barry Mill over the life of the three mines. In
order to concentrate on the exploration of all three deposits, Bonterra’s mining
operations are on care and maintenance.
Karma Gold Stream
◀ ENDEAVOUR MINING CORPORATION
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’s open pit heap leach Karma gold mine located in Burkina Faso, West
Africa (“Karma” or the “Karma Mine”) for ongoing per ounce cash payment equal
to 20% of the spot price of gold.
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 Mine, is syndicated 75% and 25%
between Franco–Nevada Corp. and Sandstorm, respectively.
The Karma Mine has several defined mineral deposits that make up the Karma
project. Based on recent exploration work, Endeavour expects to extend the mine
life to 10 years.
SANDSTORM GOLD LTD. 27
2019 Annual Report SECTION 02
Management's Discussion and Analysis
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 historic and prolific Matagami mining district of 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.
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 2019 metallurgical recoveries,
Sandstorm’s 2020 gold purchase entitlement was adjusted to 30%.
In 2018, Rambler announced a new Mineral Resource and Reserve estimate for the
Ming Mine which results in a life of mine plan of more than 20 years. Production
is expected from both the high–grade Massive Sulphide Zone and the Lower
Footwall Zone at an average throughput of 1,250 tonnes of ore per day. For more
information refer to www.ramblermines.com.
28 SANDSTORM GOLD LTD.
Annual Report 2019 Management's Discussion and Analysis
SECTION 02
― OTHER PRODUCING ASSETS
Gualcamayo Royalty
◀ MINEROS S.A.
The Company has a 1% NSR on the Gualcamayo gold mine (the “Gualcamayo
Mine”) which is located in San Juan province, Argentina and is owned and
operated by Mineros S.A. (“Mineros”). The Gualcamayo Mine is an open pit, heap
leach operation. Mineros is a Latin American gold producer with operations in
Argentina, Colombia and Nicaragua.
Thunder Creek Royalty
◀ PAN AMERICAN SILVER CORP.
The Company has a 1% NSR on the gold produced from the Thunder Creek and
144 properties (“Thunder Creek” or the “Thunder Creek Mine”) which are part
of the Timmins West mine complex in Ontario, Canada which is owned and
operated by Pan American Silver Corp. Thunder Creek is an underground mine
that has been in production since 2010 and has produced more than 500,000
ounces of gold.
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.
San Andres Royalty
◀ AURA MINERALS INC.
The Company has a 1.5% NSR on the San Andres gold 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.
Emigrant Springs Royalty
◀ NEWMONT CORPORATION
The Company has a 1.5% NSR, payable by Newmont Corporation (“Newmont”),
on a portion of the Emigrant Springs gold mine (the “Emigrant Springs Mine”)
which is located in the Carlin Trend in Nevada, U.S.A. The Emigrant Springs Mine
is owned by Nevada Gold Mines LLC which is a joint venture owned 61.5% by
Barrick Gold Corporation (“Barrick”) and 38.5% by Newmont and operated by
Barrick. The Emigrant Springs Mine is an open pit, heap leach operation that has
been in production since the third quarter of 2012.
SANDSTORM GOLD LTD. 29
2019 Annual Report SECTION 02
Management's Discussion and Analysis
― DEVELOPMENT ASSETS
Hod Maden
◀ LIDYA MADENCILIK SANAYI VE TICARET A.S.
The Company has a 30% net profits interest and a 2% NSR on the Hod Maden
gold–copper project, which is located in Artvin Province, northeastern Turkey (the
“Hod Maden Project” or “Hod Maden”). The project is operated and co–owned by
a Turkish partner, Lidya Madencilik Sanayi ve Ticaret A.S. (“Lidya”), which owns
the remaining interest in the project. Lidya is an experienced Turkish company
and is also a joint venture partner with Alacer Gold Corp. on the producing Çöpler
mine in Turkey. The Hod Maden Project Preliminary Feasibility Study envisions a
conventional underground mine and processing facility producing copper–gold
concentrates. The results of the 2018 Preliminary Feasibility Study demonstrate
an estimated Proven and Probable Mineral Reserve of 2.6 million ounces of gold
and 284.4 million pounds of copper being mined over an 11 year mine life (9.12
million tonnes at 8.9 grams per tonne gold and 1.4% copper or 11.9 grams per
tonne gold equivalent based on a 2.6 grams per tonne gold equivalent cut–off
grade). The study projects an estimated pre–tax net present value (5% discount
rate) of $1.4 billion and an internal rate of return of 60%. It is estimated that gold
will be produced at an all–in sustaining cost on a co–product basis1 of $374 per
ounce. For more information refer to www.sandstormgold.com.
With the release of the study, Hod Maden moves into the next stage of develop-
ment. A gap analysis and trade–off studies on Hod Maden were completed during
the first quarter of 2019 which will contribute to the Feasibility Study work, which
began during the second quarter of 2019. In conjunction with the Feasibility
Study, an Environmental Impact Assessment has been submitted and a public
participation meeting was successfully conducted as part of the permitting
process. The Feasibility Study is expected to be completed in the second half
of 2020, with first production projected by the end of 2022.
The 30% Hod Maden net profits interest is a key component of the Company’s
portfolio, with some of the highlights including:
▶ Significant increase in expected future production: Hod Maden is an
anchor asset that is expected to increase the Company’s Attributable
Gold Equivalent ounces to approximately 125,000 in 2024.
▶ Significant exploration upside: The Hod Maden deposit occurs within a
significant 7.0 kilometre long north–south alteration zone. The majority
of the exploration drilling has been within a 1.0 kilometre strike length
of this alteration zone with several exploration targets identified along
strike and parallel to the identified orebody.
▶ Strong Partner: Majority operator Lidya is a strong local partner with
experience exploring, developing, permitting and operating projects in
Turkey. Lidya is part of a large Turkish conglomerate called Çalik Holding
and is currently involved in several projects in Turkey including a partner-
ship with Alacer Gold Corp. on the producing Çöpler mine.
1
Refer to section on non-IFRS and other measures of this MD&A.
30 SANDSTORM GOLD LTD.
Annual Report 2019 Management's Discussion and Analysis
SECTION 02
Relief Canyon Gold Stream
◀ AMERICAS GOLD AND SILVER CORPORATION
On April 3, 2019, the Company entered into a $42.5 million financing package
with Americas Gold and Silver Corporation (“Americas Gold”) which includes a
$25 million precious metal stream and an NSR on the Relief Canyon gold project
in Nevada, U.S.A. (“Relief Canyon” or the “Relief Canyon Project”), a $10 million
convertible debenture and a $7.5 million private placement.
Under the terms of the precious metals stream, Sandstorm is entitled to receive
32,022 ounces of gold over a 5.5 year period beginning in April 2020 (the “Fixed
Deliveries”). Under certain conditions, the starting date under the Fixed Deliveries
may be extended by up to six months. After receipt of the Fixed Deliveries, the
Company is entitled to purchase 4.0% of the gold and silver produced from the
Relief Canyon Project for ongoing per ounce cash payments equal to 30%–65%
of the spot price of gold or silver, with the range dependent on the concession’s
existing royalty obligations. In addition, Sandstorm will also receive a 1.4%–2.8%
NSR on the area surrounding the Relief Canyon mine. As at December 31, 2019,
the Company has remitted the full $25 million precious metal stream advance.
Americas Gold may elect to reduce the 4.0% Stream and NSR on the Relief
Canyon Project by delivering 4,000 ounces of gold to Sandstorm (the “Purchase
Option”). The Purchase Option may be exercised by Americas Gold at any time
and is subject to a 10% annual premium. Upon exercising the Purchase Option, the
4.0% Stream will decrease to 2.0% and the NSR will decrease to 1.0%. Acquisition
highlights include:
▶ Near-Term Cash Flow: Americas Gold expects Relief Canyon to produce
approximately 90,000 ounces of gold per year.
▶ Exploration Upside: Relief Canyon has a large prospective land pack-
age that is relatively underexplored. Sandstorm’s royalty covers the full
property area surrounding the mine site.
▶ Safe Jurisdiction: Relief Canyon is located in Nevada, USA, one of the
world’s best mining jurisdictions. Americas Gold has mining and process-
ing permits in place to re–start operations at the past producing Relief
Canyon mine.
The Relief Canyon Project is a past producing open pit mine located in Nevada,
USA at the southern end of the Pershing Gold and Silver Trend, which hosts
other projects such as Coeur Mining Inc.’s Rochester mine. Americas Gold has
received permits to start construction and resume mining. Infrastructure on
site includes access to power and water as well as a 21,500 ton per day heap
leach processing facility that is fully permitted and constructed. Americas Gold
recently announced that it had initial ore placement on the leach pads and first
gold pour is expected in the first half of 2020.
SANDSTORM GOLD LTD. 31
2019 Annual Report SECTION 02
Management's Discussion and Analysis
Hugo North Extension & Heruga Gold Stream
◀ ENTRÉE RESOURCES LTD.
The Company has a Gold Stream with Entrée Resources Ltd. (“Entrée”) to
purchase an amount equal to 5.62% and 4.26%, respectively, of the gold and
silver 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 has a copper stream to 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.
The Company is not required to contribute any further capital, exploration, or
operating expenditures to Entrée.
The Hugo North Extension is a 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 kilometres south of the capital
city of Ulaanbaatar and 80 kilometres 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. and
the Government of Mongolia, and its project manager Rio Tinto PLC. Entrée
retains a 20% interest in the Hugo North Extension and Heruga.
In 2018, Entrée released a National Instrument 43–101 Technical Report relating to
its interests in the Hugo North Extension and Heruga. The report allows Entrée to
discuss preliminary economics for the potential future phases of the Oyu Tolgoi
mine, beyond Lift 1, including Lift 2 and Heruga.
Hackett River Royalty
◀ GLENCORE PLC
The Company has 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 deposit and is one
of the largest undeveloped projects of its kind. The property contains four mas-
sive sulphide bodies that occur over a 6.6 kilometre 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 Glencore Reserves and Resources statement, effective December
31, 2018, reported 27.1 million tonnes of Indicated Resources containing 4.5% zinc
and 130.0 grams per tonne silver plus 60.0 million tonnes of Inferred Resources
with 4.0% zinc and 150.0 grams per tonne silver. For more information refer to
www.glencore.com and the Technical Report dated July 26, 2010 under Sabina
Gold & Silver Corp.’s profile on www.sedar.com.
32 SANDSTORM GOLD LTD.
Annual Report 2019 Management's Discussion and Analysis
SECTION 02
2019 Annual Report
Lobo-Marte Royalty
◀ KINROSS GOLD CORPORATION
The Company has 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”).
In 2019, Kinross announced a Scoping Study for Lobo–Marte (effective December
31, 2018). The study estimates a mine life that could extend beyond 10 years and
a total life of mine production of approximately 4.1 million ounces of gold at
a grade of 1.2 grams per tonne gold from the current Measured and Indicated
Resources of 185.4 million tonnes at 1.2 grams per tonne containing 7.0 million
ounces. Kinross is now progressing to a Preliminary Feasibility Study with per-
mitting efforts also underway. For more information refer to www.kinross.com.
Agi Dagi & Kirazli Royalty
◀ ALAMOS GOLD INC.
The Company has a $10 per 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.
A 2017 Feasibility Study on Agi Dagi and a 2017 Feasibility Study on Kirazli con-
templated both projects as stand–alone open pit, heap leach operations. Under
the respective studies, Agi Dagi is expected to produce an average of 177,600
ounces of gold per year over a 6 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 Royalty
◀ NORZINC LTD.
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 NorZinc
Ltd. (“NorZinc”). The Prairie Creek Project is a zinc, silver and lead project that is
100%–owned by NorZinc and based on a 2017 Feasibility Study has an estimated
Proven and Probable Mineral Reserve of 8.1 million tonnes containing 8.6% zinc,
124.2 grams per tonne silver and 8.1% lead. For more information, refer to www.
norzinc.com.
Mt. Hamilton Royalty
◀ 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.
SANDSTORM GOLD LTD. 33
SECTION 02
Management's Discussion and Analysis
― REVOLVING CREDIT FACILITY
In December 2019, the Company amended its revolving credit agreement, allowing
the Company to borrow up to $225 million with an additional uncommitted ac-
cordion of up to $75 million, for a total facility of up to $300 million (the “Revolving
Facility”). The Revolving Facility is for general corporate purposes, from a syndicate
of banks including the Bank of Nova Scotia, Bank of Montreal, National Bank of
Canada, Canadian Imperial Bank of Commerce and Royal Bank of Canada (the
“Syndicate”). The term of the Revolving Facility is for four years and is extendable
by mutual consent of Sandstorm and the Syndicate. The amounts drawn on the
Revolving Facility are subject to an interest rate of LIBOR plus 1.875%–3.000% per
annum, and the undrawn portion of the Revolving Facility is subject to a standby
fee of 0.422%–0.675% per annum, both of which are dependent on the Company’s
leverage ratio. As of the date of the MD&A, $25 million remains drawn under the
Revolving Facility.
― OTHER
Under the Company’s normal course issuer bid (“NCIB”), the Company is able
until April 4, 2020, to purchase up to 13.0 million common shares. Under the
Company’s previous and current NCIB, the Company has purchased and cancelled
approximately 8.7 million common shares during the year ended December 31, 2019.
While assessing whether any indications of impairment exist for mineral interests
and royalties, consideration is given to both external and internal sources of infor-
mation. As a result of a continued decline in the price of diamonds, the Company
estimated the recoverable amount of the Diavik royalty during the three months
ended December 31, 2019 and recorded an impairment charge of $2.4 million.
34 SANDSTORM GOLD LTD.
Annual Report 2019 Management's Discussion and Analysis
SECTION 02
Summary of Annual Results
YEAR ENDED
In $000s (except for per share amounts)
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
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
Basic income per share
Diluted income per share
Total assets
Total long-term liabilities
1
Refer to section on non-IFRS and other measures of this MD&A.
$
$
89,434
$
63,829
63,602
$
25,832
1,401
286
57,339
16,397
0.09
0.09
623,175
48,414
$
$
73,150
57,646
50,632
22,518
1,269
278
47,574
5,872
0.03
0.03
588,887
510
68,275
54,633
49,208
19,067
1,250
280
44,773
10,537
0.06
0.06
660,915
2,807
Attributable Gold Equivalent
Sales & Royalty Revenue
Average realized gold price
ounces sold 1
per attributable ounce1
$1,401
$1,254
$1,250
$1,269
2016
2017
2018
2019
1
Refer to section on non-IFRS and other measures of this MD&A.
SANDSTORM GOLD LTD. 35
$62.4M49,731oz$68.3M54,633oz$73.2M57,646oz$89.4M63,829oz2019 Annual Report SECTION 02
Management's Discussion and Analysis
The Company’s operating segments for the year ended December 31, 2019
are summarized in the table below:
In $000s
Aurizona
Bachelor Lake
Black Fox
Bracemac–McLeod 1
Chapada
Diavik
Houndé
Karma
Ming
Santa Elena
Product
Gold
Gold
Gold
Various
Copper
Diamonds
Gold
Gold
Gold
Gold
Yamana silver stream
Silver
Other Royalties 2
Various
Corporate
Consolidated
Attributable
Gold
Equivalent
ounces sold
Sales
and royalty
revenues
Cost
of sales,
excluding
depletion
Depletion
expense
Mineral,
royalty
and other
interests
impairments
Income
(loss)
before
taxes
Cash flow
from
operating
activities
Other
2,254
$
3,357
$
-
$
675
$
6,100
2,806
2,335
7,910
4,075
4,634
5,886
2,773
9,278
10,711
5,067
-
8,532
3,858
3,256
3,000
1,540
-
11,008
3,311
5,674
6,425
8,156
3,760
13,066
15,222
7,120
-
-
-
1,634
-
4,252
4,549
-
-
469
1,321
1,578
3,366
7,256
4,037
3,775
1,889
560
9,692
3,227
-
$
-
-
-
-
-
2,448
-
-
-
-
-
212
-
-
-
-
-
-
-
-
-
-
-
-
(340)
414
$
2,682
$
1,757
5,063
997
1,678
4,331
(4,030)
2,388
2,747
1,871
8,254
5,555
2,318
3,130
7,697
5,924
5,037
6,647
3,760
8,832
981
10,672
4,021
4,684
(7,975)
(8,674)
63,829
$ 89,434
$ 18,286
$ 37,845
$
2,660
$
74
$ 23,008
$ 57,339
1
2
Royalty revenue from Bracemac-McLeod consists of $1.2 million from copper and $2.1 million from zinc.
Includes royalty revenue from gold of $6.3 million and other base metals of $0.8 million.
The Company’s operating segments for the year ended December 31, 2018
are summarized in the table below:
In $000s
Product
Attributable
Gold
Equivalent
ounces sold
Sales
and royalty
revenues
Cost
of sales,
excluding
depletion
Depletion
expense
Mineral,
royalty
and other
interests
impairments
Other
Bachelor Lake
Black Fox
Bracemac-McLeod 1
Chapada
Diavik
Houndé
Karma
Ming
Santa Elena
Yamana silver stream
Other Royalties 2
Other
Corporate
Consolidated
Gold
Gold
Various
Copper
Diamonds
Gold
Gold
Gold
Gold
Silver
Various
Gold
5,702
$
7,203
$
2,667
$
402
$
4,454
2,517
9,154
5,739
5,321
6,353
728
5,674
3,237
11,608
7,197
6,744
8,041
940
10,277
13,097
2,981
4,007
413
–
3,808
5,060
541
–
2,396
–
3,469
–
–
1,610
–
4,652
1,166
–
43
–
1,443
1,327
4,100
5,697
4,478
3,941
396
750
2,392
3,941
161
–
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,475
–
–
(759)
538
(277)
Income
(loss)
before
taxes
Cash flow
from
operating
activities
$
4,134
$
4,756
1,835
1,910
4,039
1,500
2,266
2,490
544
7,695
250
(2,597)
(201)
3,484
3,370
8,139
7,047
5,393
6,539
940
8,908
2,645
4,734
506
(15,161)
(8,887)
57,646
$ 73,150
$
16,003
$
29,028
$
4,475
$
(498)
$
8,704
$
47,574
1
2
Royalty revenue from Bracemac-McLeod consists of $1.0 million from copper and $2.2 million from zinc.
