Osisko Metals is setting up a joint venture and potentially surrendering a majority stake in its flagship Pine Point base metals project in Canada’s Northwest Territories as it continues to advance towards construction.
On Wednesday, the company announced it has entered an investment agreement with Appian Natural Resources Fund, under which Appian, as the JV partner, would invest up to C$100 million ($74m) over an estimated four-year period to acquire a 60% interest in the project.
The Appian fund is advised by Appian Capital Advisory LLP, a London-based private equity group specializing in the acquisition and development of mining assets.
Appian’s investment will be broken down into an estimated C$75.3 million funding to advance the Pine Point project towards a final investment decision (FID) or construction approval. About C$19.8 million of that will be provided upon establishment of the joint venture.
The remaining C$24.7 million will be cash payments to Osisko Metals. Appian will first pay C$8.3 million on closing of the investment agreement to acquire an initial 9% interest in Pine Point, and then make an approximate C$16.4 million milestone payment upon a positive FID to bring its ownership to 60%. The C$100 million total investment would give the Pine Point project a pre-money valuation of C$91.3 million.
Located on the south shore of Great Slave Lake, the Pine Point project is considered to be one of Canada’s premier past-producing zinc mining camps. A preliminary economic assessment published by Osisko Metals last year outlined an after-tax net present value of of $602 million and an internal rate of return of 25%.
The 2022 PEA integrates updated long-term prices for zinc and lead ($1.37/lb and $0.97/lb respectively) and increased mineral resources at Pine Point, which currently is estimated at 15.7 million tonnes grading 5.55% zinc equivalent in the indicated category and 47.2 million tonnes grading 5.94% zinc equivalent inferred.
“This milestone agreement is a significant endorsement and daylights the considerable intrinsic value of Pine Point,” Osisko Metals CEO Robert Wares said in a statement. “The transaction allows us to leverage Appian’s extensive mine development experience and includes a crucial investment of C$75 million into the project that will advance the development of Pine Point to a ‘shovel-ready’ status.”
This funding, according to Wares, is expected to cover all costs, including final definition drilling, additional exploration drilling, feasibility, environmental assessment and permitting, including Indigenous engagements.
In addition to the funding commitment, Appian has also agreed to make a C$5 million investment in the common shares of Osisko Metals on closing, priced at C$0.2481 per share. The stock was trading at C$0.30 at of 12:30 p.m. ET Wednesday, up 19.6% for the day on the back of the announcement, giving Osisko Metals a market value of roughly C$60.9 million ($45m).
“This joint venture, coupled with Appian’s cash payments to Osisko Metals and C$5 million equity investment, will allow Osisko Metals to focus on the development of other projects while avoiding excessive dilution to advance the Pine Point project,” Wares added.
Separately, Appian has agreed to the issuance of a convertible instrument to provide short-term funding of up to C$11.5 million for Osisko Metals’ ongoing drill program on the Pine Point project.
The 29,000-metre winter definition drilling program is currently progressing as planned with six drill rigs operating. This program, with associated costs, will be integrated into the investment agreement and pre-FID budget.
