Osisko Gold Royalties Ltd. (TSX:OR) and Virginia Mines Inc. (TSX:VGQ) are pleased to announce that they have entered into a definitive agreement to combine the two companies to create a new leading intermediate royalty company with two world-class gold royalty assets in Quebec.
 

The transaction combines two top-quality, highly-complementary asset portfolios, including two long life revenue-generating gold royalties: Osisko’s 5% net smelter return royalty on the Canadian Malartic mine, and Virginia’s sliding-scale 2.2% – 3.5% NSR royalty on the Eleonore mine. Both the Osisko and Virginia royalties cover not only the operating mines, but also the high-potential land packages surrounding the mines.
 

Canadian Malartic achieved commercial production in May 2011, and is currently producing approximately 525,000 ounces of gold per year. First gold production was announced at the Eleonore mine on October 2, 2014. Eleonore will be ramping up to approximately 600,000 ounces per year by 2018, according to operator Goldcorp Inc. Currently at 2.2%, the Eleonore NSR royalty is 2.0% on the first 3 million ounces of gold production and increases by 0.25% for each additional million ounces of production. The NSR royalty is also subject to a 10% increase if the spot gold price is above US$500 per ounce (as is the present case). The NSR royalty rate is capped at 3.5%.
 

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”). The Arrangement Consideration represents consideration to Virginia shareholders of C$14.19 per Virginia share based on the closing price of Osisko common shares of C$15.42 per share on the Toronto Stock Exchange as at November 14, 2014. This value implies a 41% premium to the closing price of Virginia shares on November 14, 2014, and a 27% premium to Virginia based on both companies’ 30-day VWAPs ending November 14, 2014.
 

Upon completion of the combination, existing Osisko and Virginia shareholders will own approximately 61% and 39% of the combined company pro forma the concurrent private placements by la Caisse de depot et placement du Quebec and le Fonds de solidarite FTQ respectively, on a basic basis.
 

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

Highlights of the Transaction:

--  Creates the leading intermediate royalty company with two world-class,

    long-life royalties located in highly prolific Quebec mining camps 

--  Complementary asset portfolios focused on premier mining jurisdictions 

    --  Royalties on two significant producing gold mines with cash flow and

        a significant portfolio of earlier-stage royalties and exploration

        properties 

    --  Portfolio made up entirely of royalties with no streams 

    --  Significant land position in three premier North American

        jurisdictions: Kirkland Lake to Val d'Or gold belt, Guerrero camp

        and James Bay area 

    --  100% exposure to gold 

--  Combines two peer leading, award winning management teams with a track

    record of creating shareholder value and with knowledge of all stages of

    the mine development cycle, from discovery, to development, to mining 

--  Private placements for a total of C$70 million : C$50 million by CDPQ

    and C$20 million by the Fonds into Osisko and Virginia 

--  Strong balance sheet with approximately C$270 million in cash and the

    ability to return capital to shareholders 

--  Enhanced scale positions the pro forma company favourably for future

    growth

Sean Roosen, Chairman and CEO of Osisko, stated: “The business combination of Osisko and Virginia creates a leading intermediate royalty company with the two most valuable royalty assets in the gold sector, both of which are located in mining-friendly Quebec. Shareholders of both companies will benefit from 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 skillsets to fuel the future growth of our company.”
 

Andre Gaumond, President and CEO of Virginia, stated: “We are excited about combining our exploration and value creation expertise in Northern Quebec with the development and financial skills of Osisko. Combining the two best performing Quebec mining groups will create a strong Quebec-based “mining house” that is particularly important at a time when the Quebec government is promoting the development of the north through the Plan Nord initiatives.”
 

In order to leverage Virginia’s significant expertise in creating value through the drill-bit, Andre Gaumond (founder of Virginia) will be appointed as Senior Vice-President, Northern Development and Exploration, seconded by Paul Archer as Vice-President, Northern Exploration. Together, Andre and Paul will head the company’s Quebec exploration team.
 

Upon closing of the transaction, the current Osisko board will be supplemented by Andre Gaumond and Pierre Labbe.
 

