Consolidation continues within the mining sector, with Alamos Gold (TSX: AGI) this morning announcing the friendly acquisition of Argonaut Gold (TSX: AR) in an effort to obtain assets next door to its Island Gold mine in Ontario.
Effectively, the transaction is geared towards Alamos acquiring the Magino mine, operated by Argonaut, which is expected to produce between 120,000 and 130,000 gold equivalent ounces in 2024 at an all-in sustaining cost of between $1,650 and $1,800 an ounce. Magino is found adjacent to Alamos’ own Island Gold mine, which in 2024 is expected to produce between 145,000 and 160,000 ounces of gold at an all-in sustaining cost between $875 and $925 an ounce.
Alamos is forecasting that the acquisition of Magino will unlock synergies of US$515 million through the use of shared infrastructure, while propelling its annual gold production to over 600,000 ounces a year while providing a longer term forecast of 900,000 ounces a year. Savings come in the form of operating synergies of US$375 million by using a centralized mill and tailings facility, and savings of $140 million that were to be used for expansion at the Island Gold mine.
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Magino however is the limit of Alamos’ interest. The remaining assets held by Argonaut in the US and Mexico will be spun out to existing shareholders into what is currently being referred to as “SpinCo.” The newly created issuer will own the Florida Canyon mine in the US, as well as La Colorada, the El Castillo Complex, and the Cerro del Gallo projects in Mexico.
The transaction will see Argonaut shareholders receive 0.0185 Alamos shares for each share held, and 1 share of SpinCo. Total consideration is said to amount to C$0.40 per share, valuing Argonaut at US$325 million, a 41% premium based on the 20 day volume weighted average price of the equities.
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Ahead of the transaction closing, Alamos is to subscribe to a $50 million private placement to fund immediate liquidity needs for Argonaut. The company has also agreed to take a 19.9% interest in SpinCo for a $10 million investment.
Argonaut shareholders are expected to vote on the transaction in June. A break fee of $20 million is also in play in connection with the transaction.
Alamos Gold last traded at $18.45 on the TSX.
Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
