Title: Sandstorm Metals & Energy Ltd. - SND (T-VEN) Cdn$0.60 Price: Cdn$0.60 StockRating: Outperform TargetPrice: Cdn$0.

m TargetPrice: Cdn$0.95 Headline: Production to Come From Terrex Energy’s Two Creek and Strathmore

March 22, 2011 The NBF Daily Bulletin

Metals & Mining

Sandstorm Metals & Energy Ltd.

SND (T-VEN) Cdn$0.60
Stock Rating: Outperform SND to Acquire Oil & Gas Streams
(Unchanged)
Target: Cdn$0.95 Production to Come From Terrex Energy’s
(Was $0.90)
Risk Rating: Above Average Two Creek and Strathmore Properties
(Unchanged)
Est. Total Return 58%
Stock Data:
HIGHLIGHTS
52-week range (Cdn$) $0.32 - $1.50
Current Price (Cdn$) $0.60 „ Acquisition of O&G Streams from Terrex (TER:TSXV)
Bloomberg/Reuters: Canada SND CV / SND.TO Sandstorm (SND) has agreed to acquire 25% of future
production from Terrex’s Two Creek project and 15% of future
production from the Strathmore property. SND will make an
(Year-End December 31) 2011e 2012e 2013e
up-front payment of US$14.7 million plus ongoing payments
EPS (US$) $0.03 $0.08 $0.05
of US$15/bbl of oil. The total acquisition cost, based on the
P/E 18.0x 7.3x 13.1x
initial five years of production, is approximately US$200,000
CFPS (US$) $0.06 $0.13 $0.08
per flowing barrel.
P/CF 10.5x 4.6x 7.8x
EBITDA (US$ Mln) $13.1 $30.4 $26.3
„ Downside Risk is Limited
EV/EBITDA 7.2x 3.1x 3.6x
Terrex has provided a guarantee for 100% return on capital by
Met. Production ('000's tons) 34.0 86.0 59.0
2018, through annual minimum pre-tax payments beginning
Met. Cash Cost (US$/t) $75 $75 $75
with US$0.5 million in 2011 and averaging approximately
US$2.0 million thereafter.
Financial Data:
„ Upside From Enhanced Oil Recovery (EOR)
Shares Outstanding (mln) 229.2
Terrex is currently in the process of implementing Enhanced
Market Capitalization (Cdn$ mln) $138
Oil Recovery (EOR) technology on both the Two Creek and
Fully Diluted (mln) 347.7
Strathmore properties to improve recovery and annual
Book Value per Share (Cdn$) $0.21
production rates. Terrex expects annual production to
Price/Book Ratio 2.8x
increase from 340 boed currently to 1,600 boed by 2015 (we
Net Asset Value per Share (Cdn$) $0.57
are modeling a production increase to 1,250 boed by 2015).
Price/NAV 1.0x
Total Debt (Cdn$ mln) $0.0
„ Positive Impact on Valuation
Total Cash (Cdn$ mln) $40.8
Incorporating production from both assets into our model has
Source: NBF Estimates / Company Reports increased our NAV by $0.02 per share (~3%) and our 2012E
cash flow by US$2.7 million, or approximately US$0.01 per
FD share. Maintaining a multiple of 6.5x EV/2012E CF, our
Industry Rating: Overweight target has increased by $0.05 per share to $0.95 – we
(NBF Economics & Strategy Group) maintain our Outperform rating.
Company Profile: Stock Performance
Sandstorm Metals & Energy is a growth focused junior
royalty company looking to acquire base metal, bulk $1.40 2.0
Price 50-Day 200-Day
commodity and energy production streams from advanced 1.8
$1.20
stage development projects or operating mines. The royalty 1.6
framework is attractive to investors looking to maintain $1.00 1.4
exposure to exploration success, expansion possibilities
Share Price, C$

