The Osisko-Virginia Mines Deal: Taking A Closer Look
While Osisko CEO Sean Roosen has called the agreement a "natural evolution," investors and market watchers are no doubt still impressed by the company's progress and are likely wondering how Osisko was able to make such a big move so quickly. Gold Investing News spoke with Roosen to get a little more insight into the deal.
Gold investors certainly took note last month when Osisko Gold Royalties (TSX:OR) announced plans to acquire Virginia Mines (TSX:VGQ) and become the fourth-largest company in the royalties space. The move came just five months after Osisko Gold Royalties was created in the wake of a takeover of Osisko Mining by Agnico Eagle Mines (TSX:AEM,NYSE:AEM) and Yamana Gold (TSX:YMI), and if the deal closes as expected in January 2015, the resulting combined company will have royalties on the two largest gold mines in Quebec and an estimated C$1.3-billion market cap. While Osisko CEO Sean Roosen has called the agreement a "natural evolution," investors and market watchers are no doubt still impressed by the company's progress and are likely wondering how Osisko was able to make such a big move so quickly. To get a little more insight into the deal and what it means for the royalties space, Gold Investing News (GIN) spoke with Roosen about how it all came about. In the interview below, Roosen also speaks a little about royalty companies in general and what could be next for Osisko. GIN: It's been a busy year for Osisko. To catch our readers up a little, could you elaborate on why Osisko Gold Royalties was created during Agnico Eagle's takeover of Osisko Mining?SR: Well, when we were still Osisko Mining, we were actually looking at creating a royalty company as a spin out before we were involved in the hostile transaction from Goldcorp (TSX:G). Most of the business plan was already roughly firmed up. In a continuation of this deal, we felt that there was a lot of value that was locked up in the company that we couldn't unlock without spinning out the royalty company. GIN: You've called Osisko's recent acquisition of Virginia Mines a "natural evolution." Why was this acquisition important? How does it change the playing field for Osisko? How about for royalty companies?SR: Well, it clearly makes us the fourth-largest royalty company in the space. We also have a pretty pristine balance sheet with two cornerstone assets — brand new mines with long lives. It's an asset base that's particularly easy to understand, with significantly more firepower than anyone else in the mid-tier royalty space. We have $270 million in cash plus our $150-million debt facility, so we have a total of $420 million that we can deploy. We have no debt, and current cash flows of $30 to $35 million a year. With the ramp up at Éléonore on the way — which is the other big mine in Quebec — that adds another $20 million a year, so we have $50 million a year in cash flow. So you've got royalties from the two best mines in Quebec going to Osisko Royalties.