Goldcorp’s total takeover bid of Osisko Mining makes Quebec mining sector the real winner
Contrary to the expectations of many analysts and Osisko Mining (TSX: OSK), gold industry giant Goldcorp (TSX: G) has decided to increased its hostile takeover bid for the smaller player by CAD$ 1 billion. This means that Goldcorp is officially ready to pay 3.6 billion CAD or 7.65 CAD per share. Evidently, Goldcorp – and its CEO Chuck Jeanne in particular – is confident that taking over Osisko carries considerable benefits for Goldcorp’s earnings per share.
Goldcorp’s generosity was stimulated by a competing bid by Yamana Gold (TSX: YRI), which, according to the Wall Street Journal, was said to be preferred by Osisko’s CEO Sean Roosen. Yamana has offered shares and cash totaling CAD 929.6 million CAD for 50 % of Osisko’s mines and exploration assets whereas Goldcorp’s bid applies to the entire company. However, Yamana’s offer includes capital from two Canadian pension funds and would allow for Osisko’s management to keep their jobs and remain in the company’s headquarters in Montreal. It is a scenario reminiscent of a scene from the 1987 comedy movie “The Secret of My Success”, where management’s biggest concern during a takeover bid was whether or not they would keep their existing jobs.
The matter will now be up to Osisko’s shareholders, who may care less about the stability of management’s jobs and favor the overall clearer conditions inherent in Goldcorp’s total takeover bid. This means that the battle will continue. Yamana will likely sweeten its offer further despite the fact that Goldcorp’s managers had warned that there would be no other offers. Nevertheless, the original and formal offer dates back to last January. The additional billion was unsolicited and presented by way of a press release. The Board of Directors of Osisko will therefore meet in the coming days to weigh the pros and cons of this new proposal, stalling shareholders’ decision, asking them to wait for their recommendation.
Of course, the bidding war reflects the fact that interest in Osisko Mining and Quebec’s Malartic deposit, located in the Abitibi -Témiscamingue, is growing. It represents one of the largest gold reserves in production in Canada with proven and probable reserves of 10 million ounces of gold. This suggests that regardless of the outcome Goldcorp will continue to look for opportunities in Quebec. On Thursday, Charles Jeannes, President and CEO of Goldcorp, said the Company was fully committed to further exploiting the Eleonore deposit in northern Quebec, which should enter service by the end of the year with 2,000 employees. Goldcorp spent almost CAD$ 2 billion to build Eleanor. Goldcorp will use its investment and commitment to Eleanor as the platform to put pressure on the Government of Quebec – which will be replaced after an election dominated by economic issues – to favor its own bid for Osisko, given its proven record to invest in Quebec, which will come out as the biggest winner from the latest bidding war. Indeed, although mining companies have actually decreased their investments in Quebec in recent months, employment related to the mining sector showed strong growth in 2013.
The bidding war over Osisko is likely the sign of the return of more investment. Gold mining is not even the largest employer; that record is held by the mining of ferrous metals and iron ore and Ferro-niobium accounting for about 22%. Gold mining is second at 20.3%. Despite the decline in metal prices in 2013, mining activities in Quebec remained very strong. According to preliminary data, in 2013, the value of mineral shipments from Quebec was CAD$ 8.30 billion, an increase of 3.3 % compared to 2012. The two main substances produced in Quebec remain iron and gold are 34.7 % (CAD$ 2.88 billion) and 20.4 % (CAD$ 1.70 billion) of the total value of mineral shipments respectively. In 2014, the government of Quebec predicts that the industry could grow much further due to increased demand for f iron ore, nickel and gold. Moreover, Quebec is one of the world’s most desirable mining destinations, even if under the leadership of the Parti Quebecois it lost some of its luster. According to the annual global survey conducted by the Fraser Institute to leaders in the mining industry, Quebec fell to 21st place among 112 mining jurisdictions in the world in 2013 while it occupied the top of the world rankings in 2009 – it was in fifth place in 2011 and eleventh largest in 2012. This proves that changes in the Province’s mining policy have discouraged investment. The new Liberal government of Premier Philippe Couillard said it would encourage investment in companies related to the mining industry. Couillard, moreover, wants to bring more foreign investors to the mining sector. The Yamana-Goldcorp battle over Osisko will surely contribute to raising that attention.