**Exhibit 99.2**

 

|  | SANDSTORM GOLD  LTD. annual report 2012 2012 |
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|  | 02 A MESSAGE TO  OUR SHAREHOLDERS Sandstorm began 2012 with a market capitalization of  approximately $400 million. There was reason for optimism to begin the year  as several of the underlying mines related to our gold stream agreements were  expected to increase production and challenging financial markets put  Sandstorm in a favourable position to complete additional streaming  transactions. Twelve months later, I am happy to report that our gold ounces  sold totaled 33,514 (from 18,516 in 2011), our cash flow from operations was  US$37.6 million (from US$20.6 million in 2011) and our deal portfolio grew to  nine gold streams and three gold royalties. The market clearly liked our  progress, as we ended the year with over $1 billion in market capitalization.  After a twelve month period where our company’s market value grew by 2.5  times you may be asking, where do we go from here? We expect continued  organic growth from our existing streams and have forecasted 33,000 to 40,000  gold equivalent ounces from seven producing mines in 2013, increasing to  approximately 70,000 ounces of attributable production by 2016. In addition,  we have sufficient capital and significant opportunity to complete additional  gold stream transactions. Our commitment to shareholders is that we will work  to build long-term fundamental value through streaming deals that increase  shareholder value on a per-share basis. We are also committed to continued innovation  in our business model in order to create as much value as possible. During  2012, we completed our first gold royalty transactions involving three  projects in the advanced exploration stage. The assets were too early in  their development to warrant a streaming deal, so we provided a small amount  of development capital in exchange for a royalty and the right of first  refusal (“ROFR”) on any future stream financing. Completing small royalty  deals in exchange for ROFRs is a way for us to build a pipeline of future  streams on exciting projects, with a low amount of financial risk. This is  just one of the ways that we are innovating our business in order to create  value today, and in the future for our shareholders. The reason that we  started Sandstorm is that we strongly believe that streaming is an attractive  alternative to debt and equity financing for mining companies of all sizes  across the globe, and that it complements other forms of traditional project  finance. When building a mine, every company’s finance needs are different  and I think one of the weaknesses in resource finance has been that the  industry has taken an unimaginative and plain vanilla approach to funding a  mine, despite each mine and its funding requirements being unique. What we endeavour  to do at Sandstorm, is work with our mining partners to determine the best  way to finance their project into production. Streaming finance will always  be at the core of what we do at Sandstorm, but we have found that being  flexible in our approach has increased our deal flow and given us access to  opportunities that we would not have had otherwise. Streaming finance is very  much in the early stages of its evolution but I believe that Sandstorm is  going on the forefront of what will be the best financing solution that the  mining industry has ever seen. We believe that we have put together the best  team in the industry and we look forward to the opportunity to build  additional value for our shareholders in 2013. i SECTION |
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|  | "  Streaming finance is very much in the early stages of its evolution but I  believe that Sandstorm is on the forefront of what will be the best financing  solution that the mining industry has ever seen." Nolan Watson PRESIDENT  & CEO |
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|  | 04 Board of Directors  From left to right DAVID E. DE WITT ANDREW T. SWARTHOUT JOHN P. A. BUDRESKI *  NOLAN WATSON * DAVID AWRAM |
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|  | 05 THE  SANDSTORM TEAM Management Team ii SECTION Erfan Kazemi CHIEF FINANCIAL  OFFICER * Dave Awram SR. EXECUTIVE VICE PRESIDENT Ron Ho VICE PRESIDENT,  FINANCE * Nolan Watson PRESIDENT & CEO |
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|  | 06 Sandstorm  Gold is a Gold Streaming Company |
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|  | 07 01 SECTION  SANDSTORM GOLD LTD. MANAGEMENT’S DISCUSSION AND ANALYSIS For The Year Ended  December 31, 2012 This management’s discussion and analysis (“MD&A”) for  Sandstorm Gold Ltd. and its subsidiary entities (“Sandstorm” or the  "Company”) should be read in conjunction with the consolidated financial  statements of Sandstorm for the year ended December 31, 2012 and related  notes thereto which have been prepared in accordance with International  Financial Reporting Standards ("IFRS") as issued by the  International Accounting Standard Board (“IASB”). The information contained  within this MD&A is current to February 18, 2013, and all figures are stated  in U.S. dollars unless otherwise noted. |
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|  | JAN FEB MAR APR  MAY JUN 08 Gold sales for the three months and year ended December 31, 2012  were 7,243 ounces and 33,514 ounces, respectively, representing an increase  of 10% and 81% over the comparable periods in 2011, with gold sales for the  most recently completed year representing a record for the Company. Operating  cash flow for the three months and year ended December 31, 2012 of $6.5  million and $37.6 million, respectively, compared with $7.8 million and $20.7  million for the comparable periods in 2011, with operating cash flow for the  most recently completed year representing a record for the Company. Average  cash costs for the three months and year ended December 31, 2012 of $410 per  ounce and $356 per ounce, respectively, compared with $407 per ounce and $420  per ounce for the comparable periods in 2011. On May 11, 2012, Sandstorm  acquired from Magellan Minerals Ltd., a 2.5% net smelter returns  ("NSR") royalty on the Coringa gold project and a 1.0% NSR on the  Cuiú Cuiú gold project, both of which are located in Para state, Brazil. As  part of the agreement, Sandstorm received a right of first refusal on any  future royalty or gold stream financing for both the Coringa and Cuiú Cuiú  gold projects. Rambler began mining and processing ore from its flagship  project, the Ming Mine. On June 11, 2012, Sandstorm acquired a 2.4% net  smelter returns royalty on the Mt. Hamilton gold project from Solitario  Exploration & Royalty Corp. and Ely Gold & Minerals Inc. The Mt.  Hamilton gold project is located in Nevada, U.S.A. As part of the agreement,  Sandstorm received a right of first refusal on any future royalty or gold  stream financing for the Mt. Hamilton gold project. In July 2012, Metanor  obtained approval for commercial production at the Bachelor Lake Mine. On  August 20, 2012, the Company's common shares began trading on the NYSE MKT  LLC under the symbol SAND. HIGHLIGHTS On September 7, 2012, the Company  completed an equity financing for aggregate gross proceeds of C$150.1  million. On September 10, 2012, Sandstorm agreed to contribute up to $10.0  million in capital towards the Phase 1 Expansion at Luna's Aurizona Mine.  Sandstorm’s contribution will be equal to 17% of the capital costs incurred  by Luna towards the Phase 1 Expansion to a maximum contribution of $10.0  million. In conjunction with Sandstorm’s capital contribution, Luna has  provided the Company with a contractual guarantee that the Aurizona Mine will  complete its Phase 1 Expansion by the end of 2013. |
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|  | JUL AUG SEP OCT  NOV DEC 09 On September 19, 2012, the Company entered into a Gold Stream  agreement with Colossus Minerals Inc. to purchase an amount equal to 1.5% of  the gold and 35% of the platinum produced from the Serra Pelada Mine located  in Para, Brazil. Pursuant to the agreement, Sandstorm will make ongoing per  ounce payments equal to the lesser of $400 per ounce of gold and the then  prevailing market price of gold, and the lesser of $200 per ounce of platinum  and the then prevailing market price of platinum. This transaction also  highlights the financing synergy between the Company and Sandstorm Metals  & Energy as Sandstorm Metals & Energy has concurrently agreed to  purchase 35% of the life of mine palladium produced from the Serra Pelada  Mine. In January 2013, the Company acquired 46,678,221 common shares and  6,965,676 warrants of Premier Royalty Inc., representing approximately 59.9%  of the currently issued and outstanding shares. Owning a controlling interest  in Premier Royalty Inc. gives Sandstorm continued exposure to smaller stream  and royalty acquisitions, allowing Sandstorm’s team to focus on transactions  that are material to shareholders. On February 11, 2013, the Company  announced that it has amended its revolving credit agreement to allow the  Company to borrow up to $100.0 million (the “Revolving Loan”) from a  syndicate of banks including The Bank of Nova Scotia, Bank of Montreal and  National Bank of Canada (the “Syndicate”). The Revolving Loan now has a term  of four years, which is extendable by mutual consent of Sandstorm and the  Syndicate. The Company entered into a $55.0 million financing package with  Entrée Gold Inc. (“Entrée”) which includes a $40.0 million production based  metal credit purchase agreement, a C$10 million private placement and a $5  million net smelter returns royalty. Sandstorm has agreed to purchase metal  credits equivalent to 25.7% and 33.8% of Entrée’s 20% share of the gold and  silver by-products produced from the Heruga and Hugo North Extension  deposits, respectively. On December 5, 2012, the Company entered into a Gold  Stream agreement to purchase 15% of the life of mine gold produced from  Mutiny Gold Ltd.’s open pit Deflector project, located in Western Australia  for a per ounce cash payment equal to the lesser of $500 and the then  prevailing market price of gold. The transaction marks Sandstorm’s first  foray into the Australian market, which has had very limited exposure to  stream financing. |
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|  | 10 Overview The  Company is a growth-focused company that seeks to acquire gold and other  precious metal purchase agreements (“Gold Streams”) from companies that have  advanced stage development projects or operating mines. In return for making  upfront payments to acquire a Gold Stream, Sandstorm receives the right to  purchase, at a fixed price per ounce, a percentage of a mine’s gold, silver  or platinum ("Gold Equivalent") production for the life of the  mine. Sandstorm helps other companies in the resource industry grow their  businesses, while acquiring attractive assets in the process. The Company is  focused on acquiring Gold Streams from mines with low production costs,  significant exploration potential and strong management teams. The Company  currently has ten Gold Streams, and four NSR royalties. Outlook Based on the  existing Gold Streams, forecasted 2013 attributable production is between  33,000 – 40,000 Gold Equivalent ounces, increasing to approximately 70,000 of  Gold Equivalent per annum by 2016. This growth is driven by the Company’s  portfolio of Gold Streams with mines, all of which are either currently  producing or expected to commence production by 2015. |
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|  | 11 A gold  stream begins with sandstorm making an upfront payment to a mining company. |
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|  | 12 2 9 CURRENT  GOLD STREAMS AND ROYALTIES Royalty Interest Partner Location of Mine  Attributable Gold Production Term of Agreement Coringa Magellan Minerals  Brazil 10 2.5% NSR Life of Mine Cuiú Cuiú Magellan Minerals Brazil 9 1.0% NSR  Life of Mine Mt. Hamilton Solitario Exploration & Royalty USA 6 2.4% NSR  Life of Mine Ann Mason Entrée Gold USA 5 0.4% NSR Life of Mine 5 1 8 12 7 4 3  6 10 11 |
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|  | 13 Gold  Interests Partner Location of Mine Attributable Gold Production Term of  Agreement Aurizona Luna Gold Brazil 12 17% Life of Mine Bachelor Lake Metanor  Resources Canada 3 20% Life of Mine Black Fox Brigus Gold Canada 1 8% Life of  Mine Bracemac-McLeod Donner Metals Canada 2 24.5% Life of Mine Deflector  Mutiny Gold Australia 14 15% Life of Mine Ming Rambler Metals & Mining  Canada 4 25% 1 Life of Mine Santa Elena SilverCrest Mines Mexico 8 20% Life  of Mine Serra Pelada Colossus Minerals Brazil 11 1.5% (Gold) 35% (Platinum)  Life of Mine Summit Santa Fe Gold USA 7 22% 2 Life of Mine Hugo North  Extension Entrée Gold Mongolia 13 6.77% (Gold) (Silver) Life of Mine Heruga  Entrée Gold Mongolia 13 5.13% (Gold) (Silver) Life of Mine 14 13 1 25% of  first 175,000oz, 12% life of mine thereafter 2 50% first 10,000 ounces gold,  22% life of mine gold produced thereafter |
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|  | 14 The Company  has a Gold Stream to purchase 17% of the life of mine gold produced from Luna  Gold Corp.’s (“Luna”) open-pit Aurizona mine, located in Brazil (the  “Aurizona Mine”) for a per ounce cash payment equal to the lesser of $400 and  the then prevailing market price of gold. During the year ended December 31,  2012, the Company agreed to contribute up to $10.0 million in capital towards  the phase 1 production expansion project (“Phase 1 Expansion”) at Luna's  Aurizona Mine. Sandstorm’s contribution will be equal to 17% of the capital  costs incurred by Luna towards the Phase 1 Expansion to a maximum contribution  of $10.0 million. In addition, Sandstorm has committed to issue, if requested  by Luna, a $20.0 million non-revolving loan facility with a three year term,  which may only be used to fund the Phase 1 Expansion and associated  exploration costs and may only be draw up to July 21, 2014. Any amounts drawn  must be repaid by November 30, 2015. In conjunction with Sandstorm’s capital  contribution, Luna has provided the Company with a contractual guarantee that  the Aurizona Mine will complete its Phase 1 Expansion by the end of 2013.  Luna recently announced that it had received authorization from the Maranhão  State Environmental Department to proceed with the construction required to  complete the Phase I Expansion at the Aurizona Mine. Luna anticipates  delivery of an updated National Instrument 43-101 (“NI 43-101”) resource  estimate for the Aurizona Mine during the first half of 2013. AURIZONA GOLD  STREAM Luna Gold Corp. Current activities at the Aurizona Mine include: |
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|  | 15 NEW PROJECT  The Company has a Gold Stream with Colossus Minerals Inc. (“Colossus”) to  purchase an amount equal to 1.5% of the gold and 35% of the platinum produced  from the Serra Pelada mine (the “Serra Pelada Mine”) located in Para, Brazil  for ongoing per ounce payments equal to the lesser of $400 per ounce of gold  and the then prevailing market price of gold, and the lesser of $200 per  ounce of platinum and the then prevailing market price of platinum. During  the year ended December 31, 2012, Sandstorm made an upfront payment of $60.0  million to acquire the Gold Stream. The Company is not required to contribute  any further capital, exploration, or operating expenditures to Colossus. As  part of the transaction, the Company also agreed to purchase 35% of the life  of mine palladium produced from the Serra Pelada Mine (the “Palladium  Stream”) in exchange for paying a $15.0 million deposit (bringing the total  deposit payment made by Sandstorm during the year ended December 31, 2012 to  $75.0 million) plus ongoing payments of $100 per ounce of palladium.  Concurrently, the Company entered into a similar back-to-back agreement with  Sandstorm Metals & Energy Ltd. (“Sandstorm Metals & Energy”) whereby  Sandstorm Metals & Energy purchased the Palladium Stream from Sandstorm  in exchange for issuing a promissory note. The promissory note states that  the $15.0 million will be repaid to Sandstorm in cash or shares by September  19, 2013. Colossus has guaranteed certain minimum annual deliveries for the  initial 10 year period, commencing in 2013, so long as the mine is in  operation. Colossus has also provided a guarantee that in the event the Serra  Pelada Mine shuts down for a period of 24 months and Sandstorm has not  recognized cash flow equal to the initial upfront deposit, then Colossus will  refund the balance to Sandstorm. In addition, Colossus has agreed to refund a  pro-rata portion of the upfront deposit in the event that the Serra Pelada  Mine does not achieve a completion test within 48 months of funding. Until  April 1, 2015, Colossus has the option to repurchase up to 50% of the  agreement by making a $39.0 million payment to Sandstorm, upon receipt of  which, the percentage of gold and platinum that Sandstorm is entitled to  purchase shall decrease to 0.75% and 17.5%, respectively. The Serra Pelada  Mine is a high grade gold-platinum-palladium deposit located in the mineral  and mining prolific Carajas region in Para State, northern Brazil. The  existing infrastructure and accessibility to the site are excellent due to  the close proximity of a number of major mines. During the 1980’s, the Serra  Pelada Mine hosted the largest ever gold rush in Latin America with up to  80,000 artisanal miners producing 2 million ounces of gold, plus platinum and  palladium, from a hand-dug open pit. Colossus Minerals has been involved in  the development of the Serra Pelada Mine since 2007 and is targeting initial  production by the end of 2013. The Serra Pelada Mine is fully permitted and  construction is underway. It is expected to be a high grade, low-cost  polymetallic producer. The site infrastructure is largely complete with the  maintenance facilities, camp site, administrative offices and camp kitchen  currently in operation. The plans for the engineering and design of the mill  facility are advancing and the construction of the gravity plant is expected  to be completed during 2013. Colossus has reached mineralization in its  secondary development and the bulk sample collection process has begun. SERRA  PELADA GOLD STREAM Colossus Minerals Inc. Current activities at the Serra  Pelada Mine include: |
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|  | 16 The Company  has a Gold Stream to purchase 8% of the life of mine gold produced from  Brigus Gold Corp.’s (“Brigus”) open pit and underground Black Fox mine,  located in Ontario, Canada (the “Black Fox Mine”), and 6.3% of the life of  mine gold produced from Brigus’ Black Fox Extension (the “Black Fox  Extension”), which includes a portion of Brigus’ Pike River concessions, for  a per ounce payment equal to the lesser of $500 and the then prevailing  market price of gold. In November 2012, Brigus exercised its option to  repurchase a portion of the Gold Stream by making a $24.4 million payment to  Sandstorm. Under the original gold stream agreement (previously announced on  November 9, 2010), Sandstorm was entitled to purchase 12% and 10% of the gold  produced from the Black Fox Mine and Black Fox Extension, respectively. With  the payment from Brigus, Sandstorm will now be entitled to purchase 8% and  6.3% of the gold produced from the Black Fox Mine and Black Fox Extension,  respectively. Brigus’ option to repurchase any remaining portion of the Gold  Stream expired unexercised on January 1, 2013. The Black Fox Mine began  operating as an open pit mine and in mid-2010, Brigus began development of an  underground mine. Both open pit and underground operations are running  concurrently, feeding the 2,200 tonne-per-day mill. Brigus’ Black Fox mill  optimization program was completed in the fourth quarter of 2012 and resulted  in increased mill processing capacity of approximately 10% to 2,200 tonnes  per day. Brigus continues its underground exploration at the Black Fox Mine.  The exploration program is intended to expand the gold deposit and extend the  mine life. BLACK FOX GOLD STREAM Brigus Gold Corp. Current activities at the  Black Fox Mine include: |
