Nov 7, 2019
Operator
Good morning, ladies and gentlemen, and welcome to the Osisko Gold Royalties Q3 2019 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 November 7th, 2019 at 10:00 AM Eastern Time. Today on the call, we have Mr.
Sean Roosen, Chair of the Board of Directors and Chief Executive Officer of Osisko Gold Royalties; Mr. Bryan Coates, President of Osisko Gold Royalties; and Elif Lévesque, Vice President Finance and Chief Financial Officer.
I would now like to turn the meeting over to our host for today's call, Mr. Sean Roosen.
Sean Roosen
[Foreign Language] Welcome, everybody, and welcome to the third quarter of 2019 conference call for updated financial results and outlook for Osisko Gold Royalties. We will be using a PowerPoint on our website.
And I would take an opportunity to review our forward-looking statements as we get into this we will be providing some forward-looking statements as we get further into the presentation. The highlights for the third quarter of 2019, 18,123 GEOs were earned from our partner and revenues of $33.9 million for the quarter, record cash flows from operating activities at $28.3 million, a non-cash net loss of $45.9 million or $0.32 per share, basically reflecting the impairment on the stream and offtake interest of $60.8 million that Elif will be getting into in detail as we get further into the presentation.
Adjusted earnings of CAD17.5 billion or CAD0.12 per basic share and recorded operating margin of over 91% for royalty and streaming interest, which is a new record in terms of margins for us. We also closed the second tranche of the share repurchase with Orion for a total of 12,385,717 shares, which were cancelled.
This represented about 8% of the outstanding stock of Osisko Gold Royalties and financial value of just under $175 million. We enhanced the silver stream on Mantos Blancos, renegotiated some of the conditions there, and we'll get into in detail.
Eagle mine in the Yukon, which is now the Yukon's largest gold mine historically than today. At pour gold in September, we own a 5% royalty on that.
We'd like to congratulate the Victoria team for the completion of the construction and the commissioning that's ongoing. As we speak, it's been a great mine belt and our tribute to John McConnell and his team there.
We also announced a definitive agreement to acquire the outstanding shares of Barkerville Gold, which owns the Cariboo gold project in Central BC of the Cariboo district. I will get into that in more detail.
We are currently in process through the having those on November 15, and we’re pretty close around November 20 on the acquisition of the 67.4% shares that we did not own already. We also monetize the Brucejack gold offtake to Pretium Exploration for $41.3 million or CAD54 million.
We still have more cash coming from that transaction, the final $10 million won't come in until November, so that will increase our current cash balances as we move forward. On page 4, the Q3 activities.
Again little more detail on what happened with the share buyback in Orion for CAD71.4 million we had purchased 5 million shares and total at the end of the day was 12,385,000 shares as we said. Our Mantos Blancos stream amendment with further $25 million additional deposit with the asset.
Significant changes to the stream that involved the reduction from 25% to 8% of the spot silver price for delivery in terms of the update pricing. And also we increase the tail from 30% to 40% of payable silver after the first 19.3 million ounces revised.
And most importantly, the termination of the stream buyback clause. So there's no impediment on the stream as we go forward.
The sale of the offtake agreement on Pretium was closed, and we received a $41.3 million settlement, as I said, $10 million left will be deposited at the end of the month. That was a good deal for us in terms of putting that cash flow in near-term to us and also to Pretium providing here clarity to their shareholders on their revenue.
More importantly for today, I guess, would be on page 5 would be Barkerville acquisition. We have bid for a 67.4% of the shares held outside of our current position at Barkerville.
Barkerville is the owner of -- 100% owner of the Cariboo project, which is over 2,000 square kilometers, is a resource in the inferred category of over 4.3 million ounces and continuous delivery successful gold results. Our PEA study outlining a plan to build 185,000 ounce a year mine with a 10 -- 11 year mine life was submitted to the market in August of 2019.
So we are quite proud of that accomplishment for the Barkerville assets, and we have a strong belief obviously that this is the beginning of a mining camp, and we – would have a small scale production that's being developed as we speak in the 20,000 ounce a year range. But more to the point, we believe that this is a camp that’s been neglected much like or it was back when we first got involved that asset.
We see a lot of the same hallmarks that we have a world class camp that was patch-worked on over the years and has been consolidated back into a large land pack largest in the world with continuous mineral rights over 67 kilometer long trend and historic production there will be 4 million ounces and as we get into it, we are suitably impressed with the amount of geological information. There our team has been able to put together that we like to believe that there is a significant amount of work to be done in this camp over the next five years, and as we develop this opportunity to go forward.
