Oban capitalizes on downturn, buys more ground

With $70 million in cash and equivalents, Oban Mining (TSX: OBM) is quietly consolidating ground in the Abitibi by acquiring junior companies and properties in Ontario and Quebec.

In November, Northern Gold Mining became the fourth junior this year to join the expanding Oban Empire (joining Eagle Hill, Ryan Gold and Corona Gold, which consolidated their properties in September).

Oban is making another acquisition this month. On Dec. 8, the company announced it would acquire Excellon Resources’ (TSX: EXN; US-OTC: EXLLF) DeSantis property in Ontario’s Ogden township in exchange for 850,000 Oban shares, in a deal worth $960,500.

“It’s a small acquisition in one of our areas of interest,” president and CEO John Burzynski tells The Northern Miner. “The Timmins camp is one of the belts and brownfield mining camps across the Abitibi that we’re looking at, so it’s one more piece in the puzzle.”

The downturn in the commodity markets and Oban’s robust balance sheet mean that the company will keep busy with potential acquisitions in 2016, as it has been in 2015, Burzynski predicts.

“Pretty much every time we do one of these deals we get a dozen calls the next day from people seeing whether they can do a deal with us,” he says. “We’re seeing a broken industry right now, and we’re going to see an acceleration of consolidation and property deals in 2016, out of sheer necessity.

“There is a real flood of properties and projects coming on the market, and internally we expect another 12–18 months of similar markets,” he continues. “There’s not a lot of optimism out there. There’s a lot more negative sentiment than positive sentiment.”

The DeSantis property is 4.5 km southwest of Timmins. The first recorded exploration at DeSantis dates to 1914, when a 70-foot shaft was sunk on an exposed gold-bearing quartz vein, according to a 2011 technical report.

The DeSantis property is contiguous to Metals Creek Resources’ (TSXV: MEK) Ogden gold project. Oban took a 19.9% stake in Metals Creek through a private placement in November. (Metals Creek has earned a 50% interest in the Ogden property.)

In addition to Oban’s latest transaction with Excellon, Oban will take a 19.9% stake in IDM Mining (TSX: IDM) through a non-brokered private placement of shares, and a transfer of its Yukon properties. Oban is acquiring 11.1 million shares of IDM Mining at a price of 9¢ per share.

It will also give IDM Mining the Yukon properties that it acquired when it took over Ryan Gold.

“IDM would be a nice home for those properties,” Burzynski says. “We didn’t want to pass them off to just anyone, we wanted to make sure that the guys who are familiar with the area and are good operators in the area get a chance to work on those properties, and Rob McLeod is familiar with the area.”

McLeod, IDM’s president and CEO, is pursuing a similar consolidation strategy as Oban, but in a different part of Canada, Burzynski explains.

“One of the things we liked about IDM is that they follow the same consolidation model that we are using at Oban, but their intentions are to focus on B.C. and the Yukon, so they’re not a direct competitor,” he says. “Having 19.9% of that will give us an opportunity to participate in things that they have.”

McLeod is advancing IDM Mining’s Red Mountain gold deposit in B.C. Previously he was founder and vice-president of exploration at Underworld Resources, which was acquired for $140 million by Kinross Gold (TSX: K; NYSE: KGC) for its 1.4 million oz. White Gold deposit in the Yukon.

The exploration geologist was part of the team at Miramar Mining that discovered the Naartok deposit, as well as expanding and delineating the Boston and Doris deposits at the Hope Bay project in Nunavut.  

Looking ahead, Burzynski sees great opportunity in the Abitibi.

“There’s so much work ahead of us, and so many opportunities that we’re going to keep it nice and tightly focused on Ontario and Quebec,” he says. “We expect to be very, very busy in 2016.” 

Over the last year, Oban’s shares have traded within a range of $1.09 to $3.40 apiece. At press time in Toronto, shares changed hands at $1.13.

Six years ago, 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 seemingly 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. Osisko Mining later sold for $3.9 billion to Agnico Eagle Mines (TSX: AEM; NYSE: AEM) and Yamana Gold (TSX: YRI; NYSE: AUY). Osisko Gold Royalties (TSX: OR; US-OTC: OKSKF) — where Burzynski serves as senior vice-president of new business development —  holds a 17.4% stake in Oban.

Haywood Securities initiated coverage of Oban on Dec. 10, with a “buy” rating, noting that the company is focused on the right neighbourhood, and has a team with a track record.

“Although all companies remain exposed in a volatile commodity environment, those with skilled and experienced management teams are generally more successful navigating the storm,” Haywood analyst Tara Hassan wrote in a research note. “While assets like Canadian Malartic are not a dime a dozen, Oban’s focus on building strategic positions in proven mining camps could allow it to replicate its Osisko success, albeit with a slightly different model.”

Hassan also noted that Oban benefits from having “access to a large technical team at Osisko Gold Royalties and its potential funding sources,” and enjoys “a unique advantage over peers.”