OSISKO’s Malartic mine, Quebec, which hit record output levels earlier this month, producing 2,718 gold ounces in a single day, ahead of its takeover by Agnico Eagle and Yamana Gold. Photo: Osisko

OSISKO’s Malartic mine, Quebec, which hit record output levels earlier this month, producing 2,718 gold ounces in a single day, ahead of its takeover by Agnico Eagle and Yamana Gold. Photo: Osisko

Victory for Roosen Creates New Royalty Group

Issue 86, May 2014

A new royalty group is set to be hatched in Montreal tomorrow, under a C$3.9bn ($3.6bn) deal that will see Agnico Eagle and Yamana Gold swallow Osisko Mining and its Malartic gold mine, Quebec.

The deal is widely expected to win shareholder backing, having trumped two hostile bids by Goldcorp and a lower offer by Yamana. As part of the deal, Osisko’s management will form a new spin-out company, Osisko Gold Royalties, pumped with C$155m ($143m) in cash, exploration properties in Mexico, a hefty 5 per cent royalty over Malartic and 2 per cent royalties over Osisko’s secondary projects in Canada.

Osisko’s investment bankers have valued the company at C$575m, which analysts at RBC say could be conservative: Malartic is budgeted to produce 500,000 to 700,000 gold ounces per annum until wind-down in 2027. At spot prices, the Malartic royalty would generate $38m per annum.

“The new Osisko” will have “continued participation” in future cash flow from Malartic and “tremendous upside exploration potential,” Osisko’s chief executive Sean Roosen, due to head the new vehicle, has told investors. “Our goal will be to be working on both ends of the spectrum, the royalty business and the greenfields exploration side.”

The spin-off is a personal victory for Roosen, who has successfully fought off Goldcorp’s advances this year, insisting Osisko was worth more than its opening $2.4bn bid and structuring the joint offer by Yamana and Agnico.

A 5 per cent royalty over Malartic is arguably more compelling than the mine itself, an archetypal bulk tonnage gold mine with low average grades of 1.03 grams per tonne. The spin-off will also have a potentially lethal coupling of royalties and cash, though it remains unclear whether Roosen, unavailable for comment this week, plans to use the Malartic royalty purely as a cash machine for exploration.

“It’s self-funded exploration,” the head of one royalty group told Global Mining Observer this week, “but is it truly a royalty company? They’ve got their exploration team in Mexico and they’re looking at other projects, so I think the mentality will be, we’ve got the funding in place to go forward with our exploration. The real test will be, how much of the cash flow is he going to pay to his shareholders?"

“It’s self-funded exploration, but is it truly a royalty company?”

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A Gift to Mining Finance: Pierre Lassonde

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