1.2
Volume, M

and metal price movements while reducing risks typically $0.80

1.0
associated with operating companies. $0.60
0.8

$0.40 0.6

Shane Nagle - (416) 869-7936 $0.20

0.4

shane.nagle@nbfinancial.com 0.2

$0.00 0.0
May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11
 Page 2

Transaction Overview
Sandstorm has agreed to purchase 25% of all oil, natural gas and natural gas liquids for the life of
the Two Creek Jurassic A pool, 25% of all oil, natural gas and natural gas liquids for the next five
years from the Two Creek Jurassic B pool, and 15% of all oil, natural gas and natural gas liquids
from the Strathmore property.
Sandstorm will make an up-front deposit of US$14.7 million plus ongoing per unit payments of;
US$15/bbl of oil, US$1.00/mcf natural gas, and US$8.00/bbl of natural gas liquids as well as all
transportation and royalty costs (estimated at approximately US$5/bbl for transportation, <25%
royalty costs for Two Creeks and 3-15% royalty costs for Strathmore).
The total acquisition cost based on NBF’s estimated first five years of production is approximately
US$200,000 per flowing barrel.
Terrex has the option to repurchase half of the future production for a payment of US$9.6 million
within the next 24 months, leaving Sandstorm with a long-term interest of 12.5% on the Two Creek
property and 7.5% on the Strathmore property - we have not included this repayment in our model.
Terrex has also guaranteed minimum pre-tax cash flows to Sandstorm in each year from 2011 to
2018 in order to provide a 100% guaranteed return on investment; these guaranteed payments are
compared with our modeled EBITDA in Figure 1.
FIGURE 1: ANNUAL CASH FLOW FROM TWO CREEK / STRATHMORE
2011 2012 2013 2014 2015 2016 2017 2018
Terrex Guaranteed Cash Flow, US$M $0.5 $1.1 $1.8 $2.2 $2.6 $2.4 $2.2 $1.9
NBF Modeled EBITDA, US$M $0.9 $2.2 $3.6 $4.4 $4.4 $3.6 $3.0 $2.6
Source: NBF Estimates

Cash flow estimates in Figure 1 are based on our operating assumptions for both properties and
NBF’s oil and gas price forecasts outlined in Figure 2 below:
FIGURE 2: OIL & GAS PRICE FORECASTS
2011E 2012E 2013+
WTI ($US/bbl) $90.00 $88.00 $80.00
Nymex Gas ($US/mcf) $4.75 $5.00 $5.75
Source: Reuters, NBF Estimates

EOR Technology
Enhanced Oil Recovery (EOR) is a proven and improving technology that is used as a tertiary
process on medium to light oil reservoirs to enhance the overall oil recovery. EOR is used in
approximately 3% of global oil production (used widely in China and the United States) with very
few projects utilizing the technology within Canada.
Primary oil recovery from a well typically yields 15%, with water flooding adding an additional 10%
to 15% on average. Preliminary results from the first alkaline-surfactant polymer (ASP) flood in
Canada (implemented in the Taber South pool in Alberta) suggest an incremental oil recovery of
approximately 15% and a boost in production rates. In the case of Terrex, this incremental 15%
recovery would suggest an additional 1.5 million barrels of recoverable oil from Two Creek Jurassic
A, and 3 million barrels from the Strathmore property.
EOR works by first pumping alkalis through the injection well which react with oils to produce
natural surfactants and reduce adsorption. These surfactants reduce the interfacial tension
between oil and water. Polymers injected into the well increase the viscosity of injected water and
help improve sweep efficiency and divert water from high permeability zones to aid in additional oil
recovery. A schematic of the EOR process is provided in Figure 3.
 Page 3

FIGURE 3: SCEMATIC OF EOR PROCESS

Source: Terrex Presentation

Preparing an asset for ASP can take 18 – 24 months, with chemical injection occurring over the first
two to four years. Production rates typically don’t see an improvement until approximately six
months after the initial alkali injection, with peak production rates lasting for approximately two to
three years - before declining over 15 to 25 years with additional water flooding.
Two Creeks
The Two Creek property is currently producing approximately 220 bbl/day of oil and 300 mcfd of
natural gas from both Jurassic A and Jurassic B pools. The Two Creek property contained
approximately 19 million barrels of original oil in place (OOIP) (10 million in pool A and nine million
in pool B), and has produced approximately 1.7 million barrels to date. Terrex’s plan is to
implement an EOR process within the next two years at Two Creeks.
FIGURE 4: MAP OF TWO CREEK PROPERTY

