Osisko Gold Royalties Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2024

There are 8 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the Asisco Gold Royalties Q2 2024 Results Conference Call. After the presentation, we will conduct a question and answer Please note that this call is being recorded today, August 7, 2024 at 10 am Eastern Time. Today on the call, we have Mr. Jason Etou, President and Chief Executive Officer and Mr. Frederic Luel, Chief Financial Officer and Vice President, Finance.

Operator

I would now like to turn the meeting over to our host for today's call, Mr. Jason Mr. Jason Atou.

Speaker 1

Thank you, Toel. Good morning, everybody, and thanks for being on today's call on this beautiful summer's day. I'm Jason Attu, President and CEO of Sysco Gold Royalty. Procedurally, I'll run through the presentation and then we'll subsequently open up the line for questions. For those participating online via the webcast, you can submit your questions in advance through the webcast platform.

Speaker 1

Today's presentation will also be available and downloadable online through our corporate website. Please note that there are forward looking statements in this presentation for which actual results may differ. Also, please note the basis of presentation will be in Canadian dollars, unless otherwise noted. I'm joined on the call this morning by Fred Ruel, the company's VP Finance and Chief Financial Officer, amongst the others as indicated on Slide 3. When looking at Osisko's 2nd quarter and 1st 6 months of 2024, we've had a solid first half as it relates to gold equivalent ounces earned, cash margin, cash flows, as well as overall debt reduction.

Speaker 1

Osisko earned 20,068 gold equivalent ounces in the Q2 of 2024, which had put us in a good position on June 30 to achieve our previously published full year guidance of 82,000 to 92,000 GEOs. Revenues for the period were strong in Q2 at 64,800,000 dollars buttressed mainly by improving precious metal prices throughout the period. In addition, the Sysco's cash margins remained high at 97% during the quarter. Cisco ended the Q1 with $65,700,000 in cash and net debt has now been reduced to just over $40,000,000 after the company continued to pay down its revolving credit facility during the period. So far in Q3, the company has repaid an additional $13,800,000 on the facility, further increasing our financial flexibility in order to be able to transact a new accretive opportunities as they present themselves.

Speaker 1

With respect to our ongoing commitment to return capital shareholders, the company declared and paid its quarterly dividend of $0.65 per share in Q2, marking its 39th consecutive dividend with over $290,000,000 return to shareholders to date from these distributions. Subsequent to the quarter, Sysco's Board of Directors approved Q3 dividend of $0.065 per common share payable on October 15, 2024 to shareholders of record as of the close of business on September 20. With respect to our opportunity set, the company's pipeline continues to remain robust. With our corporate development team busier than they have ever been, we remain optimistic that we will get at least one meaningful deal across the line this year over and above our recently announced Qasquival Gold stream. Moving on to the company's financial performance for Q2, quarterly revenues effectively tracked higher year over year due to strong commodity prices when comparing to Q2 of 2023, which is also partially offset by fewer GEOs versus the same period last year.

Speaker 1

The net loss of $0.11 per basic common share for the period was due entirely to our decision to take a full non cash impairment charge of $67,800,000 or $49,900,000 net of income taxes on the Eagle NSR royalty based on our own internal assessment of the current facts and circumstances. And of course, as more information continues to surface, especially as it relates to timelines associated with the potential restart of the operation and resumption of precious metal deliveries to Osisko under its royalty agreement, a reassessment of the recoverable amount of the Eagle royalty will be performed at that time, which may lead to a reversal of part or all of the impairment loss that has been recognized. Most importantly, Q2 2024 saw a year over year improvement in both cash flow per share at $0.28 versus $0.26 last year as well as quarterly adjusted earnings of $0.18 per basic common share versus $0.15 in the comparative quarter of 2023. During the Q2 of 2024, company had 20 producing assets including the Eagle Mine, which was producing up until the suspension of operations on June 24, 2024. Our GEOs earned come predominantly from Canada and we derived over 98% of our GEOs from precious metals.

