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STTYF.PK
WhatisSandstormMetals&Energy?
Aroyaltystreamscompanythatessentially
investsinthelastlegoffinancingrequiredfor
productiontostart.Inreturn,theCompanygets
topurchaseproductionforthelifeoftheassetat
anagreeduponcost
Thunderbird:$1/mcf ofnaturalgas
Donner:$.85/onelb ofCopper
NovaDx:$75/onetonofmetcoal
Terrex:$15+taxes/boe ofoil
RoyalCoal:$55/onetonofthermalcoal(Ceased
operationsin1Q2012duetoplummetingprices)
BookValuation
Aspartoftheagreement,Sandstormbecomes
seniorsecuredonassetsofthecompany,andis
promisedguaranteedcashflowsthatwillrepay
theprinciplein~56years
Currently,with$40millionincash,$80millionin
guaranteedcashflows,and$xamountfrom
RoyalCoal(whichstoppedoperationsfrom
collapsingthermalcoalprices),thestockis
tradingatroughly~$125mm,oralmost
equivalenttocash+guarantees
FutureValuation
Theupsideistremendous ifwefollowtheplans
laidoutbymanagementoftherespective
companies,cashflowwillreach$1520millionin
2013,and$25millionin2014onwards,justfrom
the$80millioninvestedinprojectsalone
EstablishedComparables (SilverWheaton,Royal
Gold,FrancoNevada,SandstormGold)alltrade
at~15xforwardcashflow(SandstormGoldat
~10x)
Risks?
Theupsideistremendous.Butwhataboutthe
downside?
Wewishwecouldsaydownsideisjustareturnon
guaranteedcashflows(0%IRRatcurrentmarket
price)
RoyalCoalshutdownreflectspotentialforsignificant
downside,pendingconclusionoftherestructuring
SohowprotectedareSandstormsinvestmentsfroma
balancesheetperspective,andfromanoperational
perspectiveofitsjuniorminers(ifwecangetajunior
minertoproduceatbreakeven,thentheywoulddoso
tokeepfromeventsofdefaultwithsandstorm)
Presentation
Letsbrieflyexploreeachofthecashstreams
Whataremyconcludingthoughts?
Sandstormisgenerallypositionedinsuchawaythatthey
shouldseeamajorityoftheirloanspaidbackunderliquidity
scenarios,eveninthecaseofRoyalCoal(anyannouncementon
recoveryshouldsendthestockupasanacknowledgementof
thebusinessmodel)
Terrex andThunderbirdlookvulnerable
Terrex needsmorecapital,Thunderbirdwontdrilluntilgasprices
becomeeconomical
However,DonnerandNovaDx lookparticularlystrong,and
accountformorethen70%ofprojectedcashflowsin
2013/2014.EvenwithabustofTerrex andThunderbird,cash
flowsshouldstillbein~$20millionin2014.
NOVADX
ALookatNovaDx
FromaBalanceSheetPerspective,is
Sandstormsafeinthecapitalstructure?
ArecoalpricesgoingtobreakNovaDxs
operatingprofitability?
HowcomfortablecanwegetwithNovaDx as
angoingconcern?Andmoreimportant,a
profitableandexpandingone?
LatestFinancials
Forthe3monthsended
2011
Revenues
COGS
Forthe6monthsended
2010
2011
2010
$1,973
(3,845)
$1,122
(1,060)
$2,597
(5,146)
$1,122
(2,424)
($1,872)
$62
($2,549)
($1,302)
($1,248)
(175)
($772)
(419)
($2,402)
(381)
($1,397)
(550)
TotalExpenses
($1,423)
($1,192)
($2,783)
($1,947)
OperatingLoss
Other
($3,295)
(2,441)
($1,130)
(2,388)
($5,332)
(1,317)
($3,249)
(787)
NetLoss
($5,736)
($3,518)
($6,650)
($4,036)
79
($0.07)
57
($0.06)
79
($0.08)
55
($0.07)
MiningMargin
GeneralExpenses
InterestExpense
WSO
EPS
LatestFinancials
Atfirstglance,looksprettydistressful
MiningMarginincludesaonetimeinventorychargeof$1.6
millionforlatestquarter,bringingnormalizedcostto~$2.2
million,stillputtingminingoperationsinthenegative
However,addingbackDepletionandAmortizationof$673
million,Rosaisalreadyoperatingatacashprofitdespite
onlyrampingRosamidwaythroughQ4
However,however,otherexpensesof~1.4millionputthe
companyataoperatingcashburnof~$1million,similar
toCFOshownof$844million
CONCLUSION:NOVADXNEEDSTORAMPPRODUCTIONUP
TOCOVERINCREMENTAL$1MILLIONDOLLARBURNTO
BREAKEVENASAGOINGCONCERN.
LatestFinancials
12/31/2011
Revenues:
COGS:
(Loss)FromMiningOps
NormalizedforInventoryAdjustment:
(Loss)FromMiningOps
ExtractingNonCashCosts:
CashFromMiningOperations
$1,973
(3,845)
%
76%
263%
12/31/2010
$1,122
(1,060)
($1,872)
1,600
$62
0
($272)
673
$62
175
$401
70%
$236
GeneralExpenses
InterestExpense
($1,248)
(175)
($772)
(419)
CalculatedCashBurn
vsCFO
($1,022)
($844)
($955)
($1,142)
ADig
Question
HowdoweapproximatecostsasRosaramps?
Canwedothisconservatively?
