UPDATED: Osisko Mining raises $154M for Windfall, plans JV with Australia’s Northern Star

Osisko Mining (TSX: OSK) has signed an agreement with Australia’s Northern Star Resources (ASX: NST) to raise $154 million for continued work on its Windfall gold project 200 km north of Val d’Or, Quebec. The two companies have also agreed to negotiate the terms of an earn-in and joint venture allowing Northern Star to earn up to a 50% interest in the Windfall project.

The financing agreement will see Osisko issuing a convertible senior unsecured debenture due December 1, 2025, to Northern Star. The debenture bears an interest rate of 4.75% per year payable semi-annually.

“The potential of joining forces with Northern Star, a well-respected gold producer with a depth of experience in mining underground high-grade deposits similar to the Windfall project, would help de-risk the remaining work ahead to bring the Windfall project to successful production,” Osisko Chairman and CEO John Burzynski said in a news release. “We are confident that, subject to reaching an agreement with Northern Star on the earn-in joint venture terms, they will be a very strong partner in assuring our development plans for the Windfall project.”

The Windfall gold project falls within the traditional territory of the Waswanipi Cree First Nation. Osisko has identified 1.9 million oz. of gold in the measured and indicated resources (6 million tonnes grading 9.6 grams gold per tonne) and 4.2 million oz. of gold in the inferred resource (16.4 million tonnes grading 8 grams gold per tonne).

Over the first seven years of production, the project would produce an average of 300,000 oz. of gold annually. The Windfall preliminary economic assessment was completed earlier this year, and the feasibility study is due in 2022.

The Osisko debenture may be converted by Northern Star at any time after the first anniversary of closing, subject to certain conditions, at a conversion price equal to $4 per common share of Osisko Mining. When Northern Star completes its earn-in and joint venture agreement, it may convert the debenture into an interest in the property at conversion premium of 125%.

Further, the debenture may be redeemed by Osisko at any time after the second anniversary of closing for cash or common shares, provided the volume-weighted average trading price of the shares is not less than 125% of the conversion price.

Northern Star is a Western Australia-based gold miner with operations in Australia, plus the Pogo mine in Alaska, which it acquired in 2018. A number of Australian miners including Newcrest Mining, Evolution Mining, Piedmont Lithium and Sayona Mining, and St Barbara have recently made moves into Canada.

In a research note to clients, Canaccord Genuity analyst Kevin MacKenzie said he needed to see the terms of the 50% earn-in joint venture agreement in order to assess the overall deal, but that “at a high level, we view the arrangement as a non-dilutive means of advancing Windfall into production, with Northern Star as a JV operator to further de-risk project development/operations.”

“While it is still early days, we see this structure as a potential means for Osisko to maintain its interest in Windfall longer term, where greater project value can be surfaced versus a build-and-sell scenario after achieving steady state. To that end, we speculate that a Northern Star partnership may form the foundation to advance a larger scale project than that originally contemplated by Osisko.”

MacKenzie also pointed out that with the proceeds of the $154 million convertible, Osisko “will have a cash balance of $243 million, or a working capital position of $308 million (based on Q3/21).”

The analyst also noted that based on what is known so far, the earn-in joint venture “will be centred on the Windfall project area, leaving a 100% interest in the greater Urban Barry property package to Osisko. Thus, this structure not only provides a potential partner to advance the Windfall project into production, but also retains 100% regional exploration upside for Osisko.”

Kerry Smith of Haywood Securities called the announcement “a positive step towards moving Windfall into production,” and described Northern Star as “very experienced in mining underground high-grade deposits like Windfall.”

He noted that the Australian gold producer is forecast to produce between 1.55 and 1.65 million ounces of gold in fiscal 2022 and would not only help de-risk Windfall’s development but also “prevent significant shareholder dilution.”

“Northern Star is not subject to the same capital constraints as Osisko and would likely look at building a larger operation at Windfall which would bring value forward,” the mining analyst wrote in a November 30 research note. “Osisko will also retain 100% ownership in most of its ~2,600 sq. km land package, providing it with significant exploration upside.”

BMO analysts Andrew Mikitchook and Brian Quast commented that the transaction “addresses financing requirements for Osisko while lending credibility to Windfall with an investment from an experienced underground gold miner.”

“We anticipate the funds from an up to 50% earn-in would cover Osisko’s portion of the Windfall capex, and a joint venture could see the project expanding beyond the current 300,000 oz. per year expected production.”