Speaker 1

Gold at just under 71% and silver at 28%, with the remainder coming from other metals. Some comments on some specific mine performances during the quarter before speaking about a couple of our more material assets in greater detail. Canadian Malartic had yet another extremely impressive first half of twenty twenty four with Ignico booking strong quarterly production from the mine in the Q2. The asset remains Osisko's most significant contributor to GEO's earned by a solid margin. Performance for Victoria Gold's Eagle Mine during the Q2 of 2024 got significantly short of our budgeted expectations to the tune of about 33%.

Speaker 1

In other words, even prior to the heap leach facility failure on June 24, Eagle was already underperforming through the first half of the year. It is our understanding that Victoria Go will be reporting its Q2, 2024 on August 8. So in the absence of additional information, it is our assumption that the mine will not provide us any geo deliveries in 2024. At Capstone's Mantos Blancos operation, Q2 production was lower year over year due to lower grades and recoveries. Plant upgrades to reach 20,000 tonne per day on a sustainable basis are progressing despite an approximate 2 month delay relative to Capstone's prior plan due to longer equipment lead times.

Speaker 1

Cisco expects to see the benefit of the increased throughput in its silver deliveries starting in the beginning of 2025. As I mentioned earlier, the number of currently producing assets in our portfolio stands at 20. Changes to the list include the removal of Eagle partially offset by the addition of G Mining Ventures' Tocatanzino mine in Brazil, which announced its first gold pour in early July, as well as Ignico Eagle's Akasabo West satellite operation at its Goldex mine. On the latter, Atascosco received its 1st payment from Ignico in July, whereas on Tokadanzino, 1st payment from G Mining is expected in November based on a 2 month lag associated with the royalty payments as structured in the contract. This current list of 20 assets also counts CSA as only 1 single operating asset.

Speaker 1

However, as you all know, we have 2 instruments associated with the mine, 100% silver stream in addition to our now economically effective copper stream with the copper stream having provided its first deliveries to Osisko in early July of this year. Moving on to Slide 8, our company continues to distinguish itself from the rest of its relevant peers as it relates to jurisdictional exposure. Cisco is the leader when it comes to both NAV and GEOs earned from what Cisco defines as Tier 1 minuteing jurisdictions, which include Canada, United States and Australia. Of note is that if we were to add Chile to that list of countries, we'd be at over 95%. This brings me to slide 9, which provides highlights on the recently announced Casavel Goldstream transaction with SolGold in partnership with Franco Nevada.

Speaker 1

As noted in our July 15 press release, Osisko believes that Casquebel is a world class copper gold project that has the potential to become a multi generational mine. This new stream investment which complements Osisko's existing royalty on Cascobel further enhances Assisko's peer leading growth profile at a very attractive rate of return. In terms of when we expect to receive GEOs from this investment, SolGold has guided to production in the 2030s, which falls outside our 5 year outlook. However, once in production, the Castwell Stream is expected to contribute approximately 23,000 gold equivalent ounces per year for the 1st 10 years of the initial 28 year mine life of mine. It should be additionally pointed out that this mine life is based on only 18% of the measured and indicated mineral resource of the Alpala deposit.

Speaker 1

We are very encouraged to see that SolGold recently signed an exploitation contract with the government of Ecuador. This served as another indicator that the current administration is pro mining and Casquebale remains a top priority project within the country. As noted previously, on a GEO's earned basis, it was yet another stellar first half of the year for our most important asset. As impressive progress continues to be made on the Odyssey underground project. While I won't spend too much time in the following two slides, I wanted to flag some language on Slide 11.