Solution
Lookingatincrementaldifferencesinproduction
betweenthisquarterandlastquarter,alongwith
disclosuresincostincreases,wecantrytofigure
outhowmucheachadditionaltoncost
Wecanusethatasaconservativeassumption,
assumingnoeconomiesofscaleinproduction
IncrementalCosts
COGSEscalator:
2010COGS
Depletion
Wages
Fuel
Equipment&Parts
D&A
Royalties
WashPlant
InventoryAdjustment
WashingOffset
DecreaseinTrucking
Rounding
($1,060)
(190)
(160)
(130)
(110)
(300)
(210)
(180)
(1,600)
85
110
(100)
2011COGS
($3,845)
<NonCashCost
<ScalingCost
<ScalingCost
<ScalingCost
<NonCashCost
<ScalingCost
<ScalingCost
<NonRecurringCost
<Nonexistant
<Nonexistant
Inc.Costs
/Ton
($32)
($27)
($22)
($18)
($50)
($35)
($30)
($267)
$14
$18
($17)
($465)
$0
Inc.Cash
/Ton
$0
($27)
($22)
($18)
$0
($35)
($30)
$0
$14
$18
($17)
$349
($116)
Less:
$32
$50
$267
Conservatively,dividingthedisclosedcost
increasesbytheincreaseinproducedtons,we
canapproximateroughly~$198/tonfor
production,or$116/tonincashcosts
Thiscomparestomanagementpresentationsof$65
$68dollaratonincashcosts
Scaling
COGSEscalator:
2010COGS
Depletion
Wages
Fuel
Equipment&Parts
D&A
Royalties
WashPlant
InventoryAdjustment
WashingOffset
DecreaseinTrucking
Rounding
($1,060)
(190)
(160)
(130)
(110)
(300)
(210)
(180)
(1,600)
85
110
(100)
2011COGS
($3,845)
<NonCashCost
<ScalingCost
<ScalingCost
<ScalingCost
<NonCashCost
<ScalingCost
<ScalingCost
<NonRecurringCost
<Nonexistant
<Nonexistant
Inc.Costs
/Ton
($32)
($27)
($22)
($18)
($50)
($35)
($30)
($267)
$14
$18
($17)
($465)
$0
Inc.Cash
/Ton
$0
($27)
($22)
($18)
$0
($35)
($30)
$0
$14
$18
($17)
$349
($116)
Less:
$32
$50
$267
Scale?
50%
75%
50%
100%
75%
100%
100%
50%
PotentialCa
/Ton
$0
($13)
($16)
($9)
$0
($35)
($23)
$0
$14
$18
($8)
Youcanplayaroundwiththescalingofcosts
toseewhatmightbeareasonablecashcost
pertononceproductionrampstorunrate
levels
($72)
Assumptions
SOASSUMING:
Anincrementalcashcostof$116perton
NochangesinRexforanygivenquarterin2012
RunRateproductionslightlylessthan10,000
contractedtonspermonth
Averagepriceof$180forRosaasstipulated
AveragepricetoSandstorm(25%)of$75
NonminingSG&Acostsincreaseby10%
Hypothetical
3/31/2012
Revenues:
COGS:
(Loss)FromMiningOps
NormalizedforInventoryAdjustment:
(Loss)FromMiningOps
ExtractingNonCashCosts:
CashFromMiningOperations
GeneralExpenses
InterestExpense
$4,357
(4,264)
%
121%
11%
12/31/2011
$1,973
(3,845)
$93
0
($1,872)
1,600
$93
1,508
($272)
673
$1,601
299%
$401
($1,373)
(175)
($1,248)
(175)
$52
POSITIVE
($1,022)
($844)
Revenue
TonsSold
Rosa
$4,305
28,000
Rex
$52
601
Revenue/Ton
$153.75
$85.74
CalculatedCashBurn
vsCFO
Production:
12/31/2011
12/31/2010
Rosa:
Rex:
28,000
2,298
57%
17,806
2,298
Total
30,298
51%
20,104
Conclusion
ItseemsquiterealisticthatNovaDx canoperate
atacashprofitablelevelprettysoon
Whiletheexercisewassimplistic,Ibelieveiterrs
tothesideofconservation
Ifproductionkeepsrampingup,miningincome
wouldactuallyturnnegative(asincremental
costsof$198ishigherthen$153averageselling
price),butoperatingcashflowwouldcontinueto
increase
FurtherupsideinRexdevelopment(weassumed
allcostspertainedtoRosa)
BalanceSheet
WhatifNovaDx endsupunabletooperate?
