Good morning, ladies and gentlemen, welcome to the Osisko Gold Royalties Q2 2019 results conference call. After the presentation, we will conduct a question and answer session. If you would like to ask a question, please pick up your receiver and press star followed by the number one on your telephone keypad. Please note that this conference is being recorded today, August 1, 2019, at 10:00 A.M. Eastern Time. Today on the call, we have Mr. Sean Roosen, Chair of the Board of Directors and CEO of Osisko Gold Royalties, Mr. Bryan Coates, President, and Ms. Elif Lévesque, Chief Financial Officer and VP of Finance. I would now like to turn the meeting over to our host for today's call, Mr. Sean Roosen.
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Welcome to the second quarter results presentation for Osisko Gold Royalties today. We have a presentation on our website marked Q2 2019 in the investment sector on the presentations that we'll be following this morning. Within that presentation, we have a forward-looking statement disclaimer. Please adhere to that as we will be making a few statements. I'm attending the Sprott Investment Conference, natural resource investment conference here in Vancouver this morning.
I'll be handing it over to the Montreal team, with Bryan Coates, Elif Lévesque, Joseph de la Plante, and André Le Bel to go through the deck with you. I wanted to thank our friends from Orion Capital in New York, who most recently repurchased some of the positions within the Orion portfolio of Osisko stocks. Our friend Oskar Lewnowski, who has been a board member with the company since 2017 and has resigned. I want to thank Oskar and the Orion team for their great support with the company throughout that period during the transaction in 2017. We acquired the Royalty and Streaming portfolio at the time, and they continue to be a strong supporter of the company with over 6% of the stocks. We thank the Orion team for getting this done in the quarter.
The team in Montreal is going to take you through the deck and talk a little bit more about that as we get into it. Thank you very much, and I'll be on for other questions at the end as well. Thank you. Bryan, over to you.
Thanks, Sean. Good morning, everyone. The key event for us in our second quarter was obviously the reduction of the Orion shareholding to 6.2%. On June 25th, we announced a secondary offering by Orion of 9 million shares, and also a transaction where we swapped portions of our equity book in return for 12.4 million shares that were acquired by Osisko and canceled. Overall, we've reduced the basic common shares outstanding by 8%, without affecting our cash flow generating assets. We also will be realizing savings of CAD 2.5 million in dividends per annum as we maintain our dividend payout under the current dividend payout. To date, we've returned CAD 320 million to our shareholders through dividends of CAD 101.2 million and share buybacks totaling CAD 219.6 million. Our buyback cost was CAD 13.67.
The other aspect in the quarter that's very interesting for us is the rise in the gold market. We're very pleased to see the increase both in the U.S. and Canadian dollar. Again, we believe that we're just getting into a very good gold market. Gold closed the quarter above $1,400. We believe that we're very well positioned to capture value through our foreign royalty portfolio as well as our investment in our associates. This gold price, we believe will continue to be strong given that we believe that the U.S. dollar will weaken and the high debt levels. If you add a little bit of geopolitical tension, it has all the good ingredients to reach record highs again. For second quarter, our highlights were we produced or we received 19,651 GEOs.
Our revenues from royalties and streams were CAD 33.8 million, CAD 131 million if we include the off-takes. Our net cash flow from operating activity was at CAD 21.4 million. We incurred a net loss of CAD 6.5 million or CAD 0.04 per share. Elif will go through, but the loss is basically generated from non-cash costs, we'll go through that. Our adjusted earnings were CAD 8.2 million or CAD 0.05 per share. During the quarter, we closed the first tranche of share repurchase with Orion for CAD 103.2 million. Subsequent to the quarter end, we sold or we completed the sale or the exchange of the Victoria shares and canceled another 5 million common shares.
Our board yesterday declared a CAD 0.05 dividend. It will be our 21st dividend for shareholders on record on September 30th, and the dividend will be paid on October 15th. During the quarter, we also participated in the Renard restructuring, and we continue to be focused on that. Again, if we look at our comparison, 19,651 GEOs compared to 20,506 GEOs last year. Our cash margin was 90% versus 87% last year. We maintain our guidance based on the operator's forecast. Our guidance is maintained at between 85,000 and 95,000 GEOs for 2019. On slide eight, you have our portfolio of royalties that were within by asset that generated our GEOs. Again, Canadian Malartic, flagship asset, basically had one of their best quarters. I think it's the second best quarter they've had.