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|  | 17 NEW PROJECT  The Company has a Gold Stream to purchase 15% of the life of mine gold  produced from Mutiny Gold Ltd.’s (“Mutiny”) open pit Deflector project,  located in Western Australia (the “Deflector Mine”) for a per ounce cash  payment equal to the lesser of $500 and the then prevailing market price of  gold. For consideration, the Company will make an initial upfront payment of  $9.0 million and will make a further upfront payment of $29.0 million (the  “Second Deposit”) once Mutiny has completed certain funding conditions.  Additionally, the Company has agreed to subscribe for $3.0 million in equity  as part of a future Mutiny financing. If the Deflector Mine produces more  than 85,000 ounces of gold in a calendar year, Sandstorm will make a one-time  $4.0 million payment to Mutiny. Mutiny has agreed to refund a pro-rata  portion of the upfront deposit in the event that the Deflector Mine does not  achieve a completion test within 5.5 years from receipt of the Second  Deposit. For a period of 36 months from the date of the Second Deposit,  Mutiny will have the option to repurchase up to 50% of the Deflector Mine  Gold Stream by making a payment equal to the greater of $24.7 million or the  value of 14,472 gold ounces, upon the receipt of which, the percentage of  gold that Sandstorm is entitled to purchase shall decrease to 7.5%. If Mutiny  subsequently discovers and develops an additional mine within a defined area  outside of the area subject to the Deflector Mine Gold Stream, the Company  has the right, but not the obligation, to purchase 15% of the gold produced  at a per ounce price of $500 in exchange for the Company paying 15% of the  capital expenditures incurred for the development of such additional mine.  The Deflector Mine is a high-grade gold and copper deposit located in the  South Murchison, Western Australia. A definitive feasibility study completed  in October 2012 projects 55,000 ounces of annual gold production from the  Deflector Mine over a 7.5 year mine life. Production will begin from an open  pit operation and expand underground, with ore from both the open pit and  underground being processed through the existing Guliewa processing facility.  The facility is being upgraded and will include a floatation circuit as well  as a revamped mill and gravity circuit, all of which are expected to increase  the plant’s capacity to 480,000 tonnes per year for oxide and transition ore  during the first two years of production and 380,000 tonnes per year for  primary ore thereafter. DEFLECTOR GOLD STREAM Mutiny Gold Ltd. |
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|  | 18 The mining  company uses the stream proceeds to advance their mine into production. Of  Sandstorm’s ten streams, five of the underlying mines were producing gold in  2012. |
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|  | 19 The Company  has a Gold Stream to purchase 20% of the life of mine gold produced from  SilverCrest Mines Inc.’s (“SilverCrest”) open-pit Santa Elena mine, located  in Mexico (the “Santa Elena Mine”), for a per ounce cash payment equal to the  lesser of $350 and the then prevailing market price of gold. SilverCrest has  implemented a three year expansion plan to double metals production at the  Santa Elena Mine (open pit and underground). As part of the Santa Elena Gold  Stream, if SilverCrest decides to develop an underground mine, Sandstorm will  have the right, but not the obligation, to purchase 20% of the payable gold  from the underground mine. In consideration, Sandstorm would make an upfront  payment that is equal to 20% of the upfront capital expenditures, relating to  the gold production, incurred by SilverCrest plus ongoing per ounce payments  of $450. SANTA ELENA GOLD STREAM SilverCrest Mines Inc. SilverCrest expects  to release, in the first half of 2013, an updated reserves and resources  statement for the Santa Elena Mine, along with the results of a  pre-feasibility study for their three year expansion plan (the “Expansion  Plan”). The Expansion Plan includes the installation of a conventional  milling and processing facility at the Santa Elena Mine. It is contemplated  that this facility will utilize mill feed from the Santa Elena open pit, the  Santa Elena underground, Cruz de Mayo satellite deposit and re-treatment of  the material on the heap leach pads to recover residual silver and gold  values. SilverCrest announced the Phase II leach pad construction was  completed in the third quarter of 2012, adding two years of capacity. Current  activities at the Santa Elena Mine include: |
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|  | 20 The Company  has a Gold Stream to purchase 20% of the life of mine gold produced from  Metanor Resources Inc.’s (“Metanor”) Bachelor Lake gold mine located in Quebec,  Canada (the “Bachelor Lake Mine”), for a per ounce cash payment equal to the  lesser of $500 and the then prevailing market price of gold. Metanor has  provided a guarantee that Sandstorm will receive a minimum of $20.0 million  in pre-tax cash flow over the next 4 years of the Bachelor Lake Gold Stream.  The Bachelor Lake Mine is a greenstone hosted gold mine located outside of  Val d’Or in Quebec, Canada. In 2011, Metanor released the findings from a  pre-feasibility study at Bachelor Lake showing underground production of  60,000 ounces of gold per year which will be mined using the low cost  long-hole mining method and will utilize the existing and fully functional  operating mill and surface infrastructure that is on the mine site. Metanor  announced that it had obtained an environmental certificate of approval for  commercial production. This certificate allows Metanor to process an initial  900,000 tonnes of ore from the Bachelor underground mine site. The Government  authorization is accompanied by certain conditions added to commitments  provided for in Metanor’s impact study, particularly with respect to the  management of water as well as the creation of an advisory committee  involving the Cree community of Waswanipi and Jamesian municipalities.  Metanor continues its underground drilling campaign at the Bachelor Lake Mine  with the intent of increasing its resources. BACHELOR LAKE GOLD STREAM  Metanor Resources Inc. The Company has a Gold Stream to purchase  approximately 25% of the first 175,000 ounces of gold produced and 12% of the  life of mine gold produced thereafter, from Rambler Metals & Mining PLC’s  (“Rambler”) Ming Copper-Gold mine, located in Newfoundland, Canada (the “Ming  Mine”). There are no ongoing per ounce payments required by Sandstorm in  respect of the Ming Gold Stream. In the event that the metallurgical  recoveries of gold at the Ming Mine are below 85%, the percentage of gold  that Sandstorm shall be entitled to purchase shall be increased  proportionally. The Ming Mine began commercial production in November 2012.  Rambler continues to process high grade ore from the 1807 zone with quality  results. Rambler has developed an exploration program to test the plunge  extents of this zone, which will include undrilled areas not currently  outlined in the resource/reserve estimate. Rambler released a favorable  preliminary economic assessment that sees the potential for an expansion of  the Ming Mine into the lower footwall zone following additional value  optimization studies and a feasibility study. MING GOLD STREAM Rambler Metals  & Mining PLC Current activities at the Bachelor Lake Mine include:  Current activities at the Ming Mine include: |
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|  | 21 NEW PROJECT  The Company has a 2.4% NSR royalty on the Mt. Hamilton gold project (the  "Mt. Hamilton Project"). The Mt. Hamilton Project is located in  White Pine County, Nevada, U.S.A. and is held by Mt. Hamilton LLC (“MH-LLC”)  which is 80% owned by Solitario Exploration & Royalty Corp. (“Solitario”)  and 20% owned by Ely Gold & Minerals Inc. For consideration, the Company  made an initial upfront payment of $6.0 million during the year ended  December 31, 2012 and a subsequent $4.0 million payment in January 2013.  Sandstorm has granted MH-LLC an option, exercisable prior to December 11,  2014, to repurchase the NSR for $12.0 million provided that MH-LLC enters  into a Gold Stream with Sandstorm with an upfront deposit of no less than  $30.0 million. In addition, MH-LLC has provided Sandstorm with a right of  first refusal on any future royalty or gold stream financing for the Mt.  Hamilton Project. In September 2012, Solitario announced a significant  resource increase on the Mt. Hamilton Project. A NI 43-101 compliant resource  estimate was completed on the Seligman gold and silver deposit situated  roughly 1,500 feet north of the Centennial deposit which contains previously  reported reserves and resources. The study was prepared by SRK Consulting  (U.S.) Inc. and serves to update the previously reported (February 22, 2012)  Mt. Hamilton feasibility study. In December 2012, Solitario announced assay  results for 25 new drill holes on its recently completed Mt. Hamilton  drilling program. Eight of the holes were drilled within the vicinity of the  Centennial ore body and 17 holes were drilled in the Seligman deposit area.  In December 2012, Magellan announced that they had completed a preliminary  economic assessment on the Coringa Project and based on the results, engaged  a group of consultants to complete a feasibility study on the Coringa  Project. The feasibility study is expected to be completed by the first half  of 2014. In November 2012, Magellan announced that it had commenced an  exploration diamond drilling program at the Cuiú Cuiú Project to test three  separate and previously untested targets. The current drill program comprises  a minimum of 1,500 metres and is expected to be completed in 2013. MT.  HAMILTON ROYALTY Solitario Exploration & Royalty Corp. Current activities  at the Mt. Hamilton Project include: Current activities include: CORINGA  & CUIÚ CUIÚ ROYALTIES Magellan Minerals Ltd. NEW PROJECT The Company has  a 2.5% NSR on the Coringa gold project (the “Coringa Project”) and a 1.0% NSR  royalty on the Cuiú Cuiú gold project (the “Cuiú Cuiú Project”) both of which  are located in Para state, Brazil and owned by Magellan Minerals Ltd.  (“Magellan”). The Coringa Project is a narrow, high grade vein system  extending over an eighteen kilometre strike with exploration upside and the  Cuiú Cuiú Project is located 180 kilometres southwest of Itaituba in northern  Brazil where exploration work has identified a series of major gold soil  anomalies. For consideration, Sandstorm made an upfront payment of $7.5  million to acquire the royalties in May 2012. As part of the agreement,  Magellan has provided Sandstorm with a right of first refusal on any future  royalty or gold stream financing at the Coringa Project and the Cuiú Cuiú  Project. |
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|  | 22 The Company  has a Gold Stream with Donner Metals Ltd. (“Donner”), which it entered into  via a back-to-back agreement with Sandstorm Metals & Energy, to purchase  24.5% of the life of mine Gold Equivalent produced from the Bracemac-McLeod  property located in Quebec, Canada, which is operated by Xstrata Canada  Corporation (the “Bracemac- McLeod Mine”). Donner is the owner of a 35% joint  venture interest in the Bracemac-McLeod Mine. For consideration, the Company  made upfront payments totaling $8.0 million during the year ended December  31, 2012 and will continue to make ongoing per ounce payments equal to the  lesser of $350 and the then prevailing market price of gold. Additionally,  the Company has agreed to provide Donner with a $2.0 million loan via a  drawdown facility, bearing 7% interest and expiring on February 1, 2014. As  at December 31, 2012, no amounts had been drawn. The Bracemac-McLeod Mine is  a high grade volcanogenic massive sulphide deposit located in the historical  and prolific mining district of Matagami, Quebec. Continuous mining and  milling operations have been active in the Matagami district for almost fifty  years with ten previously operating mines and one current producing mine.  Xstrata Canada Corporation plans to utilize the existing Matagami mill to  produce concentrates of zinc and copper. The Bracemac-McLeod Mine will be an  underground mine, accessed via a ramp, and is expected to begin ore  production in 2013. The mine design has been revised at Bracemac-McLeod to  allow production at a rate of 3,000 tonnes per day during the first two years  of operation, compared to an average of 2,250 tonnes per day in the  feasibility study. The addition of a ball mill will allow for the increased  tonnage through the mill and will provide capacity for incremental tonnage  identified in and around Bracemac-McLeod. BRACEMAC-MCLEOD GOLD STREAM Donner  Metals Ltd. The Company has a Gold Stream to purchase 50% of the first 10,000  ounces of gold produced, and 22% of the life of mine gold produced thereafter  from Santa Fe Gold Corp.’s (“Santa Fe”) Summit mine, located in New Mexico,  U.S.A. (the “Summit Mine”), for a per ounce cash payment equal to the lesser  of $400 and the then prevailing market price of gold. In April 2012, Santa Fe  announced the beginning of commercial production at the Summit Mine. Initial  development of the mine has been completed and mechanized mining of the ore  body has begun. Santa Fe provided guarantees with respect to certain minimum  payable ounces in the first 18 months after the funding date. Sandstorm is  currently in discussions with Santa Fe regarding the deferral of amounts due  by Santa Fe to the Company and as such, no amounts have been recognized.  SUMMIT GOLD STREAM Santa Fe Gold Corp. Construction at the Bracemac- McLeod  Mine has successfully transitioned from single-face development in the main  access ramp to multi-face development. There are now 25,000 tonnes of ore in  the stockpile on surface from the Bracemac main zone. Mine pre-production  activities will commence in the first half of 2013 with the objective of  having three months of ready-to-blast ore to supply the mill at 3,000 tonnes  per day, with initial production scheduled to begin in 2013. Current  activities at the Bracemac-McLeod Mine include: |
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|  | 23 Subsequent  Events NEW ACQUISITION PREMIER ROYALTY > Subsequent to year end and  through a series of transactions, the Company acquired 46,678,221 common  shares and 6,965,676 warrants of Premier Royalty Inc. (“Premier Royalty”),  representing approximately 59.9% of the currently issued and outstanding  shares. Of the warrants, 5,508,176 expire on December 4, 2016 (subject to  expiry acceleration provisions) and 1,457,500 expire on October 7, 2014 As  part of these transactions, the Company entered into a share purchase  agreement (the “Agreement”) with Premier Gold Mines Ltd. (“Premier Gold”).  Pursuant to the terms of the Agreement, Sandstorm issued Premier Gold  5,604,277 special warrants (“Special Warrants”) each being exercisable into  one common share of Sandstorm. Sandstorm has also provided Premier Gold with  a temporary credit facility to borrow up to $70.0 million, which expires on  July 31, 2013 and if drawn will bear interest at a 0.3% premium to the  interest rate that the Company would be charged by its lenders if funds were  drawn from its revolving credit facility. As at the date of the MD&A,  Premier Gold had exercised 1,401,069 of the Special Warrants which had the  effect of reducing the maximum drawdown amount available under the credit  facility to $52.5 million. The Agreement contains a top up provision whereby  if Sandstorm acquires 100% of the remaining issued and outstanding securities  of Premier Royalty on or before the 18 month anniversary of the execution of  the Agreement (the “Subsequent Acquisition”) and the average price of the  securities of Premier Royalty purchased through the Subsequent Acquisition is  greater than the per unit price paid by Sandstorm under the Agreement,  Sandstorm must pay Premier Gold an amount that is equal to the difference  between the per unit price paid under the Agreement, and the average price of  the voting securities of Premier Royalty that Premier Gold would have  received if Premier Gold sold the common shares and warrants to Sandstorm  pursuant to the Subsequent Acquisition. Premier Royalty has a base of  existing royalties and a team that is capable of growth through accretive  acquisitions. Owning a controlling interest in Premier Royalty gives  Sandstorm continued exposure to smaller stream and royalty acquisitions,  allowing Sandstorm’s team to focus on transactions that are material to  shareholders. REVOLVING CREDIT FACILITY > Subsequent to year end, the  Company amended its revolving credit agreement to allow the Company to borrow  up to $100.0 million (the “Revolving Loan”) from a syndicate of banks  including the Bank of Nova Scotia, Bank of Montreal and National Bank of  Canada (the “Syndicate”). The Revolving Loan includes an increase of  available credit to $100.0 million from $50.0 million (previously entered  into on January 10, 2012) and an extension of the term from three years to  four years, which is extendable by mutual consent of Sandstorm and the  Syndicate. The Revolving Loan will continue to be used for the acquisition of  Gold Streams and loan commitments the Company has made to other companies.  The amounts drawn on the Revolving Loan remain subject to interest at LIBOR  plus 3.00% – 4.25% per annum, and the undrawn portion of the Revolving Loan  remain subject to a standby fee of 0.75% – 1.05% per annum, dependent on the  Company’s leverage ratio. The credit agreement is more fully described in the  notes to the consolidated financial statements. As at December 31, 2012, the  Company had not drawn down on its credit facility and therefore, the full  balance remains available for future acquisitions. NEW PROJECT ENTRÉE GOLD  STREAM > The Company entered into a $55.0 million financing package with  Entrée Gold Inc. (“Entrée”) which includes a $40.0 million production based  metal credit purchase agreement (the “Funding Agreement”), a C$10 million  private placement and a $5 million net smelter returns royalty. Sandstorm has  agreed to purchase metal credits equivalent to 25.7% and 33.8% of Entrée’s  20% share of the gold and silver by-products produced from the Heruga and  Hugo North Extension deposits, respectively. The deposits are on the Entrée –  Oyu Tolgoi LLC joint venture property in Mongolia which forms part of the  world-class Oyu Tolgoi copper mining complex. Sandstorm will pay an upfront  cash deposit of $35.0 million to Entrée and ongoing payments equal to the  lesser of the prevailing market price and $220 per ounce of gold and $5 per  ounce of silver (subject to inflationary adjustments) until approximately 8.6  million ounces of gold and 40.3 million ounces of silver have been produced  from the joint venture property. Thereafter, the purchase price will increase  to the lesser of the prevailing market price of $500 per ounce of gold and  $10 per ounce of silver (subject to inflationary adjustments). Sandstorm has  agreed to purchase 17,857,142 common shares of Entrée (the “Shares”) at a price  of C$0.56 per Share for a total consideration of approximately C$10 million.  Sandstorm has agreed to purchase a 0.4% NSR royalty on the future sale of any  metals and minerals derived from a portion of the Ann Mason Project (which  includes the Ann Mason and Blue Hill deposits) in Nevada. In consideration  for the royalty, Sandstorm will make a $5 million payment to Entrée. In  addition, Entrée has granted Sandstorm a right of first refusal on any future  royalty or metal stream financing for the Ann Mason Project. |
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|  | 24 SUMMARy OF  ANNUAL RESULTS Year Ended December 31, 2012 Year Ended December 31, 2011 Year  Ended December 31, 2010 Gold ounces sold 33,514 18,516 2,322 Gold sales  (000’s) $ 55,943 $ 29,967 $ 3,148 Average realized gold price per ounce 1  1,669 1,618 1,356 Average cash cost per ounce 1 356 420 396 Cash flow from  operations (000’s) 37,624 20,662 463 Cash flow from operations per share  (basic) 1 0.50 0.32 0.00 Cash flow from operations per share (diluted) 1 0.44  0.27 0.00 Net income (loss) (000’s) 21,927 12,489 (2,838) Basic income (loss)  per share 0.29 0.19 (0.01) Diluted income (loss) per share 0.25 0.16 (0.01)  Total assets (000’s) 341,427 152,792 131,732 Total long-term liabilities  (000’s) - - - Year Ended December 31, 2012 In $000s Ounces sold Sales Cost of  sales (excluding depletion) Depletion Other income Net income (loss) Cash  flow from operations Aurizona 11,554 $ 19,271 $ 4,622 $ 1,698 $ - $ 12,951 $ 14,574 Bachelor Lake 1,144 1,940 572 599 - 769 1,420 Black Fox 8,391 13,981  4,196 5,659 5,630 9,756 9,798 Ming 5,205 8,589 - 3,145 - 5,444 8,589 Santa  Elena 6,967 11,755 2,438 2,932 - 6,385 9,316 Summit 253 407 101 286 - 20 306  Corporate - - - - - (13,398) (6,379) Consolidated 33,514 $ 55,943 $ 11,929 $ 14,319 $ $5,630 $ 21,927 $ 37,624 Year Ended December 31, 2011 In $000s  Ounces sold Sales Cost of sales (excluding depletion) Depletion Other income  Net income (loss) Cash flow from operations Aurizona 7,021 $ 11,332 $ 2,808 $ 1,032 $ - $ 7,492 $ 8,783 Black Fox 6,105 9,863 3,052 2,614 - 4,197 6,810  Santa Elena 4,792 7,790 1,677 1,431 - 4,682 6,113 Summit 598 982 240 447  1,101 1,396 1,845 Corporate - - - - - (5,278) (2,889) Consolidated 18,516 $ 29,967 $ 7,777 $ 5,524 $ 1,101 $ 12,489 $ 20,662 |
