Osisko Gold Royalties Ltd. (OR) is an intermediate precious metals royalty company. OR’s cornerstone asset is a 5% net smelter return (NSR) royalty on the Canadian Malartic mine, Canada’s largest gold mine, explains Peter Krauth, editor of Resource Maven's Gold Resource Investor.
In addition, the company has a North American focused portfolio of more than 140 royalties, streams and precious metals offtakes. As a royalty company, Osisko boasts huge gross margins of 94% and benefits from all the advantages of lower risks and leveraged returns the business model brings.
In 2014 Goldcorp, now merged with Newmont (NEM), made a hostile bid for Osisko. That was ultimately unsuccessful, as Yamana (AUY) and Agnico Eagle Mines (AEM) came in as white knights. They acquired Osisko Mining (Toronto: OSK) for $3.6 billion in cash and stock, each getting half of the assets.
Osisko’s management team then launched Osisko Gold Royalties with $155 million in cash and a 5% royalty on Malartic. Today Malartic is forecast to provide OR with 35,000 gold ounces in 2021, and is considered the world’s most valuable gold royalty.
Just recently the Canadian Malartic Partnership (Agnico + Yamana) approved construction of the Odyssey underground project. That will start producing royalty payments to OR in 2023, with average annual underground production of 545K ozs. gold annually from 2029 onwards.
OR’s share is a 3-5% NSR royalty on the underground mine, but most production is expected from OR’s 5% NSR royalty boundary. This will extend the mine life from 2028 to at least 2039.
In 2019, OR acquired Barkerville Gold to help advance the company with resources and expertise. They’ve since put Barkerville into a new vehicle called Osisko Development (Vancouver: ODV) and spun it out in the fall of 2020.
Osisko Development is a near term intermediate producer. OR still owns 75% of that $1 billion asset plus a 5% NSR on its Cariboo Gold Project (British Columbia) and a 15% stream on its San Antonio Gold Project (Mexico).
And while this acquisition dented the share price and valuation for some time, it turns out it was a very strategic move in hindsight. For investors, it’s created a rare opportunity whereby OR shares are widely undervalued.
In total OR has 17 producing assets, including a 2-3.5% NSR royalty on the Eleonore gold mine in Quebec, operated by Newmont, and considered another of the most valuable gold royalties in the world.
OR’s growth profile is probably what most sets it apart, as it has the highest development weighting amongst its peers. In total, OR has 16 royalties in development, which is what supports the assertion that it boasts such a strong growth profile over the next several years. And with dozens of other exploration stage projects, the upside and growth looks virtually limitless.
Management is top-tier, with President and CEO Sandeep Singh (Dundee Securities, BMO Capital Markets), and Guy Desharnais, VP Project Evaluation (Glencore). Executive Chair of the Board is Sean Roosen, a founding member of the original Osisko Mining (Malartic Mine), and currently CEO and Board Chair at ODV.
Osisko Gold Royalties has the highest proportion of its assets in the development stage. And being in the early days of a gold bull market, that’s ideal, as it gives the company a lot of runway to multiply revenues from future royalties and streams.
I believe the market will start to catch on and better understand OR’s underlying value and growth profile. Meanwhile, investors have the opportunity now to get in ahead of a likely re-rate of shares over the next 12-18 months. I can see the OR share price gaining 50% over the next year.
