OR Royalties Inc. Q2 FY2024 earnings call

• Osisko had a solid first half with strong gold equivalent ounces, cash margin, cash flows, and debt reduction. Q2 revenues were bolstered by improving precious metal prices.
• Declared and paid Q2 dividend of 6.5 cents per share, with Q3 dividend approved. Pipeline remains robust, optimistic about a meaningful deal by year-end.
• Net loss in Q2 due to full non-cash impairment charge on Eagle NSR royalty. Cash flow per share and adjusted earnings improved YOY.
• Mine performances: Canadian Malartic strong; Eagle underperformed and suspended; Capstone’s Mantos Blancos production lower but upgrades progressing. Additions and removals of producing assets occurred.
• Jurisdictional exposure: Leader in Tier 1 mining jurisdictions (Canada, US, Australia). Cascabel Gold Stream transaction is a world-class project enhancing growth profile. Upper Beaver project update suggests potential for additional GEOs. CSA copper stream had first delivery in July.
• Eagle Mine impairment due to lack of restart visibility; protections in place. Adjusted 2024 GEO delivery guidance to 77,000-83,000 due to Eagle and Capstone delays.
• Balance sheet: Total debt ~$110 million, net debt ~$43 million, focus on paying down debt, forecast to be net cash by year-end.

In Q2 2024, Osisko earned 20,068 gold equivalent ounces (GEOs). Revenues were $64.8 million, with cash margins at 97%. Net debt was reduced to just over $40 million. GEOs earned predominantly from Canada, with over 98% from precious metals (gold ~71%, silver ~28%). Key mine performances: Canadian Malartic was strong, Eagle Mine underperformed and suspended, Capstone’s Mantos Blancos had lower production but upgrades progressing. Revenues in Q2 2024 tracked higher YOY due to strong commodity prices, though offset by fewer GEOs vs. Q2 2023. Cash flow per share was $0.28 vs. $0.26 YOY, and quarterly adjusted earnings were $0.18 per basic common share vs. $0.15 in Q2 2023.

• Full-year 2024 GEO delivery guidance adjusted to 77,000-83,000 from 82,000-92,000 due to Eagle Mine suspension and Capstone’s Mantos Blancos delays.
• Management hopes to close one meaningful deal by year-end that fits within the five-year guidance.

• Uncertainty around Eagle Mine restart timeline and potential impact on royalty recoverability.
• Risk of operator solvency issues affecting the Eagle royalty.
• Delays in Capstone’s Mantos Blancos plant upgrades impacting silver deliveries starting in 2025.

Q: Ralph Profiti asked about the syndication at Cascabel, dry powder, and criteria for deals.

A: Jason Attew responded that the 30% syndication level was negotiated, Cascabel is a world-class asset, and they aim for transactions within the five-year outlook but consider high-quality opportunities outside it.

Q: Josh Wilson inquired about Eagle impairment recoverability and royalty risk in operator solvency.

A: Jason Attew stated Eagle impairment was due to lack of restart visibility, but protections like security and inter-creditor agreements are in place. Frederic Ruel added it was an accounting decision based on current info.

Q: Unidentified Analyst asked about dealing with problematic deals and committee vs. originator responsibility.

A: Frederic Ruel said the team focuses on accretive opportunities, has a governance committee, and no specific origination fees; compensation tied to cash flow and NAV per share. Jason Attew mentioned the committee is for oversight, and compensation is driven by per share metrics.

Q: Tanya Jakusconek asked about 2028 guidance, transaction size, capital allocation, and Cascabel return.

A: Frederic Ruel said 2028 guidance is too early to adjust; transactions up to $300 million are being sought; capital allocation includes dividends and buybacks; Cascabel return is high single digits based on pre-feasibility study with nuances based on project details.

Q: Brian MacArthur questioned security for Eagle royalty.

A: Jason Attew stated they have protections via inter-creditor agreement and security over the property but couldn't disclose specific inter-creditor details as it's confidential.