O3 Mining (OIII) - "One of the Better Projects in Canada, Period."

Matthew Gordon caught up recently with Jose Vizquerra, CEO at O3 Mining, a Toronto -based junior gold company with some particularly attractive properties in the greenstone belts of Québec. A few months ago, when they last spoke, Vizquerra gave a thorough technical discussion about O3 Mining’s assets. This time, the CEO addressed some recent land consolidation and other corporate activities at O3 Mining. 

Company Overview

O3 Mining Inc., part of the Osisko Group of Companies, is a Canadian gold exploration and mine development company focused on establishing production at its highly prospective gold camps in Québec, Canada. The company's purpose is to deliver superior returns to its shareholders and long-term benefits to its stakeholders. 

O3 Mining has a market cap of $151 M.  There are 64 M publicly traded shares outstanding. 

O3’s Flagship Assets

O3 Mining has a portfolio of ore-bearing assets in Québec, covering an area of more than 137,000 hectares. These projects host 2.4 M ounces of measured and indicated gold resource, averaging 1.22 g/t Au, as well as 1.5 M ounces of inferred resource at 2.27 g/t Au. 

O3 Mining’s flagship assets are its Cadillac Break properties in Val d’Or region of Québec. Included in the Cadillac Break holdings are the Marban Property and the Alpha Property. The company has a 100 percent interest in these properties. 

These assets are located in the southeastern Abitibi Greenstone Belt of the Archean Superior Province in the Canadian Shield. Since the early 1900’s, over 100 M ounces of gold have been produced from various properties in the Abitibi region. 

Recent Land Consolidation Activity

On April 7, 2022, O3 Mining entered into a definitive agreement with Cartier Resources, Inc. to sell a 100% interest in its East Cadillac Project located in Val-d'Or, Québec, Canada, in exchange for 46,273,265 common shares of Cartier Resources. As a result, O3 Mining received 17.5% of the pro forma outstanding common shares of Cartier Resources upon the completion of the transaction. 

Earlier, on March 15, 2022, the company inked a binding agreement with Emgold Mining Corporation to acquire a 100 percent interest in that company’s East-West Property.  The East-West parcel is adjacent to the current eastern boundary of O3 Mining’s Marban asset. 

In 2021, O3 Mining divested its Garrison Project assets in Timmins, Ontario to Moneta Gold. O3 Mining was issued approximately 150 million common shares of Moneta and currently owns approximately 27% of the outstanding Moneta Gold shares. 

How Does Divesting Benefit the Company?

Investors are keen to know how divestiture benefits the company. With 2.4 M ounces of measured and indicated, how does offloading the East Cadillac property help the company with its stated goal of growing its gold resource further? 

Vizquerra indicated that these corporate actions were taken to increase the fundamental value of O3 Mining. In the case of the Cartier Resources divestiture, the CEO believes that those assets represent a better fit with Cartier Resource’s portfolio, where they would be in an excellent position to grow and realise their full value. O3 Mining retains exposure to the upside as a significant shareholder. 

The Cartier Resources deal is similar to the 2021 divestiture of O3 Mining’s Ontario assets to Moneta Gold. The CEO indicated that in both of these deals, O3 Mining has added significant upside potential. 

Growing Gold Reserves

Furthermore, with regard to growing reserves, the CEO stated that at O3 Mining, major reserve increases could only be discovered in the Marban area. This is where O3 Mining needs to focus. Everything in the developing O3 Mining story hinges on being focused, on delivering in terms of value, and executing, said Vizquerra. 

The acquisition of the East-West Property represents a major addition at the southeast side of the acreage at Marban. This land is just beside the mining pit so the chances of finding additional reserves are high. On Marban’s northeast side, the company has just commenced its drilling program with high hopes of establishing additional reserves there. 

Vizquerra reminded investors that Marban is a huge property. O3 Mining is singularly focused on delivering what is required to put this property into production. It is just a matter of time, he believes. 

He then shared the observation that there is a mine every one to two km along the greater trend along which Marban is located. Given the 10 km strike length of the Marban property, it is easy for him to envision 10 M ounces of gold reserves. It's just a matter of being consistent and systematic in the exploration plan, he believes.   

Optimising Shareholder Return: When Will Production Commence?

