Spotlight: Osisko Gold Royalties - A leading growth-oriented royalty company

This report is (co-) sponsored with financial contribution provided by the subject of the report.

Investment Case: Osisko Gold Royalties Ltd operates as a precious metal royalty and streaming company. The company holds royalties and streams in the base metals, gold, and silver mines with the precious metal gold forming the main focus. Investors participate in the success of a broadly diversified mining portfolio and have limited exposure to cost inflation and operational risks inherent to a traditional mining company. Osisko's business model ensures an extremely efficient cash deployment. It offers investors exposure to stable cash flows and high-quality assets in politically stable areas. In light of the easing inflationary pressure and in expectation that yields will not rise further, we assess the further outlook for gold as favorable. With its high leverage to gold, Osisko should benefit disproportionately from the precious metals' favourable outlook.

Company highlights and financial performance

  • With revenues of CAD 217.8 mn and cost of sales of just CAD 16.1 mn Osisko delivered a record result in 2022, with an annual cash margin of CAD 201.7 mn or 93%. The company returned a total of CAD 63 mn to shareholders, fully covered by record operating cash flow from continuing operations of CAD 175.1 mn.
  • Osisko earned a record amount of 89.367 gold equivalent ounces (“GEOs”) in 2022, representing an increase of 12% year-over-year. The company expects its portfolio to generate between 130.000 and 140.000 GEOs in 2027.
  • Osisko Gold Royalties deconsolidated the affiliated company Osisko Development starting to account for the entity using the equity method in a move to streamline its balance sheet and simplify its governance structure.
  • The company's liquidity position is more than comfortable to continue to participate in profitable projects and grow accordingly.
  • In our view, the further upside potential for gold as well as the other precious and industrial metals and the attractive valuation compared to other competitors speak in favour of a continued upward development of the Osisko share price.
Company data
* The indicated price is the last price as available at 31.03.23
Source: Reuters, Bloomberg, RBI/Raiffeisen Research

Company profile & business model

Osisko Gold Royalties Ltd is engaged in the business of acquiring and managing precious metal and other high-quality royalties, streams and similar interests. Osisko invests capital in exploration, development and producing assets in exchange for a percentage of future production.

Royalties are more common where precious metals are the primary product of a mine, whereas streams are most common where gold or silver is a by-product of base metal production. The company was founded upon the creation of a 5% net smelter return (NSR) royalty on the Canadian Malartic Mine in 2014 which is the cornerstone asset.

It is a public company and traded on the Toronto Stock Exchange (TSE) and the New York Stock Exchange (NYSE). The focus on high-quality, long-life precious metals assets which are located in markets with a safe jurisdiction and that are operated by established mining companies ensures an outstanding risk/return profile. Furthermore, Osisko constantly evaluates investment opportunities in other commodities.

Osiskos model
Source: Osisko

The main focus of the company's assets is on gold, which is why we will take a closer look at the gold market in the section below. However, the mining projects also provide a significant output of silver. To a small extent, diamonds and others also play a role.

The company expresses its output as so called "Gold equivalent ounces (“GEOs”)". This is a financial term that is used throughout the mining industry to put the other mined material on equal footing, as byproduct metals can make it difficult for investors to get a clear view on the company's production profile if they would need to consider multiple metals.

High gold weighting
GEOs in 2022
Source: Osisko, RBI/Raiffeisen Research

At Osisko, GEOs comprise mostly gold. Other elements are converted on a quarterly basis to gold equivalent ounces. For example, the silver ounces earned are multiplied by the average silver price for the period and dividing by the average gold price for the period. The company's forecasts are based on analyst consensus estimates for the respective metal price.

Financial figures (in CAD)
Source: Bloomberg, Osisko, RBI/Raiffeisen Research

Market environment and outlook

The financial markets proved to be a difficult place in 2022. War in Ukraine, high energy costs and record inflation as well as central banks that want to put a stop to the upward trend in prices with rapid steps toward restrictive monetary policy. Gold price development in 2022 was dominated by this monetary policy normalization. The Fed's "hawkish" approach pushed real interest rates clearly back into positive territory.

Gold price (in USD) & real rates
calculated on the basis of inflation-protected US bonds (10 y)
Source: Refinitiv, RBI/Raiffeisen Research

Given the strong rise in yields and compared to other risky assets, the performance of gold in the past year is quite respectable. In view of the declining but stubbornly high inflation, we see gold well supported in 2023 in light of the economic slowdown.

