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Osisko's Stock Run-up Justified by Growth Ahead
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Adrian Day Global analyst Adrian Day looks at quarterly financials from some of his favorite resource companies. Most had pre-released production, so there were not so many surprises but some insights. There are a few Buys among them.

Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE) reported a strong first quarter, with earnings above analyst expectations; Gold Equivalent Ounces (GEOs) had been pre-released.

The company reiterated its full-year guidance and increased the quarterly dividend.

Many of the projects on which they hold royalties are progressing. One particularly notable item was an investment by Gold Fields into Osisko Mining's Windfall project, which significantly reduced the development risk.

The company's largest asset remains its royalties on the Malartic mine.

Significantly, given the excess capacity at the mill and operator Agnico's plans for utilizing the mill, Osisko also receives a payment on any ore processed. 

Solid Balance Sheet and Project Growth

Osisko Gold has US$119 million in cash, with US$494 million in equity investments, and US$135 million drawn on its credit facility, with US$550 million remaining undrawn. Numbers are in Canadian dollars. Like other streaming companies, Osisko will be subject to the new global minimum tax, but it does not yet meet the revenue threshold for payment of the tax, so it should not affect the company, at least for the time being.

Osisko has 85% of its revenue from gold and silver and long-term, is looking at 70% gold, 20% silver, and 10% in other metals and minerals, and CEO Sandeep Singh said he was comfortable with that mix.

Still Undervalued, Even After Stock Ramp Up

On a cash flow basis, Osisko trades above other senior royalty and streaming companies but significantly below them on an asset basis. This is not surprising, given the company's very significant growth profile. Osisko is the smallest of the "big four" royalty and streaming companies.

It has very solid, methodical management, able to be selective on new investments given its very strong pipeline. The balance sheet is strong. The stock has been on a tear, up 42% this year, making it vulnerable, near term, to any pullback in the sector. But it remains a good value and can be bought if you do not own it.

Bright Outlook for Pan American, With Many Opportunities

Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ) reported its first-quarter financial results, which excluded the assets acquired from Yamana, although that company's cash and debt are included in its quarter-end balance sheet. Results were mixed, with the production of both gold and silver down, the former by 25% over the prior quarter, but in both cases, were higher than the market expected.

Production was down primarily because of restricted mining rates at the La Colorada mine until the new shares project is complete. The company reiterated the guidance it released after closing with Yamana. Costs for the quarter were reasonable. Its All-In Sustaining Costs (AISC) was strong at US$14.33 for silver and US$1,196 for gold, although cash costs less, so US$12.19 for silver (good) but a rather high US$1,120 for gold.

With the incorporation of Yamana's mines, these costs should drop for the balance of the year. The company's estimates for G&A, care and maintenance costs, and exploration costs going forward were all higher than expected.

As discussed when the company provided guidance, the integration with Yamana is going well, and the company is already harvesting synergies. A PEA on the La Colorada skarn project, the company's next major project, is expected later this year.

Consultations with the local community around the suspended Escobal project in Guatemala continue and are expected to conclude in October. There is no projected date for a restart of operations.

Solid Balance Sheet Even After Yamana Debt

Pan American has cash of US$513 million (including over US$200 million held at the MARA project in Argentina) plus over US$400 available on its credit facility. It assumed two notes from Yamana, in aggregate US$783 million, bringing its total debt to US$1,187.

CEO Michael Steinmann said he had always liked a conservative balance sheet, and the priority for cash flow will be to pay back the line of credit. He noted that the Yamana notes, expiring in 2027 and 2031, had very attractive rates of interest, and he was comfortable with those. Following the merger with Yamana, we should expect some disposals, though the company has not yet reviewed all projects and made specific decisions.

Pan American has a solid balance sheet and strong management. Troubled operations have been turning around, while the accretive acquisition of Yamana will lower average costs and add some attractive growth projects. The stock, while up sharply in March — it was US$14.68 at the end of February — has given back half its gain in the last month.

Pan American is a Buy.

Altius Sees Lower Earnings but Many Catalysts Ahead

Altius Minerals Corp. (ALS:TSX.V) reported earnings well below expectations, largely driven by higher taxes. EBITDA was a little above expectation, driven by a contribution from lithium, offset by weaker contributions from iron ore and Altius Renewals. Altius has just CA$20 million in cash (excluding CA$66 million at Altius Renewals, which is consolidated but not available to Altius), but including almost CA$9 million received after the quarter end from Lithium Royalty, which recently went public.

In addition, it has equity holdings of US$52 million. Debt is almost US$119 million. The company has US$93 million available on its credit facility, while other major shareholders would likely help fund any new projects.

The cash level is, however, certainly on the low side. Looking forward, Altius expects strong growth from its renewals company, revenue from the Lithium Royalty investment, as well as a recovery in potash prices. There is the possibility this year or next of the monetization of its gold royalties in the Silicon gold district. 

There are several other longer-term catalysts that we have discussed before. Altius remains a core holding for broad exposure to the commodity sector, with top management, strong assets, and a great pipeline.

It is a Buy.

Uh Oh, It Started All Over Again for Franco in Panama

Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) received more bad news from its largest investment, the Cobre Panama mine, when one of the two main unions blockaded the mine, preventing mining operations and reducing the mill to running at one-third capacity.

There is no indication of how long this blockade will last, though it appears to be an intra-union dispute rather than one aimed at the company.

Following a shortfall in stream revenue in the first quarter, Franco had been hoping that the second quarter would be a "catch-up" quarter, but this action may forestall that happening.

Franco remains a Hold.

TOP BUYS this week in addition to those above include Gladstone Investment Corp. (GAIN: NASDAQ), Midland Exploration Inc. (MD:TSX.V),Lara Exploration Ltd. (LRA:TSX.V),  Orogen Royalties Inc. (OGN:TSX.V),  Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE),  and Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE).

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Important Disclosures:

  1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Osisko Gold Royalties Ltd., Pan American Silver Corp., Altius Minerals Corp., Franco-Nevada Corp., Midland Exploration Inc., Lara Exploration Ltd., Orogen Royalties Inc., Fortuna Silver Mines Inc., and Agnico Eagle Mines Ltd., companies mentioned in this article.
  2. Adrian Day I, or members of my immediate household or family, own securities of the following companies mentioned in this article: All. Funds controlled by Name of Company 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. Additional disclosures are above/below.
  3. Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
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Adrian Day’s Global Analyst is distributed for $990 per year by Investment Consultants International, Ltd., P.O. Box 6644, Annapolis, MD 21401. (410) 224-8885. Publisher: Adrian Day. Owner: Investment Consultants International, Ltd. Staff may have positions in securities discussed herein. Adrian Day is also President of Global Strategic Management (GSM), a registered investment advisor, and a separate company from this service. In his capacity as GSM president, Adrian Day may be buying or selling for clients securities recommended herein concurrently, before or after recommendations herein, and may be acting for clients in a manner contrary to recommendations herein. This is not a solicitation for GSM. Views herein are the editor’s opinion and not fact. All information is believed to be correct, but its accuracy cannot be guaranteed. The owner and editor are not responsible for errors and omissions. © 2022. Adrian Day’s Global Analyst. Information and advice herein are intended purely for the subscriber’s own account. Under no circumstances may any part of a Global Analyst e-mail be copied or distributed without prior written permission of the editor. Given the nature of this service, we will pursue any violations aggressively.

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