Speaker 1

As evidenced by its 2nd quarter report and subsequent conference call, Ignico Eagle continues to talk more and more comfortably about the potential for a future shaft number 2 for the Odyssey underground mine. Factoring in some basic assumptions and based on publicly released information from Ignico, Osisko estimates that a potential second shaft could add approximately 15,000 gold equivalent ounces to Osisko Gold Royalties annually over and above what is expected from the most recently published mine plan, all from the early 2030s onwards and at no additional cost to Osisko or its shareholders. With 40,000 tonnes of Latin mill capacity still expected at the Canadian Malartic Complex from 2028 onwards, Ignico has now officially made reference to a fill the mill strategy with additional information on this likely to follow in the coming years. Next slide please, Slide 12. And as of the Malartic story for Osisko wasn't exciting enough, just last week, Ignico Eagle provided a comprehensive update on its Upper Beaver project in Ontario.

Speaker 1

Our operating partner announced a positive internal valuation for a standalone mine and mill scenario at the project. Nico Eagle believes that Upper Beaver has the potential to produce an annual average of approximately 210,000 gold ounces and 3,600 tons of copper with initial production possible as early as 2,030. What does this mean for Osisko? Again, based on the information provided, we estimate that Upper Beaver could result in an average of approximately 4,500 gold equivalent ounces earned based on our 2% NSR royalty on the project. We were also delighted to hear that Ignico has now committed over US200 $1,000,000 over the next 3 years to further derisk the project and collect the necessary bulk samples prior to final project approval.

Speaker 1

Now on Slide 13 and touching briefly on CSA. 1st delivery under the CSA copper stream to Osisko was made in the 1st week of July for a total of 74 tonnes of copper or approximately 300 geos. Further to this, just last week, Metals Acquisition Limited announced some very impressive drill results, which served to underpin Osisko's original thesis that significant exploration potential exists across their land package. Moving on to Slide 14. As you all know and as I stated earlier, on June 24, Victoria Gold announced that the heap leach facility at its Eagle Gold Mine in the Yukon Territory experienced a failure.

Speaker 1

Production remains suspended and as stated previously, absent new information, Cisco's assumption is the mine will not resume production in 2024. Cisco has now taken the appropriately conservative step to recognize a full non cash impairment loss of $67,800,000 or $49,900,000 net of income taxes based on our management team's assessment of the current facts and circumstances. If there is any key takeaway from this slide, it's that a Cisco has various protections with respect to its royalty, including security over the property, registered interest in land recorded within the Yukon Territory and an inter creditor agreement with the senior lending syndicate. At this time, these various layers of protection provide Osisko with confidence that our rights will continue upon a restart of the Eagle Mine. As a secured creditor, we'll continue to monitor the situation closely and provide further updates to the market as warranted.

Speaker 1

Prior to the heap leach facility failure at Victoria Gold's Eagle Mine, Sysco was tracking well with regard to its previously published 2024 deal delivery guidance range of 82,000 to 92,000 gold equivalent ounces. However, under our assumption that production at Eagle will remain suspended through to the end of 2024. Company has decided to adjust its 2024 geo delivery guidance 77,000 to 83,000 gold equivalent ounces. I've already provided additional context on this call as it relates to Eagle's underperformance versus our budget expectations for the first half of the year. And this should also help further explain why we made this adjustment.

Speaker 1

Additionally, with surge capacity equipment at Capstone's Mentos Blancos having been installed 2 months later than originally scheduled, we took a further step in making some cautionary adjustments to our budget as it relates to the second half deliveries we are expecting from KapStone Copper. Our investee companies continue to make great strides in de risking their assets that will accrue to our shareholders. Highlights of some of these efforts are provided on Slide 1617. We've already discussed many of these already on previous slides of this presentation, so no need for me to add anything here today. That said, I would still suggest you take the time to go through the impressive list yourself.

Speaker 1

And if you have any questions or would like to further discuss any of the remaining line items highlighted on these two pages, I encourage you to reach out to my colleagues here at Sysco for more information. Moving to Slide 18, which outlines the current state of Osisko's balance sheet. At quarter end, we had total debt of just under 110,000,000 dollars net debt of only $43,000,000 which compares to net debt of just under $250,000,000 in the comparative quarter of 2023. Our focus on being responsible capital allocators is using our cash flow from operating activities and redeploying it in the form of paying down our revolving debt facility, which year to date is over 101,000,000 dollars 87,800,000 in Q1 and Q2 and $13,800,000 subsequent to quarterend. Also subsequent to quarter end, we made a US10 $1,000,000 payment to SolGold as a first installment under the Goldstream agreement further advanced the Casquale project in Ecuador.

