Changing the Financing Landscape of The Entire Mining Industry, Nolan Watson of Sandstorm

by Roger Lee

Nolan Watson, CEO & President of Sandstorm Gold and Sandstorm Metals & Energy

One of the strongest bulwarks of the Canadian economy is the mining industry. Nevertheless, strong as it is, the industry depends entirely upon the availability and accessibility of funding. That is where Nolan Watson’s Sandstorm steps in. Sandstorm is a “metal streaming” financier for mining companies with advanced staged development projects or operating mines.

Sandstorm provides a non-traditional way for miners to access funding, allowing them to do so without having to dilute shareholder equity, nor bind themselves to burdensome covenants. Moreover, having raised over $240,000,000 in the last two years, it definitely seems that Watson and his partners have earned the trust of retail and institutional investors in their rock-solid business model. 

Sandstorm Gold and Sandstorm Metals & Energy

Sandstorm, which is actually two separate companies, Sandstorm Gold and Sandstorm Metals & Energy, provides mining companies with a form of financing whereby an upfront cash payment is exchanged for a commodity stream. The commodity stream allows Sandstorm to purchase a specified percentage of a mine’s production, at a fixed cash cost, for the life of the mine. Sandstorm makes money by purchasing the commodity at the contractual rate and reselling it in the spot market. Sandstorm helps other companies in the resource industry finance the construction of their mines, while acquiring attractive commodity streams in the process.

To date, Sandstorm has completed deals in Canada, USA, Mexico and Brazil. Their financial product can service mining companies in any country of the world and they actively seek out mining projects globally.

Nolan Watson, CEO & President of Sandstorm Gold and Sandstorm Metals & Energy

Upon graduating with a Bachelor of Commerce degree (with honours) from the University of British Columbia in 2001, Watson enrolled in the Institute of Chartered Accountants and began articling with the professional services firm Deloitte and Touche. The future looked bright for Watson as he was awarded the “BC Gold Medal” on the final CA examination (the “UFE”), scoring the highest mark in Western Canada and becoming the Valedictorian of the Institute of Chartered Accountants of British Columbia. Later, he continued to upgrade his education by completing the Chartered Financial Analyst designation through the CFA Institute, and was recognized as one of the “Most Motivated” CFA charterholders by CFA magazine.

Although Watson’s area of focus during his time at Deloitte was mining and metals, he had not considered a career in the industry until he was given the opportunity to join Silver Wheaton alongside Ian Telfer, the highly regarded mining entrepreneur. Telfer’s new venture aimed to create the first ever ‘metal streaming company’ by completing Volumetric Production Payment transactions.

At 25 years of age, Watson became the Controller of Silver Wheaton and a short time later at the age of 26, was named Chief Financial Officer making him the youngest CFO of a multi-billion dollar market capitalization company listed on the New York Stock Exchange. In his four year tenure with Silver Wheaton, Watson helped raise over US$1 billion in debt and equity to fund the organization’s growth.

With his experience at Silver Wheaton behind him, Watson decided to embark on a new venture with partner David Awram and created Sandstorm Resources, (now Sandstorm Gold), a metal streaming company focused on gold metal streams. Although the organization began during a tumultuous time in the capital markets, Watson was able to raise the necessary capital and begin to build his own legacy in the mining industry.

With six metal stream deals completed and the first revenue from Sandstorm Gold in his sights, Watson saw an opportunity to apply the metal streaming business model to the base metals sector and Sandstorm Metals & Energy was born. Sandstorm Metals & Energy has completed two coal streaming deals and an oil and gas deal since it was launched in November 2010.

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My goal as an entrepreneur is to turn Sandstorm into the largest, most profitable and best-managed commodity finance company in the world.

What inspired you to start your business?

I was fortunate to be a part of the first “metal streaming” company while I was the CFO at Silver Wheaton and throughout my time there, it was apparent that the streaming business model could be successfully applied to any commodity. The inspiration for starting Sandstorm was a combination of an identified opportunity and the entrepreneurial drive of myself and my partner David Awram. David and I were colleagues at Silver Wheaton. David was the Director of IR.

What was the market need?

Mining companies are typically funded through a combination of equity financing and debt financing. Equity financing can be extremely dilutive to shareholders if it is not managed strategically and debt financing can be extremely restrictive because of bank covenants etc. Sandstorm’s form of financing is a non-dilutive, non-restrictive way for a mining company to finance a project into production.

What was the hardest part about starting out?

We started Sandstorm Gold in 2009 during the heart of the recession and it was challenging to obtain the funding that we needed to build the business. We had to work extremely hard and get in front of a lot of people before we were able to get the support of enough financial institutions to launch the company.

Where did your business’s seed capital come from and how did you go about getting it?

The seed capital for Sandstorm Gold came from institutional and retail investors buying our stock in a public offering. We ended up raising $46.8 million dollars but it didn’t come easy. When it came time to launch Sandstorm Metals & Energy we had the accomplishments of Sandstorm Gold behind us and were able to raise $100 million right off the bat.

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Be prepared to work harder than you ever thought you could

Tell us about Sandstorm’s financing model.