Includes royalty revenue from gold of $4.3 million and other base metals of $0.8 million.
36 SANDSTORM GOLD LTD.
Annual Report 2019 Management's Discussion and Analysis
SECTION 02
FY 2019
Attributable Gold Equivalent Ounces Sold
Q1
Q2
Q3
Q4
Yamana silver stream
Yamana silver stream
Santa Elena
Chapada
Bachelor Lake
Karma
Houndé
Diavik
Black Fox
Ming
Bracemac-McLeod
Bracemac-McLeod
Aurizona
Other Royalties
FY 2019
FY 2019
Sales & Royalty Revenues by Region
Sales & Royalty Revenues by Metal
North America
Canada
South America
Other
19%
30%
Precious Metals
Base Metals
Diamonds
6%
17%
34%
2,335oz
77%
SANDSTORM GOLD LTD. 37
47%10,711oz9,278oz7,910oz6,100oz5,886oz4,634oz4,075oz2,806oz2,773oz2,254oz5,067oz2019 Annual Report SECTION 02
Management's Discussion and Analysis
In $000s (except for per share amounts)
Dec. 31, 2019
Sep. 30, 2019
Jun. 30, 2019
Mar. 31, 2019
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
Basic income per share
Diluted income per share
Total assets
Total long-term liabilities
$
$
23,995 $
25,778 $
21,493
$
16,113
17,289
16,356
17,014 $
17,518 $
16,443 $
6,981
1,489
309
15,670
5,316
0.03
0.03
623,175
48,414
8,260
1,491
288
14,255
6,150
0.03
0.03
608,817
51,576
5,050
1,314
301
13,449
2,434
0.01
0.01
601,062
40,727
18,168
14,071
12,627
5,541
1,291
241
13,965
2,497
0.01
0.01
620,143
47,265
In $000s (except for per share amounts)
Dec. 31, 2018
Sep. 30, 2018
Jun. 30, 2018
Mar. 31, 2018
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
Basic income per share
Diluted income per share
Total assets
Total long-term liabilities
1
Refer to section on non-IFRS and other measures of this MD&A.
$
$
17,458 $
17,289 $
18,933 $
14,182
14,314
14,465
12,523 $
10,766 $
13,771 $
4,935
1,231
292
10,844
2,749
0.02
0.01
588,887
510
6,523
1,208
248
11,092
2,093
0.01
0.01
577,098
582
5,162
1,309
296
14,110
658
0.00
0.00
623,430
660
19,470
14,685
13,572
5,898
1,326
276
11,528
372
0.00
0.00
647,321
2,749
38 SANDSTORM GOLD LTD.
Annual Report 2019Summary of Quarterly ResultsQUARTERS ENDED Management's Discussion and Analysis
SECTION 02
Summary of Quarterly Results
QUARTERS ENDED
Attributable Gold Equivalent
Sales & Royalty Revenue
Average realized gold price
ounces sold 1
per attributable ounce1
$1,491
$1,489
$1,291
$1,314
Q1
Q2
Q3
Q4
2 0 1 9
1
Refer to section on non-IFRS and other measures of this MD&A.
Changes in sales, net income and cash flow from operating activi-
ties 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.
SANDSTORM GOLD LTD. 39
$18.2M14,071oz$21.5M16,356oz$25.8M17,289oz$24.0M16,113oz2019 Annual Report SECTION 02
Management's Discussion and Analysis
The Company’s operating segments for the three months ended December 31, 2019
are summarized in the table below:
In $000s
Aurizona
Bachelor Lake
Black Fox
Bracemac-McLeod 1
Chapada
Diavik
Houndé
Karma
Ming
Santa Elena
Yamana silver stream
Other Royalties2
Corporate
Consolidated
Product
Gold
Gold
Gold
Various
Copper
Diamonds
Gold
Gold
Gold
Gold
Silver
Various
Attributable
Gold
Equivalent
ounces sold
Sales
and royalty
revenues
Cost
of sales,
excluding
depletion
Mineral,
royalty and
other interests
impairments
Depletion
expense
Income
(loss)
before taxes
Cash flow
from operating
activities
1,269
$
1,889
$
-
$
304
$
1,500
2,248
561
476
1,970
787
1,026
1,250
229
2,348
3,566
1,131
-
826
709
2,933
1,172
1,528
1,878
346
3,473
5,310
1,683
-
750
309
-
881
-
-
374
-
1,078
1,580
–
-
74
373
358
933
1,422
2,448
884
806
196
142
3,052
539
-
-
-
-
-
-
–
-
-
-
-
-
-
$
1,585
$
1,424
144
351
1,119
(2,698)
644
698
150
2,253
678
1,144
(904)
1,589
2,247
517
688
2,052
1,422
1,651
1,506
346
2,413
3,730
1,074
(3,565)
16,113
$
23,995
$
4,972
$
9,083
$
2,448
$
6,588
$
15,670
1
2
Royalty revenue from Bracemac-McLeod consists of $0.2 million from copper and $0.5 million from zinc.
Includes royalty revenue from gold of $1.6 million and other base metals of $0.1 million.
The Company’s operating segments for the three months ended December 31, 2018
are summarized in the table below:
In $000s
Bachelor Lake
Black Fox
Bracemac-McLeod 1
Chapada
Diavik
Houndé
Karma
Santa Elena
Yamana silver stream
Other Royalties 2
Other
Corporate
Consolidated
Product
Gold
Gold
Various
Copper
Diamonds
Gold
Gold
Gold
Silver
Various
Gold
Attributable
Gold
Equivalent
ounces sold
Sales
and royalty
revenues
Cost
of sales,
excluding
depletion
Depletion
expense
Other
1,684
$
2,062
$
823
170
2,254
1,594
1,297
1,484
3,306
655
915
-
-
1,018
210
2,775
1,962
1,596
1,817
4,087
805
1,126
-
-
750
444
-
835
-
-
358
1,502
247
-
-
-
$
124
$
239
316
1,045
1,682
1,057
913
219
550
751
-
-
-
-
-
-
-
-
-
-
-
(759)
75
-
Income
(loss)
before taxes
Cash flow
from operating
activities
$
1,188
$
1,330
335
(106)
895
280
539
546
2,366
8
1,134
(75)
574
352
1,939
1,812
966
1,460
3,284
563
1,066
-
(2,845)
(2,502)
14,182
$
17,458
$
4,136
$
6,896
$
(684)
$
4,265
$
10,844
1
2
Royalty revenue from Bracemac-McLeod consists of $0.1 million from copper and $0.1 million from zinc.
Includes royalty revenue from gold of $0.9 million and other base metals of $0.2 million.
40 SANDSTORM GOLD LTD.
Annual Report 2019 Management's Discussion and Analysis
SECTION 02
― THREE MONTHS ENDED DECEMBER 31, 2019 COMPARED TO
THE THREE MONTHS ENDED DECEMBER 31, 2018
For the three months ended December 31, 2019, net income and cash flow from
operating activities were $5.3 million and $15.7 million, respectively, compared
with net income and cash flow from operating activities of $2.7 million and $10.8
million for the comparable period in 2018. The change in net income is attribut-
able to an increase in revenue (described in greater detail below) as well as to
a combination of factors including:
и A $3.7 million increase in the gains recognized on the revaluation of the
Company’s investments primarily driven by the change in fair value of the
Americas Gold and Equinox convertible debentures;
Partially offset by:
и A $2.4 million non–cash impairment charge relating to the Company’s
Diavik royalty; and
и A $2.2 million increase in depletion expense partly driven by an increase
in the number of Attributable Gold Equivalent ounces sold.
For the three months ended December 31, 2019, revenue was $24.0 million
compared with $17.5 million for the comparable period in 2018. The increase is
largely attributable to a 21% increase in average realized selling price of gold
and a 14% increase in Attributable Gold Equivalent Ounces sold. In particular,
the increase in revenue was driven by:
и A $4.5 million increase in sales revenue attributable to the Yamana silver
stream largely driven by an increase in the number of silver ounces sold.
In October 2019, Sandstorm received its third quarterly silver delivery from
Yamana’s Cerro Moro Mine. This delivery, which amounted to 300,000
silver ounces, represented the maximum quarterly amount under the
Stream agreement; and
и A $1.9 million increase in royalty revenue attributable to the Aurizona Mine
which commenced commercial production in July 2019;
Partially offset by:
и A $0.8 million decrease in revenue attributable to the Diavik royalty partly
related to a decrease in the average realized selling price of diamonds; and
и A $0.6 million decrease in sales revenue attributable to the Santa Elena
Mine largely driven by a 29% decrease in the number of gold ounces sold.
The decrease is largely related to the timing of sales, whereby 1,540 gold
ounces were in inventory as at September 30, 2018 and were sold in the
fourth quarter of 2018.
SANDSTORM GOLD LTD. 41
2019 Annual Report SECTION 02
Management's Discussion and Analysis
― YEAR ENDED DECEMBER 31, 2019 COMPARED
TO THE YEAR ENDED DECEMBER 31, 2018
For the year ended December 31, 2019, net income and cash flow from operating
activities were $16.4 million and $57.3 million, respectively, compared with net
income and cash flow from operating activities of $5.9 million and $47.6 million
for the comparable period in 2018. The increase is partly related to an increase
in revenue (described in greater detail below) as well as to a combination of
factors including:
и A $9.4 million increase in the gains recognized on the revaluation of the
Company’s investments primarily driven by the change in fair value of the
Americas Gold and Equinox convertible debentures;
и A $1.8 million decrease in non–cash impairments charges; whereby, the
Company recognized a $2.4 million non–cash impairment charge relating
to the Company’s Diavik royalty during the year ended December 31, 2019,
while during the year ended December 31, 2018, the Company recognized
a $4.5 million non–cash impairment charge relating to the Company’s
Gualcamayo royalty;
Partially offset by:
и An $8.8 million increase in depletion expense partly driven by an increase
in the number of Attributable Gold Equivalent ounces sold;
и A $2.3 million increase in cost of sales, excluding depletion partly due to
increased silver deliveries from Yamana’s Cerro Moro mine; and
и A $2.8 million increase in deferred income tax expense partly related to
certain items that were recognized during the year ended December 31,
2018 that did not occur during the year ended December 31, 2019 including
a reduction in the deferred tax liability on the Gualcamayo royalty as a
result of the related impairment charge recognized thereon.
For the year ended December 31, 2019, revenue was $89.4 million compared
with $73.2 million for the comparable period in 2018. The increase is largely
attributable to a 11% increase in the number of Attributable Gold Equivalent
ounces sold and a 10% increase in the average realized selling price of gold. In
particular, the increase in revenue was driven by:
и An $11.4 million increase in sales revenue attributable to the Yamana silver
stream largely driven by an increase in the number of silver ounces sold.
In 2019, Sandstorm received its first three quarterly silver deliveries from
Yamana’s Cerro Moro Mine. These deliveries, which amounted to 300,000
silver ounces each, represented the maximum quarterly amount under the
Stream agreement;
и A $3.4 million increase in royalty revenue attributable to the Aurizona Mine
which commenced commercial production in July 2019;
42 SANDSTORM GOLD LTD.
Annual Report 2019 Management's Discussion and Analysis
SECTION 02
и A $2.8 million increase in sales revenue from the Ming mine largely driven
by an increase of 280% in the number of gold ounces sold. The increase
is largely attributable to the timing of sales, whereby the Company had
received 1,191 gold ounces by December 31, 2018 and those ounces were
sold in the subsequent period; and
и A $2.0 million increase in revenue attributable to the Company’s Other
Royalties. This increase is partly attributable to the commencement
of production on several mineral concessions which are subject to the
Company’s underlying royalties;
Partially offset by:
и $1.8 million decrease in sales revenue attributable to the Black Fox Mine
largely driven by a 37% decrease in the number of gold ounces sold. The
decrease is largely related to a reduction in production at the mine;
и A $1.5 million decrease in revenue attributable to the Diavik royalty partly
related to a decrease in the average realized selling price of diamonds; and
и A $0.6 million decrease in sales revenue from the Chapada copper stream
primarily due to a decrease in the average realized selling price of copper
which decreased from an average of $2.98 per pound during the year
ended 2018 to an average of $2.70 per pound during the year ended
December 31, 2019.
― THREE MONTHS ENDED DECEMBER 31, 2019 COMPARED
TO THE OTHER QUARTERS PRESENTED
When comparing net income of $5.3 million and cash flow from operating
activities of $15.7 million for the three months ended December 31, 2019 with
net income/loss and cash flow from operating activities for the other quarters
presented, the following items impact comparability of analysis:
и A $2.4 million non–cash impairment charge relating to the Company’s
Diavik royalty was recognized during the three months ended December
31, 2019 and during the three months ended March 31, 2018 a $4.5 million
non–cash impairment charge relating to the Company’s Gualcamayo
royalty was recognized.
и 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 Equinox and Americas Gold convertible debentures. These gains/
losses were recognized as follows:
• During the three months ended December 31, 2019, a gain of $4.8 million was recognized;
• During the three months ended September 30, 2019, a gain of $2.1 million was recognized;
• During the three months ended June 30, 2019, a gain of $1.4 million was recognized;
• During the three months ended March 31, 2019, a gain of $1.2 million was recognized;
SANDSTORM GOLD LTD. 43
2019 Annual Report SECTION 02
Management's Discussion and Analysis
• During the three months ended December 31, 2018, a gain of $1.1 million was recognized;
• During the three months ended September 30, 2018, a gain of $0.1 million was recognized;
• During the three months ended June 30, 2018, a loss of $0.5 million was recognized;
• During the three months ended March 31, 2018, a loss of $0.6 million was recognized;
и Overall, Attributable Gold Equivalent ounces sold have increased over
the course of the last four years as a result of the acquisition of various
assets including the Houndé royalty acquisition in January 2018, the Teck
Resources Limited royalty package which consists of 52 royalties and was
purchased during the three months ended March 31, 2016 and the Yamana
silver stream and copper stream which were acquired in the three months
ended December 31, 2015.
― CHANGE IN TOTAL ASSETS
Total assets increased by $14.4 million from September 30, 2019 to December 31,
2019, partly due to (i) $15 million remitted to Americas Gold for the construction
of Relief Canyon, which was partly financed through the Company’s revolving
credit facility; and (ii) an increase in the valuation of investments; partially
offset by (i) a decrease in the Hod Maden interest due to a devaluation of the
Turkish Lira, which is the functional currency of the entity that holds the Hod
Maden interest, relative to the U.S. dollar, which is the presentation currency of
Sandstorm Gold Ltd.; and (ii) depletion expense. The increase in the valuation
of investments was largely responsible for the gain recognized through other
comprehensive income for the three months ended December 31, 2019. Total
assets increased by $7.8 million from June 30, 2019 to September 30, 2019, partly
resulting from (i) $10 million remitted to Americas Gold for the construction
of the Relief Canyon mine, which was partly financed through the Company’s
revolving credit facility; and (ii) an increase in the Hod Maden interest due to
the appreciation of the Turkish Lira relative to the U.S. dollar; partially offset
by depletion expense. The appreciation was partly responsible for the increase
in other comprehensive income during the three months ended September 30,
2019. Total assets decreased by $19.1 million from March 31, 2019 to June 30,
2019, partly resulting from depletion expense. Total assets increased by $31.3
million from December 31, 2018 to March 31, 2019 primarily resulting from the
acquisition of the Fruta del Norte royalty which was partly financed through
the Company’s revolving credit facility; partially offset by a decrease in the Hod
Maden interest due to the devaluation of the Turkish Lira. The devaluation was
largely responsible for the decrease in other comprehensive income during the
three months ended March 31, 2019. Total assets increased by $11.8 million from
September 30, 2018 to December 31, 2018 primarily resulting from an increase
in the Hod Maden interest due to the appreciation of the Turkish Lira relative
to the U.S. dollar. This change was largely responsible for the increase in other
comprehensive income during the three months ended December 31, 2018.
Total assets decreased by $46.3 million from June 30, 2018 to September 30,
2018 primarily resulting from (i) a reduction in the Hod Maden interest due to a
44 SANDSTORM GOLD LTD.
Annual Report 2019 Management's Discussion and Analysis
SECTION 02
devaluation of the Turkish Lira relative to the US dollar; and (ii) a decrease in the
valuation of investments. Both of these items were largely responsible for the
decrease in other comprehensive income in the period. Total assets decreased
by $23.9 million from March 31, 2018 to June 30, 2018 primarily resulting from
(i) depletion expense; and (ii) a reduction in the Hod Maden interest due to a
devaluation of the Turkish Lira relative to the US dollar, with a corresponding
decrease in other comprehensive income in the period; partially offset by increases
in the Company’s cash balance due to positive cash flow from operating activi-
ties. Total assets decreased by $13.6 million from December 31, 2017 to March
31, 2018 primarily resulting from (i) depletion expense, (ii) non–cash impairment
charges; and (iii) a reduction in the Hod Maden interest due to a devaluation of
the Turkish Lira relative to the US dollar, with a corresponding decrease in other
comprehensive income in the period.
