Good morning, ladies and gentlemen, and welcome to Osisko Gold Royalties Q3 2020 results conference call. After the presentation, we will conduct a question and answer session. Please note that this call is being recorded today, November 10th, 2020 at 10:00 A.M. Eastern Time. Today on the call, we have Mr. Sean Roosen, Chair and CEO of Osisko Gold Royalties, Mr. Sandeep Singh, President, and Mr. Frédéric Ruel, Chief Financial Officer and Vice President Finance. I would now like to turn the meeting over to your host for today's call, Mr. Sean Roosen.
[Non-English content]
[Non-English content] Welcome to our third quarter conference call. We will be following a format this morning with Fred Ruel presenting our financial results as reported, and then Sandeep Singh, our President and to-be CEO, will be coming on and giving us the rest of the corporate presentation for today. We have a presentation on our website titled Q3 2020 Results that you can follow this morning. I will give a quite small preamble this morning and then pass it over.
As you know, we are in the evolution of the Osisko story, with the purification of the royalty model for Osisko Gold Royalties, through the spin-out of the Barkerville and San Antonio assets into the new entity of ODEV. That vehicle will probably start trading in early December, and some more work left to do on that as we get into it. That should simplify the business of Osisko Gold Royalties on a forward basis. Quite excited about the evolution there and the aspects of what's happened with the ODEV assets, both at Barkerville and San Antonio, as we move forward.
I think it goes well to explaining why we believe Osisko Gold Royalties has the best business model in the space with the sidecar accelerator business, providing unequaled opportunities to Osisko Gold Royalties as we evolve in the space and continue to execute our business plan to build the best business around the royalty model in the sector. On that note, I will hand it over to Fred Ruel to give you the financial highlights, and then Sandeep will take over after that. Fred, over to you.
[Non-English content ] Sean. Good morning, everyone. Thank you for joining us today. A strong third quarter for Osisko, with production rebounding very well from Q2 and the COVID-19 impact. We earned 16,739 GEOs in Q3, generated record revenues of CAD 41.2 million, record operating cash flows of CAD 36.1 million, and an operating margin on our royalties and streams of over 96%. Net earnings were CAD 12.5 million or CAD 0.08 per share, while our adjusted earnings were CAD 17.5 million or CAD 0.11 per share. We also acquired during the quarter the remaining 15% ownership on the Canadian Precious Metal Royalty portfolio, which includes royalties on the Island Gold and Lamaque mines. We also announced a strategic partnership with Regulus for $12.5 million U.S. Of course, as you all know, we announced in October the spin-out transaction and the creation of Osisko Development.
On page four of the presentation, we show our production by assets and by products. The Canadian Malartic Mine delivered strong results, Victoria Gold continued to increase the deliveries. In Q3, 70% of our production came from gold and 27% from silver. As presented under page five of the presentation, we recorded record revenues from royalties and streams of CAD 41.2 million, compared to CAD 33.9 million in Q3 2019. Cash flows from operating activities reached a record CAD 36.1 million compared to CAD 28.3 million last year. If we go to page six, we have a breakdown of our cash margin for Q3 and year to date. The cash margin on our royalties increased in Q3 to reach CAD 30.1 million compared to CAD 23.4 million last year.
For the first nine months of the year, the cash margin on royalties reached CAD 76.5 million, an increase of CAD 5.9 million compared to Q3 2019, despite the COVID-19 impact on our deliveries during the second quarter. The cash margin on our streams was CAD 9.6 million in Q3, compared to CAD 7.4 million in 2019, and CAD 25 million for the first nine months of the year, CAD 4.5 million higher than 2019. This resulted in a cash margin on our royalties and streams of over 96% in Q3, in fact, 96.4%, compared to 91% in Q3 of last year. Our total cash margin reached CAD 40.5 million, CAD 8.7 million higher than last year. Year to date, our total cash margin was CAD 104 million, an increase of close to CAD 10 million. On page seven, we have a summary of our earnings and adjusted earnings.
Net income was CAD 12.5 million in Q3, or CAD 0.08 per share, compared to a net loss of CAD 45.9 million last year, or CAD 0.32 per share. The loss in 2019 was due to impairment charges. Adjusted earnings for Q3 reached CAD 17.5 million or CAD 0.11 per share, similar to last year. On page eight of the presentation, we have a summary of our results for Q3 and year-to-date. GEOs from gold production were lower this year, partly due to the sale of the Brucejack offtake in Q3 2019 and the remaining impact of COVID-19. This was more than offset by strong silver deliveries. The decrease in our total revenues from CAD 109 million to CAD 56 million was also due to the sale of the Brucejack offtake last year, partially offset by a higher realized price on gold.
Our average gold price per ounce sold amounted to a record CAD 2,545 in Q3 of this year, compared to CAD 1,952 in Q3 of last year. Our gross profit for Q3 increased to CAD 30.8 million from CAD 20.9 million in 2019. On page nine, we have a summary of our strong financial position. Our cash balance at the end of Q3 was CAD 161 million. Our debt amounted to CAD 422 million, unchanged from Q2, including the CAD 100 million accordion available under our credit facility. The facility has over CAD 400 million available at the end of September, allowing us to quickly deploy capital as needed. Finally, on page 10, you may find our updated guidance that was released in early August. We expect GEOs of between 33,000-35,000 in the second half of this year with a cash margin on royalties and streams of approximately 95%.
We anticipate a continued upward trend in GEOs deliveries in the fourth quarter. We believe that we are in an excellent position to meet our forecast for the second half of 2020. I'll pass the buck to Sandeep for the rest of the presentation. Sandeep to you.
