Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Canadian producers Argonaut Gold and Alio Gold have entered into an agreement for an all-share merger with Argonaut acquiring Alio to create a diversified intermediate company with output of over 235,000 gold-equivalent ounces annually.
With a share exchange ratio of 0.67 Argonaut common shares for each Alio common share, Argonaut and Alio shareholders would own 76% and 24% of the pro-forma company, respectively.
The combined company is expected to have a market capitalization of approximately C$250 million
The combined company is expected to have a market capitalization of approximately C$250 million.
“Combining complementary assets into one larger, more relevant company generates significant synergies. With a solid production base of over 235,000 gold-equivalent oz. expected this year, a strong balance sheet and strong cash flow generation at current gold prices, we will be well positioned to evaluate and execute on growth opportunities from within the combined company’s development asset portfolio,” Pete Dougherty, Argonaut’s president and CEO, said in a release.
“This transaction is very positive for Alio Gold shareholders, as it maintains meaningful exposure to the turn-around underway at the Florida Canyon gold mine and the potential of the Ana Paula project, while removing the substantial risk that is inherent in a one-mine company,” added Mark Backens, president and CEO of Alio Gold.
Argonaut currently operates the El Castillo and La Colorada open pit heap leach operations in Mexico. Together, these two sites are expected to churn out 175,000 oz. to 185,000 oz. of gold-equivalent this year at AISCs of $1,150 to $1,250 per oz. El Castillo is scheduled to close down operations in 2022.
The company also holds the Magino and Cerro del Gallo pre-production assets in Ontario and Mexico, respectively.
Alio’s Florida Canyon heap leach mine in Nevada, acquired in 2018, is expected to produce 60,000 oz. to 70,000 oz. of gold this year at cash operating costs of $975 to $1,075 per oz.
Its pre-production site is the Ana Paula project within Mexico’s Guerrero gold belt, with reserves of 13.4 million tonnes at 2.36 g/t gold for a total of 1 million ounces.
Boards of both companies have approved the agreement; the combination also requires shareholder approvals. Officers and directors of Argonaut and Alio have entered into voting support agreements in favour of the transaction with closing expected in the second quarter.
(This article first appeared in the Canadian Mining Journal)
