05:53:18 EDT Thu 23 May 2024
Enter Symbol
or Name

Argonaut Gold Inc
Symbol AR
Shares Issued 1,090,640,201
Close 2024-03-26 C$ 0.30
Market Cap C$ 327,192,060
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Alamos Gold to acquire Argonaut in all-share deal

2024-03-27 09:01 ET - News Release

See News Release (C-AGI) Alamos Gold Inc

Mr. John McCluskey reports


Alamos Gold Inc. and Argonaut Gold Inc. have entered into a definitive agreement whereby Alamos will acquire all of the issued and outstanding shares of Argonaut pursuant to a court-approved plan of arrangement.

As part of the transaction, Alamos will acquire Argonaut's Magino mine, located adjacent to its Island Gold mine in Ontario, Canada. The integration of the two operations is expected to create one of the largest and lowest cost gold mines in Canada. Through the use of shared infrastructure, Alamos expects to unlock significant value with immediate and long-term synergies expected to total approximately $515-million (U.S.). The addition of Magino is expected to increase Alamos's combined gold production to over 600,000 ounces per year, with longer-term production potential of over 900,000 ounces per year. The combination materially enhances Alamos's position as a leading, Canadian-focused, intermediate producer, with growing production and declining costs.

Concurrently with the transaction, Argonaut's assets in the United States and Mexico will be spun out to its existing shareholders as a newly created junior gold producer (SpinCo). SpinCo will own the Florida Canyon mine in the United States, as well as the El Castillo complex, the La Colorada operation and the Cerro del Gallo project, located in Mexico.

Under the terms of the agreement, each Argonaut common share outstanding will be exchanged for 0.0185 Alamos common share and one share of SpinCo (the exchange ratio). The exchange ratio implies estimated total consideration of 40 cents per Argonaut common share, or $325-million (U.S.). This represents a 34-per-cent premium based on Argonaut's and Alamos's closing prices on March 26, 2024, on the Toronto Stock Exchange, and a 41-per-cent premium based on both companies' 20-day volume-weighted average prices. Total consideration includes 34 cents of Alamos common shares, based on the closing price of Alamos common shares on the TSX on March 26, 2024, and SpinCo common shares with an estimated value of 6.3 cents. Alamos expects to issue approximately 20.3 million common shares as part of the transaction, representing an equity value of approximately $276-million (U.S.) on a fully diluted in-the-money basis, and an enterprise value of $516-million (U.S.).

Upon completion of the transaction, existing Alamos and Argonaut shareholders will own approximately 95 per cent and 5 per cent of the pro forma company, respectively.

Transaction highlights:

  • Creation of one of Canada's largest, lowest-cost and most-profitable gold mines -- combined Magino and Island gold mines are expected to produce approximately 280,000 ounces in 2024, and increase to over 400,000 ounces per year at first-quartile costs, following the completion of the phase 3-plus expansion in 2026. The two deposits contain mineral reserves of 4.1 million ounces, and total mineral reserves and resources of 11.5 million ounces, supporting a mine life of more than 19 years, with significant exploration upside.
  • Immediate value creation -- the combination of Island gold and Magino is expected to unlock pretax synergies of approximately $515-million (U.S.) over the life of mine. This includes operating synergies of $375-million (U.S.), through the use of the larger centralized mill and tailings facility at Magino, and capital savings of $140-million (U.S.) with the mill and tailings expansions at Island gold no longer required.
  • Enhances position as a leading intermediate gold producer -- combined near-term gold production is expected to increase approximately 25 per cent to over 600,000 ounces per year, with longer-term growth potential to over 900,000 ounces per year, at declining costs.
  • Leading Canadian exposure supporting a low political risk profile -- with 88 per cent of the combined company's net asset value supported by its Canadian assets, solidifying Alamos's position as the third-largest gold producer in Canada.
  • Longer-term upside potential -- significant further upside potential at both Magino and Island gold through an expansion of a single optimized milling complex at Magino.
  • Stronger financial capacity -- to complete the ramp-up and optimization of the Magino mine, unlocking the full potential of the operation. Stronger overall cash-flow generation to support portfolio of organic growth projects, including the phase 3-plus expansion at Island gold and Lynn Lake.

