Things Are Coming Together for Osisko

Adrian Day

Having just returned from two large mining conferences, global analyst Adrian Day reviews results from some large gold and silver companies, as well as news on an exciting project. He plans to catch up with a couple more bulletins in the coming days. For the most part, gold company results were affected by higher costs and some operational hiccups. However, Day believes there have been some positive developments as well, with reason for optimism ahead.

Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE) reported fourth-quarter adjusted EPS that was above analyst estimates, with cash flow also a bit stronger.

Royalty ounces had been prereleased. The company issued five-year guidance, with production for 2027 expected between 130,000 to 140,000 Gold Equivalent Ounces (GEOs), up from 95,000 to 105,000 ounces for this coming year, unchanged from prior five-year guidance. The guidance assumes the commencement of production at San Antonio, Cariboo, Windfall,

Back Forty, and Mantos Blancos, mostly near the end of the period, while also assuming that the Renard diamond stream will have ceased by 2027 (though opportunities are under review for mine life extensions). In the nearer term, there are significant ramp-ups or expansions at several mines, including Mantos, Eagle, and Island. 

Positive News at Its Two Largest Revenue Producers

On its largest asset, Canadian Malartic, Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) is buying the 50% of the mine it does not own from Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE), a positive for Osisko in helping to realize the mine’s full potential.

Moreover, the mill at Malartic will have spare capacity, and Agnico is looking at mining from nearby projects (Upper Beaver, Macassa) on which Osisko also holds royalties.

Separately, Newmont Corp. (NEM:NYSE) announced plans to increase production at Eleonore from 215,000 ounces last year to 265,000 or more.

The company ended 2022 with CA$90.5 million in cash (after repaying the US$300 million convertible debt outstanding) and CA$400 million in securities. It has US$150 million drawn on its total US$750 million credit facility.

During the quarter, the company also repaid its convertible securities and repurchased 1.7 million shares at an average cost of CA$13 (the stock is now at CA$18).

With strong, fiscally conservative management, a solid and improved balance sheet, and a pipeline of near- and longer-term projects, Osisko is set to ramp up. It can be purchased if you do not own it.

Pan American Looks Ahead

Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ) reported quarterly financial results lower than expected; revenue was affected by the timing of sales and slightly higher costs (partly due to lower zinc by-product credits).

Production for the quarter had already been prereleased. For the year, silver production came in at the top end of the revised range, and gold was in line for positive annual earnings.

Investors are now more focused on the pending Yamana acquisition, which is expected to close this month (shareholders of both companies have already approved it).

The company plans to give guidance for the combined company after the transaction closes.

Cash costs for the year were US$12.72 per ounce for the silver segment and US$1,113 per oz for gold, both above guidance by around 10%. The company ended the year with US$142 million in cash and short-term investments, with US$340 million available on its credit facility.

Total debt at the end of the year was US$227 million. The balance sheet was improved in January when Pan Am, not unexpectedly, liquidated its remaining interest in Maverix as it was taken over for net proceeds of US$105 million. 

Large, Pure Silver Mine Moves Toward Production

Separately, it said that the Guatemalan government had completed its “pre-consultation” phase of the restart of the Escobal mine and had presented a progress report to the Guatemalan Supreme Court.

No timeline has been announced for the possible restart. The company will have enough on its plate after the Yamana acquisition closes, but the restart of operations at Escobal would add around 20 million ounces of silver per year and would be a meaningful catalyst for the company.

The acquisition of Yamana’s Latin American mines is accretive and strengthens the overall mine quality of the company, while Escobal provides a meaningful upside.

Pan American is a Buy.

Wheaton, Flat for Year, Has Growth Ahead

Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) saw full-year production of 638,000 ounces, slightly below guidance (which had already been revised downwards). Costs also increased as more higher-cost streams came online, as well as payments on fixed-margin streams increased with the metals’ prices.

For this year, Wheaton guided toward the range of 600,000 to 660,000, essentially flat at the mid-point and 8% lower than analyst expectations, guidance that, given significant operator underperformance last year, is disappointing.

However, both five- and 10-year guidance indicates growth. It is projecting average five-year production of 810,000 ounces, meaningfully higher than this year, with production growth expected from several of its mines (including Salobo, Stillwater, and Voisey’s Bay) and five new mines coming online towards- the end of the period.

Salobo, once the Phase 3 expansion has ramped up, will represent about 30% of Wheaton’s revenues. The company notes that all of its streams have corporate
guarantees, meaning that in the event of a mine being confiscated, then the operating company would be required to pay the stream from other of its mines. CEO Randy Smallwood said that the company had declined some streams where it could not obtain such a guarantee. (Franco does not have such a guarantee on Cobre Panama.)

Wheaton ended the year with cash of almost US$700 million and an undrawn credit facility of US$2 billion, giving it a very strong balance sheet.

Given near-term projections, we are holding and will look for pullbacks to add to positions.

