In a June 18 research note, Andrew Kaip, an analyst with BMO Capital Markets, reported that Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE) acquired a silver stream from Falco Resources on its Horne 5 project in Quebec for CA$180 million (CA$180M). "The silver stream has an internal rate of return of 14% at spot silver, which in our view is attractively priced relative to recent producing stream transactions in the range of 5–8%," wrote Kaip.
Per the agreement, Osisko will pay CA$25M when the deal closes, followed by a series of amounts in stages as certain milestones are achieved. The company may increase the stream to 100% of Horne 5's silver production with an optional CA$40M up front and a final CA$60M when Falco gets project financing.
BMO estimated that via the stream, 1.6 million ounces of silver would be delivered to Osisko annually for 18-plus years starting in 2021. "Osisko will pay a delivery charge of 20% of spot silver to a maximum of US$6 per ounce from a 5 kilometer area of interest," Kaip indicated. At that rate, the stream has an NPV5% of US$90M.
The transaction going through is contingent upon whether or not Glencore wants to acquire the stream. Should it want to, it has 60 days to notify Falco of its intent.
Along with the silver stream, Osisko bought a CA$7M secured debenture from Falco that "will be converted into units of Falco (one share and a half warrant), contingent on approval of the conversion by disinterested shareholders," Kaip explained.
Along with a "potential stream conversion at Falco," Kaip noted that additional catalysts for Osisko include boosted metals deliveries from its Orion deal and further opportunities for streams, royalties and/or equity investments.
On Osisko, BMO has a Market Perform rating and a CA$15 per share target price. The latter reflects a greater than 20% return as the company is trading today at around CA$12.28 per share.
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Disclosures from BMO Capital Markets, Osisko Gold Royalties, June 18, 2018
Analyst's Certification: I, Andrew Kaip, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.
Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Company Specific Disclosures:
Disclosure 1: BMO Capital Markets has undertaken an underwriting liability with respect to Osisko Gold Royalties within the past 12 months.
Disclosure 2: BMO Capital Markets has provided investment banking services with respect to Osisko Gold Royalties and Glencore within the
past 12 months.
Disclosure 3: BMO Capital Markets has managed or co-managed a public offering of securities with respect to Osisko Gold Royalties within the
past 12 months.
Disclosure 4: BMO Capital Markets or an affiliate has received compensation for investment banking services from Osisko Gold Royalties and Glencore within the past 12 months.
Disclosure 5: BMO Capital Markets or an affiliate received compensation for products or services other than investment banking services within
the past 12 months from Osisko Gold Royalties.
Disclosure 6A: Osisko Gold Royalties and Glencore is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital
Markets Limited or an affiliate within the past 12 months: A) Investment Banking Services.
Disclosure 6C: Osisko Gold Royalties is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited
or an affiliate within the past 12 months: C) Non-Securities Related Services.
Disclosure 8C: BMO Capital Markets or an affiliate has a financial interest in 0.5% or more in the issued share capital of Osisko Gold Royalties.
Disclosure 9: BMO Capital Markets makes a market in Glencore.
For Important Disclosures on the stocks discussed in this report, please click here.
