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Osisko Gold Royalties: A Dirt-Cheap Valuation For This High-Margin Business

Taylor Dart profile picture
Taylor Dart


  • Osisko Gold Royalties is down more than 40% from its all-time highs.
  • This is even though it has a high-margin, inflation-resistant business with one of the best organic growth profiles sector-wide.
  • At a current share price of US$9.25, Osisko GR trades at less than 0.80x P/NAV, a valuation reserved for gold producers with ~20% operating margins, not a royalty/streaming company.
  • So, with the deep discount to fair value, I have continued to accumulate the stock on weakness, and I see it as a Strong Buy at current levels.

Gold Bar

Falcor/E+ via Getty Images

Earlier this year, I wrote on Osisko Gold Royalties (NYSE:OR), noting that the stock offered a rare mix of growth and value. I ended up timing this call very poorly, with the stock sinking 30% since my April update. However, outside of a

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Taylor Dart profile picture
"A bull market is when you check your stocks every day to see how much they went up. A bear market is when you don't bother to look anymore."- John Hammerslough You can access more in-depth research, my current portfolios, my top-12 miner rankings, GDX buy/sell signals, new positions I am entering/exiting, plus proprietary sentiment indicators updated weekly for gold miners in my newsletter below. Returns Link: https://imgur.com/a/sreY6SzSubscription LinksMonthly: https://buy.stripe.com/7sI14d4b92vFdUc15cAnnual: https://buy.stripe.com/4gw28h0YXeen7vObJP - Disclosure: I am not a financial advisor. All articles are my opinion - they are not suggestions to buy or sell any securities. Perform your own due diligence and consult a financial professional before trading or investing.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of OR, AEM either through stock ownership, options, or other derivatives. 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.

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing. Given the volatility in the precious metals sector, position sizing is critical, so when buying small-cap precious metals stocks, position sizes should be limited to 5% or less of one's portfolio.

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.

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Comments (54)

JF1970 profile picture
Another terrible day for gold and miners, but OR is showing some relative strength...
Suggestions as to which macro-cap PM and royalty companies that are becoming a good (long term) pickup at these prices
This is the (extended) season for pontificators... no one (including the Fed, Quant programmers; talking heads, etc) have much of an idea as to timing or severity (if any) of the "r" word / or "d" word... so rather than wasting time forecasting I invite all to take a look at Incrementum's "iphone - gold" ratio and "beer - gold" ratio... the team put things in a proper perspective... cheers
Earl Adamy profile picture
I always appreciate your thorough articles on the gold miners, particularly KL > AEM in which I've held a large position for several years. Needing to do some tax loss harvesting to offset gains in energy; I've exchanged some AEM LEAP options for OR common.
Taylor Dart profile picture
Thanks Earl, nice job diversifying a little.
7422981 profile picture
Algorithms sold Gold futures all night long, spot futures traded low $1690s. A rebound is coming, but Gold miners will obviously be under pressure until Gold recovers, which should be within 24 hours.

Later next week, owning the miners should be good into year-end, although I don't see huge upside as long as the DXY trades above $105.
@7422981 If I had a nickel for every time I read/heard that the bottom is in for gold, I wouldn't have to invest in gold anymore because I would be wealthier than Buffet.

We are at a critical juncture for gold. If it breaks ~ 1670 over the next week, hello 1600. The algos will sell hard if the 1670 level breaks, especially on high volume.

Relatedly, we still haven't seen a puke fest in gold but it's coming so save some dry powder for that possibility. When that happens, miners could easily see a 30% haircut from here.
7422981 profile picture
@bsmith248 I don't see the bottom falling out in Gold, although $1630-$1650 could easily be hit with what is going on. The miners are stocks, which can sell down more severely if institutional holders/ETFs/Hedge Funds get hit with redemptions or margin/quant de-risking signals. That is why I don't presently own any miners. Speculators are already the most short they have been in several years, so Gold could easily get back over $1725 in the coming days.

