Falco Resources (TSXV: FPC) is the only junior to control the last of the large Abitibi mining camps not owned by a major gold producer and Osisko Gold Royalties (TSX: OR; US-OTC: OKSKF) is a key partner and shareholder, owning just over 11% of the company.
So when Osisko issued an early warning report stating that it has “expanded the purposes for which it may continue to hold the existing holdings” in Falco and determined that, in addition to investment purposes, “it may use existing holdings for purposes of influencing the corporate, managerial and strategic policies,” it created a stir at Falco.
“To go out and amend what was already there caught me flat-footed a little bit,” Falco president and CEO Trent Mell says, who joined the company last July. “The change in designation is unusual … it’s atypical, and why they did it is not entirely clear to me yet.”
Mell, a former executive vice-president at AuRico Gold (TSX: AUQ; NYSE: AUQ), added that in his experience such a change in designation often means that a company intends to do something more than just sit on its shares, and may foretell of a more active involvement in the company.
“We have a huge year ahead with a budget of almost $10 million, which is more than we’ve spent in the last two years,” he noted. “If they have a concern, it is in everyone’s interest to address it now.”
John Burzynski, Osisko’s senior vice-president of new business development, did not return a request for comment on the early warning report before press time.
Sean Roosen, chairman and CEO of Osisko Gold Royalties, joined Falco’s board as chairman in September 2014.
The co-founder of Osisko Mining brought the $1 billion Canadian Malartic mine into production and last year sold the company to Agnico Eagle Mines (TSX: AEM; NYSE: AEM) and Yamana Gold (TSX: YRI; NYSE: AUY) in a cash and share deal worth $3.9 billion.
Osisko Gold Royalties’ cornerstone asset is a 5% net smelter return (NSR) royalty on Malartic.
In 2012, Falco acquired the remnants of one of Canada’s most established volcanogenic massive sulphide (VMS) mining districts — the Rouyn-Noranda mining camp — including the past-producing Horne mine complex, where between 1927 and 1976 Noranda produced 11.6 million oz. gold and 2.5 billion lb. copper, most of which came from the mine’s upper 3,000 feet (914 metres).
Falco’s Horne 5 underground deposit sits below the old workings of the Horne mine, and in March 2014 the junior completed an initial inferred resource estimate for the upper part of Horne 5 from historic drilling. The deposit remains open at depth and along strike.
At an $80-per-tonne net payable metal or NSR cut-off, the inferred resource comes to 25.3 million tonnes grading 2.64 grams gold per tonne, 0.2% copper and 0.7% zinc for 2.2 million contained oz. gold, 131 million lb. copper and 393 million lb. zinc.
The company says confirmation drilling in the year’s first half could upgrade the resource category from inferred to indicated. It adds that overall resources could increase within the Horne complex, and it has 11 gold targets within the shadow of the old mines on its land package. Falco says there is potential for extension at depth at Horne West.
In addition to the Horne complex, Falco wholly owns a 730 sq. km property that encompasses 14 other gold and base-metal mine sites, and brings with it over 80 years of data archives.
At its Lac Hervé VMS target, 15 km northeast of Rouyn-Noranda, a single hole targeting a large anomaly intersected 3.8 metres of sulphide stringer zone material. The company says the Rivière Mouilleuse copper-zinc-gold property, 25 km northwest of Rouyn-Noranda, is lithogenically similar to the rocks at its Horne complex.
As of Oct. 20, 2014, Falco held $12.1 million in cash. In addition to Osisko Gold Royalties, Goodman & Co. owns 10.6% of the junior, and other institutional shareholders include Dundee Resources, Sentry, Oberon, Front Street Capital and Tocqueville.