Mar 16, 2017
Executives
Sean Roosen - Chair of the Board of Directors and CEO Bryan Coates - President Elif Levesque - CFO
Analysts
Don Blyth - Paradigm Capital Adrian Day - Adrian Day Asset Management Kerry Smith - Haywood Securities Carey MacRury - TD Securities Michael Siperco - Macquarie
Operator
Good afternoon ladies and gentlemen, and welcome to the Osisko Gold Royalties Q4 and Year-End 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, March 16, 2017 at 11.00 Eastern Standard Time. Today on the call we have Mr.
Sean Roosen, Chair of the Board of Directors and Chief Executive Officer of Osisko Gold Royalties and Mr. Bryan Coates, President of Osisko Gold Royalties.
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] Welcome everybody we will be using a PowerPoint that's found on our website titled 2016 Q4 and year-end results. I'd ask you to have a look at the forward-looking statements as we will be making some forward-looking statements in this presentation.
To begin, we'll start on Page 3 of the PowerPoint. 2016, a very big year for Osisko Gold Royalties as we moved forward as fourth largest precious metal royalty company in the world with record gold equivalent ounces earned at 38,270 ounces, up 25% from 2015, record revenues at CAD62.7 million plus 38% from 2015, and net cash flows at CAD53.4 million compared to CAD28.9 million for 2015.
So on all metrics moving ahead well. Well prepared for 2017.
We ended the year with CAD499.2 million for December 31, 2016. We added significant assets to the company throughout the 2016 period both two royalties and some of our other investments.
The significant ones in North America, where the Windfall royalty owned and operated by Osisko Mining, the Horne 5 royalty operated by Falco Resources, and Cariboo royalty operated by BGM, and Hermosa operated by Arizona Mining. So pretty good progress on the royalty front.
We were also able to achieve a listing on the New York Stock Exchange in 2016 and as of this quarter we paid our tenth dividend. 2017 has been off to a good start with the addition of the Silver Stream from Taseko Mines, deal that we closed about two weeks ago.
This immediately increases the cash flow from our profile at Osisko with over 200,000 ounces of silver for the next seven to 14 years including 2017 with an average of 350,000 ounces of year for the remainder for the 23 year reserve life, so a significant asset add in the first quarter. As a note, we received our first delivery of silver on March 15 which was for all of January and part of February.
So we are up and running on our Silver Stream big asset in cash flow to the company. Onto Page 4, production and guidance, 2015, we are about 30,000 ounces of gold equivalent, '16, we're at 38,270 ounces, and our guidance for 2017, we're looking to achieve somewhere between 43,300 and 46,100 ounces.
So again an increase of 13% to 20% year in year out for 2016 and 2017, so we are seeing organic growth in our existing assets. That does not assume any new assets being added to the company then they come in 2017.
On Page 5, net cash flow from operating activities from 28,900,000 in 2015, up to 53.4 million this year, so very good acceleration in our net cash flows. Record revenues at 62.7 million as opposed to 56 million last year and that earnings sitting at CAD42.1 million from 28 million in 2015.
So on all metrics company is moving forward in a very steady fashion right now. Little overlook at the balance sheet, the cash and equivalents has increased in 2015, we're sitting about CAD258 million and now sitting at just at a tick under CAD500 million.
Cash and equivalents are in pretty good shape, we have a debt of 45 million which is in our convertible. The total assets in the company now sitting at CAD1.4 billion with equity sitting at 1.2 billion.
Strong cash position going forward, with over CAD700 million of cash in our revolver available to us and CAD221 million in investments in liquid assets. 2016 saw us complete several financings, CAD172 million straight equity deal, CAD50 million convertible with Investissement Québec for a total of CAD222.6 million raised in 2016.
Expanding the portfolio of the Canadian development stage royalties, we entered into agreement with Barkerville Gold to acquire 1.5% of the Cariboo gold project and consideration for 25 million. We also added a 1% royalty at the Arizona mining Hermosa project for CAD10 million.
And we also have a convertible royalty and debt financing royalty to the investment that we had in Falco Resources, giving us 1% royalty on the Horne 5 project. We also purchased to exercise our purchase right for the 1% royalty on Windfall Lake which is currently probably Canada's large exploration program with over 16 drills turning into CAD8 million drilling budget this year, so a very significant add to our royalty base as we see a successful discovery at Windfall Lake continue to evolve.
That said, we now have a 1.5% total operating royalty on that asset. So I think that's going be a great asset for us as we move forward.
2016 we listed on the New York Stock Exchange in July. We continue to see development of our market in New York as we see volume increase in the US.
