The fight for control of Osisko Mining (OSKFF) is starting to get very interesting, as Agnico-Eagle (NYSE:AEM) just threw itself into the ring with a joint friendly takeover bid to beat Goldcorp's (NYSE:GG) hostile advances. That means Agnico-Eagle will join Yamana Gold's (NYSE:AUY) bid, as the two mid-tier producers are offering $3.9 billion, or $8.15 per Osisko share - a 10% premium off Goldcorp's $3.6 billion hostile bid, and an improvement on Yamana's earlier proposal for Osisko Mining.
Osisko management clearly does not want to do a deal with Goldcorp, and with Agnico-Eagle joining the revised bid, we think that Goldcorp will not be able to beat the new offer and will have to move on from Osisko. This may present an opportunity for investors, because we've learned a few things from this ongoing saga:
- Goldcorp is interested in Canadian acquisitions.
- It has the resources to bid at least $3.6 billion for an acquisition.
- Goldcorp is looking for assets that are close to producing or beginning to ramp up production.
The first two points are pretty self-explanatory, but the third point is also an important point for investors to note. Osisko's Malartic mine is a relatively new mine (operations began in April 2011), and the company is continuing to ramp up production, and that made it an opportune time for Goldcorp to try to acquire the asset - with production rising, the project de-risked, and the mining stocks close to 52-week lows (at least they were in January, when Goldcorp made its offer).
As we stated earlier, we believe that Goldcorp's bid will fail and Osisko will be bought out by the Agnico-Eagle and Yamana Gold consortium. But that provides investors with an opportunity to look for other Canadian miners and projects that may be potential Goldcorp acquisitions, and here are a few that we think could be very attractive.
Pretium Resources (NYSE:PVG) is the first on our list because of the size of its project and the potential in that project establishing a new mining district in British Columbia. Pretium Resources owns the Brucejack gold project, which is one of the highest-grade gold projects in the world, with a sizable mineral reserve of over 7 million ounces of gold and close to 10 million ounces of mineral resources. The company is working on updating its feasibility study (due out in June), so we will get to see new economic parameters of its project. Just to give investors an idea of how rich a gold deposit this is, the company recently bagged 1000 tonnes of material from blasting, and processed it to produce a stunning 3,120 ounces of gold - around 100 grams per tonne.
Pretium makes an interesting target for Goldcorp, because its Brucejack mine has the size to make it interesting for a major, and the potential for expansion. Additionally, with a capital cost under $1 billion, it shouldn't be too much of a financial stretch for Goldcorp to bring this to production. Based on Pretium's current price, Goldcorp could offer a hefty 50% premium and acquire this company at under $1 billion - leaving plenty of cash leftover to develop Brucejack. Finally, if Brucejack is acquired and brought to production, there are other acquisitions nearby that could make sense for synergizing infrastructure, as Seabridge Gold's (NYSEMKT:SA) KSM project is Pretium's neighbor and hosts reserves and resources of close to 50 million ounces of gold.
Another potential Goldcorp acquisition that we like is Argonaut Gold (OTCPK:ARNGF). Argonaut is a mid-tier Canadian producer that operates two gold mines in Mexico that produce over 100,000 ounces of gold per year. That, by itself, would probably not be too interesting for a major, but it's the company's Magino Project that really may make it attractive.
The Magino Project is in Ontario, across the provincial border from Osisko's Malartic mine, and has gold resources of over 6 million ounces of gold. While much smaller than Malartic (over 10 million ounces of gold), it is still very early in the development stage of the project (resources could be significantly increased), and with the company's current market capitalization under $600 million, it is much cheaper than Osisko.
Goldcorp could acquire this company at a fraction (one-third of the offer would make a 50% premium on Argonaut) of what it is offering for Osisko and get two operating mines in Mexico (where Goldcorp already has a presence), with Magino as the crown jewel of the acquisition. It would be fewer ounces, but it would also be much cheaper, and with some exploration, Goldcorp could increase the resources of Magino significantly.
Probe Mines Limited (OTCPK:PROBF) is the final company on our list, and is much more speculative than the prior two companies. Probe Mines is exploring and developing the Borden Gold project in Ontario that offers the opportunity to be a high-grade open-pit mine. The company is still in the very early stages of de-risking the project, but current resources are close to 4 million ounces of gold, and with recent drilling hitting high-grade intercepts, the potential for Borden to grow significantly is quite large.
What's interesting with Probe Mines, though, is that it has received significant financial backing from Agnico-Eagle, as they own close to 10% of the outstanding shares of Probe Mines. Besides the fact that Borden could easily be consolidated and thoroughly explored by a major miner like Goldcorp, it would be quite a slap in the face to Agnico-Eagle to have Goldcorp acquire Probe Mines - which Agnico-Eagle has already shown interest in. Investors shouldn't fool themselves into thinking that business doesn't get personal - Goldcorp may be a bit insulted by Agnico-Eagle's white knight offer for Osisko, and may take the opportunity to acquire Probe Mines to make a point. It also helps that Probe Mines has one of the most exciting early-stage exploration projects in Canada.
Conclusion for Investors
We obviously don't know what Goldcorp will do if it fails in its bid for Osisko, but opportunistic investors may want to check out some of the aforementioned companies as potential acquisitions for Goldcorp. All of them have interesting projects, and probably should be owned anyway for aggressive precious metals investors, but with a major like Goldcorp on the prowl for cheap acquisitions, they make an even more compelling case.
Disclosure: I am long PVG, ARNGF, PROBF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.