Pretium buying Brucejack gold offtake from Osisko

Pretium Resources Inc. [PVG-TSX] said Monday September 16 that it has agreed to repurchase a 100% of its Brucejack Mine gold offtake contract from Osisko Gold Royalties Ltd. [OR-TSX, NYSE] for roughly $80 million.

The Brucejack Mine is a high-grade gold underground mine located in northwestern British Columbia, approximately 65 km north of Stewart. The mine produced 376,012 ounces of gold at an all-in-sustaining cost of US$764 an ounce in 2018. The operation is expected to produce between 390,000 and 420,000 ounces this year at an all-in-sustaining cost of US$775-US$875 an ounce.

The offtake agreement, dated September 15, 2015, was entered into by Pretium as part of the construction financing package for the Brucejack Mine. It applied to sale of the first 7,067,000 ounces of refined gold, which were sold to the offtake purchasers, in each case, at a price based on a market referenced gold price in U.S. dollars per ounce during a defined pricing period before and after the date of each sale.

Under the terms of the offtake agreement, Pretium had the option to reduce its offtake obligation on December 31, 2019 to 25% in exchange for a payment equal to US$13 per ounce of refined gold for 75% of the ounces of refined gold remaining to be delivered under the agreement.

Under the offtake repurchase agreement, Pretium will eliminate 100% of the offtake obligation.

“Brucejack’s robust cash flow has enabled us to pay down the construction financing quickly,” said Pretium President and CEO Joseph Ovsenek. “In 2018, the first year after the start of commercial production, we repurchased 100% of the precious metals stream for $237 million and refinanced the credit facility with a $480 million bank debt facility. Now we are repurchasing 100% of the offtake agreement for roughly $80 million,” he said.

“With the construction financing package cleaned up, we have set our sights on paying off the bank debt facility as rapidly as possible.”

Pretium shares advanced on the news, rising 0.67% or 10 cents to $14.90. The shares are currently trading in a 52-week range of $8.85 and $18.29.

Shares of Osisko Gold Royalties advanced 2.1% or $0.33 to $15.64. The shares trade in a 52-week range of $9.27 and $17.47.

The Brucejack offtake was part of a portfolio of over 130 royalties, streams and precious metals offtakes that Osisko acquired from Orion Mine Finance Group in July, 2017. The portfolio was anchored by five cornerstone assets, including a 5% NSR royalty on the Canadian Malartic Mine, the largest gold mine in Canada.

“The sale of Osisko’s offtake contract on the Brucejack Mine will result in the elimination of a low margin offtake contract and allow better utilization of our working capital,” said Osisko Gold Royalties CEO Sean Roosen.

“Since acquiring the Orion portfolio in 2017, we now have received approximately US$164.3 million from Pretium, including the proceeds from the buyback of the stream and sale of the offtake as well as cash margins to date from the offtake, compared to a book value of approximately US$147.3 million four our investment in Pretium,” he said.

The sale is expected to close on September 30, 2019. Pretium will make a payment of US$31.2 million to Osisko on the closing date, with the remainder of the purchase price to be paid on November 30, 2019.

Osisko said it plans to use the proceeds of the sale to fund additional investments.