Osisko Gold Royalties Ltd (NYSE:OR) Q1 2023 Earnings Call Transcript

Osisko Gold Royalties Ltd (NYSE:OR) Q1 2023 Earnings Call Transcript May 11, 2023

Operator: Good morning, ladies and gentlemen, and welcome to the Osisko Gold Royalties Q1 2023 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, May 11, 2023 at 10:00 AM Eastern Time. Today, on the call, we have Mr. Sandeep Singh, President and Chief Executive Officer; and Mr. Frederic Ruel, Chief Financial Officer and Vice President, Finance. I would now like to turn the meeting over to our host for today’s call, Mr. Sandeep Singh. [Foreign Language]

Sandeep Singh: Good morning, everybody. Thanks for being with us. Myself and Frederic Ruel, as you just heard, that are going to be walking you through the quarter, an excellent start to the year for us. So happy to be giving you that update. The presentation is available on the website as well as through the webcast as of this quarter. So hopefully, you have that in front of you, and we’ll be referring to page numbers as we go through things. Starting perhaps with slide 3, as I said, an excellent start to the year. On the left-hand side there, all those high-level metrics that have already been released. And as again, Fred will walk you through some of the more specifics. And a second, over the quarter, we continue to build up cash and decided to share some of it by increasing our dividend by just over 9%.

We’ve said it over and over that we continue to prioritize returns to shareholders and look for opportunities to do that and find the right balance in doing that. So very happy to kind of hit the button on another increase after a small hiatus where we were more active on the buyback So that’s positive as well. Very happy to add forgive me, nominate Norman McDonald to our Board of Directors, phenomenal individual, phenomenal resource investor in the space for 25-plus years who many of you would have known through his prior work whether at Invesco or teachers or [indiscernible] among other places. So a phenomenal addition when he joins in due course after the AGM and look forward to having him on the team, but also want to thank Charlie Page, who is reaching the tail end of his tenure based on our policies and has decided not to stand for election.

We’ve been a great steward for the company since the creation of Osisko royalties and the tail end of the Osisko one days. So thank him for his contributions. And look forward to adding norm to the team. Norm would make the seventh new board member in the last circa 3.5 years as part of our Board renewal process, and again, strong addition to the team. So with that, I’ll pass it on to Fred for the first section to walk you through the quarter, and then I’ll pick back up a little bit later on. So Fred, over to you, please.

Frederic Ruel: Thank you, Sandeep. [Foreign Language] Good morning. Thank you for joining us today. I’ll be brief. The numbers speak by themselves. Let’s start with some highlights on slide 3 of the presentation. Slightly above 23,000 GEOs in Q1 2023, an increase of 27% over the first quarter of 2022. Revenues of $59.6 million compared to $50.7 million in Q1 of last year, which translated into cash flows from operations of $45.5 million compared to $40.5 million last year. Our cash margin was stable at 93% and we have repaid an amount of $15 million on our revolving credit facility. And despite that repayment, we ended the quarter with a cash balance of $119 million compared to $91 million on December of last year. On slide 4, we present our GEOs by asset and by commodity.

Gold represented 65% of our GEOs in the first quarter, silver 22%; and diamonds and other commodities 13%. On slide 5, we present the growth in our revenues and our operating cash flows, mostly as a result of increased deliveries under our royalty and stream agreements. On slide 6, net earnings were $20.8 million, $0.11 per share compared to $16.8 million or $0.10 per share last year. Adjusted earnings were $32.6 million or $0.18 per share compared to $24.8 million or $0.15 per share in Q1 of 2022. On slide 7, we have a summary of our quarterly results in details, including 23,000 GEOs compared to 18,250 GEOs in Q1 of last year. Our gross profit amounted to $42 million compared to $36 million in 2022. On slide 8, we have a breakdown of our cash margin.

The cash margin from our royalties reached $39 million. The cash margin from our streams amounted to $16.5 million for a total in Q1 of $55.5 million compared to $47.5 million last year. And on slide 9, we have a summary of our balance sheet position. Our cash balance stood at $119 million. We held equity investments valued at $494 million. The revolving credit facility was drawn by $124 million for a net debt position of $15 million at the end of Q1 compared to $57 million at the beginning of this quarter. Our available credit under the revolving credit facility was approximately $650 million, including the accordion. And finally, as a result of our strong margins and cash flows, we increased our quarterly dividend by 9% to $0.06 per share starting this quarter.

I will now turn the call back to Sandeep for a company review of our assets and the near-term catalysts.

