Osisko's Other Side: RZZ & GZZ Halted As Shares Of Royalty Holder Surge

Thom Calandra |

Abitibi Royalties ($RZZ:CA), a Malartic royalty holder in Quebec, saw its shares and those of parent Golden Valley Mines ($GZZ:CA) halted Wednesday ​after dramatic gains​.

Shares of RZZ and GZZ were rising sharply, as much as 90 percent in the case of royalty holder RZZ. This after doubling in a week in the wake of Malartic miner Osisko Mining's ($OSK:CA) disclosures at a joint venture operating at Canada's largest producing gold mine. 

Osikso operates Malartic, a prolific gold mine that is in its third year. Two other miners, Agnico Eagle ($AEM) ($AEM:CA) and Yamana Gold ($AUY) ($YRI:CA), recently agreed to purchase Osisko for $3.6 billion Canadian.

TCR ​-- The Calandra Report -- ​just spoke with CEO Glenn Mullan of Abitibi and Golden Valley. In Val d'Or, Quebec, at his home, Mr. Mullan is working on a press release that he said will get shares of both companies trading again, hopefully before the close. Canada regulators requested the halt after the shares' ​parabolic ​rises.

TCR has been reporting about GZZ and RZZ shares. for three years. (See: a selection of our subscriber-audience articles.) One of those reports, from July 2011, positions the scenario taking place with RZZ and GZZ shares this week: see TCR report.

In an earlier report this week, we shared Abitibi's investor presentation. ​[​I have owned both since July 2011, when I visited the operations of Glenn Mullan's Abitibi Belt claims staker in Quebec.​]​ Abitibi Royalties birthed from Golden Valley Mines in part because of Mr. Mullan's bitter experience losing another company, Canadian Royalties, to a China group at what he deemed an unsatisfactory price.

Mr. Mullan just told ​me​ he sees "imminent​,​ we believe​,​ gold production from our NSR claim, ​at ​the Gouldie Zone​ of Malartic." NSR means the net smelter royalty that RZZ will receive.

Mr. Mullan, a 56-year-old serial royalty collector who arranged his first one as a teen-ager, said Abitibi Royalties's production ​via its Malartic holdings will run ​through 2018​, "​we believe, from Osisko​ disclosure ​s​​,​ and potentially much longer."

Right now, expenses for Abitibi are about zero. Abitibi Royalties has the same board as Golden Valley Mines. It includes Mr. Mullan and Chad Williams, a former CEO in the mining business and operator of a Toronto investor outreach firm.

As for how much Abitibi Royalties is worth, the investor deck uses a number -- "Hypothetical Profit Allocated to RZZ: $63,000,000 Hypothetical Value* per RZZ share: $6.85." ​ The bolded font is from the deck, which was used one week ago in a Toronto presentation (Beer Bistro) arranged by Mr. Williams' Red Cloud Mining Capital firm.​

RZZ, or Abitibi, has 9.3 million shares outstanding, so it is worth about $13 million right now -- after the share rise and subsequent trading halt (IIROC). About 45,000 RZZ shares in Canada have changed hands this month of April. This is more than any month ​ since January 2014.

Here are additional bullet points from Mr. Mullan's slide deck and Toronto presentation:

  • 30% free carried interest on Malartic CHL Property, a joint venture with Osisko-Abitibi Royalties;
  • 2% net smelter royalty interest in one claim held by Osisko; it's located several meters to south of the Canadian Malartic main pit, and covers the historic Charlie Zone
  • Title to interests in the Luc Bourdon and Bourdon West Prospects (also known as the McFaulds Lake Property)

GZZ, the parent, owns two thirds of RZZ. Mr. Mullan said today, after the trading halt, that it is the intention of the board to distribute royalty cash to RZZ shareholders. "We would keep a small amount to run the company." In the case of the parent, Mr. Mullan and his board are receiving tax advice, as any cash rendered to Golden Valley Mines as a shareholder of Abitibi Royalties, then packaged as dividends to GZZ shareholders, might be ruled "double dipping" in Canada, and in the USA. That means some tax consequences. 

The good news is that Golden Valley Mines has plenty of tax-loss carry-forwards to ameliorate potential dividend taxation, he said. ​ (See attached photo of Glenn Mullan -- all photos credit Thom Calandra)​

Investors and bankers are likely to search for other little-known holders of royalty rights that are near imminent production. In our view at TCR, a best bet is Angkor Gold ($ANK:CA), which holds a 7 percent NSR at the Phum Syarung gold mine under development in northeast Cambodia. Angkor Gold, one of the TCR 8, is a 50-50 partner at the mine.

The partner is Mesco Steel/Mesco Gold of India. Its chairman, JK Singh, told me last week during our fourth visit to the gold properties in Cambodia that he expects cash from Phum Syarung no later than December 2015 and possibly sooner. Two adits, or openings, are nearly complete at the site.

The mine's stockpile already is showing gold grades of 6 grams to 8 grams per metric ton, the operator in charge of the buildout, Mr. Harsh V Sharma of Mesco says.

The mine life of eight years, says Mr. Singh, easily could double as the operation develops. Technically, the mine is underground. Angkor Gold's operations chief, J P Dau, is completing the mining permit process and says he expects no delays in what would be Cambodia's first commercial gold mine.

Angkor Gold is a core holding here at home and in my research. I expect further developments on new partnerships soon. In addition, when the royalty gets recognition, the shares likely will double to 75 cents. At present, purchasing large amounts moves the tightly held shares.

​NOTES: We continue our work ​on the full update of the Angkor Gold visit. Angkor ($ANKOF) and CEO Mike Weeks of Alberta, Canada, with Mr. Dau and chief geologist Kurtis Dunston, are this week coordinating the work that new China partner Tohui Beishan Property Group ​is performing at Angkor Gold HQ in Ban Lung​. We left ​there Sunday after meeting the China merchant bank and technical group's 15 geologists and engineers​, all of them working with Angkor Gold as the result of a China cash injection and $10.4 million exploration pact of ANK's concessions in the country.

Please see attached photos. The ​se​ include Mr. Singh and the China techies at Ban Lung headquarters. Also, for 60 more photos of this latest Cambodia visit, which include snaps of the developing mine and our visits with Mr. Singh, Mr. Weeks, along with some personals, and our volunteer classroom teaching at Angkor's training centers in Ban Lung and in Okalla village.

On the community side of our Cambodia love affair, please see this peek into a Phnom Penh riverside slum via Youtube video. I think it will move you. I filmed it with Gemma Calandra, 14, at my side -- last week. The missionary is Andrea Aasen of XP Ministries


Thom Calandra  


*$110 yearly: Does Not Recur
**$110: Will Recur Yearly

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Symbol Name Price Change % Volume
AEM Agnico Eagle Mines Limited 48.29 -0.76 -1.55 1,445,920
AUY Yamana Gold Inc. (Canada) 3.73 -0.09 -2.36 21,615,249
FINMF Leonardo Finmeccanica SpA 12.31 0.56 4.72 607


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