Newsletter 17 /2019
Swiss Resource Capital rarely sends out special newsletters on a single topic or share. Today, however, Osisko Gold Royalties announced not only one of the largest takeovers of precious metals this year, but also a whole series of trend-setting news.
Osisko Gold Royalties takes over Barkerville Gold Mines
Osisko Gold Royalties recently announced that the company has entered into a definitive agreement with Barkerville Gold Mines Ltd. Under the terms of the Agreement, Osisko has agreed to acquire all issued and outstanding common stock of Barkerville, which the Company does not currently own, through an arrangement plan under the Business Corporations Act (British Columbia). At the same time as the agreement, Osisko announced the formation of the North Spirit Discovery Group, the next step in the development of Osisko's accelerator business, with which Osisko has pioneered over the past five years with the goal of privatizing resource development projects and unveiling their value. Under the terms of the arrangement, each Barkerville shareholder (except Osisko) will receive 0.0357 Osisko common shares for each Barkerville share held. The exchange ratio implies a consideration of CA$ 0.58 per Barkerville share based on the closing price of Osisko's shares on the Toronto Stock Exchange on September 20, 2019, representing a premium of 44% based on the volume-weighted average price of the two companies on the 20 trading days prior to September 20, 2019, and an equity value of approximately CA$ 338 million on a fully diluted cash basis, including the Barkerville shares held by Osisko. Upon completion of the transaction, the current shareholders of Osisko and Barkerville will hold approximately 91% and 9%, respectively, of the outstanding Osisko shares.
Osisko Gold Royalties increased credit line
Virtually at the same time as the current hammer report, Osisko Gold Royalties announced that it had amended its revolving credit facility to increase the amount from $350 million to $400 million. An additional uncommitted phased facility of up to $100 million now leads to a total loan availability of up to $500 million. The duration of the Facility was extended by one year until 14 November 2023.
Osisko Gold Royalties before first gold delivery from Eagle Gold Mine
Osikso Gold Royalties also recently announced that Victoria Gold Corp. had poured the first gold at its Eagle gold mine. Eagle is expected to produce approximately 200,000 ounces of gold per year at a sustainable total cost of less than US$750 per ounce.
As a reminder, Osisko holds a 5% Net Smelter Return Royalty for Eagle, which will provide Osisko with an average of 10,000 ounces of gold per year over the planned 10-year life of the Eagle Mine. The Dublin Gulch property also offers excellent growth potential through the addition of the Olive deposit and further exploration work. The first gold delivery is expected shortly.
Osisko Gold Royalties sells Brucejack Gold Selling Deal with a Big Plus
Osisko Gold Royalties also announced that Osisko Bermuda Limited (OBL), a wholly owned subsidiary of Osisko, has entered into an agreement with Pretium Exploration Inc., a subsidiary of Pretium Resources Inc., to sell OBL's interest in the Brucejack Gold Purchase Agreement for US$ 41.3 million. The sale is expected to close on September 30, 2019. Pretium will make a payment of US$ 31.2 million to OBL on the closing date. The remaining purchase price is payable on November 30, 2019. From this date OBL will no longer receive deliveries in accordance with the acceptance agreement. Since the acquisition of the purchase agreement in 2017, OBL has generated cash margins of approximately US$ 4.5 million.
The sale of Osisko's purchase agreement for the Brucejack mine will result in the elimination of a low margin purchase agreement and better use of working capital. Since the acquisition of the Orion portfolio in 2017, Osisko Gold has now received approximately US$164.3 million from Pretium, including the proceeds from the repurchase of the stream and the sale of the purchase as well as the previous cash margins from the purchase, compared to a book value of approximately US$147.3 million for the investment in Pretium. 17 million US$ profit in only 2 years, that's something to be proud of!
Osisko Gold Royalties therefore considers a complete purchase of Barkerville to be more lucrative in the long term than just a holding. At the same time, however, the company management is abandoning its strict royalty strategy and seems to want to develop its own mine again. The earlier success with the Canadian Malartic Mine has proved the management around Sean Roosen right, although investors initially seem to assume that this will be a long road. Which you have to see, though: Osisko Gold is loosely able to meet the CA$ 305 million in capital costs estimated in an August 2019 pre-feasibility study. And to be honest: A production of an average projected 185,000 ounces p.a. at all-in-sustaining costs of less than US$ 800 per ounce would not be able to reach Osisko Gold as a royalty company alone so quickly. We are of the opinion that the high-calibre Cariboo project is now better off grabbing itself than being a minority shareholder in a potential takeover by a competitor.
Swiss Resource Capital AG and the authors of Swiss Resource Capital AG currently hold or intend to hold shares in the following companies: Osisko Gold Royalties, Barkerville Gold Mines
Swiss Resource Capital AG has concluded IR consulting agreements with the following companies mentioned in this issue: Osisko Gold Royalties
This publication is based on Swiss Resource Capital AG's detailed risk warnings, limitations of liability and disclaimers, which can be viewed here: Risk Disclosure and Disclaimer