Thanks a lot, Fred, good morning, everyone. It's Sandeep Singh here. Look, hopefully what you've taken away from Fred's presentation and our Q3 results is that this was an excellent quarter. Records in terms of cash flow, despite the fact that our operators' assets were largely still revving up over the course of the quarter post-COVID. The asset base is performing extremely well overall. As Fred mentioned, production bounced back well with still further upside expected in Q4. To touch on that a little bit, we've talked about timing deliveries in the last quarter in our press release. For instance, Seabee, we didn't get any ounces delivered to us in Q3. They're certainly producing in Q3, so that was kind of the hangover of COVID where we didn't get that impact in Q2, we got it in Q3. Island as well.
The mine is doing extremely well, as everyone I'm sure knows, but our ounces were down in Q2. That's kind of behind us as well and looking forward to kind of getting over the hump on those types of issues. Malartic, obviously our flagship asset, a good quarter by every respect, but also included some processing of low-grade stockpiles as they look for increased flexibility until the Barnat higher grade zone starts contributing. It did a little bit in Q3. We certainly hope that that will continue. Victoria is the large asset for us ramping up this year. It's still ramping up and deliveries are growing to us all the time. I'll touch on that in a little while. I'm still looking at slide 10, by the way, if you're following along in the deck.
As Fred mentioned, meeting our guidance equates to about 16,000-18,000 ounces, just a touch above for the low to the high in terms of Q4. We certainly think given the dynamics I just mentioned, that we don't see any risk of that. Obviously, the assets will do what they do, we feel pretty comfortable heading into the last quarter of the year. In terms of growth during the quarter, we spent about CAD 67 million on royalty and stream growth in the quarter between the acquisition of the Case portfolio, the CAD 12 and a half million, and the San Antonio stream fund, basically facilitating that transaction, which delivered us the San Antonio stream. Between those two transactions, there's immediate growth on assets that we already own in that Case portfolio that we like and that have big upside.
The additional stream we think has the potential for significant contribution in the near term as well. If you look at slide 11, or the next two slides, I will touch on the important transaction that we announced post the end of the quarter and want to make sure everyone understands the impact on us. I'm sure everyone does understand the transaction structure by now. We've had a chance to talk to most of you about it. As Sean mentioned, it remains on track, or the trading of ODEV remains on track for early December. We're just going through the last of the listing process now. That bodes well. Again, I won't go through the transaction particulars. I'm sure they're all well understood.
In terms of the financing, I will say that it was a good result, in what's been a choppy market, generally speaking, leading into the U.S. election. Good demand, a good set of shareholders, that Sean and team will take forward in Osisko Development. Significant interest in that company, even though the structure was a little bit complex for some groups to be able to participate in. We think there's a good launch in store for us on the ODEV side and some meaningful catalysts in the next 6 months that the team will be able to unlock value with. In terms of the, maybe I'll touch on it because it preempts hopefully the question a little bit. The only real question we get left from our perspective is on the retained ownership. Obviously, 88% in the hands of one entity is not a sustainable level.
We structured it in such a way that we wanted, and we want that retained upside. As the ODEV team moves the assets forward, we will be diluted. We expect the team to move the assets forward quickly, to meet those catalysts. Then as well, as I've mentioned before, we'll look for opportunities to reduce as well. The prize there is a significant amount of value. We're going to look to do that in as smart a way as possible. On slide 12, I think it's worth re-emphasizing one more time. I think it's a win for both sets of assets, frankly. I think we've set up Osisko Development well as a strong portfolio, well-funded, on its way to becoming an intermediate company solely with assets based in North America, when in production, and a good mix of near-term production potential, as well as the flagship asset.
Obviously, the team we have the utmost confidence in in terms of unlocking that value. On the OR side, I think accomplished quite a lot, frankly. It's a lift. We got our shareholders a lift from what's been invested into the asset base there, which is significant. We've crystallized the value of those development assets. They're now off of our balance sheet. They'll have a see-through value. They have one based on the financing. They'll have one every day thereafter, which we think will be beneficial to our shareholders. We reduced, or we'll be eliminating the spend in terms of the asset exposure. In Q3, that was roughly CAD 16 million on Cariboo. In keeping with previous quarters, when you flow that through, that's about CAD 0.10 a share to the bottom line.
We've also reduced or will be reducing our G&A as part of the transaction as essentially the full team required to run both companies was in place. We're just segmenting them between the two. Last but not least, we secured and fashioned at least 20,000 ounces of GEOs for Osisko, subject to unlocking value on those assets. That's a hugely significant chunk of growth that we got paid to take in the end. A rough ride perhaps to get there, but ultimately happy with the end result. We certainly feel like we've set the company up for significant re-rates. The assets, the royalty portfolio that is in Osisko Royalties today deserves a better valuation. Has a pretty substantial growth profile that we don't think we're getting proper value for.
That's our job going forward, is make sure we can unlock that for the benefit of our shareholders. I think we've done a lot of the heavy lifting, and we'll continue down that path. If you look at slide 13, it's the growth profile I touched on a little bit before. Essentially the ability to more than double production organically with things that we've already bought and paid for. Some of those contributing this year, some of those contributing next, and a good pipeline of assets that are coming on behind. We feel pretty comfortable, in terms of where we sit currently. This provides us the ability to be disciplined in what certainly can feel like a bit of a heavy transaction market out there. We'll look to pick our spots when we see value.