Sandstorm Gold Ltd. (TSX-V: SSL) and Sandstorm Metals & Energy (TSX-V: SND) are commodity based companies that seek to complete financing transactions with companies that have advanced stage development projects or operating mines. In exchange for an upfront payment, Sandstorm receives “commodity streams” which allow Sandstorm to purchase a specified percentage of the mine’s production, at a fixed cash cost, for the life of the mine.

Sandstorm makes money by purchasing the commodity at the contractual rate (e.g. our gold deals average approximately US$400 per ounce) and reselling the gold in the spot market (e.g. gold currently at US$1,490 per ounce). Sandstorm helps other companies in the resource industry finance the construction of their mines, while acquiring attractive commodity streams in the process.

What makes your form of financing better?

Completing a commodity purchase agreement with Sandstorm is a non-dilutive way to finance a mining project. Sandstorm does not impose covenants on its partners and we work to structure a deal that will be mutually beneficial for both parties.

Sandstorm is also able to operate much more quickly than a bank and has been able to complete deals from start to finish in a matter of weeks.

How long did it take to build traction behind your business?

We have been operating Sandstorm Gold for about 2 years and in the last 6 months we have garnered positive attention from the North American investment community and media alike. I think the fact that our management team was able to complete 6 accretive gold streaming deals in under two years showed people that we have what it takes.

Photo Courtesy of Sandstorm

I think I was too conservative in the early stages of the business. If I could do it over again I would have been more aggressive.

How did you build your management team?

Since I began my working career I have been able to build a strong network of talented young leaders so when Sandstorm was launching, and as we have grown, I have been able to recruit top talent in the Vancouver mining and finance industries. I have also been very fortunate to have a group of seasoned mining executives who sit on the board of directors. The support and insight that they provide is invaluable.

How do you keep your staff motivated and engaged?

We have built an extremely positive and supportive work environment here at Sandstorm. We expect a lot of each other and we push each other to be better. I think we have done of good job of bringing in capable people and then empowering them to do their best.

We also have a stock option plan for employees whereby if the company is successful, there is a financial incentive for our staff members.

Could you give a brief description of your biggest success so far?

Being able to close 9 metal streaming deals and raise over $240 million between the two companies in less than two years has been a great accomplishment. I don’t know if I can point to one event and say that it was our biggest success but I think overall we have achieved a lot and we are excited about the future.

Other major milestones reached recently?

Launching Sandstorm Metals & Energy with a $100 million financing really showed how far we have come in such a short time. Having the institutional and retail investors show that much confidence in what we are doing was a nice reward for a lot of hard work.

Photo Courtesy of Sandstorm

Surround yourself with successful people.

Do you have plans to expand to new markets or resource sectors?

We recently spun-off Sandstorm Metals & Energy to apply the metal streaming business model to the base metals, bulk commodities and energy sector. So far, we have completed deals with two coal companies and one oil and gas company, but we are also looking at companies with projects in copper, lead, zinc, iron ore, nickel, uranium etc.

What are your goals as an entrepreneur?

My goal as an entrepreneur is to turn Sandstorm into the largest, most profitable and best-managed commodity finance company in the world.

How do you define success?

Success to me has always been about more than making money. Some people pursue wealth ahead of everything else and in the end, all they have is their material success. From an entrepreneurial perspective, I plan to grow these two companies and make myself and shareholders a lot of money in the process. However, I also see success in terms of the legacy that I am leaving behind.

To what do you most attribute your success?

90% hard work, 5% intellect, 5% good luck

Photo Courtesy of Sandstorm

My advice would be to hire people that are smarter than you are, that can take the business to the next level.

What three pieces of advice would you give to others who want to become entrepreneurs?

  1. Be prepared to work harder than you ever thought you could
  2. Take big risks
  3. Surround yourself with successful people

What advice would you give to those seeking to build their businesses up to the next stage in growth?

My advice would be to hire people that are smarter than you are, that can take the business to the next level.

If you were to recommend a book or movie to a young entrepreneur, what would it be?

Black Swan by Nasim Taleb

How has being an entrepreneur affected your life?

Being an entrepreneur has given me increased flexibility in my life from both a financial and a time perspective.

If you had the chance to start over again, what would you do differently?

I think I was too conservative in the early stages of the business. If I could do it over again I would have been more aggressive.

Photo Courtesy of Sandstorm

I also see success in terms of the legacy that I am leaving behind.

Changing the Future of Mining and Leaving a Lasting Legacy

Nolan Watson has been at the forefront of metal-streaming finance innovation since its beginnings at Silver Wheaton. Showing the same dedication and spirit that earned him top-marks and placed him at the heart of a multi-billion dollar market cap company, he has been leading Sandstorm to great successes already.

With Watson at the helm of Sandstorm, providing access to funding that can help them develop a mine, without having to further dilute shares and bind themselves to undesirable covenants, the mining sector will only get stronger. Sandstorm’s shareholders on the other hand, should feel safe in the knowledge that their money is being put to use in one of the best business models ever developed, by the people that helped develop it in the first place.

With income coming in for the life of these mines and the impact his business will have on future development, Nolan Watson is on the road to building a truly lasting legacy.

For more information, visit the two Sandstorm sites.

Click here for Sandstorm Gold.

Click here for Sandstorm Metals & Energy.

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