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Osisko Reports Second Quarter 2020 Results and Updated Guidance for Second Half of 2020

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Osisko Reports Second Quarter 2020 Results and Updated Guidance for Second Half of 2020

 

 

 

 

 

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

 

Highlights

 

  • Updated guidance for the second half of the year of 33,000 to 35,000 gold equivalent ounces1;
  • Revenues from royalties and streams of $28.7 million (Q2 2019 – $33.8 million);
  • Cash flows from operating activities of $15.4 million (Q2 2019 – $21.4 million); $18.6 million before changes in non-cash working capital items (Q2 2019 – $23.5 million);
  • Earned 12,386 GEOs (Q2 2019 – 19,651 GEOs);
  • Net earnings of $13.0 million, $0.08 per basic share (Q2 2019 – net loss of $6.5 million, $0.04 per basic share);
  • Adjusted earnings2 of $5.7 million or $0.03 per basic share (Q2 2019 – $8.2 million, $0.05 per basic share);
  • Cash operating margin3 of 95% from royalty and stream interests, generating $27.2 million in operating cash flow, in addition to a cash operating margin of $0.6 million from offtake interests;
  • Cash on hand of $202.0 million and up to $400.0 million further available under the credit facility as at June 30, 2020;
  • Closed a non-brokered private placement of $85.0 million with Investissement Québec on April 1, 2020;
  • 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;
  • Commercial production was declared by the operator of the Eagle Gold mine on July 1, 2020, on which the Company holds a 5% NSR royalty;             
  • As a result of the COVID-19 pandemic, several of Osisko’s assets were temporarily placed on care and maintenance by our operating partners during the second quarter, but the affected assets have now largely resumed operations; and
  • Declared a quarterly dividend of $0.05 per common share paid on July 15, 2020 to shareholders of record as of the close of business on June 30, 2020.

 

Performance

 

Sean Roosen, Chair and Chief Executive Officer, commented on the activities of the second quarter of 2020: “Even though our results for the second quarter have been affected by the impacts of the COVID‑19 pandemic, our business model remains extremely strong and the rising gold price helped to partially offset the closures. We look forward to benefiting from the gold price environment and our assets being at full capacity for the rest of the year.”

 

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 until further notice.

 

As the main mining assets on which Osisko holds a royalty, stream or other interest have mostly returned to operations, Osisko has updated its guidance for the six months and the year ending December 31, 2020. This guidance excludes any potential impact on GEOs and cash margins if the Renard diamond mine would restart its operations in 2020 or if additional periods of care and maintenance were announced in light of the development of the COVID-19 pandemic.

 

         
    Six months ending December 31, 2020 (i)   Year ending December 31, 2020 (i)
    Low   High   Cash margin   Low   High   Cash margin
    (GEOs)   (GEOs)   (%)   (GEOs)   (GEOs)   (%)
                         
Royalty interests   24,800   26,250   100   45,500   46,950   100
Stream interests   8,000   8,450   87   17,150   17,650   81
Offtake interests   200   300   2   850   900   3
    33,000   35,000       63,500   65,500    
                         

(i) Excluding any potential revenues from the Renard diamond mine for the six months ending December 31, 2020.

 

For the full year 2020 guidance, actual results were used for the first semester and added to the forecast for the second semester of the year. For the outlook of the last 6 months of 2020, silver and cash royalties have been converted to GEOs using commodity prices of US$1,900 per ounce of gold, US$22 per ounce of silver and an exchange rate (US$/C$) of 1.33.

 

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 138 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 14.7% interest in Osisko Mining Inc., 18.6% interest in Osisko Metals Incorporated and an 18.3% interest in Falco Resources Ltd.

 

 

Notes:
  (1) GEOs are calculated on a quarterly basis and include royalties, streams and offtakes. Silver earned from royalty and stream agreements was converted to gold equivalent ounces by multiplying the silver ounces by the average silver price for the period and dividing by the average gold price for the period. Diamonds, other metals and cash royalties were converted into gold equivalent ounces by dividing the associated revenue by the average gold price for the period. Offtake agreements were converted using the financial settlement equivalent divided by the average gold price for the period.
     