― NON-IFRS AND OTHER MEASURES
The Company has included, throughout this document, certain performance
measures, including (i) average cash cost per Attributable Gold Equivalent ounce,
(ii) average realized gold price per Attributable Gold Equivalent ounce, (iii) cash
operating margin, (iv) cash flows from operating activities excluding changes
in non–cash working capital; and (v) all–in sustaining cost per gold ounce on a
co–product basis. 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 Gold Equivalent ounce is calculated by
dividing the Company’s cost of sales, excluding depletion by the number
of Attributable Gold Equivalent ounces sold. The Company presents
average cash cost per Attributable Gold Equivalent ounce as it believes
that certain investors use this information to evaluate the Company’s
performance in comparison to other streaming and royalty 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.
SANDSTORM GOLD LTD. 45
2019 Annual Report SECTION 02
Management's Discussion and Analysis
Figure 1.1
3 Months Ended
Dec. 31, 2019
3 Months Ended
Dec. 31, 2018
Year Ended
Dec. 31, 2019
Year Ended
Dec 31, 2018
Cost of Sales, excluding depletion 1
$
4,972
$
4,136
$
18,286
$
16,003
Divided by:
Total Attributable Gold Equivalent
ounces sold 2
Equals:
Average cash cost of gold (per
Attributable Gold Equivalent ounce)
16,113
14,182
63,829
57,646
$
309 $
292 $
286 $
278
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 revenue is converted to an Attributable Gold Equivalent ounce basis
by dividing the royalty and other commodity revenue 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.
ii. Average realized gold price per Attributable Gold Equivalent ounce is
calculated by dividing the Company’s sales by the number of Attributable
Gold Equivalent ounces sold. The Company presents average realized gold
price per Attributable Gold Equivalent ounce as it believes that certain
investors use this information to evaluate the Company’s performance
in comparison to other streaming and royalty 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 Attributable
Gold Equivalent ounce.
Figure 1.2
Total Revenue
Divided by:
Total Attributable Gold Equivalent
ounces sold
Equals:
Average realized gold price (per
Attributable Gold Equivalent ounce)
3 Months Ended
Dec. 31, 2019
3 Months Ended
Dec. 31, 2018
Year Ended
Dec. 31, 2019
Year Ended
Dec 31, 2018
$
23,995
$
17,458
$
89,434
$
73,150
16,113
14,182
63,829
57,646
$
1,489
$
1,231`
$
1,401
$
1,269
iii. Cash operating margin is calculated by subtracting the average cash cost
per Attributable Gold Equivalent ounce from the average realized gold
price per Attributable Gold Equivalent ounce. The Company presents
cash operating margin as it believes that certain investors use this
information to evaluate the Company’s performance in comparison to
other streaming and royalty companies in the precious metals mining
industry that present results on a similar basis.
iv. Cash flows from operating activities excluding changes in non–cash work-
ing capital is calculated by adding back the decrease or subtracting the
46 SANDSTORM GOLD LTD.
Annual Report 2019 Management's Discussion and Analysis
SECTION 02
increase in changes in non–cash working capital to or from cash provided
by (used in) operating activities. The Company presents cash flows from
operating activities excluding changes in non–cash working capital as
it believes that certain investors use this information to evaluate the
Company’s performance in comparison to other streaming and royalty
companies in the precious metals mining industry that present results
on a similar basis. Figure 1.3 provides a reconciliation of cash flows from
operating activities excluding changes in non–cash working capital.
Figure 1.3
3 Months Ended
Dec. 31, 2019
3 Months Ended
Dec. 31, 2018
Year Ended
Dec. 31, 2019
Year Ended
Dec 31, 2018
Cash flows from operating activities
$
15,670
$
10,844
$
57,339
$
47,574
Add:
Changes in non-cash working capital
(506)
332
3,365
1,493
Equals:
Cash flows from operating activities
excluding changes in non-cash
working capital
$
15,164 $
11,176 $
60,704 $
49,067
v. The Company has also used the non–IFRS measure of all–in sustaining cost
per gold ounce on a co–product basis. With respect to the Hod Maden
project, all–in sustaining cost per gold ounce on a co–product basis is
calculated by removing the impact of other metals that are produced as
a result of gold production and apportions the costs (operating costs,
royalties, treatment and refining costs and sustaining capital) to each
commodity produced on a percentage of revenue basis. These gold ap-
portioned costs are then divided by the payable gold ounces produced. The
Company presents all in sustaining cost per gold ounce on a co–product
basis as it believes that certain investors use this information to evaluate
the Company’s performance in comparison to other companies in the
precious metals mining industry that present results on a similar basis.
[(Operating Costs ($557.6 million) + Royalties ($131.4 million) + Treatment
& Refining Costs ($164.9 million ) + Sustaining Capital ($114.2 million))
x Gold Revenue ($2,586.4 million)/Total Revenue ($3,360.8 million)] /
Payable Gold Ounces (1,990,000 ounces ) = $374 all in sustaining cost
per ounce.
SANDSTORM GOLD LTD. 47
2019 Annual Report
SECTION 02
Management's Discussion and Analysis
― LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2019, the Company had cash and cash equivalents of $7.0
million (December 31, 2018 – $5.9 million) and working capital of $24.3 million
(December 31, 2018 –$21.7 million). As of the date of the MD&A, $25 million
remains drawn under the Revolving Facility.
During the year ended December 31, 2019, the Company generated cash flows
from operating activities of $57.3 million compared with $47.6 million during
the comparable period in 2018, 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, 2019, the Company had net cash outflows
from investing activities of $65.0 million which were primarily the result of (i) the
$32.8 million payment in connection with the Fruta del Norte royalty acquisition,
(ii) the $25.0 million payment to Americas Gold as part of the Relief Canyon
stream, (iii) the acquisition of $24.1 million in investments and other; and (iv) a
$3.0 million investment in the Company’s Hod Maden interest. These outflows
were partially offset by cash receipts of $23.3 million largely related to the sale
of investments as the Company continues its strategy of monetizing its non–core
assets. During the year ended December 31, 2018, the Company had net cash
outflows from investing activities of $36.3 million which were primarily the result
of (i) the $45.0 million payment in connection with the Houndé royalty acquisi-
tion; and (ii) the acquisition of $13.0 million in investments and other; partially
offset by $24.8 million in cash receipts largely driven from the sale of Equinox
debt and equity investments.
During the year ended December 31, 2019, the Company had net cash inflows
from financing activities of $8.7 million primarily related to (i) a $92.5 million
draw down on its revolving credit facility to help fund the Company’s recent
acquisitions; (ii) the subsequent repayment of $47.5 million under the same
revolving credit facility as well as $2.7 million in related interest expense; and (iii)
$46.6 million related to the redemption of the Company’s common shares under
the NCIB; partially offset by $13.1 million in proceeds from the exercise of stock
options and warrants. During the year ended December 31, 2018, the Company
had net cash outflows from financing activities of $18.1 million largely related
to cash outflows of $20.5 million related to the redemption of the Company’s
common shares under the NCIB; partially offset by $3.3 million in proceeds
from the exercise of stock options and warrants. During this same period, the
Company drew down $16 million on its revolving credit facility to help fund the
acquisition of the Houndé royalty. The $16 million draw down was subsequently
repaid within the same period utilizing cash flow from operating activities and
the proceeds from the sale of non–core investments.
48 SANDSTORM GOLD LTD.
Annual Report 2019 Management's Discussion and Analysis
SECTION 02
― COMMITMENTS AND CONTINGENCIES
In connection with its Streams, the Company has
committed to purchase the following:
Stream
Black Fox
Chapada
Entrée
Karma
Ming
Relief Canyon
Santa Elena
Yamana silver stream
% of Life of Mine Gold or
Relevant Commodity 4, 5, 6, 7, 8
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
32,022 ounces over 5.5 years
and 4% thereafter
20%
20%
Per Ounce Cash Payment:
lesser of amount below and
the then prevailing market
price of commodity
(unless otherwise noted) 1, 2, 3
$561
30% of copper spot price
$220
20% of gold spot price
$nil
Varies
$455
30% of silver spot price
1
2
Subject to an annual inf lationary 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 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.
5
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.
6
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 ongoing per pound payments
will increase to the lesser of $1.10 and the then prevailing market price of copper.
7
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 the mine has delivered 39 million pounds of copper to
Sandstorm; then 3.0% of the copper produced until, on a cumulative basis, the mine has delivered 50 million pounds of
copper to Sandstorm; then 1.5% of the copper produced thereafter, for the life of the mine.
8
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.
SANDSTORM GOLD LTD. 49
2019 Annual Report SECTION 02
Management's Discussion and Analysis
Sandstorm has been informed that a third party commenced legal proceedings
against it in a Brazilian court. The proceedings involve severance owed to former
employees of Colossus Mineração Ltda., a Brazilian subsidiary company of
Colossus Minerals Inc. (an entity in which Sandstorm entered into a Stream with).
Since these severance claims, estimated to be approximately $6 million, remain
outstanding, the claimants are seeking to recoup their claims from Sandstorm.
Sandstorm intends on defending itself as it believes the case is without merit.
Other contractual obligations of the Company are as follows:
In $000s
Bank debt1
Interest2
Lease payments
2020
2021–2022
2023–2024
After 2024
Total
$
-
$
-
$
25,000
$
919
507
1,838
1,050
919
1,259
-
-
1,062
$
25,000
3,676
3,878
Total contractual obligations
$
1,426
$
2,888
$
27,178
$
1,062
$
32,554
1
As at February 13, 2020, the Company had $25 million drawn and outstanding on the Revolving Facility. The repayment
date in the table above ref lects the four-year term of the facility, assuming no extension periods.
2
As the applicable interest rate is f loating in nature, the interest charges are estimated based on market-based forward
interest rate curves at the end of the reporting period combined with the assumption that the principal balance outstanding
at February 13, 2020 does not change until the debt maturity date.
― SHARE CAPITAL
As of February 13, 2020, the Company had 178,757,441 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 2016 equity
financing used to reduce the balance of the Company’s revolving credit facility.
A summary of the Company’s share purchase options as of February 13, 2020 is as follows:
Year of
expiry
Number
outstanding
Vested
Exercise price
per share
(range) (CAD)1
Weighted average
exercise price
per share (CAD)1, 2
2020
2021
2022
2023
2024
521,000
1,216,000
1,254,200
3,128,333
1,427,000
521,000
3.60–3.64
1,216,000
4.96
989,202
4.91–15.00
1,041,670
-
5.92
8.89
7,546,533
3,767,872
3.61
4.96
5.25
5.92
-
5.11
1
For options exercisable in British Pounds Sterling (“GBP”), exercise price is translated to Canadian Dollars (“CAD”) using
the period end exchange rate.
2 Weighted average exercise price of options that are exercisable.
50 SANDSTORM GOLD LTD.
Annual Report 2019 Management's Discussion and Analysis
SECTION 02
A summary of the Company’s warrants as of February 13, 2020 is as follows:
Number
outstanding
15,000,000
4,951,849
19,951,849
Exercise price
per share
3.50
4.00
Expiry Date
October 27, 2020
November 3, 2020
Subsequent to December 31, 2019, 1,500,000 of the Company’s outstanding
warrants were exercised at an exercise price of $4.50 per share.
The Company has 2,617,732 Restricted Share Rights (“RSRs”) outstanding as at
February 13, 2020.
― KEY MANAGEMENT PERSONNEL COMPENSATION
The remuneration of directors and those persons having authority and responsibility for
planning, directing and controlling activities of the Company is as follows:
In $000s
Employee salaries and benefits
Share based payments
Total key management compensation expense
Year Ended
Dec. 31, 2019
Year Ended
Dec 31, 2018
$
$
2,541
3,761
6,302
$
$
1,818
2,695
4,513
― FINANCIAL INSTRUMENTS
The Company’s financial instruments consist of cash and cash equivalents, trade
receivables and other, short–term and long–term investments, loans receivable
which are included in other assets, trade and other payables and bank debt. The
Company’s short and long–term investments are initially recorded at fair value
and subsequently revalued to their fair market value at each period end based
on inputs such as equity prices. Investments are held for long–term strategic
purposes. The fair value of the Company’s other financial instruments which
include cash and cash equivalents, trade receivables and other, loans receivable
which are included in other assets, trade and other payables and bank debt
approximate their carrying values at December 31, 2019.
SANDSTORM GOLD LTD. 51
2019 Annual Report SECTION 02
Management's Discussion and Analysis
Credit Risk
The Company’s credit risk is limited to cash and cash equivalents, loans receiv-
able which are included in other assets, trade and other receivables and the
Company’s investments in convertible debentures. The Company’s trade and
other receivables are 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 institu-
tions. The Company’s investments in convertible debentures are subject to the
counterparties’ credit risk. In particular, the Company’s convertible debentures
due from Equinox and Americas Gold are subject to the respective counterparty
credit risk and the Company’s ability to realize on its security. Furthermore, the
convertible debenture due from Equinox is subject to the risk that the value
of Equinox’s equity decreases below the puttable price of the instrument. The
impact of expected credit losses on trade receivables and financial assets held
at amortized cost is not material.
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 and other receivables 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, 2019
a 10% increase (decrease) of the value of the Canadian dollar relative to the
United States dollar would not have a material impact on net income or other
comprehensive income.
Other Risks
Sandstorm holds common shares, convertible debentures, warrants and invest-
ments of other companies with a combined fair market value as at December
31, 2019 of $83.6 million (December 31, 2018 – $60.2 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 these investments in other
mining companies. The Company does not actively trade these investments.
Based on the Company’s investments held as at December 31, 2019 a 10% increase
(decrease) in the equity prices of these investments would increase (decrease)
net income by $1.6 million and other comprehensive income by $5.2 million.
52 SANDSTORM GOLD LTD.
Annual Report 2019 Management's Discussion and Analysis
SECTION 02
― OTHER 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 22, 2019, which is available on www.sedar.com.
The Chapada Mine, the Cerro Moro Mine, the Diavik Mine, the Aurizona Mine, the
Fruta del Norte Mine, the Relief Canyon Project, the Santa Elena Mine, the Karma
Mine, the Ming Mine, the Black Fox Mine, the Bachelor Lake Mine, the Hugo North
Extension and Heruga deposits, the Mt. Hamilton Project, the Gualcamayo Mine,
the Emigrant Springs Mine, the Thunder Creek Mine, MWS, the San Andres Mine,
the Prairie Creek Project, the Bracemac–McLeod Mine, the Hod Maden Project,
the Hackett River Project, the Lobo–Marte Project, Agi Dagi and Kirazli, Houndé
Mine and other royalties and commodity streams in Sandstorm’s portfolios are
hereafter referred to as the “Mines”.
Risks Relating to Mineral Projects
To the extent that they relate to the production of gold or an applicable com-
modity from, or the operation of, 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 becoming
uneconomic resulting in their shutdown and closure. The Company is not entitled
to purchase gold, other commodities, receive royalties or receive economic benefit
from its interest in the Hod Maden Project, if no gold or applicable commodity
is produced from the Mines.
No Control 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
SANDSTORM GOLD LTD. 53
2019 Annual Report SECTION 02
Management's Discussion and Analysis
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 Regulations
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 occupational
health, handling, storage and transportation of hazardous substances and other
matters. 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,
operating 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 operations with respect to the Company’s gold, other precious metals and
other interests are conducted in Canada, Mexico, the United States, Mongolia,
Burkina Faso, Ecuador, South Africa, Ghana, Botswana, Cote D’Ivoire, Argentina,
Brazil, Chile, Peru, Paraguay, Honduras, French Guiana, Turkey, Sweden and
Australia and as such, the Mines are exposed to various levels of political, eco-
nomic and other risks and uncertainties. These risks and uncertainties include,
but are not limited to, terrorism, international sanctions, 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,
changing political conditions, and governmental regulations. Changes, if any, in
mining or investment policies or shifts in political attitude 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, cur-
rency remittance, income taxes, expropriation of property, foreign investment,
54 SANDSTORM GOLD LTD.
Annual Report 2019 Management's Discussion and Analysis
SECTION 02
maintenance 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 adverse developments with respect to Lidya, its
cooperation or in its exploration, development, permitting and operation of the
Hod Maden Project in Turkey may adversely affect the Company’s 30% net profits
interest in the project. There are no assurances that the Company will be able to
successfully convert its 30% interest in the Hod Maden Project into a commodity
stream or royalty nor are there any assurances that the Company may be able to
maintain its interest in Hod Maden if sanctions are imposed on Turkey or Lidya
and its related entities. 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 Stream. The Serra Pelada royalty cash flow or profitability 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 Minerals Inc.’s 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 of 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
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 prior years’ tax returns may be audited by the Canada Revenue
Agency (“CRA”), and no assurances can be given that tax matters, if they so arise
will be resolved favorably. The CRA recently completed an audit of Sandstorm
Gold Ltd.’s 2009 – June 2015 tax returns and issued a corresponding finalization
letter in February 2019. Based on the letter received, there would be no adverse
implications for the Company’s financial statements if the Company accepted
the CRA’s proposed adjustments. The majority of the Company’s Streams and
royalties have been entered into directly by Canadian based subsidiaries and
are therefore, subject to Canadian tax. The profits attributable to the Company’s
historical Barbados entity have all been attributed to Canada and the profits
from these Streams continue to be subject to Canadian tax.
