May 7, 2016
Executives
Sean Roosen - Chair, Board of Directors and CEO
Analysts
Eric Lemieux - Peartrees Securities Dan Rollins - RBC Capital Markets Adrian Day - Adrian Day Asset Management
Operator
Good morning ladies and gentlemen, and welcome to the Osisko Gold Royalties' Q1 2016 Results Conference Call. After the presentation, we will conduct a question-and-answer session.
[Operator Instructions] Please note that this call is being recorded today, May5th, 2016 at 11:00 AM Daylight Savings Time. I would now like to turn the meeting over to our host for today's call, Mr.
Sean Roosen, Chair of the Board of Directors and Chief Executive Officer of Osisko Gold Royalties. [Foreign Language]
Sean Roosen
[Foreign Language] Good morning everybody, and thank you for joining the call. We will be following a PowerPoint that's on our website titled 2016 Q1 results this morning.
Within that PowerPoint, on page two, there is a forward-looking statement and we do seek Safe Harbor during the presentation as we will be discussing future events and I ask you to review that. As we move forward this morning on page three of the PowerPoint, just a brief summary of what we've accomplished in Osisko Gold Royalties in the first 22 months of our existence as you know we IPOed this company on June 17th, 2014.
We've been extremely active throughout that period. We've raised over $500 million in capital and we've secured another $200 million in available credit, and we've invested 235 million as a capital into investments and another 775 million in transactions including corporate acquisitions.
We've added 49 royalties to our portfolio plus royalty options and a total of 18 million dividends have been declared as we're in seventh consecutive quarter of dividend payment. We created a new royalty business model, the incubation model that we're taking advantage of as we see these gold markets evolve.
And a bit of timeline on the bottom here shows you the transactions have importance. In 2014, we have started the company with $157 million in cash.
We secured a $100 facility. Subsequently, we did the acquisition of Éléonore through the acquisition of Virginia and André Gaumond and Paul Archer and his teams joined forces with the Osisko to set the stage for what we believe is the leader in the intermediate royalty space and including the differential business model with the incubator strategy added to the year -- to the business plan.
We've also announced a $200 million [Indiscernible] in Q1 2015 and followed up with several acquisitions of royalties throughout 2015, including acquisition of a package from Teck for 28 million, which included inside the gold royalty. And also subsequently into 2016, we raised 173 million bought deals in Q1 of this year.
In addition to that, we achieved a $50 million convertible debenture financing with Investissement Quebec to reinforce our balance sheet to put us where we're today. We're also looking at 2016 able to increase our credit facility from $150 million to $200 million.
We also achieved a royalty financing [Indiscernible]. In terms of 22 months accomplishment, we continue on page four, the Éléonore and Island Gold royalties and also the LIF royalty for which we received $5.8 million dividends in 2015, equivalent to about 5,000 ounces of royalty gold.
And the interesting thing about that LIF royalty as well is because of the tax structure that's equivalent to about $9 million of traditional royalty income as their tax regime for that is different than traditional royalty. As we've gone through the process, the sum total of our capital raised to-date is over $500 million, the increased facility up to $200 million.
So, it's been pretty strong in a downtick market as we've all list the new company to where we're today. Page five shows our ounces earned to-date.
Q1 of 2015, which was our first call operating year, we had earned just a tick under 7,000 ounces in Q1 this quarter for 2016, we're already 9,400, a significant increase and our guidance for this year as we're looking to receive somewhere between 34,500 and 37,200 ounces of royalty gold that is not non-streaming gold, but a zero cost royalty [Indiscernible] look forward to the increase in gold price that we've been enjoying through first quarter and in second quarter of this year. Page six, a bit of accumulation of our unit cash flow from our operating activities in Q1 2015 5.6 million, in 2016 roughly 13.5 million.
More than double what we were last year. Revenues have gone up to 10.6 to 15.6 million for the quarter -- 2015 numbers.
Over onto page seven, reported numbers here obviously 9,400 ounces of production. It created revenues of 15.600 million and adjusted earnings of $8.56 million.
We do have some currency losses that come and go as we know last year. We carry our cash balances roughly 50% U.S., 50% Canadian.
So, we do see some ebb and fight on the value of those -- of that foreign exchange. So, we worked out as Canadian dollars strengthened at the time of the new quarter [ph].
So, we will see that move back and forth a bit as we maintain exposure and the strategy there is that we want to keeping up Canadian and the U.S. dollars to be able to transact in either currency at any given time.
