With upside on gold prices uncertain, miners have taken notes from the Osisko deal to seek out assets that will keep them growing in a low-price environment. Let the M&A games begin…
By most accounts, it was a pretty intense first quarter for the gold industry — something we haven’t seen for quite some time.
A few weeks ago, the wrestling match to win the coveted ownership of Canada’s Osisko Mining (TSX:OSK) finally ended when Goldcorp (NYSE:GG) decided against upping its hostile takeover bid a third time.
In case you missed it, Goldcorp initially came in with a hostile bid offer of CAD$2.88 billion in cash and stock back in mid-January with the intention of gaining control of OSK’s producing Canadian Malartic mine in Quebec.
The original offer was for 0.146 per share of GG plus CAD$2.26 in cash for each OSK share, giving Osisko shareholders an aggregate of CAD$5.95 per share — which was promptly rejected by Osisko as being severely undervalued.
Over the next few months, Goldcorp held strong at that price, even as OSK threatened GG with a lawsuit.
But lo and behold, OSK landed a haymaker and stunned investors on April 2nd…
It announced that Yamana Gold Inc. (NYSE:AUY) would acquire 50% of Osisko, an offer valued at just under CAD$1 billion that would allow OSK to keep its head office in Montreal.
The agreement would’ve given each outstanding common share of Osisko 0.2119 per share of Yamana, CAD$2.19 in cash, and a new share of Osisko.
The aggregate cash and stock value of the deal worked out to CAD$7.60 per share.
After Goldcorp was given the opportunity to review Osisko’s books, it countered a week later with a proposal that would be worth CAD$3.6 billion, or $7.65 per share.
A few days after that, Osisko unveiled a new joint offer from Yamana and Agnico Eagle Mines Ltd. (NYSE:AEG) valued at a whopping CAD$3.9 billion, or $8.15 per share.
It was then that Goldcorp elected not to return fire, and vowed to their shareholders that they would not overpay for new assets.
Osisko shareholders meanwhile, had been quite content with letting the gold majors duke it out, as they watched their share price benefit greatly from the unfolding drama.
But even though Goldcorp walked away empty-handed, the drama clearly demonstrated that gold miners were likely to accelerate their hunt for new takeover targets.
“In our business we are always depleting our existing resources and we have to replace those resources and we always look for opportunities and will continue to do that,” says Goldcorp CEO Chuck Jeannes.
With some stability in bullion prices, the sector as a whole may benefit from better certainty over revenues. In turn, it could set the stage for more M&A action in the second half of 2014.
According to PwC’s recent “Capital Markets Flash” report, “a potential resurgence in mining suggest that M&A activity may finally be looking at the upswing we’ve been anticipating for some time.”
Even as talks have broken down over a potential mega merger between Barrick Gold (NYSE:ABX) and Newmont Mining (NYSE:NEM), it’s another clear indication that the bigger miners are keen on replenishing reserves and finding cost savings.
Although a deal wasn’t struck, some analysts remain optimistic that the Barrick/Newmont conversation could be revisited in the coming weeks.
And who knows… perhaps we may hear Goldcorp’s name come up again.