Alamos Gold Eliminates Majority of Argonaut Gold Hedge Book Providing Increased Exposure to Higher Gold Prices
Alamos Gold Inc. (TSX:AGI; NYSE:AGI) has entered into a gold sale prepayment agreement for $116 million in exchange for delivering 49,384 ounces in 2025. The proceeds were used to eliminate gold forward purchase contracts previously entered by Argonaut Gold, totaling 179,417 ounces in 2024 and 2025 at an average price of $1,838 per ounce. This transaction has eliminated over half of Argonaut's hedge book and associated mark-to-market liability, providing increased exposure to rising gold prices.
Alamos inherited Argonaut's hedge book as part of its recent acquisition, which included contracts for 329,417 ounces between 2024 and 2027. The new agreement closes out all 2024 and 2025 contracts. The remaining hedge book consists of 150,000 ounces in 2026 and 2027, expected to account for less than 12% of total consolidated production during that period.
- Elimination of 179,417 ounces of gold forward purchase contracts for 2024 and 2025
- Increased exposure to rising gold prices
- Attractive terms on gold prepayment agreement with average forward curve prices of $2,524 per ounce
- Reduction of mark-to-market liability associated with the hedge book
- Expected significant free cash flow growth due to growing production and declining costs
- Remaining hedge book of 150,000 ounces for 2026 and 2027 still in place
- New obligation to deliver 49,384 ounces of gold in 2025 under the prepayment agreement
Insights
The decision by Alamos Gold to eliminate a significant portion of Argonaut Gold's hedge book can potentially enhance the company's financial flexibility and bottom line. By closing out hedge contracts for 2024 and 2025 and entering a gold prepayment agreement, Alamos has leveraged the current strong forward gold price environment. The prepayment agreement, offering $116 million for the delivery of 49,384 ounces in 2025 at an average price of $2,524 per ounce, contrasts with the previous hedge prices averaging around $1,838 per ounce. This indicates a strategic move to capitalize on higher projected gold prices, potentially increasing revenue margins and cash flow.
Understanding the concept of a hedge book is important here. Companies use hedge books to lock in prices for their commodities, stabilizing revenues against market fluctuations. However, with gold prices predicted to rise, eliminating these contracts can provide better gains. The remaining hedge contracts (150,000 ounces for 2026 and 2027) represent less than 12% of the consolidated production, mitigating risk while allowing significant exposure to market price benefits.
This move can be seen as an aggressive yet calculated bet on rising gold prices, aligning with the industry's bullish outlook on gold. Alamos’ ability to close these hedges on attractive terms showcases financial prudence and positions the company for better financial outcomes in the near future.
The current gold market environment is characterized by volatility, influenced by economic factors such as inflation rates, currency fluctuations and geopolitical events. By removing the hedge book, Alamos is positioning itself to benefit from these dynamics. The gold prepayment deal highlights confidence in sustained high gold prices, aligning with market analysts' forecasts that suggest supportive conditions for gold.
Retail investors should note that differing from a complete hedge removal strategy, Alamos has maintained a portion of the hedge book for 2026 and 2027, which provides a safety net against potential downturns. This balanced approach mitigates risk while still taking advantage of potential price upticks, an important consideration for long-term investors. Moreover, the use of banks like Canadian Imperial Bank of Commerce and others to facilitate the gold prepayment agreement underscores solid financial backing and confidence in the transaction's terms.
This indicates strategic risk management, balancing exposure to gold prices while maintaining financial stability, which could appeal to both cautious and growth-oriented investors.
All amounts are in United States dollars, unless otherwise stated.
TORONTO, July 15, 2024 (GLOBE NEWSWIRE) -- Alamos Gold Inc. (TSX:AGI; NYSE:AGI) (“Alamos” or the “Company”) today announced that it has entered into a gold sale prepayment agreement (“gold prepayment”) for total consideration of
As part of the recently closed acquisition of Argonaut, Alamos inherited Argonaut’s hedge book which included gold forward purchase contracts totaling 329,417 ounces between 2024 and 2027. The average forward prices on the contracts ranged between
To fund the closing out of the hedges, Alamos entered into a gold prepayment agreement on attractive terms given the strong forward gold price environment. Under the terms of the gold prepayment, Alamos received total consideration of
The remaining Argonaut hedge book, inherited by Alamos on the close of the acquisition, consists of forward purchase contracts totaling 150,000 ounces in 2026 and 2027. This is expected to account for less than
“This transaction has significantly enhanced our exposure to rising gold prices on attractive terms, most notably in the near term. We expect our growing production and declining costs to drive significant free cash flow growth in the years ahead. With the majority of the Argonaut hedge book now eliminated, we are even better positioned to capitalize on the favourable outlook for gold,” said John A. McCluskey, President and Chief Executive Officer.
