Osisko Gold Royalties (TSE:OR) had its price target lifted at Dundee Capital Markets to C$16.00 from C$14.75 previously, while its neutral rating was maintained, after the royalty company announced a C$200 million bought deal financing earlier this week.
Under the terms, Osisko Gold would issue 10.96 million special warrants at a price of $18.25 apiece, with a 15 percent over-allotment option also granted, which if exercised, would increase the offering by $30 million.
"As OR was trading at ~1.8x our previous NAV estimate, the issuance is NAV accretive and thus, OR's desire to do a deal of this magnitude is understandable," wrote Dundee analyst Joseph Fazzini.
After incorporating the $200 million base deal in Dundee's model, the brokerage's net asset value per share increases around 18 percent to $12.04, thus lifting its target price on the company.
"But while appreciating the inherently accretive nature of the equity raise, our focus remains on OR's ability to deploy capital into new royalties," noted Dundee.
"Given OR's rich valuation without the scale, diversification or track record of its larger peers, we consider OR fully-valued, hence our neutral rating."
Dundee explained that in the past, metal price weakness provided royalty companies the opportunity to do attractive deals given the lack of financing alternatives. But with $750 million plus in new financings announced this week, "the market appears willing to once again fund gold miners through conventional debt and equity," Fazzini said.
"With companies generally preferring to issue debt and equity over selling royalties, we believe the royalty players (including OR) are entering a more competitive environment which could result in fewer royalty opportunities and/or compressed IRRs," he added.
The company said it plans to use the proceeds from the financing for the acquisition of additional royalties, with Dundee expecting the firm to focus on Canadian precious metals royalties, despite the limited number of advanced development projects in the country.
The Montreal-based gold-focused royalty company's cornerstone asset is its 5 percent net smelter returns royalty on the Canadian Malartic mine in Quebec. Shares edged up 0.35 percent to C$17.37 in Toronto today, extending year-to-date gains to over 6 percent.