Source: Terrex Presentation

Based on our discussion with Sandstorm management, we expect the ASP flood to be
implemented in Jurassic Pool A only (suggesting an additional 1.5 million bbls of recoverable oil –
assuming 15% recovery from ASP injection), and have assumed a peak production rate of 600
boed by mid-2013 (declining by late-2015 to a long-term average production rate of 150 boed). We
have also assumed two more conventional oil wells will also be drilled on the Two Creek Property
later this year, one in pool A and one in pool B, initially adding an additional 100 boed per well.
 Page 4

Strathmore
The Strathmore property is producing approximately 50 to 100 boed of oil (approximately 60/40
oil/gas). Terrex’s plan is to implement an EOR process at Strathmore by the end of 2011. The
Strathmore pool contained approximately 20 million barrels of OOIP, and has produced
approximately five million barrels since 1985 (suggesting an additional three million bbls of
recoverable oil – assuming 15% recovery from ASP injection). Production could reach as high as
800 boed with a chemical injection scheme, while we are modeling a maximum production rate of
600 boed in mid-2014, with production declining by late-2015 to a long-term average production
rate of 50 boed. Terrex’s production forecast is provided in Figure 5 below:
FIGURE 5: STRATHMORE PRELIMINARY PRODUCTION FORECAST

Source: Terrex Summary Report

NBF Production Forecasts

Terrex is projecting maximum production rates of 1,600 boed by 2015 from both Two Creeks and
Strathmore, declining to a production rate below 200 boed by 2030. Terrex’s combined production
profile is illustrated in Figure 6 below.
FIGURE 6: TERREX PRODUCTION PROFILE FOR TWO CREEKS AND STRATHMORE

Source: Terrex Presentation

We are modeling a maximum production rate of 1,250 boed in early 2015, declining to a long-term
production rate of 200 boed in 2030 on wards. Our production profile is provided in Figure 7 below:
 Page 5

FIGURE 7: NBF PRODUCTION ESTIMATES (BOED)

Total Oil Production (boed)

1 400
1 200
1 000
Strathmore
800
Two Creek B
600
Two Creek A
400
200
0
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Source: NBF Estimates

The Terrex oil and gas streams will be accretive to Sandstorm’s NAV and cash flow. Our calculated
NAV for the Terrex assets is approximately US$22 million ($0.06 per fully diluted share),
suggesting an acquisition cost of approximately 0.7x NAV, based on our long-term price
assumptions of US$80/bbl of oil and US$5.75/mcf of natural gas. With two additional conventional
wells at the Two Creek property in early 2012 and commissioning of the EOR project at Strathmore
by the end of 2011, we have modeled approximately 200,000 bbls of oil production and 140,000
mcf of natural gas production in 2012 (42,000 bbls and 34,000 mcf net to Sandstorm). Based on
our production estimates and current price deck, the Terrex assets add US$2.7 million to our
2012E operating cash flow, or US$0.01 per fully diluted share.
Target Price and Rating
Our valuation for Sandstorm Metals is based on a 6.5x multiple to our EV/2012E CF, based on
2012E operating cash flow of US$30.4 million or US$0.09 per fully diluted share. Our 6.5x multiple
is a slight premium to the company’s peer group of junior operating base metal companies, which
are currently trading around 6.0x EV/2012E CF. The higher multiple is justified given Sandstorm’s
lower operating risk, fixed cash costs and near-term production growth. Incorporating the
announced Terrex acquisition, which is expected to close before the end of Q1 2011, Sandstorm’s
cash balance stands at approximately US$25 million and our after-tax NAV is US$196 million or
$0.57 per fully diluted share.
Upcoming Catalysts
2011
• Completion of Terrex acquisition – Q1 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
• Commissioning of Strathmore chemical EOR – Q4 2011
2012
• Additional conventional wells at Two Creek
• 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 the Ikerd
Mines)
Other
• Exploration results and expanding resources from all properties
• Additional acquisitions
 Page 6