If we don't, we'll sit on the sidelines, given the dynamic I just mentioned. I'll spend a little bit of time on slides 14 and 15, talking about the Malartic underground, given that it's a huge catalyst for us, we hope, and we certainly expect, over the course of the next coming months. Not just for us, but obviously our joint venture partners, Agnico and Yamana, who are doing a tremendous job with the asset. The open pit continues to deliver like clockwork, so I'll focus you on the underground. I'm sure all of you who follow those companies are aware of the underground work that was announced in Q2 in terms of ramping down the portal work that's underway now, almost complete, and the two years' worth of ramping into East Gouldie, Odyssey, and East Malartic.
In Q3, a lot of the discussion was around a drilling update at East Gouldie, which should translate into a new resource early in the year, followed by a PEA, which I'm sure the market hotly looked forward to. The drill results were nothing short of fantastic, frankly, with widths and grades increasing. If you look at the bottom right here, you'll also notice, the continuity has never really been an issue, but it continues to be reinforced, and I think goes a long way towards adding confidence to the operators, to push that asset forward, including a potential shaft decision off the back of the PEA in the new year.
If you look at the bottom right, as I was trying to say, East Gouldie and East Malartic dipping towards each other, with certainly the potential of those two converging at depth, as well, open at depth, to help benefit that. A lot of good news from a Malartic perspective, a Malartic underground perspective. We look forward to that getting further advanced by our partners. If you look at slide 15. Just a little bit more on the exploration update. 12 rigs turning at East Gouldie, generated 38,000 m of drilling in Q3. That takes us to about 77,000, 78,000 oz, sorry, meters, I think, for the first nine months. A similar kind of Q3, Q4 level of drilling. Intense drilling. Certainly, we expect that to lead to a significant increase in resources by the time they update that in the new year.
As I mentioned, you'll notice a snapshot of some of these results here. Nothing short of exceptional, frankly. Fantastic continuity. Average widths, if I remember correctly, north of 10, I think it's 11 meters, averaging greater than three grams per tonne in the East Gouldie portion. This is going to be one of the core facets, one of the core catalysts for us. We've always felt this year that this was shaping up to be the best development project maybe in the sector, or certainly one of. It's continued to trend that way. Our view is, the more the operators do their work, the more they're comfortable talking about it early in the year, the better it'll be for all of our sets of shareholders. We look forward to that ongoing work. Can you move to slide 16?
Just some of the other producing assets to touch on a little bit. If I miss something, we can certainly pick it up in the Q&A. Eagle, I touched on earlier, ramping up, continues to ramp up well. I guess the ramp up continues. If you follow Victoria Gold, you would have heard of some bottlenecks on the processing, largely crushing side, that are being addressed through a variety of optimization work. Importantly, I think the grade and the recovery, if you listen to the operator, are reconciling quite well. It's just really a methodical march up in terms of tonnes being stacked. We're quite confident that the team is doing the right things there. We keep a close eye on it, and look forward to that production growing. It's growing to us all the time.
From an exploration perspective, everyone's been focused on the production there, as they should be, but we're starting to see some really good stuff come out of Victoria on the exploration side, including most recently on the Raven, a drill hole of about 65 meters and just shy of three grams, which was a large step-out hole. Mantos, again, a strong contributor in Q3 for us. Performed quite well, even with all the challenges of COVID-19 in South America, Chile especially. We commend them for that. In terms of the expansion, I think we say here mid-2021, there could be some small delays, again, COVID-19 related, but that pushed that into the second half of the year.
Still, overall, we're quite pleased with the updates we're seeing in terms of their expansion work and how little impact COVID has actually had on them. Éléonore, again, it was a COVID impacted quarter, slower rev up there, as I guess they're being a little bit more cautious and lower tonnes mined, but we expect them to continue to make progress on their being Newmont's full potential program. Hopefully this is one that they can continue to improve, and add ounces to us. On slide 17, I touched on the assets being contributed through ODEV to us. I'll go through this relatively quickly. At Cariboo, look, it's a significant, scarce, meaningful, whatever adjective you want to use, resource at Cariboo. There's an aggressive drill program underway, and we expect that to continue under the ODEV banner.
Lots of exploration success over the course of the year that the team will be following up on to turn discoveries into resources. A meaningful reserve update as well that will feed into feasibility study in mid-2021, an ongoing path towards permitting. Recently, IBA signed with the key First Nation, the Lhtako Dene Nation, significant advancement from that perspective as well. From what we can see, permitting is obviously a lot of hoops to jump through, the team is doing a great job doing just that. On the San Antonio side, really great starter pack with 1 million ounces of high grade, 1.2 g heap leach material. Large land package, really untouched, and kind of forgotten. Work to do there in terms of permitting, infill drilling, expansion drilling, studies, et cetera.
A great address and a great starter pack, as I mentioned, in Sonora, with significant upside overall and a lot of good near-term opportunities that Sean and team will be attacking. Slide 18 just highlights, maybe slide 18 and 19 highlight some of our other assets. I won't go through them all in detail. Windfall, Hermosa, Horne 5, significant contributors to growth. At Osisko Mining, a sizable high grade, 5 million ounce resource. The press release had a pretty funny title, 'More of the Same,' but that more of the same is some of the most exceptional drill results in the sector at present. We look forward to that continuing to add meaningful ounces, as they work towards their own feasibility study in 2021.
