TORONTO (miningweekly.com) – Tightly held Abitibi Royalties is expecting to turn its first revenue “soon”, after Quebec miner Osisko Mining recently started mining a single-claim block south of its flagship Canadian Malartic mine, on which Abitibi has a 2% net smelter royalty (NSR) interest.

Explorer Golden Valley Mines, which holds a 66.3% interest in Abitibi, had assigned to Abitibi a 2% NSR interest on a claim block originally acquired by Golden Valley through staking, and which it had subsequently sold to Osisko in 2006. This 2% NSR on the single claim block held by Osisko covers the historic Charlie zone.

However, the prospect of near-term revenue is not the only catalyst at play that had pushed the company’s TSX-V-listed shares up by 571% since the start of the year. Abitibi CEO Glenn Mullan explained to Mining Weekly Online in an interview that the stock rally started in earnest after the April 2 announcement by Osisko, that it had outlined the potential for a wide, bulk tonnage underground deposit at the Odyssey target, in which Abitibi Royalties owns a 30% free carried interest.

The Malartic CHL property is located about 700 m east of Jeffrey zone, along the Cadillac-Larder Lake Fault, and is about 4.5 km from the Canadian Malartic mill complex. It comprises ten claim blocks situated just east of the South Barnett openpit, covering the historic Shaft zone, Mammoth zone and Jeffrey zone.

BLUE SKY POTENTIAL

“There is ‘blue sky’ potential in Odyssey. That is the catalyst,” he said.

Osisko said that Odyssey consists of two zones (North Odyssey and South Odyssey), located at vertical depths of 400 m to the north and 1 000 m to the south margin, of a 200-m- to 300-m-wide subvertical porphyry intrusion that is similar to the Canadian Malartic porphyry.

Mineralisation in both Odyssey zones consists of quartz-pyrite vein stockworks in potassic-altered porphyry, similar to that in the South Barnat deposit to the west.

The Odyssey zones are of interest from an underground bulk tonnage mining perspective, since mining costs in wide zones of mineralisation (minimum 20 m width) have been significantly reduced in a number of mines in recent years, allowing miners to extract gold from lower-grade ore such as at Agnico Eagle’s Goldex mine, near Val d’Or, where average grades were 1.35 g/t in the three months ended December 31.

During its recent first-quarter results conference call, Osisko president and CEO Sean Roosen told analysts that in terms of further upside, the recent discovery at the Odyssey zone “set the stage for the next round of exploration at Canadian Malartic”.

In March he said that Canadian Malartic was expected to be a “screamer” for some time to come.

Two drills are currently active on the Odyssey zones. The objective is to define the overall size and geometry of both zones to vertical depths of about 1 300 m. Specifically on the North Odyssey zone, the target is a mineralised tabular body measuring 450 m along strike, 600 m in vertical depth with an average true thickness of 40 m at an average grade between 2 g/t to 2.5 g/t of gold.

“The Odyssey zone is consistent with what we’d look at in a bulk tonnage underground target. It is very early days to say, but we think that there is a significant amount of potential on the Canadian Malartic for some more resources, as we saw on the western porphyry and some of the other target zones,” Roosen said.

Mullan agreed, saying the impact of Osisko’s discovery success resulted in trading in Abitibi’s stock being temporarily halted in April, as a result of the anomalous spike in trading volumes and soaring share price.

He noted that the company has a tight share structure, with about 8.5-million of the roughly 9.5-million shares held by a handful of the company’s top management – leaving very few floating shares available to market.

Mullan said that the company’s intention to list on the TSX-V in 2011 was indeed to be able to micromanage Abitibi’s share structure, to enable shareholders to maximise profit.

M&A ACTION

Another catalyst for Abitibi’s rising stock was also ascribed to the proposed C$3.9-billion friendly acquisition of Osisko by white knights Latin America-focused precious metals miner Yamana Gold and Canadian gold miner Agnico Eagle, to fend off a C$3.6-billion hostile takeover bid by Goldcorp.

Mullan noted that while he would be intrigued to see what role Yamana, which does not have any Quebec mining experience, would bring to the table, the Odyssey discovery plays to Agnico’s strengths gleaned from the Goldex mine.

In the most recent conference call, Roosen noted that with the low costs Agnico had achieved at its low-grade, high-volume Goldex mine, it “set the stage for some very big upside” for Canadian Malartic, adding that for every 0.1 g/t increase in head grade at the mill, output would rise by about 15 000 oz/y.

Mullan said that while production on its Malartic CHL property is still some way off in the future, the Mammoth and Jeffrey targets would probably be first into production around 2016, with other targets on the property to follow after that.

Osisko shareholders will hold the annual and special meeting on May 30, in Montreal, when shareholders would vote to approve the plan of arrangement for the Yamana and Agnico-Eagle transaction.

Mullan reiterated Abitibi’s current strategy that it is not actively pursuing more royalty streams, opting to rather reward shareholders with dividends as soon as revenue flow had started.

On Monday, Abitibi’s stocks climbed 6.38% in Toronto, to change hands at C$2.50 apiece.