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Osisko Reports First Quarter 2020 Results

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Osisko Reports First Quarter 2020 Results

 

 

 

 

 

Osisko Gold Royalties Ltd (TSX:OR) (NYSE:OR) announced its consolidated financial results for the first quarter of 2020.

 

Highlights

 

  • Cash flows from operating activities of $23.8 million (Q1 2019 – $24.8 million); $27.9 million before changes in non-cash working capital items (Q1 2019 – $22.6 million), an increase of 23%;
  • Revenues from royalties and streams of $37.8 million (Q1 2019 – $33.5 million), an increase of 13%;
  • Earned 18,159 gold equivalent ounces1 (“GEOs”) (Q1 2019 – 19,753 GEOs);
  • Cash on hand of $158.3 million and up to $400.0 million further available under the credit facility as at March 31, 2020, excluding the $85.0 million equity financing completed on April 1, 2020;
  • Closed a non-brokered private placement of $85.0 million with Investissement Québec on April 1, 2020;
  • Drew down US$50.0 million on our revolving credit facility as a cautionary measure given the current uncertainty to ensure adequate financial capacity during our asset shutdowns;
  • Incurred a non-cash impairment charge on the Renard diamond stream of $26.3 million ($19.3 million, net of income taxes);
  • Net loss of $13.3 million, $0.09 per basic share (Q1 2019 – net loss of $26.5 million, $0.17 per basic share), as a result of the non-cash impairment charge;
  • Adjusted earnings2 of $7.5 million or $0.05 per basic share (Q1 2019 – $5.8 million, $0.04 per basic share);
  • Cash operating margin3 of 91% from royalty and stream interests, generating $34.5 million in operating cash flow, in addition to a cash operating margin of $0.8 million from offtake interests;
  • Withdrew the 2020 production guidance as a result of the uncertainties related to the COVID-19 pandemic impact;
  • Mining activities were affected by the COVID-19 pandemic, including our cornerstone asset, the Canadian Malartic mine, which was placed on care and maintenance from March 25 to April 15;
  • Acquired for cancellation 429,722 common shares for $3.9 million (average acquisition cost of $9.15 per share);
  • Declared a quarterly dividend of $0.05 per common share paid on April 15, 2020 to shareholders of record as of the close of business on March 31, 2020; and
  • Improved the silver stream on the Gibraltar mine by investing $8.5 million to reduce the transfer price from US$2.75 per ounce of silver to nil in April 2020.

 

Recent Performance

 

Sean Roosen, Chair and Chief Executive Officer, commented on the activities of the first quarter of 2020: “We are living through an unprecedented period and we continue to strongly support the initiatives and efforts of the mine operators to put the health and safety of their workforce and communities first.  Even though our business has been impacted by the measures taken to contain the spread of COVID-19, the revenue deferral is manageable given our efficient business model. We further believe that our opportunity set will grow in the coming quarters, and we are well positioned to deploy capital toward royalty and streaming transactions and create value for our stakeholders.”

 

Impairment of Assets

 

In March 2020, the selling price of diamonds decreased significantly as a result of the impact of the COVID-19 pandemic on the diamond market. On March 24, 2020, activities at the Renard diamond mine were suspended following the announcement of the Government of Québec to shutdown all non essential services, and on April 14, 2020, despite the announcement by the Government of Québec to include mining activities as an essential service, the operator of the Renard diamond mine announced the extension of the care and maintenance period of its operations due to depressed diamond market conditions as well as major structural impediments to sell finished products. These were considered indicators of impairment among other facts and circumstances and, accordingly, management performed an impairment assessment as at March 31, 2020. The Company recorded an impairment charge of $26.3 million ($19.3 million, net of income taxes) on the Renard diamond stream.

 

Outlook

 

On March 23, 2020, given the uncertainties with respect to future developments related to the COVID-19 pandemic, including the duration, severity and scope of the outbreak, the actions taken to contain or treat the COVID‑19 outbreak, and impacts on mining operations, Osisko announced the withdrawal of its 2020 production guidance and expects to provide new guidance once operations in the mining industry stabilize. The Company will continue to monitor the situation closely and expects its results for the second quarter of 2020 to be affected by the impacts of the COVID-19 pandemic on several mining activities on which it holds a royalty, stream or other interest.