 

Average Metal Prices and Exchange Rate

 

 

  Three months ended
June 30,
  Six months ended
June 30,
  2020 2019   2020 2019
           
Gold (i) $1,711 $1,309   $1,645 $1,307
Silver(ii) $16 $15   $17 $15
           
Exchange rate (US$/Can$)(iii) 1.3853 1.3377   1.3651 1.3336

 

(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 earnings (loss)” adjusted for certain items: “Foreign exchange gain (loss)”, “Impairment of assets”, including impairment on financial assets and investments in associates, “Gains (losses) on disposal of exploration and evaluation assets”, “Unrealized gain (loss) on investments”, “”, “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 
June 30,
    Six months ended 
June 30,
 
  2020   2019     2020   2019  
                   
(in thousands of dollars,  except per share amounts) $   $     $   $  
                   
Net earnings (loss) 13,048   (6,547 )   (270 ) (33,096 )
                   
Adjustments:                  
Impairment of assets 3,117       30,323   38,900  
Foreign exchange loss (gain) 544   484     (1,557 ) 1,643  
Unrealized (gain) loss on investments (13,923 ) 5,298     (15,458 ) 5,333  
Share of loss of associates 1,458   8,780     3,174   10,542  
Deferred income tax expense (recovery) 1,489   216     (2,025 ) (9,266 )
                   
Adjusted earnings 5,733   8,231     14,187   14,056  
                   
Weighted average number of common shares outstanding (000’s) 164,733   154,988     160,067   155,023  
                   
Adjusted earnings per basic share 0.03   0.05     0.09   0.09  

 

(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 (loss) and related notes (In thousands of dollars):
   

 

  Three months ended
 June 30,
    Six months ended
June 30,
 
  2020   2019     2020   2019  
  $   $     $   $  
           
Revenues 40,758   131,606     93,363   232,332  
Less: Revenues from offtake interests (12,025 ) (97,825 )   (26,796 ) (165,051 )
Revenues from royalty and stream interests 28,733   33,781     66,567   67,281  
           
Cost of sales (12,945 ) (100,093 )   (30,228 ) (170,197 )
Less: Cost of sales of offtake interests 11,454   96,642     25,376   163,152  
Cost of sales of royalty and stream interests (1,491 ) (3,451 )   (4,852 ) (7,045 )
           
           
           
           
Revenues from royalty and stream interests 28,733   33,781     66,567   67,281  
Less: Cost of sales of royalty and stream interests (1,491 ) (3,451 )   (4,852 ) (7,045 )
Cash margin from royalty and stream interests 27,242   30,330     61,715   60,236  
           
  95 % 90 %   93 % 90 %
           
Revenues from offtake interests 12,025   97,825     26,796   165,051  
Less: Cost of sales of offtake interests (11,454 ) (96,642 )   (25,376 ) (163,152 )
Cash margin from offtake interests 571   1,183     1,420   1,899  
           
  5 % 1 %   5 % 1 %
                   

 

 

 

 

Osisko Gold Royalties Ltd
Consolidated Balance Sheets
(Unaudited)
(tabular amounts expressed in thousands of Canadian dollars)
     
  June 30,     December 31,  
    2020       2019  
    $     $
           
       
Assets      
       
Current assets      
       
Cash 201,971     108,223  
Short-term investments 21,105     20,704  
Amounts receivable 8,355     6,330  
Other assets 5,878     5,172  
  237,309     140,429  
       
Non-current assets      
       
Investments in associates 123,907     103,640  
Other investments 107,954     67,886  
Royalty, stream and other interests 1,128,673     1,130,512  
Mining interests and plant and equipment 369,536     343,693  
Exploration and evaluation 43,065     42,949  
Goodwill 111,204     111,204  
Other assets 6,940     6,940  
  2,128,588     1,947,253  
       
Liabilities      
       
Current liabilities      
       
Accounts payable and accrued liabilities 14,379     18,772  
Dividends payable 8,259     7,874  
Current portion of long-term debt 49,298      
Provisions and other liabilities 2,377     1,289  
  74,313     27,935  
       
Non-current liabilities      
       
Provisions and other liabilities 28,918     29,365  
Long-term debt 372,354     349,042  
Deferred income taxes 48,327     47,465  
  523,912     453,807  
       
Equity      
       
Share capital 1,742,111     1,656,350  
Warrants 18,072     18,072  
Contributed surplus 38,220     37,642  
Equity component of convertible debentures 17,601     17,601  
Accumulated other comprehensive income 60,712     13,469  
Deficit (272,040 )   (249,688 )
  1,604,676     1,493,446  
  2,128,588     1,947,253  
           

 

Osisko Gold Royalties Ltd
Consolidated Statements of Income (Loss)
For the three and six months ended June 30, 2020 and 2019
(Unaudited)
(tabular amounts expressed in thousands of Canadian dollars, except per share amounts)
 
  Three months ended
June 30,
    Six months ended
June 30,
 
  2020     2019     2020     2019  
  $     $     $     $  
                 
                 
Revenues 40,758     131,606     93,363     232,332  
                 
Cost of sales (12,945 )   (100,093 )   (30,228 )   (170,197 )
Depletion of royalty, stream and other interests (8,692 )   (11,825 )   (22,392 )   (24,201 )
Gross profit 19,121     19,688     40,743     37,934  
                 
