Two Canadian mid-sized gold companies say they have a $1.5-billion (U.S.) friendly deal to merge, creating a business with operating mines in Ontario and Mexico and a minority stake in a spinoff company working on a project in British Columbia.
Shareholders of Alamos Gold Inc. and AuRico Gold Inc. would each own half of a new company that owns the Young-Davidson mine in Ontario and two operating mines in Mexico, Alamos' Mulatos and AuRico's El Chanate.
They would also get shares in a spinoff company called AuRico Metals, which will have about $20-million in cash and a number of mining assets including the Kemess project in northern British Columbia.
The new Alamos Gold would keep about 5 per cent of the spinoff's shares, and provide about $20-million in cash up front. The code-named SpinCo will also get the Kemess copper-gold project in northern British Columbia and a stream of revenue generated from operating mine within the enlarged Alamaos Gold company.
"We believe the New Alamos will be one of the most attractive (investment) vehicles among the intermediate gold producers," said Alamos CEO John McCluskey, who would be chief executive of the combined company..
"The combined management team has a wealth of open-pit and underground experience, which will be instrumental in bringing on the future growth."
McCluskey said shareholders will also benefit from having a stake in the AuRico Metals spinoff, which will receive financing for its activities from an upfront transfer of $20-million cash and an ongoing stream of revenue Alamos' operating mines.
AuRico chief executive Scott Perry, who will be executive chairman at AuRico Metals and on the main company's board of directors, said it made sense to separate the Kemess project from the merged company because it's a copper-gold project.
"When you look at all the operating assets and development projects within MergeCo (New Alamos), they're all pure-gold assets. We looked at Kemess and thought it's not a perfect fit," Perry said.
"We didn't want to create any noise from that perspective."
The transaction will require approval of two-thirds of shareholder votes from each Toronto-based company.
Alamos would receive $28.4-million and AuRico would receive US$37.5-million in certain circumstances if the deal isn't completed.
Alamos shares gained about 3.8 per cent and AuRico shares gained 4.5 per cent in early trading Monday after the announcement. The two companies have about equal market value, of $984.5-million (Canadian) for Alamos and $1-billion for AuRico.