Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE; NY 14.32) has been roiled this week with the unexpected dismissal of the firm’s popular and successful CEO and President Sandeep Singh. In a terse press release, the company announced a new interim CEO had been hired to replace him. No explanation was given, with a statement only that “the independent directors held the view that a change of CEO was necessary to best position Osisko for continued long term success.” Other than that, the company said it was committed to “continuing our focus on prudent capital allocation (and) value creation.”
Although the press release devoted most of its space to extolling the virtues of the interim CEO, Paul Martin, and thanking him for stepping in doubtless all deserved not a single word was expended in acknowledging Mr. Singh’s role, let alone thanking him. In my mind, this was shameful. It was also foolish, for the absence of an explanation or any words of acknowledgement for Mr. Singh only fueled wild speculation and contributed to the plunge in the stock price, which after an end-week recovery, ended down 9% in three days.
I am told that the board informed Mr. Singh of their decision on Sunday afternoon. Monday was a Canadian holiday and Tuesday a U.S. one, so it was Wednesday before the release went out. They had over two days to frame a release carefully, and singularly failed to do that. There also has not been any company conference call, which might have helped calm the waters.
The official story seems weak
In subsequent days, company spokesmen have used the phrase that Mr. Singh was “incapable of working constructively internally and externally.” This phrase has been repeated several times and is clearly the company’s “official” line, even though it has not been published in a release or filing. It was also said that he lacked the ability to communicate. To me this does not ring true. I cannot speak for the personnel dynamics inside the company, but to say that he was incapable o f working constructively externally is not only not m y experience, but not the judgement of anyone I know. Nor, clearly, judging by major firms that increased their ownership during his tenure the assessment of the investment community.
A good man, popular and successful
Mr. Singh has been extremely highly regarded in the investment community, and absent new information, he will continue to be. I have got to know him over the past three new information, he will continue to be. I have got to know him over the past three years, and have been years, and have been very impressed, not only with his very impressed, not only with his deep knowledge of all the deep knowledge of all the company’s assets and his overall company’s assets and his overall performance at the company, but also his humanity. He performance at the company, but also his humanity. He is honest, sincere, and decent.is honest, sincere, and decent.
At the AGM last month, Mr. Singh received 99.6% of votes cast in favor, while chairman Sean Roosen had more than 22% of the votes cast withheld. (One cannot vote against directors, only for or “withhold”, so withholding a vote is essentially voting against.) Singh joined Osisko at the end of 2019, and a year later, was appointed CEO as well. He was successful in stabilizing the company, convincing doubters over strategy, and turning around the stock to all time highs. Since he became CEO, until his unceremonious dismissal , the stock was up almost 35% compared with nearly 16% decline for the XAU. This follows years of underperformance. In the five years prior to his appointment as CEO, Osisko was up 7.5% compared with 173% for the XAU. It is impossible to gainsay his achievements.
Is there more to the story?
Given the abrupt departure, it is no surprise that concerns were raised: that material bad news on the company was ahead (perhaps a write down, or very weak quarter); or more broadly that he was on the losing side of a clash with chairman Sean Roosen, indicating a change in strategy. There were also rumours that perhaps a serious breach had been committed.
The good news is that none of this appears to be the case. The company’s detailed second-quarter results, released the day after the dismissal, contained no such bad news; had there been such an issue, it would surely have been released immediately. As for strategy, the company, including Mr. Roosen, Mr. Martin and the corporate IR, are all at pains to emphasize that there is no change in strategy. We shall take that on their word, though maintain a careful eye. As for the last concern, there were all sorts of wild rumors floating around Toronto in the hours after news of Mr. Singh’s dismissal was released – fueled by the company’s very poor presentation of the dismissal – but those who know Mr. Singh, including myself, dismissed all these stories out of hand, while both Mr. Singh and company insiders have separately dismissed them.
There was a personality clash
No doubt in coming weeks, the market will learn more and be able to make a better informed judgment on the unfortunate events. Such things are usually not completely one sided. What seems clear is that there was a personality clash. In comments to Canada’s leading newspaper, The Globe and Mail , Mr. Singh said he “butted heads” with the board. He “admitted” he expected a strong effort from his team, but denied he was a “bad boss.” “I worked people hard, but I worked myself even harder,” he said. “I consider those people my friends, and I hope, and I think that they would say the same.”
I obviously do not know all the details, but if there was a clash with the board so deep to lead to a successful CEO ’s dismissal, does not at least some of the blame rest with the board that allowed it to get this stage ? Yet no board member took any responsibility. Perhaps at the next election of directors, we shall see some fallout.
Singh owns nearly 250,000 shares of OR, and has been a steady buyer, adding nearly 55,000 shares just in May. That is more than six times as many shares as owned by all eight independent directors who fired him combined, incidentally.
