Osisko reports fourth quarter and year 2014 results

 
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(Montreal, February 18, 2014) Osisko Gold Royalties (the “Company” or “Osisko”) (OR: TSX) reported today a fourth quarter net loss1 of $2.2 million ($0.04 per share) and adjusted earnings2 of $3.1 million ($0.06 per share). For 2014, Osisko reported a net loss1 of $2.1 million ($0.05 per share) and adjusted earnings2 of $10.1 million ($0.22 per share).

Highlights – 2015

  • Completed the friendly acquisition of Virginia Mines Inc.; and
  • Completed a private placement of $200 million.

Highlights – fourth quarter

  • Revenues of $7.6 million (Q4 2013 – nil);
  • 5,010 gold ounces earned (Q4 2013 – nil) and 5,484 ounces sold (Q4 2013 – nil);
  • 4,902 silver ounces earned (Q4 2013 – nil) and 5,392 ounces sold (Q4 2013 – nil);
  • Net loss1 of $2.2 million, $0.04 per share (Q4 2013 – net loss1 of $8.5 million, $0.19 per share);
  • Adjusted earnings2 of $3.1 million, $0.06 per share2 (Q4 2013 – adjusted earnings2 and adjusted earnings per share2 of nil);
  • Net cash flows provided by operating activities1,3 of $2.6 million (Q4 2013 – negative $1.3 million);
  • $42 million private placement of common shares;
  • $100 million revolving credit facility obtained with possibility to increase by $50 million; and
  • Declaration of a first quarterly dividend of $0.03 per common share paid on January 15, 2015 to shareholders of record as of the close of business on December 31, 2014.

Highlights – 2014

  • Revenues of $17.2 million (2013 – nil);
  • 12,327 gold ounces earned and sold (2013 – nil);
  • 11,915 silver ounces earned and sold (2013 – nil);
  • Net loss1 of $2.1 million, $0.05 per share (2013 – net loss1 of $28.7 million, $0.66 per share);
  • Adjusted earnings2 of $10.1 million, $0.22 per share2 (2013 – adjusted earnings2 and adjusted earnings per share2 of nil);
  • Net cash flows provided by operating activities1, 3of $5.9 million (2013 – negative $6.7 million); and
  • Divesture of Canadian Malartic mining assets and Hammond Reef and Kirkland Lake exploration assets through friendly transaction with Yamana Gold Inc. and Agnico Eagle Mines Limited.

Sean Roosen, Chair and CEO, commenting on the quarter activities: “Osisko is very pleased to provide fourth quarter results and year 2014 results.  In less than 8 months as a royalty company, our core team closed a friendly business acquisition with Virginia creating an intermediate gold royalty company with two world-class Canadian gold royalty assets and a market capitalization of $1.5 billion after considering the $200 million private placement recently closed. We also secured an important credit line of $100 million and completed two private placements totaling $42 million with two major Québec-based institutional investors. These financings will give the company additional financial flexibility to pursue its growth strategy. In addition, in December, we initiated a quarterly dividend program and declared our first quarterly dividend of $0.03 per share.”

Fourth Quarter and Year 2014 Results

During the fourth quarter of 2014, Osisko’s net loss from continuing operations amounted to $2.2 million (net loss per share of $0.04) compared to net loss from continuing operations of $8.5 million in 2013 (net loss per share of $0.19). Net loss for the quarter reflects $7.6 million in revenues from the sale of gold and silver from the 5% Net Smelter Return (“NSR”) royalty received from the Canadian Malartic mine. A change of refiner by the owners of the Canadian Malartic mine increased the delay between the shipment to the refinery and the credit to Osisko’s account and, as a result, a total of 1,881 ounces of gold arising from the 5% NSR royalty were only received in Osisko’s account in January 2015. The market value of these 1,881 gold ounces amounts to US$2,268,000 (C$2,631,000) using the London PM fixing on December 30, 2014 of US$1,206/oz.

For the year 2014, Osisko’s net loss from continuing operations amounted to $2.1 million (net loss per share of $0.05) compared to net loss of $28.7 million in 2013 (net loss per share of $0.66). Revenues in 2014 amounted to $17.2 from the sale of gold and silver from the 5% NSR royalty received from the Canadian Malartic mine compared to nil in 2013.

Acquisition of Virginia Mines Inc.

On February 17, 2015, Osisko closed the acquisition of Virginia Mines Inc. (“Virginia”), a mining exploration company active in Northern Quebec that held a 2.0% to 3.5% royalty on the Éléonore gold property operated by Goldcorp Inc., resulting in the issuance of 29,964,240 common shares of Osisko to Virginia shareholders.

