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Alamos Gold and AuRico Gold to Combine Creating Leading Intermediate Gold Producer

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Alamos Gold and AuRico Gold to Combine Creating Leading Intermediate Gold Producer

 

 

 

 

 

Alamos Gold Inc. (TSX:AGI) (NYSE:AGI) and AuRico Gold Inc. (TSX:AUQ) (NYSE:AUQ) are pleased to announce that they have entered into a definitive agreement to combine their respective companies by way of a plan of arrangement, creating a new, leading intermediate gold producer. The Merger combines two top-quality, highly-complementary asset portfolios, including two long-life, cash flow-generating gold mines: AuRico’s Young-Davidson mine in Ontario, Canada, and Alamos’ Mulatos mine in Sonora, Mexico. The transaction is structured as a merger of equals with a transaction equity value of approximately US$1.5 billion.
 

Under the terms of the Merger, holders of Alamos shares will receive, for each share held, 1 MergeCo share and US$0.0001 in cash, and holders of AuRico shares will receive, for each share held, 0.5046 MergeCo shares. Upon completion of the Merger, former Alamos and AuRico shareholders will each own approximately 50% of MergeCo (named Alamos Gold Inc.). In addition, a new company to be named AuRico Metals Inc., will be created to hold AuRico’s Kemess project, a 1.5% net smelter return royalty on the Young-Davidson mine, AuRico’s Fosterville and Stawell royalties, and will be capitalized with US$20 million of cash. Upon completion of the Merger, MergeCo will own a 4.9% equity interest in SpinCo. The remaining shares of SpinCo will be distributed 50% each to former Alamos and AuRico shareholders.
 

The merger is subject to shareholder and other applicable regulatory approvals and satisfaction of other customary conditions. The merger is expected to close in the second quarter of 2015.

Highlights of the Merger

 

 
 
--  Creation of a leading intermediate gold producer: Creates a larger,
    diversified portfolio of assets located in stable jurisdictions,
    underpinned by two top-tier producing mines, Young-Davidson and Mulatos,
    and a significant pipeline of high-quality development projects. 
--  Peer-leading growth profile in safe jurisdictions: Expected to produce
    375 - 425 koz of gold in 2015 in Mexico and Canada with the potential to
    grow organically to over 700 koz of gold annually. The development
    portfolio is anchored by quality, low-cost projects in Turkey as well as
    three projects in North America (Esperanza, Lynn Lake and Quartz
    Mountain). 
--  Strong financial position: Strong pro-forma cash position of US$427
    million, net cash of US$94 million and growing cash flow generation to
    support further growth. 
--  Enhanced capital markets profile: The combined market capitalization of
    US$1.5 billion, increased trading liquidity and expanded analyst
    coverage is expected to significantly enhance the combined company's
    capital markets profile. 
--  Revaluation opportunity: With diversified production, superior growth
    profile, strong balance sheet, greater market profile and proven
    management and operating teams, the combined company is well positioned
    for a potential value re-rating. 
--  Potential to unlock significant value through SpinCo: Shareholders of
    both Alamos and AuRico will also benefit from the exposure to the
    significant value potential of the Kemess project and stable,
    diversified royalty revenue via ownership in SpinCo.
 

 

 

John McCluskey, President and CEO of Alamos, stated: “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. We believe the addition of the flagship, long-life Young-Davidson mine is just that opportunity. The combination of diversified production from three mines and a pipeline of low-cost growth projects in safe jurisdictions equate to a leading gold intermediate and a significant re-rate opportunity for our collective shareholders.”
 

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. We are confident that our shareholders will benefit from the value creation opportunities that will be realized through an expanded and more diversified asset base and enhanced cash flow generating capabilities. Shareholders will also benefit from the creation of SpinCo as they retain ongoing exposure to significant unlocked value in the highly prospective Kemess project, and stable, diversified sources of royalty revenue.”
 

Benefits to All Shareholders

 

 
 
--  Diversified production from three North American mines including the
    long-life, flagship Young-Davidson and Mulatos mines. 
--  Extensive growth portfolio of quality assets in safe jurisdictions. 
--  Among the strongest balance sheets within its peer group with positive
    net cash, as well as significant and growing cash flow generation with
    which to fund growth. 
--  Significant potential synergies in Mexico and Canada. 
--  Re-rating potential as a leading intermediate gold producer with a
    strong growth profile, increased trading liquidity and enhanced capital
    market attractiveness. 
--  Combination of two complementary and highly experienced management and
    operating teams. 
--  Exposure to SpinCo with significant unlocked value in the Kemess
    project, diversified royalty revenues and led by a strong management
    team.
 

