Sandstorm Resources Ltd. is a growth focused resource based company that seeks to complete transactions with companies that have advanced stage development projects or operating mines. By making up-front payments to its partners, Sandstorm receives volumetric production payments (i.e. metal stream deals) and royalties on precious metals. Sandstorm helps other companies in the resource industry grow their businesses, while acquiring attractive assets in the process.

Sandstorm is focused on low cost, profitable operations with excellent exploration potential and management teams focused on assertive growth in politically stable jurisdictions.

ANDREW RACZ:   Mr. Watson, the available statistics indicate that in the year 2008, the total amount of gold purchased by consumers and investors was $87-90 billion, exactly 3,500 tons. Do you find it believable?

NOLAN WATSON:   Yes. I thin there are a lot of statistics with respect to that and it depends on who you ask and where the date is being drawn from. But certainly it is believable.

Q:   Now, do you know the significance of the number, $100 billion?

A:   Yes.

Q:   I'll give you some statistics. General Motors' current monetary need is $50 billion. The total debt of Hungarian IMF is $30 billion. The market cap of Goldman Sachs is well over $20 billion, maybe over $30 billion. In other words, a commodity, which is the only commodity being used as a monetary substitute, has a total turnover or demand of $100 billion. That is very very small. In other words, if General Motors defaults on $50 billion, Hungary on $30 billion, what happens?

A:   The banks are out $80 billion and the price of Goldman Sachs is cut by half.

Q:   May I ask you, what is the market capital of your two companies?

A:   Well, the company that I am the CEO of, Sandstorm Resources, it's market cap is approximately $60 million.

Q:   And Gold Wheaton?

A:   Gold Wheaton, the company that I am a director of, its market cap ranges daily but today it's approximately $420 million.

Q:   You were Treasurer or Chief Executive of Silver Wheaton?

A:   Yes.

Q:   You were a Financial Vice President of Silver Wheaton?

A:   I was Chief Financial Officer of Silver Wheaton, yes.

Q:   So when you left, what was the market cap of Silver Wheaton?

A:   Silver Wheaton was approximately $3.5 billion.

Q:   In other words, you personally dealt in the last ten years about $4 billion of the total $100 billion of precious metal investment funds. That means to me that while, as you are receiving great market acceptance for you various companies and now the current one, you are really dealing in very small numbers which are currently in circulation.

A:   Oh, absolutely.

Q:   Now, furthermore, if you want to analyze Sandstorm Resources, you basically are creating gold-backed bonds which in turn enables you to use the capital to invest in gold-producing companies and use a formula by which the financial capital is leveraged and some of the production handed over to you, which in turn increases the market value of your company.

A:  Yes, absolutely. I would say one slight difference to that is that although it is similar to a gold-backed bond, what we are actually producing is something that is tied to the actual production at the mine. So its value increases as exploration potential is improved up at the mine.

Q:   Well, you do not have to be modest about the expression "gold-backed bonds", because when you issue your paper to the public, you are, in fact, creating gold-backed bonds. Correct?

A:   Okay, sure. With some uniqueness between what people naturally consider a gold-backed bond, which is usually a fixed national amount of ounces, but it is similar to that in the sense that it is backed by gold that actually exists. It is just the number of ounces that we get to purchase and sell fluctuate with production in a mine and over time increase with the expiration potential of a mine. But it is very analogous to a gold-backed bond, yes.

Q:   Now, if I may digress to capital markets, the Chinese at the moment have $2 trillion in U.S. government bonds. Correct?

A:   I haven't followed the recent statistics on that, but that sounds reasonable to me. I know it is changing frequently.

Q:   Now, there has been a serious announcement from the Chinese which referred to your business. They wanted to barter trade with Brazil and barter trade with Malaysia, and today they announced that they are creating $60 billion in Chinese paper which they want to use for ordinary trade. The $60 billion, which is a nice number, is basically Chinese-backed bonds and very similar to what you, or rather, Sandstorm was doing when you issued your bonds. It is all paper which some have tried to use as currency, although the Chinese used this currency in order to force trade. In your case, it is a very specified trade. But what I want to try to bring out, and if my theory is correct, is that you are one of the top experts in the Northern Hemisphere in the precious metals market to operate with very, very small sums of money. I mean, $60 million is a very small sum of money.