Speaker 1

In addition, as mentioned in last quarter's conference call, commodity prices specifically gold and silver remain above the US US24 $100 $27 respectively, we forecast to end up in a net cash position by the end of the year. That of course is absent of any material acquisitions of royalties or streams we make during that period. This is important as even though we've already made an announcement on a key transaction regarding Casquebel, Asysco's corporate development team remains busier than ever with the hope of getting more deals across the line before year end And our much improved balance sheet provides the company with the financial capacity and flexibility to continue its strategy, disciplined allocation in the pursuit of high quality, creative precious metal streams and royalties that will bolster the company's current and near term illiquid announced deliveries and cash flows that should accrue to our shareholders benefit. Finally, I would like to take the opportunity to welcome our newest board member, Ms. Wendy Louie, who we believe will be a tremendous contributor to our company go forward.

Speaker 1

Wendy brings a wealth of experience in resources and commercial and accounting matters from her impressive career credentials from Duke Energy, Princeton Young, Hecla, Goldcorp and most recently Sabina. And with that, I'd like to thank everyone for listening today. We will now open up the line for questions as well as questions posted on the webcast. We don't get to all the questions on the line. We'll make sure to respond offline to those we don't get to cover on this webcast.

Speaker 1

Thank you for your time. Operator?

Operator

Thank you. Your first question comes from Ralph Profiti with 8 Capital. Your line is now open.

Speaker 2

Thanks, operator, and thanks for taking my questions. Jason, the syndication at Casa Bell at 30%, was there a desire to do more? How much of that sort of discretion was driven by the desire for things like dry powder or balancing country exposure. Just wondering how you tackled some of those thresholds and criteria?

Speaker 1

Yes. Thanks for the question, Ralph. Look, obviously, doing a syndicated deal with a partner like Franco Nevada, a lot of people including myself going back to my banking days has talked about having syndicated deals and why they make the most amount of sense. So look, the 30% level, we can tell you with a negotiated level. We do think the Casquebel project is a world class asset.

Speaker 1

In fact, it is also as you know, Franco Nevada has a royalty as we do, a higher royalty than we do. And so it really came down to proportional interest both in the royalty as well as in our interest working with Franco to give the Sovol team the amount of proceeds that they were looking for, obviously, dollars 750,000,000 which the bulk of it will be provided to them on the construction decision or construction decision by either themselves or if they are not the operator at the time, whoever is operating at the time. So look, obviously, it was a negotiation. We've got a relationship clearly with Sogou. We've got a early gate relationship with Franco.

Speaker 1

We're quite comfortable with Ecuador as a jurisdiction. The fact is, as you know, the way that the deal was structured with Franco is we have a number of off ramps here. So if the country, which we do believe is very pro mining with President NABOA right now, we do think he likely will be quite successful in the election in 2025. But for whatever reason that does not happen and we see Ecuador not being as a jurisdiction for mining development of Casavel, we have a number of off ramps as you're very well aware. That's how we've staged and structured the transaction.

Speaker 1

So right now, we're obviously quite comfortable with the direction very pro mining in the particular province. We think SnowGold is doing a very good job in terms of ensuring they have a social license and doing all the right things from a community level. But as I said, we still very much value our as I keep saying, our Tier 1 jurisdictions. So we are actually looking to do more transactions that will actually have a bit more of a balance in Canada, the U. S.

Speaker 1

And Australia go forward. But we're very, very pleased with the transaction that we're able to do with SolGold and obviously the partnership that we have with Franco.

Speaker 2

Yes, I appreciate that clarity. It does make sense. Keeping on the theme of transactions, you mentioned that Casa Bell in the 2030s puts it beyond the 5 year guidance. Just wondering if you look at sort of this deal pipeline that you had talked about before year end and perhaps beyond, are you at liberty to talk about how much of those opportunities are within the 5 year guidance or is the majority outside of it?

