Osisko Gold Royalties (OR) - The Best Royalty Company in the World?

we're probably the best royalty company in the space in terms of business model the ability to actually execute is there because we have a technical team we're a focus on high quality assets we're focused on premium strategies we're focused on making sure that we run the best role of the company in the world how do you get psyched to the market when you actually start making money i get one and a half percent dividends fantastic best paying in the sector but where's the inflection point come hello and welcome to crux investor first of all thank you so much for watching this video if you like it give us a thumbs up that helps us to understand if this company is someone that you want to spend our time money and effort on for you uh also if you could leave your comments below help us understand the sorts of questions you think we should be asking anything we've done and of course what you think of a cisco gold royalties uh you can cast this as a podcast an article or a transcription on cruxinbuster.com and for crux investor club members you get early access to this video and if you haven't already done so please click the button in the corner of the screen to subscribe to our youtube channel and of course for more videos like this click the notification bell we spoke earlier today to sean rosen who is the ceo of cisco gold royalties they're on the nyse and also on the tsx they are ostensibly a royalty company but there's a private equity component to this they have an accelerator program so it's confusing the market somewhat uh we talked to him today uh about whether he understands recognizes and acknowledges that and then if so what he's doing about it it seems there's been a management change uh they're going through the process of cleaning up and separating church from state it was a phrase he used which i quite liked um and hopefully getting out of the market with a much more simplified message i back to basics please let's discuss very interesting uh individual and i quite liked the approach uh so take a look in the description below some of the topics we discussed anything interesting in particular click on the number beside that uh topic that's called a time stamp and i'll jump you through to that part of the video otherwise enjoy what shawn has to say sean how you doing sir i am living well in the covet 19 retreat here at the lake house in muskoka sounds tough already lake house you see have you got you got yourself a boat up there as well yeah you enjoying yourself i have several of them actually but uh you know i'm i'm a i'm a i'm a vintage kind of guy so they're all old wooden boats from the 1940s and 50s so what do you got like schooners what do you what do you use up there no it's here in uh in ontario we have an old wooden mahogany boat so i've got a few of those my pride and joy is a 38-footer that's sitting out in front of the dock right now so after this i will go drive around very slowly looking good and going slow nice nice are you into rivers do you like a riva uh there's a few arenas on the lake but i tend to be uh i'm more of a nationalist i tend to only buy canadian boats oh boy right i think that gives us a taste of what's to come okay so why don't we start off and give us a one minute trip i doubt it sean like data why do you give us a one minute overview of the cisco go royalties and then we'll pick it up from there certainly so cisco gold royalties is the product of cisco one which was a a company that i created with my private equity group eurasia holdings uh we founded the cisco one in 2003. we bought the canadian arctic uh mine in 2004 for eighty eight thousand eight hundred eighty eight dollars uh we invested one point two billion dollars in that project it sits between goldx uh that belongs to nico and yeah and the laurent mine belongs to agnico in the abba tibia in quebec and uh we started drilling there we put 1.2 million meters of drilling into phase one and we built canada's largest producing gold mine um and we produce about seven hundred thousand ounces of gold uh and it's uh one of the top most important gold mines in the world we sold that to agniku agniko and yamana in 2014 uh for 4.3 billion dollars and we spout out of cisco gold royalties which is only active access asset was a 5 top line royalty uh on the canadian arctic mine which gives us about 35 000 ounces of zero cost hundred percent margin gold uh which was the founding asset to the company uh subsequently to 2014 we did an acquisition uh uh based strategy uh which was to acquire uh and and grow and gross up the royalty portfolio we now have 137 assets with 16 producing assets uh so from poor non-producing and one producing to 137 with 16 producing and the company ipo'd at about 490 million market cap currently sits about 2.5 billion and the main strategy of a cisco gold royalties was to do what we did before which was to take our senior group of engineers and geologists and incubate projects taking a royalty and stream in what we call our accelerator process and to build an organically grown portfolio uh from you know from basically from home cooking from projects that we generated ourselves so quite a bit different in terms of strategy from the existing you know buy things on the open market over pay for them uh so we targeted more like private equity returns in our portfolio of accelerated group companies and we generated seven sidecar companies uh to that the most successful having been uh obviously a cisco mining with the windfall project in northern quebec uh which in 2016 had an eight million dollar market cap and no projects and we did an acquisition strategy with that company which we backed by royalty and streaming financings which is now trading 1.4 billion and we paid very little for a one of the more significant royalties on that windfall deposit sitting at two and a half percent now so we've continued to grow our portfolio we are a hybrid we're a little different than the other royalty companies and we tend to target much