A:   Yes.

Q:   So may I ask you this?  Is there a way that you would welcome and you can float so the $60 million becomes $200 million, then $500 million, and so on?

A:   Well, absolutely. That is the objective of this company, to grow and grow while adding value for shareholders and continue to acquire gold and other precious metal-based assets.

Q:   So many years from now, there is a possibility that someone would have issued $500 million versus paper, or even $1 billion versus the paper. It is a theoretical possibility.

A:   It's a theoretical possibility, yes.

Q:   And if so, you would be a chief representative of how to create values which are tied to gold and enables you to fund the mining industry.

A:   Yes.

Q:   If this is the case, once you operate a gold mine and you have sister companies, by the way, operate on the multi-billion dollar level, the world will accept that paper issued against gold is real paper, real currency.

A:   Well, I think right now most people when they buy their gold, they buy it on an unallocated basis, so they are buying it electronically and not actually holding the physical gold in their house. Although there are certainly cases of people who do that. So I think it's becoming more accepted and will continue to be so as people purchase paper-backed assets that are represented by gold.

Q:   Now, at the moment we are talking $1,000 gold. The United States has 8,400 tons, the IMF 3,500 tons and the Chinese have 1,100 tons. But at the same time, in the real world there is a negative trend that after the huge loans countries were given, like Latvia and Iceland, which are going to be in serious default and which can alter the monetary stability of the dollar.

A:   Right. I certainly don't disagree with that.

Q:   If that happens, we may have a very dramatic increase in the price of gold.

A:   Yes, I think there are lots of things that have the potential to increase the price of gold, but instability in the U.S. dollar is certainly one of them, and anything that would cause people to have concern about the strength in the U.S. economy or the U.S. dollar or international financial currency markets would, I think, act to strengthen the price of gold.

Q:   Well, I must admit that I have my own ideas in this field because the world has never seen 2008 and 2009.

          President Obama accepted historical deficits.

In 1947, Art Buchwald wrote a book, And How Much is that in Dollars?". Today, he would say

How much is it in gold?       

A:   True.

Q:   We have a whole conglomerate of countries borrowing from the IMF. The other day I looked at the statistics and there are four countries in Eastern Europe each with $25 billion in loans. That's $100 billion, and there's no way these countries can pay it back, which means that we will have crisis after crisis, and it's not the U.S. economy which will decide how to solve this crisis. This crisis, to some extent, cannot be solved with the current monetary system.

A:   I think that right now, certainly the mess that the United States has gotten itself into with respect to massive deficits and a huge debt to GDP ratio, even compared to other countries like Canada, I think the U.S. has a long way to go to dig themselves out of his, and it's going to be very challenging to do it with a strong U.S. dollar. I think a devalued U.S. dollar is going to be one of the only ways that they can continue to support the path that they are on.

Q:   Sandstorm has two major competitors. You have Royal Gold, Franco-Nevada and Royal Gold. Each of them has a market capital of around $1 billion, but they started earlier than you and they have built up their asset base, and they do business with larger companies, and certainly they can select the best companies. Are you competing for the same business?

A:   Well, I think the earlier companies--Franco and Royal Gold--many years ago the size of the transactions they were doing initially, we would have been competing. But now that they are in the multi-billion dollar market caps, and Franco-Nevada is actually even significantly larger than that, the size of the deals they are looking at compared to the size of the deals that we're looking at are different. So we are not competing head-to-head. I know that Gold Wheaton, the types of transactions they would look at, they may compete with those companies. But I think Gold Wheaton has a lot of great opportunities to grow. Sandstorm is looking at smaller deals, and I think Sandstorm has a good opportunity to grow as well.

