Alamos Gold sells non-core royalties for $5M to Metalla

Alamos Gold (TSX: AGI; NYSE: AGI) is selling four non-core royalties to Metalla Royalty & Streaming (TSXV: MTA; NYSE American: MTA) for US$5 million in Metalla shares. 

The deal includes a silver stream on the Esperanza project in Morelos, Mexico and royalties on the Fenn Gib South, Ronda and Northshore West exploration-stage projects in Ontario, the companies said in news releases on Friday. Alamos owns none of the properties, it said.  

“The sale is consistent with Alamos’ strategy of monetizing and maximizing the value of its non-core assets while focusing on advancing its strong portfolio of high-return growth projects,” the Toronto-based miner said in its release.  

The sale of non-core assets and equity in other companies over the past two years has realized some $100 million for the intermediate gold producer.  
 
Metalla, which reported a net loss of US$6 million for the nine months through September, adds to its portfolio of royalties and streams across the Americas, a few in Australia and one in Africa.   

“This transaction adds meaningful silver leverage to our portfolio while complementing our Canadian exploration portfolio in known mining camps and on proven geological trends,” Brett Heath, president and CEO of Metalla, said in a statement. 

Metalla is acquiring the 20% silver stream on Zacatecas Silver‘s (TSXV: ZAC: US-OTC: ZCTSF) Esperanza gold project subject to payments of 20% of the silver spot price.  Alamos sold the project to Zacatecas Silver in February for US$60 million when the silver stream was valued at US$6 million. 

BMO Capital Markets says the wisdom of Metalla’s purchase will become more evident years from now as the projects in play are developed, with Esperanza likely the closest to production.  

“Metalla has once again diluted near-term interests with a target of future upside,” BMO mining analyst Rene Cartier wrote in a note on Friday. “Given the early-stage nature of the royalties, we expect minimal value attribution until more meaningful advancement is made at the projects.”  

World War II mine

The Fenn Gib South 1.4% net smelter return (NSR) royalty covers five mineral claims 3 km south of Mayfair Gold’s (TSX: MFG) Fenn Gibb project about 100 km east of Timmins, Ont.  

The Ronda 2% NSR covers the past-producing Ronda mine held by Platinex (TSXV: PTX) in the Abitibi region of northern Ontario. Ronda operated from 1939 to 1940 before closing for the war effort and is now part of Platinex’s 223-sq.-km. Shining Tree project. The terms allow Platinex to repurchase half of the royalty for $500,000.  

Newpath Resources (TSXV: PATH) holds the Northshore West property with a 2% NSR in the Schreiber-Hemlo Greenstone Belt near Thunder Bay, Ont.  

Under the deal, Alamos will receive 939,355 Metalla common shares, valued at US$5 million, or US$5.3228 per common share, based on the 20-day volume-weighted average price before the agreement. It will give Alamos about 1.9% of Metalla. 

Alamos has three operating mines in North America, the Young-Davidson mine in northern Ontario, one of Canada’s largest underground gold mines, which produced 195,000 oz. of gold last year; the Island gold mine near Lake Superior in northern Ontario, and the Mulatos mine in northwestern Mexico’s Sonora state.  

The gold miner also has a portfolio of growth projects, including the Lynn Lake project in Manitoba, the Quartz Mountain project in Oregon and three gold projects in Turkey. 

Alamos plans to replace depleting zones at the Mulatos mine in Mexico with its satellite Puerto Del Aire deposit. Last month, it reported drill results extending the deposit’s high-grade mineralization beyond existing reserves and resources. The deposit has proven and probable reserves of 2.9 million tonnes grading 4.7 grams gold per tonne for 428,000 oz. of metal. 

The depleted areas at Mulatos include the Escondida zone mined from 2005 to 2014, the San Carlos underground deposit mined until 2018, and the La Yaqui Phase I satellite project mined from 2017 to 2019.  

The operating Cerro Pelon zone has produced about 127,000 oz. from completion in 2019 to the end of 2021 while La Yaqui Grande began output in June. 

Island expansion

In northern Ontario, the company says it plans to raise annual output at the Island gold mine to 287,000 oz. starting from 2026, more than double last year’s production of 141,000 ounces. The Island expansion project, with capital cost estimated in June at US$756 million, is to increase milling capacity to 2,400 tonnes a day from 1,250, extend the mine life to 18 years from 16 and generate an after-tax net present value of US$2 billion at a 5% discount rate, according to a study released in June.  

Alamos CEO John McCluskey said then that Island’s all-in sustaining costs are projected to drop by more than 30% to US$586 an oz., positioning it to be Canada’s lowest cost gold mine and one of the country’s top five most profitable.  
 
“If gold prices were to be cut in half, Island Gold would be one of the few Canadian gold mines that would still be very profitable,” McCluskey told The Northern Miner in an interview in June. “Conversely, with higher throughput rates, we are well positioned to be able to generate even higher revenue in a rising gold price environment.”  

Shares in Alamos Gold dropped a penny on Friday afternoon in Toronto to $13.63, within a 52-week trading range of $8.30 and $14.04, valuing the company at $5.4 billion.  

Shares in Metalla Royalties & Streaming lost a dime to $6.99, within a 52-week range of $4.72 and $10.40, valuing the company at about $315 million.