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Executives

Sean Roosen - President and CEO

Bryan Coates - VP, Finance and CFO

Luc Lessard - SVP and COO

Analysts

Anita Soni - Credit Suisse

Andrew Mikitchook - Edgecrest Capital

Chris Clark - BMO

Osisko Mining Corp. (OTCPK:OSKFF) Q1 2014 Earnings Conference Call May 15, 2014 9:00 AM ET

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Osisko Mining Corporation’s 2014 First Quarter 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 (Operator Instructions). Please note that this call is being recorded today, Thursday, May 15, 2014 at 9 AM Eastern Time.

Joining us on today's call are Sean Roosen, President and Chief Executive Officer of Osisko Mining Corporation; Bryan Coates, Vice President - Finance and Chief Financial Officer; and Luc Lessard, Senior Vice President and Chief Operating Officer.

I would know turn the call over to Mr. Sean Roosen. Please go ahead, Mr. Roosen.

Sean Roosen

Yes operator. We seem to have quite a bit of stack on the call; can you just do a check before we get started?

Operator

Yes, everything appears to sound fine.

Sean Roosen

Getting awful amount of stack here.

Operator

Okay, just one moment. Ladies and gentlemen please stand by. This is the operator, please continue.

Sean Roosen

Thank you everybody. I'll be starting with a PowerPoint that’s on the Web site. If anybody wants to click on there is on the front page of the Web site and at time I'll be delivering on our commitments 2014 Q1 results.

Welcome everybody to the first quarter call. Everything we’re going to be saying today has to be taken in context of the forward looking statements. I would highlight that we do have a transaction that is to be voted on May 30th, and take into consideration as we make these statements.

Going forward, from the Q1 this year is our record year of production and cash flow and cost containment. A record production of 140,029 ounces for Q1. And in spite of decreasing gold prices, cash costs are $577, making us top quartile producer. And world class margin obtained $717 per ounce to contribute to mine earnings of $77.6 million for the quarter.

And financial highlights, gold sales were 146,132 ounces an average cost of $1,294 gave us revenues of $212 million, net earnings of $24.2 million or $0.06 per share. Investments of $32.9 million in mining assets and projects was also paid for and increased cash and equivalents by $47.6 million. We have cash resources to $258.1 million. Our net-to-debt position has significantly reduced to now $64 million as of March 31, 2014. That is a big milestone for us and gets us very close to net debt zero which is in the gold space is very unheard of.

On page 5, revenues, $212 million for the quarter, compared to the 2013 similar quarter of $159 million. Earnings from operations stand at $77 million and earnings from operations of $54 million. Net earnings for the period of $24 million and net earnings at $0.06 per share, up $0.02 from our 2013 numbers.

On page 6, the strong cash flow I think the Canadian Malartic is finally demonstrated how significant an asset it is having reported $91 million for the quarter in terms of operating cash flow.

Our earnings from the operations stand at $77.6 million, a very good correlation between both operating cash flow and mine operations. Quarterly cash flow at $92 million, a record for the Company. Again against capital market, very big accomplishment and I think that in terms of what was accomplished here given the context of the hostile bid I would like to congratulate the operating team in Malartic, and the operating team here in Montreal for having delivered an outstanding quarter and what has been a difficult time for our Company as we’ve gone through a value building process under the hostile takeover throughout that period as well.

On to Page 8, $83 million was in cash flow versus our peer group. As you can see we are competing with some of the best companies in the world. With one single offset cash flowing, this is quite a big accomplishment and speaks for the quality of Canadian Malartic.

Page 9, shareholder value in our per $1000 invested basis, we want to highlight this. Osisko generates about 0.04 ounces on a peer group that has bit of mix Canadian Malartic type of standalone base that's extremely competitive, just on one asset. On the operating cash flow, on $1000 investment we have $26 per $1000 invested, again demonstrating the quality of this asset as we go forward.

On to page 10, we document in the capital expenditures was something that we undertook in April 2013. We continue to show fiscal constraint and we have a budget this year -- total budget of $148 million of which we spent $32.9 million in Q1. $27.1 million of that land to Canadian Malartic in exploration. We spent $5.8 million drilling in Kirk Malrtic and on the new Odyssey's of, in Malartic. Though expenses were taken out for Hammond Reef and we spent about $0.5 million on the Upper Beaver project as we advanced that one as well.

Sustaining capital at $7.4 million and capitalize stripping at $10.9 million. We went to make up to $27.5 million and $0.5 with another 6.7 on overburden removal and the Canadian Malartic expansion as we pushed quarter into the (indiscernible).

Onto page 11, our financial position, I think that Osisko is extremely good health, $258 million of cash on hand, $178 million working capital, debt has now reduced to $311 million continuing to go down, given us a net debt position of $64 million. Again, a huge accomplished and it shows the potency of the Canadian Malartic project to generate cash, show returns and pay down debt. Total asset value now stands at $2.26 billion, shareholders equity at $1.761 billion.

