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Sean Roosen, CEO of Osisko Gold Royalties, says both the acquisition of Barkerville Gold Mines and the creation of private-equity group North Spirit Discovery Group are a natural evolution for the company.Mark Blinch/The Globe and Mail

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.

Osisko’s decision to create a new private-equity wing called North Spirit Discovery Group, announced on the same day as the Barkerville transaction, also met with disapproval.

North Spirit is a departure from the company’s core business, TD Securities Inc. analyst Greg Barnes wrote. He expressed concern that the plan to privatize resource development projects will expose Osisko shareholders to "incremental direct exploration/funding risks atypical for stream and royalty companies.”

In an interview, Mr. Roosen said that both Osisko’s acquisition of Barkerville and the new private-equity group are not a wholesale reworking of the business, but rather a natural evolution for the company.

“If anyone’s going to headline that this is a pivot, they’re completely wrong,” he said. Mr. Roosen said that the shareholders he’s talked to “understand the value of the deal,” even if some were a little surprised by it.

“They’re disappointed that the messaging has come out the way it is, and I take responsibility for perhaps people not understanding the message as strongly as it should have been put forward.”

A life-long mining entrepreneur, Mr. Roosen is best known for finding, funding and selling the Canadian Malartic mine in Quebec for $3.9-billion in 2014. Malartic, which is now co-owned by Agnico Eagle Mines Ltd. and Yamana Gold Inc., is Canada’s biggest gold mine.

As with Malartic, Barkerville’s Cariboo property in central British Columbia is situated on an abandoned mining site. An early-stage technical study released this summer predicts a new underground mine could produce 185,000 ounces of gold for 11 years and reap an investment return of 35 per cent.

Mr. Roosen says while Osisko is willing to fully fund the mine construction, which is still a few years out, he may well bring in partners. Cariboo’s construction cost has been pegged at around $240-million, with about half to be raised in equity and the rest in debt, according to Mr. Roosen.

“We’ve done a significant amount of geological interpretation that allows us to believe that this is not just a single asset play, it’s a camp play. Like owning Timmins in the 1940s,” he said, referring to the Ontario area that historically was the site of a number of Canada’s biggest gold properties, including the Dome and Hollinger mines.

“We had the exposure to the asset already. The market has mispriced it [because of funding issues]," he said. "We are here to be opportunistic and make money for our shareholders. That is what we do. That is our business and we won’t apologize for it.“

Doug Groh, portfolio manager with New-York-based Tocqueville Asset Management, which owns shares in both Osisko and Barkerville, said the transaction is representative of where the entire streaming business is headed.

With junior miners by and large unable to raise money any more from public equity markets, streamers have stepped in and are now taking an increasingly bigger part of financings. Other royalty and streaming companies, including Sandstorm Gold Ltd. and Royal Gold Inc., have also moved away from only owning streams to amassing stakes in juniors or buying them outright.

“The streaming gold royalty model is changing. It’s evolving,” Mr. Groh said.

While Mr. Groh wishes that Barkerville was being acquired at more than the 26-per-cent premium Osisko is paying, he realizes with that with fresh access to funding, the B.C. mining project is much more likely to go ahead.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:00pm EDT.

SymbolName% changeLast
OR-T
Osisko Gold Royalties Ltd
+2.49%22.23
OR-N
Osisko Gold Royalties Ltd
+2.75%16.42

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