How Much of a Risk Premium Should Goldcorp Pay for Osisko?

Gold miner may have no choice but to up its bid one more time

Apr 18, 2014 at 9:36AM

How much is Goldcorp (NYSE:GG) willing to pay for peace of mind?

That seems to be the real deciding factor in whether the gold miner will up its offer for Osisko Mining (NASDAQOTH:OSKFF) after its recently raised offer was trumped once again by Yamana Gold (NYSE:AUY), which stripped out much of the complexity of its original white knight bid by adding in a partner, Agnico Eagle (NYSE:AEM).

Osisko's Canadian Malartic mine is largely seen as a quality mine in and of itself, 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. Of equal importance, though, is its location in the politically stable, mining-friendly region of northern Quebec. That alone ought to put a premium on the price an acquirer is willing to pay.


Source: Goldcorp

Although much of Goldcorp's principal properties are spread throughout North America, its greatest concentration is in Mexico, where 40% of its proven and probable reserves are located, with another 21% in Canada. However, more than half of the gold it produced in 2013 came from Mexico, while 26% was out of Canada -- although its Eleonore project in James Bay, Canada is on target for its first production later this year.

Screen Shot

Source: Goldcorp SEC filings. Excludes the Marigold project in Nevada in which it owned a 66.7% interest, as that was just sold to Silver Standard Resources on Feb. 3.

Perhaps more stable politically than either Argentina or Chile, where Goldcorp's environmental permit for its El Morro project was suspended, Mexico has adopted policies recently that make it the highest cost country in which the company operates. The government passed a 7.5% tax on profits from resources plus an additional 0.5% on precious-metals miners, a levy that raises Goldcorp's effective tax rate to more than 40%. It might not pull out of Mexico as a result, but expansion there becomes untenable and is why it needs projects like Canadian Malartic to expand its operations.

It also suggests that the miner may be willing to go to the well one more time at least to see if it can entice investors to choose its deal over the one made by Yamana and Agnico. The markets, though, probably won't like it, as Yamana's stock fell 4% yesterday and Agnico's was down 9% on the belief they're paying too rich a premium for the asset. Goldcorp's stock, on the other hand, edged higher, perhaps in relief as it may now wriggle out from having to overpay.

Even though the gold miner has previously stated it would do no such thing, having started the ball rolling and angered its adversary in the process, Goldcorp may have no choice but to see this through to the end.

Someone who never overpays for a stock
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 

Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information