The Malartic gold mine in Canada, owned by Agnico-Eagle and Yamana, is subject to a 5 per cent royalty held by Osisko Gold. Photo: Agnico-Eagle & Yamana Gold

The Malartic gold mine in Canada, owned by Agnico-Eagle and Yamana, is subject to a 5 per cent royalty held by Osisko Gold.
Photo: Agnico-Eagle & Yamana Gold


Osisko Cash-Out Continues

Issue 151, December 2015

Insiders at Osisko Gold Royalties, the newest royalty group on the block, have continued a pattern of aggressive share selling in recent weeks, shifting more than $10m (C$14m) of stock in the last nine months.

Osisko closed a C$461m merger with Virginia Mines in February, swallowing its Eleonore gold royalty in Quebec in a bid to establish itself as a sizeable new royalty player. The deal was widely described by analysts as fully priced, but sent Osisko's shares charging above C$18.00, giving the company a princely market cap of C$1.7bn.

Led by John Burzynski, the company's head of new business, Osisko's directors jumped on the high market rating to offload large volumes of stock. Insider selling hit $8m in June, then briefly subsided, but has ramped-up aggressively this month, as Osisko's cash-out continues, pushing the figure above $10m.

Burzynski, who has traded in and out of Osisko at least 27 times in the last six months, has again led the latest bout of insider selling. Osisko has also been liberal in dolling-out its own shares, issuing paper to buy Virginia and raising C$200m in a bought deal in January at C$18.25.

Perceptions in Flux

The heavy selling raises questions as to whether Osisko's insiders believe the company will continue to be valued as a highly-rated royalty group, or more like a gold developer.

Royalty and streaming firms trade at large premiums to the wider mining industry, thanks to their low costs, massive margins and rapid cash flow growth. Osisko's chief executive Sean Roosen also arguably deserves a dealmaker's premium, for his ability to pull transactions and gold discoveries out of thin air.

But the company has been ploughing money into a widening network of sister companies in recent months, including Barkerville and Oban Mining, which in turn are run as conventional cash-burning explorers and mine developers.

Osisko's shares have dropped by 25 per cent since the beginning of June, but the company still trades at around 40 times forward cash flow, putting it on a more generous premium than either Silver Wheaton or Franco-Nevada, the two biggest players in the royalty and streaming world.

Valuing Osisko more like a highly regarded mine-builder, such as Lake Shore Gold, Detour Gold or Teranga, and its shares would need to fall by at least another 20 to 40 per cent, based on analyst net present value estimates.

Osisko closed on Wednesday at C$14.08.


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