Mr. Sean Roosen reports
OSISKO GOLD ROYALTIES REPORTS FOURTH QUARTER AND FULL YEAR 2017 RESULTS
Osisko Gold Royalties Ltd. has released its results for the fourth quarter and full year 2017 and provided its 2018 guidance.
Sean Roosen, chair of the board and chief executive officer, commented on the 2017 performance: "Two thousand seventeen has been a transformational year for Osisko with the acquisition of the Orion portfolio, which was a significant step forward for our company in terms of building a dominant, Canada-focused, precious metals royalty and streaming platform. At the same time, we have continued to mature our accelerator business and to create value for our shareholders by helping to create great Canadian gold projects. Today, not only does Osisko have the greatest growth profile amongst its peers, it has uniquely positioned itself with a quality pipeline of growth projects that will derive benefits for Osisko's shareholders for years to come."
Highlights -- fourth quarter of 2017:
Record quarterly gold equivalent ouncesearned of 20,990 (134-per-cent increase compared with the foruth quarter of 2016); Record quarterly revenues from royalties and streams of $32.2-million ($109.6-million including offtakes) (135-per-cent increase compared with the fourth quarter of 2016, 699-per-cent increase including offtakes); Net cash flows provided by operating activities of $21.5-million (compared with $12.8-million in the fourth quarter of 2016); Net loss attributable to Osisko's shareholders of $64.3-million, 41 cents per basic share reflecting an impairment charge of $89.0-million on the Eleonore royalty interest ($65.4-million, net of income taxes) (compared with net earnings of $8.7-million, eight cents per basic share in the fourth quarter of 2016); Adjusted earnings of $1.0-million, one cent per basic share (compared with $6.9-million, seven cents per basic share in the fourth quarter of 2016).
Highlights -- 2017:
Record gold equivalent ounces earned of 58,933 (54-per-cent increase compared with 2016); Record revenues from royalties and streams of $93.8-million ($213.2-million including offtakes) (50-per-cent increase compared with 2016, 240-per-cent increase including offtakes); Net cash flows provided by operating activities of $48.7-million (compared with $53.4-million in 2016); Net loss attributable to Osisko's shareholders of $42.5-million, 33 cents per basic share (compared with net earnings of $42.1-million, 40 cents per basic share in 2016); Adjusted earnings of $22.7-million, 18 cents per basic share (compared with $34.2-million, 33 cents per basic share in 2016); Proceeds of $71.1-million on sale of investments, generating a gain of $35.8-million, based on the cash cost of the investments. Subsequent to Dec. 31, 2017, Osisko made a gain of $15.5-million from the delivery of the AuRico Metals Inc. shares to Centerra Gold Inc. bringing the total gain from monetizing investments since 2015 to $70.1-million, based on the cash cost of the investments; Acquisition of a precious metals portfolio of assets from Orion Mine Finance Group for $1.1-billion consisting of 74 royalties, streams and precious metal offtakes, including a 9.6-per-cent diamond stream on the Renard diamond mine and a 4-per-cent gold and silver stream on the Brucejack gold and silver mine, both of which are new mines in Canada, in addition to a 100-per-cent silver stream on the Mantos Blancos copper mine in Chile; Acquisition of royalty and stream interests for $127.6-million ($80.1-million paid in 2017); Completed a bought-deal offering of convertible senior unsecured debentures of $300.0-million; Increased the revolving credit facility to $350.0-million (with a potential accordion of up to $100.0-million); Declaration of quarterly dividends totalling 18 cents per common share for 2017.
(1) Gold equivalent ounces 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) Adjusted earnings and adjusted earnings per basic share are non-IFRS (international financial reporting standards) financial performance measures which have no standard definition under IFRS. Refer to the non-IFRS performance measures section of this press release.
(3) The cash cost of an investment is a non-IFRS measure representing the cash paid on the acquisition of an investment. The gain or the loss is calculated by subtracting the cash acquisition cost from the cash proceeds on the sale of an investment.
