Osisko Gold Royalties Ltd.: Exhobit 99.2 - Filed by newsfilecorp.com
| Management's Discussion and Analysis |
| For the three
and nine months ended September 30, 2018 |
The following management discussion and analysis
(“MD&A”) of the consolidated operations and financial position of Osisko
Gold Royalties Ltd (“Osisko” or the “Company”) and its subsidiaries for the
three and nine months ended September 30, 2018 should be read in
conjunction with the Company’s unaudited condensed interim consolidated
financial statements and related notes for the three and nine months ended
September 30, 2018. The unaudited condensed interim consolidated
financial statements have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting
Standards Board (“IASB”). Management is responsible for the preparation of the
consolidated financial statements and other financial information relating to
the Company included in this report. The Board of Directors is responsible for
ensuring that management fulfills its responsibilities for financial reporting.
In furtherance of the foregoing, the Board of Directors has appointed an Audit
Committee composed of independent directors. The Audit Committee meets with
management and the auditors in order to discuss results of operations and the
financial condition of the Company prior to making recommendations and
submitting the consolidated financial statements to the Board of Directors for
its consideration and approval for issuance to shareholders. The information
included in this MD&A is as of November 6, 2018, the date when the Board of
Directors has approved the Company's unaudited condensed interim consolidated
financial statements for the three and nine months ended September 30, 2018
following the recommendation of the Audit Committee. All monetary amounts
included in this report are expressed in Canadian dollars, the Company’s
reporting and functional currency, unless otherwise noted. Assets and
liabilities of the subsidiaries that have a functional currency other than the
Canadian dollar are translated into Canadian dollars at the exchange rate in
effect on the consolidated balance sheet date and revenues and expenses are
translated at the average exchange rate over the reporting period. This MD&A
contains forward-looking statements and should be read in conjunction with the
risk factors described in the “Forward-Looking Statements” section.
Table of Contents
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Description of the Business
Osisko Gold Royalties Ltd is incorporated under the Business
Corporations Act (Québec) and is focused on acquiring and managing precious
metal and other high-quality royalties, streams and similar interests in Canada
and worldwide. The Company owns a portfolio of royalties, streams, offtakes,
options on royalty/stream financings and exclusive rights to participate in
future royalty/stream financings on various projects, mainly in Canada. The
Company owns a North American focused portfolio of 137 royalty, stream and
offtake interests, including the following cornerstone assets: a 5% net smelter
return (“NSR”) royalty on the Canadian Malartic mine, a sliding scale 2.0%
- 3.5% NSR royalty on the Éléonore mine and a 9.6% diamond stream on
the Renard diamond mine, all located in Canada, as well as a 100% silver stream
on the Mantos Blancos copper mine in Chile. Furthermore, the Company invests in
equities of exploration, development and royalty companies.
Business Model and Strategy
Osisko is a growth-oriented and Canadian-focused precious metal
royalty and streaming company that is focused on maximizing returns for its
shareholders by growing its asset base, both organically and through accretive
acquisitions of precious metal and other high-quality royalties, streams and
similar interests, and by returning capital to its shareholders through a
quarterly dividend payment and share repurchases. Osisko has a unique growth
strategy that consists not only of acquiring and structuring both producing and
late-stage development royalty and stream products, but also of investing in
longer term assets where the Company feels it is uniquely positioned to create
value and realize returns through the development of these assets. The Company
has a successful track-record of strong technical capabilities, which it puts to
work creating its own pipeline of organic growth opportunities that provide
exposure to the upside of commodity prices and to the optionality of mineral
reserve and resource growth.
Osisko’s main focus is on high quality, long-life gold assets
located in favourable jurisdictions and operated by established mining
companies, as these assets provide the best risk/return profile. The Company
also evaluates and invests in opportunities in other commodities and
jurisdictions. Given that a core aspect of the Company’s business is the ability
to compete for investment opportunities, Osisko plans to maintain a strong
balance sheet and ability to deploy capital. The Company may also invest or
maintain investments in gold bullion as part of its overall treasury management,
through the acquisition of gold bullion on the market or through holding in-kind
royalties received.
Highlights – Third Quarter of 2018
| |
• |
Quarterly gold equivalent ounces (“GEOs”) earned of
20,0061 (20% increase compared to Q3 20172); |
| |
• |
Quarterly revenues from royalties and streams of $31.4
million (20% increase compared to Q3 2017); |
| |
• |
Cash flows provided by operating activities of $20.6
million (compared to $1.1 million in Q3 2017); |
| |
• |
Net earnings attributable to Osisko’s shareholders of
$5.5 million, $0.04 per basic share (compared to $6.7 million, $0.05 per
basic share in Q3 2017); |
| |
• |
Adjusted earnings3 of $5.7 million, $0.04 per
basic share3 (compared to $8.0 million, $0.06 per basic share
in Q3 2017); |
| |
• |
Acquired an additional 1.75% NSR royalty for $20.0 million on the Cariboo
property held by Barkerville Gold Mines Ltd. (“Barkerville”), increasing
Osisko’s NSR royalty to a total of 4% (Barkerville has the option to sell
an additional 1% NSR royalty to Osisko for $13.0 million prior to December
31, 2018); |
| |
• |
Declared a quarterly dividend of $0.05 per common share
to shareholders of record as of the close of business on September 28,
2018, paid on October 15, 2018; and |
| |
• |
Receipt, by Osisko Bermuda Limited (“OBL”), a wholly owned subsidiary of
Osisko, of a notice from Pretium Exploration Inc., a subsidiary of Pretium
Resources Inc. (collectively “Pretium”), in regards to its election to
exercise its option to fully repurchase on December 31, 2018, OBL’s
interest in the Brucejack gold and silver stream for US$118.5 million
(approximately $153.4 million). |
Highlights – Subsequent to September 30, 2018
| |
• |
Amended the Renard stream by investing an additional
$21.6 million, thereby improving the near-term cash flow capacity;
|
| |
• |
In October, repaid US$10.0 million ($12.9 million) on the
credit facility and extended the maturity date by one year to November 14,
2022; and |
| |
• |
Declaration of a quarterly dividend of $0.05 per common
share payable on January 15, 2019 to shareholders of record as of the
close of business on December 31, 2018. |
__________________________
| 1 |
GEOs are calculated on a quarterly basis and include
royalties, streams and offtakes. Silver earned from royalty and stream
agreements was converted to gold equivalent ounces by multiplying the
silver ounces by the average silver price for the period and dividing by
the average gold price for the period. Diamonds, other metals and cash
royalties were converted into gold equivalent ounces by dividing the
associated revenue by the average gold price for the period. Offtake
agreements were converted using the financial settlement equivalent
divided by the average gold price for the period. Refer to the portfolio
of royalty, stream and other interests section for average metal prices
used. |
| 2 |
Three months ended September 30, 2017 or third quarter of
2017 (“Q3 2017”). |
| 3 |
“Adjusted earnings” and “Adjusted earnings per basic
share” are non-IFRS financial performance measures which have no standard
definition under IFRS. Refer to the non-IFRS measures provided under the
Non-IFRS Financial Performance Measures section of this Management’s
Discussion and Analysis. |
2
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Portfolio of Royalty, Stream and Offtake Interests
The following table details the GEOs earned from Osisko’s
producing royalty, stream and other interests:
| |
|
Three months ended |
|
|
Nine months ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Gold |
|
|
|
|
|
|
|
|
|
|
|
|
| Canadian Malartic royalty |
|
8,930 |
|
|
8,069 |
|
|
26,018 |
|
|
22,959 |
|
| Éléonore royalty |
|
2,003 |
|
|
1,529 |
|
|
5,437 |
|
|
4,858 |
|
| Seabee royalty |
|
691 |
|
|
692 |
|
|
2,510 |
|
|
692 |
|
| Brucejack offtake |
|
361 |
|
|
215 |
|
|
1,262 |
|
|
215 |
|
| Bald Mountain royalty |
|
493 |
|
|
- |
|
|
1,304 |
|
|
- |
|
| Island Gold royalty |
|
449 |
|
|
517 |
|
|
1,105 |
|
|
1,327 |
|
| Vezza royalty |
|
379 |
|
|
304 |
|
|
1,020 |
|
|
979 |
|
| Bonanza Ledge royalty |
|
309 |
|
|
- |
|
|
394 |
|
|
- |
|
| Other |
|
630 |
|
|
311 |
|
|
2,514 |
|
|
538 |
|
| |
|
14,245 |
|
|
11,637 |
|
|
41,564 |
|
|
31,568 |
|
| Silver |
|
|
|
|
|
|
|
|
|
|
|
|
| Mantos stream |
|
1,650 |
|
|
1,150 |
|
|
4,837 |
|
|
1,150 |
|
| Sasa stream |
|
1,177 |
|
|
845 |
|
|
3,506 |
|
|
845 |
|
| Gibraltar stream |
|
432 |
|
|
529 |
|
|
1,242 |
|
|
1,638 |
|
| Canadian Malartic royalty |
|
135 |
|
|
103 |
|
|
404 |
|
|
341 |
|
| Other |
|
102 |
|
|
50 |
|
|
255 |
|
|
51 |
|
| |
|
3,496 |
|
|
2,677 |
|
|
10,244 |
|
|
4,025 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Diamonds |
|
|
|
|
|
|
|
|
|
|
|
|
| Renard stream |
|
1,578 |
|
|
1,847 |
|
|
6,523 |
|
|
1,847 |
|
| Other |
|
44 |
|
|
113 |
|
|
222 |
|
|
113 |
|
| |
|
1,622 |
|
|
1,960 |
|
|
6,745 |
|
|
1,960 |
|
| Other metals |
|
|
|
|
|
|
|
|
|
|
|
|
| Kwale royalty |
|
638 |
|
|
390 |
|
|
1,977 |
|
|
390 |
|
| Other |
|
5 |
|
|
- |
|
|
18 |
|
|
- |
|
| |
|
643 |
|
|
390 |
|
|
1,995 |
|
|
390 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Total GEOs |
|
20,006 |
|
|
16,664 |
|
|
60,548 |
|
|
37,943 |
|
GEOs by Product
3
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
The following table details the gold and silver ounces and the
diamond carats attributable to Osisko for its main producing royalty, stream and
other interests :
| |
|
Three months ended |
|
|
Nine months ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Royalties and streams – Gold
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in ounces) |
|
|
|
|
|
|
|
|
|
|
|
|
| Canadian Malartic royalty |
|
8,930 |
|
|
8,069 |
|
|
26,018 |
|
|
22,959 |
|
| Éléonore royalty |
|
2,003 |
|
|
1,529 |
|
|
5,437 |
|
|
4,858 |
|
| Seabee royalty |
|
691 |
|
|
692 |
|
|
2,510 |
|
|
692 |
|
| Island Gold royalty |
|
449 |
|
|
517 |
|
|
1,105 |
|
|
1,327 |
|
| Vezza royalty |
|
379 |
|
|
304 |
|
|
1,020 |
|
|
979 |
|
| Bonanza Ledge royalty |
|
309 |
|
|
- |
|
|
394 |
|
|
- |
|
| Other |
|
295 |
|
|
- |
|
|
473 |
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Royalties and streams – Silver
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in ounces) |
|
|
|
|
|
|
|
|
|
|
|
|
| Mantos stream |
|
133,307 |
|
|
87,343 |
|
|
385,500 |
|
|
87,243 |
|
| Sasa stream |
|
95,065 |
|
|
64,120 |
|
|
279,384 |
|
|
64,120 |
|
| Gibraltar stream |
|
34,879 |
|
|
40,169 |
|
|
98,952 |
|
|
120,161 |
|
| Canadian Malartic royalty |
|
10,917 |
|
|
7,851 |
|
|
32,189 |
|
|
24,838 |
|
| Other |
|
59 |
|
|
28 |
|
|
164 |
|
|
212 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Streams – Diamonds |
|
|
|
|
|
|
|
|
|
|
|
|
| (in carats) |
|
|
|
|
|
|
|
|
|
|
|
|
| Renard stream (1) |
|
17,724 |
|
|
5,520 |
|
|
75,365 |
|
|
5,520 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
(1) |
Excluding the incidental carats sold outside of the run
of mine sales |
Average Metal Prices and Exchange Rate
| |
|
Three months ended |
|
|
Nine months ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Gold(1) |
$ |
1,213 |
|
$ |
1,278 |
|
$ |
1,282 |
|
$ |
1,251 |
|
| Silver(2) |
$ |
15 |
|
$ |
17 |
|
$ |
16 |
|
$ |
17 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Exchange rate (US$/Can$)(3) |
|
1.3070 |
|
|
1.2528 |
|
|
1.2876 |
|
|
1.3075 |
|
| |
(1) |
The London Bullion Market Association’s pm price in U.S.
dollars |
| |
(2) |
The London Bullion Market Association’s price in U.S.
dollars |
| |
(3) |
Bank of Canada daily rate |
4
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Royalty, Stream and Offtake Portfolio Overview
Osisko owns a portfolio of 137 royalties, streams and offtakes
assets, as well as 40 royalty options. The portfolio consists of 122 royalties,
9 streams and 6 offtakes. Currently, the Company has 19 producing assets
(including the Brucejack stream).
Portfolio by asset stage
| Asset stage |
Royalties |
Streams |
Offtakes |
Total number |
| |
|
|
|
of assets |
| |
|
|
|
|
| Producing |
11 |
5 |
3 |
19 |
| |
|
|
|
|
| Development (construction) |
5 |
4 |
2 |
11 |
| |
|
|
|
|
| Exploration and evaluation |
106 |
- |
1 |
107 |
| |
|
|
|
|
| |
122 |
9 |
6 |
137 |
Producing assets
| Asset
|
Operator |
Interest |
Commodities |
Jurisdiction |
| |
|
|
|
|
| North America |
|
|
|
|
| |
|
|
|
|
|
Canadian Malartic |
Agnico Eagle Mines Limited
Yamana Gold Inc. |
5% NSR royalty |
Au |
Canada |
|
|
|
|
|
|
|
Éléonore |
Goldcorp Inc. |
2.0-3.5% NSR royalty |
Au |
Canada |
|
|
|
|
|
|
|
Renard |
Stornoway Diamond Corporation
|
9.6% stream |
Diamonds |
Canada |
|
|
|
|
|
|
|
Brucejack(1) |
Pretium Resources Inc. |
4% stream |
Au, Ag |
Canada |
|
|
|
|
|
|
|
Gibraltar |
Taseko Mines Limited |
100% stream |
Ag |
Canada |
|
|
|
|
|
|
|
Seabee |
SSR Mining Inc. |
3% NSR royalty |
Au |
Canada |
|
|
|
|
|
|
|
Island Gold |
Alamos Gold Inc. |
1.38-2.55% NSR royalty(2)
|
Au |
Canada |
|
|
|
|
|
|
|
Brucejack |
Pretium Resources Inc. |
50% offtake |
Au |
Canada |
|
|
|
|
|
|
|
Vezza |
Ressources Nottaway Inc. |
5% NSR royalty & 40% NPI |
Au |
Canada |
|
|
|
|
|
|
|
Bald Mtn. Alligator Ridge / Duke &
Trapper |
Kinross Gold Corporation |
1% / 4% NSR royalty |
Au |
USA |
|
|
|
|
|
|
|
Pan |
Fiore Gold Ltd. |
4% NSR royalty |
Au |
USA |
|
|
|
|
|
|
|
Parral |
GoGold Resources Inc. |
100% offtake |
Au, Ag |
Mexico |
|
|
|
|
|
|
|
Hewfran Block |
Bonterra Resources Inc. |
1.7% NSR royalty(2)
|
Au |
Canada |
|
|
|
|
|
|
|
Outside of North America |
|
|
|
|
|
|
|
|
|
|
|
Mantos Blancos |
Mantos Copper S.A. |
100% stream |
Ag |
Chile |
|
|
|
|
|
|
|
Sasa |
Central Asia Metals plc |
100% stream |
Ag |
Macedonia |
|
|
|
|
|
|
|
Kwale |
Base Resources Limited |
1.5% GRR(3) |
Rutile, Ilmenite, Zircon |
Kenya |
|
|
|
|
|
|
|
Brauna |
Lipari Mineração Ltda |
1% GRR(3) |
Diamonds |
Brazil |
|
|
|
|
|
|
|
Matilda (4) |
Blackham Resources Limited |
1.65% stream |
Au |
Australia |
|
|
|
|
|
|
| San Ramon |
Red Eagle Mining Corp. |
51% offtake |
Au |
Colombia |
5
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Key development / exploration and evaluation assets
| Asset |
Operator |
Interest |
Commodities |
Jurisdiction |
| |
|
|
|
|
| Amulsar |
Lydian International Ltd. |
4.22% Au / 62.5% Ag stream |
Au, Ag |
Armenia |
| |
|
|
|
|
| Amulsar |
Lydian International Ltd. |
81.9% offtake |
Au |
Armenia |
| |
|
|
|
|
| Eagle |
Victoria Gold Corp. |
5% NSR royalty |
Au |
Canada |
| |
|
|
|
|
| Back Forty |
Aquila Resources Inc. |
18.5% Au / 75% Ag stream |
Au, Ag |
USA |
| |
|
|
|
|
| Horne 5(5) |
Falco Resources Ltd. |
90%-100% stream |
Ag |
Canada |
| |
|
|
|
|
| Malartic – Odyssey South |
Agnico Eagle Mines Limited
Yamana Gold Inc. |
5% NSR royalty |
Au |
Canada |
| |
|
|
|
|
| Malartic – Odyssey North |
Agnico Eagle Mines Limited
Yamana Gold Inc. |
3% NSR royalty |
Au |
Canada |
| |
|
|
|
|
| Cariboo |
Barkerville Gold Mines Ltd. |
4% NSR royalty(6),(7)
|
Au |
Canada |
| |
|
|
|
|
| Windfall Lake |
Osisko Mining Inc. |
1.5% NSR royalty |
Au |
Canada |
| |
|
|
|
|
| Lamaque South |
Eldorado Gold Corp. |
1.7% NSR royalty(2),(8)
|
Au |
Canada |
| |
|
|
|
|
| Hermosa |
South 32 Limited |
1% NSR royalty |
Zn, Pb, Ag |
USA |
| |
|
|
|
|
| Spring Valley |
Waterton Global Resource
Management |
0.5% NSR royalty |
Au |
USA |
| |
|
|
|
|
| Upper Beaver |
Agnico Eagle Mines Limited |
2% NSR royalty |
Au, Cu |
Canada |
| |
|
|
|
|
| Copperwood |
Highland Copper Company Inc.
|
3% NSR royalty (9) |
Ag, Cu |
USA |
| |
|
|
|
|
| Marban |
Osisko Mining Inc. |
0.425% NSR royalty |
Au |
Canada |
| |
|
|
|
|
| Ollachea |
Kuri Kullu / Minera IRL |
1% NSR royalty |
Au |
Peru |
| |
|
|
|
|
| Casino |
Western Copper & Gold
Corporation |
2.75% NSR royalty |
Au, Ag, Cu |
Canada |
| |
|
|
|
|
| Altar |
Sibanye-Stillwater |
1% NSR royalty |
Cu, Au |
Argentina
|
| |
(1) |
The Brucejack mine is currently producing; however,
Osisko does not presently collect any ounces under its stream. In
September 2018, OBL received a notice from Pretium in regards to its
election to exercise its option to fully repurchase on December 31, 2018
OBL’s interest in the Brucejack gold and silver stream for US$118.5
million. |
| |
(2) |
After the sale of a 15% interest in the royalties
acquired from Teck Resources Limited to Caisse de dépôt et placement du
Québec. |
| |
(3) |
Gross revenue royalty (“GRR”). |
| |
(4) |
In March 2018, Osisko and Blackham Resources Limited
entered into an agreement to restructure the gold offtake (which was
applicable on 55% of the gold production from the Matilda mine) into a
1.65% gold stream, effective April 1, 2018. |
| |
(5) |
On June 18, 2018, Osisko entered into a binding term
sheet to provide Falco with a senior secured silver stream credit facility
with reference to up to 100% of the future silver produced from the Horne
5 property. This transaction is subject to Glencore Canada Corporation’s
right of first refusal and is further described in the Portfolio of
Investments section of this MD&A. The transaction is expected to close
in the fourth quarter of 2018. |
| |
(6) |
Barkerville has the option to grant Osisko an additional
1% NSR royalty on the Cariboo property for additional cash consideration
of $13.0 million prior to December 31, 2018. |
| |
(7) |
Including the Bonanza Ledge mine that has restarted
production. |
| |
(8) |
Eldorado Gold Corp. has an option to buyback 1% of the
NSR royalty for $2.0 million. |
| |
(9) |
3.0% NSR royalty on the Copperwood project. Upon closing
of the acquisition of the White Pine project, Highland Copper Company will
grant Osisko a 1.5% NSR royalty on all metals produced from the White Pine
project, and Osisko's royalty on Copperwood will be reduced to
1.5%. |
6
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Producing Assets
Geographical Distribution of Assets
7
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Canadian Malartic Royalty (Agnico Eagle Mines Limited and
Yamana Gold Inc.)
