Goldcorp Deals Yamana Gold a Setback for Canadian Mine

Aerial view of Canadian Malartic mine. Source: Osisko Mining.

Anyone expecting Goldcorp to slip off meekly into the night in its quest to acquire the Canadian Malartic gold mine in Saskatchewan was sorely disappointed when the gold miner upped the ante the other day with a bid trumping the one made by Yamana Gold . In both value and simplicity, the new Goldcorp offer may be seen as preferable to its rival's, as it raises the original bid by about C$1 billion without additional levels of participation by outsiders. 

Yamana's counteroffer was complicated. The white-knight $400 million bid would give Yamana a 50% interest in Osisko Mining and let the two miners jointly operate its premier gold mine. Additionally, two Canadian pension funds would contribute to the transaction, with one giving Osisko $275 million in upfront payments in return for future production streams from the mine and the other rolling over an existing loan for the miner while increasing it by $275 million into a new credit facility. All told, it valued Osisko at around $3.1 billion, or a decent premium to Goldcorp's original $2.5 billion bid.

Canadian Malartic is estimated to have 10.1 million ounces of gold reserves that could produce as much as 500,000 to 600,000 ounces of gold annually over its 16-year life, with all-in sustaining costs estimated to be between $1,000 and $1,100 per ounce. Owned by Osisko Mining, the mine is seen as a prime example of quality assets that are becoming more difficult to find. Moreover, it's located in a politically stable country, which is but one reason Goldcorp and Yamana are willing to one-up one another.

It's also why Osisko has complained from the beginning that Goldcorp was lowballing its offer, but it no longer seems they can say that, since the new bid is higher than what Yamana was proposing, and Osisko already said it liked that offer. 

Because of all the moving parts required for Yamana to complete the deal, I suggested there was a good chance investors might balk and give Goldcorp an opening to come back with a higher, cleaner alternative. It did.

Goldcorp's enhanced offer is sweetened to C$7.65 per share, or C$3.6 billion, and is financed in a more straightforward cash-and-stock transaction. According to the miner, Osisko investors who tender their shares will receive 0.17 shares of a Goldcorp stock plus C$2.92 for each share of Osisko stock they own.

Previously, Osisko thought its asset could command a market value of C$10.10 per share based on multiples that gold miners including Goldcorp showed themselves willing to pay in the past. The market has changed considerably since those deals were made, but I doubt that's the last we've heard from Yamana either.

At the moment, Goldcorp is holding the strong hand, so any new Yamana offer would have to give shareholders a substantial premium, particularly if it's going to be as complex as its last one. Goldcorp may be reluctant to overpay for the Canadian Malartic mine, but Osisko Mining may still get many steps closer to its perceived value.

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