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Osisko Gold chief says $461M Virginia Mines takeover a 'natural evolution'

Monday’s deal gives the combined company greater liquidity, stronger finances and better access to capital, Osisko Gold and Virginia said

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From the day he launched Osisko Gold Royalties Ltd. in June, chief executive Sean Roosen knew that a merger with Virginia Mines Inc. was too logical to pass up.

The transaction was finally unveiled on Monday, as Osisko announced a $479-million all-stock deal to buy Virginia Mines and create a powerful Quebec-based royalty company that generates cash from the province’s two biggest gold mines.

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“It was evident that this was a pretty natural evolution,” Mr. Roosen said in an interview.

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His prior company, Osisko Mining Corp., built the giant Canadian Malartic mine. When Osisko was sold for $3.7-billion this year, Osisko Royalties was spun off and granted a 5% royalty on Canadian Malartic.
Virginia Mines is led by André Gaumond, a Quebec entrepreneur who has struck a dizzying number of mining deals across his home province. His best discovery was the Éléonore project, which Goldcorp Inc. acquired nine years ago for US$420-million. Mr. Gaumond kept a royalty on Éléonore that is now paying off, as Goldcorp brought the mine into production this year.

Mr. Roosen thinks these are the two best royalties in the gold business. By putting them together, Osisko transforms into a $1.3-billion company that can compete with the three dominant players in the mining royalty space: Franco-Nevada Corp., Silver Wheaton Corp. and Royal Gold Inc.

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Those three firms are full of experienced dealmakers, and they have taken advantage of market volatility to acquire many royalties and metal streams in recent years. Mr. Roosen said Osisko will be on the lookout for more acquisitions as well, but cautioned he will not do deals that will lower the quality of his royalty portfolio.

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“I don’t want to just bulk up for the sake of bulking up,” he said. “So don’t expect us to do a lot of deals fast. We do a nauseating amount of due diligence before we move.”

Even without a lot of deals, Mr. Roosen believes his company has a couple of key advantages over its larger competitors following the Virginia Mines transaction.

For one thing, management of both Osisko and Virginia Mines have a proven ability to generate mines, which is the most cost-effective way to get royalties. Osisko will acquire a huge land position in this deal that could yield a few mines, including Virginia Mines’ promising Coulon project.

Just as important, Osisko now has the full backing of Quebec Inc. The Caisse de dépôt et placement du Québec and the Fonds de solidarité FTQ are pouring $70-million of fresh equity into the company as part of this transaction. They are also being granted a right to buy up to 15% of any future royalties acquired by Osisko. That means the company could make larger acquisitions than investors might assume in the future.

“We can fight above our weight, because we have co-investors who will come into a bigger deal if we run it,” Mr. Roosen said.

Osisko shares are roughly flat since the stock launched back in June. That is a very good performance given that almost every gold stock has plummeted in that period. Mr. Roosen is optimistic that better days are ahead, as the company is now launching a dividend and will be able to attract more institutional investors after the Virginia deal because of its larger market value.

Mining royalty stocks have outperformed other mining stocks during the downturn, as these companies are less risky and can take advantage of the market volatility to make acquisitions.

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