Eyes on M&A After Blockbuster Osisko Mining Deal

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As the price of gold continues to soar to new highs and talk of a bull market builds, all eyes are on a project and company in Canada bought for a cash premium by a major South African mining company.

Gold Fields Ltd. (GFI:NYSE; GFI:JSE) has offered CA$2.16 billion, or CA$4.90 for each share held, for Osisko Mining Corp. (OSK:TSX), which just before the announcement was at CA$2.94 per share, a 66% premium.

Gold Fields previously had a 50% partnership in Osisko's Windfall Project in Quebec, but now will gain full control as it "seeks to secure supply amid soaring gold prices," Christian Moess Laursen of The Wall Street Journal wrote.

"We are pleased to consolidate the remaining 50% interest of the advanced-stage Windfall project and its highly prospective exploration camp," Gold Fields' Chief Executive Officer Mike Fraser said at the time of the announcement. "Over the past two years, beginning with our initial due diligence in 2022 and throughout our joint ownership of the project, since May 2023, with Osisko, we have developed a strong understanding of Windfall and its potential, and view it as the next long-life cornerstone asset in our portfolio."

Osisko Chairman and Chief Executive Officer John Burzynski said that the transaction is "reflective of the truly world-class nature of the Windfall project. In the span of nine years, we've transformed Windfall into one of the largest and highest-grade gold development projects globally."

Windfall is among the largest gold deposits in Canada, Moess Laursen noted for The Journal.

"The site is expected to produce around 300,000 ounces of gold a year at an all-in sustaining cost of (CA)$758 an ounce, based on Osisko Mining's feasibility study from 2022. It currently has a projected mine life of 10 years, with potential for extension," he wrote.

"Deposits with the scale and quality of Windfall, with a highly prospective exploration camp on top of that, are extremely rare," Fraser said.

The Catalyst: Fresh Highs for Gold

Gold prices have been rising steadily and hit a fresh high last week of US$2,532.05 per ounce. Hitting such heights recently pushed the price of a gold bar (400 troy ounces) to more than US$1 million for the first time.

Some experts expect gold to go even higher. In a Soar Financially YouTube video, Bloomberg Senior Commodity Strategist Mike McGlone predicted that it would only be "a matter of time" before gold hits US$3,000.

"While the yellow metal had struggled to make new highs since, it still remained relatively well-bid amid growing conviction that the Federal Reserve will cut interest rates in September — a scenario that benefits gold," Ambar Warrick wrote for Investing.com on Thursday. "A softer dollar also aided metal markets, although the greenback rebounded sharply from 13-month lows this week."

'Nobody's Pulling Trigger' Yet

All of this could signal the beginning of major M&A activity in the junior mining sector, leaving other gold explorers to wonder, "Who is the next Osisko?" and "How big could a payoff be?"

In a fireside chat with shareholders and analysts on 6ix Events on Thursday, Dolly Varden Silver Chief Executive Officer Shawn Khunkhun and Hycroft Mining President and Chief Executive Officer Diane R. Garrett discussed the situation.

Khunkhun said he thought it was more about "the maturity of the market," which will come after the Fed raises rates, and it was still in "the early innings . . . I don't see a flurry of M&A transactions for a long time."

Garrett said money is starting to flow into the market, creating "some momentum and catching our stride in this bull market."

However, she said, "There's a lot of conversation going on (about M&A) . . . just nobody's pulling the trigger."

If and when the triggers get pulled, here are some other comparable miners and what a similar deal could mean to them.

Perpetua Resources Corp.

With a share price of US$8.80 on Friday, a similar 66% premium would push the share price to US$14.61 for Perpetua Resources Corp. (PPTA:TSX; PPTA:NASDAQ), increasing its market cap from US$567.69 million to US$942 million.

"We're trading at a significant discount to where they were trading," Perpetua Investor Relations Manager Chris Fogg told Streetwise Reports, referencing Osisko. "I would say you can look at a variety of different metrics and multiples based on where peers are trading and where recent transactions in the gold industry have taken place, and based on all those different comparables, we look significantly undervalued across a range of different measures."

Perpetua hosts the only domestic reserve of antimony, a metal with military and industrial applications that is primarily used in the production of lead-acid batteries, ammunition, infrared missiles, night vision goggles, and nuclear weapons, as well as in batteries and photovoltaic equipment.

The company is exploring ways to accelerate their production of antimony in the U.S., supported by the Pentagon and the U.S. Export-Import Bank, to counter China. According to US News on August 15, China's dominance in the antimony market is substantial, accounting for 70% of the global mined output last year.

The company is developing the Stibnite Gold Project in Idaho, a site that includes significant antimony reserves and the only such reserves in the U.S.

A critical upcoming catalyst for the company is the expected release of the Final Environmental Impact Statement (FEIS) and Draft Record of Decision in Q3 2024, a step essential for securing the necessary environmental clearance for advancing Stibnite.