One of the Company’s cornerstone assets is a 5% NSR royalty on
the Canadian Malartic property which is located in Malartic, Québec, and
operated by the Canadian Malartic General Partnership (the “Partnership”) formed
by Agnico Eagle Mines Limited (“Agnico Eagle”) and Yamana Gold Inc. (“Yamana”)
(together the “Partners”). Canadian Malartic is Canada’s largest and the world’s
12th largest producing gold mine.
Osisko also holds a 3% NSR royalty on the Odyssey North zone
and a 5% NSR royalty on the Odyssey South zone, which are located adjacent to
the Canadian Malartic mine on Osisko’s royalty ground. In February 2017, the
Partners have declared initial inferred underground mineral resources at
Odyssey, estimated at 1.4 million ounces of gold (20.7 million tonnes grading
2.15 grams of gold per tonne).
In February 2018, initial inferred mineral resources have been
declared on the East Malartic deposit, which lies on the Canadian Malartic mine
property close to the Odyssey Zone. Inferred mineral resources are estimated at
2.4 million ounces of gold (38.0 million tonnes grading 2.02 grams of gold per
tonne) at underground depths above the 1,000 metre elevation.
Update on operations
In February 2018, Agnico Eagle released its guidance for gold
production at the Canadian Malartic mine to 650,000 ounces in 2018 and 2019 and
690,000 ounces in 2020.
On October 24, 2018, Agnico Eagle reported its third quarter
results and announced quarterly gold production of 177,204 ounces at Canadian
Malartic, bringing the total for the first nine months of 2018 to 527,736
ounces. Gold production in the third quarter of 2018 increased when compared to
the prior-year period due to higher throughput levels and higher grades,
partially offset by slightly lower gold recoveries. Work on the Barnat extension
project is proceeding on budget and on schedule. Work is primarily focused on
the highway 117 road deviation, overburden stripping and tailings expansion.
Production activities at Barnat are scheduled to begin in late 2019, which is
expected to increase annual gold production.
For more information, refer to Agnico Eagle’s press release
dated February 14, 2018 entitled “Agnico Eagle reports fourth quarter and full
year 2017 results” and Agnico Eagle’s press release dated October 24, 2018
entitled “Agnico Eagle Reports Third Quarter 2018 Results; Production
Guidance Increased For 2018 And 2019; Nunavut Development Projects Continue To
Advance As Planned; Drilling Extends Amaruq Mineralization At Depth”, both
available on www.sedar.com.
Éléonore Royalty (Goldcorp Inc.)
Osisko owns a sliding scale 2.0% to 3.5% NSR royalty on the
Éléonore gold property located in the Province of Québec and operated by
Goldcorp Inc. (“Goldcorp”). Osisko currently receives an NSR royalty of
2.2% on production at Éléonore.
Update on operations
On October 24, 2018, Goldcorp released its results for the
third quarter of 2018 and reported that gold production for the three and nine
months ended September 30, 2018 was higher than the same periods in the prior
year, reflecting the ongoing ramp up and contribution of higher grade ore during
the third quarter of 2018. The ramp up at Éléonore led to an increase in tonnes
milled of 6% for the three months ended September 30, 2018 compared to the same
period in the prior year. Compared to the third quarter of 2018, Goldcorp
expects fourth quarter 2018 tonnes milled to be approximately 15% higher, with
gold grades increasing by approximately 10%, as part of the expected mine
sequencing and continued ramp up process. As per Goldcorp, the mine is expected
to finish the year at a sustained mining production rate of over 6,000 tonnes
per day for an annual gold production rate of 400,000 ounces.
On October 24, 2018, Goldcorp updated its mineral reserve and
resource estimates for the Éléonore mine as at June 30, 2018. Proven and
probable gold mineral reserves as of June 30, 2018 totaled 3.3 million ounces
(17.8 million tonnes grading 5.69 g/t Au), compared to 3.8 million ounces (19.6
million tonnes grading 6.02 g/t Au) as of June 30, 2017. Production depletion
accounted for a decrease of 0.3 million ounces, while the balance of the
adjustments to the geologic models was part of a continued effort to ensure only
profitable ounces were included in the reserve model. Measured and indicated
gold mineral resources as of June 30, 2018 were estimated at 0.5 million ounces
(3.2 million tonnes grading 5.03 g/t Au) compared to 1.3 million ounces (7.2
million tonnes grading 5.81 g/t Au) as of June 30, 2017. Goldcorp stated that
mineral resources were negatively impacted as the geologic modelling methodology
that has been applied to the mineral reserves has been applied to mineral
resources, in addition to economic stope optimization. Exploration continued to
delineate and expand the Main Ore Shoot and South Ore Shoot depth extensions.
Goldcorp further stated that the Éléonore mineralized horizon remains
open down dip where it has been drill tested 200 metres below the current
mineral reserves to date and exploration is ongoing to test for extensions and
structural repetitions. This new information will be analyzed during the
fourth quarter of 2018.
For additional information, please refer to Goldcorp’s
Management and Discussion Analysis of Financial Condition and Results of
Operations for the three and nine months ended September 30, 2018, and
Goldcorp’s press release dated October 24, 2018 entitled “Goldcorp Reports
2018 Reserve And Resource Estimates And Provides Exploration Update”, both
filed on SEDAR at www.sedar.com.
8
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Renard Stream (Stornoway Diamond Corporation)
Osisko owns a 9.6% diamond stream on the Renard diamond mine,
operated by Stornoway Diamond Corporation (“Stornoway”) and located
approximately 350 kilometres north of Chibougamau in the James Bay region of
north-central Québec.
On October 2, 2018, Osisko announced that it has entered into
an amended and restated purchase and sale agreement (the “Amended Renard
Streaming Agreement”) with Stornoway in relation to the Renard stream (“Stream
Amendment”). As part of the Amended Renard Streaming Agreement, Osisko, along
with Caisse de dépôt et placement du Québec, Triple Flag Mining Finance Bermuda
Ltd., Albion Exploration Fund, LLC and Washington State Investment Board
(collectively, the “Streamers”), which collectively own a 20% diamond stream on
the Renard mine (9.6% stream attributable to Osisko) (the “Renard Stream”), paid
Stornoway the U.S. dollar equivalent of $45.0 million in cash ($21.6 million
attributable to Osisko) as an additional up-front deposit to Stornoway.
The terms of the Amended Renard Streaming Agreement provide
that the Streamers shall continue to hold a 20% undivided interest (9.6% stream
attributable to Osisko) in all diamonds produced from the Renard mining property
for the life of the mine (prior to the amendment, the stream was applicable to
all diamonds produced from the first 5 project kimberlites to be mined at Renard
for the life of mine, and the first 30 million carats from the property
overall). Upon the completion of a sale of diamonds, the Streamers will remit to
Stornoway a cash transfer payment which shall be the lesser of 40% of achieved
sales price and US$40 per carat (prior to the amendment, the cash transfer was a
fixed amount of US$50 per carat escalating at 1% per annum).
In addition, for the purpose of calculating stream remittances,
Stornoway shall separately sell any diamonds smaller than the +7 DTC sieve size
that are recovered in excess of the maximum agreed-upon proportion within a sale
of run of mine (“ROM”) diamonds (the excess small diamonds or incidentals). In
this manner, Stornoway shall restrict the proportion of small diamonds contained
in a ROM sale such that the Streamers and Stornoway will be fully aligned on
upside price exposure with downside protection on price and product mix.
The Stream Amendment is part of a series of financing
transactions with Stornoway’s lenders and key stakeholders that provide
Stornoway with greater financial and operational flexibility representing up to
$129 million in additional liquidity in the near term as the mine ramps up its
operations.
Update on operations
On May 15, 2018, Stornoway issued revised guidance for 2018 of
between 1.35 million carats and 1.40 million carats, down from the original
guidance of 1.6 million carats, at a recovered grade of between 54 and 56 carats
per hundred tonnes (“cpht”), down from the original guidance of 65 cpht. Full
year guidance for carats sold has been revised downwards to between 1.20 million
carats and 1.25 million carats, down from the original guidance of 1.60 million
carats.
On October 11, 2018, Stornoway reported third quarter diamond
production from the Renard mine of 329,306 carats (compared to 223,351 carats in
the second quarter) produced from the processing of 597,761 tonnes of ore at an
average grade of 55 cpht (562,060 tonnes of ore in the second quarter at an
average grade of 40 carats per cpht). Grade and carat recoveries improved by 39%
and 47% respectively compared to the second quarter with the mining of higher
grade ore.
During the third quarter, Stornoway reported that mill feed was
derived from the Renard 2 underground mine (77%) and the Renard 65 open pit
(23%). Processing rates in the quarter averaged 6,500 tonnes per day, compared
to an annual plan of 7,000 tonnes per day. Mining and processing operations were
affected by a forest fire in early July, which saw non-essential staff evacuated
from the mine site, and production halted for approximately three days. By the
end of the quarter, the ramp-up of underground production at Renard 2 was
completed, and a steady feed was achieved from the underground mining
operations. Mining and processing rates in September averaged 7,310 and 6,820
tonnes of ore per day, respectively.
During the third quarter of 2018, Stornoway reported sales of
184,620 carats sold at an average price of US$103 per carat ($134 per carat)
from two tender sales. Third quarter diamond sales represent diamonds recovered
during the second quarter.
9
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
For additional information, please refer to Stornoway’s press
release dated May 15, 2018 entitled “Stornoway Reports FY2018 First Quarter
Financial Results” and Stornoway’s press release dated October 11, 2018
entitled “Stornoway Reports Third Quarter 2018 Production And Sales Results”,
both filed on SEDAR at www.sedar.com.
Mantos Blancos Stream (Mantos Copper S.A.)
Osisko owns a 100% silver stream on the Mantos Blancos mine,
which is owned and operated by Mantos Copper S.A. (“Mantos”), a private mining
company focused on the extraction and sale of copper. The company owns and
operates the Mantos Blancos mine and Mantoverde project, located in the
Antofagasta and Atacama regions in northern Chile.
Under the Mantos stream agreement, Osisko will receive 100% of
the payable silver from the Mantos Blancos copper mine until 19.3 million ounces
have been delivered, after which the stream percentage will be 30%. The purchase
price for the silver under the Mantos stream is 25% of the monthly average
silver market price for each ounce of refined silver sold and delivered and/or
credited by Mantos to OBL Mantos may elect to reduce the amount of refined
silver to be delivered and sold to OBL by 50% in 2018, 2019 or 2020, provided
that Mantos has delivered no less than 1.99 million ounces of silver under the
stream agreement in which case Mantos shall make a cash payment of US$70.0
million ($90.6 million) to OBL. As of September 30, 2018, a total of 1.7 million
ounces of silver have been delivered under the stream agreement. Osisko expects
that Mantos will reach the 1.99 million ounces of silver threshold by the end of
the second quarter of 2019, based on expected production. The buy-down payment
of US$70.0 million can be exercised in September 2019 or September 2020.
Update on operations
As per Mantos, production of silver at the Mantos Blancos mine
and concentrator plant for the third quarter of 2018 was 133,213 ounces of
payable silver compared to 142,485 ounces and 148,436 ounces of silver in the
first and second quarter of 2018, respectively, in line with Manto’s budget, as
a result of planned lower grades of silver in ore.
Work on the Mantos Blancos Concentrator Debottlenecking Project
(“MB-CDP”) is expected to commence during the second quarter of 2019. The MB-CDP
project will increase processing capacity at the concentrator by approximately
70%. The key environmental permits are in place.
Brucejack Stream (Pretium Resources Inc.)
Osisko owns a 4% gold and silver stream on Pretium’s Brucejack
gold mine (“Brucejack”), located in northwestern British Columbia, approximately
65 kilometres north of Stewart, British Columbia. The Brucejack stream agreement
has a delivery start date of January 1, 2020 and provides for an 8% gold and
silver stream payable to OBL and another partner (together referred to as the
“Brucejack Stream Partners”) (4% attributable to OBL). The term of the Brucejack
stream is the date on which Pretium has sold to the Brucejack Stream Partners
7,067,000 ounces of gold and 26,297,000 ounces of silver, including deliveries
under the offtake agreement, subject to certain buyback and buydown rights held
by Pretium.
In September 2018, OBL received a notice from Pretium in
regards to its election to exercise its option to fully repurchase OBL’s
interest in the Brucejack gold and silver stream, as provided for in the
purchase and sale agreement between the parties dated September 15, 2015 (the
“Stream Agreement”). Under the Stream Agreement, Pretium had an option to
repurchase 100% of OBL’s share of the Brucejack gold and silver stream by making
a payment of US$118.5 million (approximately $153.4 million based on the
September 30, 2018 foreign exchange rate) to OBL on December 31, 2018. The
proceeds are expected to be used for debt repayment and for general corporate
purposes.
10
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Brucejack Offtake (Pretium Resources Inc.)
In addition to the Brucejack stream, Osisko owns a 50% gold
offtake on the Brucejack gold mine. The Brucejack Offtake agreement applies to
the sales from the first 7,067,000 ounces (of which 3,533,500 ounces are
attributable to OBL) of refined gold (less any delivered ounces pursuant to the
Brucejack stream agreement described above). OBL is required to pay for refined
gold based on a market referenced gold price in U.S. dollars per ounce during a
defined pricing period before and after the date of each sale. The offtake
obligation applies to 100% (50% attributable to OBL) of refined gold produced at
the Brucejack mine less the percentage of refined gold to be delivered pursuant
to the Brucejack stream agreement (being between 0% and 4% attributable to OBL),
subject to the reduction election described above. Pretium has the option to
reduce the offtake obligation by one of the following options:
| |
(i) |
On December 31, 2018, Pretium can elect to reduce the
offtake obligation to either (i) 50% (25% attributable to OBL) by paying
US$11 per ounce multiplied by 0.50, on the remaining undelivered gold
ounces, or (ii) 25% (12.5% attributable to OBL) by paying US$11 per ounce
multiplied by 0.75, on the remaining undelivered gold ounces; or |
| |
(ii) |
On December 31, 2019 Pretium can elect to reduce the
offtake obligation to either (i) 50% (25% attributable to OBL) by paying
US$13 per ounce multiplied by 0.50, on the remaining undelivered gold
ounces, or (ii) 25% (12.5% attributable to OBL) by paying US$13 per ounce
multiplied by 0.75, on the remaining undelivered gold
ounces. |
Update on operations
On October 9, 2018, Pretium reported gold production of 92,641
ounces for the third quarter compared to 111,340 ounces for the second quarter
and 75,689 ounces for the first quarter. Management reported that Pretium is on
its way to meeting their gold production guidance of 200,000 to 220,000 ounces
of gold for the second half of 2018.
For more information on Brucejack, refer to Pretium’s press
release dated October 9, 2018, entitled “Brucejack Mine Q3 2018 Production
Update” filed on www.sedar.com.
Seabee Royalty (SSR Mining Inc.)
Osisko holds a 3% NSR royalty on the Seabee mine operated by
SSR Mining Inc. (“SSR Mining”) and located in Saskatchewan, Canada.
Update on operations
On October 11, 2018, SSR Mining reported a record quarterly
production of 27,831 ounces of gold at Seabee, a quarterly increase of 18%,
driven by higher average mill feed grade and increased mill throughput. The mill
achieved an average throughput of 959 tonnes per day, a 4% quarterly increase
reflecting a higher mining rate at the Santoy mine. Gold recovery for the
quarter remained consistent at 97.1% .
Gold production at Seabee is estimated between 85,000 to 92,000
ounces for 2018.
For more information, refer to SSR Mining’s press release dated
October 11, 2018, entitled “SSR Mining Reports Third Quarter 2018 Production
Results” filed on www.sedar.com.