higher returns we're dominantly brownfield canadian specialists uh we've worked internationally we have about 500 due diligence files from our our previous careers um so we bring that to bear for our shareholders and i think we we drive a a much higher return business than the traditional royalty model okay so we've spoken to quite a few royalty companies recently we're trying to work out the kind of north american model and obviously big big onus on precious metals which is great at the moment you know gold gold's up you know i think you'd admit yourself you know you think the company has been doing quite well since the goal started picking up last august september but you've got a lot of moving parts now you've reached that size where it's complex you've got to find new ways of competing you've also got to find new ways of communicating to shareholders what it is that the plan is so if you don't mind can we can we talk a little bit about what the plan is because day one it would have been very different from where you are now you you've got lots of options you've got a lot of deals on the table so how does this thing move forward so our incubation uh you know was a spin out from the sale of canada's largest gold mine and the 10th largest gold mine in the world so we came out with a cornerstone asset that's unlike anything that other any of the other startup royalty companies had so we started out you know for lack of a better metaphor on third base um and you know we we really drove on our our skill set which was to incubate our own opportunities and take royalties early on so we we have a really simple aum allocation process where we dedicate 25 of our investments um sorry i obviously got a phone call that i just attended to and 75 to our accelerator model and 75 um to traditional royalty investments where we participate in bank run and corporate m a backings and and that kind of a strategy so our corporate strategy has really been around the fact that we can create a higher return level on the royalties that we generate ourselves um and we've done so several times now the most successful being arizona mining um where we were very earlier to the stage it was an asset that we knew and understood we took a one percent royalty for 10 million dollars at the very beginning and we owned 5.76 percent of the equity uh we sold the equity when when south 32 took us out for a profit of 34 million dollars um which more than paid for the 10 million dollars that we pay for the royalty in the world is now worth 80 million so our returns are in the thousand four to five thousand percent range on those kind of deals when we do them uh but it requires that we're we're a little bit more knowledgeable a little more tactical um and we carry a little bit of a heavier technical team than some of the other groups but you know one or two of those deals a year tend to more than offset our increased gna in terms of how we fit in we're the fourth largest precious metal growth company in the world right now uh last year we made 146 million dollars in gross revenue with a 91 gross margin we're dominantly royalties and we're dominating royalties on gold mines they're pure gold mines as opposed to uptakes on copper mines and we're dominantly exposed to canadian assets okay so you just you've just done your annual 2020 um shareholder meeting you're predominantly institutional but 25 which is described as retail and unknown institutional so it's there's not much is there much liquidity in the stock i know you've got it's traded a lot but the shares don't seem to move too much do you think shareholders are happy at the moment i think that you know obviously we we run a different business model so some of the groups that have been describing the pure royalty model have run higher multiples on their nav basis um so we do face a challenge in terms of the diversity that we have within our business strategy but i've been doing this a long time i started as an underground minor in 1985. i've seen most of the minds in the world and i've worked 16 years as an international expat so we're a focus on high quality assets we're focused on premium strategies and we try not to get up caught up in these bank run strategies that are more you know flavor dijour as opposed to true value building so we'll stay the course um we we've built a really good portfolio of north american assets we think that political risk matters uh having spent 13 years in west africa been through four hostage takings two civil wars and multiple other security issues um it's a real thing for us um so you know we're dominantly focused on places where we think we can uh we can actually operate these mines and you know in the incubation process we've had exceptional success uh in the last uh six years our group of companies the subset was responsible for more than 50 percent of all the exploration drilling in canada led the charge by a cisco mining which has drilled 1.3 million meters and our shareholders did not pay for that but we uh we hold royalties on almost 30 000 square kilometers of lands uh in brownfield camps in canada and i kind of like to think about it like real estate it's uh you know there's waterfront and there's downtown core um they don't make new waterfront they don't they make new downtown core so we've stuck to premium real estate and we think that in the in the medium to long term our strategy pays off it's a little bit it's been a little bit complicated to explain to shareholders in the near term but i think that our product um for those who do the work uh it is a it is a little slightly more sophisticated project than the uh than the go to bid you know pay one and a half times nav you know if you're paying a dollar fifty for a dollar worth of revenue um i don't know that that game lasts forever uh so we've been very much a primary basic investor got it okay so i asked you the question do you think they're happy you didn't say yes you gave me you tried to elaborate or like strategy you're very happy right okay which is what do you think the institutional