Acquisition of Orion's portfolio
On July 31, 2017, Osisko acquired a precious metals portfolio of assets from Orion consisting of 61 royalties, six streams and seven precious metal offtakes for $1.1-billion. The final acquisition price comprised $504.8-million (U.S.) ($630.1-million) in cash consideration, which includes a $4.2-million (U.S.) ($5.1-million) adjustment for the acquired working capital, and 30,906,594 common shares of Osisko issued to Orion. Any sale of the shares issued to Orion is subject to certain restrictions, including a 12-month hold period and a broad distribution requirement.
The combination of Osisko and Orion's portfolios resulted in Osisko holding a total of 131 royalties, streams and offtakes, including 16 revenue-generating assets on July 31, 2017. Through the transaction, the company acquired a 9.6-per-cent diamond stream on the Renard diamond mine and a 4-per-cent gold and silver stream on the Brucejack gold and silver mine, both of which are new mines in Canada, in addition to a 100-per-cent silver stream on the Mantos Blancos copper mine in Chile. Certain assets are held through an international wholly owned subsidiary which was renamed Osisko Bermuda Ltd. (OBL). The Brucejack stream is subject to certain buyback rights held by Pretium Resources Inc. which could result in the stream being repurchased on Dec. 31, 2018, and other specific dates.
As part of the transaction, CDP Investissements Inc., an affiliate of Caisse de depot et placement du Quebec and the Fonds de solidarite des travailleurs du Quebec (FTQ) subscribed for $200-million and $75-million in common shares of Osisko, respectively, as part of a concurrent private placement to finance a portion of the cash consideration and support the transaction. A total of 18,887,363 common shares were issued at a price of $14.56 per share under the private placement. The private placement was subject to a 7-per-cent capital commitment payment payable partially in shares (2 per cent representing 385,457 common shares) and in cash (5 per cent representing $13.8-million).
Following the transaction, Orion, Caisse and its affiliates and Fonds FTQ held, respectively, approximately 19.7 per cent, 12.1 per cent and 5.5 per cent of Osisko's issued and outstanding common shares, based on the number of common shares of Osisko outstanding at the closing of the transaction on July 31, 2017.
Osisko also drew $118-million (U.S.) ($147.3-million) under its revolving credit facility with National Bank of Canada and Bank of Montreal, settled the foreign exchange forward contracts by disbursing $275-million to acquire $204.0-million (U.S.)and paid $182.8-million (U.S.) ($228.9-million) from Osisko's then-current cash and cash equivalents balance.
The transaction has been recorded as a business combination with Osisko as the acquirer. The assets acquired and the liabilities assumed were recorded at their estimated fair market values at the time of the closing of the acquisition, being July 31, 2017. The transaction costs related to the acquisition were expensed under business development expenses and amounted to $8.9-million.
THE PURCHASE PRICE ALLOCATION (in thousands of dollars) Consideration paidCash (1) $648,385Issuance of 30,906,594 common shares (2)445,3331,093,718Net assets acquiredCash and cash equivalents 8,707Other current assets1,217Royalty, stream and other interests 1,116,115Current liabilities (loss) (435)Deferred income tax liability (loss)(31,886)1,093,718(1) Including the net loss on settlement of derivative financial instruments (cash flow hedges) of $18.2-million.(2) The fair value of the consideration paid in common shares represents the fair value of the shares on July 31, 2017, minus an illiquidity discount to take into account the 12-month restrictions on their sales.SUMMARY OF MAIN ROYALTY, STREAM AND OTHER INTERESTS ACQUIREDAssetOperatorInterest Commodities Jurisdiction Stage Stornoway DiamondsRenardCorp. 9.6% stream Diamond CanadaproductionMantos Blancos Mantos Copper S.A. 100% streamAgChileproductionBrucejackPretium Resources Inc. 4% stream/offtakeAu, Ag CanadaproductionSasaCentral Asia Metals PLC 100% StreamAgMacedoniaproductionMatilda Blackham Resources Ltd. offtakeAuAustraliaproductionParralGoGold Resources Inc. offtakeAu MexicoproductionSan RamonRed Eagle Mining Corp. offtakeAu ColombiaproductionSeabeeSSR Mining Inc.3% NSR (1) royaltyAu CanadaproductionBald Mtn.Alligator RidgeKinross Gold Corp.1% NSR royaltyAuUSAproductionBald Mtn.Duke/Trapper Kinross Gold Corp.4% NSR royaltyAuUSAproductionBrauna Lipari Mineracao1% GRR (2) royalty Diamond BrazilproductionRutile,Ilmenite,Kwale Base Resources Ltd.1.5% GRR royaltyzirconKenyaproductionPan Fiore Gold Ltd.4% NSR royaltyAuUSAproduction 4.22% Au stream, 62.5%Amulsar Lydian International Ltd. Ag stream/offtakeAu, AgArmenia developmentBack FortyAquila Resources Inc.75% streamAgUSA developmentWestern Copper &Casino Gold Corp. 2.75% NSR royaltyAu, Ag, Cu Canada explorationWaterton GlobalSpring Valley Resource Management0.5% NSR royaltyAuUSA explorationYenipazarAldridge Minerals Inc. offtakeAu Turkey exploration(1) Net smelter return (NSR). (2) Gross revenue royalty (GRR).
