Alamos bids US$770M for Richmont Mines

VANCOUVER — Alamos Gold (TSX: AGI; NYSE: AGI) is set to expand its Canadian production footprint via a US$770-million, all-share deal for Richmont Mines (TSX: RIC; NYSE: RIC).

On Sept. 11, the companies announced a “friendly takeover,” in which Alamos will pay $14.20 per share, which implies a 22% premium based on closing prices at the time of the announcement.

Richmont shareholders will end up with a 23% equity interest in the pro-forma company after a 1.385 Alamos share exchange.

Alamos will pick up the Island Gold operation 83 km northeast of Wawa, Ont., which is expected to produce nearly 100,000 oz. gold this year at all-in sustaining costs (AISCs) from US$725 to US$765 per ounce.

The property hosts proven and probable reserves of 2.6 million tonnes grading 9.17 grams gold per tonne for 752,000 contained oz., while inferred resources total 3.04 million tonnes of 10.18 grams gold for 996,000 contained oz. gold.

Underground at Richmont Mine’s Island Gold operation in Ontario. Credit: Richmont Mines.

“It represents a truly rare asset in terms of grade, mine life and jurisdiction. The team at Richmont should really be commended for what they’ve accomplished with the project,” said Alamos president and CEO, John McCluskey.

“The operation has exceeded guidance for three years running, and costs have been decreasing. It’s one of the lowest-cost gold mines in Canada, and recent drill success indicates even more exploration upside. Given that we already have operations in relative proximity, we also expect synergies that could provide cost savings.”

Richmont has committed to over 100,000 metres of drilling this year, from surface and underground, at the 80 sq. km Island Gold site. The company recently reported high-grade mineralization of 800 metres east of its main deposit, where it cut 20.6 grams gold over 11.3 metres of estimated true width.

Richmont released a preliminary economic assessment (PEA) in May that set the stage for a base-case mill expansion to 1,100 tonnes per day, which is underpinned by mining extensions over four horizons to 1,000 metres deep.

Employees inspect drill core at the Island Gold mine near Wawa, Ontario. Credit: Richmont Mines.

The $28-million expansion plan would include $16 million in mill upgrades, $7 million for new mobile equipment and $5 million for expanded underground ventilation. The company has also earmarked $40 million to accelerate ramp development and infrastructure.

Assuming US$1,260 per oz. gold, the PEA includes an after-tax net present value of $335 million at a 5% discount rate. The operation would have all-in costs, which include project and sustaining capital, of US$675 per oz. gold.

Island Gold’s annual production could jump to 125,000 oz. at AISCs of US$550 per oz. between 2019 and 2024.

“Following the release of our PEA there was a series of factors that led to this deal, but there was no formal bid process, per se,” Richmont president and CEO Renaud Adams said. “In this business you talk to many people, and I knew the industry recognized the value and potential at Island Gold. I recently visited Alamos’ Young-Davidson operation and have always been impressed with their growth profile. You reach a point where a deal makes sense, so you execute.”

Richmont concurrently announced it was selling its Quebec portfolio — including the Beaufor mine and the Camflo mill — to Monarques Gold (TSXV: MQR; US-OTC: MRQRF) for a 19.9% equity interest in the junior. The deal consideration also includes: a 1.5% net smelter return royalty (NSR) on the Wasamac property; a 1% NSR on claims at Camflo; and a 1% NSR on Beaufor, once Monarques has produced 100,000 oz. gold.

Alamos will increase its gold production profile to 500,000 oz. in 2017 at AISCs of US$900 per ounce. The company also operates the Young-Davidson underground mine in Ontario, and the Mulatos and El Chanate mines in Mexico.

Alamos has traded within a 52-week range of $7.86 to $11.86, and dropped 16%, or $1.65, after the news, en route to a $8.60-per-share close at press time. The company has 301 million shares outstanding for a $2.6-billion market capitalization.

Richmont has moved within an annual range of $7.36 to $15.01, and gained 13¢ after the announcement before closing at $11.75 per share. The company has 64 million shares outstanding for a $749-million market capitalization.

“We tend to look out across a large universe of opportunities that includes everything from early-stage projects through to development projects,” McCluskey said. “We have quite a bit of those types of properties in the portfolio already, however, so adding a Canadian producer was really attractive for us. This made the most sense from a value-creation point of view, and it decreases any jurisdictional risk.”

The transaction closed in November and includes a $35-million reciprocal break fee. The combined company will have 391 million shares outstanding, a debt-free balance sheet and nearly US$230 million in cash that will “support internal growth initiatives.”