A minority shareholder in O3 Mining (TSXV: OIII) is urging Agnico Eagle Mines (TSX: AEM; NYSE: AEM) to sweeten its all-cash offer for the company, saying the current proposal significantly undervalues the owner of Quebec’s Marban Alliance project.

Agnico, the second-largest gold miner by stock market value, agreed to acquire O3 last month for about C$204 million in a deal that values the company’s shares at C$1.67 apiece – a 58% premium to O3 Mining’s closing price on the day before the bid was disclosed. A special committee of independent O3 directors unanimously recommended that the company accept Agnico’s offer, which expires Jan. 23 at 11:59 p.m. (EST).

“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,” Adrian Courtenay, fund manager and managing director at London-based GreenAsh Partners, said in a statement Friday.

O3 and its future partner appear to be unimpressed by GreenAsh’s criticism.

Agnico and O3 “remain firmly committed to the all-cash offer of C$1.67 per share,” Alex Rodriguez, O3’s vice president of corporate development, told The Northern Miner Friday by e-mail.

‘Premium value’

The premium offered by Agnico exceeds “historical precedents for similar transactions,” he said. “Additionally, the offer value is consistent with historical benchmarks for junior development companies, underscoring the fairness and premium value of the offer.” 

Junior development companies such as O3 “typically trade at significant discounts to net asset value reflecting inherent and substantial risks associated with unfinanced and unpermitted projects with additional risks related to project timetable and development,” Rodriguez said.

The deal with Agnico “delivers immediate and certain value for our shareholders, while eliminating risks associated with financing, dilution, permitting, timetable delay, development and cost inflation,” he added.

Shares in O3 Mining on Friday were at the deal price, valuing the company at C$188.9 million. Agnico stock rose 1.7% to C$123.24 late in the trading day.

Analysis

In a November report, Canaccord analysts Jeremy Hoy and Angelina Guo estimated O3 Mining’s operating net asset value at about $1.6 billion. GreenAsh’s own analysis puts O3’s net present value at a similar level, according to Courtenay.

“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 added.

GreenAsh is a boutique asset manager. One of its main funds holds more than 3.93 million O3 shares, or 2.7% of the outstanding stock.

For the deal to move ahead, two-thirds of O3 shareholders must tender their shares by the expiry date. Agnico already has entered into lock-up agreements with all directors and officers of O3 and large shareholders – such as Gold Fields (NYSE: GFI; JSE: GFI), Extract Advisors  and some Franklin Templeton funds – that together control about 39% of the company’s issued and outstanding common shares.

Under Canadian law, Agnico can complete the takeover bid and acquire all of O3 if it meets the two-thirds tender condition, Rodriguez said. As Agnico states in its bid circular, it intends to complete a second-step transaction to acquire the remaining non-tendered shares.

Main asset

O3’s main asset is its prefeasibility-stage Marban Alliance project near Val-d’Or, Que., about 520 km northwest of Montreal, and 12 km east of Agnico’s Canadian Malartic open-pit mine. Capital costs are pegged at C$435 million for the project to produce 161,000 oz. of gold per year over a 10-year life, according to a 2022 study.

Marban hosts open pit and underground resources of 67.6 million indicated tonnes grading 1.09 grams gold for 2.3 million oz., and 3.1 million inferred tonnes at 2.21 grams gold for 223,000 oz., according to the 2022 study.

The project’s five targets are on sites of past-producing mines dating back to 1959, and all within several kilometres of Wesdome Gold Mines’ (TSX: WDO) Kiena mine, Eldorado Gold’s (TSX: ELD) Lamaque mine, and Agnico’s Goldex and Canadian Malartic.

O3 also holds the Horizon, Alpha and Regcourt properties in the Val-d’Or region, and the Launay, Peacock, Kinebik and Nelligan sites further north.

Agnico’s market capitalization – which now exceeds C$61 billion – recently surpassed that of Toronto-based Barrick Gold (TSX: ABX; NYSE: GOLD), which is worth about C$40 billion. Malartic is one of Canada’s largest gold mines.

Agnico “is the ideal partner to unlock the full potential of the Marban Alliance project in a socially responsible and economically efficient manner,” Rodriguez said.

–With reporting by Blair McBride

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