JOHANNESBURG (miningweekly.com) – TSX-listed Osisko Gold Royalties and TSX-listed mining exploration company Virginia Mines have entered into a definitive agreement to acquire Virginia for C$479-million, reports Reuters, to create a new intermediate royalty company with two “world-class” gold royalty assets in Quebec, Canada.

The combined company named Osisko Gold Royalties, would have an estimated market capitalisation of C$1.3-billion, and be headquartered in Montreal, Quebec.

The companies explained on Monday that the transaction combined two top-quality, highly complementary asset portfolios, including two long-life revenue-generating gold royalties – Osisko's 5% net smelter return (NSR) royalty on the Canadian Malartic mine, and Virginia's sliding-scale 2.2% to 3.5% NSR royalty on the Éléonore mine. Both the Osisko and Virginia royalties covered not only the operating mines, but also the high-potential land packages surrounding the mines.

Canadian Malartic achieved commercial production in May 2011 and was currently producing about 525 000 oz/y of gold, while first gold production at the Éléonore mine was announced on October 2, 2014. Éléonore was expected to ramp up to about 600 000 oz/y by 2018, according to operator Goldcorp.

Currently at 2.2%, the Éléonore NSR royalty was 2% on the first three-million ounces of gold production and increased by 0.25% for each additional one-million ounces of production. The NSR royalty was also subject to a 10% increase if the spot gold price was above $500/oz, as is the present case; however, the NSR royalty rate was capped at 3.5%.

Osisko CEO and chairperson Sean Roosen stated that the business combination of Osisko and Virginia would benefit shareholders of both companies as a result of increased diversification, superior trading liquidity, a strong balance sheet and a heightened ability to compete for future growth opportunities in the royalty business. “Our teams complement each other and we look forward to integrating their respective skill sets to fuel the future growth of our company."

Virginia founder, president and CEO Andre Gaumond added that combining the two best performing Québec mining groups would create a strong Québec-based mining house that was particularly important at a time when the Québec government was promoting the development of the north through the Plan Nord initiatives.

To leverage Virginia's significant expertise in “creating value through the drill-bit”, Gaumond would be appointed senior VP of northern development and exploration, seconded by Paul Archer as VP of northern exploration, together heading the company's Québec exploration team.

Under the terms of the transaction, which is structured as a plan of arrangement, each Virginia share will be exchanged for 0.92 Osisko shares. The arrangement consideration represents consideration to Virginia shareholders of C$14.19 a Virginia share, based on the closing price of Osisko common shares of C$15.42 a share on the TSX as at November 14.

“This value implies a 41% premium to the closing price of Virginia shares on November 14 and a 27% premium to Virginia, based on both companies' 30-day volume-weighted average prices ending November 14,” the companies said in a statement.

Upon completion of the combination, existing Osisko and Virginia shareholders will own about 61% and 39% of the combined company pro forma the concurrent private placements by pension fund company la Caisse de dépôt et placement du Québec (CDPQ) and development capital fund le Fonds de solidarité FTQ (Fonds), respectively, on a basic basis.

The companies said the highlights of the transaction included private placements for C$70-million; C$50-million by CDPQ and C$20-million by the Fonds into Osisko and Virginia, as well as a strong balance sheet with about C$270-million in cash and the ability to return capital to shareholders.