Osisko Gold Royalties comes out strong

VANCOUVER — Osisko Gold Royalties (TSX: OR; US-OTC: OKSKF) is one to watch in the realm of corporate finance. The company is a spin-out from Agnico Eagle Mines (TSX: AEM; NYSE: AEM) and Yamana Gold’s (TSX: YRI; NYSE: AUY) $3.9-billion acquisition of Osisko Mining and its Canadian Malartic gold mine in Quebec, and the fledgling junior is already boasting a strong balance sheet and positive cash flow from royalty interests.

Former Osisko Mining CEO and current Osisko Gold Royalties CEO Sean Roosen says the company spent mid-2014 getting the “new corporation operating at full speed,” but now it’s looking towards “competitive opportunities” to enhance its royalty and metal-streaming portfolio.

The company has a 5% net smelter return royalty (NSR) at Canadian Malartic, as well as US$157 million in cash and a $100-million revolving credit facility with the National Bank of Canada. The facility may be increased by $50 million at Osisko’s request.

On Nov. 5 the company released its third-quarter results, which show just how much money it earns from Canadian Malartic. Osisko Gold Royalties had revenues of $9.6 million for the quarter after selling 6,840 oz. gold and 6,520 oz. silver. Net earnings were US$5.8 million, or 12¢ per share, while net cash flow totalled US$6.1 million.

In August Agnico and Yamana updated the reserve and resource estimate at Canadian Malartic assuming a US$1,300 per oz. pit design and cut-off grades between 0.28 gram gold per tonne and 0.35 gram gold.

The mine hosts proven and probable reserves of 263 million tonnes at 1.06 gram gold and 8.94 gram silver. Measured and indicated resources total 314 million tonnes grading 1.07 grams gold and 10.8 grams silver. In-situ gold reserves were estimated at 8.9 million oz.

Osisko Gold Royalties has additional upside on the greater Canadian Malartic property package via underlying 2% NSRs on the Upper Beaver and Kirkland Lake projects. 

Agnico and Yamana recently announced an $8-million program at the exploration-stage assets after reviewing work from earlier in the year. 

A preliminary economic assessment (PEA) is expected at Upper Beaver by the end of 2015.

Osisko Gold Royalties became active in the junior financing sphere shortly after Canadian Malartic deal closed. In August Osisko Gold invested $5.6 million in a pair of Quebec-focused explorers, with substantial gold prospects.

Osisko put $4.9 million into NioGold Mining (TSXV: NOX; US-OTC: NOXGF) and its 125 sq. km gold property portfolio in the Cadillac-Malartic-Val-d’Or region of the Abitibi mining district. Osisko picked up 14 million flow-through shares at 35¢ per share, which brought its equity interest in NioGold to 19.5%.

On Nov. 5 NioGold announced a 40,000-metre infill drill program at its wholly owned Marban deposit that will lead to a PEA in early 2016. Marban’s current resources include: 6.4 million measured tonnes grading 1.33 grams gold for 275,000 contained oz.; 18.2 million indicated tonnes of 1.3 grams gold for 760,000 contained oz.; and 10.9 million inferred tonnes at 0.81 gram gold for 284,000 contained oz.

Marban is located in the Marbenite shear corridor and consists of sheared basalt with disseminated pyrite and pyrrhotite. Some quartz-carbonate veinlets — with occasional albite and pyrite — have also been reported.

Osisko made a $670,000 investment in Falco Resources (TSXV: FPC; US-OTC: FPRGF), which consisted of 1.5 million shares at 45¢ per share. The move brought Osisko’s equity interest in Falco to 13%.

Falco’s primary asset is the historic Horne volcanogenic massive sulphide complex in the Rouyn-Noranda mining camp, which still hosts a 25.3-million-tonne inferred resource grading 2.64 grams gold per tonne, 0.2% copper and 0.7% zinc for 2.15 million contained oz. gold, 131 million lb. copper and 393 million lb. zinc.

One wild card for Osisko that  doesn’t fall under the royalty umbrella is its substantial holding in the prolific Guerrero gold belt in southern Mexico. 

Prior to the Agnico-Yamana deal Osisko Mining had staked 9,000 sq. km in the district, which hosts Goldcorp’s (TSX: G; NYSE: GG) Los Filos mine and Torex Gold Resources’ (TSX: TXG; US-OTC: TORXF) development-stage Morelos discovery.

Osisko Gold Royalties has been relatively quiet on the Guerrero front, although it has carried out grassroots activities including trenching and sampling, and initial drilling. 

No results had been released at press time, but Osisko registered $5.3 million in exploration and evaluation expenses over the first nine months of 2014.

BMO Capital Markets analyst David Haughton has high hopes for Osisko Gold Royalties, with a stock “outperform” rating and $20 price target. 

He noted on Nov. 5 that the company has “exposure to [high-quality royalty] growth options associated with possible acquisitions, and the potential development of the Upper Beaver Creek and Pandora properties.” 

BMO Research forecasts royalty gold deliveries of 13,000 oz. in 2014.

Osisko Gold Royalties has traded within a 52-week range of $13.66 to $16.48, and closed at $13.97 per share at press time. 

The company has 48 million shares outstanding for a $646-million market capitalization.