The combination of Osisko and Virginia creates an intermediate gold royalty company with two world-class Canadian gold royalty assets. It diversifies the portfolio of assets in low geopolitical risk locations and improves the financial position of the combined company.

As part of the transaction, two major Québec-based institutional investors participated in private placements totalling $70 million ($42 million to Osisko and $28 million to Virginia). Osisko also granted the institutional shareholders a 15% right to participate in any future royalty or revenue stream acquired by Osisko under the same terms and conditions as Osisko. The right to participate provides the Company with additional financial capacity to pursue its growth opportunities.

The Virginia acquisition brings several benefits to Osisko including:

  1. Diversification of revenues with the addition of the Éléonore royalty from the world-class Éléonore mine operated by Goldcorp Inc. which is expected to achieve commercial production in the first quarter of 2015;
  2. Increases the optionality to additional gold reserves at the Éléonore mine and from various projects in the emerging James Bay Camp;
  3. Exposure to new base metals with the Coulon Project;
  4. Portfolio of non-producing royalties; and
  5. First-rate exploration team focused on the James Bay area of the Province of Québec.

Production at the Éléonore mine for 2015 is expected to be between 290,000 and 330,000 gold ounces. Goldcorp Inc. expects to reach commercial production by the end of the first quarter of 2015. The ramp-up from 3,500 tonnes per day to the design throughput of 7,000 tonnes per day remains on track for the first half of 2018. Exploration drilling during 2015 will focus on expanding reserves in the lower portion of the mine.

For more information, refer to the press release of Goldcorp Inc. dated January 12, 2015 and filed on SEDAR (www.sedar.com).

Royalty Interests

Canadian Malartic

The Company’s cornerstone asset is a 5% NSR royalty on the Canadian Malartic property which is located in Malartic, Québec, and which is now operated by the Canadian Malartic General Partnership created by Agnico Eagle Mines Limited (“Agnico Eagle”) and Yamana Gold Inc. (“Yamana”) (collectively the “Operators”).

The Operators indicated that the Canadian Malartic mill processed an average 53,232 tonnes per day in the fourth quarter of 2014, which was a new quarterly record. The Operators also indicated that they are looking at various ways to optimize operations at the Canadian Malartic mine. The current crushing circuit has a nameplate capacity of 55,000 tonnes per day.  Throughput levels are forecast to be approximately 52,500 tonnes per day in the first half of 2015, increasing to approximately 55,000 tonnes per day in the second half of 2015.

The Operators expect gold production of 560,000 ounces in 2015.

The Operators indicated that ounce reconciliation with the block model continues to be positive (3% to 4% higher), thus providing an opportunity for additional production flexibility going forward.

For more information, refer to the press releases of Yamana and Agnico Eagle dated February 11, 2015 filed on SEDAR (www.sedar.com).

In August 2014 Agnico Eagle and Yamana released updated mineral reserve and resource estimates as at June 15, 2014 for the Canadian Malartic mine. Proven and probable in-pit mineral reserves were estimated at 8.9 million ounces of gold based on a US$1,300 per ounce engineered pit design, a cut-off grade between 0.28 g/t and 0.35 g/t gold, and C$/US$ exchange rate of 1.10.

The reserve base is presented in the table below:

Reserve and resource estimates with cut-off grade between 0.28 to 0.35 g/t Au

Category Tonnes
(M)		 Grade
(g/t Au)		 Au
(M oz)
Proven Reserves 57.6 0.91 1.69
Probable Reserves 205.6 1.10 7.26
Proven & Probable Reserves 263.2 1.06 8.94
Measured and Indicated Resources(1) 314.2 1.07 10.80
Inferred Resources 46.5 0.77 1.14
  • Includes proven & probable reserves

For more information, please refer to Agnico Eagle and Yamana NI-43-101 Technical Reports filed on SEDAR (www.sedar.com) on August 13 and 14, 2014 respectively.

Upper Beaver and Kirkland Lake Properties

Osisko owns a 2% NSR royalty on the Upper Beaver project and on the Kirkland Lake properties, which are currently being jointly operated by Agnico Eagle and Yamana through the Canadian Malartic Corporation.

The Operators indicated that they have spent $8.15 million from June 16 to December 31, 2014 on their exploration properties with a focus on the Upper Beaver project in Kirkland Lake and the Pandora property, which adjoins Agnico Eagle’s Lapa mine. Activities included the compilation of historical work at the various Kirkland Lake properties and an update of the resource base at the Upper Beaver project. The updated resources are scheduled to be incorporated into a study that will evaluate potential production scenarios at Upper Beaver.

