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A Speculative Way to Play Gold

Investors looking for exposure to the gold and precious metals industry have many ways of investing in such securities. Among the blue-chip gold producers, gold ETFs, as well as the physical bouillon, investors can choose to buy into gold royalty companies such as Osisko Gold Royalties Ltd. (TSX:OR)(NYSE:OR).

I’ll be taking a look at Osisko, as the company has recently reported earnings, to give investors insight into what the company does and how this gold play compares with other options.

Earnings release

Last week, Osisko reported decent earnings results for the first quarter of 2017. Net earnings attributable to shareholders amounted to $4.1 million this past quarter compared to a marginal loss for the same quarter a year ago. The company’s results were boosted by record ounces earned, which drove the top and bottom lines higher year over year.

Osisko’s assets include a portfolio of royalties on a number of Canadian miners, including Vezza, Island Gold, Canadian Malartic, and its newly acquired royalty stream from Taseko Mines, which owns a 75% interest in B.C.-based Gibraltar Copper Mine. Increased production from these companies has led to the 9% increase year over year in output that has supported the company’s revenue stream and 1.1% dividend.

In addition to these projects, the company also disclosed that it purchased a larger stake in Barkerville Gold Mines, bringing its ownership stake to above 35%. Shares in Baskerville have increased substantially on these purchases, and have more than doubled since March on heavier trading volumes related to these share purchases.

Business model allows for increased exposure to gold prices

Osisko Royalties (not to be confused with Osisko Mining Corporation) is involved in the royalty business, receiving royalties from mines in exchange for funding.

The royalty business is often looked to as a source of steady and predictable revenue and can be viewed in a very favourable light from investors looking to cash in on a rally in the price of gold since these companies typically offer exposure to mining operations without much of the idiosyncratic risk there is with owning only one miner.

Osisko has a portfolio of more than 50 royalty streams, which spreads the risk out among a base of mining operations, most of which are located in Canada. That said, the companies that Osisko invests in tend to be venture companies, displaying higher-risk profiles and often more exposed to the price of gold. This increased volatility can indeed be a good thing as gold prices potentially rise; however, the downside for investors looking at a company like Osisko can be higher.

The increased risk profile of Osisko’s royalty streams is Something investors will have to weigh against the potential rewards.

Stay Foolish, my friends.

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Fool contributor Chris MacDonald has no position in any stocks mentioned.

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