Agnico Eagle Mines (TSE: AEM) (NYSE: AEM) needs to sweeten the pot some if O3 Mining (CVE: OIII) (OTCMKTS: OIIIF) is going to consider an acquisition, according to a O3 Mining minority shareholder.
Agnico agreed to pick O3 up last month for approximately CAD$204 million, which is a price that the shareholder said on Friday severely undervalues the owner of Quebec’s Marban Alliance project.
The deal as proposed values the company’s shares at CAD$1.65 a piece, with a 58 per cent premium to O3 Mining’s close price on the day Agnico made the bid. A special committee of three directors recommended the company accept before the deal’s expiry date at midnight January 24 eastern standard time.
“We are perplexed at what appears to be the deeply discounted valuation of the proposed takeover of O3 Mining and a pricing level which may deliver no material advantage to Agnico Eagle,” said Adrian Courtenay, fund manager and managing director at London-based GreenAsh Partners.
Agnico is offering a premium that exceeds “historical precedents for similar transactions,” according to Rodriguez. He added, “The offer value aligns with historical benchmarks for junior development companies, emphasizing the fairness and premium value of the offer.”
Alex Rodriguez, O3’s vice president of corporate development, noted that junior development companies like O3 “typically trade at significant discounts to net asset value due to the inherent and substantial risks tied to unfinanced and unpermitted projects, as well as risks related to project timetables and development.”
He said that the deal with Agnico “provides immediate and certain value for our shareholders while removing risks related to financing, dilution, permitting, timetable delays, development, and cost inflation.”
Read more: Calibre Mining demonstrates gold standard for principled mining
Read more: Calibre Mining beats gold guidance for 2024 in Nevada and Nicaragua
Agnico has secured lock-up agreements
Shares of O3 Mining traded at the deal price on Friday, valuing the company at CAD$188.9 million. Agnico’s stock rose 1.7 per cent to CAD$123.24 late in the trading day.
In a November report, Canaccord Genuity analysts Jeremy Hoy and Angelina Guo estimated O3 Mining’s operating net asset value at approximately CAD$1.6 billion. Courtenay stated that GreenAsh’s analysis places O3’s net present value at a similar level.
“In our assessment Agnico Eagle will maximize its profit participation in O3 Mining only by raising the price of its takeover offer, given what appears to be a significant gap between the current takeover offer and net present value, and assuming an otherwise constrained tender ratio by independent shareholders who would then retain as minority shareholders a significantly larger share of the development profit available,” Courtenay said.
GreenAsh, a boutique asset manager, holds over 3.93 million O3 shares, representing 2.7 per cent of the outstanding stock.
To proceed with the deal, two-thirds of O3 shareholders must tender their shares by the expiry date. Agnico has already secured lock-up agreements with all O3 directors, officers, and major shareholders, including Gold Fields Ltd (NYSE: GFI), Extract Advisors, and certain Franklin Templeton funds. Together, these parties control about 39 per cent of O3’s issued and outstanding common shares.
Rodriguez explained that under Canadian law, Agnico can complete the takeover bid and acquire all of O3 if it meets the two-thirds tender condition. According to its bid circular, Agnico plans to complete a second-step transaction to acquire any remaining non-tendered shares.
Read more: High grades in Nicaragua expected to raise Calibre Mining’s mineral resource
Read more: Calibre Mining shuffles strength into its board for future growth
Capital costs for Marban Alliance are at $435M
O3’s main asset is the prefeasibility-stage Marban Alliance project near Val-d’Or, Quebec, located approximately 520 km northwest of Montreal and 12 km east of Agnico’s Canadian Malartic open-pit mine. A 2022 study estimated capital costs for the project at CAD$435 million, with an expected annual gold production of 161,000 ounces over a 10-year mine life.
The project’s five targets are located on sites of past-producing mines, active since 1959, and are situated within several kilometres of Wesdome Gold Mines’ (TSE: WDO) (OTCMKTS: WDOFF) Kiena mine, Eldorado Gold Corp’s (TSE: ELD) (NYSE: EGO) Lamaque mine, and Agnico’s Goldex and Canadian Malartic mines.
O3 also owns the Horizon, Alpha, and Regcourt properties in the Val-d’Or region, along with the Launay, Peacock, Kinebik, and Nelligan sites farther north.
Agnico’s market capitalization has now exceeded CAD$61 billion, surpassing that of Toronto-based Barrick Gold Corp (TSE: ABX) (NYSE: GOLD), valued at approximately CAD$40 billion. Malartic remains one of Canada’s largest gold mines.
Consolidation in the gold mining sector has accelerated in recent years as companies seek scale and resource diversification.
High-profile acquisitions include Newmont Corporation‘s (TSE: NGT) (NYSE: NEM) acquisition of Newcrest Mining in 2023, creating the world’s largest gold producer. Also, Calibre Mining Corp‘s (TSE: CXB) (OTCMKTS: CXBMF) 2024 purchase of Marathon Gold, which added the Valentine Gold Project in Newfoundland to its portfolio.
These deals reflect the industry’s drive to secure low-cost production assets and mitigate risks amid rising costs, regulatory pressures, and the growing importance of sustainability.
.
Calibre Mining is a sponsor of Mugglehead news coverage
.
joseph@mugglehead.com
