OT Five company combo ! Oban Mining makes splash with agreements for five-company combo.
Six years ago, John Burzynski, along with colleagues Sean Roosen and Robert Wares, won The Northern Miner’s Mining Persons of the Year award for their role in transforming Osisko Mining from a junior with what seemed at the time to be mediocre assets and trading at 13¢ per share, into a multi-billion company on the brink of opening Canadian Malartic, a large, long-life gold mine in Quebec. “The market didn’t start following Osisko until 2007 and we used that to our advantage, consolidating our land positions and doing our work,” Burzynski says. "in 2003 and 2004, everyone was looking for high-grade underground mines so when we went back into the mining camps, there was no competition." The mining executive is as much a believer in the need for consolidation today as he was a decade ago. “If everyone is working on a land package the size of a postage stamp, nothing is going to get done,” he says. “You can’t generate project economics on a bulk tonnage, low-grade target [like Malartic], for example, if you don’t have a large enough claim to do it.” Consolidation has become even more imperative in today’s dismal capital markets, he says, where juniors trading at 2¢ or 5¢ or 8¢ per share, “face massive dilution” if they try to raise money. With this in mind, Burzynski, now chairman of Oban Mining Corporation (TSX: OBM), and president and chief executive Jose Vizquerra, have put together a complex business deal that sees Oban teaming up with four other junior mining companies to create a leading gold exploration and development company with assets in Ontario and Quebec, a global resource of 6 million oz. gold, a cash hoard of $65 million, a market capitalization of $122 million, and no debt. The proposed transaction combines Oban with Eagle Hill Exploration (TSXV: EAG), Temex Resources Corp. (TSXV: TME), Ryan Gold Corp. (TSXV: RYG), and Corona Gold Corp. (CSNX: CRG). The deal is structured in a series of offers to each individual company, and Oban expects they will close by early August. The chief executives of all four companies support the takeover offers. “There was no doubt in our mind that this is exactly the right thing to do and at the right time,” Ian Campbell, president and CEO of Temex, said on a conference call. “It provides liquidity and capital at a time when it’s extremely scarce. Our company has two really good exploration projects that aren’t there yet, and they need the cash injection they’re going to get today.” The thinking behind the agreements started to pick up speed about four weeks ago. “There were some interesting conversations between Oban and one of the companies regarding merging cash balances,” Burzynski recalls in an interview after the conference call. “That kicked off the idea of looking to see whether there were other companies that had interesting assets but didn’t have cash, or had cash but no projects.” Oban had been thinking of ways to capitalize on the fact that it was one of the few companies with cash and assets. “It put us in an interesting strategic position because we had both, as well as a relatively good rapport with the street.” If the business combination goes ahead, Oban “probably will have more cash than 99.9% of all the juniors left in the space right now,” he says. “It’s a company that stands a chance of being a real mining company … What we’re trying to accomplish here is nothing less than the start of a new Canadian mining house.” The combination of the five companies involves consolidating 114,000 hectares of prospective ground in three major mining camps: East Timmins (Temex’s Whitney project); Urban Barry (Oban and Eagle Hill); and the Catharine Camp (Oban and Temex’s Juby project.) “There still needs to be quite a consolidation in the Canadian mining space, where orphaned assets have to come together, with funding and capital and proper management and then by going through this process, we can re-win the confidence of investors,” Burzynski says. Osisko Gold Royalties (TSX: OR; US-OTC: OKSKF) will provide cornerstone financing with an investment of up to $20 million in Oban’s common shares for a 19.9% stake. Since June 2014, Burzynski has served as senior vice president of new business development at Osisko Gold Royalties, following the completion of the $3.9 billion sale of Osisko Mining and its Malartic mine to Agnico Eagle Mines (TSX: AEM; NYSE: AEM) and Yamana Gold (TSX: YRI; NYSE: AUY).) The financing commitment with Osisko Gold Royalties includes giving the company first rights to participate in royalties and streams created by the larger company and the right to nominate three directors to the board. In the first five years following the private placement, Osisko Gold Royalties will also have a one-time right to provide first financing to Oban for up to $5 million in exchange for a 1% net smelter royalty return on post-deal properties. Dundee Corporation will own a 15% stake in the pro forma company and Ned Goodman, the founder of Dundee, will become co-chairman of Oban’s new board, along with Sean Roosen. As part of the consolidation of the Urban Barry Camp, Oban is also taking a 19.9% stake in BonTerra Resources, which has a property contiguous to the Windfall property. “We’re not playing around here,” Burzynski says. “We have real fire power behind us ... There aren't a lot of groups out there that have the capital, the manpower, or the technical expertise that we have to do this.” -