The chief executive of Osisko Mining Corp (OSK.TO) said on Tuesday it will be tough for Goldcorp Inc (G.TO) to raise its bid for Osisko by enough to trump a rival deal, and it is more likely that the gold producer will walk away from the transaction.
Sean Roosen said Goldcorp had "painted themselves in a corner" by telling shareholders repeatedly that they would not overpay for Osisko. At the same time, Goldcorp had several in-house "issues" that they need to focus on, Roosen said.
Vancouver-based Goldcorp, the world's second-biggest gold miner by market value, in January launched a hostile C$2.6 billion ($2.38 billion) cash and stock bid for Osisko to gain control of its Canadian Malartic gold mine in the province of Quebec.
Osisko, a smaller Canadian gold miner, has rejected the bid as too low. Last week Osisko unveiled a complex "white knight" bid by fellow Canadian miner Yamana Gold Inc. (YRI.TO) for 50 percent of its assets, which the two miners said represented a 22 percent premium over Goldcorp's bid at that time.
"It will be very hard for them to come back. There is over a $1 gap in their bid right now," Roosen said in an interview.
At the current gold price, Goldcorp will only be able to increase its offer for Osisko by 40 Canadian cents per share before it dilutes value to shareholders, Cowen and Co. analyst Adam Graf said in a note to clients on Tuesday.
In-house issues that may keep Goldcorp from pursuing an Osisko bid include the suspension of operations last week at its Los Filos mine in Mexico and a recent technical report on its Eleonore project in Quebec, Roosen said.
Eleonore, which is "supposed to be their flagship project and the reason they were coming to Quebec, is now a nine-year mine life with a 3 percent internal rate of return. That's not exactly a stellar outcome," Roosen said.
"Obviously all is not well in Camelot," he said.
Goldcorp could not immediately be reached for comment. The company, which is in the midst of a due diligence process on Osisko's assets, last week extended its bid deadline for Osisko to April 15.
Roosen said feedback from shareholders to the Yamana deal has been positive, including from arbitrage players, short-term shareholders who attempt to profit from the simultaneous purchase and sale of stock in target and acquiring companies. Roosen said between 15 percent to 30 percent of Osisko's shareholders may be arbitrageurs.
Osisko's stock was up 1.2 percent at C$7.33 on Tuesday. Goldcorp's was 1 percent higher at C$27.45.
($1 = 1.0930 Canadian Dollars)
(Reporting by Nicole Mordant in Vancouver; editing by Andrew Hay)