From Canaccord:
Sandstorm Gold (SSL : TSX-V : C$1.38) - Speculative Buy - Target:C$1.55
Building momentum with another acquisition
We maintain our SPECULATIVE BUY recommendation on the shares of Sandstorm Gold with a target price of C$1.55, up from C$1.40. SSL has entered into an agreement with Donner Metals (DON : TSX-V : C$0.30 | Not Rated) to acquire 17% of the gold and silver production from the Bracemac-McLeod project in Quebec (65% Xtrata/35 DON). SSL is to make an upfront payment of US$5 million to DON on June 30, 2012 with an ongoing per ounce payment of the lesser of US$350/oz and the prevailing gold price. DON has the option to re-purchase 50% of the stream (dropping the stream to 8.75%) by paying SSL US$3.5 million up to 24 months after the closing of the transaction.
While this is a relatively small transaction, it requires no cash investment today, allowing SSL to use the free cash flows from its other six gold streams to finance this growth. We have incorporated the acquisition of the Bracemac-McLeod stream into our valuation of Sandstorm. The net impact of the acquisition is a slight increase in our peak gold estimate of NAVPS (5%, spot) to C$1.14, up from C$1.13 previously.
Sandstorm has been one of the top performing gold equities in 2011, up 73% year to date. Sandstorm is on track to grow its annual production by roughly 138% over the next two years; at the same time, costs should decline as lower cost and no cost streams come on line. Given its growth, its unique position in the royalty space and the potential for it to attract an acquisition bid, we apply an increased multiple of 1.35x to our peak gold price estimate of NAVPS, up from 1.2x previously. |
