Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Osisko Gold Royalties Ltd (OR, Financial) earned 20,068 gold equivalent ounces (GEOs) in Q2 2024, positioning the company well to achieve its full-year guidance of 82,000 to 92,000 GEOs.
- Revenues for Q2 2024 were strong at CAD64.8 million, supported by improving precious metal prices.
- The company maintained high cash margins at 97% during the quarter.
- Osisko Gold Royalties Ltd (OR) reduced its net debt to just over CAD40 million and further repaid CAD13.8 million on its revolving credit facility in Q3, enhancing financial flexibility.
- The company declared and paid its 39th consecutive quarterly dividend of CAD0.065 per share, with over CAD290 million returned to shareholders to date.
Negative Points
- The Eagle Mine experienced a significant underperformance, falling 33% short of budgeted expectations even before the heap leach facility failure on June 24, 2024.
- Osisko Gold Royalties Ltd (OR) took a full, noncash impairment charge of CAD67.8 million on the Eagle NSR royalty, leading to a net loss of CAD0.11 per basic common share for Q2 2024.
- The company adjusted its 2024 GEO delivery guidance to 77,000 to 83,000 GEOs due to the suspension of production at the Eagle Mine.
- Capstone's Mantos Blancos operation saw lower Q2 production year-over-year due to lower grades and recoveries, with plant upgrades delayed by approximately two months.
- The Eagle Mine's production suspension and the uncertainty around its restart timeline pose ongoing risks to Osisko Gold Royalties Ltd (OR)'s future GEO deliveries and financial performance.
Q & A Highlights
Osisko Gold Royalties Ltd (OR) Q2 2024 Earnings Call Highlights
Q: Jason, the syndication at Cascabel at 30%, was there a desire to do more? How much of that discretion was driven by the desire for things like dry powder or balancing country exposure?
A: (Jason Attew, President, CEO, Director) The 30% level was a negotiated level. We believe Cascabel is a world-class asset, and the syndication with Franco-Nevada was structured to balance our interests and provide SolGold with the necessary proceeds. We are comfortable with Ecuador as a jurisdiction but have structured the deal with off-ramps if the country becomes less favorable for mining.
Q: Are you at liberty to talk about how much of the deal pipeline opportunities are within the five-year guidance or is the majority outside of it?
A: (Jason Attew, President, CEO, Director) Our preference is for transactions within our five-year outlook, but we won't ignore high-quality opportunities outside of it. Strategically, we focus on deals that fit within the five-year outlook, but we are also considering long-term opportunities.
Q: On the Eagle impairment to zero, is there any read-through on the potential recoverability of any value to the company? Is there any risk that the royalty would not survive a solvency-related event for the operator?
A: (Jason Attew, President, CEO, Director) We took the impairment due to lack of visibility on a restart. We believe the mine has significant resources and protections, including security over the property and inter-creditor agreements, which should ensure our rights in case of insolvency.
Q: Is there any sensitivity you can provide us with what the impact is of the loss of Eagle to the five-year guide?
A: (Jason Attew, President, CEO, Director) It's early days, and we don't have visibility on a restart plan yet. We haven't changed our five-year outlook as we need more information from Victoria Gold. The mine has significant resources, and we will update the market as we get more clarity.
Q: Was Cariboo included in the existing five-year guidance, or was that something incorporated after that period?
A: (Jason Attew, President, CEO, Director) Cariboo was not included in our five-year outlook.
Q: Could you give us your views on the pros and cons of fixing troubled assets versus moving on?
A: (Jason Attew, President, CEO, Director) We have a strong technical team and have reviewed our portfolio to decide which assets to fund. Our preference is to invest in new opportunities that are accretive to shareholders rather than burdening existing assets with additional costs.
Q: Would you prefer to allocate excess capital to dividends or share buybacks?
A: (Jason Attew, President, CEO, Director) We have increased our dividend by 8% this year and view dividends as a meaningful way to return capital to shareholders. However, we also consider share buybacks if we see our stock price not reflecting fundamental value.
Q: When I looked at Cascabel and took into account SolGold's study, is an internal rate of 6% to 7% a fair return?
A: (Jason Attew, President, CEO, Director) Based on SolGold's prefeasibility study, the return for our shareholders at that price is high single digits. There are nuances in the deal structure that could impact the return depending on future developments.
Q: Is the security on Eagle pari-passu with the senior lending syndicate?
A: (Jason Attew, President, CEO, Director) The inter-creditor agreement is confidential, but we feel very confident in our protections. We have security over the property and a registered interest in the Yukon Territory, ensuring our rights in case of insolvency.
Q: Would it be fair to assume that within the 2028 guidance, about 9,000 GEOs would have been from Eagle Gold, and we'd be more likely towards the lower end of the range?
A: (Jason Attew, President, CEO, Director) Approximately 9,000 GEOs were budgeted from Eagle. However, it's too early to adjust our five-year outlook as we need more information on the restart plan from Victoria Gold.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
