Is Goldcorp’s Osisko bid just the start of a gold M&A rush? – by Lawrence Williams (Mineweb.com – January 17, 2014)

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While not the first recent takeover bid in the gold space, Goldcorp’s offer for Osisko suggests that the bigger players may now feel the decline in the gold price is near its end and could prompt others to follow.

LONDON (MINEWEB) – There has been considerable speculation as the gold price has fallen and previously profitable gold miners struggled to keep their heads above water that the predators with strong balance sheets are poised to strike and attempt to swallow up smaller – or just less well cashed up – miners in the gold space.

Goldcorp’s hostile bid for Osisko – the one time darling of the Canadian exploration and development sector, but now a mid-tier gold miner in its own right – could thus just be the start of a flood of M&A moves as the gold price looks to be nearing its bottom and gold stock valuations are seen as being close to their likely lows.

While there have already been other M&A moves in the space over the past year although mostly at a much lower level – Hecla’s ‘white knight’ acquisition of Aurizon, Centamin’s Ampella transaction and Asanko’s PMI takeover all immediately spring to mind. But none of these have had the impact of the Goldcorp bid given the sizes of the two companies involved.

The Goldcorp $2.6 billion stock and cash offer, worth around $6 per share has been described by Osisko as being opportunistic and hugely undervaluing the company being set at a 15% premium to the Osisko price the day before the bid was announced.

But such is the nature of bids in this kind of bear market. Even so, the offer may be seen as attractive to some Osisko shareholders who have seen stock in their company fall from almost $16 three and a half years ago to a recent level of a little over $4, a decline of around 75%.

True Goldcorp’s own stock has fallen from a peak of around $55 three years ago to a recent $23, itself a 58% decline, but investors may feel they are better protected from the vagaries of the gold market in a larger gold miner with far higher grade resources and with strong expansion plans than in a mid tier company mining much lower grades and perhaps seen as considerably more vulnerable financially to further gold price weakness.

At least that is what Goldcorp is probably banking on. And, in targeting Osisko in the mid tier space Goldcorp may also feel confident that few, if any, other companies interested in the gold mining sector will have the financial resources to make a counter bid which might be more acceptable to Osisko management.

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