Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE) agreed to acquire a 0.6% net smelter return (NSR) royalty on SolGold's Cascabel copper-gold property in northeastern Ecuador for a US$50 million (US$50M) financing package, reported Haywood Securities analyst Kerry Smith in a November 7, 2022 research note.
Osisko's investment will be used to continue advancing Cascabel, including the Alpala project.
Osisko's acquisition "is accretive and in line," Smith wrote. "At US$1,500 per ounce gold and US$2.50 per pound copper, we estimate a seven-year payback and a 5% internal rate of return."
Based on the Q2/22 prefeasibility study (PFS) of Cascabel's Alpala, with the NSR royalty, Osisko would get about 7,600 gold equivalent ounces (GEOs) annually through the first 10 years of production and roughly 4,700 GEOs annually over the mine's estimated 26-year life. The PFS, however, only includes 21% of Alpala's current Measured and Indicated resources.
Osisko Gold Royalties "continues to add to its royalty portfolio and continues to track well along its plan to grow about 45% in the next five years."
As far as a timeline to production for Alpala, a PFS update to include ways to optimize the project is expected by the end of this year, and a definitive feasibility study is to follow by year-end 2023, relayed Smith.
Initial production at Alpala is forecasted for late 2029. If production has not started by 2030, however, under the NSR, SolGold will pay Osisko a minimum of US$4M per year from 2030 to 2039.
For four years after the deal's closing date, SolGold may buy back one-third of Osisko's NSR.
Smith noted that Cascabel's Alpala deposit has a world-class reserve of 558,000,000 tons of 0.58% copper and 0.52 grams per ton gold.
In addition, "the project and the surrounding land package have tremendous resource upside, and this will likely be a multidecade mine, likely ultimately owned by a major copper producer," indicated Smith.
Ownership and Coverage
Currently, BHP and Newcrest Mining each own 13% of SolGold, and another royalty firm, Franco-Nevada, acquired a 1% NSR royalty on Cascabel for US$100M in 2020.
Osisko is covered by Adrian Day of Adrian Day Asset Management and, as said above, Haywood Securities analyst Kerry Smith. Click "See More Live Data" in the data box above to read more of what they are saying.
Smith reiterated Haywood's Buy recommendation and CA$25 per share target price on Osisko Gold Royalties, noting it "continues to add to its royalty portfolio and continues to track well along its plan to grow about 45% in the next five years."
Osisko is now trading at about CA$17.00 per share.
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Disclosures For Haywood Capital Markets, Osisko Gold Royalties, November 7, 2022
Analyst Certification: I, Kerry Smith, hereby certify that the views expressed in this report (which includes the rating assigned to the issuer’s shares as well as the analytical substance and tone of the report) accurately reflect my/our personal views about the subject securities and the issuer. No part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations.
Important Disclosures: Of the companies included in the report the following Important Disclosures apply:
Haywood Securities, Inc. has reviewed lead projects of this company and a portion of the expenses for this travel may have been reimbursed by the issuer.
Haywood Securities Inc. or one of its subsidiaries has managed or co-managed or participated as selling group in a public offering of securities for this company in the past 12 months.