[Technical Difficulty] in New York, we're now sitting around 25%, so we expect to see that continue to grow and will be a focus as we work through our 2017 investor relations program and initiatives. We had the earn on the Osisko Mining projects where we had the assets that we acquired during the Virginia acquisition which we transferred in exchange for royalty considerations and investment considerations to Osisko Mining and we generated proceeds of CAD129.2 million on the sale of other investments, the bulk of that being from our sale of our lift position which we earned between capital gains and dividends of CAD17 million profit on that investment loan.
Very happy and proud to report that we've declared our 10th dividend and we paid over CAD30.8 million in dividends since het start of the company in June 2014. Page 10 shows the attributable breakdown of ounces, always the bulk of our ounces are coming from Canadian Malartic, which continues to be Canada's largest producer of gold with the topline royalty of 5% generating in excess of 30,000 ounces from that asset.
The reason to it, the Éléonore is continuing to ramp up, we're expecting somewhere between 6,800 and 7,000 ounces based on the guidance from our partners [indiscernible]. And we also have Island Gold which has been contributing as well CAD1400 to CAD1600 from Richmont's Island Gold project in Western Ontario and 2,600 to 3,000 ounces of gold equivalent from the Gibraltar Stream at Taseko mines and was our small investment in Vezza and some other smaller assets making up another 2,000 to 3,000 ounces for our guidance.
So obviously in Canadian based assets, so we're in pretty good shape here. Page 11 just goes to show a bit of our distribution of where our assets.
I think we've covered most of this ground, but obviously big Canadian focus with the exception of Highland Copper and Hermosa, all of our assets are essentially located in Canada. We also still retain our ground position in Guerrero state with over 9,600 square kilometers of exploration ground there.
We still own a 100%, 85% of our bio-metallic project located in Northern Quebec. So in addition to that we have several other assets that are in development including any integral Lamaque assets, Marban, Windfall, Horne 5, and the upper Beaver project and also having this project as well.
Some individual asset basis, we looked at Canadian Malartic obviously big success there with the addition of the Odyssey zone adding another 1.4 million ounces of measured indicated. The current mine plan has 7.1 million ounces in it, with current production for 2017 guidance sitting at 600,000 ounces and in 2018 looking for 650,000 and 2019, 640,000 ounces.
Though it is Canada's by mine single largest producer of gold in the near term and we continue to enjoy the continuing success through our partners [indiscernible] a great job of keeping the mine moving forward and with the addition of Odyssey they have added some significant measured to indicated ounces to it. The outside of the mine plan, there is now about 3 million plus ounces of measured and indicated material to look at it possible addition to that mine plan as that project evolves.
Page 14 is a bit of an overview on Odyssey again, 1.43 million ounces of measured and indicated there from 155 holes of drilling. It was completed in 2016, great success on both the south zone and north zone.
And grades there running about 2.4 gram on average, sorry 2.15 grams which is actually significantly higher than the Gold x grade and almost double the grade of the Canadian Malartic pit, so there's a potential to see increased throughout - increased ounce production if there are able to blend their higher grade material in the mine plan. On Éléonore, we a sliding royalty from 2% to 3.5%, currently we're getting about 2.25% royalty based on current gold prices over 4.57 million ounces in the current mine plant, significant more ounces outside of in the measured and indicated and inferred categories.
So we see upside there, and this is a big growth asset. And we hope to see that grow to a significant production.
Currently, the production in 2016 was 278,000 ounces netting us about 5,500 ounces and guidance for this year is 315,000 ounces which would net us 6.8 to 7000 ounces, so a good increase as we watch that mine continue to evolve and to ramp up. Most recent we've added is the Gibraltar Stream, 100% attributable and payable solar to see growth of 75% owner of that asset located in the Cariboo district, about 90 kilometers from Barkerville assets, 23 year mine life, so it's exceptional mine life.
And we have 100% of the Taseko's share of the payable silver, the 5.9 million ounces of production at 35% payables over thereafter, at an optic cost of CAD2.75 per ounce. Fixed silver a payability of 90%.
Silver production for 2017 to 2030 set to look at about 200,000 ounces and then about 350,000 ounces from 2031 to 2039. The good news of course is that the stream is affected as of January first so we received our first shipment of silver as of March 15 and we're continue to look forward to the increased success that Taseko has had in terms of getting their cost structure in place and moving forward with one of the largest open pit mines in all of Canada at this point in time.
