Aerial view of Canadian Malartic mine. Source: Osisko Mining.
The ofttimes bruising battle to acquire the rich Canadian Malartic mine owned by Osisko Mining (NASDAQOTH: OSKFF) is ending with a whimper, as Yamana Gold (AUY) and Agnico-Eagle Mines (AEM 1.22%) got the regulatory nod to complete their friendly C$3.9 billion takeover. The miners expect the deal to be completed by Monday.
Having chosen to bow out of the bidding war and abandon its attempted hostile takeover effort, Goldcorp (GG) can only imagine what could have been.
Under the agreement, Yamana and Agnico will each receive a half interest in the Canadian Malartic gold mine in Quebec. In return, Osisko shareholders will each receive C$2.09 in cash, 0.07264 of Agnico Eagle stock, 0.26471 of Yamana shares, and one share of a newly formed company that will acquire Osisko's assets as part of the deal.
While getting rebuffed by Osisko and then beaten out by rival Yamana has to burn, adding insult to Goldcorp's injuries is the record production results the takeover target released yesterday when announcing receipt of final court approval for the acquisition.
Osisko said the month of May was one for the record books. Not only did its flagship Canadian Malartic mine achieve record monthly gold production of 51,114 ounces of gold, but it also had record monthly mill throughput and record average daily throughput. Since starting production in April 2011, Canadian Malartic has produced nearly 1.3 million ounces of gold.
The mine is 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.
It was just such quality production that originally attracted Goldcorp in the first place. Ever since the mining major made its bold, low-ball $2.9 billion bid for the miner in January, there was always a hope against hope that someone else wouldn't step forward with a higher, more realistic offer to counter it. The state of the gold mining industry, the weakness in pricing, and the fast-approaching deadline for another party to make a pitch all seemed to be working in Goldcorp's favor.
Then, at close to the 11th hour, Yamana stepped forward with a white knight offer, a complicated bid that paid Osisko $400 million for a 50% stake and the right to operate the Canadian Malartic mine jointly, and had two Canadian pension funds kick in additional funding in return for future streams of production and an increase in the value of the entire transaction to around $3.1 billion.
The convoluted nature of the deal, however, made it easy for Goldcorp to return with a straight up offer that raised its original bid by $1 billion, and had the potential to win over shareholders left scratching their heads over Yamana's pitch. With time running out once more, though, its rival came back with its winning offer, bringing Agnico-Eagle on board, dumping the pension funds, and going for a complete buyout. Although Osisko originally wanted to remain independent, this was still preferable to Goldcorp being the owner, and when Goldcorp chose to forego upping the ante once more -- much to the relief of its shareholders, who were getting antsy over just how much of a premium it was willing to pay -- the outcome was sealed.
As lucrative as Canadian Malartic is viewed as potentially being, it hasn't escaped notice that Yamana and Agnico may have overpaid for the privilege of acquiring it. Yamana's stock has lost a quarter of its value since it entered the fray, while Agnico-Eagle is off by about 5% since it was brought on board. Both, however, have turned north in recent weeks, and yesterday's announcement and production results will likely alleviate a lot of investor fears.