guys like it and understand it and they're in for the long term well listen our main shareholders are the case depot in quebec um and investment quebec and ftq and then some of the traditional players like tocqueville they get it and they understand it you know obviously communication to to get a premium on the company uh is my challenge and uh sandeep singh and we've had a management change in the company in 2019 so uh sandeep's new president and uh we've we've re-ramped re-energized everybody um as we came into it so i think we're we're in that position right now where there's a value gap in the market for shareholders they're looking for a royalty company to come into uh we do face the lowest multiple with the highest quality of assets out of all the royalty companies that are out there so it's it's a bargain opportunity if you uh you do the work and you can understand it and we're more than happy to talk to you and take you through it but it's a big solid you know what i would call in north american terms an f-150 kind of portfolio it's very straightforward it's not complicated uh at the asset level we don't have a lot of exotic things in there and you know what has been exotic has been discounted already such as lydian or our investment in renard uh quebec's largest diamond mine uh everything else is basically in there for free and if you could just believe in the fundamentals the canadian mulartic asset obviously being our cornerstone uh project um and you know agnico having just announced seven million ounces in the underground of which we have a five percent loyalty on you know we we continue to have premium assets so i think that's the opportunity for shareholders okay so you're not conventional royalty company per se you have this kind of private equity approach to some of your investing okay it's because you then get the private equity tax and my income from private equity if you if it was anything under 20 i wasn't really interested so it gets significantly more than you'd expect from the royalty but high risk you've got to know what you're investing into at that point right is that fair point yeah i mean we tend to uh we like to eat our own cooking so you know in the case of barkerville which has been the more controversial acquisition that we did last year um it's an asset where we put our own management team in chris loader is part of the cisco platform he became ceo uh we executed 500 000 meters of drilling under his supervision i was chairman uh when we pulled that down to the asset base because we felt that uh that there was a big value gap there for our shareholders so we we looked at it more like a private equity investment and said there's there's a you know there's a good chance that we'll have a 20 plus return on this asset so we'll pull that in because the market hasn't recognized it um so we're in the process right now of financing that project to the next level but it's a 2 300 square kilometer land package it's a mining camp not just a project uh with multiple mines the vision for that one is that we end up with five to ten mines with a central processing facility and the circle royalty shareholders may end up with a royalty that's somewhat competitive to the canadian arctic royalty which is probably considered to be the best royalty in the world delivering about 35 000 ounces a year of zero cost gold there are streams that are bigger but there are very few royalties that are bigger than that so our goal has been to look and you know not to get caught with the rats and mice and lots of people who are taking pieces and parts of things and and paying for them with stock we've just stuck to primary business and tried to be more disciplined in our asset acquisitions focused on when we see something big we want to bear down on it um and we want to exploit that further our shareholders benefit and to be greedy on their behalf in terms of quality assets okay again i'm just i'm just trying to really deconstruct and simplify this so i guess 16 producing assets 16 near-term producing assets following up at some point so that's the kind of conventional component the private equity thing i get that you're going big when you do go but you can understand why people looking at you if you started off as a royalty company it's in the title of the company why they might be confused or might not do the homework to try and understand what it is that you're doing your background is private equity so therefore you've got a natural function for that but the market doesn't necessarily have that so what is it that attracts you to it is it this long term or medium term large private equity type returns that you think will smooth the kind of curves or why do it at all why not spin it out why not do that elsewhere well we we are in the process when we did the acquisition of barkerville we announced the north spirit discovery group which is intended to be a traditional uh private equity group we're in the process right now uh when we bought that barkerville asset we had five million ounces of gold in the ground but we think that there's potential there for significantly more it's an 83 kilometer long mineralized trend so we really thought this is a company company maker asset we've been in the process of looking for an asset partner on that and you know the cisco gold royalties would benefit from being an owner in the in the private equity group at the gp level uh as well as retaining a five percent royalty on all of those potential projects you know with the starter asset being the the current resource uh which is we announced the pa on last fall uh and we think that you know as we've all through this um it should happen the strangest thing that happened of course is we bought the asset at 1300 gold and gold has broken loose since we bought it so we've had multiple partners coming in but you know time has been our friend as we as as we looked at all these uh potential partners to come into it um so obviously we're trying to choose our fight date properly in terms of bringing in that investment partner into