Alamos Gold (TSX: AGI; NYSE: AGI) is buying Trillium Mining for $25 million (US$19.6 million) to access a 5,418-hectare land package located east of its own Island Gold deposit in Ontario, Canada.
The acquisition, Alamos said, more than doubles its land position to 15,000 hectares in the Michipicoten Greenstone Belt of northern Ontario.
The move would give the Toronto-based company Trillium’s namesake project, which hosts the former Edwards and Cline gold mines, less than 20 km from the community of Dubreuilville.
Alamos said that based on the current geological interpretation of the E1E structure which hosted its Island deposit, there was strong potential for an expansion onto the Trillium mineral tenure.
“The acquisition of Trillium is consistent with our strategy of consolidating prospective land in proximity to our Island Gold mine, where we have had tremendous exploration success over the last several years,” John McCluskey, Alamos’ president and CEO said in a press release.
Included within the Trillium land package is the Highland property, which is in the final year of a five-year option agreement. Following the exercise of the option, expected on February 26, 2021, Alamos will own 100% of the asset
The miner announced in July the phase-three expansion of Island Gold to 2,000 tonnes per day, which is expected to increase output 72% to 236,000 ounces a year from 2025. The project should also reduce all-in sustaining costs 30% to $534 per ounce and double the mine life to 16 years.
Total investment needed will be US$1.1 billion, including sustaining capital, with US$514 million for a shaft expansion, Alamos said at the time.
The company has also announced its intention to make a normal course issuer bid (NCIB) to purchase for cancellation up to 35.1 million shares, representing 10% of its public float, over the next 12 months. Under a previous NCIB completed this year, Alamos bought and cancelled 1.1 million shares.
Gold’s record run to almost US$2,000 per oz. earlier this year injected fresh cash flows and driven a surge in shares of bullion producers.
Analysts believe sustained strong prices for the precious metal will test industry actors’ discipline. Most gold miners embarked on a spending a spree about decade ago, when bullion was soaring, but then paid for it when prices nosedived.
Kerry Smith of Haywood Securities noted the tuck-in acquisition of Trillium boosts Alamos Gold’s land package by 57% and commented favorably on the deal in a research note to clients.
“This is a small acquisition of a strategic land package around one of the highest grade mines in Canada,” he wrote. “Alamos is uniquely positioned to deliver full value from this land package given they have the best understanding of the structural and regional controls for gold mineralization in the district. We think this is a reasonably priced deal that will deliver results, albeit over a longer period as it will take time to properly and systematically explore this large land package.”
Smith has a buy rating on Alamos and a price target of $17.50 per share. (Over the last year the company has traded in a range of $4.43 and $15.52 per share and at presstime was trading at $12.50 per share.)
“The Island gold mine has delivered considerable exploration success since it was acquired by Alamos in November 2017, with reserves more than doubling to 3.7 Moz and the ongoing Phase III expansion marks the third expansion since acquisition,” he noted. “The acquisition of an adjacent land package will ensure Alamos maintains full ownership of continued future growth of the deposit, as well as regional targets.”
Analysts at Canaccord Genuity also have a target price on Alamos shares of $17.50.
“Alamos believes there is strong potential for the structure to extend onto the Trillium mineral tenure and this is further supported by recent drilling, including the best surface exploration hole to date, MH25-04 grading 29.0 g/t gold over 21.8 metres and MH25-03 which intercepted 15.4 g/t gold [over] 15 metres (previously reported),” the Cannacord team wrote. “These intercepts extended high-grade gold mineralization over significantly greater widths up to 100 metres down-plunge from the nearest inferred mineral resource block in Island East, which remains open laterally and down plunge.”
“To Alamos, the Trillium land package also provides significant regional exploration potential, adding 10 km of strike extent within the Goudreau Lake Deformation Zone (GLDF), a primary control on gold mineralization within the Goudreau-Lochalsh segment of the Michipicoten Greenstone Belt.”