Birth of a gold majorBirth of a gold major
By 2006, Osisko Mining Corp. knew it had a major gold discovery nearthe town of Malartic in northwest Quebec. But it also had a seriousproblem.
“Everything was fine and dandy with the drilling, except that whenyou were standing by the drill, you could throw a rock at the closesthouse,” chief executive Sean Roosen recalls.
Five years later, Osisko is hosting an opening ceremony for theCanadian Malartic gold mine on Monday. It will be the biggest gold minein Canada once it reaches full production, with an estimated 625,000ounces of gold output a year for the first five years. And as theproject starts generating major cash flow, Osisko will enter the bigleagues of Canada’s mining sector.
But getting here hasn’t been easy. Mr. Roosen remembers almost losingthe company following the financial crisis in 2008. And there was thatlittle matter of the town being in the way of the mine.
The company’s roots began in 2002 when Bob Wares, then chiefoperating officer, searched through a Quebec database for possible drilltargets near the legendary Val d’Or gold mining camp.
The region has produced countless mines over the years, but almostall of them are of the high-grade, underground variety. Osisko wentlooking for low-grade, bulk tonnage deposits in the region instead. Thatwas rarely done, simply because it went against the establishedgeologic model of the camp.
After studying reams of data, Osisko found some interesting drillintercepts around Malartic, where there was a past-producing mine. Theproject was available for auction, so Mr. Roosen’s team bought it forthe laughable price of $80,888. It is almost certainly the biggestbargain in Canadian mining history.
Osisko started drilling aggressively, and soon realized that a lot ofthe potential gold ounces were right in the town of Malartic(population 3,600). It meant a big open-pit mine was only possible ifthe townspeople would agree to be relocated. Mr. Roosen and his teamwent door-to-door talking to the locals, and the response to the mineturned out to be positive. Malartic was in an economic depression sosevere that even the local Tim Hortons had to close.
Starting in 2007, Osisko physically moved more than 200 homes to anew subdivision of town, a process that went smoother than almost anyoneimagined. With that finished, it could talk seriously about a mine thatseemed far-fetched to investors for a very long time.
“We were not well-received in the market at the beginning. Beinglow-grade and having to move a town did not catch too much investorsatisfaction,” Mr. Roosen says.
By late 2008, Osisko was well into its feasibility study on CanadianMalartic when it faced a new challenge: the global financial crisis,which made raising money almost impossible. The company had twoproblems: It did not have nearly enough money to build theUS$930-million mine, and the US$180-million of cash that it did havemade it a takeover target.
“A lot of investment bankers on Bay Street were calling us and sayingthat someone was interested in our company. They didn’t really want thedeposit, they wanted the cash. That was a pretty scary time,” Mr.Roosen says.
Osisko ended up raising money itself. The company completed astunning $403-million bought-deal financing in February 2009, a timewhen other junior mining companies could not raise anything. The dealwoke up everyone on Bay Street, and more money started pouring intoOsisko as investors realized the Canadian Malartic mine was going tohappen. Two years later, it is up and running.
As a junior company with a large project in a mining-friendlyprovince, Osisko faced years of speculation that it was a takeovertarget. The rumours ramped up even more in 2009 after mining giantGoldcorp Inc. bought a minority stake in the company.
But Osisko shrugged off the speculation and became a buyer itself.Last year, it bought Brett Resources Inc. for $372-million in stock,obtaining the Hammond Reef gold project in Ontario. With CanadianMalartic now built, it can focus on that project next.
The result of all the hard work is that Osisko has become one of thefew junior miners to make the leap to gold producer without eitherfailing or being acquired. And when Goldcorp decided to sell its Osiskoshares last February, the takeover talk finally dissipated. Osisko isnow poised to be the next major Canadian miner, with production expectedto top more than one million ounces of gold a year after Hammond Reefenters production.
The company sports a market value of $5.4-billion, and Mr. Roosencan’t wait to make it even bigger by building Hammond Reef. That projecthas unique social challenges around water use, but if anyone canovercome them, it would be the team that successfully moved a town.
“[Hammond Reef] is a 45-minute drive from the town of Atikokan, sowe’re not close to anything. No houses to move this time,unfortunately,” Mr. Roosen jokes.
https://business.financialpost.com/2011/05/29/birth-of-a-gold-major/