SANDSTORM GOLD LTD. 55
2019 Annual Report SECTION 02
Management's Discussion and Analysis
Commodity Prices for Metals Produced from the Mines
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, silver
and/or copper (collectively, the “Metals”). The price of the Metals 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
the Metals 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, silver and copper producing countries
throughout the world.
In the event that the prevailing market price of the Metals are at or below the
price at which the Company can purchase such commodities pursuant to the
terms of the Stream agreements associated with the metal interests, the Company
will not generate positive cash flow or earnings. Declines in market prices could
cause an operator to reduce, suspend or terminate production from an operating
project or construction work at a development project, which may result in a
temporary or permanent reduction or cessation of revenue from those projects,
and the Company might not be able to recover the initial investment in Streams
and royalties.
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.
Information Systems and Cyber Security
The Company’s information systems, and those of its counterparties under the
precious metal purchase agreements and vendors, are vulnerable to an increas-
ing threat of continually evolving cybersecurity risks. Unauthorized parties may
attempt to gain access to these systems or the Company’s information through
fraud or other means of deceiving the Company’s counterparties.
56 SANDSTORM GOLD LTD.
Annual Report 2019 Management's Discussion and Analysis
SECTION 02
The Company’s operations depend, in part, on how well the Company and its
suppliers, as well as counterparties under the commodity purchase and royalty
agreements, protect networks, equipment, information technology systems and
software against damage from a number of threats. The failure of information
systems or a component of information systems could, depending on the nature
of any such failure, adversely impact the Company’s reputation and results of
operations.
Although to date the Company has not experienced any material losses relating
to cyber–attacks or other information security breaches, there can be no assur-
ance that the Company will not incur such losses in the future. The Company’s
risk and exposure to these matters cannot be fully mitigated because of, among
other things, the evolving nature of these threats. As a result, cyber security
and the continued development and enhancement of controls, processes and
practices designed to protect systems, computers, software, data and networks
from attack, damage or unauthorized access remain an area of attention.
Key Management
The Company is dependent upon the services of a small number of key manage-
ment personnel who are highly skilled and experienced. The Company’s ability to
manage its activities will depend in large part on the efforts of these individuals.
The Company faces intense competition for qualified personnel, and there can be
no assurance that the Company will be able to attract and retain such personnel.
The loss of the services of one or more of such key management personnel could
have a material adverse effect on the Company.
Environmental
All phases of mining and exploration operations are subject to environmental
regulation pursuant to a variety of government laws and regulations. Environ-
mental legislation is becoming stricter, with increased fines and penalties for
non–compliance, more stringent environmental assessments of proposed projects
and heightened responsibility for companies and their officers, directors and
employees. Continuing issues with tailings dam failures at other companies’ opera-
tions may increase the likelihood that these stricter standards and enforcement
mechanisms will be implemented in the future. There can be no assurance that
possible future changes in environmental regulation will not adversely affect the
operations at the Mines, and consequently, the results of Sandstorm’s operations.
Failure by the operators of the Mines to comply with these laws, regulations and
permitting requirements may result in enforcement actions, including orders
issued by regulatory or judicial authorities causing operations to cease or be
curtailed, and may include corrective measures requiring capital expenditures,
installation of additional equipment, or remedial actions. The occurrence of any
environmental violation or enforcement action may have an adverse impact on
the operations at the Mines, Sandstorm’s reputation and could adversely affect
Sandstorm’s results of operations.
SANDSTORM GOLD LTD. 57
2019 Annual Report SECTION 02
Management's Discussion and Analysis
Government regulation relating to emission levels (such as carbon taxes) and
energy efficiency is becoming more prevalent and stringent. While some of the
costs associated with reducing emissions may be offset by increased energy
efficiency and technological innovation, Sandstorm expects that increased govern-
ment regulation will result in increased costs at some operations at the Mines if
the current regulatory trend continues. All of Sandstorm’s mining interests are
exposed to climate–related risks through the operations at the Mines. Climate
change could result in challenging conditions and extreme weather that may
adversely affect the operations at the Mines and there can be no assurances
that mining operations will be able to predict, respond to, measure, monitor or
manage the risks posed as a result of climate change factors.
Solvency Risk of Counterparties and Other
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.
As the Revolving Facility is secured against the Company’s assets, to the extent
Sandstorm defaults on its debt or related covenants, the lenders may seize on
their security interests. The realization of security or default could materially
affect the price of the Company’s common shares and financial results.
― 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
2019 annual consolidated financial statements describes all of the significant
accounting policies as well as the significant judgments and estimates.
Disclosure Controls 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
58 SANDSTORM GOLD LTD.
Annual Report 2019 Management's Discussion and Analysis
SECTION 02
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, 2019, the
disclosure controls and procedures (as defined in National Instrument 52-109
- Certification of Disclosure in Issuers’ Annual and Interim Filings (“NI 52-109”)
and Rule 13(a) – 15(e) under the Securities Exchange Act of 1934, as amended)
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.
Management’s Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining
effective internal control over financial reporting as such term is defined in NI
52-109 in Canada 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 assurance 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:
и maintaining records, that in reasonable detail, accurately and fairly reflect
our transactions and dispositions of the assets of the Company;
и 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;
и providing reasonable assurance that receipts and expenditures are made
in accordance with authorizations of management and the directors of
the Company; and
SANDSTORM GOLD LTD. 59
2019 Annual Report SECTION 02
Management's Discussion and Analysis
и 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. Management assessed
the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2019 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 con-
cluded that, as of December 31, 2019, the Company’s internal control over financial
reporting is effective and no material weaknesses were identified.
Changes in Internal Controls
There were no changes in internal controls of the Company during the year ended
December 31, 2019 that have materially affected, or are likely to materially affect,
the Company’s internal control over financial reporting or disclosure controls
and procedures.
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 objectives 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–mak-
ing 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 limitations in
a cost–effective control system, misstatements due to error or fraud may occur
and not be detected.
60 SANDSTORM GOLD LTD.
Annual Report 2019 Management's Discussion and Analysis
SECTION 02
New Accounting Policies
The IASB has issued the following new standards which are effective January
1, 2019. Pronouncements that are not applicable to the Company have been
excluded from this note. Note 3 of the Company’s 2019 annual financial state-
ments describes new accounting policies that have been adopted in the period.
IFRS 16: LEASES
IFRS 16 establishes a comprehensive framework for recognition, measurement and
classification of leases and requires lessees to recognize assets and liabilities for
most leases. It has replaced International Accounting Standard (“IAS”) 17 Leases
and related interpretations. The Company has adopted IFRS 16 retrospectively
from January 1, 2019 and has not restated comparatives for the 2018 reporting
period, as permitted under the specific transitional provisions in the standard. The
reclassifications and adjustments arising from the new leasing rules are recognized
on the opening statement of financial position on January 1, 2019 to the extent
they arise; however, no adjustments were necessary to the Company’s opening
retained earnings as a result of the adoption of this standard. With respect to
the Company’s office leases, a $3 million right–of–use asset and a corresponding
liability for the same amount was recognized as at January 1, 2019. Adoption of
the new standard did not give rise to any material changes to the Company’s
processes, IT controls or annual financial statements.
On adoption of IFRS 16, the Company recognized lease liabilities in relation
to leases which had previously been classified as operating leases under the
principles of IAS 17 Leases. These liabilities were measured at the present value
of the remaining lease payments, discounted using the Company’s incremental
borrowing rate as of January 1, 2019. The associated right–of–use assets were
measured at an amount equal to the lease liability, adjusted by the amount of
any prepaid or accrued lease payments relating to that lease recognized in the
statement of financial position as at December 31, 2018. Refer to Note 3 of the
Company’s annual financial statements for the amended accounting policy as a
result of adoption of IFRS 16.
IFRIC INTERPRETATION 23: UNCERTAINTY OVER INCOME TAX TREATMENTS
In June 2017, the IASB issued IFRS Interpretations Committee (“IFRIC”) Inter-
pretation 23 Uncertainty over Income Tax Treatments, which is applied to the
determination of taxable profit or loss, unused tax losses, unused tax credits,
tax rates and tax bases, when there is uncertainty about income tax treatment
under IAS 12 Income Taxes. IFRIC 23 is effective January 1, 2019 and is to be
applied retrospectively. The new standard did not have a material impact on the
Company’s annual financial statements.
SANDSTORM GOLD LTD. 61
2019 Annual Report SECTION 02
Management's Discussion and Analysis
FORWARD LOOKING STATEMENTS
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 condi-
tions; the Chapada Mine, the Cerro Moro Mine, the Houndé Mine, the Ming Mine, the Gualcamayo Mine, the Fruta del Norte Mine, the Santa Elena Mine,
the Black Fox Mine, the Aurizona Mine, the Relief Canyon Project, the Karma Mine, the Emigrant Springs Mine, the Thunder Creek Mine, MWS, the Hugo
North Extension and Heruga deposits, the mines underlying the Sandstorm portfolio of royalties, the Bachelor Lake Mine, the Diavik Mine, the Mt. Hamilton
Project, the Prairie Creek Project, the San Andres Mine, the Hod 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 or other commodities, or receive royalties
from 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, 2018 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 Mine, the Houndé Mine, the Ming Mine,
the Gualcamayo Mine, the Fruta del Norte Mine, the Santa Elena Mine, the Black Fox Mine, the Aurizona Mine, the Relief Canyon Project, the Karma Mine,
the Emigrant Springs Mine, the Thunder Creek Mine, MWS, the Hugo North Extension and Heruga deposits, the mines underlying the Sandstorm portfolio
of royalties, the Bachelor Lake Mine, the Diavik Mine, the Mt. Hamilton Project, the Prairie Creek Project, the San Andres Mine, the Hod 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 commodities 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.
62 SANDSTORM GOLD LTD.
Annual Report 2019 Management's Discussion and Analysis
SECTION 02
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of Sandstorm Gold Ltd. and all the informa-
tion 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
International Accounting Standards Board (“IASB”). When alternative accounting methods
exist, management 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 presented 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
safeguarded.
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
statements. 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’
report. 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 the 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”
President & Chief Executive Officer
“Erfan Kazemi”
Chief Financial Officer
February 13, 2020
SANDSTORM GOLD LTD. 63
2019 Annual Report SECTION 02
Management's Discussion and Analysis
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Sandstorm Gold Ltd.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of Sandstorm
Gold Ltd. and its subsidiaries (together, the Company) as of December 31, 2019 and 2018, and
the related consolidated statements of income (loss) and comprehensive income (loss), cash
flows and changes in equity for the years then ended, including the related notes (collectively
referred to as the consolidated financial statements). We also have audited the Company’s internal
control over financial reporting as of December 31, 2019, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all mate-
rial respects, the financial position of the Company as of December 31, 2019 and 2018, and its
financial performance and its cash flows for the years then ended in conformity with International
Financial Reporting Standards as issued by the International Accounting Standards Board. Also
in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2019, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for
maintaining effective internal control over financial reporting, and for its assessment of the effec-
tiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions
on the Company’s consolidated financial statements and on the Company’s internal control over
financial reporting based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement, whether due to error
or fraud, and whether effective internal control over financial reporting was maintained in all
material respects.
Our audits of the consolidated financial statements included performing procedures to assess
the risks of material misstatement of the consolidated financial statements, whether due to er-
ror or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
64 SANDSTORM GOLD LTD.
Annual Report 2019 Management's Discussion and Analysis
SECTION 02
financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that
a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reason-
able 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 are recorded as necessary to permit preparation of financial statements in
accordance with generally 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 statements.
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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit
of the consolidated financial statements that were communicated or required to be communicated
to the audit committee and that (i) relate to accounts or disclosures that are material to the con-
solidated financial statements and (ii) involved our especially challenging, subjective, or complex
judgments. The communication of critical audit matters does not alter in any way our opinion
on the consolidated financial statements, taken as a whole, and we are not, by communicating
the critical audit matters below, providing separate opinions on the critical audit matters or on
the accounts or disclosures to which they relate.
ACCOUNTING FOR THE COMPANY’S ACQUISITION OF THE RELIEF CANYON
GOLD AND SILVER STREAM AND ROYALTY
As described in Notes 4 and 6 to the consolidated financial statements, the Company entered
into a financing package with Americas Gold and Silver Corporation during 2019 which included
a $25 million gold and silver stream and a net smelter returns royalty (royalty) on the Relief
Canyon gold and silver project in Nevada, U.S.A (Relief Canyon). Management determined that
the Company’s acquisition of the Relief Canyon gold and silver stream and royalty is a mineral
SANDSTORM GOLD LTD. 65
2019 Annual Report SECTION 02
Management's Discussion and Analysis
interest. The determination of whether an acquisition should be accounted for as a mineral
interest or a financial instrument requires the application of management judgment to consider
factors such as (i) the terms of the agreement; (ii) the applicability of the own use exemption
under IFRS 9; (iii) whether there is a contractual commitment to repay amounts under the gold
and silver stream; and (iv) the expected timing and amount of future deliveries of gold and silver
under the stream with reference to the existing mine plan.
The principal considerations for our determination that performing procedures relating to the
accounting for the Company’s acquisition of the Relief Canyon gold and silver stream and royalty
is a critical audit matter are (i) there was judgment by management when determining whether
an acquisition should be accounted for as a mineral interest or a financial instrument, including
considering factors such as the terms of the agreement, the applicability of the own use exemption
under IFRS 9, whether there is a contractual commitment to repay amounts under the gold and
silver stream and the expected timing and amount of future deliveries of gold and silver under the
stream with reference to the existing mine plan; which in turn led to (ii) a high degree of auditor
judgment, subjectivity and effort in performing procedures to evaluate audit evidence relating
to management’s determination of the accounting for the acquisition of streams and royalties.
Addressing the matter involved performing procedures and evaluating audit evidence in connec-
tion with forming our overall opinion on the consolidated financial statements. These procedures
included testing the effectiveness of controls relating to management’s review of the accounting
for complex transactions, which include acquisitions of streams and royalties. These procedures
also included, among others, evaluating the reasonableness of management’s determination of
the accounting for the acquisition of streams and royalties, including (i) reading the gold and
silver stream and royalty agreement and whether the key terms in management’s accounting
analysis have been appropriately identified; (ii) evaluating the reasonableness of management’s
assessment of whether the own use exemption under IFRS 9 applies with reference to the
expected purchases of gold and silver under the stream; (iii) evaluating the reasonableness of
management’s assessment of whether there is a contractual commitment to repay amounts
under the gold and silver stream; and (iv) assessing the expected timing and amount of future
deliveries of gold and silver under the stream with reference to existing mine plans for the Relief
Canyon gold and silver project.
ASSESSMENT OF IMPAIRMENT INDICATORS OF MINERAL, ROYALTY AND
OTHER INTERESTS AND OF THE HOD MADEN INTEREST
As described in Notes 4, 6 and 7 to the consolidated financial statements, the Company’s mineral,
royalty and other interests carrying amount was $395.5 million and the Hod Maden interest
carrying amount was $116.6 million as of December 31, 2019. Management assesses whether any
indication of impairment exists at the end of each reporting period for each mineral, royalty and
other interest and for the Hod Maden interest, including assessing whether there are observable
indications that the asset’s value has declined during the period. If such an indication exists, the
recoverable amount of the interest is estimated in order to determine the extent of the impairment
(if any). Management uses judgment when assessing whether there are indicators of impairment,
such as significant changes in future commodity prices, discount rates, operator reserve and
resource estimates or other relevant information received from the operators that indicates
production from the interests will not likely occur or may be significantly reduced in the future.
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Annual Report 2019 Management's Discussion and Analysis
SECTION 02
The principal considerations for our determination that performing procedures relating to the
assessment of impairment indicators of mineral, royalty and other interests and of the Hod Maden
interest is a critical audit matter are (i) there was judgment by management when assessing
whether there were indicators of impairment, such as significant changes in future commodity
prices, discount rates, operator reserve and resource estimates or other relevant information
received from the operators that indicates production from the interests will not likely occur
or may be significantly reduced in the future; which in turn led to (ii) a high degree of auditor
judgment, subjectivity and effort in performing procedures to evaluate audit evidence relating
to management’s assessment of impairment indicators of mineral, royalty and other interests
and of the Hod Maden interest.
Addressing the matter involved performing procedures and evaluating audit evidence in connec-
tion with forming our overall opinion on the consolidated financial statements. These procedures
included testing the effectiveness of controls relating to management’s review of the assessment
of impairment indicators of mineral, royalty and other interests and of the Hod Maden interest.
These procedures also included, among others, evaluating the reasonableness of management’s
assessment of indicators of impairment for a sample of mineral, royalty and other interests and
of the Hod Maden interest, such as significant changes in future commodity prices, discount
rates, operator reserve and resource estimates or other relevant information received from the
operators that indicates production from the interests will not likely occur or may be significantly
reduced in the future, by considering (i) the current and past performance of the underlying
mining operation associated with the interest; (ii) external market and industry data; (iii) the
publicly disclosed information by operators of the underlying mining operation associated with
the interests; and (iv) whether management’s assessment of impairment indicators of mineral,
royalty and other interests and of the Hod Maden interest was consistent with evidence obtained
in other areas of the audit.
/S/ PricewaterhouseCoopers LLP
Chartered Professional Accountants
Vancouver, Canada
February 13, 2020
We have served as the Company’s auditor since 2016.
