VANCOUVER (miningweekly.com) – The operator and owner of Quebec’s largest gold mine, Osisko Mining, on Monday encouraged its shareholders to reject gold major Goldcorp’s spontaneous C$2.6-billion takeover offer, saying the offer significantly undervalued Osisko’s flagship Canadian Malartic mine, and the rest of its portfolio of high-potential projects in North America.

The news did not surprise the market, owing to Osisko having last week said that the 15% premium to Osisko’s unaffected share price implied by the offer was “very low” and “price opportunistic”.

The board’s dismissal of the offer potentially set the stage for a bitter takeover scuffle between the two rivals. Several investors attending the 2014 Vancouver Resource Investment Conference remarked to Mining Weekly Online that Goldcorp’s offer could potentially kick off an expected period of intensive merger and acquisitions activity in 2014, as the market consolidates while potentially moving out of the bear market.

Desjardins Capital Markets mining analyst Michael Parkin on Monday also downgraded Osisko to a ‘hold – speculative’ rating, from a ‘top pick – above-average risk’ rating, but left the stock’s target unchanged at C$6.75, owing to the deal’s implied return falling below 10%.

“We continue to believe the Goldcorp offer to acquire all the outstanding shares of Osisko is in need of being raised to be successful. In our opinion, the Canadian Malartic mine is a top-quality mine with a below-industry-average all-in sustaining cost profile, but due to the scale of the project and the size of the deal, we see few potential white knights,” he said in a note to clients.

The premium offered by Goldcorp, as well as the transaction multiples implied by the offer, are both significantly below the relevant precedents.

Late on Monday, Goldcorp issued a statement saying that it had reviewed Osisko’s Osisko Directors' Circular and was waiting for the company to officially file the document with securities regulators.

Goldcorp last week revealed in a securities filing that it had decided to proceed with its unsolicited offer for Osisko after a series of foiled attempts to engage Osisko in talks about a deal.

Osisko on Monday said that while it had had several preliminary discussions with Goldcorp over the past five years, those discussions had not led to a credible proposal from Goldcorp.

“Instead, Osisko has been presented with highly conditional and non-binding proposals that offered inadequate premiums, and value propositions which did not warrant further consideration or engagement by Osisko. The current Goldcorp offer implied a meagre 15% premium at the time of announcement and is significantly less today,” the company said.

The company also noted that Goldcorp's offer was lower than the current trading price of Osisko shares.

Goldcorp’s bid had pushed Osisko’s share price higher, illustrating how undervalued the company’s shares were.

Osisko said it was exploring strategic alternatives in light of the Goldcorp offer and it had advised its shareholders to reject the hostile bid and not tender their shares to it.

RISING OUTPUT

Osisko also on Monday reported its 2013 full-year output results, saying gold production rose 22% in the year, while cash costs were 11% lower.

The company said full-year gold output totalled 475 277 oz at an estimated cash cost of C$760/oz, compared with 388 478 oz at a cash cost of C$849/oz in 2012.

The Canadian Malartic mine had a strong quarter, highlighted by its producing 44 650 oz of gold in December, a month that included a six‐day planned shutdown.

Osisko said that with the strong performance of the Canadian Malartic mine, the company was able to increase its cash balance last year and to reduce debt. As of December 31, Osisko's cash balance was about C$210.5-million, up from C$155.5-million in 2012.

Osisko said it expected operating costs to continue to decline in 2014, as it was now able to access higher-grade areas at the Canadian Malartic mine, adding that the lower Canadian dollar relative to the US currency was expected to underpin its results.

The company’s TSX-listed stock on Monday closed up a per cent at C$6.47, significantly higher than the implied value of Goldcorp’s offer.