HIGHLIGHTS
Windfall geological model. We attended a presentation on the geological model of Windfall Lake and exploration implications on OSK’s 3,300 km2 Urban Barry/Quevillon property. The talk was hosted by OSK and featured Dr. Ruben Padilla, a geologist with 25 years’ experience and several exploration discoveries, notably at La Escondida, Colosa and Gramalote.
Geology predictability improving. The system is described as ‘intrusive-related’, but it is not a porphyry, or Archean shear-zone hosted deposit and a clear analogue has yet to be found. The emerging geologic model contemplates a 1 km thick intrusive, originating in the NE, tilted ~35 and with mineralized “fingers” extending in Lynx, Z27-Wolf-Caribou and Underdog controlled by dikes, gabbro volcanics or the bank fault (Fig. 1). Positively, OSK expects to find more ‘fingers’, and use of dikes and sericitic alteration to guide drilling is yielding encouraging results at the Lynx North target, a potential Lynx replica.
Insights on the upcoming resource update and PEA. What we learned: (1) ~end of Feb. cut-off for assays in resource. This is positive because a sizable ~120k m of drilling was released in Jan/Feb with high grade intercepts. (2) OSK hinted the resource grade may compare with the Eagle Hill estimate of 7.97 g/t (Nov. 2014), though bulk sampling during ramp development to validate, with first sample expected in June. (3) Recovery of 96% cited in the Eagle Hill PEA (April 2015) is reasonable. (4) No hints as to the size of the resource, and with this we defer to OSK’s previous (and only messaging) that it has a footprint for a 3mln oz deposit (NBF est. initial 3.5-4.0mln oz).
Shares oversold. Considering OSK’s market cap of $536 mln, if we subtract $184.5 mln in cash, securities or in-the-money options (as at end of Q4/17), $100 mln for Garrison and $150 mln for Marban & Osbourne-Bell we get a residual of $101 mln for Windfall lake. This represents US$26/oz for a 3mln oz deposit, vs. a peer resource average of US$107/oz (Fig. 3).
Maintaining OP rating, lowering target to $5.50 (was $6.00). Target based on 1.0x C$5.43 (was C$5.88) NAVPS, lowered after updating financing assumptions to reflect market prices.