So, as we move forward, we'll see that acquisition move back and forth a bit. Page eight is a bit of summary of our balance sheet.
Cash and cash equivalent sitting at C$439 million with working capital and marketable securities a little over 607 million, convertible debt of 45.1 million, and total assets sitting at 1.31 billion and the equity sitting at 1.27 billion. So, pretty good numbers for the company of our age.
And again strong position, we're able to transact without having to go to market up for $640 million with our current cash and available credit facilities. Since the inception as we've earlier, we started with $157 million on our balance sheet, we're now sitting at $439 million giving us one of the strongest balance sheets to participate in the current royalty as streaming markets has been -- we're looking at 2016, will be about deploying a good chunk of that capital of just significant world-class asset as we think there's some opportunity that over the next six to 12 months that are going to allow us to deploy.
In fact, we're currently working quite hard on several of those opportunities and we look to have some success here in 2016. On page nine, dividend yield, we've remained on our program to increase our dividend when possible.
We went from $0.03 to $0.04 a share and we're now at seventh consecutive quarter dividend declared, so I think that shows our commitment to return capital to shareholders and making sure that we have this within our organization to maintain a realistic dividend policy and increase when possible. Page 10 is just a summary of geographically where our key producing assets are located.
We're Canadian -centric. The dominance of our assets is coming from Quebec with about 85% of our income coming from [Indiscernible] and Éléonore.
As you can see Éléonore is sitting at 2% to 3.5% NSR that mines the ramp-up and Canadian Malartic has been our cornerstone asset with a topline of 5% royalty providing over 28,000 ounces. So, a full thrust.
We also added this year the Island Gold asset which is operated by Richmont and last year we added the 0.7% royalty equivalent in the -- through the 9.8% acquisition of the Labrador Iron Ore Royalty Corporation which is the IOC company operated by Rio Tinto. So, all good invest -- all good projects and when we see the quality of those assets, that's aim what we're down.
Page 11 shows where we're on our Canadian Malartic asset. Canadian Malartic here is currently Canada's largest gold mine in operation and it has produced more gold than anybody else in the last two years.
And we believe it will be a leader again this year at 560,000 to 580,000 ounces, we would expect to see that sort of guidance for 2016 estimated moving that we give us about 28,000 to 29,000 ounces that would be our guidance or what we expect to receive from Canadian Malartic there. Current reserves standing at 7.72 million ounces of gold.
It's very healthier than in 2016 guidance has been between 560,000 to 580,000 ounces. With 2017 going 590,000 to 600,000, in 2018 continuing to grow at 610,000 ounces, increasing our attributable ounces as we move forward.
We're also looking forward to drill program -- with the partner as initiated at quarter three, which we also continue to add new resources to that project on which we also have attributable royalties. On Éléonore, things are been moving quite quickly beginning the ramp up this year.
They have had a good start for the year. We -- last year they produced between -- they produced about 250,000 ounces -- 268,000 ounces.
And Q1 production is at 66,000 ounces for this. Guidance is at 250,000 to 280,000 ounces.
So, we expect to see somewhere between 5.5 and 6.2 thousand ounces coming our way as that ramps up. But Éléonore is a brand new mine and we expect to see it ramp-up continuously for the next three or four years.
In addition to that there has been quite bit of exploration set -- add cap as the reserve there currently sitting at 5.35 million ounces in the first 650 meters. So, a lot of offsite in that project, but the royalty coverage is huge line of package and the business, that is evolving.
So, we think that is an asset we're just continue to do organically grow within our portfolio for a long time to come. Producing royalties in page 13, the Richmont operation at Island Gold has been seeing quite a bit of success.
They recently their reserves by 200% this year, production in 2015 was about 55,000 ounces, so that's -- we wish some luck on that and it’s a story that's showing continuous strength and we've received about 212 ounces from that royalty to-date, but we expect to see that start to grow as the mine evolves and we get into further into the new reserve and a new drill program that we've initiated there. The Labrador Iron Ore Royalty Corporation, 9.7 equity interest is basically equivalent of just under -- tick under 0.7% of that royalty and it cost us through to us in a tax efficient way.
It is one of longest standing royalties in the business. The mine has been in production for -- since 1954, currently has a 28-year mine life.
So, we see that as a pretty strong asset that continues to grow. The first quarter of this year was surprisingly strong, given the malaise that we saw last year on Iron Ore outlook.