Panama Agreement Boosts Franco

Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) reported that First Quantum, operator of its largest stream, the Cobre Panama mine, reached an agreement at the end of the week with the government of Panama after long and acrimonious negotiations.

It follows First Quantum shutting down operations in late February after an order to suspend operations at the port, preventing it from exporting concentrate; that suspension has now been lifted.

The agreement is open to public consultation and still requires final government department and National Assembly approvals.

For Franco, we expect only a very minor reduction in stream royalty for the first quarter. Franco stock has not fully recovered what it lost over Cobre Panama; it can be bought if you do not already own it. 

Orogen’s Key Asset Gets Bigger, With More To Come

Orogen Royalties Inc. (OGN:TSX.V) received good news on its royalty on the Silicon property in southern Nevada when owner AngloGold said the property had added nearly 800,000 ounces to take it to 4.2 million in resources. Significantly, 100% of the inferred went to the indicated resource category.

Silicon is part of what Anglo is now calling the Beaty district, which now holds 8.4 million ounces with “enormous potential” for more growth.

Significantly, the resource announced excluded silver — with Silicon alone already having 14 million ounces — and was on the oxide only. It also did not include the Merlin deposit, on which Orogen also holds a royalty (on most of the deposit).

Anglo said this could be “the real gem” of the district, “the centerpiece of the operation,” in the words of CEO Alberto Calderon. 

Exploration to Step Up as Project Grows

Anglo is expecting to double the number of drills on the project this year, with a US$50 million budget, as an increased understanding of the geology allows the company to identify more targets, with confidence in the potential growth.

It is expecting to produce over 300,000 ounces of gold a year for at least 30 years, with initial production from a lower-grade area (over which Orogen does not hold a royalty) in about two years.

When asked if the district could hold 15-20 million ounces, Calderon said, “you’ll be surprised.”

Another company on our list, Altius Minerals, also holds a royalty of 1.5% on the
entire district, though Anglo has disputed some of the royalty, and it may go to
arbitration. Its royalty on Silicon and Merlin, as we understand it, are not in
dispute. Orogen’s royalty is 1%.

Separately, Orogen has sold its Ball Creek claims in British Colombia’s Golden Triangle to two separate companies, retaining royalties in each case. In splitting the large property, Orogen will see more work on its land. This is the latest of nearly a dozen agreements over the past year to sell properties in return for royalties and, usually, some payment in the form of shares.

We estimate that the Silicon and Merlin royalties could be sold to a large royalty company for about the market cap of the company, meaning that the cash-flowing Ermitaño royalty and the rest of the company is free. Continue to buy at the current level.

Midland Continues Frenetic Activity

Midland Exploration Inc. (MD:TSX.V) continues to advance its projects and build its portfolio. It acquired a 100% interest in a land position in southern Abitibi, Quebec, with potential for both gold and lithium. The new land is adjacent to Midland’s Patris gold property. A magnetic survey is planned.

Meanwhile, the company is in the midst of a 10,000-meter drill program on its gold and nickel-copper projects in the Abitibi. It is actively seeking partnerships for these and other projects in its portfolio.

The company also completed a regional study for lithium mineralization in the James Bay region, which is considered prospective for the mineral. It located several targets on its properties for further exploration and acquired several new claims. With strong management, a solid balance sheet, and multiple active projects, Midland is well-positioned for a discovery.

At the current price, it is a strong Buy.

In the coming Bulletins, we shall look at several companies, including Agnico, Barrick, Altius, Fortuna, and Vista.

BEST BUYS this week, in addition to those discussed above, include Ares Capital Corp. (ARCC:NASDAQ); Gladstone Investment Corp. (GAIN: NASDAQ); Nestle SA (NESN:VX; NSRGY:OTC); Lara Exploration Ltd. (LRA:TSX.V); Barrick Gold Corp. (ABX:TSX; GOLD:NYSE); and Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE).

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Adrian Day Disclosures:

Adrian Day’s Global Analyst is distributed for $990 per year by Investment Consultants International, Ltd., P.O. Box 6644, Annapolis, MD 21401. (410) 224-8885. Publisher: Adrian Day. Owner: Investment Consultants International, Ltd. Staff may have positions in securities discussed herein. Adrian Day is also President of Global Strategic Management (GSM), a registered investment advisor, and a separate company from this service. In his capacity as GSM president, Adrian Day may be buying or selling for clients securities recommended herein concurrently, before or after recommendations herein, and may be acting for clients in a manner contrary to recommendations herein. This is not a solicitation for GSM. Views herein are the editor’s opinion and not fact. All information is believed to be correct, but its accuracy cannot be guaranteed. The owner and editor are not responsible for errors and omissions. © 2022. Adrian Day’s Global Analyst. Information and advice herein are intended purely for the subscriber’s own account. Under no circumstances may any part of a Global Analyst e-mail be copied or distributed without prior written permission of the editor. Given the nature of this service, we will pursue any violations aggressively.


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