"This is a logical and attractive transaction for both companies. The combination of the adjacent Island gold and Magino mines will immediately unlock tremendous value, with significant longer-term upside through further optimizations of the combined operation, and ongoing exploration success. Both assets complement each other well, with large mineral reserve and resource bases, long mine lives, and existing infrastructure that can support the bright future for the larger combined operation. Together, Island gold and Magino will create one of the largest and most-profitable mines in Canada, further enhancing our leading position as a Canadian-focused intermediate gold producer," stated John A. McCluskey, president and chief executive officer of Alamos Gold.

"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. We believe with adequate capital and an optimal expansion at Magino, the mine will deliver significant value to all stakeholders. We are grateful to our team at Magino for their significant contribution and hard work during mine and mill ramp-up. Similarly, we thank our exceptional teams in Mexico and Nevada for their continued hard work throughout the years," stated Richard Young, president and CEO of Argonaut Gold.

Benefits to Alamos shareholders:

  • Operating and capital synergies of $515-million (U.S.) through the integration of Island gold and Magino;
  • Larger, established mill and tailings infrastructure at Magino to accommodate the rapidly growing mineral reserve and resource base at Island gold;
  • Enhanced near- and longer-term growth profile with production increasing to over 600,000 ounces per year, and longer-term potential of 900,000 ounces per year;
  • Further production upside potential through the optimization and expansion of the Magino-Island gold complex;
  • Strengthens core portfolio with addition of a fourth core, long-life, producing mine with a large mineral reserve and resource base, and exploration upside;
  • Accretive across key financial- and operational-per-share metrics, including net asset value, cash flow, production and mineral reserves;
  • Expands upon leading exposure to Canada with 88 per cent of net asset value supported by Canadian assets;
  • Stronger operating cash flow to support organic growth projects, including the phase 3-plus expansion at Island gold and the Lynn Lake project.

Benefits to Argonaut shareholders:

  • Significant premium of approximately 41 per cent based on the 20-day volume-weighted average prices of both companies;
  • Continuing participation in the substantial synergies generated from the integration of Island gold and Magino;
  • Exposure to Alamos's high-quality portfolio of assets, including diversified North American gold production and strong growth profile;
  • Enhanced financial capacity to complete ramp-up and optimization of the Magino mine;
  • Maintain exposure to Magino's operating and exploration upside potential;
  • Significantly enhanced capital markets exposure and trading liquidity;
  • Provides continuing return of capital for shareholders through participation in Alamos's quarterly dividend;
  • Ownership of SpinCo providing continued exposure to Argonaut's operating and exploration upside potential within its United States and Mexican assets.

Private placement transaction

In connection with the transaction, Alamos has agreed to provide Argonaut with a private placement equity financing in the amount of $50-million priced at an 8-per-cent discount to Argonaut's five-day volume-weighted average share price as of March 26, 2024. This will provide Alamos with a 14-per-cent interest in Argonaut on an issued and outstanding basis. This financing will allow Argonaut to finance its immediate liquidity needs related to its loan facilities and operations. The private placement transaction is expected to close in early April, 2024.


SpinCo will own the Florida Canyon mine in the United States, as well as the El Castillo complex, the La Colorada operation and the Cerro del Gallo project located in Mexico. Upon SpinCo going public, Alamos has agreed to subscribe for a further $10-million (U.S.) to obtain a 19.9-per-cent interest in SpinCo.

Transaction summary

The proposed transaction will be completed pursuant to a plan of arrangement completed under the Business Corporations Act (Ontario). The transaction will require approval by 66-2/3 per cent of the votes cast by the shareholders of Argonaut at a special meeting of Argonaut shareholders, expected to be held in June, 2024. The directors and members of senior management of Argonaut, as well as Argonaut's two largest shareholders, have entered into support agreements pursuant to which they agreed to vote their shares in favour of the proposed transaction.

