And they were doing so well. The intensifying battle for Osisko Mining OSK.T +0.76% is fast undoing gold miners' work to restore credibility.
Wednesday saw Yamana Gold YRI.T -0.79% raise its offer to 8.15 Canadian dollars (US$7.42) a share, this time roping in Agnico-Eagle Mines AEM.T +1.79% as a joint bidder, valuing Osisko at C$3.9 billion. Goldcorp G.T -0.80% raised its own bid to C$7.65 a share last week.
Takeover battles, with their risk of overpaying, are always unnerving for investors in the bidders. With gold miners, there is added concern: The sector has dropped about two-thirds since September 2011 as a history of overpriced deals and busted investment budgets caught up with it.
Miners have worked to address this, cutting costs, suspending investment programs and, in many cases, changing top management. Citigroup +0.08% estimates the industry's average all-in cash cost per ounce—which includes things such as capital expenditure—fell by a fifth last year.
Even so, at more than $1,400 an ounce, that is still higher than today's gold price of about $1,300. So this is no time to succumb to the old ways. Yet, even before the latest increase, both Yamana and Goldcorp were making offers dilutive to their own value, according to Adam Graf at Cowen. That they are engaging in this now suggests talk of discipline is just that—or that their own project pipelines aren't as robust as thought.
Factoring in Wednesday's share-price moves, the Yamana-Agnico bid values Osisko at about C$7.91 a share. The break fee is worth around 44 Canadian cents a share. To counter, Goldcorp would likely have to raise its bid by roughly C$1, or 13%.
It should resist the temptation, but may not. One thing is clear. With recently rediscovered discipline now apparently crumbling, it makes more sense to own junior gold miners, the potential targets, than their bigger rivals.
—Liam Denning