Royalty: Gold Streaming

04/12/2016 9:00 am EST


Adrian Day

Chairman and CEO, Adrian Day Asset Management

The large gold royalty companies remain among our top holdings, notwithstanding the high valuations and our short-term concern on the gold stocks, explains Adrian Day, editor of Global Analyst.

Osisko Gold Royalties (Toronto: OR) is all cashed up, as its two core royalties proceed well. It has about C$650 million available for investments (of which $260 million is cash), after spending about C$220 million in the last year on several royalties.

Its two core royalties are performing well. Canadian Malarctic offers a high 5% royalty on one of Canada’s premier mines, with a long-life, low-cost profile, and continues to meet guidance.

The new Eleonore -- another long-life, low-cost mine -- is overcoming ramp-up hurdles as the advance royalty is now fully paid.

With the cash, Osisko is on the hunt for new assets, preferably a large, cash-flowing asset.

With its strong core assets; growing royalty investments; innovative royalty growth model; and strong balance sheet Osisko remains a strong holding.

As a newer company with less diversified revenue sources, the stock is trading at a discount to the group. At this depressed price, Osisko is a buy.

Franco-Nevada (FNV) continues to perform well, meeting guidance for last year, despite lower commodity prices generally.

It saw an unusual loss for the quarter, because of impairments, both on oil and gas assets and also, unusually, on a mineral property (Rubicon’s Phoenix mine).

Currently, Franco has $1.2 billion available credit for new deals, so is certainly in a strong position to acquire more royalties or streams from producers who are struggling with low prices and high debt levels.

The year ahead promises growth from existing assets. Indeed, there is substantial growth over the next five years even without adding another asset.

Despite high valuations, Franco remains a core holding, for the top management, rock-solid balance sheet, broad diversity of assets and strong political profile, and the ability to grow into its valuations.

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By Adrian Day, Editor of Global Analyst

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