Mitigants:contractsforRosaalreadyinplace,
metallurgicalreadputscoalfromRexinquality
bituminousregion,higherpricedthenthermal
browncoal,Rexhastechnicalapprovaltogoalong
onitsway
NAVsupport
Wontdigintothis
Letslookpurelyfromthebalancesheet
perspective
Hypothetical
Sandstorm Energy & Metals
NovaDx
($ in millions)
Projected FYE
BalanceSheet
Cash+Investments
AccountsReceivable
Inventory
DuefromParty
NotesReceivable,Current
AdvanceRoyalties
PrepaidExpenses/Deposits
AdvanceRoyalties
ReclamationDeposits
NotesReceivable
MineralPropertiesandEquipment
TotalAssets
AccountPayable
Other
AssetRetirementObligation
12/31/11
$3,051
1,320
1,391
67
1,550
1,268
272
8,919
337
1,169
2,000
19,835
Ratio
100%
75%
75%
100%
25%
0%
75%
$3,051
990
1,043
67
388
0
204
75%
100%
25%
75%
5,743
252
1,169
500
14,877
$32,260
$2,107
$748
352
$22,541
100%
100%
100%
3,207
$2,107
$748
352
3,207
LeftoverAssetsOverSeniors
SandstormAgreement
LongTermDebt
Value
19,333
29,872
1,061
62%
62%
18,670
663
BalanceSheet
Unlikethecoupleofotherinvestments
Sandstormhas,NovaDx appearstobeone
withmoreatriskforSandstorm
Convertibledebentures,andhighlynegative
equityimpliesthatatliquidation,Sandstorm
willprobablyrecover6070%oftheB/Svalue
Thisignoresanyvalueascribedtothe
potentialofitsminingreservesorM&A
Conclusion
Ultimately,thevalueatriskisntcompletely
protectedbysubordinateddebtorequity(and
representsapotentiallossof$10millionina
dismalscenario)
However,NovaDx appearstobeabletogenerate
breakeven/positivecashflowsbasedoffitssingle
contractedproductionatRosa(whichtakesinto
accountpaymentstoSandstorm)
WithRexfullyoperationalaswell,andonly
waitingforawasher,itseemsunlikelytoneedto
putaliquidationvalueonNovaDx
NovaDx CashFlows
CashFlowModelAssumptions
Rosastartsat120kascontractedin2012,thenrampsup
to150krunrateby2016
Rexproduces60kthisyear,thenrampsupto20kas
contractednextyearandthenincrementsby50kayearto
runrateof500k
Metcoalpricesat$180
Projected FYE
NOVADX
Production
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
RunRate +/Year
Rosa
150
30
120
128
136
144
150
150
150
150
150
Rex
500
50
60
240
290
340
390
440
490
500
500
Phase1
25%
25%
Phase2
16%
16%
30
180
368
426
484
540
590
640
650
650
30
32
34
36
38
38
38
38
38
15
60
73
85
98
110
123
125
125
SandstormParticipation(Rosa)
SandstormParticipation(Rex)
Total Sandstorm Participation
CoalPrices
SandstormAcquisitionPrice
Net Income
% growth
InteralProjectIRR
75.00
45
92
107
121
135
148
160
163
163
180
180
180
180
180
180
180
180
180
180
75.00
75.00
75.00
75.00
75.00
75.00
75.00
75.00
75.00
75.00
$0
$4,725
$9,660
$11,183
$12,705
$14,175
$15,488
$16,800
$17,063
$17,063
104.4%
15.8%
13.6%
11.6%
9.3%
8.5%
1.6%
0.0%
47.33%
ROYALCOAL
ALookatRoyalCoal
Companyunderrestructuring,ultimatescenario
unknown
Costsofthermalcoalhavebeenhammereddue
tocostsofnaturalgasbeinghammeredeven
more basedonthepresentationfromRoyal
Coal,Ibelievetheircashcostsarelikelybetween
$60$70
Thevalueonthebalancesheetisuncertain
ProbablywiseofNolandtowritethisoff unlike
theotherinvestments,RoyalCoalisreallya
marginalproducer
HmmHowenviable?
ForKicks
Sandstorm Energy & Metals
Royal Coal
($ in millions)
Projected FYE
BalanceSheet
Cash
AccountsReceivable
PrepaidExpenses
Inventory
QuebacTaxCredit
DepositonCapitalAssets
Investments
CapitalAssets
MineralProperties
TotalAssets
AccountPayable
DerivativefinancialInstruments
AssetRetirementObligation
9/30/11
Ratio
100%
75%
75%
75%
75%
100%
100%
$1,762
772
219
546
15
2,920
0
6,753
12,022
13,179
75%
75%
6,235
9,016
9,884
$31,954
$2,881
2,188
359
$25,136
100%
100%
100%
5,428
$2,880.69
2,188
359
5,428
LeftoverAssetsOverSeniors
BankLoansandDebtObligations
RoyaltyAgreement(exSandstorm)
SandstormDebt
SandstormRoyaltyAgreement
SandstormDeferredRevenue
Value
$1,762
1,030
292
728
21
2,920
0
19,708
3,029
1,649
3,000
3,158
10,677
21,513
92%
92%
92%
92%
92%
2,775
1,511
2,748
2,893
9,781
19,708
Grantedwithlegalcosts
andrestructuringand6
monthsago,the
numberswill
undoubtedlybelower
Still,wereboundtoget
someback,evenifwe
assigned0tothemineral
properties.Evenat50%,
thatwouldbelike$8
milliondollarsontopof
our$40millioncash
balance
TERREX
ALookatTerrex
FromaBalanceSheetPerspective,is
Sandstormsafeinthecapitalstructure?
Howdowegettobreakevenoperating
results?
HowcomfortablearewewithTerrexs planned
capitalcommitmentsgeneratingreturns?
ALookatTerrex
Concerns:
OnJanuary27,saiditapproachedNovaBanktoseeknew
financing.
Despitelossof$.8millioninquarterended9/30/11,takingout
depletion,depreciation,impairment,andnoncashcostsledto
lossof$160,000,annualizedfor~$640,000ayear
Capitalexpenditurerequirementsareheavy had$6millionof
cashasof9/30/2011,but2012projectedcapex requirementsis
$39.4million.IRRisextremelyhigh,butwillsandstormsupply
morecapital?
WhydidSandstormsupplyonly$15millioninthefirstplaceifthat
wasjustenoughtohalfassthisthing?
Ifnewfinancingisequityordebenturestobuynewequipment,
couldbegood.However,ifnot,shouldbeparri passu with
Sandstorm.