Sasa Stream (Central Asia Metals plc)
Osisko owns a 100% silver stream on the Sasa mine, operated by
Central Asia Metals plc (“Central Asia”) and located in Macedonia. The Sasa mine
is one of the largest zinc, lead and silver mines in Europe, producing
approximately 30,000 tonnes of lead, 22,000 tonnes of zinc and 400,000 ounces of
silver in concentrates per annum. OBL’s entitlement under the Sasa stream
applies to 100% of the payable silver production in exchange for US$5 per ounce
(plus refining costs) of refined silver increased annually from 2017 based on
inflation.
Update on operations
On October 4, 2018, Central Asia reported sales of 278,103
ounces of payable silver in the first nine months of 2018, including 97,870
ounces of payable silver for the third quarter of 2018.
For more information on the Sasa mine, refer to Central Asia’s
press release dated October 4, 2018, entitled “Q3 2018 Operations Update”
available on their website at www.centralasiametals.com.
11
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Kwale Royalty (Base Resources Limited)
Osisko holds a 1.5% gross return royalty on the rutile,
ilmenite and zircon produced from the Kwale mine, operated by Base Resources
Limited (“Base Resources”) and located 10 kilometres inland from the Kenyan
coast and 50 kilometres south of Mombasa.
Update on operations
On October 18, 2018, Base Resources reported highlights of its
third quarter operations and noted an increase of 35% in tonnes of ore mined
following the successful implementation of the Kwale Phase 2 mine optimization
project. Production in the third quarter reached a record 25,125 tonnes rutile
and 9,683 tonnes of zircon. Base Resources also noted continued strengthening of
rutile and zircon prices.
For more information on the Kwale mine, refer to Base
Resources’ quarterly activities report dated October 18, 2018 available on their
website at www.baseresources.com.au.
Gibraltar Stream (Taseko Mines Limited)
Osisko owns a 100% silver stream on Taseko Mines Limited’s
(“Taseko”) attributable portion of the Gibraltar copper mine (“Gibraltar”), held
by Gibraltar Mines Ltd. (“Gibco”) and located in British Columbia, Canada. Under
the stream agreement, Osisko will receive from Taseko an amount equal to 100% of
Gibco’s share of silver production until the delivery to Osisko of 5.9 million
ounces of silver to Osisko and 35% of Gibco’s share of silver production
thereafter. Osisko will make ongoing payments under the stream of US$2.75 per
ounce of silver delivered. Gibraltar is the second largest open pit copper mine
in Canada and fourth largest in North America.
Island Gold Royalty (Alamos Gold Inc.)
Osisko owns NSR royalties ranging from 1.38% to 2.55% on the
Island Gold mine, operated by Alamos Gold Inc. (“Alamos”) and located in
Ontario, Canada.
On September 20, 2018, Alamos reported the completion of the
phase I expansion of the Island Gold mine to 1,100 tonnes per day (“tpd”) on
schedule. The phase 1 expansion included the successful commissioning of the
expanded mill which is now operating at its targeted rate of 1,100 tpd, up from
the previous name plate capacity of 900 tpd.
For more information, refer to Alamos’ press release dated
September 20, 2018, entitled “Alamos Gold Announces Completion of Phase 1
Expansion at Island Gold” filed on www.sedar.com.
Amulsar Stream (Lydian International Ltd.)
Osisko owns a 4.22% gold stream and 62.5% silver stream on the
Amulsar project, owned by Lydian International Ltd. (“Lydian”) and located in
southern Armenia. The Amulsar project is in the development and construction
stage and Amulsar is expected to be Armenia's largest gold mine, with estimated
mineral resources containing 3.5 million measured and indicated gold ounces and
1.3 million inferred gold ounces. The details of the mineral inventory can be
found under Lydian International Ltd.’s profile on SEDAR at www.sedar.com. Gold production is targeted to average
approximately 225,000 ounces annually over an initial 10-year mine life. OBL’s
entitlement under the Amulsar stream applies to 4.22% of refined gold production
and 62.5% of refined silver until 89,034 ounces of refined gold and 434,093
ounces of refined silver are delivered to OBL. The stream agreement includes
ongoing transfer payments by OBL to Lydian of US$400 per ounce of refined gold
and US$4.00 per ounce of refined silver delivered under the stream subject to a
1% annual increase starting on the third anniversary of commercial production.
Lydian has the option to buy back a portion of the stream by one of the
following options:
| |
(i) |
the stream percentage may be reduced by 50% on the second
anniversary of commercial production for US$55.0 million (US$34.4 million
attributable to OBL); or |
| |
(ii) |
the stream percentage may be reduced by 50% on the third
anniversary of commercial production for US$50.0 million (US$31.3 million
attributable to OBL). |
Update on development and construction activities
On November 1, 2018, Lydian announced that the previously
reported illegal road blockades near its 100%-owned Amulsar Gold project are
ongoing and continue to impact construction activities. Lydian also reported
that the situation caused by inaction to remove the illegal blockages requires
Lydian to evaluate a number of alternatives, which range from sourcing
additional funding to complete construction at Amulsar to considering various
strategic alternatives. The company also reported that its senior lenders,
stream financing providers and equipment financiers have agreed to temporarily
suspend all principal and interest payments due and payable until the earlier of
December 31, 2018 or the occurrence of an additional event of default.
For more information on the Amulsar project, refer to Lydian’s
press release dated November 1, 2018, entitled “Lydian Provides Corporate
Updates”, filed on www.sedar.com.
12
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Equity Investments
The Company’s assets include a portfolio of shares, mainly of
publicly traded mining companies. Osisko invests, and intends to continue to
invest, from time to time in companies where it holds a royalty, stream or
similar interest and in various companies within the mining industry for
investment purposes and with the objective of improving its ability to acquire
future royalties, revenue streams or similar interests. In addition to
investment objectives, in some cases, the Company may decide to take a more
active role, including providing management personnel, technical and/or
administrative support, as well as nominating individuals to the investee’s
board of directors. These investments are reflected in investments in associates
in the consolidated financial statements and include mainly Osisko Mining Inc.
(“Osisko Mining”), Barkerville, Falco Resources Ltd. and Victoria Gold Corp.
Following the acquisition of Dalradian by Orion Mine Finance (“Orion”) in
September 2018, where Orion acquired all of the outstanding shares of Dalradian
other than the shares owned by Osisko and other parties, Dalradian has ceased to
be considered an associate.
Osisko may, from time to time and without further notice except
as required by law, increase or decrease its investments at its discretion.
During the three and nine months ended September 30, 2018,
Osisko acquired investments for $22.3 million and $94.8 million, respectively,
and disposed investments for nil and $27.0 million, respectively. Acquisitions
include investments of $50.0 million in Victoria, $18.0 million in Osisko Mining
as well as the acquisition of a $7.0 million convertible debenture from Falco.
Dispositions include proceeds of $25.5 million in the first quarter from the
delivery of its AuRico Metals Inc. shares following the acquisition of the
company by Centerra Gold Inc.
Dalradian Resources Inc.
Dalradian is focused on advancing its high-grade Curraghinalt
Gold project located in Northern Ireland.
On September 7, 2018, Orion announced the completion of the
previously announced plan of arrangement (the “Transaction”). In connection with
the Transaction, an affiliate of Orion acquired all of the issued and
outstanding common shares of Dalradian (the “Dalradian Shares”) by way of a
statutory plan of arrangement under the Business Corporations Act
(Ontario), other than Dalradian Shares owned by an affiliate of Orion, and
by Osisko, Osisko’s Chief Executive Office and certain members of Dalradian’s
senior management team, for cash consideration of $1.47 for each Dalradian Share
held. Following the transaction, Osisko holds a 10.7% interest in Dalradian and
has a put right on its Dalradian shares, subject to certain restrictions,
allowing Osisko to sell them at a price of $1.47 per share for a period of 180
days. If Osisko does not exercise its put right, the Company will maintain its
existing financing rights.
For more information, refer to Dalradian’s press release dated
September 7, 2018 entitled: “Orion completes acquisition of Dalradian”
and filed on www.sedar.com.
As at September 30, 2018, Osisko holds 38,267,014 common shares
representing an 10.7% interest in Dalradian (8.9% as at December 31, 2017).
Prior to the acquisition and privatization of Dalradian by Orion in September
2018, Osisko accounted for its investment in Dalradian using the equity method.
Following the transaction, management has concluded that it has lost its
significant influence over Dalradian and has transferred its investments from
associates to other investments.
Fair value of marketable securities
The following table presents the carrying value and fair value
of the investments in marketable securities (excluding notes and warrants) as at
September 30, 2018 (in thousands of dollars):
| Marketable securities |
|
|
Carrying value(i) |
|
|
Fair value(ii) |
|
| |
|
|
$ |
|
|
$ |
|
| |
|
|
|
|
|
|
|
| Associates |
|
|
291,147 |
|
|
252,843 |
|
| Other |
|
|
111,669 |
|
|
111,669 |
|
| |
|
|
402,816 |
|
|
364,512 |
|
| (i) |
The carrying value corresponds to the amount recorded on
the balance sheet, which is the equity method for the investments in
marketable securities of associates and the fair value for the other
investments in marketable securities, as per IFRS 9, |
|
Financial Instruments. |
| (ii) |
The fair value corresponds to the quoted price of the
investments in a recognized stock exchange as at September 30, 2018. For
private investments, an internal or external evaluation is used to
determine the fair value. |
13
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Main Strategic Investments
The following table presents the main strategic investments of
the Company in marketable securities as at September 30, 2018 (in thousands of
dollars):
| |
|
|
Number of |
|
|
|
|
|
Cash |
|
|
Fair |
|
| Company |
|
|
shares held(i) |
|
|
Ownership(i) |
|
|
cost(iii) |
|
|
value(i),(ii) |
|
| |
|
|
|
|
|
% |
|
|
$ |
|
|
$ |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Osisko Mining Inc. |
|
|
42,890,269 |
|
|
17.9 |
|
|
91,383 |
|
|
100,792 |
|
| Barkerville Gold Mines Ltd. |
|
|
142,309,310 |
|
|
32.4 |
|
|
71,286 |
|
|
55,501 |
|
| Falco Resources
Ltd.(iv) |
|
|
23,927,005 |
|
|
12.6 |
|
|
15,432 |
|
|
9,571 |
|
| Victoria Gold Corp. |
|
|
120,427,087 |
|
|
15.5 |
|
|
65,939 |
|
|
42,149 |
|
| (i) |
As at September 30, 2018. |
| (ii) |
See table above for definition of fair value. |
| (iii) |
The cash cost of an investment is a non-IFRS measure
representing the cash paid on the acquisition of an investment. |
| (iv) |
Excluding the impact of the potential conversion of the
convertible debenture, which is described below. |
Osisko Mining Inc.
The Company holds a 1.5% NSR royalty on Osisko Mining’s
Windfall Lake property. As part of a previous investment agreement with Osisko
Mining, Osisko obtained the right to purchase Osisko Mining’s buyback rights on
existing royalties on the Windfall Lake property, thus allowing it to increase
its royalty by an additional 1-2% NSR royalty, allowing Osisko to increase
its total NSR royalty to 2.5-3.5%.
In May 2018, Osisko Mining released a first mineral resources
estimate on Windfall Lake gold deposit. Osisko Mining indicated that mineral
resources were estimated at 601,000 ounces of gold in the measured and indicated
category (2,382,000 tonnes grading 7.85 grams per tonne (“g/t”) Au) and
2,284,000 ounces of gold in the inferred category (10,605,000 tonnes grading
6.70 g/t Au). In addition, a positive preliminary economic assessment on the
Windfall Lake project was released in July 2018 with an after-tax internal rate
of return of 33%. Osisko Mining is also pursuing an 800,000 meter drilling
program on the Windfall Lake property as well as a metallurgical program and the
construction of an exploration ramp to achieve access to Zone 27, wireframe 115,
selected for the initial 5,000 tonne bulk sample to be processed in the fourth
quarter of 2018. During the third quarter of 2018, Osisko Mining announced the
acquisition of Beaufield Resources Inc. and closed a $76.4 million private
placement (Osisko subscribed for $18.0 million). Kirkland Lake Gold Ltd.
(“Kirkland Lake”) acquired 32,627,632 common shares of Osisko Mining in the
public market. Kirkland Lake became the beneficially owner of approximately
13.61% of the issued and outstanding shares on a non-diluted basis. On October
30, 2018, Osisko Mining announced a private placement with Caisse de dépôt et
placement du Québec (“CDPQ”) where CDPQ will acquire 9,259,260 common shares of
Osisko Mining at a price of $2.70 per common share for a total investment of
approximately $25.0 million.
For more information, refer to Osisko Mining’s press release
dated May 14, 2018 entitled: “Osisko Releases Its First Mineral Resource
Estimate For Windfall Gold Deposit”, Osisko Mining’s press release dated
July 17, 2018 entitled: “Osisko Delivers Positive PEA For Windfall
Project”, Osisko Mining’s press releases dated August 15, 2018 entitled
“Osisko Mining To Acquire Beaufield Resources” and “Osisko Mining
Announces $68 Million “Bought Deal” Private Placement Of Flow-Through Shares”,
“Osisko Mining’s press release dated October 30, 2018 entitled “Osisko
Mining Announces $25 Million Private Placement By La Caisse De Dépôt Et
Placement Du Québec”, and Kirkland Lake’s press release dated September 18, 2018
entitled “Kirkland Lake Gold Acquires Shares of Osisko Mining Inc.”, all
filed on www.sedar.com.
In 2016 and 2017, Osisko entered into earn-in agreements with
Osisko Mining on properties held by Osisko in the James Bay area. The
transactions are detailed in the Exploration and Evaluation Activities
section of this MD&A. Osisko invested an additional $18.0 million in
Osisko Mining in the third quarter of 2018. As at September 30, 2018, the
Company holds 42,890,269 common shares representing a 17.9% interest in Osisko
Mining (15.5% as at December 31, 2017). Based on the fact that some directors of
Osisko are also directors of Osisko Mining, and because of other facts and
circumstances, the Company concluded that it exercises significant influence
over Osisko Mining since 2014 and accounts for its investment using the equity
method.
14
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Barkerville Gold Mines Ltd.
Osisko holds a 4% NSR royalty on the Cariboo gold project
following the acquisition of an additional 1.75% NSR royalty during the third
quarter of 2018 for $20.0 million. Barkerville has the option to grant Osisko an
additional 1% NSR royalty on the Cariboo property for additional cash
consideration of $13.0 million prior to December 31, 2018. Osisko also holds a
right of first refusal relating to any gold stream offer received by Barkerville
with respect to the Cariboo gold project. Barkerville is focused on the
development of its extensive land package located in the historical Cariboo
Mining District of central British Columbia, Canada, where it has completed a
157,000 meter drilling program.
In September 2018, Barkerville announced positive results from
its initial test mining of 80,000 tonnes at Bonanza Ledge. Barkerville’s Bonanza
Ledge mine has allowed the company to assess mining methods, understand what
ground conditions to expect in different lithological units, train a local
workforce, and generate cash flow to offset some exploration expenditures. A
feasibility study is expected to be released in 2019.
For more information, refer to Barkerville’s press release
dated September 11, 2018 entitled: “Barkerville Gold Mines Reports Positive
Results From Initial Test Mining Of 80,000 Tonnes At Bonanza Ledge, Better Mine
Grades And Solid Mill Performance” and filed on www.sedar.com.
On May 2, 2018, Barkerville announced the maiden mineral
resource estimate for Cow and Island Mountain deposits at its 100% owned Cariboo
gold project. The underground mineral resource estimate incorporates the Cow
Mountain and Valley Zones on Cow Mountain and Shaft Zone and Mosquito Creek on
Island Mountain at a cut-off grade of 3.0 g/t Au. A mineral resource on Bonanza
Ledge and BC Vein is also included. The resource is defined over 6 kilometers of
Barkerville’s 67-kilometer-long land package. Infill and exploration drilling is
ongoing and resource updates will be presented annually. Barkerville indicated
that mineral resources at the Cariboo gold project was estimated at 1.60 million
ounces of gold in the measured and indicated category (8.1 million tonnes
grading 6.1 g/t Au) and 2.16 million ounces of gold in the inferred category
(12.7 million tonnes grading 5.2 g/t Au).
For more information, refer to Barkerville’s press release
dated May 2, 2018 entitled: “BGM Defines Cow and Island Mountains Maiden
Underground Resource and Barkerville Mountain Update” and filed on www.sedar.com.
As at September 30, 2018, the Company holds 142,309,310 common
shares representing a 32.4% interest in Barkerville (32.7% as at December 31,
2017). Based on the fact that the chair of the Board of Directors and Chief
Executive Officer of Osisko is also the chair of the Board of Directors of
Barkerville, and because of other facts and circumstances, the Company concluded
that it exercises significant influence over Barkerville since 2016 and accounts
for its investment using the equity method.
Falco Resources Ltd.
Falco’s main asset is the Horne 5 gold project, for which a
positive feasibility study was released in October 2017. For more information,
refer to Falco’s press release dated October 16, 2017, titled: “Falco
Announces Positive Feasibility Study Results on Horne 5 Gold Project” and
filed on www.sedar.com.
On June 18, 2018, Osisko entered into a binding term sheet to
provide Falco with a senior secured silver stream credit facility (“Silver
Stream”) with reference to up to 100% of the future silver produced from the
Horne 5 property (“Horne 5” or the “Project”) located in Rouyn-Noranda, Québec.
As part of the Silver Stream, Osisko will make staged upfront cash deposits to
Falco of up to $180.0 million and will make ongoing payments equal to 20% of the
spot price of silver, to a maximum of US$6 per ounce. The Silver Stream will be
secured by a first priority lien on the Project and all assets of Falco.
Osisko is working towards closing the Silver Stream in the
fourth quarter of 2018. Closing is subject to the satisfaction of customary
conditions, including the finalization of definitive documents, obtaining
regulatory approvals, consents from third parties and approval from a majority
of the disinterested shareholders of Falco (the “Disinterested Shareholder
Approval”).
Pursuant to an agreement between Falco and Glencore Canada
Corporation (“Glencore”), the Silver Stream is subject to a right of first
refusal in favor of Glencore. Following the execution of binding term sheets
between Falco and Osisko, a formal notice was sent to Glencore. Glencore shall
have a period of 60 days following receipt of all transaction documents to
notify Falco in the event that it wishes to purchase the stream agreement in
accordance with the terms described therein.
