Osisko Mining (TSX: OSK) has decided to develop its 100%-owned Windfall gold project in Quebec by itself. Joint venture talks with Northern Star Resources (ASX: NST) were announced last November, but they have now been broken off.
Osisko says that its independent development of the project, 200 km north of Val d’Or, would be the most beneficial option for its shareholders.
While Northern Star will not be a partner in Windfall, Osisko maintains it will continue a cordial and beneficial relationship with the Australian company, which is an important debt holder having advanced a $154 million convertible senior unsecured debenture due Dec. 1, 2025, with an interest rate of 4.75% per annum.
Stuart Tonkin, Northern Star’s managing director, said that “following extensive due diligence,” it was “unable to agree [to] mutually acceptable terms” with Osisko.
“Northern Star is disciplined in its review of acquisition opportunities with superior shareholder returns being its first priority,” he stated in a press release. “We continue to view the Windfall project in an extremely positive light and wish Osisko well in its development of Windfall.”
In January, Osisko released its latest resource estimate for Windfall, which gives the project a total of 6.8 million oz. gold. Using a gold cut-off grade of 3.5 grams gold per tonne, Windfall has 9.5 million measured and indicated tonnes, averaging 10.5 grams gold per tonne and 5.2 grams silver per tonne for 3.2 million oz. gold and 1.6 million oz. silver. The inferred resource is another 13 million tonnes at 8.6 grams gold per tonne and 4.7 grams silver per tonne for 3.6 million oz. of gold) and 2 million oz. of silver.
Examining core from the Windfall gold project in Quebec. Credit: Osisko Mining.
The company continues to drill wide, high-grade intersections. Selected intercepts released last month included 482 grams gold per tonne over 3.7 metres; 380 grams gold per tonne over 3.2 metres; 143 grams gold per tonne over 3.4 metres; and 87.9 grams gold per tonne over 3.2 metres.
In addition, a new high-grade zone has been discovered at the Golden Bear target about 1 km north of the Windfall deposit. Assays included 15.3 grams gold per tonne over 3.5 metres; 6.26 grams gold per tonne over 2.8 metres; 4.14 grams gold per tonne over 1.4 metres; 4.15 grams gold per tonne over 1.2 metres; and 10.5 grams gold per tonne over 2.4 metres.
Osisko is also conducting an infill drill campaign in the high-grade Lynx zone prior to bulk sampling. Results from this work were released earlier this month. They assayed uncut grades of 696 grams gold per tonne (or 43.4 grams gold cut to 100 grams gold) over 2.5 metres; 193 grams gold per tonne (41.7 grams cut) over 2.3 metres; 248 grams gold per tonne (55.6 grams cut) over 2.2 metres; and 72 grams gold per tonne (23.6 grams cut) over 5.1 metres.
A preliminary economic assessment for Windfall published in April 2021 outlined a 235,000 to 328,000 oz. per year mine with a life of 18 years. Preproduction construction costs would be $543 million. Post-tax payback after the start of production would take 2.2 years.
The after-tax net present value with a 5% discount would be $1.5 billion and the internal rate of return 39.3%. The project could generate gross revenues of $8.2 billion or operating cash flows of $2.6 billion over its lifetime. During production, the mine and mill would employ about 400 workers.
In a research note to clients commenting on the news about Northern Star, Keven MacKenzie of Canaccord Genuity noted that, “while likely to be viewed as a disappointing outcome in the near term, we believe that Osisko remains well positioned to advance the Windfall project into production, given management’s experience permitting, constructing and operating the Canadian Malartic mine in Quebec, prior to selling it to Agnico Eagle and Yamana in 2014 for $3.9 billion.”
MacKenzie also pointed to Osisko’s estimated more than $200 million in cash, and said that this year the company expects to collect and process a third bulk sample and complete a feasibility study. “Overall, we expect that the feasibility study will mark a sharp step change from the 2021 PEA, with a production profile potentially in excess of 300,000 oz. a year versus the 238,000 oz. a year outlined in the PEA.”
The mining camp at Osisko Mining’s Windfall project. Credit: Osisko Mining.
The mining analyst said he expects the feasibility study will be centred on the Lynx zone, which has a measured and indicated resource of 12 grams gold per tonne and 2.3 million ounces.
In terms of Northern Star’s $154 million convertible debenture, MacKenzie pointed out that it is now convertible by Northern Star “any time after the first anniversary of closing, at a conversion price of $4.00 per share,” which he said would roughly equate to a 9.9% stake in Osisko, based on the Canadian company’s outstanding common shares, if converted.
“The debenture may be redeemed by Osisko at any time after the second anniversary of closing for cash or common shares,” he added, “provided the WAP is not less than 125% of the conversion price for 20 consecutive trading days ending five days prior to the notice of redemption.”
Andrew Mikitchook of BMO Capital Markets commented in a research note that Windfall’s value was unaffected by the news. “While the departure of Northern Star is likely to act as a near-term headwind for Osisko shares, the value of the high-grade Windfall project remains intact. Osisko has a number of pending catalysts expected in 2022 that should drive a derisking and revaluation of the stock, in our opinion.”
At presstime in Toronto Osisko was trading at $4.18 per share within a 52-week trading range of $2.33 and $5.01 per share.
This story has been corrected. A previous version misstated the length of a high-grade intercept.
There is an error in this article. Re: Lynx zone; “They assayed uncut grades of 696 grams gold per tonne over 43.4 metres; 193 grams gold per tonne over 2.3 metres; 248 grams gold per tonne over 2.2 metres; and 72 grams gold per tonne over 5.1 metres.” Table 1 in the 8 Feb 2022 PR from Osisko shows hole WST-20-0613* has an uncut grade of 696g/t Au but only over 2.5m. 43.4m is the cut average gold grade for this intercept.
Thank you for pointing out the error Peter – it has been corrected.