Precious metals have fallen in recent weeks after notching up some impressive gains since the start of 2017. Gold has fallen by almost 5% since its mid-April 2017 peak, while silver has plunged by a massive 10%. Despite precious metals being off the boil, many of the fundamentals supporting higher prices remain in play. This makes now the time to acquire little-known precious metals streaming company Osisko Gold Royalties Ltd. (TSX:OR)(NYSE:OR), particularly as its stock has dipped by 7% over the last month in response to gold’s weakness.
Now what?
Like Silver Wheaton Corp. (TSX:SLW)(NYSE:SLW), Osisko engages in the financing of gold and silver mining projects in exchange for royalties, or the ability to buy the precious metals produced for far less than the spot price. This makes it a less-risky play than any of the miners because it is not exposed to the significant hazards associated with exploring for and mining precious metals.
However, unlike physical bullion or a bullion-linked exchange-traded fund, it gives investors the same levered exposure to gold and silver as the miners. This means there is far greater upside on offer as prices for those metals rally.
Since commencing operations in mid-2014, the company has acquired a quality portfolio of assets comprised of over 50 royalty agreements and one stream. All of its assets are in the stable and relatively mining-friendly jurisdiction of Canada. This means it is not exposed to many of the political and regulatory hazards associated with operating in less stable and legally robust jurisdictions, like those that exist in Latin America and Africa.
Osisko has done an exceptional job of building its portfolio of assets since commencing operations. For this reason, 2016 production shot up by an extraordinary 25% compared to a year earlier, and production is expected to expand by up to 20% during 2017.
Remarkably, Osisko reported an incredible cash margin per ounce of gold produced for 2016 of 99% — well above the figures announced by its peers, including the mere 71% reported by much-venerated, investor favourite Silver Wheaton.
There are indications that Osisko’s assets will continue growing. The operators of the mining properties on which it holds royalty contracts have planned significant investments in drilling and development activities over the course of 2017, creating considerable exploration upside at no cost to Osisko. As a result, its gold reserves should continue to expand, supporting higher production.
Osisko is also focused on making acquisitions to expand its reserves and production. The latest is the early March 2017 agreement to establish a silver streaming agreement with Taseko Mines Ltd. This is forecast to expand Osisko’s silver production by 200,000 ounces annually for the next 14 years and then to 350,000 annually, giving its earnings a solid lift.
So what?
Osisko appears attractively priced and offers considerable upside should gold move higher. Despite its short operational existence, it has a proven track record of unlocking value since commencing operations. It also offers investors an opportunity to obtain all the advantages that come from investing in a precious metals streamer, while offering far greater potential upside than industry leader Silver Wheaton.
While investors wait for Osisko’s stock to appreciate, they will be rewarded by a sustainable dividend yielding just over 1%.