15
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Concurrent to the Silver Stream, Osisko purchased from Falco,
on June 29, 2018, a secured debenture having a principal amount of $7,000,000
(the “Debenture”). Upon receipt of Disinterested Shareholder Approval, the
Debenture shall be convertible (the “Conversion”) into units of Falco (the
“Units”). There will be no interest payable at any time on the outstanding
principal of the Debenture unless Falco fails to obtain Disinterested
Shareholder Approval for the Conversion, in which case interest shall accrue
retroactively from the closing date of the Debenture transaction at a rate per
annum that is equal to 7%, compounded quarterly. Accrued interest shall be
payable upon repayment of the principal when due, as per the terms of the
Debenture. The maturity date of the Debenture shall be the earlier of (i) the
date of the meeting of the Falco shareholders to be held to obtain the
Disinterested Shareholder Approval and (ii) December 31, 2018.
On the date upon which Falco obtains the Disinterested
Shareholder Approval for the Conversion, the Debenture shall be converted into
such number of Units of Falco that is equal to the principal divided by 0.5783
(the “Conversion Price”). Each Unit shall consist of one common share and
one-half of one common share purchase warrant. Each whole warrant shall entitle
the holder to purchase one common share of Falco, subject to customary
anti-dilution clauses, at a price that represents a 30% premium to the
Conversion Price for a period of 36 months from the date the Units are issued,
representing $0.75.
On September 11, 2018, Osisko entered into an agreement to
provide Falco with a secured senior $10 million loan (the “Loan Agreement”). The
loan has a maturity date of December 31, 2018 and interest shall be payable on
the principal amount at a rate per annum that is equal to 7%, compounded
quarterly. Accrued interest shall be payable upon repayment of the principal
amount, which shall be repaid on the earliest of the closing date of the stream
transaction among Osisko and Falco, or December 31, 2018. The loan will be used
for the advancement of Falco’s Horne 5 Project and for general corporate
purposes.
As at September 30, 2018, the Company holds 23,927,005 common
shares representing a 12.6% interest in Falco (12.7% as at December 31, 2017).
If the convertible debenture discussed above is converted, the Company is
expected to increase its interest in Falco to approximately 17.9% . Based on the
fact that some officers and directors of Osisko are also officers and directors
of Falco, and because of other facts and circumstances, the Company concluded
that it exercises significant influence over Falco since 2014 and accounts for
its investment using the equity method.
Victoria Gold Corp.
On April 13, 2018, Osisko completed a $148.0 million financing
transaction with Victoria, pursuant to which Osisko acquired from Victoria a 5%
NSR royalty for $98.0 million on the Dublin Gulch property which hosts the Eagle
Gold project located in Yukon, Canada. The 5% NSR royalty applies to all metals
and minerals produced from the Dublin Gulch property, until an aggregate of
97,500 ounces of refined gold has been delivered to Osisko, and a 3% NSR royalty
thereafter. The first tranche of the $98.0 million purchase price, representing
$49.0 million, was paid on the closing of the transaction, and the second
tranche of $49.0 million will be funded pro rata to drawdowns under the
subordinated debt facilities provided by Orion Mine Finance Group (or a third
party). In April 2018, Osisko subscribed to a private placement of 100.0 million
common shares of Victoria at a price of $0.50 per common share for $50.0
million. In September 2018, an amount of $14.7 million was paid to Victoria as
part of the second tranche of the royalty purchase price, for a remaining
balance of $34.3 million.
This financing was part of a comprehensive $500.0 million
construction financing package with Orion Mine Finance Group, Osisko and
Caterpillar Financial Services Limited that will fully fund the development of
the Eagle Gold project through to commercial production. The financing was
comprised of two credit facilities totalling US$175.0 million, an equipment
financing facility for up to US$50.0 million, the $98.0 million NSR royalty
acquired by Osisko and a private placement of Victoria common shares of $125.0
million, including $50.0 million from Osisko.
The Dublin Gulch property is located approximately 85
kilometres by road north northeast of the village of Mayo, in central Yukon,
Canada. The property hosts the Eagle gold deposit, the Wolf tungsten deposit and
a 13 kilometres-long belt of gold and silver mineralization known as the Potato
Hills Trend. The Eagle Gold Project is the most advanced project in the region
and is on track to be the largest gold mine in Yukon history. The proposed Eagle
gold mine will produce doré from a conventional open pit operation with a
three-stage crushing plant, in-valley heap leach and carbon-in-leach
adsorption-desorption gold recovery plant. The company currently has year-round
road access to the site, and a fully operational 250-person all-season camp on
site. Commercial grid power is available approximately 45 kilometres by road
from the site, and an airstrip suitable for commercial planes is located 80
kilometres to the south. The project will employ 350 to 400 people and will be a
significant economic contributor to Yukon. The Eagle Gold project has received
all major permits for construction and operations, completed the Environmental
Assessment process and has a signed Comprehensive Cooperation and Benefits
Agreement with the local Nacho Nyak Dun First Nation, whose traditional
territory the project is located within.
16
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
As at September 30, 2018, the Company holds 120,427,087 common
shares representing a 15.5% interest in Victoria (4.0% as at December 31, 2017).
Based on the fact that the chair of the Board of Directors and Chief Executive
Officer of Osisko is also a director of Victoria, and because of other facts and
circumstances, the Company concluded that it exercises significant influence
over Victoria since the second quarter of 2018 and has started to account for
its investment using the equity method.
Sustainability Activities
Osisko views sustainability as a key part of its strategy to
create value for its shareholders and other stakeholders.
The Company focuses on the following key areas:
| |
• |
Promoting the mining industry and its benefits to
society; |
| |
• |
Maintaining strong relationships with the Federal
government and the Provincial, Municipal and First Nations governments in
Québec; |
| |
• |
Supporting the economic development of regions where
Osisko operates (directly or indirectly through its interests); |
| |
• |
Supporting university education in mining fields and
employee development; |
| |
• |
Promoting diversity throughout the organization and the
mining industry; and |
| |
• |
Encouraging investee companies to adhere to the same
areas of focus in sustainability. |
As part of its investment analysis process, the Company
evaluates the risk and performance of the investee companies on projects in the
sustainability areas.
Exploration and Evaluation Activities
In 2016, Osisko entered into earn-in agreements with Osisko
Mining. Under the first earn-in agreement, Osisko Mining may earn a 100%
interest in 26 of Osisko’s exploration properties located in the James Bay area
and Labrador Trough (excluding the Coulon copper-zinc project and four other
exploration properties) upon completing expenditures of $26.0 million over a
7-year period; Osisko Mining may earn a first 50% interest upon completing
expenditures totaling $15.6 million over a 4-year period. Under the second
earn-in agreement, Osisko Mining may earn a 100% interest in the Kan property
(comprised of the Kan and Fosse Au properties) upon completing expenditures
totaling $6.0 million over a 7-year period; Osisko Mining may earn a first 50%
interest upon completing expenditures totaling $3.6 million over a 4-year
period. Osisko will retain an escalating NSR royalty ranging from 1.5% to 3.5%
on precious metals and a 2.0% NSR royalty on other metals and minerals produced
from the 27 properties. New properties acquired by Osisko Mining in a designated
area during the 7-year term will be subject to a royalty agreement in favour of
Osisko with similar terms.
As a result of the earn-in agreements with Osisko Mining, the
exploration and evaluation activities have been significantly reduced. During
the three and nine months ended September 30, 2018, investments amounted to $0.1
million and $0.3 million, respectively. During the three and nine months ended
September 30, 2018, the Company received previously claimed tax credits of $2.1
million and $3.4 million, respectively. As at September 30, 2018, the carrying
value of the Coulon project was $60.0 million ($59.9 million as at December 31,
2017) and the carrying value of other properties, including those under the
earn-in agreements with Osisko Mining, was $42.5 million ($42.3 million as at
December 31, 2017).
17
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Quarterly Dividends
The Board of Directors has approved the initiation of the
Company’s quarterly dividend program on November 16, 2014.
The following table provides details on the dividends declared
and paid or payable:
| |
|
|
Dividend |
|
|
|
|
|
|
|
|
Dividends paid or |
|
| Declaration date |
|
|
per share |
|
|
Record date(i) |
|
|
Payment date(i) |
|
|
payable |
|
| |
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
| Year 2014 |
|
|
0.03 |
|
|
n/a |
|
|
n/a |
|
|
1,551,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year 2015 |
|
|
0.13 |
|
|
n/a |
|
|
n/a |
|
|
12,229,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year 2016 |
|
|
0.16 |
|
|
n/a |
|
|
n/a |
|
|
17,037,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year 2017 |
|
|
0.18 |
|
|
n/a |
|
|
n/a |
|
|
24,275,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| February 16, 2018 |
|
|
0.05 |
|
|
March 30, 2018
|
|
|
April 16, 2018
|
|
|
7,811,000 |
|
| May 3, 2018 |
|
|
0.05 |
|
|
June 29, 2018 |
|
|
July 16, 2018 |
|
|
7,811,000 |
|
| August 2, 2018 |
|
|
0.05 |
|
|
September 28,
2018 |
|
|
October 15, 2018
|
|
|
7,812,000 |
|
| November 6, 2018 |
|
|
0.05 |
|
|
December 31, 2018 |
|
|
January 15, 2019 |
|
|
tbd(ii) |
|
| Year 2018 |
|
|
0.20 |
|
|
|
|
|
|
|
|
|
|
| |
(i) |
Not applicable (“n/a”) for annual summaries. |
| |
(ii) |
To be determined (“tbd”) on December 31, 2018 based on
the number of shares outstanding and the number of shares participating in
the dividend reinvestment plan on the record date. |
Dividend Reinvestment Plan
The Company has a dividend reinvestment plan (“DRIP”) that
allows Canadian shareholders and U.S. shareholders (commencing with the dividend
paid on October 16, 2017) to reinvest their cash dividends into additional
common shares either purchased on the open market through the facilities of the
TSX or the NYSE, or issued directly from treasury by the Company, or acquired by
a combination thereof. In the case of a treasury issuance, the price will be the
weighted average price of the common shares on the TSX or the NYSE during the
five (5) trading days immediately preceding the dividend payment date, less a
discount, if any, of up to 5%, at the Company’s sole election. No commissions,
service charges or brokerage fees are payable by shareholders who elect to
participate in the DRIP.
As at September 30, 2018, the holders of 28,065,085 common
shares had elected to participate in the DRIP, representing dividends payable of
$1,403,000. During the three and nine months ended September 30, 2018, the
Company issued 33,555 and 171,527 common shares under the DRIP, respectively, at
a discount rate of 3%. On October 15, 2018, 138,965 common shares were issued
under the DRIP at a discount rate of 3%.
Normal Course Issuer Bid
In October 2016, the TSX approved the Company’s notice of
intention to make a normal course issuer bid (the “2016 NCIB Program”). Under
the terms of the 2016 NCIB Program, Osisko could acquire up to 5,330,217 of its
common shares from time to time in accordance with the normal course issuer bid
procedures of the TSX. Repurchases under the 2016 NCIB Program were authorized
until October 23, 2017. During the year ended December 31, 2016, the Company
purchased for cancellation a total of 150,000 common shares under the 2016 NCIB
Program for $1,823,000, which were paid in 2017.
In December 2017, Osisko renewed its normal course issuer bid
(the “2017 NCIB Program”). Under the terms of the 2017 NCIB Program, Osisko may
acquire up to 10,567,441 of its common shares from time to time in accordance
with the normal course issuer bid procedures of the TSX. As at September 30,
2018, Osisko has acquired and cancelled a total of 1,742,299 common shares under
the 2017 NCIB Program for $22.0 million (average acquisition cost of $12.62 per
share).
The Company expects to maintain active NCIB programs in the
next few years.
18
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
19
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Gold Market and Currency
Gold Market
Commodity prices increased in early 2018 supported by a boost
in global economic growth and depreciation in the U.S. dollar. Gold had a
positive start building on gains made in late December 2017 with the prices
rising above US$1,366 in January 2018 surpassing the previous high of US$1,357
reached in September 2017. The price of gold recorded its best-performing
quarter in the first quarter since the third quarter of 2016.
During the second quarter of 2018, precious metals were under
pressure on the back of a stronger U.S. dollar, firmer U.S. treasury yields and
low levels of investor interest for safe-haven investments. After trading above
US$1,300 since the start of the year, prices have dropped in mid-May erasing the
year’s gains as the U.S. dollar index climbed to an eleven-month high and
10-year bond yields pushed above 3% for the first time since 2011, despite
geopolitical and trade tensions.
During the third quarter of 2018, the gold price dropped to a
20-month low of US$1,160 per ounce before a slight recovery towards the end of
August, bringing the prices to their levels of the first quarter of 2017.
Despite numerous escalations in the geopolitical tensions, U.S. trade disputes
and potential trade wars, gold continued to be under pressure during the third
quarter on the back of a stronger U.S. dollar, firmer U.S. treasury yields and
low levels of investor interest for safe-haven investment. Gold prices finally
increased over US$1,200 per ounce in October reaching almost to US$1,240 per
ounce.
Gold prices decreased 5.0% during the third quarter of 2018 or
US$63 per ounce on the London fix to close at US$1,187 per ounce. The average
price was lower by US$93 per ounce at US$1,213 per ounce in the third quarter
compared to the second quarter of 2018 and lower by US$65 on a year over year
basis. Prices were volatile during the third quarter with a trading range of
US$84 per ounce.
The historical price is as follows:
| (US$/ounce of gold) |
|
High |
|
|
Low |
|
|
Average |
|
|
Close |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 2018 (Q3-YTD) |
$ |
1,355 |
|
$ |
1,178 |
|
$ |
1,282 |
|
$ |
1,187 |
|
| 2017 |
|
1,346 |
|
|
1,151 |
|
|
1,257 |
|
|
1,291 |
|
| 2016 |
|
1,366 |
|
|
1,077 |
|
|
1,251 |
|
|
1,146 |
|
| 2015 |
|
1,296 |
|
|
1,049 |
|
|
1,160 |
|
|
1,060 |
|
| 2014 |
|
1,385 |
|
|
1,142 |
|
|
1,266 |
|
|
1,206 |
|
In Canadian dollar terms, the average price per ounce of gold
averaged $1,586 per ounce in the third quarter of 2018 compared to $1,686 in the
second quarter of 2018. The gold price closed at $1,537 per ounce on September
30, 2018 compared to $1,647 as at June 30, 2018 as a result of a lower gold
price in U.S. dollars and a weaker Canadian currency. The Canadian dollar was
under pressure reacting to a more cautious tone taken by the Bank of Canada
concerned by residential markets and the NAFTA negotiations.
Currency
The Canadian dollar continued its appreciation versus the U.S.
dollar in January 2018 after the Bank of Canada increased the overnight rate to
1.25%, but lost momentum since then. The U.S. dollar has increased from February
2018, after declining in 2017. The U.S. currency appears to have profited
primarily as a safe haven in renewed risk in emerging countries and Europe. The
escalating trade war has created tensions in commodity and equity markets and
the Canadian dollar has been negatively affected by the potential outcome of
negotiations on NAFTA until early October, when it surged to fresh four-month
highs the first week of October in response to the new trade agreement between
Canada and the United States of America.
The dollar traded between a range of 1.3255 and 1.2905 in the
third quarter of 2018 to close at 1.2945. The Canadian dollar averaged 1.3070 in
the third quarter compared to 1.2911 in the second quarter and 1.2647 in the
first quarter.
In July and October, the Bank of Canada increased the overnight
rate for a second and third time in 2018 to a target of 1.75% . The Bank of
Canada stated that the economy is operating close to full capacity and inflation
pressure is on the rise.
The exchange rate for the U.S./Canadian dollar is outlined
below:
| |
High |
Low |
Average |
Close |
| 2018 (Q3-YTD) |
1.3310 |
1.2288 |
1.2876 |
1.2945 |
| 2017 |
1.3743 |
1.2128 |
1.2986 |
1.2545 |
| 2016 |
1.4589 |
1.2544 |
1.3248 |
1.3427 |
| 2015 |
1.3990 |
1.1728 |
1.2787 |
1.3840 |
| 2014 |
1.1643 |
1.0614 |
1.1045 |
1.1601 |
20
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Selected Financial Information(1)
(in thousands of dollars, except figures for ounces and amounts per
ounce and per share)
| |
|
Three months ended |
|
|
Nine months ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
| |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues |
|
111,702 |
|
|
68,179 |
|
|
375,135 |
|
|
103,664 |
|
| Cash margin(2) |
|
28,954 |
|
|
23,965 |
|
|
90,430 |
|
|
59,077 |
|
| Gross profit |
|
15,818 |
|
|
15,641 |
|
|
50,793 |
|
|
43,759 |
|
| Operating income |
|
11,049 |
|
|
926 |
|
|
33,701 |
|
|
13,017 |
|
| Net earnings(3) |
|
5,474 |
|
|
6,728 |
|
|
8,295 |
|
|
21,847 |
|
| Basic net earnings per share(3)
|
|
0.04 |
|
|
0.05 |
|
|
0.05 |
|
|
0.19 |
|
| Diluted net earnings per share(3)
|
|
0.04 |
|
|
0.05 |
|
|
0.05 |
|
|
0.18 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Total assets |
|
2,441,668 |
|
|
2,320,930 |
|
|
2,441,668 |
|
|
2,320,930 |
|
| Total long-term debt |
|
419,680 |
|
|
193,738 |
|
|
419,680 |
|
|
193,738 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Average selling price of gold (per ounce
sold) |
|
|
|
|
|
|
|
|
|
|
|
|
| In C$(4) |
|
1,580 |
|
|
1,616 |
|
|
1,653 |
|
|
1,631 |
|
| In US$ |
|
1,210 |
|
|
1,296 |
|
|
1,283 |
|
|
1,278 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Operating cash flows |
|
20,636 |
|
|
1,094 |
|
|
63,599 |
|
|
27,193 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average shares outstanding (in
thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
| Basic |
|
156,252 |
|
|
140,605 |
|
|
156,711 |
|
|
118,059 |
|
| Diluted |
|
156,263 |
|
|
140,837 |
|
|
156,734 |
|
|
118,183 |
|
| |
(1) |
Unless otherwise noted, financial information is in
Canadian dollars and prepared in accordance with IFRS. |
| |
(2) |
Cash margin is a non-IFRS financial performance measure
which has no standard definition under IFRS. It is calculated by deducting
the cost of sales from the revenues. Please refer to the Overview of
Financial Results section of this MD&A for a reconciliation of the
cash margin per interest. |
| |
(3) |
Attributable to Osisko’s shareholders. |
| |
(4) |
Using actual exchange rates at the date of the
transactions. |
21
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Overview of Financial Results
Financial Summary – Third Quarter of 2018
| |
• |
Revenues from royalties and streams of $31.4 million
($111.7 million including offtakes) compared to $26.1 million in Q3 2017
($68.2 million including offtakes); |
| |
• |
Gross profit of $15.8 million compared to $15.6 million
in Q3 2017; |
| |
• |
Operating income of $11.0 million compared to $0.9
million in Q3 2017; |
| |
• |
Net earnings attributable to Osisko’s shareholders of
$5.5 million or $0.04 per basic and diluted share, compared to $6.7
million or $0.05 per basic and diluted share in Q3 2017; |
| |
• |
Adjusted earnings1 of $5.7 million or $0.04
per basic share1 compared to $8.0 million or $0.06 per basic
share in Q3 2017; and |
| |
• |
Cash flows provided by operating activities of $20.6
million compared to $1.1 million in Q3 2017. |
Revenues increased in 2018 mainly as a result of the
acquisition of Orion’s portfolio on July 31, 2017 and strong results from the
NSR royalty on the Canadian Malartic mine.
