Gold for immediate delivery was only a whisper away from $1,264 per troy ounce on the London Bullion Market Wednesday.
The precious metal reached $1,266.20 Wednesday afternoon, the third peak since the beginning of 2017 following the second peak of $1,265.05 less than a week earlier. The highest peak year to date was reported on April 13 at $1,284.15 per troy ounce.
This indicates gold is uptrending in response to a mounting consensus about the Federal Reserve’s intentions regarding interest rates.
The enduring low interest rate environment reflects the market's sentiments as the U.S. Dollar Index has been downtrending since early April when it was trading above $100. Since then, the index has lost nearly $4, more than 4%. A low dollar versus other currencies – as desired by the Trump administration – should promote the trading of American goods and services abroad.
With precious metals set to uptrend in the coming months, investors are seeking opportunities in the gold stock industry. One way to expose their portfolios to the changes in the price of gold and other precious metals is through gold royalty and streaming companies. Some investors prefer this solution as they want to be shielded from the risks associated with mining.
One of the best opportunities in the gold royalty and streaming industry is Osisko Gold Royalties Ltd. (OR, Financial).
Osisko Gold is a precious metal royalty company headquartered in Montreal. It began operating in June 2014 with an asset base of Canadian income-generating royalties in the provinces of Quebec and Ontario. The company is seeking other sources of income from developing projects. Should the company successfully complete these projects, Osisko will see its portfolio of income-generating royalties further expanded, benefiting its revenue and bottom line, especially during periods of rising gold prices.
When we take a look at the company's financial conditions, we can see that Osisko Gold Royalties can rely on a considerable amount of financial resources having 423.6 million Canadian dollars ($314.37 million) in cash on hand and securities as of the first quarter of 2017 plus a line of credit of 150 million Canadian dollars with maturity in two years’ time; the long-term debt only amounts to 46 million Canadian dollars. The company can base its business on a solid balance sheet.
It is a sizable amount of cash that the Canadian gold royalty company can use to upgrade its portfolio, which is composed of gold royalties earned from Malartic Mine, Éléonore Mine and Vezza, all of them located in Quebec, and from Island Gold (Ontario).
Osisko Gold Royalties receives between 7% and 8.5% of the total volume of ounces of gold that Agnico Eagle Mines (NYSE:AEM), Yamana Gold (NYSE:AUY) and Goldcorp Inc. (NYSE:GG) together produce in Quebec as operators of the mines.
The resale of the ounces of gold that Osisko Gold receives from the production at Malartic Mine and Éléonore Mine makes approximately 90% to 95% of the company’s total revenue.
The company reported revenue coming in at 17.126 million Canadian dollars in the third quarter of 2017, a 9.7% increase on a year-over-year basis, thanks to rising gold prices and increased production at Eleonore mine following the ramp-up as scheduled by the operator, Goldcorp, with its feasibility study. While at Canadian Malartic, the production of gold dropped approximately 3% on a year-over-year basis, mainly due to planned grade and mine sequencing as reported by the operators of Yamana Gold and Agnico Eagle Mines.
At the end of the first quarter, Osisko Gold reported a turnaround in the bottom line to 4.076 million Canadian dollars from a loss of 60,000 Canadian dollars reported in the comparable quarter of 2016, for a basic and diluted figure of EPS of 4 cents in Canadian currency.
The net cash flow Osisko Gold generated from its operations was 12.013 million Canadian dollars, a 22.3% increase on a year-over-year basis.
On March 3, Osisko acquired from Taseko Mines Ltd. a silver stream valued at 33.0 million Canadian dollars plus a 3 million Canadian dollars warrant. The purchase of the silver stream will give Osisko Gold the right to receive 100% of the total production of silver produced at Gibraltar in British Columbia by Gibraltar Mines Ltd. – a Taseko’s subsidiary – until Osisko has received 5.9 million ounces of silver after which Osisko will receive 35% of the total production of silver at Gibraltar. Concerning the purchase of the option, Osisko says that “each warrant allows Osisko to acquire one common share of Taseko at a price of $2.74 until April 1, 2020. The fair value of the warrants was evaluated at $1,780,000.”
Osisko’s board of directors declared on May 4 that the company will pay a quarterly dividend of 4 cents in Canadian currency on July 17 “to shareholders of record as of the close of business on June 30,” as reported by the company.
Osisko is trading at $10.51 per share on the New York Stock Exchange and gained 8.13% year to date, and the 52-week range is between $8.88 and $14.74. The stock has a market capitalization of $1.13 billion.
Osisko is trading at 1.24 times its book value (mrq) and 15.83 times its EBITDA.
Disclosure: I have no positions in any stock mentioned in this article.