Photo by Ricardo Gomez Angel on Unsplash

Sandeep Singh: Thanks very much, Fred. So look, I will be brief, not going through all of these slides. I realize today is a busy day for most people and some of these slides you’re used to seeing from us. I will pick out a few things that happened during the quarter that I think are relevant to talk about and then make way for questions as soon as possible. In doing so, I’ll skip past slides 11 and 12, if you’re following on the deck and pause on slide 13 for a second to talk about Canadian Malartic. So overall, in the quarter, I would say, a little bit lighter in terms of our deliveries from — sorry, from Malartic in Q1 certainly made up by other assets overall, that great quarter that Fred just walked you through. I think some of that has to do with just the underground, the first stopes in the underground being later in the quarter than expected.

The first production blast at Odyssey South was in late March, Agnico, our partner is expecting 50,000 ounces of underground contribution this year. Other progress includes the shaft sinking, which has now commenced. So good progress there overall and we expect good use over the course of the year. I would remind people that from a global perspective, throughput has been reduced down from circa 60,000 tons to 51,000, 51,500 tonnes per day by Agnico intentionally to kind of optimize the transition now that the last truck ore has come out of the Canadian Malartic pit and mining has transitioned completely to the Barnat pit and the underground. We hope that that transition back to full run rate is in the near term. I think they last talked about it being 2024, early 2024.

We’ll see how that progresses. But overall, still a phenomenal asset doing phenomenal things for us. That’s on the day-to-day side more in terms of the future of the asset. You’ve heard us talk about it. You’re hearing some of those same updates, which are phenomenally important for us in terms of filling the mill growing the resource, looking at new mine plans. So in terms of the rest of this year, and it’s amazing that we’re already in May. But looking forward to that update, a site visit by Agnico that’s been run, which many of you probably will be on in June, so looking for the exploration update and kind of broader update that accompanies that event. And then later in the year, the new study which will hopefully start to fill in some of the puzzle pieces with respect to how exactly that mill and that complex are going to be optimized and maximized.

So a lot of good news, a lot of news. We expect that needs to be good to flow throughout the course of the year. Jumping to Slide 15. Touching on some of the other core assets, starting with Mantos. A good quarter. Overall, I’d say at Mantos, we saw Capstone or partner talk about some preventative maintenance that they undertook in Q1 to increase — excuse me, reliability over the quarter throughput average just over 16,000 tonnes a day versus just over 15,000 tonnes a day in Q4, Importantly, there was good signs of that progress in February, where the average was 19,000 tonnes a day. So I think we’re getting there. Our partner is getting there. And importantly, in our last discussions and in their last public disclosure they talked about expectations to get to that steady state consistently on quoting now in the very near future.

So hopefully, that maintenance that was undertaken in Q1 sets them up for a strong three quarters ahead. At Eagle, a good quarter, good Q1, just shy of 38,000 ounces produced versus 24,000 ounces in the same period last year. This is the first quarter where they ramped up to stacking year-round. So — and I think they showed that they can do that successfully. So that’s a big step forward for the asset in terms of reaching steady state and with a good Q1 behind us, that bodes well at Eagle, that bodes well for the rest of the year. So kudos to the team there. And similarly, at Eleonore, a good Q1, 66,000 ounces produced there in Q1 versus 46% last year. And really, I think the upside of that is increase, not focus but increased success rate, I guess, in terms of recruiting and less absenteeism resulting in just higher mill throughput, I think that was an operation, a fly-in and fly-out operation that was significantly more challenged than perhaps others throughout the COVID period and the overall flux of people in the mining sector from an employment’s perspective.

So, good to see them get a handle on that and hopefully, continue to drive forward. I will jump now to slide 18 to touch on a handful of the positive developments in the development portion of the portfolio or the new assets perspective as well, maybe starting with CSA. Good progress on that transaction closing over the course of the last couple of months, in particular. If you’re following the Metals acquisition story, they’ve now filed their F4 statement, which I believe is fully blessed by the SEC or will be imminently. They’ve announced their pipe financing which they can continue to grow, but at least has the basics of what they need to get a transaction done. And our understanding is we’ll be announcing a shareholder vote date in the extreme near-term.

So, we think they’re driving towards a successful outcome for them and obviously then for us. So, we look forward to that transaction taking shape here still over the course of Q2 as our expectation. Windfall, a very successful transaction with the joint venture that was announced with Goldfield, huge endorsement of the project by a senior company, significant derisking of what is a very important asset in our development portfolio. And we’ve said — I’ve said for a long time, that Windfall is an asset that matters in the sector. There at times have been doubters or question marks about that, but the size, the grade, the upside in Canada, as I said, all that matters. And so good to see others few thinks the same way and good to see a fully financed asset in our portfolio moving forward.

