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Executives

Sean Roosen - President and CEO

Bryan Coates - VP, Finance and CFO

Analysts

George Topping - Stifel

Andrew Mikitchook - GMP Securities

Steve Parsons - National Bank Financial

Anita Soni - Credit Suisse

Osisko Mining Corp. (OTCPK:OSKFF) Q4 2012 Earnings Call February 22, 2013 8:00 AM ET

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Osisko Mining Corporation 2012 Fourth Quarter And Year-End Results Conference Call. At this time all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. (Operator Instructions). Joining us on today's call are Sean Roosen, President and Chief Executive Officer of Osisko Mining Corporation, Bryan Coates, Chief Financial Officer.

I will now turn the call over to Mr. Sean Roosen. Please go ahead Mr. Roosen.

Sean Roosen

Thank you operator. Thanks everybody for taking the time to go through this year end and Q4 report with us today. We are going to be going from the PowerPoint that was posted on the website last night which is titled 2012 Q4 and year-end results.

I'll start off on page 4, assuming that everybody has taken a moment to go through the forward looking statements at the front of PowerPoint. Gold sales of 111,104 ounces for the year at cash, sales price of about $1,709 throughout Q4 and 394,603 ounces sold for the entire year, average price of $1,669 for the year of 2012.

Cash margins per ounce at $795 for Q4 and $759 for the year. Total sales of $191 million for Q4 and $665 million for the year ended 2012. The earnings from mine operations were about $68.1 million for Q4 and $239.7 million for 2012, which is still a ramp up year.

Net earnings for the quarter at $9.6 million and $78.4 million for the year, investments of $228 million into mining assets and projects and in the acquisition of Queenston Mining in Q4 ended in December 28 closing and enhanced credit facility from CPPIB are essentially the 2012 and Q4 financial highlights.

Over to slide number 5. For full year production we’ve seen significant increase obviously from 2011 to 2012, $273 million in strong cash flow from the Canadian Malartic operations, $78 million for net earnings for the year, $18 million of it from 2011. So significant growth as we push through the ramp up at Canadian Malartic.

Over to the income statement on page 6; just a brief run through here. Again 12 months ended for 2012, $665 million in revenues, $239 million in earnings; earnings for operations at $198 million, other expenses $48,120,000 and earnings before income tax at a $150 million.

Income tax and mine tax expenses were a little bit higher this year with some of the way that charges worked out at $72 million for the year and earnings for the year at $78 million, which is about $0.20 per share, on a basic diluted basis as we comes through ramp up.

Page 7, non-cash items; there are several items that adversely affected Q4 earnings, including $10.9 million pass through write down, that we had to engage in for our investment in Ryan Gold. Ryan Gold took the impairment on their property for 2012 on their Yukon land package, and as a significant shareholder we had to incur that write down as well.

We also had a bit of a peculiarity in a $5.1 million write down on the Queenston shares which was a differential loss of $0.66 a share from the time that we purchased this 9.5% Agnico Block at $5.42 million and subsequently the closing of the deal December 28, under IFRS rules, we had to take a non-cash charge of $5.1 million there.

Tax rate was unusually high during the quarter on a non-deductible losses and adjustment basis described as the loss on the Queenston shares, the impairment to Ryan Gold and the charge for stock-based compensation.

Over to page 8, the CapEx for the year, a total of $228 million, Canadian Malartic being the bulk of it at $154, Hammond Reef, we wound up the drill program and most of the EIA baseline studies and the rest of work there at $58 million. So that brings most of that investment base of Hammond Reef to a conclusion. Exploration, we spent $15 million and corporate we have another $0.5 million of expenses.

Now operating highlights for the year, the average throughput in Q4 for calendar day basis was $44,435; was 47,000 tons a day plus for the operating days in Q4 and we had 38,000 tons per calendar day average for the year ended 2012.

High record production for one day was 58,000 tons, on several days in the 50,000 - 55,000 ton a day window, as we came through the ramp-up and the commissioning of the secondary pressure units and subsequently in December commissioning of the final and second double crusher.

Q4 gold production at over 100,000 ounces. We had quite a few issues didn’t work through in Q4, including the delays incurred with Crown Pillar blast and we finally blasted on October 28th but it had a significant effect on our ability to mine higher grade in that quarter. Q4 was affected by that, average grade coming under 0.87 and the year ended 2012 at 0.96 grams which is basically on life of mine grade.

