Gold Royalty Companies Continue To Progress

The large gold royalty companies remain among our top holdings, notwithstanding the high valuations and our comments on the overall gold market and short-term concern on the gold stocks.

Osisko Gold Royalties Ltd. (OR:TSX, $12.90) (OKSKF) 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.