Production Uncertainty Hits Osisko Mining

| About: Osisko Mng (OBNNF)

Shares of gold producers have come off since the price of bullion started tumbling this summer, so it isn’t alarming that darling Osisko Mining Corp. (OSKFF.PK) has lost some of its value. What is shocking, though, is how much farther the Quebec-based miner has fallen relative to its Tier II peers.

Year-to-date, Osisko’ stock is down about 20 per cent, where as some rival second-tier gold names such as Yamana Gold Inc. (NYSE:AUY), Randgold Resources Ltd. (NASDAQ:GOLD) and IAMGOLD Corp. (NYSE:IAG) are still in positive territory.

The big difference between Osisko and these firms is that the Quebec miner is just getting its feet off the ground, and that’s led to some uncertainty. Earlier this week Osisko released its third-quarter production numbers for its main Malartic mine, and even though the output was a decent 74,000 ounces, investors fear the firm is bound to cut estimates for future quarters.

That worry is starting to spread. RBC Dominion Securities analyst Michael Curran has lowered his 2011 production estimate to 196,000 ounces and he thinks Osisko’s prior guidance of 700,000 ounces for 2012 is too aggressive.

This doesn’t mean all is lost for Osisko. Not even close. It could just take some more time to develop the asset. And even though RBC has modelled some cuts into its forecast, Mr. Curran still believes that Osisko’s price to net asset value multiple will jump once production really ramps up. Based on his calculations, Osisko is trading around 0.85 times price to NAV, where as names such as New Gold, Yamana and Alacer are all trading about 1 times.

His argument: It's not if this bump comes, it’s just a matter of when.

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