Osisko inks friendly all-share deal for Brett Resources

VANCOUVER — The growing Hammond Reef gold project in Ontario will soon have a new owner, now that Osisko Mining (OSK-T) is set to acquire Brett Resources (BBR-V) in an all-share deal that positions Osisko as a near-term producer with a promising project pipeline.

The two companies signed a definitive support agreement for a takeover deal that will see Osisko exchange 0.34 of a share for each Brett share. The offer represents a 52.5% premium to Brett’s share price, based on both companies’ 20- day volume weighted average prices, and it values the junior company at $372 million.

The prize for Osisko in the takeover is Brett’s Hammond Reef, a gold project near Thunder Bay, Ont., home to 6.7 million inferred oz. gold. For Brett shareholders, the deal means moving into a company that should start producing almost 600,000 oz. gold annually within a year at its Canadian Malartic project in Quebec. Osisko also brings to the table its joint-venture agreement with Clifton Star Resources (CFO-V), which owns the promising Duparquet gold project also in Quebec.

Said Brett’s chairman, Ronald Netolitzky, in a statement: “Hammond Reef has been a company-changing asset for Brett and our team has progressed the property through the value-creation chain to the point where it has garnered what we feel is the necessary attention of a serious partner to help us take it forward to potential development.”

Between directors and institutional shareholders, Osisko has already locked up 19.6% of Brett’s outstanding shares; the deal is dependent on support from at least 66% of Brett shareholders.

The deal will help advance Osisko towards its goal of becoming a growing mid-tier gold producer. Construction at Canadian Malartic is progressing and the mine is on schedule to start production before mid-2011. The wholly-owned project is in the heart of the Abitibi mining district. Open-pit reserves currently stand at 8.97 million oz. at an average grade of 1.13 grams gold per tonne, enough to support the 55,000- tonne-per-day operation for 12.2 years.

Osisko is fully financed to complete construction at Canadian Malartic, which included relocating a town, and has already invested $600 million in developing the mine. Osisko had $790 million in cash on hand at the end of 2009 and also has access to a $130-million credit facility.

And newcomer Brett is no financial slouch. The junior closed a $26-million financing in February and now, including assumed proceeds from the exercise of in-the- money options and warrants, has almost $63 million available. Subtracting its cash balance, the takeover values Brett at $309 million.

Hammond Reef boasts an inferred resource of 259.4 million tonnes grading 0.8 gram gold, for 6.7 million oz. gold. The vast majority of the resource — 97% — lies within 300 metres of surface and the deposit remains open along strike and at depth.

A preliminary assessment from November outlines an initial 14- year mine life for a 50,000-tonne-per- day open-pit operation at Hammond Reef. The mine would produce an average of 369,000 oz. gold annually over its mine life, at an expected cash cost of US$442 per oz., net of royalties and silver credits. Using a gold price of US$990 per oz., Hammond Reef carries an after-tax net present value of US$811 million, at a 5% discount rate, and should generate a 22.9% internal rate of return.

Brett’s recent drilling work has started to highlight the project’s expansion potential. Specifically, drilling confirmed mineralization along strike 2 km northeast of the existing resource and Brett has also identified several parallel structures that host similar mineralization but have not yet been explored. Results include 114 metres of 1.33 grams gold, 101 metres of 1.39 grams gold, and 191 metres of 0.84 gram gold.

If Osisko does bring Hammond Reef into production by 2015, the added ounces would lift Osisko’s annual production to more than a million ounces of gold. The company hopes cash flow from the Canadian Malartic mine, will allow it to finance capital expenditures at Hammond Reef internally, removing some of the project risk.

The expanded Osisko will not only have the brink-of-production Canadian Malartic and the prefeasibility- stage Hammond Reef projects, but will also remain dedicated to its earn-in efforts at Clifton Star’s Duparquet. Of the 220,000 metres of new exploration drilling Osisko has planned for 2010, more than half of it will go into the ground at Duparquet to test the syenite porphyry intrusion that is already host to two past-producing mines. The east-west striking, sub-vertical intrusive body is 3.3 km long, 150 to 450 metres wide, and at least 900 metres deep. A second mineralized porphyry intrusion to the southeast increased the total strike length of mineralized porphyries to 5.5 km.

Osisko is earning a 50% interest in Duparquet by spending $70 million in three years. The company is also extending loans to Clifton Star to finance option payments on the property. Recent results include 27 metres of 3.6 grams gold, 89 metres of 2 grams gold, and 185 metres of 2.17 grams gold.

On news of the Osisko takeover bid, Brett’s share price gained 73¢ or 35% to reach $2.82, a new all-time high. A year ago, Brett shares were 52¢. Brett has 107 million shares outstanding. Osisko shareholders were less pleased with the news, pushing the company’s share price down 22¢ to $8.37. Osisko has a 52-week trading range of $4.91-$9.24 and has 337 million shares outstanding (prior to the Brett deal), 354 million fully diluted.