At Falco and Horne 5, a very important announcement or transaction with Glencore, where they provided a convertible debenture, structured an off-take, which they always had the right to. Frankly, got some skin in the game, and as they continue to work towards the last technical diligence they're doing, and the team at Falco have done a phenomenal job getting the relationship with Glencore to the point where it is. We look forward to them finishing that exercise over the next short while. Again, just to touch on Horne 5 as well, which is a stream that we fund based on success, but can be a meaningful contributor. Depending on your gold and silver prices, circa 20,000 ounces of GEOs right there. The recent announcement is a positive one towards that. Our stream, as I said, is funded on success.
If you just look at the Monarch transaction recently, congrats to those folks, for I think circa CAD 150 million in the neighborhood. We certainly think that's a very positive read-through on value for 6 million ounces of reserves and 10 million ounces of overall gold equivalent ounces. On slide 19, again, just other examples of how the portfolio is doing well. I touched on Island, obviously, a ton of success there for the Alamos folks in terms of that mine, in terms of production and cash flow, but also on the exploration side. Some of that drilling, especially over to the east, now drifting over to our higher grade royalty portion. We look forward to their continued work towards expansion and obviously, continued exploration success. Seabee, I touched on earlier.
Deliveries have restarted for us in October, so that's behind us, and we look forward to their catching up. Still a great high-grade mine, an asset for us in Canada. Gibraltar and the Taseko folks, I think, the upshot of that is they did quite well through COVID, managed it exceptionally well despite such a large land, sorry, workforce. They kept costs down, brought costs down, frankly. Now the copper price is in a much more supportive place. I think that's a good news story. We obviously improved our stream earlier in the year to assist and frankly, opportunistically for us. On Sasa, again, a really important contributor on the silver side. Obviously, unfortunately, there was a tailings issue, a tailings leak, during the quarter. Those remediation plans seem to have gone well and have been well accepted.
They're still finishing that exercise and hopefully that gets sorted out soon. In the meantime, production is back at full capacity. Hopefully that issue gets resolved and is behind them. Then I guess ending on slide 20, I will just reemphasize again that we think it's frankly an excellent quarter, coming out of COVID-19, and sets us up for a strong finish to the year. At current gold prices, even with the last day factored in, we're still making money hand over fist and hence the records that we saw from the revenue, more importantly, cash flow perspective over the course of Q3. Hopefully we can keep that trend going. There certainly are a lot of strong catalysts across the asset base over the next three, six, 12 months, pick your timeframe.
What we think is fairly sector leading organic growth that we should start to chip away at. In the process, we think we've simplified the story this quarter, as we get out and tell that story, we certainly expect to undo the meaningful trading discount that we still think our assets deserve a better lot in life on. With that, I will conclude, and open up for any questions you may have of myself, Frédéric, and Sean.
Thank you. At this time, if you'd like to ask a question, press star followed by the number one on your telephone keypad. To withdraw your question, press the down key . Your first question comes from the line of Ralph Profiti with Eight Capital. Please go ahead.
Hi there, good morning, everyone. Thanks for taking my questions. Sandeep, two of them, if I may. Firstly, you talked about the transaction market. You described it as being a heavy transaction market. Just wondering what you meant by that. Are you seeing a significant pickup in activity or a more competitive environment, or both? In that context, under the new structure, how would you allocate priorities to how you would actually fund new transactions?
Sure. Happy to touch on that, Ralph, and good morning. Look, I think in terms of your first question, in terms of the growth market, I think I said heady, or I meant to say heady, not heavy. Look, it's clear there is a fair bit more competition out there. I don't think we've been shy. The going rate for things at times we've chosen to not pay. We've tried to grip, for a variety of reasons. We have significant organic growth, as I mentioned earlier. We've tried to fashion new growth in different ways. The Osisko Development transaction is one example of that. There's more people out there looking for royalties. You'll find that at times. There's also more royalties and streaming opportunities coming around all the time, I think. That ebbs and flows. It's a capital-intensive market.
I think through royalty and streaming, we provide collectively a competitive cost of capital. There's still a lot to do and things popping up here and there all the time. I would describe our pipeline as good. We still see things that we can do that add moderate type transactions, that add meaningful growth to our size portfolio that we think are still good value, and those are the types of things we're focused on. Hopefully that answers your first question. Flowing into your second, in terms of allocating priorities, again, I think for us, given what I just described, it's having discipline, and showing discipline in terms of what we reach for. If we see good value out there, we can reach for it. We can do almost any transaction we want to in the sector. At times, that's been a big if.
We'll look to pick our spots. The fact is, job one is to get paid for our current set of assets, and then obviously have the organic growth kick in. If we can supplement that with smart transactions, we will. We've got a, as you and I, with many of you, have talked about the fact that we've got a large development portfolio that's transitioning already, and we'll get the benefit of those ounces really as they do transition from development to producer status. The focus. We have to look at things on a case-by-case basis. This is, you can't be too stuck in your ways, but the focus certainly is on nearer term, either cash flowing or nearer term opportunities.
That said, when we see an attractive asset, like we structured with Regulus in Peru, which is big and getting bigger all the time, we'll reach for those as well. Hopefully that gives you a bit of color. It's a fact. If I can just distill that, those are a lot of words, but if I can distill them into two, it would be discipline and balance.
Fair enough. Yeah. I appreciate that. If I can follow up on Renard, can you give us sort of your views on the ramp-up and milestones that you're seeing? It's not included in the guidance. How much upside could we see from, say, a materiality perspective?
