RPT-DEALTALK-Canadian gold mining's bidding war shows appeal of buy over build

Mon Apr 21, 2014 7:22am EDT
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(Repeating to additional subscribers)

By Nicole Mordant

April 21 (Reuters) - A takeover battle for Canada's Osisko Mining Corp, involving three of the world's top gold producers, is more than just a testament to the quality of the company's low-cost mine, it also spotlights a shortage of top-class gold assets in politically stable areas of the world.

The struggle between Goldcorp Inc and deal partners Yamana Gold Inc and Agnico-Eagle Mines Ltd underlines the appeal of buying a mine, in this case Osisko's Canadian Malartic gold mine in Quebec, rather than building one.

A report on Friday that there have been recent merger talks between the world's two top gold producers, Barrick Gold Corp and Newmont Mining Corp further illustrates a buy rather than build mentality that has overtaken the industry - cost cutting would likely be a key part of any such deal. The talks have broken down, according to the report from the Wall Street Journal, which cited unnamed sources.

There have been numerous development cost overruns on major mining projects around the world in recent years and the time it takes to get permission to develop sites has been getting longer amid tighter regulation and opposition to mining from environmentalists and local communities.

For example, it usually takes between seven and ten years to get permits for a mine in the United States, according to a 2013 survey by mineral industry advisory firm Behre Dolbear Group Inc. In 2009, it took between five and seven years.

Strengthening the buy-versus-build case is price: the market prices for gold companies have plunged by an average 60 percent since September 2011 as the gold price tumbled from a record high of $1,920 an ounce to below $1,300 now, a drop of about a third.

Toronto-based miners Yamana and Agnico are now offering $3.6 billion for Osisko, 50 percent higher than Vancouver-based Goldcorp's first offer in January and 11 percent above its last, sweetened offer. [ID: nL2N0N80QB]   Continued...