VANCOUVER (miningweekly.com) – Intermediate gold producer Alamos Gold has agreed to buy small-scale gold producer Richmont Mines in an all-scrip transaction valued at $747-million, the companies announced on Monday.
The transaction will consolidate Alamos’ position as a midtier gold producer, adding Island Gold free-cash-flowing underground mine, in Ontario, to its portfolio and expanding pro forma output by 25% a year.
"We see excellent potential for reserve and production growth from one of the highest-grade, lowest-cost gold mines in Canada. With this production base, growth and balance sheet strength, Alamos will be the leading intermediate producer and presents a compelling revaluation opportunity for both Alamos and Richmont shareholders," stated Alamos president and CEO John McCluskey.
Island Gold is expected to produce between 87 000 oz/y and 93 000 oz/y of gold this year, at an all-in sustaining cost (AISC) of $725/oz to $765/oz of gold. The combined company is expected to have diversified gold output of more than 500 000 oz in 2017 at an AISC of $900/oz.
Island Gold started commercial production in October 2007; ore is currently processed at a rate of about 930 t/d. An expansion is under way to up capacity to 1 100 t/d, which will lift output to an average of 125 000 oz at the mine site, and an AISC of $550/oz for the period 2019 to 2024. The expansion requires minimal capital of $23-million, with mill expansion expected to be completed in the second half of 2018.
The mine has proven and probable reserves of 2.55-million tonnes grading 9.17 g/t, for 752 000 oz of gold, and 479 000 t in the measured and indicated resource categories, grading 5.04 g/t gold for 91 000 oz of yellow metal.
Under terms of the plan of arrangement, all the Richmont issued and outstanding common shares will be exchanged at a ratio of 1.385 Alamos common shares for each Richmont common share, implying a value of C$14.20 per Richmont share, based on the closing price of Alamos common shares on the TSX on Friday.
This represents a 22% premium to Richmont's closing price and a 32% premium based on both companies' 20-day volume-weighted average prices, both as at close of business on the TSX on Friday. This implies a total equity value of about $770-million on a fully diluted in-the-money basis and an enterprise value of $683-million.
Following the transaction, existing Alamos and Richmont shareholders will own about 77% and 23% of the pro forma company, respectively.
The deal is subject to two-thirds of Richmont shareholders approving the transaction through a vote, as well as a majority approval by Alamos shareholders and customary regulatory and court approvals.
Closing is expected in November.
In parallel with the announcement of the transaction, Richmont announced the sale of the Beaufor mine, the Camflo mill and the Wasamac development project, located in Quebec, to TSX-V-listed Monarques Gold.
Concurrently, with signing the definitive agreement for the transaction with Monarques, Richmont subscribed for about C$2-million of subscription receipts from Monarques at a price of C$0.35 each. Each subscription receipt will be automatically exchanged for one common share of Monarques upon the closing of the transaction, which is expected by September 30.
Further, upon closing of the transaction, Monarques will issue more common shares to Richmont, which means that Richmont will hold about 19.9% of the undiluted issued and outstanding common shares of Monarques, including the subscription shares.
Monarques will also grant Richmont a 1% net smelter return (NSR) royalty on the Beaufor mine (once post-closing production reaches 100 000 oz of gold); a 1% NSR on Richmont's interest in the Camflo mineral claims; and a 1.5% NSR on the Wasamac property (with a buyback provision of C$7.5-million for 0.5%).
The sale of the Quebec assets is the culmination of a strategic review process that Richmont announced in the first quarter. The sale is not a condition to the Island Gold transaction.
The TSX-listed stock of Alamos fell nearly 17% following the announcement, to an intraday low of C$8.53 apiece, while that of Richmont gained 9.26% to C$12.58 a share.