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|  | 25 Once in  production, Sandstorm buys a percentage of the gold produced from the mine,  for the life of the mine, at a fixed price per ounce. Our average cost per  ounce in 2012 was $356. |
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|  | 26 SUMMARY OF  QUARTERLY RESULTS (in accordance with IFRS) Quarters Ended Dec. 31, 2012 Sep.  30, 2012 Jun. 30, 2012 Mar. 31, 2012 Gold ounces sold 7,243 9,066 9,259 7,946  Gold sales (000’s) $ 12,423 $ 15,102 $ 14,954 $ 13,464 Average realized gold  price per ounce 1 1,715 1,666 1,615 1,694 Average cash cost per ounce 1 410  408 298 314 Cash flow from operations (000’s) 6,504 10,598 11,258 9,264 Cash  flow from operations per share (basic) 1 0.08 0.14 0.16 0.14 Cash flow from  operations per share (diluted) 1 0.06 0.12 0.14 0.11 Net income (000’s) 7,367  4,861 5,283 4,416 Basic income per share 0.09 0.06 0.07 0.06 Diluted income  per share 0.07 0.05 0.06 0.05 Total assets (000’s) 341,427 332,436 178,046  166,896 Total long-term liabilities (000’s) - - 187 - Dec. 31, 2011 Sep. 30,  2011 Jun. 30, 2011 Mar. 31, 2011 Gold ounces sold 6,611 5,561 3,706 2,638  Gold sales (000’s) $ 11,125 $ 9,592 $ 5,582 $ 3,668 Average realized gold  price per ounce 1,683 1,725 1,506 1,390 Average cash cost per ounce 1 407 428  434 417 Cash flow from operations (000’s) 7,843 8,558 2,645 1,616 Cash flow  from operations per share (basic) 1 0.12 0.13 0.04 0.03 Cash flow from  operations per share (diluted) 1 0.10 0.11 0.04 0.02 Net income (000’s) 4,879  4,391 2,261 958 Basic income per share 0.07 0.07 0.04 0.02 Diluted income per  share 0.06 0.06 0.03 0.01 Total assets (000’s) 152,792 147,607 137,472  133,474 Total long-term liabilities (000’s) - - - - 1. See non-IFRS measures  section below. |
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|  | 27 The  Company’s operating segments for the three months ended December 31, 2012 are  summarized in the table below: In $000s Ounces sold Sales Cost of sales  (excluding depletion) Depletion Other income Net income (loss) Cash flow from  operations Aurizona 2,871 $ 4,957 $ 1,149 $ 421 $ - $ 3,387 $ 3,993 Bachelor  Lake 556 951 278 292 - 381 725 Black Fox 1,911 3,287 955 1,136 5,630 6,826  2,346 Ming 217 358 - 131 - 227 358 Mt. Hamilton - - - - - - - Santa Elena  1,688 2,870 591 746 - 1,533 2,278 Corporate - - - - - (4,987) (3,196)  Consolidated 7,243 12,423 $ 2,973 $ 2,726 $ 5,630 $ 7,367 $ 6,504 changes in  sales, net income and cash flow from operations from quarter to quarter are  affected primarily by fluctuations in production at the mines, the timing of  shipments, changes in the price of gold, as well as acquisitions of Gold  Stream agreements and the commencement of operations of mines under  construction. For more information refer to the quarterly commentary  discussed below. |
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|  | 28 • A $0.8  million increase in non-cash depletion expense driven by the increase in gold  sales as described in greater detail below; • A $1.0 million increase in  bonus compensation due to the Company’s strong performance in 2012 including  the acquisition of two Gold Streams and three royalties; which is partially  offset by • A 2% increase in the average realized selling price of gold; and  • A 10% increase in the number of gold ounces sold, primarily due to: i. 20%  increase in gold deliveries from the Aurizona Mine reflecting the continued  ramp up of operations; ii. 12% increase in gold ounces sold from the Black  Fox Mine primarily due to the continued ramp up of underground production and  reduced dilution in the underground mine; iii. An additional 556 ounces in  gold ounces sold from the Bachelor Lake Mine, as Metanor began mining and  processing the bulk ore sample from the mine in 2012; partially offset by iv.  33% decrease in gold ounces sold from the Santa Elena Mine, driven by the  one-time additional sales of 589 gold ounces which were previously held in  inventory and subsequently sold in the fourth quarter of 2011. • A gain of  $5.6 million which represents the premium paid by Brigus in exercising its  option to repurchase a portion of the Gold Stream. For the three months ended  December 31, 2012, net income and cash flow from operations were $7.4 million  and $6.5 million, respectively, compared with $4.9 million and $7.8 million  for the three month period ended December 31, 2011. The change is  attributable to a combination of factors including: 3 MONTHS ENDED DECEMBER  31, 2012 COMPARED TO THE 3 MONTHS ENDED DECEMBER 31, 2011 |
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|  | 29 For the year  ended December 31, 2012, net income and cash flow from operations were $21.9  million and $37.6 million, respectively, compared with $12.5 million and  $20.7 million for the comparable year in 2011. The increase in net income and  cash flow from operations is attributable to a combination of factors  including: • 81% increase in the number of gold ounces sold, due to: i. 65%  increase in gold deliveries relating to the Aurizona Mine, reflecting the  ramping up of the milling operations and the first full year of operations  since the mine achieved commercial production; ii. An additional 5,205 ounces  in gold deliveries from the Ming Mine, largely driven by Rambler mining and  processing ore from the high grade gold 1806 zone mine in first half of 2012  prior to Rambler’s commissioning of the copper concentrator and subsequent  switch from the 1806 gold zone to the 1807 copper zone; iii. 45% increase in  gold deliveries from the Santa Elena Mine, reflecting the continued ramp up  of operations; iv. An additional 1,144 ounces in gold sales from the Bachelor  Lake Mine, as Metanor began mining and processing the bulk ore sample from  the mine in 2012; v. 37% increase in gold sales from the Black Fox Mine,  reflecting the continued ramp up of operations; and • A 3% increase in the  average realized selling price of gold; • A gain of $5.6 million which  represents the premium paid by Brigus in exercising its option to repurchase  a portion of the Gold Stream; which is partially offset by • An $8.8 million  increase in non-cash depletion expense driven by the increase is gold sales  as described in greater detail above; • A loss of $1.6 million primarily  resulting from the settlement of a foreign exchange contract relating to the  conversion of the Company’s Canadian dollar-denominated public offering into  U.S. dollars; • An increase of $0.9 million in non-cash deferred tax expense  primarily resulting from increased sales; • A $2.9 million increase in administration  expenses largely driven by an increase of $1.6 million in compensation  expenses and $0.8 million in corporate administration expenses both resulting  from increased corporate activity; • An additional $0.6 million in combined  interest expense and non-cash amortization costs associated with the  Company’s Revolving Loan; • A $0.5 million increase in project evaluation  costs primarily driven by continued growth in the Company’s Gold Stream  pipeline; and • A number of non-recurring items recorded during the year  ended December 31, 2011, including the recognition of $1.1 million of income  in consideration for the Company deferring the Santa Fe production guarantee,  and no such income was recorded during the year ended December 31, 2012. YEAR  ENDED DECEMBER 31, 2012 COMPARED TO THE YEAR ENDED DECEMBER 31, 2011 |
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|  | 30 When  comparing net income of $7.4 million and cash flow from operations of $6.5  million for the three months ended December 31, 2012 with net income and  operating cash flow for the remaining quarters, the following items impact  comparability of analysis: • Gold ounces sold for the three months ended  December 31, 2012 were 7,243 compared with 9,066 for the three months ended  September 30, 2012. The 20% decrease is largely attributed to (i) 26% fewer  gold ounces from the Aurizona mine primarily driven by timing of shipments;  partially offset by a 7% increase in gold sales from the Santa Elena Mine,  reflecting the continued ramp up of operations; • Gold sales have increased  over course of the last three years as (i) the Aurizona Mine, the Santa Elena  Mine, and the Summit Mine began initial production late in 2010; (ii) the  Company began purchasing gold from the Black Fox Mine in 2011; (iii) the Ming  Mine began mining and processing ore from the high grade gold 1806 zone in  2012; and (iv) the Bachelor Lake Mine began producing from its bulk sample in  2012; • A gain of $5.6 million which represents the premium paid by Brigus in  exercising its option to repurchase a portion of the Gold Stream was  recognized during the three months ended December 31, 2012; • a non-recurring  gain of $0.8 million was recorded during the three months ended June 30, 2011  relating to the consideration received from the deferment of the Santa Fe production  guarantee; and • a loss of $1.4 million primarily resulting from the  settlement of a foreign exchange contract relating to the conversion of the  Company’s Canadian dollar-denominated public offering into US dollars was  recognized during the three months ended September 30, 2012. 3 MONTHS ENDED  DECEMBER 31, 2012 COMPARED TO THE REMAINING QUARTERS |
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|  | 31 Change In  Total Assets The Company’s total assets increased by $9.0 million from  September 30, 2012 to December 31, 2012 primarily resulting from operating  cash flow partially offset by depletion expense. The Company’s total assets  increased by $154.4 million from June 30, 2012 to September 30, 2012  primarily resulting from the Company’s September 7, 2012 equity financing.  Total assets increased by $11.2 million from March 31, 2012 to June 30, 2012;  and by $14.1 million from December 31, 2011 to March 31, 2012, primarily  resulting from (i) operating cash flows; and (ii) the exercise of warrants;  which were partially offset by depletion expense. The Company’s total assets  increased by $10.1 million from June 30, 2011 to September 30, 2011; by $4.0  million from March 31, 2011 to June 30, 2011; and by $1.7 million from  December 31, 2010 to March 31, 2011, all of which were driven primarily from  operating cash flows. Non-IFRS Measures The Company has included, throughout  this document, certain non-IFRS performance measures, including (i) average  cash cost per ounce; (ii) cash flow from operations per share (basic and  diluted); and (iii) average realized gold price per ounce. i. Average cash  cost per ounce is calculated by dividing the Company’s cost of sales  (excluding depletion) by the number of ounces sold. The Company presents  average cash cost per ounce as it believes that certain investors use this  information to evaluate the Company’s performance in comparison to other  companies in the precious metals mining industry who present results on a  similar basis. The following table provides a reconciliation of average cash  cost of gold on a per ounce basis. Three Months Ended December 31, 2012 2011  Cost of Sales (excluding depletion) $ 2,973 $ 2,688 Cash cost of sales is  comprised of: Total cash cost of gold sold 2,973 2,688 Divided by: Total  ounces of gold sold 7,243 6,611 Equals: Average cash cost of gold (per ounce)  $ 410 $ 407 year Ended December 31, 2012 2011 Cost of Sales (excluding  depletion) $ 11,929 $ 7,777 Cash cost of sales is comprised of: Total cash  cost of gold sold 11,929 7,777 Divided by: Total ounces of gold sold 33,514  18,516 Equals: Average cash cost of gold (per ounce) $ 356 $ 420 ii. Cash  flow from operations per share (basic and diluted) is calculated by dividing  cash generated by operating activities by the weighted average number of  shares outstanding (basic and diluted). The Company presents operating cash  flow per share as it believes that certain investors use this information to  evaluate the Company’s performance in comparison to other companies in the  precious metals mining industry that present results on a similar basis. |
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|  | 32 These  non-IFRS measures do not have any standardized meaning prescribed by IFRS,  and other companies may calculate these measures differently. The  presentation of these non-IFRS measures is intended to provide additional  information and should not be considered in isolation or as a substitute for  measures of performance prepared in accordance with IFRS. Three Months Ended  December 31, 2012 2011 Cash generated by operating activities $ 6,504 $ 7,843  Divided by: Basic weighted average number of shares outstanding 85,914,720  66,330,014 Diluted weighted average number of shares outstanding 102,323,201  79,029,944 Equals: Operating cash flow per share - basic $ 0.08 $ 0.12  Operating cash flow per share - diluted $ 0.06 $ 0.10 The following table  provides a reconciliation of cash flow from operations per share (basic and  diluted). Year Ended December 31, 2012 2011 Cash generated by operating  activities $ 37,624 $ 20,662 Divided by: Basic weighted average number of  shares outstanding 75,191,865 64,892,174 Diluted weighted average number of  shares outstanding 86,379,483 76,238,875 Equals: Operating cash flow per  share - basic $ 0.50 $ 0.32 Operating cash flow per share - diluted $ 0.44 $ 0.27 iii. Average realized gold price per ounce is calculated by dividing the  Company’s sales by the number of ounces sold. The Company presents average  realized gold price per ounce as it believes that certain investors use this  information to evaluate the Company’s performance in comparison to other  companies in the precious metals mining industry that present results on a  similar basis. The following table provides a reconciliation of average  realized gold price per ounce. Three Months Ended December 31, 2012 2011  Sales $ 12,423 $ 11,125 Divided by: Total gold ounces sold 7,243 6,611  Equals: Average realized gold price per ounce $ 1,715 $ 1,683 Year Ended December  31, 2012 2011 Sales $ 55,943 $ 29,967 Divided by: Total gold ounces sold  33,514 18,516 Equals: Average realized gold price per ounce $ 1,669 $ 1,618 |
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|  | 33 Contractual  Obligations The Company agreed to contribute up to $10.0 million in capital  towards the Phase 1 Expansion at Luna's Aurizona Mine (of which $1.5 million  had been contributed as at December 31, 2012). Sandstorm’s contribution will  be equal to 17% of the capital costs incurred by Luna towards the Phase 1  Expansion to a maximum contribution of $10.0 million. In addition, Sandstorm  has committed to issue, if requested by Luna, a $20.0 million non-revolving  loan facility with a three year term, which may only be used to fund the  Phase 1 Expansion and associated exploration costs and may only be drawn up  to July 21, 2014. Any amounts drawn must be repaid by November 30, 2015.  Under the agreement, the loan will bear interest at a rate per annum of 12%,  and have a three year term. Undrawn amounts will be subject to a standby fee  of 1.2%. No amounts were drawn as at December 31, 2012. As part of the  Company’s Deflector Gold Stream, the Company has agreed to subscribe for $3.0  million in equity as part of a future Mutiny financing. Additionally, if the  Deflector Mine produces more than 85,000 ounces of gold in a calendar year,  Sandstorm will make a one-time $4.0 million payment to Mutiny. Sandstorm has  provided Premier Gold with a temporary credit facility to borrow up to $70.0  million, which expires on July 31, 2013 and if drawn will bear interest at a  0.3% premium to the interest rate that the Company would be charged by its  lenders if funds were drawn from its revolving credit facility. Sandstorm has  agreed to purchase 17,857,142 common shares of Entrée at a price of C$0.56  per Share for a total consideration of approximately C$10 million. The  Company has a commitment to Sandstorm Metals & Energy to share a  reasonable allocation, agreed to by both companies, of costs paid by  Sandstorm Metals & Energy that are incurred for the benefit of Sandstorm.  Sandstorm Metals & Energy is contractually obligated to make annual  rental payments ranging from $0.2 million to $0.4 million during 2013-2016  and Sandstorm will reimburse Sandstorm Metals & Energy for a reasonable  allocation of these rental costs. In connection with its Gold Streams, the  Company has committed to purchase the following: Gold Stream % of Life of  Mine Gold Per Ounce Cash Payment: lesser of amount below and the then  prevailing market price of gold 1, 2, 3 Aurizona 17% $400 Bachelor Lake 20%  $500 Black Fox 8% $500 Bracemac-McLeod 17.5% $350 Deflector 15% $500 Entrée  (Gold) 6.77% on Hugo North Extension and 5.13% on Heruga $200 Entrée (Silver)  33.8% $5 Ming 6.77% on Hugo North Extension and 5.13% on Heruga $nil Santa Elena  20% $350 Serra Pelada (Gold) 1.5% $400 Serra Pelada (Platinum) 35% $200  Summit 50% of the first 10,000 ounces of gold produced, and 22% thereafter  $400 1 Subject to an annual inflationary adjustment except for  Bracemac-McLeod and Ming 2 For the Entrée Gold Stream, after approximately  8.6 million ounces of gold have been produced from the joint venture  property, the price increases to $500 per gold ounce 3 For the Entrée Silver  Stream, after approximately 40.3 million ounces of silver have been produced from  the joint venture property, the price increases to $10 per silver ounce  Liquidity and Capital Resources As of December 31, 2012 the Company had cash  of $127.4 million (December 31, 2011 – $13.1 million) and working capital of  $141.5 million (December 31, 2011 – $12.3 million). The Company invests  surplus cash in short-term, high credit quality, money market instruments. As  described earlier, the Company has an additional $100.0 million available  under its revolving bank debt facility. In the opinion of management, cash  flows, cash balances and available credit facilities are sufficient to  support the Company’s normal operating requirements on an ongoing basis.  During the year ended December 31, 2012 the Company generated operating cash  flows of $37.6 million compared with $20.7 million during the comparable year  in 2011, with the increase being primarily attributable to both an increase  in gold ounces sold and an increase in the realized selling price of gold.  During the year ended December 31, 2012, the Company had cash inflows from  financing activities of $157.7 million compared with $6.6 million during the  comparable year in 2011. The increase is largely attributed to the Company's  September 7, 2012 equity financing for gross proceeds of C$150.1 million  ($153.5 million), partially offset by share issuance costs of $7.7 million.  During the year ended December 31, 2012, the Company had net cash outflows  relating to investing activities of $79.4 million, which were primarily the  result of (i) the upfront payment of $60.0 million related to the Serra  Pelada Gold Stream; (ii) $15.0 million payment in connection with the  back-back agreement with Sandstorm Metals & Energy; (iii) upfront  payments of $8.0 million to Donner, $7.5 million to Magellan and $6.0 million  to Solitario in connection with their respective Gold Stream and royalties;  (iv) $9.0 million relating to the acquisition of investments; and (v) $4.0  million in a loan advance. These cash outflows were partially offset by cash  inflows of (i) $24.4 million payment received from Brigus; and (ii) $9.4  million resulting from the disposal of investments. During the year ended  December 31, 2011, the Company had net cash outflows of $42.7 million,  primarily related to the upfront payments of $13.0 million to Rambler and  $20.0 to Metanor in connection with their respective Gold Streams and $7.8  million relating to the acquisition of investments. |