None of the major miners I monitor look to have 30% downside from yesterday's price having already been huge losers YTD. I wouldn't be surprised to see the miners trade back to the summer lows.
7422981 profile picture
@bsmith248 Machines are running out of time to break Gold, if the FED doesn't come through with an outsized action, they may have to cover. Every overnight session they take it down and have to cover as New York opens, sellers just aren't coming to their party.
7422981 profile picture
Just sold all my Gold miners. Will look to buy lower but things should settle back soon from today's jump.
JF1970 profile picture
@7422981 Interesting. Keep us informed please.
7422981 profile picture
@JF1970 At this point I am starting to buy the metal(below $1705). Still looking for slightly lower in the miners, but the metal looks attractive to scale into below $1705. I do expect them to pressure the futures overnight, so it could break $1700 in the coming 24 hours.
JF1970 profile picture
@7422981 you seem to have it right so far.
alessandro molinari profile picture
On Malartic he has too high a royalty (5%). In the past I had read that the operators wanted to re-discuss it. I believe it is the Sword of Damocles hanging over Osisko's head that lowers his P / NAV rating.
Taylor Dart profile picture
Your premise makes zero sense when Franco Nevada commands the highest P/NAV multiple sector-wide with several high royalties in its portfolio. If the 5% NSR on Malartic was the Sword of Damocles and the impediment to a higher P/NAV multiple, how do you explain FNV commanding the highest multiple of 2.0x+ with several of them that are as follows:

1. An up to 4.0% NSR + an additional 2.4% - 6.0% NPI on Goldstrike
2. A 3.0% NSR and an additional 50% NPI on Hemlo
3. A 5.0% NSR on Stillwater
4. A 7.3% NSR on Gold Quarry

A high royalty can be an issue if we’re talking about a small mine without economies of scale or a less profitable mine, given that it can make it difficult for the operator. Odyssey has cash costs of sub $650/oz; it’s doing just fine when with a 5% NSR, and when looking across the mine plan, it's an effective 4.4% NSR since it's spread across different deposits, making it lower than the royalties owned by FNV.
alessandro molinari profile picture
@Taylor Dart Explain it to the operating companies that had mentioned it. However, none of the high FNV royalties mentioned are among the top 5 mines: they are secondary mines. Furthermore, FNV has a CAGR of 18% since listing in 2007, while Osisko's CAGR is negative ...
Taylor Dart profile picture
An operator wanting to negotiate a royalty rate lower - what a surprise. What operator in any industry wouldn’t want to negotiate?

Gold Quarry, Stillwater, and Gold Quarry made up over 10% of H1 2021 precious metals revenue combined - they are hardly insignificant assets, and Goldstrike was much larger previously which should have hurt FNV’s multiple per your logic. I don’t know what a stock’s return has to do with your point, if anything it just completely contradicts your assertion - if high royalty rates assets are bad - FNV shouldn’t be a winner.
Thanks as always Taylor for your fine analysis. My questions are, if this is such a value at these prices why are insiders selling rather than buying? Relatedly, why do insiders own ~ .5% of the shares if they truly believe in the prospects of this company?
Taylor Dart profile picture
Hi Bsmith,

Happy it was of value.

I’m not sure I’d flag a single sale by a single director over the past 6 months as noteworthy or worrisome, and I tend to watch what actual management are doing, not directors. As for the CEO, his most recent transaction was purchasing $900,000 in shares in a single week, which isn’t small potatoes by any means, and he has not sold any shares.

As for low insider ownership, the sector is notorious for it so hardly unusual. KL also had very low insider ownership in a 5-year period it gained over 1500%, I don’t equate insider ownership with being a disqualifying factor at all, and I wouldn’t get worried over a single insider sale in a 6-month span either.
@Taylor Dart I see 10 insider sales over the past year and zero insider buys. Doesn't that temper your willingness to commit?
Taylor Dart profile picture
There were three sales at 36% higher prices in November of last year (not even worth discussing); I was selling too at C$17.00; I'm not sure how that has any relevance to the stock at the current price. There were an additional five sales in early December by the same insider at 20% higher prices, but that insider is more focused on his other company Osisko Development. Plus, it was exercising options and selling, which is quite common, and there was no change in the balance of his position, which is ~600,000 shares. And there were two sales in the past nine months from directors.