Renard is still important to us. We took it out of the guidance out of the overabundance of caution while it was on longer care and maintenance through COVID, and then obviously the luxury good market. It wasn't our expectation it would be the first thing to come out of COVID. That being said, I think we've been positively surprised. The mine is back. We're up and running. We chipped in, at least on paper right now, not fully, to provide a working capital facility with our partners who are quite strong there with us, just to make sure that there wouldn't be any fits and starts. There was a significant inventory of diamonds on the books already that they could dip into as needed.
They've started to make some of those sales, and the prices have been good, kind of back to pre-COVID type levels sooner than we expected. I think that's an important asset. It can add a big chunk to our gold equivalent ounces. We're still in the kind of workout phase now. It's going ahead of schedule versus my own expectations at the start of the year. It's kind of on the cusp of needing an extra little push from a diamond price perspective, whereby we can get back to the point where we're making money on our stream.
Thematically, that's the wrong word, but market-wise, Argyle, Rio Tinto's Argyle is finally kind of run out of ore, and it's on the shutdown phase, long phase, but I think, in terms of, in their last deliveries, that is 10%, I think, roughly of the global market. Importantly for us, in the same, overlap significantly, I guess I'd say, in the smaller fraction, that Renard lives and breathes in. We certainly hope that there's a moderate improvement that gets us back to our stream. It's a significant stream for us. Ultimately, the logic on that transaction was it is a chunky stream for us. It's CAD 1 billion of good infrastructure. It's a mine that runs well. Just needs a little bit of help on the diamond side, the price side, and so far so good.
I don't know if that answers your specific question, but we're certainly happy with the progress there and look forward to a positive outcome eventually. Hopefully sooner than later.
Yeah. No, answers it perfectly. Thank you, Sandeep. Thanks for the input.
No problem, Ralph.
Your next question comes from the line of Puneet Singh with Industrial Alliance. Please go ahead.
Great, thanks. You upped your exposure to Island Gold in the quarter. Can you take us through the varying royalty rates on the mine, which areas are higher, which areas are lower, and how that works in terms of the expansion they're planning at the mine?
Hi, Puneet. Thanks for your question. Look, that's a mine just overall that we think is running exceptionally well. Again, kudos to the Alamos team in terms of what they've done there. Obviously, some of the blueprint was already there, but they've done a fantastic job with it since, and the grades and widths that they continue to hit at depth are improving that situation. It was an asset that we had 85% of that portfolio, if you will, that we bought from Teck. Case had the last 15. Adding exposure to a mine that we already knew well and liked with big upside was a bit of a no-brainer. Currently, the royalty rate, if I'm not mistaken, is 1.38%, just shy of 1.4%, and that will continue to be the case for some time.
Importantly, as they drill to the east, they are drifting towards, what is I think between 2% and 3% royalty, space for us. I don't have the exact answer for you in terms of when that transitions, but certainly, Puneet, if you'd like, can follow up with you, with a better answer, as, you know, post the call.
Okay, great. That's good. Then I guess my second question, just on Mantos. I see you put out a forecast of when the debottlenecking project would be complete. I guess, are you still forecasting it to go up to 1 million ounces of silver per annum after it's complete? How fast do you think the operator can get to that level?
Yeah, look, I mean, I think we're pleased with the progress to- date. I'd say we're happy that what looks like minimal limited impact from COVID, essentially, both at the actual operation and then on the expansion side. That all bodes well. I think, that's from a timing perspective. Will that continue to be the case? I'm not sure, so far so good. How that affects the ramp-up, we'll certainly want to see as well. I think we'll stay mute for the time being. Certainly nothing's changed, I guess, in our view of ultimately where it ends up. Question of how long it gets to take to get there. Really, though, we might be talking months, as opposed to anything else.
Ultimately, our view there has not changed, and we look forward to that as a contribution.
Okay, fair enough. Thanks.
Your next question.
Thank you.
I'm sorry. Your next question comes from the line of Michael Jalonen with Bank of America. Please go ahead.
Hello. Good morning, Sean and Sandeep, Fred. Just a question on page 13, where you show production going around 64,500 oz to the midpoint this year to 140,000 GEOs by some date that's not shown. Just wondering what would be that date, and what are the key assets that basically drive about a 75,000 oz increase, more than 100%? Thanks.
Hi, Mike. Good morning. Yeah. Look, that is intentional. We haven't given a date for that. Again, mainly because it's not in our control. I will say this, we're not talking about off in the distance. We might not be talking about the next two or three years either, but these are in the next several years, we certainly see the ability for the asset base to grow to that order of magnitude. In terms of the assets, look, we were supposed to be, I think the range was 82,000 - 88,000 oz for this year, 85,000 being the midpoint pre-COVID, and that included some Barnat. Look, we certainly have the ability. We're on track for growth this year with Eagle kicking in beyond that. We've got things like the expansion that we just talked about at Mantos.
We've got Windfall, Hermosa, Aquila being a big chunk there as well. Falco is not in that number, given that we haven't paid for it yet. Then we've tacked on Osisko Development, kind of the placeholder for about 20,000 oz a year. Those are some of the assets in the next several years. Each of those, you might have a view on their respective timing. Importantly, are generally all moving forward well, with some minor exceptions. Most of those assets are getting good traction, and advancing well in what is a pretty conducive equity market out there. Hopefully, that continues to be the case for those folks through the development, and construction trough.
Well, our analysis covers South32, has Hermosa maybe 2026 at the earliest. What about Windfall? I read their press releases. I don't see any production or construction decision yet. Maybe Osisko sees. What's your view when they could be in production? It's obviously a great discovery.
Yeah, look, I'm sure.
Yeah, maybe I'll jump in on that one.
Yeah. Go ahead, Sean.
