Osisko president and chief executive Sean Roosen said work on the Upper Beaver project is coming to a critical stage in its development.
"We feel this is the perfect time for us to bring our mine permitting and development teams into the project to back the plan and to make Upper Beaver a successful mine," Roosen said on a conference call with financial analysts.
"We also have the ability to fund Upper Beaver development from internal cash flow so we don't anticipate any further dilution as we evolve these projects."
In addition to Upper Beaver, Queenston owns several other gold properties in the Kirkland Lake gold camp area as well as interests in projects in Quebec, Manitoba and Ontario.
Queenston president and chief executive Charles Page said the Upper Beaver project has the potential for four million ounces of gold.
"Osisko's proven development team can certainly maximize the potential of the Upper Beaver project," he said.
Osisko's main asset is the Canadian Malartic gold mine, which began commercial production in May 2011, in Quebec's Abitibi mining region.
In addition to Canadian Malartic, Osisko is also developing the Hammond Reef project near Atikokan, Ont.
Page said Queenston did not conduct a formal process to look for a buyer, but Osisko offered a compelling opportunity.
"(Osisko) was a company of choice for us," he said.
"With their mine building team and the success they've had with Malartic and their commitment to the Abitibi area, it seemed like a natural for us."
Roosen said Osisko has been interested in Queenston for years.
"We've been on the ground and busy in a significant manner for some time now," he said. "We've done a lot of work to educate ourselves."
Under the deal, Queenston shareholders will receive 0.611 of an Osisko share for each Queenston share, implying an offer of $6 per share based on Osisko's closing price on the Toronto Stock Exchange on Friday.
Queenston shareholders will own approximately 12 per cent of Osisko after the deal closes.
Queenston shares were up 15 per cent or 74 cents at $5.75 in trading Monday, while Osisko shares were down eight per cent or 80 cents at $9.02.
The deal requires approval by a two-thirds majority vote by Queenston shareholders.
Osisko said Monday lock-up agreements have been signed representing about 30 per cent of the issued and outstanding Queenston shares including deals with the company's senior executives and board as well as other shareholders.
The agreement includes a $22-million break fee payable to Osisko if the deal does not close under certain conditions.
In announcing details of its deal to buy Queenston, Osisko said production at its Canadian Malartic mine averaged 49,361 tonnes per day in October and produced 36,440 ounces of gold.
The company said production averaged 52,853 tonnes per day in the first eight days of November.
Desjardins Securities analyst Brian Christie, who rated Osisko a "buy" with "above average" risk and a $14 price target, said the results were positive as production ramped up "as expected."
"We note that recoveries are in line; however, the milled grade has fallen slightly below average due to delays in accessing higher grade ore," Christie wrote in a report to clients.Suggest a correction