Osisko Mining Corp. (OSK) agreed to sell a 50 percent stake in its mining and exploration assets to Yamana Gold Inc. (YRI) in an attempt to block Goldcorp Inc. (G)’s C$2.77 billion ($2.51 billion) hostile offer for the company.
Yamana’s cash-and-stock deal has an aggregate value of C$929.6 million and values Montreal-based Osisko at C$7.60 a share, both companies said today in a statement. Goldcorp’s bid, announced in January, is currently worth C$6.31 a share.
Yamana and Goldcorp are among producers looking to take advantage of a recent slump in gold prices to replenish their mine reserves and acquire more profitable operations. Osisko’s main asset is the Canadian Malartic project in Quebec, which Goldcorp Chief Executive Officer Chuck Jeannes has said would rank among his company’s top mines.
Osisko said today that Toronto-based Yamana will become an equal partner in all of its mining and exploration assets. Osisko will continue to operate Canadian Malartic and all other projects under the guidance of a joint operating committee and it will maintain a head office in Montreal.
“This is a low-risk entry into a new, mining-friendly jurisdiction,” Yamana Chairman and Chief Executive Officer Peter Marrone said today on a conference call.
Osisko also plans to sell a portion of its future gold from Canadian Malartic to Caisse de Depot et Placement du Quebec and agreed with the Canada Pension Plan Investment Board to increase a credit facility. The accords with the two pension funds will provide it with an additional C$550 million in funding.
Adam Graf, a New York-based analyst at Cowen & Co., said he’s skeptical the deal will provide net value to Yamana’s shareholders.
“We see the valuation of Osisko as rich based on our models of the assets at the current forward curves for metal prices,” Graf said in a note.
Osisko climbed 7.3 percent to C$7.38 in Toronto while Yamana fell 2.2 percent and Goldcorp rose 2 percent.
As part of today’s deal, Osisko investors will receive a combination of cash, Yamana stock and new common shares of Osisko. The deal’s aggregate value is about 10 percent more than Osisko’s closing price yesterday and 22 percent more than the value of the Goldcorp offer at the same time, Osisko said.
Osisko rejected the Goldcorp offer on Jan. 20, arguing that it was too low.
Jeffrey Wilhoit, a Goldcorp spokesman, didn’t respond to a request for comment.
The Caisse de Depot invested in future Osisko gold production because it’s a sound transaction that meets the fund’s risk-return criteria, Maxime Chagnon, a spokesman, said today by phone from Montreal.
The fact that Osisko is based in the French-speaking province of Quebec wasn’t a consideration, Chagnon said. Nor was the provincial government, which announced in February a proposal to protect Quebec companies from hostile takeovers, a factor in the deal, he said.
“Quebec is our market of proximity so we know it pretty well, but we take investment opportunities everywhere in the world,” he said.
Canada Pension said it evaluated its deal with Osisko “solely on its investment merits.” The deal “offers CPPIB an attractive risk-adjusted return,” it said in a brief e-mailed statement.
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