While the gold mining sector has recovered from Covid, many gold stocks remain undervalued. Here's a look at three quality stocks in the gold royalty and streaming space, asserts Adrian Day, money manager and editor of Global Analyst.
Osisko Gold Royalties (OR) reported its latest quarterly results, in line with expectations, with a total of just over 66,000 “gold equivalent ounces” sold for 2020.
This is expected to increase to around 85,000 GEOs this year. In addition to the resumption of all its operations following temporary Covid-related shutdowns, other operations are back on track.
The Renard diamond mine, after a long shutdown due to low prices and the bankruptcy of the operator, has restarted operations. And operator Newmont (NEM) has provided guidance of 270,000 ounces for the variable Eleonore mine (on which Osisko holds a royalty).
Meanwhile, Osisko Development (Vancouver: ODV), in which OR holds 77% of the shares as well as royalties as its assets, said it expects to complete a feasibility study on Cariboo, its main deposit, before the end of the year.
Operators also released a favorable PEA and resource update on the Malartic underground, on which Osisko holds a rich royalty. Initial production is expected in 2023, though the full ramp up will not be for six years after that.
The mine is projected to last until 2039, and possibly beyond. Osisko’s stream, up to 5% on parts of the ore body, is the company’s next large cornerstone asset.
Trading at less than NAV, Osisko Gold Royalties is at a significant discount to other major royalties, wider than justified. I rate the stock a "buy".
Wheaton Precious Metals (WPM) recently acquired a silver stream on a copper-silver mine in Mexico, paying $150 million for half of the silver production.
Any return on the transaction depends on operator Capstone converting resources to reserves, a quite likely event. Perhaps more significantly, Wheaton said it was in advanced discussions with Captsone for a gold stream on a large Chilean copper mine.
Wheaton is in a strong liquidity position; it expects to be net cash positive early this year and has $1.5 billion available on its credit facility.
Overall, it has a high-quality portfolio, with long-life streams on low-cost mines with high-quality operators. It recently issued five-year guidance, projecting an average of 810,000 ounces of gold-equivalent ounces. Wheaton is a "buy" for long-term investors.
Royal Gold (RGLD) saw royalty ounces back to pre-covid levels, with the good quarter partly due to unexpectedly strong results from Penasquito.
The last quarter also saw some sales from previous production and this current quarter’s ounces will decline, though Royal’s outlook for 48,000 to 53,000 seems low.
Two new projects — the Khoemacau copper mine in Botswana, on which Royal has a silver stream, and the Pueblo Viejo expansion in the Dominican Republic, with a gold stream — are on track.
These will be the two main drivers of growth over the medium term. Royal has a strong balance sheet with over $180 million in net cash plus $800 million available on its credit facility.
Selling at a discount on a cash-flow basis to its major royalty peers, Royal’s reliance on a single asset, the Mt. Milligan mine, has been reduced and next year will be even more so. Royal is a "buy".