A step down for Roosen
At the same time, Osisko announced that company founder Sean Roosen was transitioning from Executive Chairman to non executive chairman so he could focus more on Osisko Development, of which he is also chairman and CEO. Mr. Roosen’s role as executive chairman of the two intertwined companies OR still owns 40% of ODV had raised serious concerns among several large institutional investors about governance; the California State Teachers’ Retirement System voted against Roosen and several of the independent directors at last month’s AGM. (In fairness, I should note that by no means do I always agree with these institutions ’ voting decisions.) Given this, the board’s comment concerning Roosen’s move that is was committed to “continuous governance improvement” was disingenuous, to say the least. They have had several years to make this move if they thought good governance required it.
None of my comments should in any way be read as disparaging of Sean Roosen, one of the Canadian mining industry’s giants, and a great mine builder. I have high respect for him. (Sandeep, in his conversation with me, had no bad words for Mr. Roosen.) I aim to meet with Roosen later this month at a mining conference in Florida, where I also hope to meet Mr. Martin.
The company is strong with growth ahead
The day after firing its CEO, Osisko announced preliminary results for the second quarter, as well as providing a detailed update on the company’s assets. Although attributable deliveries were a little below expectations, the company is still on track to meet its full year guidance Full financial results will be released a little over a month from now.
So while this episode is very unfortunate , particularly for Mr. Singh, right now we have no reason to believe the company is other than sound and the strategy will continue. Certainly, the assets are strong, and the growth profile unrivalled in the sector. We will be watching carefully for signs of any strategy deviation, and particularly for who is appointed the next CEO.
However, the turmoil destroys the stability that Mr. Singh had brought to the company after a series of departures had rocked the company, including the well known royalty development team , its most well known and popular director, and later the company president. It raises the question whether the ship has been righted. Mr. Martin, the interim CEO, has a good reputation in the industry, so will likely smooth things until there is a new CEO.
The stock is undervalued on an asset basis, and I don’t think there is any significant further downside. However, since this latest upheaval betrays an underlying issue at the highest levels of the company, we are not adding yet, but are holding.
Another royalty for Nova
Nova Royalty Corp. (NOVR:TSX.V, 1.69) added yet another small royalty, this time acquiring an additional 0.03% royalty on HudBay ’s Copper World Complex in Arizona. Nova’s total royalty on the project is 0.315% with a right of first refusal for an additional 0.36%. Nova is paying $1.4 million, from a third party seller, in shares and cash, with payments spread out and the largest payment ($740,000) not until after production has commenced. Nova is a buy here, particularly if you do not already own.
More positive drilling from Lara
Lara Exploration Ltd. (LRA:TSX.V, 0.78) released results from six follow up holes adjacent to the Cupuzeiro target at its Planalto project in northern Brazil The results show that the high grade copper mineralization extends 300 meters below surface, with most zones still open to depth. This round of results adds to understanding of the property. A current drill program of 10,000 meters is scheduled to be completed by the end of August. This is testing extensions to both Cupuzeiro and the original Homestead discovery. Capstone can earn up to 70% in the project by funding work until a construction decision. After that, Lara would fund its 30% from cash flow (assuming it still owned the interest at that stage). Lara continues to be a buy.
TOP BUYS this week include Nestle SA (NESN:VX; NSRGY:OTC, Swiss 104.66); Barrick Gold Corp. (ABX:TSX; GOLD:NYSE, NY 16.34); Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ, NY 14.38); Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE, NY 48.39); Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE), Midland Exploration Inc. (MD:TSX.V), and Orogen Royalties Inc. (OGN:TSX.V). If you do not own, you can also buy Franco-Nevada Corp. (FNV:TSX; FNV:NYSE, NY 138.73) and Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX, NY 116.13).
STANDING UP TO CHINA. You may not know the name Jimmy Lai. But he is a hero. A penniless immigrant to Hong Kong, he built a successful business and became a billionaire. After Tiananmen Square , h e later started a newspaper , Apple Daily, and was not afraid to write about China s human rights abuses that other media were increasingly reluctant to cover. Then, after China took over Hong Kong, and introduced the national security law, he joined protests until he was eventually arrested and put in jail , where he remains. An inspiring documentary is available on his life, The Hong Konger. I admit there were tears in my eyes when I saw it at the Anthem Film Festival, part of Freedom Fest. It would be an inspiring story had the story ended with his successes , but his fortitude in the face of oppression makes it gut wrenching. The internationally acclaimed film is available to watch free here.
UNINTENDED ENVIRONMENTAL CONSEQUENCES. It is not only government mandates that have unintended consequences. A new study by Kelly Shue of Yale
University and Samuel Hartzmark of Boston College shows that ESG investing transfers investment from "bad" companies to "good,” that is green companies such as financial services and digital companies. These companies are low carbon emitters with little room to lower emissions. However, "brown" companies, because of ESG investing, now are starved of capital with the result that they do not prioritize green technologies. Another unintended consequence is that some companies, such as oil producers or mining companies sell older (dirtier) assets where the cost of going green cannot be justified economically, in order to burnish their "green credentials." But the old rigs and mines are not closed, but become dirtier in the hands of new owners. This principle also applies to countries: rules preventing new domestic oil and gas production in countries such as Britain only result in imports of dirtier hydrocarbons, often more expensive and from less democratic places.
Note: This article was originally published on July 8.
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