Osisko Gold reduces investor risk with royalty business model

Osisko Gold Q&A interview

Osisko Gold Royalties Ltd.(TSX: T.OR, NYSE: Or, Forum) is a Montreal, Quebec-based precious metals royalty and streaming company with varying interests in a number of well-known Canadian resource companies.

At the start of 2017, the company’s basket of royalties and streams included a 5% net smelter return (NSR) royalty on the Canadian Malartic Mine, and a 3.5% NSR royalty on the Eleonore Mine. Both mines are located in Quebec.

However, in June 2017, Osisko Gold doubled its precious metals portfolio with the $1.13 billion acquisition of diamond, gold and silver assets from U.S. private equity firm Orion Mine Finance Group.

Completed on July 31, 2017, the Orion transaction has positioned Osisko as the leading growth royalty company in the precious metals sector.

Stockhouse recently caught up with Osisko Chair and CEO Sean Roosen and asked him to discuss what investors can expect to see from Osisko now that the company has closed the Orion Mine Finance transaction.

Can you give us a brief introduction to Osisko and explain exactly what the company does.

Osisko Gold Royalties is an intermediate royalty company with most of its asset based in North America and most of its royalties on gold. Despite the fact that we are a three year old company, we have already grown our market cap from C$500M up to now C$2.5B following multiple acquisitions and financings.

We currently receive royalties from 16 producing asset and with our acquisition of the Orion Mine Finance royalty portfolio we now have grown our total of royalties, streams and offtakes to 131.

How does Osisko’s business model differ from a traditional mining company as we know it?

The royalty business model is different from a producer because we have no operating cost or development expenses. This year we are forecasting to receive between 55k up to 65k of gold equivalent ounces (GEOs) from 15 different mines. This diversification of asset and commodities means less risk for the shareholder. Osisko has a unique business model with the addition of the investment portfolio; also referred as the accelerator model.

We know that discoveries come from exploration companies and we want to be involved early in the process. The accelerator model is there to support junior companiesfinancially, but also to provide technical expertise.

Our portfolio of investment started at C$15M and has now a market value of C$450M in a three years period.

What exactly are precious metals royalties and why do companies like Osisko want to own them?

A royalty is a right to receive ounces of precious metal from a producing mine at a fixed price, in case of a stream, or at zero cost in case of a Net Smelter Return NSR. Owning royalties means you can receive precious metals at a discounted price and sell it at the market price. It means you do not have to worry about production cost. Osisko is building a portfolio of royalties for internal growth, diversification of asset and commodity.Who would not want that?

Why should anyone think of investing in Osisko Gold Royalties today?

If you are looking for gold and precious metal exposure, we are a premium candidate. With Osisko, you have exposure to gold, silver and diamond in the safest jurisdictions. In the royalty sector, we have the most exposure to North American assets and the safest geopolitical profile. You also have the optionality of our investment portfolio on exploration companies.

We have royalties on all the projects of our accelerator model, which means future organic growth. We have been very active, in the last three years, growing and diversifying our portfolio. The team is constantly looking at opportunity. Osisko also pays a quarterlydividend to its shareholders.

What sets the company apart from competitors in your field, including Franco-Nevada and Wheaton Precious Metals Corp?

The accelerator model is unique to Osisko because we not only take a royalty over a project but we also take an equity position in the company. We support those companies with our technical, management and financial team. We also have the capacity to participate in the future project financings of the respective companies. This year only close to 1 million meter will be drilled on our royalty lands. This means reserves and resources upside at no cost for Osisko shareholders.

You recently acquired a portfolio of assets comprised of 74 royalties, and precious metal offtakes from Orion Mine Finance. What was the rationale for that deal?

Our goal was always to diversify our portfolio and grow our attributable ounces. With the portfolio acquisition, we were able to double the size of the company in one single transaction. We acquired royalties on producing assets, which increase immediatelyour cash flow.

Can you give us some colour on some of the more prized assets in the portfolio?

Three additional cornerstones assets were added to our portfolio, including a diamond stream on Quebec’s newest mine, the Renard mine. We also acquired a gold and silver stream and off-take on the new Brucejack mine in British Columbia and finally we acquired a silver stream on the Mantos mine in Chile.

How was the deal financed, and what are some of the key impacts of this transaction on your financial bottom line?

We had a solid balance sheet before the deal and we were ready to deploy capital. The deal was financed with Caisse de depot and FTQ Funds, the use ofour credit line, cash on hand and in shares we issued to Orion Mine Finance. The transaction consisted of $675 million cash and the issuance of 30,906,594 shares of Osisko. We have approximately $100 million in our treasury following the completion of the transaction and about C$195M debt.

We understand that Orion Mine Finance is now a 19.7% shareholder in Osisko. Who exactly is Orion Mine Finance and how do they benefit from the transaction?

Orion Mine Finance Group is one of the world’s leading mining-focused private equity businesses. We are very pleased to be associated with such a successful group as we will be able to benefit from Orion experience on our board. We both benefit from the transaction; it is a win-win.

Are you planning any more acquisitions in the near future?

Our team is always looking and will continue to evaluate dozens of opportunity. If we see something we like, we are ready to move. The pipeline has never been fuller.

FULL DISCLOSURE: Osisko Gold Royalties Ltd. is a paid client of Stockhouse Publishing.