Alamos Gold and AuRico Gold have announced a $1.5bn merger plan that would create a new intermediate gold producer.
The merger will involve complementary asset portfolios, including two long-life gold mines AuRico’s Young-Davidson mine in Ontario, Canada and Alamos’ Mulatos mine in Sonora, Mexico.
Alamos and AuRico shareholders will each own about 50% of the merged company, to be named Alamos Gold.
The deal will also create a spinoff company called AuRico Metals, which will own AuRico’s Kemess project, a 1.5% net smelter return royalty (NSR) on the Young-Davidson mine, AuRico’s Fosterville and Stawell royalties, and will be capitalised with $20m of cash.
After completion of the merger, Alamos Gold will hold a 4.9% equity interest in AuRico Metals, with the remainder to be distributed 50% each to former Alamos and AuRico shareholders.
Following the deal, the new company is expected to produce 375,000oz to 425,000oz of gold this year in Mexico and Canada.
Alamos president and CEO John McCluskey said: "The combination of diversified production from three mines and a pipeline of low-cost growth projects in safe jurisdictions equate to a leading gold intermediate and a significant re-rate opportunity for our collective shareholders."
AuRico president and CEO Scott Perry said: "We are confident that our shareholders will benefit from the value creation opportunities that will be realised through an expanded and more diversified asset base and enhanced cashflow generating capabilities.
"Shareholders will also benefit from the creation of SpinCo as they retain ongoing exposure to significant unlocked value in the highly prospective Kemess project and stable, diversified sources of royalty revenue."
The proposed transaction will require the approval of 66 2/3% of Alamos shareholders and 66 2/3% of AuRico shareholders.
Expected to close in the second quarter of the year, the merger is subject to shareholder and other applicable regulatory approvals and satisfaction of other customary conditions.
In the event that the agreement is not completed, Alamos will be paid termination fees of $28.4m and AuRico $37.5m.
Image: Alamos’ Mulatos mine in Sonora, Mexico. Photo: courtesy of Alamos Gold Inc.