FINANCIAL AND OPERATING SUMMARY: SANDSTORM METALS & ENERGY

STOCK RATING Outperform TICKER SND
TARGET PRICE (C$) $0.95 CURRENT PRICE (C$) $0.60
RETURN TO TARGET 58% 52-WEEK HIGH (C$) $1.50
RISK RATING Above Average 52-WEEK LOW (C$) $0.32
SECTOR RATING Market Weight SHARES OUTSTANDING (mln) 229.2
MARKET CAPITALIZATION (C$ mln) $137.5
FINANCIAL DATA STOCK CHART

Capital Structure Avg. Strike Price (C$) Shares (mln) $1.40 2.0
Price 50-Day 200-Day
Shares Outstanding 229.2 1.8
$1.20
Options $0.56 7.4 1.6

Warrants $0.70 111.2 $1.00 1.4

Fully Diluted Shares 347.7

Share Price, C$
1.2

Volume, M
$0.80
1.0
Balance Sheet US$M US$/sh C$M C$/sh $0.60
0.8
Current Cash $40.0 $0.17 $40.8 $0.18
$0.40 0.6
F/D Cash Adds $80.3 $0.35 $81.9 $0.36
0.4
Working Capital $40.0 $0.17 $40.8 $0.18 $0.20
0.2
Long-term Debt $0.0 $0.00 $0.0 $0.00
$0.00 0.0
Book Value $48.3 $0.21 $49.3 $0.21 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11

Enterprise Value (EV) $94.8 $0.41 $96.7 $0.42

EV = Market Capitalization - Working Capital + Long-term Debt RECENT FINANCINGS / ACQUISITIONS
C$/US$ FX Rate: 1.02
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

