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Aurizon Gold has eight properties in Quebec, including the Casa Berardi gold mine, as well as several development and exploration projects.

Getty Images/iStockphoto

The prospect of owning Aurizon Mines Ltd. seems to terrify investors.

On Monday Hecla Mining Co. launched a friendly takeover bid for Aurizon, outbidding rival hostile bidder Alamos Gold. And for the second time this year investors in one of the potential acquirers dumped their shares in protest.

On the day that Alamos launched its bid, the company's shareholders sent the stock plummeting 12 per cent. Now Hecla's shareholders are following suit, sending Hecla's stock down nearly 14 per cent Monday.

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The reasoning for such reactions differs in each situation. For Alamos, much of it stemmed from the shock that management would go after a miner whose troubles are well-known, and whose stock was down 35 per cent in the year before the bid.

For Hecla, investors appear rattled that the company would make such a drastic move, diversifying itself away from its silver base. While mining gold isn't anything new to Hecla because the company has been picking up small stakes in junior gold companies for the past little while, the company is mostly a silver producer and Aurizon's Casa Beradi project isn't risk free.

And even though Hecla's balance sheet is strong with $191-million in cash on hand at year-end and no debt, the company still needs to borrow $500-million (U.S.) to finance the deal in order to top the amount of cash that Alamos is offering Aurizon's shareholders. (Hecla will pay a maximum of $514-million in cash while Alamos will pay a maximum of $305-million in cash under its current offer.)

For Hecla's disgruntled shareholders, there are a few things to keep in mind. Chiefly, there isn't much growth on the horizon for their company. Most silver development properties around the world have already been scooped up, and Hecla's new shaft won't be ready until 2017, when silver output is expected to jump to 15 million ounces from 6.4 million ounces in 2012.

Aurizon is also an underground mining operation, which Hecla specializes in, and Quebec is very safe mining territory, politically speaking.

There's also a history here. Hecla's been interested in Casa Beradi since 2006 and the two companies even entered into an agreement to conduct some due diligence. A deal never materialized but management announced Monday that as recently as December the two miners' chief executive officers talked about combining in the near future. Once Alamos launched its bid, Aurizon's chief executive simply called Phil Baker, Hecla's head, to make the dream a reality.

All that said, there's no way of getting around that Aurizon is a rather risky bet. Aurizon's been suffering from higher costs and lower grade ore lately, and production will fall next year because of construction. In large part, Aurizon is a long-term turnaround story, and Hecla needs some growth in the near-term.

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Given the selloff Monday, Hecla investors are buying these lines of reasoning. But it will be interesting to see what Aurizon's investors do, after some of them agreed to support Alamos's bid early on. If they don't come around, it could be a tricky shareholder vote because Alamos also owns 16 per cent of Aurizon's shares.

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