ALookatTerrex
ALookatTerrex
ALookatTerrex
Currently,thebalancesheetprovidesdownside
protection,butthevalueweakensasmoney
continuestosinkintocapitalequipment
WillTerrex beabletoraiseenoughcapitalto
makethesecapitalexpenditureswork asa
whole?YoucantdoanASPfloodwithouttheP
Wonttakemuchtobreakeven,butwilltakealot
togrow
ALookatTerrex
Sandstorm Energy & Metals
Terrex Energy
($ in millions)
Projected FYE
BalanceSheet
Cash
AccountsReceivable
PrepaidExpenses/Deposits
CapitalAssets
MineralProperties
TotalAssets
AccountPayable
AssetRetirementObligation
9/30/11
Ratio
100%
75%
75%
$3,012
444
185
3,851
10,687
11,272
75%
75%
3,641
8,015
8,454
$25,810
$1,321
3,300
$20,111
100%
100%
4,620
LeftoverEquity
$1,321
3,300
4,620
LeftoverAssetsOverSeniors
SandstormAgreement
Value
$3,012
592
247
15,490
14,414
100%
14,414
1,076
Assumesan
additional
~$325kburned
through
3/31/2012
Notmuchcash
leftforcapex
Likely
aggressive
ALookatTerrex
WhileEORseemspromising,theamountof
capitalcommitmentfurtherrequiredmakesthis
onedubious
Productionlikelyneedstoincreasesubstantially
fromthe~120kproducedayearto~200kfor
Companytooperateprofitably
WillSandstormcommitanother$20millionto
expandthecontractandbringSwathmore to
production?
Personally,woulddiscountthisaggressively
Hypotheticals
Terrex
Income Statement
($ in millions)
Projected FYE
31Mar
AverageProduction
NaturalGas
CrudeOil
Total
TotalOilProductionOverPerio
ConversionFactor
30Jun
30Sep
221
33
199
45
240
32
269
60
69
78
72
0.164
0.166
0.167
31Dec
30Jun
30Sep
578
257
532
254
368
271
368
271
523
385
685
505
847
624
908
669
105
353
343
332
332
472
618
764
819
32
31
30
30
172
226
279
299
0.166
0.167
0.166
0.166
0.166
0.166
0.166
0.166
0.168
31Mar
31Dec
2012E
2013E
2014E
2015E
BenchmarkPrices
AECO
EdmontonSweetLight
$4.39
80.41
$3.67
75.45
$3.36
74.44
$3.43
80.16
$3.58
87.59
$3.56
103.58
$3.53
92.22
$2.50
80.00
$2.50
80.00
$3.00
80.00
$3.50
80.00
$4.00
80.00
RealizedPrices
NaturalGas
CrudeOil
LNG
$4.30
78.30
0.00
$3.98
72.70
0.00
$3.46
71.45
0.00
$4.67
78.80
0.00
$4.45
78.10
65.69
$4.04
79.40
80.42
$3.93
68.62
71.46
$2.50
64.00
71.46
$2.50
64.00
71.46
$3.00
64.00
71.46
$3.50
64.00
71.46
$4.00
64.00
71.46
Total
$50.45
$51.98
$43.21
$58.25
$63.94
$65.15
$59.74
$57.11
$55.94
$56.28
$56.69
$57.21
Discount/Premium
NaturalGas
CrudeOil
111.33%
74.41%
100.00%
80.00%
100.00%
80.00%
100.00%
80.00%
100.00%
80.00%
100.00%
80.00%
Hypotheticals
Terrex
Income Statement
($ in millions)
Projected FYE
31Mar
30Jun
30Sep
31Dec
31Mar
30Jun
30Sep
31Dec
$56
150
0
8
$72
298
0
12
$77
209
0
33
$126
438
0
30
$231
1778
21
15
$195
1820
18
23
$133
1693
18
19
$84
1,583
20
20
$478
9,002
80
80
$750
11,789
80
80
$1,082
14,575
80
80
$1,326
15,620
80
80
Total
$214
$382
$319
$594
$2,045
$2,056
$1,863
$1,707
$9,640
$12,699
$15,817
$17,105
Expenses
Operating
Royalties
Transportation
Administrative
Depletion
$180
7
18
118
207
$458
16
23
278
220
$333
22
17
396
353
$583
39
29
499
44
$1,513
394
84
474
304
$1,030
366
90
561
295
$1,093
312
173
445
566
$1,038
344
149
445
566
$5,814
1,985
862
475
3,264
$7,388
2,600
1,128
490
4,275
$8,855
3,214
1,395
500
5,285
$9,191
3,444
1,495
510
5,664
TotalCosts
$531
$995
$1,121
$1,194
$2,769
$2,342
$2,589
$2,543
$12,400
$15,881
$19,249
$20,304
PerBarrel:
Operating
Royalties
Transportation
Administrative
Depletion
44.13
1.14
2.90
18.93
33.17
$64.29
2.26
3.23
39.60
31.35
$50.25
3.40
2.69
61.09
54.47
$60.24
4.11
3.10
52.67
43.96
$47.66
12.42
2.66
14.92
9.59
$33.00
11.87
2.91
18.17
9.56
$35.74
10.44
5.79
14.90
18.94
$34.74
11.52
5.00
14.90
18.94
$33.74
11.52
5.00
11.18
18.94
$32.74
11.52
5.00
8.81
18.94
$31.74
11.52
5.00
7.27
18.94
$30.74
11.52
5.00
6.92
18.94
$100.27
$67.10
$140.74
$109.39
$171.90
$117.43
$164.07
$120.11
$87.24
$77.65
$75.50
$65.95
$85.81
$66.87
$85.10
$66.16
$80.38
$61.44
$77.01
$58.07
$74.47
$55.53
$73.12
$54.18
($16.65)
($57.41)
($74.22)
($61.86)
($13.71)
($0.80)
($7.13)
($9.05)
($5.50)
($1.79)
($947.50) ($404.17)
$1.17
$325.22
$3.03
$906.57
Revenue
NaturalGas
CrudeOil
LNG
Other
TotalCosts
CashCosts
OperatingMargin
ProfittoTerrex
2012E
2013E
2014E
2015E
CONCLUSION
FromanequityinvestorinTerrex,returnsdontlook
impressive(80%realizedvalueonoilincorporates
whateverissoldtoSandstorm)
Veryvolatileonassumptiontoourcostsofoilthough
ifweassume$100oil,cashprofitstoTerrex hit$4
millionin2015vs $906k
Also,operatingcostsarehardtopredict.TwoCreek
operatingcostsonlyaveraged~$20abarrel,would
implementationofEORbringcostsdowntowardsthat
level,ordrivelevelsuptowhathastobeextremely
highcostsatSwathmore?
