Goldcorp offered Osisko shareholders $2.4 billion in stock and cash to buy the shares of Osisko Mining (OSK). In terms of proven and potential gold in the ground, OSK is one of the best ways to play a big recovery in the price of gold and the precious metals mining industry. Goldcorp has always been the most likely buyer of Osisko so it was just a matter of time before this deal happened. For the record, Osisko is one of the bigger stock positions in the fund I manage. I have been waiting since 2010 for GG to takeover OSK. This is just the beginning.
Without going into the details of actual offer put on the table (I leave that for the super-anal analysts who give themselves brain damage scrutinizing every detail of shares vs. cash etc), I will say that in the context of where the scant number of mine acquisitions have occurred in the last 18 months, the deal appears to "fair." I also believe that Goldcorp will be forced to raise their offer if they really want to own OSK. OSK is sitting on one the newest and largest actively mined gold deposits in the world (10 million ozs proven and probable) and it is developing a second "elephant" deposit. Although the latter is still classified as "measured and indicated," it represents 7.5 million ozs that are most likely eventually going to be elevated to "proven and probable."
Large gold deposits have become very rare. Goldcorp knows this. Goldcorp's resource base was starting to get depleted, like Newmont's and Barrick's. The OSK deal offers an active 10 million ounce gold mine plus the likelihood of another 20 million ounces down the road.
Is this a fair deal? Yes, in the context of $1200 gold. But what about $2,000 gold, where gold was headed until the Federal Reserve and U.S Government were staring into the abyss and put into motion the most corrupt and intensive market intervention strategy in history in order to get gold down to where it is now and save the U.S. dollar?
Goldcorp knows where the price of gold is headed and this why they are buying Osisko now. They also probably know that the window of opportunity to buy 30 million ounces of gold in the ground at this price is quickly closing. In other words, this deal marks the turn in the massive gold and mining stock sell-off of the last two-plus years. While I expect Goldcorp to sweeten its offer, don't get caught up in the details of this transaction and miss the big picture: the bottom is in and gold is back on track to resume the upward trajectory it was on in 2011.
There is an acute shortage of physical gold in the world that can be delivered into China's voracious appetite. Last week alone 62 tonnes - a rate that greatly exceeds weekly global gold mine output - was delivered on the Shanghai Gold Exchange. Goldcorp knows this and and is putting it's money where it's mouth is. Stay away from the large mining companies and look for the ones that will be acquired - there a many that will yield 30-40x their current share price.
Don't let the thick smoke of disinformation and misinformation being blown by Wall Street and the media blind you. Follow the money...
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Speaking of money, how do you like the Broncos chances on Sunday ? Should be an epic tilt considering the two quarterbacks involved.
ReplyDeleteBoth games Sunday should be epic. Defensive war in Seattle - possible shoot-out in Denver.
DeleteIf Jack Del Rio doens't go conservative on defense like he did in the 4th qtr when Rivers got hot, I like Denver's chances to win. Brady/Belichik are always a tough nut to crack though.
Dave 30-40 X seems a bit rich. ANV, HL, AUQ, KGI, AXU Canadian and USA stocks seem like maybe 7-8 baggers would be a lot to hope for? Maybe you mean stocks trading under a buck or around a dime currently?
DeleteThose aren't true juniors. I'm talking about a stock like XRA, which has 30mm ozs of gold and gold-equiv copper. It's selling for just above the value of the cash on hand. Put a $50/oz valuation on 30mm ozs and tell what the shares are worth.
DeleteBefore the plunge in the price of gold, juniors with good grade deposits in regions with lower political risk were trading at or above $100/oz net.
I agree Dave. We have a huge position in PVG which a few of us believe- will be the biggest gold discovery in N America since Homestake. Kinda like sitting frosty and seeing what happens with this holding.
ReplyDeleteBuy a copy of 'The Gold Cartel' and send it to a gold mining company executive
ReplyDeleteThat leaves nobody looking out for the interests of gold mining company investors except GATA and, possibly, gold mining company investors themselves.
Such investors who are not already fatally demoralized can do something about the problem. They should consider buying a copy of the new book by market analyst and GATA consultant Dimitri Speck, "The Gold Cartel," which documents gold price suppression, and then sending it to the chief executives of the gold mining companies in which they are invested, along with a letter asking those executives to read the book and respond.
Or such investors should write to the investor relations officers of their mining companies and urge them to get a copy of the book for their CEOs.
http://www.gata.org/node/13501
As an OSK shareholder facing a huge loss on the paper price, I'm more than a little peeved at being turned into shark bait to save the USD.
ReplyDeleteDave, it seems that you don't like the major gold miners like Barrick gold. Why?
