ssl_snd_feb 23_2011

SANDSTORM INITIATION REPORT

TAKING THE ROYALTY SPACE BY STORM

INITIATING COVERAGE OF:

February 23, 2011

Shane Nagle, B.Sc 416.869.7936 [email protected]

HIGHLIGHTSCommodity exposure with lower risk: By purchasing the right to future production at afixed cost, Sandstorm offers investors leverage to commodity price movements, exploration/expansion upside and additional growth through future acquisitions, while mitigating operat-ing risks typically associated with mining companies.

Filling the void in segmented royalty space: The royalty/metal streaming segment of themarket is dominated by three major players (Franco-Nevada Corp., Royal Gold Inc. andSilver Wheaton Corp.), with smaller companies having been acquired by the big three inrecent years (including: Silverstone Resources Corp., International Royalty Corp. and mostrecently Gold Wheaton Gold Corp.). As a result, Sandstorm should see little competition forsmaller scale royalty deals.

Growth through acquisitions: We expect several commodity stream acquisitions for bothof Sandstorm's royalty vehicles in the coming years in order to maintain an aggressivegrowth strategy. As its asset base increases, Sandstorm could become an acquisition targetto one of the larger royalty companies.

Near-term production growth: In our model, Sandstorm Gold Ltd. (SSL-V) will see pro-duction increase by 100% over the next two years, from 21,000 ounces (oz) this year toapproximately 42,000 oz by 2013. Metallurgical coal equivalent production from SandstormMetals & Energy Ltd. (SND-V) is also expected to double, growing from 89,000 tons this yearto 181,000 tons in 2012.

Compelling valuations a product of strong management: Our $1.25 target and Outper-form rating for SSL and our $0.90 target and Outperform rating for SND are supported bySandstorm's strong management team. We expect the current CEO, Nolan Watson (formerCFO of SLW), to diligently pursue accretive acquisitions, maintaining an aggressive growthstrategy for both companies.

Stock Risk Basic Diluted Basic Diluted Price Target Total

Company Ticker Rating Rating (Mln) (Mln) (Mln) (Mln) (Cdn$) Price Return

Sandstorm Gold SSL OP AA 325 455 $299 $418 $0.92 $1.25 36%

Sandstorm Metals & Energy SND OP AA 229 348 $128 $195 $0.56 $0.90 61%

Stock Rating: OP = Outperform, SP = Sector Perform, UP = UnderperformRisk Rating: A = Average, AA = Above Average, S = SpeculativeSource: NBF Estimates, Bloomberg

Shares O/S 12-MonthMarket Cap. Cdn$

EQUITYRESEARCH

SANDSTORM: INITIATING COVERAGE FEBRUARY 23, 2011

SHANE NAGLE2

TABLE OF CONTENTS

All NBF research mentioned in this document is available at www.nbfinancial.com

SANDSTORM OVERVIEW 3RECENT ACQUISITIONS AND PEER GROUP COMPS 4RISKS 7SANDSTORM GOLD 8

Highlights 8Investment Thesis 10

1. Cash Flow Positive, Keep on Streaming 102. Production Growth and Accretive Acquisitions 103. Exploration Potential 104. $1.25 Target based on 14.0x EV/2012E CF 10

Upcoming Catalysts 11Gold Stream Contracts 12Gold Stream Acquisition Costs 16Valuation 17SSL Financial and Operating Summary 17Sensitivity of SSL Valuation 18

SANDSTORM METALS & ENERGY 19Highlights 19Investment Thesis 21

1. Positive Cash Flow Out of the Gate 212. More Accretive Acquisitions to Come 213. Production Growth 214. $0.90 Target Based on 6.5x EV/2012E CF 21

Upcoming Catalysts 22Coal Stream Contracts 23Coal Stream Acquisition Costs 26Valuation 27SND Financial and Operating Summary 27Sensitivity of SND Valuation 28

APPENDIX 1: SANDSTORM MANAGEMENT 30APPENDIX 2: SANDSTORM DIRECTORS 31APPENDIX 3: SSL AND SND SHARE CAPITAL 32APPENDIX 4: COAL PRICE FORECASTS 33DISCLOSURES 35


SHANE NAGLE 3

SANDSTORM OVERVIEWSandstorm Gold Ltd. (Sandstorm Gold) (SSL–V, $0.92) and Sandstorm Metals & EnergyLtd. (Sandstorm Metals) (SND–V, $0.56), collectively called Sandstorm, are two emergingcommodity streaming companies focused on acquiring a portion of production fromadvanced–stage development projects or operating mines. To date, the strategy has been toacquire volumetric production payments (VPP’s), whereby Sandstorm makes an upfrontpayment for the right to acquire a set percentage of future production at a fixed price.

Both companies share a common management team headed by President and CEO, NolanWatson, the former CFO of Silver Wheaton Corp. (SLW–T). As CFO, Mr. Watson assistedin raising over $1 billion in debt and equity throughout 2006 to 2008, helping make SilverWheaton the largest metal streaming company in the world today.

Sandstorm Resources (now Sandstorm Gold) was formed in July 2007 and on March 25,2010, it announced the spin–out of Sandstorm Metals to its shareholders, forming twoseparate royalty vehicles. One focused on precious metal stream acquisitions (SandstormGold) and the other focused on base metals, bulk commodities and energy (SandstormMetals). Both companies share a common goal of aggressively growing a non–operatingmining company with a diverse portfolio of project interests. Ultimately, we would expectto see several vehicles formed, each focusing on individual segments of the commoditysector.

The royalty framework is attractive for investors looking to maintain exposure to explora-tion success, expansion possibilities and metal price movements while reducing other riskstypically associated with mining companies – including capital cost overruns, operating costescalation, environmental liabilities and currency movements. We have seen the emergence ofseveral exchange–traded funds physically backed by commodities gain the attention ofinvestors in recent years, and would argue metal streaming provides more leverage tocommodity prices through their exposure to exploration, expansion potential and productiongrowth. As both Sandstorm Gold and Sandstorm Metals increase deal flow, they will createtwo separate highly liquid options for investors. We expect both companies to maintain theiraggressive growth profile by acquiring metal streams from low–cost, profitable operationswith excellent exploration potential and quality management teams located in politically stablejurisdictions.

Since inception, Sandstorm Gold has raised approximately US$140 million in equity financ-ing, closed six gold stream acquisitions and is now cash flow positive in just over two years.We expect management to maintain their aggressive focus on precious metal stream acquisi-tions with at least a few additional deals announced in the coming years.

Sandstorm Metals has raised US$100 million of equity since inception, and has closed theacquisition of six coal streams and one gross revenue royalty. We expect Sandstorm Metalsto follow a similar strategy and continue financing acquisitions in base metals, bulk com-modities and energy with tremendous growth potential from acquisitions in 2011.


SHANE NAGLE4

Symbol Price (C$)

EV (US$ billion)

2011E CFPSUS$

2011EP/CF

2012E CFPSUS$

2012EP/CF

2011EEV/CF

2012EEV/CF

Franco Nevada TSX-FNV $32.00 $3.09 $2.15 14.9x $2.24 14.3x 12.6x 12.0x

Royal Gold US-RGLD $48.16 $2.77 $3.32 14.5x $3.55 13.6x 15.5x 14.5x

Silver Wheaton TSX:SLW $38.62 $13.61 $1.86 20.7x $1.82 21.2x 20.7x 21.2x

Average - - - 16.7x - 16.3x 16.3x 15.9x

Sandstorm Gold TSXV:SSL $0.92 $0.28 $0.06 14.6x $0.10 9.5x 13.5x 8.8x

Sandstorm Metals & Energy TSXV:SND $0.56 $0.09 $0.03 16.2x $0.08 7.0x 7.2x 2.4x

C$/US$ = 1.00

RECENT ACQUISITIONS AND PEER GROUP COMPSIn recent years, several acquisitions have taken place consolidating the royalty sector, formingfewer companies with large market capitalizations (US$2 billion to US$12 billion). Very fewcompanies are competing for smaller royalty deals in both the precious metal and othercommodity segments. The disparity of size within the royalty industry should allow Sand-storm more access to deal flow, helping it grow both production and cash flow. As Sand-storm Gold and Sandstorm Metals build their asset base, they could become an acquisitiontarget for one of the larger royalty companies currently dominating the industry. Small– andmid–tier royalty companies acquired in the past two years include:

Silverstone Resources Corp. (Silverstone) – acquired in an all–stock deal worth approxi-mately US$150 million on May 19, 2009 by Silver Wheaton. Silverstone’s core assets weresilver streams on Capstone Mining Corp.’s (CS–T) Minto Mine in the Yukon and CozaminMine in Mexico, as well as Lundin Mining Corp.’s (LUN–T) Neves–Corvo Mine in Portugal.

International Royalty Corporation (IRC) – acquired in a cash/stock deal worth approxi-mately US$650 million on Feb. 25, 2010 by Royal Gold, Inc. (RGLD–NASDAQ). The dealvalued IRC at approximately 1.4x NAV, 17.5x EV/2010E CF and 15.5x EV/2011E CF(based on consensus estimates). The company’s core assets included a 2.7% net smelterreturn (NSR) royalty on Vale Inco Limited’s Voisey’s Bay Project (the workforce was onstrike at the time), a 1.5% NSR on Inmet Mining Corp.’s (IMN–T) Las Cruces Mine (whichwas experiencing difficulties ramping up cathode production), and a sliding scale NSR onthe Chilean side of Barrick Gold Corporation’s (ABX–T, N) Pascua–Lama project.

Gold Wheaton Gold Corp. (Gold Wheaton) – received an offer valued at over US$1billion (cash and shares) on Dec. 13, 2010 from Franco–Nevada Corp. (FNV–T). GoldWheaton is currently trading at approximately 8.0x EV/2011E consensus CF and 8.5x EV/2012E consensus CF. The company’s main assets include gold streams from QuadraFNXMining Ltd.’s (QUX–T) Sudbury operations and First Uranium Corp.’s (FIU–T) Mine WasteSolutions and Ezulwini operations.

We have used a multiple of Enterprise Value to Cash Flow (EV/CF) to compare bothSandstorm Gold and Sandstorm Metals to other royalty companies, given the large percent-age of cash for both companies (approximately 25% FD for SSL and 60% FD for SND).We have elected to use 2012 as a base year given the substantial growth in production forboth Sandstorm Gold and Sandstorm Metals throughout the next two years (2011 repre-sents a ramp up year for several operations within both companies’ asset base). ComparingSandstorm Gold and Sandstorm Metals to the big three royalty companies (FNV, RGLD,SLW), we see both are trading at a discount to the peer group average on the basis ofEV/2012E CF.

Source: NBF Estimates

FIGURE 1: COMPARABLE ROYALTY COMPANIES


SHANE NAGLE 5

2010 2011 2012 2010 2011 2012Equinox Minerals EQN $6.03 $5 313 10.4x 7.6x 5.5x 10.8x 7.9x 5.7xFirst Quantum Minerals FM $117.72 $11 438 12.1x 7.6x 6.6x 13.5x 8.6x 7.4xHudBay Minerals HBM $16.06 $1 689 12.5x 9.7x 9.2x 8.8x 6.8x 6.5xInmet Mining IMN $68.46 $4 018 9.1x 7.2x 7.0x 8.5x 6.8x 6.5xLundin Mining LUN $1.61 $3 213 7.2x 4.7x n/a 7.4x 4.9x n/aOZ Minerals OZL-AU $1.67 $4 066 6.9x 7.1x 7.2x 5.2x 5.4x 5.4xQuadra FNX Mining QUX $13.18 $2 315 7.8x 5.0x 4.0x 7.1x 4.6x 3.7xSherritt S $9.18 $7 688 5.8x 4.5x 3.7x 16.3x 12.7x 10.4xThompson Creek TCM $13.34 $1 720 10.1x 9.6x 10.5x 7.9x 7.4x 8.2xTIER 2 PRODUCER AVERAGE 9.1x 7.0x 6.7x 9.5x 7.2x 6.7xAnvil Mining AVM $5.56 $846 37.3x 6.5x 3.2x 37.3x 6.5x 3.2xCapstone Mining CS $4.25 $816 10.0x 5.4x 5.1x 9.5x 5.1x 4.9xCopper Mountain CUM $6.07 $710 n/a 7.9x 3.0x n/a 9.5x 3.6xFarallon Mining FAN $0.79 $394 13.3x 4.8x 3.8x 13.6x 4.9x 3.9xImperial Metals III $22.91 $814 12.7x 7.6x 9.0x 12.1x 7.2x 8.6xMercator Minerals ML $4.23 $946 32.3x 7.3x 5.7x 36.0x 8.1x 6.4xMirabela Nickel MBN-AU $2.24 $1 300 n/a 12.9x 6.3x n/a 15.4x 7.5xNevsun NSU $5.64 $1 163 n/a 4.1x 3.5x n/a 4.3x 3.6xTaseko Mines TKO $6.15 $1 003 12.9x 7.9x 7.9x 11.1x 6.8x 6.8xTIER 3 PRODUCER AVERAGE 19.8x 7.2x 5.3x 19.9x 7.5x 5.4xAVERAGE 13.4x 7.1x 6.0x 13.7x 7.4x 6.0x

Symbol Price* EV (US$mln) P/CF EV/CF

Notes: * all share prices provided in local currenciesSource: NBF, Company Reports, Thomson ONE

FIGURE 3: NORTH/SOUTH AMERICAN GOLD PRODUCER COMPARABLES

The EV/CF multiples can also be compared to junior gold producers for Sandstorm Goldand junior base metal producers for Sandstorm Metals, as both companies are selling com-modities into spot markets with fixed acquisitions costs. We would expect a premium multiplefor royalty companies when compared with operating peers given Sandstorm’s lower operatingrisk, fixed operating costs, and impressive near–term growth profile (both organic and throughfuture acquisitions). The multiple used to value Sandstorm Metals is 6.5x EV/2012E CF, aslight premium to the companies operating peer–group of 6.0x – as seen in Figure 2.

For Sandstorm Gold, we have also provided a comparison to North American junior goldproducers, as the company’s operations are currently all in North America. The multiple of14.0x EV/2012E CF is a slight discount to the larger cap royalty companies, but is a pre-mium to Sandstorm’s operating peers, which are currently trading at 8.5x EV/2012E CF –illustrated in Figure 3.