SANDSTORM GOLD LTD. 67
2019 Annual Report SECTION 02
Management's Discussion and Analysis
68 SANDSTORM GOLD LTD.
Annual Report 2019 Consolidated Financial Statements
SECTION 03
SECTION 03
Consolidated
Financial Statements
For The Year Ended December 31, 2019
SANDSTORM GOLD LTD. 69
2019 Annual Report SECTION 03
Consolidated Financial Statements
Consolidated Statements of Financial Position
Expressed in U.S. Dollars ($000s)
Note
December 31, 2019
December 31, 2018
8
6
7
8
11
9
$
$
$
$
$
$
$
6,971
$
10,801
7,611
2,761
28,144
$
395,533
$
116,585
72,840
4,303
5,770
5,892
13,937
4,915
1,955
26,699
374,206
127,224
46,243
9,038
5,477
623,175 $
588,887
3,865
$
4,980
45,000
$
3,414
-
510
52,279 $
5,490
10
$
657,551
$
20,466
(2,866)
(104,255)
570,896
$
623,175 $
$
$
684,722
20,712
(19,263)
(102,774)
583,397
588,887
Assets
Current
Cash and cash equivalents
Short-term investments
Trade and other receivables
Other current assets
Non-current
Mineral, royalty and other interests
Hod Maden interest
Investments
Deferred income tax assets
Other long-term assets
Total assets
Liabilities
Current
Trade and other payables
Non-current
Bank debt
Lease liabilities and other
Equity
Share capital
Reserves
Deficit
Accumulated other comprehensive loss
Total liabilities and equity
Commitments and contingencies (Note 15)
ON BEHALF OF THE BOARD:
“Nolan Watson”, Director
“David De Witt”, Director
70 SANDSTORM GOLD LTD.
Annual Report 2019The accompanying notes are an integral part of these consolidated financial statements. Consolidated Financial Statements
SECTION 03
Consolidated Statements of Income (Loss)
Expressed in U.S. Dollars ($000s)
Except for per share amounts
Note
Year Ended
December 31, 2019
Year Ended
December 31, 2018
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
‣ Gain on revaluation of investments
‣ Finance expense
16
16
16
16
12
8
‣ Mineral, royalty and other interests impairments
6 (c)
‣ Finance income
‣ Foreign exchange loss
‣ Other
Income before taxes
Current income tax expense
Deferred income tax expense
Net income for the year
Basic earnings per share
Diluted earnings 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
11
11
10 (e)
10 (e)
$
$
$
$
$
$
$
$
$
$
$
$
$
63,602
$
25,832
89,434
$
18,286
$
37,845
56,131
$
50,632
22,518
73,150
16,003
29,028
45,031
33,303
$
28,119
8,274
$
5,910
(9,456)
3,503
2,660
(756)
86
74
23,008
$
2,240
$
4,371
6,611
$
16,397 $
0.09
0.09
$
$
6,897
4,356
(31)
1,661
4,475
(76)
2,631
(498)
8,704
1,290
1,542
2,832
5,872
0.03
0.03
177,619,824
190,220,013
183,381,187
190,985,786
5,180
$
3,858
SANDSTORM GOLD LTD. 71
2019 Annual ReportThe accompanying notes are an integral part of these consolidated financial statements.
SECTION 03
Consolidated Financial Statements
Consolidated Statements of Comprehensive Income (Loss)
Expressed in U.S. Dollars ($000s)
Net income for the year
Other comprehensive (loss) for the year
Items that may subsequently be re-classified to net income:
Currency translation differences
Items that will not subsequently be re-classified to net income:
Gain (loss) on FVTOCI investments
Tax expense on FVTOCI investments
Total other comprehensive (loss) for the year
Total comprehensive income (loss) for the year
Note
Year Ended
December 31, 2019
Year Ended
December 31, 2018
$
$
$
$
8
16,397
$
5,872
(13,140)
$
(50,383)
11,709
(50)
(1,481)
$
(10,953)
(704)
(62,040)
14,916 $
(56,168)
72 SANDSTORM GOLD LTD.
Annual Report 2019The accompanying notes are an integral part of these consolidated financial statements. Consolidated Financial Statements
SECTION 03
Consolidated Statements of Cash Flows
Expressed in U.S. Dollars ($000s)
Cash flow from (used in):
Operating activities
‣ Net income for the year
Items not affecting cash:
‣ Depletion and depreciation
‣ Mineral, royalty and other interests impairments
6 (c)
8
13
6
7
10 (a)
‣ Deferred income tax expense
‣ Share based payments
‣ Gain on revaluation of investments
‣ Interest expense and financing amortization
‣ Unrealized foreign exchange loss
‣ (Gain) loss on mineral interest disposal and other
‣ Changes in non-cash working capital
Investing activities
‣ Acquisition of mineral, royalty and other interests
‣ Proceeds from disposal of investments and other
‣ Acquisition of investments and other assets
‣ Investment in Hod Maden interest
Financing activities
‣ Redemption of common shares
(normal course issuer bid)
‣ Bank debt drawn
‣ Bank debt repaid
‣ Interest paid
‣ Proceeds on exercise of warrants, options 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 f low information (Note 13)
Note
Year Ended
December 31, 2019
Year Ended
December 31, 2018
$
$
$
$
$
$
$
$
$
$
16,397
$
5,872
38,291
$
29,459
2,660
4,371
5,180
(9,456)
3,327
68
(134)
(3,365)
57,339
$
(61,288)
$
23,327
(24,070)
(3,000)
(65,031)
$
(46,613)
$
92,500
(47,500)
(2,702)
13,064
4,475
1,542
3,858
(31)
1,624
2,005
263
(1,493)
47,574
(46,031)
24,770
(13,030)
(1,979)
(36,270)
(20,464)
16,000
(16,000)
(992)
3,313
8,749
$
(18,143)
22
$
192
1,079
$
5,892
6,971 $
(6,647)
12,539
5,892
SANDSTORM GOLD LTD. 73
2019 Annual ReportThe accompanying notes are an integral part of these consolidated financial statements.
SECTION 03
Consolidated Financial Statements
Consolidated Statements of Changes in Equity
Expressed in U.S. Dollars ($000s)
Share Capital
Reserves
Note
Number
Amount
Share
Options and
Restricted
Share
Rights
Share
Purchase
Warrants
Deficit
Accumulated
Other
Comprehensive
Loss
Total
At January 1, 2018
182,685,502
$
693,880
$
15,741
$
7,918
$
(25,135)
$
(40,734)
$
651,670
Options exercised
10 (b)
1,440,907
Warrants exercised and expired
10 (c)
1,021,624
Vesting of restricted share rights
522,322
4,834
3,965
2,598
(1,253)
-
-
(2,954)
(2,598)
Acquisition and cancellation of
common shares (normal course
issuer bid)
Share based payments
Total comprehensive income (loss)
(4,788,775)
(20,555)
-
-
-
-
-
3,858
-
-
-
-
-
-
-
-
-
-
-
3,581
1,011
-
(20,555)
3,858
5,872
(62,040)
(56,168)
-
-
-
-
At December 31, 2018
180,881,580
$
684,722
$
15,748
$
4,964
$
(19,263)
$
(102,774)
$
583,397
Options exercised
10 (b)
3,181,108
10,766
(3,616)
Warrants exercised and expired
10 (c)
1,506,051
7,068
-
Vesting of restricted share rights
339,404
1,516
(1,516)
Acquisition and cancellation of
common shares (normal course
issuer bid)
Share based payments
Total comprehensive income (loss)
10 (a)
(8,680,202)
(46,521)
-
-
-
-
-
5,180
-
-
(294)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
16,397
(1,481)
7,150
6,774
-
(46,521)
5,180
14,916
At December 31, 2019
177,227,941
$
657,551
$
15,796
$
4,670
$
(2,866)
$
(104,255)
$
570,896
74 SANDSTORM GOLD LTD.
Annual Report 2019The accompanying notes are an integral part of these consolidated financial statements. Notes to the Consolidated Financial Statements
SECTION 03
Notes to the Consolidated
Financial Statements
December 31, 2019 | Expressed in U.S. Dollars
1 NATURE OF OPERATIONS
B Basis of Presentation
Sandstorm Gold Ltd. was incorporated under the
Business Corporations Act of British Columbia
on March 23, 2007. Sandstorm Gold Ltd. and its
subsidiary entities (collectively “Sandstorm”, “Sand-
storm 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 fixed percentage of the spot price, 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 were
authorized for issue by the Board of Directors of
the Company on February 13, 2020.
2 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
A Statement of Compliance
These consolidated financial statements have been
prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board (“IASB”).
These consolidated financial statements have been
prepared on a historical cost basis except for certain
financial instruments, which are measured at fair
value or amortized cost.
The consolidated financial statements are pre-
sented in United States dollars, and all values
are rounded to the nearest thousand except as
otherwise indicated.
C Principles of Consolidation
These consolidated financial statements include
the accounts of the Company and its subsidiaries
(all wholly owned), Sandstorm Gold (Canada) 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., Sandstorm Metals & Energy (US) Inc., Mariana
Resources Limited and Mariana Turkey Limited.
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-
tion.
SANDSTORM GOLD LTD. 75
2019 Annual Report SECTION 03
Notes to the Consolidated Financial Statements
D Business Combinations
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
contingent on future events, the initial cost of the
acquisition recorded includes an estimate of the
fair value of the contingent amounts expected
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.
Subsequent changes to the estimated fair value
of contingent consideration are recorded in the
Consolidated Statements of Income (Loss).
When the cost of the acquisition exceeds the
fair values of the identifiable net assets acquired,
the difference is recorded as goodwill. If the fair
value attributable to the Company’s share of the
identifiable net assets exceeds the cost of acquisi-
tion, the difference is recognized as a gain in the
Consolidated Statements of Income (Loss).
Non-controlling interests represent the fair value
of net assets in subsidiaries, as at the date of
acquisition, which are not held by the Company
and are presented in the equity section of the
Consolidated Statements of Financial Position.
E
Investment in Associate
An associate is an entity over which the Company
has significant influence and is neither a subsidiary
nor a joint arrangement. The Company has signifi-
cant influence when it has the power to participate
in the financial and operating policy decisions of the
associate but does not have control or joint control
76 SANDSTORM GOLD LTD.
over those policies. The Hod Maden interest on the
Company’s Consolidated Statements of Financial
Position represents an investment in an associate.
The Company accounts for its investment in an
associate using the equity method. Under the equity
method, the Company’s investment in an associate
is initially recognized at cost when acquired and
subsequently increased or decreased to recognize
the Company’s share of net income and losses of
the associate, after any adjustments necessary
to give effect to uniform accounting policies, any
other movement in the associate’s reserves, and
for impairment losses after the initial recognition
date. The Company’s share of income and losses
of the associate is recognized in net income during
the period. Dividends received from the associate
are accounted for as a reduction in the carrying
amount of the Company’s investment.
F
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.
G Mineral, Royalty and Other Interests
Mineral, royalty and other interests consist of ac-
quired royalty interests and stream metal purchase
agreements. These interests are recorded at cost
and capitalized as tangible assets with finite lives.
They are subsequently measured at cost less ac-
cumulated depletion and accumulated impairment
losses, if any. Project evaluation costs that are not
related to a specific agreement are expensed in
the period incurred.
Annual Report 2019 Notes to the Consolidated Financial Statements
SECTION 03
Producing mineral, royalty and other interests are
depleted using the units-of-production method
over the life of the property to which the interest
relates, which is estimated using available infor-
mation of proven and probable reserves and the
portion of resources expected to be classified as
mineral reserves at the mine corresponding to the
specific agreement.
On acquisition of a mineral, royalty or other inter-
est, an allocation of its cost is attributed to the
exploration potential of the interest and is recorded
as an asset on the acquisition date. The value of the
exploration potential is accounted for in accordance
with IFRS 6, Exploration and Evaluation of Mineral
Resources and is not depleted 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 IAS
16, Property, Plant and Equipment.
H
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 and at each reporting
period. 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.
Fair value is the price that would be received from
selling an asset in an orderly transaction between
market participants at the measurement date. Costs
of disposal are incremental costs directly attribut-
able to the disposal of an asset. Fair value less costs
of disposal is usually estimated using a discounted
cash flow approach. Estimated future cash flows
are calculated using estimated production, sales
prices, and a discount rate. Estimated production is
determined using current reserves and the portion
of resources expected to be classified as mineral
reserves as well as exploration potential expected
to be converted into resources. Estimated sales
prices are determined by reference to an average
of long-term metal price forecasts by analysts
and management’s expectations. The discount
rate is estimated using an average discount rate
incorporating analyst views to value precious metal
royalty companies. Value in use is determined as
the future value of present cash flows expected
to be derived from continuing use of an asset in
its present form for those assets where value in
use exceeds fair value less costs of disposal. If it
is determined that the recoverable amount is less
than the carrying value, then an impairment is
recognized within net income (loss) immediately.
An assessment is made at each reporting period
if there is any indication that a previous impair-
ment loss may no longer exist or has decreased.
If indications are present, the carrying amount
of the mineral interest is increased to the revised
estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the
carrying amount net of depletion that would have
been determined had no impairment loss been
recognized for the mineral interest in previous
periods.
I
Exploration Assets
All costs incurred prior to obtaining the legal right
to undertake exploration and evaluation activities
on a project are expensed in the period incurred. Ex-
ploration and evaluation costs arising following the
acquisition of an exploration license are capitalized
on a project-by-project basis. Costs incurred include
appropriate technical and administrative overheads.
Exploration assets are carried at historical cost
less any impairment losses recognized. Explora-
tion and evaluation activity includes geological
and geophysical studies, exploratory drilling and
sampling and resource development.
Upon demonstration of the technical and com-
mercial feasibility of a project and a development
decision, any past exploration and evaluation costs
related to that project are subject to an impairment
test and are reclassified in accordance with IAS 16,
Property Plant and Equipment.
Management assesses exploration assets for impair-
ment at each reporting period or when facts and
circumstances suggest that the carrying value of
capitalized exploration costs may not be recoverable.
SANDSTORM GOLD LTD. 77
2019 Annual Report SECTION 03
Notes to the Consolidated Financial Statements
J Revenue Recognition
Revenue is comprised of revenue earned in the
period from contracts with customers under each
of its royalty and mineral stream interests. The
Company has determined that each unit of a com-
modity that is delivered to a customer under a
royalty and mineral stream interest arrangement
is a performance obligation for the delivery of
a good that is separate from each other unit of
the commodity to be delivered under the same
arrangement. In accordance with IFRS 15, the Com-
pany recognizes revenue to depict the transfer
of the relevant commodity to customers in an
amount that reflects the consideration to which
the Company expects to be entitled in exchange
for those commodities.
For Stream agreements, revenue recognition occurs
when the relevant commodity received from the
stream operator is transferred by the Company to
its third-party customers.
For royalty interests, revenue recognition occurs
when the relevant commodity is transferred to
the end customer by the operator of the royalty
property. 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 agreement. In
some instances, the Company will not have access
to sufficient information to make a reasonable
estimate of consideration to which it expects to
be entitled 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.
K 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
(Canada) Ltd., Bridgeport Gold Inc., Inversiones
Mineras Australes S.A., Inversiones Mineras Aus-
trales Holdings (BVI) Inc., Premier Royalty U.S.A.
Inc., SA Targeted Investing Corp., Sandstorm Metals
& Energy (Canada) Holdings Ltd., Sandstorm Met-
78 SANDSTORM GOLD LTD.
als & Energy (Canada) Ltd., Sandstorm Metals &
Energy (US) Inc., Mariana Resources Limited and
Mariana Turkey Limited the functional currency is
the U.S. dollar.
The functional currency of the Company’s Hod
Maden interest in associate is the Turkish Lira. To
translate the Hod Maden interest to the presentation
currency of the U.S. dollar, 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.
L Financial Instruments
The Company’s financial instruments consist of cash
and cash equivalents, trade receivables and other,
short and long-term investments, loans receivable
which are included in other current assets, trade
and other payables and bank debt. All financial
instruments are initially recorded at fair value and
designated as follows:
Cash and cash equivalents, trade receivables and
other, and loans receivable which are included in
other current assets 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.
The company’s financial assets which are subject to
credit risk include cash and cash equivalents, trade
receivables and other and loans receivable which
are included in other current assets. Application
of the expected credit loss model at the date of
adoption did not have a significant impact on the
Company’s financial assets because the Company
determined that the expected credit losses on
Annual Report 2019 Notes to the Consolidated Financial Statements
SECTION 03
its financial assets were nominal. There were no
impairment losses recognized on financial assets
during the years ended December 31, 2019 and
December 31, 2018.
Investments in common shares are held for long-
term strategic purposes and not for trading. The
Company has made an irrevocable election to
designate all these investments as fair value through
other comprehensive income (“FVTOCI”) in order
to provide a more meaningful presentation based
on management’s intention, rather than reflecting
changes in fair value in net income. Such invest-
ments 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 classifica-
tion of gain (loss) on revaluation of investments.
Cumulative gains and losses are not subsequently
reclassified to profit or loss.
Investments in warrants and convertible debt instru-
ments are classified as fair value through profit or
loss (“FVTPL”). These warrants and convertible
debt instruments 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 net income (loss) under the classifi-
cation of gain (loss) on revaluation of investments.
Transaction costs on initial recognition of financial
instruments classified as FVTPL are expensed
as incurred. Transaction costs incurred on initial
recognition of financial instruments classified as
loans and receivables, FVTOCI and other financial
liabilities are recognized at their fair value amount
and offset against the related loans and receivables
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.
