Agnico and Yamana's sprawling Malartic complex, Quebec. Photo: Osisko Mining

Agnico and Yamana's sprawling Malartic complex, Quebec.
Photo: Osisko Mining

Abitibi Awaiting July 29th

Issue 132, July 2015

Abitibi Royalties is expectantly waiting on news on July 29th, which it hopes will make its share price pop.

Abitibi holds a 3 per cent royalty over the North Odyssey deposit, a new discovery within the sprawling Malartic complex, currently Canada's largest gold mine. Drill results from Odyssey last year included 110m grading 2.85 grams per tonne, sending Abitibi's share price flying from C$0.60 to $4.00 inside six months.

Agnico and Yamana, Malartic's co-owners, have had three rigs turning at Odyssey for the last four months, with an update seen as likely in Agnico's quarterly results in two weeks time. The most recent batch of drill results were released in February, expanding Odyssey's strike length and depth.

Ian Ball

Osisko Gold also has a 3 per cent royalty over Odyssey, but as “the smallest royalty company on the block,” Abitibi, valued at C$31m ($24m), offers investors the most dial-moving exposure to exploration upside, says CEO Ian Ball.

One of Abitibi's largest investors is Rob McEwen, the famously flamboyant founder of gold giant Goldcorp, who is said to be so taken by Odyssey that he lifted his stake in Abitibi to 9 per cent last year. Ball, aged 33, is McEwen's all-star protege, having met McEwen in an elevator 12 years ago.

McEwen has previously been outspoken in criticising royalties for stripping upside out of producers, likening them to hedging contracts, but Ball, who reinvests his salary in Abitibi's shares each month, compares the model to Warren Buffett's Berkshire Hathaway, continually reinvesting cash flow.

“I think Rob just needed to own one,” he laughs. “There's nothing wrong with owning a royalty.”

New Assets

Ball says his inspiration is Franco-Nevada of the 1980s, when it held a single royalty over Barrick's Goldstrike discovery. “It was the exploration success that drove their share price,” Ball says. “Their entire company was tied to Goldstrike.”

In June, Ball launched a new initiative, paying prospector's claim fees in exchange for a 2 per cent royalty. “If the property doesn't contain the elements we're looking for, it's a quick no," he says, "or if they're looking for more than just the claim fees, then it's a no.”

The scheme has so far landed three agreements totalling $40,000. The properties are early-stage, or held by owners in a tight financial position, but Abitibi has built a nifty clause into some of the deals, doubling its payment in exchange for 15 per cent of the sale price if the claims change hands. “Properties are sold a lot more often than they ever go into production," Ball says.

Abitibi also has 2 per cent royalties over Malartic's Gouldie and Charlie gold zones, already in production, plus 3 per cent royalties over the Jeffrey and Barnat zones. Shares last traded at C$2.86.

“I think Rob just needed to own one… There’s nothing wrong with owning a royalty.”

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