Osisko Mining Corp. (TSX:OSK) founder Sean Roosen is keeping mum about the hostile takeover of the company he started over a decade ago by Goldcorp (TSX:G) (NYSE:GG). Today Goldcorp sweetened the offer to $2.92 in cash plus 0.17 of a Goldcorp common share. At the time of this writing, that adds $4.57 for total consideration of $7.49 per Osisko share, for a total cash consideration of CA$3.63 billion. Osisko shares promptly shot up on the news to its current price of $7.62, giving it a fully diluted market cap of $3.7 billion.
I think the price is still highly opportunistic, and considering Osisko’s value has arguably increased in parallel with the sudden boost in the gold price, Goldcorp will likely find itself chasing the price upward – especially if gold continues to improve.
Goldcorp’s share price tracks the gold price very closely.
When Goldcorp launched its takeover bid on January 14, the price of gold closed at $1,244 an ounce. At the time, scuttlebutt on the street was that Goldcorp was going to have to be more generous, but then the prices of gold took off on a rally that saw it peak out at $1,392 and Goldcorp.
Osisko’s share price is influenced more by the suitors competing for the prize than it is the price of gold.
And now in the guise of the White Knight, Yamana Gold (TSX:YRI)(NYSE:AUY) and Osisko have inked a deal to sell 50% of Osisko to Yamana Gold for $7.60 share, which clearly trumps Goldcorp’s offer.
According to the press release:
Yamana will acquire a 50% interest in Osisko’s mining and exploration assets for C$441.5 million in cash and 95.7 million common shares of Yamana having an aggregate value of C$929.6 million (the “Yamana Consideration”). Upon implementation of the Agreement, each outstanding Common share of Osisko will be exchanged for (i) C$2.194 in cash, (ii) 0.2119 of a Yamana common share, and (iii) a new common share of Osisko.
Will Goldcorp’s revised offer be sufficient to win the hearts and minds and most importantly, the shares of Osisko?
Probably not, and here’s why.
Osisko is an Embarrassment of Riches
Osisko is a veritable cornucopia of gold. From its flagship Canadian Malartic mine, the company expects to produce 610,000 ounces of gold per year in the next five years with cash costs ofUS$525 an ounce. It expects to recover 8.4 million ounces in total over a 14 year mine life, yielding a discounted after-tax net cash flow of CA$3.14 billion.
On the company’s Hammond Reef property, a 2011 Inferred Mineral Resource stipulates 10.5 million ounces, however at a grade of 0.62 grams per tonne, which likely implies high cash costs, which of course cannot be definitively established without a feasibility study.
SGS Canada Inc. (“SGS”) estimated the global Measured and Indicated Mineral Resources at 5.43 million ounces of gold at an average grade of 0.86 g/t Au and a global Inferred Mineral Resource at 1.75 million ounces of gold at an average grade of 0.72 g/t Au. The company took an impairment charge on Hammond Reef on its balance sheet, charging $487.8 million net of deferred tax recovery of $43.1 million.
The company’s Upper Beaver Property in the Kirkland Lake gold camp has an indicated mineral resource of 1.46 million ounces in addition to an inferred resource of 710,000 ounces of gold at a cutoff grade of 2 grams per tonne.
Besides these very advanced and producing properties, Osisko has the following exploration projects at various stages of development:
Osisko has a healthy portfolio of exploration projects that seem to have little to no value in the Goldcorp offer.
So with Goldcorp’s offer, it appears that either these exploration properties are undervalued or not valued at all. With the Yamana deal, it appears the Goldcorp is chasing an opportunity that will slip further from its grasp with every dollar the gold price increases.
It will be interesting to see how well Yamana and Osisko management teams work together, since they are proposed as 50:50 management of the combined mining group now. Either way, with the Yamana deal, Sean Roosen and the shareholders of Osisko are better off than with the Goldcorp deal.
