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Osisko Joins the Big League
Contributed Opinion

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Adrian Day Money manager Adrian Day examines Osisko Gold Royalties' purchase of Orion Mine Finance's portfolio, which he views as transformational.

Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE, NY 12.17) is to buy a portfolio of royalties, streams and offtakes from Orion Mine Finance for CA$675 million in cash and CA$450 million in shares. 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.

Well diversified with strong profile
Osisko will retain a strong precious metals and "safe jurisdiction" focus, 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 Stornoway Diamond Corp.'s (SWY:TSX) Renard diamond mine and Pretium Resources Inc.'s (PVG:TSX; PVG:NYSE) 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 Corp.'s (WPM:TSX; WPM:NYSE) and compares reasonably with Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX).

Osisko 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 CA$100 million in cash, and CA$200 million debt. Given the company's CA$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. As we have said before, it 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-born and a graduate of the London School of Economics, heads the money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. Day is also sub-adviser to the EuroPacific Gold Fund (EPGFX). His latest book is "Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks."

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1) Adrian Day: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Osisko Gold Royalties. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management hold shares of the following companies mentioned in this article: Osisko Gold Royalties. I determined which companies would be included in this article based on my research and understanding of the sector.
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