Alamos Gold Inc. (TSX: AGI) (NYSE: AGI) and Argonaut Gold Inc. (TSX: AR) have agreed to a merger which will give Alamos Argonaut’s Magino mine, and create one of the largest and lowest cost gold mines in Canada.
The Magino mine is located close to Alamos Island Gold mine in Ontario, Canada. Announced on Wednesday, Alamos anticipates being able to unlock value with both immediate and long-term economic benefits approximating USD$515 million.
Adding Magino is expected to increase Alamos’ combined gold production to over 600,000 ounces per year, with longer-term production potential exceeding 900,000 ounces per year. Furthermore, this combination also positions Alamos as an intermediate producer, with growing production and declining costs.
Argonaut will also spin out its assets in the United States and Mexico as a newly created junior gold producer. This includes the Florida Canyon mine in the United States, as well as the El Castillo Complex, the La Colorada operation, and the Cerro del Gallo project, located in Mexico.
The agreement terms have Alamos exchanging each outstanding Argonaut common share for 0.0185 Alamos common shares and 1 share of the newly formed company.
The exchange ratio implies Alamos will provide an estimated total consideration of CAD$0.40 per Argonaut common share, equivalent to USD$325 million. This represents a 34 per cent premium based on the closing prices of Argonaut and Alamos on March 26, 2024, on the Toronto Stock Exchange, and a 41 per cent premium based on the 20-day volume-weighted average prices of both companies.
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Alamos anticipates 280,000 ounces in 2024
The total consideration comprises CAD$0.34 of Alamos common shares, determined by the closing price of Alamos common shares on the TSX on March 26, 2024, and the spinout’s common shares with an estimated value of CAD$0.063.
Alamos also anticipates issuing approximately 20.3 million common shares as part of the transaction, reflecting an equity value of approximately USD$276 million, and an enterprise value of US$516 million.
The company anticipates producing approximately 280,000 ounces in 2024 and increasing that number to over 400,000 ounces per year at first quartile costs following the completion of the Phase 3+ Expansion in 2026.
The two deposits contain mineral reserves of 4.1 million ounces, and total mineral reserves and resources of 11.5 million ounces. This supports a mine life of more than 19 years, with significant exploration upside.
Additionally, the company gains leading Canadian exposure with 88 per cent of the combined company’s net asset value supported by its Canadian assets. This makes Alamos’ position as the third largest gold producer in Canada.
There is longer-term upside potential with significant further upside potential at both Magino and Island Gold through an expansion of a single optimized milling complex at Magino.
“This is a logical and attractive transaction for both companies,” John A. McCluskey, the president and CEO of Alamos Gold, said.
“The combination of the adjacent Island Gold and Magino mines will immediately unlock tremendous value, with significant longer-term upside through further optimizations of the combined operation, and ongoing exploration success.”
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Canadian gold sector consolidating
The Canadian gold sector has been the source of some consolidation over the past two years, with high profile acquisitions like B2Gold Corp. (TSX: BTO) purchase of Sabina Gold & Silver, and Agnico Eagle Mines Limited (NYSE: AEM) (TSX: AEM) and Pan American Silver Corp. (NYSE: PAAS) (TSX: PAAS) acquisition of Yamana Gold in 2022.
A bit more recently, IAMGOLD Corporation (NYSE: IAG) (TSX: IMG) closed its acquisition of Vanstar Mining Resources Inc last month. The resulting acquisition brought IAMGOLD access to the Nelligan Gold Project, which is outside Chibougamau, Quebec.
Earlier this year, Calibre Mining Corp (TSX: CXB) (OTCQX: CXBMF) joined the ranks of the mid-tier gold producers through its acquisition of Marathon Gold and it’s Valentine mining project in Newfoundland and Labrador.
It’s since released high-grade drill results from which indicate strong resource expansion potential.
The company also intercepted 46.5 g/t gold over 5.3 metres outside of the site’s currently defined mineral reserves. Other notable core samples from the surrounding area of Valentine’s Leprechaun deposit included 17.16 g/t Au over 7 metres and 5.5 g/t Au in a 14.4-metre length.
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