Our average recovery for the year ran a little bit higher than feasibility still at 88.8%, with the year-to-date at 89.4% so still hanging in there, recovery as we push further towards the main play production units, 55,000 tons a day, it will come down a bit as we get higher throughput.

We completed the additions of the two Raptor XL 2000 secondary cone crushers on subsequent commissioning of those units. They were particularly tough to commission in that they're the first two units of a new model 001 and 002. So we paid a bit of a price for that. That installation, it took a lot longer for FL Smith to stabilize those units than we'd originally hoped for, and subsequently the installation of pebble crusher, which is a twin to the existing pebble crusher which was completed in December and sort of then commissioned in January, with the addition of significant amount of material handling systems after the SAG mill to accommodate that new crusher.

Probably the biggest, most recent news of course is the modifications to the Canadian Malartic operating parameters for both blasting at the proximity to the North pit wall, which was a key to us being able to revise our 2013 mine plan. We were hoping to have this done in the first half of the year.

This is a phase one on the modification, so the parameters are key in terms of us being able to do more in-pit mine scheduling to manage grade as we come into the end of Q1 and into Q2 and set the stage for us to achieve our guidance this year, of 485,000 to 510,000 ounces of production.

Over to page 10, you can see steady growth, on the quarterly basis as we came through the ramp up last year, and the commissioning of equipment, averaging about 100,000 ounces a quarter in the last part of the year with cash costs running at about $900 an ounce in Q4 as we had those issues with the access to grade and during that period we did push our cash cost up a little over the Q3 numbers and also the additional cost as mentioned of those crown pillar blasts.

Total production for the year again at 388,000 during a ramp up year, as we commissioned various pieces of equipment and adjusted our mine cycle to take into account over the operating parameters that were imposed by the regulators earlier in the last half of the year.

Page 11, 2012 was a 14.1 million ton that are processed through the mill, average throughput of a 38,000 tons a day on a calendar day basis and record throughput was established on November 4th. So we know the backend of the plant can go above the 55,000 tons a day but we are still working on availability and optimization of the combination circuit in front of the mill and that will be the key driver as we finish up Q1 and go into Q2. The operating day basis was at 47,500 on a calendar basis first to 44 and looking at the graph we can see the steady push towards name plate as we come into the 2013 run.

Page 12, 56.5 million tons total moved out of the mine, averaging 154,000 tons a day, working with the strip ratio of 2.24 to 1, increased flexibility in the opening up of the pit floor, we can see an image, off to the left that shows those pit about two weeks ago and you can see the portion that is close to the town that would be north side and you can see the deeper portion of the pit closer to the mill that is the south side and we are about three or four benches lower on the south side than we are in the north side. These new operating parameters will allow us to start to equalize the pit and to expose the higher grade ore. It is mostly in that northern pit wall area.

Delay that we encountered last year, we had the 940,000 ton blast that we carried out on the crown pillar that was our largest crown pillar blast that we needed to do. Then we went back to the regulators to adjust the parameters around that. We now have two times a day when we can blast a total of 15 seconds which allow us to take on these crown pillar, the subsequent crown pillars that remain in the pit. We have about a dozen left to go, none of them as big as the last one. So we feel very comfortable that those new operating parameters allow us to carry out our work in a safe and efficient manner.

We also had some effects from blasting products last year and in terms under blast where we ending up having some material that was harder to dig than it should have been which subsequently affected the availability of our equipment as it was much harder to dig through 2 million tons of our new brick than it should have been.

We ran about 3% downtime due to noise in Q4 weather. We also have to stop when there is lightning and we ran on total about 4% time down on our mining fleet, mostly between hours of 11:00 pm and 4:00 am as we manage our noise from the pit. We are currently operating on 55 decibels during the day and 50 decibels at night operation which is a pretty big accomplishment. A lot of work is done into noise suppression and as the mine gets deeper we get better responses from that noise suppression systems that we have introduced.

Page 13, just a summary again of the mining parameters. This image that we’re looking at here, sort of using more of graphic, so you can see the berm referred to as the green wall on the right hand side of the photo. It’s mainly that area between the berm and about 80 meters on that street that you see on the right that we need to catch up on. That’s where we’ve been frozen out of the way that the deposit works, those are key assets for our mine scheduling and our grade scheduling.

So again over to page 14, a more of a graphic demonstration of what we’re refereeing to. So, now we’re looking from South to North and the way that this image is oriented. The darker the color, the higher the grade and you can see that that Northern pit wall which is on the up page side of the image and shows the Barnett zone to the right is key to us and that’s the area that we have not been able to get into.

