Agnico Eagle's C$1.67 Per Share Offer for O3 Mining Appears to Represent a Significant Discount to independent estimates of Net Present Value
The C$1.67 per share offer by Agnico Eagle for O3 Mining appears to value O3 Mining at an Enterprise Value of C$162.8m1, representing a significant discount to both sell side analyst Net Present Value "NPV" estimates at C$1.6bn2, and in our analysis – updating pre-feasibility estimates – also a C$1.6bn NPV3.
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 NPV, 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.
In the scenario of the current offer price remaining unchanged, and assuming the 90% delisting threshold is not achieved, non-tendering shareholders may judge their optimal outcome as continued public float ownership alongside Agnico Eagle as majority owner and as a well-funded, and arguably best-in-class, development partner.
LONDON, Jan. 17, 2025 (GLOBE NEWSWIRE) --
GreenAsh Partners oversees investment funds including the GA-Courtenay Special Situations Fund, which holds 3,393,500 shares in O3 Mining, or 2.7% of the shares outstanding4.
On December 12th, 2024, Agnico Eagle (NYSE:AEM) announced a recommended takeover of O3 Mining (TSXV:OIII) at an all cash offer for C$1.67 per share, which it has not yet declared as final5.
We believe independent shareholders will welcome the aspect of the deal design that requires just 662/3% acceptance by shareholders, and a condition which the offeror has reserved the right to waive to no less than 50% acceptance6. The attraction of this characteristic is in its prospective allowing of non-tendering shareholders a long-term profit participation in that listed O3 Mining equity remaining post-takeover and with Agnico Eagle as majority shareholder (assuming the 90% of tenders required for de-listing7 is not achieved).
However, 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, to the extent that, if shareholders agree with our assessment of deep undervaluation, this is likely to disincentivise meaningful tenders beyond the 39% irrevocables already committed8.
For an independent assessment of the Net Present Value of O3 Mining we would point to, prior to the takeover announcement, the published NPV estimates by a number of sell side brokers. For example, research by Canaccord, published on November 19th 2024, estimated the NPV of O3 Mining at C$1.6bn9.
By comparison, the C$1.67 per share offer by Agnico Eagle values the equity of O3 Mining at C$204m, yet this equates to an Enterprise Value "EV" of just C$162.8m post adjustments for net cash and investments including marketable securities10.
Even the 2022 pre-feasibility study ("PFS") of O3 Mining, written by Ausenco Engineering Canada and who can also be considered as independent experts, estimated a C$639m NPV (5% discount rate) for core asset the Marban Mining Project albeit using a $1,900 gold price input11, significantly below the current gold price of $2,700.
Simply by extrapolating the sensitivity scale in the same PFS, and applying cost base inflation estimates, in our analysis the NPV output today also rises to C$1.6bn, a match of the Canaccord estimate, and indicating the offer EV on an up-to-date basis may be at as much as a 90% discount to NPV.
A deeply discounted offer consideration is only rational from the perspective of an offeror when the additional cost of raising the offer sufficient to achieve 100% of tenders would exceed the profit otherwise sacrificed by the offeror due to the failure of its deeply discounted offer to achieve the full tender ratio (this profit sacrifice calculated as: the development profit [i.e. the gap between takeover price and NPV] multiplied by the percentage of shareholders that do not tender).
In this case, the gap between takeover price and NPV appears very significant, and as such, the optimal economic outcome from the perspective of Agnico Eagle may only be reached by a meaningful raise in their offer price, assuming for the alternative of an unchanged offer price that tenders are not materially higher than the minimum thresholds.
Naturally, we believe independent shareholders would welcome further public disclosure by either Agnico Eagle or the O3 Mining directors that would justify meaningful tenders if the current offer price is unchanged.
However, in the scenario that Agnico Eagle does not raise the offer price, whilst the minimum acceptance thresholds may be met given the 39% irrevocables already committed, it is unlikely in our view that the 90% threshold required for de-listing will be reached. We make this assessment in the context that we believe at the current pricing of the takeover it will instead be rational for a meaningful proportion of independent shareholders in O3 Mining to elect for continuing long-term participation in the deeply discounted public equity float of O3 Mining. This equity is also now prospectively significantly enhanced by its combination with a well-funded, and arguably best-in-class, development partner.
Adrian Courtenay
Fund Manager | Managing Director
GreenAsh Partners
Green Ash is a boutique asset manager with a global focus and extensive expertise in liquid capital markets. Contact details: +44 (20) 3170 7420, [email protected]. See more at www.greenash-partners.com.
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