Speaker 1

That's a great question, Ralph. Look, obviously, there are a lot of opportunities and every one of our peers, as you probably heard, are very, very busy from both corporate development and the technical services that they basically employ to go look at these opportunities. I would say that, again, our preference in terms of our strategy is obviously have transactions that fit within our 5 year outlook. That said, there are some very quality assets, development assets in particular that there's a long gestation to actually get into production ramp up that would sit outside of it. But strategically, I've talked to my board with and what the corporate development team is doing, really the focus is doing transactions within that 5 year outlook, but we're not going to ignore again a high quality opportunity that sits outside 5 year outlook because that obviously sets company up for the future going forward.

Speaker 1

But we're very, very busy. And so as I mentioned on the call, we're hoping we can get one of these opportunities done before year end that would fit within the 5 year outlook. Great. Thank you, Jayson. Thanks.

Speaker 1

Thanks, Ralph.

Operator

Your next question comes from Josh Wolfson with RBC Capital Markets. Your line is now open.

Speaker 3

Yes, thanks very much. First question I have is on the Eagle impairment to 0. I'm wondering is there any read through here on the potential recoverability of any value to the company? And is there any risk that the royalty would not survive a solvency related event for the operator?

Speaker 1

Look, obviously, and I'll let Fred comment in a second. Obviously, we took the decision specifically because we just don't have the visibility right now as to when the restart is going to happen. There's obviously a lot of work with Victoria Gold team is doing specifically around containment, specifically around the water quality with respect to the cyanide sampling that you're doing and specifically with respect to the remediation. Any sort of restart obviously will require a permit from the U. S.

Speaker 1

Government plus as you can appreciate there's an element with respect to the First Nations groups that they will have to get an approval and get a license there. We thought it was prudent at this point to write down the $67,000,000 that I mentioned and change that I mentioned just because we don't have that visibility as of yet. We do think obviously the big resorts up there is very important for the Yukon territory in terms of employment and other things that depending on the situation that there is a strong possibility that the mine is up and running in a reset. We just don't have visibility as of yet. With respect to the question in an insolvency situation, I think as I mentioned on the call, the fact that again we've got security with the asset, the fact that we're registered in the Yukon as well as we've got strong inter creditor support within those agreements.

Speaker 1

We think there's obviously a very strong case when this is up and going if it goes through insolvency that again our rights will be affected, our rights and the royalty and the geological equivalent ounce deliveries. If it does take some time here that again, we certainly have all the protections necessary. Maybe I'll ask Fred if he wants to comment further.

Speaker 4

No. Thank you, Josh, for the question. It's purely an accounting it's purely related to accounting and applying accounting rules and regulations here based on information that we have as of today. So that's and depending on how things go in the future months quarters, we'll reassess on a quarterly basis if a reversal of impairment might be possible based on new information that might be provided by the company.

Speaker 3

Got it. And then extending this sort of uncertainty to what the future impact could be, I understand the company updated 2024 guidance. There was no comment on what the long term guidance implications were. Is there any sensitivity you can provide us with what the impact is of the loss of Eagle to the 5 year guide?

Speaker 1

Yes. Look, it's a great question. We've also received the question via webcast similarly. I think obviously, Josh, it's early days. Obviously, the facility failed on June 24.

Speaker 1

Victoria is doing everything he can to essentially, we can contain what's happened, ensure that from an environment perspective, there's no long term damage. So I guess certainly in the early innings of what's going to happen here. As stated before, we just don't have the visibility of the restart plan. According to Victoria and I encourage you to listen to their call this week, there are a number of weeks away from being able to provide a concrete plan that could not get regulatory approval and the social license that I talked about. There's lots of work to be done in the remediation campaign in print.

