Osisko Mining Corp. struck a $3.9-billion friendly merger deal with Yamana Gold Inc. and Agnico Eagle Gold Inc., putting pressure on Goldcorp Inc. to sweeten its hostile bid again.
The new proposal would split Osisko's flagship Quebec gold mine between Canadian miners Yamana and Agnico and spin out some of its exploration assets into a much smaller company.
The battle for Osisko comes after the gold industry spent the year cutting costs and vowing not to overpay for acquisitions amid lower bullion prices.
Osisko's stock has jumped 50 per cent since Goldcorp launched its unsolicited bid mid-January. It gained 7 per cent to $7.94 a share on Wednesday, slightly more than the latest proposal, suggesting that investors expect a higher bid to emerge.
"We are already at the point of irrationality," said Adam Graf, an analyst with Cowen and Co.
If Goldcorp increases its offer for the second time, the company will likely incur more debt and dilute its shares further and would have to pay Osisko's $195-million termination fee to Yamana and Agnico.
Nevertheless, Osisko's Canadian Malartic mine has now become a prized asset. The mine would give its suitors access to more than nine million ounces of bullion reserves and production in Quebec, a place often touted as one of the world's most stable jurisdictions for mining.
Yamana would be able to diversify away from its operations in South America. Agnico would be able to find savings in Quebec, where three of its mines are scattered along the same highway as Canadian Malartic. Goldcorp would also be able to cut costs in Quebec, where it is developing a gold mine.
Although Osisko will lose Canadian Malartic, the bidding war is a vindication of sorts for the miner's chief executive officer.
"Everyone counted us down so many times," Osisko CEO Sean Roosen said in an interview.
"Obviously we have proven everybody wrong in this process. The true value of Canadian Malartic is starting to show through," he said.
The friendly cash and stock offer is worth $7.86 a share, based on current values. That is 6-per-cent more than Goldcorp's $7.38-a-share bid.
Goldcorp has not closed the door on the possibility of a higher bid. The miner has said a friendly deal is no longer an option and it launched a proxy battle on Wednesday to replace Osisko's board. The company did not respond to a request for comment.
Under the deal terms, Osisko shareholders would receive shares in Agnico, Yamana and the smaller Osisko, as well as $2.09 in cash. They would end up owning about 17 per cent of Agnico and 14 per cent of Yamana.
This deal is simpler than the first deal that Osisko negotiated with Yamana and two Canadian pension funds. That arrangement would have allowed Osisko to keep half of Canadian Malartic and Mr. Roosen and his management team would have kept their jobs overseeing the mine. Under the new deal, management would run the smaller Osisko.
"The complexity of this new offer is far less than that of the previously announced Yamana partnership, and we believe this new bid will be well regarded by shareholders," Desjardins Securities analyst Michael Parkin said in a research note Wednesday.
The smaller Osisko would keep their Montreal head office – a provision that Mr. Roosen said was crucial for the Quebec government and one that he said the Vancouver-based Goldcorp would not fulfill.
When asked if there would be any job cuts, Mr. Roosen said he was hoping to add workers.
Agnico was once considered Osisko's most suitable white knight because it already operates gold mines in Quebec, except that it did not have the cash to compete with Goldcorp.
With Yamana as a partner, Agnico's CEO said the miner could make an offer.
"It was always going to be something that needed to be done with a partner," Agnico's Sean Boyd said on a call with investors.
Osisko said shareholders representing 4.5 per cent of the miner's stock have agreed to tender to the Agnico-Yamana deal.
Unlike the first deal with Yamana, the two pension funds – the Canada Pension Plan Investment Board and Caisse de dépôt et placement du Québec – have not entered into a lock-up agreement that would require them to tender their shares to this offer. But Yamana said there were strong indications that the funds would support their deal.
Osisko expects to hold a meeting in May to give shareholders the opportunity to vote on the deal, which requires two-thirds approval.