2010 2011 2012 2010 2011 2012

Alamos Gold Inc. AGI $17.15 $1 910 22.3x 18.3x 11.9x 20.5x 16.8x 11.0xAllied Nevada Gold Corp. ANV $28.76 $2 017 60.7x 29.9x 16.7x 46.6x 22.9x 12.8xAurizon Mines Ltd. ARZ $7.19 $1 093 21.4x 10.7x 9.2x 19.3x 9.6x 8.3xAura Minerals Inc. ORA $3.66 $792 50.4x 5.7x 4.2x 49.5x 5.5x 4.1xGammon Gold, Inc. GAM $9.20 $1 259 12.4x 8.3x 7.0x 11.8x 7.9x 6.7xJaguar Mining Inc. JAG $5.23 $546 18.8x 6.1x 4.2x 22.2x 7.3x 4.9xMinefinders Corp. Ltd. MFL $10.17 $770 32.0x 8.4x 6.9x 34.7x 9.1x 7.5xNew Gold, Inc. NGD $9.29 $4 248 22.3x 15.6x 12.6x 21.6x 15.1x 12.2xNorthgate Minerals Corp. NGX $3.00 $790 6.8x 8.6x 5.0x 6.0x 7.5x 4.4xTIER 2 PRODUCER AVERAGE 28.1x 12.6x 8.8x 26.5x 11.6x 8.2xArgonaut Gold Ltd. ARZ $4.90 $370 27.4x 10.9x 7.9x 24.9x 9.9x 7.2xB2Gold Corp. BTO $2.34 $914 18.9x 9.4x 8.4x 19.1x 9.5x 8.5xBrigus Gold Corp. BRD $1.59 $329 13.1x 5.6x 5.4x 15.8x 6.8x 6.5xCapital Gold Corp. CGC $5.60 $341 n/a 10.4x 10.1x n/a 10.2x 9.9xCentury Mining Corp. CMM $0.64 $285 n/a 8.2x 6.0x n/a 8.4x 6.1xClaude Resources Inc. CRJ $2.48 $377 16.2x 9.9x 7.1x 16.8x 10.3x 7.4xGreat Basin Gold Ltd. GBG $2.70 $1 377 n/a 10.1x 10.7x n/a 11.3x 11.9xKirkland Lake Gold Inc. KGI $14.80 $1 037 n/a 29.1x 10.5x n/a 28.0x 10.1xLake Shore Gold Corp. LSG $4.16 $1 538 n/a 21.0x 14.8x n/a 19.7x 13.9xRichmont Mines Inc. RIC $5.12 $132 9.1x 4.1x 5.0x 7.0x 3.2x 3.9xSan Gold Corporation SGR $2.96 $867 n/a 16.7x 9.2x n/a 15.6x 8.5xSt Andrew Goldfields Ltd. SAS $1.38 $542 23.5x 10.1x 8.0x 23.6x 10.1x 8.0xTimmins Gold Corp. TMM $2.37 $385 n/a 8.8x 5.0x n/a 9.3x 5.3xTroy Resources NL TRY $3.90 $339 n/a 3.8x 2.7x n/a 3.7x 2.6xWesdome Gold Mines Ltd. WDO $2.70 $274 13.2x 7.7x 4.9x 12.9x 7.5x 4.8xEMERGING PRODUCER AVERAGE 16.2x 11.0x 8.8x 16.1x 10.9x 8.8xAVERAGE 22.2x 11.6x 8.8x 21.3x 11.1x 8.5x

Symbol Price* EV (US$mln) P/CF EV/CF

Notes: * all share prices provided in local currenciesSource: NBF, Company Reports, Thomson ONE

FIGURE 2: BASE METAL COMPARABLES


SHANE NAGLE6

Symbol Price (C$)

Target(Cdn$)

NAVPS(Cdn$)

P/NAV Target/NAV

Allied Nevada TSX:ANV $28.76 $34.00 $22.80 1.3x 1.5x

Jaguar Mining TSX:JAG $5.23 $7.25 $6.32 0.8x 1.1x

SEMAFO TSX:SMF $10.22 $13.75 $7.39 1.4x 1.9x

Tier-3 Producer Average 1.2x 1.5x

Lake Shore Gold TSX:LSG $4.16 $5.00 $3.35 1.2x 1.5x

Richmont Mines TSX:RIC $5.12 $8.00 $6.98 0.7x 1.1x

St. Andrew Goldfields TSX:SAS $1.38 $1.80 $1.49 0.9x 1.2x

Timmins Gold TSX:TMM $2.37 $3.15 $2.49 1.0x 1.3x

Emerging Producer Average 1.0x 1.3x

Belo Sun Mining TSXV:BSX $1.32 $1.60 $1.57 0.8x 1.0x

Fronteer Gold TSX:FRG $14.34 $14.25 $10.97 1.3x 1.3x

Magellan Minerals TSXV:MNM $1.54 $2.30 $2.30 0.7x 1.0x

Advanced Exploration Average 0.9x 1.1x

Overall Average 1.0x 1.3x

Sandstorm Gold TSXV:SSL $0.92 $1.25 $0.73 1.3x 1.7x

We are also able to compare Sandstorm Gold on an NAV basis to other precious metalcompanies within our coverage universe – we see a slight premium to the Tier 2 and Tier3 producers on an NAV basis, which is attributable to reduced mining and operating risk,Sandstorm Gold’s near–term production growth and the company’s aggressive acquisitionstrategy (we anticipate several accretive acquisitions within the next few years). From ourexperience, royalty companies tend to trade at a premium to NAV (approximately 1.2x) atspot metal prices, SSL is currently trading at 1.0x NAV based on spot gold of US$1,400/oz and SND is trading at 0.8x NAV based on spot coal price assumptions of US$350/tonne for met coal and US$100/tonne for thermal coal.


FIGURE 4: JUNIOR GOLD COVERAGE COMPARABLES


SHANE NAGLE 7

RISKSBy purchasing VPP’s, Sandstorm does not have to commit any capital or exploration costsand has fixed operating costs (per ounce of gold or per ton of coal) for the entire minelife at each operation, effectively eliminating capital/operating cost escalation and currencyexposure. The companies remain indirectly exposed to these risks through the operators ofeach mine, as increasing capital and operating costs could cause some operations to becomeunprofitable and shut down. The main risks that impact Sandstorm directly include:

1. Commodity Prices: By fixing operating costs, Sandstorm’s cash flow is primarily leveredto fluctuations in commodity prices. Price movements in commodities are impacted byseveral external factors out of the companies’ control, including interest rates, inflation andsupply and demand fundamentals.

2. Project–Specific: We have assumed the operators of each mine are capable of meetingtheir stated production guidance in the near term and are able to maintain profitable opera-tions over the long run. Despite these inherent risks, we believe Sandstorm’s managementteam will continue acquiring streams from sound projects operated by capable managementteams. There can be no assurance that these third–party production forecasts can be met, orthat production disruptions including temporary or permanent shutdowns can be avoided.

3. Political/Legal: Sandstorm’s current assets are located in Brazil, Canada, Mexico and theUnited States. We expect the company to continue evaluating projects in politically safejurisdictions, however depending on the project; Sandstorm may elect to invest in operationsoutside of these regions, in more unstable jurisdictions. Sandstorm has also incorporated asubsidiary in Barbados, which entered into gold purchase agreements outside of Canada andthe United States. There is no guarantee that new taxation rules could be enacted or thatexisting rules could be applied in a manner that results in future earnings from these foreignoperations being subject to taxation.

4. Financing and Dilution: In our model, over the next five years Sandstorm Goldgenerates US$225 million of free cash flow and Sandstorm Metals generates US$150 millionof free cash flow, which will be used to help fund future commodity stream acquisitions.There is no guarantee, however, that these cash flows will be sufficient to fund futureroyalty stream acquisitions as they are available, potentially leading to equity and / or debtofferings. We ultimately expect several vehicles under the Sandstorm management team toprovide investors with leverage to different commodity prices, which will also require thespin out of future assets and subsequent equity offerings. There is no guarantee that futuremarket conditions will support additional equity offerings or debt availability. Failure toobtain necessary funding could result in fewer commodity stream acquisitions, reducingfuture growth potential for both companies.

5. Valuation Risk: Our current valuation is based on comparable operating companies withinthe precious metal and junior diversified sectors. We have evaluated multiples including P/NAV,P/CF, EV/CF and in situ valuations for both companies. These valuation metrics are not adirect comparison given the operating risk associated with operating companies within Sand-storm’s peer group. Other royalty companies including SLW, RGLD and FNV have severalassets and market capitalizations that far exceed Sandstorm currently. As a result, these compa-nies may not offer a direct comparison, given the smaller magnitude of cash flow and highergrowth potential of both Sandstorm Gold and Sandstorm Metals.


SHANE NAGLE8

SANDSTORM GOLD

PRECIOUS METAL VALUATION MULTIPLE WITHOUT THE CAPITAL

SSL (TSXV): $0.92Stock Rating: OutperformRisk Rating: Above Average12-Month Target: $1.2512-Month Return: 36%Shares O/S: 325.1 Mln (454.9 Mln FD)Market Cap: $299.1 Mln ($418.5 Mln FD)

Highlights• Exposure to precious metal production while minimizing risk: Sandstorm Gold is

a non–operating mining company with a diverse portfolio of gold purchase agreementsthroughout North and South America. The company has purchased six gold streams intotal, with four producing this year and all six mines expected to be in production bythe end of 2012.

• 100% growth in production over the next two years: In our model, SandstormGold’s attributable production is set to increase from 21,000 oz in 2011 to approxi-mately 42,000 oz by 2013. Given the fixed acquisition cost per ounce of production,Sandstorm Gold’s costs remain relatively stable, and in our model average US$405/ozover the next ten years.

• Free cash flow will lead to acquisitions: Sandstorm Gold will be free cash flowpositive by year end, and in our model, generates US$20 million of operating cash flowin 2011 – US$0.06 per share. We expect management to continue acquiring gold streamsfrom development / operating companies, further increasing gold production and cashflow in the long run.

• Exploration potential of current assets expected to add ounces: By focusing itsefforts on acquiring gold streams from assets with significant exploration potential,Sandstorm Gold will experience growth in its attributable resource without having tofund additional exploration programs, allowing it to participate in the exploration upsideof each asset.

• Initiating coverage with a $1.25 target price and Outperform rating: Our targetrepresents a multiple of 14.0x EV/2012E CF – a discount to other larger royaltycompanies (FNV, RGLD, SLW) currently trading at 15.9x EV/2012E CF.

Industry Rating (Gold): Overweight; (NBF Economics & Strategy Group)All dollar amounts in Cdn$ unless otherwise noted. All pricing as at February 22, 2011.

As part of organized site visits we have visited: Brigus Gold Corp.’s (BRD–T & AMEX)Black Fox and Metanor Resources Inc.’s (MTO–V) Bachelor Lake projects.


SHANE NAGLE 9

STOCK RATING Outperform TICKER SSLTARGET PRICE (C$) $1.25 CURRENT PRICE (C$) $0.92RETURN TO TARGET 36% 52-WEEK HIGH (C$) $0.97RISK RATING Above Average 52-WEEK LOW (C$) $0.58SECTOR RATING Overweight SHARES OUTSTANDING (mln) 325.1

MARKET CAPITALIZATION (C$ mln)FINANCIAL DATA STOCK CHART

Capital Structure Avg. Strike Price (C$) Shares (mln)

Shares Outstanding 325.1

Options $0.57 13.3

Warrants $0.66 116.4

Fully Diluted Shares 454.9

Balance Sheet US$M US$/sh C$M C$/sh

Current Cash $16.0 $0.05 $16.3 $0.05

F/D Cash Adds $82.6 $0.25 $84.3 $0.26

Working Capital $16.0 $0.05 $16.3 $0.05

Long-term Debt $0.0 $0.00 $0.0 $0.00

Book Value $60.4 $0.19 $61.6 $0.19

Enterprise Value (EV) $277.2 $0.85 $282.8 $0.87

EV = Market Capitalization - Working Capital + Long-term Debt RECENT FINANCINGS / ACQUISITIONS

C$/US$ FX Rate: 1.02

Ownership O/S (M) O/S, % F/D(M) F/D, %

Libra Advisors LLC 26.20 8.1% 26.20 5.8%

Arias Resource Fund 24.20 7.4% 24.20 5.3%

Wells Capital Management 17.39 5.3% 17.39 3.8%

Sentry Select Capital 14.97 4.6% 14.97 3.3% CORPORATE AFTER-TAX NAV SUMMARY AND SENSITIVITY

Management/Insiders 19.51 6.0% 19.51 6.0%

Spot

Financial Forecast 2010E 2011E 2012E 2013E 2014E $800 $1 100 $1 500 $1 400

Gold Price, US$/oz $1 226 $1 450 $1 275 $1 150 $1 100 $92.6 $92.6 $92.6 $92.6

C$/US$ FX Rate $1.04 $1.02 $1.04 $1.06 $1.08 $50.9 $90.3 $142.8 $129.7

Shares O/S, millions 251.6 325.1 325.1 325.1 396.7 ($4.5) $10.4 $25.9 $22.1

In US$ million $54.2 $73.3 $94.3 $89.1

Revenue $1.5 $30.5 $47.6 $48.4 $51.0 $15.1 $23.0 $31.5 $29.5

Operating Cost $0.5 $8.9 $15.1 $16.7 $18.4 $17.5 $29.2 $44.9 $41.0

G&A Expense $0.9 $0.8 $0.8 $0.8 $0.8 $6.9 $12.2 $19.3 $17.5

EBITDA ($0.8) $20.3 $31.3 $30.5 $31.3 $231 $329 $450 $420DD&A $0.6 $5.5 $10.3 $10.8 $11.7 $0.21 $0.21 $0.21 $0.21Earnings ($1.9) $11.1 $15.8 $15.2 $15.3 $0.12 $0.16 $0.21 $0.20Operating Cash Flow ($0.7) $20.5 $31.6 $31.2 $32.3 $0.52 $0.74 $1.01 $0.94Investment $110.8 $26.0 ($36.6) $0.0 $0.0 1.8x 1.2x 0.9x 1.0xProceeds from Equity $60.1 $0.0 $0.0 $0.0 $57.8 2.4x 1.7x 1.2x 1.3xProceeds from Debt $0.0 $0.0 $0.0 $0.0 $0.0 $0.02 $0.03 $0.05 $0.04Debt Repayment $0.0 $0.0 $0.0 $0.0 $0.0 $0.03 $0.06 $0.09 $0.08Free Cash Flow ($52) ($5) $68 $31 $90

