Over the course of the past year, gold stocks have had a rough road with the price of gold near multiyear lows. With prices edging lower, it is getting tougher for companies to compete. In fact, it might be better if they worked like AuRico Gold Inc. (NYSE: AUQ) and Alamos Gold Inc. (NYSE: AGI).
These two companies have entered into a definitive agreement to merge. The transaction is structured as a merger of equals with a transaction equity value of approximately $1.5 billion.
Under the terms of the merger, holders of Alamos shares will receive one share in the new company and $0.0001 in cash for each share held, and holders of AuRico shares will receive 0.5046 shares of the new company for each share held.
Also, a new company, to be named AuRico Metals, will be created to hold AuRico’s Kemess project. AuRico Metals will hold a 1.5% net smelter return royalty on the Young-Davidson mine and AuRico’s Fosterville and Stawell royalties, and it will be capitalized with $20 million of cash. After the completion of the merger, the combined company will own a 4.9% equity interest in the spin-off. The remaining shares of the spin-off will be distributed 50% each to former Alamos and AuRico shareholders.
According to Merrill Lynch, AuRico and Alamos announced a friendly merger, with no premium. The combined company would produce 370,000 to 425,000 ounces of gold at an all-in sustaining cost of $1,070 per ounce in 2015, with the potential to grow to 700,000 ounce. The deal implies $954 per ounce enterprise value/Reserves, 20% discount to gold price versus -14% recent average. Other bidders could emerge.
John McCluskey, president and CEO of Alamos, said:
We are very pleased to bring this transaction forward to the benefit of both sets of shareholders. Alamos has remained disciplined in its growth initiatives, building and preserving a robust balance sheet for the right opportunity.
Scott Perry, president and CEO of AuRico stated:
This merger with Alamos 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, 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.
Shares of AuRico were up 7.2% Monday, at $3.20 in a 52-week trading range of $2.52 to $4.69. The stock has a consensus analyst price target of $4.11.
Alamos shares were up about 5.6% to $6.22. The consensus price target is $7.83, and the 52-week trading range is $5.11 to $10.55.
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