I think right now, we're pounding away on the infill drilling to finish the reserve status there. We should be done the drilling sometime in the spring. The question is how big is it? We're obviously in good shape. The company's fully funded with almost CAD 300 million available to it. It easily takes care of the equity component required to build it. Lots of tailwind support from both First Nations and the government of Quebec in that we're in the Plan Nord area. It's moving forward extremely quickly, and last time I checked, there was more than 26, 27 rigs, maybe a little bit more than that, turning on it right now.
We are in a go fast program with Windfall, and I'm not going to predict the exact date of the production, but we're driving hard to set the stage for the final permits now, and then we'll be in permitting for 12-24 months.
Okay. Well, thanks, Sean, for that, well, good luck to have these discoveries in Canada.
Yeah. It's good to see. I think half the drill rigs turning right now in Quebec right now are at Windfall Lake, right? Pretty active place. It looks more like a deployment zone than it does a mining project right now. A significant amount of infrastructure on the go and we've been a leader on the COVID-19 program with the first site that installed an on-site lab that delivers results in three to six hours. We're setting up for the big play there and John's done an exceptional job keeping that one well-financed and pedal to the metal. Mathieu, who stepped in as President there, definitely has the leadership capabilities to get us where we have to go on that one.
Okay.
Yeah. Mike,
Oh, sorry.
Sorry, Mike. Yeah, just to finish up, look, you raise a good point. Ultimately, in terms of timing, we'll see how quickly those things move together, move forward. Certainly we're not fussed when the operators, obviously two pretty different operators in terms of the assets you mentioned there, but have the wind at their backs. They're finding more with South32. They're talking about taking longer to create their pre-feasibility study, but thinking of it as a larger project. All those things are positive. Obviously, we'd love them to be in production today, but we'll settle for the fact that they're getting bigger and better all the time and continually moving in the right direction towards production.
Okay. Well, I certainly look forward to the Windfall mine opening event.
Yeah, did you see the picture of the core that John put up on there?
No.
On Instagram?
I'm blocked by Bank of America.
No, they continue to shoot the lights out from an exploration perspective.
Yeah
I think like you, we're looking forward to them putting it all together for us.
I've only been doing this for 36 years, but I haven't seen a better piece of core than that.
Sean, you'll have the first-year production just in the core at this rate.
Well, that is the underwhelming strategy here, is to run the core shack for at least 24 months.
Now, maybe Sandeep, just going back to OD, you mentioned bringing down your interest over time. Where would OR be? What kind of % would you hold, say, in three years from now on OD? Would you be below 50%, you think?
Oh, look, I think certainly, when we talked about, and Sean in particular talked about OD, North Spirit, which this is really just North Spirit renamed and public. Ultimately, the idea was not to be a 50% shareholder. The idea was to set up the assets well, benefit from the royalties and streams, then send it on its way. There's potentially two significant development mine builds there that will require capital. Anyone who knows Sean knows that he's going to be active to unlock those catalysts quickly. I think when we talked about it, North Spirit was meant to come down to 20-some-odd%. I don't know when that will happen. Three years is a long time in my mind, Mike, a lot can happen between now and then.
Ultimately, we've structured it well now. We finished the structuring part of the transaction, which we said we weren't done a year ago. Eventually, we do need to start taking money off the table there. We'll let the company take its first steps here as a public company. Three years feels like an awfully long time away. I think a lot will happen between now and then.
Okay.
Maybe, Mike, I'll add to it. Out of 99% of the companies that you guys cover, most of them have too much liquidity and too high a float, not a big enough shareholder ownership base, and they want one shareholder. We're the 1% that are actually in full control of our float, and we have a proper shareholder base to work with coming out of the chute. We don't have any particular hangover from previous adventures in this stock. This thing is pristine, and the first time in my career that I've seen as many institutional shareholders calling me to worry about the size of the float as opposed to worry about the size of the float because it's too big. I think we're in a quality situation, and I'm quite happy to be the 1% in this market.
Okay. Well-
Yeah
Sean, good luck with OD, and Sandeep, good luck with OR. That's all my questions. Thank you.
Thanks a lot, Mike.
Your next question comes from the line of Josh Wolfson with RBC. Please go ahead.
Thank you. Just wrapping up those thoughts on Windfall, is there any sort of guidance you can provide for some of the more near-term catalysts ahead of production, like the feasibility study?
Yeah, I think-
Hi, Josh.
where we stand on that, Josh, is we're going to let John Burzynski answer those questions. We're a 14% shareholder in the company, and we'll rely on John to come out with his guidance on those issues.
Got it. Okay. From a go-forward perspective in terms of structuring transactions, historically, the accelerator model had utilized equity in terms of its transactions. Now that's been spun out to ODEV. When you look at these types of accelerator model transactions going forward, has there been any thought given to how you would structure these and whether or not equity would still be a meaningful component to that?
Well, thanks, Josh. I think taking a step back, I'll answer your question specifically. Well, that accelerator model in its true form has been hugely beneficial. We wouldn't be talking about things like the 5 million oz at Windfall and our royalty on it had it not been for that. We wouldn't be talking about the Hermosa 1% NSR that we have. We can debate when it comes on, certainly appreciate having a 1% NSR on a South32 scale project. I think that accelerator model in its true form of seeding companies, taking royalties early without competition, for when you look backwards with the benefit of hindsight, percents on the dollar is good business. The gating item is not our willingness to spend CAD 10 million to try to find a 10-bagger. It's really, are those opportunities out there?