Gross profit reached $15.8 million in the third quarter of 2018
compared to $15.6 million in the third quarter of 2017 as a result of higher
revenues, partially offset by higher cost of sales and depletion of royalty,
stream and other interests. Revenues increased as a result of an increase in
GEOs received, but were partially offset by lower selling prices of precious
metals. Cost of sales increased from $44.2 million to $82.7 million mainly as a
result of the offtake and streams agreements acquired through the acquisition of
the portfolio of assets from Orion in July 2017. Only two months of production
was included in Q3 2017. Under the offtake agreements, the metal is acquired
from the producers at the lowest market price over a certain period of time
(quotational period), and is subsequently sold by Osisko, resulting in a net
profit that will usually vary between 0% and 5% of the sales proceeds. The
depletion expense increased mainly as a result of the producing assets acquired
in 2017 which are depleted using the units-of-production method.
The increase in operating income in the third quarter of 2018
compared to the corresponding period of 2017 is mainly the result of lower
general and administrative (“G&A”) expenses and business development
expenses. The decrease in G&A expenses is mainly due to a lower share-based
compensation expense related to the deferred and restricted share units
resulting from the lower share price at September 30, 2018. The decrease in
business development expenses is mainly due to the transaction costs of $7.8
million related to the acquisition of Orion’s portfolio of assets in July 2017
and higher cost recoveries from associates in 2018.
The decrease in net earnings attributable to Osisko’s
shareholders in the third quarter of 2018 is mainly the result of higher finance
costs ($6.4 million in 2018 compared to $1.6 million in 2017), which are related
to the convertible debentures of $300.0 million issued in November 2017 and the
revolving credit facility outstanding, which was drawn to finance the
acquisition of Orion’s portfolio in July 2017, lower other net gains on
financial assets ($5.8 million in 2018 compared to $14.7 million in 2017),
partially offset by a higher operating income ($11.0 million in 2018 compared to
$0.9 million in 2017), a lower loss on foreign exchange ($0.2 million in 2018
compared to $7.9 million in 2017) and a share of loss of associates of $4.2
million in 2018 compared to a share of income of $0.3 million in 2017.
Adjusted earnings decreased to $5.7 million in the third
quarter of 2018 compared to $8.0 million in the third quarter of 2017, mainly as
a result of higher finance costs, partially offset by lower G&A expenses and
business development expenses and higher gross profit.
Net cash flows provided by operating activities during the
third quarter of 2018 amounted to $20.6 million compared to $1.1 million during
the third quarter of 2017, as a result of higher gross profit before depletion
of royalty, stream and other interest, lower G&A and business development
expenses and lower payments on settlement of restricted and deferred share
units, partially offset by higher finance costs paid.
________________________________
| 1 |
“Adjusted earnings” and “Adjusted earnings per basic
share” are non-IFRS financial performance measures which have no standard
definition under IFRS. Refer to the non-IFRS measures provided under the
Non-IFRS Financial Performance Measures section of this Management’s Discussion
and Analysis |
22
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Financial Summary – First nine months of 2018
| |
• |
Revenues from royalties and streams of $96.8 million
($375.1 million including offtakes) compared to $61.6 million ($103.7
million including offtakes) in the first nine months of 2017; |
| |
• |
Gross profit of $50.8 million compared to $43.8 million
in the first nine months of 2017; |
| |
• |
Operating income of $33.7 million compared to $13.0
million in the first nine months of 2017; |
| |
• |
Net earnings attributable to Osisko’s shareholders of
$8.3 million or $0.05 per basic and diluted share, compared to $21.8
million or $0.19 per basic share and $0.18 per diluted share in the first
nine months of 2017; |
| |
• |
Adjusted earnings1 of $18.3 million or $0.12
per basic share1 compared to $21.7 million or $0.18 per basic
share in the first nine months of 2017; and |
| |
• |
Cash flows provided by operating activities of $63.6
million compared to $27.2 million in the first nine months of 2017.
|
Revenues increased in 2018 mainly as a result of the
acquisition of Orion’s portfolio on July 31, 2017 and strong results from the
NSR royalty on the Canadian Malartic mine.
Gross profit reached $50.8 million in the first nine months of
2018 compared to $43.8 million in the first nine months of 2017 as a result of
higher revenues, partially offset by higher cost of sales and depletion of
royalty, stream and other interests. Cost of sales increased from $44.6 million
to $284.7 million mainly as a result of the offtake and streams agreements
acquired through the acquisition of the portfolio of assets from Orion in July
2017. Only two months of production was included in 2017 compared to nine months
in 2018. Under the offtake agreements, the metal is acquired from the producers
at the lowest market price over a certain period of time (quotational period),
and is subsequently sold by Osisko, resulting in a net profit that will usually
vary between 0% and 5% of the sales proceeds. The depletion expense increased
mainly as a result of the producing assets acquired in 2017 which are depleted
using the units-of-production method.
The increase in operating income in the first nine months of
2018 compared to the corresponding period of 2017 is mainly the result of higher
gross profit and lower G&A expenses and business development expenses. The
decrease in G&A expenses is mainly due to a lower share-based compensation
expense related to the deferred and restricted share units resulting from the
lower share price at September 30, 2018. The decrease in business development
expenses is mainly due to the transaction costs of $7.8 million related to the
acquisition of Orion’s portfolio of assets in July 2017 and higher cost
recoveries from associates in 2018, partially offset by higher salaries and
office costs following the acquisition of OBL through the acquisition of Orion’s
portfolio of assets.
The decrease in net earnings attributable to Osisko’s
shareholders for the first nine months of 2018 is mainly the result of higher
finance costs ($19.3 million in 2018 compared to $3.6 million in 2017), which
are related to the convertible debentures of $300.0 million issued in November
2017 and the revolving credit facility outstanding, which was drawn to finance
the acquisition of Orion’s portfolio of assets in July 2017, lower other net
gains on financial assets ($1.6 million in 2018 compared to $31.3 million in
2017), partially offset by a higher operating income ($33.7 million in 2018
compared to $13.0 million in 2017), a gain on foreign exchange of $0.1 million
in 2018 compared to a loss on foreign exchange of $15.5 million in 2017, and a
share of loss of associates of $6.6 million in 2018 compared to $2.6 million in
2017.
Adjusted earnings decreased to $18.3 million in the first nine
months of 2018 compared to $21.7 million in the first nine months of 2017,
mainly as a result of higher finance costs, partially offset by higher gross
profit and lower G&A expenses and business development expenses.
Net cash flows provided by operating activities during the
first nine months of 2018 amounted to $63.6 million compared to $27.2 million
during the first nine months of 2017, as a result of higher gross profit before
depletion of royalty, stream and other interest, lower G&A and business
development expenses and lower payments on settlement of restricted and deferred
share units, partially offset by higher finance costs paid.
________________________________
| 1 |
“Adjusted earnings” and “Adjusted earnings per basic
share” are non-IFRS financial performance measures which have no standard
definition under IFRS. Refer to the non-IFRS measures provided under the
Non-IFRS Financial Performance Measures section of this Management’s and
Discussion Analysis. |
23
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Consolidated Statements of Income
The following table presents summarized consolidated statements
of income for the three and nine months ended September 30, 2018 and 2017 (in
thousands of dollars, except amounts per share):
| |
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
| |
|
|
|
|
September 30, |
|
|
September 30, |
|
| |
|
|
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
| |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues |
|
(a) |
|
|
111,702
|
|
|
68,179 |
|
|
375,135
|
|
|
103,664 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of sales |
|
(b) |
|
|
(82,748 |
)
|
|
(44,214 |
) |
|
(284,705 |
)
|
|
(44,587 |
) |
| Depletion of royalty, stream and other
interests |
|
(c) |
|
|
(13,136 |
) |
|
(8,324 |
) |
|
(39,637 |
) |
|
(15,318 |
) |
| Gross profit |
|
(d) |
|
|
15,818 |
|
|
15,641 |
|
|
50,793 |
|
|
43,759 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| General and administrative |
|
(e) |
|
|
(3,646 |
)
|
|
(5,552 |
) |
|
(13,214 |
)
|
|
(17,548 |
) |
| Business development |
|
(f) |
|
|
(1,077 |
)
|
|
(9,106 |
) |
|
(3,750 |
)
|
|
(13,073 |
) |
| Exploration and evaluation |
|
|
|
|
(46 |
) |
|
(57 |
) |
|
(128 |
) |
|
(121 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating income |
|
|
|
|
11,049 |
|
|
926 |
|
|
33,701 |
|
|
13,017 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other revenues (expenses), net |
|
(g) |
|
|
(3,645 |
) |
|
6,262 |
|
|
(20,318 |
) |
|
12,851 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Earnings before income taxes |
|
|
|
|
7,404 |
|
|
7,188 |
|
|
13,383 |
|
|
25,868 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income tax expense |
|
(h) |
|
|
(1,930 |
) |
|
(559 |
) |
|
(5,088 |
) |
|
(4,303 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net earnings |
|
|
|
|
5,474 |
|
|
6,629 |
|
|
8,295 |
|
|
21,565 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net earnings (loss) attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Osisko’s shareholders |
|
|
|
|
5,474 |
|
|
6,728 |
|
|
8,295 |
|
|
21,847 |
|
| Non-controlling interests
|
|
|
|
|
- |
|
|
(99 |
) |
|
- |
|
|
(282 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net earnings per share attributable to
Osisko’s shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic |
|
|
|
|
0.04 |
|
|
0.05 |
|
|
0.05 |
|
|
0.19 |
|
| Diluted |
|
|
|
|
0.04 |
|
|
0.05 |
|
|
0.05 |
|
|
0.18 |
|
24
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
| |
(a) |
Revenues are comprised of the
following: |
| |
|
|
Three months ended September 30,
|
|
| |
|
|
2018 |
|
|
2017 |
|
| |
|
|
Average |
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
| |
|
|
selling price |
|
|
Ounces / |
|
|
Total |
|
|
selling price |
|
|
Ounces / |
|
|
Total |
|
| |
|
|
per ounce / |
|
|
carats |
|
|
revenues |
|
|
per ounce |
|
|
carats |
|
|
revenues |
|
| |
|
|
carat ($) |
|
|
sold |
|
|
($000’s |
) |
|
($) |
|
|
Sold |
|
|
($000’s |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Gold sold |
|
1,580 |
|
|
62,255 |
|
|
98,387 |
|
|
1,616 |
|
|
34,950 |
|
|
56,489 |
|
| |
Silver sold |
|
19 |
|
|
436,723 |
|
|
8,488 |
|
|
21 |
|
|
306,959 |
|
|
6,551 |
|
| |
Diamonds sold(i) |
|
134 |
|
|
23,805 |
|
|
2,502 |
|
|
107 |
|
|
27,600 |
|
|
2,957 |
|
| |
Other (paid in cash) |
|
- |
|
|
- |
|
|
2,325 |
|
|
- |
|
|
- |
|
|
2,182 |
|
| |
|
|
|
|
|
|
|
|
111,702 |
|
|
|
|
|
|
|
|
68,179 |
|
| |
|
|
Nine months ended September 30,
|
|
| |
|
|
2018 |
|
|
2017 |
|
| |
|
|
Average |
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
| |
|
|
selling price |
|
|
Ounces / |
|
|
Total |
|
|
selling price |
|
|
Ounces |
|
|
Total |
|
| |
|
|
per ounce / |
|
|
carats sold |
|
|
revenues |
|
|
per ounce |
|
|
Sold |
|
|
revenues |
|
| |
|
|
carat ($) |
|
|
|
|
|
($000’s |
) |
|
($) |
|
|
|
|
|
($000’s |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Gold sold |
|
1,653 |
|
|
197,221 |
|
|
325,946 |
|
|
1,631 |
|
|
54,795 |
|
|
89,346 |
|
| |
Silver sold |
|
21 |
|
|
1,392,108 |
|
|
28,830 |
|
|
22 |
|
|
404,569 |
|
|
8,806 |
|
| |
Diamonds sold(i) |
|
141 |
|
|
85,540 |
|
|
10,829 |
|
|
107 |
|
|
27,600 |
|
|
2,957 |
|
| |
Other (paid in cash) |
|
- |
|
|
- |
|
|
9,530 |
|
|
- |
|
|
- |
|
|
2,554 |
|
| |
|
|
|
|
|
|
|
|
375,135 |
|
|
|
|
|
|
|
|
103,663 |
|
| |
(i) |
The diamonds are sold by an agent for Osisko. The average
selling price excludes the incidental carats sold outside of the run of
mine sales. |
| |
(b) |
Cost of sales represents mainly the acquisition price of
the metals and diamonds under the offtake and stream agreements, as well
as minimal refining, insurance and transportation costs related to the
metals received under royalty agreements. The significant increase in the
third quarter and the first nine months of 2018 is mainly the result of
the offtake and stream interests acquired from Orion on July 31,
2017. |
| |
|
|
| |
(c) |
The royalty, stream and other interests are depleted
using the units-of-production method over the estimated life of the
properties or the life of the agreement. The significant increase in the
third quarter and the first nine months of 2018 is mainly the result of
the offtakes and streams acquired from Orion on July 31,
2017. |
25
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
| |
(d) |
The breakdown of gross profit per nature of interest is
as follows (in $000’s): |
| |
|
|
Three months ended |
|
|
Nine months ended |
|
| |
|
|
September 30, |
|
|
September 30, |
|
| |
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
| |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Royalty interests |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Revenues |
|
23,516 |
|
|
19,045 |
|
|
69,654 |
|
|
52,682 |
|
| |
Cost of sales |
|
(11 |
) |
|
(78 |
) |
|
(127 |
) |
|
(156 |
) |
| |
Cash margin |
|
23,505
|
|
|
18,967 |
|
|
69,527
|
|
|
52,526 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Depletion |
|
(7,084 |
) |
|
(4,758 |
) |
|
(20,173 |
) |
|
(11,173 |
) |
| |
Gross profit |
|
16,421 |
|
|
14,209 |
|
|
49,354 |
|
|
41,353 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Stream interests |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Revenues |
|
7,877 |
|
|
7,048 |
|
|
27,175 |
|
|
8,896 |
|
| |
Cost of sales |
|
(3,239 |
) |
|
(2,712 |
) |
|
(10,358 |
) |
|
(3,007 |
) |
| |
Cash margin |
|
4,638 |
|
|
4,336 |
|
|
16,817
|
|
|
5,889 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Depletion |
|
(5,234 |
) |
|
(3,239 |
) |
|
(15,853 |
) |
|
(3,818 |
) |
| |
Gross profit (loss) |
|
(596 |
) |
|
1,097 |
|
|
964 |
|
|
2,071 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Royalty and stream interests
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash margin |
|
28,143 |
|
|
23,303 |
|
|
86,344 |
|
|
58,415 |
|
| |
|
|
89.6% |
|
|
89.3% |
|
|
89.2% |
|
|
94.9% |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Offtake interests |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Revenues |
|
80,309 |
|
|
42,086 |
|
|
278,306 |
|
|
42,086 |
|
| |
Cost of sales |
|
(79,498 |
) |
|
(41,424 |
) |
|
(274,220 |
) |
|
(41,424 |
) |
| |
Cash margin |
|
811 |
|
|
662 |
|
|
4,086 |
|
|
662 |
|
| |
|
|
1.0% |
|
|
1.6% |
|
|
1.5% |
|
|
1.6% |
|
| |
Depletion |
|
(818 |
) |
|
(327 |
) |
|
(3,611 |
) |
|
(327 |
) |
| |
Gross profit (loss) |
|
(7 |
) |
|
335 |
|
|
475 |
|
|
335 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total – Gross profit |
|
15,818 |
|
|
15,641 |
|
|
50,793 |
|
|
43,759 |
|
| |
(e) |
During the third quarter of 2018, G&A expenses
decreased to $3.6 million (net of cost recoveries from associates of $0.3
million) compared to $5.6 million during the third quarter of 2017 (net of
cost recoveries from associates of $0.4 million). The decrease is mainly
due to a reduction in the share-based compensation expense by $2.1 million
related to the deferred and restricted share units resulting from the
lower share price at September 30, 2018, compared to the third quarter of
2017. |
| |
|
|
| |
|
During the first nine months of 2018, G&A expenses
decreased to $13.2 million (net of cost recoveries from associates of $1.1
million) compared to $17.5 million during the first nine months of 2017
(net of cost recoveries from associates of $1.3 million). The decrease is
mainly due to a reduction in the share-based compensation expense by $5.1
million related to the deferred and restricted share units resulting from
the lower share price at September 30, 2018, compared to the first nine
months of 2017. |
| |
|
|
| |
(f) |
During the third quarter of 2018, business development
expenses decreased to $1.1 million (net of cost recoveries from associates
of $1.0 million) compared to $9.1 million (net of cost recoveries from
associates of $0.6 million) during the third quarter of 2017. The decrease
is mainly due to transaction costs of $7.8 million in the third quarter of
2017 related to the acquisition of the Orion portfolio of assets and
higher costs recoveries from associates of $0.4 million. |
| |
|
|
| |
|
During the first nine months of 2018, business
development expenses decreased to $3.8 million (net of cost recoveries
from associates of $2.9 million) compared to $13.1 million (net of cost
recoveries from associates of $1.6 million) during the first nine months
of 2017. The decrease is mainly due to transaction costs of $8.9 million
in the first nine months of 2017 related to the acquisition of the Orion
portfolio of assets and to higher costs recoveries from associates of $1.3
million, partially offset by higher salaries and general expenses related
to OBL (subsidiary acquired on July 31, 2017 from the Orion portfolio of
assets). |
26
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
| |
(g) |
Other expenses, net, of $3.6 million in the third quarter
of 2018 include finance costs of $6.4 million, a share of loss of
associates of $4.1 million, partially offset by a net gain on investments
of $5.8 million and interest income of $1.0 million. |
| |
|
|
| |
|
Other revenues, net, amounted to $6.3 million in the
third quarter of 2017 and included a net gain on investments of $14.7
million (comprised of a net gain on dilution of investments in associates
of $13.5 million), interest revenues of $0.8 million and a share of income
of associates of $0.3 million, partially offset by a loss on foreign
exchange of $7.9 million and finance costs of $1.6 million. |
| |
|
|
| |
|
Other expenses, net, of $20.3 million in the first nine
months of 2018 include finance costs of $19.3 million, a share of loss of
associates of $6.6 million, partially offset by interest income of $3.6
million and a net gain on investments of $1.6 million. |
| |
|
|
| |
|
Other revenues, net, amounted to $12.9 million in the
first nine months of 2017 and included a net gain on investments of $31.3
million (comprised of a net gain on dilution of investments in associates
of $30.3 million) and interest revenues of $3.2 million, partially offset
by a loss on foreign exchange of $15.5 million, a share of loss of
associates of $2.6 million and finance costs of $3.6 million. |
| |
|
|
| |
(h) |
The effective income tax rate for the third quarter of
2018 is 26.1% compared to 7.8% for the third quarter of 2017 and 38.0% in
the first nine months of 2018 compared to 16.6% in the first nine months
of 2017. The statutory rate is 26.7% in 2018 and 26.8% in 2017. The
elements that impacted the effective income taxes are the non-taxable (or
deductible) part of capital gains (or losses) (50%) and non-deductible
expenses. In the third quarter and the first nine months of 2018, cash
taxes amounted to $0.2 million and $0.6 million, respectively and were
related to taxes on royalties earned in foreign jurisdictions. In the
third quarter and the first nine months of 2017, the income tax expense
was only related to deferred income taxes. |
Liquidity and Capital Resources
As at September 30, 2018, the Company’s cash and cash
equivalents amounted to $137.2 million compared to $333.7 million as at December
31, 2017. Significant variations in the liquidity and capital resources in the
first nine months of 2018 are explained below under the Cash Flows section.