If we try to show you in the images below with the red arrows - the one red arrow pointing to the crown pillar on the right image that we had to blast in subsequently, We back filled that stope, it is near surface which will allow us normal mining operations even around that area where this quite a bit of high grade remains in the stope walls that we’ll be mining and transporting quickly we to process.

Page 15, 2012 cost performance, we saw our cost on a per ton base coming down as we went into Q4, a total of a $22.40 a ton, the bulk of that change coming just essentially through throughput and some natural efficiencies as we get better in our job, pit gets a little bit deeper and we have more pit floor to work with and we’re getting better blasting product through the fact that we are in the lower portions of the ore body we’re able to work with the eight and a quarter inch blast hole.

So 2012 we averaged $3.30 that ton. There was a lot of near surface material in those first three or four benches, when we have to use blasting much and fire off suppression systems and we have to also manage in around the mine workings and we’re doing quite a bit of backfill on those old mine workings as well. So we’ll see those costs come down as the pits gets more mature.

Unit cost per ton on mills are still high. Relatively we are about 10% off of final design capacity right now. So we will see that come down as we get the throughput increase there. Again, a cumulative effect of quite a few issues here, managing the old stopes and underground workings, the special blasting issues that we went through with the under break in the pit floor this summer, and the noise and weather constraints that we managed into; those are part of our D&A. So we expect them to be there but they can be variable from season-to-season. High maintenance cost due to both shallows and the stop-start issues at the mill, for the integration of new equipment and new material hammering systems at several points.

We did however achieve some lower contractor costs in Q4 and we continue to work on that for 2013. Our guidance for 2013 was to stabilize the 50,000 tons a day the first half of the year and then being pursued of 53,000 to 55,000 tons a day. The second half of the year went through mines scheduling to average 1 gram per year for the year and assumed 87% recoveries and that will use a bandwidth about 485,000 to 510,000 ounces of production with cash cost forecast between 780 and 825, basically assuming the input numbers that we had for Q4 in terms of Canadian dollar exchange rates, which is probably one of our biggest moving parts with two thirds of our cost being Canadian dollars and one third being in U.S.

Page 17, CapEx guidance again, sustaining capital for Canadian Malartic, about $51 million which is the partial refurbishment of the main components in the mining fleet and some of the mill fleet parts in terms of scheduled, motor and transmission and component replacements. We are also installing an affluent treatment plant and we are working on our tailings ponds as we continue to expand those tailing ponds in accordance with the design that we laid out.

We also have $12 million budget for the Barnett extension this year, which is partly engineering and preparation for the relocation of the 117 and some pre-striping operation as wells in the south portion of the Barnett area that's not affected by the current location of the road.

So that will be ongoing as it gives us a total of $98 million planned expenses for Canadian Malartic for 2013. We have a budget of $10 million to complete the work at Hammond Reef which is nearing end. We have deposit EIA draft version with the government for review.

We have $70 million planned to the (inaudible) project, which about $50 million on the exploration shaft development and the rest of it is on the more traditional infill drilling, exploration drilling on the land package. Exterior exploration is at $42 million for the year, including our Greenfield projects in Mexico as we move forward and the onsite exploration in our land packages in Quebec and some joint ventures in Ontario.

Reserves at 10.1 million ounces rate now, and a measuring indicator totaled 11.7 million ounces. We have extracted an excess of 600,000 ounces from that mine at present and with the another 1.2 million ounces still remaining in the third category, current throughputs quite a long mine schedule in front of us.

On page 19, cash on hand as at the end of the year was $155 million with working capital of $95 million, total debt at $337 million and total assets in the company just shot of 2.7 billion, shareholders’ equity sitting at $2.15 billion. Also worth noting is we have $100 million undrawn facility with our French and Canada Pension Plan and that does mature on the December 31, 2013.

That will end basically my comments on the Q4 and 2012 financial results and operating results, and at this point in time I think we can open up for some questions.

Operator, if you could initiate the question process.

Question-and-Answer Session

Operator

(Operator Instructions). And we will proceed with our first question. It is from the line of George Topping from Stifel. Please go ahead with the question.

George Topping - Stifel

See Sean, can you give us an indication of the tons and rate and the remaining crown pillars? Is it similar to what you had done before this blast?