Development of asset classes since the beginning of 2023
Source: Bloomberg, RBI/Raiffeisen Research

Outlook for gold remains favorable in 2023

Regarding the further development of the gold price in 2023 and beyond, we remain optimistic all in all, despite the strong increases seen recently. In our view, the following key influencing factors are emerging:

1.) Economic slowdown

Due to high inflation, rising interest rates and the consequences of war (increased energy and raw material costs, etc.), the prospects for the global economy are becoming significantly dimmer. The World Bank, for example, forecasts real GDP growth of 1.7% p.a. for both 2023 and 2024, the lowest figure in around 30 years. Global growth averaged 2.7% over the last ten years. For the euro zone, our economists expect the economy to stagnate in the first half of the year and to recover slightly in the second, resulting in a meager bottom-line gain of 0.3% in 2023 overall.

Downside risks exist in particular from a possible over-tightening of (global) monetary policy. Historically, gold clearly held up better than most other asset classes in a recessionary environment. Only bonds performed better during recessions, benefiting more from the associated prospect of falling interest rates.

Gold with clear outperformance in recessions
Analysis based on seven US recession periods since 1971
Source: Bloomberg, WCG, RBI/Raiffeisen Research


2) Monetary policy

In both the USA and the euro zone, the cycle of interest rate hikes is probably drawing to a close or the pace of hikes is being significantly reduced. The further course of action will depend on economic data and financial market conditions. The main reason for the weakening of forward guidance was the recent turmoil in the banking sector, which certainly has the potential to significantly tighten financing conditions.

On the other hand, central banks must also keep an eye on inflation, which remains far too high. Although headline inflation is gradually declining, core inflation (excl. energy and food) is proving to be quite stubborn and will remain above the Fed's and ECB's 2% target for some time. At the Fed, many indications point to a final rate hike in May of 25 basis points to a range of 5.0% to 5.25%. At the ECB, which still has some catching up to do in terms of rate hikes, at least a slowdown in the pace of rate hikes seems most plausible.

We therefore no longer expect too much headwind for gold from the interest rate/yield side.

Significant Outperformance of Gold in Phases of Stagflation
Annualised average returns of major asset classes per cycle phase since 1973 in percent
Source: World Gold Council, RBI/Raiffeisen Research

3) Turbulence in the banking sector

In our view, the recent market turbulence cannot be compared with that of 2007/08. Banks today are in much better shape in terms of capital and liquidity - both on this side and on the other side of the Atlantic - than they were back then. Regulation is well advanced and resolution mechanisms as well as liability solutions ensure the most controlled and coordinated action possible in the event of institutions getting into difficulties. In addition, there has been a major paradigm shift since Lehman, characterized by interventionist policies. Central banks and supervisory authorities can quickly calm the situation by intervening with extensive liquidity support.

It can also be noted that the failed U.S. institutions had a more specialized business model. With an inherently lower proportion of more stable retail deposits and a low granularity of customer structure, such institutions are more vulnerable to a withdrawal of liquidity. Credit Suisse, a major Swiss bank, also had many troubles to deal with beforehand, and the cancellation of further capital provision by a core shareholder ultimately led to the loss of confidence issue taking on a life of its own, resulting in the institution's ultimate demise.

A core problem of the turmoil are certainly also the bond portfolios, which have come under pressure - and thus "underwater" in the banks' balance sheets - during the aggressive monetary policy normalization. Although their price losses do not have to be recognized in the income statement in the case of "hold to maturity," a necessary freeing up of liquidity in the case of a massive withdrawal of customer deposits may make it necessary to uncover these losses. The goal of central banks was and is therefore to break the negative spiral by taking targeted measures and to restore confidence in the markets as well as to prevent a possible domino effect from the outset.

In our view, the institutions have succeeded in containing the spread of systemic risks with the measures taken so far. However, we do not want to completely rule out the "tipping over" of further smaller or regional banks with a special focus or exposure to certain sectors or assets. The massive interest rate hikes will not leave other sectors unscathed. The focus here is on the real estate sector, for example, which is suffering from the drastic rise in interest payments and construction costs as well as equity-reducing - because declining - prices.

In addition to specific measures to provide liquidity, the central banks will therefore have to act with a steady hand in setting key interest rates. In any case, a certain risk premium for safe havens such as gold will remain, as the markets will not be completely oblivious to the March turmoil in the banking sector and possible further vulnerabilities in other sectors of the economy.

Historical observation shows that an exposure to gold in times of crisis or phases of increased volatility in the financial markets is well justified, as the chart below illustrates.

