CA - Osisko Gold Royalties: Attractive Again After A Long Slide

2023-09-25 15:00:47 ET

Summary

• Royalties and stream revenues were $45.54 million in 2Q23.
• Production was 24,645 GEOs in 2Q23, an increase of 11% over the second quarter of 2022, with a cash margin of $41.9 million.
• I recommend buying OR between $12.25 and $12 to accumulate again, with potential lower support at $11.85.

Introduction

Montreal-based Osisko Gold Royalties Ltd ( OR ) released its second quarter 2023 results on August 9, 2023.

Important Note: I have followed OR quarterly since 2018. This new article is a quarterly update of my article published on May 23, 2023.

Also, all numbers indicated in this article are converted into US$ . However, the dollar amount shown in the conference call or the presentation is in Canadian $ .

Osisko Gold Royalties owns an extensive equity portfolio:

• 8% ownership of Metals Acquisition Limited (MTAL) valued at $39.6 million .
• 39.9% Osisko Development (ODV) ownership is valued at $113.3 million .
• 13.2% Osisko Mining (OBNNF) ownership is valued at $136.6 million .
• Others are valued at $20.6 million .

Also, Osisko Gold Royalties owns a high-quality portfolio with 88% gold. The company counts over 180 royalties, streams, and offtakes. Details below:

Paul Martin, the Interim CEO, said in the conference call :

We're pleased with the performance in the second quarter, both from a GEOs earned perspective and from a transactional basis. 24,645 GEOs earned in the second quarter, a nearly 11% increase over the comparative quarter, with 47,756 GEOs for the first half, which is nearly a 15% increase over the comparative period, puts Osisko in a good position from an annual guidance perspective.

1 - 2Q23 Results Snapshot (In )

Warning: Osisko Gold Royalties indicates its results in Canadian $ in its presentation.

Net income attributable to Osisko's shareholders was $13.52 million or $0.08 per share, compared to $13.40 million or $0.07 last year.

The quarterly dividend has been increased to $0.045 per share this quarter, or a yield of 1.16%. Also, the company has repurchased 8 million shares since the company's inception.

Production was 24,645 GEOs in 2Q23, an increase of 11% over the second quarter of 2022, with a cash margin of $41.9 million . Royalties and stream revenues were $45.54 million. The company said it is positioned to meet 2023 GEOs guidance of 95K-105K GEOs with stronger H2 2023 expected.

The company sold its gold at $1,976 per ounce and silver at $24.13.

Net debt is now approximately $185.1 million as of June 30, 2023.

2 - Stock Performance

Osisko Gold Royalties is part of the five streamers I regularly cover on Seeking Alpha.

My long-term streamers of choice are Wheaton Precious Metals ( WPM ) and Franco-Nevada ( FNV ).

Still, Osisko Gold Royalties is a good alternative in the streamer segment, especially for those who want to trade the sector short term. We can compare OR to Sandstorm Gold ( SAND ).

OR has outperformed the group significantly and is now up 33% YoY.

OR business model is attractive. It is easy to follow, has excellent performance, has attractive growth potential through a senior-quality portfolio, and has a solid balance sheet.

Osisko Gold Royalties - Financials And Production History Ending in 2Q23 (In US$)

Note: Values can differ slightly due to the conversion from CAD to USD. Osisko Gold Royalties indicates CAD$ results with an exchange rate (CAD vs. USD) of 0.745 in 2Q23.

Source: Company release

Analysis: Revenues, Earnings, Free Cash Flow, Debt, And Production Details (In US$)

1 - Revenues were US$45.54 million in 2Q23

Osisko Gold Royalties posted revenues of $45.54 million in the second quarter of 2023, up from $40.26 million in the same quarter a year ago.

On a consolidated basis, the net income for the second quarter was $13.52 million, compared to $13.40 million in 2Q22. The cash flow generated by operating activities from continuing operations was $35.67 million.

In the second quarter of 2023, the operating cash margin was 93% from royalty and stream interests.

The Canadian Malartic is the cornerstone royalty for Osisko Gold Royalties, with the Odyssey underground on schedule, which will be transferred to Agnico Eagle ( AEM ) soon.

Agnico Eagle recently provided an update study covering the underground extension of the operation through to 2042 at a steady state of 500,000 to 600,000 ounces per year. The vast majority of this extension falls on our 5% royalty claim block. The study incorporated only 57% of the existing resources, and the extension significantly increases Malartic's value as a shared asset to Osisko. (conference call)

The company owns over 180 royalties, streams, and offtakes. Most of the assets are located in North America.

Interim CEO, Pierre Martin, said in the conference call:

The Company now has 23 producing assets , up 2 from the prior quarter, including the first reporting of GEOs from the CSA silver stream in Q2, which has an effective date of February 1, 2023. Our GEOs earned come predominantly from Canada and were derived 90% from precious metals, 62% from gold and 28% from silver.

On June 15, 2023, Osisko Gold announced the acquisition of the producing CSA Mine in New South Wales, Australia, for a total investment of $190 million.

Combined, these two royalties were purchased for US$150 million , and Osisko further invested us $40 million in equity into the company. The purchase price was paid with US$60 million in cash and drew US$130 million from our revolving credit facility. (conference call)

2 - Free cash flow was negative $124.47 million in 2Q23

Note: The generic free cash flow is the cash from operating activity minus Capex.

Free cash flow for the second quarter of 2023 was negative $124.47 million, with a trailing 12-month free cash flow of negative $111.92 million.

After acquiring the two royalties bought on the CSA Mine in Australia, the FCF turned negative this quarter.

3 - Net debt was $185.1 million in 2Q23, and total cash was $55.52 million

The net debt was $185.1 million in 2Q23, with a total cash position of $55.52 million and a total debt of $240.59 million in 2Q23. Liquidity is approximately CAN $430 million or US $320 million.

Below are the details as of June 30, 2023 (in CAN$):

4 - Production in gold equivalent ounce and details

Osisko Gold Royalties produced 24,645 GEOs in the second quarter of 2023, up from 22,243 in 2Q22.

Gold price increased in 2Q23 to $1,976 per oz, and silver was $24.13 per ounce.

The company offers excellent growth potential, with an estimated production of 130K to 140K GEOs by 2027.

Technical Analysis And Commentary

Note: The chart is adjusted from the dividend.

The stock OR forms a Descending Channel Pattern with resistance at $12.85 and support at $12.2. RSI is 36, which indicates further downside potential.

Descending channel patterns are short-term bearish in that a stock moves lower within a descending channel, but they often form within longer-term uptrends as continuation patterns. The descending channel pattern is often followed by higher prices, but only after an upside penetration of the upper trend line.

Osisko Gold Royalties Ltd's short-term trading strategy is to trade LIFO for about 50%-60% of your position.

I suggest selling Osisko between $12.8 and $13.15, with possible higher resistance at $14.25, and waiting for a retracement between $12.25 and $12 to accumulate again, with potential lower support at $11.85 .

Watch gold like a hawk.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

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