During the period when Parti Québécois controlled Québec, the province’s attractiveness as a mining jurisdiction fell from #1 to #21 in the Frasier Institute’s Annual Survey of Mining Companies. But when Philippe Couillard’s Liberal government won a majority in April 2014, the market got the message. Eric Lemieux, consulting technical adviser to Toronto-based Peartree Securities, says that the Osisko Mining bidding war showed that companies were willing to pay a premium for Québec-based assets. Since then other takeovers have happened. In this interview with The Gold Report, Lemieux discusses some promising projects in Québec and other stable jurisdictions.
The Gold Report: The Canadian Mining Association reports that mineral exploration and deposit appraisal spending in Québec dropped from about $621 million ($621M) in 2012 to about $328M in 2013. That number is expected to rise again once the 2014 numbers are added up. What are some other signs that mining equity investors are regaining confidence in Québec?
Eric Lemieux: The political climate for mineral exploration and mining is somewhat more friendly under the Philippe Couillard Liberal government. If you recall, Martine Ouellet of the previous Parti Québécois government made headlines by ostracizing the Québec mining industry. The higher royalties and aggressive amendments to the Mining Act that she helped impose put a lot of pressure on the Québec mineral exploration industry. Québec was one of the first jurisdictions to passer sous le tordeur—gone through the wringer, as we say in French. Now things look more favorable. For example, in the Frasier Institute’s Annual Survey of Mining Companies, Québec went from #21 on the Investment Attractiveness Index in 2013 to #6 in 2014. That’s a positive sign.
TGR: How are Québec-based companies handling the downturn?
EL: The tough times have forced a lot of the Québec mineral exploration companies to focus on quality projects and be thrifty and nimble with their spending. But sometimes when you’re obligated to spend wisely, that’s when the greatest discoveries are made. For example, Voisey’s Bay was discovered during a downturn in the late 1990s, as well as the Éléonore deposit by Virginia Gold Mines Inc. in 2004.
TGR: Québec would seem to fit comfortably into the thesis that the broad market is rewarding companies operating in safe jurisdictions. How is that playing out?
EL: Québec is once again considered a safe jurisdiction under the new Liberal government. Goldcorp Inc. (G:TSX; GG:NYSE) signaled that in early 2014 when it attempted to acquire Osisko Mining Corp. and the Canadian Malartic gold mine in the Abitibi. The ensuing takeover fight between Goldcorp and Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE)/Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE) showed that companies were willing to pay a premium for Québec-based assets.
TGR: The biggest story in Québec this year is Osisko Gold Royalties Ltd. (OR:TSX), the company that was spun out of the Agnico/Yamana takeover of Osisko, taking over Virginia Mines. What are some takeaways from that deal?
EL: The transaction puts two Québec powerhouses together and it makes for a stronger company. Virginia was certainly a success story when you consider the wealth that André Gaumond and his team were able to create—he essentially sold the company twice for a combined CA$1 billion. Osisko 3.0, my nickname for the company, will be based in Montreal and will have an exploration office in Québec City. The company has two world-class royalties: a 5% net smelter royalty (NSR) on Canadian Malartic and a 2.2–3.5% sliding scale NSR on Goldcorp’s Éléonore mine in the James Bay region of northwestern Québec. Osisko has the capacity to advance and develop more gold projects and other opportunities. I see this as a win/win situation.
TGR: Gaumond and Sean Roosen, Osisko’s chairman and CEO, are big names in Québec mining and big personalities. Can those two successfully coexist at Osisko?
EL: These are two dynamic visionaries and, yes, stubborn people, but I think they can work together. There are lots of growth opportunities and both can contribute. They both have the capacity to surround themselves with good people, they have and they will.
TGR: In the middle of this deal Goldcorp published a revised resource estimate for its Éléonore mine. What do you value Osisko’s Éléonore royalty at now?
EL: Éléonore is in preproduction and should reach commercial production in Q2/15. The total reserves and resources increased about 9% to 8.83 million ounces (8.83 Moz) from 8.13 Moz. The mineral reserves increased by about 23% to 4.97 Moz from 4.03 Moz. But Goldcorp is just scratching the surface. The current resource goes down to about 1,200 meters but the deposit is wide open at depth and there are some lateral openings. It’s an underground vertical gold mine. I feel comfortable with what I previously modeled, which is a 15.1 Moz gold deposit. The Éléonore royalty will ultimately perhaps be worth the price that Goldcorp initially paid for it back in 2005–2006, about CA$500M. But with further exploration and development it could be worth even more.
For the rest of this interview, click here: http://www.theaureport.com/cs/user/print/na/16553