I think as well, the combination of skill sets there build, operate, explorer, permit bodes well, given that they’re still very underexplored camp, and it was positive to see Goldfield seeing it the same way, talking about a lot of upside on the immediate deposit, but also off strike and at depth, but also on the broader land package. So, overall, a win-win-win, and we look forward to seeing that partnership develop and hopefully intensify their work there on the asset. Maybe next, touching on Hermosa, a little bit. We’re still driving towards an FID point this year on Taylor. Hermosa is made up of Taylor and Clark, but worth noting that Hermosa was added to the FAST 41 list by the DOE, Department of Energy. FAST stands for Fixing America’s Surface Transportation Act.

So, essentially an expedited review. Worth noting that Taylor is largely permitted. It has its Water Use Permit, the [indiscernible] protection permits, it needs other minor permits along the way, but it’s largely advanced in that process. But what we see there as a positive is obviously in relation to things like Clark, which is the battery-grade manganese, separate portion of the deposit. But also in time, I think just the expedited review potential for all of Hermosa in time, I think, leads to a better pathway forward to the Forest Service ground which is another layer of upside there on the broader-land package. So all that is good news and as I said, the biggest catalyst point there would be the FID point, but a significant amount of investment being made by sell-through to there even prior to that this year.

Maybe jumping to slide 19, to touch on CASINO a little bit, if you haven’t been following that story in early April, Western Copper & Gold announced a circa $20 million investment by Mitsubishi minerals — materials, excuse me, for about 5% of the company. Rio Tinto maintained their pro rata with a small top-up to keep them at 8%. So good news there in terms of the broader collective that is supporting that asset and that company. This is very good Copper-Gold Porphyry that can be built. And in my opinion should and will be built. These investments don’t tick that box fully in terms of shovel in the ground or anything close. But certainly, it’s very promising to see that collective forming around Western Copper Porphyry in time, a coalition of the willing.

So that’s an important asset for us, that’s moving forward in the background. I guess with that, I will just highlight slide 21, which you’ve seen versions of in the past. We’ve updated this slide more recently, so I’m not sure everyone’s seen the updated version to take into account another 1.1 million meters of drilling in 2022. So a six year in a row, if you squint and around where we’ve been on average over millimeter or 100 millimeters its depending on how you want to look at it. And obviously, I touched on some of the highlights that are coming out of that work, but there are many, many others. And if you look at slide 21, you see a story of — a year ago it was significant additions to the resource base. This year, a significant movement in the quality of those resources with a lot of ounces moving from M&I to a significant P&P increase.

So we’ll continue to see that ebb and flow, but just a lot of good work being done by our partners that we and our shareholders are benefiting from. And then, on slide 22, just to recap of where we’re trading. We’ve had a good start to the year. It’s not one we’re satisfied with, but we’ve had a good start to the year. We’ve outperformed, but really, we’re still just making up ground in our minds. Importantly, the underlying NAV keeps growing based on our partners’ efforts, some of which I just highlighted as our asset base continues to improve and as our assets are hugely important to most — if not many or all of our partners who are advancing them. So that’s the end of what I want to touch on at least formally and certainly, operator, happy to take questions.

This time around, we do have some questions on the webcast if it’s all the same, you can put your questions through the call. If you put them through the webcast, you have to type them in. We do see them. We’ll probably get to those after those that are on the phone live, but operator, over to you to see if there are any questions on the line.

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Q&A Session

Operator: Thank you, sir. [Operator Instructions] And your first question will be from Ralph Profiti from Eight Capital. Please go ahead.

Operator: Thank you. Next question will be from Adrian Day [ph], investor. Please go ahead.

Operator: Next question will be from Kerry Smith at Haywood Securities. Please go ahead.

Operator: [Operator Instructions] Your next question will be from Cosmos Chiu of CIBC. Please go ahead.

Operator: [Operator Instructions] And at this time, sir, we have no other phone questions.

Operator: Thank you sir. We do have another question on the phone from John Tumazos at John Tumazos Very Independent Research. Please go ahead.

Operator: Thank you. And at this time, Mr. Singh, we have no other questions. Please proceed.

Sandeep Singh: Okay. And I’m figuring out my technology, and I can tell that there are no other questions on the webcast either. So thanks, everyone, for your time this morning, and maybe as a public service announcement. Just a reminder that Sunday is Mother’s Day, and that’s someone who has disappointed both their mother and their wife in past years. I plan on trying to break that streak. So hopefully, hopefully you’re successful in doing the same. So thanks again, and be well.

Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.