the story and i think you'll see us get that done before the end of the year we have a little bit of delay obviously to covet 19 as one does but i'm pretty excited about the value that's been created there it is in the permitting track it's 18 months out from permitting you know public hearings have been held ibas are near completion there's a lot of risk-off stuff that's happening to that project it could be a serious drive to confirm our accelerator model for the cisco royalty shareholders that uh you know we've done it again and they've seen it to us do it before um obviously windfall lake being the biggest success you know having having taken that from an eight million dollar company raised 700 million dollars a flow through money to go drill and creating one of the highest grade discoveries in the world right now uh at 5 million ounces 8.9 grams so we've been down this track before and and we think that we can continue to deliver on it um but it does make shareholders somewhat nervous while we're doing it so i've been trying to mitigate the risk for shareholders in the traditional royalty module model and obviously this has rattled the establishment of royalty companies because they're all about not having you know too much risk on their balance sheets um but we've generated significantly higher returns we've been able to grow faster than any other world's company okay in the space over the last five years okay so he's going to run up so right now it's uh it's you know we have a luke lessard who was the mind builder for canberra and he built our canadian arc mine he's built 11 mines in the past so he's on the engineering side framed up by francois vesna and a bunch of other guys that worked with us on my builds in the past we do have a history amongst the group we've built 14 mines um so we have quite a bit of depth on the bench when it comes to the chief operating officer on down uh from the financial side we've got uh sandeep singh who has taken over as president francisco gold royalties one of the more exceptional m a bankers that started his own firm called called max it came out of dundee and biamone was an advisor to us so he's running a lot of the day-to-day royalty business and i've been focused on uh you know trying to make sure that we have the proper engineering and financial backing for that um but we'll have a market presence we have john berzinski who's running uh cisco mining right now uh he's in the repertoire of bob wares who was a co we were all co-founders of a cisco one uh so we have a lot of uh credible senior uh ceo level people within the group and we tend to hunt as a pack okay but you you tell me they're about growth and you're the you know you're the best you've got the best growth numbers and that's fantastic and you give me examples of the success stories but mining is a tough industry things don't always go right you know and you know how do you give psyched to the market of when you actually start making money i get one and a half percent dividends fantastic best paying in the sector but what do companies of your size do to grow and be profitable what do you have to invest in uh you know go to the next level to become the 10 billion dollar company not the two billion dollar company because it seems you're kind of at the moment in a holding per period where's the inflection point come well i think from us it comes from the you know the evolution of our development projects turning into mines and you know we've got if we continue to build out all the projects that are in our development and growth portfolio we go from eighty thousand ounces a year of geos to about 150 to 200 000 ounces just on what's already in the company so the cisco bill royalties don't make another single investment uh we would double in size in our royalty portfolio predominantly on premium canadian assets where we benefit because you know if there's an exploration dollar is going to be spent in the world it will go into a canadian project because we have the flow through share program here and we have low-cost exploration we have a lot of land on which we can work and our drill costs are about a third what they are in mexico peru or or a fifth of what they are in africa um you know so we we have the ability to generate significant wealth from the existing portfolio um and then obviously you know we have the ability to grow and we have the benefit of contacts context in that you know it's a senior management team that's mostly driven technically and complemented by some of the best financial people that have walked the walk the space in recent time so you know i've been trying to build the uh the you know and to the the perfect scenario and and and uh you know to wait for the oracle of omaha's fat pitch um that if we do take a swing at something it's for good reason and we're trying to bat 400 plus uh as we come in to the to the cycle obviously we're in a peak gold market so asset acquisition becomes very competitive the good news for us is we've already completed most of our acquisition strategy so now comes the cycle when those mines get built and there's access to capital so i think we're pretty well approached it's going to take us another 18 to 24 months to daylight a lot of the value that's there but most of our projects are developing and you know victoria gold is a great example um that was a you know i would call that a 400 sort of pitch that um you know came out as everybody else hated the project uh we led the charge on the financing we put up 100 million dollars for a five percent royalty on the top line and subsequently 70 million dollars in equity partnered with our friends from orion mine finance and it's currently the largest gold mine ever built in the history of the yukon is the largest gold mine commissioning in canada right now on heat bleach at 64.5 degrees latitude just off the arctic circle and you know we're looking forward to that being our next growth asset going to ten thousand ounces a year okay so what you're saying is our acquisition program is almost finished we're