Speaker 1

I just think it's too early at this point to suggest that we came out of our 5 year outlook. We do think that obviously they've got significant goals that they've proved up through the various indications, mineral reserves and resources. There is also, if you know the story, reasons well, they have identified secondary heap leach facility that was going to come in line later in the mine life. So there's a lot of positive attributes that could suggest that this mine will be restarted. We just have no concept or visibility, clarity and direction at this point as to the timing.

Speaker 1

Really, we can only get that from Victoria Gold taking their direction.

Speaker 3

Got it. And sorry, one final question on the long term guide. I can't recall if this was included or not, but for ODEB and their financial status, was Caribou included in the existing 5 year guidance? Or was that something that was incorporated after that period?

Speaker 1

Great question. It was not included in our 5 year outlook. Got it. Thank you.

Operator

Your next question comes from John Tumazos with broker. Your line is now open.

Speaker 5

Thank you. Sometimes the big royalty streaming company say the first dollar is the last. Jason, could you give us your views of the pros and cons of that? Before you came on board, Osisko had a lot of efforts trying to fix Renard Diamonds and Amosar in Armenia and the different things in ODD. And would you contribute good money after bad?

Speaker 5

When something blows up, would you fire the guy that originated the deal? Just what's your attitude toward trying to fix things or when to move

Speaker 1

on? Look, John, obviously, I think you're probably talking through some of the issues now obviously heightened with the Victoria Gold facility failure. Obviously, the team works very, very hard to identify opportunities that we think will accrue to shareholders. We didn't anticipate this happening and there's obviously been some other assets that haven't proven up to the expectations. With respect to going forward, I mean, we've got a very, very strong technical team.

Speaker 1

We've upgraded our technical team since I joined. And so we are going to be making investments go forward. We're going to be making investments based on again the information that we have that we think is going to be accretive to shareholders go forward. In terms of looking at some of the historical legacy assets, yes, we did a full portfolio review. Yes, we've come to views as to which ones we should fund and which ones we should not fund go forward.

Speaker 1

I think I've conveyed that the opportunity set on new opportunities far outweighs the opportunities that we see currently in terms of investing in the current portfolio that require additional capital. A lot of our portfolio, the 185 assets, as you know, require no additional costs. There's no contingent costs associated with it. Our preference for all the companies out there, if we've made an investment through a royalty or a stream, is they should be going out and sourcing other financing and not relying on an incremental royalty or stream that could burden the asset to the point where again their set of equity holders if they're public is disadvantaged. So I'll answer that question long winded way, but we do think that there's a really good opportunity set on a case by case basis.

Speaker 1

We have additionally from a governance perspective set up as I think we've talked about an investment committee, which is some commercial and technical folks on our board that we have to obviously pass that date before we are allowed to deploy any further capital. So there's an additional level of governance with respect to again our investments into assets at

Speaker 5

there is a hedge fund or 2 friend of mine that whenever someone in the team originates an idea, they give them a quarter of the performance fee from that idea and the idea is tagged to a specific person. Do you think having a bunch of committees dilutes responsibility? And is it better? What are the pros and cons of committee responsibility versus originator responsibility on your team?

Speaker 1

So the way it answer that John is the committee is really set up for oversight from an oversight perspective plus as you can appreciate, we've got technical folks that can really pull apart or to take a look at through a lens that maybe some of our technical folks haven't looked at. But really to assure us, because again, we are as I like to say, we're effectively pricing risk for our shareholders or risk managers on behalf of our shareholders. With respect to compensation as it relates to origination of opportunities, we can say we don't have that philosophy here at Osisko. As I've talked through with yourself and many others, we have tweaked our compensation for the senior executives, which is really in the long term our long term incentive pay very much driven by per share metrics, specifically cash flow per share, growth in cash flow per share and growth in net asset value per share. So as we move forward and we continue to make investments, we are hoping we're making increase our cash flow per share, increase our NAV per share because as you know, there's a very strong correlation if we can do this to shareholder performance.

Speaker 1

So to answer the question, there is no specific origination fees that are payable for our team. We are very much a team and we're very much driven and top of mind for anything that we do from an investment perspective is will this increase our cash flow per share as well as our net asset value share. And again, these are quantitative metrics that our comp committee will determine when they're compensating the executive team.

