Goldcorp seizes opportunity with hostile bid for Osisko – by Peter Koven (National Post – January 14, 2014)

The National Post is Canada’s second largest national paper.

TORONTO – By bidding $2.6-billion for Osisko Mining Corp., Goldcorp Inc.’s chief executive Chuck Jeannes is taking advantage of poor gold market conditions and going after a mine he has craved for years.

Goldcorp has held on-and-off negotiations with Osisko Mining Corp. for several years, and owned more than 10% of the stock between 2009 and 2011 before selling it. Osisko became a rising star in that period as it brought the giant Canadian Malartic mine in Quebec into production.

Back then, a takeover of Montreal-based Osisko was a strong possibility. Both Goldcorp and Kinross Gold Corp. owned large blocks of Osisko shares, and with gold prices rising and consolidation happening across the sector, the stock soared above $16. But no takeover bid materialized, and as gold prices plunged and Osisko struggled to ramp up production at Canadian Malartic, its shares fell back to earth.

That brought Mr. Jeannes and Goldcorp back into the picture. On Monday, the Vancouver-based miner launched a hostile bid for Osisko valued at just $5.95 a share. While Goldcorp would almost certainly raise its cash-and-stock offer to get a friendly deal, it is still a relative bargain.

Mr. Jeannes made it clear that terrible gold market conditions created this opportunity. He said that in the low price environment, single-mine companies such as Osisko face a much higher risk discount than larger players such as Goldcorp.

“Frankly, [Canadian Malartic] is worth more in the hands of Goldcorp than it is on a standalone basis, because of those risks that are applied when it’s on a standalone basis. And that is the market dynamic that goes into our decision-making going forward,” he said on a conference call.

Mr. Jeannes put Goldcorp in position to do this deal. He maintained a clean balance sheet for several years, while avoiding the top-of-the-cycle acquisitions that demolished competitors such as Kinross and Barrick Gold Corp. That left Goldcorp with a stronger valuation than its peers, allowing it to seek out bargains during the current bear market and use its shares as currency for acquisitions.

Fund manager David Taylor, who was one of Osisko’s largest shareholders when he worked at Dynamic Funds, said Goldcorp was interested in paying about $10 to $12 a share for Osisko a few years ago, but Osisko’s board did not want to sell.

“I think [Osisko] made a huge mistake. Maybe they’ll prove us wrong and get an $11 bid this time, but I don’t think so,” said Mr. Taylor, now the president of Taylor Asset Management, his own company.

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