Higher gold price as systemic risks increase
As of 28 March 2023. Return computations in US dollars for ‘US equities’: S&P 500 Index; ‘US treasuries’: Bloomberg Barclays US Treasury Index; ‘Gold’: LBMA Gold Price PM; and ‘VIX’: Cboe VIX Index. The VIX is available only after January 1990. For events occurring prior to that date annualised 30-day S&P 500 volatility is used as a proxy. Dates used: Black Monday: 9/1987 - 11/1987; LTCM: 8/1998; Dot-com: 3/2000 - 3/2001; September 11: 9/2001; 2002 recession: 3/2002 - 7/2002; global financial crisis (GFC): 10/2007 - 2/2009; Sovereign debt crisis I: 1/2010 - 6/2010; Sovereign debt crisis II: 2/2011 - 10/2011; Brexit: 23/6/2016 – 27/6/ 2016; 2018 pullback: 10/2018 - 12/2018; 2020 pullback: 31/1/2020 – 31/3/2020; RU-UA-war: 18/02/2022 - 08/03/2022; Financial crisis 2.0: 08/03/2023 - 20/03/2023.
Source: Bloomberg, ICE Benchmark Administration, World Gold Council, RBI/Raiffeisen Research

4) Geopolitics

A quick end to the conflict in Ukraine is desirable, but extremely unlikely in the near future. The associated uncertainty is likely to keep demand high, especially from retail investors. Any further intensification or expansion of the conflict could lead to risk aversion once again taking complete control of the financial markets, which would result in a renewed flight to safe havens.

5) Development of the US dollar

In 2022, gold (EUR) significantly outperformed USD-denominated investors (+0.1%) with a gain of 5.8% due to the appreciation of the US dollar. The turmoil in the banking sector did not trigger a change in direction for EUR/USD in recent weeks, but mainly led to increased volatility. This is likely to remain with us on the currency markets for some time. Since we do not expect a repetition of a crisis à la 2007/08, the mood should gradually brighten again. All in all, we expect a weaker USD again in the further course of the year, which tends to have a favorable effect on the gold price (USD).

Gold in CAD with better performance against USD
Source: Refinitiv, RBI/Raiffeisen Research

Corporate history and governance

Osisko was incorporated in 2014 as a spin-off company. Beforehand, the white knights Yamana and Agnico Eagle Mines purchased Osisko Mining to fend off Goldcorp's hostile takeover bid. In a deal between Osisko Mining, Yamana and Agnico the new company Osisko Gold Royalties was created. While Yamana and Agnico each retained 50% ownership of Osisko Mining's Malartic mine, which is one of Canada’s largest operating open-pit gold mines, Osisko Gold Royalties was spun-off with a 5% net smelter return on the mine.

Through several transactions and acquisitions of companies as well as investments in royalty contracts, Osisko Gold Royalties continuously expanded its portfolio over the years. With the rapid expansion, the shareholder value also grew steadily. Since 2014, the market capitalization has increased from CAD 847 mn to CAD 3.9 bn. Raising equity and debt capital has always been in balance with the growth of the company. The company's shares are traded almost entirely in free float.

The affiliated companies include:

Osisko Development (40.4% ownership), which is a mineral exploration and development company focused on the acquisition, exploration and development of precious metals resource properties in North America. The activities represent one of two distinct business segments of Osisko Gold Royalties. Effective on September 30, 2022 Osisko ceased to consolidate the subsidiary company as it was no longer in a position of control. Therefore, Osisko Gold Royalties derecognized the assets and liabilities of Osisko Development and started accounting for its interest using the equity method.

Osisko Mining (14.4%) is a Canadian gold exploration and development company focused on its Windfall gold project where Osisko holds a 2.0% – 3.0% NSR royalty on the project. The advanced project is located in Quebec, Canada.

Osisko Metals (13.8%) is a Canadian base metal exploration and development company with a focus on copper and zinc mineral assets. Osisko Gold Royalties holds a 3.0% NSR royalty on Osisko Metal’s flagship Pine Point Zn project in Northwest Territories, Canada.


As of December 2022, Osisko owned a portfolio of over 180 royalties, 12 streams and 3 offtakes, as well as 6 royalty options. Currently, the company has 20 producing assets. The cornerstone asset is a 5% NSR royalty on the Canadian Malartic open pit mine which is located in Malartic, Québec, and operated by the Canadian Malartic General Partnership formed by Agnico Eagle Mines and Yamana Gold. The underground mining ("Odyssey") offers the potential for an additional ~500koz of annual gold production by 2030.