Terrex CashFlows
CashFlowModelAssumptions
Drivenoffassumptionsof2millionBOEpotential
inbothSwathmore andTwoCreek
Currentproductionat~120kayearrampingupto
320kboe ayearin2016
Slowpaceduetolackofknowledgearoundcapital
spendingcapacities
Sandstormpriceat$15abarrel+18%shareof
royalty
Terrex CashFlows
0
Projected FYE
TerrexEnergy
Production
2011E
Potential Duration
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
Ramp
Two Creek
2,000
20
64
84
104
124
144
164
164
164
164
164
Strathmore
2,000
20
55
88
121
155
155
155
155
155
155
155
Phase1
25%
15%
Phase2
17%
119
172
226
279
299
319
319
319
319
319
21
26
31
36
27
27
27
27
27
13
18
23
23
23
23
23
23
23
34
44
54
59
51
51
51
51
51
$80
Total Production
SandstormParticipation(TwoCreek)
SandstormParticipation(Strathmore)
Total Sandstorm Participation
OilPrices
SandstormAcquisitionPrice
Net Income
29.40
$80
$80
$80
$80
$80
$80
$80
$80
$80
$29
$29
$29
$29
$29
$29
$29
$29
$29
$29
$0
$1,734
$2,240
$2,746
$2,999
$2,560
$2,560
$2,560
$2,560
$2,560
29.2%
22.6%
9.2%
(14.7%)
0.0%
0.0%
0.0%
0.0%
% growth
InteralProjectIRR
9.94%
DONNERMETALS
ALookatDonnerMetals
FromaBalanceSheetPerspective,is
Sandstormsafeinthecapitalstructure?
Howdowegetcomfortablewithacompany
thathasyettoseeoperations?
Giventhediversityofprojects,canwebe
assuredDonnercancontinueasagoing
concernsothattheBracemacMcLeodmine
willcontinuetocrush?
ALookatDonnerMetals
BracemacMcLeod
3.73milliontons 606mn lbs ofzinc,83mn lbs of
copper,1.5mn ouncessilver,andsomegold
4yearLOM@2,500tonsperday
Eachtontranslatesto:162.5lbs ofzinc,22.25lbs
ofcopper,.4ouncesofsilver,and.0035ouncesof
gold
Xstrataestimatedcostsof~$73operatingforton
Braceyourselves...
ALookatDonnerMetals
BracemacMcLeod
LOMTons(mmtons)
Zinc(mnlbs)
Cu(mnlbs)
Ag(mnounces)
Au(mnounces)
PerTon:
Zinc(lbs)
Cu(lbs)
Ag(ounces)
Au(ounces)
3.730
606
83
1.500
0.013
162
22
0.402
0.003
EstimatedOperatingCosts/Ton
GrossMarginPerTonCrushed:
DailyGM@2,500tonsaday
@356days/year
Donner@35%
Spot
Prices
$0.92
3.61
31.57
1,666.70
Revenue
/Ton
$148.93
80.33
12.70
5.81
Breakeven
Spots
$0.27
1.06
9.30
491.06
$247.77
(73.00)
$174.77
70.54%
$436,918
$159,475,228
$55,816,330
$73.00
(73.00)
$0.00
ALookatDonnerMetals
$55milliongrossmarginislikelyaggressive,but
evenifwetakehalfofthatfromcommodityprice
volatilityandcostoverruns,$28millionfromthis
minealonemorethenoffsets:
~$1.5 2millionminingexplorationlesstaxcredits
$2millionrunrateG&A
Notsurewhysharebasedpaymentwassohighin1
quarterthisyear($1.5millionvs 30kfortheothers)
Totalexpensesrightnowtotal~$5millionayear
ALookatDonnerMetals
BasedonXstrata/Donnerforecasts,itseemslike
Donnerisextremelylikelytooperateprofitably,asthe
leewayforcommoditypricestofallissubstantial(~70%
acrossZinc,Cu,Silver,andGold)
Donnerrecentlyraisedequityof$15million,$5million
morethenplannedduetohighdemand,whichgives
themaccesstothesecondtrancheof$5millionfrom
Sandstorm,andprovidesthemwithallthecapitalthey
needtostartuptheminebyQ12013
Mineisonbudgetandaheadofschedule
Upside?
Inferredresourcesofover2.6milliontonnes,
alongwithmoreexploration,couldextendlife
ofmine
StreamcontractgivesSandstormexposure
beyondBracemacMcLeod,asitarea
dilineated (believeitextendstosomeofthe
Southernflanks)
BalanceSheet
Didntthinkitwasparticularlyworthwhileto
spendtimeonthis.
Thecompanyhas~$30millioninassets.
Currentliabilitiesanddecommissioningof$.5
million
NODEBTEXCEPTFORSTEAMTOSANDSTORM
Meaning,alongwiththecurrent$15million
equityraise,thereis$45millioninassetsbacking
Sandstorms~$18millioncommitment
DonnerCashFlows
CashFlowModelAssumptions
Plantbeginsproductionathalfofplannedcapacityin
2013,rampingtofullproductionin2014,thendrops
tohalfproductionafterLOMends(assuming
additionalminingsitesfound)
Copperpricesstableat$3.75
0
Projected FYE
DonnerMetals
Total Production (bcf / year)
SandstormParticipation
CopperPrices
SandstormAcquisitionPrice
Potential Duration
21,000
2011E
18%
0.80
Net Income
% growth
InteralIRR
27.02%
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
10,500
21,000
21,000
21,000
10,500
10,500
10,500
10,500
1,838
3,675
3,675
3,675
1,838
1,838
1,838
1,838
3.75
3.75
3.75
3.75
3.75
3.75
3.75
3.75
3.75
0.80
0.80
0.80
0.80
0.80
0.80
0.80
0.80
0.80
$0
$5,421
$10,841
$10,841
$10,841
$5,421
$5,421
$5,421
$5,421
100.0%
0.0%
0.0%
(50.0%)
0.0%
0.0%
0.0%
THUNDERBIRDENERGY
ALookatThunderbird
FromaBalanceSheetPerspective,is
Sandstormsafeinthecapitalstructure?