Following this, the Final Record of Decision granting the federal approval needed to begin construction is anticipated in Q4 2024. The company plans to start construction and operations in 2028.

The company has garnered attention from several analysts. On August 22, H.C. Wainwright reiterated its "Buy" rating for the stock with a price target of US$13.25.

According to Reuters, management and insiders own approximately 0.55% of Perpetua, and institutions own about 33.09%. Strategic investor Paulson & Co. Inc. owns around 40% of the company.

Reuters reports that there are 64.54 million shares outstanding and 64.19 million free-float traded shares. The company has a market cap of US$569.63 million and trades in a 52-week range between US$2.69 and US$9.28.

NovaGold Resources Inc.

Another comparable company would be NOVAGOLD Resources Inc. (NG:TSX; NG:NYSE.MKT), which said on its website that it is a "pure gold play focused on Alaska's Donlin Gold project in equal partnership with Barrick Gold."

Donlin is positioned to be one of the world's largest gold mines, with 39 million ounces (Moz) in measured and indicated mineral resources at an average grade of 2.24 grams per tonne (g/t) on a mineralized trend that occupies just 5 percent of its land package in Alaska, which it called "one of the safest mining jurisdictions in the world" and the second-largest gold-producing state in the U.S.

Its share price on Friday was US$4.26, which would mean a share price of US$7.07 with a 66% premium like the Osisko deal, sending the company's market cap from US$1.42 billion to US$2.36 billion.

According to TipRanks.com, two analysts who cover the company have both rated the stock a Hold, with a high-price target of US$5.20 per share and a low-price target of US$5 per share.

National Bank Financial cut NovaGold from a Strong Buy rating to a Hold in a July research report, according to a report by MarketBeat.

According to the website TradingView, analysts are optimistic about NovaGold, with one recommending a Strong Buy and two suggesting a Hold. The consensus is a "Moderate Buy," with a mean target price of US$6.70, offering a 61% upside from the current price.

Billionaire investor John Paulson's firm holds 22 million shares, valued at about US$82 million, making him a most prominent stakeholder.

"With such a significant investment from a seasoned billionaire, NovaGold looks like a compelling opportunity for those eyeing North America's gold fields," TradingView noted.

The Donlin project consists of 493 mining claims covering an area of approximately 29,008 hectares located in the Kuskokwim region of southwestern Alaska. The company was formerly known as NovaCan Mining Resources (1985) Ltd. and changed its name to NovaGold Resources Inc. in March 1987.

NovaGold said Donlin is expected to produce an average of about 1 Moz gold (Au) over a 27-year mine life on a 100% basis.

"There's substantial exploration potential beyond the designed footprint of the Donlin Gold open pit, which currently covers 3 kilometers of an approximately 8-kilometer-long gold-bearing trend," it said on its website.

The company also noted in its investor presentation that federal permitting for the project is completed, and state permitting is on-track.

According to Reuters, about 1% of the company is held by management and insiders, 25% by strategic entities, and 58% by institutions. The rest is retail.

The company trades in a 52-week range of US$2.23 and US$4.88.

Artemis Gold Inc.

Artemis Gold Inc. (ARGTF:OTCMKTS; ARTG:TSX.V) is a Canadian gold development company focused on growing its Blackwater Mine in British Columbia. The project has over 10 Moz Au and is permitted by the B.C. Mines Act Permit for Environmental Assessment.

On Friday, it was at CA$12.14 per share, which would shoot to CA$20.15 under a deal similar to the Osisko buyout. That would mean a market cap increase of about CA$2.66 billion to CA$4.4 billion.

"Blackwater could produce more than 500,000 gold equivalent ounces annually for the first 10 years; that average all-in sustaining costs could be as low as US$712/oz; and would generate average annual free cash flow of CA$500M," wrote Jeff Clark of thegoldadvisor.com who has taken over Gwen Preston's well-known The Maven Letter as Paydirt Prospector.

He went on to say, "This would be one impressive gold producer, a meaningful step above how strong it will already be."

Blackwater is "one of the largest capital investments in central British Columbia in over a decade," the company said in its investor presentation. "The first pour of gold and silver at Blackwater is expected in Q4 2024."

In July, Paradigm Capital Analyst Lauren McConnell noted construction was about 87% complete as of June 30, and about CA$650 million of the capital budget of CA$730-CA$750 had been spent.

"Longer term, assuming a smooth ramp-up of Phase 1 and Phase 2, ARTG would be an Intermediate producer and given its location should command a premium valuation," McConnell wrote. "With start-up expected in Q4/24, timing-wise, one would expect confirmation in mid-2025 or roughly a year from now."

According to Artemis, the Blackwater project would have an after-tax NPV at 5% of CA$3.25 billion over the life of the mine.

Artemis noted in its corporate presentation that about 38% of the company is owned by management and insiders and about 44% by institutions. The rest is retail. It trades in a 52-week range of CA$4.98 and CA$13.48.