Gold Royalty

Ben Kramer-Miller

Gold & precious metals, macro, research analyst, deep value

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Osisko Gold Royalties: This New Royalty/Exploration Company Is A Compelling Speculation Stock

Jun. 27, 2014 4:16 PM ET  |  About: Osisko Gold Royalties Ltd. (OKSKF)Subscribers to SA PRO had an early look at this article. Learn more about PRO »

Disclosure: The author is long RGLD, RPMGF. (More...)

Summary

• Osisko Gold Royalties is a new company formed out of the Agnico Eagle/Yamana Gold acquisition of Osisko Mining.
• It is a royalty company that is unique in that it isn't necessarily overvalued on a DCF basis, and it can use its royalty cash-flow to explore its Guerrero Project.
• The company is inexpensive relative to its peers, and it has the added optionality of an enormous exploration project as well as a royalty on a presently uneconomic gold project.
• Investors looking for a royalty company that hasn't yet been embraced by the market (e.g. Franco Nevada and Royal Gold) should consider taking a position.

An Overview Of Osisko Gold Royalties

Osisko Gold Royalties (OTC:OKSKF) is a new company formed out of Agnico Eagle's (AEM) and Yamana Gold's (AUY) acquisition of Osisko Mining. Osisko Mining shareholders received shares in each of these two companies plus a new company which trades now as Osisko Gold Royalties.

The company was formed because long term shareholders in Osisko Mining didn't want to give up their stakes in what was then that company's flagship mine--Canadian Malartic. The Canadian Malartic Project is one of the largest gold mines in Canada with 10 million ounces of gold reserves and another 12 million ounces of gold resources. The current mine plan calls for 14 years of 600,000+ ounces of production, but given the reserve size, the potential for resources to be converted into demonstrably economical reserves, and potential for exploration, the mine-life could be substantially longer than this.

The solution was to create Osisko Gold Royalties, whose primary asset is a 5% NSR royalty on the Canadian Malartic Project. This means that Osisko Gold Royalties will receive 5% of the gross revenues minus refining costs (which are essentially negligible) for the life of the mine. In addition the new company has the following assets:

• C$155 million in cash (about $145 million)
• A 2% NSR royalty on Osisko's Hammond Reef, and Kirkland Lake.
• The assets associated with (formerly) Osisko's Guerrero Mining Camp.

Link: http://seekingalpha.com/article/2290573-osisko-gold-royalties-this-w-royalty-exploration-company-is-a-compelling-speculation-stock