Osisko moves to become even bigger gold player with Brett

Canadianjunior gold explorer/developer is to take over fellow gold explorerBrett Resources in a friendly all-share deal which could position Osiskoas a million ounce a year producer within the next few years.

Author: Lawrence Williams
Posted:Monday,22 Mar 2010

LONDON -

High flying gold development junior, Osisko Mining (TSX:OSK),has made a major move to take over gold explorer Brett Resources(TSXV:BBR) in a friendly all-share deal worth some C$372 million atthe current Osisko share price. The details are that Osisko has agreedto offer Brett shareholders 0.34 of an Osisko common share for eachcommon share of Brett held. The boards of directors of both companieshave unanimously approved this transaction and the board of directors ofBrett will recommend its shareholders to take up the offer. The dealwill give Brett shareholders approximately 10.8% of Osisko.

Osisko is already in the process of bringing its big shallow lowgrade Canadian Malartic gold project in Canada's Quebec to production inan open-pit operation that it estimates will produce 591,000 ounces ofgold per year over a ten-year mine life. The NI-43 101 on the operationstudy shows projected operating costs of US$319 per ounce, ranking itin the lowest cost quartile among global gold producers.

Osisko rates the Canadian Malartic deposit as currently representingone the biggest gold reserves in Canada for a single deposit, and isstill growing through ongoing drilling on new mineralized zones, likethe Barnat deposit. An initial resource calculation was published onJanuary 26, 2009, for this separate gold mineralization zone locatednortheast of the main deposit and for which the grades have consistentlyaveraged nearly double those of the main Canadian Malartic deposit.

Current reserves for the Canadian Malartic property are put at 6.28million ounces, plus an indicated resource of 1.4 million ounces and aninferred resource (including the Barnat deposit) of 2.75 million ounces.The maximum open-pitable depth is 375 meters and the potential at depthwill be investigated during Phase Four of the exploration program. Anextensive 200,000-metre definition and exploration drilling program isunderway in 2009 on five mineralized zones and high potentialexploration targets on the property. As of the end of February 2009,eight drills were operating on the Malartic property.

The Brett Resources Hammond Reef deposit is in the Atikokan area ofOntario and may also be of a similar size being another low gradeshallow deposit where a large gold reserve has been estimated. APreliminary Assessment Study of the project compiled by Scott WilsonRoscoe Postle Associates uses a Base Case Inferred Mineral Resource of6.70 million ounces of gold (259.4 million tonnes grading 0.8 grams pertonne (g/t) gold (Au) at a cut-off grade of 0.30 g/t). Using a base casegold price of $825 per ounce, the study shows that the project has anet pre-tax cashflow (undiscounted) of $1,186 million with an after taxNPV of $413 million using a 5% discount rate. The mine would recover5.13 million ounces of gold at a strip ratio of 1.43 to 1 over a 14-yearmine life. Over a projected 14-year mine life the current deposit,which is still being extended with an ongoing drilling programme wouldproduce an average of 369,000 ounces of gold per year at an averagedirect cash cost of $414 per ounce (net of silver credits.

The combination of the two projects could rapidly bring Osisko tobecome a significant mid-tier gold miner with all its operations in apolitically stable area - Quebec in particular being rated the world'sbest location for mine development by the Fraser Institute. Thecombination of outputs from Canadian Malartic and Hammond Reef wouldinitially be in the order of 1 million ounces of gold a year which couldbe reached by 2015..

Osisko is well financed having closed a C$403 million bought-dealfinancing in February. On a fully diluted basis Osisko would have over$C700 million in cash, making it one of the best-financed developers inthe gold sector.

But Osisko's ambitions to become a major gold producer may not endthere. It is concentrating on large near surface low grade golddeposits in traditional gold mining areas and entered into a jointventure with Clifton Star Resources late last year which controlsanother such deposit in the Abitibi region of Quebec, relatively closeto Osisko'd flagship Canadian Malartic operation. Osisko has anagreement to earn 50% in the Clifton Star project which some observersfeel could also turn out to be as big as Canadian Malartic