 

 

Merger Summary
 

The proposed transaction will be completed pursuant to a plan of arrangement and will require the approval of 66 2/3% of Alamos shareholders and 66 2/3% of AuRico shareholders. The directors and officers of Alamos and AuRico have entered into support agreements pursuant to which they agreed to vote their shares in favor of the proposed transaction.
 

Alamos and AuRico’s Board of Directors have determined that the proposed transaction is in the best interest of the respective shareholders, having taken into account advice from their financial advisors, and have unanimously approved the Merger. Alamos and AuRico’s Board of Directors recommend that their shareholders vote in favor of the proposed transaction.
 

In addition to shareholder approvals, the proposed transaction will be subject to applicable regulatory approvals and the satisfaction of other customary conditions. The Merger includes customary provisions, including fiduciary-out provisions, covenants not to solicit other acquisition proposals and the right to match any superior proposals. Termination fees of US$28.4 million will be paid to Alamos and US$37.5 million will paid to AuRico in certain circumstances should the Merger not be completed.
 

Private Placement Transaction

 

In connection with the Merger, Alamos and AuRico have also agreed that Alamos will subscribe for approximately 27.9 million common shares of AuRico on a private placement basis, representing approximately 9.9% of AuRico’s outstanding common shares after giving effect to the private placement. The common shares will be acquired at a price of US$2.99 per share, equal to AuRico’s closing price on the New York Stock Exchange on April 10, 2015, for total gross proceeds to AuRico of approximately US$83.3 million. Completion of the private placement is subject to the satisfaction of certain regulatory requirements but is not contingent on completion of the Merger.
 

Management Team and Board of Directors
 

The senior executive team and the Board of Directors of the combined company will draw from the extensive experience and expertise of both companies. The senior executive team and Chairman of the combined company will include:

 

 
 
--  Alan Edwards: Chairman (AuRico) 
--  John McCluskey: CEO (Alamos) 
--  Peter MacPhail: COO (AuRico) 
--  Jamie Porter: CFO (Alamos)
 

 

 

The Board of Directors will be comprised of 10 directors with each company having equal representation of 5 directors, including Scott Perry and John McCluskey. The remaining directors will be nominated upon completion of the transaction.
 

SpinCo
 

Pursuant to the plan of arrangement, the following assets will be transferred to SpinCo:

 

 
 
--  The Kemess project; 
--  A newly created 1.5% NSR on the Young-Davidson mine; 
--  The existing 2.0% NSR on the Fosterville mine; 
--  The existing 1.0% NSR on the Stawell mine; and 
--  US$20 million in cash
 

 

 

The senior executive team and Board of Directors of SpinCo will include:

 

 
 
--  Scott Perry: Executive Chairman (AuRico) 
--  Chris Richter: CEO (AuRico) 
--  Robert Chausse: CFO (AuRico) 
--  Two director nominees of Alamos
 

 

 

 

Upon completion of the plan of arrangement, MergeCo will own a 4.9% equity interest in SpinCo. The remaining shares of SpinCo will be distributed 50% each to former Alamos and AuRico shareholders.
 

SpinCo will allow all shareholders to benefit from the advancement of the Kemess project and stable, diversified revenue generation from three royalty assets.
 

Advisors and Counsel
 

Alamos’ financial advisor is Maxit Capital LP and its legal counsel in Canada and the US is Torys LLP. Maxit Capital LP provided an opinion to Alamos’ Board of Directors that, as of the date thereof and subject to the assumptions, limitations and qualifications set out therein, the transaction is fair, from a financial point of view, to the shareholders of Alamos.
 

AuRico’s financial advisor is Scotiabank, its Canadian legal counsel is Fasken Martineau and its US legal counsel is Paul Weiss. Scotiabank provided an opinion to AuRico’s Board of Directors that, as of the date thereof and subject to the assumptions, limitations and qualifications set out therein, the transaction is fair, from a financial point of view, to the shareholders of AuRico.

About Alamos Gold

 

Alamos is an established Canadian-based gold producer that owns and operates the Mulatos Mine in Mexico, and has exploration and development activities in Mexico, Turkey and the United States. The Company employs more than 500 people and is committed to the highest standards of sustainable development. As of March 30, 2015, Alamos had 127,357,486 common shares outstanding (140,164,052 shares fully diluted), which are traded on the TSX and NYSE under the symbol “AGI”.
 

About AuRico Gold
 

AuRico Gold is a leading Canadian gold producer with mines and projects in North America that have significant production growth and exploration potential. The Company is focused on its core operations including the cornerstone Young-Davidson gold mine in northern Ontario, and the El Chanate mine in Sonora State, Mexico. AuRico’s project pipeline also includes the advanced development Kemess Property in northern British Columbia and the Lynn Lake Gold Camp in northern Manitoba. The Company also has other exploration opportunities in Canada and Mexico. AuRico’s head office is located in Toronto, Ontario, Canada.

Posted April 13, 2015

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