BERAL, INC.
Andrew Racz
Director of Research
300 East 54 Street, Suite 26C
New York, NY 10022
Phone: (212) 319-6949
Fax: (212) 753-1944
E-mail: mlikar@aol.com

SANDSTORM GOLD LTD.

(SAND-NYSE)

RECORDED INTERVIEW WITH NOLAN WATSON , CEO

January 24, 2014

Price

$5.20

52wk Price Range

$3.94-$12.53

Shares

100 M

Market Cap

$520 M 

NOLAN WATSON ENABLES MINERS TO MINE AND KEEP THEIR MINES

The Critical Role of Gold and
The Formative Gold in the History of the Last 100 Years

One thing is sure – gold hasn’t disappeared. Periodically the media and politicians talk about the desirability of lower priced gold or the fact that gold will be nothing but a commodity, that it has no real significance. These statements fill up space in the world’s press,. They occasionally sound remarkably farsighted when made by politicians, but the fact remains that gold stays.

Gold came into my life after World War II when I discovered that my father put everything we had into gold. I saw then, at the age of 7 that Napoleon Gold, was superior to the Dollar, to the Pound Sterling, and the Swiss Franc. If I am correct, $14 was equivalent to one Napoleon Gold and I always thought that 14 is more dignified than 1 and since Napoleon represented only one person I shifted my support towards gold.

When I reached England in 1956, and actually went to South Africa in 1961 I experienced the effect of the Sharpervile shooting when gold skyrocketed. The world recognized the Sharpervile incident. The death of 71 innocent blacks created a run on gold and made the world recognize that a political crisis not only has political ramifications, but is also reflected in the price of gold. I recognized that there is what I call gold and that it has value and that many people have great interest in the yellow metal.

Quite frankly, when in the summer of ’61, I reached Johannesburg and spent 5 months there I saw the tremendous wealth in Johannesburg, in Cape Town and began to respect ownership of gold mining shares. I grew to respect a society, a country that is basically built on gold.

In fact in ’61 not only Johannesburg, not only South Africa but a large part of Africa depended on gold and seeing the prosperity it created , I began to believe that in gold we trust.

In 1974 I was lucky to be invited to testify in the legalization of gold. Congressman Gonzalez invited only three people – Secretary Simon, Vice Chairman of Solomon Brothers , Dr. Arthu Burns of the Federal Reserve and me.

I sat next to the Secretary who was a broker at some stage, who hit the table like a father educating his children, saying that it was high time that we put gold back to the commodity pages next to Pork Bellies where it belongs.

This idea sounded unusual and Secretary Simon hit the table like a good broker or rather a good manager of brokers. However, reflecting what he said, I realized he was right. Gold belongs next to the commodity pages except it is the most important commodity which Secretary Simon, couldn’t erase from people’s minds. He arranged a number of sales – 160,000 ounces at the time, but the so-called government Treasury sales were meaningless. After the 3rd sale, nobody noticed.

When President Nixon on August 15, 1971 closed the gold window, the fluctuation of currencies and particularly gold, didn’t know a limit. Whatever way we say it – President Nixon put gold back into the world’s front pages. When in 1982 I had a number of conversations with him and I explained how America could use its gold reserves to bankrupt the Soviet Union. This is when President Nixon stated “if I were President still, I would do it”.

Then we come to 2013/14. We have all sorts of currencies. We have all sorts of fluctuating currencies. We have all sorts of debts but something unusual happened to gold. Gold actually – or rather the yearly production of gold has gone out of style. Most people have run out of money to continue mining exploration and many have difficulties of getting together money in order to develop gold mines.Not many gold mining companies can even contemplate an increase of production except.

Sandstone as we describe in the article is one of the few finance companies who has the knowledge and intelligence of developed gold mines, gold reserves and has money – and access to money. The gold mining industry has shifted from production to finance. This is what the story is all about. Furthermore, it is our prediction that the story has just begun.
 

RECORDED INTERVIEW

Nolan Watson,CEO
SANDSTORM GOLD LTD.

Racz

Would you have liked Balzac to write a book about you in business?

Watson

Would I like to write one myself?

Racz

No, no – Balzac was the French writer and when I think about your company I always think about Balzac. He lent money to people and took in a tremendous rate of return in a totally unstructured environment. Now you are in a structured environment but the concept is the same – no?

Watson

I think it sounds similar.

Racz

Okay then let me turn to reality. What is the basic concept of Sandstone?

Watson

The basic concept is you get an above average risk adjusted return for our shareholders. We try to expose them to the same upside that they would get if they invested in a mining company like expiration upside, like commodity upside, we try to not eliminate but reduce risk on the downside including capital expenditure overruns and capital overruns.

Racz

Basically your asset is money, correct?

Watson

Our asset is the ability to make money – yes.

Racz

But you start with having some money?

Watson

Yes.

Racz

And you lend it, you give it to gold mining companies on certain terms which is built on receiving payments over periods of time lasting over many years. Sandstorm receives a set percentage of the production of the client company . Their income oscillates with the price of gold and silver. Accordingly, a higher price in precious metals represents increased revenues for Sandstorm. A currency crisis which we are currently witnessing is ideal for Sandstorm. Gold is the only safe refuge for currencies in crisis and this reflects in the future revenue stream for Sandstorm.

Watson

That’s exactly right.

Racz

What’s happening in the gold market today?

Watson

Well there’s a lot of things happening in the gold market today, but I think one of the structural things that we’re seeing is that there is a tremendous amount of demand for the physical commodity still coming out of Asia and the Middle East and that is being supplied personally by my supplies but also by liquidation of ETFs in North America. The ETFs can only liquidate for so much longer before there is no gold left in them so I think that it is not going to be too much longer before we’ve got more demand that we have supply.

