Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE) reported a strong quarter with record revenues and cash flow; production had been pre-released. An impairment on an Osisko Development (OD) project (still consolidated by OR) hurt the earnings. The balance sheet is strong. Osisko ended the quarter with $80 million in cash (plus $72 million held at OD, consolidated but not really available to OR); investments are valued at over $500 million for OD and $169 million for other investments. Debt remains just over $400 million, with another $535 million available credit. This provides flexibility for the company if a large transaction comes along.
It is renewing its share re-purchase program, with authorization to buy up to 16.5 million shares over the next year, representing about 10% of the outstanding shares. Over the past year, Osisko purchased just over 2 million shares out of an authorization to buy 14.6 million. However, 1.7 million of those were purchased in the last quarter, suggesting Osisko might be becoming more active on buy-backs.
More acquisitions as projects make progress
Meanwhile, it has continued to make some small royalty acquisitions, including a package of royalties form Talisker for CA$7.5 million. This follows the purchase of royalties on African assets from Barrick in October. The development of the underground at Malartic, on which mine is Osisko’s foundational royalty, is on schedule, as the mine continues to perform well; Malartic was originally developed and operated by Osisko. The company is also expecting the Mantos copper mine in Chile, following completion of a de-bottlenecking project next quarter, to start producing close to the long-term of 1.3 million ounces of gold by-product to Osisko. Projects in OD as well as Osisko Mining on which OR holds royalties progress; Australia’s Northern Star just made a large investment in Mining with a view to advancing the Windfall project.
Osisko trades at a lower valuation on most metrics than the other major royalty companies, with strong near-term growth. Buy.
Newmont provides long-term production outlook which fails to excite market
Newmont Corp. (NEM:NYSE) presented its 2022 and longer-term outlook earlier this month, which somewhat disappointed the market, despite promising to maintain production at over 6 million ounces of gold, and 8 million gold-equivalent ounces, each year for the next decade, with gold moving up to 6.8 million ounces over the next five years. Costs are forecast to remain stable next year, at $1,050 per ounce, and declining to a range of $920 and $1,020 per ounce by 2024. The goal is to replace reserves over a five-year period, though this year it will replace about two-thirds of depletion. Although the stable production was expected, costs are higher than anticipated, while reserve replacement is, in the near-term, less and slower than expected.
Capital investments ahead on project pipeline
CEO Tom Palmer said the company was entering a period of significant investment on the project pipeline. It also claims the most extensive exploration program in the industry, with $300 million allocated for exploration in 2022, most of it brownfields around existing minesites, with about $60 million towards greenfields exploration (though most of this is also near existing projects not grassroots).
Newmont has the most aggressive emission reduction targets, investing $500 million to “support the pathways” to meet those targets, which critics argue are overly ambitious. Newmont is also requiring all workers to be vaccinated by January, which may be a problem at some of its U.S. mines which currently have low vaccination rates.
Being the largest gold mining company in the world, Newmont will perform in a strong gold market, but we prefer Barrick and Agnico among the large global companies. Hold.
Long turnaround continues at Yamana
Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE) reported in line with expectations. It has organic growth prospects, including a new zone discovered at the Wasomac development project in Quebec, and the Malartic underground (joint venture with Agnico) which is progressing well. The Jacobina expansion is ahead of schedule.
Yamana is also continuing to makes strides at turning around its balance sheet. Debt declined by another $220 million during the quarter, and the company could have net cash by 2023. In addition to paying down debt, it has been buying back shares, another 3.3 million in the last quarter. Yamana is turning around, not only its balance sheet but its property portfolio after Daniel Racine became CEO. We are holding.
Vista hit by tax-loss selling even as feasibility close
Vista Gold Corp. (VGZ:NYSE.MKT; VGZ:TSX), not unexpectedly, is among several companies getting hit by tax-loss selling, sliding under 0.66 from 0.74 a month ago (and of course well down from before that disastrous equity raise). Meanwhile, over the past month, several insiders have been buying in the market, mostly small amounts, but nonetheless giving a good sign to the market, as the Definitive Feasibility Study (DFS) on Mt Todd in Australia moves towards completion with results announced “early next year.”
As we have discussed previously, additional resources will be included in this study which will be at a higher gold price; however, some costs are up, of course, though the Australia dollar has retreated from earlier highs minimizing cost increases. On balance, the study is expected to show a longer mine life and improved economics. The company believes the publication of the DFS “will generate significant interest from investors and potential partners.” It should, given this is the largest undeveloped gold project in Australia and one of largest in the world, though the company has to be flexible and realistic in any transaction that can be done. To maintain financial flexibility, the company has recently filed a $100 million “shelf.” there are no present plans to use it, but having it in place allows the company to act quickly if need be. The current liquidity is sufficient to complete the DFS as well as the ongoing exploration program.
We have been holding off buying expecting weaker prices, but we are approaching a level where it can be bought again, and aggressively, in anticipation of the DFS study.
Orogen’s stock price shoots up, while Cartier results disappoint
Orogen Royalties Inc. (OGN:TSX.V) shot up following out last report after the company reported on developments at its two major royalties, Ermitaño and Silicon, and a major newsletter recommended the stock. It jumped from under 40 cents to as high as 0.58 before drifting back as low as 0.45 (the current bid). That kind of retreat after a price spike is to be expected. Given the positive news, and likely lack of wide-scale tax-loss selling this year, we would think this may be the low and we would look to buy at this level.
Cartier Resources Inc. (ECR:TSX.V) reported very disappointing results from its Benoit project, with low grades at depth. It has decided to cease drilling on that property for now, shifting over to its Fenton property which has more shallow deposits. We await the preliminary economic assessment (PEA) on Chimo, its flagship project, which is on track for the first quarter of 2022. Hold.
High yield from Hutchison as shipping picks up
Hutchison Port Holdings Trust (HPHT:Singapore) may see both rates and volume firm. An overall rise in global shipping activity will help Hutchison with volume, while rates could firm after Shenzhen’s Yantian port was closed again by a typhoon, following a three-week closure earlier due to a covid outbreak. Shipping is backing up, with ships anchored outside the port waiting for berths. The stock has been steady in the 0.215 to 0.235 range for the past six months, other than a dip when Yantian was shut for covid. The current yield is over 7%. We would buy at the low end of the range, with a 22 cent limit.
BEST BUYS right now, in addition to any above:
The last two may see further tax-loss selling in the week or two ahead.
Adrian Day, London-born and a graduate of the London School of Economics, is editor of Adrian Day’s Global Analyst. His latest book is "Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks."
1) Adrian Day: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: Midland Exploration, Fortuna Silver Mines Inc., Vista Gold Corp., Orogen Royalties Inc., Hutchison Port Holdings Trust, Royal Gold Inc., and Lara Exploration Ltd. 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, which is unaffiliated with Adrian Day’s newsletter, hold shares of the following companies mentioned in this article: All. I determined which companies would be included in this article based on my research and understanding of the sector.
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