Montreal-based Osisko Gold Royalties Ltd. said it is more than doubling its precious metals portfolio with the $1.13 billion acquisition of diamond, gold and silver assets from U.S. private equity firm Orion Mine Finance Group.
Osisko has been seeking out such a “transformational” acquisition since the company formed three years ago, said CEO Sean Roosen. Monday’s announcement positions the company as the “leading growth story” among senior precious metals royalty companies, which also include larger peers such as Franco-Nevada Corp. and Wheaton Precious Metals, he said.
“We have kept our powder dry waiting for a transaction like this, we have deployed and we hope that our shareholders will be very happy with the outcome,” Roosen said on a conference call Monday.
The news sent Osisko shares up more than 10 per cent Monday to $15.92 on the Toronto Stock Exchange.
“We will have industry-leading cash flow growth and a precious metals North American focus. It’s quite a significant advancement and a rare opportunity for us to complement the existing asset base,” Roosen said.
Osisko will pay $675 million in cash and $450 million in shares to Orion for the portfolio of 74 royalties, streams and precious metals offtakes.
The deal, which is expected to close by July 31, will give Orion a 20 per cent stake in Osisko, and Orion founder Oskar Lewnowski will join its board. Orion had reportedly been in talks to sell or publicly-list the portfolio for months.
Before forming the company, which provides financing in exchange for a share of future product, Roosen was a key figure behind Osisko Mining Corp., which was sold for almost $4 billion in 2014 via a white knight bid from Yamana Gold and Agnico Eagle Mines as Osisko fended off a hostile offer from Goldcorp Inc.
The deal comes amid an improved outlook for mergers and acquisition opportunities in the mining space as cautious optimism returns to the sector after years of reticence due to depressed commodity prices, even as economic headwinds continue to force companies to tread lightly.
The acquisition leaves Osisko well-positioned for future growth, said Kerry Smith, an analyst at Haywood Securities.
“Osisko has one of the strongest net cash positions in the royalty space, positioning it well to compete with its peers for future acquisitions,” Smith wrote in a note Monday.
The deal will geographically diversify Osisko’s assets, while maintain its primary focus on properties in the Americas, with more than 80 per cent of its portfolio in either Canada or the United States.
After the deal closes, Osisko’s total assets will increase from 57 to a total of 131 royalties and streams. Its portfolio will grow from five to 19 revenue-generating assets, including some production from the Renard diamond mine in Quebec, Brucejack gold and silver mine in British Columbia and the Mantos Blancos mine in Chile.
Its production forecast would grow to more than 100,000 gold equivalent ounces in 2018 and as much as 140,000 by 2023. Cash flow is expected to grow 10 per cent annually from 2017 t0 2023.
Pension funds Caisse de dépôt et placement du Québec and the Fonds de solidarité FTQ are buying $200 million and $75 million worth of shares, respectively, as part of a private placement to fund a portion of the deal. Osisko will also draw $150 million from debt and contribute $250 million from current cash reserves.
The move signals a return to the company’s focus on precious metals after raising some investor eyebrows in 2015, when it purchased a stake in Labrador Iron Ore Royalty Corp., at a time when iron ore prices languished.
After the Orion transaction closes, nearly 90 per cent of Osisko’s portfolio will be comprised of precious metals. Its other important assets include a five per cent net smelter return on the Canadian Malartic gold mine and an up to 3.5 per cent return on Goldcorp’s Eleonore gold mine in Northern Quebec.