Learn why after rejecting Goldcorp’s hostile takeover bid, Osisko Mining’s board is confident its shareholders will be rewarded with a far sweeter payday…
I felt like I was watching an episode from a daytime soap opera last week.
First, Goldcorp (NYSE: GG) made a $2.6 billion hostile takeover bid for Osisko (TSX:OSK). Then Osisko’s management told shareholders to reject the deal. Soon after that, Osisko launched a lawsuit against Goldcorp saying the company misused confidential information.
Talk about a turn of events!
Here’s how the offer breaks down…
Originally scheduled to expire on February 19, the offer has now been extended to March 10. If shareholders accept, they will receive $2.26 in cash and 0.146 of a Goldcorp common share for each share of Osisko.
At the time the deal was presented, the offer was valued at a 28% premium to Osisko’s 20-day weighted average share price for the period ended January 10, 2014, and a 15% premium to Osisko’s closing share price on January 10, 2014.
In return, Goldcorp would gain ownership of one of the largest gold producing mines in North America — the 10.1 million ounce Canadian Malartic mine in northwestern Quebec — along with other projects in Ontario and Mexico. The Malartic mine is expected to run at full production capacity for at least 16 years
Goldcorp would also get an additional 1.6 million ounces in measured and indicated reserves and 1.2 million inferred ounces.
The addition of Osisko would push Goldcorp’s 2014 production numbers to 3.6 million ounces a year, helping to make all its Canadian assets account for 44% of the Company’s total output.
Between 2013 and 2016, production rates would climb 44%, far outpacing competitors Yamana Gold (26%), AngloGold (23%) and Agnico Eagle (23%).
Furthermore, the Malartic mine would provide Goldcorp with much needed cash flow ($32.4 million in Q3 2013) to advance its projects at Cerro Negro in Argentina, and Éléonore and Cochenour in Canada.
But management isn’t happy with the offer.
Osisko executives called the bid “financially inadequate”, seeing as their company’s shares have doubled in the last five years while Goldcorp has dropped 23%.
As such, they believe that if Goldcorp is really keen on buying them out, they’re going to have to pony up a lot more money.
Adding insult to injury, Osisko CEO Sean Roosen quipped, “Goldcorp’s best days are behind it, and we are at a brand new mine with our best days in front of us.”
And he’s not kidding.
The industry, including Goldcorp, knows full well that turning any mine into a producer is extremely difficult, risky, and expensive, even in the most bullish of market climates.
This project was developed in the midst of the biggest gold Bull Run ever and it still took ten years to begin production.
Roosen has advised shareholders to hold out for a better offer, seeing as very few assets exist in the world that are as attractive as theirs, especially in a region as business-friendly as the Abitibi in Quebec.
The bottom line is, 2014 is expected to be a big year for M&A activity in the precious metals space.
Osisko shares may have hit a 5-year low last June – but there’s a good chance that we’ll either see Goldcorp bump up its proposal or another mining titan like Barrick Gold or Yamana will sweep Osisko off her feet with an offer that shareholders can’t resist.
The window of opportunity to buy 10 million ounces of mineable gold is small.
For potential investors… Osisko’s stock is definitely a good one to put money on before the next offer comes in.