Geographic revenue segmentation is determined by the location of the mining operations. Most of Osisko’s royalty, stream and other interest revenues were earned in North America. The aim is also to promote and develop young mining projects by providing equity and expertise, and thus to enjoy the agreed royalty payments more quickly. As a result, the value of the investment usually also increases significantly.

Geographic revenue segmentation
FY 2022
Source: Osisko, RBI/Raiffeisen Research

Regarding development assets, Osisko has royalty or stream exposure to 11 of the top 40 assets in Canada and the United States which highlights the growth potential of the company and underscores the company's strong footprint in these prime mining jurisdictions. All in all, Osisko is less exposed to gold production in developing countries, that sometimes appear with heightened political uncertainty.

The main focus of the company's assets is gold. However, the mining projects also produce significant amounts of silver and diamonds. To a lesser extent, the industrial metals copper, zinc and nickel as well as tungsten or tin also play a role. The latter in particular are becoming increasingly important, especially as global megatrends such as the increasing use of renewable energies in power generation or the switch from combustion engines to electric motors in the automotive industry are strengthening the "hunger" for these materials.

Revenue segmentation
Q1-Q3 2022
Source: Osisko, RBI/Raiffeisen Research

Recent news-flow

  • With revenues of CAD 217.8 mn and cost of sales of just CAD 16.1 mn Osisko delivered a record result in 2022, with an annual cash margin of CAD 201.7 mn or 93%.
  • Osisko returned a total of CAD 63 mn to shareholders in 2022, of which CAD 22.1 mn related to the repurchase of 1.7 mn treasury shares, of which 1.6 mn were cancelled, and CAD 40.6 mn were paid in dividends.
  • In December 2022, Osisko renewed its normal course issuer bid program under which it may acquire up to 18,293,240 or 10% of outstanding common shares until December 11, 2023.
  • Effective on September 30, Osisko Gold Royalties derecognized the assets and liabilities of Osisko Development from its consolidated balance sheet and recorded its interest at fair value, which resulted in a net non-cash loss of CAD 140.9 mn. From September 30, 2022 Osisko accounted for the entity using the equity method of accounting. In addition to the balance sheet streamlining, this step also contributed to a simplified governance structure.
  • The convertible bond with a volume of CAD 300 mn was redeemed. Instead, CAD 150 mn of the revolving credit line was drawn. This also further simplified the capital structure.
  • In November 2022 Osisko entered into a binding agreement with SolGold to finance a USD 50 mn royalty to support the Cascabel copper-gold property in northeastern Ecuador. Osisko will acquire a 0.6% NSR royalty.

Valuation & Outlook

All in all, we assess the further business prospects for Osisko Gold Royalties and thus also for its investors as favorable. In our view, the following factors speak in favour of a continued upward development of the Osisko share price:

A) Upside in the gold price

Although inflationary pressure is gradually easing - also as a result of the easing on the energy markets - it appears that levels well above central banks target rates will continue to preoccupy us for some time to come. Elevated inflation concerns ensure high demand for gold.

Interest rates are likely to reach their highs immediately (Fed) or soon (ECB), and investors are increasingly focusing on the period beyond, for which further declines in inflation rates are forecast. Accordingly, we expect yields to fall again in the medium term and thus less headwind for the non-interest-bearing gold. The emergence of at least a stagflationary trend also creates a favorable environment for the precious metal.

The geopolitical component remains unpredictable. However, it is also clear that the associated uncertainty, coupled with ongoing inflation concerns, is leading to structurally higher demand by retail investors, who are increasingly turning to coins and bars. A worsening of the situation in Ukraine could lead to increased volatility in risky assets and thus increased flows towards safe havens.

All in all, based on our assumptions on global economic development and monetary policy, we see the precious metal gold well supported for the year and beyond. With its high leverage to gold, Osisko Gold Royalties should benefit disproportionately from the precious metals' favourable outlook. The regression analysis of the Osisko share price yields a relatively high correlation with the gold price with β=1.85, which also explains the relationship empirically.

Osisko with high correlation to gold (β=1.85)
Logarithmic returns since February 2018
Source: Bloomberg, RBI/Raiffeisen Research

B) Other metals also well supported

The solid gold price trend should also rub off on the other precious metals, above all silver. The importance of industrial metals for Osisko, which should not be completely underestimated, should benefit from the structurally higher demand thanks to future topics such as electromobility or renewable energies in power generation. Furthermore, relations with Russia, a globally important supplier of raw materials, are strained in the longer term, which makes access to many raw materials on the global market more difficult and leads to a structurally lower supply of some industrial metals.

