Osisko realizing Canadian Malartic’s potential – by Northern Miner (November 8, 2013)

Since 1915, the Northern Miner weekly newspaper has chronicled Canada’s globally significant mining sector.

Osisko Mining (TSX: OSK) released some impressive third quarter results, which it believes should put any doubts about its Canadian Malartic mine in Quebec to bed for good.

“With the millionth ounce of gold production we have proven beyond a doubt that Canadian Malartic is a solid producer,” president and CEO Sean Roosen said in a conference call.

But it isn’t just the volume of gold that the mine has turned out that is impressive. The mine’s economics continue to improve with each passing quarter and that is protecting from severe effects of lower gold prices. Net earnings remained positive at $9.8 million, or 2¢ per share, and while that was less than the 7¢ per share it reported for the same period last year, it shows the mine is able to perform in tough price environments.

Even more reflective of the mine reaching its potential are cash flows from operating activities, which are often considered a better gauge of a company’s economic health. Those cash flows rung in at an impressive $70.7 million, beating last year’s tally of $55.8 million.

Getting to those lofty dollar sums came on the back of the mine exceeding nameplate throughput of 54,000 tonnes per operating day. That helped Osisko record gold production of 120,208 oz. at operating cash costs of $754 per ounce.

Much of the reason for the good news was the mining fleet moving into the North zone of the pit. While drilling at the North wall is made more difficult by its irregular surface – requiring smaller drills and the added cost of leveling the ground with tailings – the better grades and better recoveries at the mill are well worth the effort.

The good news for shareholders is that as the pit deepens at the North wall, mining will become less complicated and costs should drop.

Roosen said that from the surface mining costs come in the $3.50 to $4 per tonne. But with Osisko now 80% complete on the construction of the level two and level three benches, the costs will fall into the $2.75 to $3.25 per tonne range. And by the time it gets down the fourth bench and deeper, costs will fall into the $2.25 to $2.50 range.

As it goes deeper, fragmentation also improves, which will make milling easier and more cost effective. It currently has to blend ore from near the surface of the North wall with lower grade material to make it suitable for the mill.

“The best fragmentation we get is down in the fifth and sixth benches,” Roosen explains. “The first two to three benches don’t generate the fines we’d like to see.”

The North zone is currently providing between 25% and 35% of the ore going to the mill.

Scotiabank analyst Leily Omoumi was impressed by the operating cash flows, especially in light of the “underwhelming” grade of 0.90 g/t.

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