Insider selling would worry me if it was heavy selling at the current price from multiple people that's current (i.e., not 9-10 months old), or a significant change by the CEO, i.e., buying ~$900,000 worth of shares in 2020, and then dumping 1/2 to 2/3 of that position. As discussed above, Singh bought ~$900,000 worth of stock and hasn't sold a single share, and there hasn't been selling by management at these prices, the sales by management were at C$17.00, so I don't know how that reflects their view of the stock at C$12.50.

Looking through this sector, I can find many examples of alarming insider sales, such as not simply exercising options to sell (but maintaining the same share balance) and very recent sales with insiders selling down the full balance of their position. I don't see anything here even worth commenting on, and the only meaningful sales by management are at much higher prices, so no, it doesn't temper my willingness to commit money here.

I'm more interested in committing due to buybacks because OR is paying out a ~4% dividend/buyback yield, which is unheard of for the royalty/streaming space, and doing it in a disciplined manner at extremely cheap valuations (below US$10.20 per share) to get the most bang per buck vs. paying for growth at high prices like some companies. If stock is undervalued, the best way to commit capital is to buy back your own shares at 0.80x P/NAV, not buy new royalties at 1.40x NAV or higher.

From 2022-2022, it was a seller's market for royalties/streams, and OR has been careful not to transact in any meaningful way until recently; one could argue they've been the most disciplined in the sector, which inspires confidence.
I bought in April and am licking my wounds. i am just going to let this stock position mature without any additions. There are plenty of other choices out there.
Currently within the PM sector OR is a reasonable buy... comparative to some sector investments however OR is somewhat dead money... not a negative comment but rather a statement of current reality... if one believes the talking heads about PM returns then a good time to accumulate - it comes down to time horizons and portfolio allocation within
Taylor Dart profile picture
How do you figure a 92% margin business trading at a 10% FY2024 cash flow yield that trades at half the peer group’s historical multiple is dead money?
Thanks for this note. Why do you think the stock performed poorly? Gold price has not behaved as expected in an inflationary context. Did you look at the ESG profile onf the stock?
Thanks Taylor. Another fantastic write-up. Agree it has great upside at it’s current levels. I have been accumulating a balanced position as it has averaged down.
Taylor Dart profile picture
Hi Numberfool,

Thank you & thanks for reading.

I just hope the de-consolidation can finally happen by year-end since I think this is the one thing weighing on the stock that might be deterring some funds from getting involved, given that the financials are so much noisier than peers and make it looks like it's losing money, even though this couldn't be further from the case with 90%+ margins.
> "I'm surprised that Osisko GR doesn't have a target on its back from larger royalty companies looking to scoop up its portfolio in a takeover scenario."

Any idea as to why this is? Surely the big royalty companies also have very astute analysts? Either the target is succesfully being kept secret or they see even deeper discounts ahead.
Taylor Dart profile picture
Hi Phusg,

I have no clue. I would have thought that locking up Malartic + the rest of this portfolio for less than 1.0x P/NAV on future production would have made a lot more sense for RGLD than its Great Bear acquisition and its Cortez royalty. Both of those deals reinforce just how cheap Osisko GR is, and we have seen royalty companies acquire others in the past, even if it is rare. Even with a 35% premium offered here, so $12.50 per share, you're practically stealing this royalty/streaming portfolio.
Sorgenfrei profile picture
@Taylor Dart
Compelling case for Osisko Gold Royalties $OR, thank you!

If you don`t have the stock when it`s falling, you don`t have it when it`s rising. I did just as you did and added $OR lately.