gonna sit back breathe have take stock take a look at what we're actually doing at the moment and try and create value going forward we're not gonna keep spending because if i look at your finances you're sitting on i don't i don't really like the word try i said we are because we're not that kind we're not a group that tries we do okay you're going to you're going to take stock and you're going to do this right okay you're with me now oh okay okay send me the t-shirt uh so but if i look at your finances you got 423 million bucks a debt as of march i don't know what it stands at today you've got a big credit facility which you've drawn down 92 million of um talk to me about the finances and what you're going to do do you need to clean things up because you're telling me there's a lot of money coming down the line yeah i mean we uh we have you know net income of over 100 million dollars a year right now we did draw down 50 million dollars from our from our facility uh during covet 19 when we didn't know which way the world was going uh subsequent to that investment quebec the government come back from an 85 million dollar private placement in at a 10 premium to market so you know great shareholder uh and quebec is the most proactive mining government in the world uh the the only ones that actually will write a check a government check to be equity partners with you uh so we have a home court advantage being what i believe is the best mining jurisdiction in the world with the most supportive government and they own you know collectively 22 percent of our company um so you know we have we are unique in that we do have a huge shareholder that backs the play uh and they participate with us in different deals the case depot has enough right to participate up to 20 percent in certain deals depending on the condition directly with us which sometimes they do so we can talk we cast a much larger shadow than we do and we've also been able to uh to lay uh to to to work debt through directly through the pension plans at lower cost and some of the other uh groups so we can bring both equity debt and the royalty money to the table and we're just in the process of maturing that as we go through in a couple next steps but reality is you know we've we've been able to position ourselves and was all about getting those core real estate positions um there was more drilling on our royalty lands last year collectively than there was almost in the rest of the world because canada was drilling and everybody else was shut down so that's a big advantage for shareholders is that every time the drill bit turns on one of our royalty lands and we don't pay for it it's upside for us look at that significant discoveries what do you or the board feel any pressure financially because i know uh you just got invested more quebec to put that money in as equity is that what's driving the confidence here because again i'm just trying to get back to why aren't investors you know some investors behind you with this vision that you have if you've got the financial um you know ability to to um to help you deliver these things yeah so we're actually net debt zero if you look at our cash position plus our equity book uh so our equity book sits at around 300 million our cash position is slightly over 200 and our net debt position is uh you know there's 350 million dollars in convertibles uh which 300 is due in 2022 so it's not exactly next door and then the rest of it's on our acquisition line which we're in the process of using for acquisitions um so we're pretty comfortable with our balance sheet we try to run a net debt zero basis balance sheet um so that's that's where we sit right now um obviously one of the big equity positions is the cisco mining sits over you know 140 160 million dollars on a mark to market basis so that's why we're we're pretty relaxed about where we are the way that we put the debt on our balance sheet was we did a 1.1 billion dollar acquisition from orion uh for a royalty portfolio in 2017 so it was the debt didn't occur because of of anything except building nav so we got nav when we did that debt exchange uh and we built our geos up to 80 000 uh ounces a year so you know they're it's a pretty good ratio when you look at it symmetrically uh in terms of the balance of things and we try to maintain that you know close to our positive zero net debt zero um we will pay back debt as time goes by we've paid down 350 million dollars of dividends and share buybacks uh in 2019 uh we bought back eight percent of our stock from orion with the share exchange of our equity book for 174 million uh so we've been pretty pretty proactive on our balance sheet management okay burford you know i'm an old country boy i don't like that well yeah i know but for a 2.5 billion dollar company you know you know net zeros is you know is that where you want to be well listen it depends on why we're putting debt on right so i mean i'm willing to put that on if we have producing assets that we're acquiring i'm not really you know too keen to put that on in terms of of medium to long term opportunities but for near-term opportunities that's what acquisition lines are for and traditionally you know the most of the royalty companies do use their acquisition line and convert to debt because it's a tax efficient way to do things um the other thing that i would say is that you know we have huge tax pools we're on shore dominantly um but through the canadian flow through share basis the reason that we run such a big equity book is that when we purchase those equities we can use that tax uh protection that comes with flow through shares uh to protect our tax pools and we you know we started with 50 million dollars with the tax pools uh we've made almost 800 million dollars in revenue on onshore and we still enjoy tax schools in excess of 350 million dollars so tax management is a big thing for us and we don't have any scary issues outstanding uh and we've been able to do a model that's a little bit different than others but highly tax efficient when we buy