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|  | 34 Share  Capital On May 9, 2012, the Company completed a fivefor- one consolidation (the  “Consolidation”) of the Company's common shares. The 349,658,858 common  shares issued and outstanding prior to the Consolidation were consolidated to  69,931,771 common shares. The Company's outstanding stock options were  adjusted on the same basis with proportionate adjustments being made to the  stock option exercise prices. The Company's listed warrants were not  consolidated. Following the Consolidation, each five (5) listed warrants of  SSL.WT (expiring on April 23, 2014) will entitle the holder to purchase one  post-Consolidation common share at the adjusted total exercise price of  $3.00. Each five (5) listed warrants of SSL.WT.A (expiring on October 19,  2015) will entitle the holder to purchase one post-Consolidation common share  at the adjusted total exercise price of $5.00. All comparative period  information has been adjusted to reflect this Consolidation. On September 7,  2012 the Company completed a public offering of 15,007,500 units at a price  of C$10.00 per unit, for gross proceeds of C$150.1 million ($153.5 million).  Each unit was comprised of one common share of the Company and one-third of  one listed warrant ()SSL.WT.B). In connection with the offering, the Company  paid agent fees of C$7.5 million ($7.7 million), representing 5% of the gross  proceeds. The amount attributable to common shares was $145.6 million, with  the remainder allocated to the warrants. As previously announced, the net  proceeds from the public offering have been and continue to be used to  finance the acquisition of Gold Streams and royalties (recent acquisitions  are described earlier in greater detail). As of February 18, 2013 the Company  had 87,614,557 common shares outstanding. A summary of the Company’s share  purchase options as of February 18, 2013 are as follows: Outstanding  Exercisable Price per Share (C$) Expiry Date 505,000 505,000 $2.25 June 16,  2014 140,000 140,000 $2.20 July 6, 2014 200,000 200,000 $2.175 July 28, 2014  20,000 20,000 $3.35 May 19, 2015 1,362,000 1,362,000 $3.40 November 26, 2015  91,000 30,335 $6.30 August 25, 2016 1,139,000 374,338 $6.35 November 25, 2016  150,000 - $11.78 December 21, 2017 3,607,000 2,631,673 $3.48 All remaining  compensation warrants (the “Compensation Warrants”) issued by the Company to  agents in 2009, were exercised during the year ended December 31, 2012. Each  Compensation Warrant entitled the holder to acquire one unit comprised of one  common share of the Company and one-half of a share purchase warrant. Each  Compensation Warrant had an exercise price of $0.33. Each five (5) whole share  purchase warrants issued upon exercise of the Compensation Warrants entitles  the holder to purchase one common share at an adjusted total exercise price  of $3.00 until April 23, 2014. During the year ended December 31, 2012, the  Company granted 330,000 Restricted Share Rights (“RSRs”) with a fair value of  $3.9 million and a three year vesting term. During the year ended December  31, 2011, no RSRs had been granted by the Company under the Restricted Share  Plan. A summary of the Company’s warrants as of February 18, 2013 are as  follows: Number of Warrants on a Pre-consolidated Basis Pre-Consolidated  Exercise Price Per Warrant Number of Warrants on a Post-Consolidated Basis  Post-Consolidated Exercise Price Per Warrant Shares to be Issued Upon  Exercise of the Warrants Adjusted Exercise Price Per Share Expiry Date SSL.WT  73,603,672 $0.60 - - 14,720,734 $3.00 April 23, 2014 SSL.WT.A 19,662,599  $1.00 - - 3,932,520 $5.00 October 19, 2015 SSL.WT.B - - 5,002,500 $14.00  5,002,500 14.00 September 7, 2017 Special warrants - - 4,203,208 - 4,203,208  - August 5, 2013 93,266,271 9,205,708 27,858,962 Key Management Personnel  Compensation A summary of the Company’s warrants as of February 18, 2013 are  as follows: In $000s Year ended December 31, 2012 Year ended December 31, 2011  Short-term employee salaries and benefits 2,875 1,407 Share-based payments  1,286 1,280 Total key management compensation expense 4,161 2,687 |
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|  | 35 may result  in the Mines becoming uneconomic resulting in their shutdown and closure. The  Company is not entitled to purchase gold if no gold is produced from the  Mines. NO CONTROL OVER MINING OPERATIONS > The Company has no contractual  rights relating to the operation or development of the Mines. Except for any  payments which may be payable in accordance with applicable completion  guarantees or cash flow guarantees, the Company will not be entitled to any  material compensation if these mining operations do not meet their forecasted  gold production targets in any specified period or if the Mines shut down or  discontinue their operations on a temporary or permanent basis. The Mines may  not commence commercial production within the time frames anticipated, if at  all, and there can be no assurance that the gold production from such properties  will ultimately meet forecasts or targets. At any time, any of the operators  of the Mines or their successors may decide to suspend or discontinue  operations. The Company is subject to the risk that the Mines shut down on a  temporary or permanent basis due to issues including, but not limited to  economics, lack of financial capital, floods, fire, mechanical malfunctions,  social unrest, expropriation and other risks. These issues are common in the  mining industry and can occur frequently. GOVERNMENT REGULATIONS > The  Mines are subject to various foreign laws and regulations governing  prospecting, exploration, development, production, exports, taxes, labour  standards, waste disposal, protection and remediation of the environment,  reclamation, historic and cultural resources preservation, mine safety and  occupation health, handling, storage and transportation of hazardous  substances and other matters. The costs of discovering, evaluating, planning,  designing, developing, constructing, operating and closing the Mines in  compliance with such laws and regulations are significant. It is possible  that the costs and delays associated with compliance of such laws and  regulations could become such that the owners or operators of the Mines would  not proceed with the development of or continue to operate the Mines.  Moreover, it is possible that future regulatory developments, such as  increasingly strict environmental protection laws, regulations and  enforcement policies thereunder, and claims for damages to property and  persons resulting from the Mines could result in substantial costs and  liabilities in the future. INTERNATIONAL OPERATIONS > The Aurizona Mine,  the Serra Pelada Mine and the Coringa Project are located in Brazil, the  Santa Elena Mine is located in Mexico, the Summit Mine and the Mt. Hamilton  Project are located in the United States of America, the Deflector Mine is  located in Australia and each of the Ming Mine, the Black Fox Mine, Bachelor  Lake Mine, and the Bracemac-McLeod Mine are located in Canada and as such,  the Mines are exposed to various levels of political, economic and other  risks and uncertainties. These risks and uncertainties include, but are not  limited to, terror- Financial Instruments The company’s financial instruments  consist of cash, trade receivables and other, promissory note, investments,  loan receivable, trade and other payables and mineral interest payable. All  financial instruments are initially recorded at fair value. CREDIT RISK >  The Company’s credit risk is limited to cash, trade receivables and other,  promissory note and loan receivable in the ordinary course of business. The  Company sells gold exclusively to large corporations with strong credit  ratings and the balance of trade and other receivables owed to the Company in  the ordinary course of business is not significant. CURRENCY RISK > The  Company is exposed to the fluctuations of the Canadian to U.S. dollar from  time to time as it holds investments denominated in the Canadian dollar.  OTHER RISKS > Sandstorm holds common shares, convertible debentures, and  warrants of other companies with a combined market value as at December 31,  2012, of $7.5 million (December 31, 2011 - $8.4 million). The daily exchange  traded volume of these shares, including the shares underlying the warrants,  may not be sufficient for the Company to liquidate its position in a short  period of time without potentially affecting the market value of the shares.  The Company is not subject to significant interest rate or other price risks  and the Company’s exposure to these risks has not changed significantly from  the prior year. Risks to Sandstorm The primary risk factors affecting the  company are set forth below. For additional discussion of risk factors,  please refer to the company’s annual information form dated February 18,  2013, which is available on www.sedar.com. RISKS RELATING TO MINERAL PROJECTS  > To the extent that they relate to the production of gold from, or the  operation of, the Aurizona Mine, the Serra Pelada Mine, the Santa Elena Mine,  the Summit Mine, the Deflector Mine, the Ming Mine, the Black Fox Mine, the  Bachelor Lake Mine, Mt. Hamilton Project, the Coringa Project and the  Bracemac-McLeod Mine (the “Mines”), the Company will be subject to the risk  factors applicable to the operators of such Mines. Whether the Mines will be  commercially viable depends on a number of factors, including cash costs  associated with extraction and processing, the particular attributes of the  deposit, such as size, grade and proximity to infrastructure, as well as  metal prices which are highly cyclical and government regulations, including  regulations relating to prices, taxes, royalties, land tenure, land use,  importing and exporting of minerals and environmental protection. The Mines  are also subject to other risks that could lead to their shutdown and closure  including flooding and weather related events, as well as community or social  related issues. The exact effect of these factors cannot be accurately  predicted, but the combination of these factors |
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|  | 36 ism, hostage  taking, military repression, crime, political instability, currency controls,  extreme fluctuations in currency exchange rates, high rates of inflation,  labour unrest, the risks of war or civil unrest, expropriation and  nationalization, renegotiation or nullification of existing concessions,  licenses, permits, approvals and contracts, illegal mining, changes in  taxation policies, restrictions on foreign exchange and repatriation, and  changing political conditions, and governmental regulations. Changes, if any,  in mining or investment policies or shifts in political attitude in Mexico,  Brazil, the United States of America, Australia or Canada may adversely  affect the operations or profitability of the Mines in these countries.  Operations may be affected in varying degrees by government regulations with  respect to, but not limited to, restrictions on production, price controls,  export controls, currency remittance, income taxes, expropriation of  property, foreign investment, maintenance of claims, environmental  legislation, land use, land claims of local people, water use, mine safety  and the rewarding of contracts to local contractors or require foreign  contractors to employ citizens of, or purchase supplies from, a particular  jurisdiction. Failure to comply strictly with applicable laws, regulations  and local practices relating to mineral right applications and tenure, could  result in loss, reduction or expropriation of entitlements, or the imposition  of additional local or foreign parties as joint venture partners with carried  or other interests. The occurrence of these various factors and uncertainties  cannot be accurately predicted and could have an adverse effect on the Mines.  INCOME TAXES > The Company has a subsidiary in Barbados, Sandstorm Gold  (Barbados) Limited, which entered into Gold Streams in connection with the  Aurizona, Santa Elena, and Summit transactions. No assurance can be given  that new taxation rules will not be enacted or that existing rules will not  be applied in a manner which could result in the Company’s future profits  being subject to increased level of income tax. The Company’s international  transactions have not yet been reviewed by the Canada Revenue Agency, and  should such transactions be reviewed no assurances can be given that the tax  matters will be resolved favorably. The Company’s other Gold Streams and  royalties in connection with Serra Pelada, Black Fox, Ming, Defector,  Bachelor Lake, Mt. Hamilton, Coringa and Bracemac-Mcleod transactions have  been entered into directly by Canadian based subsidiaries and will therefore,  be subject to Canadian, and/or U.S taxation, as the case may be. GOLD PRICES  > The price of the common shares, warrants, and the Company’s financial  results may be significantly adversely affected by a decline in the price of  gold. The price of gold fluctuates widely, especially in recent years, and is  affected by numerous factors beyond the Company’s control, including but not  limited to, the sale or purchase of gold by various central banks and  financial institutions, interest rates, exchange rates, inflation or  deflation, fluctuation in the value of the U.S. dollar and foreign  currencies, global and regional supply and demand, and the political and  economic conditions of major gold-producing countries throughout the world.  In the event that the prevailing market price of gold is less than $500 per  ounce in the case of the Brigus Gold Stream, $500 per ounce in the case of  the Bachelor Lake Gold Stream, $500 per ounce in the case of Deflector Gold  Stream, $400 per ounce in the case of the Aurizona Gold Stream, $400 per  ounce in the case of the Serra Pelada Gold Stream, $400 per ounce in the case  of the Summit Gold Stream, $350 per ounce in the case of the Santa Elena Gold  Stream, and $350 per ounce in the case of the Bracemac-McLeod Gold Stream,  the purchase price will be the then prevailing market price per ounce of gold  and the Company will not generate positive cash flow or earnings on those  Gold Streams. PLATINUM PRICES > The price of the common shares and the  Company’s financial results may be significantly adversely affected by a  decline in the price of platinum. The price of platinum fluctuates widely,  and is affected by numerous factors beyond the Company’s control such as  international, economic and political trends, expectations for inflation,  currency exchange fluctuations, interest rates, global or regional  consumption patterns, speculative activities and worldwide production levels.  The effect of these factors cannot be accurately predicted. The price of  platinum has fluctuated widely in recent years. Other CRITICAL ACCOUNTING  ESTIMATES > The preparation of financial statements in conformity with  IFRS requires management to make estimates and assumptions that affect the  reported amount of assets and liabilities and disclosure of contingent  liabilities at the date of the financial statements, and the reported amounts  of revenues and expenditures during the year . Note 3 of the Company’s  consolidated financial statements describes all of the significant accounting  policies. ACCOUNTING FOR MINERAL INTERESTS > The Company’s business is the  acquisition of gold purchase agreements. Management accounts for these  agreements as mineral interests as they consider the associated mining risks  when evaluating the assets to be acquired and assessing the mineral interests  over the life of the related mine. ATTRIBUTABLE RESERVE AND RESOURCE  ESTIMATES > Gold interests are a significant asset of the Company, with a  carrying value of $185.0 million at December 31, 2012. This amount represents  the capitalized expenditures related to the acquisition of the gold interests  net of accumulated depletion and any impairments. The Company estimates the  reserves and resources relating to each agreement. Reserves are estimates of  the amount of gold that can be economically and legally extracted from the  mining properties at which the Company has precious metal purchase  agreements, |
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|  | 37 adjusted  where applicable to reflect the Company’s percentage entitlement to gold  produced from such mines. The Company estimates its reserves and resources  based on information compiled by appropriately qualified persons relating to  the geological data on the size, depth and shape of the ore body, and require  complex geological judgments to interpret the data. The estimation of  recoverable reserves is based upon factors such as estimates of foreign  exchange rates, commodity prices, future capital requirements, and production  costs along with geological assumptions and judgments made in estimating the  size and grade of the ore body. Changes in the reserve or resource estimates  may impact upon the carrying value of the Company’s gold interests and  depletion charges. DEPLETION > The Company’s gold interests are depleted  on a units-of-sale basis, with estimated recoverable reserves and resources  being used to determine the depletion rate for each of the Company’s gold  interests. These calculations require the use of estimates and assumptions,  including the amount of recoverable reserves. Changes in the estimated  recoverable reserves, resources or exploration potential will directly impact  the depletion rate used. Changes to depletion rates are accounted for  prospectively. INCOME TAXES > The interpretation of existing tax laws or  regulations in Canada, Barbados, the United States of America, Australia or  any of the countries in which the mining operations are located or to which  shipments of gold are made requires the use of judgment. Differing  interpretation of these laws or regulations could result in an increase in  the Company’s taxes, or other governmental charges, duties or impositions. In  addition, the recoverability of deferred income tax assets, including  expected periods of reversal of temporary differences and expectations of  future taxable income, are assessed by management at the end of each  reporting period. IMPAIRMENT OF ASSETS > Management considers each gold  interest to be a separate cash generating unit, which is the lowest level for  which cash inflows are largely independent of those of other assets. At the  end of each reporting period, the Company reviews the carrying amounts of  each gold interest to determine whether there is any indication that those  gold interests have suffered an impairment loss. If such an indication  exists, the recoverable amount of the gold interest is estimated in order to  determine the extent of the impairment (if any). The recoverable amount of  each gold interest is the higher of fair value less costs to sell (“Fair  Value approach”) and value in use (“Value-in-use approach”). Under the Fair  Value approach, the net asset value (“NAV”) methodology is used to determine  the fair value that could be received from each gold interest in an arm’s  length transaction at the measurement date. NAV is estimated by using an  appropriate discount rate to calculate the present value of expected future  cash flows associated with each mineral category. The values are adjusted for  each mineral category dependent on the likelihood of conversion from resources  to reserves. A market multiple is applied to the NAV computed in order to  assess the estimated fair value. Gold Stream and precious metal companies  typically trade at a market capitalization that is based on a multiple of  their underlying NAV. Consequently, a market participant would generally  apply a NAV multiple when estimating the fair value of a gold interest. Under  the Value-in-use approach, the net present value (“NPV”) methodology is used.  NPV is estimated by using a discount rate to calculate the present value of  expected future cash flows. The discount rate is based on the Company’s  weighted average cost of capital, adjusted for various risks. The expected  future cash flows are management’s best estimates of expected future revenues  and costs. Under each method, expected future revenues reflect the estimated  future production for each mine at which the Company has a Gold Stream based  on detailed life of mine plans received from each of the partners. Included  in these forecasts is the production of mineral resources that do not  currently qualify for inclusion in proven and probable ore reserves where  there is a high degree of confidence in its economic extraction. This is  consistent with the methodology that is used to measure value beyond proven  and probable reserves when allocating the purchase price to acquired silver  and gold interests. Expected future revenues also reflect management’s  estimated long term metal prices, which are determined based on current  prices, forward pricing curves and forecasts of expected long-term metal  prices prepared by analysts. These estimates often differ from current price  levels, but are consistent with how a market participant would assess future  long-term metal prices. Estimated future cash costs are fixed based on the  terms of each Gold Stream, as disclosed in note 7 to the financial  statements. If the carrying amount of the asset exceeds its recoverable  amount, the asset is considered impaired and an impairment charge is  reflected as a component of net earnings so as to reduce the carrying amount  to its recoverable value. A previously recognized impairment charge is  reversed only if there has been a change in the estimates used to determine  the asset’s recoverable amount since the last impairment charge was recognized.  If this is the case, the carrying amount of the asset is increased to its  recoverable amount. The increased amount cannot exceed the carrying amount  that would have been determined, net of depletion, had no impairment charge  been recognized for the asset in prior years. Such reversal is reflected as a  component of net earnings. At December 31, 2012 and December 31, 2011, no  impairment charge was required. |
