The purpose of this article is to provide investors with an update on the happenings of Osisko Gold Royalties, a company I first covered on July 25.
Osisko is the newest precious metals royalty and streaming company, following a takeover of Osisko Mining Corp (OTC:OKSKF) by Yamana Gold (NYSE:AUY) and Agnico Eagle Mines (NYSE:AEM) on June 16. In that article, I argued that while Osisko Royalties has a hefty cash balance of $157 million, no debt and a world-class producing royalty on the Malartic mine, the company is too early in the game to be considered for an investment and still has a lot to prove.
NioGold Deal Announced
NioGold (OTCQX:NOXGF) announced on July 25 that is has signed a letter of intent with Osisko, where Osisko will acquire 14 million flow-through common shares of NioGold at a price of $.35 per common share, by way of private placement.
In addition, Osisko will buy the right to repurchase certain royalties on its claims for $150,000 - this includes the right to repurchase a .25% NSR on Marban claims, .5% NSR on First Canadian claims, and 1% NSR on Norlartic claims, and 1% NSR on the Malartic Hygrade-NSM claims.
Osisko will acquire the shares for investment purposes and the company has no other intentions to increase its ownership in NioGold. Upon closing, Osisko will own 19.5% of NioGold. In addition, NioGold will relocate its head office to Montreal and two Osisko team members will join NioGold's board of directors.
Total proceeds to NioGold are $4.9 million.
Who is NioGold?
NioGold is an undervalued gold exploration company, which operates in the Malartic and Val D'Or gold camps in Quebec. The company's projects are surrounded by seven operating gold mines, including Osisko's Canadian Malartic mine.
NioGold explores the Marban Block deposit, which has a measured and indicated resource of 1.53 million ounces of gold (1.48 g/t), and 599,000 ounces of gold (1.13 g/t). Recent gold discoveries include 19.21 g/t gold over 5.6 metres, which displays the potential for further resource growth.
You'll see on the below graphic that NoiGold's properties are literally surrounded by major gold mines and deposits, included IAMGOLD's (NYSE:IAG) Mouska and Westwood development projects, Agnico Eagle's LaRonde and Lapa operating mines, Osisko's Canadian Malartic mine, Wesdome's (OTC:WDOFF) Kiena project, Agnico Eagle's Goldex mine, Century Mining's Sigma-Lamaque project, ZMX's Lac Herbin mine and Richmont's (RIM) Beaufor mine.
With a share price of $.26 and 114 million shares outstanding, NioGold has a market cap of approximately $28 million. Following the deal, the company should have around $9 million in working capital.
NioGold Deal: A Great Start for Osisko
This looks like a very low-risk, potential high reward deal for Osisko, which gets to invest in a promising early-stage gold project located very close to Canadian Malartic.
Even more promising are the prospects for NioGold, which receives a major third-party backing by a $750+ million dollar company. I believe that an investment in NioGold warrants further research following this deal.
With approximately $152 million in cash following the deal, Osisko has plenty of funds to continuing investing in promising gold projects. I remain on the sidelines, but will keep a close eye on the company going forward.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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