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Osisko Gold Royalties Ltd. is grappling with sharp criticism and a big drop in its share price over its recent acquisition of a junior mining company, but chief executive officer Sean Roosen is adamant the deal will pay off for shareholders over the long term.
Shares in Oskiso fell by more than 20 per cent last week after the Montreal-based company announced it was buying the 67.4 per cent of development-stage company Barkerville Gold Mines Ltd. it didn’t already own in an all-stock transaction worth $227-million.
Osisko’s business model historically has been heavily skewed toward owning royalties and streams on gold companies, with just a small portion of its capital tied up in equity stakes of juniors. Royalty and streaming companies provide financing to mining companies developing new projects in exchange for payments tied to production or a share of production.
The Barkerville transaction is the first time Osisko has made an outright acquisition, and a number of analysts criticized the company for deviating from its previous business model, which was perceived as safer.
The Barkerville takeover “increases uncertainty surrounding the company’s strategic direction and introduces a greater degree of financial and operating risk,“ Melissa Oliphant, analyst with RBC Dominion Securities, wrote in a note to clients.
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