Other operating expenses                
General and administrative (5,818 )   (4,574 )   (12,102 )   (10,475 )
Business development (1,634 )   (1,786 )   (2,772 )   (3,524 )
Exploration and evaluation (34 )   (58 )   (76 )   (91 )
Impairment of assets         (26,300 )   (38,900 )
Operating income (loss) 11,635      13,270      (507  )   (15,056  )
Interest and dividend income 1,075     920     2,196     2,092  
Finance costs (6,636 )   (5,792 )   (13,498 )   (11,539 )
Foreign exchange (loss) gain (608 )   (491 )   1,718     (1,612 )
Share of loss of associates (1,458 )   (8,780 )   (3,174 )   (10,542 )
Other gains (losses), net 10,806     (5,298 )   11,435     (5,333 )
Earnings (loss) before income taxes 14,814      (6,171 )   (1,830 )   (41,990 )
Income tax (expense) recovery (1,766 )   (376 )   1,560     8,894  
Net earnings (loss) 13,048     (6,547 )   (270 )   (33,096 )
                 
Net earnings (loss) per share                
Basic and diluted 0.08     (0.04 )       (0.21 )
                 

 

 

 

Osisko Gold Royalties Ltd

Consolidated Statements of Cash Flows
For the three and six months ended June 30, 2020 and 2019
(Unaudited)
(tabular amounts expressed in thousands of Canadian dollars)
                       
  Three months ended
June 30,
    Six months ended
June 30,
 
  2020     2019     2020     2019  
  $     $     $     $  
               
Operating activities              
Net earnings (loss) 13,048     (6,547 )   (270 )   (33,096 )
Adjustments for:              
Share-based compensation 1,682     1,520     4,365     4,221  
Depletion and amortization 8,981     12,166     23,113     24,826  
Impairment of assets 3,117         30,323     38,900  
Finance costs 2,126     1,791     4,750     3,474  
Share of loss of associates 1,458     8,780     3,174     10,542  
Net gain on acquisition of investments     (263 )   (2,845 )   (88 )
Change in fair value of financial assets at fair value through profit and loss (2,316 )   665     (1,006 )   1,194  
Net gain on dilution of investments (10,381 )       (10,381 )    
Net gain (loss) on disposal of investments (1,226 )   4,896     (1,226 )   4,227  
Foreign exchange loss (gain) 544     484     (1,557 )   1,643  
Deferred income tax expense (recovery) 1,490     216     (2,025 )   (9,266 )
Other 33     (245 )   75     (493 )
Net cash flows provided by operating activities before changes in non-cash working capital items 18,556     23,463     46,490     46,084  
Changes in non-cash working capital items (3,134 )   (2,113 )   (7,268 )   16  
Net cash flows provided by operating activities 15,422     21,350     39,222     46,100  
               
Investing activities              
Short-term investments     (3,111 )   (1,069 )   (16,230 )
Acquisition of investments (18,356 )   (34,778 )   (33,943 )   (40,537 )
Proceeds on disposal of investments 3,115     58,052     3,437     58,474  
Acquisition of royalty and stream interests (16,867 )       (24,367 )   (27,969 )
Exploration and evaluation (expenses) tax credits, net     (36 )   (116 )   150  
Mining assets and plant and equipment (11,561 )   32     (26,415 )   588  
Other (5 )   (352 )   151     (1,063 )
Net cash flows (used in) provided by investing activities (43,674 )   19,807     (82,322 )   (26,587 )
               
Financing activities              
Private placement of common shares 85,000         85,000      
Exercise of share options and shares issued under the share purchase plan 773     585     1,133     6,268  
Increase in long-term debt         71,660      
Repayment of long-term debt             (30,000 )
Common shares acquired and cancelled through a share repurchase     (58,052 )       (58,052 )
Normal course issuer bid purchase of common shares (977 )       (3,933 )   (11,901 )
Dividends paid (6,639 )   (7,504 )   (14,181 )   (13,802 )
Other (1,611 )   (18 )   (2,766 )   (192 )
Net cash flows provided by (used in) financing activities 76,546     (64,989 )   136,913     (107,679 )
               
Increase (decrease) in cash before effects of exchange rate changes on cash 48,294     (23,832 )   93,813     (88,166 )
Effects of exchange rate changes on cash (4,648 )   (1,076 )   (65 )   (2,510 )
Increase (decrease) in cash 43,646     (24,908 )   93,748     (90,676 )
Cash  – beginning of period 158,325     108,497     108,223     174,265  
Cash  – end of period 201,971     83,589     201,971     83,589  

 

Posted August 5, 2020

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