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Sandstormmetals&energy

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

Total Production (tons/year)

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

97.95% 108.45% 102.98% 136.15% 124.30% 113.48%


97.38% 96.36% 95.98% 98.30% 89.17% 76.66%

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