The Company has a facility of $350.0 million (with an
additional uncommitted accordion of up to $100.0 million, for a total
availability of up to $450.0 million) as at September 30, 2018, of which $98.6
million (based on the Bank of Canada daily exchange rate of September 30, 2018)
was drawn in two tranches: $30.0 million at an effective interest rate of 3.50%
and US$53.0 million ($68.6 million) at an effective interest rate of 3.86%,
including the applicable margins. The Facility includes covenants that require
the Company to maintain certain financial ratios, including the Company’s
leverage ratios and meet certain non-financial requirements. As at September 30,
2018, all such ratios and requirements were met.
27
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Cash Flows
The following table summarizes the cash flows (in thousands of
dollars):
| |
|
Three months ended |
|
|
Nine months ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
| |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
| Cash flows |
|
|
|
|
|
|
|
|
|
|
|
|
| Operations |
|
18,618 |
|
|
6,227 |
|
|
63,763 |
|
|
32,931 |
|
| Working capital
items |
|
2,018 |
|
|
(5,133 |
) |
|
(164 |
) |
|
(5,738 |
) |
| Operating
activities |
|
20,636
|
|
|
1,094 |
|
|
63,599
|
|
|
27,193 |
|
| Investing
activities |
|
(63,175 |
)
|
|
(638,133 |
) |
|
(167,573 |
)
|
|
(801,137 |
) |
| Financing
activities |
|
(7,324 |
)
|
|
405,219 |
|
|
(95,498 |
)
|
|
399,045 |
|
| Effects of exchange rate changes on cash and
cash equivalents |
|
(1,580 |
) |
|
(7,920 |
) |
|
2,955 |
|
|
(15,448 |
) |
| Decrease in cash and cash equivalents |
|
(51,443 |
)
|
|
(239,740 |
) |
|
(196,517 |
)
|
|
(390,347 |
) |
| Cash and cash equivalents – beginning of
period |
|
188,631 |
|
|
348,642 |
|
|
333,705 |
|
|
499,249 |
|
| Cash and cash equivalents – end of period |
|
137,188 |
|
|
108,902 |
|
|
137,188 |
|
|
108,902 |
|
Operating Activities
Third quarter of 2018
Cash flows provided by operating activities for the third
quarter of 2018 amounted to $20.6 million compared to $1.1 million in the third
quarter of 2017.
Net cash flows provided by operating activities increased in
the third quarter of 2018 as a result of higher revenues, lower G&A and
business development expenses, lower payments on the settlement of restricted
and deferred share units and a positive impact of the variation of working
capital items, partly offset by higher cost of sales and interests paid on
long-term debt. Interests paid on long-term debt increased by $1.1 million as a
result of the interests payment on the credit facility.
First nine months of 2018
Cash flows provided by operating activities for the first nine
months of 2018 amounted to $63.6 million compared to $27.2 million in the first
nine months of 2017.
Net cash flows provided by operating activities increased in
the first nine months of 2018 as a result of higher revenues, lower G&A and
business development expenses, lower payments on the settlement of restricted
and deferred share units and a positive impact of the variation of the working
capital items, partially offset by higher cost of sales and interests paid on
long-term debt. Interests paid on long-term debt increased by $11.3 million as a
result of the bi-annual payment of interests on the senior unsecured convertible
debentures of $7.9 million (June 2018) and the interests payment on the credit
facility.
Investing Activities
Third quarter of 2018
Cash flows used by investing activities amounted to $63.2
million in the third quarter of 2018 compared to $638.1 million in the third
quarter of 2017.
During the third quarter of 2018, Osisko invested $22.3 million
in marketable securities, $33.9 million in royalty and stream interests and $9.0
million in short-term investments (including $10.0 million for a secured senior
note with Falco less a repayment of $1.0 million on another note receivable).
Exploration and evaluation activities generated $2.0 million as the Company
received payments of previously claimed governmental tax credits.
During the third quarter of 2017, Osisko paid $622.4 million,
net of cash acquired of $8.7 million, settled foreign exchange forward contracts
which generated a cash loss of $21.1 million, for the acquisition of Orion’s
portfolio, invested $19.0 million in marketable securities, $1.2 million for the
acquisition of royalty and stream interests and $0.5 million in exploration and
evaluation assets, mainly on the Coulon project. Proceeds on the sale of
investments generated $26.0 million.
28
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
First nine months of 2018
Cash flows used in investing activities amounted to $167.6
million in the first nine months of 2018 compared to $801.1 million in the first
nine months of 2017.
During the first nine months of 2018, Osisko invested $94.8
million in marketable securities, including $50.0 million for additional shares
of Victoria, $18.0 million for additional shares of Osisko Mining and an
additional $7.0 million for a convertible debenture with Falco, $93.0 million in
royalty and stream interests, including $63.7 million to acquire a 5% NSR
royalty on the Dublin Gulch property (Victoria), and $10.0 million in short-term
investments for a secured senior note with Falco. Proceeds on the sale of
investments generated $27.0 million, mainly from the disposal of the AuRico
Metals Inc. shares to Centerra Gold Inc. for a $1.80 cash consideration per
share for proceeds of $25.5 million. Exploration and evaluation activities
generated $3.2 million as the Company received payments of previously claimed
governmental tax credits.
During the first nine months of 2017, Osisko paid $622.4
million, net of cash acquired of $8.7 million, settled foreign exchange forward
contracts which generated a cash loss of $21.1 million, for the acquisition of
Orion’s portfolio, invested $150.1 million in marketable securities, including
$49.7 million for additional shares of Barkerville, $26.9 million for additional
shares of Osisko Mining and $4.0 million for additional shares of Falco. Osisko
also invested $56.7 million in royalty and stream interests, including $42.7
million to acquire a silver stream on the Gibraltar mine (including transaction
costs and net of the fair value of the warrants received as part of the
transaction) and $12.5 million to acquire a 0.75% NSR royalty on the Cariboo
project held by Barkerville, and $0.9 million on exploration and evaluation
assets. Proceeds on the sale of investments generated $49.5 million and
short-term investments were reduced by $0.6 million.
Financing Activities
Third quarter of 2018
During the third quarter of 2018, cash flows used in financing
activities amounted to $7.3 million compared to cash flows provided by financing
activities of $405.2 million in the third quarter of 2017.
During the third quarter of 2018, the Company paid $7.4 million
in dividends to its shareholders.
During the third quarter of 2017, cash flows provided by
financing activities amounted to $405.2 million. During the third quarter of
2017, Osisko completed an equity financing with Caisse and Fonds F.T.Q. for $200
million and $75 million in common shares of Osisko, respectively, as part of a
concurrent private placement to fund a portion of the cash consideration and
support the acquisition of Orion’s portfolio. A total of 18,887,363 common
shares were issued at a price of $14.56 per share. The financing was subject to
a 7% capital commitment payment payable partially in shares (2% representing
385,457 common shares) and in cash (5% representing $13.8 million). Additional
fees of $190,000 were incurred for the financing. Osisko also drew US$118
million ($147.3 million based on the Bank of Canada daily exchange rate of July
31, 2017) under its revolving credit facility, also to fund a portion of the
acquisition price of Orion’s portfolio. Also during the third quarter of 2017,
the Company paid $3.7 million in dividends to its shareholders.
First nine months of 2018
During the first nine months of 2018, cash flows used in
financing activities amounted to $95.5 million compared to $399.0 million in the
first nine months of 2017.
During the first nine months of 2018, the Company repaid $51.8
million on its revolving credit facility, paid $21.4 million in dividends to its
shareholders and acquired common shares under the 2017 NCIB Program for $22.0
million to acquire and cancel a total of 1,742,299 common shares at an average
costs of $12.62.
During the first nine months of 2017, cash inflows from
financing amounted to $399.0 million. In addition to the transactions related to
the financing of the cash portion of the acquisition price of Orion’s portfolio,
the Company paid $11.8 million in dividends to its shareholders and $1.8 million
under the Normal Course Issuer Bid. Investments of non-controlling interests in
Mines Coulon Inc. increased liquidities by $1.3 million and the exercise of
share options and the employee share purchase plan that generated $3.0 million.
29
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
The following table summarizes the financings completed since
the creation of Osisko Gold Royalties Ltd:
| |
|
No of Shares/ |
|
|
Price |
|
|
Gross |
|
|
Net Cash |
|
| |
|
Units |
|
|
($) |
|
|
Proceeds |
|
|
Proceeds |
|
| |
|
|
|
|
|
|
|
($000’s |
) |
|
($000’s |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
| Exercise of replacement share
options(vi) |
|
2,710 |
|
|
13.93 |
|
|
38 |
|
|
38 |
|
| Employee share purchase plan
|
|
28,834 |
|
|
13.02 |
|
|
235 |
|
|
235 |
|
| Total |
|
31,544 |
|
|
|
|
|
273 |
|
|
273 |
|
| 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
| Bought deal – convertible
debentures(i) |
|
n/a |
|
|
n/a |
|
|
300,000 |
|
|
288,476 |
|
| Private
placement(ii) |
|
19,272,820 |
|
|
14.27 |
|
|
275,000 |
|
|
261,060 |
|
| Revolving credit facility(ii) |
|
n/a |
|
|
n/a |
|
|
147,323 |
|
|
147,323 |
|
| Exercise of share options |
|
43,970 |
|
|
14.21 |
|
|
625 |
|
|
625 |
|
| Exercise of replacement share
options(vi) |
|
190,471 |
|
|
11.28 |
|
|
2,148 |
|
|
2,148 |
|
| Employee share purchase plan
|
|
15,426 |
|
|
15.04 |
|
|
233 |
|
|
233 |
|
| Total |
|
19,522,687 |
|
|
|
|
|
725,329 |
|
|
699,865 |
|
| 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
| Convertible debenture(iii) |
|
n/a |
|
|
n/a |
|
|
50,000 |
|
|
49,225 |
|
| Issuance of Units
(bought-deal financing)(iv) |
|
11,431,000 |
|
|
15.10 |
|
|
172,608 |
|
|
164,543 |
|
| Exercise of share options |
|
12,335 |
|
|
15.22 |
|
|
188 |
|
|
188 |
|
| Exercise of replacement share
options(vi) |
|
505,756 |
|
|
9.50 |
|
|
4,806 |
|
|
4,806 |
|
| Employee share purchase plan |
|
21,762 |
|
|
15.27 |
|
|
332 |
|
|
332 |
|
| Total |
|
11,970,853 |
|
|
|
|
|
227,934 |
|
|
219,094 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of special warrants(v)
|
|
10,960,000 |
|
|
18.25 |
|
|
200,020 |
|
|
189,158 |
|
| Exercise of replacement share
options(vi) |
|
750,837 |
|
|
6.51 |
|
|
4,887 |
|
|
4,887 |
|
| Total |
|
11,710,837 |
|
|
|
|
|
204,907 |
|
|
194,045 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 2014 – from June 16 |
|
|
|
|
|
|
|
|
|
|
|
|
| Private
placements(vii) |
|
2,794,411 |
|
|
15.03 |
|
|
42,000 |
|
|
39,173 |
|
| Total |
|
2,794,411 |
|
|
|
|
|
42,000 |
|
|
39,173 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Cumulative
cash proceeds |
|
|
|
|
|
|
|
1,200,443 |
|
|
1,152,420 |
|
| |
(i) |
On November 3, 2017, Osisko closed a bought deal offering
of convertible senior unsecured debentures for net proceeds of $288.5
million. The debentures bear interest at a rate of 4.0% per annum, payable
semi-annually on June 30 and December 31 of each year, commencing on June
30, 2018. The Debentures are convertible at the holder’s option into
Osisko common shares at a conversion price of $22.89 per share. The
Debentures will mature on December 31, 2022 and may be redeemed by Osisko,
in certain circumstances, on or after December 31, 2020. |
| |
|
|
| |
(ii) |
On July 31, 2017, Osisko closed a private placement with
Caisse de dépôt et placement du Québec and Fonds de solidarité FTQ to fund
a portion of the acquisition price of Orion’s Portfolio. A total of
18,887,363 common shares were issued at a price of $14.56 per common share
plus a 7% capital commitment payment payable partially in shares (2%
representing 385,457 common shares) and in cash (5% representing $13.8
million). Additionally, Osisko drew US$118 million ($147.3 million based
on the Bank of Canada daily exchange rate of July 31, 2017) under its
revolving credit facility with the National Bank of Canada and Bank of
Montreal. |
| |
|
|
| |
(iii) |
On February 12, 2016, Osisko closed a convertible
debenture with Investissement Québec, maturing in February 2021 and
bearing interest at an annual rate of 4% payable quarterly. The debenture
is convertible at the holder option into common shares of the Company at a
price of $19.08 at any time during the term. |
| |
|
|
| |
(iv) |
On February 26, 2016, Osisko closed a bought deal public
offering of 11,431,000 Units, including the full exercise of the over-
allotment option by the underwriters, at a price of $15.10 per Unit for
aggregate gross proceeds of $172.6 million (net proceeds of $164.5
million). |
| |
|
|
| |
(v) |
On March 5, 2015, the special warrants were converted
into 10,960,000 common shares and 5,480,000 warrants exercisable at a
price of $36.50 for a period of 7 years. |
| |
|
|
| |
(vi) |
On the date of acquisition of Virginia, the Virginia
share options were converted into Osisko replacement share options using
the same exchange rate than for the common shares (0.92 replacement share
option for each Virginia share option). |
| |
|
|
| |
(vii) |
On November 17, 2014, Osisko closed two private
placements whereby Osisko issued a total of 2,794,411 common shares to
Caisse de dépôt et placement du Québec and Fonds de solidarité FTQ at a
price of $15.03 per common share for total gross proceeds of $42.0
million. |
30
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Quarterly Information
The selected quarterly financial
information(1) for the past eight financial quarters is
outlined below:
(in thousands of dollars, except per share amounts)
| |
|
2018 |
|
|
2017 |
|
|
2016 |
|
| |
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| GEOs |
|
20,006 |
|
|
20,506 |
|
|
20,036 |
|
|
20,990 |
|
|
16,664 |
|
|
10,863 |
|
|
10,416 |
|
|
8,964 |
|
|
Cash and cash equivalents |
|
137,188 |
|
|
188,631 |
|
|
332,617 |
|
|
333,705 |
|
|
108,902 |
|
|
348,642 |
|
|
423,567 |
|
|
499,249 |
|
|
Short-term investments |
|
10,000 |
|
|
1,000 |
|
|
500 |
|
|
- |
|
|
1,447 |
|
|
1,547 |
|
|
2,547 |
|
|
2,100 |
|
|
Working capital |
|
281,858 |
|
|
180,605 |
|
|
325,206 |
|
|
324,101 |
|
|
113,689 |
|
|
329,927 |
|
|
419,325 |
|
|
494,882 |
|
|
Total assets |
|
2,441,668 |
|
|
2,458,641 |
|
|
2,502,233 |
|
|
2,516,343 |
|
|
2,320,930 |
|
|
1,438,511 |
|
|
1,421,569 |
|
|
1,416,304 |
|
|
Total long-term debt |
|
419,680 |
|
|
419,228 |
|
|
467,483 |
|
|
464,308 |
|
|
193,738 |
|
|
46,236 |
|
|
46,005 |
|
|
45,780 |
|
|
Equity |
|
1,868,196 |
|
|
1,884,101 |
|
|
1,878,405 |
|
|
1,894,405 |
|
|
1,931,759 |
|
|
1,218,302 |
|
|
1,218,717 |
|
|
1,214,304 |
|
|
Revenues |
|
111,702 |
|
|
137,819 |
|
|
125,614 |
|
|
109,552 |
|
|
68,179 |
|
|
18,359 |
|
|
17,126 |
|
|
13,709 |
|
|
Net cash flows from operating
activities |
|
20,636 |
|
|
19,660 |
|
|
23,303 |
|
|
21,523 |
|
|
1,094 |
|
|
14,082 |
|
|
12,013 |
|
|
12,782 |
|
|
Impairment of Éléonore royalty, net of income
taxes |
|
- |
|
|
- |
|
|
- |
|
|
(65,415 |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
Net earnings (loss)
attributable to Osisko’s shareholders |
|
5,474 |
|
|
511 |
|
|
2,310 |
|
|
(64,348 |
) |
|
6,728 |
|
|
11,043 |
|
|
4,076 |
|
|
8,679 |
|
|
Basic and diluted net earnings (loss) per
share |
|
0.04 |
|
|
- |
|
|
0.01 |
|
|
(0.41 |
) |
|
0.05 |
|
|
0.10 |
|
|
0.04 |
|
|
0.08 |
|
|
Weighted average shares
outstanding (000’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic |
|
156,252 |
|
|
156,232 |
|
|
157,665 |
|
|
157,256 |
|
|
140,605 |
|
|
106,656 |
|
|
106,543 |
|
|
106,612 |
|
|
- Diluted |
|
156,263 |
|
|
156,257 |
|
|
157,695 |
|
|
157,256 |
|
|
140,837 |
|
|
106,771 |
|
|
106,628 |
|
|
106,675 |
|
|
Share price – TSX - closing(2) |
|
9.80 |
|
|
12.45 |
|
|
12.44 |
|
|
14.52 |
|
|
16.10 |
|
|
16.85 |
|
|
14.78 |
|
|
13.09 |
|
|
Share price – NYSE –
closing(3) |
|
7.59 |
|
|
9.47 |
|
|
9.67 |
|
|
11.56 |
|
|
12.91 |
|
|
12.22 |
|
|
11.10 |
|
|
9.72 |
|
|
Warrant price – TSX - closing(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OR.WT |
|
0.70 |
|
|
1.06 |
|
|
1.50 |
|
|
2.40 |
|
|
2.80 |
|
|
2.75 |
|
|
2.80 |
|
|
2.75 |
|
|
OR.WT.A |
|
0.10 |
|
|
0.39 |
|
|
0.61 |
|
|
1.41 |
|
|
2.45 |
|
|
2.65 |
|
|
2.20 |
|
|
2.25 |
|
|
Debenture price – TSX –
closing(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OR.DB |
|
99.00 |
|
|
100.25 |
|
|
100.00 |
|
|
104.50 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
Price of gold (average US$)
|
|
1,213 |
|
|
1,306 |
|
|
1,329 |
|
|
1,275 |
|
|
1,278 |
|
|
1,257 |
|
|
1,219 |
|
|
1,222 |
|
|
Closing exchange rate(6)
(US$/Can$) |
|
1.2945 |
|
|
1.3168 |
|
|
1.2894 |
|
|
1.2713 |
|
|
1.2480 |
|
|
1.3449 |
|
|
1.3322 |
|
|
1.3427 |
|
| (1) |
Unless otherwise noted, financial information in Canadian
dollars and prepared in accordance with IFRS. |
| (2) |
Osisko common shares began officially trading on the TSX
on June 16, 2014. |
| (3) |
In US$. Osisko common shares began officially trading on
the NYSE on July 6, 2016. US$13.35 was the opening price on July 6,
2016. |
| (4) |
Osisko warrants began trading on March 5, 2015 and
February 26, 2016. |
| (5) |
Osisko 4% convertible debentures began trading on
November 3, 2017 by tranche of nominal value of $100. |
| (6) |
Bank of Canada Daily Rate in 2017 and 2018 (Bank of
Canada Noon Rate in 2016). |
During the third quarter of 2018, Osisko received a notice from
Pretium in regards to its election to exercise its option to fully repurchase on
December 31, 2018 OBL’s interest in the Brucejack gold and silver stream for
US$118.5 million (approximately $153.4 million based on the September 30, 2018
foreign exchange rate). As a result, the asset was classified as held for sale
at September 30, 2018.