Despitebeingultralowcost,theultimate
concernisplummetingnaturalgasprices
Isthereabackdroptothevaluationof
Thunderbirdsassetsthatmightprovide
downsideprotection?
ALookatThunderbird
Undoubtedly,naturalgasisintheslumps,down
53%YTDandwithanalystsforecastingevenmore
togoduringthesummer
Bernstein(mymostrespectedresearchfirm)
stickswithanestimateof$2.75byyearend,
whichwouldallowGordan tooperateprofitably
startingnextyear(cashcostsof~$2mmcf)
Realistically,noonereallyknowswhatsgoingto
happen,andwhetherChesapeakeandCo.will
curtailmoreproductionafterround1earlierthis
year
NaturalGas
27%QoQ increaseingasusebypowersector
MaintainingQ1pace,Q2gasdemandwillbe9%higher,upto4.6Bcf/day
(Marchmomentumincreased)
Q1wasoffsetbymildweather(19%)
Q2useofnaturalgasforresidential/commercialpurposesisalready
seasonallylow,sounlikelytooffsetincreasesinpowerusageconsumption
Concernthatthereisnomoreextragasstoragecapacity,withinventory
levelsbeginningthebuildupseasonalready60%higherthenthe5year
average
BernsteinanalysisstatesthatgasE&Pequitiesarestillpricedtoreflect
3.50/mmcf in2013
Atcurrentlyprevailing forwardpricesforgas,inotherwords,thismost
efficientcomponentofthegasfiredfleetwilloperateat variablecosts
$6/MWh belowtheaverageofcoalfiredpowerplantsburningsub
bituminouscoal(suchas PowderRiverBasin)and$12/MWh belowthe
averagecostofcoalfiredpowerplantsburningbituminous coal(suchas
Appalachian)
NaturalGas
Thoughgaspricesrightnowreflectfearofan
inventoryconstraintandhencefreegas
collapse,longerterm,gaspricesshouldatleast
realignwithenergygenerationfromcoal
80%ofnewpowerplantswillbegaspowered
Continuedtransitiontogasuse,whilegoodfor
Thunderbirdinthelongerrunbybringingdown
inventories,willlikelybeadeathblowtoRoyal
Coal
Thunderbird
Forthelatest3monthsendingOctober31,Thunderbirdmade~97kongas
pricesof$3.14.
G&Aisrunningat~$1millionannually
InterestanddebtservicecostswerestaggeringinthelatestQ
Brushingtherandommarktomarketsaside,interestwillberunningat$1.5
millionontheconvertibledebentures($10millionat15%),butonlyhalfofit
willbeincash
Annualrunratecashexpensesshouldbeintheneighborhoodof$1
million+750kforinterest
Backoftheenvelopesuggestsifgas/oilpricesstayaround$3.10(whichis
thedecember futuresprice)/$80for2013,productionwouldneedto
increaseby~56xtobreakeven,implyingarigcountof10
ManagementpushedbackSandstormsagreementby1year,meaning
theyshouldhave15wellsin2013and50wellsin2014.Withover$13
millionontheirbalancesheets,theyshouldbeabletopostponeuntilgas
returnsbackto~$3.00.Theirbreakevenoperatingcostslastquarterwas
$2.30,andshouldmigrateto<$2.00withscale(permgmt guidance)
ThunderBird
Income Statement
($ in millions)
Hypothetical
2010E
2011E
2013 (?)
31Oct
56,590
322
60,442
243
1,414,526
5,687
6,753,000
27,150
9,754
10,317
241,441
1,152,650
629
2
672
2
3,875
10
18,501
50
$3.31
70.10
$3.14
79.04
$3.14
$79.04
$3.14
$79.04
$187
23
$190
19
$4,442
449
$21,204
2146
TotalGasandOil
Other
$210
62
$209
41
$4,891
166
$23,350
166
ReportedRevenues
Royalties
OperatingCosts
$272
(40)
(179)
$250
(40)
(114)
$5,057
(967)
(2,666)
$23,516
(4,497)
(12,726)
$53
$97
$1,950
$6,293
19%
($3.05)
$3.82
19%
($1.84)
$2.30
19%
($1.84)
$2.30
19%
($1.84)
$2.30
G&A
Interest&Debt
Depletion
($409)
(438)
(52)
($297)
(2,310)
(70)
($1,200)
(750)
(1,627)
($1,200)
(750)
(7,768)
OtherExpenses
ApproximateCashBurn
($899)
($793)
($2,676)
($618)
($3,577)
$0
($9,718)
$4,343
Production
NaturalGas(mcf)
CrudeOil(BOE)
Total(BOE)
mcf/day
ImpliedWellCount@370Mcf/day
Prices
NaturalGas(mcf)
CrudeOil(BOE)
NaturalGas
CrudeOil
OperatingIncome
Royalties%ofGasSales
OperatingCosts/mcf(x6BOEforoil)
ImpliedBreakeven
Breakeven
2014 +
31Oct
Planned
ThunderbirdCashFlows
