Osisko Mining’s (TSX: OSK; US-OTC: OSKFF) board has provided a long list of reasons why it believes its shareholders should reject the hostile $2.6-billion takeover bid tabled by Goldcorp (TSX: G; NYSE: GG) on Jan. 14.
In a Jan. 20 release, Montreal-based Osisko said the cash-and-share offer by the Vancouver-based firm “fails to recognize the strategic value” of its Canadian Malartic gold mine in Quebec, calling the timing of the offer “opportunistic.” It explains its flagship asset just finished ramping up in 2013 and is expected to produce more gold at lower cash costs going forward. In the past year, Canadian Malartic churned out 475,277 oz. gold at estimated cash costs of $760 per oz., relatively in line with its guidance.
Goldcorp is offering 0.146 of its share, plus $2.26 in cash for each Osisko share held for a total value of $5.95 per share.
Osisko argues this represents a “meager 15% premium” based on the closing prices of both companies on Jan. 10 — the last trading day before the bid was publicized — noting it is well below the 30% premium paid in comparable metals and mining transactions.
Since the announcement, Osisko shares have traded above Goldcorp’s offer price and recently closed at $6.61, signalling the market believes the offer is too low, Osisko says.
During a Jan. 20 conference call, the company’s CEO Sean Roosen refuted Goldcorp’s claim that Osisko snubbed friendly takeover discussions over the past five years, explaining that Goldcorp’s previous three informal offers were “equally as inadequate.”
During the financial crisis, Osisko was looking for funds to build Canadian Malartic and was “eager to do a reasonable transaction with Goldcorp,” he said. But he pointed out that Goldcorp’s initial proposal in November 2008 would have implied a $1.78 value to Osisko’s shares today.
“We tried unsuccessfully to have Goldcorp increase the price to a reasonable number, but the response was that Osisko would never be able to finance, would never be able to build on a stand-alone basis — and it was time to accept this fate,” he recalled. “As you know, we then on a stand-alone basis raised over $1 billion in 2009, and have built Canada’s best gold mine.”
The other two Goldcorp offers that followed in 2009 would also have been a discount to Osisko’s current trading price, Roosen said.
Also raising concerns for Osisko’s board is Goldcorp’s ability to deliver projects on schedule and within budget. “Goldcorp has failed to deliver on numerous development projects, which account for a significant portion of their value,” Roosen said. The company’s main asset, the Penasquito mine in Mexico, has undergone delays, cost inflation and has yet to reach design throughput. Goldcorp’s key growth projects — including Cerro Negro in Argentina, Cochenour in Ontario and Éléonore in Quebec — have also experienced start-up delays and escalating costs.
In comparison, Roosen says, Osisko’s team built Canadian Malartic on time and on budget in a province that the Fraser Institute has ranked as one of the top mining jurisdictions in the world.
Osisko argues Goldcorp shares carry a “greater geopolitical risk,” as only 15% of its total gold reserves are in a triple-A rated country like Canada versus Osisko’s entire production base. It believes this is something Goldcorp’s current offer doesn’t compensate Osisko’s shareholders for.
It also counters Goldcorp’s claim that Canadian Malartic will receive more value in the Goldcorp portfolio than in a single-asset company. “Single-asset [or primarily single-asset] gold companies have substantially outperformed senior gold producers, delivering much greater returns to their shareholders,” it said in the release. “Goldcorp itself outperformed the S&P/TSX Composite Index when it was primarily a single asset company focused on the Red Lake mine, prior to its  merger with Wheaton River Minerals.”
Roosen said that “after the integration of the multi-asset strategy, their returns went down significantly. Goldcorp’s best days are behind them, and we are in a brand-new mine, with our best days in front of us.”
Osisko’s board unanimously concluded that Goldcorp’s offer is “financially inadequate,” “highly conditional” and not a “permitted bid” under its shareholder-rights plan, which calls for an offer, among other things, to remain open for at least 60 days. Goldcorp’s bid will expire in 35 days on Feb. 19.
Many analysts believe Goldcorp will have to raise its offer in order to win over Osisko shareholders. Meanwhile, Osisko’s board says it’s considering “value-maximizing alternatives,” including talking with third parties.
Osisko exited 2013 with a $210.5-million cash balance and a $329.1-million debt.
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