Photo by: Bloomberg
TORONTO (miningweekly.com) – Rival TSX- and NYSE-listed gold miners Alamos Gold and AuRico Gold will create a new intermediate gold producer, having announced early on Monday morning that they had entered into a definite agreement to merge their companies through a plan of arrangement.
The deal, valued at about $1.5-billion, would create a larger, diversified portfolio of assets located in stable jurisdictions, underpinned by two top-tier producing mines – Young-Davidson, in Ontario, Canada, and Mulatos, in Sonora, Mexico – as well as a significant pipeline of high-quality development projects.
Under the terms of the merger, shareholders of Alamos and AuRico would each own half the combined company. Alamos shareholders would receive one share of the combined company, which would be named Alamos Gold and $0.0001 in cash for each share held.
AuRico shareholders would receive 0.5046 of the combined company's shares for each share held.
The new company was expected to produce between 375 000 oz and 425 000 oz of gold this year, with the potential to grow organically to more than 700 000 oz/y.
As part of the merger, the two companies would also spin-out a new company to be named AuRico Metals, which would be capitalised with $20-million and hold stakes in certain AuRico mines, including the Kemess project, in British Columbia.
AuRico Metals would have a stable, diversified revenue stream from three royalty assets, including a newly created 1.5% net smelter return (NSR) royalty on the Young-Davidson mine and the existing 2% and 1% NSR on Crocodile Gold’s Australia-based Fosterville and Stawell mines, respectively.
Alamos also said it would buy about 27.9-million AuRico shares, or 9.9% of the company, in a private placement at $2.99 a share for gross proceeds of about $83.3-million.
The transaction was expected to close in the second quarter, subject to shareholder and regulatory approvals.
Desjardins Capital Markets analyst Michael Parkin said in a note to clients that given both companies having historically traded at premiums to the intermediate producer group, the market clearly viewed the assets as high quality.
"We would not be surprised to see MergeCo trade at a slight premium to the midtier producer average. With a merger of equals and no premium being offered, as well as no shopping of either company being done, we believe a fair chance exists that an outside bid [will be made] for one of the companies," he advised.
AuRico chairperson Alan Edwards would become chairperson of the new Alamos Gold and Alamos CEO John McCluskey would be CEO.
The combined company's board would comprise five directors, each from AuRico and Alamos.
Maxit Capital served as Alamos' financial adviser, while Torys was its legal counsel in Canada and the US. Scotiabank advised AuRico. Its Canadian legal counsel was Fasken Martineau and its US legal counsel was Paul Weiss.
The deal perked both companies' TSX-listed stocks, with Alamos rising almost 10% to a high of C$8.12 a share, and AuRico climbing just over 10% to C$4.16 apiece.