Acquisition of Back-Forty gold stream
The Back Forty project is a zinc and gold volcanogenic massive sulphide deposit located in Michigan, United States, owned by Aquila Resources Inc. The Back Forty project is in the development stage and advancing toward a feasibility study expected in 2018. Back Forty is expected to produce 532,000 ounces of gold, 721 million pounds of zinc, 74 million pounds of copper, 4.6 million ounces of silver and 21 million pounds of lead. The details of the mineral inventory can be found under Aquila's profile on SEDAR. Through the acquisition of Orion's portfolio, Osisko acquired the Back Forty silver stream, which applies to 75 per cent of payable silver production over the mine's operating life and includes continuing transfer payments by OBL to Aquila of $4 (U.S.) per ounce of refined silver delivered under the stream.
In November, 2017, OBL acquired an additional gold stream on the Back Forty project. OBL will make staged upfront cash deposits to Aquila of up to $55-million (U.S.) for the gold stream, and will make ongoing payments equal to 30 per cent of the spot price of gold, to a maximum of $600 (U.S.) per ounce. The gold stream applies to 18.5 per cent of the refined gold from the project until 105,000 ounces of gold have been delivered, and to 9.25 per cent of the refined gold for the remaining life of mine.
The deposit will be paid in four instalments, as follows:
$7.5-million (U.S.) paid on closing of the gold stream transaction; $7.5-million (U.S.) payable upon receipt by Aquila of all material permits required for the development and operation of the project, and receipt of a positive feasibility study; $10-million (U.S.) payable following a positive construction decision for the property; $30-million (U.S.) payable upon the first drawdown of an appropriate project debt finance facility, subject to the change of control provision. In the event of a change of control of Aquila prior to the advancement of the fourth deposit, the person or entity acquiring control over the project may elect to forego the fourth deposit, in which case the stream will be reduced to 9.5 per cent of the refined gold from the project until 105,000 ounces of gold have been delivered and to 4.75 per cent of the refined gold for the remaining life of mine. All other terms and conditions will remain unchanged.
Gibraltar stream (Taseko Mines Ltd.)
On March 3, 2017, Osisko closed the acquisition of a silver stream with reference to silver produced at the Gibraltar copper mine, located in British Columbia, Canada, from Gibraltar Mines Ltd., a wholly owned subsidiary of Taseko having a 75-per-cent interest in Gibraltar. Osisko paid Taseko cash consideration of $33.0-million (U.S.) ($44.3-million) to purchase a silver stream and 3.0 million warrants of Taseko. Each warrant allows Osisko to acquire one common share of Taseko at a price of $2.74 until April 1, 2020. The fair value of the warrants was evaluated at $1.78-million using the Black-Scholes option pricing model and the residual value of $42,678,000 was attributed to the silver stream (including $175,000 of transaction fees). With regard to the silver stream, Osisko will make continuing payments of $2.75 (U.S.) per ounce of silver delivered.
Under the stream, Osisko will receive from Taseko an amount equal to 100 per cent of Gibco's share of silver production until the delivery to Osisko of 5.9 million ounces of silver to Osisko and 35 per cent of Gibco's share of silver production thereafter. Gibraltar is the second-largest open-pit copper mine in Canada and fourth largest in North America. The life-of-mine yearly average production from Gibraltar is approximately 140 million pounds of copper and 2.6 million pounds of molybdenum. With a large mineral reserve of 3.2 billion pounds of recoverable copper and 58 million pounds of molybdenum, the estimated mine life of the project is 23 years (proven and probable mineral reserves as of Jan. 1, 2016). The acquisition is expected to increase Osisko's production by approximately 200,000 ounces of silver for the next 14 years, increasing to an average of 350,000 ounces of silver for the remainder of the 23-year mineral reserve life of Gibraltar. Any silver in respect of which a delivery was made after Jan. 1, 2017, was subject to the stream.
