November 12, 2012 / 1:12 PM / 6 years ago

Osisko targets Kirkland Lake assets with Queenston buy

(Reuters) - Canadian gold miner Osisko Mining Corp (OSK.TO) will buy Queenston Mining Inc QMI.TO for about C$550 million ($549 million) on a fully diluted basis to gain access to the Upper Beaver project in Ontario’s Kirkland Lake region.

Queenston owns one of the largest land parcels around the Kirkland Lake. Its holdings include over half-a-dozen past producing gold mines such as Upper Beaver, Upper Canada, Sylvanite and Golden Gate, which produced over 3.5 million ounces between 1913 and the mid-1980s, historical records show.

“We thought the opportunity was now ... we saw it (Upper Beaver) as a strategic asset,” Osisko Chief Executive Sean Roosen said on a conference call.

The Upper Beaver project, which has a relatively low capital exposure, has necessary permit to begin advanced exploration and is expected to go into production in 2016, Roosen said.

Upper Beaver is expected to produce 1.1 million ounces of gold at an average rate of 120,000 ounces annually over a 10-year mine life, according to a preliminary economic assessment conducted in February.

Osisko, which has more than 10.7 million ounces in reserves at its flagship Canadian Malartic project, said the acquisition will add about 16 percent to its global resources.


Analysts said there is a possibility of rival bids due to Queenston’s large prospective land position in a politically stable, mining-friendly jurisdiction.

“We place the probability of a separate takeover offer at 25 percent,” analyst Adam Melnyk of Desjardins Capital Markets said in a note to clients.

Stifel Nicolaus analyst Craig Stanley said though a competing bid was unlikely, companies that could be interested include Gold Fields Ltd (GFIJ.J), Agnico-Eagle Mines Ltd (AEM.TO) (AEM.N) and AuRico Gold AUQ.TO.

Agnico-Eagle owns 9.21 percent of Queenston’s shares, according to Thomson Reuters data.

Holders of about 30 percent of Queenston shares have agreed to vote in favor of the deal, but the companies did not disclose if Agnico had agreed to lock up its shares.

AuRico last year acquired Northgate Minerals, which owned the Young-Davidson project in Matachewan, 60 km (38 miles) west of Kirkland Lake.

Montreal-based Osisko’s stock fell as much as 8 percent to C$9.08 on the Toronto Stock Exchange, while Queenston’s shares jumped 15 percent to C$5.74.

Shares of Kirkland Lake Gold KGI.TO, which also owns projects in the area, rose 3 percent on Monday.

The Kirkland Lake properties currently have 2.1 million ounces of gold in the indicated category and 1.9 million ounces in the inferred category, the companies said.

Gold was discovered in Kirkland Lake around 1911. The seven mines along the town’s main strip produced over 24 million ounces of gold between 1911 and the 1990s, making it one of the most prolific gold mining camps in Canadian history and earning the town the sobriquet of the “mile of gold”.

Osisko said Queenston shareholders will receive 0.611 of an Osisko share for each Queenston share held. The offer of C$6.00 per share represents a premium of 20 percent to Queenston’s Friday close of C$5.01.

The deal is valued at C$507.6 million based on 84.6 million Queenston shares outstanding as of November 6, according to Thomson Reuters data.

The deal, which includes a C$22 million break fee to Osisko, will add to the company’s net asset value per share and longer-term production and cash flow per share.

Dundee Capital Markets and Primary Capital advised Osisko, while BMO Capital Markets was Queenston’s financial adviser.

($1 = 1.0017 Canadian dollars)

Reporting by Bhaswati Mukhopadhyay in Bangalore and Euan Rocha in Toronto; Editing by Roshni Menon and Sriraj Kalluvila

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