Mr. Sean Roosen reports
OSISKO ACQUIRES ORION MINE FINANCE ROYALTY PORTFOLIO
Osisko Gold Royalties Ltd. has entered into a definitive agreement with Orion Mine Finance Group to acquire a high-quality precious metals portfolio of assets consisting of 74 royalties, streams and precious metal offtakes for total consideration of $1,125-million, creating a growth-oriented, world-class and gold-focused royalty and streaming company.
The combination of Osisko and Orion's portfolios will result in the company holding a total of 131 royalties and streams, including 16 revenue-generating assets. The company's cornerstone asset remains the 5-per-cent net smelter return royalty on the world-class and long-life Canadian Malartic gold mine (Canada's largest producing gold mine) and its 2- to 3.5-per-cent NSR royalty on the world-class Eleonore gold mine. Through the transaction, the company gains a 9.6-per-cent diamond stream on the Renard diamond mine and a 4-per-cent gold and silver stream on the Brucejack gold and silver mine, all of which are new high-quality mines in Canada, in addition to a 100-per-cent silver stream on the substantial Mantos Blancos copper mine in Chile.
The purchase price paid to Orion will consist of: $675-million in cash consideration plus $450-million in Osisko common shares. As part of the transaction, the Caisse de depot et placement du Quebec and the Fonds de solidarite FTQ will be subscribing for $200-million and $75-million in common shares of Osisko, respectively, as part of a concurrent private placement to finance a portion of the cash consideration and support the transaction. Additionally, Osisko will draw $150-million under its revolving credit facility with the National Bank of Canada and Bank of Montreal, and $250-million will be financed from Osisko's current cash reserves.
Transaction highlights
Immediately accretive to cash flow: The transaction, which increases shares outstanding by less than 50 per cent, doubles Osisko's near-term cash flow and more than triples Osisko's cash-flowing assets from five to 16.Industry-leading production and cash flow growth: The transaction provides Osisko with an unparalleled growth pipeline with expected forecasted production of over 100,000 gold equivalent ounces in 2018 growing to over 140,000 gold equivalent ounces by 2023 and pro forma cash flow growth of 10 per cent per annum from 2017 to 2023.Addition of three cornerstone assets: Stream assets from the Renard, Mantos Blancos and Brucejack mines complement the company's existing cornerstone royalties on the world-class Canadian Malartic and Eleonore mines.Maintains precious metals focus: Osisko's pro forma net present value and cash flow will be over 90 per cent from precious metal assets.Americas-focused portfolio: Over 80 per cent of combined cash flow will come from North America and over 90 per cent of combined cash flow will come from the Americas.Expands and diversifies portfolio: The deal adds 74 assets, including 61 royalties, seven precious metal offtakes and six streams, diversifies Osisko's existing cash-flowing asset base, and enhances the company's development and exploration pipeline.
Sean Roosen, chair and chief executive officer of Osisko, commented: "Since our creation three years ago, we have been working towards a transformational transaction for Osisko. We are delighted to announce our agreement with Orion Mine Finance today, which will position Osisko as the leading growth story among senior precious metal royalty companies. This transaction adds wide diversity to our portfolio which already holds the world-class Canadian Malartic and Eleonore mine royalties as anchor assets, but will now include significant new assets including the Renard diamond stream in Quebec, Canada, a gold and silver stream on the recently commissioned high-grade Brucejack mine in British Columbia, Canada, and a silver stream on the substantial Mantos Blancos mine in Chile. Combining these tremendous assets from Orion Mine Finance together with Osisko's existing portfolio will set the stage for the company to earn over 140,000 gold equivalent ounces annually by 2023, without compromising its focus on gold and precious metals from properties located principally in North America."
Oskar Lewnowski, founder and chief investment officer of Orion, added: "As one of the largest investors dedicated to the mining industry, I am proud to say Orion has been able to build a uniquely top-tier, diversified royalty portfolio with a stellar cash flow growth profile. We are confident Osisko's management team has the expertise to ensure that, when combined, our complementary asset bases ultimately deliver transformational results for shareholders and we are excited to participate in that upside."
"With this additional investment, la Caisse is enabling Osisko, whose well-known and experienced team has proven itself on the Canadian market, to expand its asset portfolio and better position itself on global markets," said Christian Dube, executive vice-president, Quebec, at Caisse de depot et placement du Quebec. "This transaction is part of our commitment to remain a key player in the mining sector in Quebec, supporting businesses at all stages in order to foster the development of tomorrow's leading companies."
Janie Beique, senior vice-president, natural resources, industries, entertainment and consumer goods, of the Fonds, said: "Having first invested in the Osisko team in its early start-up phase in 1999 when its market capitalization was $1-million, the Fonds de solidarite FTQ is proud to reaffirm its commitment to supporting the company's growth. Today's acquisition of high-quality assets from Orion will further consolidate Osisko's position as a Quebec-based world-class royalty company."