Revolving credit facility
In November, 2017, the company amended its revolving credit facility increasing the amount from $150-million to $350-million, with an additional uncommitted accordion of up to $100-million, for a total availability of up to $450-million. The accordion is subject to standard due diligence procedures and acceptance of the lenders. The facility is to be used for general corporate purposes and investments in the mineral industry, including the acquisition of royalties, streams and other interests. The facility is secured by the company's assets (including the royalty, stream and other interests) and has a four-year term (Nov. 14, 2021), which can be extended by one year on each of the first two anniversary dates.
The facility is subject to standby fees. Funds drawn will bear interest based on the base rate, prime rate or London interbank offer rate (LIBOR) plus an applicable margin depending on the company's leverage ratio. On July 31, 2017, the facility was drawn for $118.0-million (U.S.) (representing $148.0-million as at Dec. 31, 2017) to finance the acquisition of Orion's portfolio. As at Dec. 31, 2017, the interest rate was 2.96 per cent, including the applicable margin. The facility includes covenants that require the company to maintain certain financial ratios and meet certain non-financial requirements. As at Dec. 31, 2017, all such ratios and requirements were met.
Bought deal of convertible senior unsecured debentures
On Nov. 3, 2017, Osisko closed a bought-deal offering of convertible senior unsecured debentures for $300-million with a syndicate of underwriters co-led by National Bank Financial Inc., BMO Capital Markets and Desjardins Capital Markets. The offering comprised a $184.0-million public offering of debentures and a $116.0-million private placement of debentures. In connection with the offering, the Public Sector Pension Investment Board and Ressources Quebec Inc., a wholly owned subsidiary of Investissement Quebec, purchased, respectively, $100.0-million and $16.0-million of debentures through the private offering on the same terms and conditions as the public offering. The underwriters have received a commission of 3.55 per cent in relation to the offering. Net proceeds amounted to $288.5-million.
The debentures bear interest at a rate of 4.0 per cent per annum, payable semi-annually on June 30 and Dec. 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 common share. The debentures will mature on Dec. 31, 2022, and may be redeemed by Osisko, in certain circumstances, on or after Dec. 31, 2020. The debentures are listed for trading on the Toronto Stock Exchange under the symbol OR.DB. The net proceeds from the offering will be used to finance the acquisition of precious metal royalties, streams, working capital and general corporate purposes.
Record gold equivalent ounces earned
The company's portfolio of producing royalty, stream and offtake interests delivered a record 20,990 gold equivalent ounces in the fourth quarter of 2017 for a total record of 58,933 gold equivalent ounces for the full year 2017. The assets acquired from Orion were the major contributors to the record quarterly gold equivalent ounces earned by the company, while Canadian Malartic continued to generate strong results.