Financial Forecast 2010A 2011E 2012E 2013E 2014E Nov 26/11 - acq. 18% coal production from Royal Coal for US$11M + US$55/t
Met. Coal Price, US$/tonne - $250 $250 $200 $195 Nov 26/11 - acq. 1.35% LT gross royalty from Royal Coal for US$3M
Thermal Coal Price, US$/tonne - $95 $100 $110 $100 Jan 17/11 - $100M (222.3M units @ $0.45 - 1 unit = 1 share + 1/2 $0.70 warrant exp. Dec. 23/12)
C$/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 $26.4 $54.6 $49.3 $47.4 Spot
Operating Cost $0.0 $12.3 $23.3 $22.0 $22.4 Met. Coal Price, US$/t $100 $250 $400 $350
G&A Expense $0.4 $0.8 $0.8 $0.8 $0.8 Thermal Coal Price, US$/t $75 $125 $175 $100
Base Case
EBITDA ($0.6) $13.1 $30.4 $26.3 $24.0 Oil Price (WTI), US$/bbl $75 $125 $175 $103
DD&A $0.0 $1.8 $3.8 $4.2 $4.4 Nat. Gas Price (Nymex), US$/mcf $3.00 $4.50 $6.00 $4.25
Earnings ($0.5) $7.6 $18.9 $15.6 $13.8 Corporate Adjustments, US$M $112.4 $112.4 $112.4 $112.4 $112.4
Operating Cash Flow ($0.6) $13.1 $30.4 $26.3 $24.0 NovaDX Assets NAV (10%), US$M $55.1 $17.7 $75.7 $133.7 $99.4
Investment $8.0 $58.7 ($24.7) $0.0 $0.0 Royal Coal Assets NAV (10%), US$M $21.0 $2.7 $38.0 $70.8 $21.4
Proceeds from Equity $92.7 $0.0 $6.6 $66.9 $0.0 Terrex Assets NAV (10%), US$M $7.1 $4.8 $21.6 $38.0 $14.3
Proceeds from Debt $0.0 $0.0 $0.0 $0.0 $0.0 Corporate NAV, US$M $196 $133 $226 $317 $233
Debt Repayment $0.0 $0.0 $0.0 $0.0 $0.0 Corporate Adjustments, C$ / F/D share $0.33 $0.33 $0.33 $0.33 $0.33
Free Cash Flow $84 ($46) $62 $93 $24 NovaDX NAV(10%), C$ / F/D share $0.16 $0.05 $0.22 $0.38 $0.29
Royal Coal NAV(10%), C$ / F/D share $0.06 $0.01 $0.11 $0.20 $0.06
EPS (F/D), US$ ($0.00) $0.02 $0.05 $0.04 $0.04 Terrex NAV(10%), C$ / F/D share $0.02 $0.01 $0.06 $0.11 $0.04
CFPS (F/D), US$ ($0.00) $0.04 $0.09 $0.08 $0.07 Corporate NAV, C$ / F/D share $0.57 $0.39 $0.66 $0.92 $0.68
CFPS (F/D) Sensitivity, US$ - $0.01 $0.02 $0.01 $0.01 Current Price / Corporate NAV 1.0x 1.5x 0.9x 0.7x 0.9x
FCPS (F/D), US$ $0.24 ($0.13) $0.18 $0.27 $0.07 Target Price / Corporate NAV 1.7x 2.4x 1.4x 1.0x 1.4x
CFPS sensitivity based on a US$50/t change in met. coal price. 2011E CFPS (F/D), US$ $0.04 $0.01 $0.05 $0.10 $0.05
2012E CFPS (F/D), US$ $0.09 $0.03 $0.11 $0.19 $0.11
PRODUCTION PROFILE (SND ATTRIBUTABLE PRODUCTION)
COMPARABLES
2011E 2012E 2013E 2014E RLOM
Met. Coal Share EV P/CFPS EV/CF
Company Ticker
Rex No. 1, tons 000's 9 48 40 40 1 320 (C$) (US$B) 2011E 2012E 2011E 2012E
Rosa, tons 000's 25 38 19 19 151 Franco Nevada FNV-T $34.69 $3.40 16.1x 15.5x 13.8x 13.2x
34 86 59 59 1 471 Royal Gold RGLD-US $50.19 $2.88 15.1x 14.1x 16.1x 15.1x
Thermal Coal Silver Wheaton SLW-T $41.23 $14.53 22.1x 22.6x 22.1x 22.6x
Ikerd, tons 000's 57 79 57 57 738 Average 17.8x 17.4x 17.3x 17.0x
Big Branch, tons 000's 91 126 139 139 1 051
SID, tons 000's 18 81 99 99 492 Sandstorm Metals SND-T $0.60 $95 15.9x 6.9x 7.2x 3.1x
166 286 295 295 2 280
Met. Coal Costs, US$/ton $75 $75 $75 $75 $75 C$/US$: 1.02
Thermal Coal Costs, US$/ton $55 $55 $55 $55 $55

Oil & Gas

Two Creek A, boe, 000's 54 108 189 216 2 514
Two Creek B, boe, 000's 11 28 28 28 86
Strathmore, boe, 000's 27 72 135 198 3 005
92 208 352 442 5 604
Oil Costs, US$/bbl $15 $15 $15 $15 $15

Source: NBF Estimates, Bloomberg, Reuters, Company Data

 Page 7

DISCLOSURES:
Ratings 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 next 12
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Sandstorm Metals & Energy Ltd. (SND) - ADDITIONAL COMPANY RELATED DISCLOSURES
If a company specific disclosure is not found herein for a listed company, NBF at this time does not provide research coverage or stock rating for the
company in question
In the past 12 months NBF acted as financial advisor, fiscal agent, or underwriter to the company that is the subject of this report and 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 may enter into lending or
 Page 8

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 these securities from time to time
in the open market or otherwise. On the last day of the month preceding the date of this report, NBF and its Affiliates held in the aggregate less than 1% of
the outstanding shares (of any class of equity securities) of this issuer. (2)