In terms of our accelerator model, we've been quite successful that I think in terms of adding our accelerator model as part of our business plan, Osisko Mining being our preeminent success at this point in time. We've invested about CAD9.8 million to purchase the royalty, 1% royalty and we have an unrealized gain on the investment of about CAD20.2 million.
So we have a positive, we have - we own the royalty upright and we have a positive gain of over CAD10.4 million over and above the original cost of the royalty. Falco Resources, we bought the royalty there for about CAD10 million, unrealized gain of about CAD7.1 million.
So, net cost of royalty about CAD2.9 million thus far. Barkerville, CAD25 million for the royalty, unrealized gain of about CAD5 million on our assets.
So again, as we see that asset develop, we expect the net cost of that royalty to continue to go our way. Arizona Mining, exceptional autumn there with CAD10 million royalty purchased, CAD16.6 million of unrealized gains on our share position there for a net cost of royalty of CAD6.6 million gain to us.
So that's when our royalty accelerator model is working well, this is what we expect to see. Page 19 is an overview of our equity portfolio.
We have a total investment of about CAD155 million, of which CAD35.5 million was done through the acquisition of Flow-Through shares, which we can use to protect our tax pools and defer taxes on our existing royalty revenues, so quite an important benefit on those Flow-Through share investments. And market value at December 31 of 2016 was sitting at CAD205 million and at March 13, we were sitting at CAD255 million for an unrealized gain of over CAD100 million in the equity portfolio at this point in time.
We also had a realized gain of CAD15.9 million on equities last year outside of dividends and we have a book value of royalties that we acquired through that process of CAD62 million. So this has been a pretty exception outcome we believe in terms of increasing net assets to the company and also keeping our AUM in good shape as we roll over some of those investments and redeploy them once again into Flow-Through shares to continue to build and protect our tax pools.
Again, the summary of the company. Over 50 royalties and one stream at this point in time.
Two of the preeminent assets in the space, the Canadian Malartic royalty is considered the second most valuable in the world and Éléonore is the sixth most valuable. SO great cornerstone assets there and with the addition of the Taseko silver stream, we've added another great cash flowing asset on long life asset.
Over CAD700 million available for investment between cash and available credit and paying a dividend yield of about 1.1% under a current dividend policy, we are a goal focused. I can believe we've demonstrated a significant track record of success, as we've built the company over the last 30 months and 38,270 ounces of zero cost gold equivalent ounces from our Canadian assets in 2016 and again, looking for 43,300 to 46,100 ounces of oil gold equivalent ounces for 2017.
There are some items in the appendix for further detail. There was a press release issued earlier today and I thank everybody for listening, and now, we would open the presentation up for Q&A.
So operator, if you could initiate the Q&A process please.
Operator
[Operator Instructions] Your first question comes from the line of Don Blyth with Paradigm Capital. Please go ahead.
Don Blyth
Hi. Congratulations on a great year guys.
I have more of a broad question on strategy. You guys have telegraphed that you would like to add a third producing royalty of similar quality to your flagships at Canadian Malartic and Éléonore, you've certainly got the cash to do so.
Do you really believe there are opportunities out there to do this or is the market starting to move more towards the line of the incubator model as the development projects move closer to production?
Sean Roosen
We'll have to see how the rest of the year plays out. Obviously, we saw a bit of an increase in access to capital through equity markets in the second half of 2016, but as we look forward, we look at the gold price play action in Q1.
We see some opportunities there, but I think we're focused on making sure that we don't miss any of the development asset opportunities that may be generated with the increased enthusiasm on gold projects. But that said and done, the cost of capital on streams is still very comparable to the equity market.
So we think there is work to be done.
Operator
[Operator Instructions] Your next question comes from the line of Adrian Day with Adrian Day Asset Management. Please go ahead.
Adrian Day
Yeah. Good Morning.
My question kind of follows on from the last one. Sean, I was wondering how do you view sort of one large cash flowing royalty in stream versus buying three or four smaller ones as you've just done with Taseko, what do you see as the advantage of one big one?
Sean Roosen
Obviously, if we get exposure to an exceptional world class asset with long mine life, we would not want to miss that opportunity. But at the end of the day, big mines are found with small mines.
So our belief is that small mines usually have the potential to become big mines if we're in the right jurisdiction, the right plumbing system. So we're pretty diligent about smaller projects and if deals of sort of CAD50 million to CAD100 million size are well within our willows, but we would certainly enjoy the opportunity to do CAD500 million to CAD1 billion if we see them around.
Operator
Your next question comes from the line of [indiscernible] with RBC Capital Markets. Please go ahead.
