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Canaccord Research: 5.25 CAD new target Osisko Mining

Osisko’s Quevillon project coming into focus

Event: After the close yesterday, Osisko announced that it has signed a binding letter of intent with Deloitte Restructuring, acting as trustee in bankruptcy for Maudore Minerals, to acquire the Osbell gold project (also known as the Comtois project). Consideration for the acquisition is to consist of $1.0M in cash and the issuance 100,000 shares. In combination with the announced staking acquisition of 157,000ha on March 6, Osisko has now increased its Quevillon property package to 216,000ha. The project is located 17km northwest of the town of Lebel-sur-Quevillon, and ~110km west of Osisko’s flagship Windfall project.

Discussion: The pending acquisition of the Osbell gold project has in our view added a lot of substance and color to Osisko’s recently established land position within the Quevillon area. Given Osbell’s historical global resource of 1.8Moz Au, this acquisition provides a center of mass from which to build out, and explore for, additional zones of mineralization on both a local and regional scale. We note that this approach mirrors that with which Osisko has implemented at its Windfall project. Osbell’s historical resource estimate, which was calculated in 2012 based on 251,000m of drilling, includes an open pit resource of 0.97Moz grading 2.25g/t, and underground resource of 0.83Moz grading 8.27g/t. Osbell is noted to be a disseminated pyrite gold deposit, with steeply dipping mineralization delineated along a 1,900m strike length and down to a depth of 1,200m. Initial non-optimized metallurgical testing (gravity + cyanidation) suggests that an average gold recovery of 93% can be achieved. Limited drill testing has been conducted to date on the project’s satellite targets, with notable intercepts such as 26.3g/t over 3.3m intersected in the Comtois NW Zone (12km NE of Osbell) and 18.40g/t Au over 1.5m within the Hudson zone (8km north of Osbell) highlighting the project’s local exploration upside, within the much greater Quevillon project area.

Impact: Positive. Overall, we view this pending acquisition to be a great addition to Osisko’s project portfolio. Although Osbell is yet an early stage exploration project (70% inferred resource), its delineation and further testing should also serve to contextualize the regional exploration results within the greater Quevillon project. Furthermore, we view this project as a strong complement to the Windfall project, and a second source of potential exploration momentum, as Windfall transitions towards development in 2018/2019. Outlook: Yesterday’s release notes that Osisko plans to further drill test the Osbell deposit and will look to re-evaluate the project's historical resource estimate.

Valuation: Assuming that the acquisition meets regulatory approval, we value the Osbell deposit, and greater Quevillon project, at $97M. This assumes a 2.0Moz in-situ resource/exploration credit, which we value at our updated CG explorer/developer comparables average of US$37/oz (previously US$41/oz). Overall, this increases our NAVPS to $5.33/sh (previously $4.98/sh) and our rounded target price to $5.25/sh (previously 5.00/sh). We maintain our SPECULATIVE BUY rating.

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