Alamos Gold to acquire Argonaut Gold for C$0.40 per share

Alamos Gold (AGI) and Argonaut Gold (ARNGF) have entered into a definitive agreement whereby Alamos will acquire all of the issued and outstanding shares of Argonaut pursuant to a court approved plan of arrangement. As part of the Transaction, Alamos will acquire Argonaut’s Magino mine, located adjacent to its Island Gold mine in Ontario, Canada. The integration of the two operations is expected to create one of the largest and lowest cost gold mines in Canada. Through the use of shared infrastructure, Alamos expects to unlock significant value with immediate and long-term synergies expected to total approximately $515 million. The addition of Magino is expected to increase Alamos’ combined gold production to over 600,000 ounces per year, with longer term production potential of over 900,000 ounces per year. The combination materially enhances Alamos’ position as a leading, Canadian focused, intermediate producer, with growing production and declining costs. Concurrently with the Transaction, Argonaut’s assets in the United States and Mexico will be spun out to its existing shareholders as a newly created junior gold producer. SpinCo will own the Florida Canyon mine in the United States, as well as the El Castillo Complex, the La Colorada operation, and the Cerro del Gallo project, located in Mexico. Under the terms of the Agreement, each Argonaut common share outstanding will be exchanged for 0.0185 Alamos common shares and 1 share of SpinCo. The Exchange Ratio implies estimated total consideration of C$0.40 per Argonaut common share, or $325 million. This represents a 34% premium based on Argonaut’s and Alamos’ closing prices on March 26, 2024 on the Toronto Stock Exchange, and a 41% premium based on both companies’ 20-day volume-weighted average prices. Total consideration includes C$0.34 of Alamos common shares, based on the closing price of Alamos common shares on the TSX on March 26, 2024, and SpinCo common shares with an estimated value of C$0.063. Alamos expects to issue approximately 20.3 million common shares as part of the Transaction, representing an equity value of approximately $276 million on a fully diluted in-the-money basis, and an enterprise value of $516 million. Upon completion of the Transaction, existing Alamos and Argonaut shareholders will own approximately 95% and 5% of the pro forma company, respectively. In connection with the Transaction, Alamos has agreed to provide Argonaut with a private placement equity financing in the amount of C$50 million priced at an 8% discount to Argonaut’s 5-day volume-weighted average share price as of March 26, 2024. This will provide Alamos with a 14% interest in Argonaut on an issued and outstanding basis. This financing will allow Argonaut to fund its immediate liquidity needs related to its loan facilities and operations. The Private Placement Transaction is expected to close in early April 2024. SpinCo SpinCo will own the Florida Canyon mine in the United States, as well as the El Castillo Complex, the La Colorada operation, and the Cerro del Gallo project, located in Mexico. Upon SpinCo going public, Alamos has agreed to subscribe for a further $10 million to obtain a 19.9% interest in SpinCo. Transaction Summary The proposed Transaction will be completed pursuant to a plan of arrangement completed under the Business Corporations Act. The Transaction will require approval by 66 2/3% of the votes cast by the shareholders of Argonaut at a special meeting of Argonaut shareholders expected to be held in June 2024. The directors and members of senior management of Argonaut, as well as Argonaut’s two largest shareholders have entered into support agreements pursuant to which they agreed to vote their shares in favor of the proposed Transaction. In addition to shareholder and court approvals, the Transaction is subject to applicable regulatory approvals and the satisfaction of certain other closing conditions customary for a transaction of this nature. The Arrangement Agreement includes customary deal protections, including fiduciary-out provisions, non-solicitation covenants, and the right to match any superior proposals. Additionally, a break fee in an amount of C$20 million is payable to Alamos by Argonaut in certain circumstances, if the Transaction is not completed, and an expense reimbursement fee is payable by Alamos to Argonaut in certain circumstances, if the Transaction is not completed. Full details of the Transaction will be included in the meeting materials which are expected to be mailed to Argonaut shareholders in May 2024.