A Glimpse of the Future for Successful Gold Explorers

Big miner pays a 66% premium for an explorer

This morning, we got a glimpse of what’s coming for the best gold/silver explorers. Gold Fields agreed to buy Canadian explorer Osisko Mining for $1.6 billion — a 66% premium to last week’s closing price:

Here’s the press release (emphasis added):

(Bloomberg) -- Gold Fields Ltd. agreed to buy Canada’s Osisko Mining Inc. in a deal valued at C$2.16 billion ($1.6 billion) as soaring prices for the precious metal drive producers to seek expansion.

The acquisition, which gives Gold Fields full control of a project in Canada, is the latest step by the South African miner to diversify away from the country where it made its name. Those efforts included a failed bid for Toronto-based Yamana Gold Inc. two years ago.

The Johannesburg-listed company will use cash to purchase all outstanding shares in Osisko at a price of C$4.90 apiece, Gold Fields said in a statement Monday. That represents a 66.7% premium to Osisko’s closing price on Friday, according to Bloomberg’s calculations.

Gold Fields’ shares declined 3.3% by 1:51 p.m. in Johannesburg.

The deal hands Gold Fields full ownership of the Windfall project in Quebec, currently a 50:50 joint venture with Osisko. Gold Fields — which disposed of all but one of its South African assets a decade ago — is developing the Canadian mine to add to operations that also span Africa, Australia and South America.

“This is a world-class asset in a fantastic jurisdiction,” Chief Executive Officer Mike Fraser said in an interview. “Being in outright control makes a whole lot of strategic sense for us.”

Gold Fields aims to bring the mine into production in late 2026 or early 2027 before ramping up to around 300,000 ounces a year, he said. Alongside the recently commissioned Salares Norte project in Chile, Windfall is a key part of the firm’s growth plans as it seeks to replace output from maturer assets in Ghana and Peru.

Osisko’s board has unanimously recommended shareholders vote in favor of the deal, which Gold Fields expects to be finalized in the last quarter of the year. The acquisition will be funded via new and existing debt facilities as well as cash reserves.

The Osisko deal comes with gold trading near a record high, which has spurred producers to add more assets.

“Gold Fields doesn’t necessarily need to go out and do these massive big transformational deals,” Fraser said. The Windfall acquisition “should be considered as a digestible bolt-on.”

Osisko, alas, isn’t in our Portfolio, but some comparable explorers are. If gold holds its current price, we’ll get to celebrate a few like this in the year ahead.