CashFlowModelAssumptions
ThunderBird @1yearlag(15wellstobedrilledin
2012,and50by2013,butassumingonly15wells
operatingin2013and50in2014)
Mcf/welladayasguided@370Mcf
Gaspricesremainat2.00for2012,increaseto
2.25in2013,2.50in2014,andthen50cent
incrementsthereonouttonormalized$4.00in
2017
ThunderbirdCashFlows
Sandstorm Energy & Metals
Income Composition
(EUR in million)
Projected FYE
2011A
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
ThunderBird
Production (bcf / year)
WellsOperational
Production(Mcf/well/day)
Total Production (bcf / year)
SandstormParticipation
NaturalGasPrices
SandstormAcquisitionPrice
Net Income
Payment from Thunderbird
Total Income
35%
1.00
15
50
50
50
50
50
50
50
370
370
370
370
370
370
370
370
2,026
6,753
6,753
6,753
6,753
6,753
6,753
6,753
709
2,363
2,363
2,363
2,363
2,363
2,363
2,363
2.00
2.00
2.25
2.50
3.00
3.50
4.00
4.00
4.00
4.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
$0
$0
$886
$3,545
$4,727
$5,908
$7,090
$7,090
$7,090
$7,090
2,550
$0
$0
$3,436
$3,545
$4,727
$5,908
$7,090
$7,090
$7,090
$7,090
3.2%
33.3%
25.0%
20.0%
0.0%
0.0%
0.0%
% growth
InteralIRR
11.95%
PUTTINGITALLTOGETHER
Valuation
Presentedinthenextfewslidesarethecashflow
outputsbasedonassumptionsweexplorein
eachroyaltystream,andwehighlighta34year
holdingperiod
BaseCase:Donner(copper)andNovaDx (met
coal)streamscomeonasplanned,Terrex and
Thunderbirdlagbehindbyayearandramp
slowerthenmgmt projections
DownsideCase:Terrex andThunderbirdbothgo
bust
BaseFunctionalCase
Sandstorm Energy & Metals
Income Statement
($ in millions)
Projected FYE
2011E
2012E
2016E
2017E
2018E
2019E
2020E
SandstormNetIncome
OperatingExpenses
Rent
$6,459
3,000
500
$20,757
3,000
500
$28,315
3,000
500
$31,272
3,000
500
$33,484
3,000
500
$30,558
3,000
500
$31,870
3,000
500
$32,133
3,000
500
$32,133
3,000
500
CurrentProjectNetIncome
$2,959
$17,257
$24,815
$27,772
$29,984
$27,058
$28,370
$28,633
$28,633
483.2%
43.8%
11.9%
8.0%
(9.8%)
4.9%
0.9%
0.0%
22.1%
% growth
2013E
2014E
2015E
% Thunderbird
0.0%
16.6%
12.5%
15.1%
17.6%
23.2%
22.2%
22.1%
% Donner
0.0%
26.1%
38.3%
34.7%
32.4%
17.7%
17.0%
16.9%
16.9%
% NovaDx
73.2%
46.5%
39.5%
40.6%
42.3%
50.7%
52.7%
53.1%
53.1%
26.8%
10.8%
9.7%
9.6%
7.6%
8.4%
8.0%
8.0%
8.0%
% Terrex
MarketCap
P/EonimpliedMV
P/EonimpliedMVcash
AssumingNetIncomeReinvestedat:
2012NI
2013NI
2014NI
2015NI
2016NI
2017NI
2018NI
2019NI
130,000
90,000
43.9x
30.4x
7.5x
5.2x
5.2x
3.6x
4.7x
3.2x
4.3x
3.0x
4.8x
3.3x
4.6x
3.2x
4.5x
3.1x
4.5x
3.1x
$296
$326
1,726
$358
1,898
2,482
$394
2,088
2,730
2,777
$433
2,297
3,003
3,055
2,998
$477
2,527
3,303
3,360
3,298
2,706
$524
2,779
3,633
3,696
3,628
2,976
2,837
$577
3,057
3,996
4,066
3,991
3,274
3,121
2,863
IRR
10%
NetIncomefromReinvesting@10.0%
TotalNetIncome
$0
$296
$2,051
$4,738
$7,989
$11,786
$15,671
$20,075
$24,945
$2,959
$17,553
$26,866
$32,510
$37,973
$38,844
$44,041
$48,708
$53,578
493.2%
53.1%
21.0%
16.8%
2.3%
13.4%
10.6%
10.0%
% growth
Market
P/EonimpliedMV
P/EonimpliedMVcash
MOMReturnsAssumingExitat:
IRR
130,000
90,000
P/CForE
10
43.9x
30.4x
7.4x
5.1x
0.2x
77%
1.4x
16%
4.8x
3.3x
4.0x
2.8x
3.4x
2.4x
3.3x
2.3x
3.0x
2.0x
2.7x
1.8x
2.4x
1.7x
2.1x
2.5x
2.9x
3.0x
3.4x
3.7x
4.1x
27%
26%
24%
20%
19%
18%
17%
**Returnsdonotincludedeploymentof$40millionnetcashonB/S
DownsideCase
Sandstorm Energy & Metals
Income Statement
($ in millions)
Projected FYE
2011E
2012E
SandstormNetIncome
OperatingExpenses
Rent
$4,725
3,000
500
CurrentProjectNetIncome
$1,225
% growth
2013E
2014E
2015E
$17,631
3,000
500
2016E
2017E
2018E
2019E
2020E
$22,024
3,000
500
$23,546
3,000
500
$25,016
3,000
500
$20,908
3,000
500
$22,221
3,000
500
$22,483
3,000
500
$22,483
3,000
500
$14,131
