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Yamana trumps Goldcorp for piece of Osisko

The high level significance of this transaction is what it says about the supply of gold mines. Goldcorp has been bidding for Osisko whose Malartic mine produced 475,000 ounces of gold in 2013 at a production cost of approximately $ 1000 per ounce. By paying almost Cdn$ 1 Billion for a 50 per cent interest and entering into a complex arrangement with Osisko and Quebec financial institutions, Yamana trumps the Goldcorp’s $ 2.8 Billion bid.

Both Goldcorp ($ 20 Billion Market Cap) and Yamana ( $ 7 Billion Market Cap) are well run and knowledgeable. The fact that they are competing to buy a challenging asset (grade is less than 1 gram per tonne) speaks volumes about the view that these companies have about growth opportunities in the gold sector.

There simply are very few gold mines available that are both located in political stable countries and profitable at current levels. For context, it is also noted that 475,000 ounces is 15 tonnes out of annual production of approximately 2600 tonnes.

This transaction highlights once again that contrary to the action in the gold bullion market, supply dynamics point to a higher gold price.