Taylor`s analysis is the best you can get for free on SeekingAlpha. Maybe the big royalty companies should review their staff and rather offer Taylor an exclusive contract. I shouldn`t say it too loud or we`ll lose him.
Best regards
gohabsgo70 profile picture
great article, I own it, but technicals and market conditions can take this lower. I have ammo to buy more but will wait. Cheap can get cheaper as in market crashes all assets get hit.
Taylor Dart profile picture
Hi Gohabsgo,

Thanks & thanks for reading!
JF1970 profile picture
I wonder, however, if one holds AEM as his large miner of choice, and OR for royalty exposure, whether that ends up asking too much out of Canadian Malartic...
Taylor Dart profile picture
Hi JF1970,

AEM has 50% of Canadian Malartic, so while it benefits considerably, I think AEM is more of a Detour, Macassa, Hope Bay, and Upper Beaver story for medium-term growth, but it will see a clear benefit from Canadian Malartic if the partnership agrees on a second shaft.
At a 2% current yield, what's the attraction?
JF1970 profile picture
@fortel growth, to use a word that tech investors seem to value?
7422981 profile picture
Volume today was 160% of average volume, highest volume since the July low. This could mean the selling is about to abate, given pretty oversold conditions exist. The most oversold/overbought readings come when institutions are selling/buying on materially higher volume. So, some recovery could be imminent. A lower open and positive close could single some better performance ahead.

For the Gold trade, the DXY is the main focus, they are very correlated at this stage. DXY is very stretched to the upside after today, having gained almost 1 percent, and far deviated from its long term mean. If you own Gold equities, this is not a good time to sell, if you can stand the heat a bit longer.
BeaBaggage profile picture
@7422981 we tend to look at the price of gold in US$ because that is how it is sold and shown in company financials.. to illustrate the collapse of a currency and potential for rise in US$, look at gold in yen..near all time highs, a double in yen since 2018.
the 'safe haven' yen has a weak underbelly called energy compounded by a reliance on CN.. down 40%. goldbroker.com/...
To me, the US$ is the world currency, no doubt, so that makes its dynamics and movements different..the world's second currency is gold if you take a world view, gobbled up by Asians, Middle Easterners and even savvy EU and JP consumers as well as many governments.

gold bounced yet again when it crossed US$1700 yesterday.. remains to be seen if this holds..in the meantime you can accumulate quality names and value like $OR as Taylor shows which is what I am doing.. agree standing the heat (patience) is needed. When it moves it will move fast and for many will be too late to enter at low prices. Bea
7422981 profile picture
@BeaBaggage I think the Dollar is set for a fall. The Yen isn't a safe haven anymore since their monetary policy is still too easy and their debt staggering in size. The Swiss Franc is losing value because the EU Central Bank is about to jack up rates by a lot due to the inflation within the EU. That leaves the Dollar as the current safe haven, but the EU rates may soon become very attractive and flows will gravitate there weakening the Dollar.
Thanks, as always
Taylor Dart profile picture
Hi Gret,

Thanks for reading!
I hate selling at a loss but I'm seriously considering selling my Osisko Mining to double down on Osisko Royalties. I'll still get some exposure to Windfall but the valuation on OR is just crazy at this point and much lower risk long term.
JF1970 profile picture
@G&DValue That approach could make sense, and you get the tax loss for 2022.
JF1970 profile picture
I read most of what you write; I really appreciate your work.

Some investors may still associate OR with the original Renard investment (a fiasco; we will see with the relaunch: so far, so good), and it may be reflected in the share price (when compared to peers).

That said, I am long OR, and cannot believe how cheap the stock is.
Taylor Dart profile picture
Hi JF,

Flattered to hear you've found some of it of value; thanks! I think there's a lot of negative perception about this story, but I think if one takes a close look at the portfolio and the likely de-consolidation of ODV, it will look completely different in 3-4 years, which should translate to a 1.6x P/NAV multiple (pure play royalty model, best jurisdictions, lower weighting to Canadian Malartic, and arguably best precious metals royalty in its portfolio sector-wide) or US$20.00+ per share.

I could be wrong, but I don't see any other gold royalty generating this kind of revenue among the other names that still boasts a 20~ year mine life, but would have to take a closer look; a premium should be given for an asset of this size in the hands of the most aggressive driller sector-wide (AEM).
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