$18,524
$20,046
$21,516
$17,408
$18,721
$18,983
$18,983
1053.5%
31.1%
8.2%
7.3%
(19.1%)
7.5%
1.4%
0.0%
% Thunderbird
0.0%
14.5%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
% Donner
0.0%
30.7%
49.2%
46.0%
43.3%
25.9%
24.4%
24.1%
24.1%
% NovaDx
100.0%
54.8%
50.8%
54.0%
56.7%
74.1%
75.6%
75.9%
75.9%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
% Terrex
MarketCap
P/EonimpliedMV
P/EonimpliedMVcash
AssumingNetIncomeReinvestedat:
2012NI
2013NI
2014NI
2015NI
2016NI
2017NI
2018NI
2019NI
130,000
90,000
106.1x
73.5x
9.2x
6.4x
7.0x
4.9x
6.5x
4.5x
6.0x
4.2x
7.5x
5.2x
6.9x
4.8x
6.8x
4.7x
6.8x
4.7x
$123
$135
1,413
$148
1,554
1,852
$163
1,710
2,038
2,005
$179
1,881
2,241
2,205
2,152
$197
2,069
2,466
2,426
2,367
1,741
$217
2,276
2,712
2,668
2,603
1,915
1,872
$239
2,503
2,983
2,935
2,864
2,106
2,059
1,898
IRR
10%
NetIncomefromReinvesting@10.0%
$0
TotalNetIncome
$1,225
% growth
$123
$1,548
$3,555
$5,915
$8,658
$11,265
$14,263
$17,588
$14,253
$20,072
$23,601
$27,431
$26,066
$29,985
$33,247
$36,571
1063.5%
40.8%
17.6%
16.2%
(5.0%)
15.0%
10.9%
10.0%
Market
P/EonimpliedMV
P/EonimpliedMVcash
MOMReturnsAssumingExitat:
IRR
130,000
90,000
P/CForE
10
106.1x
73.5x
9.1x
6.3x
0.1x
91%
1.1x
5%
6.5x
4.5x
5.5x
3.8x
4.7x
3.3x
5.0x
3.5x
4.3x
3.0x
3.9x
2.7x
3.6x
2.5x
1.5x
1.8x
2.1x
2.0x
2.3x
2.6x
2.8x
16%
16%
16%
12%
13%
12%
12%
**Returnsdonotincludedeploymentof$40millionnetcashonB/S
Valuation
Inthebasecase,SandstormwillbetradingataP/CF
(orP/E)of4.7xtheexistentcashflowsfromthecurrent
streams,or4.0xincludingreinvestedcashflowsin
2015
Assuming10%IRRforcumulativecashflows(lowerthen
theestimatesforcurrentprojects),andassuming
Sandstormtradesupto10xFCF(3040%discountto
comps),Sandstormwouldhaveamarketcapof$325
million($365includingcash)
Inthedownsidecase,SandstormwilltradeataP/CFof
~6x(5.5xwithreinvestment)andthemarketcapwould
be$236 276million
Justforfun.
UpsideCase
Sandstorm Energy & Metals
Income Statement
($ in millions)
Projected FYE
2011E
2012E
2016E
2017E
2018E
2019E
2020E
SandstormNetIncome
OperatingExpenses
Rent
$6,459
3,000
500
$20,757
3,000
500
$28,315
3,000
500
$31,272
3,000
500
$33,484
3,000
500
$30,558
3,000
500
$31,870
3,000
500
$32,133
3,000
500
$32,133
3,000
500
CurrentProjectNetIncome
$2,959
$17,257
$24,815
$27,772
$29,984
$27,058
$28,370
$28,633
$28,633
483.2%
43.8%
11.9%
8.0%
(9.8%)
4.9%
0.9%
0.0%
22.1%
% growth
2013E
2014E
2015E
% Thunderbird
0.0%
16.6%
12.5%
15.1%
17.6%
23.2%
22.2%
22.1%
% Donner
0.0%
26.1%
38.3%
34.7%
32.4%
17.7%
17.0%
16.9%
16.9%
% NovaDx
73.2%
46.5%
39.5%
40.6%
42.3%
50.7%
52.7%
53.1%
53.1%
26.8%
10.8%
9.7%
9.6%
7.6%
8.4%
8.0%
8.0%
8.0%
% Terrex
MarketCap
P/EonimpliedMV
AssumingNetIncomeReinvestedat:
CashonHand
2012NI
2013NI
2014NI
2015NI
2016NI
2017NI
2018NI
2019NI
130,000
43.9x
7.5x
5.2x
4.7x
4.3x
4.8x
4.6x
4.5x
4.5x
$6,000
444
$6,900
510
2,589
$7,035
587
2,977
3,722
$7,055
675
3,423
4,281
4,166
$7,058
776
3,937
4,923
4,791
4,498
$7,059
893
4,527
5,661
5,509
5,172
4,059
$7,059
1,027
5,207
6,510
6,336
5,948
4,667
4,256
$7,059
1,181
5,988
7,487
7,286
6,840
5,368
4,894
4,295
$0
$444
$3,099
$7,286
$12,545
$18,924
$25,822
$33,950
$43,338
$2,959
$17,701
$27,914
$35,058
$42,529
$45,982
$54,192
$62,583
$71,971
498.2%
57.7%
25.6%
21.3%
8.1%
17.9%
15.5%
15.0%
IRR
15%
NetIncomefromReinvesting@15.0%
TotalNetIncome
% growth
Market
P/EonimpliedMV
MOMReturnsAssumingExitat:
IRR
130,000
P/CForE
10
43.9x
7.3x
4.7x
3.7x
3.1x
2.8x
2.4x
2.1x
1.8x
0.2x
77%
1.4x
17%
2.1x
29%
2.7x
28%
3.3x
27%
3.5x
23%
4.2x
23%
4.8x
22%
5.5x
21%
Valuation
IntheUpsideCase,weenvisionSandstorms
managementcanfindprojectsat15%IRR
Theyalsoinvestthe$40millionthisyearat
15%IRR
Nearly30%IRRonthestock