Osisko Gold Royalties Ltd. [OR-TSX, NYSE] said Tuesday June 19 that it has struck a deal to acquire 90% of the silver stream on Falco Resources Ltd.‘s [FPC-TSXV] Horne 5 Project in Rouyn-Noranda, Quebec for a consideration of $140 million with ongoing payments equal to 20% of the spot price of silver to a maximum of US$6/oz.
The upfront payment will be made in four installments with an option to increase the stream to 100% of future silver production for an additional $40 million.
Horne 5 is a development stage gold-silver-copper-zinc project located with the urban limits of the city of Rouyn-Noranda. Access is available by provincial highway year-round and the project is connected to the provincial grid. Falco is currently in the permitting process and working on obtaining all third-party approvals to advance project construction.
A feasibility study was completed for the project in 2017 with production to commence in 2021. The pre-production capital expenditure is estimated at $1.02 billion. Payable annual production is estimated at 1.7 million ounces of silver over a 15-year mine life.
Osisko emerged as a world-class gold-focused royalty and streaming company in July 2017 after the company completed the acquisition of a high-quality precious metals portfolio of assets from Orion Mine Finance Group.
The portfolio consists of 74 royalties, streams and precious metal offtakes for a total consideration of $1.125 billion.
Following the acquisition, Osisko held 131 royalties and precious metal offtakes, including its cornerstone 5% net smelter return royalty on the Malartic gold mine in Quebec, which ranks as Canada’s largest producing gold mine, and a 2% to 3.5% net smelter royalty on the Ã‰lÃ©onore gold mine, also in Quebec.
In addition, the company acquired a 9.6% diamond stream on the Renard diamond mine in Quebec and a 4% gold and silver stream on the Brucejack gold and silver mine in northwestern British Columbia, all of which are new, high-quality mines in Canada. Osisko also holds a 100% silver stream on the Mantos Blancos copper mine in Chile.
Osisko shares were unchanged at $12.60 on Tuesday. The stock is trading in a 52-week range of $11.90 and $17.58.
Osisko is already Falco’s largest shareholder with a 12.7% stake. Falco advanced on the news, rising 3.45% to 60 cents on volume of 326,068.
Under the agreement with Falco, the first installment of $15 million is payable upon closing, expected by the third quarter of 2018. That amount is net of the $10 million owed by Falco to Osisko under a previous arrangement.
A second installment of $20 million is payable upon Falco receiving all necessary material third-party approvals expected at the end of 2018. The third and final payments of $35 million and $60 million are expected in 2019 upon Falco receiving all permits and having raised sufficient capital to finance the project. Osisko has the option to increase the final payment to $100 million to acquire 100% of the silver stream.
Osisko has agreed to purchase from Falco a $7 million secured debenture, convertible into Falco shares and warrants.