Gold Fields buys half of Osisko’s Windfall high-grade gold project in Quebec

Gold Fields (NYSE: GFI; JSE: GFI), the eighth-largest miner by market value, has joined with Osisko Mining (TSX: OSK) to back the Windfall gold project in Quebec, one of Canada’s largest proposed precious metal developments.  

Gold Fields said Tuesday it agreed to pay $600 million for half of the project in the Abitibi belt about 700 km northwest of Montreal. The funds are payable in two equal tranches, one now and one after the province approves construction.  

The investment gives South Africa-based Gold Fields an entry to the Canadian mining sector it missed last year when it was outbid for Yamana Gold, a failed attempt that cost former CEO Chris Griffiths his job. The new deal also provides Osisko with more than enough cash to complete the project, which is estimated to cost $789 million, according to a feasibility study released in November.  

BMO Capital Markets analyst Andrew Mikitchook said the project should have all its permits next year.

“Windfall’s development funding is now secured,” Mikitchook said. “There is clearly a significant buffer over Osisko’s share of capex. We view the large investment from Gold Fields as an endorsement of Windfall’s quality.”  

Multi-decade operations

Leaders of both companies, which are to share operating duties when the mine is built, said they’d work to develop the Windfall, Urban Barry and Quévillon gold belts at the project into multi-decade mining operations.  

“The Windfall project is on track to become a high-quality, low-cost underground gold mine with a relatively small surface footprint and considerable growth prospects along strike and down plunge,” Gold Fields said in a news release on Tuesday.  

“These gold belts bear striking similarities to Western Australia’s highly productive greenstone gold belts and boast a growing number of exciting targets within Osisko’s extensive and underexplored land.”  

Other parts of the deal include Gold Fields paying $75 million a year in regional exploration costs and $34 million this year as reimbursement for pre-construction spending already made. All costs are to be split equally. Bringing Windfall into production and exploring in the area is expected to cost Gold Fields $1.2 billion.  

“This partnership further strengthens our strong balance sheet, allows us to significantly de-risk Windfall and brings us a very important step closer to realizing our objective of becoming a leading Canadian gold producer,” Osisko chairman and CEO John Burzynski said in a separate release. “With the proceeds from this transaction, Osisko is fully-funded for our share of development capital to bring Windfall into production.”  

Burzynski was part of a team then at Osisko who discovered the deposit that became the Canadian Malarctic mine, Canada’s largest gold producer. It was eventually taken over by Yamana and Agnico Eagle Mines (TSX: AEM; NYSE: AEM), then last year, Agnico Eagle and Pan American Silver (TSX: PAAS; NASDAQ: PAAS) bought out Yamana.  

Windfall has 12.2 million probable tonnes grading 8.06 grams gold per tonne for 3.16 million oz. gold. The feasibility study envisions annual production of 306,000 oz. of gold over a 10-year mine life. 

The project, which would pay for itself in two years, has a $1.2-billion after-tax net present value at a 5% discount rate and an unlevered 34% after-tax internal rate of return, assuming a gold price of US$1,600 per ounce. The all-in sustaining cost is estimated at US$758 per ounce.