M
Inventory
When refined gold or the applicable commodity,
under the Stream agreement, is delivered to the
Company, it is recorded as inventory. The amount
recognized as inventory includes both the cash
payment and the related depletion associated with
the related mineral interest.
N Cash and Cash Equivalents
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.
O
Income Taxes
Current income tax assets and liabilities are mea-
sured at the amount expected to be recovered from
or paid to the taxation authorities. The tax rates
and tax laws used are those that are substantively
enacted at the reporting date.
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 ac-
counting. The change in the net deferred income
tax asset or liability is included in income except
for deferred income tax relating to equity items
which is recognized directly in equity, and relating
to investments in common shares designed as
FVTOCI which is recognized in other comprehensive
income. The income tax effects of differences in
the periods when revenue and expenses are rec-
ognized in accordance with Company accounting
practices, and the periods they are recognized for
income tax purposes are reflected as deferred
income tax assets or liabilities. 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
SANDSTORM GOLD LTD. 79
2019 Annual Report SECTION 03
Notes to the Consolidated Financial Statements
temporary differences to the extent that it is prob-
able 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
tax assets and liabilities relate to income taxes
levied by the same taxation authority on the same
taxable entity and are intended to be settled on
a net basis.
The determination of current and deferred taxes
requires interpretations of tax legislation, estimates
of expected timing of reversal of deferred tax assets
and liabilities, and estimates of future earnings.
P 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
to agents as financing costs are measured at their
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.
Q Earnings Per Share
Basic earnings per share is computed by dividing
the net income available to common sharehold-
ers by the weighted average number of common
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.
R Share Based Payments
The Company recognizes share based compensa-
tion expense for all share purchase options and
restricted share rights (“RSRs”) awarded to em-
ployees, officers and directors based on the fair
values of the share purchase options and RSRs at
the date of grant. The fair values of share purchase
options and RSRs at the date of grant are expensed
over the vesting periods of the share purchase op-
tions 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 pur-
chase 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 Statements of
Income (Loss).
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. The Com-
pany uses its competitors market data with respect
to expected volatility and expected dividend yield
to the extent these factors are indicative of the
Company’s future expectations. The expected term
is estimated using historical exercise data, and the
number of equity instruments expected to vest is
estimated using historical forfeiture data.
S Related Party Transactions
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
80 SANDSTORM GOLD LTD.
Annual Report 2019 Notes to the Consolidated Financial Statements
SECTION 03
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.
T Segment Reporting
An operating segment is a component of the
Company that engages in business activities from
which it may earn revenues and incur expenses. The
Company’s operating segments are components of
the Company’s 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.
U Leases
Upon lease commencement, the Company recog-
nizes a right-of-use asset, which is initially measured
at the amount of the lease liability plus any direct
costs incurred, which is then amortized over the
life of the lease on a straight-line basis. The lease
liability is initially measured at the present value
of the lease payments payable over the lease
term, discounted at the rate implicit in the lease;
if the implicit lease rate cannot be determined,
the incremental borrowing rate is used. Payments
against the lease are then offset against the lease
liability. The lease liability and right-of-use asset
are subsequently re-measured to reflect changes
to the terms of the lease. Assets and liabilities are
recognized for all leases unless the lease term is
twelve months or less or the underlying asset has
a low value.
3 NEW ACCOUNTING POLICIES AND
FUTURE CHANGES IN ACCOUNTING
POLICIES
Adoption of IFRS 16: Leases
IFRS 16 establishes a comprehensive framework
for recognition, measurement and classifica-
tion of leases and requires lessees to recognize
assets and liabilities for most leases. It has
replaced International Accounting Standard
(“IAS”) 17 Leases and related interpretations.
The Company has adopted IFRS 16 retrospec-
tively from January 1, 2019 and has not restated
comparatives for the 2018 reporting period, as
permitted under the specific transitional provi-
sions in the standard. The reclassifications and
adjustments arising from the new leasing rules
are recognized on the opening statement of fi-
nancial position on January 1, 2019 to the extent
they arise; however, no adjustments were neces-
sary to the Company’s opening retained earn-
ings as a result of the adoption of this standard.
With respect to the Company’s office leases,
a $3 million right-of-use asset, recognized in
non-current other assets, and a corresponding
liability for the same amount was recognized as
at January 1, 2019. Adoption of the new standard
did not give rise to any material changes to the
Company’s processes, IT controls or condensed
consolidated interim financial statements.
On adoption of IFRS 16, the Company recog-
nized lease liabilities in relation to leases which
had previously been classified as operating leas-
es under the principles of IAS 17 Leases. These
liabilities were measured at the present value of
the remaining lease payments, discounted using
the Company’s incremental borrowing rate as
of January 1, 2019. The associated right-of-use
assets were measured at an amount equal to
the lease liability, adjusted by the amount of any
prepaid or accrued lease payments relating to
that lease recognized in the statement of finan-
cial position as at December 31, 2018.
IFRIC Interpretation 23: Uncertainty Over Income Tax
Treatments
In June 2017, the IASB issued IFRS Interpretations
Committee (“IFRIC”) Interpretation 23 Uncertainty
over Income Tax Treatments, which is applied to
the determination of taxable profit or loss, unused
tax losses, unused tax credits, tax rates and tax
bases, when there is uncertainty about income
tax treatment under IAS 12 Income Taxes. IFRIC
23 is effective January 1, 2019 and is to be applied
retrospectively. The new standard did not have a
material impact on the Company’s consolidated
financial statements.
SANDSTORM GOLD LTD. 81
2019 Annual Report SECTION 03
Notes to the Consolidated Financial Statements
4 KEY SOURCES OF ESTIMATION
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
the reporting period. Estimates and assumptions
are continuously evaluated and are based on man-
agement’s experience and other factors, including
expectations of future events that are believed to
be reasonable under the circumstances. However,
actual outcomes can differ from these estimates.
Information about significant sources of estimation
uncertainty and judgments made by management
in preparing the consolidated financial statements
are described below.
A Attributable Reserve and Resource
Estimates
Mineral, royalty and other interests are a significant
class of assets of the Company, with a carrying
value of $395.5 million at December 31, 2019
(2018 — $374.2 million). This amount represents the
capitalized expenditures related to the acquisition
of the mineral, royalty and other interests net of
accumulated depletion and any impairments. The
Company estimates the reserves and resources
relating to each agreement. Reserves and Resources
are estimates of the amount of minerals that can be
economically and legally extracted from the mining
properties at which the Company has stream and
royalty agreements, adjusted where applicable to
reflect the Company’s percentage entitlement to
minerals produced from such mines. The public
disclosures of Reserves and Resources that are
released by the operators of the interests involve
assessments of geological and geophysical studies
and economic data and the reliance on a number
of assumptions, including commodity prices and
production costs. The estimates of Reserves and
Resources may change based on additional knowl-
edge gained subsequent to the initial assessment.
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 Company’s mineral and royalty interests are
depleted on a units-of-production basis, with esti-
mated recoverable Reserves and Resources being
used to determine the depletion rate for each of
the Company’s mineral and royalty interests. These
calculations require determination of the amount
of recoverable Resources to be converted into
Reserves. Changes to depletion rates are accounted
for prospectively.
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:
и The purpose and design of the investee entity.
и The ability to exercise power, through substan-
tive rights, over the activities of the investee
entity that significantly affect its returns.
и The size of the Company’s equity ownership and
voting rights, including potential voting rights.
и The size and dispersion of other voting interests,
including the existence of voting blocks.
и 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.
и Other relevant and pertinent factors.
82 SANDSTORM GOLD LTD.
Annual Report 2019 Notes to the Consolidated Financial Statements
SECTION 03
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, the United States of America, Australia,
Argentina, Chile, Ecuador, Turkey, Guernsey, Mexico
or any of the countries in which the mining opera-
tions are located or to which shipments of gold and
other metals are made requires the use of judgment.
Differing interpretation of these laws or regula-
tions could result in an increase in the Company’s
taxes, or other governmental charges, duties or
impositions. To the extent there are uncertain tax
provisions, the Company measures the impact of
the uncertainty using the method that best predicts
the resolution of the uncertainty. The judgements
and estimates made to recognize and measure the
effect of uncertain tax treatments are reassessed
whenever circumstances change or when there is
new information that affects those judgements. 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. Refer to note 11
for more information.
D
Impairment of Assets
There is judgment required to determine whether
any indication of impairment exists at the end of
each reporting period for each mineral, royalty
and other interest and the Hod Maden interest,
including assessing whether there are observable
indications that the asset’s value has declined
during the period. Management uses judgment
when assessing whether there are indicators of
impairment, such as significant changes in future
commodity prices, discount rates, operator reserve
and resource estimates or other relevant informa-
tion received from the operators that indicates
production from mineral interests will not likely
occur or may be significantly reduced in the future.
If such an indication exists, the recoverable amount
of the interest is estimated in order to determine the
extent of the impairment (if any). The recoverable
amount is the higher of the fair value less costs of
disposal and value in use. The calculation of the
recoverable amount requires the use of estimates
and assumptions such as long-term commodity
prices, discount rates, and operating performance.
The recoverable amount is determined by calcu-
lating 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 revenues reflect the estimated future pro-
duction 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 mine opera-
tors. 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
methodology 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 assess future long-term metal
prices. Estimated future cash costs are established
based on the terms of each Gold Stream, Stream,
or royalty, as disclosed in note 15 to the financial
statements.
E Accounting for Acquisition of Assets
and Mineral Interests
The Company’s business is the acquisition of Gold
Streams, Streams, and royalties. Each mineral,
royalty and other interest agreement has its own
unique terms and judgement is required to as-
SANDSTORM GOLD LTD. 83
2019 Annual Report SECTION 03
Notes to the Consolidated Financial Statements
5 FINANCIAL INSTRUMENTS
A Capital Risk Management
The Company manages its capital such that it
endeavors to continue as a going concern while
maximizing the return to stakeholders through
the optimization of the debt and equity balance.
At December 31, 2019, the capital structure of the
Company consists of $570.9 million (2018 — $583.4
million) of equity attributable to common share-
holders, comprising of issued capital (note 10),
accumulated reserves, deficit and accumulated
other comprehensive income (loss). The Company
was not subject to any externally imposed capital
requirements with the exception of complying
with certain covenants under the credit agreement
governing bank debt. The Company is in compliance
with the debt covenants described in note 9 as at
December 31, 2019.
B Fair Value Estimation
The fair value hierarchy establishes three levels to
classify the inputs of valuation techniques used to
measure fair value. As required by IFRS 13, assets
and liabilities are classified in their entirety based
on the lowest level of input that is significant to
the fair value measurement. 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.
Investments in common shares and warrants held
that have direct listings on an exchange are clas-
sified as Level 1.
sess the appropriate accounting treatment. The
determination of whether an acquisition should
be accounted for as a mineral, royalty and other
interest or a financial instrument requires the
consideration of factors such as (i) the terms of
the agreement; (ii) the applicability of the own
use exemption under IFRS 9; (iii) whether there
is a contractual commitment to repay amounts
under the Stream; and (iv) the expected timing
and amount of future deliveries of gold, silver and
other commodities under the Stream with reference
to the existing mine plan.
The assessment of whether an acquisition meets
the definition of a business or whether assets
are acquired is another area of key judgement. If
deemed to be a business combination, applying
the acquisition method to business combinations
requires each identifiable asset and liability to be
measured at its acquisition date fair value. The
excess, if any, of the fair value of the consideration
over the fair value of the net identifiable assets
acquired is recognized as goodwill. The deter-
mination of the acquisition date fair values often
requires management to make assumptions and
estimates about future events. The assumptions
and estimates with respect to determining the
fair value of mineral, royalty and other interests
generally requires a high degree of judgement, and
include estimates of mineral reserves and resources
acquired, future metal prices, discount rates and
conversion of reserves and resources. Changes
in any of the assumptions or estimates used in
determining the fair value of acquired assets and
liabilities could impact the amounts assigned to
assets and liabilities.
F Functional Currency
The functional currency for each of the Company’s
subsidiaries and associates is the currency of the
primary economic environment in which the entity
operates. Determination of functional currency
may involve certain judgments to determine the
primary economic environment and the Company
reconsiders the functional currency of its entities
if there is a change in events and conditions which
determined the primary economic environment.
84 SANDSTORM GOLD LTD.
Annual Report 2019 Notes to the Consolidated Financial Statements
SECTION 03
Level 3 | Inputs that are unobservable (supported
by 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
hierarchy as at December 31, 2019 and December
31, 2018.
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
full term of the asset or liability. Investments in
warrants and convertible debt instruments held
that are not listed on an exchange are classified
as Level 2. The fair value of warrants, convert-
ible debt instruments and related instruments are
determined using a Black-Scholes model based on
relevant assumptions including risk free interest
rate, expected dividend yield, expected volatility
and expected warrant life which are supported by
observable current market conditions. The use of
reasonably possible alternative assumptions would
not significantly impact the Company’s results.
As at December 31, 2019:
In $000s
Short-term investments
Convertible debt
Long-term investments
Common shares held
Warrants and other
Convertible debt
As at December 31, 2018:
In $000s
Short-term investments
Convertible debt
Long-term investments
Common shares held
Warrants and other
Convertible debt
Quoted prices
in active markets
for identical assets
(Level 1)
Significant other
observable inputs
(Level 2)
Significant
unobservable inputs
(Level 3)
$
$
-
52,325
-
-
$
$
10,801
-
4,623
15,892
$
$
$
-
-
-
-
-
$
83,641
$
52,325
$
31,316
Quoted prices
in active markets
for identical assets
(Level 1)
Significant other
observable inputs
(Level 2)
Significant
unobservable inputs
(Level 3)
$
$
-
33,139
-
-
$
$
13,937
-
2,106
10,998
$
$
$
-
-
-
-
-
$
60,180
$
33,139
$
27,041
$
$
Total
10,801
52,325
4,623
15,892
$
$
Total
13,937
33,139
2,106
10,998
SANDSTORM GOLD LTD. 85
2019 Annual Report SECTION 03
Notes to the Consolidated Financial Statements
December 31, 2019 a 10% increase (decrease) of the
value of the Canadian dollar relative to the United
States dollar would not have a material impact on
net income or other comprehensive income.
E Liquidity Risk
The Company has in place a planning and budgeting
process to help determine the funds required to
support the Company’s normal operating require-
ments on an ongoing basis. In managing liquidity
risk, the Company takes into account the amount
available under the Company’s revolving credit
facility, anticipated cash flows from operating activi-
ties and its holding of cash and cash equivalents.
As at December 31, 2019, the Company had cash
and cash equivalents of $7.0 million (December
31, 2018 – $5.9 million). Sandstorm holds common
shares, convertible debentures, and warrants and
other of other companies with a combined fair
market value as at December 31, 2019, of $83.6
million (December 31, 2018 – $60.2 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 investments in other mining
companies. The Company does not actively trade
these investments. The equity prices of long term
investments are impacted by various underlying
factors including commodity prices. Based on the
Company’s investments held as at December 31,
2019 a 10% increase (decrease) in the equity prices
of these investments would increase (decrease) net
income by $1.6 million and other comprehensive
income by $5.2 million.
The fair value of the Company’s other financial
instruments which include cash and cash equiva-
lents, trade and other receivables, loans receivable
which are included in other assets, and trade and
other payables approximate their carrying values
at December 31, 2019 and December 31, 2018 due
to their short-term nature. The fair value of the
Company’s bank debt approximates its carrying
value due to the nature of its market-based rate
of interest. There were no transfers between the
levels of the fair value hierarchy during the years
ended December 31, 2019 and December 31, 2018.
C Credit Risk
The Company’s credit risk is limited to cash and cash
equivalents, loans receivable which are included in
other assets, trade and other receivables and the
Company’s investments in convertible debentures.
The Company’s trade and other receivables 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 investments in convertible debentures
are subject to the counterparties’ credit risk. In
particular, the Company’s convertible debentures
due from Equinox Gold Corp. (“Equinox”) and
Americas Gold (defined herein) is subject to the
respective counterparty credit risk and the Com-
pany’s ability to realize on its security. Furthermore,
the convertible debenture due from Equinox is
subject to the risk that the value of Equinox’s
equity decreases below the puttable price of the
instrument. The impact of expected credit losses
on trade receivables and financial assets held at
amortized cost is not material.
D Currency Risk
Financial instruments that impact the Company’s
net income or other comprehensive income due to
currency fluctuations include: cash and cash equiva-
lents, trade and other receivables and trade and
other payables denominated in Canadian dollars.
