Two northern Ont. gold mines to merge, creating one of Canada's largest

Two northern Ontario gold mines are planning to become one creating "one of the largest and lowest cost gold mines in Canada" and saving US$515 million over the life of the operations.

Alamos Gold announced its intention to buy Argonaut Gold in a news release Wednesday morning.

Gold from Island Gold mine in Dubreuilville, Ont. (Alamos Gold)

The agreement was unanimously approved by the boards of directors for both companies, the release said, and Argonaut's two largest shareholders have entered into "lock-up agreements."

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Both have mining operations in the town of Dubreuilville, located nearly 300 kilometres north of Sault Ste. Marie.

Argonaut's Magino mine is adjacent to Alamos' Island Gold mine.

Map of Magino and Island Gold mines in Dubreuilville. (Alamos Gold)

"Through the use of shared infrastructure, Alamos expects to unlock significant value with immediate and long-term synergies expected to total approximately US$515 million," Alamos said.

"This includes operating synergies of US$375 million, through the use of the larger centralized mill and tailings facility at Magino, and capital savings of US$140 million with the mill and tailings expansions at Island Gold no longer required."

The combined gold production is expected to increase by approximately 25 per cent to more than 600,000 ounces per year with potential to grow further to more than 900,000 ounces per year.

The production increase is expected to come after the Phase 3+ expansion is complete in 2026.

"The two deposits contain mineral reserves of 4.1 million ounces, and total mineral reserves and resources of 11.5 million ounces supporting a mine life of more than 19 years, with significant exploration upside," Alamos said.

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Evolution of land position within the Michipicoten Belt, Ontario (Alamos Gold)

Argonaut's U.S. and Mexico assets will be "spun out to its existing shareholders as a newly created junior gold producer SpinCo."

This includes the Florida Canyon mine, the El Castillo Complex, the La Colorada operation and the Cerro del Gallo project.

"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," Alamos said.

"With 88 per cent of the combined company’s net asset value supported by its Canadian assets, solidifying Alamos’ position as the 3rd-largest gold producer in Canada."

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For the purchase to go through, 66.67 per cent approval during an Argonaut shareholder vote is needed.

Argonaut's two largest shareholders represent a 40 per cent interest and have already entered into lock-up agreements in support of the purchase. Its directors and senior management have also entered into support agreements.

A special meeting is expected to be held in June.

"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 news release said.

"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."