Osisko Gold Royalties Ltd

Osisko Gold Royalties Ltd (TSX: OR) is a precious metal royalty company which holds a North American based portfolio of more than 135 royalties, streams and precious metal offtakes.

Key Highlights:

• Through a private placement, Osisko Gold Royalties Ltd purchased 4,054,000 units of Osisko Mining at a price of CAD 3.65 per Unit. The Group holds 45,969,569 common shares of Osisko Mining, representing approximately ~15.7% of the total outstanding shares.
• The Management declared a quarterly dividend of CAD 0.05 per common share, payable on July 30, 2020.

Q1FY20 Financial Highlights: Osisko Gold Royalties Ltd announced its quarterly results and posted revenues of CAD 52.60 million, significantly down from CAD 100.72 million, a year ago. The significant decline in the revenue was majorly attributable to the sale of the Brucejack gold offtake in November 2019. Revenues from royalties and streams increased to CAD 37.8 million as compared to CAD 33.5 million in the previous corresponding period (pcp). The Group realized higher metal prices during the quarter while sales volume of gold was lower than the previous corresponding period (18,159 gold equivalent ounces (GEO) versus 19,753 GEOs in Q1FY19). Gross profit stood at CAD 21.62 million, against CAD 18.24 million in pcp, underpinned by considerably lower cost of sales and depletion expense. The Group reported operating loss of CAD 12.142 million as compared to CAD 28.32 million in Q1FY19, due to a higher gross profit, lower business development expenses and lower costs related to the impairment of assets, partially offset by higher general and administrative expense. Net loss stood at CAD 13.32 million as compared to CAD 26.55 million in Q1FY20. The Group ended the quarter with a cash balance of CAD 158.32 million while total assets stood at CAD 2,016.19 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Risk: The company’s income is linked to gold and silver prices. Any event which affects the precious metal prices negatively would subsequently impact the company’s performance adversely.

Valuation Methodology: Price to CF Based Relative Valuation (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of OR stood resilient in the recent past (up 27% in the last three months) due to higher gold prices. Investors should note that stock was trading above 200-days simple moving average (SMA) of CAD 12.35, indicating a bullish trend. The company has ample liquidity with CAD 158.32 million as cash balance and CAD 400 million available under the credit facility, which seems sufficient enough to meet the near-term requirement. The revenue of the company depends upon the demand for precious metals like gold, silver etc. We expect, the yellow metal prices to remain elevated in the near to medium term, which would support the company’s cash flow in the coming days. We have valued the stock using Price to CF based relative valuation approach and considered peers like Agnico Eagle Mines Ltd, Wesdome Gold Mines Ltd, Royal Gold Inc, etc., and arrived at a target price offering double single-digit upside potential (in % terms). Hence, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 13.55 as on July 03, 2020.

OR Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Agnico Eagle Mines Ltd

Agnico Eagle Mines Ltd (TSX: AEM) is engaged in gold mining operations in Canada, Finland, and Mexico. The Group is anticipating a decent second half performance and will release the second-quarter results for FY20 on 29 July 2020.

Recent News

29 June 2020: The Company’s fully funded program, Titan Project has been commenced by White Gold Corp for drilling and initiated ground surveys.

First-Quarter Trading Update (for three months ended 31 March 2020) (USD Million)

(Source: Company Website)

As per the update released on 20 April 2020, the Company’s financial performance declined in Q1 FY20 and reported a quarterly net loss of $21.6 million. The loss included a deferred tax liability of non-cash foreign currency translation losses of $44.2 million. Nevertheless, cash provided by operating activities increased to $163.4 million in Q1 FY20, compared to $148.7 million in Q1 FY19. The following reasons primarily impacted the decline in operational and financial performance: recurring losses on deferred taxes, weakening of local currencies, unrealized losses on derivatives, and higher production costs and amortization. However, the negative impact of the aforementioned factors was partially offset by higher realized gold prices and higher gold sales volumes. Moreover, despite the temporary shutdowns needed to contain COVID-19, significant progress was delivered in the Q1 FY20 at LaRonde, Meliadine and Amaruq operations.

Share Price Performance

Daily Chart as of 3 July 2020, after the market close (Source: Refinitiv, Thomson Reuters)

AEM’s shares closed trading at CAD 84.70 on 3 July 2020, down by 0.73% against the previous day closing. Stock's 52 weeks High is CAD 97.32 and Low is CAD 43.25, respectively.

Key Risks

The Company’s performance is adversely affected by several factors amid the Covid-19 disruption, such as weakening of local currencies, higher production costs at the Meadowbank Complex and Meliadine mine, and minimum activity level across all five Canadian mines. Such conditions can cause liquidity and credit risks, as well. Furthermore, additional cost pertaining to the equipment needed for addressing safety concerns at sites can further hinder the growth prospects.

Conclusion

Invariably, the Company had a challenging first quarter in FY20; however, it anticipates having a strong second half this year. The Company is expecting a significant free cash flow in H2 FY20 considering the high gold prices. Despite the disruption in Q1 FY20, the Company declared a quarterly dividend of US$0.20 per share. Regarding the guidance for FY20, the Company expects to deliver gold production to be in the range of 1.63 to 1.73 million ounces. The estimate for gold production has been reduced from previous guidance of 1.88 million ounces due to an impact from the COVID-19 related shutdowns. Further, the capital expenditure is projected to be around US$690 million in FY20 as against the previous guidance of US$740 million.

Based on the decent growth prospects, we have given a “Hold” recommendation at the closing market price of CAD 84.70 on 3 July 2020.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.