The Near Pavilions
Osisko Mining has Canada's largest potential gold mine. But will they go the distance?
by Kevin Barker
Perhaps one of the least known sleeper plays of late is the vast Abitibi Greenstone Belt, which
traverses Canada's Ontario and Quebec provinces. The region has eluded wide scale attention by
both investors and explorers, many of whom seem more enamoured of the giant low-cost copper/gold
porphyry systems that have been discovered over the past 15 years in Latin America. However, as
the political risk in South America and Africa grows, many are turning their eyes towards countries
with governments that are stable and relatively friendly towards mining. One of those, of course,
is Canada.
The Abitibi is a 2.8 billion year old belt of volcanic origin which hosts several world-class gold camps, including what is potentially the country's largest potential gold mine, the Canadian Malartic deposit. Wholly-owned by Osisko Mining (OSK:TSX;EWX:FRANKFURT), the Malartic has an NI 43-101 compliant resource of 7.69 million ounces of gold measured and indicated – plus 720,000 ounces inferred – and is located in the heart of the heart of the Abitibi Belt, approximately 20 km west of the town of Val d'Or.
Osisko has recently released the feasibility study for a large-scale, open-pit, bulk-tonnage mining operation there, and is currently working towards a spring 2011 commercial opening date. The study included modeling of an optimized engineered pit that resulted in a proven and probable mineral reserve estimate of 6.28 million ounces, which represents an 82 percent conversion rate relative to the global 7.7 million ounce measured and indicated resource estimate.
During the first five years of operation, Canadian Malartic will produce an average of 618,000 ounces of gold plus 784,000 ounces of silver at an average operating cost of US $313/ounce of gold after royalties and silver credits. Annual output for the planned mining operation is scheduled to average 591,000 ounces of gold plus 754,000 ounces of silver during a ten-year mine life, at an average operating cost of US $319/ounce of gold after royalties and silver credits. A gold price of US $775/ounce was assumed in the financial analysis, and third quarter 2008 market prices for all materials and labour were applied. The study assumed an exchange rate of $1.18 (with respect to Canadian expenditures) and an oil price of US $70/barrel.
Capital expenditures are estimated at US $723.4 million and a provision for contingency of US $65.6 million for total capital expenditures of US $789 million, or US $146/recoverable ounce. This places Canadian Malartic within current industry norms as one of the best, undeveloped gold projects in the world. Capital expenditures to completion (capital expenditures less sunk costs) are estimated at US $643 million, or US $119/recoverable ounce, and additional net project funding requirements are estimated at US $553 million. The pre-tax internal rate of return (IRR) on capital expenditures to completion is estimated at 28.8 percent, and the pre-tax NPV (discounted at 5.0%) is estimated at US $1,001 million.
The all-in cost is estimated at US $465/recoverable ounce. However, the economics may be significantly enhanced with the addition of the South Barnat deposit, which has been generating positive results from recent definition drilling. The last of these included a 76.5 m intersection grading 3.19 g/t gold. South Barnat is a separate gold zone northeast of the Malartic deposit.
Osisko currently trades at C $2.20 per share, following a 52-week high of C $6.56 set last January. It has a market cap of $365.3 million, which would suggest that the company is undervalued relative to the value of the Malartic project, and the potential of additional gold zones contiguous to it represents an undetermined bonus.
Kevin Barker, editor of The Barkerletter, lives in Latin America where he is seeking the world's next billion- dollar mineral discovery. Contact him at .