In the context to the Barkerville acquisition, we created the North Spirit Discovery Group -- the mandate of North Spirit Discovery Group is to channel financing from private -- standard private equity and third-party private equity partners to allow for joint ventures and to look at also other trading and selling assets or royalties and stream, as we believe this is the natural evolution of our accelerated model and will set the stage for us to help simplify our equity and also our royalty portfolio and as we move forward, we will be looking to raise some partnership equity to North Spirit Discovery Group in the new year as we get more settled post the transaction. The main mandate for that financing will be project financing, engineering and management which is clearly the value side of how we built the accelerator model.
And if you remember correctly, five years ago, we talked about what the goal of the accelerator model which was to create our own in-house organic opportunities. We now have those opportunities that have been maturing.
And we're evolving to take advantage of the hard work has been done in the investment group and made in the last five years. The keynote on page six take you through the timeline.
What we see at Barkerville, so it's a crucial point in the evolution of this story that the feasibility study is underway. Permitting is underway.
We have the resources been completed on the first portion of the project, which is about four kilometers of the Trans out of 67 kilometers. So there's quite a bit of upside.
And then we have an existing mine site, with Mantos Blancosmine and Bonanza Ledge will be taking advantage of the way the PEA is starting to set up with low capital intensity of less than US$240 million required to build 185,000 ounce a year mine in Canada. Page seven, a little bit of an overview from our friends on Victoria, ramping up to $200,000 ounce a year this will be The Eagle gold mine, to come online in Canada world class gold to the gold product we all enjoyed at the Osisko Gold in September.
And we see this as a way forward as this is northern easily to operate at 30,000 plus tones per day. This is sizable mine and at this stage for many more opportunities to be unlocked now that we have, such a significant piece of infrastructure in the Yukon region.
Page eight subsequent to September 30th first quarter. We also completed the credit bid for the Stornoway Diamond Corporation.
And we will maintain our 9.6% stream on the Renarddiamond Mine. And the credit bid was successful and in our closed the second tranche of the share, repurchase with Orion closed.
And the other streaming partners are getting that deal done. It was a long complicated process.
But the diamond mine is up and running. Well, we had the privilege of attending a diamond sale with our partners Mantos Blancos mine were come back and some of the other groups that remain in the in the consortium.
And it is a good partnership structure for this project. And then we have a lot of individual institutions and individuals involved in your case of managing this asset or commodity price and as we set the stage for success as we come through what everybody seems to believe as the next leg of the diamond market with the closing of our ground some of the other producers in Canada like Victoria.
So we see a lot of upside there. As we are saying those by low so high and we feel pretty good about what's happened with Stornoway in terms of maintaining our 9.6% diamond stream and being able to keep the mining production moving forward.
We also declared a $0.05 dividend on our stock table January 15, 2020 to shareholders of record as of December 31, 2019. In fact as a team we're particularly proud of as we set out in 2014 to be a different royalty company and to pay dividends and to have capital allocation and to have a Canadian focus moving through our value proposition to shareholders.
Page 9 is a summary of the royalties and streams that contribute to our current GEOs. We've achieved 18,123 ounces for the year – for the quarter ending in the -- at the end of September.
Our allocation of metals within that space is at 69% gold, 18% silver, making a total of 87% in precious metals, if you include diamonds as precious metals are precious then we would be at 98% rating at that and we have achieved 91% margins on our portfolio this year, Canadian Malartic is still is our cornerstone asset having delivered just under 80,000 ounces for the quarter. And you can see the breakdown of the rest of contribution to the portfolio underneath and we continue to build on that basis and our friends from Victoria will hopefully believe us for next year as that mine continues to ramp up.
Returning on capital on page 10. We're very proud of this slide.
We've managed to make money consistently since the IPO of this company in 2014. And we've had a disciplined approach to returning that capital to shareholders with over $219 million having been returned to shareholders since we started this company through the share buybacks and also total -- we combined share buybacks with our dividend payments for $328 million has been returned to shareholders through the process of value building at OR.
On page 11, I'm going to hand it over to Elif, our Chief Financial Operating Officer to take you through the quarter in more detail. Thank you.
Elif Lévesque
Thank you, Sean. Good morning, everyone.
Revenues from royalties and streams increased by 8% to $33.9 million compared to last year, mainly due to increase in our stream interest. And we also recognize record operating cash flow at $28.3 million, compared to $20.6 million, mainly reflecting the increased cash margins and elimination of cash settled share based payments.
