Alamos Gold Inc. entered into a binding agreement to sell its non-core Esperanza Gold Project in Morelos State, Mexico, to Zacatecas Silver Corp. for total consideration of up to $60 million. The transaction is comprised of $21 million of total consideration upon closing of the transaction, including $5 million in cash; $10 million of Zacatecas Silver shares; and a silver metal stream valued at approximately $6 million based on consensus long-term silver price estimates.
Under the stream, Alamos is entitled to receive 20% of the silver produced from Esperanza at a cash price of 20% of the prevailing spot silver price, subject to a maximum of 500,000 ounces (oz) of silver delivered to Alamos. This also includes $39 million of additional consideration upon the completion of the following milestones: $5 million within 60 days following Zacatecas Silver receiving approval of the Environmental Impact Assessment Report for Esperanza; $14 million within 60 days of the earlier of completion of a feasibility study on Esperanza or Zacatecas Silver announcing a construction decision on Esperanza; and $20 million within 180 days of commencement of commercial production from Esperanza.
Upon closing of the transaction, it is expected Alamos will own approximately 15% of Zacatecas Silver common shares.
With respect to the contingent payments, Zacatecas Silver may issue shares to satisfy 50% of such payments, subject to Alamos holding no more than 19.99% of Zacatecas Silver on a partially diluted basis.
Additionally, Zacatecas Silver has committed to incur a minimum of $7.5 million over a three-year period following closing of the transaction, directed to advancing the development of Esperanza and to obtain approval of the Environmental Impact Assessment report. In the event the minimum spend is not incurred within the three-year period following the closing of the transaction, the difference between what was spent and the minimum commitment shall be added to the contingent payments.
Alamos will have the right to designate one nominee for election or appointment to Zacatecas Silver’s Board of Directors as long as Alamos holds at least 10% of Zacatecas Silver’s outstanding shares, and has the right to participate in future equity offerings to maintain its pro-rata investment in Zacatecas Silver as long as Alamos holds at least 5% of Zacatecas Silver’s outstanding shares.
The transaction is expected to close in the second quarter of 2022.