Operator

Your next question comes from Tanya Jakusconek with Scotiabank. Your line is now open.

Speaker 6

Okay, great. Thank you so much for taking my questions. Good morning, everybody. Just wanted to circle back on that 20 28 guidance and not to beat this to death, but would it be fair to have assumed that within that 120,000 to 135 1,000 GEOs at about 9,000 would have been equal gold and we'd more likely be towards the lower end of the range than the upper just so that we can benchmark ourselves?

Speaker 1

So it's a great question, Tanya. Thanks for participating this morning. So yes, 9,000 was approximately what we're budgeting. Again, you can get it from Victoria Gold, obviously, production guidance for 2024 per year. And so if you actually forecast that forward, it would be somewhere around that number.

Speaker 1

All that said though, as I mentioned, we give our 5 year outlook and our 5 year guidance in February. I think it's far too early at this stage. Information is still coming in specifically with that asset to know whether or not almost 4.5 years out, whether it'd be contributions from the Eagle Mine in particular. And so we haven't changed our 5 year outlook. We just don't have the information to make that adjustment.

Speaker 1

And when if we do get that information, obviously, we'll let the market know, but very likely in February when we put out our annual guidance for 2025 as well as our updated 5 year outlook.

Speaker 6

Okay, fair enough. Maybe just moving off then on to just to finish off on the transaction front. I know the last conference call you had talked about 1 or 2 meaningful transactions. And now Jason, you mentioned that there's one more meaningful for 2024 you hope to get done by year end. Are we still talking that $50,000,000 to $300,000,000 range?

Speaker 6

And are we still talking a syndicated transaction or is it are you still looking at just the stream deal?

Speaker 1

Great question, Tanya. Look, I think we have just on the syndication front, we have a very good blueprint now of what we can do at the Cisco Gold Royalties, working with partners like Franco and some of the other senior royalty and stream players. So yes, I'm still a big believer in syndicated deals. Yes, we are looking at large chunky acquisitions in the magnitude that you've mentioned. We are also looking at obviously some smaller ones that we do think will be accretive to our shareholders go forward.

Speaker 1

Nothing is guaranteed, obviously. The team is working very hard to close some of the business issues that we may have on, again, a very important meaningful transaction that will really set the company up go forward. But yes, we are looking at transactions anywhere from US50 $1,000,000 all the way up to US300 $1,000,000 and some of them syndicated and some not.

Speaker 6

Okay. That's helpful. And that just comes to my next question with respect to, I mean, if this is the case and we're looking for this sort of size deals coming towards the end of the year, can I assume like we're getting this debt down quite quickly, can I assume then return to shareholders capital allocation? We had thought perhaps looking at maybe share buybacks. Would that be out of the out of your range in terms of being able to also take that on in addition to a larger deal?

Speaker 1

So look, I think we've got ourselves to a position as I mentioned in the call where we have tremendous financial flexibility and capability now that we've got our net debt down to approximately $40,000,000 We've given a net cash position very, very soon here. And so we obviously go through the capital allocation decision tree that you're quite familiar with. We do, as you're aware, have regulatory approval on a normal course issuer bid for a buyback. We view that as a tool though, Tanya. Obviously, our preference is to redeploy our capital into meaningful accretive transactions.

Speaker 1

However, again, if we can't get things complete or if we get things complete that are cash flowing, that does give us the comfort that we should be essentially lowering our share count really also is predicated on our share price at the time. Not surprisingly, you're going to hear that management myself think we're undervalued. And I know your research suggests in terms of our peers as well. So it is a tool that we certainly are contemplating using. And I really will be we're really trying to be opportunistic around again, if we do see some pressure with respect to our stock price in the following months and moving into the year end, understanding that we have some capital we may deploy right into projects and deals that I talked earlier.

Speaker 6

Okay. So would you have a preference then if you have excess capital then for dividend or would you prefer I know it's share dependent, but allocation to share buyback?

