Two Golden Opportunities: Osisko and Vista

08/18/2017 2:50 am EST


Adrian Day

Chairman and CEO, Adrian Day Asset Management

Osisko Gold Royalties (OR) is still undervalued despite a strong rally. The company reported on its latest quarter that largely updated the Orion acquisition we discussed recently, says Adrian Day, editor of Global Analyst.

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However, it also reported strong results at its legacy assets, particularly strong production at Canadian Malartic. Although production was down 15% at Eleonore, this largely was expected as the company focuses on additional development.

Following the closing of the Orion acquisition, Osisko’s cash is down to around $100 million, with debt of around $200 million.

However, the company also has a securities portfolio with a market value of around $425 million (on a purchase price of less than $300 million), so does have liquidity.

In addition, it continues to have strong support of Quebec pension funds, who supported the Orion transaction, so access to capital is not a problem.

There is concern that some of the most attractive royalties it just acquired (notably on Pretium’s Brucejack mine) could be repurchased by the mine owners, removing the long-term upside.

Nonetheless, Osisko continues to sell at a meaningful valuation discount to other large royalty companies, admittedly more diversified ones, and this continues to make Osisko a relatively attractive stock.

On a price to NAV basis, Osisko trades at 1.1 times compared with the average for its peers of 1.8 x. Price to next year’s EBITDA is only 14 x, compared with the peer average of 19 x. Given the volatility in gold and Osisko, we are not buying today, but would look to buy on any pullback.

Vista Gold (VGZ) announced it would undertake an updated Pre-Feasibility Study on its Mt Todd project, following completion of various metallurgical studies.

Incorporating the results of the current studies as well as new economics since the last Pre-Feasbility Study in 2013, Vista expects the study, to be released by year-end, to show improved economics.

The company has undertaken several studies since the last Pre-Feasbility Study, including a new flowsheet for improved recoveries at the end of last year.

Vista is in a strong position, owning the largest undeveloped gold deposit in Australia, a world-class asset in a top jurisdiction.

With $23.6 million in working capital — most of it in cash —Vista has sufficient funds to bring Mt Todd to a production decision without additional dilutive financing. The goal is to remove development and production risks, and have a deposit attractive to a potential suitor.

Some unusual trading activity on Monday took the stock down — last week, it traded in the mid-80s, itself down from earlier in the year and a very attractive price — making the current level a “strong buy”.

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