Gold is advancing slightly again but to reach the same levels of mid-summer, when it decisively broke through $1,235 per troy ounce, it has a very long path to take. The commodity closed $1,223 per ounce on the London Bullion market on Tuesday reflecting a 1.6% rise over the last five days, but it is still down 1.5% compared to the average price of $1,238.53 per ounce in July. The bullion went down 8.4% so far this year.
Gold Futures for Dec. 18 (GCZ8) were at $1,219 at the end of Tuesday’s negotiations, marking a timid recovery from a week ago level, but the financial instrument is still deeply below mid-February’s levels when the price hit $1,354 per ounce. The price at close Tuesday was down about 4.2% so far this year.
Gold could rally in late December following the Federal Reserve’s interest rate hike, which is expected to take place before the end of 2018. But it is not said that the commodity will do so. Investors also need to keep an eye on the inflation rate because declining real interest rates are often good for safe haven investments such as gold and other precious metals.
One way to be prepared for an eventual late-December rally in gold is to gain exposure to changes in the price of the commodity through investments in gold royalty and streaming companies. Now is the time to do so because a low commodity-price environment increases the odds of finding a stock that is not trading at unfair valuations.
Furthermore, the acquisition of royalty and streaming stocks helps the investor to maximize the benefit of a rising commodity since these companies do not sustain mining costs. Therefore, their income statement is relieved of the sustainment of a series of operating costs that the operator of a mineral asset usually pays.
Investors may want to consider Osisko Gold Royalties Ltd (OR, Financial). This precious metal royalty company is headquartered in Montréal and is new in the industry, initiating its business only four years ago. However, its portfolio is already rich in mineral assets accounting for a total of about 130 precious metal royalties, streams, other similar mineral interests and projects that the company is developing. These assets are located in Canada and internationally. The portfolio of Osisko Gold Royalties is ranked very high in the industry.
Osisko Gold Royalties is making the most of its royalty revenues thanks to a 5% net smelter royalty, or NSR, earned on the gold that Agnico Eagle Mines (AEM) and Yamana Gold (AUY) are producing from the Canadian Malartic mine located in Quebec. It is also getting 2-3.5% NSR on the yellow metal that Goldcorp Inc. (GG) is producing from the Éléonore Mine, also located in Quebec.
The portfolio of assets also includes a 9.6% diamond stream earned on the Renard diamond mine located in Canada and a 4% gold and silver stream received from the production that Pretium Resources Inc. (PVG) is making at the Brucejack gold and silver mine in British Columbia. It also sees a 100% silver stream on the Gibraltar mine, located in Canada, and a 100% silver stream on the SASA mine in Macedonia and on the Mantos Blancos copper mine in Chile.
From its mineral assets, Osisko Gold Royalties earned 20,006 equivalent ounces of gold in the third quarter and is guiding for gold equivalent volume of 77,500 to 82,500 ounces for full year 2018. The company is expecting a meaningful growth in the annual volume of equivalent gold for the next five years.
Osisko Gold Royalties closed the third trimester with total revenues of $111.7 million, which was a nearly 64% increase year-over-year. The company posted GAAP earnings of 4 cents per share and beat consensus by 2 cents.
Financially speaking, the balance sheet of the company is moderately solid. That is indicated by a score of 6 out of 10 for the financial strength rating that GuruFocus has assigned. The company has nearly $111 million in cash on hand and securities while the total debt amounts to $315.5 million. Most of it is represented by the existence of credit facilities.
The share price was $7.50 at close Tuesday after a 38% decline for the 52 weeks through Nov. 20. The share price is below the 50-, 100- and 200-day simple moving average lines. The market capitalization is about $1.2 billion.
The share price at close Tuesday is only 50 cents over the 52-week low of $7.00 and nearly 63% from the 52-week high of $12.22. The 14-day Relative Strength Indicator of 50 indicates that the stock is neither oversold nor overbought because it falls in a range of 30 to 70.
Osisko Gold Royalties is trading cheap. The company is also distributing a cash quarterly dividend of 5 cents per share in Canadian dollars, for a forward dividend yield of 2%. The company will pay the dividend on Jan. 15, 2019. To benefit, investors must be on the company’s record no later than Dec. 31. The ex-dividend date is scheduled for Dec. 28.
During the third quarter, First Eagle Investment reduced its holding of the company by 22.59% to 1,172,237 shares.
Disclosure: I have no positions in any securities mentioned.