We continue to benefit from that outstanding asset. When we look at our growth, again, we feel that we have one of the best growth profiles within the royalty sector, looking at a growth to 85,000 oz- 95,000 oz for 2019 with an 88% cash margin. We're very excited that we should be receiving gold from a new royalties asset that we bid in 2018, which is the Eagle Project. We have a 5% NSR on the project. The construction is 95% completed. Roughly 1.3 million tonnes were mined. Basically, the team up there is going through the commissioning and the startup. Ore has been going to the leach pad, and we certainly hope to see the first gold in. We estimate, they estimate, I should say, that they will be pouring gold September 2019.
Overall, we're very excited about this. It's been a good construction, and we congratulate the Eagle Project team and encourage them to have a very successful ramp-up. Unfortunately, during the quarter, we've been busy on working on some of our portfolio assets that have some issues. At Renard, we're working with various financial partners to support the company in pursuing a restructuring transaction. At Amulsar, we continue to maintain positive dialogue with the government around the eventual restart of the project. The financial stakeholder, partners in the project continue to provide their ongoing support to the company.
With the rising gold price, we really feel that some of our portfolio of royalties and streams will be coming on stream as there's new mine development. On page 12 of the presentation, we highlight the number of opportunities which we think will be coming forward over 2020 and 2021 and up to 2025. We're very excited about Eagle coming in. We've had great things happening on Windfall. Very encouraged there. We believe that the Odyssey Project will also be generating some great royalties for our company in the near term.
Quick word on our accelerator companies. At Osisko Mining, the team there has been very successful and they're going a 1 million meter drilling program, probably one of the largest in the country, certainly one of the largest in the country. They've had identified some new discoveries. We expect to see a feasibility study in 2020. They just raised over CAD 40 million, of which CAD 30 million was flowed through. Very exciting there. As we continue to monitor the drill results and seeing the resource base increasing. At Barkerville, where we own 32%, we've got an updated underground resource. We continue to carry out exploration work to delineate further reserves and try to discover new deposits. At Falco, where we own just under 20%, we've got a feasibility study on one of the most exciting deposits that's advanced.
We've got ongoing dialogue with the stakeholders, including government and Glencore, and we certainly were working very hard at advancing this project so we can deliver the EIA as well as going to public hearings. At Osisko Metals, where we have a 10.6% ownership, is doing some exciting things and has very positive results in our base metals, particularly at the Pine Point project in Canada's north. Recently, they've raised CAD 10 million, so they're well-funded. Overall, our accelerator company has a combined market cap of CAD 1.3 billion, CAD 1.4 billion. Turn it over to Elif.
Thank you, Bryan. We had a strong quarter in terms of our operating metrics. The GEOs were slightly lower compared to the same period last year, but the 4% shortfall was more than compensated with higher cash margins, mainly from a strong gold price. We had 21% higher gross profit and 39% higher operating income. We're continuing to review our G&A and business development expenses in an effort to reduce them further, including the conversion of our deferred and restricted share units settlement in equity instead of cash, which will reduce the volatility considerably and reduction of our board size as well. The higher cash margins have also had a positive impact on the operating cash flow, generating CAD 21.4 million compared to CAD 19.7 million.
Our earnings were impacted by some non-cash items during the quarter, mainly related to the disposition of Highland Copper as part of the share repurchase transaction with Orion, also some non-cash share loss of associates of CAD 8.8 million during the quarter. As a reminder, we report our associates under the equity method, which are mainly exploration companies, report our percentage of their losses, which was affected by some impairments for this quarter. If you look at the next two pages, the first one gives a breakdown of the different types of instruments that we have, royalties, streams, and off-takes. You will see that we had a strong quarter representing 89.8% cash margin compared to an 87.3% cash margin the same period last year, mainly a result of higher, I guess, revenues from royalties.
If you look at page 17, in terms of our per-share metrics, as the Orion transaction was closed at the end of June, we're not really seeing the positive impact just yet. We will be starting the third quarter of 2019 to see the positive impact of that. We should hopefully see some increase in terms of our per-share net earnings and per-share cash flow. Page 18, our financial position. Currently, we still stand pretty strong with a firepower of over CAD 800 million if you look at our cash, our investments, and our available credit facility of CAD 460 million.