Sean Roosen

Well, I mean In terms of the immediate mine schedule, the crown pillar itself, we usually drop it down to the bottom of the stope, and then we backfill a grade over the top of it and it’s really the wall rock around the stopes that we are focused on. The previous operations ran from 1935 to ‘65 and they averaged about 4 grams from the underground. So some of the stope rock and the wall rock is more important to us than the crown pillar contribution because we don’t get that until we actually get to the bottom of the stope. So in the near-term we are focused more on the surrounding wall rock which tends to start, the old-timers were to cut off about 1.5 grams to 2 grams in those stopes. So there is quite a bit of meat left on those stopes.

George Topping - Stifel

And then I see in the MD&A, the $50 million for exploration in the Americas, could you elaborate on that?

Sean Roosen

Well, we have the projects in Mexico where we have 9,600 square kilometers on their permit which is evolving. We have three drill rigs turning there now. We have the exploration on the go and several joint ventures in Ontario, at this point in time and we also have a total of about $20 million focused on the Queenston acquisition ground as well. So you got 10 in Mexico, 20 some odd in Kirkland Lake and then the rest as in various commitments, including some of the joint ventures, the AU33 joint venture around the James Bay area, and a couple over into Western Ontario. So that’s the bulk of that cash.

George Topping - Stifel

Right, but the junior sector, the way it is right now, if you reinitiated, remember that study you did a while back on the junior sector and what opportunities there might be for bankrupt companies there?

Sean Roosen

We are right now, George, is I think that we are extremely excited and focused about our Queenston grounds. That’s obviously, the starting place there as the Upper Beaver Project, we have to dial in the Upper Canada component of that and we want to make sure that we do a good inventory on other aspects of it and we've got a pretty big land package in Mexico with 9,600 square kilometers. So I think in the short term, we're pretty good with the land package that we have for exploration right now and we're going to stay focused on what we have.

Operator

Thank you very much. Now we’ll proceed to our next question, the line of Andrew Mikitchook from GMP Securities. Go ahead with your question.

Andrew Mikitchook - GMP Securities

Can you just give us a breakdown of the expenditures I guess on the Queenston grounds? How much of that is the shaft and how much is exploration, maybe it will give us an idea of how you're splitting your focus.

Sean Roosen

Right now I mean the exploration shaft, we began collar over sinking operations in December, we should have the collar down to about 30 to 40 meters vertical, and have the head frame and the basic ancillaries for the head frame installed sometime by the fall. We see that as being about a $50 million line item rate now, and $20 million is for drilling. A good portion of that will be for the infield drilling to chase down the lateral extents of mineralization in the Upper Beaver project, between the vertical depths of 800 and 1500 meters.

So we have about probably 55 holes that are not in a previous resource update. So we're going through the revision of the models there to make sure that we use our drill meters most efficient way to give us the highest level on confidence on some of those new ounces that are included in those un-modeled drill results right now. So, about half of our exploration dollars at Kirkland Lake will be going into the Upper Beaver infield program and then the other $10 million will be going into documentation of the other deposits, probably mostly focused at this point in time on any near surface ounces that we can document there that are low hanging fruit at the upper Canada and subsequently we'll be looking at a fairly big program in terms of soil sampling and general geology.

We're plan to have a bit of a rolling thunder program this summer in terms of remapping the whole camp and re-sampling the whole camp, upgrading the geophysics both at an airborne level and on a semi regional level and perhaps some ground physics, geophysics so that we could have some new target generation ready to go sometime in the fall. So there will be a couple of million bucks that goes into just generally, I think on sort of redoing a camp in a modern way, which is primary to the reason that we did the acquisition in the first place is we still feel very strongly about the exploration on site for large systems in this camp. Mostly exploration has been dedicated to the camp and in the past has been chasing non-high grade mineralization from the historic mines and we mostly discovered in the 1930s and 40s. So that’s the real push in terms of how we’re putting it up.

Andrew Mikitchook - GMP Securities

Sure and then just on the Hammond Reef, the next thing that would be disclosed to the market is the actual, I guess you call that pre-feasibility or feasibility in the third quarter, fourth quarter?

Sean Roosen

I think we are going to be shooting for a DFS here. Sometime late second or early third quarter would be at this point in time. We are basically with a 85% complete I guess at this point in time, just as we do follow that up. The EIA draft format has been given to the Ontario government for review. So based on the feedback that we get from that process, we will finalize with the documentation on that project.

Operator

(Operator Instructions). And our next question is from the line of Steve Parsons from National Bank Financial. Go ahead with your question.

