DBRS Places Agnico Eagle Mines Limited Under Review -- Developing Following Announcement of its joint Bid For Osisko Mining Corporation

DBRS has today placed the BBB (low) Issuer Rating of Agnico Eagle Mines Limited (Agnico Eagle or the Company) Under Review with Developing Implications, following the Company’s announcement that it has entered into an agreement with Osisko Mining Corporation (Osisko) and Yamana Gold Inc. (Yamana), pursuant to which Agnico Eagle and Yamana will jointly acquire 100% of Osisko's issued and outstanding common shares for a total consideration of approximately $3.9 billion. The offer consists of approximately $1.0 billion in cash and $2.3 billion in Agnico Eagle and Yamana shares, and shares of a new company with an implied value of approximately $575 million, which will be distributed to Osisko shareholders as part of the consideration. Agnico Eagle indicates it will finance its 50% share of the cash consideration (approximately $501 million) from its existing USD 1.2 billion credit facility.

The transaction is expected to be effected by way of a Plan of Arrangement and is subject to the approval of Osisko shareholders by a two-thirds vote (expected in May 2014) as well as court, regulatory and exchange approvals.

Notably, the Osisko shares are currently subject to a competing offer by Goldcorp Inc., which announced an increase in its offer to acquire all of the outstanding common shares of Osisko on April 10, 2014.

The target, Osisko, is a mid-tier gold producer based in Montréal, Québec, and is focused on acquiring, exploring, developing and mining gold properties, notably in Québec, Ontario and Mexico. Osisko operates the Canadian Malartic gold mine in Malartic, Québec, that began commercial production in May 2011, producing 475,277 ounces of gold and 422,619 ounces of silver in 2013. As at January 1, 2014, the open-pit mineable proven and probable reserves at the Canadian Malartic mine totalled 281 million tonnes of ore at an estimated fully diluted average gold grade of 1.04 grams per tonne, containing a total of 9.37 million ounces of gold based on an assumed price of gold at USD 1,300 per ounce. The estimated cash costs per ounce of Canadian Malartic gold production is expected to be significantly lower than Agnico Eagle’s 2013 average total cash costs per ounce of USD 672.

Yamana, Agnico Eagle’s joint offeror, is a Canadian-based gold producer with gold-producing, development-stage and exploration properties, and land positions throughout the Americas, including Brazil, Argentina, Chile and Mexico.

Agnico Eagle and Yamana will each own 50% of Osisko and plan to manage and operate the acquired assets via a joint committee.

If the transactions proceed as contemplated, Agnico Eagle and Yamana will each have an equal interest in specified other assets of Osisko, including Osisko’s Kirkland Lake, Hammond Reef, Pandora, and Wood-Pandora properties. The new company that is to be distributed to Osisko shareholders as part of the consideration paid by Agnico Eagle and Yamana will include a 5% net smelter royalty on the Canadian Malartic Mine; a 2% net smelter royalty on the Kirkland Lake, Hammond Reef, and Pandora and Wood-Pandora properties; all assets and liabilities of Osisko in its Guerrero camp in Mexico; various investments and $155 million in cash, all with an estimated aggregate value of $575 million.

At first blush, Agnico Eagle’s offer for a 50% interest in Osisko appears to fit well into Agnico Eagle’s business profile and its existing operation base in the Abitibi region of Québec and is of a scale appropriate to the Company’s financial resources. The Canadian Malartic mine is an operating cash-flow generating producing asset, and a significant portion of the current offer is to be financed with equity, reducing the risk to Agnico Eagle’s debt holders.

Nonetheless, given the uncertainty of the success and the final terms of any offer by Agnico Eagle for an interest in Osisko, as well as the material size of the transaction and potential impact on both the business profile and financial metrics of Agnico Eagle, DBRS has placed Agnico Eagle’s rating Under Review with Developing Implications.

DBRS intends to resolve the Under Review rating status when it is able to further analyze and assess the transactions proposed and their implications.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com .

The applicable methodology is Rating Companies in the Mining Industry (June 2011), which can be found on our website under Methodologies.

For further information contact us at info@dbrs.com.