We've seen that look pretty good for us and we've received $1.6 million in Q1 from that dividend when we were forecasting about 6.4 million for the 2016 year, which would be the equivalent of a pre-tax royalty of about $9 million. So, quite a strong return to that investment to-date.
We also have a 5% royalty on project Vezza, which is currently underground mining and processing here in Q2 and we also have 40% NPI. It is a smaller project.
So, we expect to see some cash back from that in 2016 and probably more of a contribution in 2017. Page 14, deadline to little bit above what differentiates Osisko gold royalties from some of the other peer group royalty companies.
We maintain our incubation process and the rate for the basics of the incubation process as if we look back at the history of both the Virginia Group who has joined Osisko and our success as of Osisko mining which created the 5% royalties that we enjoy today. In a case of Canadian Malartic, we found and built project worth $1.50 billion Company and got sold for $4.3 billion and that generated return a shareholder of $3 billion.
In a case of Virginia, they found and sold Éléonore to Gold Corp. in 2004 for $500 million and we subsequently purchased the company for another $560 million returning well over $1 to shareholders between those two models we have seen $4 billion of wealth creation.
And incubation process has somewhat puts us in a position to take advantage of what we’ve learned through that model. And that we invest correctly both equity and for the royalty and the companies and in some cases we provide technical and financial oversight.
An example here would be BGM where we’ve put in $15.2 million of flow through shares which is currently up 65% sitting at $27.4 million of value and we paid $25 million for the royalty. And we also entered into as four contract whereby Chris Lodder and Luc Lessard from our team act as President and COO for the Company to set a stage for the evolution of that project [indiscernible] producing mine one day.
So that is how we’re looking at the process. And in this case much more hands on to our technical team and what it also does it allows our technical team to maintain high level of senior people because they have more than due diligence for the royalty company for them to do the active participation some of the associated companies in which we are invested.
We recently purchased also 1% royalty on the Arizona Mining project, the Hermosa project where we bought 5.6 million shares currently up 100% so sitting about $10 million of an equity value there. We paid $10 million for the royalty so in that case we are short-term returning from the equity as we evolve for the project and hopefully converting into royalty cash flow upon production.
Page 15, little bit of a summary of the situation. Currently, we have 54 royalties.
We do not have any streams at this point but we may see some of that business come our way this year. Two of the premier royalty assets in the world would be Canadian Malartic royalty in particular being equivalent value to the gold price royalty which added to most valuable royalties in a gold space at present.
In terms of in cash available right now is the $140 million available credit. And we – in the cash and credit, so we will be looking to take advantage of that this year and hopefully had a another significant asset to our portfolio.
Maintaining dividend 1.1% which are above focus, Canadian focus with we’re leveraging track record of success through another projects and to take our business model forward. We currently have about 9400 ounces of gold this quarter and looking forward to getting about 34,500 to 37,000 ounces attributable gold ounces coming our way as we complete the year 2016.
All-in-all, we’re giving a pretty good summary then most of the further details are in the appendix or the press release. So thank you, everybody for calling this morning and if there are any questions I would open the floor up to Q&A at this time.
Thank you very much.
Operator
[Operator Instructions] Your first question comes from the line of Tara Hassan from Haywood Securities. Your line is open.
Unidentified Analyst
Thank you. My name is [indiscernible].
And just a quick question on sort of how you are seeing competitive landscape evolve on the new acquisition of royalty and streams. We’ve obviously seen a strong equity market.
Could you maybe touch on how that’s changed the process in your view and potential timing of executing on new transaction?
Sean Roosen
Sure. I take that.
Obviously, particularly in a gold space we’ve seen stronger performance on the equities than we have in the base metal space. I think where we’re focused right now would be fairly bigger streaming deals on private producers.
There is still quite a bit of activity from the boards and management levels in companies that are converting debt out of through the sale of disposition of assets or through royalty and/or stream deals. So we see that piece of business being pretty active as we go through the rest of the year probably along with 2017.
There is quite a bit of debt conversation that has been announced so we’re actively pursuing also those opportunities. Within a gold space, we’ve seen equity markets open up somewhat made that space as it gets typically these freight markets are fairly strong.
So we’ll see as we evolve into Q3 and Q4. But most of the deals we’re working on are continuing down the path.
Competition with equity I think is there right now and we’ll see how the world market evolves on that. But from our standpoint with the long term plan and we’re executing on that plan.