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|  | 38 Changes In  Accounting Policies FUTURE CHANGES IN ACCOUNTING POLICIES > The IASB issued  a number of new and revised accounting standards which are effective for  annual periods beginning on or after January 1, 2013, with early adoption  permitted. These standards include the following: IFRS 10, Consolidated  Financial Statements; IFRS 11, Joint Arrangements; IFRS 12, Disclosure of  Interests in Other Entities; IFRS 13, Fair Value Measurement; Amended IAS 27,  Separate Financial Statements; and Amended IAS 28, Investments in Associates  and Joint Ventures. In June 2011, the IASB also issued amended IAS 1,  Presentation of Financial Statements, which is effective for annual periods  beginning on or after July 1, 2012. These new and revised accounting  standards have not yet been adopted by Sandstorm, and the Company has not yet  completed the process of assessing the impact that they will have on its  financial statements, or whether to early adopt any of the new requirements.  Cautionary Language Regarding Reserves and Resources The Technical Reports  supporting the scientific and technical information contained in this  document are available at www. sedar.com under the profile of Luna, Colossus,  SilverCrest, Rambler, Brigus, Mutiny, Metanor, Santa Fe, Donner, Solitario,  and Magellan for the Aurizona Mine, Serra Pelada Mine, Santa Elena Mine, Ming  Mine, Black Fox Mine, Deflector Mine, Bachelor Lake Mine, Summit Mine,  Bracemac-McLeod Mine, Mt. Hamilton Mine, and the Coringa Project and Cuiú  Cuiú Project, respectively. |
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|  | 39 This  MD&A and any exhibits attached hereto and incorporated herein, if any,  contain “forward-looking statements”, within the meaning of the U.S.  Securities Act of 1933, as amended, the U.S. Securities exchange Act of 1934,  as amended, the united States Private Securities Litigation Reform Act of  1995, and applicable Canadian and other securities legislation, concerning  the business, operations and financial performance and condition of  Sandstorm. Forward-looking information is provided as of the date of this  MD&A and Sandstorm does not intend, and does not assume any obligation, to  update this forward-looking information, except as required by law. FORWARD  LOOKING STATEMENTS Generally, forward-looking information can be identified  by the use of forward-looking terminology such as “plans”, “expects” or “does  not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”,  “intends”, “anticipates” or “does not anticipate”, or “believes”, or  variations of such words and phrases or statements that certain actions,  events or results “may”, “could”, “would”, “might” or “will be taken”,  “occur” or “be achieved”. Forward-looking information is based on reasonable  assumptions that have been made by Sandstorm as at the date of such  information and is subject to known and unknown risks, uncertainties and  other factors that may cause the actual results, level of activity,  performance or achievements of Sandstorm to be materially different from  those expressed or implied by such forward-looking information, including but  not limited to: the impact of general business and economic conditions;  delays in the construction of the Serra Pelada Mine, Ming Mine, the Deflector  Mine, the Bachelor Lake Mine, Mt. Hamilton mine, the Coringa mine, the Cuiú  Cuiú mine or the Bracemac-McLeod Mine; the absence of control over mining  operations from which Sandstorm will purchase gold and risks related to those  mining operations, including risks related to international operations,  government and environmental regulation, actual results of current  exploration activities, conclusions of economic evaluations and changes in  project parameters as plans continue to be refined; problems inherent to the  marketability of minerals; industry conditions, including fluctuations in the  price of metals, fluctuations in foreign exchange rates and fluctuations in  interest rates; government entities interpreting existing tax legislation or  enacting new tax legislation in a way which adversely affects Sandstorm;  stock market volatility; competition; as well as those factors discussed in  the section entitled “Risks to Sandstorm” herein and those risks described in  the section entitled “Risk Factors” contained in Sandstorm’s most recent  Annual Information Form for the year ended December 31, 2012 available at  www.sedar.com and www.sec.gov and incorporated by reference herein. Forward-looking  information in this MD&A includes, among other things, disclosure  regarding: Sandstorm’s existing ten Gold Streams and four royalties as well  as its future outlook, the mineral reserve and mineral resource estimates for  each of the Aurizona Mine, the Serra Pelada Mine, the Santa Elena Mine, the  Ming Mine, the Black Fox Mine, the Deflector Mine, the Bachelor Lake Mine,  the Summit Mine, the Mt. Hamilton Mine, the Coringa Project, the Cuiú Cuiú  Project and the Bracemac-McLeod Mine. Forward-looking information is based on  assumptions management believes to be reasonable, including but not limited  to the continued operation of the mining operations from which Sandstorm will  purchase gold, no material adverse change in the market price of commodities,  that the mining operations will operate in accordance with their public  statements and achieve their stated production outcomes, and such other  assumptions and factors as set out therein. Although Sandstorm has attempted  to identify important factors that could cause actual actions, events or  results to differ materially from those contained in forward-looking  information, there may be other factors that cause actions, events or results  not to be as anticipated, estimated or intended. There can be no assurance that  such information will prove to be accurate, as actual results and future  events could differ materially from those anticipated in such information.  Accordingly, readers should not place undue reliance on forward-looking  information. |
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|  | 40 Sandstorm  intends to continue its growth through the acquisition of gold streams and  royalties. We acquired two gold streams and three gold royalties in 2012. |
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|  | 41 02 SECTION  SANDSTORM GOLD LTD. CONSOLIDATED FINANCIAL STATEMENTS |
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|  | 42 The  accompanying consolidated financial statements of Sandstorm Gold Ltd.  (“Sandstorm”) were prepared by management, which is responsible for the  integrity and fairness of the information presented, including the many  amounts that must of necessity be based on estimates and judgments. These  consolidated financial statements were prepared in accordance with  International Financial Reporting Standards as issued by the International  Accounting Standards Board (“IFRS”). Financial information appearing  throughout our Management’s Discussion and Analysis (“MD&A”) is  consistent with these consolidated financial statements. Sandstorm maintains  systems of internal accounting controls, policies and procedures to provide  reasonable assurance as to the reliability of the financial records and the  safeguarding of its assets. The Board of Directors oversees management’s  responsibilities for financial reporting through the Audit Committee, which  is composed entirely of directors who are neither officers nor employees of  Sandstorm. The audit committee reviews Sandstorm’s annual consolidated  financial statements and MD&A and recommends them for approval by the  Board of Directors. Other key responsibilities of the Audit Committee include  monitoring Sandstorm’s system of internal controls, monitoring its compliance  with legal and regulatory requirements, selecting the external auditors and  reviewing the qualifications, independence and performance of the external  auditors. Deloitte LLP, Chartered Accountants, appointed by the shareholders  of Sandstorm upon the recommendation of the Audit Committee and Board of  Directors, have performed an independent audit of the consolidated financial  statements and their report follows. The auditors have full and unrestricted  access to the Audit Committee to discuss their audit and related findings.  MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING Nolan Watson President  & Chief Executive Officer FEBRUARY 18, 2013 Erfan Kazemi Chief Financial  Officer FEBRUARY 18, 2013 |
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|        | 43 To the  Shareholders of Sandstorm Gold Ltd. INDEPENDENT AUDITOR’S REPORT We have  audited the accompanying consolidated financial statements of Sandstorm Gold  Ltd. and subsidiaries (“the Company”), which comprise the consolidated  statements of financial position as at December 31, 2012 and December 31,  2011, and the consolidated statements of comprehensive income, changes in  equity, and cash flows for the years then ended, and a summary of significant  accounting policies and other explanatory information. Management’s  Responsibility For The Consolidated Financial Statements Management is  responsible for the preparation and fair presentation of these consolidated  financial statements in accordance with International Financial Reporting  Standards as issued by the International Accounting Standards Board, and for  such internal control as management determines is necessary to enable the  preparation of consolidated financial statements that are free from material  misstatement, whether due to fraud or error. Auditor’s Responsibility Our  responsibility is to express an opinion on these consolidated financial  statements based on our audits. We conducted our audits in accordance with  Canadian generally accepted auditing standards. Those standards require that  we comply with ethical requirements and plan and perform the audit to obtain  reasonable assurance about whether the consolidated financial statements are  free from material misstatement. An audit involves performing procedures to  obtain audit evidence about the amounts and disclosures in the consolidated  financial statements. The procedures selected depend on the auditor’s  judgment, including the assessment of the risks of material misstatement of  the consolidated financial statements, whether due to fraud or error. In  making those risk assessments, the auditor considers internal control  relevant to the entity’s preparation and fair presentation of the  consolidated financial statements in order to design audit procedures that  are appropriate in the circumstances, but not for the purpose of expressing  an opinion on the effectiveness of the entity’s internal control. An audit  also includes evaluating the appropriateness of accounting policies used and  the reasonableness of accounting estimates made by management, as well as  evaluating the overall presentation of the consolidated financial statements.  We believe that the audit evidence we have obtained in our audits is  sufficient and appropriate to provide a basis for our audit opinion. Opinion  In our opinion, the consolidated financial statements present fairly, in all  material respects, the financial position of Sandstorm Gold Ltd. and  subsidiaries as at December 31, 2012, and December 31, 2011, and its financial  performance and its cash flows for the years then ended in accordance with  International Financial Reporting Standards as issued by the International  Accounting Standards Board. “Deloitte LLP” Chartered Accountants February 18,  2013 Vancouver, Canada |
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|  | 44 CONSOLIDATED  STATEMENTS OF FINANCIAL POSITION Expressed in U.S. dollars ($000s) ASSETS  Note December 31, 2012 December 31, 2011 Current Cash $ 127,359 $ 13,073  Promissory note 7 15,000 - Loan receivable 7 4,000 - Trade receivables and  other 381 50 $ 146,740 $ 13,123 Non-current Mineral interests and royalties 7  185,000 128,982 Investments 8 7,542 8,362 Deferred financing costs 9 618 -  Deferred income tax assets 11 386 1,343 Other 1,141 982 Total assets $ 341,427 $ 152,792 LIABILITIES Current Trade and other payables $ 1,247 $ 834  Mineral interest payable 7 4,000 - $ 5,247 $ 834 EQUITY Share capital 10 $ 281,495 $ 125,466 Reserves 10 26,852 20,435 Retained earnings 27,669 5,742  Accumulated other comprehensive income 164 315 $ 336,180 $ 151,958 Total  liabilities and equity $ 341,427 $ 152,792 Contractual obligations (Note 15)  Subsequent events (Note 9 and Note 17) “Nolan Watson”, Director ON BEHALF OF  THE BOARD: “David DeWitt”, Director - The accompanying notes are an integral  part of these consolidated financial statements - FINANCIAL POSITION |
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|  | 45 - The  accompanying notes are an integral part of these consolidated financial  statements - CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Expressed in  U.S. dollars ($000s) Note Year Ended December 31, 2012 Year Ended December  31, 2011 Sales $ 55,943 $ 29,967 Cost of sales, excluding depletion 11,929  7,777 Depletion 14,319 5,524 Total cost of sales $ 26,248 $ 13,301 Gross  profit 29,695 16,666 Expenses and other (income) Administration expenses 12 7,235  4,327 Gain on disposal of mineral interest 7 (5,630) - Project evaluation 549  93 Foreign exchange loss 1,666 74 Other expenses (income) 698 (200) Income  from deferral of production guarantee - (1,101) Income from operations $ 25,177 $ 13,473 Income tax expense 11 3,250 984 Net income for the year $ 21,927 $ 12,489 Other comprehensive loss (income) Loss (gain) on investments,  net of tax 8 151 (315) Total comprehensive income $ 21,776 $ 12,804 Basic  earnings per share 10(e) $ 0.29 $ 0.19 Diluted earnings per share 10(e) $ 0.25 $ 0.16 Weighted average number of common shares outstanding Basic 10(e)  75,191,865 64,892,174 Diluted 10 (e) 86,379,483 76,238,875 COMPREHENSIVE  INCOME |
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|  | 46 CONSOLIDATED  STATEMENTS OF CASH FLOWS Expressed in U.S. dollars ($000s) Cash flow from  (used in): Note Year Ended December 31, 2012 Year Ended December 31, 2011  Operating activities Net income for the year $ 21,927 $ 12,489 Items not  affecting cash: » Depletion and depreciation 14,715 5,566 » Income tax  (recovery) expense 11 3,250 984 » Gain on disposal of mineral interest 7  (5,630) - » Share-based payment 10 1,705 1,599 » Loss (gain) on fair value  adjustment of investments 8 200 (173) » Unrealized foreign exchange loss  1,639 44 Changes in non-cash working capital 13 (182) 153 $ 37,624 $ 20,662  Investing activities Acquisition of mineral interests and royalties 7  (85,080) (33,973) Repurchase of mineral interest 7 24,397 - Acquisition of  investments 8 (9,008) (7,768) Proceeds on disposal of investments 8 9,392 -  Loan issuance (4,000) - Promissory note receivable 7 (15,000) - Acquisition  of other assets (145) (953) $ (79,444) $ (42,694) Financing activities  Proceeds on equity financing and exercise of warrants, options, and  compensation warrants 10 (a) 166,865 6,609 Share issue costs (8,232) 28  Deferred financing costs 9 (903) - $ 157,730 $ 6,637 Effect of exchange rate  changes on cash $ (1,624) $ (65) Net increase (decrease) in cash 114,286  (15,460) Cash – beginning of the year 13,073 28,533 Cash – end of the year $ 127,359 $ 13,073 - The accompanying notes are an integral part of these  consolidated financial statements - CASH FLOWS |
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|  | 47 CONSOLIDATED  STATEMENTS OF CHANGES IN EQUITY Expressed in U.S. dollars ($000s) Share  Capital Reserves Note Number Amount Share Options Share Purchase Warrants  Compensation Warrants Retained Earnings (Deficit) Accumulated Other  Comprehensive Income (Loss) Total At January 1, 2011 63,612,629 $ 117,199 $ 1,051 $ 17,378 $ 2,045 $ (6,747) $ - $ 130,926 Compensation warrants  exercised 1,157,405 2,492 - 1,105 (1,687) - - 1,910 Deferred income tax  recovery of issue costs - (7) - - - - - (7) Options exercised 22,000 70 (17)  - - - - 53 Share based payment - - 1,599 - - - - 1,599 Share issue costs (net  of tax) - 28 - - - - - 28 Warrants exercised 1,547,980 5,684 - (1,039) - - -  4,645 Total comprehensive income 8 - - - - - 12,489 315 12,804 At December  31, 2011 66,340,014 $ 125,466 $ 2,633 $ 17,444 $ 358 $ 5,742 $ 315 $ 151,958  Shares issued 15,007,500 145,607 - 7,874 - - - 153,481 Shares issued on  exercise of compensation warrants 245,510 $ 528 $ - $ 234 $ (358) $ - $ - $ 404 Options exercised 413,000 1,156 (199) - - - - 957 Share based payment - -  1,705 - - - - 1,705 Share issue costs (net of tax) - (6,124) - - - - -  (6,124) Shares issued on exercise of warrants 4,003,864 14,862 - (2,839) - -  - 12,023 Total comprehensive income 8 - - - - - 21,927 (151) 21,776 At  December 31, 2012 86,009,888 $ 281,495 $ 4,139 $ 22,713 $ - $ 27,669 $ 164 $ 336,180 - The accompanying notes are an integral part of these consolidated  financial statements - CHANGES IN EQUITY |
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|  | NOTES TO THE  CONSOLIDATED FINANCIAL STATEMENTS December 31, 2012 / Expressed in U.S.  dollars  1. Nature Of Operations  Sandstorm Gold Ltd. was incorporated under the Business Corporations Act of  British Columbia on March 23, 2007 under the name Sandstorm Resources Ltd.  Effective February 17, 2011, the Company changed its name to Sandstorm Gold  Ltd. Sandstorm Gold Ltd. and its subsidiary entities ("Sandstorm"  or the "Company") is a resource-based company that seeks to acquire  gold and other precious metal purchase agreements (“Gold Streams”) from  companies that have advanced stage development projects or operating mines.  In return for making an upfront payment to acquire a Gold Stream, Sandstorm  receives the right to purchase, at a fixed price per unit, a percentage of a  mine’s production for the life of the mine. The head office, principal  address and registered office of the Company are located at Suite 1400, 400  Burrard Street, Vancouver, British Columbia, V6C 3A6. These consolidated  financial statements were authorized for issue by the board of directors of  the Company on February 18, 2013. 2. Basis Of Presentation A. STATEMENT OF  COMPLIANCE These consolidated financial statements have been prepared in  accordance with International Financial Reporting Standards (“IFRS”) as  issued by the International Accounting Standards Board (“IASB”) and  interpretations of the IFRS Interpretations Committee (“IFRIC”). B. BASIS OF  PRESENTATION These consolidated financial statements have been prepared on a  historical cost basis except for certain financial instruments which are  measured at fair value. The consolidated financial statements are presented  in United States dollars, and all values are rounded to the nearest thousand  except as otherwise indicated. . Summary Of Significant Accounting Policies  3. A. PRINCIPLES OF CONSOLIDATION These consolidated financial statements  include the accounts of the Company and its wholly owned subsidiaries  Sandstorm Gold (Barbados) Limited, Sandstorm Gold (Canada) Ltd, Sandstorm  Gold (US) Inc, Sandstorm Gold (Luxembourg) S.A.R.L., Sandstorm Gold (Canada)  Holdings Ltd., and Whirlwind Capital. Subsidiaries are fully consolidated  from the date the Company obtains control, and continue to be consolidated  until the date that control ceases. Control is achieved when the Company has  the power to govern the financial and operating policies of an entity so as  to obtain benefits from its activities. All intercompany balances,  transactions, revenues and expenses have been eliminated on consolidation. B.  FOREIGN CURRENCY TRANSLATION The reporting and the functional currency of the  Company and its subsidiaries is the U.S. dollar as this is the principal  currency of the economic environment in which they operate. Transactions in  foreign currencies are initially recorded at the exchange rate at the date of  transaction. Monetary assets and liabilities denominated in foreign  currencies are translated using the closing rate as at the reporting date. C.  FINANCIAL INSTRUMENTS The Company’s financial instruments consist of cash,  trade and other receivables, loan receivable, investments, trade and other  payables, mineral interest payable and promissory note. All financial  instruments are initially recorded at fair value and designated as follows:  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 48 |
