UPDATE 2-Osisko to acquire Virginia Mines creating big royalty company

Mon Nov 17, 2014 8:57am EST
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(Adds deal details, context on recent M&A precious metal mining deals)

By Euan Rocha

TORONTO Nov 17 (Reuters) - Osisko Gold Royalties Ltd said on Monday it has agreed to acquire smaller rival Virginia Mines Inc for C$479 million ($424 million), creating a C$1.3 billion ($1.2 billion) company that owns royalty interests in two major gold mines in the province of Quebec.

The deal will give Montreal-based Osisko, which already owns a royalty in the Canadian Malartic asset, a royalty interest in Goldcorp Inc's Éléonore mine, which began production last year. Éléonore is ramping to 600,000 of gold ounces annually by 2018 and Canadian Malartic is currently producing about 525,000 ounces of gold annually.

The takeover is yet another example of growing M&A interest in the beaten down mining sector, which has seen equity values of largely precious metal-focused Canadian miners hurt as gold prices have dropped over 30 percent, and silver has plunged more than 50 percent over the last two years.

Earlier this month though the sector received a spot of good news when New Gold agreed to buy Bayfield Ventures Corp for C$16.6 million, soon after two silver miners Scorpio Mining and U.S. Silver & Gold also announced plans to merge, creating a C$65 million combined entity.

The three all equity deals give investors in the targets the possibility of future upside, if and when precious metal prices begin to rebound.

Osisko is paying 0.92 of an Osisko share for each share in Virginia, valuing the company at C$14.19 a share, a 41 percent premium to the closing price of Virginia shares on Friday. The deal, unanimously approved by both boards, is also being backed by a cash injection from two big Quebec funds Caisse and Fonds.

The deal marks yet another a coup of sorts for Osisko Chair Sean Roosen, who earlier this year successfully foiled a C$3.6 billion hostile Goldcorp bid for Osisko, when the company still owned Canadian Malartic.

Against the odds, Roosen was able to strike a last minute deal to sell most of Osisko's assets to Yamana Gold and Agnico Eagle Mines, while retaining a royalty stake in Canadian Malartic and creating a self-funding exploration and royalty company in the process.

($1 = C$1.1305) (Additional reporting By Shubhankar Chakravorty in Bangalore; Editing by Savio D'Souza, Ted Kerr and W Simon)