Continuous investment in R&D the fastest route from drill bit to dividend, says Osisko’s Roosen

In recent years, the Canadian federal government’s changes to environmental assessment legislation have impacted mineral exploration investment in Canada “pretty significantly,” Osisko Development Corp. (TSXV: ODV) CEO and co-founder Sean Roosen tells The Northern Miner.

The new federal Impact Assessment Act came into force in August 2019 and has helped push the development timelines of projects out by several years to an average of about 15, to get from the drill bit to dividends, according to the Canadian gold exploration kingpin.

“The permitting process is arduous, it’s often unclear which levels of government will participate, and multiply that by Canada’s general acceptance of interference from foreign nongovernmental agencies (NGOs) against mineral development projects, and it quickly becomes clear that Canada is somewhat in retreat in terms of exploration,” Roosen says in an interview.

“It appears to me the focus of the federal government is more often to do with a preoccupation to getting re-elected, with a government that tends to be somewhat in retreat in terms of discharging their obligations to the Canadian public, who are the real shareholders of the country, to continue to advance these mineral investment opportunities and create the jobs and the wealth that comes out of the resource sector,” he says. “It’s about how to become a populist, as opposed to actually having a plan to figure out what our children are going to be left with and how they’re going to pay the bills that this government has run up.”

With more than 30 years of experience under his belt, Roosen is arguably one of Canada’s living legends of mineral exploration, credited with finding and developing the low-grade Canadian Malartic mine in Quebec, Canada’s largest open-pit mine. But despite his successes, and given fast-changing markets and creeping government red tape, Roosen says, “it’s not your grandfather’s prospecting world anymore.”

According to Roosen, just about all the near-surface exploration opportunities in Canada have been exhausted. “Whatever we’re doing, from an exploration standpoint, is much more expensive, tends to be concerning blind or deeper targets, and tends to be in complicated geological, social and governance scenarios that require much better science. Gone are the days when surface prospecting would generate five or six different drill targets,” he says, adding that when he says ‘exploration’ he is also referring to research and development (R&D).

Roosen notes that the Osisko Group of companies generally finds its pipeline of world-class assets in brownfields camp areas or places of known structural geology, where the team believes a mineral endowment can exist. Roosen currently sees underrated exploration opportunities in British Columbia, in Ontario’s Sudbury mining camp and central-eastern and Maritime Canada, where several discoveries have thrust Canada’s easternmost provinces into the golden limelight.

“And then the question becomes whether we can do the science to figure out if it’s there or not? On the investment side of that coin, it is very difficult for small, single-asset companies to raise that R&D money in a down cycle,” he says. “These days, one would go into an area usually armed with a significant layer of historical exploration that has been done over the years to work with. And you have to find some new way to generate targets that haven’t been tested. So, with every dollar that gets invested, it gets more complicated because all the obvious ideas have been tried,” says Roosen.

For this reason, gold exploration is being driven into a much more scientific approach. Roosen points out few majors remain with long-term investment plans, such as the ones Anaconda and Noranda maintained historically. These companies laid out systematic exploration plans spanning 10 years at a time.

“Now, exploration has become much more of a stop-and-start business, which does not bode well for quality science over time,” he says.

Roosen says the stop-start nature of exploration investment these days does not create the continuity of work required to deliver results. Often, teams will raise some cash, go out and drill the same targets outlined in the previous financing, and hope for better results this time around.

“The problem we have with a lot of the junior exploration now is that the funding is limited, and by the time you get set up to do serious science on a project, you’re out $5 million bucks. By the time you get all your authorisations to go out and do stuff, your community consultation programmes have already finished a couple of years before you get actually to drill anything. Multiply that by the constantly moving legislative goalposts, and one can glimpse why it has become so difficult to get a project through the process to production these days,” says Roosen.

“The permitting aspect has become more difficult to challenge (that means executing fieldwork). The typically longer timelines for larger projects requiring the environmental review process keep getting added onto, which has the opposite effect of environmental, social and governance (ESG) investment principles set out to achieve.

“Certainly, it inhibits investment going into First Nations territories in the north, which is the one that everybody is claiming they’re trying to help. But at the same time, they’re making it much more difficult for those investments to occur in those communities. So, it’s the unintended consequences of laptop bureaucracy,” he says.

Roosen recalled the days he was driving the development of Canadian Malartic as a single-asset company with comparatively low gold grades.

“It required about $1.2 billion in capex back in the day to build a mine that could make money off one gram per tonne gold. Try doing that today with the generally lower grades and higher capex requirements, and one clearly requires substantial financial resources and higher grades to reach critical mass.”

To get there requires substantial exploration capital. An excellent example of how big an effort it takes to delineate something worthwhile in today’s terms is Osisko Mining’s (TSX: OSK) Windfall Lake asset in Quebec.

The company has to date, sunk more than $700 million in drilling expenditures, with 34 drills active on-site in 2020 and about 30 through 2021.

“You need large critical mass projects to deal with these operating realities,” he says.

But putting Canada ahead of most international competition when it comes to mineral exploration are the various federal and provincial flow-through and charity flow-through share initiatives, which have helped keep the exploration investment in Canada afloat. Channelling that funding from the flow-through schemes has been the dominant source of exploration here in Canada for many years now.

“And the reason that works so well is the chief investment of that money usually goes into the Indigenous Territories where we do most of the exploration in northern Canada. And we’re seeing that that investment by Canada’s government is starting to pay off, given the amount of exploration success that we’ve seen in Canada, not the least of which is the Osisko-associated companies.

Another factor counting in Canada’s favour as a mineral investment destination is the emergence of ‘no-go’ jurisdictions elsewhere. Some jurisdictions that used to be considered long-term resource investment countries are now questionable, like Chile and Peru.

“We see Latin America as a complicated place for long-term strategies. This has opened opportunities for actors such as China, which generally plays by a different rule book than its western counterparts, to swoop in and secure control over mineral assets their Western counterparts wouldn’t dare touch,” Roosen points out.

The world’s leading gold producer Newmont (TSX: NGT, NYSE: NEM), has recently been growing its copper resources. It has acquired Canadian explorer GT Gold (TSX: NGT) for $393 million, giving the U.S.-based major control of the Tatogga gold-copper project, located in the Traditional Territory of the Tahltan Nation in British Columbia.

Roosen sees the trend for gold majors to go after gold-copper porphyries as “a great source of stability” since the more prominent companies are not very good at operating high-grade underground gold mines to start with.

“I think that those copper-gold porphyries are next in line for big company investment and certainly offer some stability with gold and silver as a mostly by-product and provides the opportunity to drive the business from the copper side,” says Roosen.

But for the time being, Roosen says Osisko Development and its sister companies are laser-focused on its ‘SUDS’ corporate philosophy — “shut up and drill stupid.”

 “That leads us to our goal, which is to go from drill bit to dividend in the quickest amount of time.”

And that’s important, he says, as building mines provides employment and can improve economic conditions in remote areas.

Roosen says he didn’t grow up in the best of economic situations in the north, “so, I have a high level of respect for anything that can be done to alleviate poverty, especially here in Canada, and especially in the north,” he says.