The 16m-ounce Malartic mine, Quebec, subject to a royalty held by Osisko Gold Royalties. Photo: Osisko

The 16m-ounce Malartic mine, Quebec, subject to a royalty held by Osisko Gold Royalties. Photo: Osisko

Exploration the Strongest Platform for New Royalty Groups

July 2014

“Land position is everything,” says Andre Gaumond, founder of Virginia Mines, quoting Franco-Nevada’s chairman Pierre Lassonde.

Virginia represents a new breed of exploration stocks threatening to break into the royalty ranks by retaining royalties on each of their discoveries. The company sold its Eleonore discovery in Quebec’s James Bay to Goldcorp in 2005, retaining a royalty that rises with production, due later this year.

High grades and aggressive drilling by Goldcorp have encouraged analysts to tip Eleonore to become Canada’s largest gold mine, giving Gaumond a cornerstone asset around which to build a royalty group, optioning out properties from its vast land position in James Bay in exchange for a minority interest and a royalty on production.

The company is also striking deals with neighbouring juniors in Quebec, buying early stage royalties alongside equity investment. “For a buyer, this is the perfect market,” Gaumond says. “We are a buyer and we’re looking for opportunities. There’s a lot of competition in the royalty business and we are small in that pool of companies, but we are growing.”

R&D Wing

Virginia is one of several explorers building royalty portfolios by optioning projects on rather than shoulder the development costs.

Eurasian Minerals, which devised the model as a low cost alternative to bidding for royalties outright, has properties being funded by Freeport and Rio Tinto, whilst Lara Exploration has partnered with Antofagasta and Chile’s Codelco in Peru and Brazil. Reservoir Minerals has meanwhile used the model to finance ultra-deep drilling in Serbia, spurring the mammoth Timok discovery.

Each has been backed from the outset by financier Rick Rule, who lifted the model from the oil and gas sector, where offshore explorers are forced into partnerships by the prohibitive cost of deep-sea drilling. The model outsources greenfield exploration to small companies of free-thinking geologists, whilst shunting their development costs onto cash-flowing majors.

Miles Thompson, Reservoir’s chairman, likens it to the R&D wing of the pharmaceutical industry, where under-capitalised labs, long on research ideas but short on resources, partner with...

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“We are a buyer and we’re looking for opportunities.”

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