Unidentified Analyst
Good morning, everyone. Just a couple of quick ones for me.
First off, do you have an update on either land package you have in Guerrero, whether there's been any movement on potentially monetizing that?
Sean Roosen
We've had several approaches. There's been quite a few proposals.
We'll probably make a decision sometime over the next three to six months. We haven't - last year was pretty busy with other things and we didn't see that it was up much.
Exploration, international exploration on the go. This year, we're seeing more interest in that and obviously with the resolution of the last field of Goldcorp and some of the evolution [Technical Difficulty] that's kind of what we're waiting for.
So we'll see where that goes, but we would obviously retain royalty rights on it if we were to put it into another asset group, but we haven't made any final decisions as of yet.
Unidentified Analyst
That's great. And then just one little modeling question, can you just give the breakdown of the tax pools you still have in Canada and 8 22:28 cash taxes you'd expect to - or when you start to expect?
Sean Roosen
Elif Levesque, our CFO is with us this morning. So I'll ask Elif to give you an overview.
Elif Levesque
Hi. So we have currently tax pool development total of 100 million, which is mainly fees and CDEs and we have some additional, about 15 million in terms of share issue expenses, but so, let's say 100 million for fees and CDEs.
And right now, if we don't do anything else, I guess we would be expecting to be taxable in 2018, payable in 2019. But this is an ongoing strategy for us, so we're working on it.
Operator
And your next question comes from the line of Kerry Smith with Haywood Securities. Please go ahead.
Kerry Smith
Sean, just on the Guerrero land package, it's really large, is there a big holding cost to hold that ground?
Sean Roosen
Not at present. It's less than CAD0.5 million at present, but as we move closer to initiating exploration, the land package will go up in holding costs, but right now, it's relatively low.
Operator
Your next question comes from the line of Carey MacRury with TD Securities. Please go ahead.
Carey MacRury
Hi. Good morning.
I'm just wondering if you could provide some guidance on what you're expecting for 2017 for G&A and business development.
Bryan Coates
It's an ongoing piece and we haven't put out any guidance on it as of yet. But if you look at what we did last year, cash costs, G&A and they are separated from equity based compensation, were somewhere around 15 million and then the actual cost of the equity position around, would probably put us in a 20 million, 22 million depending in share price as we move forward.
So we did see reduction in the direct cash costs, but some of the RSUs and option packages come for, we will have to consider them under G&A.
Operator
Your next question comes from the line of Michael Siperco with Macquarie. Please go ahead.
Michael Siperco
Hi. Thanks, Sean and team for taking my question.
A couple of quick ones. Maybe, given that you did sign your first stream deal in the quarter, and the ongoing CRA issues that some of your peers are saying, can you give us your thoughts on how you're thinking about the future structure of these deals?
Should we expect to see anything offshore or is it just a case by case basis?
Sean Roosen
For us, it's case by case. Obviously, our chosen path forward has been by investing through Flow Through to continue to protect our cash flows and we're able to roll those investments over.
So, it's been a pretty successful strategy for us and especially if we've been able to buy Flow Through and companies where the assets are moving up the value chain as we have today. So that's our current strategy and we'll see where we get to.
Bryan Coates
I'd also add, Michael that we have always, - we've told you that we are continuing to review international structures and most of our deals so far have been focused in Canada. We are looking to establish the platforms that would allow us to compete internationally, structure internationally and we're working towards that and ensuring that the structure also works well.
Michael Siperco
Perfect. Thank you.
Makes sense. And then one other for me, just on the dividend, in 2016, by my math, anyway as you paid out about 25% of operating cash flow, can you talk a little bit, I guess, in the context of the balance sheet, which is a little stronger now with the sale of this vestment and the cash that you're generating going forward, how you think about the dividend?
Sean Roosen
I think we want to stay in that 20%, 25% payout range, Michael, we want to make sure that we're growing our cash flow assets in accordance with our dividend expectations and we don't want everyone to find ourselves in a position where we can't maintain it. So we've taken a very prudent, but steady approach to it and that's going to be our methodology on a go-forward basis.
We want to be a steady eddy on the dividend skews.
Michael Siperco
So that's the range that we should be looking at sort of similar payout ratio to what we see in '16?
Sean Roosen
That's correct.
Sean Roosen
All right. We have no further questions.
So I'd like to thank everybody for participating in the call today and we look forward to catching up with everybody as we get into more of the marketing session for April and May and I think that we've set the stage for a pretty good year in 2017 and we hope that you'll join us as we participate in this goal rally.
Operator
This concludes today's conference call. You may now disconnect.