Large low grade gold deposit in low risk jurisdiction. Who wants a piece ?

14 11 2009

I hope that the previous post at least made you curious to know what the future was holding for the host community of McWatters’ Sigma gold mine. If it is not the case, just pretend and read through. In 2004, the McWatters’ property in Abitibi Témiscamingue was purchased by Osisko who plans to begin to extract from the low-grade gold deposit in 2011. Osisko’s has been very successful so far with the early stages of the project’s development. Everything seems to go as planned, recent exploration carried at the periphery of the deposit has been rewarding and financing is pouring in. Has Osisko really hit a home run ? and has it been that easy ?

Osisko: simply too good?

With a name like that, it could as well be a popsicle flavour.But it’s not. In a nutshell the company is planning on exploiting a huge low-grade gold deposit (survey results vary between 8.60 g/t and 1,55 g/t) located in Malartic in Abitibi Témiscamingue. The company purchased the rights in 2004 following the bankruptcy of McWatters of which you have heard of the debacle in Thursday’s entry. This deposit has the potential of becoming Canada’s second largest gold mine covering 230 square kilometers of land. The open-pit mine is expected to produce 591 000 ounces of gold per year for a 10 year-period. At present resources are estimated at 6.28 million ounces in proven and probable reserves (also in the computation are 1,4 million ounces in indicated resources and 720 000 ounces in presumed resources). The resource is expanding as the company pursues its drilling program. In its feasibility study Osisko reported that it exploitation costs were of US $319 per ounce which is claimed to be low on the cost curve. Capital costs are estimated to be of US $146 per ounce.

Osisko is sufficiently well-financed to go ahead with the Canadian Malartic project as well as explore the feasibility of other plays. The company has been through a successful streak of financing moves in the past year and on September 24th, the company announced that the funding needs for the Canadian Malartic project had been met following an $150 million agreement with the financing arm of Canada Pension Plan, the CCPIB. This deal allowed the company to fulfill the terms of a previous financing with the Société Générale de financement du Québec with whom the company had a CA$75 million agreement that was condition to the company raising CA$225 from other sources. On September 1, 2009, the company announced that a right issue had allowed it to raise CA$149,5 million. In February this year, Osisko raised C$403-million in a bought-deal offering, making it one of the first junior miners to raise equity finance after markets froze up in the fourth quarter of 2008. Big miners are also acquiring stakes in Osisko. In mid-August Goldcorp took a 13 per cent equity stake in Osisko and further acquired shares on September 1st. Rumors that Agnico-Eagle could be interested in buying Osisko have also become widespread as on June 25, the trading volume in Osisko share became unusually high. Kinross is also rumoured to be interested in Osisko. It has been reported in the media that a bidding war for Osisko would not be a surprise.

It’s no free ride

Despite its latest successes, Osisko has had to face quite significant challenges so far.

When purchasing the property in 2004, Osisko inherited the legacy of McWatters in the form of six mine waste disposal sites totalling an area of 500 hectares. The cost of rehabilitating that area is estimated to CA$25 millions and will be shared equally between the Ministère de Ressources Naturelles et de la Faune and Osisko. The company is finding some benefit to this agreement as the company will be able to dispose conveniently of its processing waste as part of the rehabilitation effort. Processing waste of Osisko will generate an acid-free tailings and will not be leachable. To receive authorization for the development of the Canadian Malartic project, the Bureau d’audiences publiques sur l’environnement recommended that financial guarantees be required to ensure that the project can be undertaken in a manner consistent with the sustainable development objectives of the province. To that end, the company has made available 100 per cent of the funds necessary to rehabilitate the Canadian Malartic mine at the end of its useful life which is above the 70 per cent threshold usually required (but that sometimes does not get paid at all).

Other technical hurdles to the project included the relocation of 205 homes, a daycare center, and a church which happened to be on the land that the company is projecting to mine on. A school was also demolished in the process and on June 15th, the city organized a celebration for the event. This sounds a bit unusual but since Malartic as a population of 3500 inhabitants, the bulk of them probably went to the same school. Ok, you digress Pepito.

In sum, details like a legacy of environmental liability and housing getting in the way seem not to have been huge issues. However lately, a few news stories on Osisko broke in the news and as much as the company can come across the white knight bringing jobs and environmental relief to yet another remote region of Canada, vibrant resistance from key stakeholders has emerged. The Anishinabeg Nation (Algonquins in short) has expressed its intention to block the project as they have not been consulted. They consider the Osisko site to be on their ancestral lands and are contesting the project on the grounds that previous rulings have established a constitutional obligation for governments to consult and to accomodate First Nations.

The MP representing the riding in which Osisko operates has been blamed by a member of the opposition’s far-left party, Québec Solidaire, of being too close for comfort with the company. Additionally the Minister in charge of Aboriginal Affairs, Pierre Corbeil, is also quite close to mining interests as soon after his electoral defeat of 2007 he became a member of the board of directors of Canadian Royalties, a mineral exploration company active in Nunavik. While this may not be saying anything about Osisko’s work ethics, I can share from my very young career in the public service that it is not rare to see MPs getting involved to attract big investment projects.

Canadian Malartic is very likely to be the largest private-investment project in Québec this year and its position as the biggest gold inventory in a single, low-risk spot is making it a quite attractive play for investors. It is worth keeping an eye on developments.

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2 responses

15 11 2009
sustainable-housing-future » Blog Archive » Large low grade gold deposit in low risk jurisdiction. Who wants a piece ?

[…] See the article here: Large low grade gold deposit in low risk jurisdiction. Who wants a piece ? […]

25 01 2011
Brighter and Shinier Future for Asbestos? « Just Digging: a Mining and Metals blog

[…] large low-grade sediment-hosted gold deposit similarly to Kinross Paracatu mine in Brazil or even Osisko’s Canadian Malartic Project. In fact, Osisko (TSX: OSK) has a 39% stake in Bowmore Exploration. The discovery of higher gold […]

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