Based on the Company’s Canadian dollar denomi-
nated monetary assets and monetary liabilities at
86 SANDSTORM GOLD LTD.
Annual Report 2019 Notes to the Consolidated Financial Statements
SECTION 03
6 MINERAL, ROYALTY AND OTHER INTERESTS
A Carrying Amount
As of and for the year ended December 31, 2019:
Cost
Accumulated Depletion
Net
Additions
(Disposals)
Opening
Ending
Opening Depletion 1
Depletion
in Ending
Inventory
Impairment
Ending
Carrying
Amount
$
11,033
$
58
$
11,091
$
310
$
675
$
-
$
24,033
23,564
469
-
In $000s
Aurizona
Brazil
Bachelor Lake
Canada
Black Fox
Canada
Bracemac-McLeod
Canada
Chapada
Brazil
Diavik
Canada
Fruta del Norte
Ecuador
Hod Maden
Turkey
Houndé
Burkina Faso
Hugo North Extension
and Heruga
Mongolia
Karma
Burkina Faso
Ming
Canada
Relief Canyon
United States
Santa Elena
Mexico
Yamana silver
stream
Argentina
24,029
37,799
21,495
69,528
53,111
4
18
-
26
-
5,818
45,036
35,351
26,289
20,070
-
65
-
-
-
37,817
28,091
1,321
21,495
16,521
1,578
69,554
10,602
3,366
53,111
23,569
7,256
45,101
4,478
4,037
35,351
-
-
26,289
9,873
3,375
20,070
9,866
1,189
-
33,259
33,259
-
-
34
-
5,818
-
26,416
26,416
-
-
23,354
-
23,354
21,058
552
74,236
16
74,252
6,072
9,692
-
-
-
-
-
$
985 $
10,106
24,033
-
29,412
8,405
18,099
3,396
13,968
55,586
2,448
33,273
19,838
-
-
-
-
-
-
-
-
-
34
33,225
-
5,818
8,515
36,586
-
35,351
13,248
13,041
11,055
9,015
-
26,416
21,610
1,744
15,764
58,488
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Other Royalties 2
209,579
862
210,441
128,518
3,193
Total 3
$ 656,728 $
60,724
$ 717,452
$ 282,522 $
36,737 $
212
131,923
78,518
$
2,660
$
321,919 $ 395,533
1
Depletion during the period in the Consolidated Statements of Income ( loss) of $37.8 million is comprised of depletion expense for the period of $36.7 million, and $1.1 million
from depletion in ending inventory as at December 31, 2018.
2
Includes Mt. Hamilton, Prairie Creek, Gualcamayo, Emigrant Springs, Mine Waste Solutions, San Andres, Thunder Creek, Hackett River, Lobo-Marte, Agi Dagi & Kirazli and
others.
3 Mineral, Royalty and Other Interests includes assets accounted for under IFRS 6 (Exploration and Evaluation) of $56.4 million and assets accounted for under IAS 16 (Property,
Plant and Equipment) of $339.1 million.
SANDSTORM GOLD LTD. 87
2019 Annual Report SECTION 03
Notes to the Consolidated Financial Statements
As of and for the year ended December 31, 2018:
Cost
Accumulated Depletion
Net
Additions
(Disposals)
Opening
Ending
Opening
Depletion 1
Depletion
in Ending
Inventory
Impairment
Ending
Carrying
Amount
In $000s
Aurizona
Brazil
Bachelor Lake
Canada
Black Fox
Canada
Bracemac-McLeod
Canada
Chapada
Brazil
Diavik
Canada
Hod Maden
Turkey
Houndé
Burkina Faso
Hugo North
Extension and
Heruga
Mongolia
Karma
Burkina Faso
Ming
Canada
Santa Elena
Mexico
Yamana silver
stream
Argentina
Other 3
Total 4
$
11,033
$
-
$
11,033
$
310
$
-
$
24,009
20
24,029
23,183
381
37,791
8
37,799
26,831
1,260
21,495
15,194
1,327
69,528
6,502
4,100
53,111
17,872
5,697
5,818
35,351
-
-
-
-
4,478
-
21,495
69,528
53,111
5,818
-
-
-
-
35,351
26,289
20,070
-
-
-
-
45,036
45,036
26,289
6,203
3,270
400
20,070
9,046
120
700
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
310
$
10,723
23,564
465
28,091
9,708
16,521
4,974
10,602
58,926
23,569
29,542
-
5,818
4,478
40,558
-
35,351
9,873
16,416
9,866
10,204
21,058
2,296
6,072
68,164
4,475
123,714
81,061
-
4,804
-
23,342
12
23,354
20,466
584
8
74,236
-
74,236
3,680
2,392
-
-
-
3,941
134
Other Royalties 2
203,198
1,577
204,775
115,298
9,461
(4,657)
4,804
4,670
$ 614,732
$
41,996
$ 656,728
$ 249,255
$
27,684
$ 1,108
$
4,475
$ 282,522
$ 374,206
1
Depletion during the year in the Consolidated Statements of Income ( loss) of $29.0 million is comprised of depletion expense for the year of $27.7 million, and $1.3 million from
depletion in ending inventory as at December 31, 2017.
2
Includes Mt. Hamilton, Prairie Creek, Gualcamayo, Emigrant Springs, Mine Waste Solutions, San Andres, Thunder Creek, Hackett River, Lobo-Marte, Agi Dagi & Kirazli and
others.
3
Includes Koricancha Stream and other.
4 Mineral, Royalty and Other Interests includes assets accounted for under IFRS 6 (Exploration and Evaluation) of $58.1 million and assets accounted for under IAS 16 (Property,
Plant and Equipment) of $316.1 million.
88 SANDSTORM GOLD LTD.
Annual Report 2019 Notes to the Consolidated Financial Statements
SECTION 03
B Significant updates and other transactions
DURING THE YEAR ENDED DECEMBER 31, 2018:
DURING THE YEAR ENDED DECEMBER 31, 2019:
Houndé
Fruta del Norte
On January 18, 2019, the Company acquired a
0.9% NSR royalty on precious metals produced
from the Fruta del Norte gold project in Ecua-
dor, currently under construction by Lundin Gold
Inc. The NSR royalty was acquired from a private
third party for $32.8 million in cash and covers
all mining concessions held by Lundin Gold Inc.
on the Fruta del Norte gold project.
Relief Canyon
On April 3, 2019, the Company entered into a $42.5
million financing package with Americas Gold and
Silver Corp. (“Americas Gold”) which includes a
$25 million precious metal stream and an NSR on
the Relief Canyon gold project in Nevada, U.S.A.
(“Relief Canyon” or the “Relief Canyon Project”), a
$10 million convertible debenture and a $7.5 million
private placement.
Under the terms of the precious metals stream,
Sandstorm is entitled to receive 32,022 ounces of
gold over a 5.5 year period beginning in April 2020
(the “Fixed Deliveries”). Under certain conditions,
the starting date under the Fixed Deliveries may
be extended by up to six months. After receipt of
the Fixed Deliveries, the Company is entitled to
purchase 4% of the gold and silver produced from
the Relief Canyon Project for ongoing per ounce
cash payments equal to 30%–65% of the spot price
of gold or silver, with the range dependent on the
concession’s existing royalty obligations. In addi-
tion, Sandstorm will also receive a 1.4%–2.8% NSR
on the area surrounding the Relief Canyon mine.
The $25 million precious metal stream advance was
conditional upon commencement of construction
of the project and other customary provisions and
has been fully remitted as at December 31, 2019.
Americas Gold may elect to reduce the 4.0% Stream
and NSR on the Relief Canyon Project by delivering
4,000 ounces of gold to Sandstorm (the “Purchase
Option”). The Purchase Option may be exercised
by Americas Gold at any time and is subject to a
10% annual premium. Upon exercising the Purchase
Option, the 4.0% Stream will decrease to 2.0% and
the NSR will decrease to 1.0%.
On January 17, 2018, the Company acquired a
2% net smelter returns royalty (“NSR”) on the
producing Houndé gold mine in Burkina Faso,
owned and operated by Endeavour Mining Cor-
poration. The royalty was acquired from Acacia
Mining PLC for $45 million in cash and covers
the Kari North and Kari South tenements.
Koricancha
In August 2018, the Company disposed of its inter-
est in the Koricancha Gold Stream. The fair value
of the financial instruments received on disposal
amounted to $4.3 million, resulting in a $0.4 mil-
lion loss.
C
Impairments
DURING THE YEAR ENDED DECEMBER 31, 2019:
As a result of a continued decline in the price of
diamonds, the Company estimated the recoverable
amount of the Diavik royalty and recorded an
impairment charge of $2.4 million. The recoverable
amount of $19.8 million was determined using
a discounted cash flow model in estimating the
fair value less costs of disposal. This is a level 3
measurement due to the unobservable inputs in
the model. Key assumptions used in the cash flow
forecast were: a mine life of approximately 3 years,
a diamond price ranging from $110–$130 per carat
and a 4% discount rate.
DURING THE YEAR ENDED DECEMBER 31, 2018:
As a result of an update to the production profile
of the Gualcamayo mine and the estimated future
ounces expected from the royalty, the Company
estimated the recoverable amount of its royalty
investment and recorded an impairment charge of
$4.5 million ($3.2 million, net of tax). The recover-
able amount of $2.5 million was determined using
a discounted cash flow model in estimating the
fair value less costs of disposal. This is a level 3
measurement due to the unobservable inputs in
the model. Key assumptions used in the cash flow
forecast were: a 3 year mine life, a gold price of
$1,300 and a 4% discount rate.
SANDSTORM GOLD LTD. 89
2019 Annual Report SECTION 03
Notes to the Consolidated Financial Statements
7 HOD MADEN INTEREST
The Company has a 30% net profits interest in Artmin Madencilik Sanayi ve Ticaret A.S, incorporated in Turkey
which owns and operates the Hod Maden project. This interest is accounted for using the equity method and
its financial results are adjusted, where appropriate, to give effect to uniform accounting policies.
The following table summarizes the changes in the carrying amount of the Company’s Hod Maden interest:
In $000s
Beginning of Year
Company’s share of net loss of associate
Capital investment
Currency translation adjustments
End of Year
Year Ended
December 31, 2019
Year Ended
December 31, 2018
127,224
$
177,452
(414)
3,000
(13,225)
116,585
$
(178)
1,979
(52,029)
127,224
$
$
Summarized financial information for the Company’s investment in associate, on a 100% basis and reflect-
ing adjustments made by the Company, including fair value adjustments made at the time of acquisition
and adjustments for differences in accounting policies is as follows:
Year Ended
December 31, 2019
Year Ended
December 31, 2018
-
$
(1,183)
(197)
(1,380)
(414)
As at
December 31, 2019
1,747
387,620
389,367
751
-
751
$
$
$
$
$
$
388,616
116,585
$
-
(1,140)
546
(594)
(178)
As at
December 31, 2018
668
423,758
424,426
347
-
347
424,079
127,224
$
$
$
$
$
$
$
In $000s
Revenue
Administration expenses
Other (expense) income
Total net loss
Company’s share of net loss of associate
In $000s
Current Assets
Non-current Assets
Total Assets
Current Liabilities
Non-current Liabilities
Total Liabilities
Net Assets
Company’s share of net assets of associate
90 SANDSTORM GOLD LTD.
Annual Report 2019 Notes to the Consolidated Financial Statements
SECTION 03
8
INVESTMENTS
As of and for the year ended December 31, 2019:
In $000s
Short-term investments
‣ Convertible debt instruments 2
Total short-term investments
Non-current investments
‣ Common shares 1
‣ Warrants and other 2
‣ Convertible debt instruments 2
Total non-current investments
Total Investments
$
$
$
$
$
Fair Value
Jan. 1, 2019
Additions
Disposals
Transfers
Fair Value
Adjustment
Fair Value
Dec. 31, 2019
13,937
13,937
$
$
725
725
$
$
(14,452)
(14,452)
$
$
8,541
8,541
33,139 $
24,834 $
(17,357)
$
2,106
10,998
4
9,279
(27)
(710)
-
-
(8,541)
$
$
$
2,050 $
10,801
2,050 $
10,801
11,709 $
52,325
2,540
4,866
4,623
15,892
46,243 $
34,117 $
(18,094)
$
(8,541)
$
19,115 $
72,840
60,180 $
34,842 $
(32,546) $
- $
21,165 $
83,641
1
2
Fair value adjustment recorded within Other Comprehensive Income ( loss) for the period.
Fair value adjustment recorded within Net Income ( loss) for the period.
On June 28, 2019 and in accordance with the terms of the Equinox convertible debenture, Sandstorm received
$10.5 million of Equinox’s common shares in consideration of an annual debenture payment.
In 2019, as part of the Company’s on-going efforts to monetize its non-core assets, Sandstorm disposed of
common shares of other mining companies with a fair value on disposition of $17.4 million.
As of and for the year ended December 31, 2018:
In $000s
Short-term investments
‣ Common shares 1
‣ Convertible debt instruments 2
Total short-term investments
Non-current investments
‣ Common shares 1
‣ Warrants and other 2
‣ Convertible debt instruments 2
Total non-current investments
Total Investments
$
$
$
$
$
Fair Value
Jan. 1, 2018
Additions
Disposals
Transfers
Fair Value
Adjustment
Fair Value
Dec. 31, 2018
3,252
$
-
$
(3,252)
$
-
$
-
$
-
15,000
4,000
(15,000)
8,976
961
13,937
18,252
$
4,000
$
(18,252)
$
8,976 $
961 $
13,937
40,722
$
10,271 $
(6,901)
$
3,313
16,595
1,030
2,405
(333)
-
(8,976)
-
-
$
(10,953)
$
33,139
(1,904)
974
2,106
10,998
60,630
$
13,706 $
(7,234)
$
(8,976)
$
(11,883)
$
46,243
78,882 $
17,706 $
(25,486) $
- $
(10,922) $
60,180
1
2
Fair value adjustment recorded within Other Comprehensive Income ( loss) for the period.
Fair value adjustment recorded within Net Income ( loss) for the period.
On January 3, 2018, the Company completed its previously announced agreement to sell $18.3 million in
debt and equity securities of Equinox Gold Corp. to Mr. Ross Beaty.
SANDSTORM GOLD LTD. 91
2019 Annual Report SECTION 03
Notes to the Consolidated Financial Statements
9 REVOLVING FACILITY AND
10 SHARE CAPITAL AND RESERVES
DEFERRED FINANCING COSTS
In December 2019, the Company amended its
revolving credit agreement, allowing the Company
to borrow up to $225 million with an additional
uncommitted accordion of up to $75 million, for a
total facility of up to $300 million (the “Revolving
Facility”). The Revolving Facility is for general
corporate purposes, from a syndicate of banks
including the Bank of Nova Scotia, Bank of Montreal,
National Bank of Canada, Canadian Imperial Bank
of Commerce and Royal Bank of Canada (the
“Syndicate”). The Revolving Facility matures on
December 20, 2023 and is extendable by mutual
consent of Sandstorm and the Syndicate. The
amounts drawn on the Revolving Facility are subject
to interest at LIBOR plus 1.875%–3.000% per annum,
and the undrawn portion of the Revolving Facility
is subject to a standby fee of 0.422%–0.675%
per annum, both of which are dependent on the
Company’s leverage ratio.
Under the credit agreement, the Company is re-
quired to maintain a leverage ratio of net debt
divided by EBITDA (as defined in the credit facility
agreement) of less than or equal to 4.00:1.00 for
each fiscal quarter. The Company must also maintain
an interest coverage ratio of greater than or equal
to 3.00:1.00 for each fiscal quarter. The Company
is further required to maintain a tangible net worth
greater than the aggregate of $136.8 million and
50% of positive net income for each fiscal quarter
beginning with the fiscal quarter ended September
30, 2017. The Revolving Facility is secured against
the Company’s assets, including the Company’s
mineral, royalty and other interests and investments.
As of December 31, 2019, the Company was in
compliance with the covenants and the balance
of the Revolving Facility was $45 million.
Deferred financing costs are amortized on a
straight-line basis over the term of the Revolving
Facility. At December 31, 2019, deferred financing
costs, net of accumulated amortization, was $2.3
million (December 31, 2018 — $2.5 million).
A Authorized Share Capital
The Company is authorized to issue an unlimited
number of common shares without par value.
Under the Company’s normal course issuer bid
(“NCIB”), the Company is able until April 4, 2020,
to purchase up to 13.0 million 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, 2019, the
Company, utilizing its previous and current NCIB,
purchased and cancelled approximately 8.7 million
common shares.
B Stock Options of the Company
The Company has an incentive stock option plan
(the “Option Plan”) whereby the Company may
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, 2019, the
Company issued 1,427,000 options with a weighted
average exercise price of CAD8.89 and a fair value
of $2.0 million or $1.38 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 CAD8.89, expected volatility of
30%, risk-free interest rate of 1.62% and an expected
life of 3 years. Expected volatility was determined
by considering the trailing 3 year historic average
share price volatility of similar companies in the
same industry and business model.
92 SANDSTORM GOLD LTD.
Annual Report 2019 Notes to the Consolidated Financial Statements
SECTION 03
A summary of the Company’s options and the changes for the year is as follows:
Options outstanding at December 31, 2017
Granted
Exercised
Expired unexercised
Forfeited
Options outstanding at December 31, 2018
Granted
Exercised
Options outstanding at December 31, 2019
Number of
options
Weighted average exercise
price per share (CAD) 1
7,726,317
3,130,000
(1,440,907)
(77,436)
(15,333)
9,322,641
1,427,000
(3,181,108)
7,568,533
3.79
5.92
(3.22)
(7.19)
(4.96)
4.58
8.89
(2.99)
6.06
1
For options exercisable in British Pounds Sterling (“GBP”), exercise price is translated to Canadian Dollars (“CAD”) using the period end exchange rate.
The weighted-average share price, at the time of exercise, for those shares that were exercised during the
year ended December 31, 2019 was CAD7.75 per share (2018 — CAD6.07). The weighted average remaining
contractual life of the options as at December 31, 2019 was 3.38 years (2018 — 3.02 years).
A summary of the Company’s options as of December 31, 2019 is as follows:
Year of expiry
2020
2021
2022
2023
2024
Number
outstanding
521,000
1,238,000
1,254,200
3,128,333
1,427,000
Vested
521,000
1,238,000
989,202
1,041,670
-
7,568,533
3,789,872
Exercise price per share
(range) (CAD) 1
Weighted average exercise
price per share (CAD) 1, 2
3.60–3.64
4.96
4.91–15.00
5.92
8.89
3.61
4.96
5.25
5.92
-
5.11
1
For options exercisable in GBP, exercise price is translated to CAD using the period end exchange rate.
