Minera Alamos (MAI.V) and Corex Gold (CGE.V) announced earlier this week both companies have entered into a merger agreement, creating a larger Mexico-focused entity with three relatively advanced stage gold projects. Minera Alamos is planning to issue 0.95 new shares of MAI for every share of Corex Gold, which will result in shareholders of both companies ending up with 50% of the combined entity – a true merger of equals, which explains the lack of a premium on the Corex stock.
It looks like Minera Alamos is planning to bring Corex Gold’s Santana project into production first and use the cash flows from Santana to finance the La Fortuna project. Additionally, as the Santana project claims are contiguous to Minera Alamos’ own Los Verdes claims, we would expect the combined entity to thoroughly explore Santana/Los Verdes upon completion of the merger. On top of that, this merger reunites Darren Koningen with Chester Millar as both gentlemen worked together at Castle Gold which developed the El Castillo heap leach gold mine in Mexico, before Castle Gold was sold to Argonaut Gold (AR.TO) for $130 million; demonstrating the capability of the enhanced operating team to successfully developed projects of the scale within the combined portfolio.
It looks like the Minera Alamos shareholders won’t be required to vote for this deal, but the Corex shareholders will have to convene a special meeting where a 2/3 majority will be required. This meeting will very likely take place in March/April, where after the merger could be completed later in April. On Corex’ side, owners representing 26% of the shares have entered into voting and support agreements indicating strong support for this deal. It’s also great to see Osisko Gold Royalties (OR.TO, OR) acquiring the 25.3 million shares in Corex Gold owned by Alamos Gold (AGI.TO, AGI) at C$0.13 per share. This means Osisko now owns a stake of 16.12% in Corex Gold and a similar stike in Minera Alamos so it will be the main strategic shareholder of the ‘enlarged’ Minera Alamos.
We currently havea long position in both Corex Gold and Minera Alamos and as a Corex-shareholder (no vote is required for Minera Alamos), we are planning to vote in favour of the deal as we think the offered ratio of 0.95 shares of Minera Alamos per share of Corex Gold is fair, and we can see how 1 +1 might equal 3 in this scenario. Minera’s plan to fast-track its gold projects towards production sounds good and we also really like its La Fortuna project, where the results of a PEA are expected to be published later this quarter. And the combined cash position of C$5-6M will go a long way towards funding the existing production scenarios.