Steve Parsons - National Bank Financial

Couple of questions for you. Just wondered if you could give us any more color if it’s available on the performance of the pebble crushers, I know you have just sort of commissioned them and I guess they are being running may be for about month and half now, at least the second one. How is it running? Are you seeing any benefits? If you could just add some color there please?

Sean Roosen

Sure, well in terms of availability, having two pebble crushers is a big step forward for us in terms of when and how often we have to change liners on those units. We did install a material handling system capable of utilizing both crushers at the same time. We are in the optimization phase of the integration of that. We have some adjustments to geo-grade (ph) some side mills that are planned and we are in the final commissioning process but it definitely has had an effect on our availability on our throughputs and we continue to adjust, to take advantage of that unit.

We haven’t had any particular problems with that, is the Raptor 1100 from FL Smith. It’s a twin that one we already had and those units are pretty stable and mostly what we have been working on is just making sure that we have the SAG mill performing to a point where we can feed those units but I’d say the integration is in pretty good shape at this point.

Steve Parsons - National Bank Financial

Next question on the blasting regulation, you had indicated that (inaudible) you got from Government of Quebec a couple days ago was sort of Phase I in the modifications. What are you looking for, for phase II?

Sean Roosen

I think as we evolve into this, we’re firming up the final operating parameters in terms of noise measurement process, which I think we’re coming to the end of the Barnett extension with the relocation of Highway-117. We’re evolving into that process now. We’ve agreed in principle on the routing of it. We’re going to be also working on the evolution of our waste dumps and the extension of the tailings pond which are natural evolutionary issues as the mine evolves. So those are the ones that are in front of us, looking part of the plan since the beginning but we are now at the point in time we’re on the phase II and phase III of those aspects of the project.

Operator

Thank you very much. And we’ll proceed to our next question. The line is Anita Soni from Credit Suisse. Please go ahead.

Anita Soni - Credit Suisse

Just one question with respect to the tax provision. Could you just explain a little bit about what was going on there in the commentary when you said the government had taken a different position regarding some tax credits?

Sean Roosen

Sure, I’ll pass it over to Bryan for that.

Bryan Coates

Anita, what has happened is that last year we booked our tax provision a recognition of certain tax credits that we felt that we were eligible to, related to our investment in mine development and in exploration. We’ve been through an audit from the Revenue Canada, CRA basically have come in, they’ve provided us with their feedback based on their audit and one of them where we have a disagreement on interpretation is on whether some of these expenditures that we have are eligible or not. And so far we’ve had some decisions. We’re evaluating how we want to approach this but we took the prudent approach by recognizing the provision against those. So that was roughly $4 million of the tax provision that we had.

So, the file will continue, we have to reevaluate what it is. It's the standard practice. Our tax provision is prepared internally with a tax specialist that we have. It's reviewed with outside advisors and the auditors review, so normal thing. On the other hand, I would highlight it to you that this is not a cash issue that we have in the quarter.

Anita Soni - Credit Suisse

Okay, and so it’s just a onetime provision at this point. You may or may not recoup that depending on the outcome of that decision?

Sean Roosen

Absolutely, it is one-time provision, but I mean it’s all part of the process Anita that we go through on our tax positions and the issue is that it’s a billion dollar project. So when you take a position and you have a disagreement, it’s worth a lot of dollars.

Anita Soni - Credit Suisse

And then the second question and I apologize if you have already gone over this but did you give us a breakout of the mining cost per ton for the Q4?

Sean Roosen

Yes, it is. It is in the presentation, Anita?

Operator

Thank you very much and Mr. Roosen there are no further questions at this time. Please continue.

Sean Roosen

Okay, just some wrap up comments. I think it all at 2012 we worked pretty hard, we did a lot of things. 2013, we’re the final push for the last 10% of the throughput on the nameplate. We have had good relationships with the government over the last four or five months. We have seen that change a bit and we are very optimistic that we will be able to continue to push hard in 2013 to achieve our objectives here.

And we also wanted to thank a lot of our team that worked really hard over the last three or four months just to get the parameter revisions that we need to continue on with our operations and to get back into the higher grades on so. And I think on that note I wish everybody a good day and let's hope that the global markets expect to come back a little bit and I appreciate everybody taking their time this morning. Thank you.

Operator

Thank you. Ladies and gentlemen that concludes our conference call. Please note a replay for this call can be accessed as of 10:00 am today, our telephone number 1-800-558-5253 and entering passcode 21647923 followed by the number key. This replay will be available until midnight on March 8th 2013. Thank you, you may now disconnect your lines and have a great day everyone.

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