Thanks, Elif. We'd just like to take a moment here to just reflect on five years of operation, that we started our business in June 2014 with four royalties and a market cap of CAD 500 million. Today, we have over 135 royalties, streams, and metal off-take agreements. Our market cap is at CAD 2.2 billion. We've done two major acquisitions, acquiring Victoria and acquiring the Orion portfolio, acquiring Virginia Mines and the Éléonore royalty, and also the Orion portfolio of streams, royalties, and off-take agreements. We've distributed over CAD 100 million in dividends, and we've bought back for CAD 219 million of shares. We've raised CAD 1 billion in permanent and temporary capital while creating also the accelerator business, and we highlighted that that business today has a market cap of approximately CAD 1.3 billion, CAD 1.4 billion.
In doing that, we really established ourselves as one of the largest explorer and developer in Canada and being well-positioned to capture the rising gold price that we have. In summary, we believe that by investing in Osisko, you're getting a pure leading exposure to Canadian assets. During the quarter, we again, received 19,651 oz of GEOs. Our guidance is being maintained 85,000-95,000 GEOs for 2019. We continue to deliver our quarterly dividend. The dividend yield is about 1.3%. We've got a strong balance sheet as Elif outline, ready to fund our continued growth program, and we've been returning value to our shareholders through buybacks as well as dividends. CAD 320 million has been delivered back to our shareholders.
As of June 30th, we have investments of CAD 282 million, and we have cash resources of CAD 84 million. Well-positioned to continue growing the business. With that, Sean, I can pass it back to you.
Thank you very much, Bryan. At this point in time, we'll open up the call for questions.
To ask a question, if you'd like, please press star followed by the number one on your telephone keypad. Your first question comes from Cosmos Chiu from CIBC. Your line is open.
[Non-English content], Sean, Bryan, and Elif. [Non-English content] for a very good presentation today. Maybe my first question is on the guidance here. Your guidance, you've kept it at 85,000-95,000 oz. You've done about 39,000 ounces in the first half. Clearly, your second half has to be stronger. What is that dependent on? Is that Eagle, Lamaque? Are there any other ones that I might be missing?
Go ahead, Sean.
Cosmos, thanks for the question. Cosmos, we're counting on Canadian Malartic, Éléonore having strong second semester, as well as Eagle coming on stream. We believe that will be the driving force for our growth.
On Eagle, any concerns about, it is Indiana heap leach, and so based on leach kinetics and delivery and any concerns that if there's any setbacks at Eagle that could impact your ability to get to even your 85,000 oz?
Cosmos, as you know, we are in the mining business. I think we're in pretty good shape at Eagle. As you said, we are going to start to run the leach circuit here pretty soon. We're starting out in the near surface oxide zone, which is the easiest zone. The material that's going on the pad right now looks very good. We're quite hopeful that the wind is behind us on this project, that we continue to build forward on that. I don't know if you've had a chance to get up there, but things are in extremely good shape at Eagle right now, and it's been one of the better mine builds we've seen.
Great. Then maybe switching gears a little bit here, based on the histogram that you put in your presentation, Renard, the diamond asset is a significant part of your income, of your cash flow. Clearly in Q2, diamond prices were not great, at least the realized price at the mine, $76 per carat. I am just wondering about your point of view in terms of diamond prices, and I do not know if you could share with us, internally, how do you look at it? What kind of diamond price do you put in your models?
I'll let Bryan and the guys answer that one. They've been on the Stornoway file significantly, but I'll just add a general comment that expect that the diamond prices would have some pressure on them in 2019 and 2020, and then it should start to see a supply-demand market developing as projects come offline, like Argyle and some of the other De Beers assets. Bryan, over to you.
Sure. Thanks, Sean. Sean just highlighted the whole diamond market has been suffering from very tough conditions. In return, Stornoway has its challenge. We're working with them from an internal planning process where we're currently reviewing the diamond prices and trying to see how that affects our plan going forward. We were into the CAD 90, CAD 95 per carat as part of our planning process. We certainly hope that we can have some improvements into the operations of the mine as well as the market recovers.
I guess, as you said with Renard, based on the quality of the diamonds coming out, based on the size and everything else, it's really twofold. The general market could come up, and as the quality of the diamonds coming out of the mine itself improves as well, that could be an improvement on two fronts.
Yes, exactly.
Yeah. Certainly the big deal in Q2 was Osisko Gold Royalties monetizing some of the portfolio investments or divesting some of the portfolio investments. With what happened in Q2 and the monetization of Victoria Gold shares and some of the other ones here, looking ahead, should we look at your incubator accelerator model any differently? How should we look at it?
