Gold Fields Ltd. is offering a sizable premium to buy Osisko Mining Inc. for $2.16-billion after the South African miner failed a few years ago to buy an even bigger Canadian gold company.
Johannesburg-based Gold Fields on Monday said it has reached a friendly agreement to acquire Toronto-based Osisko in an all-cash transaction. The offer of $4.90 a share is 66-per-cent higher than Osisko’s closing price on Friday.
The deal helps diversify Gold Fields away from some of the riskier jurisdictions in which it operates, such as South Africa, and alleviates some of the concerns that its portfolio did not have enough long life mining assets.
The South African gold major had already taken a 50-per-cent stake in Osisko’s Quebec-based Windfall gold project in 2023.
Gold Fields in 2022 attempted to acquire Toronto-based Yamana Gold Inc. for US$6.7-billion but it was outfoxed by Agnico Eagle Mines Ltd. and Pan American Silver Corp., which collectively outbid it. The failure of the Yamana deal led to Gold Fields then-chief executive Chris Griffith stepping down. That deal was an all-stock transaction and its value quickly plummeted owing to pressure on Gold Fields’ share price.
This time around Gold Fields is offering cash only, which removes the risk of the deal value falling over time.
Mike Fraser, chief executive of Gold Fields, in a conference call with analysts on Monday said that the all-cash offer also gave the company an edge against other unnamed bidders for Osisko.
“It enabled us to move pretty quickly on executing this transaction, which really put us in a more competitive position relative to the other actors that were competing in this process,” he said.
The Osisko takeover is one of the biggest in years for a junior Canadian mining exploration company that is not yet in production. Kinross Gold Corp. in 2021 bought Great Bear Resources Ltd., whose main project is in Ontario’s Red Lake district for $1.8-billion.
Mr. Fraser defended the payment of the lofty premium, pointing out its initial investment in the company was done at a much lower valuation.
“Even on a standalone basis, we saw value,” he said. “But it becomes even more attractive when you look at it on a blended acquisition cost on our low entry into the initial project. And the strategic value of getting 100 per cent of this asset with 100 per cent of the development potential is significant.”
Osisko has referred to Windfall as the highest-grade gold discovery ever found in Quebec. According to a 2022 feasibility study, the underground mine should produce an average of about 300,000 ounces of gold annually over 10 years.
Mark Bristow, chief executive of Barrick Gold Corp., said in an interview his company checked out the Windfall project before Gold Fields made its initial investment. But ultimately, he wasn’t interested because the 50 per cent of Windfall that was for sale at the time wasn’t big enough to move the needle for Barrick. In addition, the prospect of being a non-operating JV partner did not appeal.
“We’re not in this business to be passive investors,” he said.
The Gold Fields and Osisko transaction is expected to close in the fourth quarter, and it requires at least two-thirds of votes cast by Osisko shareholders to be in favour.
Kerry Smith, analyst with Haywood Securities Inc., in a note to clients said there is little chance of a competing bid materializing for Osisko.
Since gold isn’t a critical mineral, the transaction isn’t expected to raise major national security concerns from Ottawa.
About $1-billion has already been spent on developing the Windfall project, and according to a 2022 feasibility study conduced by Osisko, another $1.1-billion is needed to put it into production. Construction of the site is expected to take 18 months and production is expected to start at the end of 2026 or beginning of 2027.
Mr. Fraser said that Gold Fields has done its own diligence of Windfall and isn’t relying entirely on Osisko’s engineering work. Costs will likely be higher than originally predicted owing to inflation since 2022 but the higher gold price would likely offset that, he suggested.
Gold has surged in 2024 to new record heights on several occasions and is being fuelled in part by expectations that the U.S. Federal Reserve is poised to cut interest rates. Gold yields nothing and tends to perform better in an environment where rates are falling.
Shares in Gold Fields fell by 4.6 per cent on the New York Stock Exchange on Monday to close at US$14.79 apiece.
Osisko shares rose by 63 per cent to close at $4.79 apiece on the Toronto Stock Exchange, settling just 11 cents below the offer price.