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|  | NOTES TO THE  CONSOLIDATED FINANCIAL STATEMENTS 49 Investments in common shares held are  classified as fair value through other comprehensive income (“FVTOCI”), as  these are held for long-term strategic purposes and provide a more meaningful  presentation based on management’s intention, rather than reflecting changes  in fair value immediately in net income. Cash, loan receivable, promissory  note and trade receivables and other are classified as financial assets at  amortized cost and mineral interest payable and trade and other payables are  classified as other financial liabilities and these are measured at amortized  cost using the effective interest method. Transaction costs on initial  recognition of financial instruments classified as fair value through profit  or loss (“FVTPL”) are expensed as incurred. Transaction costs incurred on  initial recognition of financial instruments classified as loans and  receivables and other financial liabilities are included in the initial fair  value amount. Financial assets are derecognized when the contractual rights  to the cash flows from the asset expire. Financial liabilities are  derecognized only when the Company’s obligations are discharged, cancelled or  they expire. All gains and losses as a result of changes in fair value for  FVTPL financial instruments are included in net income (loss) in the period they  occur. D. IMPAIRMENT OF FINANCIAL ASSETS The Company assesses at each  reporting date whether there is any objective evidence that a financial asset  or a group of financial assets is impaired. Financial assets are considered  to be impaired if objective evidence indicates that a change in the market,  economic or legal environment in which the Company invested has had a  negative effect on the estimated future cash flows of that asset. An  impairment loss for a financial asset measured at amortized cost is calculated  as the difference between its carrying amount and the present value of the  estimated future cash flows discounted at the original effective interest  rates. Impairment losses are recognized in profit and loss. For financial  assets measured at amortized cost, any reversal of impairment is recognized  in profit or loss. E. INVENTORY Inventory is valued at the lower of  specifically identifiable cost and net realizable value. Costs included are  the agreed upon purchase price under the Gold Stream and depletion of the  applicable mineral interest. F. MINERAL INTERESTS Agreements for which  settlements are called for in gold or platinum, the amount of which is based  on production at the mines and capitalized on a property by property basis,  are recorded at cost less accumulated depletion and impairment loss, if any.  The cost of these assets is allocated to reserves, resources, and exploration  potential which are estimated based on information compiled by qualified  persons as defined under National Instrument 43-101. Periodic changes in the  reserve estimates may impact the recognition of deferred tax assets and  depletion expense. The value is depreciated on a unit-of delivery basis over  the estimated recoverable proven and probable reserves and the portion of resources  expected to be classified as mineral reserves at the mine corresponding to  the specific agreement. The value associated with exploration potential is  classified as non-depletable until such time as it is transferred to the  depletable category as a result of the conversion of resources or exploration  potential into reserves. G. IMPAIRMENT OF MINERAL INTERESTS Evaluation of the  carrying values of each mineral property is undertaken when events or changes  in circumstances indicate that the carrying values may not be recoverable. If  any indication of impairment exists, the recoverable amount is estimated to  determine the extent of any impairment loss. The recoverable amount is the  higher of the fair value less costs to sell and value in use. Estimated values  in use are calculated using estimated production, sales prices, and a  discount rate. Estimated production is determined using current reserves  compiled by qualified persons. Estimated sales prices are determined using an  average of long-term metal price forecasts by analysts. The discount rate is  estimated using the average discount rate used by analysts to value precious  metal royalty companies. If it is determined that the recoverable amount is  less than the carrying value then an impairment is recorded with a charge to  net income (loss). An assessment is made at each reporting period if there is  any indication that a previous impairment loss may no longer exist or has  decreased. If indications are present, the carrying amount of the mineral  interest is increased to the revised estimate of its recoverable amount, but  so that the increased carrying amount does not exceed the carrying amount net  of depletion that would have been determined had no impairment loss been  recognized for the mineral interest in previous periods. |
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|  | NOTES TO THE  CONSOLIDATED FINANCIAL STATEMENTS 50 H. INCOME TAXES Current income tax  assets and liabilities are measured at the amount expected to be recovered  from or paid to the taxation authorities. The tax rates and tax laws used are  those that are substantively enacted at the reporting date. Deferred income  taxes are provided using the liability method on temporary differences at the  reporting date between the tax bases of assets and liabilities and their  carrying amounts for accounting. The change in the net deferred income tax  asset or liability is included in income except for deferred income tax  relating to equity items which is recognized directly in equity. The income  tax effects of differences in the periods when revenue and expenses are  recognized, in accordance with Company accounting practices, and the periods  they are recognized for income tax purposes are reflected as deferred income  tax assets or liabilities. Deferred income tax assets and liabilities are  measured using the substantively enacted statutory income tax rates which are  expected to apply to taxable income in the years in which the assets are  realized or the liabilities settled. A deferred tax asset is recognized for  unused tax losses, tax credits and deductible temporary differences to the  extent that it is probable that future taxable profits will be available  against which they can be utilized. Deferred income tax assets and  liabilities are offset only if a legally enforceable right exists to offset current  tax assets against liabilities and the deferred tax assets and liabilities  relate to income taxes levied by the same taxation authority on the same  taxable entity and are intended to be settled on a net basis. The  determination of current and deferred taxes requires interpretations of tax  legislation, estimates of expected timing of reversal of deferred tax assets  and liabilities, and estimates of future earnings. I. SHARE CAPITAL AND SHARE  PURCHASE WARRANTS The proceeds from the issue of units are allocated between  common shares and share purchase warrants with an exercise price denominated  in U.S. dollars on a pro-rata basis based on relative fair values at the date  of issuance. The fair value of common shares is based on the market closing  price on the date the units are issued and the fair value of share purchase  warrants is determined using the quoted market price or if the warrants are  not traded, using the Black-Scholes Model (“BSM”) as of the date of issuance.  Equity instruments issued to agents as financing costs are measured at their  fair value at the date the services were provided. J. REVENUE RECOGNITION  Revenue from the sale of precious metals is recognized when persuasive  evidence of an arrangement exists, title and risk passes to the buyer, the  amount of revenue can be measured reliably, it is probable that the economic  benefits associated with the sale will flow to the entity and the costs  incurred in respect of the transaction can be measured reliably. Revenue from  the sale of gold may be subject to adjustment upon final settlement of  estimated metal prices, weights, and assays. Adjustments to revenue from  metal prices are recorded monthly and other adjustments are recorded on final  settlement and are offset against revenue when incurred. K. EARNINGS PER  SHARE Basic earnings per share is computed by dividing the net income  available to common shareholders by the weighted average number of common  shares issued and outstanding during the period. Diluted earnings per share  is calculated assuming that outstanding share options and share purchase  warrants, with an average market price that exceeds the average exercise  prices of the options and warrants for the year, are exercised and the  proceeds are used to repurchase shares of the Company at the average market  price of the common shares for the year. L. SHARE BASED PAYMENTS The Company  recognizes a stock based compensation expense for all share purchase options  and restricted share rights (“RSR’s”) awarded to employees, officers and  directors based on the fair values of the share purchase options and RSRs at  the date of grant. The fair values of share purchase options and RSRs at the  date of grant are expensed over the vesting periods of the share purchase  options and RSRs, respectively, with a corresponding increase to equity. The  fair value of share purchase options is determined using the Black-Scholes  option pricing model with market related inputs as of the date of grant.  Share purchase options with graded vesting schedules are accounted for as  separate grants with different vesting periods and fair values. The fair  value of RSRs is the market value of the underlying shares at the date of  grant. At the end of each reporting period, the company re-assesses its  estimates of the number of awards that are expected to vest and recognizes  the impact of any revisions to this estimate in the consolidated statement of  earnings. |
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|  | NOTES TO THE  CONSOLIDATED FINANCIAL STATEMENTS 51 The BSM requires management to estimate  the expected volatility and term of the equity instrument, the risk-free rate  of return over the term, expected dividends, and the number of equity  instruments expected to ultimately vest. Volatility is estimated using the  historical stock price of the Company, the expected term is estimated using  historical exercise data, and the expected number of equity instruments  expected to vest is estimated using historical forfeiture data. If and when  share-based awards are ultimately exercised, the applicable amounts in Share  Option Reserves are transferred to Share Capital. M. RELATED PARTY  TRANSACTIONS Parties are considered related if one party has the ability,  directly or indirectly, to control the other party or exercise significant  influence over the other party in making financial and operating decisions.  Parties are also considered related if they are subject to common control or  significant influence. A transaction is considered a related party  transaction when there is a transfer of resources or obligations between  related parties. N. SEGMENT REPORTING An operating segment is a component of  the Company that engages in business activities from which it may earn  revenues and incur expenses. All operating segments’ results are reviewed  regularly by the Company’s Chief Executive Officer to make decisions about  resources to be allocated to the segment and assess its performance, and for  which discrete financial information is available. 4 Key Sources Of  Estimation Uncertainty And Critical Accounting Judgments The preparation of  the Company’s consolidated financial statements in conformity with IFRS  requires management to make judgments, estimates and assumptions that affect  the reported amounts of assets, liabilities and contingent liabilities at the  date of the consolidated financial statements and reported amounts of  revenues and expenses during the reporting period. Estimates and assumptions  are continuously evaluated and are based on management’s experience and other  factors, including expectations of future events that are believed to be  reasonable under the circumstances. However, actual outcomes can differ from  these estimates. Information about significant areas of estimation  uncertainty and judgments made by management in preparing the consolidated  financial statements are described below: A. ACCOUNTING FOR MINERAL INTERESTS  The Company’s business is the acquisition of Gold Streams. Management  accounts for these agreements as mineral interests as they consider the  associated mining risks when evaluating the assets to be acquired and  assessing the mineral interests over the life of the related mine. B.  ATTRIBUTABLE RESERVE AND RESOURCE ESTIMATES Mineral Interests are a  significant asset of the Company, with a carrying value of $185.0 million at  December 31, 2012 (2011: $129.0 million). This amount represents the  capitalized expenditures related to the acquisition of the gold interests net  of accumulated depletion and any impairments. The Company estimates the  reserves and resources relating to each agreement. Reserves are estimates of  the amount of gold that can be economically and legally extracted from the  mining properties at which the Company has precious metal purchase  agreements, adjusted where applicable to reflect the Company’s percentage  entitlement to gold produced from such mines. The Company estimates its  reserves and resources based on information compiled by appropriately  qualified persons relating to the geological data on the size, depth and  shape of the ore body, and require complex geological judgments to interpret  the data. The estimation of recoverable reserves is based upon factors such  as estimates of foreign exchange rates, commodity prices, future capital  requirements, and production costs along with geological assumptions and  judgments made in estimating the size and grade of the ore body. Changes in  the reserve or resource estimates may impact upon the carrying value of the  Company’s gold interests and depletion charges. C. DEPLETION The Company’s  gold interests are depleted on a units-of-sale basis, with estimated  recoverable reserves and resources being used to determine the depletion rate  for each of the Company’s gold interests. These calculations require the use  of estimates and assumptions, including the amount of recoverable reserves.  Changes in the estimated recoverable reserves, resources or exploration  potential will directly impact the depletion rate used. Changes to depletion  rates are accounted for prospectively. |
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|  | NOTES TO THE  CONSOLIDATED FINANCIAL STATEMENTS 52 D. INCOME TAXES The interpretation of  existing tax laws or regulations in Canada, Barbados, the United States of  America, Australia or any of the countries in which the mining operations are  located or to which shipments of gold are made requires the use of judgment.  Differing interpretation of these laws or regulations could result in an  increase in the Company’s taxes, or other governmental charges, duties or  impositions. In addition, the recoverability of deferred income tax assets,  including expected periods of reversal of temporary differences and  expectations of future taxable income, are assessed by management at the end  of each reporting period and adjusted, as necessary, on a prospective basis.  E. IMPAIRMENT OF ASSETS Management considers each gold interest to be a  separate cash generating unit, which is the lowest level for which cash  inflows are largely independent of those of other assets. At the end of each  reporting period, the Company reviews the carrying amounts of each gold  interest to determine whether there is any indication that those gold  interests have suffered an impairment loss. If such an indication exists, the  recoverable amount of the gold interest is estimated in order to determine  the extent of the impairment (if any). The recoverable amount of each gold  interest is the higher of fair value less costs to sell (“Fair Value  approach”) and value in use (“Value-in-use approach”). Under the Fair Value  approach, the net asset value (“NAV”) methodology is used to determine the  fair value that could be received from each gold interest in an arm’s length  transaction at the measurement date. NAV is estimated by using an appropriate  discount rate to calculate the present value of expected future cash flows  associated with each mineral category. The values are adjusted for each  mineral category dependent on the likelihood of conversion from resources to  reserves. A market multiple is applied to the NAV computed in order to assess  the estimated fair value. Gold Stream and precious metal companies typically  trade at a market capitalization that is based on a multiple of their  underlying NAV. Consequently, a market participant would generally apply a  NAV multiple when estimating the fair value of a gold interest. Under the  Value-in-use approach, the net present value (“NPV”) methodology is used. NPV  is estimated by using a discount rate to calculate the present value of  expected future cash flows. The discount rate is based on the Company’s  weighted average cost of capital, adjusted for various risks. The expected  future cash flows are management’s best estimates of expected future revenues  and costs. Under each method, expected future revenues reflect the estimated  future production for each mine at which the Company has a Gold Stream based  on detailed life of mine plans received from each of the partners. Included  in these forecasts is the production of mineral resources that do not  currently qualify for inclusion in proven and probable ore reserves where  there is a high degree of confidence in its economic extraction. This is  consistent with the methodology that is used to measure value beyond proven  and probable reserves when allocating the purchase price to acquired silver  and gold interests. Expected future revenues also reflect management’s  estimated long term metal prices, which are determined based on current  prices, forward pricing curves and forecasts of expected long-term metal  prices prepared by analysts. These estimates often differ from current price  levels, but are consistent with how a market participant would assess future  long-term metal prices. Estimated future cash costs are fixed based on the  terms of each Gold Stream, as disclosed in note 7 to the financial  statements. If the carrying amount of the asset exceeds its recoverable  amount, the asset is considered impaired and an impairment charge is  reflected as a component of net earnings so as to reduce the carrying amount  to its recoverable value. A previously recognized impairment charge is  reversed only if there has been a change in the estimates used to determine  the asset’s recoverable amount since the last impairment charge was  recognized. If this is the case, the carrying amount of the asset is  increased to its recoverable amount. The increased amount cannot exceed the  carrying amount that would have been determined, net of depletion, had no  impairment charge been recognized for the asset in prior years. Such reversal  is reflected as a component of net earnings At December 31, 2012 and December  31, 2011, no impairment charge was required. |
