Sandstorm Gold Royalties: Leveraging Copper-Gold Discoveries for Diversified Upside

The global commodities market is undergoing a profound transformation, driven by the twin forces of inflationary pressures and the green energy revolution. For investors seeking exposure to both precious and base metals, Sandstorm Gold Royalties (NYSE: SAND) offers a compelling opportunity. The company's strategic focus on high-grade, polymetallic deposits—exemplified by its exposure to the Hugo North Extension in Mongolia and the Fruta del Norte copper-gold porphyry system in Ecuador—positions it to capitalize on rising demand for both gold and copper. Recent discoveries at these projects underscore Sandstorm's ability to generate leveraged returns through royalty and streaming agreements, making it a standout play in the metals sector.

The Hugo North Extension: A Copper-Gold Powerhouse

Sandstorm's 5.62% gold and silver, plus 0.42% copper stream on the Hugo North Extension (HNE) of the Oyu Tolgoi mine in Mongolia is one of its most promising assets. Recent drilling results highlight the project's massive scale and grade: a 260-meter intersection grading 3.29% copper and 2.08 g/t gold within the surface drill hole UGD189B underscores the deposit's world-class quality. This high-grade interval, part of a larger 552-meter zone averaging 2.30% copper and 1.45 g/t gold, sits within the Lift 2 block cave area, which is central to future underground development.

Production from the HNE is slated to begin in 2027, with underground development already underway. Sandstorm's fixed-price terms—$220/oz gold, $5/oz silver, and $0.50/lb copper—insulate it from price volatility while benefiting directly from rising production volumes. With the deposit's inferred resources expanding and its mine life expected to stretch into the 2040s, this project alone could contribute 3,000–4,000 gold equivalent ounces annually to Sandstorm's portfolio.

Fruta del Norte: Gold with Copper Upside

Meanwhile, Sandstorm's 0.9% net smelter returns (NSR) royalty on Ecuador's Fruta del Norte mine continues to deliver robust returns. While the royalty is structured for precious metals, recent exploration at the nearby Trancaloma target—which intersected 0.25% copper over 407 meters—hints at a broader copper-gold porphyry system. This discovery is significant: it not only expands the mine's resource base but also supports its longevity, ensuring sustained gold production.

In 2024, Fruta del Norte set a record for annual gold production, and its first-quarter 2025 results showed year-over-year production growth driven by higher mill head grades. The mine's reserves now stand at 5.54 million ounces, with exploration efforts targeting FDN South, where inferred resources surged by 59% in 2024. While Sandstorm's royalty is gold-only, the copper-rich discoveries indirectly benefit it by extending the mine's life and boosting its operational efficiency.

Strategic Diversification: The Case for Polymetallic Plays

Sandstorm's portfolio is a masterclass in diversification. By focusing on polymetallic deposits like HNE and Fruta del Norte, the company avoids overexposure to either gold or copper alone. Instead, it leverages the complementary dynamics of these metals:
- Gold remains a hedge against inflation and geopolitical uncertainty.
- Copper is critical to green energy infrastructure, with demand projected to grow by 40% by 2030 to support EVs, solar panels, and wind turbines.

This dual exposure reduces risk and creates asymmetric upside. For instance, if gold prices stagnate but copper surges—due to supply constraints or rising demand—projects like HNE will still deliver value through their base-metal streams. Conversely, a gold rally would boost Fruta del Norte's returns even as copper exploration continues to add value.

Why Sandstorm Stands Out

1. Low Cost, No Mining Risk: As a royalty/streams company, Sandstorm avoids the operational and capital risks of mining. Its agreements entitle it to a cut of production without bearing exploration or operational costs.
2. Long-Dated, Expanding Assets: Both HNE and Fruta del Norte have multi-decade mine lives, with exploration drilling consistently expanding resources.
3. Leverage to Commodity Prices: NSR royalties like Fruta del Norte's directly benefit from rising gold prices, while fixed-price streams on copper (as in HNE) insulate the company from volatility.

Investment Thesis: Buy the Diversification Play

Sandstorm's current valuation appears undervalued relative to its growth trajectory. At a price-to-cash-flow multiple of ~10x, it trades at a discount to peers like Royal Gold (RGLD) or Wheaton Precious Metals (WPM), which trade at ~15x and ~12x, respectively. Meanwhile, its production guidance of 65,000–80,000 gold equivalent ounces in 2025, with potential to hit 150,000 ounces by 2030, suggests strong growth visibility.

Historical performance of this strategy reveals significant risks: a -22.77% average return, a -69.49% maximum drawdown, and a negative Sharpe ratio highlight the pitfalls of short-term trading tied to production reports. This underscores the need for a long-term horizon, aligning with Sandstorm's multi-decade asset profiles.

Risks to Consider

• Project Delays: Underground development at HNE faces typical mining risks, including geological surprises or labor disruptions.
• Commodity Price Volatility: While Sandstorm's fixed-price terms mitigate some risks, prolonged declines in copper or gold could pressure margins.
• Geopolitical Risks: Both Ecuador and Mongolia have histories of resource nationalism; changes in mining laws or taxes could impact profitability.

Conclusion: A Rare Blend of Growth and Diversification

Sandstorm Gold Royalties is uniquely positioned to capitalize on the twin engines of gold and copper demand. Its exposure to high-grade, polymetallic deposits ensures it benefits from both precious and base metal price resilience while enjoying the operational security of royalty agreements. With a compelling valuation and a pipeline of projects like HNE and Fruta del Norte, Sandstorm offers investors a rare opportunity to gain leveraged exposure to two critical commodities through a single, low-risk investment. For those seeking diversification in the metals space, this is a buy with a long-term horizon.