Osisko Gold Royalties Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 10, 2023

There are 4 speakers on the call.

Operator

Morning, ladies and gentlemen, and welcome to the Osisko Gold Royalties Q2 2023 Results Conference Call. After the presentation, we will conduct a question and answer session. Please note that this call is being recorded today, August 10, 2023, at 10 am Eastern Time. Today on the call, we have Mr. Paul Martin, Interim Chief Executive Officer Mr.

Operator

Mr. Currell, Chief Financial Officer and Vice President, Finance and Mr. Ian Farmer, Vice President, Corporate Development. I would now like to turn the conference over to our host today, Mr. Paul Martin.

Speaker 1

Good morning, everybody, and thanks for being on the call. I'm Paul Martin, the Interim CEO of Osisko Gold Royalties. I'll run through the presentation, and then we'll open up the line for questions. And I have Fred and Ian in the room for anything that I can't answer. For the participants on the line, you can submit your questions in advance through the web page.

Speaker 1

The presentation is available on the website as well as through the web And as stated, I am the Interim CEO, having committed to assist the Board in leading the company during the transition period. I've also made the commitment to remain in the CEO chair until the Board has completed its process and announced a permanent successor. Please note there are forward looking statements in this presentation and that all amounts are in Canadian dollars unless otherwise noted. We're pleased with the performance in the 2nd quarter, both from a GEOs earn perspective and from a transactional basis. 24,645 GEOs earned in the 2nd quarter, a nearly 11% increase over the comparative quarter.

Speaker 1

The 47,756 GEOs for the first half, which is nearly a 15% increase over the comparative period, We're maintained in the quarter and for the year to date. The company had $70,000,000 in cash at the end of the quarter And declared and paid its quarterly dividend of $0.06 per share during the quarter after increasing it by 9% from $0.055 Increases in revenues and operating cash flows followed the increased performance in GEO's parent And represents a 35% increase quarter over quarter and on an annualized basis represents operating cash flows approximately $200,000,000 Net earnings of $0.10 per basic common share were essentially flat compared to the prior quarter due to non cash items. Adjusted earnings of $0.18 per basic common share showed an improvement over the prior quarter of $0.14 per share. 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 we're derived 90% from precious metals, 62% from gold and 28% from silver.

Speaker 1

I'll make some comments on some of the specific mine performances before speaking about our flagship operation. Several operations have been impacted from the numerous forest fires across Northern Canada and where we likely will see some downside impact in the Q3. At Victoria's Eagle Mine, it continues to outperform expectations in 2023, a key bright spot for Osisko. A strong start to the year in Q1 2023 with Victoria having confirmed the viability of year round stacking and heap leaching followed by record production in the Q2. However, as a result of the local forest fires and recent evacuation of the site, Victoria feels it prudent to guide to the lower end of the 2023 annual guidance of 160,000 to 180,000 ounces.

Speaker 1

The strong performance at Eagle has helped offset some of the modest disappointment at KapStone's Mantos Blancos operation Where milling rates continue to lag Phase 1 expansion design levels. We took a conservative approach with Mantos on our guidance and we'll Capstone noted with their recent quarterly results The design rates are expected to be achieved in the Q4. At the Eleonore mine, It was impacted in the Q2 where we had a temporary suspension for a couple of weeks due to the proximity of the forest fires And which we expect will impact the mine's Q3 production and obviously our share of GEO deliveries. Although Newmont has not changed the annual production guidance for the asset. Given Newmont's merger with Newcrest, We'll continue to actively watch where Eleonore fits into the combined entities hierarchy of mines.

Speaker 1

At Renard, it was also affected in the 2nd quarter due to forest fires and with a loss of approximately a week's worth of production. We'd like to commend all of our operators, including Stornoway for their actions during this to ensure the safety of the workforce and in the successful restarting of operations. Further at Renard, we expect Q3 sales To be impacted from this interruption as well as from a continued softness in the diamond price, which has carried over from the first half of the year. Now over to our flagship asset, the Malartic Complex, which had once again a solid and predictable quarter and remains the company's most significant contributor to GEOs earned. This asset since inception has contributed over $500,000,000 in cash flow to the company.

Speaker 1

And as many on this call know, Agnico Evo recently provided an update study covering the underground extension of the operation through to 2,040 2 at a steady state of 500,000 to 600,000 ounces per year. The vast majority of this extension falls on our 5 The study incorporated only 57% of the existing resources And the extension significantly increases Malartic's value as a shared asset to Osisko. The company has maintained its guidance for 2023 and will provide further update in its Q3 release. And as you will have seen from the press release, the company has declared its 3rd quarter dividend at $0.06 per common share. On the transaction front, I'll speak to the 2 newest transactions and then come back to CSA.