If we go to the next page, Page 11 earnings excluding impairments stood at CAD13.1 million compared to CAD5.5 million for the same period last year, reflecting a strong quarter and the gain on sale of the Brucejack offtake. Net losses due to impairment charges that I'd like to go in a little bit more detail on next slide, were CAD59 million net of income taxes.
And so our net losses for the quarter stood at $45.9 million and our adjusted earnings CAD5.7 million for last year third quarter and CAD17.5 million for this quarter, mainly reflecting again, like I said, increase in the cash margins as well as the gains that we have made from the sale of the Brucejack interest. So, if we go to Page 13, a little bit more detail in terms of our impairments.
As we had announced previously Stornoway Diamond, the operator of the Renard mine was running a strategic process and Osisko along with other creditors was supporting the process. In September, the operator announced that it had applied to protection under the CCAA to Structures, Business and Financial Affairs and this was considered an impairment for accounting purposes and we have run an impairment assessment which resulted in the impairment that you see here.
CAD47.2 million and CAD34.6 million net of the income taxes. So, now the recoverable amount for Renard Diamond -- for Renard stream for us stands at CAD70.2 million And on the Amulsar stream and offtake, in September, Lydian again the owner of the Amulsar project announced a delay and timing of the construction activities and expected for [Indiscernible] and ramp-up for the full production as a result of the now 15 month blockade on construction as well as some changes to the expected life-of-mine and annual production that came -- that came up with was in the third quarter.
And again, this resulted as an impairment indicator for us and we did test our model, which resulted in a $9.9 million impairment and coming up to CAD13.1 million in for the quarter. So, after these adjustments, the Amulsar stream and offtake recoverable value is about $73.7 million and CAD97 million.
For Falco Resources, the net investment was impaired associated for us. So, the carrying value is not actually a fair value and that's why we have actually recognized the reduction in the fair value of the equity investment in Falco Resources to bring it down to its fair value and we record impairment charge of CAD12.5 million and CAD10.8 million net of income taxes for the quarter.
So if you go to page 14, those are the breakdown in terms of the revenues and the type of interest that we have in royalties, streams and offtakes. As Tom mentioned, it was a pretty strong quarter in terms of our royalty and stream interest and we reported 90.8% cash margin from those interest as well.
In terms of offtake revenues stood at $75.3 million compared to $80 million last year. We're going to see a reduction, a considerable one in terms of the revenues because of the Brucejack offtake sale, just to give you an idea the – Brucejack offtake agreements would bringing us about $80 million revenues per quarter, but of course with a very low historical cash margin of 1%.
So although the revenues will go down considerably because of the offtake agreement now not being there anymore, we're not going to see material impact in terms of our cash operating in the quarter. Page 15, kind of gives us a breakdown in terms of the different products in our deals, in terms of gold, silver, diamonds and other metals.
We did have revenues of $109.2 million and gross profit of $20.9 million. And again with the strong cash flow from operations $28.3 million is close to $20.6 million.
So our financial position on page 16, we have drawn on our credit facility US$50 million coming up to about CAD20 million. So this leaves us with the available credit of 480 million, including accordion, looking at debt or cash and our fair value of our investments in the marketable securities, we actually have almost $900 million in available capital for future investment.
Page 17, we did have to revise our guidance this quarter. You will see on the left hand side the original new guidance where we had low and a high level in terms of respecting the best guidance now at 78000 GEOs.
And the main reason for the reduction is really the weak diamond prices that we've been seeing for the Renard mine during the year, and the sale of Brucejack gold offtake and the impact will have for the fourth quarter. However, we do see that, the cash operating margins and the operating cash flow are expected to be in line with we had expected and that is, of course, a good part of the result after strong quarter.
And with that Sean back to you for your second thought.
Sean Roosen
Thank you, Elif and on to page 18 -- is a slide that we just got through a lot and it's been around for quite a while and it sums up our investment strategies. As you know, we started a 2014 with the accelerated model as a new introduction to the Royalty and Streaming space.
Now eventually on the left hand side in the 25% incremental investment where we said that we would invest 25% of our investment available assets under management in the accelerator model, and then we would invest 75% more in the traditional space of development opportunities, refinancing of debt or project expansion. And we do occasionally see in the in the gray and the gold colored zones within this chart.