Racz

Okay so let’s go back 5 years ago. Okay – you were in business 5 years ago, correct?

Watson

We were just starting a business.

Racz

What is the difference between 5 years ago and today on the gold market?

Watson

Well one of the differences is that right now people believe that the United States’ economy is going to be a roaring engine and solve all their financial deficit and debt issues and people think we don’t need gold anymore which I think is a faulty assumption.

Racz

So people in the last two years have forgotten about the deficit. And, the deficit is growing. So you have one factor which is unique in a way that we have never thought of a $23 trillion deficit.

Watson

Yes, it certainly is a very substantial amount deficit especially with the demographics that the US has – so much of their working population getting older.

Racz

So again in the last 10, 20 years you have the Far East – you have China who said look the Yankees are trying to push the dollars on us every day, let’s put 10%, 15% into gold and as a result there is a huge force to increase the price of gold because of demand. Correct? Government demands?

Watson

Yup.

Racz

This has never been before.

Watson

Certainly on a scale that is larger than anything we have seen in the last several decades.

Racz

So here is one main factor. We have deficit. President Clinton said that when he left the country he left it with a trillion dollar surplus. Then we go into the Obama deficit and Obama says okay – the first thing we sort out – other problems other than the deficit, but the deficit is growing, growing every day.

Watson

Yeah, the deficit is – the actual deficit is stabilized, but the deficit is continuing to grow pretty quick.

Racz

Now as a result, the moment may come on January 21st, 2014 when there is a huge run in gold – 100 points – it is very simple. The traders all got together and they were buying American paper and converting to gold, correct? In can happen on the 21st of January or the 21st of the 2015 – and nobody knows it.

Watson

And certainly nobody knows the timing but it could happen.

Racz

Now you were talking the Middle East takes gold – now could you comment on the force of the ETFs.

Watson

I think the sentiments in North America is that all of the problems have been fixed in the US - $16 or !7 trillion debt is not a problem at all therefore we don’t need gold and so the ETFs are liquidating and they have been net sellers of physical gold for many months now and we can actually see and track pretty closely the price of gold has been directly related to the rate of the liquidation of ETFs.

Racz

The ETFs are a very big force – a growing force – no?

Watson

They are a very big force – they are becoming slowly a shrinking force of liquidation in the short term in the sense that the rate of liquidation is going down and I think….

Racz

Now, how does the gold mining industry look currently? I mean what is happening to the major mines. What would they do today because of the conditions.

Watson

Well they are certainly not increasing production any right now.

Racz

They are not increasing production, so what does it mean in terms of the price of the securities?

Watson

I think generally speaking the gold companies have been trading off – they are very close to 52 week lows although the last couple of weeks we have seen a bounce off of that.

Racz

So in other words you have gold mining companies not increasing production. I talked to a Vancouver based mining company – well known - all I know it’s about 5 cents and they having meaningful reserves, and I asked them what they are doing . They said they are not doing anything because they don’t have the money to mine gold. This is a well-known company . I asked them what they are doing now and they told me they raised mony by selling 4 million 5 cents warrants to the directors and friends. They stated that soon they will have some money, but not enough for mining. Now isn’t this the best situation for you?

Watson

Yes – yes.

Racz

They should be calling you , I said listen - maybe you can make a deal because the only reason you don’t mine at the moment is that you do not have the money , but you have very good reserves.

Watson

I see – that’s what Sandstorm spends a lot of time looking for – situations where companies do have economic good strong reserves that make sense to turn into a mine with a management team that is capable of executing and that’s our core strength. Although it is surprising how often when companies come to us with their technical information and we look through it and realize that the assets are really not as good as advertised but we’ve got to kiss a lot of frogs to find a price.

Racz

You have a company called Silvercrest. Could you kindly roughly describe that deal as a typical example.

Watson

Yes, Silvercrest is a Vancouver based gold and silver mining company with their main asset as a mine in Mexico that produces mostly gold but silver as well. So Sandstorm provided them with capital up front. When they went to build their mine they used our money to go build their mine, and now they are up and running cash flow positive, and our deal is that we get to buy 20% of the gold they produce at $350 per ounce. The difference between $350 and $1,200 whatever the market place is, is that’s our profit margin. Silvercrest gets to keep the other 80% of the gold and we did not do a deal on the silver so they get to keep 100% of all the silver.

Racz

Now this was a very big

 

 

Disclaimer

Information contained herein is based on data obtained from recognized statistical services, issuers reports or communications or other sources believed to be reliable. However, such information has not been verified by us and we do not make any representation to its accuracy or completeness. Any statement non-factual in nature constitutes only current opinions which are subject to change. BERAL INC. or their officers, directors, analysts or employees may have positions in the securities or commodities referred to herein, and may as principal or agent buy and sell such securities or commodities. An employee, analyst, officer or a director of BERAL INC. may serve as a director for companies mentioned in this report. Neither the information nor any comment expressed shall constitute an offer to sell or a solicitation of an offer to buy any securities or commodities mentioned herein. There may be instances when fundamental, technical and competitive opinions may not be in concert. This firm may from time to time perform investment banking or other services for or which investment banking or other businesses from any company mentioned in this report.

 

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Andrew Racz. 300 East 54 Street, Suite 26C, New York, NY 10022
Phone: (212) 319-6949 Fax: (212) 753-1944. E-mail: mlikar@aol.com

Copyright © 2011 Andrew Racz. All Rights Reserved.

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