CONSENSUS ESTIMATE SUMMARYEPS, US$ ($0.01) $0.03 $0.05 $0.05 $0.04CFPS, US$ ($0.00) $0.06 $0.10 $0.10 $0.08 Mean EPSCFPS Sensitivity, US$ - $0.00 $0.01 $0.01 $0.01 2011 Estimates US$0.05 $0.06 $0.03 $0.11 $0.06FCPS, US$ ($0.21) ($0.02) $0.21 $0.10 $0.23 2012 Estimates US$0.06 $0.07 $0.05 $0.13 $0.09

CFPS sensitivity based on a US$50/oz change in gold price. 2013 Estimates US$0.06 $0.07 $0.05 $0.11 $0.10

PRODUCTION PROFILE (SSL ATTRIBUTABLE PRODUCTION) NBF / CONSENSUS %, EPS %, CFPS2011 Estimates -29% -22% Consensus Target: $1.34

2011E 2012E 2013E 2014E RLOM 2012 Esimates -23% -9% NBF/Consensus: -7%Aurizona, oz 000's 9.0 11.9 12.8 17.0 154.7 2013 Estimates -20% -7% # Analysts 4Bachelor Lake, oz 000's - - 8.0 10.0 65.0Black Fox, oz 000's 7.0 13.2 8.1 6.6 82.10 COMPARABLESMing, oz 000's - 2.3 3.8 4.0 35.23Santa Elena, oz 000's 4.0 6.0 7.0 7.0 44.00 Share EVSummit, oz 000's 1.0 4.0 2.5 1.8 20.40 (C$) (US$M) 2011E 2012E 2011E 2012EAurizona, US$/oz $400 $400 $400 $404 $413 Franco Nevada FNV-T $32.00 $3.09 14.9x 14.3x 12.6x 12.0xBachelor Lake, US$/oz - - $500 $500 $500 Royal Gold RGLD-US $48.16 $2.77 14.5x 13.6x 15.5x 14.5xBlack Fox, US$/oz $500 $500 $505 $510 $520 Silver Wheaton SLW-T $38.62 $13.61 20.7x 21.2x 20.7x 21.2xSanta Elena, US$/oz $350 $350 $350 $354 $356 Average 16.7x 16.3x 16.3x 15.9xSummit, US$/oz $400 $400 $400 $402 $409Total Gold Production, oz 000's 21 37 42 46 406 Sandstorm Gold TSXV:SSL $0.92 $277 14.6x 9.5x 13.5x 8.8xTotal Cash Costs, US$/oz Au $424 $403 $395 $397 $406

C$/US$: 1.00

Corporate Adjustments, C$ / F/D share

Target Price / Corporate NAV

Corporate NAV, C$ / F/D shareCurrent Price / Corporate NAV

Project NAV(3%-5%), C$ / F/D share

1.7x

$0.52

US$0.10

$0.73

Company Ticker

Mean CFPSUS$0.08US$0.11

P/CF

High / Low, US$

1.3x

Base Case

$12.4

$92.6

$74.2

$21.8

$30.2

$326$0.21

Aurizona NAV (3%), US$M

Bachelor Lake NAV (5%), US$M

Black Fox NAV (3%), US$M

$87.5

$7.3

Jan 17/11 - acq. 20% LOM Au production from Bachelor Lake for US$20M + US$500/oz

Oct 19/10 - $57.5M (78.7M units @ $0.73 - 1 unit = 1 share + 1/4 $1.00 warrant exp. Oct 19/15)

Nov 26/10 - Issues 6.9M stock options @ $0.68 / sh, exp. Nov 26/15

Nov 9/10 - acq. 15% LOM Au production from Black Fox for US$56.3M + US$500/oz (subject to inflation in 2013+)

$299.1

Forecast Gold Price, US$/oz

Corporate Adjustments, US$M

Summit NAV (3%), US$M

Corporate NAV, US$M

Ming Mine NAV (5%), US$M

Santa Elena NAV (3%), US$M

High / Low, US$

EV/CF

2011E CFPS (F/D), US$2012E CFPS (F/D), US$

$0.05$0.07

$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.70

$0.80

$0.90

$1.00

Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11

Shar

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25.0

Volu

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Price 50-Day 200-Day

Source: NBF Estimates, Bloomberg, Reuters, Company Data

FINANCIAL AND OPERATING SUMMARY: SANDSTORM GOLD


SHANE NAGLE10

Investment ThesisOur $1.25 target and Outperform rating are supported by: 1) positive and stable cash flow,2) near–term production growth and future accretive acquisitions, 3) exploration potentialwithin the current portfolio of properties, and 4) a precious metal valuation multipleleveraged to gold prices.

1. Cash Flow Positive, Keep on StreamingBased on our model, the four operating assets within Sandstorm Gold’s portfolio areexpected to generate US$20 million of operating cash flow in 2011, or US$0.06 per shareat an average gold price of US$1,450/oz. With all operations in production by late 2012,operating cash flow in 2013 increases to US$32 million at US$1,150/oz, or US$42 millionat spot gold prices of US$1,400/oz – approximately US$0.09 per fully diluted share.

2. Production Growth and Accretive AcquisitionsIn our model, Sandstorm Gold’s attributable production is set to increase by 100% over thenext two years from 21,000 oz in 2011 to approximately 42,000 oz in 2013. We expectSandstorm’s management to maintain their aggressive growth strategy going forward andexpect additional precious metal stream acquisitions in 2011, further increasing the company’sproduction profile.

3. Exploration PotentialTo date, Sandstorm Gold has focused on acquiring metal streams from projects withexcellent exploration potential and management teams focused on aggressive resourcegrowth. We see future reverse/resource additions and production growth from: (1) BlackFox – with additional drilling at depth and along strike towards the Pike River Property; (2)Aurizona – with additional drilling at depth and along strike; and (3) Santa Elena – withdrilling at depth as well as initial drilling on several regional mineralized showings not in-cluded in the current resource. Sandstorm Gold has an option to acquire future under-ground production from both Aurizona (17%) and Santa Elena (20%). We have notmodeled any additional production from the underground, but would expect SandstormGold to participate in both instances should Luna Gold Corp. (LGC–V) or SilverCrestMines Inc. (SVL–V) proceed with underground development.

4. $1.25 Target based on 14.0x EV/2012E CFOur $1.25 target price is derived from a multiple of 14.0x our EV/2012E CF at a 2012Egold price of US$1,275/oz. At spot gold prices of US$1,400/oz, our implied target wouldbe $1.40 per share. The company’s peers (royalty / metal streaming companies: FNV,RGLD and SLW) are trading at 15.9x while North American junior gold producers aretrading at a slight discount, around 8.5x EV/2012E CF, given increased operating risk andfluctuating cash costs. Our Outperform rating is supported by Sandstorm Gold’s significantgrowth potential, low to fixed operating costs and aggressive management team.


SHANE NAGLE 11

Upcoming Catalysts

2011• Receipt of permits to construct Ming Mine – Q1 2011

• Full commercial production from Santa Elena – 2011

• Completion of remaining funding requirements for Bachelor Lake – H1 2011

• Full commercial production from Summit – mid–2011

• Full commercial production from Ming Mine – Q3 2011 (2012 in our model)

• Ramp up of underground production from Black Fox – 2011

• Exploration results from Santa Elena – 2011

• Exploration results and updated resource from Aurizona – 2011

2012• Potential expansion of Aurizona mill to 100,000 oz/year of production – Luna guid-

ance of late 2012 (late 2013 in our model)

• Full commercial production from Bachelor Lake – 2012 (Q1 2013 in our model)

2013• Possible US$36.6 million payment from Brigus Gold for 50% of Sandstorm Gold’s

metal stream – we have included this payment on Jan. 1, 2013

Other• Potential underground development of Aurizona, where Sandstorm Gold has the option

to acquire 17% (we have not included future underground production in our model)

• Potential mill construction and underground development of Santa Elena, where Sand-storm Gold has the option to acquire 20% (we have not included future undergroundproduction in our model)

• Exploration results from drilling at depth and along strike at Aurizona

• Exploration results from deep drilling at Black Fox and extending mineralization towardPike River property to the east.

• Additional acquisitions


SHANE NAGLE12

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Gold Stream Contracts

Aurizona (100% Luna Gold Corp. (Luna), LGC–V, not rated)On May 15, 2009, Sandstorm Gold acquired 17% of the life–of–mine (LOM) gold pro-duction from Aurizona for an upfront payment of US$17.8 million in cash and 5.5 millioncommon shares plus ongoing per ounce payments equal to the lesser of US$400 /oz andspot (subject to an increase of 1% per annum after three years of commercial production).

The Aurizona Gold Mine, located in Maranhao State, Brazil, is an open–pit mine with a4,000 tonne per day (tpd) gravity and carbon–in–leach (CIL) milling operation. The projectachieved commercial production in early February and is expected to produce approximately60,000 oz/year of gold (studies are underway to increase the LOM production rate to100,000 oz/year). We have modeled 53,000 oz of production from Aurizona in 2011,increasing to 100,000 oz/year by 2014 with a total mine life of approximately nine years –compared with company guidance of 100,000 oz/year by the end of 2012. Aurizonaaccounts for US$87.5 million or 27% of our overall NAV.

Source: NBF Estimates, Company Reports

FIGURE 5: AURIZONA PRODUCTION PROFILE(SSL'S SHARE)


FIGURE 6: AURIZONA OPERATING CASH FLOW(BEFORE TAX)

Should Luna continue to have success with drilling at depth and decide to proceed withdeveloping an underground mine at Aurizona, Sandstorm Gold will have the right topurchase 17% of the payable gold from the underground, at the lesser of US$500/oz andspot. To acquire future underground production, Sandstorm Gold will have to pay Luna17% of the capital expenditures incurred while proving the viability of the project. We havenot included additional production from the underground in our model, but would expectSandstorm Gold to participate should Luna make the decision to proceed with under-ground development.

Bachelor Lake (100% Metanor Resources Inc. (Metanor), MTO–V, not rated)On Jan. 17, 2011, Sandstorm Gold agreed to purchase 20% of the LOM gold producedfrom Bachelor Lake for US$20 million plus ongoing per ounce payments equal to the lesserof US$500 /oz and spot. Sandstorm Gold made the initial US$5 million payment and willmake two additional payments: US$9 million once Metanor has achieved certain fundingconditions (expected to be completed in H1 2011), and US$6 million on Sept. 1, 2011.

Bachelor Lake, located approximately 225 kilometres northeast of Val d’Or, Quebec, is apast–producing underground operation. A pre–feasibility study was completed on Jan. 4,2011, which included production of approximately 60,000 oz/year over an initial three and


SHANE NAGLE 13

a half year mine life. Production is expected to begin during 2012 with a ramp up to fullcommercial production by the end of 2012. We are modeling 40,000 oz of production in2013 and an average production rate of 55,000 oz/year over a seven–year mine life as webelieve there is significant potential for Metanor to add resources with drilling at depth.Bachelor Lake accounts for US$7.3 million or 2% of our overall NAV, including upcomingtotal payments of US$15 million in Q2 2011 and Q3 2011. Following these payments, ourNAV for Bachelor Lake would increase to US$27 million.


FIGURE 7: BACHELOR LAKE PRODUCTION PROFILE(SSL'S SHARE)


FIGURE 8: BACHELOR LAKE OPERATING CASH FLOW(BEFORE TAX)

Metanor has also provided a guarantee that Sandstorm Gold will receive a minimum ofUS$20 million in pre–tax cash flow over the next six years. In our model, pre–tax cashflow prior to the beginning of 2017 totals approximately US$22 million, based on our goldprice deck and production assumptions.

Black Fox Mine (100% Brigus Gold Corp. (Brigus Gold), BRD–T, not rated)On Nov. 9, 2010, Sandstorm Gold acquired 12% of the LOM gold production from theBlack Fox Mine for an upfront payment of US$56.3 million plus ongoing per ounce pay-ments equal to the lesser of US$500/oz and spot (subject to an inflationary adjustmentbeginning in 2013, not to exceed 2% per annum). Sandstorm Gold will also have the rightto purchase future gold production from the western portion of Brigus Gold’s Pike RiverProperty – “The Black Fox Extension”, where we fully expect future resource additions asthe Black Fox deposit trends onto this property at depth.

The Black Fox Mine is located near Matheson, Ontario and achieved commercial productionin 2009. The mine produced approximately 67,000 oz in 2010 from the open pit and 2,000tpd mill with underground production expected to ramp up throughout 2011. Following arevised mine plan (released Jan. 5, 2011), annual gold production is estimated to be 104,000oz/year over the next five years. We are modeling approximately 60,000 oz of gold pro-duction in 2011 (as Black Fox ramps up underground production) with average annualproduction of 105,000 oz over an 11–year mine life.

Brigus Gold has the option to repurchase 50% of the gold purchase agreement by makinga US$36.6 million payment to Sandstorm Gold prior to Jan. 1, 2013. We have assumedBrigus Gold will have sufficient capital on hand by the end of 2012 to repurchase 50% ofthis stream and are modeling this payment on Jan. 1, 2013, reducing Sandstorm Gold’sinterest in Black Fox’s gold production to 6% from 2013 onward. We have also included a1% inflation adjustment to Sandstorm Gold’s per ounce costs beginning in 2013. Based onthese assumptions, Black Fox accounts for US$74.2 million or 23% of our overall NAV.

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SHANE NAGLE14

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Should Sandstorm Gold maintain their 12% interest in the property going forward, theproject NAV would be US$68 million or approximately 21% of our overall NAV. We haveprovided the production profile and operating cash flow chart for both scenarios below(note: Figure 11 excludes the US$36.6 million repayment from Brigus):


FIGURE 9: BLACK FOX PRODUCTION(6% LT INTEREST)


FIGURE 10: BLACK FOX PRODUCTION(12% LT INTEREST)


FIGURE 11: BLACK FOX OPERATING CASH FLOW(6% LT INTEREST)


FIGURE 12: BLACK FOX OPERATING CASH FLOW(12% LT INTEREST)

Ming Mine (100% Rambler Metals & Mining plc (Rambler), RAB–V / RMM–AIM, not rated)Sandstorm Gold purchased 25% of the first 175,000 oz of payable gold and 12% of thepayable gold thereafter for a total consideration of US$20 million. Sandstorm Gold paidUS$5.0 million of the total acquisition cost on March 10, 2010, US$2.0 million on Sept. 7,2010 and US$7 million on Jan. 5, 2011. A final instalment of US$6 million will be paid toRambler upon receipt of all necessary permits required to construct and operate the MingMine, which is anticipated by the end of Q1 2011. In the event that the metallurgical recover-ies of gold at the Ming Mine are below 85%, the percentage of gold that Sandstorm Goldshall be entitled to purchase will be increased proportionally. We are modeling productionstarting in Q2 2012, reaching full scale by mid–2013. As part of the agreement with Rambler,Sandstorm Gold is not obligated to make any ongoing payments for ounces delivered.