Unidentified Analyst
Perfect. Thanks guys.
Operator
[Operator Instructions] Your next question comes from the line of Eric Lemieux from Peartrees Securities. Your line is open.
Eric Lemieux
Well, Sean and team, congratulations. Just maybe a short question.
Sean, you made reference to Éléonore factor bringing a brand new belt and we know this from -- perhaps, some good exploration potentially area obviously, [indiscernible] resources has been in the news. Just wondering, in terms of the royalty you have there its sizeable land tractors, right?
How many hectors?
Sean Roosen
Maybe control is all of the land that were sold to Éléonore at the time the exact size of the project. I think it's about 550 square kilometers.
I have to check here back here with the exact number quite a long piece of the trend.
Eric Lemieux
Exactly. So it is pretty big land package and has Gold Corp.
been very active in terms of exploring outside of Éléonore per se [indiscernible] in the 494 zone. Are you aware that there has been other stuff going on in terms of their exploration on property scale?
Sean Roosen
They’ve been deepening ramp and drilling from end to the 494 zone. We expect to see some more drillers also come out of that later on in this year in terms of the outside the current footprint of the mine.
We told that there is work being done. The intensity of that work is will be subject to some success on the first half and obviously as you stated the ongoing exploration sets is serious.
It is line up on trend with the Éléonore property. And it has last year some good potential there resulted in new discovery.
Eric Lemieux
Right. That’s it.
Thank you very much.
Sean Roosen
Just one clarification. We also own land directly outside of the Éléonore belts are total footprint where we are own the land or have the royalty as 4600 sq.
km in James Bay. That includes our direct own land.
Eric Lemieux
I’m good. Thank you.
Operator
Your next question comes from the line of Dan Rollins from RBC Capital Markets. Your line is open.
Dan Rollins
Yes, thanks very much. Sean, I was wondering if you might be able to provide a little bit more information on the incubator model you guys have so far successfully operated.
Do you see the ability to add more companies into the portfolio or you’re currently happy with the existing compliment of companies that you’re working with and you put your management of technical expertise into?
Sean Roosen
I think Dan where we were pretty active in 2015 and earlier this year. We’ve had a focus on the Brownfield projects where we saw tangible resources.
And we see those opportunities come by we may act. Brownfield with tangible resources are fairly – we have a fairly small number of them.
And we will see also activities as projects go through the permanent process and into the project financing level. We will be active on the project finance level with post, post feasibility level as well.
Dan Rollins
Okay. Perfect.
And then, I guess you’re almost – coming up to your two year anniversary. One of the topics when you recreated what’s potential spinner of the grill belt and somebody acquired Virginia pick up some of the lands just recently mentioned.
What’s the exit strategy for some of the land packages you have? And could we see some deals being done this year or is it a still couple of years away?
Sean Roosen
That is you know, we had committed to signing first two years structuring the company and building out business model and our platform. As you said, we are coming of that anniversary.
So we will be looking to simplify our asset base and to make it easier for market to understand as we will further honor through the year. So yes, you can expect to see some changes over the next few quarters.
Dan Rollins
Great. Perfect.
Thanks very much, guys.
Sean Roosen
All right, thank you very much. Patent, we have Adrian Day.
Operator
Your next question comes from the line of Adrian Day from Adrian Day Asset Management. Your line is open.
Adrian Day
Yeah, hi. Good morning.
Thank you. I guess my question follows up on the last question about the incubator model.
Looking at that from other end with the cash you’ve got on hand, are you -- is your primary focus now -- I don’t have words in mouth, but is it your primary focus looking for perhaps a larger cash flowing stream or royalty. Will that be a prime focus of the money?
Sean Roosen
2016 as we said we’re short of the balance sheet earlier in Q1 by adding $222 million and the gold there right now is -- if we look around at the royalty space we believe we’re one of the company has the ability to deploy up to $500 million U.S. or $650 million Canadian on a bigger deal without having a kind of market.
So that is 2016 goal is to work on the bigger assets.
Adrian Day
Okay. Primary gold or exclusively gold?
Sean Roosen
We would be looking primarily gold or silver precious metal addition to our asset base.
Adrian Day
Okay. Great.
Thank you.
Sean Roosen
Alright, thank you very much, everyone for calling in today and we will continue to get ready for the rest of 2016 where we believe normally be a pretty active year for deals. So keep you posted on that and thanks very much for calling in today.
Operator
This concludes today’s conference call. You may now disconnect.