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F E B R U A R Y / M A R C H 2 0 1 8 www.resourceworld.com 9 per attributable gold equivalent ounce was $246 resulting in cash operating margins of $1,009/oz. In an interview with Resource World, Nolan Watson, President and CEO of Sandstorm Gold, discusses his company's history, current operations and business strategy. RESOURCE WORLD: How did Sandstorm Gold come about? NOLAN WATSON: Dave Awram, our Senior Executive Vice President, and I were eager to start a new business. We're both entrepreneurial people. We spent our careers in the mining industry and we both worked together at Silver Wheaton which is now Wheaton Precious Metals. We loved the business model and wanted to do it in gold so we started Sandstorm from scratch by acquiring a shell company. The shell company's name was already Sandstorm, named after a horse. We had two employees; we took no salaries for the first year which was in the depths of the 2008 financial crisis. We then went around and negotiated the purchase of a couple of streams and grew the company from there. RW: With some other streaming royalty companies around, you and your team must have believed there was room for more. NW: At the time there was a handful of them such as Franco Nevada, Royal Gold, Silverstone and Wheaton Precious Metals. I think we were the sixth streaming roy- alty company in the world. After we launched Sandstorm, the streaming sector consolidated shortly thereafter. I think that's something that you'll continue to see in the royalty space going forward; that is, new royalty compa- nies created and existing royalty companies getting bought out – consolidated. It seems to be the natural order of things. RW: So you felt the consolidations opened up a space for your new company? NW: I think all the acquisitions hap- pening around the same time that we were launching ourselves helped us out. It definitely opened up a niche for us and allowed us to get to critical mass. The big- gest risk in starting a royalty company is that you start out thinking it's going to be easy to grow it and you either can't find the right assets to buy or you can't find the capital to buy the right assets. Fortunately, we were able to find both the right assets and the capital and today we're a billion dollar company. RW: Do companies seeking financing come to you or do you seek them out? NW: Both. We find that, of the deals that we're looking at, 90% come to us. Only 10% of the deals are us seeking another company where we believe in those assets and in those management teams. Sometimes when a company comes to us, after doing due diligence, we real- ize we don't have faith in the assets or the management team and so we walk away. RW: It usually takes millions of dollars to build a mine. Where do you source the funding to finance mining companies? NW: It's a lot easier than it used to be. Now that we're a billion dollar company, we've got lots of cash flow from operations, no debt and a revolving line of credit we can draw on at any time to make acquisi- tions. So we're self-funding going forward and don't need to raise capital anymore. Having said that, when we first started Sandstorm, every time we found an acqui- sition, we had to do an equity financing which was challenging. We had to go around the world and spend all of our time marketing to find those institutional and retail investors. RW: Do you have some kind of criteria for agreeing to a royalty stream arrange- ment? Are you looking for a particular kind of project and does it have to meet some kind of standard? NW: It depends on the size of cheque that we're considering writing. If it's going to be large transaction, say a $20 to $100 million deal, we want that to be a high- quality asset with a good management team and the mine already to be up and running or going right into development and has funding in place. We are willing to buy exploration roy- alties at earlier stages and have done that a number of times for exciting explora- tion plays. One of the characteristics of Sandstorm for our royalty stream deals compared to our competitors is that we focus on exploration upside more than anybody else. We're looking for huge land packages that have been under explored partially because of capital constraints. We like to provide the capital, the attention and help get the company moving forward towards success, and then get that explo- ration upside for free for our investors. I truly believe that exploration upside is where our investors make money. RW: Would you have a minimum ounces of gold per year for a project that you hook up with? NW: No. Some of the best deals we've done have been on small mines. Having said that, a lot of small mines have trouble making money but every now and then, you find a small mine with super high- grade and low cost of operations. We've made excellent returns on our invested capital on some of the small mining deals. We don't set ounces – we set quality targets. RW: When the prices of precious metals go up and down, how does that affect your streaming revenues? NW: Looking at it from the perspective of the mining sector as a whole, our busi- ness is better off because of the volatility of commodity prices. For us to make a lot of money for shareholders we need the peaks of the cycle with high gold prices and we need the bottoms of the cycle with "…they mistakenly believe that one day it's going to get better when gold prices go back up and they don't realize the actual market mechanisms for how we used to raise capital before the crash are gone. For fundamental structural reasons they aren't coming back."