The Ming Mine, located in north–western Newfoundland, is a past–producing undergroundmassive sulphide copper–gold mine. Rambler is currently adapting the Nugget Pond Milllocated 40 kilometres away to process base metal sulphides as well as ‘free gold’ that existswithin the Rambler geological system. Concentrate sales are expected to begin in 2011 andbased on the Oct. 1, 2010 feasibility study, gold production is anticipated to be approximately12,000 oz/year. The Ming Mine accounts for US$21.8 million or 7% of our overall NAV.


SHANE NAGLE 15

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Santa Elena (100% SilverCrest Mines Inc. (SilverCrest), SVL–V, not rated)On May 15, 2009, Sandstorm Gold acquired 20% of the LOM gold production fromSanta Elena for an upfront payment of US$12 million in cash and 3.5 million commonshares plus ongoing per ounce payments equal to the lesser of US$350/oz and spot.

Santa Elena, located in Sonora State, Mexico (approximately 150 kilometres northeast ofHermosillo), is a past–producing low–sulphidation epithermal gold/silver deposit currentlybeing developed as an open pit operation and 2,500 tpd heap leach. At full–scale produc-tion, the operation is expected to produce an average of 35,000 oz/year of gold and600,000 oz/year of silver over an eight–year mine life. The mine is currently ramping up todesign and is expected to declare commercial production in early–2011. We are modeling20,000 oz of gold production in 2011, improving to 35,000 oz/year by 2013. Santa Elenaaccounts for US$30.2 million, or 9% of our overall NAV.


FIGURE 13: MING MINE PRODUCTION PROFILE(SSL'S SHARE)


FIGURE 14: MING MINE OPERATING CASH FLOW(BEFORE TAX)


FIGURE 15: SANTA ELENA PRODUCTION PROFILE(SSL'S SHARE)


FIGURE 16: SANTA ELENA OPERATING CASH FLOW(BEFORE TAX)

If SilverCrest completes a positive technical report on the underground development ofSanta Elena, Sandstorm Gold will have the right (but not an obligation) to purchase 20%of the payable underground gold production. Sandstorm Gold would be required to pay20% of the upfront capital expenditures made by SilverCrest for both underground devel-opment and the mill (adjusted pro rata for the gold to gold equivalent ratio of silver in theunderground ore), plus ongoing per ounce payments equal to the lesser of US$450/oz andspot. SilverCrest is also investigating a 2,500 to 3,000 tpd milling operation in conjunctionwith underground development, which would improve overall recoveries and potentiallyincrease gold production to as much as 75,000 oz to 100,000 oz per year. We have notincluded underground development or construction of a mill at Santa Elena in our model.


SHANE NAGLE16

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Summit Mine (Santa Fe Gold Corp. (Santa Fe), SFEG–OTC, not rated)On Sept. 14, 2009, Sandstorm Gold agreed to purchase 50% of the first 10,000 ounces ofgold production, and 22% of gold production thereafter from the Summit Mine. SandstormGold paid US$4 million in cash plus ongoing per ounce payments equal to the lesser ofUS$400/oz and spot (subject to an increase equal to 1% per annum three years followingcommercial production).

The Summit Mine is an underground silver–gold mine located in south–western New Mexico,and is expected to reach full–scale commercial production by mid–2011, producing approximately10,000 oz/year of gold over a 10–year mine life. We are modeling 2,000 oz of gold productionin 2011, followed by approximately 8,000 oz/year of production over a nine–year mine life.

The amount of payable gold can be reduced to 15% from 22% if Santa Fe has mined andprocessed 400 tpd for any consecutive 12–month period and has exceeded 11,500 oz of goldproduction during any consecutive 12–month period prior to September 2012. In our model,these conditions are not met so we have maintained a 22% long–term interest going forward.The Summit Mine accounts for US$12.4 million, or 4% of our overall NAV.


FIGURE 17: SUMMIT PRODUCTION PROFILE(SSL'S SHARE)


FIGURE 18: SUMMIT OPERATING CASH FLOW(BEFORE TAX)

Gold Stream Acquisition CostsFrom the six gold stream transactions completed to date, Sandstorm Gold has acquired approxi-mately 0.39 mln oz of 43–101 compliant reserves and a total resource of 0.74 mln oz – at atotal acquisition cost of US$345/oz of reserve and US$183/oz of resource. Sandstorm Goldwill continue to pay ongoing costs of approximately US$405/oz (based on our model) forannual production.

Our average all–in acquisition cost (including annual per ounce payments) is US$755/oz ofreserve (approximately 65% of the spot gold price at time of acquisition) and US$587/oz ofresource (approximately 51% of the spot gold price at time of acquisition).

'* Assume no repayment from Brigus by January 1, 2013'** Sandstorm's share of reported reserves/resources on date of announcement'*** Based on share price when announced'**** Assumes 1% inflation in costs beginning in year 3 for Aurizona, Black Fox, Santa Elena & SummitSource: Company Reports, NBF Estimates

FIGURE 19: SANDSTORM'S ALL-IN ACQUISITION COSTS

Reserves**oz 000's

Resource**oz 000's

CashUS$M

Shares*** US$M

TotalUS$M

Aurizona 15-May-09 17% 123.9 223.0 $17.8 $2.7 $20.5 $413 $578 $505 $932 62% 54%Santa Elena 15-May-09 20% 67.9 160.8 $12.0 $1.7 $13.7 $356 $558 $441 $932 60% 47%Summit Mine 14-Sep-09 22% 21.6 21.6 $4.0 - $4.0 $410 $596 $596 $1 000 60% 60%Ming Mine 4-Mar-10 12% 28.9 60.9 $20.0 - $20.0 - $692 $329 $1 132 61% 29%Black Fox* 9-Nov-10 12% 108.8 209.6 $56.3 - $56.3 $520 $1 038 $789 $1 393 74% 57%Bachelor 17-Jan-11 20% 40.0 60.0 $20.0 - $20.0 $500 $1 000 $833 $1 363 73% 61%AVERAGE 391.1 735.8 $135 $755 $587 65% 51%

LT InterestDateAcquisition CostGold Attributable to SSL Operating

Cost****US$/oz

Total CostUS$/oz

Reserve

Total CostUS$/oz

Resource

Spot Gold Price

US$/oz

Reserve Cost

% of spot

Resource Cost

% of spot


SHANE NAGLE 17

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 RLOMGold Price, US$/oz $1 450 $1 275 $1 150 $1 100 $1 000 $1 000 $1 000 $1 000 $1 000 $1 000 $1 000FX, C$/US$ $1.02 $1.04 $1.06 $1.08 $1.08 $1.08 $1.08 $1.08 $1.08 $1.08 $1.08

Attributable Gold Production, ounces 21 000 37 000 42 000 46 000 47 000 46 000 43 000 40 000 32 000 28 000 406Total Cash Cost, US$/oz $424 $403 $395 $397 $402 $404 $409 $415 $398 $393 $406

IN US$ Mln

Revenue $30 $48 $48 $51 $47 $47 $44 $41 $33 $29 $434Earnings $11 $16 $15 $15 $12 $12 $11 $11 $10 $9 $137Operating Cash Flow $21 $32 $31 $32 $28 $28 $26 $24 $20 $18 $287Investment ($26) $37 $0 $0 $0 $0 $0 $0 $0 $0 $11

Proceeds from Equity $0.0 $0.0 $0.0 $57.8 $14.5 $5.8 $0.0 $0.0 $0.0 $0.0 $138Proceeds from Debt $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0Debt Repayment $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0Free Cash Flow ($5.5) $68.2 $31.2 $90.1 $42.8 $34.0 $26.3 $24.4 $20.4 $18.3 $324

EPS, US$ $0.03 $0.05 $0.05 $0.04 $0.03 $0.03 $0.03 $0.02 $0.02 $0.02 -CFPS, US$ $0.06 $0.10 $0.10 $0.08 $0.07 $0.06 $0.06 $0.05 $0.04 $0.04 -FCFPS, US$ ($0.02) $0.21 $0.10 $0.23 $0.10 $0.07 $0.06 $0.05 $0.04 $0.04 -

Average S/O, million 325.1 325.1 325.1 396.7 434.9 454.9 454.9 454.9 454.9 454.9

ValuationOur valuation for Sandstorm Gold is based on a 14.0x multiple to our EV/2012E CF,based on our 2012E CF of US$32 million or US$0.07 per fully diluted share at a 2012Egold price of US$1,275/oz. Our 14.0x multiple is a slight discount to the company’s larger–cap royalty peer–group, and a premium to North and South American junior gold produc-ers – as Sandstorm Gold has lower operating risk, fixed, low–cash costs, near–term pro-duction growth and significant exploration potential. Our after–tax NAV is US$326 millionor $0.73 per fully diluted share based on our gold price deck (which assumes a long–termgold price of US$1,000/oz in 2015 onward).

Our $1.25 target reflects a multiple of 1.7xour after–tax corporate NAV, illustrated infigure 20 below. Royalty companies willtypically trade at a premium to NAV whenbased on spot metal prices – using a flatgold price of US$1,400/oz, our NAV forSandstorm Gold is US$420 million, or$0.96 per fully diluted share. Sandstorm istrading at approximately 1.0x NAV usingspot gold prices – suggesting the shares areundervalued on an NAV multiple as well.

The implied return, based on Sandstorm’scurrent $0.92 share price, is 36% – we ratethe shares at Outperform.

SSL Financial and Operating SummaryAs of today, Sandstorm Gold has approximately US$16 million in cash and no debt. Withthe final US$6 million payment to Rambler expected in Q1 2011, and final payments toMetanor of US$9 million in Q2 2011 and US$6 million in Q3 2011, we don’t expectSandstorm Gold to be free cash flow positive until Q4 of this year (excluding any addi-tional acquisitions). We are forecasting US$68 million of free cash flow in 2012 (with arepayment of US$36.6 million from Brigus Gold – US$31 million of free cash flow ex-cluding this payment). A detailed financial summary for Sandstorm Gold is provided below.

Base Case SpotUS$ Mln C$ per F/D share C$ per F/D share

Corporate AdjustmentsWorking Capital $16 $0.04 $0.04Cash on Dilution $83 $0.19 $0.19Long Term Debt $0 $0.00 $0.00LOM Corporate G&A (8%) ($6) ($0.00) ($0.00)

$93 $0.21 $0.21

Project NAVAurizona NAV (3%) $88 $0.20 $0.30Bachelor Lake NAV (5%) $7 $0.02 $0.05Black Fox NAV (3%) $74 $0.17 $0.20Ming Mine NAV (5%) $22 $0.05 $0.07Santa Elena NAV (3%) $30 $0.07 $0.09Summit NAV (3%) $12 $0.00 $0.00

$234 $0.52 $0.75

Total NAV $326 $0.73 $0.96Target/NAV 1.7x 1.3xPrice/NAV 1.3x 1.0x

Fully Diluted (F/D) Shares, mln 454.9

Base Case Assumes: US$1450/oz in '11, US$1275 in '12,US$1150/oz in '13, US$1100/oz in '14 and US$1000/oz in '15+Source: NBF Estimates

FIGURE 20: SSL NAV BREAKDOWN


FIGURE 21: SANDSTORM GOLD FINANCIAL SUMMARY


SHANE NAGLE18

Gold Price, US$/oz Base Case $800 $1 000 $1 200 $1 400 $1 600 $1 800 $1 400(spot)

2011E Cash Flow , US$M $21 $7 $11 $15 $19 $24 $28 $192011E CFPS, US$ $0.05 $0.02 $0.02 $0.03 $0.04 $0.05 $0.06 $0.042012E Cash Flow , US$M $32 $14 $21 $29 $36 $44 $51 $362012E CFPS, US$ $0.07 $0.03 $0.05 $0.06 $0.08 $0.10 $0.11 $0.08

Implied Target, C$@ 14.0x EV/2012E CF $1.25 $0.70 $0.90 $1.15 $1.40 $1.65 $1.90 $1.40

Gold Price, US$/oz $850 $900 $950 $1 000 $1 100 $1 200 $1 300 $1 500(spot)

Project NAV(3%-5%), US$M $58 $61 $65 $68 $73 $79 $84 $94Project NAV(3%-5%) per F/D share, C$ $0.13 $0.14 $0.15 $0.15 $0.16 $0.18 $0.19 $0.21Corporate NAV(3%-5%), US$M $248 $265 $281 $298 $329 $360 $390 $450Corporate NAV(3%-5%) per F/D share, C$ $0.56 $0.59 $0.63 $0.67 $0.74 $0.81 $0.87 $1.01

Implied Target, [email protected] NAV $1.05 $1.15 $1.20 $1.25 $1.40 $1.50 $1.60 $1.85


FIGURE 22: SANDSTORM GOLD PRODUCTION FORECAST

Base Case Assumes: US$1450/oz in '11, US$1275 in '12, US$1150/oz in '13, US$1100/oz in '14 and US$1000/oz in '15+Source: NBF Estimates

FIGURE 23: NAV SENSITIVITY TO LONG-TERM GOLD PRICE

The gold production profile for the company is summarized below, showing productiongrowth of 100% from 2011 to 2013, and stable cash costs averaging approximatelyUS$405/oz over the next ten years. We expect additional gold stream acquisitions to in-crease production and the company’s growth profile in the long–run.

Sensitivity of SSL ValuationBy purchasing future gold production at a fixed price, Sandstorm Gold’s valuation is prima-rily exposed to movements in the gold price. Our valuation is based on our current long–term gold price assumption of US$1,000/oz. The sensitivity of our NAV to these prices isoutlined in the following tables (maintaining a discount rate of 3% for producing assets and5% for development stage assets).