Page 12, a bit of an overview on our operating highlights. Tonnes of ore that were mined stood at 4.456 million. Tonnes milled at 4.363 million and gold grade was up to 1.13 grams, but we’re still holding our recoveries at 88.2% and gold production hit 140,000 ounces, again a record quarter. Cash cost in Canadian dollar at 636, in U.S. dollar at 577 and all-in sustaining costs at first quartile, a number of $784 for the quarter.

Operators, is there any way to diminish the static on the call?

Operator

At this time, there is not, but we’re doing the best we can to make (indiscernible) I do apologize for the inconvenience here.

Sean Roosen

Right. On to page 13, as you see steady increase over the last three years of production. 140,000 ounces for the quarter and $577 of cash cost. So both production going up with cash cost coming down as we had told the market it would have happen once we have finish the ramp up. We are starting to see the true potency of the asset and the ability to operate at low cost given the scale size of our operations.

In 2014, production and cash cost guidance. We have said that this year we would be looking about $738 in cash cost in 2013, moving into the $527 to $577 range for 2014. We are there now. And production, our guidance stills stand at 525,000 to 575,000 ounces for the year, the variability factor mostly been related to our access to high rates in the north.

And our mine, in different segments at different times of the year, given our environment constraints to the (indiscernible) invest management. On page 15, we have 50,000 tons a day with the average for the quarter down a little bit from our Q4, but we were processing higher grade ore from in and around the old mine workings, we saw slightly throughput at the mill. But again we continue to focus on producing ounces and when we hit into those older mine working its worth taking a slow down at the mill to get that high grade materials, it brings down our cost and our estimate.

Mine production ore waste at 189 million tons for the quarter, again holding our volume of mining up, we’re targeting to be around 180 to 190 wells in that zone now. And we’ve seen several days when we were significantly in better shape to push harder, to get closer to the design capacity [Indiscernible].

On to page 16 -- above is the way that the mine is working and the mine plan that we announced earlier in the quarter. We have put forward a 14.2 year mine plan, which incorporates the north pit wall, high grade zones and on into the Barnat further in years, it will bring total production at some -- in those within the first five years up about 625,000 ounces for the next five years. Longer life mine we have several years, 700,000 ounces given where we are now. As you can see in the bottom image on page 16, the higher grade components are being exposed as we get more access to that north pit wall we mine down. There is still a differential of about 5 benches between the north pit wall and the south pit wall and as we get further on into the year, we will be looking to pull down that north pit wall and that will allow us to mine little more aggressively in there, gets more contribution from the north pit wall which will contribute to blending the higher grades. We also are benefiting now that we have got those crown pillars that were blasted in Q4 and we will be able to hit down a few more benches that’s in there in our mining operations and around the all mine work. And so evolutionary continuing access to the north pit wall as we get more and more out of those benches out of the way and more into tighter rock where we get better fragmentation and we can also go to a large bore hole as we get deeper as well.

We are still using a smaller bore hole for blasting in some of those areas and as the pit evolves that will come up and our cost savings on mining should come down, as we see those natural evolutions in the north pit wall and the deeper benches where we get the better fragmentation with less cost. Page 17, as you can see the breakdown now of mined ore for $0.30 for milling, mined ore $0.7 for mining is stripping ratio of 2.5 to 1 and our G&A is sitting at about $1.95. As you can see the cost performance, again north pit wall being the big key factor in terms of grade contribution and also in terms of bringing our cost down as we get in and get access to that higher grade material. On milling costs were higher due to the contractors using some pre-crash during those times as we are going to those old mine workings. We also had a non-cash down 3.5 days in the quarter which some of the production were down 50,000 tonnes per day.

Q1 cost per tonne mined is at $2.53 as we see more of that technical blocks in near surface is behind as those costs continue to come down. Page 18 is a summary of the acquisition in process between Yamana and Agnico to acquire Osisko. The agreement is between the Yamana and Agnico to acquire 100% of Osisko and to issue implied price of $8.15 per share which is made up of cash, Agnico shares, Yamana shares and new Osisko Gold Royalty shares that will be returned to the current Osisko shareholders throughout the completion of this transaction which was currently to set to vote on May 13th and then subsequently the mechanical and technical events execute that we would assume to successful this transaction will be completed sometime in June or as late as early July. In terms of the way that project will work on a go forward basis and Agnico will jointly manage it in a general partnership, on general partnership with the Kirkland Lake and Hammond Reef assets as well.

