Osisko continues to fend off Goldcorp’s hostile bid

Osisko Mining’s (TSX: OSK) CEO Sean Roosen maintains the company’s Canadian Malartic gold mine in Quebec is being grossly undervalued by Goldcorp (TSX:G; NYSE: GG) which launched a hostile US$5.95 per share takeover bid in mid-January for its smaller rival.

The implied value of Canadian Malartic using an average 1.4 price-to-net asset value multiple of other gold firms should be US$4.4 billion or US$10.10 per share, he argues.

“This is a big asset that is not being paid for properly and this is the true value of what this company should be worth in today’s valuations,” Roosen said on a March 20 conference call discussing Canadian Malartic’s new life of mine plan.

Based on updated reserves calculated at a gold price of US$1,300 per oz., Canadian Malartic has 9.37 million oz. grading 1.04 grams, and if milled at a rate of 55,000 tonnes per day will provide a mine life of 14.2 years.

“This is going to be a screamer of a mine for a long time to come,” Roosen told investors and analysts on the call.

Annual production should average 610,000 oz. gold at cash costs of US$516 per oz. over the next five years, while life of mine production is estimated at 597,000 oz. a year at cash costs of US$525 per oz. and all-in costs of US$717.

The mine also has a potential five to 10 years based on existing resources and future exploration, Roosen says.

Canadian Malartic has produced 1.04 million oz. gold along with significant silver byproduct since starting operations in April 2011 to the end of 2013. The Montreal-based firm is guiding 2014 gold production of 525,000 to 575,000 oz., up 11% to 21% over last year’s record production of 475,277 oz. gold.

Osisko expects its coveted asset to generate after-tax net cash flows of $3.1 billion using a 5% discount rate and a US$1,350 per oz. gold price. That amount increases to $3.7 billion at a gold price of US$1,500 per oz.

Roosen says Canadian Malartic, with an estimated net present value (NPV) of $3.1 billion, is the top value-generating gold mine in Canada and the second highest in North America, following Barrick Gold’s (TSX:ABX; NYSE:ABX) Cortez Hills gold mine in Nevada, which has an estimated NPV of $3.8 billion.

“This is a top two asset in North America at this point in time in the gold space. So it is an exceptional asset and we need to make sure it gets paid for,” Roosen said. 

Vancouver-based Goldcorp, which has been eyeing Osisko’s prized asset for the last five years, is offering 0.146 of its share and $2.26 in cash for each Osisko share held. Osisko’s board has rejected that proposal calling it financially inadequate, among other reasons, while its shareholders have pushed up the stock roughly 40% since the bid was announced indicating that they too believe the offer is too low. 

Desjardins analyst Michael Parkin says Goldcorp “will need to raise its initial offer (currently at $6.43 per share as of the close of trading on March 24) to a level more in line with our target price of $7.75, which we believe would be a sufficient level to win over minimum shareholder approval to complete the deal.”

Goldcorp requires two thirds of Osisko’s shareholders to tender their shares to the offer, expected to expire on April 4. But, the recent lawsuit settlement prevents it from paying for any Osisko shares deposited to the deal until April 15, suggesting Goldcorp will have to extend its offer again.

Osisko started a legal battle against Goldcorp, claiming it had misused confidential information and failed to honour a verbal agreement when it announced the hostile takeover bid on Jan. 13. The two firms reached an out-of-court settlement in early March, where Osisko agreed to eliminate its shareholder rights plan on April 14 and allow Goldcorp to do more due diligence on the Canadian Malartic mine starting no later than April 1.

Goldcorp’s chairman Ian Telfer recently said that he’s confident that the takeover bid will succeed, noting no competing offers for Osisko have emerged yet. He indicated that his company could improve its offer, depending on what the additional due diligence reveals. That said, he added Goldcorp has no problem dropping the deal if it gets too costly or complicated.


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