According to National Bank Financial:

February 26, 2013

Sandstorm Gold – (SSL:TSX, SAND:NYSE) C$10.12, US$9.82

STOCK RATING: Outperform (Unchanged)

TARGET: $12.75 (Unchanged)

RISK RATING: Above Average (Unchanged)

Sandstorm May want a Mulligan on Mongolia

Mongolian Government Reportedly Pulls Entrée Gold Permits, Claiming Invalid

The Mongolian mining ministry has reportedly cancelled two licenses held by Entree Gold (TSX:ETG, not rated) on land that forms part of the Oyu Tolgoi deposit. In 2009, ETG upgraded its exploration permits to mining licenses granted by the Mongolian mining ministry; however, the Mongolian Government today reported that mining licenses can only be awarded by the Mineral Resource Authority (not the mining ministry) and is therefore invalid. Recall: earlier this month, Mongolian President Tsakhia Elbegdorj requested Rio Tinto Group, its partner in Oyu Tolgoi, to transfer all licenses connected with the operation to the venture between the Government and Oyu-Tolgoi LLC (which included ETG’s).

SSL announced an agreement on February 15th with ETG, that included:

- a US$35 mln gold and silver purchase agreement on Hugo North/Heruga

- a $10 mln private placement in Entree (17.9 mln shares @ $0.56/sh)

- SSL also footed the bill for a US$5.0 mln copper purchase agreement on the assets for SND (payable in SND shares)

For more details on the ETG transaction, please refer to our February 19, 2013 note “Recent Sell-Off Appears Overdone as Growth Pipeline Remains Intact”.

To our knowledge, the ETG agreement included a clause to protect SSL against potential political risks, ensuring that any decrease of ETG's interest in the JV project was proportionately refundable from the purchase price of the streams. SSL is therefore entitled to 100% of its US$40 mln investment within 12 months if ETG can not get the ruling overturned. It remains unclear whether the $10 mln private placement can also be revoked.

Bottom line: the Hugo North/Heruga streams account for 6% of our NAV, with the ETG shares accounting for ~1%. The US$45 mln of cash attributable to the stream/private placement also represent ~5% of the market cap. A sell-off today in excess of 5-6%. Should be seen as overdone and viewed as a buying opportunity as SSL’s near-term growth thesis remains intact (attributable AuEq production increasing to +60,000 ounces from 9 streams by 2015, up from 33,514 ounces from 5 streams in 2012). Nevertheless, SSL’s solid track record of doing near-term accretive transactions has received its first tarnish; we’re confident that management can overcome this perception through utilizing its US$100 mln of available credit together with available cash/cash flow to resume its traditional acquisition strategy.