During the second quarter of 2018, Osisko acquired from
Victoria a 5% NSR royalty for $98.0 million on the Dublin Gulch property, of
which a first $48.0 million was paid in the second quarter and $14.7 million in
the third quarter, and subscribed to a private placement of 100 million common
shares of Victoria at a price of $0.50 per common share for $50.0 million.
During the fourth quarter of 2017, the Company recorded an
impairment charge of $89.0 million ($65.4 million, net of income taxes) on the
Éléonore NSR royalty.
31
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Outlook
Osisko’s 2018 outlook on royalty, stream and precious metal
offtake interests is based on publicly available forecasts, in particular the
forecasts for the Canadian Malartic mine published by Yamana and Agnico Eagle,
for the Éléonore mine published by Goldcorp, for the Renard mine published by
Stornoway, for the Brucejack mine published by Pretium, and for the Island Gold
mine published by Alamos. When publicly available forecasts on properties are
not available, Osisko obtains internal forecasts from the producers, which is
the case for the Sasa mine and the Mantos Blancos mine, or uses management’s
best estimate.
Total 2018 annual GEOs is forecast to be in-line with the
previously announced guidance of 77,500 to 82,500 GEOs.
For the 2018 guidance, silver, diamonds and cash royalties have
been converted to GEOs using commodity prices of US$1,300 per ounce of gold,
US$18 per ounce of silver and US$110 per carat for diamonds from the Renard mine
and an exchange rate (US$/C$) of 1.25
Related Party Transactions
During the three and nine months ended September 30, 2018 and
2017, the following amounts were invoiced by Osisko to associates for recoveries
of costs related to professional services and rental of offices and are
reflected as a reduction of general and administrative expenses and business
development expenses in the consolidated statements of income (in thousands of
dollars):
| |
|
Three months
ended |
|
|
Nine months
ended |
|
| |
|
|
|
|
September 30, |
|
|
|
|
|
September 30, |
|
| |
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
| |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
| Amounts invoiced to
associates as a reduction of: |
|
|
|
|
|
|
|
|
|
|
|
|
| General and administrative expenses |
|
306 |
|
|
385 |
|
|
1,112 |
|
|
1,286 |
|
| Business development
expenses |
|
997 |
|
|
628 |
|
|
2,911 |
|
|
1,624 |
|
| Total amounts invoiced to associates |
|
1,303 |
|
|
1,013 |
|
|
4,023 |
|
|
2,910 |
|
An amount of $3,069,000 (including sales taxes) is receivable
from associates and included in accounts receivable as at September 30, 2018
($1,245,000 as at December 31, 2017).
Additional transactions with related parties are described
under the sections Portfolio of Royalty, Stream and Other Interests and
Portfolio of investments.
32
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Contractual Obligations and Commitments
Investments in royalty and stream interests
As at September 30, 2018, the Company had commitments related
to the acquisition of royalties and streams as detailed in the following table:
| |
|
|
|
| Company |
Project (asset) |
Installments |
Triggering events |
| |
|
|
|
| |
|
|
|
| Aquila Resources Inc. |
Back Forty project
(gold stream) |
US$7.5 million |
Receipt of all material permits for development and
operations and positive feasibility study. |
| |
|
US$10.0 million |
Positive construction decision. |
| |
|
US$30.0 million |
First drawdown on debt finance facility. |
| |
|
|
|
| |
|
|
|
| Victoria Gold Corp. |
Eagle Gold project
(5% NSR royalty) |
$34.3 million |
Funded pro rata to drawdowns under the subordinated debt
facilities. |
| |
|
|
|
| Falco Resources Ltd. |
Horne 5 project
(silver stream) |
$25.0 million |
Closing of the silver stream agreement, net of any
amounts owing by Falco to Osisko. |
|
|
$20.0 million |
Receipt of all necessary material third-party approvals,
licenses, rights of way and surface rights on the property. |
|
|
$35.0 million |
Receipt of all material construction permits, positive
construction decision, and raising a minimum of $100.0 million in non-debt
financing. |
|
|
$60.0 million |
Upon total projected capital expenditure having been
demonstrated to be financed. |
|
|
$40.0 million
(optional) |
Payable with fourth installment, at sole election of
Osisko, to increase the silver stream to 100% of payable silver (from
90%). |
| |
|
|
|
| Barkerville Gold
Mines Ltd. |
Cariboo Gold project |
$13.0
million |
Barkerville has the option to sell an additional 1% NSR
royalty to Osisko for $13.0 million prior to December 31, 2018.
|
Long-term lease agreements
The Company is committed to minimum amounts under long-term
lease agreements for office space, which expire at the latest in 2029. As at
September 30, 2018, minimum commitments remaining under these leases were
approximately $13.2 million over the following years ending September 30:
| |
|
|
$ |
|
| |
|
|
(in thousands of dollars) |
|
| |
|
|
|
|
| |
2019 |
|
1,355 |
|
| |
2020 |
|
1,306 |
|
| |
2021 |
|
1,120 |
|
| |
2022 |
|
1,120 |
|
| |
2023-2029 |
|
8,280 |
|
| |
|
|
13,181 |
|
33
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Offtake and stream agreements
The following table summarizes the significant commitments to
pay for gold, silver and diamonds to which Osisko has the contractual right
pursuant to the associated precious metals and diamond purchase agreements:
| |
Attributable payable production |
|
Per ounce/carat |
|
|
|
| |
to be purchased (ounces or %) |
|
cash payment (US$) |
|
Term of |
Date of contract |
| Interest |
Gold |
Silver |
Diamond |
Gold |
Silver |
Diamond |
agreement |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Amulsar stream(1) |
4.22% |
62.5% |
|
$400 |
$4 |
|
40 years |
Nov. 30, 2015 |
| |
|
|
|
|
|
|
|
|
| Amulsar offtake (2) |
81.91% |
|
|
Based on quotational period |
|
|
Until delivery of 2,110,425 ounces Au |
Nov. 30, 2015 |
| |
|
|
|
|
|
|
|
|
| Back Forty stream |
18.5% (3) |
75% |
|
30% spot price
(max $600) |
$4 |
|
Life of mine |
Mar. 31, 2015 |
| |
|
|
|
|
|
|
|
|
| Brucejack offtake (4) |
50% |
|
|
Based on quotational period |
|
|
Until delivery of 7,067,000 ounces Au(5)
|
Sep. 21, 2015 |
| |
|
|
|
|
|
|
|
|
| Brucejack stream (4) |
4% |
4% |
|
$400 |
$4 |
|
Until delivery of 7,067,000 ounces Au(5)
|
Sep. 21, 2015 |
| |
|
|
|
|
|
|
|
|
| Mantos stream(6) |
|
100% |
|
|
25% spot |
|
Life of mine |
Sep. 11, 2015 |
| |
|
|
|
|
|
|
|
|
| Renard stream (7) |
|
|
9.6% |
|
|
Higher of 40% of spot price or $40 |
40 years |
Jul. 8, 2014 |
| |
|
|
|
|
|
|
|
|
| Sasa stream(8) |
|
100% |
|
|
$5 |
|
40 years |
Nov. 3, 2015 |
| |
|
|
|
|
|
|
|
|
| Gibraltar
stream(9) |
|
100%
|
|
|
$2.75 |
|
Life
of mine |
Mar.
3, 2017 |
| |
(1) |
Stream capped at 89,034 ounces of gold and 434,093 ounces
of silver delivered. Subject to multiple buy-down options: 50% for $34.4
million and $31.3 million on 2nd and 3rd anniversary
of commercial production, respectively, which is currently expected to be
in the second half of 2018. 1% inflation price escalation after 3rd
anniversary of commercial production. |
| |
(2) |
Offtake percentage will increase to 84.87% if Lydian
elects to reduce the gold stream as outlined above. The Amulsar offtake
applies to the sales from the first 2,110,425 ounces of refined gold, of
which 1,853,751 ounces are attributable to OBL (less any ounces delivered
pursuant to the Amulsar stream). |
| |
(3) |
The gold stream will be reduced to 9.25% after the
delivery of 105,000 gold ounces. |
| |
(4) |
Stream subject to multiple buyback/buydown options:
December 31, 2018 buyback for US$118.5 million or buydown for US$75
million + 1.5% ongoing stream; December 31, 2019 buyback for US$136
million or buydown for US$75 million + 2% ongoing stream. If
buyback/buydown not exercised by December 31, 2019, US$10 million
make-whole payment + 4% ongoing stream. In September 2018, OBL received a
notice from the operator of the Brucejack gold mine in regards to its
election to exercise its option to fully repurchase Osisko’s interest in
the Brucejack gold and silver stream by making a payment of US$118.5
million (approximately $153.4 million based on the September 30, 2018
foreign exchange rate) on December 31, 2018. |
| |
(5) |
The Brucejack offtake and stream applies to the sales
from the first 7,067,000 ounces of refined gold, of which 3,533,500 ounces
are attributable to OBL (ounces delivered under the offtake and the stream
are included in the limit). |
| |
(6) |
The stream percentage shall be payable on 100% of silver
until 19,300,000 ounces have been delivered, after which the stream
percentage will be 30%. |
| |
(7) |
The stream term shall be automatically extended beyond
the initial term for successive 10-year periods. The Renard stream was
amended in October 2018 as previously discussed in the MD&A. |
| |
(8) |
The stream term shall be automatically extended beyond
initial term for successive 10-year periods. 3% or consumer price index
(CPI) per ounce price escalation after 2016. |
| |
(9) |
Under the silver stream, Osisko will make ongoing
payments of US$2.75 per ounce of silver delivered. Osisko will receive
from Taseko an amount equal to 100% of Gibco’s share of silver production
until reaching the delivery to Osisko of 5.9 million ounces of silver, and
35% of Gibco’s share of silver production
thereafter. |
Off-balance Sheet Items
There are no significant off-balance sheet arrangements.
34
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Outstanding Share Data
As of November 6, 2018, 156,410,831 common shares were issued
and outstanding. A total of 4,331,980 share options and 11,195,500 warrants were
outstanding to purchase common shares. A convertible debenture of $50.0 million
with Ressources Québec entitles the holder to convert the debenture, at its
option, into 2,620,545 common shares of the Company (conversion price of $19.08)
at any time during the term of the debenture. Convertible senior unsecured
debentures of $300 million are outstanding and convertible at the holder’s
option into Osisko common shares at a conversion price of $22.89 per common
share, representing a total of 13,106,160 common shares if all the debentures
were converted.
Subsequent Events to September 30, 2018
Renard stream
On October 2, 2018, Osisko has entered into an amended and
restated purchase and sale agreement with Stornoway in relation to the Renard
Stream. The modifications are detailed under the Portfolio of Royalty, Stream
and Offtake Interests section of this MD&A.
Dividends
On November 6, 2018, the Board of Directors declared a
quarterly dividend of $0.05 per common share payable on January 15, 2019 to
shareholders of record as of the close of business on December 31, 2018.
Risks and Uncertainties
The Company is a royalty, stream, and offtake interests holder
and investor that operates in an industry that is dependent on a number of
factors that include environmental, legal and political risks, the discovery of
economically recoverable resources and the conversion of these mineral resources
to mineral reserves and the ability of third-party partners to maintain an
economic production. An investment in the Company’s securities is subject to a
number of risks and uncertainties. An investor should carefully consider the
risks described in Osisko’s most recent Annual Information Form and the other
information filed with the Canadian securities regulators and the U.S Securities
and Exchange Commission (“SEC”) before investing in the Company's securities. If
any of such described risks occur, or if others occur, the Company's business,
operating results and financial condition could be seriously harmed and
investors may lose a significant proportion of their investment.
There are important risks which management believes could
impact the Company’s business. For information on risks and uncertainties,
please also refer to the “Risk Factors” section of Osisko’s most recent Annual
Information Form filed on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
Disclosure Controls and Procedures and Internal Control over
Financial Reporting
Disclosure Controls and Procedures
The Chief Executive Officer (the “CEO”) and the Chief Financial
Officer (the “CFO”) of the Company are responsible for establishing and
maintaining the Company’s disclosure controls and procedures (“DCP”) including
adherence to the Disclosure Policy adopted by the Company. The Disclosure Policy
requires all staff to keep senior management fully apprised of all material
information affecting the Company so that they may evaluate and discuss this
information and determine the appropriateness and timing for public disclosure.
The Company maintains DCP designed to ensure that information
required to be disclosed in reports filed under applicable Canadian securities
laws and the U.S. Securities Exchange Act of 1934, as amended, (the “Exchange
Act”), is recorded, processed, summarized and reported within the appropriate
time periods and that such information is accumulated and communicated to the
Company’s management, including the CEO and CFO, to allow for timely decisions
regarding required disclosure.
The CEO and CFO have evaluated whether there were changes to
the DCP during the three and nine months ended September 30, 2018 that have
materially affected, or are reasonably likely to materially affect, the DCP. No
such changes were identified through their evaluation.
35
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
In designing and evaluating DCP, the Company recognizes that
any disclosure controls and procedures, no matter how well conceived or
operated, can only provide reasonable, not absolute, assurance that the
objectives of the control system are met, and management is required to exercise
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures.
Internal Control over Financial Reporting
The Company’s management, including the CEO and the CFO, are
responsible for establishing and maintaining adequate internal control over
financial reporting (“ICFR”) for the Company to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with IFRS. The
fundamental issue is ensuring all transactions are properly authorized and
identified and entered into a well-designed, robust and clearly understood
accounting system on a timely basis to minimize risk of inaccuracy, failure to
fairly reflect transactions, failure to fairly record transactions necessary to
present financial statements in accordance with IFRS, unauthorized receipts and
expenditures, or the inability to provide assurance that unauthorized
acquisitions or dispositions of assets can be detected.
The CEO and CFO have evaluated whether there were changes to
the ICFR during the three and nine months ended September 30, 2018 that have
materially affected, or are reasonably likely to materially affect, the ICFR. No
such changes were identified through their evaluation.
The Company’s ICFR may not prevent or detect all misstatements
because of inherent limitations. Additionally, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because changes in conditions or deterioration in the degree of
compliance with the Company’s policies and procedures.