Speaker 1

So I think that's the discussion that we continue to have both management and Board. I think they both have very good uses. As you know, we increased our dividend by 8% this year. We want to again seeing the predictability, consistency of business, a lot of it is under pinned by the commodity price in particular. We do think the dividends are meaningful way to return capital to shareholders.

Speaker 1

But in the same sense, as I said, we want to be opportunistic or we, the company, see our share price not being reflect or fundamental value, we will certainly be looking to use the buyback process.

Speaker 6

Okay. And then just my final question sorry, my final question is just on benchmarking myself. When I looked at Casavel and I took into account the SolGold study, so based on their study and I think we looked at it in the $1900 gold price environment or thereabout an internal rate of 6% to 7%. Is that a fair return in terms of what you would have seen?

Speaker 1

Look, I think there's a lot of moving pieces here based on the pre feasibility study that Sogou put out, we would say that the return for our shareholders at that price is high single digits. And obviously, anything beyond those commodity prices is more incremental. There are a number of components to the deal as you're aware around the condition precedents in terms of funding. There's obviously, as you're aware, buyback rights for the operator in the 1st 3 years, buyback right, lesser amount, 33% is within 5 years that give us a guaranteed rate of return. So there is a few nuances to Tanya that depending on what happens in Ecuador with Casquebale and who is actually building and operating the mine at the time will impact the return.

Speaker 6

Okay. Well, we could take that offline. Thank you so much for taking my questions.

Operator

Your next question comes from Brian MacArthur with Raymond James. Your line is now open.

Speaker 7

Good morning and thank you for taking my question. Jason, I just want to go back to the security on Eagle and I appreciate there's a lot of moving parts and you don't have all the information. But when you say you have an inter creditor agreement and security over the property, Is that peripass due with the senior lending syndicate? I'm just trying to figure out this may come down to relative negotiating power to the extent you can or are willing to comment on that?

Speaker 1

Yes. Look, Brian, thank you for that question. Unfortunately, the inter creditor is not a public document at this point. So all I can say is we feel very, very confident in our protections through that agreement. And as I said earlier, we have we If the company does go through a CCAA process, we're quite confident that our rights will continue in any sort of restart of the Eagle Mine.

Speaker 1

And so we are a secured creditor, but the specifics unfortunately because it's the confidential document, I can't give you all the details around the inter creditor, but we've got the appropriate protections.

Speaker 7

Fair enough. Thanks very much. That still helps with the color. Thank you.

Operator

There are no further questions at this time. I will now turn the call over to management for closing remarks.

Speaker 1

Thank you very much for joining us this morning. With respect to some of the questions that have come in the webcast, we will answer them offline. So thank you for your participation in that regard. And I hope everyone has a very good week. Thank you for your time this morning.

Operator

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

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Key Takeaways

  • As of Q2, Osisko earned 20,068 gold equivalent ounces with 97% cash margins, generated C$64.8 M in revenue, ended Q2 with C$65.7 M cash and cut net debt to ~C$40 M, repaying an additional C$13.8 M in Q3.
  • The board declared its 39th consecutive quarterly dividend of C$0.065/share, bringing total returns to shareholders to over C$290 M, with the next payment due October 15, 2024.
  • Osisko took a full non-cash impairment of C$67.8 M on its Eagle NSR royalty after the June 24 heap leach failure, assuming no 2024 deliveries, and revised its full-year GEO guidance to 77k–83k from 82k–92k.
  • The C$750 M Casquebel streaming transaction with SolGold and Franco-Nevada, expected to produce ~23k GEOs/year in the first 10 years starting in the 2030s, exemplifies Osisko’s robust deal pipeline.
  • With net debt down to C$43 M (from ~C$250 M a year ago) and forecasted to reach net cash by year-end, Osisko is well-positioned to pursue further accretive precious-metal royalties and streams.
AI Generated. May Contain Errors.
Earnings Conference Call
Osisko Gold Royalties Q2 2024
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