Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE) announced two transactions in the past week, both positive. First, the company has acquired a pair of royalties on Hot Chili's Cota Fuego copper-gold project in Chile. The gold royalty is for 3% of production, and copper is for 1%. This adds long-dated optionality to Osisko from one of the largest undeveloped copper projects globally. Most of the revenue will come from copper, though Osisko's royalty revenue will remain primarily from precious metals.
There is a buy-down option on half of the royalty if there is a change of control, exercisable on the fourth anniversary of the transaction closing. Arguably, a change of control (and consequent buydown) would not be completely bad since it would likely mean a strong company acquired the project and would be more likely to move into production sooner. The purchase price is a reasonable US$15 million, giving it a 16% IRR at spot prices.
Osisko also completed an amendment to its silver stream on the Gibraltar copper mine in British Columbia, giving it 87.5% of the silver; the increase costs US$10.25 million plus US$50,000 a year for the next three years. Osisko has, in recent months, added some royalties to its existing powerful pipeline giving it a strong growth potential.
With solid management and a strong balance sheet, Osisko is a Buy.
Nova Adds Another Royalty Even as Potential Sale Process Underway
Nova Royalty Corp. (NOVR:TSX.V) has acquired a 0.25% royalty of Newmont's Saddle North deposit in British Columbia. The royalty was acquired from a private party for US$1 million in cash and US$2.75 million in Nova shares. Nova also obtains a ROFR on an additional 0.25% owned by the same party.
The property is near to the prolific Red Chris copper-gold mine, 70% owned by Newcrest, which last week made public comments about the prospectivity of the mine with a massive capital investment plan. The planned merger between Newcrest and Newmont could unlock synergies for the development of Saddle North.
This is another potentially powerful royalty for Nova, which is currently reviewing strategic options for its future following the resignation of the former CEO and three board members.
The stock price popped after this new acquisition was announced; we would hold but be ready to add on any pullback under US$1.70.
- 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. and Nova Royalty Corp.
- Adrian Day: I, or members of my immediate household or family, own securities of: Osisko Gold Royalties Ltd. and Nova Royalty Corp. My company has a financial relationship with Osisko Gold Royalties Ltd. and Nova Royalty Corp. I determined which companies would be included in this article based on my research and understanding of the sector.
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