Metal Prices will also have an impact on operating cash flow. In order to provide the leverageof our modeled operating cash flow to gold prices, we have provided the sensitivity tablesbelow including the implied target price based on an EV/2012E CF multiple of 14.0x.

0

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$300

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$450

$500

$550

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Tota

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ost,

US$

/oz

Aurizona Black Fox Bachelor Lake Summit

Ming Santa Elena Total Cash Cost

Base Case Assumes: US$1450/oz in '11, US$1275 in '12, US$1150/oz in '13, US$1100/oz in '14 and US$1000/oz in '15+Source: NBF Estimates

FIGURE 24: OPERATING CASH FLOW SENSITIVITY TO GOLD PRICES


SHANE NAGLE 19

SANDSTORM METALS & ENERGY

PROVIDING LOW–RISK LEVERAGE TO COMMODITIES

SND (TSXV): $0.56Stock Rating: OutperformRisk Rating: Speculative12-Month Target: $0.9012-Month Return: 61%Shares O/S: 229.2 Mln (347.7 Mln FD)Market Cap: $128.3 Mln ($194.7 Mln FD)

Highlights• Spin–out complete, let the streaming begin: Sandstorm completed the spin out of

its Metals & Energy vehicle to shareholders on May 13, 2010. Sandstorm Metals hassince raised US$100 million in equity and acquired six coal royalty streams and a grossrevenue royalty for total consideration of US$52 million. The company will now focuson acquiring additional base metal, bulk commodity and energy royalty streams to growfuture cash flow.

• Near–term production growth: In our model, Sandstorm Metals’ attributable produc-tion is set to increase from 34,000 tons of metallurgical (met) coal and 166,000 tons ofthermal coal in 2011 to 86,000 tons of met coal and 286,000 tons of thermal coal in2012, an increase of approximately 100% in met coal equivalent production. Given thefixed acquisition cost per ounce of production, Sandstorm Metals’ costs remain flat atUS$75/ton of met coal and US$55/ton of thermal coal.

• Generating cash flow right out of the gate: In our model, Sandstorm Metals gener-ates US$12 million of operating cash flow in 2011, US$0.03 per fully diluted share. Weexpect management to continue acquiring royalty streams with their current US$40million cash balance providing additional production growth.

• Attractive time to purchase coal assets: With flooding in Australia, a strike at TeckResources Ltd’s Elkview operation in British Columbia, and an anticipated increase insteel demand throughout 2011, coal prices have had an impressive surge in recentmonths. Based on our coal price forecasts and production assumptions, these coal assetswill have a repayment period of approximately three years.

• Initiating coverage with a $0.90 target price and Outperform rating: Our targetrepresents a multiple of 6.5x our EV/2012E CF – a slight premium to the company’soperating peer group, which is currently trading at 6.0x. Sandstorm Metals’ highermultiple is justified by lower operating risk, fixed low operating costs and near–termproduction growth.

Industry Rating (Metals & Mining): Market Weight; (NBF Economics & Strategy Group)All dollar amounts in Cdn$ unless otherwise noted. All pricing as at February 22, 2011.


SHANE NAGLE20

STOCK RATING Outperform TICKER SNDTARGET PRICE (C$) $0.90 CURRENT PRICE (C$) $0.56RETURN TO TARGET 61% 52-WEEK HIGH (C$) $1.50RISK RATING Above Average 52-WEEK LOW (C$) $0.32SECTOR RATING Market Weight SHARES OUTSTANDING (mln) 229.2

MARKET CAPITALIZATION (C$ mln)FINANCIAL DATA STOCK CHART

Capital Structure Avg. Strike Price (C$) Shares (mln)

Shares Outstanding 229.2

Options $0.56 7.4

Warrants $0.70 111.2

Fully Diluted Shares 347.7

Balance Sheet US$M US$/sh C$M C$/sh

Current Cash $40.0 $0.17 $40.8 $0.18

F/D Cash Adds $80.3 $0.35 $81.9 $0.36

Working Capital $40.0 $0.17 $40.8 $0.18

Long-term Debt $0.0 $0.00 $0.0 $0.00

Book Value $48.3 $0.21 $49.3 $0.21

Enterprise Value (EV) $85.8 $0.37 $87.5 $0.38

EV = Market Capitalization - Working Capital + Long-term Debt RECENT FINANCINGS / ACQUISITIONS

C$/US$ FX Rate: 1.02

Financial Forecast 2010A 2011E 2012E 2013E 2014E

Met. Coal Price, US$/tonne - $250 $250 $200 $195

Thermal Coal Price, US$/tonne - $95 $100 $110 $100

C$/US$ FX Rate $1.03 $1.02 $1.04 $1.06 $1.08

Shares O/S, millions 4.4 229.2 231.6 340.3 340.3 CORPORATE AFTER-TAX NAV SUMMARY AND SENSITIVITY

In US$ million

Revenue $0.0 $24.6 $50.8 $43.3 $40.1 Spot

Operating Cost $0.0 $11.6 $22.1 $20.5 $20.5 $100 $250 $400 $350

G&A Expense $0.4 $0.8 $0.8 $0.8 $0.8 $75 $125 $175 $100

EBITDA ($0.6) $12.0 $27.7 $21.8 $18.6 $112.4 $112.4 $112.4 $112.4

DD&A $0.0 $1.4 $3.0 $2.9 $2.9 $17.7 $75.7 $133.7 $99.4

Earnings ($0.5) $7.0 $17.3 $13.0 $10.7 $2.7 $38.0 $70.8 $21.4

Operating Cash Flow ($0.6) $12.0 $27.7 $21.8 $18.6 $133 $226 $317 $233

Investment $8.0 $44.0 ($24.7) $0.0 $0.0 $0.33 $0.33 $0.33 $0.33

Proceeds from Equity $92.7 $0.0 $6.6 $66.9 $0.0 $0.05 $0.22 $0.38 $0.29

Proceeds from Debt $0.0 $0.0 $0.0 $0.0 $0.0 $0.01 $0.11 $0.20 $0.06Debt Repayment $0.0 $0.0 $0.0 $0.0 $0.0 $0.39 $0.66 $0.92 $0.68Free Cash Flow $84 ($32) $59 $89 $19 1.4x 0.9x 0.6x 0.8x

2.3x 1.4x 1.0x 1.3xEPS (F/D), US$ ($0.00) $0.02 $0.05 $0.04 $0.03 $0.01 $0.05 $0.09 $0.05CFPS (F/D), US$ ($0.00) $0.03 $0.08 $0.06 $0.05 $0.02 $0.10 $0.17 $0.10CFPS (F/D) Sensitivity, US$ - $0.01 $0.02 $0.01 $0.01FCPS (F/D), US$ $0.24 ($0.09) $0.17 $0.26 $0.05 COMPARABLES

CFPS sensitivity based on a US$50/t change in met. coal price.Share EV

PRODUCTION PROFILE (SND ATTRIBUTABLE PRODUCTION) (C$) (US$B) 2011E 2012E 2011E 2012EFranco Nevada FNV-T $32.00 $3.09 14.9x 14.3x 12.6x 12.0x

2011E 2012E 2013E 2014E RLOM Royal Gold RGLD-US $48.16 $2.77 14.5x 13.6x 15.5x 14.5xMet. Coal Silver Wheaton SLW-T $38.62 $13.61 20.7x 21.2x 20.7x 21.2xRex No. 1, tons 000's 9 48 40 40 1 320 Average 16.7x 16.3x 16.3x 15.9xRosa, tons 000's 25 38 19 19 151

34 86 59 59 1 471 Sandstorm Metals SND-T $0.56 $86 16.2x 7.0x 7.2x 3.1xThermal CoalIkerd, tons 000's 57 79 57 57 738 C$/US$: 1.00Big Branch, tons 000's 91 126 139 139 1 051SID, tons 000's 18 81 99 99 492

166 286 295 295 2 280Met. Coal Costs, US$/ton $75 $75 $75 $75 $75Thermal Coal Costs, US$/ton $55 $55 $55 $55 $55

P/CFPS EV/CF

Corporate NAV, US$M

Corporate Adjustments, C$ / F/D share

$128.3

Nov 26/11 - acq. LT interest of 16% coal production from Novadx for US$38M + US$75/t for Met.& US$55/t for thermal

Nov 26/11 - acq. 18% coal production from Royal Coal for US$11M + US$55/t

Nov 26/11 - acq. 1.35% LT gross royalty from Royal Coal for US$3M

Jan 17/11 - $100M (222.3M units @ $0.45 - 1 unit = 1 share + 1/2 $0.70 warrant exp. Dec. 23/12)

NovaDX Assets NAV (10%), US$M

Royal Coal Assets NAV (10%), US$M

$55.1

Base Case

$21.0

Met. Coal Price, US$/t

Thermal Coal Price, US$/t

Corporate Adjustments, US$M

$189

$112.4

$0.55

$0.33

Target Price / Corporate NAV 1.6x

$0.06

$0.16

Corporate NAV, C$ / F/D shareCurrent Price / Corporate NAV

Royal Coal NAV(10%), C$ / F/D share

1.0x

NovaDX NAV(10%), C$ / F/D share

$0.03$0.08

Company Ticker

2011E CFPS (F/D), US$2012E CFPS (F/D), US$

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11

Shar

e Pr

ice,

C$

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Volu

me,

M

Price 50-Day 200-Day

Source: NBF Estimates, Bloomberg, Reuters, Company Data

FINANCIAL AND OPERATING SUMMARY: SANDSTORM METALS & ENERGY


SHANE NAGLE 21

Investment ThesisOur $0.90 target and Outperform rating are supported by: 1) positive and stable cash flow,2) additional accretive acquisitions, 3) expanding coal production from current assets, and 4)strong spot coal prices with long–term fundamental support.

1. Positive Cash Flow Out of the GateBased on our model, Sandstorm Metals is expected to generate US$12 million of operatingcash flow in 2011, or US$0.03 per fully diluted share at an average metallurgical coal priceof US$250/tonne and thermal coal price of US$95/tonne. Our operating cash flow fromSandstorm Metals’ coal assets in 2012 is US$28 million, or US$0.08 per fully diluted share– which we would expect to increase with additional metal stream acquisitions throughoutthe year.

2. More Accretive Acquisitions to ComeSandstorm Metals started trading on May 13, 2010 and financed $100 million in January2011. The company will close six coal stream acquisitions and one gross revenue royaltyacquisition in Q1 2011 and will start generating cash flow to be used toward additionalacquisitions. The company has approximately US$40 million in the treasury and will have anadditional US$75 million available from expiring warrants in December 2012. We expectSandstorm Metals’ management to maintain their aggressive growth strategy and expect afew more acquisitions in 2011, focused on base metals (copper, lead, nickel, zinc), bulkcommodities (iron ore) and energy (coal, uranium, oil & gas).

3. Production GrowthIn our model, Sandstorm Metals’ attributable production is set to increase from 89,000 tonsof metallurgical coal equivalent (based on 3:1 thermal to met coal ratio) in 2011 to ap-proximately 181,000 tons in 2012. We anticipate strong growth in met coal production fromNovadx Venture Corp.’s Rex No. 1 Mine and strong growth in thermal coal productionfrom Royal Coal Corp.’s SID and Big Branch Mines.

4. $0.90 Target Based on 6.5x EV/2012E CFOur $0.90 target price is derived from a multiple of 6.5x our EV/2012E CF, based on a2012E CF of US$0.08 per fully diluted share at an assumed met coal price of US$250/tonne and thermal coal price of US$100/tonne. The company’s peers (royalty / metalstreaming companies: FNV, RGLD, SLW) are currently trading at 15.9x EV/2012E CF, andwe have valued Sandstorm Gold at 14.0x EV/2012E CF – a premium typically given toprecious metal companies. Junior base metal producers are currently trading in the range of4.5x to 6.5x EV/2012E CF, averaging 6.0x. We have valued Sandstorm Metals at the higherend of this range given the company’s growth potential and lower operating risk. Wereiterate our Outperform rating, which is supported by near–term production growth, fixedlow operating costs and future accretive acquisitions carried out by an aggressive manage-ment team.


SHANE NAGLE22

Upcoming Catalysts

2011• Completing funding conditions to finalize Novadx acquisition – Q1 2011

• Installation of new wash plant at Rosa Mine to improve recovery – 2011

• Ramp up of Big Branch Mine to 50,000 tons per month – mid–2011

• Full commercial production from Rex No. 1 Mine – H2 2011

• Ramp up of SID Mine to 35,000 tons per month – end of 2011

2012• Ramp up of SID Mine to 45,000 tons per month – end of 2012

• Future production from Elk Mountain and Little Bushy Creek properties (part of theIkerd Mines)

Other• Exploration results and expanding resources from all properties

• Additional acquisitions


SHANE NAGLE 23

Coal Stream Contracts

Novadx Venture Corp. (Novadx)On Nov. 26, 2010, Sandstorm Metals entered into an agreement with Novadx (NDX–V,NDXFF–US, not rated) to purchase coal streams from the Rosa Mine, the Rex No. 1 Mineand Ikerd Mines for US$38 million in cash plus ongoing payments of the lesser betweenUS$75/ton for met coal, US$55/ton for thermal coal, and spot. Sandstorm Metals madetotal payments of US$30 million and will make the final instalment of US$8 million upon theofficial acquisition of Ikerd – expected by the end of Q1 2011.

The acquisition entitles Sandstorm Metals to purchase 25% of the first 3.8 million tons ofmet equivalent coal (based on three tons thermal coal = one ton of met coal) produced and16% of the LOM met equivalent coal produced thereafter. Novadx has provided a guaranteethat Sandstorm Metals will receive minimum cash flows of US$4 million in 2011, US$6million in 2012, US$9 million in 2013 and US$9.5 million in each of 2014 and 2015 – pro-viding a 100% return of capital within five years. In our model, annual cash flow from theseassets over the next five years totals approximately US$70 million.

Novadx also has the option within 24 months to repurchase in whole or in part, 50% of thecoal streams by making a payment of US$24.7 million to Sandstorm Metals. If exercised inwhole, the percentage of coal that Sandstorm is entitled to will be reduced to 12.5% and 8%from 25% and 16%, respectively. Given currently elevated spot coal prices, we would expectsignificant cash flow generated by Novadx over the next two years and have assumed theywill have enough capital on hand to make the US$24.7 million payment on Jan. 1, 2013 –reducing Sandstorm Metals’ long–term interest in each of the Novadx coal assets (Rosa, RexNo. 1 and Ikerd) to 8%.