 

About Osisko Gold Royalties Ltd

 

Osisko Gold Royalties Ltd is an intermediate precious metal royalty company focused on the Americas that commenced activities in June 2014. Osisko holds a North American focused portfolio of over 135 royalties, streams and precious metal offtakes. Osisko’s portfolio is anchored by its cornerstone asset, a 5% net smelter return royalty on the Canadian Malartic mine, which is the largest gold mine in Canada. Osisko also owns the Cariboo gold project in Canada as well as a portfolio of publicly held resource companies, including a 15.8% interest in Osisko Mining Inc., 17.9% interest in Osisko Metals Incorporated and an 18.3% interest in Falco Resources Ltd.

 

 

verage Metal Prices and Exchange Rate

  Three months ended
March 31,
  2020 2019
     
Gold(i) $1,583 $1,304
Silver(ii) $16.90 $15.57
     
Exchange rate
(US$/Can$)(iii)
1.3449 1.3295

 

(i) The London Bullion Market Association’s pm price in U.S. dollars.
(ii) The London Bullion Market Association’s price in U.S. dollars.
(iii) Bank of Canada daily rate.

 

(2) The Company has included certain non-IFRS measures including “Adjusted Earnings” and “Adjusted Earnings per basic share” to supplement its consolidated financial statements, which are presented in accordance with IFRS.

The Company believes that these measures, together with measures determined in accordance with IFRS, provide investors with an improved ability to evaluate the underlying performance of the Company. Non-IFRS measures do not have any standardized meaning prescribed under IFRS, and therefore they may not be comparable to similar measures employed by other companies. The data is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

 “Adjusted earnings” is defined as “Net loss” adjusted for certain items: “Foreign exchange gain (loss)”, “Impairment of assets”, “Gains (losses) on disposal of exploration and evaluation assets”, “Unrealized gain (loss) on investments”, “Impairment on financial assets and investments in associates”, “Share of loss of associates”, “Deferred income tax expense (recovery)” and other unusual items such as transaction costs.

Adjusted earnings per basic share is obtained from the “adjusted earnings” divided by the “Weighted average number of common shares outstanding” for the period.

   

 

 

 

  Three months ended 
March 31,
  2020   2019  
(in thousands of dollars,  except per share amounts) $ $
     
Net loss (13,318 ) (26,549 )
     
Adjustments:    
Impairment of assets 26,300   38,900  
Foreign exchange loss (gain) (2,101 ) 1,159  
Unrealized loss (gain) on investments (1,535 ) 35  
Share of loss of associates 1,716   1,762  
Deferred income tax recovery (3,515 ) (9,482 )
     
Adjusted earnings 7,547   5,825  
     
Weighted average number of common shares outstanding (000’s) 155,374   155,059  
     
Adjusted earnings per basic share 0.05   0.04  

 

(3) Cash operating margin, which represents revenues less cost of sales, is a non-IFRS measure. The Company believes that this non-IFRS generally accepted industry measure provides a realistic indication of operating performance and provides a useful comparison with its peers. The following table reconciles the cash margin to the revenues and cost of sales presented in the consolidated statements of income and related notes:
   

 

 

 

(In thousands of dollars) Three months ended
March 31,
  2020    2019  
  $ $
     
Revenues 52,605   100,726  
Less: Revenues from offtake interests (14,771 ) (67,226 )
Revenues from royalty and stream interests 37,834   33,500  
     
Cost of sales (17,283 ) (70,104 )
Less: Cost of sales of offtake interests 13,922   66,510  
Cost of sales of royalty and stream interests (3,361 ) (3,594 )
     
     
     
     
Revenues from royalty and stream interests 37,834   33,500  
Less: Cost of sales of royalty and stream interests (3,361 ) (3,594 )
Cash margin from royalty and stream interests 34,473   29,906  
  91.1 % 89.3 %
     
Revenues from offtake interests 14,771   67,226  
Less: Cost of sales of offtake interests (13,922 ) (66,510 )
Cash margin from offtake interests 849   716  
  5.7 % 1.1  %

 

 

 

 

Osisko Gold Royalties Ltd    
Consolidated Balance Sheets    
(Unaudited)    
(tabular amounts expressed in thousands of Canadian dollars)    
           
  March 31,     December 31,  
    2020       2019  
  $   $
Assets      
       
Current assets      
       
Cash 158,325     108,223  
Short-term investments 21,228     20,704  
Amounts receivable 8,797     6,330  
Other assets 4,444     5,172  
  192,794     140,429  
       
Non-current assets      
       
Investments in associates 102,684     103,640  
Other investments 61,176     67,886  
Royalty, stream and other interests 1,140,113     1,130,512  
Mining interests and plant and equipment 358,115     343,693  
Exploration and evaluation 43,065     42,949  
Goodwill 111,204     111,204  
Other assets 7,038     6,940  
  2,016,189     1,947,253  
       