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|  | NOTES TO THE  CONSOLIDATED FINANCIAL STATEMENTS 53 5. Future Changes In Accounting Policies  The IASB issued a number of new and revised accounting standards which are  effective for annual periods beginning on or after December 1, 2013, with  early adoption permitted. These standards include the following: • IFRS 10,  Consolidated Financial Statements; • IFRS 11, Joint Arrangements; • IFRS 12,  Disclosure of Interests in Other Entities; • IFRS 13, Fair Value Measurement;  • Amended IAS 27, Separate Financial Statements; and • Amended IAS 28,  Investments in Associates and Joint Ventures. In June 2011, the IASB also issued  amended IAS 1, Presentation of Financial Statements, which is effective for  annual periods beginning on or after July 1, 2012. These new and revised  accounting standards have not yet been adopted by Sandstorm, and the Company  has not yet completed the process of assessing the impact that they will have  on its consolidated financial statements, or whether to early adopt any of  the new requirements. 6. Financial Instruments CAPITAL RISK MANAGEMENT  ̄ The  Company manages its capital to ensure that it will be able to continue as a  going concern while maximizing the return to stakeholders through the  optimization of the debt and equity balance. The capital structure of the  Company consists of $336.2 million ($152.0 million – December 31, 2011) of  equity attributable to common shareholders, comprising of issued capital  (note 10), accumulated reserves (note 10) and retained earnings. The Company  is not subject to any externally imposed capital requirements with the  exception of complying with the minimum tangible net worth covenant under the  credit agreement governing bank debt (note 9). The Company is in compliance  with the debt covenants described in note 9 as at December 31, 2012. FAIR  VALUE ESTIMATION  ̄ The fair value hierarchy establishes three levels to classify  the inputs of valuation techniques used to measure fair value. The three  levels of the fair value hierarchy are described below: Level 1 | Unadjusted  quoted prices in active markets that are accessible at the measurement date  for identical, unrestricted assets or liabilities. Investments In common  shares and warrants held that have direct listings on an exchange are  classified as Level 1. Level 2 | Quoted prices in markets that are not  active, quoted prices for similar assets or liabilities in active markets, or  inputs that are observable, either directly or indirectly, for substantially  the full term of the asset or liabilities. Investments in common shares and  warrants held that are not listed on an exchange are classified as Level 2.  Level 3 | Prices or valuation techniques that require inputs that are both  significant to fair value measurement and unobservable (supported by little  or no market activity). The following table sets forth the Company's  financial assets and liabilities measured at fair value by level within the  fair value hierarchy. As required by IFRS 7, assets and liabilities are  classified in their entirety based on the lowest level of input that is  significant to the fair value measurement. In $000s Total Quoted prices in  active markets for identical assets (Level1) Significant other observable  inputs (Level 2) Unobservable inputs (Level 3) Long-term investments – common  shares held $ 2,518 $ 2,518 $ - $ - Long-term investments – warrants held 472  407 65 - Long-term investments – convertible debt 4,552 - 4,552 - $ 7,542 $ 2,925 $ 4,617 $ - The fair value of the Company's other financial instruments  which include cash, trade receivables and other, loan receivable, trade and  other payables, and promissory note approximate their carrying value at  December 31, 2012. |
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|  | NOTES TO THE  CONSOLIDATED FINANCIAL STATEMENTS 54 CREDIT RISK > The Company’s credit  risk is limited to cash, trade and other receivables, loan receivable and  promissory note in the ordinary course of business. The Company sells gold  exclusively to large corporations with strong credit ratings and the balance  of trade and other receivables owed to the Company in the ordinary course of  business is not significant. Therefore, the Company is not exposed to  significant credit risk and overall, the Company’s credit risk has not  changed significantly from the prior year. The Company closely monitors its  financial assets and as at December 31, 2012 and 2011, there were no  significant receivables owed to the Company which were past due. CURRENCY  RISK > Financial instruments that impact the Company’s net earnings or  other comprehensive income due to currency fluctuations include: cash, trade  receivables and other, investments, trade and other payables denominated in  Canadian dollars. The carrying amounts of the Company's Canadian dollar  denominated monetary assets and monetary liabilities at the end of the  reporting period are as follow: In $000s December 31, 2012 December 31, 2011  Monetary Assets Cash $ 6,818 $ 13,073 Trade receivables and other 91 26  Long-term investments - common shares held 2,518 7,923 Long-term investments  - warrants held 472 439 $ 9,899 $ 9,526 Trade and other payables $ 585 $ 834  The following tables detail the Company's sensitivity to a 10% increase and  decrease in the Canadian dollar relative to the United States dollar,  representing the sensitivity used when reporting foreign currency risk  internally to key management personnel and represents management’s assessment  of the reasonably possible changes in exchange rates: In $000s December 31,  2012 December 31, 2011 10% change in the Canadian dollar Change in net income  $ 803 $ 101 Change in other comprehensive income 21 792 Change in total  comprehensive income $ 824 $ 893 COMMODITY PRICE RISK > The Company’s financial  results may be significantly adversely affected by a decline in the price of  gold and platinum. The price of gold and platinum fluctuates widely,  especially in recent years, and is affected by numerous factors beyond the  Company’s control, including but not limited to, the sale or purchase of gold  by various central banks and financial institutions, interest rates, exchange  rates, inflation or deflation, fluctuation in the value of the U.S. dollar  and foreign currencies, global and regional supply and demand, and the  political and economic conditions of major gold-producing countries  throughout the world. OTHER RISKS > The Company is not subject to  significant interest rate or other price risks and the Company's exposure to  these risks has not changed significantly from the prior year. |
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|  | NOTES TO THE  CONSOLIDATED FINANCIAL STATEMENTS 55 Mineral Interests and Royalties A.  CARRYING AMOUNT As of December 31, 2012: Cost Accumulated Depletion In $000s  Opening Additions Buyback Ending Opening Depletion Inventory Depletion  Adjustment Ending Carrying Amount Aurizona, Brazil $ 19,977 $ 1,523 $ - $ 21,500 $ 1,328 $ 1,698 $ - $ 3,026 $ 18,474 Bachelor Lake, Canada 20,845  1,326 - 22,171 - 599 53 652 21,517 Black Fox, Canada 56,524 - (18,766) 37,758  2,614 5,659 25 8,299 29,458 Bracemac-McLeod, Canada 32 8,000 - 8,032 - - - -  8,032 Coringa /Cuiú Cuiú, Brazil - 7,893 - 7,893 - - - - 7,893 Deflector,  Australia - 214 - 214 - - - - 214 Ming, Canada 20,068 - - 20,068 - 3,145 -  3,145 16,923 Mt. Hamilton, U.S.A - 10,048 - 10,048 - - - - 10,048 Santa  Elena, Mexico 13,342 - - 13,342 1,473 2,932 - 4,405 8,937 Serra Pelada,  Brazil - 60,181 - 60,181 - - - - 60,181 Summit, U.S.A. 4,063 - - 4,063 454  286 - 740 3,323 Total $ 134,851 $ 89,185 $ (18,766) $ 205,270 $ 5,869 $ 14,319  $ 78 $ 20,269 $ 185,000 As of December 31, 2011: Cost Accumulated Depletion  In $000s Opening Additions Ending Opening Depletion Ending Carrying Amount  Aurizona, Brazil $ 19,977 $ - $ 19,977 $ 296 $ 1,032 $ 1,328 $ 18,649  Bachelor Lake, Canada - 20,845 20,845 - - - 20,845 Black Fox, Canada 56,470  54 56,524 - 2,614 2,614 53,910 Bracemac-McLeod, Canada - 32 32 - - - 32 Ming,  Canada 7,062 13,006 20,068 - - - 20,068 Santa Elena, Mexico 13,342 - 13,342  42 1,431 1,473 11,869 Summit, U.S.A. 4,063 - 4,063 7 447 454 3,609 Total $ 100,914 $ 33,937 $ 134,851 $ 345 $ 5,524 $ 5,869 $ 128,982 B. SUMMARY OF GOLD  STREAMS AURIZONA MINE  ̄ The Company has a Gold Stream to purchase 17% of the  life of mine gold produced from Luna Gold Corp.’s (“Luna”) open-pit Aurizona  mine, located in Brazil (the “Aurizona Mine”) for a per ounce cash payment  equal to the lesser of $400 and the then prevailing market price of gold.  During the year ended December 31, 2012, the Company agreed to contribute up  to $10.0 million in capital towards the phase 1 production expansion project  (“Phase 1 Expansion”) at Luna's Aurizona Mine. Sandstorm’s contribution will  be equal to 17% of the capital costs incurred by Luna towards the Phase 1  Expansion to a maximum contribution of $10.0 million. As at December 31,  2012, the Company had advanced $1.5 million towards the Phase 1 Expansion. In  addition, Sandstorm has committed to issue, if requested by Luna, a $20.0  million non-revolving loan facility with a three year term, which may only be  used to fund the Phase 1 Expansion and associated exploration costs and may  only be drawn up to July 21, 2014. Any amounts drawn must be repaid by  November 30, 2015. In conjunction with Sandstorm’s capital contribution, Luna  has provided the Company with a contractual guarantee that the Aurizona Mine  will complete its Phase 1 Expansion by the end of 2013. BACHELOR LAKE MINE  ̄  The Company has a Gold Stream to purchase 20% of the life of mine gold  produced from Metanor Resources Inc.’s (“Metanor”) Bachelor Lake gold mine  located in Quebec, Canada (the “Bachelor Lake Mine”), for a per ounce cash |
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|  | NOTES TO THE  CONSOLIDATED FINANCIAL STATEMENTS 56 payment equal to the lesser of $500 and  the then prevailing market price of gold. Metanor has provided a guarantee  that Sandstorm will receive a minimum of $20.0 million in pre-tax cash flow  over the next 4 years of the Bachelor Lake Gold Stream. BLACK FOX MINE  ̄ The  Company has a Gold Stream to purchase 8% of the life of mine gold produced  from Brigus Gold Corp.’s (“Brigus”) open pit and underground Black Fox mine,  located in Ontario, Canada (the “Black Fox Mine”), and 6.3% of the life of  mine gold produced from Brigus’ Black Fox Extension (the “Black Fox  Extension”), which includes a portion of Brigus’ Pike River concessions, for  a per ounce payment equal to the lesser of $500 and the then prevailing  market price of gold. In November 2012, Brigus exercised its option to  repurchase a portion of the Gold Stream by making a $24.4 million payment to  Sandstorm. The Company recognized a $5.6 million gain representing the  premium on the original mineral interest investment, with the remaining $18.8  million reducing its mineral interests. Under the original gold stream  agreement (previously announced on November 9, 2010), Sandstorm was entitled  to purchase 12% and 10% of the gold produced from the Black Fox Mine and  Black Fox Extension, respectively. With the payment from Brigus, Sandstorm  will now be entitled to purchase 8% and 6.3% of the gold produced from the  Black Fox Mine and Black Fox Extension, respectively. Brigus’ option to  repurchase any remaining portion of the Gold Stream expired unexercised on  January 1, 2013. BRACEMACμMCLEOD MINE  ̄ The Company has a Gold Stream with  Donner Metals Ltd. (“Donner”), which it entered into via a back-to-back  agreement with Sandstorm Metals & Energy, to purchase 24.5% of the life  of mine gold and gold equivalent silver produced from the Bracemac-McLeod  property located in Quebec, Canada, which is operated by Xstrata Canada  Corporation (the “Bracemac-McLeod Mine”). Donner is the owner of a 35% joint  venture interest in the Bracemac-McLeod Mine. For consideration, the Company  made upfront payments totaling $8.0 million during the year ended December  31, 2012 and will continue to make ongoing per ounce payments equal to the  lesser of $350 and the then prevailing market price of gold. Additionally,  the Company has agreed to provide Donner with a $2.0 million loan via a  drawdown facility, bearing 7% interest and expiring on February 1, 2014. As  at December 31, 2012, no amounts were drawn. CORINGA AND CUIÚ CUIÚ PROJECT  ̄  During the year ended December 31, 2012, the Company acquired a 2.5% NSR on  the Coringa gold project (the “Coringa Project”) and a 1.0% NSR on the Cuiú  Cuiú gold project (the “Cuiú Cuiú Project”) both of which are located in Para  state, Brazil and owned by Magellan Minerals Ltd. (“Magellan”). For  consideration, Sandstorm made an upfront payment of $7.5 million and  subscribed for one million shares of Magellan at a price of $0.50 per share.  As part of the agreement, Magellan has provided Sandstorm with a right of  first refusal on any future royalty or gold stream financing at the Coringa  Project and the Cuiú Cuiú Project. DEFLECTOR MINE  ̄ The Company has a Gold  Stream to purchase 15% of the life of mine gold produced from Mutiny Gold  Ltd.’s (“Mutiny”) open pit Deflector project, located in Western Australia  (the “Deflector Mine”) for a per ounce cash payment equal to the lesser of  $500 and the then prevailing market price of gold. For consideration, the  Company will make an initial upfront payment of $9.0 million (the “Initial  Deposit”) and will make a further upfront payment of $29.0 million (the  “Second Deposit”) once Mutiny has received final mine permits for the  Deflector Mine as well as completed certain funding conditions. Currently,  the Company has a $4.0 million receivable which will be applied to the  Initial Deposit. Additionally, the Company has agreed to subscribe for $3.0  million as part of a future Mutiny equity financing. If the Deflector Mine  produces more than 85,000 ounces of gold in a calendar year, Sandstorm will  make a one-time $4.0 million payment to Mutiny. Mutiny has agreed to refund a  pro-rata portion of the upfront deposit in the event that the Deflector Mine  does not achieve a completion test within 5.5 years from receipt of the  Second Deposit. For a period of 36 months from the date of the Second  Deposit, Mutiny will have the option to repurchase up to 50% of the Deflector  Mine Gold Stream by making a payment equal to the greater of $24.7 million or  the value of 14,472 gold ounces, upon the receipt of which, the percentage of  gold that Sandstorm is entitled to purchase shall decrease to 7.5%. MING MINE   ̄ The Company has a Gold Stream to purchase approximately 25% of the first 175,000  ounces of gold produced and 12% of the life of mine gold produced thereafter,  from Rambler Metals & Mining PLC’s (“Rambler”) Ming mine, located in  Canada (the “Ming Mine”). There are no ongoing per ounce payments required by  Sandstorm in respect of the Ming Mine Gold Stream. In the event that the  metallurgical recoveries of gold at the Ming Mine are below 85%, the  percentage of gold that Sandstorm shall be entitled to purchase shall be  increased proportionally. |
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|  | NOTES TO THE  CONSOLIDATED FINANCIAL STATEMENTS 57 MT. HAMILTON PROJECT  ̄ The Company has a  2.4% NSR on the Mt. Hamilton gold project (the "Mt Hamilton  Project"). The Mt. Hamilton Project is located in White Pine County,  Nevada, U.S.A. and is held by Mt. Hamilton LLC (“MH-LLC”) which is 80% owned  by Solitario Exploration & Royalty Corp. and 20% owned by Ely Gold &  Minerals Inc. For consideration, the Company made an initial upfront payment  of $6.0 million during the year ended December 31, 2012 and a subsequent $4.0  million payment in January 2013. Sandstorm has granted MH-LLC an option,  exercisable prior to December 11, 2014, to repurchase the NSR for $12.0  million provided that MH-LLC enters into a Gold Stream with Sandstorm with an  upfront deposit of no less than $30.0 million. In addition, MH-LLC has  provided Sandstorm with a right of first refusal on any future royalty or  gold stream financing for the Mt. Hamilton Project. SANTA ELENA MINE  ̄ The  Company has a Gold Stream to purchase 20% of the life of mine gold produced  from SilverCrest Mines Inc.’s (“SilverCrest”) open-pit Santa Elena mine,  located in Mexico (the “Santa Elena Mine”), for a per ounce cash payment  equal to the lesser of $350 and the then prevailing market price of gold.  SERRA PELADA MINE  ̄ The Company has a Gold Stream with Colossus Minerals Inc.  (“Colossus”) to purchase an amount equal to 1.5% of the gold and 35% of the  platinum produced from the Serra Pelada mine (the “Serra Pelada Mine”)  located in Para, Brazil for ongoing per ounce payments equal to the lesser of  $400 per ounce of gold and the then prevailing market price of gold, and the  lesser of $200 per ounce of platinum and the then prevailing market price of  platinum. During the year ended December 31, 2012, Sandstorm made an upfront  payment of $60.0 million to acquire the Gold Stream. The Company is not  required to contribute any further capital, exploration, or operating  expenditures to Colossus. As part of the transaction, the Company also agreed  to purchase 35% of the life of mine palladium produced from the Serra Pelada  Mine (the “Palladium Stream”) in exchange for paying a $15.0 million deposit  (bringing the total deposit payment made by Sandstorm during the year ended  December 31, 2012 to $75.0 million) plus ongoing payments of $100 per ounce  of palladium. Concurrently, the Company entered into a similar back-to-back  agreement with Sandstorm Metals & Energy Ltd. (“Sandstorm Metals &  Energy”) whereby Sandstorm Metals & Energy purchased the Palladium Stream  from Sandstorm in exchange for issuing a promissory note. The promissory note  states that the $15.0 million will be repaid to Sandstorm in cash or shares  by September 19, 2013. Colossus has guaranteed certain minimum annual  deliveries for the initial 10 year period, commencing in 2013, so long as the  mine is in operation. Colossus has also provided a guarantee that in the  event the Serra Pelada Mine shuts down for a period of 24 months and  Sandstorm has not recognized cash flow equal to the initial upfront deposit,  then Colossus will refund the balance to Sandstorm. In addition, Colossus has  agreed to refund a pro-rata portion of the upfront deposit in the event that  the Serra Pelada Mine does not achieve a completion test within 48 months of  funding. Until April 1, 2015, Colossus has the option to repurchase up to 50%  of the agreement by making a $39.0 million payment to Sandstorm, upon receipt  of which, the percentage of gold and platinum that Sandstorm is entitled to  purchase shall decrease to 0.75% and 17.5%, respectively. SUMMIT MINE  ̄ The  Company has a Gold Stream to purchase 50% of the first 10,000 ounces of gold  produced, and 22% of the life of mine gold produced thereafter from Santa Fe  Gold Corp.’s (“Santa Fe”) Summit mine, located in New Mexico, U.S.A. (the  “Summit Mine”), for a per ounce cash payment equal to the lesser of $400 and  the then prevailing market price of gold. Santa Fe provided guarantees with  respect to certain minimum payable ounces in the first 18 months after the  funding date. Sandstorm is currently in discussions with Santa Fe regarding  the deferral of amounts due by Santa Fe to the Company and as such, no  amounts have been recognized. |
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|  | NOTES TO THE  CONSOLIDATED FINANCIAL STATEMENTS 58 Investments In $000s Fair Value Jan. 1,  2012 Net Additions (Disposals) December 31, 2012 Fair Value Adjustment  December 31, 2012 Fair Value December 31, 2012 Common shares $ 7,923 $ (5,168) $ (237) $ 2,518 Warrants 439 33 472 Convertible debt instrument -  4,784 (232) 4,552 Total $ 8,362 $ (384) $ (436) $ 7,542 During the year ended  December 31, 2012, the Company acquired $4.8 million of subordinated secured  convertible debentures (the “Convertible Debentures”) from Metanor Resources  Inc. The Convertible Debentures have a 3 year term, accrue interest at a rate  of 10.0% per annum payable semi-annually, and are convertible at a price of  C$0.28 per share. The Convertible Debentures are held for strategic purposes  and are classified as financial assets at fair value through profit or loss.  During the year ended December 31, 2012, the Company recognized a loss of  $0.2 million on the Convertible Debentures. During the year ended December  31, 2012, the Company acquired $4.2 million of common shares and warrants.  The Company recognized a loss of $0.24 million on the common shares and a  gain of $0.03 million on the warrants. During the year ended December 31,  2011, the Company acquired $7.5 million of common shares and $0.27 million of  warrants. The Company recognized a gain of $0.42 million and $0.17 million on  the common shares and warrants, respectively. Revolving Loan And Deferred  Financing Costs In February 2013, the Company amended its revolving credit  agreement to allow the Company to borrow up to $100.0 million (the “Revolving  Loan”) from a syndicate of banks including the Bank of Nova Scotia, Bank of  Montreal and National Bank of Canada (the “Syndicate”). The Revolving Loan  includes an increase of available credit to $100.0 million from $50.0 million  (previously entered into on January 10, 2012) and an extension of the term  from three years to four years, which is extendable by mutual consent of  Sandstorm and the Syndicate. The Revolving Loan will continue to be used for  the acquisition of Gold Streams and loan commitments the Company has made to  other companies. The amounts drawn on the Revolving Loan remain subject to  interest at LIBOR plus 3.00% – 4.25% per annum, and the undrawn portion of  the Revolving Loan remain subject to a standby fee of 0.75% – 1.05% per  annum, dependent on the Company’s leverage ratio. Under the credit agreement,  the Company is required to maintain an interest coverage ratio greater than  or equal to 4.00:1, a leverage ratio less than or equal to 3.50:1, 2.50:1,  and 2.00:1 for the first two years, third year and fourth year of the  Revolving Loan, respectively. The Company is further required to maintain a  tangible net worth greater than the aggregate of $109.7 million and 50% of  positive net income for each fiscal quarter after September 30, 2012. The  Revolving Loan is secured against the Company’s assets, including the  Company’s gold interests and investments. As of December 31, 2012, the  Company was in compliance with these covenants. As at December 31, 2012, the  Company had not drawn down on its credit facility and therefore, the full  balance remains available for future acquisitions. Deferred financing costs  are capitalized and amortized on a straight-line basis over the life of the  debt instrument as presented below: As of December 31, 2012 In $000s Cost  Additions Accumulated Amortization Carrying Amount Debt issuance costs $ 893 $ 17 $ (292) $ 618 The company did not have any deferred financing costs as at  December 31, 2011. |
