Montreal-based Osisko Gold Royalties Ltd. (OR) — or a previous incarnation of it — built the Canadian Malarctic Mine — the country’s top-producing gold mine, explains Sean Brodrick, editor of Wealth Megatrends.
It sold that mine to Agnico Eagle (AEM) and Yamana Gold (AUY) in 2014 for $4.3 billion. It retained a 5% royalty on Canadian Malarctic, and that’s the financial foundation of Osisko Gold Royalties.
It’s grown over time and now generates income from 135 mineral interests, including precious-metal royalties, streams and off-takes in North America and Chile. It has cash flow from 17 different assets. In fact, last year, Osisko Gold Royalties had the best cash operating margins among its peer group.
Some of the big mines that Osisko Gold Royalties is involved with include Eagle, Canada’s newest big gold mine, which is in the Yukon and run by Victoria Gold. That’s ramping up to 220,000 ounces of gold per year.
Osisko Gold Royalties has a 5% net smelter return on Eagle. The company also has a variable 2% to 3.5% NSR on the Éléonore mine, one of the largest gold mines in Quebec. That’s run by Newmont Corp. (NEM).
It also gets 100% of the silver stream from the Mantos Blancos copper mine in Chile. Mantos Blancos is another long-life asset in a great jurisdiction. Production is ramping up, which means more silver for Osisko Gold Royalties.
Osisko Gold Royalties expects to earn 21 cents a share this year, up just 10% from last year. Again, COVID-19 threw a wrench in the works. Next year, it expects to earn 38 cents a share, an 86% increase. So, we’re buying at a time of distress, but the future looks very bright.
The company had $163 million in cash at the end of the second quarter and $309 million in debt. It could take on more debt to add more streams and projects. As long as those additions are accretive, I don’t see debt as an unbearable burden.
The company is known for is “accelerating” projects. That is, it finds prospective resources controlled by other companies and gives them the money they need to bring those mines to production faster. In return, Osisko Gold Royalties takes a production stream, a royalty, equity in the company or some combination of the three.
This “private equity” component sometimes confuses investors, and that’s dragged on the stock in the past. But, with the price of gold rising, a lot of companies will be knocking on Osisko Gold Royalties’ door to get the money to get their resources into production.
So, this could be a very exciting time going forward. Altogether, this stock could easily go to $19 a share — and probably much higher from there.
