Thursday, January 23, 2014

Goldcorp Offers to Buy Osisko Mining - Is the Bottom of Gold in?

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...

- Source, The Golden Truth: