Highest exposure to gold not paying off

Osisko Gold Royalties is a precious metal royalty company focusing on a North American portfolio of over 135 royalties, streams and precious metal offtakes. It engages in the business of acquiring and managing precious metal and other royalties, streams and similar interests in Canada and worldwide. The company also has interest in Osisko Mining Inc. and Falco Resources Ltd.

Osisko holds 16 producing assets including the net smelter return royalty on the Canadian Malartic gold mine and the royalty on the Eleonore gold mine located in James Bay, Quebec. The company also has a strong portfolio of royalty assets in development and promising exploration projects in Quebec and North America. It has a large presence in Canada’s most prolific mining camps with decades of future exploration potential.

Investment Data

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Revenue Growth & Market Exposure

Osisko’s portfolio is anchored by its 5% NSR royalty on the Canadian Malartic Mine, which is the largest gold mine in Canada. In addition, it also holds royalties/ streams on a total of 25,000 square kms area at significant Canadian mining camps. Canadian Malartic (accounting for 40% of Osisko’s production) and Eleonore are two of the most valuable royalty assets in the sector, having long mine lives and offering a strong potential for growth. Osisko has a low geopolitical risk profile and 75% of its business comes from traditional royalties and streams. In addition, the company invests in equities of exploration, development and royalty companies and completed the acquisition of Barkerville, which owns the Cariboo Gold project in British Columbia, in the last year.

Source: Osisko Q2 2020 MDA

The company came into existence in 2014 and has developed a strong expertise in exploration, engineering, construction & financing. Its market capitalization value has increased to $2.1 billion from $500 million back in 2014.

Osisko was targeting a production of 82,000-88,000 GEOs for FY 2020 prior to the outbreak of the pandemic. It now expects 33,000 to 35,000 GEOs for the third and fourth quarter of 2020. The royalty and stream payments are based on production levels. The company is playing a major role in accelerating the development of Canada’s next gold mines. Osisko is growing its asset base, both organically and through accretive acquisitions. The company has a successful track-record of strong technical capabilities, which assists in creating its own pipeline of organic growth opportunities. It invests nearly 25% in creating an exclusive pipeline of opportunities through its acceleration business model.

Dividends

Osisko Gold is a Canadian Dividend Aristocrat offering one of the best dividends in the royalty sector. It has returned $336 million to its shareholders in dividends and share buybacks since its inception in 2014. It paid a quarterly dividend of $0.05 per share in the latest quarter. Osisko sports a modest 1.3% dividend yield but a high payout ratio. Its last dividend increase was 25% and it has a dividend CAGR of ~46% in the last five years. Osisko’s EPS have however, registered a negative growth rate in the past which is a matter of concern. But the net income has increased in the latest quarter.

Osisko offers its shareholders a unique combination of core royalty business stability and acceleration business competitive advantage. It provides a higher exposure to gold prices and a better risk/return profile supported by high quality, long-life precious metals assets in good locations. Osisko’s other assets such as Windfall, Hermosa, and its Horne 5 royalty projects are also expected to contribute to its future production. All its assets are significantly resource-rich with solid future production prospects. The company has a strong balance sheet and ability to deploy capital.

A diversified portfolio of quality royalty assets, experienced operators and mining jurisdictions, production growth and a strong development pipeline of assets are a few of Osisko’s compelling competitive advantages.

Competition

The mineral exploration business is competitive in all phases. Osisko Gold competes with the likes of Royal Gold, Franco Nevada, Wheaton Precious Metals, and Sandstorm. As the company has an exposure to an accelerator model, its mining operations might involve significant risks and huge expenditures to develop metallurgical processes and to construct mining and processing facilities. This can lead to write-downs and lower future earnings.

Bottom Line

Gold is considered as a safe haven for investors at times of uncertainty like the present one and the price of the yellow metal has been rising this year. With coronavirus pandemic showing no signs of slowing down, gold will continue to be an attractive investment opportunity for investors. Given that a majority of Osisko’s revenues are derived from gold, the rally in gold prices bodes well for the company.

Dividend Adjusted Chart by StockRover.

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DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.