Work at Upper Beaver focused on testing for near surface mineralization, and several holes were drilled to test for mineralization below the current intercepts that encountered high-grade intervals at depths below 1,500 metres. Near surface drilling outlined a small, potentially open-pit resource. Drilling at depth below 1,500 metres encountered mineralization that is comparable in grade and width to that obtained by previous operators.

The Operators indicated that the proposed budget for Kirkland Lake in 2015 is approximately $6.7 million.

For more information, refer to the press releases of Yamana and Agnico Eagle dated February 11, 2015 filed on SEDAR (www.sedar.com).

Other

The Company owns a 2% NSR royalty on the Hammond Reef Project, which is located near Atikokan in Ontario. The Company also owns royalty interests on various other Canadian properties that were held by Osisko Mining Corporation including a 2% NSR royalty on the Pandora property, which is located near Agnico Eagle’s Lapa Mine near Cadillac, Québec.

The Operators indicated that at Pandora, seven holes were drilled to test the near surface North Branch zone, and five drill holes were completed from the 101-W Exploration drift at the adjacent Lapa mine to test the mineralization at the South Branch target. Results from the shallow drilling have validated some of the historic results from previous operators and a follow up drill program is being evaluated. At depth, the 101-W drift is scheduled to be extended starting in February with diamond drilling expected to resume at the end of the second quarter of 2015.

The Operators indicated that the proposed budget for Pandora in 2015 is approximately $3.1 million.

For more information, refer to the press releases of Yamana and Agnico Eagle dated February 11, 2015 filed on SEDAR (www.sedar.com).

Other Investments

The Company has completed a non-brokered private placement of 14 million flow-through common shares of NioGold Mining Corp. (“NioGold”) for a total of $4.9 million. Osisko now owns approximately 19.5% of NioGold’s issued and outstanding common shares. NioGold has appointed to its Board of Directors two representatives from the senior management of the Company.

In addition, Osisko has purchased rights held by NioGold to repurchase half of the existing net smelter return royalties on the Marban block and Malartic Hygrade-NSM block for an aggregate purchase price of $150,000. The acquisition of these royalties would necessitate an outlay of $2.0 million.

The Company also acquired a total of 2.7 million common shares of Falco Resources Ltd. (“Falco”) for an aggregate purchase price of $1.0 million. Falco has appointed Sean Roosen as Director and Chair of their Board of Directors. Osisko now owns approximately 11.4% of the total issued and outstanding common shares of Falco.

In December 2014, Osisko closed a transaction with Highland Copper Company Inc. (“Highland”) where Osisko has provided Highland with a $10.0 million secured loan in exchange for, among other things, a 3% sliding-scale NSR royalty option on all metals produced from the White Pine North project to be acquired by Highland.  The White Pine North Royalty has a base rate 3% NSR and increases by 0.01% NSR for every $0.01 increase in the copper price above $3.00 per pound. Highland also granted Osisko an exclusive option to purchase a 100% silver NSR royalty on all future silver production from Highland’s White Pine North and Copperwood Projects (collectively, the “Michigan Projects”) for future cash consideration of US$26.0 million. At its sole discretion, the Company may elect to purchase the silver royalty within 60 days following the delivery by Highland of a feasibility study on the Michigan Projects. The loan is non-interest bearing, has a maturity date of December 31, 2015 and is secured by a first ranking charge on all present and future assets of Highland.

Private placement of $200 million

On January 21, 2015, Osisko entered into an agreement with a syndicate of underwriters who have agreed to buy on a bought deal private placement basis, 10,960,000 special warrants of the Company (“Special Warrants”) at a price of $18.25 per Special Warrant, representing aggregate gross proceeds of $200.0 million.  Each Special Warrant entitles the holder to acquire, for no additional consideration, one unit (“Unit”) of Osisko, with each Unit comprised of one common share (“Common Share”) of Osisko and one-half of one common share purchase warrant (each whole common share purchase warrant a “Warrant”) of Osisko. Each full Warrant will entitle the holder thereof to purchase one Common Share of Osisko at a price of $36.50 per Common Share, for a period of 84 months following the closing date.

The Company plans to use the net proceeds from the offering for working capital and general corporate purposes.

The offering was closed on February 18, 2015 and Osisko issued 10,960,000 Special Warrants for gross proceeds of $200.0 million. Transaction costs are estimated at $10.3 million for net proceeds of $189.7 million.

Initiation of a Quarterly Dividend Program

The Board of Directors has approved on November 16, 2014 the initiation of the Company’s quarterly dividend program.  The first quarterly dividend of $0.03 per common share of the Company was declared on November 16, 2014 and paid on January 15, 2015 to shareholders of record as of the close of business on December 31, 2014.

Revolving Credit Facility

In the fourth quarter of 2014, the Company closed a $100 million Revolving Credit Facility with the National Bank of Canada to be used for investments in the mineral industry, including the acquisition of royalties and the funding of metal streams. The Revolving Credit Facility may be increased by $50 million at Osisko’s request.

