Final Year End Musings on Osisko Management has finally realized it is better to under promise and over achieve than to over promise and under achieve.
Known Upcoming Developments
1. Implementation of pre crushing circuit to get throughput capacity to 55,000 and then 60,000 tonnes.
When: Q1 2012
Results: Greater production, lower cash cost per ounce, more income, buckets of cash
2. Beginning of exploration at Famatina project Argentina
When: Hopefully soon
There was a reason why Barrick had to abandon this project in La Rioja. They had no backing from the citizens or the government. Now Osisko has the backing of the state government (had to relinquish 30% ownership to get it) but still faces opposition from some misinformed and misled environmentalists who don't want to engage in any dialogue with the government or the company. The government realized that mining is the future for this province and that any environmental concerns can be addressed however these protestors simply say no to mining. For this project to proceed the governor Beder Herrera will have to lay down the law to deal with these individuals who are trying to block access to the project. Otherwise doesn't matter whether 10 or 15 million ounces are there or not. Shows the attractiveness of deposits located in pro mining jurisdictions such as Quebec and Ontario. Expect some kind of legal action from the politicians there in the next month to deal with these idiots so that the exploration work can begin unhindered. If not Famatina will never get developed by any mining company and Osisko can kiss their $500,000 payment good bye.
3. Upgrade of the entire in-pit deposit at Hammond Reef to Measured and Indicated category
Additional drilling subsequent to July 2011 is anticipated to allow for the upgrade of the entire in-pit deposit to indicated category by the end of the first quarter of 2012 and measured and indicated category by the end of the second quarter 2012.
4. Feasibility Decision for Hammond Reef (2013)
You can be rest assured they will not proceed unless economically viable. As mentioned by others key driver is the price of gold. Have done all kinds of sensitivity analysis based on various variables. PS You don't have to be an analyst to do this.
Some of the pre feasibility base case numbers and assumptions from two years ago were:
Based on price of gold of $825 an ounce
NPV @ 5% Pre tax $588 million
NPV @ 5% After tax $413 million
IRR Pre tax 18.5%
IRR After Tax 15.2%
Operating cost: $442 an ounce
Strip ratio: 1.43
Cap cost Pre Production: $614 million
US$ Exchange Rate .90
Oil Price: $70 a barrel
Is Hammond Reef a project solely on paper? That is the worst case scenario as with any feasibility study. Is it the most probable outcome? Don't think so.
Feel free to play analyst and create your own model with updated assumptions (oil at $90-100 barrel, exchange rate at par, base case gold price at $1,200, 20% increase in operating costs, strip ratio at 1.25, grade at .63). I even ignored all the hundreds of millions of tax savings for the Malartic project by the company advancing the Hammond Reef project. Decision for me as to whether the project will be developed is a no brainer. Unless gold collapses to $1000 in the next year I fully expect a go ahead decision.
Skill Testing Question
Which of the highly esteemed analysts following Osisko a year ago correctly predicted we would be below $10 now?
a) Cooper (CIBC)
b) Earle (TD)
c) Stewart (Dundee)
d) None of the above
Correct Answer (d)
HAVE A HAPPY NEW YEAR AND BEST LUCK TO ALL!!!