BMO Analyst: Sandstorm Gold Shares Could Appreciate On Further Acquisitions, Declaration of a Dividend

Shares of Sandstorm Gold Ltd SAND have outperformed against peers over the last 12 months on the back of its diversification strategy. However, certain factors could limit upside over the near to medium term, BMO Capital Markets’ Andrew Kaip said in a report. He initiated coverage of the company with a Market Perform rating and a price target of $4.50.

Sandstorm Gold’s overall risk profile has improved over the last 12 months, with the company executing on a series of transactions focused on improving asset and counterparty quality, analyst Andrew Kaip mentioned. He forecasted over 90 percent of royalty/stream EBITDA being generated by senior and mid-tier operators, versus 12 percent in 2013.

What Could Limit Upside

Sandstorm Gold’s shares have gained 30 percent in the last 12 months, versus royalty/streaming peer average of 15 percent gains. Kaip commented that the following risk factors could limit upside in the near to medium term:

• Legacy counterparty risks, “underscored by the loss of a flagship stream at Aurizona in 2015, and continued exposure to capital constrained junior miners”
• Lower transactional capacity than royalty/streaming peers, with total liquidity of $51M
• Potential financing risk, while the company attempts to upgrade the portfolio

What Could Create Upside

Sandstorm Gold’s shares typically trade at a discount to peers. Now that the shares have re-rated, any further appreciation “will require further acquisition or initiation of a dividend, both of which would require external financing,” the analyst noted.