Basis of Presentation of Consolidated Financial Statements
The unaudited condensed interim consolidated financial
statements for the three and nine months ended September 30, 2018 have been
prepared in accordance with the IFRS as issued by the IASB applicable to the
preparation of interim financial statements, including International
Accounting Standard (“IAS”) 34, Interim Financial Reporting. The
unaudited condensed interim consolidated financial statements should be read in
conjunction with the Company’s annual consolidated financial statements for the
year ended December 31, 2017, which have been prepared in accordance with IFRS
as issued by the IASB. The accounting policies, methods of computation and
presentation applied in these condensed interim consolidated financial
statements are consistent with those of the previous financial year, except for
the adoption of new accounting standards (presented below) and the presentation
of the general and administrative expenses and the business development
expenses, which are now presented net of the cost recoveries from associates
instead of the cost recoveries from associates being presented on a separate
line on the consolidated statements of income (cost recoveries from associates).
The comparative figures have been reclassified to conform to the presentation
adopted in the current fiscal year.
The significant accounting policies of Osisko are detailed in
the notes to the audited consolidated financial statements for the year ended
December 31, 2017 and the unaudited condensed interim consolidated financial
statements for the three and nine months ended September 30, 2018 (for the new
revenue recognition policy and the assets held for sale policy, which is also
disclosed below), both filed on SEDAR at www.sedar.com, EDGAR at www.sec.gov and on Osisko’s website at www.osiskogr.com.
IFRS 15, Revenue from contracts with
customers (“IFRS 15”)
IFRS 15 replaces all previous revenue recognition standards,
including IAS 18, Revenue, and related interpretations. The standard sets
out the requirements for recognizing revenue. Specifically, the new standard
introduces a comprehensive framework with the general principle being that an
entity recognizes revenue to depict the transfer of promised goods and services
in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. The standard introduces more
prescriptive guidance than was included in previous standards and may result in
changes to the timing of revenue for certain types of revenues. The new standard
will also result in enhanced disclosures about revenue that would result in an
entity providing comprehensive information about the nature, amount, timing and
uncertainty of revenue and cash flows arising from the entity’s contracts with
customers. As of January 1, 2018, the Company has adopted IFRS 15 on a full
retrospective basis and as such, has revised its revenue recognition policy
based on the requirements of IFRS 15. Management has concluded that, based on
its current operations, the adoption of IFRS 15 had no significant impact on the
Company’s consolidated financial statements.
36
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
IFRIC 22, Foreign currency transactions and
advance consideration (“IFRIC 22”)
IFRIC 22 addresses foreign currency transactions or parts of
transactions where there is consideration that is denominated or priced in a
foreign currency and where the entity recognizes a non-monetary asset or
liability in respect of that consideration, in advance of the recognition of the
related asset, expense or income. The date of the transaction, for the purpose
of determining the exchange rate, is the date of initial recognition of the
non-monetary asset or liability. If there are multiple payments or receipts in
advance, a date of transaction is established for each payment or receipt. As of
January 1, 2018, the Company has adopted IFRIC 22 retrospectively and has
concluded that, based on its current operations, it had no significant impact on
the Company’s consolidated financial statements.
New significant accounting policies
Non-current assets held for sale
Non-current assets are classified as held for sale if their
carrying amount will be recovered principally through a sale transaction rather
than through continuing use and a sale is considered highly probable within the
next twelve months. They are measured at the lower of their carrying amount and
fair value less costs to sell, except for assets such as deferred tax assets and
financial assets that are carried at fair value.
An impairment loss is recognized for any initial or subsequent
write-down of the asset to fair value less costs to sell. A gain is recognized
for any subsequent increases in fair value less costs to sell of an asset, but
not in excess of any cumulative impairment loss previously recognized. A gain or
loss not previously recognized by the date of the sale of the non-current asset
is recognized at the date of derecognition.
Non-current assets are not depreciated or amortized while they
are classified as held for sale. Non-current assets classified as held for sale
are presented separately from the other assets in the consolidated balance
sheet.
Revenue recognition
Revenue comprises revenues from the sale of commodities
received and revenues directly earned from royalty, stream and other
interests.
For royalty and stream agreements paid in-kind and for offtake
agreements, the Company’s performance obligations relate primarily to the
delivery of gold, silver or other products to the customers. Revenue is
recognized when control is transferred to the customers, which is achieved when
a product is delivered, the customer has full discretion over the product and
there is no unfulfilled obligation that could affect the customer’s acceptance
of the product. Control over the refined gold, silver and other products is
transferred to the customers when the relevant product received (or purchased)
from the operator is physically delivered and sold by the Company (or its agent)
to the third party customers. For royalty and stream agreements paid in cash,
revenue recognition will depend on the related agreement.
Revenue is measured at fair value of the consideration received
or receivable when management can reliably estimate the amount, pursuant to the
terms of the royalty, stream and other interest agreements. In some instances,
the Company will not have access to sufficient information to make a reasonable
estimate of revenue and, accordingly, revenue recognition is deferred until
management can make a reasonable estimate. Differences between estimates and
actual amounts are adjusted and recorded in the period that the actual amounts
are known.
Critical Accounting Estimates and Judgements
Estimates and assumptions are continually evaluated and are
based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances. The
determination of estimates requires the exercise of judgement based on various
assumptions and other factors such as historical experience and current and
expected economic conditions. Actual results could differ from those estimates.
Critical judgements in applying the Company’s accounting
policies are detailed in the audited consolidated financial statements for the
year ended December 31, 2017, both filed on SEDAR at www.sedar.com, EDGAR at www.sec.gov and on Osisko’s website at www.osiskogr.com.
37
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Financial Instruments
All financial instruments are required to be measured at fair
value on initial recognition. The fair value is based on quoted market prices,
unless the financial instruments are not traded in an active market. In this
case, the fair value is determined by using valuation techniques like the
Black-Scholes option pricing model or other valuation techniques. Measurement in
subsequent periods depends on the classification of the financial instrument. A
description of financial instruments and their fair value is included in the
audited consolidated financial statements for the year ended December 31, 2017
and in the unaudited condensed interim consolidated financial statements for the
three and nine months ended September 30, 2018, both filed on SEDAR at www.sedar.com, EDGAR at www.sec.gov and on Osisko’s website at www.osiskogr.com.
Non-IFRS Financial Performance Measures
The Company has included certain non-IFRS measures including
“Adjusted Earnings” and “Adjusted Earnings per basic share” to
supplement its consolidated financial statements, which are presented in
accordance with IFRS.
The Company believes that these measures, together with
measures determined in accordance with IFRS, provide investors with an improved
ability to evaluate the underlying performance of the Company. Non-IFRS measures
do not have any standardized meaning prescribed under IFRS, and therefore they
may not be comparable to similar measures employed by other companies. The data
is intended to provide additional information and should not be considered in
isolation or as a substitute for measures of performance prepared in accordance
with IFRS.
Adjusted Earnings and Adjusted Earnings per Basic Share
“Adjusted earnings” is defined as “Net earnings (loss)
attributable to Osisko’s shareholders” less certain items: “Foreign exchange
gain (loss)”, “Impairment charges”, “Gains (losses) on disposal of evaluation
and evaluation assets”, “Write-off of assets”, “Unrealized gain (loss) on
investments”, “Impairment on financial assets and investments in associates”,
“Share of income (loss) of associates”, “Deferred income tax expense” and other
unusual items such as transaction costs.
Adjusted earnings per basic share is obtained from the
“adjusted earnings” divided by the “Weighted average number of common shares
outstanding” for the period.
| |
|
Three months ended |
|
|
Nine months ended |
|
| |
|
|
|
|
September 30, |
|
|
|
|
|
September 30, |
|
| |
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands of dollars, except
per share amounts) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Net earnings attributable to Osisko’s shareholders |
|
5,474 |
|
|
6,728 |
|
|
8,295 |
|
|
21,847 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
| Foreign exchange loss |
|
153 |
|
|
7,920 |
|
|
564 |
|
|
15,448 |
|
| Unrealized gain on investments
|
|
(5,781 |
)
|
|
(14,714 |
) |
|
(1,580 |
)
|
|
(31,336 |
) |
| Share of loss (income) of
associates |
|
4,139 |
|
|
(329 |
) |
|
6,558 |
|
|
2,632 |
|
| Loss on disposal of
exploration and evaluation assets |
|
- |
|
|
- |
|
|
- |
|
|
(20 |
) |
| Deferred income tax expense |
|
1,742 |
|
|
559 |
|
|
4,484 |
|
|
4,303 |
|
| Transaction costs |
|
- |
|
|
7,805 |
|
|
- |
|
|
8,870 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Adjusted earnings |
|
5,727 |
|
|
7,969 |
|
|
18,321 |
|
|
21,744 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average number of common shares
outstanding (000’s) |
|
156,252 |
|
|
140,605 |
|
|
156,711 |
|
|
118,059 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Adjusted earnings per basic share |
|
0.04 |
|
|
0.06 |
|
|
0.12 |
|
|
0.18 |
|
38
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Forward-looking Statements
Certain statements contained in this MD&A may be deemed
"forward-looking statements" within the meaning of applicable Canadian and U.S.
securities laws. All statements in this MD&A, other than statements of
historical fact, that address future events, developments or performance that
Osisko expects to occur including management’s expectations regarding Osisko’s
growth, results of operations, estimated future revenues, requirements for
additional capital, mineral reserve and mineral resource estimates, production
estimates, production costs and revenue estimates, future demand for and prices
of commodities, business prospects and opportunities and outlook on gold,
silver, diamonds, other commodities and currency markets are forward-looking
statements. In addition, statements (including data in tables) relating to
mineral reserves and resources and gold equivalent ounces are forward-looking
statements, as they involve implied assessment, based on certain estimates and
assumptions, and no assurance can be given that the estimates will be realized.
Forward-looking statements are statements that are not historical facts and are
generally, but not always, identified by the words "expects", "plans",
"anticipates", "believes", "intends", "estimates", "projects", "potential",
"scheduled" and similar expressions or variations (including negative
variations), or that events or conditions "will", "would", "may", "could" or
"should" occur including, without limitation, the performance of the assets of
Osisko, the estimate of gold equivalent ounces to be received in 2018, the
realization of the anticipated benefits deriving from Osisko’s investments and
transactions, including the realization of all conditions precedent to the
closing of the investment in Falco Resources Ltd.’s Horne 5 gold project, the
realization of all conditions precedent to the exercise by Pretium Exploration
Inc. of its option to fully repurchase Osisko’s Brucejack gold and silver stream
in a timely manner, and Osisko’s ability to seize future opportunities. Although
Osisko believes the expectations expressed in such forward-looking statements
are based on reasonable assumptions, such statements involve known and unknown
risks, uncertainties and other factors, most of which are beyond the control of
Osisko, and are not guarantees of future performance and actual results may
accordingly differ materially from those in forward-looking statements. Factors
that could cause the actual results to differ materially from those in
forward-looking statements include, without limitation: fluctuations in the
prices of the commodities that drive royalties, streams, offtakes and
investments held by Osisko; fluctuations in the value of the Canadian dollar
relative to the U.S. dollar; regulatory changes by national and local
governments, including permitting and licensing regimes and taxation policies;
regulations and political or economic developments in any of the countries where
properties in which Osisko holds a royalty, stream or other interest are located
or through which they are held; risks related to the operators of the properties
in which Osisko holds a royalty, stream or other interests; the unfavorable
outcome of litigation relating to any of the properties in which Osisko holds a
royalty, stream or other interests; business opportunities that become available
to, or are pursued by Osisko; continued availability of capital and financing
and general economic, market or business conditions; litigation; title, permit
or license disputes related to interests on any of the properties in which
Osisko holds a royalty, stream or other interest; development, permitting,
infrastructure, operating or technical difficulties on any of the properties in
which Osisko holds a royalty, stream or other interest; rate and timing of
production differences from resource estimates or production forecasts by
operators of properties in which Osisko holds a royalty, stream or other
interest; risks and hazards associated with the business of exploring,
development and mining on any of the properties in which Osisko holds a royalty,
stream or other interest, including, but not limited to unusual or unexpected
geological and metallurgical conditions, slope failures or cave-ins, flooding
and other natural disasters or civil unrest or other uninsured risks. The
forward-looking statements contained in this MD&A are based upon assumptions
management believes to be reasonable, including, without limitation: the ongoing
operation of the properties in which Osisko holds a royalty, stream or other
interest by the owners or operators of such properties in a manner consistent
with past practice; the accuracy of public statements and disclosures made by
the owners or operators of such underlying properties; no material adverse
change in the market price of the commodities that underlie the asset portfolio;
no adverse development in respect o f any significant property in which Osisko
holds a royalty, stream or other interest; the accuracy of publicly disclosed
expectations for the development of underlying properties that are not yet in
production; and the absence of any other factors that could cause actions,
events or results to differ from those anticipated, estimated or intended. For
additional information on risks, uncertainties and assumptions, please refer to
the Annual Information Form of Osisko filed on SEDAR at www.sedar.com and EDGAR
at www.sec.gov which also provides additional general assumptions in connection
with these statements. Osisko cautions that the foregoing list of risk and
uncertainties is not exhaustive. Investors and others should carefully consider
the above factors as well as the uncertainties they represent and the risk they
entail. Osisko believes that the assumptions reflected in those forward-looking
statements are reasonable, but no assurance can be given that these expectations
will prove to be correct and such forward-looking statements included in this
MD&A should not be unduly relied upon. These statements speak only as of the
date of this MD&A. Osisko undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise, other than as required by applicable law.
39
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Cautionary Note to U.S. Investors Regarding the Use of
Mineral Reserve and Mineral Resource Estimates
Osisko is subject to the reporting requirements of the
applicable Canadian securities laws, and as a result reports its mineral
reserves according to Canadian standards. Canadian reporting requirements for
disclosure of mineral properties are governed by National Instrument 43-101,
Standards of Disclosure for Mineral Properties (“NI 43-101"). The
definitions of NI 43-101 are adopted from those given by the Canadian Institute
of Mining, Metallurgy and Petroleum (“CIM”). U.S. reporting requirements are
governed by the SEC’s Industry Guide 7 (“Guide 7”). This MD&A includes
estimates of mineral reserves and mineral resources reported in accordance with
NI 43-101. These reporting standards have similar goals in terms of conveying an
appropriate level of confidence in the disclosures being reported, but embody
different approaches and definitions. For example, under Guide 7, mineralization
may not be classified as a “reserve” unless the determination has been made that
the mineralization could be economically and legally produced or extracted at
the time the reserve determination is made. Consequently, the definitions of
“Proven Mineral Reserves” and “Probable Mineral Reserves” under CIM standards
differ in certain respects from the standards of the SEC. Osisko also reports
estimates of “mineral resources” in accordance with NI 43-101. While the terms
“Mineral Resource,” “Measured Mineral Resource,” “Indicated Mineral Resource”
and “Inferred Mineral Resource” are recognized by NI 43-101, they are not
defined terms under standards of the SEC and, generally, U.S. companies are not
permitted to report estimates of mineral resources of any category in documents
filed with the SEC. As such, certain information contained in this MD&A
concerning descriptions of mineralization and estimates of mineral reserves and
mineral resources under Canadian standards is not comparable to similar
information made public by United States companies subject to the reporting and
disclosure requirements of the SEC. Readers are cautioned not to assume that all
or any part of Measured Mineral Resources or Indicated Mineral Resources will
ever be converted into Mineral Reserves. Readers are also cautioned not to
assume that all or any part of an Inferred Mineral Resource exists, or is
economically or legally mineable. Further, an “Inferred Mineral Resource” has a
great amount of uncertainty as to its existence and as to its economic and legal
feasibility, and a reader cannot assume that all or any part of an Inferred
Mineral Resource will ever be upgraded to a higher category. Under Canadian
rules, estimates of Inferred Mineral Resources may not form the basis of
feasibility or other economic studies.
| (Signed) Sean Roosen |
(Signed) Elif Lévesque
|
| Sean Roosen |
Elif Lévesque |
| Chair and Chief Executive Officer |
Vice President, Finance and Chief Financial
Officer |
| |
|
| November 6, 2018 |
|
40
Osisko Gold Royalties Ltd
2018
– Third Quarter Report |
Management’s Discussion and
Analysis
|
|
Corporate Information
| Corporate Office |
Osisko Bermuda Limited |
| 1100 av. des Canadiens-de-Montréal |
Cumberland House |
| Suite 300 |
1 Victoria Street |
| Montréal, Québec, Canada H3B 2S2 |
Hamilton HM11 |
| Tel.: (514) 940-0670 |
Bermuda |
| Fax: (514) 940-0669 |
Tel.: (441) 824-7474 |
| Email: info@osiskogr.com
|
Fax: (441) 292-6140 |
| Web site: www.osiskogr.com |
|
| |
Michael Spencer, Managing Director |
| |
|
| |
|
| |
|
| Directors |
Officers |
| Sean Roosen, Chair and Chief Executive Officer |
Sean Roosen, Chair and Chief Executive Officer
|
| Joanne Ferstman, Lead Director |
Bryan A. Coates, President |
| Françoise Bertrand |
Luc Lessard, Senior Vice President, Technical
Services |
| John Burzynski |
Elif Lévesque, Vice President, Finance and
Chief |
| Pierre D. Chenard |
Financial Officer |
| Christopher C. Curfman |
Joseph de la Plante, Vice President, Corporate
Development |
| André Gaumond |
André Le Bel, Vice President, Legal Affairs and
|
| Pierre Labbé |
Corporate Secretary |
| Oskar Lewnowski |
Frédéric Ruel, Vice President and Corporate
Controller |
| Charles E. Page |
François Vézina, Vice President, Technical
Services |
Qualified Person (as defined by NI 43-101)
Guy Desharnais, Director of Mineral Resources Evaluation
| Exchange listings |
|
| Toronto Stock Exchange |
|
|
- Common shares: |
OR |
|
- Warrants: |
OR.WT (Exercise price: $36.50 / Expiry date:
March 5, 2022) |
| |
OR.WT.A (Exercise price: $19.08 / Expiry date:
February 25, 2019) |
|
- Convertible debentures: |
OR.DB (Conversion price: $22.89 / Maturity
date: December 31, 2022) |
| |
|
| New York Stock Exchange |
|
|
- Common shares: |
OR |
Dividend Reinvestment Plan
Information available at
http://osiskogr.com/en/dividends/drip/
Transfer Agents
Canada: AST Trust Company (Canada)
United States of America: American Stock Transfer & Trust Company, LLC
Auditors
PricewaterhouseCoopers
LLP/s.r.l./s.e.n.c.r.l.
41