equities under the flow through uh model if it's federal it's a minimum of 22 percent gain if it's provincial and we happen to be in quebec it can be up to 50 percent premium so if you pay a dollar for a stock wheel and we we execute execute the same transaction using flow through we've only paid a net of 50 cents for the same equity you bought so it's a bit unique a bit complicated but uh it saves a huge amount of money for us you know makes a marginal asset look pretty good you mentioned earlier you changed the management rent last year what happened why what happened well listen you know we had a lot of the same management team from 2007. um when we were operating and building a mining company everybody got paid out in 2014. uh you know so we had a management team that that largely had had a big win and and a lot of them wanted to go off and do something else and you know so it was time for a change and we were you know ryan was 62-63 uh previous president and uh you know we felt it was time that uh for a refreshment and people were talking about our you know our our our plans and uh we decided that at the time was better off to reset bring sandeep singh in uh who's 40 uh extremely successful investment banker been on most of the big m a deals as a boutique i uh uh i banker for last time i let him set up his own team and hand pick the people and he wanted to come forward with me uh i'm 56 so you know i still got a bit of a kick at the can uh and we've uh you know took the took the tactical team uh forward with us um but we really wanted to get the uh you know the the eagerness and the hunger back in the management team and a lot of other people just you know made enough money paid for their house and wanted to move on and do something else so you know that that energy level goes down when you've had the big win uh and we wanted to give somebody else a a platform to really take this thing to the next level and as you know our business has been changing it's become much more financial engineering um so we're still pretty good at the primary assets but we did want to increase our horsepower on the financial engineering level and sandeep is by far one of the best i've seen of of the next generation of guys and he's really i think going to set the stage for what happens next in our space okay in a global market like this margins are great you should with your producing assets be throwing up a lot more cash in in q3 q4 covered conditions allowing how do you in your mind take advantage of this situation because up until august you had a different kind of a set of problems what are your problems going forward well i think you know all of our when quebec had instituted a shutdown of all the primary assets that we're involved in so you know obviously canadian arctic is back up and running eleanor is back up and running these are from our primary assets uh so we should be in pretty good stead coming through the end of the year to throw off significant amount of cash flow last year you know we had revenues of just under 150 million canadian uh and we made 100 million dollars after after gna and dividend um so running one of the higher margins and we continue to build cash and pay down debt and as we move forward you know in a bull market we have to be very strategic about how we do things because it's getting very competitive for royalty so our our accelerator model becomes much more important uh where we're able to incubate stories uh and put proper management both technical and financial together it's a huge opportunity to have some of those stories that may not be capitalized to be the you know the catalyst investor to come in and then put both the management team the asset and you know the pro the appropriate royalty and streaming opportunity in place so what we like to do in these markets is this is when you can create royalties as opposed to streams is because it's relatively early time and we need the equity component at that point in time because we know that we're fairly far away from the mine being in production so we like to make money on the equity positions and harvest those positions to pay for the royalties you know much like the arizona mining story that i cited where we've got a free ride on the royalty and we've already made 24 million dollars on the equity net of the royalty so whatever happens to the royalty is you know significant premium so that's the kind of stories that we're looking for in this upturn uh we're also looking to see some of our development stories actually convert from development into mining uh with the excess data access to capital that they now have at the higher higher commodity prices so how do you describe yourself now you just talked about financial engineering that's the way forward there's nothing wrong with it yeah what are you well we're probably the best royalty company in the space in terms of business model the ability to actually execute is there because we have a technical team so i would say we're uh you know we are different uh but we're we're purpose-built uh for all types of weather we we do very well in downturn uh and then we can harvest like nobody else in the upturn because we have that equity component um so you know i think that people need to have a look at the hybrid model there's a lot of competition in the pure royalty space which i don't think is healthy you know there's a lot of winners regret out there in terms of overpaying for royalties and bank run processes that people are looking to lay off in their multiples you know if you pay 1.50 for a dollars worth of cash flow and you you can you can do it equity financing and a dollar eighty um it's not a bad business but it's not really what i would call a primary business and certainly nothing that warren buffett would invest in because those were those premiums could erode so at the end of the day you know we're pretty much a you know a a a basic believer in a dollar in dollar out to eat our own cooking as much as possible rather than get married to other people's uh successes and failures okay