Speaker 1

At Gibraltar, with the acquisition by Taseko of Sojiet's 12.5% interest, We were able to amend the existing Silverstream and increase it by 12.5% to 87.5% for just over $10,000,000 on an asset which is well known to us. Further to this, the Step down delivery threshold was extended resulting in an additional 1,500,000 ounces of silver to Osisko towards the tail end of the mine. And just after the quarter end, we also closed the Hot Chili 1% copper and 3% gold NSR royalties on the very exciting Costa Fuego deposit in Chile. This asset ranks highly amongst The best undeveloped copper projects in the world and when combining the royalty funding with the release of a positive PEA Generated a significant positive move in Hot Chili's share price. Let's go to the more significant CSA transaction.

Speaker 1

On June 16, through the company's Bermudian subsidiary, the company announced the closing of the CSA silver and copper stream Following Metals Acquisition Limited's acquisition of the Australian based CSA Mine from Glencore. For full details of the acquisition, please see our press release dated June 16 on the website. It includes a silver stream representing 100 percent of the payable metal and a copper royalty, which ranges between 3% and 4.875 percent until 33,000 metric tons are produced And then 2.25 percent thereafter. The copper stream will become effective in mid-twenty 24 on the Anniversary of the June 15, 2023 transaction closing. Combined, these two royalties were purchased for US150 $1,000,000 and Sysco further invested US40 $1,000,000 in equity into the company.

Speaker 1

The purchase price was paid with US60 $1,000,000 in cash and drew US130 $1,000,000 from our revolving credit facility. The company maintains a ROFR for up to 7 years on any project the company advances, Provided Assisco Bermuda holds 5% of the issued and outstanding common shares of the company. We're following The new operators impact on this operation and believe we will not be disappointed with the team led by Mick McMullen in their efforts on improving the operations overall performance beyond that achieved by the prior owners, Glencore. On the balance sheet, I will reconfirm that these are all reported in Canadian dollars. And after factoring in the CSA transaction, we have net debt of $250,000,000 placing us in a strong position relative to our peers And well and which is well below $200,000,000 in U.

Speaker 1

S. Dollar terms. The revolver has $230,000,000 in available capacity before considering the uncommitted revolver accordion and the covenant performance is exceptionally strong. On our investments held on the balance sheet, we will continue to balance the need for incremental funding against our perception of what Fair value is for these various positions. As previously noted, Assisco now has 23 performing assets And a significant portion as noted by the Hatch line are either in expansion, extension or ramp up, helping to underpin our near term growth profile.

Speaker 1

Osisko continues to distinguish itself from its peers due to the depth of its exploration and development assets, which exceeds 180 properties and which is heavily weighted to being located in Please be advised that we're planning to organize an Investor Day, likely in October, We'll have our corporate development and technical teams present to dig more in-depth on the exploration and development portfolio. And if we can arrange it here from some of our key counterparties. But let's talk about one of those now. Patriot Battery Metals released its maiden inferred resource at CEV-five, Totaling 140,000,000 tons, grading 1.42 percent lithium oxide, immediately making it the largest lithium resource in the Americas. Concurrently, they announced a strategic investment into the company for CAD109 1,000,000 For major industry player and hard rock lithium connoisseur, Alba Marley.

Speaker 1

Recall that Asysco holds a 2% NSR on lithium, covering approximately 90% of the CV5 resource as well as 1.5% to 3.5 percent royalty on precious metals. Worth highlighting is the Patriot Analyst consensus values Corvette or the CV5 resource anywhere from between US1.5 billion dollars to US2.5 billion dollars depending on the future lithium price assumptions. This will be an exciting asset to watch as a future supplier of this key material in support of the world's push towards electrification. In closing, Osisko remains extremely well positioned to continue its growth path and targeting a 35% increase in GEOs earned as shown in its 5 year outlook to 2027. Further to this, positive catalysts continue to unfold across the asset base As indicated in our optionality arrow to the right, that will further add to OR's growth towards the end of this decade and beyond.

Speaker 1

A couple of examples include Cantera's recent $30,000,000 investment into Highland Copper's White Pine North project. With the new JV now looking to advance the project through the feasibility and with the funds received allowing Highland to also push forward at Copperwood And the upcoming final feasibility study in FID from SOUTH32 at Hermosa Expected in the second half of this year. And on that asset, while much of the focus has been on the company's recent write down Due to a higher than previously expected CapEx number, Osisko's business model insulates itself from this issue, And we have no doubt that our partner will continue to push forward with this material project. Finally, and when factoring all this in, While also considering Osisko's current relative valuation, as touched upon in the final slide in this deck, which is in the appendix, It is my opinion that Assisco remains the go to royalty company in the mid tier royalty space. Operator, we'll now open up the line for questions as well as questions posted on the webcast.

Speaker 1

And please note, if we don't get to all of them before the end of this We will respond shortly afterwards.

Operator

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer Your first question comes from Ralph Profiti with 8 Capital. Please go ahead.

