Sandstorm Gold: Time To Accumulate On Weakness Is Here (NYSE:SAND)

Introduction

Vancouver-based Sandstorm Gold (NYSE:SAND) released its preliminary 4Q22 and full-year production results on January 11, 2023.

Note: This article updates my previous article on Sandstorm Gold published on November 9, 2022. I have been following SAND’s quarterly results since 2015.

1 – 4Q22 and full-year 2022 Production and preliminary revenues

• Sandstorm Gold Royalties sold approximately 21,800 attributable GEOs and realized preliminary revenue of $38.4 million in 4Q22 (16,586 attributable GEOs and $29.8 million in revenue for the comparable period in 2021). The Company sold approximately 82,400 attributable GEOs and realized preliminary revenue of $148.7 million for the full 2022 year (67,548 attributable gold equivalent ounces and $114.9 million in revenue for the comparable period in 2021).
• The preliminary cost of sales, excluding depletion for the full 2022 year, was $23.4 million resulting in cash operating margins of approximately $1,511 per attributable gold equivalent ounce ($16.8 million and $1,539 per attributable GEOs for the comparable period in 2021).
• 2022 production has been achieved with 82,400 GEOS at the mid-point of the 2022 Guidance of 80K-85K GEOs.
• The Company’s Gold price for the 4Q22 was $1,746 per ounce or $1,798 per ounce for the full-year 2022.

2 – Stock Performance

Sandstorm Gold is still one of the worst performers in this segment and is down 7% on a one-year basis.

3 – Investment Thesis

SAND continues to be an excellent trading tool, but I am less confident about the stock’s long-term outlook unless the gold price trades above $1,925 per ounce. My three streamers of choice are Franco-Nevada (FNV), Royal Gold (RGLD), and Wheaton Precious Metals (WPM).

However, I believe it is reasonable to keep a part of your SAND position long-term because SAND will potentially increase in value if the gold price continues to rally in H2 2023.

On the other hand, one negative issue attached to Sandstorm Gold is the continuing need to grow bigger by using common shares as an easy currency creating stock dilution and, subsequently long period of stagnation.

The merger with Nomad and the acquisition of nine royalties plus one stream from BaseCore Metals LP announced last year has significantly increased the outstanding shares to potentially 300 million, including the September bought deal.

Consequently, one appealing strategy I often suggest, especially for SAND, is trading LIFO about 50% of your total position and keeping a core long-term position for a much higher payday. It allows you to take advantage of the short-term volatility that will continue unabated until the Fed signals a pause or, eventually, a rate cut that some analysts expect in 4Q23.

Gold Production And Balance Sheet Details

1 – Quarterly Revenues and Trends – Preliminary Revenues were $38.4 million in 4Q22

Sandstorm Gold Royalties sold approximately 21,800 attributable GEOs and realized preliminary revenue of $38.4 million in 4Q22, compared with $29.82 million for the comparable period in 2021.

Revenues for 2022 are $148.689 million at an average gold price per GEO of $1,795.

The estimated cash costs per attributable ounce have decreased this quarter to about $253 after applying a cash operating margin of $1,511 per ounce indicated by SAND. The gold price realized by Sandstorm Gold is $1,746 per ounce.

2 – Gold production details

Attributable gold equivalent ounces sold for the quarter that ended December 31, 2022, were ~21,800 ounces, compared with 16,586 ounces for the comparable period in 2021. A large increase

The quarterly cash costs decreased to $253 per GEO, a significant progress sequentially.

Technical Analysis And Commentary

SAND forms an ascending channel pattern, with resistance at $5.90 and support at $5.27.

Ascending channel patterns or rising channels are short-term bullish in that a stock moves higher within an ascending channel, but these patterns often form within longer-term downtrends as continuation patterns. The ascending channel pattern is often followed by lower prices.

The trading strategy is to sell at a resistance range of $5.85 to $6.05 with higher resistance at $6.50, about 50% of your position, and sell another part on any pattern breakout above $7.

I recommend buying SAND at or between $5.10 and $5.30, with possible lower support at $4.85.

Today’s CPI number shows that inflation is going down but still runs at an uncomfortable rate of 6.5%, which may force the Fed to hike interest rates by 50 points at the end of January. The gold price could retrace below $1,750 per ounce in this scenario, but I believe gold will be bullish in H2 2023.

Thus, watch the gold price like a hawk.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

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