About Alamos
Alamos is a Canadian-based intermediate gold producer with diversified production from three operations in North America. This includes the Young-Davidson mine and Island Gold District in northern Ontario, Canada and the Mulatos District in Sonora State, Mexico. Additionally, the Company has a strong portfolio of growth projects, including the Phase 3+ Expansion at Island Gold, and the Lynn Lake project in Manitoba, Canada. Alamos employs more than 2,400 people and is committed to the highest standards of sustainable development. The Company’s shares are traded on the TSX and NYSE under the symbol “AGI”.
FOR FURTHER INFORMATION, PLEASE CONTACT:
Scott K. Parsons
Senior Vice President, Investor Relations
(416) 368-9932 x 5439
The TSX and NYSE have not reviewed and do not accept responsibility for the adequacy or accuracy of this release.
Cautionary Note
Certain of the statements made and information contained herein, other than statements of historical fact and historical information, is "forward-looking information" within the meaning of applicable Canadian and U.S. securities laws. Forward-looking statements are generally, but not always, identified by the use of forward-looking terminology such as “expect”, "will", "may", “potential” or variations of such words that certain actions, events or results "could” "might" or "will" occur or be achieved or the negative connotation of such terms.
Forward-looking statements in this press release include information regarding timing and quantum of gold deliveries under a gold sale prepayment agreement; gold prices; expected consolidated production volumes in the future; anticipated growing production, declining costs and the expected effect on free cash flow.
Alamos cautions that forward-looking statements are necessarily based upon several factors and assumptions that, while considered reasonable by the Company at the time of making such statements, are inherently subject to significant business, economic, legal, political and competitive uncertainties and contingencies. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements and undue reliance should not be placed on such statements and information.
Such factors include (without limitation): changes to current estimates of mineral reserves and mineral resources; the speculative nature of mineral exploration and development, risks in obtaining and maintaining necessary licenses, permits and authorizations for the Company’s development stage and operating assets; operations may be exposed to illnesses, diseases, epidemics and pandemics and associated impact on the broader market and the trading price of the Company's shares; provincial and federal orders or mandates (including with respect to mining operations generally or auxiliary businesses or services required for operations) in Canada, Mexico, the United States and Türkiye, all of which may affect many aspects of the Company's operations including the ability to transport personnel to and from site, contractor and supply availability and the ability to sell or deliver gold doré bars; fluctuations in the price of gold or certain other commodities such as diesel fuel, natural gas, and electricity; changes in foreign exchange rates; the impact of inflation; employee and community relations; the impact of litigation and administrative proceedings; changes to production estimates (which assume accuracy of projected ore grade, mining rates, recovery timing and recovery rate estimates which may be impacted by unscheduled maintenance, weather issues, labour and contractor availability and other operating or technical difficulties); disruptions affecting operations; risks associated with the startup of new mines; exploration opportunities not coming to fruition; inherent risks associated with mining and mineral processing; the risk that the Company’s mines may not perform as planned; increased costs associated with mining inputs and labour; contests over title to properties; changes in national and local government legislation, controls or regulations in Canada, Mexico, Türkiye, the United States and other jurisdictions in which the Company does or may carry on business in the future; risks related to climate change; risk of loss due to sabotage, protests and other civil disturbances; the costs and timing of construction and development of new deposits; the impact of global liquidity and credit availability and the values of assets and liabilities based on projected future cash flows; risks arising from holding derivative instruments; and business opportunities that may be pursued by the Company.
Additional risk factors that may affect the Company’s ability to achieve the expectations set forth in the forward-looking statements contained in this news release are set out in the Company’s latest 40F/Annual Information Form and Management’s Discussion and Analysis, each under the heading “Risk Factors” available on the SEDAR+ website at www.sedarplus.ca or on EDGAR at www.sec.gov, and should be reviewed in conjunction with the information, risk factors and assumptions found in this news release. The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law.
| Table 1: Forward Purchase Contracts – Pre and Post Transaction | |||||
| Maturity | Contract | Argonaut Gold Forward Purchase Contracts (Pre-Transaction) | Alamos Gold Forward Purchase Contracts (Post-transaction) | ||
| Volume (oz) | Price (US$/oz) | Volume (oz) | Price (US$/oz) | ||
| H2-2024 | Forward | 79,417 | - | - | |
| 2025 | Forward | 100,000 | - | - | |
| Prepay | - | - | 49,384 | - | |
| 2026 | Forward | 100,000 | 100,000 | ||
| 2027 | Forward | 50,000 | 50,000 | ||
FAQ
What was the total consideration Alamos Gold (AGI) received in the gold sale prepayment agreement?
How many ounces of gold does Alamos Gold (AGI) need to deliver in 2025 under the new agreement?
What was the average price of the eliminated Argonaut Gold forward purchase contracts for 2024 and 2025?
How many ounces remain in Alamos Gold's (AGI) hedge book for 2026 and 2027?