Acquired assets
Renard diamond stream: Renard is a rare, new producing diamond mine located in Quebec, Canada, operated by Stornoway Diamond Corp. The mine is currently ramping up and is expected to produce on average 1.6 million carats per annum over a 14-year mine life, with potential from significant upside from the recovery of large diamonds. Under the Renard stream agreement, Osisko will receive 9.6 per cent of diamond production and will pay a continuing transfer price of $50 (U.S.)/carat. La Caisse currently owns a separate 4-per-cent diamond stream on the Renard mine.Brucejack gold and silver stream: Brucejack is a world-class high-grade gold mine located in British Columbia, Canada, operated by Pretium Resources Inc. The mine is currently in the commissioning phase and is expected to achieve commercial production in 2017. Under the Brucejack stream agreement, Osisko will receive 4 per cent of gold and silver production until 7,067,000 ounces of gold and 26,297,000 ounces of silver have been produced from the mine, subject to a $400 (U.S.)/ounce and $4 (U.S.)/ounce continuing transfer payment for gold and silver, respectively. The Brucejack stream agreement is subject to certain buyback rights held by Pretium which could result in the stream being repurchased by Pretium on Dec. 31, 2018, and other specific dates.Mantos Blancos silver stream: Mantos Blancos is a large, producing copper mine located in Antofagasta, Chile, operated by Mantos Copper SA (a private mining company). The mine has a long history of operations (most recently developed and operated by Anglo American) and is expected to produce an average of 600,000 ounces of payable silver over 2017 to 2020 and an average of one million ounces of silver annually over the remainder of its estimated 13-year mine life. Under the Mantos stream agreement, Osisko will receive 100 per cent of payable silver from Mantos Blancos until 19.3 million ounces of payable silver have been produced at the mine, after which the stream percentage will be 30 per cent of payable silver. Osisko will pay a continuing transfer payment of 25 per cent of the prevailing spot price of silver.
A detailed list of the producing and most significant preproduction assets acquired from Orion is provided in the table.
SIGNIFICANT PREPRODUCTION ASSETS ACQUIRED FROM ORIONOperatorInterestStage CountryStreamsRenard Stornoway 9.6% Diamond stream ProductionCanadaMantosMantos Copper (private) 100% Ag stream Production ChileBrucejackPretium4% Au, 4% Ag streamsCommissioningCanadaAmulsar Lydian 4.22% Au, 62.5% Ag stream Construction ArmeniaSASA Lynx Resources (private) 100% Ag stream Production MacedoniaBack FortyAquila Resources 75% Ag streamDevelopment U.S.RoyaltiesSeabee Silver Standard 3% Au NSR ProductionCanadaBald MountainKinross 1-4% Au GSR Production U.S.Kwale Base Resources 1.5% Titanium GRR Production KenyaBraunaLipari Mineracao1% Diamond GRR ProductionBrazilCasino Western Copper and Gold2.75% Au-Cu-Mo NSRDevelopmentCanadaOllacheaMinera IRL 1% Au NSRDevelopmentPeruSpring ValleyWaterton (private)0.5% Au NSRDevelopment U.S.OfftakesBrucejackPretium50% Au offtakeCommissioningCanadaAmulsar Lydian81.9% Au offtake Construction ArmeniaNimbus MacPhersons Resources100% Au-Ag offtakeDevelopment AustraliaParralGoGold Resources100% Au-Ag offtake ProductionMexicoSan Ramon Red Eagle Mining51% Au offtake ProductionColombiaMatilda Blackham Resources55% Au offtake Production AustraliaYenipazarAldridge Minerals50% Au offtakeDevelopmentTurkeyAn additional 54 royalties are in long-term development and exploration stage.
Transaction summary
Under the proposed transaction, Osisko has agreed to acquire 61 royalties, seven precious metal offtakes and six streams from Orion for a total consideration of $1,125-million, consisting of $675-million in cash and of 30,906,594 common shares of Osisko to be issued to Orion at a price of $14.56 per share, such Orion shares having an aggregate value of $450-million.
As part of the transaction, Osisko will complete a concurrent private placement of Osisko common shares to be issued to la Caisse ($200-million) and Fonds ($75-million) at a price of $14.56 per share for aggregate proceeds of $275-million. The private placement is subject to a 7-per-cent capital commitment payment payable partially in shares (2 per cent) and in cash. The private placement will serve to partially finance the cash consideration, with the remainder of the cash consideration to be financed through the drawdown of $150-million from Osisko's existing revolving credit facility with the National Bank of Canada and Bank of Montreal, and $250-million from Osisko's existing cash reserves.
CONSIDERATION SUMMARYTotal consideration $1,125-million Share consideration to Orion 30,906,594 shares at $14.56 per share ($450-million)Cash consideration$675-million Cash from existing cash balance $250-million Credit facility $150-million Private placement18,887,362 shares at $14.56 per share ($275-million)
The issuance of the Orion shares and the private placement shares is subject to approval by a simple majority of Osisko's shareholders. A special meeting of Osisko shareholders will be held in July, 2017, with closing of the transaction expected on or around July 31, 2017, subject to customary closing conditions, including the receipt of Osisko shareholder approval and certain regulatory approvals, as well as the approval of the Toronto Stock Exchange and the New York Stock Exchange. However, the transaction's economic effective date will be June 1, 2017.