Rosa MineThe Rosa Mine is an operating auger met coal mine in the Warrior coal fields of NorthernAlabama (on the southern–most region of the Appalachian Coal Belt). Operations are cur-rently being expanded to include strip mining operations as well as increased auger mining.Met coal from the Rosa Mine is being sold to domestic customers as coking coal for blastfurnaces and for activated carbon applications. The current defined 0.5 million ton reserve willbe mined out over the next three and a half years, however additional permitted mineralresources are present in adjacent properties and have been included in Sandstorm Metals’ coalstream acquisition. Sandstorm Metals is only entitled to purchase coal from any of the surfacemining operations at Rosa going forward and we are modeling approximately 150,000 tonsof annual met coal production over the next six years.


FIGURE 26: ROSA OPERATING CASH FLOW(BEFORE TAX)


FIGURE 25: ROSA PRODUCTION PROFILE(SND'S SHARE)

05

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$65$67$69$71$73$75$77$79$81$83$85

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SHANE NAGLE24

Rex No. 1 MineConstruction on the Rex No. 1 Mine in Tennessee is underway and production is expectedto begin in H2 2011. The Rex project is fully permitted and bonded and the seam willproduce high–quality met coal for use in the production of silicon metal. The Rex seam isone of the largest single continuous resources of met coal in the Central Appalachian coalbelt with a current defined reserve of 32.2 million tons and total resource (all–categories)of 57.9 million tons. Opportunity exists to expand the current resource with additionaldrilling and increasing the current permitted lease area. A total of 15 million tons are per-mitted on the property and Novadx expects production to begin by Q3 2011 at a rate of15,000 tons per month. We are modeling 35,000 tons of coal production in 2011, expand-ing to 190,000 tons in 2012 and 520,000 tons by 2015.


FIGURE 27: REX NO. 1 PRODUCTION PROFILE(SND'S SHARE)


FIGURE 28: REX NO. 1 OPERATING CASH FLOW(BEFORE TAX)

IkerdCoal streams from the Ikerd Properties included in the Sandstorm Metals’ acquisition are theFlatwoods Mine, an operating coal mine in Clay County, Kentucky currently producing ap-proximately 25,000 tons of high–quality industrial stoker coal per month, as well as the ElkMountain and Little Bushy Creek development projects. Each of these high–quality thermalcoal projects are fully permitted and bonded. We are modeling 225,000 tons of thermal coalproduction in 2011, increasing to 315,000 tons in 2012 and 450,000 tons by 2013.


FIGURE 29: IKERD PRODUCTION PROFILE(SND'S SHARE)


FIGURE 30: IKERD OPERATING CASH FLOW(BEFORE TAX)

0102030405060708090

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SHANE NAGLE 25

Royal Coal Corp.On Nov. 26, 2010 Sandstorm Metals also entered into a purchase agreement with Royal CoalCorp. (Royal Coal) (RDA–V, not rated) to purchase coal streams from the Big Branch Mine,the Big Branch Extension and the SID Mine for US$11 million in cash plus ongoing paymentsequal to the lesser of US$55/ton (subject to certain adjustments) and spot. If coal producedfrom the Royal Coal Mines is sold to an off–taker at the coal pit mouth, then SandstormMetals’ fixed price for coal will be reduced by US$5/ton to US$50/ton, and in the event therealized sales price exceeds US$90/ton and the cost of production exceeds US$65/ton, thenSandstorm Metals’ acquisition cost will increase by US$7/ton to US$62/ton. Although ourthermal coal price estimates exceed US$90/ton from 2011 onward, we have not increasedSandstorm Metals’ fixed acquisition cost assuming Royal Coal’s cost of production remainsbelow US$65/ton and coal is sold into the open market.

Sandstorm Metals completed the Royal Coal acquisition, making payments totalling US$11 millionin Q1 2011. The acquisition entitles Sandstorm Metals to purchase 18% of the first 6.0 mln tonsof coal produced, and 12% of the LOM coal produced thereafter. Royal Coal has provided aguarantee that Sandstorm will receive minimum cash flows of US$2.0 million in 2011 andUS$2.5 million in each of 2012, 2013, 2014 and 2015 – providing a 100% return of capitalwithin 4.5 years. In our model, annual cash flow from these assets over the next five years totalsapproximately US$30 million (excluding revenue generated from the gross revenue royalty).

Sandstorm Metals also acquired a gross royalty on all of Royal Coal’s current assets. Purchas-ing 2.7% of all revenue (decreasing to 1.35% once Sandstorm has received a return on capitalof 150% on its initial investment, or a total of US$4.5 million), Sandstorm Metals completedthis acquisition for a total consideration of US$3.0 million in Q1 2011.

All Royal Coal assets are located near Hazard, Kentucky and are strip and contour operationsmining multiple seams of low sulphur, low ash, high BTU thermal coal.

Big Branch (including Big Branch Extension)The Big Branch Mine is currently operating at a run rate of 40,000 tons per month and isexpected to ramp up to 50,000 tons per month in 2011, with additional expansion possibilitiesto as much as 65,000 tons per month. The current coal resource would provide a 10–yearmine life at the expected production rate, however, opportunities exist to expand resources byadditional permitting and an increased leased land position. We are modeling 505,000 tons ofproduction in 2011 from both Big Branch and Big Branch Extension, increasing to 770,000tons by 2013 over a 10–year mine life.


FIGURE 31: BIG BRANCH PRODUCTION PROFILE(SND'S SHARE)


FIGURE 32: BIG BRANCH OPERATING CASH FLOW(BEFORE TAX)

020406080

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SHANE NAGLE26

Reserves**tons, Mln

Resource**tons, Mln

NovaDXRosa (Met.) 26-Nov-10 16% 5.5 9.6 - - - $75Rex No. 1 (Met.) 26-Nov-10 16% 0.1 2.6 - - - $75Ikerd (Thermal) 26-Nov-10 16% 0.0 1.1 - - - $55NovaDX (Met Eq.****) Total 5.6 12.5 $38.0 $6.82 $3.03

Royal CoalBig Branch (Thermal) 26-Nov-10 12% 1.0 1.1 - - - $55SID (Thermal) 26-Nov-10 12% 0.4 0.6 - - - $55Royal Coal Total 1.4 1.7 $11.0 $7.83 $6.37

Aq.Cost

US$ MlnDate LT Interest*

Coal Attributable to SND Operating Cost***US$/t

Aq. CostUS$/t

Reserve

Aq. CostUS$/t

Resource

SID MineThe SID Mine is located to the south of Big Branch and is expected to mine at a rate of35,000 tons per month by the end of 2011. The mine is permitted for strip and contourmining, but could also continue with auger and high wall mining methods. Several opportu-nities exist to increase the resource through additional permitting and pursuing leases con-tiguous with the currently planned mined area. Royal Coal has markets coal from the SIDmine for use as thermal and industrial coal. We are modeling 100,000 tons of coal produc-tion in 2011, increasing to 550,000 tons per year by 2013.


FIGURE 33: SID PRODUCTION PROFILE(SND'S SHARE)


FIGURE 34: SID OPERATING CASH FLOW(BEFORE TAX)

Coal Stream Acquisition CostsBy the end of Q1 2011, Sandstorm Metals will have completed six coal stream acquisitionsand one gross royalty acquisition for total consideration of US$52 million in cash, acquiringapproximately 7.0 million tons of met equivalent coal reserves and a total met equivalentcoal resource of 17.3 million tons – assuming three tons of thermal coal = one ton ofmet coal. Sandstorm Metals will continue to pay ongoing costs of US$75/ton for met coalfrom the Rosa and Rex No. 1 mines, US$55/ton for thermal coal from the Ikerd Proper-ties and US$50/ton to US$62/ton for thermal coal from Big Branch and SID Mines(US$55/ton in our model).

0

25

50

75

100

125

150

2011

2012

2013

2014

2015

2016

2017

Ther

mal

Coa

l Pro

duct

ion,

tons

000

's

$45$47$49$51$53$55

$57$59$61$63$65

Cos

t, U

S$/to

n


$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

2011

2012

2013

2014

2015

2016

2017

Ope

ratin

g C

ash

Flow

(bef

ore

tax)

, U

S$ m

ln

'* Assume no repayment from NovaDX by January 1, 2013'** Sandstorm's share of reported reserves/resources on date of announcement'*** Assumes no changes to Royal Coal Fixed Costs'**** Met. Eq based on 3 tons Thermal Coal = 1 ton Met. CoalSource: Company Reports, NBF Estimates

FIGURE 35: SANDSTORM'S ACQUISITION/OPERATING COSTS


SHANE NAGLE 27

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 RLOMMet Coal Price, US$/tonne $250 $250 $200 $195 $190 $190 $190 $190 $190 $190 $190Thermal Coal Price, US$/tonne $95 $100 $110 $100 $95 $95 $95 $95 $95 $95 $95FX, C$/US$ $1.02 $1.04 $1.06 $1.08 $1.08 $1.08 $1.08 $1.08 $1.08 $1.08 $1.08

Met. Coal Production, tons 000's 34.0 86.0 59.0 59.0 84.0 84.0 62.0 42.0 42.0 42.0 1 004Thermal Coal Production, tons 000's 166.0 285.0 294.0 294.0 294.0 215.0 164.0 129.0 124.0 90.0 2 280Met. Coal Cash Cost, US$/ton $75 $75 $75 $75 $75 $75 $75 $75 $75 $75 $75Thermal Coal Cash Cost, US$/ton $55 $55 $55 $55 $55 $55 $55 $55 $55 $55 $55

IN US$ Mln

Revenue $25 $51 $43 $40 $43 $36 $27 $20 $20 $16 $423Earnings $7 $17 $13 $11 $11 $10 $7 $5 $5 $4 $116Operating Cash Flow $12 $28 $22 $19 $20 $17 $13 $9 $9 $7 $202Investment ($44) $25 $0 $0 $0 $0 $0 $0 $0 $0 ($19)

Proceeds from Equity $0.0 $6.6 $66.9 $0.0 $0.0 $3.8 $0.0 $0.0 $0.0 $0.0 $170Proceeds from Debt $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0Debt Repayment $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0Free Cash Flow ($32.0) $59.0 $88.8 $18.6 $19.9 $21.2 $12.7 $9.0 $8.8 $7.5 $345

EPS, US$ $0.03 $0.07 $0.04 $0.03 $0.03 $0.03 $0.02 $0.01 $0.01 $0.01 -CFPS, US$ $0.05 $0.12 $0.06 $0.05 $0.06 $0.05 $0.04 $0.03 $0.03 $0.02 -FCFPS, US$ ($0.14) $0.25 $0.26 $0.05 $0.06 $0.06 $0.04 $0.03 $0.03 $0.02 -

Average S/O, million 229.2 231.6 340.3 340.3 340.3 346.6 347.7 347.7 347.7 347.7

ValuationOur valuation for Sandstorm Metals is based on a 6.5x multiple to our EV/2012E CF, based on2012E operating cash flow of US$28 million or US$0.08 per fully diluted share at a 2012E metcoal price of US$250/tonne and 2012E thermal coal price of US$100/tonne. Our 6.5x multipleis a slight premium to the company’s peer–group of junior operating base metal companies, whichare currently trading at 6.0x EV/2012E CF. The higher multiple is justified given Sandstorm’slower operating risk, fixed cash costs and near–term production growth. Our after–tax NAV isUS$189 million or $0.55 per fully diluted share based on our coal price deck (which assumes along–term met coal price of US$190/tonne and long–term thermal coal price of US$95/tonnein 2015 onwards).

Our $0.90 target reflects a multiple of 1.6xour after–tax corporate NAV, illustrated below.As with Sandstorm Gold, we highlight howroyalty companies will typically trade at apremium to NAV when based on spot prices.Using a flat met coal price of US$350/tonneand spot thermal coal price of US$100/tonne,our NAV for Sandstorm Metals is US$230million, or $0.70 per fully diluted share. Sand-storm Metals is trading at 0.8x NAV usingspot coal prices – suggesting the shares areundervalued on an NAV multiple as well.

The implied return, based on SandstormMetals’ current $0.56 share price, is 61% – werate the shares at Outperform.

SND Financial and Operating SummaryAs of Dec. 31, 2010, Sandstorm Metals had US$84 million in cash, US$83 million in workingcapital and no debt. We estimate the current cash balance around US$40 million and are fore-casting US$59 million of free cash flow in 2012 (with a repayment of US$24.7 million fromNovadx – US$31 million of free cash flow excluding this payment). A detailed financial sum-mary for Sandstorm Metals is provided below.


