Argonaut Gold up 30% on Alamos takeover news

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Alamos Gold Inc. [AGI-TSX, NYSE] said it has struck a friendly deal to acquire Argonaut Gold Inc. [AR-TSX] via a court-approved plan of arrangement worth US$325 million.

The aim is to combine two northern Ontario mines – Argonaut’s Magino, and Alamos Gold’s Island mine – which are expected to produce approximately 280,0000 ounces of gold this year, rising to over 400,000 ounces annually following a Phase 3 expansion in 2026.

The two deposits contain 4.1 million ounces of gold reserves plus total mineral reserves and resources of 11.5 million ounces, material that is sufficient to support a mine life of at least 19 years.

Argonaut Gold shares jumped 30% or $0.09 to 39 cents on volume of 17.5 million. The shares trade in a 52-week range of 77 cents and 21.5 cents. Alamos rose 5.8% or $1.07 to $19.52 on volume of 741,580.

Under the agreement, each Argonaut common share will be exchanged for 0.0185 Alamos common shares and one share of SpinCo., implying a value of 40 cents per Argonaut share. SpinCo will own a basket of Argonaut’s other assets, including the Florida Canyon mine in the U.S., as well as the El Castillo Complex, the La Colorada operation and the Cerro del Gallo project in Mexico. Alamos has agreed to subscribe for a further US$10 million to obtain a 19.9% interest in SpinCo.

In connection with the deal, Alamos is providing Argonaut with a $50 million private placement equity financing to cover Argonaut’s immediate liquidity needs. This will give Alamos a 14% interest in Argonaut.

This deal represents a 34% premium based on Argonaut’s and Alamos’ closing prices on March 26, 2024, and a 41% premium based on both companies’ 20-day volume weighted average prices. Alamos said it expects to issue approximately 20.3 million common shares as part of the transaction.

Alamos is a Canadian-based intermediate gold producer with diversified production from four operating mines in North America, including the Young-Davidson, and Island Gold mines in northern Ontario, and the Mulatos and El Chanate mines in Sonora Mexico.

News of the takeover comes after Argonaut recently said it is dealing with dilution challenges at its Magino mine. Details of the dilution challenge were disclosed in an operational update that also contained the company’s production guidance for 2024.

 Argonaut said it expects to produce between 225,000 and 250,0000 ounces of gold equivalent ounces this year at an all-in-sustaining cost of US$1,950 and US$2,050. The production forecast, if achieved, would mark an increase of 13% to 25% over the company’s 2023 production total.

“After considering a broad range of alternatives, we believe this transaction provides a unique opportunity to place Magino in the hands of a well-capitalized and well-run company, who will be able to realize significant synergies given the proximity of the adjacent Island Gold Mine,’’ said Argonaut Gold CEO Richard Young.

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