C) Attractive valuation compared to peers

Compared to other Canadian precious metals streaming companies, Osisko Gold Royalties is attractively valued. Based on the key figures EV/EBITDA, P/E and EV/Sales, a multiple analysis shows an upside potential of around 40% for the share. In our view, this is also fundamentally justified by the robust growth in GEOs, which is based on the forecasts of the operating partners.

Performance overview
Rebased to 100
Source: Refinitiv, RBI/Raiffeisen Research

Strengths/Opportunities & Weaknesses/Threats

+ Highly efficient business model
+ Diversification of assets through participation in a large number of mining projects
+ No capital cost exposure
+ Visibility on the very low operating costs
+ Potential for "Life of Mine"-extensions
+ Upside potential for gold price due to inflation and/or recession fears as well es geopolitical tensions that lead to higher demand for "safe havens"
+ Opportunity for gold as an instrument for asset diversification due to its negative correlation with other risky assets
- Downside risk for gold due to rising bond yields in light of monetary policy normalization, but we see this priced in at current levels
- Minor risk of lower demand for industrial metals


(tabular amounts expressed in thousands of Canadian dollars)
Source: Osisko, RBI/Raiffeisen Research
(tabular amounts expressed in thousands of Canadian dollars, except per share amounts)
Source: Osisko, RBI/Raiffeisen Research

(tabular amounts expressed in thousands of Canadian dollars)
Source: Osisko, RBI/Raiffeisen Research

(tabular amounts expressed in thousands of Canadian dollars)
Source: Osisko, RBI/Raiffeisen Research

ESG Scoring

In its role as a capital provider to the mining industry, Osisko does not operate or exercise operational control over the projects. Therefore, the majority of its exposure to ESG related risks comes from indirect exposure. Due to its broad diversification, we consider Osisko's ESG risks to be negligible. On the contrary, the company can make a significant contribution to the implementation of sustainable business practices due to its influence on mining partners. At Sustainalytics, Osisko Gold Royalties is ranked at the fourth place out of 123 precious metals companies.

ESG Overall Score
Pie chart illustrates the industry specific weights for each subcategory within our methodology
Source: RBI/Raiffeisen Research

ESG Score Industry
The chart shows the company's score in the respective subcategory of E/S/G and in the overall score (yellow bars), as well as the best, the worst and the median score in the respective industry.
Source: RBI/Raiffeisen Research

ESG Score Country
Source: RBI/Raiffeisen Research

ESG Score Global
Source: RBI/Raiffeisen Research

Controversial Activities Screening
The table indicates the extent of involvement in certain business activities that are subject to philosophical or moral convictions. Roughly, it can be said that "strong" indicates a share of sales of more than 10% and "weak" one from around 5% in the respective controversial activity. The categories nuclear power, coal, civilian firearms, military industry count here in the case of a "strong" exposure and in the case of "tobacco" already from a "weak" share of turnover as a reason for exclusion with regard to ESG conformity.
Source: Vigeo Eiris, RBI/Raiffeisen Research

Terms and definitions

Net smelter returns (“NSR”) are the net proceeds received by the owner of a mining property from the sale of the mine's metal/non-metal products, less transportation and refining costs

Gold equivalent ounces (“GEOs”) comprise mostly gold, other elements are converted on a quarterly basis to gold equivalent ounces by using average prices. Forecasts are based on analyst consensus estimates for the respective metal price.

Cash margin is a non-IFRS financial performance figure published by the company. Its a measure for the royalties and streams segment and has no standard definition under IFRS. It is calculated by deducting the cost of sales (excluding depletion) from the revenues.

Life of Mine (“LOM”) is the lifetime of a mine at a given mining rate.

Royalty – A royalty is a non-operating interest in a mining project that provides the holder the right to receive a percentage of metal produced, or revenues or profits generated from the project.

Stream - A stream is a purchase agreement that provides the holder the right to purchase all or a portion of one or more metals produced from a mining project at a defined price or a pre-determined percentage of the spot price.

Please note that RBI considers the provision of this report as “minor non-monetary inducement” under MiFID II. Please ensure that your company is allowed to receive such inducement and it is handled properly in your processes.

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Aaron Alber has been an equity analyst at Raiffeisen RESEARCH since 2007 and has covered many different markets, sectors and industries. He currently analyses European and US banks as well as stocks from the basic materials, energy, real estate and industrial sectors. The latter also include the future topic hydrogen. Furthermore, he is engaged in the analysis of the gold price. He is a certified financial analyst (CIIA, CESGA) and worked in management consulting before joining Raiffeisen.