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|  | Share Capital  and Reserves A. SHARES ISSUED The Company is authorized to issue an unlimited  number of common shares without par value. During the year ended December 31,  2012, the Company completed a public offering of 15,007,500 units at a price  of C$10.00 per unit, for gross proceeds of C$150.1 million ($153.5 million).  Each unit was comprised of one common share of the Company and one-third of  one warrant. Each warrant is exercisable into a common share at an exercise  price of $14.00 per share until September 7, 2017. In connection with the  offering, the Company paid agent fees of C$7.5 million ($7.7 million),  representing 5% of the gross proceeds. The amount attributable to common  shares was $145.6 million, with the remainder allocated to the warrants.  During the year ended December 31, 2012, the Company completed its  five-for-one consolidation (the “Consolidation”) of the Company's common  shares. The 349,658,858 common shares issued and outstanding prior to the  Consolidation were consolidated to 69,931,771 common shares. The Company's  outstanding stock options were adjusted on the same basis with proportionate  adjustments being made to the stock option exercise prices. The Company's  listed warrants were not consolidated. Following the Consolidation, each five  (5) listed warrants of SSL.WT (expiring on April 23, 2014) will entitle the  holder to purchase one post-Consolidation common share at the adjusted total  exercise price of $3.00. Each five (5) listed warrants of SSL.WT.A (expiring  on October 19, 2015) will entitle the holder to purchase one  post-Consolidation common share at the adjusted total exercise price of  $5.00. All comparative period information has been adjusted to reflect the  Consolidation. B. SHARE OPTIONS The Company has an incentive stock option  plan (the “Option Plan”) whereby the Company may grant share options to  eligible employees, officers, directors and consultants at an exercise price,  expiry date, and vesting conditions to be determined by the board of  directors. The maximum expiry date is five years from the grant date. All  options are equity settled. The Option Plan provides for the issuance of up  to 10% of the Company’s issued common shares as at the date of the grant.  Black-Scholes weighted average assumptions Year Ended December 31, 2012 Year  Ended December 31, 2011 Grant date share price and exercise price C$11.78  C$6.35 Expected dividend yield 0.00% 0.00% Expected volatility 50% 51%  Risk-free interest rate 1.12% 1.14% Expected life of options 3 years 3 years  The fair value of the options granted during the year ended December 31, 2012  were $0.6 million ($2.6million – December 31, 2011). The weighted average  fair value of the options granted during the year ended December 31, 2012 was  $4.07 ($2.10 – December 31, 2011). A summary of the Company’s options and the  changes for the period are as follows: Number of Options Weighted Average  Exercise Price (C$) Options outstanding at January 1, 2011 2,664,000 2.85  Granted 1,238,000 6.30 Exercised (22,000) 2.35 Forfeited (10,000) 3.40  Options outstanding at December 31, 2011 3,870,000 3.95 Granted 150,000 11.78  Exercised (413,000) 2.29 Options outstanding at December 31, 2012 3,607,000  4.47 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 59 |
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|  | NOTES TO THE  CONSOLIDATED FINANCIAL STATEMENTS 60 A summary of the Company’s share  purchase options as of December 31, 2012 are as follows: Number outstanding  Exercisable Exercise Price per Share (C$) Expiry Date 505,000 505,000 $2.25  June 16, 2014 140,000 140,000 $2.20 July 6, 2014 200,000 200,000 $2.175 July  28, 2014 20,000 20,000 $3.35 May 19, 2015 1,362,000 1,362,000 $3.40 November  26, 2015 91,000 30,335 $6.30 August 25, 2016 1,139,000 374,338 $6.35 November  25, 2016 150,000 - $11.78 December 21, 2017 3,607,000 2,631,673 3.48 The  weighted-average share price at date of exercise for the year ended December  31, 2012 was C$10.18 (C$4.70 – year ended December 31, 2011). The weighted  average remaining contractual life of the options for the year ended December  31, 2012 was 2.97 years (3.74 years – year ended December 31, 2011) A summary  of share-based payment recognized is as follows: In $000s Year Ended December  31, 2012 Year Ended December 31, 2011 Employees $ 1,705 $ 1,599 C. SHARE  PURCHASE WARRANTS A summary of the Company’s warrants and the changes for the  year are as follows: Number of Warrants on a Pre-Consolidated Basis Shares to  be Issued Upon Exercise of the Warrants Warrants outstanding at January 1,  2011 119,036,211 23,807,242 Issued upon exercise of Compensation Warrants  2,893,511 578,702 Exercised (7,739,900) (1,547,980) Warrants outstanding at  December 31, 2011 114,189,822 22,837,964 Issued 5,002,500 5,002,500 Issued  upon exercise of Compensation Warrants 613,775 122,755 Exercised (20,019,326)  (4,003,865) Warrants outstanding at December 31, 2012 99,786,771 23,959,354 A  summary of the Company’s warrants as of December 31, 2012 are as follows:  Number of Warrants on a Pre-consolidated Basis Pre-Consolidated Exercise  Price Per Warrant Number of Warrants on a Post-Consolidated Basis  Post-Consolidated Exercise Price Per Warrant Shares to be Issued Upon  Exercise of the Warrants Adjusted Exercise Price Per Share Expiry Date SSL.WT  75,121,672 $0.60 - - 15,024,334 $3.00 April 23, 2014 SSL.WT.A 19,662,599  $1.00 - - 3,932,520 $5.00 October 19, 2015 SSL.WT.B - - 5,002,500 $14.00  5,002,500 14.00 September 7, 2017 94,784,271 5,002,500 23,959,354 |
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|  | NOTES TO THE  CONSOLIDATED FINANCIAL STATEMENTS 61 The 1,227,550 remaining compensation  warrants (the “Compensation Warrants”) issued by the Company to agents in  2009, were exercised during the year ended December 31, 2012. Each  Compensation Warrant entitled the holder to acquire one unit comprised of one  common share of the Company and one-half of a share purchase warrant. Each  Compensation Warrant had an exercise price of $0.33. Each five (5) whole  share purchase warrants issued upon exercise of the Compensation Warrants  entitles the holder to purchase one common share at an adjusted total  exercise price of $3.00 until April 23, 2014. D. RESTRICTED SHARE RIGHTS  (“RSRs”) On April 4, 2011, the Company adopted a restricted share plan (the  “Restricted Share Plan”) whereby the Company may grant restricted share  rights to eligible employees, officers, directors and consultants at an  expiry date to be determined by the board of directors. Each restricted share  right entitles the holder to receive a common share of the Company without  any further consideration. The Restricted Share Plan provides for the  issuance of up to 800,000 RSRs outstanding at a given time. During the year  ended December 31, 2012, the Company granted 330,000 RSRs with a fair value  of $3.9 million, a three year vesting term, and a weighted average grant date  fair value of C$11.78 per unit. During the year ended December 31, 2011, no  RSRs had been granted by the Company. E. DILUTED EARNINGS PER SHARE Diluted  earnings per share is calculated based on the following: In $000s Year Ended  December 31, 2012 Year Ended December 31, 2011 Net income $ 21,927 $ 12,489  Basic weighted average number of shares 75,191,865 64,892,174 Effect of  dilutive securities » Compensation warrants - shares 57,250 629,737 »  Compensation warrants - warrants 36,835 51,056 » Stock options 1,838,850  1,308,257 » Warrants 9,254,683 9,357,651 Diluted weighted average number of  common shares 86,379,483 76,238,875 The following lists the stock options,  RSRs and share purchase warrants excluded from the computation of diluted  weighted average number of common shares as they were anti-dilutive: Year  Ended December 31, 2012 Year Ended December 31, 2011 Stock Options 32,166  1,238,200 Warrants 139,742 - RSRs 70,766 - |
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|  | 11. Income Taxes  The income tax expense differs from the amount that would result from  applying the federal and provincial income tax rate to the net income before  income taxes. These differences result from the following items: In $000s  Year Ended December 31, 2012 Year Ended December, 2011 Income before income  taxes $ 25,177 $ 13,473 Canadian federal and provincial income tax rates  25.0% 26.5% Income tax expense based on the above rates 6,294 3,570 Increase  (decrease) due to: » Non-deductible expenses 412 403 » Difference between  statutory and foreign tax rates (4,151) (3,164) » Other 695 $ 175 Income tax  expense $ 3,250 $ 984 The components of deferred income taxes recognized on  the statement of financial position are as follows: In $000s As at December  31, 2012 As at December 31, 2011 Deferred Income Tax Assets » Non-capital  losses $ 2,442 $ 1,260 » Share issue costs 3,946 1,811 Total deferred income  tax assets 6,388 3,071 Deferred Income Tax Liabilities » Mineral Interest  5,990 1,579 »Long term investments in shares and warrants 12 149 Total  deferred income tax liabilities 6,002 1,728 Total deferred income tax asset,  net $ 386 $ 1,343 The Company has deductible temporary differences, unused  tax losses, and unused tax credits expiring as follows: In $000s Location Amount  Expiration Non-capital loss carry-forwards Canada $ 16,308 2029-2032 12.  Administration Expenses The administration expenses for the Company are as  follows: In $000s Year Ended December 31, 2012 Year Ended December 31, 2011  Corporate administration $ 1,423 $ 642 Employee benefits and salaries 3,236  1,659 Professional fees 769 367 Depreciation 102 60 $ 5,530 $ 2,728 Equity  settled stock based compensation (a non-cash expense) 1,705 1,599 Total  administration expenses $ 7,235 $ 4,327 NOTES TO THE CONSOLIDATED FINANCIAL  STATEMENTS 62 |
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|  | 13 Supplemental  Cash Flow Information In $000s Year Ended December 31, 2012 Year Ended  December 31, 2011 Change in non-cash working capital » Trade and other  receivables $ (64) $ 138 » Prepaid expenses (75) (3) » Trade and other  payables (43) 18 Net (decrease) increase in cash $ (182) $ 153  14. Key Management Personnel Compensation  The remuneration of directors, those persons having authority and  responsibility for planning, directing and controlling activities of the  Company are as follows: In $000s Year Ended December 31, 2012 Year Ended  December 31, 2011 Short-term employee salaries and benefits $ 2,875 $ 1,407  Share-based payments 1,286 1,280 Total key management compensation expense $ 4,161 $ 2,687 Contractual Obligations GOLD STREAMS In connection with its  Gold Streams, the Company has committed to purchase the following: Gold  Stream % of life of mine gold Per ounce cash payment: lesser of amount below  and the then prevailing market price of gold 1 Aurizona 17% $400 Bachelor  Lake 20% $500 Black Fox 8% $500 Bracemac-McLeod 17.5% $350 Deflector 15% $500  Ming 25% of the first 175,000 ounces of gold produced, and 12% thereafter  $nil Santa Elena 20% $350 Serra Pelada (Gold) 1.5% $400 Serra Pelada  (Platinum) 35% $200 Summit 50% of the first 10,000 ounces of gold produced,  and 22% thereafter $400 1 Subject to an annual inflationary adjustment except  for Bracemac-McLeod and Ming The Company agreed to contribute up to $10.0  million in capital towards the Phase 1 Expansion at Luna's Aurizona Mine (of  which $1.5 million had been contributed as at December 31, 2012). Sandstorm’s  contribution will be equal to 17% of the capital costs incurred by Luna  towards the Phase 1 Expansion to a maximum contribution of $10.0 million. In  addition, Sandstorm has committed to issue, if requested by Luna, a $20.0  million non-revolving loan facility (the "Luna Credit Facility")  with a three year term, which may only be used to fund the Phase 1 Expansion  and associated exploration costs and may only be drawn up to July 21, 2014.  Any amounts drawn must be repaid by November 30, 2015. If issued, the Luna  Credit Facility will bear interest at a rate of 12% per annum and undrawn  amounts will be subject to a standby fee of 1.2%. NOTES TO THE CONSOLIDATED  FINANCIAL STATEMENTS 63 |
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|  | As part of the  Company’s Deflector Gold Stream, the Company has agreed to subscribe for $3.0  million in equity as part of a future Mutiny financing. Additionally, if the  Deflector Mine produces more than 85,000 ounces of gold in a calendar year,  Sandstorm will make a one-time $4.0 million payment to Mutiny. As described  in Note 17, Sandstorm has provided Premier Gold with a temporary credit  facility to borrow up to $70.0 million, which expires on July 31, 2013 and  which will bear interest at a 0.3% premium to the interest rate that the  Company would be charged by its lenders if funds were drawn from its  revolving credit facility. The Company has a commitment to Sandstorm Metals  & Energy to share a reasonable allocation, agreed to by both companies,  of costs paid by Sandstorm Metals & Energy that are incurred for the  benefit of Sandstorm. Sandstorm Metals & Energy is contractually  obligated to make annual rental payments ranging from $0.2 million to $0.4  million during 2013-2016 and Sandstorm will reimburse Sandstorm Metals &  Energy for a reasonable allocation of these rental costs.  16. Segmented Information The Company’s  reportable segments are summarized in the tables below: For the year ended  December 31, 2012 In $000s Sales Cost of sales (excluding depletion)  Depletion Other income Net income (loss) Cash from operations Aurizona $ 19,271 $ 4,622 $ 1,698 $ - $ 12,951 $ 14,574 Bachelor Lake 1,940 572 599 -  769 1,420 Black Fox 13,981 4,196 5,659 5,630 9,756 9,798 Ming 8,589 - 3,145 -  5,444 8,589 Santa Elena 11,755 2,438 2,932 - 6,385 9,316 Summit 407 101 286 -  20 306 Corporate - - - - (13,398) (6,379) Consolidated $ 55,943 $ 11,929 $ 14,319 $ $5,630 $ 21,927 $ 37,624 For the year ended December 31, 2011 In  $000s Sales Cost of sales (excluding depletion) Depletion Other income Net  income (loss) Cash from operations Aurizona $ 11,332 $ 2,808 $ 1,032 $ - $ 7,492 $ 8,783 Black Fox 9,863 3,052 2,614 - 4,197 6,810 Santa Elena 7,790  1,677 1,431 - 4,682 6,113 Summit 982 240 447 1,101 1,396 1,845 Corporate - -  - - (5,278) (2,889) Consolidated $ 29,967 $ 7,777 $ 5,524 $ 1,101 $ 12,489 $ 20,662 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 64 |
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|  | NOTES TO THE  CONSOLIDATED FINANCIAL STATEMENTS 65 16. Segmented Information The Company’s  reportable segments are summarized in the tables below: For the year ended  December 31, 2012 In $000s Sales Cost of sales (excluding depletion)  Depletion Other income Net income (loss) Cash from operations Aurizona $ 19,271 $ 4,622 $ 1,698 $ - $ 12,951 $ 14,574 Bachelor Lake 1,940 572 599 -  769 1,420 Black Fox 13,981 4,196 5,659 5,630 9,756 9,798 Ming 8,589 - 3,145 -  5,444 8,589 Santa Elena 11,755 2,438 2,932 - 6,385 9,316 Summit 407 101 286 -  20 306 Corporate - - - - (13,398) (6,379) Consolidated $ 55,943 $ 11,929 $ 14,319 $ $5,630 $ 21,927 $ 37,624 For the year ended December 31, 2011 In  $000s Sales Cost of sales (excluding depletion) Depletion Other income Net  income (loss) Cash from operations Aurizona $ 11,332 $ 2,808 $ 1,032 $ - $ 7,492 $ 8,783 Black Fox 9,863 3,052 2,614 - 4,197 6,810 Santa Elena 7,790  1,677 1,431 - 4,682 6,113 Summit 982 240 447 1,101 1,396 1,845 Corporate - -  - - (5,278) (2,889) Consolidated $ 29,967 $ 7,777 $ 5,524 $ 1,101 $ 12,489 $ 20,662 Total assets as of: In $000s December 31, 2012 December 31, 2011  Aurizona $ 18,473 $ 18,649 Bachelor Lake 21,570 20,844 Black Fox 29,471  53,911 Bracemac-McLeod 8,031 32 Coringa and Cuiú Cuiú 7,893 - Deflector 214 -  Ming 16,923 20,068 Mt. Hamilton 10,048 - Santa Elena 8,937 11,869 Serra  Pelada 60,181 - Summit 3,323 3,609 Corporate 156,363 23,810 Consolidated $ 341,427 $ 152,792 |
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|  | 66 17.  SUBSEQUENT EVENTS PREMIER ROYALTY > Subsequent to year end and through a  series of transactions, the Company acquired 46,678,221 common shares and  6,965,676 warrants of Premier Royalty Inc. (“Premier Royalty”), representing  approximately 59.9% of the currently issued and outstanding shares. Of the  warrants, 5,508,176 expire on December 4, 2016 (subject to expiry  acceleration provisions) and 1,457,500 expire on October 7, 2014 As part of  these transactions, the Company entered into a share purchase agreement (the  “Agreement”) with Premier Gold Mines Ltd. (“Premier Gold”). Pursuant to the  terms of the Agreement, Sandstorm issued Premier Gold 5,604,277 special  warrants (“Special Warrant”) each being exercisable into one common share of  Sandstorm. Sandstorm has also provided Premier Gold with a temporary credit  facility to borrow up to $70.0 million, which expires on July 31, 2013 and if  drawn will bear interest at a 0.3% premium to the interest rate that the  Company would be charged by its lenders if funds were drawn from its  revolving credit facility. Subsequent to year end, Premier Gold had exercised  1,401,069 of the Special Warrants, which had the effect of reducing the maximum  drawdown amount available under the credit facility to $52.5 million. The  Agreement contains a top up provision whereby if Sandstorm acquires 100% of  the remaining issued and outstanding securities of Premier Royalty on or  before the 18 month anniversary of the execution of the Agreement (the  “Subsequent Acquisition”) and the average price of the securities of Premier  Royalty purchased through the Subsequent Acquisition is greater than the per  unit price paid by Sandstorm under the Agreement, Sandstorm must pay Premier  Gold an amount that is equal to the difference between the per unit price  paid under the Agreement, and the average price of the voting securities of  Premier Royalty that Premier Gold would have received if Premier Gold sold  the common shares and warrants to Sandstorm pursuant to the Subsequent  Acquisition. ENTRÉE GOLD STREAM > The Company entered into a $55.0 million  financing package with Entrée Gold Inc. (“Entrée”) which includes a $40.0  million production based metal credit purchase agreement (the “Funding  Agreement”), a C$10 million private placement and a $5 million net smelter  returns royalty. Sandstorm has agreed to purchase metal credits equivalent to  25.7% and 33.8% of Entrée’s 20% share of the gold and silver by-products  produced from the Heruga and Hugo North Extension deposits, respectively. The  deposits are on the Entrée – Oyu Tolgoi LLC joint venture property in  Mongolia which forms part of the world-class Oyu Tolgoi copper mining  complex. Sandstorm will pay an upfront cash deposit of $35.0 million to  Entrée and ongoing payments equal to the lesser of the prevailing market  price and $220 per ounce of gold and $5 per ounce of silver (subject to  inflationary adjustments) until approximately 8.6 million ounces of gold and  40.3 million ounces of silver have been produced from the joint venture  property. Thereafter, the purchase price will increase to the lesser of the  prevailing market price of $500 per ounce of gold and $10 per ounce of silver  (subject to inflationary adjustments). Sandstorm has agreed to purchase  17,857,142 common shares of Entrée (the “Shares”) at a price of C$0.56 per  Share (the “Purchase Price”) for a total consideration of approximately C$10  million. Sandstorm has agreed to purchase a 0.4% NSR royalty on the future  sale of any metals and minerals derived from a portion of the Ann Mason  Project (which includes the Ann Mason and Blue Hill deposits) in Nevada. In  consideration for the royalty, Sandstorm will make a $5 million payment to  Entrée. In addition, Entrée has granted Sandstorm a right of first refusal on  any future royalty or metal stream financing for the Ann Mason Project.  REVOLVING CREDIT FACILITY > Subsequent to year end, the Company amended  its credit agreement to increase its revolving credit facility to $100.0  million. Refer to Note 9 for further details. |
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