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Mixed reviews for Goldcorp's C$2.6bn bid for Osisko
If Goldcorp is successful in its quest for the Canadian Malartic Mine, nearly half the company’s overall gold production will come from Canada.
Author: Dorothy Kosich
Posted: Tuesday , 14 Jan 2014 RENO (MINEWEB) -
Goldcorp’s hostile $2.6 billion bid for mid-tier gold miner Osisko Mining played to mixed reviews among gold mining analysts and commentators Monday.
The Vancouver-based mega-gold miner launched the stock-and- cash bid after years of discussions between the two companies broke down late last year, Goldcorp CEO Chuck Jeannes told analysts during a conference call Monday.
If the deal goes through, “Goldcorp will become the largest gold producer in Quebec and a true Canadian mining champion,” Jeannes declared. Osisko’s flagship asset, the Canadian Malartic Mine, “would become one of the most important assets in our portfolio and it increases our investment in a part of the world we really like”, he stressed.
Goldcorp bought a small stake in Osisko in 2008, growing it to a 10.1% stake until 2011 when it was sold by Goldcorp for C$530 million. “Based on the way the market was acting, we saw value in selling then,” Jeannes observed Monday. Nonetheless, during Monday’s conference call, Jeannes praised Osisko’s “strong operating team” for having “done a very good job of bringing along in a tough market.”
Canadian Malartic offers Goldcorp a 10-million ounce proven and probable gold reserve, complete with a low cost, long life mine expected to yield in excess of 500,000 gold ounces annually, Jeannes observed. The mine recently mined its millionth ounce of gold.
Jeannes also suggested Malartic was “worth more in the hands of Goldcorp than it is on a standalone basis” and offered Canadian Malartic benefits “from Goldcorp’s technical and operating expertise.”
The “existing financial strength of Goldcorp coupled with robust flows from its world-class asset portfolio provides a basis for sustainable and superior shareholder returns going forward,” the company asserted.
Goldcorp’s Éléonore Mine, scheduled to begin production this year, would offer some synergies with Malartic, he added. The combination of Éléonore and Malartic would generate over 1 million ounces of gold production for Goldcorp from Quebec, which would mean nearly 50% of Goldcorp’s total gold production would come from Canada.
The company suggested the acquisition would also offer corporate and regional synergies in both Quebec and Ontario.
Currently, however, Jeannes said Goldcorp’s “clear preference remains to engage with Osisko” to reach a friendly deal.
Osisko responded Monday that it will consider Goldcorp’s announcement “as well as any formal offer actually made. Until the corporation completes its review, it will not comment further or speculate as to any further course of action it might take.”
THE OFFER
Goldcorp is offering C$5.95 per Osisko share or C$2.26 in cash and 0.146 of a common Goldcorp share for each share of Osisko, an aggregate bid of $2.6 billion. The bid is a 15% premium to Osisko’s closing share price on January 10, 2014.
Bloomberg reported is it the largest hostile bid for a gold company since Eldorado Gold’s $2.99 billion unsuccessful bid for Andean Resources in 2010.
The $1 billion cash portion of the offer is to be financed from a $1.25 billion Acquisition Facility in place, in addition to $600 million of cash on hand and an undrawn $2 billion credit facility.
The offer and circular of the bid will be filed Tuesday, January 14, and be mailed to shareholders no later than Jan. 28. 2014.
Shareholders representing more than two-thirds of Osisko stock will have to approve the bid by February 19 unless it is extended or withdrawn.
MIXED REACTIONS
“The reality is it’s a miserly bid,” John Ing, chief executive of Maison Placements Canada declared.
“I feel that if this deal goes through it would be a great deal for Goldcorp shareholders, and just a good deal for Osisko shareholders,” enthused “Seeking Alpha” contributor and part-time investor,” Steve Nicastro. Nevertheless, he added, that “at $135 per ounce the deal is fair but not exactly a blow-out offer.”
Dan Rollins, a RBC analyst, predicted Goldcorp will have to sweeten its bid or risk losing Osisko to a white knight with a higher bid, something Jeannes stressed to analysts that he is not prepared to do.
However, in a note published Monday, Greg Barnes of TD Securities advised he doesn’t see a high probability of a competing bid for Osisko from a major gold mining company. He estimated that the addition of Osisko would increase Goldcorp’s production this year by 17%.
Cowen Securities Adam Graf called the bid “very attractive”. Dundee Capital Markets Joseph Fazzini accused Goldcorp of “trying to be opportunistic, but such a low offers opens up the doors for one or more parties to get involved.”
“Given that we think Goldcorp wants the asset, we wouldn’t be surprised to see them sweeten their bid over time,” said Fazzini in a story published in The Globe and Mail.