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Osisko Mining Corporation just went from a development stage gold miner to an official gold producing company. They just completed building their Canadian Malartic gold mine in the Abitibi mining district. The company has basically grown from a $10 million market cap in 2005 to a $5 billion behemoth today, all thanks to very small initial investment in Canadian Malartic.

With its recent acquisition of Brett Resources and their Hammond Reef project, the company could become a 1 million oz per year gold producer by 2015. Canadian Malartic and Hammond Reef are both located in Canada.

Canadian Malartic

Canadian Malartic is probably the most unconventional mine that has ever been built in Canada. When I first heard about it I thought to myself how is Osisko going to pull this off? The issue? Part of the town of Malartic was sitting on top of the proposed open pit. In other words some of the town would have to be relocated. Which in and of itself sounds like a total nightmare and you would think that this just wasn’t going to fly with the residents.

However, the town of Malartic had a 40%+ unemployment rate and was in an economic depression. A mine would provide jobs to the community and would also add better infrastructure. So Osisko went door to door and put forth their proposal to each resident and told them if they wanted the project then they would have to help Osisko fight for it.

At the end of the day the town resisdence’s agreed to the mine, and as a result 200 homes were relocated. A new golf course was also built, as well as an elementary school, community center, adult education center and daycare. The cost for all of this was $130 million.

You can see in the map below that the town is literally on the edge of the massive open pit that will be formed. A giant 150 foot high barrier has been constructed in order to separate the town from the open pit.

One thing I haven’t mentioned yet, Osisko purchased the Canadian Malartic project for $80,000 in 2005. That’s not a typo. And in 5 years that $80,000 investment is now worth billions.

Construction started in late 2009 and was just recently completed. Here are some highlights of the project:

• Annual production: 574,000 ounces of gold
• Cash production cost: $320 per ounce
• Capex: Roughly $1 billion
• Expected 2012 production of 688,000 ounces
• 16 year mine life in a mining friendly jurisdiction
• Reserves of 10.7 million ounces

Hammond Reef

In March 2010, Osisko announced a friendly takeover bid of Brett Resources for $372 million. Brett Resources main asset is Hammond Reef which is a proposed open pit mine with a current inferred resource of 6.7 million oz.

Even if everything goes to plan, Hammond Reef still won’t start production until 2015. So far the grade isn’t that impressive at .8 grams per ton, but Osisko completed an extensive drilling campaign on the site. They improved the grade at the Canadian Malartic project through a huge drill campaign, so I’m sure they are thinking they can pull off the same with Hammond Reef.

According to a preliminary assesment study the mine will average 463,000 oz at a cash cost of $382 per oz for the first six years. The mine life is 14 years and the initial construction cost is $614 million.

The graph below shows that by year 7 production drops substantially and cash cost increase. We will just have to see though what more drilling at the site can do for the economics of the mine.

Financials and Production

Since Osisko just entered production its past financial results aren’t relevant.

The company does have $230 million in cash and $297 million of long-term debt.

There are currently 416 million shares fully diluted.

Conclusion

Osisko just entered production at its flagship Canadian Malartic mine. A lot of hurdles have had to been cleared to make this project work, but it looks like Osisko has pulled it off.

Their acquisition of Brett Resources provides the company with another very large open pit mine and will enable it to reach a production level of 1 million oz per year by 2015. Hammond Reef isn’t a high grade mine but the economics could still improve once Osisko includes the latest drill dresults.

When I originally wrote this review last year I said I had a few concerns regarding Osisko. The first had to do with the valuation. At that time it had a market cap of roughly $5 billion, I felt that the company was maxed out at least in the short term. A lot was already being priced in. The second concern was just the whole issue with the town of Malartic being right on top of the mine. People are happy with everything currently since it’s providing jobs, new infrastructure, etc. But I would be worried about potential environmental factors that might spring up down the road.

The stock hasn’t moved in basically a year, while gold has substantially increased during that time. So Osisko’s current valuation isn’t much of a concern now, especially since the company has now entered production. However, the mine still is right next to the town, whether this becomes a big issue is the question.

It’s going to be interesting to see what happens next for the company. They have a 600,000 oz per year gold mine that just entered production, a lot of companies would like to own that size of a project. Maybe Osisko stays independent though, when a company hits production, usually the stock price starts to take off.