Editorial: Still plenty of appetite for M&A

While private equity financing was the talk of the mining industry in the first quarter, heavy duty mergers and acquisitions are punching their way back to centre stage, as mining majors take advantage of depressed metals prices and share valuations to realign their businesses.

• The brawling between Yamana Gold and Goldcorp over Osisko Mining and its prized Canadian Malartic gold mine in Quebec has just seen Agnico Eagle Mines jump over the boards and join the All-Canadian slugfest as third man in on Yamana’s side.

In a surprise move on April 16, Agnico teamed with Yamana to table a joint friendly, cash-and-share takeover bid worth $3.9 billion, or $8.15 per Osisko share, trumping Goldcorp’s recently revised hostile cash-and-share bid of $3.6 billion, or $7.34 per share. The offer is a 10% premium to Osisko’s share price on April 15.

As detailed on our front page, the deal would end with Osisko shareholders owning 14% of Yamana and 17% of Agnico, and would include an innovative spin-out of a cashed-up company with a portfolio of royalties, plus assets such as Osisko’s grassroots project in Mexico.

Perhaps best of all for many Osisko shareholders: the joint Agnico–Yamana bid supersedes Yamana’s somewhat convoluted previous friendly offer, which revolved around the partial purchase of the Canadian Malartic mine rather than a full-on take-out of the company.

We’ll see if Goldcorp comes back with a better offer. The bidding has gotten quite rich, but if any gold company has been full of surprises and willing to pay top dollar for a desired asset, it’s Goldcorp.

Osisko has helped stir the pot with a stellar first-quarter report released on April 8, showing record first-quarter production of 140,029 oz. gold at a head grade of 1.13 grams gold per tonne.

Even better, Osisko saw cash costs of US$613 per oz. and US$555 per oz. in January and February 2014, and is now projecting cash costs of between US$527 and US$577 per oz. for all of 2014, which would be a 16–24% reduction compared to 2013.

Possibly nudging past Detour Gold as the country’s largest gold mine, Canadian Malartic is anticipated to produce between 525,000 and 575,000 oz. gold in 2014, up 11–21% from 2013, when it produced a record 475,277 oz. gold.

• You know a deal like the Glencore–Xtrata merger has been big when one of the loose ends to tie up in order to gain regulators’ blessings was the unloading of an asset like Las Bambas.

In mid-April Glencore Xstrata sold the Las Bambas copper mine under construction in south-central Peru for a cool US$5.9-billion in cash to a consortium of Chinese companies led by China Minmetals subsidiary MMG.

Glencore Xstrata has become so huge, that Las Bambas doesn’t even appear on its map of assets or photo gallery on its website, and the gargantuan size of the deposit is almost lost in Glencore’s reserve and resource statement, which is 74 pages long.

But the raw deposit numbers are staggering, with reserves of 950 million tonnes grading 0.73% copper, 0.06 gram gold, 3.7 grams silver and 0.002% moly, plus 1.21 billion measured and indicated resources at slightly lower grades. Oh, and there are another 500 million inferred tonnes at slightly lower grades for a combined tonnage of 2.7 billion tonnes.

Then Glencore turned right around and the next day announced a US$1.4-billion all-cash bid to acquire London-listed Caracal Energy. Glencore is offering shareholders of Caracal £5.50 (US$9.20) per share, a 61% premium to Caracal’s £3.42 per share closing price on April 11 and a 54% premium to Caracal’s volume-weighted average trading price of £3.47 per share in the 30 trading days before the bid.

The offer trumps a previous agreement Caracal had worked out to merge with Canada’s TransGlobe Energy, and as a result Caracal must pay a US$9.3-million termination fee to the Calgary-based company.



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