The Probe Mines Board of Directors agreement to the specific terms of the Goldcorp agreement is disappointing. Yes, there are some good things: Goldcorp is a good company with an industry leading dividend yield, and a highly liquid share market and a pretty solid balance sheet. Within the gold industry, it's portfolio of properties balances out pretty well on country risk, but it certainly is not all in safe jurisdictions: South America is going to remain a multi-year problem, with Argentina continuing to be their worst risk. Latin America has risks, but Kevin McArthur has managed the Tahoe Resources start-up in Guatemala superbly and the Mexican situation looks pretty solid.
Market liquidity in exploration stocks shouldn't be undervalued either. The board does have a fiduciary duty to the shareholders, and there have been many times in the past two years that no meaningful holder could sell without triggering a sharp price decline. That's a real negative for potential new investors, too. Meantime, today's premium price above C$5 is roughly triple, on a relative basis, those for AEM and GG at the end of 2013. So disappointment is relative too: we lose upside leverage to the gold price in taking operating company shares for a successful explorer's stock. We're certainly not back in a confirmed bull market for gold, despite hope that European and other developments are quite promising on that score. So the Board decision to sell is reasonable, if you want liquidity and risk reduction.
BUT is there a better opportunity? I hope Sean Boyd at Agnico-Eagle will, with or without a partner, make a superior offer to Goldcorp's. If you haven't reviewed the January 12, 2015 presentation at agnico-eagle.com, I commend it to you. In my opinion, the political risk profile is better and the project line-up is superior to Goldcorp in its potential to grow low cost production ounces over the next decade. The Amaruq (Big Wolf) discovery should come into better focus quite soon, but the widths and grades in the August and September press releases bring some real exploration excitement; Meliadine continues to do so.
What would be a superior offer? A more valuable exchange in share valuation would be an easily measureable improvement. An exchange offer that was untaxed until the investor sells would certainly be an enormous enhancement for U.S. holders.
But what's the real key to value generation in a superior offer? CHANGE THE NEW PROBE ASSETS BY ADDING A 40% STAKE IN ALL THE EXPLORATION ASSETS JUST ACQUIRED OTHER THAN THOSE RELATED TO THE BORDEN LAKE DISCOVERY ZONE AND IT'S EXTENSIONS.
The Ring of Fire assets are nice, but Goldcorp is just dumping them as irrelevant. They are only going to hold 9.3% of New Probe. Does that show respect for Dave's talents? It looks more like they're giving him old, old Probe. Did they announce a multi-year employment agreement for him? Did they make him responsible in New Probe for exploration of the assets he's worked so hard for two years to acquire? I don't know why he'd stay at New Probe under this structure, do you?
So, overall, I don't fault the board for the bird nearly in hand, but I'd rather see somone of Patrick Langlois's ability STRUCTURE A BETTER DEAL WITH AGNICO-EAGLE.
I control over 1% of Probe, and hope that Sean Boyd bring's Agnico-Eagle into the fray. I can live with the Goldcorp deal, but not without a sense of disappointment.
Maybe we could ask Sean Roussen at Osisko Resources to negotiate for the PSU?
Good luck in the end game to all Probe holders!