2 Weighted average exercise price of options that are exercisable.
SANDSTORM GOLD LTD. 93
2019 Annual Report SECTION 03
Notes to the Consolidated Financial Statements
C Share Purchase Warrants
A summary of the Company’s warrants and the changes for the year is as follows:
Warrants outstanding at December 31, 2017
Exercised
Expired unexercised
Warrants outstanding at December 31, 2018
Exercised
Warrants outstanding at December 31, 2019
Number of
warrants
Shares to be issued upon
exercise of warrants
24,009,972
(1,021,624)
(22,948)
22,965,400
(1,506,051)
21,459,349
24,009,972
(1,021,624)
(22,948)
22,965,400
(1,506,051)
21,459,349
A summary of the Company’s warrants as of December 31, 2019 is as follows:
Number outstanding
1,500,000
15,000,000
4,959,349
21,459,349
Exercise price
per share
$
4.50
3.50
4.00
Expiry date
March 23, 2020
October 27, 2020
November 3, 2020
Subsequent to December 31, 2019, 1,500,000 of the Company’s outstanding warrants were exercised at an
exercise price of $4.50 per share.
D Restricted Share Rights
The Company has a restricted share plan (the “Restricted Share Plan”) whereby the Company may grant
restricted share rights (“RSRs”) 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 4,500,000 restricted share rights.
During the year ended December 31, 2019, the Company granted 579,700 RSRs with a fair value of $3.9
million, a three year vesting term, and a weighted average grant date fair value of $6.73 per unit. As at
December 31, 2019, the Company had 2,617,732 RSRs outstanding.
94 SANDSTORM GOLD LTD.
Annual Report 2019 Notes to the Consolidated Financial Statements
SECTION 03
E Diluted Earnings Per Share
Diluted earnings per share is calculated based on the following:
In $000s
(excluding per share amounts)
Net income for the year
Basic weighted average number of shares
Basic earnings per share
Effect of dilutive securities
‣ Stock options
‣ Warrants
‣ Restricted share rights
Diluted weighted average number of common shares
Diluted earnings per share
Year Ended
December 31, 2019
Year Ended
December 31, 2018
16,397
$
5,872
177,619,824
183,381,187
0.09
$
0.03
2,397,114
8,154,232
2,048,843
2,146,601
3,821,430
1,636,568
190,220,013
190,985,786
0.09
$
0.03
$
$
$
The following table lists the number of stock options and warrants excluded from the computation of diluted
earnings per share because the exercise prices exceeded the average market value of the common shares of
CAD7.72 during the year ended December 31, 2019 (2018 — CAD5.73), or because a performance obligation
had not been met as at December 31, 2019.
Stock options
Warrants
Restricted share rights
Year Ended
December 31, 2019
Year Ended
December 31, 2018
131,266
-
52,411
1,010,489
3,000,000
-
SANDSTORM GOLD LTD. 95
2019 Annual Report SECTION 03
Notes to the Consolidated Financial Statements
11
INCOME TAXES
The income tax expense differs from the amount that would result from applying the federal and provincial
income tax rate to the net income before income taxes.
These differences result from the following items:
In $000s
Income before income taxes
Canadian federal and provincial income tax rates
Income tax expense based on the above rates
Increase (decrease) due to:
‣ Non-deductible expenses and permanent differences
‣ Non-taxable portion of capital gain
‣ Change in future substantively enacted tax rate
‣ Other
Income tax expense
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, 2019
Year Ended
December 31, 2018
$
$
$
23,008
27%
6,212
1,409
(1,209)
-
199
6,611
$
8,704
27%
2,350
1,053
(4)
(401)
(166)
2,832
As at
December 31, 2019
As at
December 31, 2018
27,606
$
1,215
(24,518)
4,303
(196)
(196)
4,107
$
$
$
$
29,391
1,882
(22,235)
9,038
(510)
(510)
8,528
$
$
$
$
$
$
$
$
$
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, 2019 of $102.2 million (2018 — $108.9 million) as it is probable
that there will be future taxable profits to recover the deferred tax assets.
96 SANDSTORM GOLD LTD.
Annual Report 2019 Notes to the Consolidated Financial Statements
SECTION 03
The movement in net deferred income taxes is shown below:
In $000s
Balance, beginning of the year
Recognized in net income (loss) for the year
Recognized in other comprehensive income (loss) for the year
Balance, end of year
Year Ended
December 31, 2019
Year Ended
December 31, 2018
$
$
8,528
$
(4,371)
(50)
4,107
$
10,774
(1,542)
(704)
8,528
The Company has deductible unused tax losses, for which a deferred tax asset has been recognized, expiring as follows:
In $000s
Non–capital loss carry–forwards
Location
Canada
$
Amount
102,246
Expiration
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, 2019 are $14.3 million
(2018 — $34.2 million). No deferred tax asset is recognized in respect of these items because it is not prob-
able that future taxable capital gains or taxable income will be available against which the Company can
utilize the benefit.
12 ADMINISTRATION EXPENSES
The administration expenses for the Company are as follows:
In $000s
Corporate administration
Employee benefits and salaries
Professional fees
Administration expenses before share based compensation
Equity settled share based compensation
(a non-cash expense)
Total administration expenses
Year Ended
December 31, 2019
Year Ended
December 31, 2018
$
$
$
2,309
$
2,262
785
5,356
$
2,918
1,925
1,939
817
4,681
2,216
8,274
$
6,897
SANDSTORM GOLD LTD. 97
2019 Annual Report SECTION 03
Notes to the Consolidated Financial Statements
13 SUPPLEMENTAL CASH FLOW INFORMATION
In $000s
Change in non-cash working capital:
‣ Trade receivables and other
‣ Trade and other payables
Net decrease in cash
Significant non-cash transactions:
‣ Common shares received in consideration of
a convertible debenture payment
‣ Financial instruments received in disposal of
mineral, royalty and other interests
14 KEY MANAGEMENT COMPENSATION
Year Ended
December 31, 2019
Year Ended
December 31, 2018
$
$
$
$
(2,585)
(780)
(3,365)
10,912
62
$
$
$
$
(506)
(987)
(1,493)
-
4,275
The remuneration of directors and those persons having authority and responsibility for planning, directing and controlling
activities of the Company is as follows:
In $000s
Employee salaries and benefits
Share based payments
Total key management compensation expense
Year Ended
December 31, 2019
Year Ended
December 31, 2018
$
$
2,541
3,761
6,302
$
$
1,818
2,695
4,513
15 COMMITMENTS AND CONTINGENCIES
In connection with its commodity streams, the Company has committed to purchase the following:
% of Life of Mine Gold
or Relevant Commodity 4, 5, 6, 7, 8
8%
4.2%
Per Ounce Cash Payment:
lesser of amount below and the then
prevailing market price of commodity
(unless otherwise noted) 1, 2, 3
$551
30% of copper spot price
5.62% on Hugo North Extension and 4.26% on Heruga
$220
26,875 ounces over 5 years and 1.625% thereafter
20% of gold spot price
25% of the first 175,000 ounces of gold produced,
and 12% thereafter
32,022 ounces over 5.5 years and 4% thereafter
20%
20%
$nil
Varies
$455
30% of silver spot price
Stream
Black Fox
Chapada
Entrée
Karma
Ming
Relief Canyon
Santa Elena
Yamana silver stream
98 SANDSTORM GOLD LTD.
Annual Report 2019 Notes to the Consolidated Financial Statements
SECTION 03
1
Subject to an annual inf lationary adjustment except for Ming.
2. 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 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.
5. 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.
6. 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 ongoing per pound payments will increase to the lesser of $1.10 and the then prevailing
market price of copper.
7.
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 the mine has delivered 39 million pounds of copper to Sandstorm; then 3.0% of the copper produced until, on a cumulative basis, the mine has
delivered 50 million pounds of copper to Sandstorm; then 1.5% of the copper produced thereafter, for the life of the mine.
8. 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.
Sandstorm has been informed that a third party commenced legal proceedings against it in a Brazilian court.
The proceedings involve severance owed to former employees of Colossus Mineração Ltda., a Brazilian
subsidiary company of Colossus Minerals Inc (an entity in which Sandstorm entered into a Stream with).
Since these severance claims, estimated to be approximately $6 million, remain outstanding, the claimants
are seeking to recoup their claims from Sandstorm. Sandstorm intends on defending itself as it believes the
case is without merit.
Other contractual obligations of the Company are as follows:
In $000s
Bank debt1
Interest2
Lease payments3
Total contractual obligations
2020
2021–2022
2023–2024
After 2024
Total
-
$
-
$
45,000
$
1,744
507
3,488
1,050
1,744
1,259
-
-
1,062
$
45,000
6,976
3,878
2,251
$
4,538
$
48,003
$
1,062
$
55,854
$
$
1
2
As at December 31, 2019 Company had $45 million drawn and outstanding on the Revolving Facility. The repayment date in the table above ref lects the four-year term
of the facility, assuming no extension periods.
As the applicable interest rate is f loating in nature, the interest charges are estimated based on market-based forward interest rate curves at the end of the reporting
period combined with the assumption that the principal balance outstanding at December 31, 2019 does not change until the debt maturity date.
3
Undiscounted lease payments related to lease liabilities included in Lease liabilities and other on the Company’s Statement of Financial Position.
16 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:
SANDSTORM GOLD LTD. 99
2019 Annual Report SECTION 03
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019:
In $000s
Product
Sales
Royalty
revenue
Cost of sales,
excluding
depletion
Depletion
Mineral,
royalty
and other
interests
impairment
Income
(loss)
before
taxes
Cash
flow from
operating
activities
Other
Aurizona
Brazil
Bachelor Lake
Canada
Black Fox
Canada
Bracemac-McLeod 1
Canada
Chapada
Brazil
Diavik
Canada
Houndé
Burkina Faso
Karma
Burkina Faso
Ming
Canada
Santa Elena
Mexico
Yamana
silver stream
Argentina
Gold
$
-
$
3,357
$
-
$
675
$
Gold
8,532
Gold
3,858
-
-
3,000
469
1,540
1,321
Various
-
3,256
-
1,578
Copper
11,008
-
3,311
3,366
$
-
-
-
-
-
Diamonds
Gold
-
-
5,674
6,425
-
-
4,037
7,256
2,448
Gold
8,156
Gold
3,760
Gold
13,066
Silver
15,222
-
-
-
-
1,634
3,775
-
1,889
4,252
560
4,549
9,692
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
2,682
$
1,757
5,063
5,555
997
2,318
1,678
3,130
4,331
7,697
(4,030)
5,924
2,388
5,037
2,747
6,647
1,871
3,760
8,254
8,832
981
10,672
Other Royalties 2
Various
-
7,120
-
3,227
212
(340)
4,021
4,684
Total Segments
Corporate:
‣ Administration & Project
evaluation expenses
‣ Foreign exchange loss
‣ Gain on revaluation of
investments
‣ Finance expense, net
‣ Other
Total Corporate
Consolidated
$ 63,602
$
25,832
$
18,286
$
37,845
$
2,660
$
(340)
$
30,983
$
66,013
-
-
-
-
-
-
$
-
-
-
-
-
-
$
-
-
-
-
-
-
$
-
-
-
-
-
-
$
$ 63,602
$ 25,832
$ 18,286
$ 37,845
-
-
-
-
-
-
2,660
$
$
-
-
-
-
414
414
(14,184)
(8,557)
(86)
9,456
(2,747)
(414)
-
-
373
(490)
$ (7,975)
$ (8,674)
74
$ 23,008
$ 57,339
$
$
1
Royalty revenue from Bracemac-McLeod consists of $1.2 million from copper and $2.1 million from zinc.
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. Other Royalties includes royalty revenue from Gualcamayo, Emigrant Springs, Mine Waste
Solutions, San Andres, Thunder Creek and others. Includes royalty revenue from royalty interests located in Canada of $2.2 million, the United States of $1.1 million,
Argentina of $1.1 million, Honduras of $1.0 million and other of $1.7 million. Includes royalty revenue from gold of $6.3 million and other base metals of $0.8 million.
100 SANDSTORM GOLD LTD.
Annual Report 2019 Notes to the Consolidated Financial Statements
SECTION 03
For the year ended December 31, 2018:
In $000s
Product
Sales
Cost
of sales,
excluding
depletion
Royalty
revenue
Depletion
Mineral,
royalty
and other
interests
impairments
Income
(loss)
before
taxes
Cash flow
from
operating
activities
Other
Bachelor Lake
Canada
Black Fox
Canada
Bracemac-McLeod 1
Canada
Chapada
Brazil
Diavik
Canada
Houndé
Burkina Faso
Karma
Burkina Faso
Ming
Canada
Santa Elena
Mexico
Yamana
silver stream
Argentina
Gold
$
6,923
$
280
$
2,667
$
402
$
Gold
5,674
-
2,396
1,443
Various
-
3,237
-
1,327
Copper
11,608
-
3,469
4,100
Diamonds
Gold
Gold
Gold
Gold
8,041
940
13,097
Silver
3,808
-
-
7,197
6,744
-
-
5,697
4,478
-
-
-
-
1,610
3,941
-
396
4,652
750
1,166
2,392
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
4,134
$
4,756
1,835
3,484
1,910
3,370
4,039
8,139
1,500
7,047
2,266
5,393
2,490
6,539
544
940
7,695
8,908
250
2,645
Other Royalties 2
Various
Other
Gold
-
541
5,060
-
-
43
3,941
161
4,475
-
(759)
538
(2,597)
(201)
4,734
506
$
50,632
$
22,518
$
16,003
$
29,028
$
4,475
$
(221)
$
23,865
$
56,461
Total Segments
Corporate:
‣ Administration & Project
evaluation expenses
‣ Foreign exchange loss
‣ Gain on revaluation of
investments
‣ Finance expense, net
‣ Other
Total Corporate
$
-
-
-
-
-
-
$
-
-
-
-
-
-
$
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
4,475
$
$
-
-
-
-
(11,253)
(7,378)
(2,630)
30
-
-
(1,585)
(37)
(277)
277
(1,472)
(277)
$ (15,161)
$
(8,887)
(498)
$
8,704
$ 47,574
$
$
Consolidated
$ 50,632
$ 22,518
$ 16,003
$ 29,028
1
Royalty revenue from Bracemac-McLeod consists of $1.0 million from copper and $2.2 million from zinc.
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. Other Royalties includes royalty revenue from Gualcamayo, Emigrant Springs, Mine Waste
Solutions, San Andres, Thunder Creek and others. Includes royalty revenue from royalty interests located in Canada of $0.8 million, in the United States of $0.6 million,
Argentina of $1.3 million, Honduras of $1.2 million and other of $1.2 million. Includes royalty revenue from gold of $4.3 million and other base metals of $0.8 million.
SANDSTORM GOLD LTD. 101
2019 Annual Report SECTION 03
Notes to the Consolidated Financial Statements
Total assets as of:
In $000s
Aurizona
Bachelor Lake
Black Fox
Bracemac-McLeod
Chapada
Diavik
Fruta del Norte
Hod Maden 1
Houndé
Hugo North Extension and Heruga
Karma
Ming
Relief Canyon
Santa Elena
Yamana silver stream
Other Royalties 2
Total Segments
Corporate:
‣ Cash and cash equivalents
‣ Investments
‣ Deferred income tax assets
‣ Other assets
Total Corporate
Consolidated
December 31, 2019
December 31, 2018
$
11,706
$
-
8,405
3,915
55,586
21,238
33,300
10,723
525
9,708
5,366
58,926
31,192
-
122,403
133,042
37,596
35,351
13,041
9,015
26,416
1,744
58,488
80,281
41,549
35,351
16,983
10,904
-
2,356
68,164
82,092
$
$
$
518,485
$
506,881
6,971
83,641
4,303
9,775
104,690
623,175
$
$
5,892
60,180
9,038
6,896
82,006
588,887
1
Includes royalty interest of $5.8 million and investment in associate of $116.6 million at December 31, 2019. Includes royalty interest of $5.8 million and investment in
associate of $127.2 million at December 31, 2018.
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 Mt. Hamilton, Prairie Creek, Gualcamayo, Emigrant Springs, Mine Waste Solutions,
San Andres, Thunder Creek, Hackett River, Lobo-Marte, Agi Dagi & Kirazli, and others.
102 SANDSTORM GOLD LTD.
Annual Report 2019 Notes to the Consolidated Financial Statements
SECTION 03
Non-current assets by geographical region as of:
In $000s
North America
Canada
USA
Mexico
South & Central America
Argentina
Brazil
Ecudaor
French Guiana
Chile
Africa
Burkina Faso
South Africa
Other
Turkey
Mongolia
Australia
Other
Consolidated
December 31, 2019 1
December 31, 2018 1
$
$
$
$
$
68,083
$
41,994
1,835
72,739
$
69,057
33,226
5,160
2,460
49,688
$
3,744
126,644
$
35,992
3,661
3,605
77,484
15,574
2,387
83,463
73,014
-
5,154
2,460
57,015
4,022
137,520
36,589
2,535
4,213
517,888
$
501,430
1
Includes Mineral, royalty and other interests (note 6), Investment in associate (note 7) and Other long-term assets.
SANDSTORM GOLD LTD. 103
2019 Annual Report