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TORONTO – For the second time this year, a large hostile bid has breathed much-needed life into the Canadian mining sector.
HudBay Minerals Inc.’s $428-million offer for Augusta Resource Corp. has prompted strong speculation of a rival bid from analysts and investors. It has been months since the sector had a major takeover battle with multiple bidders, and the bid is seen as a potential catalyst for further M&A activity. “All of a sudden it lights a fire under everyone in this space,” said John Stephenson, senior vice-president at First Asset Investment Management.
The HudBay offer comes a few weeks after Goldcorp Inc. launched a $2.6-billion hostile bid for Osisko Mining Corp. The two moves have brought energy back into the mining space, which has suffered over the past 18 months because of lacklustre commodity prices, writedowns and investor disinterest.
Both the Augusta and Osisko bids reflect current realities in the sector: while they are priced well above the recent trading ranges of the stocks, they are worth fractions of what these companies traded at a few years ago. The all-stock bid for Augusta was priced at $2.96 a share — by comparison, the stock traded above $6 in 2011.
Management teams are reluctant to sell their companies at these prices, forcing buyers to go hostile.
Toronto-based HudBay does not have a history of hostile offers, but chief executive David Garofalo made it clear in recent weeks that he was on the hunt for an acquisition. And his interest in Augusta was no secret.
HudBay made a $30-million investment in Augusta in 2010, and currently owns 16% of the company. It craves Augusta’s Rosemont copper project in Arizona, a large deposit with 5.9 billion pounds of reserves and a projected mine life of more than 20 years.
The timing of this bid makes sense for HudBay. The company recently wrapped up construction of two mines in Manitoba, and it expects to finish building the Constancia project in Peru later this year. After Constancia, it has nothing significant in the pipeline for its well-regarded mine-building team to tackle.
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