FIGURE 37: SANDSTORM METALS FINANCIAL SUMMARY

Base Case SpotUS$ Mln C$ per F/D share C$ per F/D share

Corporate AdjustmentsWorking Capital $40 $0.12 $0.12Cash on Dilution $80 $0.24 $0.24Long Term Debt $0 $0.00 $0.00LOM Corporate G&A (8%) ($8) ($0.02) ($0.02)

$112 $0.33 $0.33

Project NAVRosa NAV (10%) $6 $0.02 $0.03Rex No. 1 NAV (10%) $28 $0.08 $0.17Ikerd NAV (10%) $12 $0.04 $0.04Big Branch NAV (10%) $14 $0.04 $0.04SID NAV (10%) $7 $0.02 $0.02Gross Royalty NAV (10%) $2 $0.01 $0.01

$76 $0.22 $0.37

Total NAV $189 $0.55 $0.70Target/NAV 1.6x 1.3xPrice/NAV 1.0x 0.8x

Fully Diluted (F/D) Shares, mln 347.7

Base Case assumes met coal price of: US$250/t in '11, US$250/tin '12, US$200/t in '13, US$195/t in '14 and US$190/t in '15+Base Case assumes thermal coal price of: US$95/t in '11, US$100/tin '12, US$110/t in '13, US$100/t in '14 and US$95/t in '15+Source: NBF Estimates

FIGURE 36: SND NAV BREAKDOWN


SHANE NAGLE28

$0.55 $140 $150 $160 $170 $180 $190 $200 $210 $220 $230 $240

$70 $0.40 $0.41 $0.42 $0.43 $0.44 $0.45 $0.46 $0.47 $0.48 $0.49 $0.49

$75 $0.42 $0.43 $0.44 $0.45 $0.46 $0.47 $0.48 $0.49 $0.49 $0.50 $0.51

$80 $0.44 $0.45 $0.46 $0.47 $0.48 $0.49 $0.49 $0.50 $0.51 $0.52 $0.53

$85 $0.46 $0.46 $0.47 $0.48 $0.49 $0.50 $0.51 $0.52 $0.53 $0.54 $0.55

$90 $0.47 $0.48 $0.49 $0.50 $0.51 $0.51 $0.52 $0.53 $0.54 $0.55 $0.56

$95 $0.48 $0.49 $0.50 $0.51 $0.52 $0.53 $0.54 $0.55 $0.56 $0.56 $0.57

$100 $0.50 $0.51 $0.52 $0.52 $0.53 $0.54 $0.55 $0.56 $0.57 $0.58 $0.59

$105 $0.51 $0.52 $0.53 $0.54 $0.55 $0.56 $0.57 $0.57 $0.58 $0.59 $0.60

$110 $0.52 $0.53 $0.54 $0.55 $0.56 $0.57 $0.58 $0.59 $0.60 $0.61 $0.62

$115 $0.54 $0.55 $0.56 $0.57 $0.57 $0.58 $0.59 $0.60 $0.61 $0.62 $0.63

$120 $0.55 $0.56 $0.57 $0.58 $0.59 $0.60 $0.61 $0.62 $0.62 $0.63 $0.64

Base Case:

Ther

mal

Coa

l Pric

e (U

S$/to

nne)

Metallurgical Coal Price (US$/tonne)

0

50

100

150

200

250

300

350

400

450

50020

11

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

Prod

uctio

n, to

ns 0

00's

$0

$25

$50

$75

$100

$125

$150

Tota

l Cas

h C

ost,

US$

/ton

Met Coal Thermal Coal

Met. Coal Cash Cost Thermal Coal Cash Cost

The coal production profile for the next 20 years is summarized below, showing met coalproduction growth of 150% from 2011 to 2012, thermal coal production growth of 70%from 2011 to 2012 and stable cash costs of US$75/ton for met coal and US$55/ton forthermal coal over the entire mine life. We expect future production increases with additionalcoals stream acquisitions, as well as additional production growth from additional basemetals and bulk commodities.

Sensitivity of SND ValuationBy purchasing six coal production streams and a coal gross revenue royalty, SandstormMetals exposure is essentially limited to movements in the met and thermal coal prices inthe Appalachia region of the United States. Our NAV is based on our current long–termmet coal price assumption of US$190/tonne and a long–term thermal coal price assump-tion of US$95/tonne. The sensitivity of our NAV to these prices is outlined in the follow-ing tables (maintaining a discount rate of 10%).

Coal Prices will also have an impact on operating cash flow. In order to provide the lever-age of our modeled operating cash flow to coal prices, we have provided the sensitivitytables below.

Base Case assumes met coal price of: US$250/t in '11, US$250/t in '12, US$200/t in '13, US$195/t in '14 and US$190/t in '15+Base Case assumes thermal coal price of: US$95/t in '11, US$100/t in '12, US$110/t in '13, US$100/t in '14 and US$95/t in '15+Source: NBF Estimates

FIGURE 39: AFTER-TAX CORPORATE NAV SENSITIVITY (C$ PER F/D SHARE)


FIGURE 38: SANDSTORM METALS PRODUCTION FORECAST


SHANE NAGLE 29

0.02$ $200 $210 $220 $230 $240 $250 $260 $270 $280 $290 $300

$75 $0.67 $0.69 $0.71 $0.72 $0.74 $0.76 $0.77 $0.79 $0.81 $0.82 $0.84

$80 $0.70 $0.72 $0.73 $0.75 $0.77 $0.78 $0.80 $0.82 $0.83 $0.85 $0.87

$85 $0.73 $0.75 $0.76 $0.78 $0.80 $0.81 $0.83 $0.85 $0.86 $0.88 $0.90

$90 $0.76 $0.78 $0.79 $0.81 $0.82 $0.84 $0.86 $0.87 $0.89 $0.91 $0.92

$95 $0.79 $0.80 $0.82 $0.84 $0.85 $0.87 $0.89 $0.90 $0.92 $0.94 $0.95

$100 $0.82 $0.83 $0.85 $0.87 $0.88 $0.90 $0.92 $0.93 $0.95 $0.97 $0.98

$105 $0.84 $0.86 $0.88 $0.89 $0.91 $0.93 $0.94 $0.96 $0.98 $0.99 $1.01

$110 $0.87 $0.89 $0.91 $0.92 $0.94 $0.96 $0.97 $0.99 $1.01 $1.02 $1.04

$115 $0.90 $0.92 $0.93 $0.95 $0.97 $0.98 $1.00 $1.02 $1.03 $1.05 $1.07

$120 $0.92 $0.94 $0.95 $0.97 $0.99 $1.00 $1.02 $1.04 $1.05 $1.07 $1.09

$125 $0.95 $0.97 $0.98 $1.00 $1.02 $1.03 $1.05 $1.07 $1.08 $1.10 $1.12


Ther

mal

Coa

l Pric

e (U

S$/to

nne)

0.02$ $200 $210 $220 $230 $240 $250 $260 $270 $280 $290 $300

$70 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.03 $0.03 $0.03

$75 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.03 $0.03 $0.03 $0.03 $0.03

$80 $0.02 $0.02 $0.02 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03

$85 $0.02 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03

$90 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.04 $0.04

$95 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.04 $0.04 $0.04 $0.04 $0.04

$100 $0.03 $0.03 $0.03 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04

$105 $0.03 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04

$110 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.05 $0.05

$115 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.05 $0.05 $0.05 $0.05 $0.05

$120 $0.04 $0.04 $0.04 $0.04 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05

Ther

mal

Coa

l Pric

e (U

S$/to

nne)


As our $0.90 target price for Sandstorm Metals is based on a multiple of 6.5x EV/2012ECF, the implied sensitivity of our valuation is provided in Figure 42 below at various 2012Emet and thermal coal prices.


FIGURE 40: 2011E CFPS SENSITIVITY (C$ PER F/D SHARE)

0.02$ $200 $210 $220 $230 $240 $250 $260 $270 $280 $290 $300

$75 $0.05 $0.05 $0.05 $0.05 $0.06 $0.06 $0.06 $0.06 $0.07 $0.07 $0.07

$80 $0.05 $0.05 $0.06 $0.06 $0.06 $0.06 $0.07 $0.07 $0.07 $0.07 $0.08

$85 $0.05 $0.06 $0.06 $0.06 $0.06 $0.07 $0.07 $0.07 $0.07 $0.08 $0.08

$90 $0.06 $0.06 $0.06 $0.07 $0.07 $0.07 $0.07 $0.08 $0.08 $0.08 $0.08

$95 $0.06 $0.07 $0.07 $0.07 $0.07 $0.08 $0.08 $0.08 $0.08 $0.09 $0.09

$100 $0.07 $0.07 $0.07 $0.07 $0.08 $0.08 $0.08 $0.08 $0.09 $0.09 $0.09

$105 $0.07 $0.07 $0.08 $0.08 $0.08 $0.08 $0.09 $0.09 $0.09 $0.09 $0.10

$110 $0.08 $0.08 $0.08 $0.08 $0.09 $0.09 $0.09 $0.09 $0.10 $0.10 $0.10

$115 $0.08 $0.08 $0.08 $0.09 $0.09 $0.09 $0.09 $0.10 $0.10 $0.10 $0.10

$120 $0.08 $0.09 $0.09 $0.09 $0.09 $0.10 $0.10 $0.10 $0.10 $0.11 $0.11

$125 $0.09 $0.09 $0.09 $0.09 $0.10 $0.10 $0.10 $0.10 $0.11 $0.11 $0.11


Ther

mal

Coa

l Pric

e (U

S$/to

nne)


FIGURE 41: 2012E CFPS SENSITIVITY (C$ PER F/D SHARE)


FIGURE 42: TARGET PRICE SENSITIVITY TO 2012E COAL PRICES (C$ PER F/D SHARE)


SHANE NAGLE30

APPENDIX 1: SANDSTORM MANAGEMENTSandstorm’s management team is based out of Vancouver, British Columbia and includes:

Nolan Watson, President & CEO (SSL & SND), the former CFO of Silver Wheaton,where he helped raise over US$1 billion in debt and equity to fund Silver Wheaton’s growththrough acquisitions. Mr. Watson is a Chartered Accountant, a CFA charterholder, andreceived a Bachelor of Commerce degree from the University of British Columbia. Mr.Watson is also Chairman of the Audit Committee of the Board of Gold Wheaton.

David Awram, Executive VP Corporate Development (SSL/SND), the former directorof Investor Relations (IR) for Silver Wheaton. He was also Manager of IR with DiamondFields International Ltd. Mr. Awram graduated in 1996 from the University of BritishColumbia with a Bachelor of Science degree in Geology.

Justin Cochrane, Executive VP Corporate Development (SND), a former VP atNational Bank Financial, where he worked in the investment banking division. Mr. Cochranehandled primary coverage of B.C.–based clients, advising on M&A transactions and equityofferings in the power and utilities, resource and cleantech sectors. Mr. Cochrane holds thedesignation of Chartered Financial Analyst and received a Bachelor of Commerce degreefrom the University of British Columbia.

Claudia Tornquist, Executive VP Business Development (SND), formerly with RioTinto plc for over 8 years in various roles in business development and business evaluation.Most recently, Mrs. Tornquist was responsible for advising Rio Tinto’s Investment Commit-tee on mergers and acquisitions and major investments. Prior to her involvement in mining,Mrs. Tornquist also has experience in UK venture capital and consulting, she holds an MBAfrom INSEAD and a Masters of Engineering from Technische Universitat Munchen inGermany.

Krysta Rehaag, CFO (SSL and SND), a Chartered Accountant and current controller ofthe Vancouver–based private venture capital firm, Pathway Capital Ltd. Previously, she wasa professional staff accountant with an international accounting firm. Ms. Rehaag holds aMasters Degree in Accounting from the University of Waterloo.

Ron Ho, VP Finance (SSL and SND), the former CFO of SNS Silver Corporation,where he contributed to equity capital raises and project evaluation and development. Mr.Ho was also an equity analyst at Raymond James, is a Chartered Accountant and holds aBachelor of Commerce degree from the University of British Columbia.

Dan Gundersen, Vice President, Energy Finance (SND), the former Vice President,Engineering for DeeThree Exploration Ltd., a Calgary–based TSX–listed oil and gas explo-ration and production company. Prior to DeeThree, he was Vice President, Engineering atDual Exploration Inc. and he also held management roles with Cyries Energy Inc. andDevlan Exploration Inc. Mr. Gundersen is a professional engineer and a member ofAPEGGA.


SHANE NAGLE 31

APPENDIX 2: SANDSTORM DIRECTORSSandstorm Gold (SSL–V) has a five–member board which includes Nolan Watson,current President and CEO, and Dave Awram, the current Executive VP Corporate Devel-opment. Other board members include:

Andrew Swarthout, President and Director of Bear Creek Mining Company. Mr.Swarthout is formerly an officer and member of the management committee of SouthernPeru Copper Corporation where he was directly responsible for two new major discoveries.Mr. Swarthout has participated in project permitting and financing, as well as managingseveral pre–feasibility and financial scoping studies. He has also evaluated reserves on numer-ous precious and base metals deposits.

David De Witt, a founder and chairman of Pathway Capital Ltd., a Vancouver–basedprivate venture capital company. Mr. De Witt currently holds directorships in a number ofpublic companies involved in the natural resource field, and practiced corporate, securitiesand mining law until his retirement from the practice of law in January 1997.

John P. A. Budreski, current Vice–Chairman at Cormark Securities Inc. Mr. Budreski’sprevious roles include: President and CEO of Orion Securities Inc. and Orion Financial Inc.,Managing Director of Equity Capital Markets, Head of Investment Banking and ManagingDirector of US Institutional Equity for Scotia Capital, as well as senior management roles ininvestment banking, equity sales and trading for RBC Dominion Securities and TorontoDominion Bank.

Sandstorm Metals (SND–V) also has a five–member board which includes NolanWatson, current President and CEO, as well as Andrew Swarthout, David De Witt andJohn Budreski – all directors of Sandstorm Gold. The Sandstorm Metals board alsoincludes:

Marcel de Groot, a founder and President of Pathway Capital Ltd. Mr. de Groot iscurrently the chairman of the board of Luna Gold Corp. and a director of Keegan Re-sources Ltd and Waterloo Resources Ltd. He graduated from the University of BritishColumbia with a Bachelor of Commerce degree and articled with Grant Thornton LLPwhere he obtained the Chartered Accountant designation.


SHANE NAGLE32

Number Strike (C$) Value (US$) Expiry Date

Total Shares O/S (Current) 229 186 772 - - -

Warrants

111 150 000 0.70$ 76 279 412$ December 23, 2012

Total Warrants 111 150 000 0.70$ 76 279 412$ -

Options

7 400 000 0.56$ 4 062 745$ February 23, 2016

Total Options 7 400 000 0.56$ 4 062 745$ -

Total Warrants and Options 118 550 000 0.68$ 80 342 157$ -

Total Shares F/D (Current) 347 736 772 - - -C$/US$ FX Rate: 1.02

Number Strike (C$) Value (US$) Expiry Date

Total Shares O/S (Current) 325 100 000 - - -

Warrants 99 300 000 0.60$ 58 411 765$ April 23, 2014

17 120 000 1.00$ 16 784 314$ October 19, 2015

Total Warrants 116 420 000 0.66$ 75 196 078$ -

Options 40 000 0.10$ 3 922$ July 31, 2012

3 600 000 0.45$ 1 588 235$ June 16, 2014

700 000 0.44$ 301 961$ July 6, 2014

2 000 000 0.44$ 852 941$ July 28, 2014

100 000 0.67$ 65 686$ May 19, 2015

6 907 000 0.68$ 4 604 667$ November 26, 2015

Total Options 13 347 000 0.57$ 7 417 412$ -

Total Warrants and Options 129 767 000 0.64$ 82 613 490$ -

Total Shares F/D (Current) 454 867 000 - - -

Major Shareholders Number (O/S) (millions)

% (O/S) Number (F/D) (millions)

% (F/D)

Libra Advisors LLC 26.2 8% 26.2 6%

Arias Resource Fund 24.2 7% 24.2 5%

Wells Capital Management 17.4 5% 17.4 4%

Sentry Select Capital 15.0 5% 15.0 3%

Management/Insiders 19.5 6% 19.5 6%

C$/US$ FX Rate: 1.02Source: Company Reports / NBF

SSL SHARE CAPITAL & MAJOR SHAREHOLDERS

APPENDIX 3: SSL AND SND SHARE CAPITAL

Source: Company Reports / NBF

SND SHARE CAPITAL


SHANE NAGLE 33

Source: World Coal Institute

COAL TYPES AND DISTRIBUTION

APPENDIX 4: COAL PRICE FORECASTSIn determining our cash flow for Sandstorm Metals, we have provided our initial priceforecast for both met and thermal coal (Note: production and costs are quoted in imperialtons (ton) and coal price forecasts are provided in metric tonnes (tonne) – 1 tonne = 1.102tons).