ROYALTIES EARNED(in gold equivalent ounces)Three months ended Dec. 31, Years ended Dec. 31, 201720162017 2016GoldCanadian Malartic royalty10,177 6,74933,136 28,748Eleonore royalty1,532 1,343 6,3906,568Seabee royalty (1)619 - 1,310-Island Gold royalty 379 292 1,7061,373Brucejack offtake (1) 321 - 536-Vezza royalty 274 342 1,253830Other (1) 330 124 869294 13,632 8,85045,200 37,813SilverMantos stream (1) 1,910 - 3,060-Sasa stream (1) 1,229 - 2,074-Gibraltar stream (three and 11 months)665 - 2,303-Canadian Malartic royalty 138 114 479456Other (1)78 - 12914,020 114 8,045457DiamondsRenard stream (1) 2,839 - 4,686-Other (1)88 - 201-2,927 - 4,887-Other metalsKwale royalty (1) 411 - 801-Total gold equivalent ounces 20,990 8,96458,933 38,270(1) The effective date of the acquisition of Orion's portfolio was June 1, 2017. However, revenues of royalties, streams and offtakes acquired from Orion are only included in revenues from July 31, 2017 onward, the acquisition date for accounting purposes.REVENUES Three months ended Dec. 31,2017 2016Average Averageselling priceOunces Total selling price Ounces Total per ounce/ /caratsrevenues per ounce/caratsrevenues carats ($)sold($000) ($) sold($000)Gold sold$1,62356,708 $92,043$1,5498,605 $13,328Silver sold21 483,19210,411218,353 179Diamonds sold 10643,550 4,603 -- -Other (paid in cash)- - 2,495 -- 202109,552 13,709Years ended Dec. 31, 2017 2016Average Averageselling priceOunces Total selling price Ounces Total per ounce//caratrevenues per ounce /caratrevenues carats ($)sold($000) ($) sold($000)Gold sold$1,627 111,501$181,390$1,643 37,402 $61,444Silver sold22 887,76019,21623 32,836 747Diamonds sold 10671,150 7,560 -- -Other (paid in cash)- - 5,050 -- 486213,216 62,677GROSS PROFIT($000) Three months ended Dec. 31,Years ended Dec. 31,2017201620172016 Royalties Revenues$21,359 $13,709 $74,041 $62,677 (Cost) of sales(130)(22) (286) (143)Depletion (loss) (4,305) (2,828)(15,475)(11,291) 16,92410,85958,28051,243 Streams Revenues 10,855 -19,751 - (Cost) of sales(4,378)-(7,385)- Depletion (loss) (7,452)- (11,283)-(975)- 1,083 - OfftakesRevenues 77,338 - 119,424 - (Cost) of sales (76,550)-(117,974)- Depletion (loss) (990)-(1,307)-(202)- 143 - Total -- gross profit15,74710,85959,50651,243
Overview of 2017 financial results
Record revenues from royalties and streams of $93.8-million ($213.2-million including offtakes) compared with $62.7-million in 2016; Gross profit of $59.5-million compared with $51.2-million in 2016; Impairment charge of $89.0-million on the Eleonore NSR royalty interest ($65.4-million, net of income taxes); Operating loss of $70.4-million compared with an operating income of $29.1-million in 2016; Net loss attributable to Osisko's shareholders of $42.5-million or 33 cents per basic and diluted share, compared with net earnings of $42.1-million or 40 cents per basic and diluted share in 2016; Adjusted earningsof $22.7-million or 18 cents per basic sharecompared with $34.2-million or 33 cents per basic share in 2016; Net cash flows provided by operating activities of $48.7-million compared with $53.4-million in 2016.
Revenues increased in 2017 mainly as a result of the acquisition of Orion's portfolio.
Gross profit reached $59.5-million in 2017 compared with $51.2-million in 2016 as a result of higher revenues. Cost of sales increased from $100,000 in 2016 to $125.6-million mainly as a result of the offtake agreements acquired through the acquisition of Orion's portfolio. 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 per cent and 5 per cent of the sales proceeds.
In 2017, the company incurred an operating loss as a result of an impairment charge of $89.0-million on the Eleonore royalty interest. Excluding the impairment charge, operating income would have amounted to $18.6-million compared with $29.1-million in 2016. The decrease in operating income in 2017, in addition to the impairment charge, is mainly the result of the transaction costs related to the acquisition of Orion's portfolio, which amounted to $8.9-million and higher general and administrative expenses (G&A), partially offset by higher gross profit. The increase in G&A expenses is mainly due to higher salary expenses as a result of higher bonuses payable to management following the acquisition of Orion's portfolio, higher share-based compensation expenses related to the deferred and restricted share units (higher number of units outstanding and increase in the objectives achievements related to 2014 RSUs which vested and were paid in September, 2017) and higher general costs due to the increased activities of the company in 2017. The year 2017 is the first year where three years of stock options, RSUs and DSUs are outstanding. Stock options and RSUs vest over a three-year period. Business development expenses increased by $10.4-million mainly as a result of the transaction costs related to the acquisition of Orion's portfolio, higher bonuses payable to management, higher share-based compensation expenses related to the deferred and restricted share units and higher general costs due to increased activities in 2017.