Speaker 2

Thanks, operator. Good morning, Paul. I wanted to ask a question starting off With CSA and sort of the methodology on how you were thinking about attaching a valuation to the stream and the equity position as well, sort of Total investment context. And this in your eyes, is this really just sort of an optimization story on the part of the new operator? Or are you thinking there's optionality for step changes in throughput production or exploration?

Speaker 1

Thanks, Ralph, and good to hear from you. I think what we see is that, that was probably an underappreciated asset In the Glencore portfolio and knowing what Mick has done in the past, we see Significant improvement to come through on it. And with the addition of our Backstop Copper Royalty, This is one we're very excited about.

Speaker 2

Got you. Thanks for that context. And just A second question on liquidity currently sitting in terms of availability of $500,000,000 if you include the accordion. Can you put that in the context of sort of The market portfolio of transaction opportunities out there in the pipeline that is potentially sort of sizes of $50,000,000 to $100,000,000 or some transactions a little bit higher than that. I'm just trying to get a sense of liquidity versus opportunities.

Speaker 1

Yes, that's a fair question. I think even without the accordion, we're sitting in we have a strong liquidity with respect So what we're seeing in the marketplace right now is how I would answer that.

Speaker 2

Okay, helpful. Thanks, Paul. Thank you.

Operator

Thank you. Your next question comes from John Tumazos with John Tumazos Very Independent Research. Please go ahead.

Speaker 3

Good morning. Thank you for taking my questions. I have a detailed question first. I apologize if I didn't read everything. I got the Note 510.

Speaker 3

What was the $19,900,000 credit loss, Which loan to which company? And could you just say what the $6,700,000 impairment was related to?

Speaker 1

Yes, sure, John. Those are both very fair questions. So the first one, there was We have 3 items, I would say, in the accounts for the quarter. One being a gain on the Cisco Mining joint venture transaction. So we did reflect a gain of almost $20,000,000 in respect of that.

Speaker 1

That's Non cash item obviously. We did have a reduction in our accounts receivable or loan receivable from Renard. This was a balance that was created from the past restructuring at the operation where we deferred our GEOs And that those amounts were set up as a debt payable. Given the decrease in the diamond prices, we felt it Prudent to trim that number, which is essentially what we have done in the quarter. Obviously, if diamond prices return, that full value returns to us.

Speaker 1

And then the asset impairment was a very small project where the operator has come up dry and has essentially walked from the project. So we've written that down to 0.

Speaker 3

What was the name of the project?

Speaker 1

It was called Hidden Valley. In PNG? Yes.

Speaker 3

Thank you. Second question, 15%, 20% of the asset base are the stock Those don't generate the current return that the royalty streaming assets do and I would imagine over time You'd rather apply that capital to generate the income. Is it a reasonable expectation that circa 2026 When the projects of ODC and Osisko Mining are in production, that Would be a target time to monetize the stock holdings?

Speaker 1

I think I did answer that in my presentation saying that we continue to monitor Those investments all the time and visavis what our capital needs are. And yes, we will look To make a decision at the appropriate time as to whether we would decrease those positions or not. As you well know, Sysco Development is an example. It is a company that requires additional funding to realize The value of those underlying assets. And I think at the moment, we are comfortable to sit and be diluted in our position whilst The funding is used to increase the value of those assets.

Speaker 3

Thank you.

Operator

Thank you.

Speaker 1

Operator, it looks like we might be done.

Operator

Over to you, Mr. Martin, for closing remarks.

Speaker 1

Okay. Thanks, everyone, for taking the time. And as you know, we're available for follow-up questions As and when required. Have a great day. Bye bye.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your

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Key Takeaways

  • Record Q2 performance: Osisko earned 24,645 GEOs in Q2—up nearly 11% QoQ—and 47,756 GEOs YTD—a 15% increase YoY—boosting revenues, operating cash flow (annualized ~$200 million) and supporting a 9% dividend hike to $0.06/share.
  • Forest-fire headwinds: Northern Canada wildfires caused temporary suspensions and lowered guidance at Victoria’s Eagle Mine (now guided to the low end of 160–180 koz) and imposed modest impacts at Eleonore and Renard, while other assets maintained full-year outlooks.
  • Malartic extension drive: The flagship Malartic Complex delivered a solid quarter, having generated over $500 million since inception, and Agnico Eagle’s updated study extends underground production to 2042 at 500–600 koz/year, reinforcing 2023 guidance.
  • Strategic stream and royalty deals: Osisko boosted its Gibraltar silver stream to 87.5% for ~$10 million, closed the Costa Fuego NSR, and acquired a US$150 million CSA silver-copper stream plus a US$40 million equity stake—funded via $60 million cash and a $130 million revolver draw.
  • Balance sheet strength and growth pipeline: With CAD $70 million cash, net debt CAD $250 million, CAD $230 million revolver availability, a 180-property exploration/development portfolio and an October Investor Day planned, Osisko targets 35% GEO growth to 2027.
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Earnings Conference Call
Osisko Gold Royalties Q2 2023
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