Background – There are four primary types of coal, with various quality and characteris-tics. High rank coals are stronger, with lower moisture and higher carbon content – there-fore more heat content. Low rank coals are typically softer, with higher moisture levels andlower carbon content. Different types of coal have different uses, for example coking coal(met coal) is mainly used in steel production, while steam coal (thermal coal) is primarilyused in power generation. Other important users of coal include alumina refineries, papermanufacturers and the chemical and pharmaceutical industries.

The dominant consumer for coal in the United States is the electric power sector, account-ing for more than 90% of annual coal consumption. The remaining market uses thermalcoal for industrial applications and met coal in the production of steel. Over the pastseveral decades, coal has been the dominant fuel source for electric power generation in theUnited States, historically representing approximately 50% of the market share. Among allmajor fossil fuels, coal continues to be the least expensive fuel source on an all–in basis, andwith rising oil prices and an anticipated rise natural gas prices, the long–term fundamentalsfor the American thermal coal market are relatively robust.

Approximately 75% of coal supply in the United States comes from the Powder RiverBasin (located in Wyoming / Montana) and Appalachia (stretching from southern New YorkState to northern Alabama, Mississippi and Georgia). Both Novadx and Royal Coal’s opera-tions are located in this region. Appalachia coal is typically higher ranking coal than thePowder River Basin, with moderately higher sulphur content. South–eastern and mid–Atlanticutilities are the primary consumers of Central Appalachia coal, with higher quality met coaloften sold at a premium into the seaborne coking coal market.


SHANE NAGLE34

Met coal prices strengthened throughout the latter half of 2010, based on a broad rally inall commodities. Prices have continued to surge throughout Q1 2011 based on recentflooding in Queensland, Australia, as several large–scale producers were impacted (includingAnglo American, BHP Billiton, Mitsubishi Corporation and Rio Tinto). The flooding curbedproduction from approximately 80% of the area’s mines and has removed approximately10 million tonnes of met coal supply from the market thus far in 2011. Market tightness isalso further compounded by an equipment failure at one of Teck Resources’ ports and alabour strike at its Elkview operation. The Elkview operation produces approximately 5.5million tonnes per year of high–quality coking coal and could continue to have an impacton the seaborne coking coal market as long as the workforce remains off the job.

The spot price of coal has been climbing, with reports of prices in excess of US$350 /tonne in recent weeks, levels not seen since the last round of flooding in Australia and thecommodities run up in 2008. Demand for met coal is directly related to the demand forsteel, and with expected growth in steel production on the back of growth in India andChina, combined with restricted supply (Australia supplies about half of the met coal usedto make steel), we would anticipate rising coal prices to continue in combination withincreasing growth in the United States and European nations.

There is strong support for coal prices in the near term, and long–term fundamentalsremain strong as growth in steel demand and global power requirements increase. Coalsupply appears to be constrained as there is a lack of large, high–quality assets capable ofmeeting required production rates.

Source: Appalachian Regional Commission / Company Reports

LOCATION OF SND'S ASSETS

2011E 2012E 2013E 2014E 2015E+

Metallurgical Coal, US$/tonne $250 $250 $200 $195 $190

Thermal Coal, US$/tonne $95 $100 $110 $100 $95Source: NBF Estimates

COAL PRICE DECK


SHANE NAGLE 35

DISCLOSURESRatings And What They Mean:

PRIMARY STOCK RATING: NBF has a three-tiered rating system that is relative to the coverage universe of the particular analyst.Here is a brief description of each: Outperform – The stock is expected to outperform the analyst’s coverage universe over the next12 months;Sector Perform – The stock is projected to perform in line with the sector over the next 12 months; Underperform – The stock isexpected to underperform the sector over the next 12 months.

SECONDARY STOCK RATING: Under Review - Our analyst has withdrawn the rating because of insufficient information and isawaiting more information and/or clarification; Tender - Our analyst is recommending that investors tender to a specific offering forthe company’s stock; Restricted - Because of ongoing investment banking transactions or because of other circumstances, NBFpolicy and/or laws or regulations preclude our analyst from rating a company’s stock.

INDUSTRY RATING: NBF has an Industry Weighting system that reflects the view of our Economics & Strategy Group, using itssector rotation strategy. The three tiered system rates industries as Overweight, Market Weight and Underweight, depending on thesector’s projected performance against broader market averages over the next 12 months.

RISK RATING: NBF utilizes a four-tiered risk rating system, Low, Average, Above Average and Speculative. The system attempts toevaluate risk against the overall market. In addition to sector-specific criteria, analysts also utilize quantitative and qualitative criteriain choosing a rating. The criteria include predictability of financial results, share price volatility, credit ratings, share liquidity andbalance sheet quality.

GeneralNational Bank Financial (NBF) is an indirect wholly owned subsidiary of National Bank of Canada. National Bank of Canada is apublic company listed on Canadian stock exchanges.The particulars contained herein were obtained from sources which we believe to be reliable but are not guaranteed by us and may beincomplete. The opinions expressed are based upon our analysis and interpretation of these particulars and are not to be construedas a solicitation or offer to buy or sell the securities mentioned herein.Research AnalystsThe Research Analyst(s) who prepare these reports certify that their respective report accurately reflects his or her personal opinionand that no part of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views asto the securities or companies.NBF compensates its Research Analysts from a variety of sources. The Research Department is a cost centre and is funded bythe business activities of NBF including, Institutional Equity Sales and Trading, Retail Sales, the correspondent clearing business,and Corporate and Investment Banking. Since the revenues from these businesses vary, the funds for research compensation vary.No one-business line has a greater influence than any other for Research Analyst compensation.

Canadian ResidentsIn respect of the distribution of this report in Canada, NBF accepts responsibility for its contents. To make further inquiry related tothis report, Canadian residents should contact their NBF professional representative. To effect any transaction, Canadian residentsshould contact their NBF Investment advisor.

U.S. ResidentsWith respect to the distribution of this report in the United States of America, NBF Securities (USA) Corp., an affiliate of NBF,accepts responsibility for its contents, subject to any terms set out above. To make further inquiry related to this report, UnitedStates residents should contact their NBF Securities (USA) Corp. professional representative. To effect any transaction, UnitedStates residents should contact their NBF Securities (USA) Corp. investment advisor.

UK ResidentsIn respect of the distribution of this report to UK residents, NBF has approved this financial promotion for the purposes of Section21(1) of the Financial Services and Markets Act 2000. NBF and/or its parent and/or any companies within or affiliates of the NationalBank of Canada group and/or any of their directors, officers and employees may have or may have had interests or long or shortpositions in, and may at any time make purchases and/or sales as principal or agent, or may act or may have acted as marketmaker in the relevant securities or related financial instruments discussed in this report, or may act or have acted as investmentand/or commercial banker with respect thereto. The value of investments can go down as well as up. Past performance will notnecessarily be repeated in the future. The investments contained in this report are not available to private customers. This reportdoes not constitute or form part of any offer for sale or subscription of or solicitation of any offer to buy or subscribe for thesecurities described herein nor shall it or any part of it form the basis of or be relied on in connection with any contract orcommitment whatsoever.This information is only for distribution to non-private customers in the United Kingdom within the meaning of the rules of theRegulated by the Financial Services Authority.

CopyrightThis report may not be reproduced in whole or in part, or further distributed or published or referred to in any manner whatsoever, normay the information, opinions or conclusions contained in it be referred to without in each case the prior express written consent ofNational Bank Financial.

NBF is a member of CIPF

NBF quarterly ratings summary and the total ratings by month can be found on our website under Research and Analysis/Equities/About NBF Research/Quarterly Ratings Summary (link attached) http://www.nbcn.ca/cmst/site/index.jhtml?navid=803&templateID=249

The NBF Research Dissemination Policy is available on our website under Legal/Research Policy (link attached) http://www.nbcn.ca/cmst/site/index.jhtml?navid=712&templateid=243


SHANE NAGLE36

ADDITIONAL COMPANY RELATED DISCLOSURES

If a company specific disclosure is not found herein for a listed company, NBF at this time does not provide researchcoverage or stock rating for the company in question

SNDIn the past 12 months NBF acted as financial advisor, fiscal agent, or underwriter to the company that is the subject of this reportand received remuneration for its services.NBF is an indirect wholly owned subsidiary of the National Bank of Canada. From time to time the National Bank of Canada mayenter into lending or financial arrangements with companies that are the subject of NBF Research Reports. At the date of this report,National Bank of Canada is not a lender to the company which is the subject of this report.NBF and/or its Affiliates may have a position in the securities mentioned herein and may make purchases and/or sales of thesesecurities from time to time in the open market or otherwise. On the last day of the month preceding the date of this report, NBF andits Affiliates held in the aggregate less than 1% of the outstanding shares (of any class of equity securities) of this issuer. (2)

SSLIn the past 12 months NBF has not acted as financial advisor, fiscal agent or underwriter for the company that is the subject of thisreport. NBF may act in such a capacity in the future and receive, or expect to receive, compensation for such activities. NBF is anindirect wholly owned subsidiary of the National Bank of Canada. From time to time the National Bank of Canada may enter intolending or financial arrangements with companies that are the subject of NBF Research Reports. At the date of this report, NationalBank of Canada is not a lender to the company which is the subject of this report.NBF and/or its Affiliates may have a position in the securities mentioned herein and may make purchases and/or sales of thesesecurities from time to time in the open market or otherwise. On the last day of the month preceding the date of this report, NBF andits Affiliates held in the aggregate less than 1% of the outstanding shares (of any class of equity securities) of this issuer. (10)


SHANE NAGLE 37

NOTES


SHANE NAGLE38

NOTES

RESEARCH ANALYSTS

TECHNOLOGYClean TechRupert Merer 416.869.8008Associate: Jeremy Mersereau 416.869.6768

Comm Equipment, Broadband & WirelessKris Thompson 416.869.8049Associate: Manik Verma 416.869.7495

Software & IT ServicesKris Thompson 416.869.8049Associate: Nikhil Thadani 416.869.7938

TRANSPORTATION AND INDUSTRIALSCameron Doerksen 514.879.2579Associate: Umayr Allem 416.869.8577

Ihor Danyliuk 416.869.7522Director of Research

Caroline Jukes, 416.869.8039 Administrative Manager

ECONOMICS AND STRATEGYStéfane Marion, 514.879.3781Chief Economist & Strategist

Yanick Desnoyers, 514.879.3140Assistant Chief Economist

Paul-André Pinsonnault, 514.879.3795Senior Fixed Income Economist

Marc Pinsonneault, 514.879.2589Senior Economist

Marco Lettieri, 514.879.3195Economist

Matthieu Arseneau, 514.879.5149Economist

DERIVATIVES & STRUCTURED PRODUCTSPat Chiefalo 416.869.7931Associate: Daniel Straus 416.869.8020

TECHNICAL ANALYSISDennis Mark 416.869.7427

ENERGY

Pipelines, Utilities & Energy InfrastructurePatrick Kenny 403.290.5451Associate: Anthony Sze 403.290.5445Associate: Scott Russell 403.290.5102

Oil and GasGrant Hofer 403.290.5436Associate: Dale Lewko 403.290.5446

Dan Payne 403.290.5441Associate: Ryan Holbrook 403.290.5447

Matthew Taylor 403.290.5625Associate: Ryan Holbrook 403.290.5447

Research PublicationsVanda BrightManager, Publishing Services 416.869.7141

National Bank Financial (the Firm) is an indirect wholly owned subsidiary of National Bank of Canada.The particulars contained herein were obtained from sources which we believe reliable but are not guaranteed by us and may be incomplete. The opinions expressed are based upon our analysis andinterpretation of these particulars and are not to be construed as a solicitation or offer to buy or sell the securities mentioned herein. The Firm may act as financial advisor, fiscal agent or underwriterfor certain of the companies mentioned herein and may receive a remuneration for its services. The Firm and/or its officers, directors, representatives, associates, may have a position in the securitiesmentioned herein and may make purchases and/or sales of these securities from time to time in the open market or otherwise.To U.S. residents: NBF Securities (USA) Corp., an affiliate of the Firm, accepts responsibility for the contents of this report, subject to any terms set out above. Any U.S. person wishing to effecttransactions in any security discussed herein should do so only through NBF Securities (USA) Corp.This report may not be reproduced in whole or in part, or further distributed or published or referred to in any manner whatsoever nor may the information, opinions or conclusions contained in it bereferred to without in each case the prior express consent of National Bank Financial.

FINANCIAL SERVICESBanking & InsurancePeter Routledge 416.869.7442Associate: Grant Connor 416.869.6420

Diversified FinancialsShubha Rahman Khan 416.869.6425Associate: Sunny Singh 416.869.8045

COMMUNICATIONS & MEDIAAdam Shine 514.879.2302Associate: Peter Stusio 514.879.2564Associate: Kevin Krishnaratne 416.869.6585

MERCHANDISING & CONSUMER PRODUCTSJames Durran 416.869.7930Associate: Robert McKee 416.869.7572Associate: Hussein Sunderji 416.869.7116

METALS & MININGJunior GoldsTara Hassan 416.869.7118Associate: Christopher Martino 416.869.6517

Shane Nagle 416.869.7936

REAL ESTATE & HOSPITALITYHeather Kirk 514.390.7867Associate: Marco Giurleo 514.390.7989

SPECIAL SITUATIONSHugues Bourgeois 514.879.2574Associate: Frederic Tremblay 514.879.2494

Trevor Johnson 416.869.8511Associate: Keegan McCormick 416.869.7809

Marie-Noël KorcazFrench Translation 514.879.2492

Maria Cojan 514.879.5357Publishing Associate

Wayne Chau 416.869.7140Publishing Associate

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