The CEO reiterated that O3 Mining expects Marban to be in production in 2026. For many investors, that may be a bit far into the future. 

Vizquerra reviewed that the Preliminary Economic Assessment (PEA) showed that Marban has a worth of US $423 M, based on a 5% discount rate and gold price of US $1,450/oz. 

Achieving maximum shareholder return firstly focuses on the 2.3 M ounces already on the books. The CEO indicated that discounted free cash flow from those reserves would be realised over 15 years. After that, those ounces won't contribute to free cash flow. 

Next, if the company can move all of its ounces into the measured and indicated category, then production will not be the 116,000 ounces that it envisioned initially, but that it could ramp up to 150,000 ounces by 2026. 

Upcoming Pre-Feasibility Study (PFS)

O3 Mining expects to release its PFS in the first week of September 2022. It also expects that a feasibility study will be ready in 2023. The PFS will show investors that the value at Marban will open up the project to additional financing. Interested parties would be looking for larger numbers and bigger scope for Marban than were seen in the PEA. 

Vizquerra indicated that moving from 1.8 M ounces to 2.3 M ounces “doesn't just fall from the sky”. The metallurgical results that they have recently received indicate that they can expect up to 96 percent recovery from the ore. The company is now focused on determining the maximum number of ounces that it can actually get out of this deposit. It may mean that the CapEx will be higher than originally indicated in the PEA. However, investors want to see 150,000 plus ounces added to the books. That's what the market wants and that's what O3 Mining will give them, said the CEO. 

Projecting costs are difficult in the current inflationary environment. O3 Mining is helped by the low cost of electricity in Québec and the fact that they are using a very conservative gold price premise of US $1450/oz., considerably lower than the current spot price. 

What Else Would O3 Mining Like To Prove to the Market?

Vizquerra is of the opinion that the market is always right. In some ways, it's unfortunate; he may say that his company is undervalued, but it doesn't matter because that's what the market may think. 

So, the CEO thinks that O3 Mining needs to bring a robust vision to the market: If the mining pits can actually be bigger, then you're showing a value increase. If you show that you have potential for an underground mine on top of the mine that you already have, that's an extra catalyst. 

Vizquerra believes that O3 Mining needs to build its own catalysts and its unique story. That is the message that will attract new investors. It's going to show the market that the potential of Marban is not 2.3 M ounces, which is what O3 Mining has now, but it's going to be 10 M ounces or more. 

He also believes that the gold investing landscape is different now that it was a few years ago. In 2020 there were a lot of investors who didn't believe in gold. Now, more investors do believe in gold. Many investors were not interested in projects that were in development. Now, people are looking at assets in development. The key for O3 Mining, according to the CEO, is that it has options, and more importantly, it has the team, the assets and the money.   

O3 Mining’s Finances

O3 Mining has US $90 M in cash and securities on the books. The company has approximately US $11.5 M in cash available for the rest of the year. It has the money to finish the PFS and to do even more. Any additional spending will likely go directly into the ground in order to prove up more ounces. Vizquerra reminded investors that two years ago he said that he was not going to raise money and the company has not. 

Is O3 Mining One of the Better Gold Stories in Canada?

In order to address this question, the CEO reverted back to this idea of fundamental value by breaking it into different pieces. Marban has a CapEx of US $256 M, one of the lowest figures considering all of the projects that are going to be built in the next ten years. Second, the cost of production is projected to be about $826/oz., giving the project really big profit margins. Third, the company already has 2.3 M ounces in the measured and indicated resource. 

In summary, at Marban O3 Mining has the ounces, a low CapEx, and a very big margin. Bringing the project to the present, and discounting it at a 5% discount rate, produces a NPV of US $423 M. O3 Mining’s market cap right now is US $151 M. Furthermore, the company already has US $90 M between cash and equivalents available. In addition, there is significant upside potential in the Moneta Gold, Cartier Resources, and other assets as well. 

In closing, Vizquerra is proud of what O3 Mining has built as a company. The company has developed a very well thought-out story, and has executed on everything that it said it would. 

Finally, investors should realise that Canada is a very safe jurisdiction. Québec specifically is a province where one gets extra when one raises money for mining projects. It's an area with green energy, great people, and excellent infrastructure. Vizquerra thinks that O3 Mining has one of the better projects right now in Canada. 

To find out more, go to the O3 Mining website