(B)(N) OSK Osisko Mining Corporation

Good Delivery Gold Bar
400 Troy Ounces $500,000

Deal Book. Gold is a bad place to be for most investors. It doesn’t rust but the mines do and water is an ever present hazard and the “Good Delivery” Gold Bar weighs about 30 lbs so it’s only good for those with deep pockets and a strong back.

Three of them will buy a condo in Vancouver, 30 Cadillacs or 3,000 smart phones but the price of gold remains volatile and investors don’t have a clear idea of the future (meaning this year if not next week) for gold (The Wall Street Journal, January 10, 2014, Gold Ends Slightly Lower After Volatile Day).

Some investors think that now is a buying opportunity but, on balance, low prices don’t inspire us because they can still go lower and it might be a long time before our money does anything but “goldbrick”.

However, the Goldcorp Corporation is one of the world’s largest gold producers and has bid $2.6 billion or $5.95 per share for all of the Osisko Mining Corporation which operates and produces the Canadian Malartic gold mine in Malartic, Quebec which is said to have among the highest proven reserves (in excess of 10 million ounces) of any Canadian gold mine.

Osisko has rejected that offer as “too low and opportunistic” (Marketwire, January 15, 2014, Osisko Mining Corporation Responds to Unsolicited Proposal From Goldcorp Inc). Please see Exhibit 1 below.

Exhibit 1: (B)(N) OSK Osisko Mining Corporation – Risk Price Chart

(B)(N) OSK Osisko Mining Corporation

We haven’t owned the stock since much higher prices of $14 in 2011 (Red line Stock Price (SP) above the Black line Risk Price (SF), and for no other reason).

(Please Click on the Chart to make it larger if required.)

Although the offering price is $5.95 and about $1 or 20% above the current stock price, the “price of risk” is $7 and would be the minimum “fair value” for the company.

Money & Gold
Do we have $8.50 per share?

Moreover, it’s not unusual that a takeover offer would require a 20% to 30% premium above that suggesting a price of $8.50 or better and Osisko could protect itself with a “rights offering” that would reach into Goldcorp’s deep and heavy pockets.

The company has doubled its production since 2011 but lost about $470 million last year on the production of about 485,000 ounces of gold – a loss of nearly $1,000 per ounce. Our estimate of the downside in the stock price due to the demonstrated volatility is minus ($1.25) in the next quarter so that it could be trading from the current price of $5 between $4 and $6 without surprise.

Of the top ten gold producers in the world, five are Canadian (Goldcorp, Barrick, Yamana, Kinross and Eldorado). Please see Exhibit 2 below.

Exhibit 2: Canada Gold – Fundamentals – January 2014

Canada Gold – Fundamentals – January 2014

The industry lost $20 billion last year and a further $76 billion in market value for a drop of minus (39%) in aggregate. Despite all of that, the companies are still “overvalued” and only two them (Altius Minerals and Denison Mines) are trading above the “price of risk“.

Our estimate of the downside due to the demonstrated volatility is minus (23%). Please click on the link “Canada Gold – Prices & Portfolio” for more details.

Exhibit 3: The “Overvalued” Canadian Gold Stocks – January 2014

The “Overvalued” Canada Gold

The chart on the left shows the meaning of “overvalued” and the worth of gold as “money” and it could be contrasted with “The Cigarette Currency” created by another old habit that dies hard.

These companies are “overvalued” because the supply of stock in them exceeds the demand for it.

The “fair value” is at the price of risk (Risk Price (SF)) but that also requires that anyone who is willing to pay those prices can also extract that value.

For more information and additional references to the theory, please see our Post, The RiskWerk Company Glossary.

And for more on what risk averse investing has done for us this year, please see our recent Posts on The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class action, La Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in America, Big Oil, Shopping in America or Banking in America, to name just a few.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.