Gold is uptrending. The bullion closed at $1,303.70 per troy ounce on the London market on Wednesday, up 1.6% year to date. The cumulative average of $1,303.24 per troy ounce so far this year is 2.7% higher than the cumulative average of $1,268.49 in 2018.
Gold futures are also climbing. The contracts through which the precious metal is negotiated on the Comex were up 1.4% to $1,301.70 per troy ounce at close on Wednesday. The average price of gold futures is $1,306.09 per troy ounce so far this year versus an average price of $1,289.27 in 2018.
The precious metal is expected to continue to gain in 2019 as a result of the Federal Reserve’s decision to keep the federal funds rate unaltered at 2.25% to 2.5%. When interest rates remain unchanged for a prolonged period of time, expectations for a low real yield environment increase, making gold more appealing than bonds and other fixed-income securities.
In order to profit from rising commodity prices, investors can purchase the metal or invest in publicly traded producers or gold-focused royalty and stream companies. Unlike mining companies, gold royalty and stream operators do not sustain the costs associated with the production of the precious metal. Thus, the financials of these companies usually benefit more in terms of higher gold margin per ounce with positive consequences for the share price.
Canadian company Osisko Gold Royalties Ltd. (OR, Financial) is well positioned to benefit from an uptrending yellow metal.
Osisko Gold Royalties has outperformed the industry and the overall market so far this year when gold rose 1.6%. Over the observed period, the company also outperformed the VanEck Vectors Gold Miners exchange-traded fund (GDX, Financial) by 26%.
The stock has also beaten the S&P 500 index by 20.5%.
Osisko Gold makes money from precious metal royalties, streams and other mineral interests that it possesses, operates and develops in Canada and internationally.
Even though the company is new to the industry, opening its doors only four years ago, it already has approximately 130 metallic assets, making it one of the best-ranked portfolios in the industry.
The most relevant assets in 2018 were its flagship 5% net smelter royalty earned on the gold that Agnico Eagle Mines (AEM, Financial) and Yamana Gold (AUY, Financial) produced from the Canadian Malartic mine in Quebec and the 2% to 3.5% net smelter royalty on Goldcorp Inc.'s (GG, Financial) production from the Éléonore Mine. In addition, the company benefited from the 9.6% diamond stream from the Renard mine and a 4% gold and silver stream it received from the precious metal Pretium Resources Inc. (PVG, Financial) produced from its reserves at the Brucejack deposit in British Columbia.
Other noteworthy sources were three 100% silver streams Osisko received from the Gibraltar mine, the SASA mine and the Mantos Blancos copper mine.
From its mineral assets, Osisko earned a record volume of 80,553 ounces of equivalent gold in 2018, which was a 37% increase year over year. The company expects to earn between 85,000 and 95,000 ounces of equivalent gold from its assets in 2019.
Osisko Gold closed 2018 reporting the following year-over-year changes. Revenue grew 122.5% to $373.67 million, the gross profit increased 10% to $50.73 million, the adjusted earnings jumped 27.3% to $23.02 million, or 15 cents per share, and the operating cash flow increased 68% to $62.64 million. Further, at 90%, the cash operating margin from royalty and stream interests Osisko recorded is the highest in the industry.
During the year, Osisko sold its interest in the Brucejack gold and silver stream for $118.5 million to Pretium Exploration Inc. The transaction generated a gain of approximately $6.7 million.
Osisko spent about $130.5 million in 2018 to improve the cash margin of Renard diamond stream, to repurchase approximately 2.71 million shares of its common stock and to repay debt.
The company's balance sheet is reasonably solid as GuruFocus assigned a financial strength rating of 6 out of 10. As of Dec. 31, the balance sheet had $129.7 million in cash on hand and equivalents, a $330 million credit facility with maturity on Nov. 14, 2022, $290 million allocated for equity investments and long-term debt of $262.6 million.
The company is paying a quarterly dividend of roughly 3.75 cents per ordinary share, leading to a forward dividend yield of 1.32% versus an industry median of 3.14% as of March 20.
The closing share price was $11.7 on Wednesday after a 22% climb for the 52 weeks through March 20. The stock is trading above the 50, 100 and 200-day simple moving average lines. The market capitalization is roughly $1.81 billion.
Further, the share price was 67% above the 52-week low of $7 and just 3.2% below the 52-week high of $12.08. The price-book ratio is 1.41 versus an industry median of 1.62, the price-sales ratio is 5.09 compared to an industry median of 1.41 and the EV-to-EBITDA ratio is about 27.4 compared to an industry median of 8.71.
The stock is not cheap. Regardless,Ă‚ Wall Street recommends buying Osisko Gold Royalties with an average price target of $16.76 per share.
The 14-day relative strength index of 64.35 suggests the stock is neither oversold nor overbought.
Disclosure: I have no positions in any securities mentioned.
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