TORONTO (Reuters) - Osisko Gold Royalties (>> Osisko gold royalties Ltd) said on Friday it has no plans to buy Labrador Iron Ore Royalty Corp (>> Labrador Iron Ore Royalty Corporation) and that the stake it has built in the company is purely for investment purposes.

Osisko disclosed earlier on Friday that it has, since the beginning of the year, acquired a 9.75 percent interest in LIORC to diversify from gold production. The news sent shares in LIORC up as much as 13.7 percent, as analysts speculated that Osisko's investment could be the first step toward an acquisition.

"We bought it for investment purposes, we bought it at the right price and it provides a good yield for us," Osisko Chief Executive Sean Roosen said in an interview.

"It is a liquid asset and it goes a long way in offsetting a significant portion of our own general and administration expenses, and provides far better returns than leaving our cash in the bank right now."

Roosen said Osisko has no "intention of buying the entire company."

LIORC shares peaked at C$17.27 on the Toronto Stock Exchange Friday before ending the day at C$16.88, up 11.1 percent. Osisko shares closed up 1.8 percent, after initially dropping early in the day.

"For right now it's a great investment," said David Taylor, president of Taylor Asset Management. The funds that Taylor manages on behalf of IA Clarington currently own 5 percent of LIORC. "I believe in it, obviously, because I'm a big shareholder."

Osisko and LIORC are mining royalty companies which finance other mining companies to get a share of future income from their operations. LIORC gets a 7 percent gross royalty on production from Iron Ore Co Of Canada (IOC), an asset that is majority-owned by mining giant Rio Tinto (>> Rio Tinto Limited) (>> Rio Tinto plc).

LIORC, which pays out a dividend of C$1 a share annually, is currently yielding 5.9 percent. That is significantly better than the average 4.47 percent yield offered by the big three Canadian telecoms and the average 4.07 percent yield offered by the big five Canadian banks.

Before Osisko disclosed its stake in LIORC, the stock was yielding 6.6 percent.

Roosen said Osisko was attracted by the relatively stable yield LIORC offers. He added that the liquidity in the stock also gives Osisko the chance to sell quickly and move cash into another company, if the right opportunity presents itself.

(Editing by Ted Botha)

By Euan Rocha and Susan Taylor