Gold Investors Shield Their Eyes From the Sandstorm

Goldageddon 2013 continues to drag the gold equities through a barren desert, where now-forgotten gains have been scorched like unprotected skin.

In one corner of this parched landscape, a foul wind has whipped up the sand, forcing newcomers to the shares of Sandstorm Gold (NYSEMKT: SAND  ) to shield their eyes from a painful blast. In the span of just four months, Sandstorm's stock has been sandblasted to the tune of a 40% decline from its 52-week high to touch as low as $9.14 per share Wednesday morning.

But the last thing you want to do when crossing a desert is to stop in your tracks and give in to the punishing elements. If I were caught out in a sandstorm with you, I would do everything in my power to keep you moving forward. And that's precisely what I want to do for Sandstorm investors today, by highlighting the continued strides the company has made in recent months to foster a strong long-term outlook for earnings growth. The company released 2012 earnings and announced a new gold stream transaction within the past week, and I fear investors may have averted their eyes in the midst of these howling winds.

Sandstorm achieved profit growth of 76% during 2012, enjoying a rich cash operating margin of $1,313 for each of the 33,514 gold ounces sold during the year. The fourth quarter came in a little on the light end, with gold sales of 7,243 ounces pitching in only 21.6% of the full-year total, but investors familiar with silver streamer Silver Wheaton (NYSE: SLW  ) will recall that timing of shipments and other logistical considerations will commonly yield substantial variability in production from quarter to quarter.

Like the company's recent announcement of a stream-related financing arrangement with Entrée Gold -- which gives Sandstorm some exciting exposure to the likelihood of future expansion at the Oyu Tolgoi mine in Mongolia -- Sandstorm's light production quarter could hardly have come at a less opportune moment. In the midst of an industrywide sell-off of this magnitude, the downside exposure from any unwelcome news is of course magnified. Worse yet, the market is approaching Rio Tinto's (NYSE: RIO  ) Oyu Tolgoi project with considerable caution just now, after Mongolia's president sought greater government involvement in the project.

The combined result of these recent downside catalysts -- in conjunction with the ongoing horror of this gold equity collapse that I've termed goldageddon -- is one more standout opportunity for long-term gains that truly savvy investors will be pouring into just as capitulating desert-crossers fall to their knees. To keep Sandstorm's recent collapse in its proper context, meanwhile, I encourage Fools to consider the following six-month chart. Sandstorm has still outperformed venerable gold royalty leader Royal Gold (NASDAQ: RGLD  ) , and easily outperformed the gold mining equities as reflected in the gut-wrenching decline of the Market Vectors Gold Miners ETF (NYSEMKT: GDX  ) . With Sandstorm's gold production expected to double over the next four years -- reaching 70,000 ounces by 2016 -- the stock's return to single-digit territory must be greeted by investors as a lush garden spring in the middle of a sand-swept desert.

To track my own ongoing coverage of Sandstorm Gold and its metal-streaming, royalty-collecting ilk, please bookmark my article list or follow me on Twitter. My Foolish colleague Dan Caplinger, meanwhile, has prepared a detailed report outlining the compelling investment thesis for Silver Wheaton, and I encourage Fools to access that special report by clicking here.



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  • Report this Comment On February 20, 2013, at 7:48 PM, SN3165 wrote:

    Sinch,

    Good article, and I of course see this dip as an incredible buying opportunity. I added to my position today.

    I feel that managements ounces forecast has been conservative in the past and looking forward is still conservative at 70K ounces in 2016-17. I will pen an article shortly to prove my point.

    Another thing to keep in mind, they own some 60 percent of Premier Royalty, who are projecting 6,900 ounces this year alone. This of course is not included in the 70K ounces. I see the probably that SAND buys out Premier before 2017 and highly likely. (PS with a market cap of$125 million and $30 million in the bank after their last deal, I also am very bullish on Premier and also added to my holdings today at $1.62...).

    Also not included in the 70K ounce forecast of course is any future deals the team may complete. The Entree deal was a one-off deal where management clearly thought it was too good to pass up (the deal has the potential to return the $55 million in just ONE YEAR and the potential to bring in over $400 million). Future deals will most certainly be focused in safer jurisdictions with near term cash flow the focus. I have mixed feelings on the deal but I trust management as you can probably tell by now.

    When it comes down to it, however, what will bring Sandstorm back up is a higher gold price.

    Besides SAND I also like EXK which has reached ridiculous levels. With silver at $28 they are still very profitable.

    I really don't see gold going much lower from here. I don't see how the economy has improved and how all the debt has been erased. The fundamentals for gold going higher haven't changed.

    Sometimes, you just have to believe what you are doing is right...

  • Report this Comment On February 20, 2013, at 7:50 PM, SN3165 wrote:

    *This of course is not included in the 70K ounces. I see the probability that SAND buys out Premier before 2017 as highly likely*

    Sorry, I am really out of it today. :-)

  • Report this Comment On February 20, 2013, at 10:16 PM, skypilot2005 wrote:

    http://ceo.ca/nolan-watson-interview

    The Sandstorms are my #1 and #2 holdings out of over 50.

    Mr. Watson and Mr. Awram are as important to me as the company's physical assets. Top notch talent and very ethical.

    I feel this is an important recent development:

    http://www.sandstormmetalsandenergy.com/news/release/index.p...

    Sandstorm Metals & Energy Appoints Tom Bruington as Executive Vice President, Project Evaluation

    Vancouver, British Columbia | January 14, 2013

    Sandstorm Metals & Energy Ltd. (“Sandstorm” or the “Company”) (TSX-V: SND) is pleased to announce the appointment of Tom Bruington as Executive Vice President, Project Evaluation.

    Mr. Bruington joins Sandstorm after more than ten years at the International Finance Corporation (“IFC”) where he was employed as Chief Engineer/Industry Specialist for the mining division of the oil, gas, mining and chemicals department.

    Sky

  • Report this Comment On February 20, 2013, at 10:40 PM, skypilot2005 wrote:

    Sinchi wrote:

    "Goldageddon 2013 continues to drag the gold equities through a barren desert, where now-forgotten gains have been scorched like unprotected skin."

    Advice for younger Fools: My first Father In Law was a stock broker. Regarding stocks, he once told me, "You don't lose any money until you sell."

    It's been great advice over the years. I am confident he would have liked the term "Goldageddon".

    Sky

    Updating my Websters Dictionary

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