Following the transaction, Orion, la Caisse and Fonds will hold respectively 19.7 per cent, 12.7 per cent and 5.5 per cent of Osisko's issued and outstanding common shares. Any sale of the Orion shares will be subject to certain restrictions, including a 12-month hold period and a broad distribution requirement.
Following the transaction, Osisko's balance sheet will remain strong with approximately $100-million in cash, over $450-million in investments and $200-million in debt.
Benefits of the transaction to Osisko and its shareholders
Meaningfully increases the size and scale of Osisko's platform, which is expected to enhance its competitive positioning and access to capital;Strong potential for rerating of Osisko's shares;Strengthens Osisko's existing high-quality, Americas-focused portfolio with the addition of three new cornerstone assets, including two world-class assets in Canada (Renard and Brucejack streams);Creates the highest cash flow growth story in the mining royalty space;Strong accretion to cash flow per share;Supports Osisko's strong dividend policy and creates opportunity for further increases.
Osisko's evolution and transformation into a world-class royalty company
Osisko Gold Royalties was formed in June, 2014, following the sale of Osisko Mining Corp., which included the Canadian Malartic mine and other assets in development, to a partnership formed by Agnico Eagle Mines Ltd. and Yamana Gold Inc.
On June 16, 2014, Osisko started as a royalty company with a 5-per-cent NSR royalty on the Canadian Malartic mine, other non cash-flowing royalties and $157-million in cash. The company's market capitalization was initially evaluated at approximately $500-million.
Over the past 36 months, Osisko further transformed itself by strategically acquiring Virginia Mines Inc., a portfolio of royalties from Teck Resources and most recently a silver stream on Taseko Mines Ltd.'s Gibraltar copper mine. During that period, Osisko advanced its own accelerator investment model, through which it was able to significantly contribute to the reinvigoration of the exploration sector in Canada. Through its investments in Osisko Mining, Barkerville Gold Mines Ltd., Falco Resources Ltd. and numerous other mining companies, Osisko was able to acquire strategic royalties and stream financing options on prospective land packages and projects. The accelerator model also enabled Osisko to maintain its dynamic technical team, but most importantly to leverage its extensive expertise in exploration, engineering, construction and financing.
Prior to the Transaction, Osisko had achieved a market capitalization of approximately $1.6-billion, over three times its starting valuation in June, 2014. The transaction marks Osisko's next significant step in its transformation into a world-class royalty company.
Board appointments
Upon closing of the transaction, Mr.Lewnowski will join Osisko's board of directors. Mr. Lewnowski is the founder of Orion and has more than 20 years of experience in mine financing, metals trading, and mergers and acquisitions.
As part of its investment agreement, la Caisse will also have the right to nominate a director to Osisko's board of directors.
Advisers
Osisko's lead financial adviser is Maxit Capital LP, with BMO Capital Markets, National Bank Financial and PricewaterhouseCoopers acting as financial advisers. Legal counsel are Bennett Jones LLP and Lavery de Billy LLP in Canada, and Paul, Weiss, Rifkind, Wharton & Garrison LLP in the United States. Maxit has provided a fairness opinion to the board of directors of Osisko that, subject to the assumptions, limitations and qualifications set out therein, the consideration paid by Osisko is fair, from a financial point of view to Osisko.
Orion's financial advisers are CIBC World Markets Inc. and Haywood Securities Inc., and its legal counsel is Fasken Martineau DuMoulin LLP.
Osisko's credit facility is provided by the National Bank of Canada acting as administrative agent and Bank of Montreal.
Qualified person
Luc Lessard is the qualified person for this release as defined by National Instrument 43-101, and has reviewed and verified the technical information contained herein. Mr. Lessard is an employee of Osisko Gold Royalties and is non-independent.
Conference call information
Osisko will host a conference call on Monday, June 5, 2017, at 8:30 a.m. ET, where senior management will discuss the details of the transaction.
Those interested in participating in the conference call should dial in at 1-647-788-4922 (international) or 1-877-223-4471 (North American toll-free). An operator will direct participants to the call.
The conference call replay will be available from 11:30 a.m. ET on June 5, 2017, until 11:59 p.m. ET on June 12, 2017, with the following dial-in numbers: 1-800-585-8367 (North American toll-free) or 1-416-621-4642, access code 30327359.
About Osisko Gold Royalties Ltd.
Osisko is an intermediate precious metal royalty and stream company focused on the Americas that commenced activities in June, 2014. It holds over 50 royalties and streams, including a 5-per-cent net smelter return (NSR) royalty on the Canadian Malartic mine (Canada), a 2-per-cent to 3.5-per-cent NSR royalty on the Eleonore mine (Canada) and a silver stream on the Gibraltar mine (Canada). It maintains a strong financial position and has distributed $35.1-million in dividends to its shareholders during the past 10 consecutive quarters.
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