so do you think with this new structure this new look this uh you know financial restructuring component it is smarter but you think you've made yourself less attractive to be taken out if that was ever a thing well i think you know i've been a takeout target as long as i can remember um and i guess if i'm doing my job properly is because i do have you know significant amount of assets and uh i think if you talk to most investment bankers who would say that you know cisco has a evaluation gap that's attractive to both mining companies because we hold the keys to several uh porsches in the in the in the gold deposit asset base uh as well as we have one of the best royalty portfolios uh out there and we're the fourth largest in the world so you know if you're the top three um you don't you don't you'd obviously look at number four before you looked at number five um and the jurisdiction and the longevity of the assets that we have like the canadian wiring royalty um you know the led royalty and the victoria royalty um are more than enough to justify the curve current nav underpinning of the company so i do feel like we are a takeover target every time every day of the week and we govern ourselves accordingly and you know as people saw the last time when gold court went hostile on us they bid two and a half billion dollars at the end of the day we sold the company for 4.3 billion so for that reason alone i think shareholders need to own a company like this if you are focused on the takeover target we are the number one takeover target in the space but we are guaranteed that we will get you paid um if somebody does come at us we will drive for value um and that's the nature of life at the waterhole some days you're the lion some days you're the zebra so some days the zebra gets the line in the head but i've seen that soon happen um so talk to me about who you rely on because as i say this seems to be segwaying into a different sort of morphing into a different sort of company which means that you're attracted to that who's going to actually manage the build out of these you know or these development plays that you've got uh investments into have you got any energy or appetite for that well i think where we sit is that luke lessard's our chief operating officer and you know luke was the mind builder for cam viewer cambria built 20 mines his dad built 2010 he built 10 then he built more um so that's really you know luke wakes up in the morning as he tells me sean i love the smell of fresh concrete um so that's his job but you've got 135 royalties only 32 of which are sort of producing or near-term producing yeah there's a lot in the in the in the background so what happens with that what is the model going forward you can offload some of those well you know a lot of those assets were purchased as sort of portfolios you know kind of when you buy like a cable tv package you wanted to get the uh you wanted to get the football and all of a sudden you got martha stewart and snoop dogg on the cooking channel um as a as part of your package so you know we don't really ascribe a lot of value to some of those sleeper royalties right uh they are a nice call a nice potential but you know we have 16 producers right now which is is more than most of the rest of the sort of mid-tier smaller royalty companies um and we see you know that growth going to sort of 2021 over the next three to five years and a lot of that's organic growth out of the portfolio of companies that we've incubated we've incubated seven companies now starting with the cisco mining windfall lake falco resources which has an exceptional deposit located in rural naranda it's 9.1 million ounces of gold equivalent to 6.1 of it in reserve um the barkerville assets and then you know victoria was a was an accelerator company uh and then things like uh talisca resources and british columbia stable resources uh and and the other sort of companies that come along and we try to incubate one of those companies per year um we don't we you know we assume that the success rate would be one in three so far we haven't had a failure which has been exceptional and we've generated over 21 million ounces of discoveries in four and a half years uh at the drill bit from those companies that our shareholders have royalties on so it's been an exceptional success but it's going to take another probably six to 12 months before the bigger market gets there and you know we'll see some of these newer mining these new royalty companies sort of have their euphoria a lot of them are spin-outs of asset bases that basically went no bid from the traditional royalty and streaming companies so they spun them out um and put you know some some some management teams in place that really don't you know don't come from the royalty space and they will see how they do in the long term okay well let's let's talk about that are you looking are you looking over your shoulder at any of these guys or well you seem to be looking over your shoulder with some kind of disdain uh about what they've managed to put together but the market the market the market's valuing them yeah i think it's indicative the market wants to pay for them so you know well done lads and and you know that's you know we we appreciate that success in the mining business in any form is something i'm going to celebrate um you know it's been a tough space as you as you said in the beginning um so i have uh i have no disdain for any success in our industry um i'm only there to clap and support and you know but i mean our business model is that uh you know we're we're there to offer that sort of uh steady build of asset base and and and give a brownfield canadian component to it um which is really our specialty uh and you know we'll uh we'll continue to grow the way we grow and you know these the next six to twelve months is kind of crucial that you know we get barkerville sorted and to the next leg i think that'll that'll take some of the pressure off and i think that when people see our year end results uh as we come through this