Osisko
Gold Royalties Ltd. (OR:TSX, $12.90) is all cashed up, as its two core
royalties proceed well. It has about CA$650 million available for investments
(of which CA$260 million is cash), after spending about CA$220 million in the
last year on several royalties.
In addition to the cash and credit, Osisko now has 53 royalties. Its two
core royalties are performing well. Canadian Malarctic offers a high 5%
royalty on one of Canada's premier mines, with a long-life, low-cost profile,
and continues to meet guidance. The new Éléonore, another long-life, low-cost
mine, is overcoming ramp-up hurdles as the advance royalty is now fully paid.
Cashed up and ready to pounce
With the cash, Osisko is on the hunt for new assets, preferably a large,
cash-flowing asset. With its strong core assets, growing royalty investments,
innovative royalty growth model, and strong balance sheet, Osisko remains a
strong holding. As a newer company with less diversified revenue sources, the
stock is trading at a discount to the group (1.2 times book versus over 3 for
Franco), and the stock has underperformed the last six months. At the current
depressed price-the stock is down from over $13.50 three days ago-Osisko is a
buy.
An unusual loss and impairment for Franco Franco-Nevada
Corp. (FNV:TSX; FNV:NYSE, $60.82) continues to perform well, meeting
guidance for last year, despite lower commodity prices generally. It saw an
unusual loss for the quarter, because of impairments, both on oil and gas
assets and also, unusually, on a mineral property (Rubicon's Phoenix mine).
Last quarter, Franco drew down on its line of credit, adding debt for
the first time ever. This was to acquire the Antapaccay stream from Glencore.
By year-end, it had paid half of the $460 million it drew, and, following a
financing, "intends to repay it all" by the end of this month,
becoming debt free again. Currently, Franco has $1.2 billion available credit
for new deals, so is certainly in a strong position to acquire more royalties
or streams. As can be seen from recent transactions involving not only Franco
but also Osisko, Royal Gold, and Silver Wheaton
Corp. (SLW:TSX; SLW:NYSE), there is potential for more streams from the
base metal producers who continue to struggle with low prices and high debt
levels.
Strong growth just from existing assets
The year ahead promises growth from existing assets, including a full-year
from Antamina as well as the start of revenue from Antapaccay (and a smaller
royalty, Karma). There is substantial growth over the next five years even
without adding another asset. Despite high valuations, Franco remains a core
holding, for the top management, rock-solid balance sheet, broad diversity of
assets and strong political profile, and the ability to grow into its valuations.
Given that we already hold Franco, we will wait for any correction to add to
positions.
Royal
Gold Inc. (RGLD:NASDAQ; RGL:TSX, $49.50) has seen its stock double from
the depressed levels of mid-January. There is nothing to report now, but
would hold, and await a pullback before buying more. It remains good value,
but is due for a pause.
Disclosure:
1) Adrian Day: I own, or my family owns, shares of the following companies
mentioned in this interview: Osisko Gold Royalties Ltd., Franco-Nevada Corp.
and Royal Gold Inc. I personally am, or my family is, paid by the following
companies mentioned in this interview: None. My company has a financial
relationship with the following companies mentioned in this interview: None.
Clients of Adrian Day Asset Management hold shares of the following companies
mentioned in this interview: Osisko Gold Royalties Ltd., Franco-Nevada Corp.
and Royal Gold Inc.
2) This article does not constitute investment advice. Each reader is
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