- Osisko Gold Royalties posted a revenue of US$38.66 million in the fourth quarter of 2019, down 55.7% from the same quarter a year ago and down 53.1% sequentially.
- Osisko Gold Royalties produced 20,479 GEOs in the fourth quarter of 2019, up 2.4% from 4Q'18 and up 13% sequentially.
- OR is an excellent trading tool, but it is perhaps time to keep a long-term position on any weakness at or below $8.
- Looking for a helping hand in the market? Members of The Gold And Oil Corner get exclusive ideas and guidance to navigate any climate. Get started today »
Courtesy: Mining Journal
Montreal-based Osisko Gold Royalties (NYSE:OR) has been performing quite well since early 2019, but this positive performance ended abruptly at the end of September.
The company has been very aggressive in its search for expansion and built the right growth profile, which seems appealing to long-term investors. But, expanding in new projects is risky and can turn to a painful loss.
On the bright side of the coin, the company owns an extensive asset portfolio concentrated in North America, offering extra safety and clarity. The company's streaming and royalties business is based mainly on gold, which represented 67.62% of the total output in 2019.
Note: Osisko Gold Royalties owns about 103 assets in North America (e.g., Éléonore, Renard, Lamaque, and Canadian Malartic mines being the top producers, with Island Gold soon), and now over 135 royalty stream and offtake assets.
Another positive element when it comes to the balance sheet is that the debt load has been reduced quite significantly in 2018 and could go lower in 2020, owing to the gold price reaching new records.
Finally, the company is paying a dividend of about ~$US 0.20 per share or a yield of 1.73%.
Sean Roosen, the CEO, said in the conference call:
2019, big year for Osisko and lots of things going on within the portfolio and at the management level. Q4 started as a pretty good end of the year with over 20,000 GEOs earned in the fourth quarter and for a total of 78,006 GEOs earned into the 2019 period, which has actually met our guidance for 2019.
Osisko Gold Royalties: A Highly Diversified Portfolio with Focus on North America
According to the last presentation, Canadian gold assets represent 75% of the total assets owned by the company. It is a crucial element when it comes to a long-term perspective because these assets are located in one of the safest jurisdictions in the world. The Canadian Malartic mine was the most significant contributor in 2019, with 33,048 GEOs.
Source: OR Previous Presentation
Osisko Gold Royalties: Financial And Production In 4Q 2019 (in US$)
Note: Values can differ a little due to the conversion from CAD$ to US$. Osisko Gold Royalties indicates results in CAD$ with an exchange rate [CAD$ vs. US$] of 0.75758 in Q4'19. It is what I applied to the table below.
|Osisko Gold Royalties||2Q'18||3Q'18||4Q'18||1Q'19||2Q'19||3Q'19||4Q'19|
|Total Revenues in US$ Million||106.75||85.46||87.31||75.76||98.38||82.51||38.66|
|Net Income in US$ Million||0.4||4.2||-86.21||-20.0||-4.9||-34.69||-117.56|
|EBITDA US$ Million||16.6||20.6||-101.7||-13.1||8.8||-30.6||-118.66|
|EPS diluted in US$/share||0.00||0.03||-0.73||-0.13||-0.03||-0.24||-0.79|
|Operating cash flow in US$ Million||15.2||15.5||14.05||18.62||16.0||21.4||13.03|
|Capital Expenditure in US$ Million||38.0||25.9||36.25||21.04||0||32.86||9.27|
|Free Cash Flow in US$ Million||-22.9||-10.1||-22.2||-2.4||16.0||-11.5||3.76|
|Total Cash US$ Million||146.88||112.61||131.9||91.47||74.57||112.96||97.67|
|Long-term Debt in US$ Million||324.7||321.1||267.1||244.0||243.7||262.6||264.4|
|Dividend per share in US$||0.038||0.038||0.038||0.038||0.037||0.038||0.038|
|Shares outstanding (diluted) in Million||156.3||156.263||156.335||155.059||154.988||144.446||150.35|
|Estimated Production gold equivalent Oz Eq.||20,506||20,006||20,005||19,753||19,651||18,123||20,479|
|Gold price realized||1,306||1,212||1,240||1,300||1,309||1,472||1,481|
|Silver price realized||-||-||14.54||-||-||-||17.32|
Source: Company release and Morningstar
Trends And Charts: Revenues, Earnings Details, Free Cash Flow, Debt, And Production Details (in US$)
1 - Revenues were US$ 38.66 million in 4Q'19
Osisko Gold Royalties posted a revenue of US$38.66 million in the fourth quarter of 2019, down 55.7% from the same quarter a year ago and down 53.1% sequentially.