Historically, we've done one a year, essentially seeded one of those companies a year. Again, that's easier done in a down market than it is in a more positive equity market where there's more capital available for those types of stories. We'll continue to be on the lookout. We think it's a great kicker to our model, but it is not the model. It's the kicker. If it needs a little bit of equity to get the royalty, we'll look at those on a case-by-case basis as they've been pretty good to us. That accelerator model, we have no issues with. We think it's added a lot of value. Clearly, bringing in an asset in-house fully, even though we said that that wasn't the end result, that didn't pan out as expected, and so we're not looking to repeat those exercises.
Spending 10 to try to turn it into 100 and get a royalty that's worth 100 at the same time, if we see them, we'll look to act. Overall, I guess that's how I'd answer that question.
Got it. Okay. You mentioned expected cost reduction with the spin-out of ODEV on the G&A side. The assumption is that ODEV is going to be fully consolidated just given the ownership structure. I guess, what would you expect the G&A numbers to be on an annual basis going forward, and will we be able to actually see that if it's all consolidated?
Yeah. Look, we will be consolidating financials as a result of the ownership in ODEV. That's one still relatively muddy piece of the equation, and will sort itself out in time. That being said, the actual savings are real. In terms of the spend, that's no longer there on the asset. That's real in terms of G&A having, as I said, most of the team available, to staff both these companies, obviously, some additional public costs of running a company, but relatively minimal in our minds. On the OR side, that G&A of the technical team that's moving over is real. I'd say we want to let the company have its first few steps as a public company before we start guiding people, but we will get back to giving you a bit more color on that.
Frankly, it'll shape up on its own and we will certainly do our best, even during the portion that we're consolidating, Josh, to within the rules that we have to live by, do a good job of segmenting as best we can, what are pure OR costs and what are consolidated ODEV costs.
Okay. Last question. Sorry.
No, go ahead.
I was going to say, sorry, last question on Malartic and yourself and perhaps Sean might have some insight on this. With the ramp up of Barnat, if I recall the old, and this is obviously a long time ago, Osisko mine plan for the asset, there were some obviously very high grades available that would have been a meaningful contributor to OR today. The mine plan, I think, has shifted to some degree with the blending of Barnat over time. Is there any perspective on what you have in terms of the progression of that grade profile? I know you guys aren't the operators today, but any thoughts on what that grade will transition to become?
I'll let Sean jump in as the guy who built the thing, if you like, Sean, other than to say that I think the end of your comment is right. Maybe Sean can add some context, from when we were looking at it, he was looking at it. We're not the operators. Ultimately, there is a really nice kicker to the grade. How they phase that in will be up to them. The good news is they've gotten some production out of it in Q3. I think it was 20 some odd thousand ounces of pre-production. They have access to it now and it does provide a lot of flexibility going forward. Good news. When it gets phased in and how it gets phased in, I guess will depend a little bit.
We'll be at the mercy of the operators, but I certainly expect them to do it in a way that ultimately maximizes the value of the asset. Sean, did you have any other kind of historical context on Barnat you want to provide?
Well, typically we had bottled it at around 2 g, so you're a significant upside there and there is a few high grade pods within it that will probably be blended. The exact mine sequencing is going to be the key here, and I would expect that they'll try and make up some grade to pick up for the Quebec shutdown of the mines that we experienced earlier in the year. I think they have the toolbox in front of them to go after that higher grade component in the near term. We'll see what happens, but we don't have a day-to-day mine plan to work from.
Good. All right. That's all my questions. Thank you.
Thanks, Josh.
Your next question comes from the line of John Tumazos with John Tumazos Very Independent Research. Please go ahead.
Thank you for taking my questions. Concerning the Malartic underground, clearly the shaft into East Gouldie is under planning, and that's the higher grade area. There's also East and West Odyssey and East Malartic. Do you envision one underground mine by shaft into the highest grade zone, or is there potential for the exploration ramp into the other zones to be a second mine with two sources of underground feed for the mill?
Just in general, John, if you can have two separate working entities, rather than bottlenecking, you always take advantage of that. In terms of Agnico, they're very familiar with Rail-Veyor, very efficient at underground mining with their experience at Goldex and LaRonde. I expect they'll take full advantage of both entry points, and they'll probably try and set it up so that they can work at multiple development phases at the same time. The bottleneck with shafts is, of course, is that, even though you might do the substations, when you go down on a level basis, it's very hard to run development from a shaft that's in active development. They're going to want to take advantage of that.
There is some old infrastructure in the underground there that hasn't been incorporated into the mine plan yet, but I imagine there'll be a few tests to see if any of that old underground development work that's in there has any value to it or not. For your primary haulage ramps and shafts, you want to be in fresh rock. We'll see, but I think there'll be a couple of tricks to turn on the way down.
Yeah. John, just to finish the thought. As the layman of the group, I don't think they're envisaging 2 years of underground development work through that ramp to just be for the purpose of exploration drilling and a bulk sample. I'm sure they're expecting that if they have success, that will be longer term infrastructure. I think the good news is we don't have that long to find out how they're thinking about this collective and the synergies between East Gouldie and the rest of the project.
Second, the Regulus transaction is a little complex, and I want to make sure my reading comprehension is up to snuff. Is it correct that you paid $12.5 million for three different things, 5.5 million warrants at Canadian or U.S. $2.25 first, a three-quarters to 1.5% revenue royalty on 75% of the indicated and 50% of the inferred on the Mina Volare zone, plus the opportunity to participate in more future royalties?
John, I'm not sure I could have said that any better myself, so yes.
