Alamos Gold’s Mulatos mine, shown here, is one of the gold assets included in a proposed merger between Alamos and AuRico Gold, two mid-tier Canadian producers. (Photo courtesy of Alamos Gold)
Alamos Gold and AuRico Gold have announced a definitive merger agreement that will create a leading intermediate gold producer. The transaction, structured as a merger of equals, will create a company having a market capitalization of about $1.5 billion.
Shareholders of each company will own approximately 50% of the merged company, as yet un-named but designated as MergeCo in the merger announcement. MergeCo’s producing assets will include AuRico’s Young-Davidson mine in Ontario, Canada; Alamos’ Mulatos mine in Sonora, Mexico; and AuRico’s El Chanate mine in Sonora, Mexico. The mines are expected to produce 375,000 to 425,000 oz of gold in 2015, with the potential to grow organically to more than 700,000 oz/y.
A second new company, to be named AuRico Metals Inc., will be spun off to hold AuRico’s Kemess project in British Columbia, a 1.5% net smelter return royalty on the Young-Davidson mine, and AuRico’s Fosterville and Stawell (Australia) royalties. AuRico Metals will be capitalized with $20 million of cash. Upon completion of the merger, MergeCo will own a 4.9% equity interest in AuRico Metals, with the remaining shares of AuRico Metals to be distributed 50% each to former Alamos and AuRico shareholders.
The Young-Davidson mine is located 60 km west of Kirkland Lake, Ontario and is one of Canada’s largest underground gold mines. Production during 2015 is estimated in the range of 160,000 to 180,000 oz at cash costs of $675 to $775/oz. Mine life is projected at 15 years based on year-end 2015 reserves.
The Mulatos mine is an open-pit, heap leach gold operation located about 220 km east of Hermosillo, Mexico. Production during 2015 is estimated in the range of 150,000 to 170,000 oz at cash costs of $800/oz. Mine life is projected at seven years based on current reserves. An exploration land package of more than 30,000 ha is expected to support additional mine life.
AuRico’s Young-Davidson mine in Ontario is one of Canada’s largest underground gold mines. (Photo courtesy of AuRico Gold)
The El Chanate mine is an open-pit, heap leach gold operation located 37 km northeast of Caborca, Sonora. Production during 2015 is estimated at 65,000 to 75,000 oz at cash costs of $675 to $775/oz.
MergeCo’s development portfolio will include Alamos’ Kirazlı, Ağı Dağı, and Çamyurt open-pit, heap leach projects in Turkey and its Esperanza open-pit, heap leach project in Mexico, as well as AuRico’s Lynn Lake high-grade, open-pit gold project in Canada.
MergeCo will have 6.2 million oz of gold in proven and probable reserves and 19.7 million oz in total reserves and resources.
AuRico president and CEO Scott Perry commented, “This merger represents a logical business combination that will create a premier intermediate gold producer with a diversified asset base that includes three low-cost producing mines, a significant organic growth profile, and a pipeline of high-quality development projects, all of which is underpinned by a solid balance sheet and led by an experienced and proven management team.”
MergeCo senior management will include Alan Edwards, chairman (currently AuRico chairman); John McCluskey, CEO (currently Alamos president and CEO); Peter MacPhail, COO (currently AuRico executive vice-president and COO); and Jamie Porter, CFO (currently Alamos CFO). The board of directors will have 10 members, five from each company.
Alamos and AuRico expect the merger to be completed in the second quarter of 2015. Both companies are headquartered in Toronto, Canada.