* C$5.95/shr cash-and-stock offer represents 15 pct premium
* Goldcorp says bid to remain open until Feb. 19
* Osisko shares up 19.7 percent; Goldcorp shares drop
By Euan Rocha and Allison Martell
TORONTO, Jan 13 (Reuters) - Goldcorp Inc launched an unsolicited cash-and-stock bid to acquire smaller rival Osisko Mining Corp for C$2.6 billion ($2.4 billion) on Monday, in a move to gain control of Osisko’s Malartic gold mine in Quebec.
The bid is the Canadian gold sector’s first major attempt at a merger and acquisition deal in nearly a year. Miners stung by a 25 percent drop in the price of gold over the last 12 months have focused on cutting costs and slowing work on growth projects.
The acquisition of the large, low-grade Malartic deposit would boost Goldcorp’s proven and probable reserves by some 10 million ounces, but it would also present perils.
“Given the low grade of the reserves, the Osisko assets will be relatively susceptible to any further weakness in the gold price, though the Canadian dollar will help protect the domestic mining industry,” JPMorgan analyst John Bridges said in a note to clients.
The Canadian dollar hit a four-year low against the U.S. dollar last week, after data showed Canada unexpectedly shed jobs last month. A weak Canadian dollar typically helps miners that have assets within Canada as most of their costs are denominated in Canadian dollars, while gold sales are in U.S. dollars.
“We have been working on this (transaction) for some time, so the Canadian dollar movement did not drive the discussion or the decision, but the move looks good and it is something that helps our existing portfolio and it would help this asset going forward as well,” Goldcorp’s chief executive officer, Chuck Jeannes, said on a conference call.
Goldcorp said it will file a takeover bid circular with details of the offer.
In a statement released after the market closed, Osisko said its board will consider Goldcorp’s announcement and any formal offer.
The bid by Vancouver-based Goldcorp, which works out to roughly C$5.95 per share, represents a 15 percent premium to Osisko’s closing share price on Friday.
Goldcorp said Osisko shareholders would receive 0.146 of a Goldcorp share plus C$2.26 in cash for each share they own. The bid will be open until Feb. 19.
Shares in Osisko closed up 20.7 percent on the Toronto Stock Exchange at C$6.24, indicating that investors expect Goldcorp to sweeten its offer.
“Our clear preference remains to engage with Osisko as we strongly believe in the compelling strategic and financial merits of this transaction to the mutual benefit of both companies’ shareholders,” Jeannes said.
With most major gold miners from Barrick Gold Corp to Newmont Mining Corp struggling with major setbacks on key growth projects, analysts doubt that Osisko will be able to find a white knight to counter the Goldcorp bid.
Salman Partners analyst David West noted that Goldcorp has weathered the tough gold market relatively well, and with rivals carrying heavy debt loads the company is unlikely to face much competition in bidding for Osisko.
“Goldcorp has come out the other side fairly intact, in a fairly decent position,” he said. “That allows them to go after an Osisko here, where maybe it doesn’t allow some other companies to do that.”
West does not see the Goldcorp proposal kicking off a wave of consolidation in the industry, in part because other large gold producers’ share prices are depressed, and many are busy shoring up their existing operations.
Goldcorp said its offer will not require the approval of its own shareholders. The miner has obtained a $1.25 billion credit facility from Scotiabank which, together with cash on hand and an undrawn $2 billion credit facility, will be sufficient to fund the cash portion of the offer.
Malartic, Osisko’s only operating mine, is likely to produce 500,000 to 600,000 ounces of gold per year over its 16-year mine life, according to the company’s website. The mine, located in the prolific Abitibi mining district, began commercial production in May 2011.
Osisko also owns the Hammond Reef and the Kirkland Lake gold projects in Northern Ontario.
“Overall, we believe that both the producing mine as well as the potential development assets fit well within the geographical risk profile of Goldcorp’s current portfolio of mines, which are located across North and South America,” Barclays analyst Farooq Hamed wrote in a note to clients.
Goldcorp has said it expects to produce between 3.0 million and 3.15 million ounces of gold this year, an increase of 13 to 18 percent from 2013.
Goldcorp until recently was the world’s largest gold company by market capitalization, but it was surpassed by Barrick Gold after the world’s biggest gold producer issued $3 billion in equity late last year.
Goldcorp’s shares fell 1.0 percent to C$25.04 on Monday.