In terms of the Osisko 2 which is essentially the market value is based on the royalty on Canadian Malartic and the cash component in it with a $155 million of cash going into new company which will be called Osisko Gold Royalties and 5% NSR on Canadian Malartic and that is [inaudible] and 2% royalty on the Kirkland Lake properties, Hammond Reef, Pandora and a portfolio of marketable investments and holdings and some general exploration companies. Osisko Mexican exploration properties also come forward into Osisko Gold Royalties and we will have to decide which way we go on those, whether we keep them in the company or if we put them out into an exploration company and retain a royalty. This bid is 37% higher than Goldcorp’s original bid and I would like to thank Agnico and Yamana for their hard work in terms of coming to market with a superior bid and being the leaders on this transaction and recognizing the value and hard work that both the Agnico and Yamana teams have put in to make this a competitive process which I think is a great outcome for Osisko shareholders and we look forward to working with Agnico and Yamana as we complete this transaction and we will be looking forward to Agnico and Yamana continuing arm of the execution of Canadian Malartic and the Kirkland and Hammond Reef projects. And we wish them all the success in terms of making this project what it can be.

Page 19 is the transaction summary again the breakdown, I won’t go into it in anymore detail but I think that we have covered it up pretty well. Going forward there will be an Annual and Special Shareholders Meeting at 1:30 PM here in Montreal on May 30, 2014 the location will be the Fairmont Queen Elizabeth Hotel which is across the street from our offices and all shareholders are invited to participate in that meeting. And we will be voting on a plan for arrangement which requires a two-third approval of shareholders and proxies that are present at that time. At this time, I would like to thank all the Osisko management team, the Board of Directors for the hard work that’s gone into last 120 days, as we move forward subject to shareholder approval. We will look forward to seeing our shareholders in Osisko 2 Royalties as well and I think it attribute to the hard work that our team in Malartic has done, and our team in Montréal, in those world-class asset, and set the stage for shareholders to benefit from this. And I think that we also want to recognize some of the participants in the process. The Caisse de depot and the Canada Pension Plan have been our financial partners, throughout this transaction, just like key roles and the outcome here for shareholders and particularly I like to thank Mr. Michael Xavier for his contribution for this process, and also our friends from Canada Pension Plan who has work hard and diligently to provide security during couple of the evolutions to the field. And also I would like to thank a few of the other major shareholders who had been throughout the whole process. John Hathaway at Tocqueville, and Joe Foster at Van Eck, and Kevin Maclean at Sentry [ph] and Rob Cohen who has been with us forever, and he has been a key in integral shareholder throughout this process. And we look forward to seeing many of you as we go forward, into the next evolution of this transaction.

And with that I open up for questions, and thank you again to everybody who has participated in this process and as part of the shareholders throughout.

Question-And-Answer Session

Operator

Ladies and gentlemen, we will now conduct a question-and-answer session. (Operator Instructions) your first question comes from the line of Anita Soni with Credit Suisse, your line is open.

Anita Soni - Credit Suisse

Hi, good morning guys and congratulations on a good quarter. I just wanted to as with regards to some of the -- like you mentioned during the direct call former, drilling charges that you will be receiving from additional properties, is that properties are those around the Canadian Malartic now?

Sean Roosen

The drilling feature exists, I believe after seven years of production at Canadian Malartic. Any property that would contribute or to be processed in Canadian Malartic which is not covered by one of the royalties that we currently hold; this is essentially the condition, so anything outside of the current Canadian Malartic land package or the Pandora package.

Anita Soni - Credit Suisse

Then, just as you exit running this operation, can’t you provide one last bit of guidance in terms of how you see the grade rolling out of it at the course of the year.

Sean Roosen

I think here where we are. I think the overall guidance for the year is between 1 and 1.1 g, that will set the stage around the 525,000 and 575,000 per year; the grade variability of about 0.05 to 0.1 g throughout the next three quarters if possible. However, the evolution of plan is related to the weather and the ability to mine intensely in the north pit wall. So that’s the variation on the same. So I think as we look forward to the year we are in pretty good shape, at the mining processes in the first quarter, last month and a half, have put us in pretty good shape to continue to push into that north wall throughout the rest of the year. So placing your guidance on it for the quarter, it’s pretty much within those limits.

Anita Soni - Credit Suisse

So when are you targeting really accessing or taking them at north pit wall?

Sean Roosen

Sorry, I didn’t hear that. There was too much static.

Anita Soni - Credit Suisse

When where you thinking about - or when are you planning to take down that north pit wall this quarter, do you begin, or is it even…

Sean Roosen

Well, continuing on as we go forward, we shall [indiscernible] in the fourth quarter. So we’re evolving in that north pit wall various levels, as we say we have about a 5 to 6 pence differential; so when the wind in the right direction we might intensively in those areas but we are still working with smaller blast, almost near surface benches and we will be - in some areas for the rest of the year. But it is an evolutionary process. We will take advantage of the weather as it permits. And the balance of the mind plan as you know will have a very dynamic approach to our mind plan and we try to and it depends on as at times as they come.

