Six years ago, John Burzynski, along with colleagues Sean Roosen and Robert Wares, won The Northern Miner’s Mining Persons of the Year award for their role in transforming Osisko Mining (TSX: OSK; US-OTC: OSKFF) from a junior — with seemingly mediocre assets, at 13¢ per share — into a multi-billion company on the brink of opening Canadian Malartic, a large, long-life gold mine in Quebec.
“The market didn’t start following Osisko until 2007, and we used that to our advantage, consolidating our land positions and doing our work,” Burzynski says. “In 2003 and 2004, everyone was looking for high-grade underground mines, so when we went back into the mining camps, there was no competition.”
The mining executive is as much a believer in consolidation today as he was a decade ago. “If everyone is working on a land package the size of a postage stamp, nothing is going to get done,” he says. “You can’t generate project economics on a bulk-tonnage, low-grade target [like Malartic], for example, if you don’t have a large enough claim to do it.”
Consolidation is even more imperative in dismal capital markets, he says, with juniors trading at cents per share, and facing “massive dilution,” if they try to raise money.
With this in mind, Burzynski, now chairman of Oban Mining (TSX: OBM), and president and CEO Jose Vizquerra, have put together a business deal that sees Oban teaming up with four other junior mining companies to create a leading gold exploration and development company with assets in Ontario and Quebec, a 6 million oz. gold global resource, $65 million in cash, a $122-million market capitalization and no debt.
The proposed transaction combines Oban with Eagle Hill Exploration (TSXV: EAG), Temex Resources (TSXV: TME), Ryan Gold (TSXV: RYG) and Corona Gold (TSX: CRG).
The deal is structured in a series of offers to each individual company, and Oban expects they will close by early August.
The CEOs of all four companies support the takeover offers. “There was no doubt in our mind that this is exactly the right thing to do and at the right time,” Ian Campbell, president and CEO of Temex, said on a conference call. “It provides liquidity and capital at a time when it’s extremely scarce. Our company has two really good exploration projects that aren’t there yet, and they need the cash injection.”
The thinking behind the agreements picked up speed a little over a month ago.
“There were some interesting conversations between Oban and one of the companies regarding merging cash balances,” Burzynski recalls in an interview after the conference call. “That kicked off the idea of looking to see whether there were other companies that had interesting assets but didn’t have cash, or had cash but no projects.”
Oban had been thinking of ways to capitalize on the fact that it has been one of the few juniors with cash and assets. “It put us in an interesting strategic position because we had both, as well as a relatively good rapport with the street.”
If the business combination goes ahead, Oban “probably will have more cash than 99.9% of all the juniors left in the space right now,” he says. “It’s a company that stands a chance of becoming a real mining company … what we’re trying to accomplish here is nothing less than the start of a new Canadian mining house.”
Combining the five companies involves consolidating 1,140 sq. km of prospective ground in three major mining camps: East Timmins (Temex’s Whitney project); Urban Barry (Oban and Eagle Hill); and the Catharine Camp (Oban and Temex’s Juby project.)
“There still needs to be quite a consolidation in the Canadian mining space where orphaned assets have to come together, with funding and capital and proper management, and then by going through this process, we can re-win the confidence of investors,” Burzynski says.
Osisko Gold Royalties (TSX: OR; US-OTC: OKSKF) will provide cornerstone financing, with an investment of up to $20 million in Oban’s common shares for a 19.9% stake. Since June 2014, Burzynski has served as senior vice-president of new business development at Osisko Gold Royalties, after selling Osisko Mining and its Malartic mine for $3.9 billion to Agnico Eagle Mines (TSX: AEM; NYSE: AEM) and Yamana Gold (TSX: YRI; NYSE: AUY).)
The financing commitment with Osisko Gold Royalties includes giving the company first rights to participate in royalties and streams created by the larger company, and the right to nominate three directors to the board. In the first five years following the private placement, Osisko Gold Royalties will also have a one-time right to provide first financing to Oban for up to $5 million, in exchange for a 1% net smelter return royalty on post-deal properties.
Dundee Corp. will own a 15% stake in the pro forma company and Ned Goodman, the founder of Dundee, will become co-chairman of Oban’s new board, along with Sean Roosen.
As part of consolidating the Urban-Barry camp, Oban is also taking a 19.9% stake in BonTerra Resources (TSXV: BTR), which has a property contiguous to the Windfall property.
“We’re not playing around here,” Burzynski says. “We have real firepower behind us … there aren’t a lot of groups out there that have the capital, the manpower or the technical expertise that we have to do this.”