Osisko Mining announced the friendly $550-million acquisition of Queenston Mining and its Upper Beaver project in Kirkland Lake, Ontario yesterday.

A number of mining companies have been sharpening their focus on local assets and Osisko (Stock Profile – TSX:OSK & OTC:OSKFF) is no exception.  Last April, Bay Street miner Iamgold bought-out Trelawney Mining and Exploration, a low-key Ontario gold explorer in what many felt was a move to have a bigger presence in their own backyard.

The news of Osisko Mining’s acquisition of Queenston Mining (Stock Profile – TSX:QMI & OTC:QNMNF) has not been well received by the market. Since the announcement Osisko’s shares are down almost $1.00 from Friday’s $9.82 closing price.

About the transaction, Osisko President & CEO Sean Roosen states, “Queenston is an excellent strategic fit within our existing Canadian portfolio and, in our view, is one of the best undeveloped high-grade opportunities and significant open pit targets in Canada. Osisko has always sought to be a part of camps rather than isolated assets, and this transaction provides us with a highly strategic land package in another prolific Canadian gold camp.”

So what’s going on?

Analysts are beginning to weigh in on the deal and the assessments are relatively consistent. The consensus is that in a risk adverse environment Osisko has effectively increased their respective risk profile via the acquisition of Queenston.

Raymond James analyst Brad Humphrey writes, “This transaction appears to represent a shift in direction for Osisko from the bulk mining, low grade, (soon to be) large producing Canadian Malartic operation to now encompassing the higher grade, underground mining, smaller producing Upper Beaver project.”

Humphrey also commented that from a valuation perspective it appears Osisko paid a fair price for Queenston’s assets.

TD Securities analyst Daniel Earle notes, “We believe the transaction comes at what may be a sensitive time for shareholders.” And, “We believe that the negative market reaction to the transaction partially stemmed from the downbeat implications to both near-term free cash flow and the potential for an inaugural dividend next year.” Earle decreased his price target on Osisko’s shares to $11.50 from $13.50.

However, this deal also brings into question Osisko’s long-term direction with respect to the future of its secondary project Hammond Reef. Plus, Osisko has been dealing with a series of issues with design rate production at its flagship Canadian Malartic mine in Quebec since its first gold pour in April, 2011.

These issues, coupled with the current aversion to risk in the markets, perhaps explains why investors are not welcoming the deal with open arms.