GOLD POUR at Agnico's Laronde mine, Quebec. Photo: Agnico-Eagle

GOLD POUR at Agnico's Laronde mine, Quebec. Photo: Agnico-Eagle

Agnico Eagle: Paper Heavier
than Gold

Issue 86, May 2014

Agnico-Eagle’s joint bid for Osisko Mining, due to be voted on by investors tomorrow, is a “unique opportunity” for Agnico, president Sean Boyd has said. The added debt is “manageable” and the dilution “in line with previous deals.” But is that a valid benchmark and do senior gold producers typically create or destroy value through paper-based deals? 

Agnico Eagle Mines

Before cash of C$501m, Agnico is due to issue 33m shares in its joint bid for Osisko, diluting its investors by 18 per cent for a 20 per cent hike in production.

As Boyd indicates, the company is no stranger to annual dilution of 10 per cent or more: an investor holding 1 per cent of the stock ten years ago would own 0.4 per cent after the Osisko deal.

Much of that issuance however has funded its acquisition of the Kittila mine in Finland and Meadowbank in northern Canada, lifting production fivefold since 2007. In total, production per share has doubled in ten years to 6.3 gold ounces per thousand shares.

Barrick Gold

Barrick’s propensity for paper deals was best demonstrated by founder Peter Munk’s 0.2 per cent shareholding on his retirement last month.

Barrick’s equity issuance has neatly mapped the gold price in the last ten years, funding the $12bn buyout of Placer Dome in 2006, closing out its hedging book in 2009 and raising $3bn last year to ease balance sheet strain.

Production has meanwhile steadily dropped from 8.6m gold ounces on the Placer Dome deal to 7.2m ounces last year, equal to a 34 per cent drop in ounces mined per share.

Goldcorp

Goldcorp was outbid for Osisko by Agnico this year, but is not shy of using its shares as currency: output has billowed from 630,000 ounces in 2004 to 2.7m last year, but shares in issue have kept pace, such that production per share has flatlined at best.

According to Goldcorp’s own forecasts, output will grow by a further 50 per cent in the next 2 years, though it may take some paper to get there. “It could prove cheaper for Goldcorp to buy Agnico,” analyst John Tumazos has noted, “than to have bought Osisko from the outset.”

“It could prove cheaper for Goldcorp to buy Agnico than to have bought Osisko from the outset.”

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