The Revolving Credit Facility is secured by the Company’s assets and has a two-year term, which can be extended by one year at each anniversary date. The facility is subject to initial standby fees of 0.30%. Drawn funds with base and prime rate advances will bear interest at a base/prime rate plus between 0.50% and 2.50% and LIBOR loans will bear interest at LIBOR plus between 1.50% and 3.50% depending on the Company’s leverage ratio.

The Revolving Credit Facility increases the financial capacity of the Company as it competes for the acquisition of royalties and metal revenue streams.

Financial Position

The Company completed the year with a strong balance sheet. Cash resources totaled $175.2 million and net working capital stood at $171.1 million. The Company is debt-free, totally unhedged and with the closing of its recently announced revolving credit facility in November, its equity financings in December 2014 and February 2015 totaling gross proceeds of $242 million and the cash acquired from Virginia of approximately $60 million, has the financial flexibility to enhance its royalty portfolio.

Outlook

Osisko Gold Royalties’ 2015 outlook on royalties is based on the publically available forecast for the Canadian Malartic mine published by Yamana Gold and Agnico Eagle, and for the Éléonore mine published by Goldcorp Inc.

Attributable royalty production for 2015 is estimated at 28,000 gold ounces for the Canadian Malartic mine and 2,600 to 3,400 gold ounces for the Éléonore mine.  The Company also expects to continue its exploration programs in the James Bay area on properties owned by Virginia for approximately $11 million, of which about $9 million has been funded by flow-through shares and Québec institutional partners.

Discontinued Operations

Discontinued operations reflect results of the Canadian mining, exploration and evaluation activities until June 15, 2014 of Osisko Mining Corporation that are deemed to have been disposed, and includes the gain on the deemed disposal of net assets for $1.7 billion realized on June 16, 2014.

Q4 and Year-End Conference Call Information

Osisko will host a conference call on Thursday, February 19, 2015 at 14:00 EST, where senior management will discuss the financial results and provide an update of the Company’s activities. Those interested in participating in the conference call should dial in approximately five to ten minutes before the start of the conference to allow ample time to access at 1-877-223-4471 (North American toll free), or 1-647-788-4922 (international). An operator will direct participants to the call.

The conference call replay will be available from 17:00 EST on February 19, 2015 until 23:59 EST on February 26, 2015 with the following dial in number: 1-416-621-4642 or toll-free 1-800-585-8367, access code 87695037.

About Osisko Gold Royalties Ltd

Osisko’s primary business focus is as an intermediate mining royalty and exploration company whose cornerstone assets are a 5% NSR royalty on the Canadian Malartic Gold Mine, located in Malartic, Quebec and a sliding scale 2.0% – 3.5% NSR on the Éléonore mine, located in the James Bay area in Québec, acquired through the Virginia business combination. The Company also holds a 2% NSR royalty on the Upper Beaver, Kirkland Lake and Hammond Reef gold exploration projects in Northern Ontario.

Osisko’s head office is located at 1100 Avenue des Canadiens-de-Montréal, Suite 300, Montréal, Québec, H3B 2S2.

Forward-looking statements

Certain statements contained in this press release may be deemed “forward-looking statements”. All statements in this release, 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, future demand for and prices of commodities, business prospects and opportunities are forward looking statements. In addition, statements (including data in tables) relating to 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 satisfaction of conditions to the execution and delivery of the Revolving Credit Facility  , and the realization of the anticipated benefits deriving therefrom.  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 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 held by Osisko (gold and silver); fluctuations in the value of the Canadian dollar relative to the U.S. dollar; regulatory changes in national and local government, 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 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, influence of macroeconomic developments; 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 or other interest; development, permitting, infrastructure, operating or technical difficulties on any of the properties in which Osisko holds a royalty 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 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 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 press release are based upon assumptions management believes to be reasonable, including, without limitation: the ongoing operation of the properties in which Osisko holds a royalty 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 of 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 Schedule I to the management information circular of Osisko Mining Corporation which created Osisko and which is filed on SEDAR and also provide additional general assumptions in connection with these statements.  Osisko cautions that the foregoing list of risk and uncertainties is not exhaustive. Investors and others who base themselves on the forward looking statements contained herein should carefully consider the above factors as well as the uncertainties they represent and the risk they entail. Osisko believes that the expectations 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 press release should not be unduly relied upon. These statements speak only as of the date of this press release. 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.

[1]        From continuing operations

[2]      “Adjusted earnings” and “adjusted earnings per 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 and Discussion Analysis.

[3]        Before change in non-cash working capital items

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