Benefits to Virginia Shareholders

--  Significant premium of 41% to the current share price and continued

    upside through ownership of Osisko shares 

--  Immediate exposure to substantial free cash flow from the world-class

    Canadian Malartic mine 

--  Enhanced market profile with significantly greater liquidity and analyst

    coverage 

--  Financially stronger combined company with better access to capital and

    greater balance sheet flexibility 

--  Robust re-rate potential as the combined company solidifies its leading

    intermediate royalty company status 

--  Amalgamation of two successful management teams with proven track

    records of success

Benefits to Osisko Shareholders

--  Addition of the world-class Eleonore gold royalty to the Osisko

    portfolio 

--  Participation in the leading intermediate royalty company with enhanced

    capital markets presence, asset diversification and balance sheet

    strength 

--  Accelerated cash flow growth as the Canadian Malartic and Eleonore mines

    ramp up to full capacity 

--  Significant expansion of Osisko's asset portfolio with the addition of a

    premier producing royalty and a portfolio of development stage royalties

    and exploration projects 

--  Excellent land position in the James Bay area and distinguished

    exploration team 

--  Robust re-rate potential as the combined company solidifies its leading

    intermediate royalty company status

Transaction Details
 

The combination has been unanimously agreed to by the boards of directors of Osisko and Virginia and the board of directors of each company will be recommending that each company’s respective shareholders vote in favour of the combination. The board of directors of each company have received an opinion from their respective financial advisors that, subject to the assumptions, limitations, and qualifications set out therein, the Arrangement Consideration is fair, from a financial point of view, to each set of shareholders.
 

In addition, shareholders of Osisko owning in aggregate 25% of the company have agreed to vote in favour of the transaction, and shareholders of Virginia owning in aggregate 30% of the company have locked up their shares in favour of the transaction.
 

The definitive agreement includes a commitment by each of Osisko and Virginia not to solicit alternative transactions to the combination. Each company has agreed to pay a break fee to the other party of C$26 million under certain circumstances. In addition, each company has granted the other party a right to match a competing offer, and both sets of directors and officers have agreed to lock up their shares in support of the combination.
 

The combination is conditional upon the Virginia and Osisko shareholders approving the combination as well as other customary conditions and regulatory approvals. Special shareholder meetings for each company to vote on the combination are expected to be held in January 2015 with closing expected thereafter.
 

Full details of the business combination will be included in the joint management information circular to be filed on SEDAR and mailed to shareholders shortly.
 

Virginia Share Purchases
 

On November 16, 2014, Osisko acquired, in the aggregate, approximately 2.4 million Virginia common shares pursuant to share purchase agreements entered into between Osisko and certain shareholders of Virginia. Pursuant to the Agreements, Osisko acquired the common shares for consideration of C$14.19 per Virginia common share, satisfied by the delivery of approximately 2.2 million common shares of Osisko at an exchange ratio of 0.92 of an Osisko common share for each Virginia common share. The 2.4 million Virginia common shares acquired represent approximately 7.1% of the issued and outstanding shares of Virginia.
 

The acquisition of Virginia shares did not take place through the facilities of any market for the Virginia shares. The Osisko shares issued to the vendors were exempted from the prospectus requirements pursuant to section 2.3 of National Instrument 45-106 – Prospectus and Registration Exemptions.
 

Support of Leading Quebec Financial Partners
 

Osisko and Virginia have entered into binding subscription agreements with CDPQ and the Fonds for private placements into each company.
 

Together, CDPQ and the Fonds have subscribed to C$42 million in shares of Osisko at a price of C$15.03, representing 2.8 million shares. In addition to their existing shareholdings, this share purchase will increase CDPQ’s ownership in Osisko to 6.9% and the Fonds’ ownership in Osisko to 1.9%.
 

As well, CDPQ and the Fonds have subscribed to C$28 million in shares of Virginia at a price of C$13.83, representing 2.0 million shares. In addition to their existing shareholdings, this share purchase will increase CDPQ’s ownership in Virginia to 7.3% and the Fonds’ ownership in Virginia to 8.5%.
 

CDPQ and the Fonds will also be granted a combined 15% right to participate in all future royalty or stream transactions entered into by Osisko and Virginia.
 

The private placements described above are subject to Toronto Stock Exchange approval as well as the satisfaction of customary closing conditions.
 
About Osisko

Osisko is a gold-focused royalty and stream company whose cornerstone asset is a 5% Net Smelter Royalty royalty on the Canadian Malartic Gold Mine, located in Malartic, Quebec. The Company also holds a 2% NSR royalty on the Upper Beaver, Kirkland Lake and Hammond Reef gold exploration projects in Northern Ontario. The Company has over C$150 million in cash resources and a portfolio of investments in emerging exploration companies.
 

About Virginia
 

Virginia conducts its exploration activities over the vast, unexplored territories of Northern Quebec in order to create value for its shareholders while protecting the quality of life for both present and future generations. With a working capital position of C$46 million as at August 31, 2014, and a large area of mining claims in Quebec North, Virginia is among the most active mining exploration companies in Quebec. Strengthened by the discovery of the Eleonore project and more than 20 years expertise on the territory, Virginia’s exploration team is recognized as one of the best in Canada. Virginia also holds a 2.2% to 3.5% royalty in the Eleonore property.