What has happened over the last five years in the accelerator space we've incubated Osisko mining, which has gone from an $8 million market cap to $750 million to $800 billion market cap with a successful discovery at Windfall Lake and continues to be the largest driller in Canada with over 24 drills turning on it as of yesterday and continues to be discovering new and exciting ounces there. We also came along, we incubated the HORNE 5 project, which went from zero ounces by end 2015 to currently sitting at 6.1 million ounces of gold equivalent reserves and overall reverse air over 9 million ounces, 24 ounces, which kind of supply the [indiscernible] deposit.
So, huge success there, obviously, that project is currently in the trough. And that that is in the permanent cycle of a few full visibility was published in 2017.
We also incubated Barkerville and with Cisco metals, which is operated by Bob Wares on the Pine Point Project, which is our base metal company, and we would consider Victoria to have been one of the accelerator investment companies that we participated in that was later on. So we've been very successful on that and I would say we’re the most successful accelerator investment that we've made so far as Arizona star where we invested $5 million in equities and $10 million to buy a 1% royalty, we made a net return of $34 million on the equity portion of that investment.
And we still own the 1% royalty on there was a project in Arizona, really accelerator program. So it's been a very important source and the royalties that we've earned in that accelerators place would include the 5% royalty or 4% royalty that we have on the Cariboo project, which include 31% that we have on our model.
1.5% to 2.5% that we have one following project, as well as the back 40 project and some of the other significant royalties that we've learned along the way. And you see in the middle of the zone here the development opportunities, we typically see that the projects, single asset companies in particular have value challenge when they're in the development phase and that's essentially after the first resource comes out the PE study, through the free feasibility study, feasibility study permitting EIA and project finance and then it's extraction and we keep going back out.
As you can see on the current we've indicated Eagle, Eagle has completed construction end of September and currently in ramp up. So we've been through the cycle with Victoria we bought into the company after they had achieved permitting.
And we were the catalyst investor with our partners from Orion to get a $550 million finance package together in that window and now we're seeing that that project is bearing fruit for us as the retention at the 5% level we still own on that project. Cariboo that’s namely here just kind of impressive PEA study continues to deliver exploration successes is now heading in to the feasibility and permitting cycle.
We expect to see performing there to take on the phase 4,000 ton per day phase throughout the project to be somewhere around the 24 months mark. So after that project financing, it's a relatively low cost mine build.
Again at about U.S.$225 million of which half of it could be financed by debt traditionally. So leaving the equity and royalty components sitting at around U.S.$120 million left to get to production in that project after permitting cycle has been completed.
If you look at the other opportunities where we participated in the producing opportunities, we -- with our partners at Orion, we did the largest royalty deal on the acquisition of the Orion portfolio at 2017 for $1.25 billion, or $1.125 billion. On that portfolio, we subsequently invested in silver stream in Gibraltar, and we bought the Renard refinancing as we went through that diamond mine.
So the message that I would like everyone to take away today is that we have not changed our strategy, we continue to work on the 25%-75% model. Cariboo is the most recent entry into the 75% zone.
And we set out 2014 to create our own opportunity set for the dominant Canada. And we've looked at all the projects that can go sort of 4 million to 5 million ounces on the Canadian landscape and we feel like we're involved with the good portion of them and we see our growth being more organic within the accelerator model.
As we go forward, I know there's been some discussion about change in business model, but we remain on our accelerator model and with the integration of North Spirit we are looking forward to evolve our accelerator model and hopefully purify the royally milestone in the eyes of our shareholders as we get that piece of work complete. In summary, on page 19, the company is in very good shape with 135 royalties, dominant Canadian opportunities at front of us a dominant Canadian source of royalties GEOs.
We produced over 18,000 GEOs in the quarter. 91% cash margins and a dividend yield of over 1.6% as we go into the end of the year, and at December 31, if you remind us talk today the yields are going to be north of 2%.
And an investment portfolio of $293 million, with $123 million of cash on hand as of the end of September, and we have some cash coming in from our sales, as well as our traditional cash flow from our royalties leaving us with over $800 million available liquidity to manage the business and take advantage of the opportunity that's in front of us. On that note, I thank everybody, and we'll move into the Q&A period.
Thank you.
Operator
Sean Roosen
All right. Well, thank you everybody.
And as a final note, we'd like to send our condolences to the employees, workers at SEMAFO in Burkina Faso recently suffered significant loss. Our thoughts are with the families of people that’s been affected by this tragedy.
And if anybody has any questions for us, we will be attending the Raymond James conference in Texas this weekend, and we're available by phone if anybody would require us. Thanks very much, and look forward to seeing you on the next available date.
Operator
This concludes today's conference call. You may now disconnect.