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Five short months following the acquisition of the Canadian Malartic gold mine, Osisko Gold Royalties has taken a big step with its “natural evolution” acquisition of fellow Quebec-based royalty company, Virginia Mines.
Osisko announced on Monday that it has taken steps to acquire Virginia Mines in a $479-million all-stock deal. Together, Osisko and Virginia will become a powerful Quebec-based royalty company, raking in cash from the province’s two largest gold mines, Osisko’s former Canadian Malartic and Virginia Mines’ former Éléonore, which was recently put into production by Goldcorp (TSX:G,NYSE:GG).
Speaking to BNN, Andre Gaumond, president and CEO of Virginia Mines, said, “[w]e have put together the two best gold companies that are not in the hands of royalty companies.” He added, “[t]hey are both based in Quebec, operated by world class operators with a long mine life.”
Beyond that, the CEO noted that the merger of the two companies is natural progression. “Virginia has the reputation to be among the best exploration teams in Canada and Osisko has the reputation of being outstanding developers,” he said.
In combining the two companies, Osisko has risen in the ranks of royalty companies, transforming into a $1.3-billion company that can compete with the likes of royalty heavyweights Franco-Nevada (TSX:FNV), Royal Gold (TSX:RGL) and Silver Wheaton (TSX:SLW,NYSE:SLW).
Osisko a prime takeover target?
With Osisko Gold Royalties now joining the big leagues, the company has positioned itself as a prime target for takeover. As TD Securities analyst Carey MacRury highlighted to in a note, with the acquisition of Virginia, Osisko’s $1-billion-plus market cap makes the company a “logical target for the mining industry’s biggest royalty firms.”
“The combined company would have all of the characteristics that should attract bidders — high-quality revenue streams, long life assets, low political risk profile, senior producer operators, and taking out Osisko would have the benefit of eliminating a well-funded competitor in the royalty space,” the note states.
Until then…
Keeping in line with the royalty business, Osisko CEO Sean Roosen recently told the Financial Post that like its peers, Osisko will be keeping its eyes peeled for future deals. Like other royalty dealmakers, Roosen will be looking to take advantage of market volatility to acquire valuable assets to add to Osisko’s portfolio.
It’s important to note, however, that Roosen is not interested in deals that will lower the quality of the company’s royalty portfolio.
“I don’t want to just bulk up for the sake of bulking up,” he told the Post. “So don’t expect us to do a lot of deals fast. We do a nauseating amount of due diligence before we move.”
Market advantage
Of late, royalty companies have performed well in the market due to their ability use the downturn to their advantage in making acquisitions.
Indeed, looking at the year-to-date (YTD) figures, it is clear that while 2014 hasn’t been stellar for many companies, particularly in the summer months continuing into the fall, royalty firms have done well.
For instance, Franco-Nevada is up 43 percent YTD, trading up $18 since January. Royal Gold, on the other hand, has seen a YTD performance north of 50 percent, which has the company trading $31 more than when it opened on January 2. On the lower end, Silver Wheaton has seen an 11 percent increase YTD, trading up $2 since January.
Securities Disclosure: I, Vivien Diniz, hold no investment interest in any of the companies mentioned in this article.