Osisko Mining (OSK : TSX : $2.33) - Speculative Buy - Target: C$6.50
Steven Butler
Comment: Shares oversold on misunderstood resource update; maintain
SPECULATIVE BUY rating and C$6.50 target

Yesterday, Osisko released an updated resource estimate for the Canadian
Malartic project defining both in-pit (i.e., mineable) and global (i.e., in
and out of pit) parameters. Using a $775 Whittle pit shell, the total M&I
in-pit resource was estimated at 6.42 mm oz grading 1.12 g/t (at a 0.36 g/t
cut-off) versus a previous mineable resource estimate of 7.79 mm oz grading
0.84 g/t (at a 0.294 g/t cut-off) released in the March 31, 2008,
preliminary assessment. Based on the higher grades defined in the revised
estimate, the company expects annual production of between 550,000 and 600,
000 oz at cash costs of $336/oz before royalties versus a previous
assumption of 458,000 oz at $369/oz (assuming US$0.91/C$1.00 exchange
rate). While the 18% decrease in assumed mineable resource was a negative
headline, the update (upon incorporating higher grades and production
rates) was neutral to NAV at 5% spot gold. Our 5% spot gold valuation is
essentially unchanged at $6.13 per share though our 5%/$1,150 peak gold
NAVPS has declined to $10.13 from $10.33. We believe the 20.75% share price
decline is simply reflective of the decline in mineable resource and not
reflective of the underlying value of the company (as we view the update as
NAV neutral at 5% spot gold) and thus view the sell-off as a buying
opportunity. We maintain our SPECULATIVE BUY recommendation on Osisko
shares based on relative valuation on the upside potential of the South
Barnat zone. Our 12-month target price of C$6.50 is unchanged and
represents a 0.65 times multiple of our 5%/$1,150 peak gold NAVPS
(previously representing a 0.80 times multiple of our 5%/$1,000 peak gold
NAVPS).