Q:   Tell me, isn't it true that Sandstorm is attractive from two angles? One is the deals you have done, and the other one is the deals you can do under good market conditions -- you can raise money. In other words, your future business is to some extent going to pull along Sandstorm's size.

A:   Absolutely. It will increase sales from size as we go forward and, yes, I think the two assets that we have right now, being a gold mine in Brazil and Mexico, well, we get to purchase 17% of the gold from that mine and we get to purchase 17% of the gold from a Silvercrest gold mine that is being built in Mexico. So I think those are good assets, but absolutely, as it looks to grow, Sandstorm is going to be able to add shareholder value, in my opinion, in each of the acquisitions that it goes in the future. And I think that benefits our company and benefits our shareholders.

Q:   I always say I'm supposed to find good companies and not bad ones. Now there are a limited number of people doing what you are doing. There are two giants -- you and maybe one or two, but you are certainly literally put among the giants. But, you know, management capability and knowledge is also a major factor, particularly in the currency market. May I show you? At the moment, for the year 2009, can you think of six potential deals that you would like to do?

A:   Yes.

Q:   You can?

A:   Absolutely.

Q:  Now, if you don't mind me saying so, you are in the field of mining, and I only had one profession in my life, and that is being a securities analyst. Suppose you take a lesson from a famous English conglomerate realtor, Charlie Clove. Have you heard about him?

A:  No.

Q:  Well, Charlie Clove became one of the richest men in England. He started with an ice skating rink and then he was buying companies. But what he did was sell one...well, not one, but he would sell six companies, go out and get an option for the deal, see his stock appreciate on the options, raise the money, and go from two deals to eight deals. Have you thought about this?

A:  I think we've not only thought about it, but we've kind of done things similar in the past with past companies. I know Silver Wheaton, for example, has financed transactions with equity after the announcement of such transactions that got the benefit of the positive news.

Q:  Is that in the cards?

A:  It may or may not be. In our business, one of the challenging things is that we always have to find companies that need the financing that we can provide them. And if they need the financing, they will need some certainly on the financing. So getting an "option", so to speak, to the truest definition of the term, can be very challenging. And if you do, you will probably have to pay for that option. So it's something we would do if we could, and we will certainly look at. I think our approach right now is being focused on just purchasing these contracts outright probably from the start.

Q:   But you have limited capital at the moment.

A:   Right. So we would purchase them. This is the way we did both of the first two deals that we did. We purchased them subject to financing. So you purchase them, and then you go finance them.

Q:   Well, that's a different version of what I said.

A:   Yes.

Q:   And further into the options.

A:   Yes.

Q:   Then after many, many deals besides the six that you can do and under the right financial circumstances, you would?

A:   Well, the timing has to be right. I think over the longer term, there certainly is. We have to find a company with the need for the capital right now, so we are going to grow similar to what I had mentioned in terms of our time line, probably two or three transactions this year in addition to the two that we have already done. So in a year, hopefully we would have done four or five acquisitions.

Q:   Well, that is the convention in your business. Now let's be a little bit imaginative.

A:   All right.

Q:   That in 2009-2010, the monetary structure of the world is going to change, and that could lead to a sharp increase for gold and other metals, but particularly gold, and a very sharp increase. And as a result, a higher stock price for you, which enables you to get more capital. And so you decide that instead of two or three deals, the money is so cheap that you do four or five deals. Is that a possibility?

A:  Sure.

Q:   Now then, let's say you eventually have six deals altogether in the company. Your company will be represented by a decent volume of gold, which you acquired from the transactions.

A:   Yes.

Q:   And it's like a pool or...how do you call it? A gold kitty growing in value. So in other words, you will have a kind of gold-backed paper.

A:   Absolutely.

Q:   In summary, for an investor, your stock price in U.S. dollars, if I'm correct, is around 40 cents.

A:   It's around 40 to 45 cents. Yes.

Q:   We are looking at the company, which is only listed in Canada. You are only traded in Canada, is that correct?

A:   Currently, yes.

(Article 118 - posted June 22, 2009)