This is not a complete transaction, but an expression of good faith where as they restructure things, you're going to participate in more, and you gave them a little bit of extra cash toward that.
No, look, the way I think of it is, frankly, just in terms of the initial, it is a partnership. There are a patchwork of existing royalties there that they've shown an ability to go back and buy back. Some of them are contractual, some of them they've just shown the ability to negotiate those. In our minds, what we paid, for the initial royalty on AntaKori, which is significant, and on the bulk of the current resource, as you highlighted, a resource that's only getting bigger as they drill. It's already quite large, getting bigger. That in and of itself justifies the transaction.
Are the warrants at U.S. or Canadian $2.25?
They'd be Canadian. Anything else that we do as part of that, if they are in fact able to buy back anything else, we have the right to participate in that. That would be a bonus. We'd look at each one of those on a case-by-case basis, decide if we want to play. Having that optionality is good for us. As I said, our view is that transaction already, in terms of that initial meaty royalty, if that's all we end up with, we're quite happy.
With the Renard restart, how much revenue or GEOs is that worth in the fourth quarter? Do you even get any in the fourth quarter? Does it come in the first quarter?
Look, the key difference we have in our guidance this year when we came back out with guidance, John, is we excluded Renard. It was on care and maintenance first and foremost. Whilst we're benefiting by anything they produce, they'll use to repay us on our working cap facility. We're redeploying our stream back into the mine for the time being as we work our way through the workout plan. That's why we're not adding those ounces to our guidance because we weren't benefiting from them purely as a stream. We were redistributing them back into the asset. We're not expecting any contribution from that over the course of Q4.
You've waived your revenue to reinvest in CapEx for the mine, and you've waived your loan repayment, or you haven't waived your loan repayment?
We've not waived our loan repayment. Any dollar we put into the asset, we're expecting back.
Even the funding of the CapEx?
Reasonably well. What we've just done is we've been redistributing our stream proceeds back into the mine for the time being. The outcome there is we want to get back to a pure stream that we're benefiting from, without having to put that money back. Until or unless we do, we're not tacking it on to our guidance or incorporating it.
With regard to Claude, do you get a full quarter of the Claude output? Excuse me, the Santoy mine, Seabee, excuse me.
Seabee, yeah. No, I got what you meant.
In the fourth quarter or the first quarter?
Sorry, when do we expect?
With the time lags, when do you get the revenue?
Yeah. Look, again, Q2, we had, I think, probably a record quarter, even though they didn't produce Q3, we got zero, even though they were. As far as I remember, delivery started back early in October. I would certainly hope and expect that Q4 for us is back to normal at Seabee.
Thank you for your patience with my questions.
No, appreciate them, John. Thank you.
Your next question comes from the line of Greg Barnes with TD Securities. Please go ahead.
Thank you. Josh and Mike stole my question, so I'm taken care of. Thanks.
Okay. No problem, Greg. Thanks for your time.
Your next question comes on the line of Brian MacArthur with Raymond James. Please go ahead.
Good morning. You talked a bit about Falco, so I just want to make sure I understand the Falco situation now. There is a CAD 10 million loan, I think, coming due at the end of December. I just want to check first that that's still staying in royalties because I know the shares are going to ODB. Secondly, I see Glencore is putting in CAD 10 million for advancement, but is that CAD 10 million to give your CAD 10 million back, or how is this actually playing out?
No, look, good questions, Brian. Good morning. First and foremost, no, the loan's staying with Osisko Royalties. Only the share position has been moved over to Osisko Development. Our friends at Falco still owe us money we expect it back. You're right, the money from Glencore is meant to advance the asset, finish the last of the technical work that's required. Hopefully, at the end of that, and with a buffer, but hopefully, at the end of that, to give them all the comfort to enter into a long-term agreement to move that asset forward to the benefit of everyone. We do have that debt coming due. We'll look to refinance that with Falco however it makes sense. Again, our objective there is not the debt necessarily. Obviously, if they can repay it, great, that'll be up to them.
We'd be supportive because we have our eye on the prize, and the prize there is 20,000 ounces of GEOs in Quebec. That's what we're looking to support. In our minds, that loan was a small price to pay and continues to be a small price to pay to facilitate that. It's still money they owe us, and I'm sure they'll look to sort that out when the time comes.
Great, thanks. Just very quickly on ODV, you mentioned you think it'll trade in December. There's a vote November 20th, that sort of looks like it's set up. What else has to mechanically happen to get us to December?
Yeah, look, it's not much. Really, the only thing is the listing process with the TSX Venture. The vote, as you mentioned, of the shell company, Barolo, is on November 20th. 80 some odd percent, I forget the number now, of the votes have already kind of been delivered. That's just kind of a procedural step. Then it's just, as I said, the completion of the listing process with the TSX. As you can imagine, it's a fair bit of documentation, fair bit of paperwork, and that's getting bounced around between lawyers on a daily basis. Hopefully that will conclude. They can go to their committee and I wouldn't suggest the last few days of November, we're kind of hoping it's the first few days of December, but that's kind of the timeframe we're guiding towards.
Great. Thank you very much.
Really just procedural. No problem, Brian.
Thank you.
There are no further questions at this time. I will turn the call back over to the presenters for closing remarks.
Great. Well, look, thank you everyone for tuning in. On behalf of Sean, Fred, myself, and the team, I think we had a pretty strong quarter and we look forward to more of the same in Q4 with our assets continuing to deliver quite well. Thanks for your time, and have a great rest of your day. Thank you.
That concludes today's conference call. You may now disconnect.