Should Goldcorp Acquire Rubicon?

Rubicon Minerals (NYSEMKT: RBY  ) controls over 100 square kilometers of prime exploration land located in Ontario's prolific Red Lake District. This area is world renowned for its high-grade and long lived assets. No company knows this better than Goldcorp (NYSE: GG  ) . Amidst its portfolio of quality gold mines, Red Lake is the top producer, yielding just under 500,000 ounces in 2013. Within the High Grade Zone, Goldcorp is mining at 2 ounces per tonne! Geologists and financiers scour the Earth, spending billions to find gold deposits this rich.

The acquisition would consolidate the Red Lake District
Rubicon's land package surrounds Goldcorp's Red Lake property on the west, north, and eastern boundaries. The next multi-ounce per tonne ore is likely to come from somewhere within the yellow and pink area below.

Source: Rubicon

If Goldcorp is interested in acquiring near-term production and exploration acreage on its home turf, Rubicon would be the obvious choice.

Granted, Phoenix is no Malartic...
But it doesn't come with the same price tag either. Compared to Goldcorp's $3.6 billion offer for Osisko (UNKNOWN: OSKFF.DL  ) and its Canadian Malartic Mine complex, Rubicon would be more digestible, at just 1/10th the price.

What attracted Goldcorp to Osisko? A low political risk jurisdiction (Quebec), the potential for operational synergies, a low-cost production profile, immediate cash flow, vast reserves, and exploration upside. Oh yeah, Goldcorp also thought it was paying a price that would be accretive to earnings straight away. On paper, the deal looked like a home run, but it was a big swing. If gold prices continue falling, as many pundits seem to be predicting, Goldcorp might have regretted not maintaining its low debt levels and strong liquidity position. Judging by the upward motion, shareholders seemed to express a collective sigh of relief when Goldcorp announced it would not be raising its offer, refusing to get into a bidding war for Osisko.

Rubicon would be a mere tuck-in for Goldcorp
Minus the production (admittedly a big subtraction), Rubicon's Red Lake assets offer the synergies, low-risk political jurisdiction, exploration upside, and low-cost profile that fit Goldcorp's acquisition mold. For Rubicon's leadership team it would be a homecoming. CEO Mike Lalonde and VP Daniel Labine were previously senior operators for Goldcorp, making things happen at the ground and underground levels. Could the integration process be any smoother?

Consider any financing challenges solved
The Phoenix Gold mine is basically 75% built. Without any hiccups, Rubicon could be pouring gold by mid-2015. With today's resource base, which will undoubtedly expand, over two million ounces will be produced over a 13-year mine life. Upon achieving commercial production, the Phoenix mine is expected to generate 165,300 ounces of gold annually at an all-in sustaining cost of $870 per ounce. Having $3.8 billion liquid, Goldcorp is more than capable of crossing the T's and dotting the I's.

You think Rubicon's shareholders would settle for a 33% premium?
If so, Goldcorp could acquire the Phoenix mine for about what it costs to build, picking up the 100 square kilometer Red Lake package for a pittance of its underlying value. Thanks to the depressed market for gold stocks, this opportunity is available.

As a shareholder, I say Goldcorp should act now.

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Read/Post Comments (7) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 05, 2014, at 5:38 PM, Ostrowsr wrote:

    As a RBY shareholder, just try to "steal" my shares at only a 33% premium.

  • Report this Comment On June 06, 2014, at 12:51 AM, Kenfro wrote:

    As a RBY shareholder, I say, "no." Wait for gold prices to recover and then talk about an offer.

  • Report this Comment On June 06, 2014, at 12:23 PM, TigerPack1 wrote:

    Why not spend the same amount of money and buy Allied Nevada (ANV) and acquire a proven resource deposit of nearly 25 million gold ounces for next to nothing. Another $1 billion in expansion development costs for a mine in Nevada with permits and clear ownership and an operating mine already, gets you a 20-year low cash cost mine in Nevada that will be worth $5-$10 billion in 2016-17 when developed as gold/silver prices rise? The net present value of the Hycroft mine expansion is about 5x the current stock market cap at $1200US an ounce gold. UNHEARD OF value in the mining industry right now????

  • Report this Comment On June 06, 2014, at 12:28 PM, TigerPack1 wrote:

    Why spend the same money and buy a 25 million gold resource, a 20-25 year mine in Nevada, with a net present value prefeasability study just out of 5x the current stock market cap at $1200US gold prices. Hycroft is the crown jewel, next to NovaGold's mine perhaps, for a safe country long-term, low cash cost producer investment on the cheap????? Hycroft could be producing 500,000 ounces of gold annually or more in just a few years with proper development and expansion. Either Barrick, or Newmont or Goldcorp will acquire soon. Wake up people. You get $30 billion of gold in the ground in USA at $1300US for $300 million market capitalization. That's 100 to 1 in proven resource leverage. UNHEARD OF!

  • Report this Comment On June 06, 2014, at 6:24 PM, ALLWIN wrote:

    Daniel, there is a direct question for you:- I your opinion, is RBY a buy now, is GS a buy now?

  • Report this Comment On June 06, 2014, at 9:06 PM, idvst8 wrote:

    PVG would be a much better buy for Goldcorp at these levels. That is the direction I believe they will go.

  • Report this Comment On June 08, 2014, at 1:55 PM, GoldenRoad wrote:

    Rubicon claims the following:

    - Massive Cash Position

    - Massive Tax Credits

    - Massive Red Lake Land Package

    - Gold Deposit Next Door to Goldcorp

    - Infrastructure

    - Near Term Producer

    - Exploration Program Underway

    The value of the company declined approximately $1 per share following legal action by a single First Nations tribe. The specific issue relates to the government. This matter may be settled soon.

    While the author of this piece may wish Rubicon be acquired by Goldcorp now, I doubt any action is pending until this First Nations matter is settled. But I expect the stock to be significantly revalued UPWARD after a positive agreement or ruling. Fortunately, Rubicon has an exceptional working relationship with people of First Nations.

    Potential investors should monitor Rubicon's Annual General Meeting to be held shortly. Perhaps news about the First Nations matter, project development & exploration are forthcoming. At this late stage in Rubicon's development, positive news may cause the low share price to soar.

    I expect Rubicon to be acquired in the future. Given my multi-year experience with the company since discovery of its gold deposit in 2008, my price target for buyout is in the range of $3 - $6. A higher gold price would be a boost given Rubicon's projected low cost of production.

    Long time Rubicon investors know the current value of the company is far too low. Any attempt to acquire Rubicon at an unfair price is folly. The Osisko Story proves the point that major gold companies must act fairly or lose.

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Daniel T. Cook

When I was 12 I bought my first stock (five shares of HD). Then I started reading and writing about stocks (Buffett, Wanger, Motley Fool…). I’m still doing that today! My favorite recipes include metals, mining, and agriculture.

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