The net loss attributable to Osisko's shareholders in 2017 is mainly the result of the impairment charge of $89.0-million, a lower operating income, a higher foreign exchange loss, higher finance costs, the absence of dividend income following the sale of the shares of Labrador Iron Ore Royalty Corp. in 2016 and early 2017, partially offset by higher interest income.
Adjusted earnings decreased to $22.7-million compared with $34.2-million in 2016 as a result of higher G&A, lower dividend income and higher finance costs, partially offset by higher gross profit.
Net cash flows provided by operating activities decreased in 2017 as a result of the fees related to the acquisition of Orion's portfolio and the settlement of restricted share units for $5.5-million, partially offset by higher gross profit.
Investment portfolio update
During the year ended Dec. 31, 2017, Osisko acquired investments for $226.8-million and sold investments for $71.1-million.
The associated table presents the carrying value and fair value of the investments in marketable securities as at Dec. 31, 2017.
MARKETABLE SECURITIES (in thousands of dollars) Carrying value (i)Fair value (ii)Associates257,433332,140Other 106,841106,841364,274438,981(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 Dec. 31, 2017.
Main strategic investments
The associated table presents the main strategic investments of the company.
MAIN STRATEGIC INVESTMENTS(in thousands of dollars)Company Number of shares held (i)Ownership (i) Carrying value (i) (ii) Fair value(i) (ii)Osisko Mining Inc. 32,302,034 15.573,635109,504Barkerville Gold Mines Ltd. 142,309,310 32.789,556106,732Dalradian Resources Inc. 31,717,6878.940,122 42,026Falco Resources Ltd. 23,927,005 12.715,652 20,817(i) As at Dec. 31, 2017.(ii) See tablefor definition of carrying value and fair value.
Osisko Mining Inc.
The company owns a 1.5-per-cent NSR royalty on the Windfall Lake gold project. Osisko Mining is currently undergoing an 800,000-metre drill program at Windfall Lake, where the 400,000-metre milestone was reached in October, 2017. A metallurgical program is continuing and the construction of the exploration ramp is progressing. Osisko Mining is planning a resource update in the first half of 2018.
Dividends
Osisko has declared dividends for the last 14 consecutive quarters for a total of $55.1-million.
On Nov. 7, 2017, Osisko declared a quarterly dividend of five cents per common share paid on Jan. 15, 2018, to shareholders of record as of the close of business on Dec. 29, 2017.
On Feb. 16, 2018, the board of directors declared a quarterly dividend of five cents per common share payable on April 16, 2018, to shareholders of record as of the close of business on March 30, 2018.
2018 guidance
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 Gold Inc. and Agnico Eagle Mines Ltd., for the Eleonore mine published by Goldcorp Inc., for the Renard mine published by Stornoway Diamonds Corp., for the Brucejack mine published by Pretium Resources Inc., and for the Island gold mine published by Alamos Gold Inc. When publicly available forecasts on properties are not available, Osisko obtains internal forecasts from the operators, which is the case for the Sasa and Mantos Blancos mines, or uses management's best estimate.
Attributable gold equivalent ounces for 2018 are estimated between 77,500 and 82,500. For the 2018 guidance, silver and cash royalties have been converted to gold equivalent ounces using commodity prices of $1,300 (U.S.) per ounce of gold, $18 (U.S.) per ounce of silver and $110 (U.S.) per carat for diamonds from the Renard mine and an exchange rate (U.S. dollar/Canadian dollar) of 1.25.
Eleonore NSR royalty interest
In February, 2015, Osisko acquired all of the outstanding common shares of Virginia Mines Inc.The assets acquired included a 2.0-to-3.5-per-cent NSR royalty on the Eleonore mine discovered by Virginia and owned by Goldcorp Inc. Through the combination of the two companies, Osisko achieved its objective of creating a new intermediate royalty company with two world-class gold royalty assets in Quebec. Operations started at the Eleonore mine in October, 2014, and commercial production was declared in April, 2015.
Gold production for the year ended Dec. 31, 2017, was higher than the prior years at 305,000 ounces compared with 274,000 ounces in 2016 and 268,000 ounces in 2015 due to increase in grade and mined tonnes as Eleonore continued its ramp-up to optimized production levels. For 2018, the operator's guidance is at 360,000 ounces.