In addition to shareholder and court approvals, the transaction is subject to applicable regulatory approvals and the satisfaction of certain other closing conditions customary for a transaction of this nature. The arrangement agreement includes customary deal protections, including fiduciary-out provisions, non-solicitation covenants and the right to match any superior proposals. Additionally, a break fee in an amount of $20-million is payable to Alamos by Argonaut in certain circumstances if the transaction is not completed, and an expense reimbursement fee is payable by Alamos to Argonaut in certain circumstances if the transaction is not completed.

Full details of the transaction will be included in the meeting materials which are expected to be mailed to Argonaut shareholders in May, 2024.

Voting support agreements

Argonaut's two largest shareholders, representing approximately 40 per cent of Argonaut's common shares outstanding, have entered into lock-up agreements in support of the transaction.

Boards of directors recommendations

The agreement has been unanimously approved by the boards of directors of Alamos and Argonaut, and Argonaut's board recommends that its shareholders vote in favour of the transaction.

The board of directors of Argonaut has received an opinion from Cormark Securities Inc. that, based upon and subject to the assumptions, limitations and qualifications stated, the consideration to be received by Argonaut shareholders pursuant to the transaction is fair, from a financial point of view, to Argonaut shareholders.

Advisers and counsel

CIBC Capital Markets is acting as financial adviser to Alamos and its board of directors. Torys LLP is acting as Alamos's legal adviser.

Scotiabank is acting as financial adviser to Argonaut and its board of directors. Bennett Jones LLP is acting as Argonaut's legal adviser. HBH Strategic Advisors acted as counsel to Argonaut's special committee.

Conference call and webcast

Alamos and Argonaut will host a joint conference call and webcast on Wednesday, March 27, 2024, at 8:30 a.m. Eastern Time for members of the investment community to discuss the transaction. Participants may join the conference call using the following call-in details.

Local and international:  1-800-319-4610

Toronto local:  1-416-915-3239

A live webcast of the conference call will be available at the Alamos website and the Argonaut website.

A replay of this conference call will be available until April 27, 2024. The replay numbers are below.

Local and international:  1-855-669-9658

Replay passcode:  0778

An archived version of the webcast will be available at the Alamos website and the Argonaut website.

About Alamos Gold Inc.

Alamos is a Canadian-based intermediate gold producer with diversified production from three operating mines in North America, including the Young-Davidson and Island gold mines in Northern Ontario, Canada, and the Mulatos mine in Sonora state, Mexico. Additionally, the company has a strong portfolio of growth projects, including the phase 3-plus expansion at Island, and the Lynn Lake project in Manitoba, Canada. Alamos employs more than 1,900 people and is committed to the highest standards of sustainable development.

About Argonaut Gold Inc.

Argonaut Gold is a Canadian-based gold producer with a portfolio of operations in North America. Focused on becoming a low-cost, mid-tier gold producer, the company's flagship asset, Magino mine, is expected to become Argonaut's largest and lowest-cost mine. The company is pursuing potential for redevelopment and additional growth at the Florida Canyon mine in Nevada, United States. Together, the Magino and Florida Canyon mines are the company's cornerstone assets that will drive Argonaut through this pivotal growth stage. The company also has one additional operating mine in Mexico, the San Agustin mine in Durango.

Technical information

Chris Bostwick, FAusIMM, Alamos Gold's senior vice-president, technical services, has reviewed and approved the scientific and technical information regarding Alamos and its projects contained in this news release. Mr. Bostwick is a qualified person within the meaning of Canadian Securities Administrator's National Instrument 43-101.

Marc Leduc, PEng, Argonaut's chief operating officer, has reviewed and approved the scientific and technical information regarding Argonaut and its projects contained in this news release. Mr. Leduc is a qualified person within the meaning of NI 43-101.

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