ReplyDeletePoorly managed. Depleting at a much faster rate than replacing. ABX is an abortion. NEM is an abortion. GG is going downhill. There's a lot of reasons. In general they are not well run and the upper management is way overpaid relative to the income they generate.
DeleteI don't see how XRA's management can be viewed any better when they are burning through cash at 20 million each year and generate no income at all.
DeleteXRA? Exeter Resources? You sure you have the right company and right numbers there? I just met with management. They were investing a lot of cash to develop Caspiche, but they have the ability to stretch the $43mm they have in cash for six years if they have to, which they won't.
DeleteThey have significantly reduced what they are spending because of the market. I've met with a lot of companies and XRA's management and two co-founders are as good as any I've ever been around.
Anyone holding OSK shares since 2011 is facing having them taken for a third of their peak price, at or near a low in gold. Although I'm thankful I don't have any OSK, I've similarly had companies pulled out from under me for way less than what they went for when gold was higher; and I'm wondering which others are now vulnerable to the same game. This situation sucks. Wish I'd stayed far away from the damned shares and just put it all into physical metal. Not a single company I own has kept up with the price of the metals over the past ten years.
ReplyDeleteDepends on how much you added when OSK went below $5. We added a shitload at lower levels to get our avg cost down.
DeleteThat's a fine policy if one has a shitload of cash to buy the shitload of shares. If one doesn't, one gets screwed. I wish there were a law court in the world that would stand up to these manipulators.
DeleteI feel your pain, brother. No one hates our Government and political/financial system more than I do.
Deletesister :-) But thanks for the empathy. I don't hate, I just wonder whatever happened to the rule of law. Or maybe the entire concept was just invented to be pablum for the masses.
DeleteIt's okay to hate - unless feel obligated to abide to "political correctness," which I don't. The Govt has never really been held accountable to strict rule of law. Nixon pretty much set the trend of the Govt openly lifting its leg on the Constitution. You know, that body of law upon which our country was based that Bush said "was just a piece of paper" and Obama wipes his ass with.
DeleteI find it truly comical that Obama still has a core group of ardent supporters despite the fact that he's proved to be even worse than W.
Also ANV got an offer from China Gold Stone. Expect to see more of this from Chinese mining companies.
ReplyDeleteChinese Consortium Is Front-runner to Buy Peru Copper Mine Minmetals, Citic Consortium Would Pay $5 Billion or More for Glencore Xstrata Mine
ReplyDeleteUpdated Jan. 15, 2014 1:49 p.m. ET
http://online.wsj.com/news/articles/SB10001424052702304419104579322733991515544?
The miners are screwed and this is no time for optimism. In order for the price of gold to rise and make it profitable to operate, paper gold (which offers no shelter from the dollar) will need to be bet on by the very people that have no desire to hold physical gold. The physical gold market cannot support a reversal of the downward trend, because it is too small in relation to the paper gold market. And that market isn't on the comex, it's on the forex.
ReplyDeleteThink about it this way. If all of the paper demanded delivery of physical gold (it never will) then the lack of physical gold would be apparent. The holders of the paper wouldn't collect gold but rather fiat currency. Essentially the same thing as selling whatever paper instrument they are holding. And we know that when selling pressure is greater than buying pressure, the price goes down.
But the paper will never demand delivery. Because they don't buy the gold as a physical item to create a firewall of separation between the physical plane and the monetary plane. They buy it as a monetary play only. Like just another currency.
And when this paper market can no longer deliver physical gold to that small portion that have gleaned physical gold off of it. It will collapse entirely as its price heads to the floor. And no one will know what gold is worth until paper tries to buy it in a physical market only.
Then the question becomes - Will gold bid for dollars when the credibility of currency begins its death spiral? One thing is for sure. It wont do so within a market that isn't designed to deliver physical gold, but rather a platform to bet on its price movement.
This we learn from the "Flounder of Understanding"
Now all these miners will see the price of gold drop well below production cost. One by one they will close their doors. The ones that don't will need to leverage their future production against loans willing to also bet on the eventual rise in gold price. But the only loans that are going to take that bet are the ones that WILL be able to guaranty delivery of physical - the central banks and governments. This means that the future of gold mining is a government operation. The stockholders are going to be squeezed out as they are paid off in dollars that saw the value of gold hit rock bottom. And when the paper market is DOA, all debt will then be wiped away in a waterfall flight into real gold. The dollar will fall like a rock. And gold will bid for stable currency at a price in the many many thousands. It will then be central banks and governments that make the market and find its price via open trade between themselves.
ReplyDeleteAnd if you are holding paper as your proxy for wealth you will be screwed. One will need to be holding actual physical gold in order to bid for currency at the new price. The pre-storm paper will have all been washed away in a 100 year rain.