Osisko Gold Royalties Gaining Among Investors

GuruFocus.com

- By Alberto Abaterusso

Gold continues its downturn.

The precious metal closed at $1,168.90 per troy ounce on the London Bullion Market Friday and reported a 0.18% decline, or down $2.15 per troy ounce from the previous close at 3 p.m. London time.

Waiting to find out what the Fed's next move on interest rates will be, the precious metal closed at a new low for the fifth consecutive week, near its lowest price in 10 months when gold closed at $1,150.35 on the London Bullion Market.


Gold is also going down on the market of the futures, the Comex. It is trading at $1,162.75, down $9.65 or 0.82% from the previous close. This is the 23rd dip out of a total of 28 changes in the price of gold futures since Nov. 9:

The gold stock industry is also following this downtrend, and it couldn't be otherwise since the return of gold mining stocks on the stock market is exposed to changes in the price of gold. As you can see from the picture below, two of the most important gold stock indexes, representing the gold industry as a whole, the SPDR Gold Trust (GLD) and the VanEck Vectors Gold Miners ETF (GDX) fell by 8% and 13%. They have risen slightly since Wednesday but are still showing all the difficulties the gold industry has been experiencing since November, which was a very disappointing month for gold investors.

With gold trading down, the possibilities of finding opportunities in the industry are increasing, especially in the subsector of gold and silver royalty and streaming companies, which are seen by investors as a good shield to the risk implicit in any investment in the gold industry as they still want to gain exposure to it.

One of these gold and silver royalty and streaming companies gaining consensus among investors is Osisko Gold Royalties Ltd. (OR), a precious metal royalty company headquartered in Montr?al.

Osisko is a pretty new precious metal royalty company since it initiated operation only in June 2014. Its portfolio of assets is composed of income-generating royalties in Quebec and Ontario in Canada and other assets the company is advancing in other places in Canada for further expanding its portfolio.

From Malartic Mine and ?l?onore Mine, both located in Quebec, Osisko Gold Royalties derives most of its net revenue. In the third quarter, the company earned royalties from 7,635 ounces of gold from Canadian Malartic and 1,570 ounces of gold from ?l?onore, both representing approximately 93% of the total amount of gold, 9,902 ounces, in the quarter.

Osisko receives approximately 5% of the gold that Agnico Eagle Mines (AEM) and Yamana Gold (AUY) produce at Canadian Malartic and between 2% and 3.5% of the gold that Goldcorp Inc. (GG) produces at ?l?onore Mine.

The other two assets that generate royalties are Island Gold (Ontario) and Vezza (Quebec). In the third quarter, the company received respectively 430 ounces and 267 ounces of gold from these two assets.

The company can rely on a strong balance sheet given the absence of debt and the existence of approximately $393 million in cash on hand as of the third quarter. Osisko has plenty of cash that can be invested for the advancement of its royalty projects.

Furthermore, investors see in Osisko's stake in Labrador Iron Ore (LIF.TO), which is now valued about $95 million by the market, an opportunity, if sold, to increase the portfolio of assets that generate royalty.

Osisko is trading $10.08, down 12 cents (or -1.18%) from the previous close. The stock gained 2.33% year to date, and the 52-week range is between $8.88 and $14.74. The stock has a market capitalization of $1.09 billion and 106.6 million shares outstanding of which 98.4% can be traded on the New York Stock Exchange.

Osisko is trading at 1.21 times its book value (mrq) and 31.14 times its EBITDA.

During the third quarter, First Eagle Investment (Trades, Portfolio) bought 2,110,563 shares of Osisko, representing 1.98% of the company's total shares outstanding and 0.06% of the total assets managed by the guru.

Disclosure: I have no positions in any stock mentioned in this article.

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This article first appeared on GuruFocus.