Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

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Shares of Alamos Gold (TSX:AGI) shot up this week as the gold producer announced it would be purchasing Argonaut Gold (TSX:AR) for $325 million. Shares of Alamos stock jumped by 7% at the news, with shares of AR stock shooting up by a whopping 30%.

What happened?

Both companies announced the $325 million deal on March 27 in an all-stock deal. Investors were excited, to say the least. The deal would bring Alamos’s annual gold production to a whopping 600,000 ounce per year. Furthermore, the potential long-term could shoot it up to even 900,000 ounces per year, according to a statement by the companies.

Right now, Alamos stock produces about 529,300 ounces of gold per year as of 2023 levels. While this is still a fraction of the millions produced by some of the largest companies in the world, it definitely will give Alamos stock more clout — and at a time when gold prices are surging.

Meanwhile, AR stock has been a junior miner all this time. As such, it’s typically an exportation company, only producing a small amount from their new gold deposits. Now, there will be multiple benefits to the acquisition. Both companies expect long-term synergies of about US$515 million from the acquisition, while Alamos stock will have access to AR’s Magino mine, located just next to Alamos’s Island Gold mine in Ontario.

More good news

It would be even more good news for Alamos stock, which has seen shares climb higher and higher as gold prices surge. The price of gold has been on the climb from a number of factors. It has long been seen as a safe-haven investment during times of economic and geopolitical uncertainty. And given multiple recessions around the world, uncertain seems a fair description.

Furthermore, should interest rates start to come down, this should also boost gold prices, which are priced in dollars. Investors will, therefore, see gold as a more appealing option than interest-bearing holdings.

Then, there are central banks buying up gold around the world, particularly in China. The country has been increasing gold reserves for years, driving up the price — all with the ability to cash out when the American dollar rises.

What now?

Investors looking into gold for the next year or so will certainly then be interested in Alamos stock. The company could even double its production over the next few years, as it gains access to all AR stock’s holdings. This includes beyond Canada.

While there are certainly benefits to its Ontario locations next door to one another, the deal also provides a spinoff to create a junior minor, SpinCo. The should be located in the United States and Mexico, producing even more gold for the company.

So, with gold prices at a record high, Alamos stock making a strong acquisition, and even more production on the way, the company certainly looks like a great buy — especially as shares continue to rise, now up 12% in the last year alone.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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