Net cash flow from the operating activities was at US$13.033 million or $0.09 per share, and adjusted earnings were US$7.8 million or $0.05 per share.
- Closed the acquisition of Barkerville Gold Mines Ltd. (“Barkerville”), owner of the Cariboo gold project, and created the North Spirit Discovery Group;
- Completed a credit bid transaction for Stornoway Diamond Corporation (“Stornoway“) alongside other secured creditors, allowing Osisko to maintain its 9.6% diamond stream on the Renard mine. Osisko became a 35.1% shareholder of the company now holding the Renard diamond mine, which will continue to operate in the normal course;
A quick recap on impairments:
- In December, Lydian International, the owner of the Amulsar project, announced an impairment this year. Osisko evaluated assets to its recoverable value of US$22.3 million, resulting in a non-cash impairment charge of US$51.3 million on the Amulsar stream and offtake for the fourth quarter of 2019.
- in February 2020, Newmont (NEM) the operator of the Eléonore mine, announced undated mineral resource and resources cutting the total amount by approximately 50%, which resulted in a non-cash impairment of $27.2 million and $20 million net of income taxes, bringing the recoverable value of the Éléonore royalty to $101.3 million.
- A non-cash impairment was applied to a project acquired with Virginia Mines acquisition in 2016.
2 - Free cash flow was a loss of US$ 3.8 million in 4Q'19
The generic free cash flow is the cash from operating activity minus CapEx. It is an excellent financial component to consider when deciding an investing strategy. I always incorporate this element in my analysis on Seeking Alpha.
Free Cash Flow for the fourth quarter of 2019 was a profit of US$3.76 million. 2019 free cash flow was a profit of US$6.68 million.
3 - Net Debt is US$166.7 million in 4Q'19
Net debt is $US166.7 million as of December 31, 2019. Below are the details:
Source: OR Presentation (partial) Warning: Values indicated in the presentation in CAD$
Note: On September 19, 2019, Osisko announced that it had increased its credit facility.
4 - Production in gold equivalent ounce and details
Osisko Gold Royalties produced 20,479 GEOs in the fourth quarter of 2019, up 2.4% from 4Q'18 and up 13% sequentially. Below is the repartition per metal in 2019. The production has been low this quarter.
5 - Guidance 2020
The company expects an increase in GEO Production of 9% in 2020 compared to 2019, which is a positive owing that the gold price is now approaching $1,700 per ounce.
Source: Osisko 4Q'2019 Presentation
Conclusion and Technical Analysis
Osisko Gold Royalties posted record GEO production this quarter. However, the company indicated a substantial non-cash impairment that was surprising. The stock has suffered a massive selloff with the acquisition of the Bakerville Gold mine starting in September 2019.
Then, the weak diamond market at Renard and the sale of the Brucejack offtake were the main issues that pushed the company to revise down the 2019 guidance.
The combination of those factors triggered a "correction." Despite the gold price increase, now reaching a multi-year high, the stock was not able to regain strength and has languished since then in the $8s range.
If we assume a robust gold price long term, it is essential to view this correction as an opportunity to accumulate OR at a fair price. Production in 2020 is expected to increase by 9%, and revenues will improve significantly.
However, while I believe gold prices are bullish long term and may continue to be firmly in the $1,600-1,700 range, I am not sure that the stock will benefit from this situation. The recent trading is showing that the gold miners and streamers are more sensitive to the economy than the gold bullion. Thus, it is vital to keep that in mind when trading or investing in OR:
Technical Analysis (short term)
OR experienced a support breakout of its ascending channel pattern at the end of February and dropped to nearly $8.00, which is now line support. The new trend that I see is a descending channel pattern with line support at $8.00 and line resistance at $9.60.
My recommendation is to buy at or below $8.00 and take profit at or above $9.60.
Caution: gold streamers are not necessarily a pure proxy for gold. Even if the gold price is increasing steadily with the coronavirus effect, gold miners and streamers may eventually move more like equity and get sold off as other stocks. We have experienced this divergence recently, and it may happen again.
Author's note: If you find value in this article and would like to encourage such continued efforts, please click the "Like" button below as a vote of support. Thanks!
Join my "Gold and Oil Corner" today, and discuss ideas and strategies freely in my private chat room. Click here to subscribe now.
You will have access to 57+ stocks at your fingertips with my exclusive Fun Trading's stock tracker. Do not be alone and enjoy an honest exchange with a veteran trader with more than thirty years of experience.
"It's not only moving that creates new starting points. Sometimes all it takes is a subtle shift in perspective," Kristin Armstrong.
Fun Trading has been writing since 2014, and you will have total access to his 1,865 articles and counting.
This article was written by
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
I trade short term the stock occasionally
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.