Osisko Gold Royalties (OR)—a royalty streaming company—is buying a portfolio of royalties, streams, and offtakes from Orion Mine Finance for C$675 million in cash and C$450 million in shares, notes Adrian Day, resource expert and editor of Global Analyst.
This is “the big deal” Osisko shareholders have been waiting for, and is transformational for the company, adding to and diversifying its revenue sources. It immediately doubles cash flow.
Although the company is issuing almost 49 million shares, a little less than one-half of shares outstanding, the deal is immediately accretive for Osisko’s shareholders.
And the new shares are going into strong hands, mostly Quebec funds which have been long-term supporters of Osisko, and Orion whose shares have various restrictions on resale.
It also brings more important longer-term potential in increasing the scale of the company’s platform and providing a strong potential for a re-rating.
Osisko will retain a strong precious metals focus and “safe jurisdiction,” with over 90% of both net value and cash flow from precious metals (most from gold), and other 80% of cash flow from North America.
Principal new assets include streams on Stornaway’s Renard diamond mine and Pretium’s Brucejack. (This royalty can be bought back by Pretium next year for $119 million.)
It has meaningfully reduced its asset concentration, with the top three assets declining from 76% to 50% of net present value, which is less than Wheaton Precious Metals’ and compares reasonably with Royal Gold.
It also has a significant pipeline, including of exploration and development projects from its “incubator” program via investments in various juniors.
After the transaction, the company will have around C$100 million in cash, and C$200 million debt. Given the company’s C$450 million in investments, which could be sold, this is a very reasonable balance sheet.
Osisko remains undervalued relative to the other large royalty companies on several metrics. The stock is also under-owned compared with the other larger royalty companies. This acquisition makes the valuation gap even more unjustified. We expect a higher stock price over the next year and beyond.
Adrian Day, London School of Economics graduate, heads Adrian Day Asset Management, specializing in global diversification and resource equities.
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