Anita Soni - Credit Suisse

Sure. And then one final question with regards to the seasonality; there was a relatively low level of interference from the wind in that first quarter. Is there something that we should -- is there some seasonality or seasonal pattern you’ve noticed with the winds direction in the last couple of years.

Sean Roosen

Yes. I think that the - you know there is a general pattern, but I would say it wasn’t consistent last year and so far this year, it seems to be pretty good. Being exactly the next weather man, we’re prepared to take advantage of it all. When we get a little bit of clear weather, obviously we get winds from that which as it commence to mining operations. As we get deeper it becomes less and less of a factor. So each and every day as we evolve, it becomes less of a challenge and then certainly now that the top edges are now at least two or three in most places with significantly reduce the impact.

Anita Soni - Credit Suisse

Sure, and this is the last question. What’s your stock pile level right now and the grade?

Sean Roosen

About 2.6 million ton and grade is about 0.5 to 0.6. So our stock pile levels are maintained throughout this process. And the grade of the stock pile has actually gone up slightly.

And well, we have got a little bit of dead time; we I would like to send condolences to our friends in Boston, but then here in Montreal we’re feeling pretty good about [indiscernible].

Operator

(Operator Instructions) And your next question comes from the line of Andrew Mikitchook with Edgecrest Capital. Your line is open.

Andrew Mikitchook - Edgecrest Capital

Good morning, gentlemen. Can you just walk us through the timeline after the May 30th vote and specifically when investors would conceptually receive their Osisko Royalty shares?

Sean Roosen

Right now it’s probably earliest date after the vote would be June 10th, but depending on what happens to me in the process could take another two to three maybe four weeks, so that’s kind of the earliest date if everything fell into place. But lawyers and courts being where they’re will be subject to the outcome of their process as well.

Andrew Mikitchook - Edgecrest Capital

Okay that’s it. Thanks for my question. Thank you very much.

Operator

Your next question comes from the line of Chris Clark with BMO. Your line is open.

Chris Clark - BMO

My question is surrounding the potential yet to be realized on the property. The mine has been progressing wonderfully. Could you talk a little bit about the Barnat extension? Are you currently drilling there in the potential? And also the Odyssey zone potential size and location and maybe how you see that affecting the timing of mining or the mining sequence?

Sean Roosen

Sure I think that’s great question and obviously close to our hearts as we look forward. In terms of our exploration to the most part, we stopped in 2011 once we’ve identified 16 years of mine life exploration on the property, did pick up again here in late Q4 and into Q1. Recently, we continue to work on the Barnat zone the evolution there. As you know, we have relocation of the highway to carry out so that process will be underway this year. We hope to have that completed sometime in 2014 set the stage for that construction and pre-strip work in 2015 and ’16. And right now the way that the mine plant is working we don’t see any contribution from Barnat before 2017; however, there is possibility that work can be accelerated through the process that could happen earlier.

But I don’t think we can count on at this point in time. Certainly in terms of great contribution and rock consistently Barnat is very attractive with almost 2 million ounces in around 1.82 gram range, in terms of further upside, the recent discovery at the Odyssey zone set the stage for the next round of exploration at Canadian Malartic. As you recall we did not much drill below the level of 400 meters. The Odyssey zone is consistent with what we’d look at the bulk tonnage underground target. And certainly it looks at this point in time. It is very early days to say but we think that there is significant amount of potential on the Canadian Malartic for some more [indiscernible] resources as we saw on the Western Porphyry and some of other target zones.

But also bulk tonnage underground targets which we did not carry out the exploration on those targets so far and obviously as we’ve been pretty successful so far and with the cost that Agnico has been able to achieve underground at Goldex for the mine 1.4 gram underground, certainly the grades at Odyssey in the processing cost with Canadian Malartic mill set the stage for some very big upside there and just as a rule of thumb about 0.1 gram head grade increased for the Canadian Malartic mill without any mill capacity as of 15,000 ounce per year. So there is considerable amount of torque in anything would bump that grade with lending the process into low capital high impact outcome at Canadian Malartic.

All right, there are no more questions. Thank you everybody and we look forward to seeing you at the vote and we will be expecting to visit all of the shareholders and analyst community regarding the Osisko Gold Royalties assuming that comes and we’ll see you at that time. Thank you very much. And that is our conclusion of the first quarter call and the pre-vote call for Osisko Mining Corporation. Thank you.

Operator

Ladies and gentlemen, that concludes our conference call. Please note that a replay of this call can be accessed as of 12 p.m. today at telephone number 1800-585-8367, access code 27969500. This replay will be available until midnight on May 30, 2014. Thank you. You may now disconnect your lines.

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