you know we had a few assets that uh that became problem children through the orion act transaction with lydian uh obviously having some issues in armenia uh the diamond market getting some brain damage uh uh in terms of commodity pricing so you know all these things they come through and when you have a portfolio of assets this is inevitable that you have some problem here some problems in your portfolio but we do have a broad portfolio okay what i'm trying what i'm trying to understand i'm an investor a family office i'm trying to work out which you know royalty companies i should be into i think what you're what i'm hearing from you is you're you believe in fundamentals and you're saying not necessarily a big believer in some of the promotion that's going on elsewhere and you need time to deliver the new strategy do you need what do you think you need to show the market in the next 12 months i think the uh you know the evolution the big the big uh re-rating that we haven't seen so far has been the male arctic underground as that nico continues to actually own that there was a lot of crosstalk in the marketplace about whether you know like nico and humana were going to try and force us to take a reduced royalty uh on the underground component or not obviously at current gold prices that's not a discussion um and then they've recently come forward this last quarter with their exploration and development program so i think that's pretty primary piece of you know steady eddy uh no risk at nico and yamana uh pushing hard to develop that underground that goes directly into our asset base the other big one will be you know the sort of the evolution of what we do with parkerville um as north spirit evolves and we have you know we'll get that done by the end of the year and uh we should you know we should see some pretty steady re-rate as we come forward and uh sandeep gets more and more uh you know no one to the market and hopefully we get a couple deals done um that are that are in the hopper now and we can you know we can move on to the next level uh of of the business um what's your brief to him charlie model what's your brief to him sean you know you said right we've kind of we need some more energy in here you're a great financial engineer but what's it what's the brief that you've given him to sort your company out well i think where we are is you know the separation of the of the model which was you know the accelerator company we had said that we would do that with north spirit and we obviously ran into covet 19 here in the spring uh so you know we're probably a quarter behind on the evolution of that but you know we've said 25 percent of our aunt was going to go into the accelerator monitor 75 was going to go into you know traditional last money in strategy if you will um which is you know shovel ready permanent hand uh mine finance is typically where streams and royalties uh play out um there was a period in 2016 when you know the big companies the baseball companies were using streams to refinance their debt packages but that was probably a once-off i mean that's super cheap now so we're back to traditional royalty and streaming business which is mostly project finance and now that we've incubated these seven companies a lot of them have moved from the 25 allocation to the 75 allocation so there needs to be separation for lack of a better metaphor of church and state within our group we're in the process of executing that um and you know we want to create that that pool of capital that comes to work with us uh to make sure that these assets that we incubated in the 25 component transition to production and become producing royalties and streams and to purify the royalty and streaming business as we always said we would once we'd sort of got you know the cake baked um that we would we would move on and we would create that side car of capital that was more focused on the development space i think we're a little bit in the penalty box you know for having some of our our capital allocated into that development space and uh you know we'll we'll we got the message we're gonna do it uh sandeep's the man to lead the charge and you know i will make sure that the mines get built so that the royalty and streams actually become uh part of the revenue stream for the company that's my job you know i i've i spent my whole life building mines um it's not something that's foreign to me it's not you know i'm not putting down my laptop to pick up my hammer uh i was born with a hammer in my hand so i'll make sure that portion happens and we'll let sandeep uh you know focus on making sure that we run the best royalty company in the world okay separation of church and state i love it simplicity of message as well i i like it i g it sounds like he's got his uh got a bit of work to do you know get speed under the table and uh start delivering hopefully in a covert free 19 free zone uh soon as well like sure i appreciate the run through first time we've met first time we've spoken first time i've heard that story um it's complex but i understand it better now um you've got a lot of good moving parts um let's see where the sierra brings you well i would also add you know as a group we've returned capital to shareholders many times the last time we built canadian arctic we're at 4.3 million ounces gross revenue and we spent 1.2 billion to make sure over 3 billion net so that's the plan

Channel: Crux Investor

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Keywords: mining, gold, precious metals, crux investor, cruxinvestor, cruxcasts, miningnews, TSX, investing in mining, investing in stocks, investing in stocks for beginners, investing in stocks for beginners uk, investing in gold, investing in gold uk, mining news, invest in stocks, invest in stocks for beginners, invest in gold, invest in gold uk, invest in mining, osisko gold royalties, osisko royalties, osisko gold royalties stock, osisko gold royalties rick rule, sean roosen osisko

Id: M9qcVyUmmHg

Length: 46min 53sec (2813 seconds)

Published: Sat Aug 08 2020