Liabilities      
       
Current liabilities      
       
Accounts payable and accrued liabilities 17,498     18,772  
Dividends payable 7,879     7,874  
Current portion of long-term debt 49,024      
Provisions and other liabilities 1,303     1,289  
  75,704     27,935  
       
Non-current liabilities      
       
Provisions and other liabilities 29,953     29,365  
Long-term debt 374,475     349,042  
Deferred income taxes 43,711     47,465  
  523,843     453,807  
       
Equity      
       
Share capital 1,654,146     1,656,350  
Warrants 18,072     18,072  
Contributed surplus 37,840     37,642  
Equity component of convertible debentures 17,601     17,601  
Accumulated other comprehensive income 36,195     13,469  
Deficit (271,508 )   (249,688 )
  1,492,346     1,493,446  
  2,016,189     1,947,253  
           

                                         

 

 

Osisko Gold Royalties Ltd      
Consolidated Statements of Loss      
For the three months ended March 31, 2020 and 2019      
(Unaudited)    
(tabular amounts expressed in thousands of Canadian dollars, except per share amounts)    
           
  2020     2019  
  $     $  
           
Revenues 52,605     100,726  
           
Cost of sales (17,283 )   (70,104 )
Depletion of royalty, stream and other interests (13,700 )   (12,376 )
Gross profit 21,622     18,246  
           
Other operating expenses          
General and administrative (6,284 )   (5,901 )
Business development (1,138 )   (1,738 )
Exploration and evaluation (42 )   (33 )
Impairment of assets (26,300 )   (38,900 )
Operating loss (12,142 )    (28,326 )
Interest and dividend income 1,121     1,172  
Finance costs (6,862 )   (5,747 )
Foreign exchange gain (loss) 2,326     (1,121 )
Share of loss of associates (1,716 )   (1,762 )
Other gains (losses), net 629      (35 )
Loss before income taxes (16,644 )   (35,819 )
Income tax recovery 3,326     9,270   
Net loss (13,318 )   (26,549 )
           
Net loss per share          
Basic and diluted (0.09 )   (0.17 )
 

 

         

 

Osisko Gold Royalties Ltd          
Consolidated Statements of Cash Flows          
For the three months ended March 31, 2020 and 2019          
(Unaudited)          
(tabular amounts expressed in thousands of Canadian dollars)          
           
  2020     2019  
  $     $  
Operating activities      
Net loss (13,318 )   (26,549 )
Adjustments for:      
Share-based compensation 2,683     2,701  
Depletion and amortization 14,132     12,660  
Impairment of assets 26,300      38,900  
Finance costs 2,624     1,683  
Share of loss of associates 1,716     1,762  
Net (gain) loss on acquisition of investments (2,845 )   175  
Change in fair value of financial assets at fair value through profit or loss 1,310     529  
Net gain on disposal of investments –      (669 )
Foreign exchange (gain) loss (2,101 )   1,159  
Deferred income tax recovery (3,515 )   (9,482 )
Other 948     (248 )
Net cash flows provided by operating activities before changes in non-cash working capital items 27,934     22,621  
Changes in non-cash working capital items (4,134 )   2,129  
Net cash flows provided by operating activities 23,800     24,750  
       
Investing activities      
Short-term investments (1,069 )   (13,119 )
Acquisition of investments (15,587 )   (5,759 )
Proceeds on disposal of investments 322     422  
Acquisition of royalty and stream interests (7,500 )   (27,969 )
Exploration and evaluation expenses, net of tax credits (116 )   186  
Mining assets and plant and equipment (14,854 )   –   
Other 156     (155 )
Net cash flows used in investing activities (38,648 )   (46,394 )
 

 

     
Financing activities      
Exercise of share options and shares issued under the employee share purchase plan 360     5,683  
Increase in long-term debt 71,660     –   
Repayment of long-term debt –      (30,000 )
Normal course issuer bid purchase of common shares (2,956 )   (11,901 )
Dividends paid (7,542 )   (6,298 )
Other (1,155 )   (174 )
Net cash flows provided by (used in) financing activities 60,367     (42,690 )
       
Increase (decrease) in cash before effects of exchange rate changes on cash 45,519     (64,334 )
Effects of exchange rate changes on cash 4,583     (1,434 )
Increase (decrease) in cash 50,102     (65,768 )
Cash – beginning of period 108,223     174,265  
Cash – end of period 158,325     108,497  

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Posted May 12, 2020

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