I think, Cosmos, we've talked about the accelerator model now for five years. It was conceptual in nature when we brought it to the market. Both Orion and Arizona would be an example of the accelerator equity model, having gone full circle, where the equity was monetized, and we've continued on as carrier holders of the royalty. In this case, there have been an open market monetization that was with our partners at Orion. I think that when we clearly stated what we wanted to do with this incubation and accelerator process in the beginning, this was part of it. I think it goes to proof of concept that we've been successful both at holding equity royalties and streams, and then the occasional situation, more complicated project finance structures.
I think that as we see project financing evolve and streaming evolve, our accelerator model will become a fairly standard part of the industry that was conceptual five years ago.
Yeah, for sure. Maybe one last question here, focusing on Canadian Malartic. As you mentioned, one of the growth areas is Odyssey and the NSR you have on Odyssey. My understanding is that it's actually a few separate parts to it. There's your Odyssey South. There's a different part for Odyssey North. I also believe that you have the royalty on East Malartic. Could you maybe piece it together for me in terms of, based on your understanding, when those ones are coming in, which one's going to come in first, and which one could potentially benefit OR first?
I think, Cosmos, it's not appropriate for us to get too far into the detail of that structure, as we're not the authors of the Odyssey Development Program. It's being run by the joint venture.
Okay.
We're quite keen to see the Odyssey project go forward. It's a very significant underground resource. We drilled into it in the spring of 2014. It's evolved significantly since then and represents a significant increase in the resource at the Canadian Malartic site and property. We have two pieces to Odyssey North and South, and maybe, Joe, do you want to step in and provide a little more color?
Yeah. Hi, Cosmos.
Hi, Joseph.
Essentially, as Sean mentioned, there's three zones. There's East Malartic, Odyssey North, and Odyssey South. The interesting thing is that a lot of the mineralization falls under our existing 5% NSR royalty, mostly within the East Malartic area. I don't think there's a current finalized plan in terms of how they want to develop all of this, but there seems to be the potential for an operation from zero to call it 600 m that could perhaps ramp down into both Odyssey and East Malartic, with a lot of that material being on our ground where we have our higher royalty. That can give you some guidance there in terms of how we're thinking about it, but we won't know until the operators make a final determination in terms of the plan.
Yeah, of course. Great. Those are all the questions I have. Thanks, Sean, Bryan, Joseph, and Elif. Thanks again.
Your next question comes from Kerry Smith from Haywood Securities. Your line is open.
Thanks, operator. Sean, do you have an internal expectation for ounces of production at Eagle this year?
Well, I think we've been pretty conservative. We look for a minimum amount of ounces. I'm not going to put a big number out there at this point in time. We'll let the company come to guidance once they get the pad loaded and start the process. There should be sort of the initial gold production this year. As the pad gets more stabilized into next year, the next 18 months is ramp-up for this project. Obviously, the leach kinetics will stabilize better, and temperature management will be easier once we have more rock in the pad. I think we'll get some initial production going this year. As I said, the material that's going on the pad right now looks very good in terms of leachability, and hopefully that carries through into gold production.
Okay. Maybe Bryan can answer this question. Do you have a sense for the timing on the Renard restructuring?
Well, it's an ongoing process. I would expect we will get something through in the third quarter.
Okay, completed this year then at worst-case frame. Is that fair?
Absolutely. That would be what I've been hearing from the company.
Okay. One last question. Do you know if Mantos Blancos expansion has been approved by the board? I'm just trying to find information, but do you know what the status is of that?
Kerry, it's Joseph here. They have finished the studies. They are currently putting together the financing package. We understand that's going well. Once that is in place, we'll likely get the go-ahead from the company and the board to proceed with the expansion.
Okay. Again, maybe by year-end, that might be formally approved then. Would that be reasonable?
Yes.
Okay. Do you know how long the construction is for that expansion?
I think we're looking roughly 18 months.
18 months, okay. Okay, that's great. Thanks very much.
Thanks, Kerry.
We have no further questions. I turn the call back over to the presenters.
Thanks, everybody. I appreciate the support throughout the quarter. We had quite a bit of busy quarter with the balance sheet and the treasury, and we're set the course to take advantage of these rising gold markets. Just by way of tone from the conference here in Vancouver being run by Rick Rule and the Sprott Group, it's very good to see quite a bit of energy coming back into the space as we're here. I wish everybody a good summer and hopefully make some money as we head for Denver in September. Thanks very much, everybody. [Non-English content] .
This concludes today's conference call. You may now disconnect.