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Osisko Gold Royalty Adds A Lot More Risk (And A Lot More Growth) To The Company's Future

|About: Osisko Gold Royalties Ltd (OR), BGMZF, Includes: FNV, RGLD, SAND, WPM
Summary

Right Now The Market Is Penalizing Any Gold Deal That's Not For Immediate Or Very Near Term Cash Flow.

Osisko Gold Royalty Did Not Add A Conventional Royalty or Stream To Its Growth Pipeline or Even an NPI Like Sandstorm Gold Has For Hod Maden.

Osisko Gold Royalty Is Now Even More Vulnerable To A Hostile Takeover Bid By A Larger Precious Metals Royalty & Streaming Company.

Osisko Gold Royalty Has A Lot of Growth In Its Pipeline But Also A Lot More Risk, Especially Execution Risk For Bringing A New Gold Mine Online On Time & On Budget.

People Will Question The Deviation From the Royalty & Streaming Business Model & The Valuation Will Be Capped In The Short Term Unless Metals Prices Rise or a Hostile Takeover Bid.

Osisko Gold Royalty (OR) decided to do a large deal (with a lot of equity dilution) for a lot of long term growth. Osisko Gold Royalty management believes that they bought a very high quality asset for a discount long term. In the short term, the market is punishing the company for diluting the shares, for not acquiring immediate cash flow and for taking on more future risks with potentially building a mine by themselves. So in the short term the stock may (not financial advice just my opinion) go down more because now people have to wait longer for more growth and some people will be angry with the additional share dilution. Osisko Gold Royalty already owned a high stake in Barkervile and Barkerville with their current market cap did not have the cash or resources to build their mine. So now OR has the resources (but will also be taking on a lot more risk if the mine doesn't come in on time and on budget) to get the mine built. Or they're hoping to sell the project to a senior miner when gold prices are higher in a few years and put a large stream and/or royalty on it later. It's a high risk/high reward strategy for more growth in their growth pipeline. With a cheaper stock price (especially if the stock price goes lower) this also makes Osisko Gold Royalty vulnerable to a hostile takeover attempt by say a larger precious metal royalty and streaming company like Franco Nevada (FNV).

Details of the deal are here: https://osiskogr.com/en/osisko-gold-royalties-to-acquire-barkerville-gold-mines/

Osisko Gold Royalty has also been extremely aggressive the last 3-4 years with adding new deals and has taken on higher cost and riskier deals including the Orion Mine Financial deal which I consider was an egregious overpay where management paid over a $1 billion valuation for a portfolio of royalties and streams that the Sandstorm Gold management team had valued for less than half the amount.

I also did a podcast last night that includes additional analysis on this deal for Osisko Gold Royalty as well as insights I heard from my contacts who attended the 2019 Denver Gold Forum last week. https://youtu.be/JqkI-I6NFgQ

Overall, Osisiko Gold Royalty still has a few extremely attractive cash flowing assets that a larger company looking for growth would want to add to their own growth pipeline. And with the higher cost for adding new large precious metals royalty and streaming deals (blind bidding process conducted by investment banks) it would probably be cheaper for Franco Nevada to offer $13- $15 per share and attempt a hostile takeover instead of overpaying for a mediocre stream or royalty.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.