GOLD OUNCES EARNED FROM THE ELEONORE NSR ROYALTY2015 (1)2016 2017 2018 guidance 2019 plus guidance (2)4026,5686,390 7,9208,800(1) Osisko started receiving royalties in December, 2015, only due to the royalty advance payment to Virginia. (2) Based on operator's guidance of 400,000 sustainable annual gold production. As per the sliding-scale schedule of up to 3.5 per cent, Osisko could potentially receive up to 14,000 ounces annually once eight million ounces have been produced.
For accounting purposes, Osisko is required to monitor indicators of impairment, which can trigger an impairment review of its assets. The operator of the Eleonore gold mine announced a sustainable annual gold production level at 400,000 ounces of gold compared with its design capacity of 600,000 ounces annually. This announcement was considered as an indicator of impairment and, accordingly, management performed an impairment assessment as at Dec. 31, 2017. The company recorded an impairment charge of $89.0-million ($65.4-million net of income taxes) on the Eleonore NSR royalty during the fourth quarter of 2017. This impairment charge may be reversed subsequently if there is a sustainable increase in annual production levels.
2017 year-end results conference call
Osisko will host a conference call on Tuesday, Feb. 20, 2018, at 11a.m. Eastern Standard Time to review and discuss its 2017 results.
Those interested in participating in the conference call should dial in at 1-647-788-4922 (international), or 1-877-223-4471 (North American toll-free). An operator will direct participants to the call.
The conference call replay will be available from 2 p.m. Eastern Standard Time on Feb. 20, 2018, until 11:59 p.m. EST on Feb. 27, 2018, with the following dial-in numbers: 1-800-585-8367 (North American toll-free) or 1-416-621-4642, access code 2868047.
About Osisko Gold Royalties Ltd.
Osisko Gold Royalties is an intermediate precious metal royalty company focused on the Americas that commenced activities in June, 2014. Following the acquisition of the Orion portfolio, it now holds a North American-focused portfolio of over 130 royalties, streams and precious-metal offtakes. Osisko's portfolio is anchored by five cornerstone assets, including a 5-per-cent net smelter return royalty on the Canadian Malartic mine, which is the largest gold mine in Canada. Osisko also owns a portfolio of publicly held resource companies, including a 15.5-per-cent interest in Osisko Mining Inc., a 32.7-per-cent interest in Barkerville Gold Mines Ltd. and a 12.7-per-cent interest in Falco Resources Ltd.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)(tabular amounts expressed in thousands of dollars, except per-share amounts) Three months ended Dec. 31,Years ended Dec. 31,2017201620172016Revenues $109,552 $13,709$213,216 $62,677(Cost) of sales (81,058)(22) (125,645) (143)Depletion of royalty, stream and other interests (loss)(12,747) (2,828)(28,065)(11,291)Gross profit 15,74710,85959,50651,243Other operating expensesGeneral and administrative (loss)(7,342) (4,105)(26,176)(16,715)Business development (loss)(4,009) (1,863)(18,706) (8,282)Impairment of royalty,stream and other interests (loss) (89,000)- (89,000)-Exploration and evaluation,net of tax credits (loss) (63)2,176(204)1,240Other gains (expenses), net -(1,124) 20(1,436)Cost recoveries from associates 1,215 873 4,125 3,039Operating income (loss) (83,452)6,816 (70,435) 29,089Interest income 1,098 1,011 4,255 3,260Dividend income - 215 - 4,931Finance (costs)(4,825) (919) (8,384) (3,435)Foreign exchange gain (loss) (635)5,331 (16,086) (5,846)Share of (loss) of associates(3,482) (2,893) (6,114) (6,623)Other gains (losses), net(507)66030,82930,202Earnings (loss) before income taxes (91,803) 10,221 (65,935) 51,578Income tax recovery (expense)27,450(1,568) 23,147(9,724)Net earnings (loss) (64,353)8,653 (42,788) 41,854Net earnings (loss) attributable toOsisko Gold Royalties' shareholders (64,348)8,679 (42,501) 42,113Non-controlling interests (loss) (5)(26) (287) (259)Net earnings (loss) per shareattributable to Osisko GoldRoyalties' shareholdersBasic (loss)(0.41) 0.08 (0.33) 0.40Diluted (loss)(0.41) 0.08 (0.33) 0.40
We seek Safe Harbor.
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