Osisko Exploration: A new perspective on an old mining camp

Northwestern Quebec is blessed with almost an embarrassment of riches, considering the favourable geology that stretches across the western end of the Province in a trend known as the Abitibi Gold Belt. Gold mines have been in operation in that part of the world for over 100 years, and the story has changed little during that time. Companies work to define a high grade resource and then set up an underground mining operation to extract it for as long as the ore can be processed economically. The plan has worked out well and there are still many active mines in operation today, with many more exploration projects underway to outline the new discoveries that will extend the mining tradition of the region.

One new entrant, Osisko Exploration Ltd [TSX-V: OSK, Deutsche Boerse: EWX] has secured title to the past producing Canadian Malartic property at the southern edge of the trend, which was acquired in 2004 through the bidding process for the assets of the now defunct McWatters Mining. This is a large property package, already tested by a significant drilling program many years ago that outlined a large system of lower grade ore in a near-surface deposit. Since the active mining companies in the region have historically demonstrated little enthusiasm for lower grade projects, and the property lies outside of the most prospective structural geology in the region, there was limited interest towards the project. Osisko has brought a new exploration model to the Malartic Project, and now appears ready to completely change the playbook for the region.

A thorough review of the large volume of data generated from decades of past exploration activity on the property, along with their reinterpretation of satellite surveying work completed in the 1980’s, has Osisko’s management team convinced that they now control what could become the most significant new discovery in the Abitibi belt. Gold-bearing zones have been identified across the property, localized primarily in wide intervals of porous sediments, typical of a porphyry-style intrusion and the associated altered zones. Porphyry deposits tend to be systems of lower grade mineralization with large tonnage, making them ideal for open-pit, bulk mining methods. The Malartic discovery is the first economically significant gold porphyry system to be identified in the region.

The pot of gold waiting at the end of this rainbow could amount to a resource of over 4 million ounces. The challenge for Osisko is to complete an extensive drilling program to verify historical exploration work and bring the results into compliance with NI 43-101 reporting standards, in order to prepare a resource estimate for the property. To accomplish this, the company has successfully raised $4.5 Million CDN in recent equity offerings, and is anticipating the exercise of outstanding warrants and the receipt of a provincial tax credit to bring their working capital up to about $6.8 Million within the near term. This will be sufficient to fund the aggressive 27,000 metre drilling program they have launched, with at least two rigs operating around the clock. Several new targets have also been identified on the property, and these will also be tested.

About 10,000 metres of drilling have been completed so far, with assay results reported that not only confirm past work, but also in many cases exceed expectations. The property has demonstrated a remarkable continuity of mineralization and uniformity of grade, and in January the company reported wide intervals ranging up to 120 metres, with grades as high as 6.57 grams per ton gold intercepted over an 18 metre width. A steady stream of news flow throughout 2006 is expected as the company completes their planned program.

Because the deposit lies near surface, and the area is well served by existing infrastructure with access to cheap power, the economic considerations would suggest that an open pit mine would be the most efficient operation. A positive feasibility study could be completed as early as 2007. And the management team of Osisko is committed to advancing the discovery all the way to a production decision. Construction of a milling facility with the capacity of 25-30,000 tons per day to support full scale mining on the property, would generate annual gold production in excess of 350,000 ounces per year, over a ten year mine life. Management expects a capital expenditure of approximately $250 Million will be required to fund development, and they have already been in discussion with potential sources of financing.

Based on their early success, and the positive belief that other similar projects have been overlooked in the area, the company recently announced an agreement to acquire a 70% interest in another property located just 2 kilometres east of the Malartic Property. The new acquisition illustrates the attitude of the company, that though are already immersed in a major exploration effort, they remain active in search of potential growth prospects.

Osisko is moving rapidly to exploit a new exploration model in an old mining region, and if they are successful in achieving their objectives, this brash young company will stand over a century of collective mining wisdom on its ear. Whenever a new paradigm is applied to an established industry, one would expect that the level of risk would increase. Given the tremendous volume of past exploration data from the Malartic Property however, the strong continuity of mineralization observed to date, and the positive economic considerations that will influence the decision to put the project into production, the level of confidence that Osisko will achieve their goal is actually very high. The current bull market climate for precious metals juniors will enhance the outlook going forward, and for investors at this early stage, it could well prove to be an exciting ride.

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