Who will rule Malartic after Yamana-Agnico-Osisko deal?

Once upon a time, in the small gold mining kingdom of Osisko, a CEO wanted to keep his throne away from the evil usurper, Goldcorp, but will he and Agnico and Yamana shareholders live happily ever after?

Author: Dorothy Kosich
Posted: Thursday , 17 Apr 2014

RENO (MINEWEB) -

As Yamana Gold (YRI) and Osisko Mining (OSK) announced the latest twist in the saga of Osisko management’s fight to keep their jobs - adding Agnico Eagle (AEM) to the mix- the plot to secure the bounty of Canadian Malartic is becoming more twisted with a growing cast of characters and more intrigue than “The Game of Thrones”.

Obviously, Osisko management desperately wants to keep its throne, no matter how miniscule their new “Spinco” kingdom may be. But will the political powers in Montreal be satisfied with a corporate headquarters of a “Spinco” that ultimately answers to two much larger, non-Quebec-based gold miners?

Osisko has painted Vancouver-based Goldcorp (GG) as the villain of this production while Yamana and Agnico - also not headquartered in Quebec - are the white knights who just happen to want to grab their piece of Canadian Malartic’s bounty. To summarize, Agnico Eagle, Yamana Gold and Osisko announced Wednesday that YRI and AEM will jointly acquire all the outstanding shares of OSK in exchange for C$2.09 in cash;0.26471 of a YRI common share (valued at C$2.43); 0.07264 of an AEM share (valued at C$2.43) and one common share of a yet-to-be-formed company, Spinco (valued at C$1.20).Yamana and Agnico will form a committee that will operate the Canadian Malartic mine. Osisko’s assets will be merged within the new Spinco venture, valuing Spinco at C$575 million or C$1.20 per share

Confused???

So are a growing number of analysts and perhaps the investors of Agnico, Yamana and Osisko.

A note by analyst John Tumazos of John Tumazo’s Very Independent Research proclaimed in all caps: “ACQUISITION PROPOSAL POORLY UNDERSTOOD AND POORLY ACCEPTED.”

“AEM’S proposal to buy ½ of Osisko in partnership with Yamana Gold caused a $457 million or 8.56% or $2.61/share meltdown in AEM’s market value, which we do not blame on the US$475 MM in new net debt-equivalents from Osisko or 33 million new AEM shares,” said Tumazos.

“We believe there were ‘inefficiencies’ inherent in the complicated four-term offer AEM and AUY made for Osisko, where the market penalized AEM and AUY and rewarded GG today,” he suggested. “We suspect the 4-way negotiations were very tedious.”

“In our opinion, Goldcorp’s C$7.65 bid made April 10th for Osisko in worth more than the C$8.15 April 16th bid made by AUY and AEM for Osisko,” Tumazos advised.

“It could prove cheaper for Goldcorp to buy AEM after AEM share price declines than to have bought Osisko from the outset,” he observed. “We hope for AEM’s sake that Goldcorp outbids AUY and AEM, and AEM does not labor under the complex structures. We assume these complex structures were the suggestions of either Osisko or AEM’s advisors seeking fees.”

Scotia Capital’s Tanya Jakusconek did not even venture an opinion on the proposal Wednesday. “We are currently research-restricted on the outstanding GG/OSK offer and thus cannot provide a valuation/opinion on the current YRTI/AEM/OSK announcement,” she explained.

Cowan and Company’s Adam P. Graf suggested the “transaction appears dilutive to AUY and AEM”.

“We are disappointed that these industry bellwethers (incl. GG) appear to be using cash and shares to value-dilutive acquisitions,” he observed. “However, the bidding war over OSK has validated our thesis that M&A is integral to maintaining producers’ long-term production profiles.”

“We believe that at current metals prices, AUY and AEM are over-paying for OSK and the Canadian Malartic asset,” Graf concluded, adding the transaction “is most likely the final bid” for OSK.

“The transaction includes a break-fee of C$195MM, which would need to be paid by any party willing to compete in the bidding for OSK. Should GG decide to come back with a counter-offer (which already would most likely need to top C$4.0Bn), the company would need also accommodate the break fee to be attractive to OSK shareholders. We do not foresee GG coming back with such an offer,” he advised.

“Goldcorp does not need OSK’s assets this badly,” observed Barry Allan of Mackie Research Capital in a note. “Any benefit to Goldcorp has been priced out.”

Nevertheless, Desjardins analyst Michael Parkin said in a research note Wednesday, “The complexity of this new offer is far less than that of the previously announced Yamana partnership, and we believe this new bid will be well regarded by shareholders.”

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