Shares of Alamos Gold (TSX:AGI) shot up this week because the gold producer introduced it will be buying Argonaut Gold (TSX:AR) for $325 million. Shares of Alamos inventory jumped by 7% on the information, with shares of AR inventory capturing up by a whopping 30%.

What occurred?

Each corporations introduced the $325 million deal on March 27 in an all-stock deal. Traders had been excited, to say the least. The deal would convey Alamos’s annual gold manufacturing to a whopping 600,000 ounce per yr. Moreover, the potential long-term may shoot it as much as even 900,000 ounces per yr, in keeping with an announcement by the businesses.

Proper now, Alamos inventory produces about 529,300 ounces of gold per yr as of 2023 ranges. Whereas that is nonetheless a fraction of the thousands and thousands produced by a number of the largest corporations on the earth, it positively will give Alamos inventory extra clout — and at a time when gold costs are surging.

In the meantime, AR inventory has been a junior miner all this time. As such, it’s usually an exportation firm, solely producing a small quantity from their new gold deposits. Now, there shall be a number of advantages to the acquisition. Each corporations anticipate long-term synergies of about US$515 million from the acquisition, whereas Alamos inventory could have entry to AR’s Magino mine, positioned simply subsequent to Alamos’s Island Gold mine in Ontario.

Extra excellent news

It might be much more excellent news for Alamos inventory, which has seen shares climb greater and better as gold costs surge. The worth of gold has been on the climb from a lot of components. It has lengthy been seen as a safe-haven funding throughout instances of financial and geopolitical uncertainty. And given a number of recessions around the globe, unsure appears a good description.

Moreover, ought to rates of interest begin to come down, this must also enhance gold costs, that are priced in {dollars}. Traders will, due to this fact, see gold as a extra interesting possibility than interest-bearing holdings.

Then, there are central banks shopping for up gold around the globe, notably in China. The nation has been growing gold reserves for years, driving up the worth — all with the flexibility to money out when the American greenback rises.

What now?

Traders trying into gold for the subsequent yr or so will definitely then be keen on Alamos inventory. The corporate may even double its manufacturing over the subsequent few years, because it features entry to all AR inventory’s holdings. This contains past Canada.

Whereas there are actually advantages to its Ontario areas subsequent door to 1 one other, the deal additionally supplies a derivative to create a junior minor, SpinCo. The must be positioned in the USA and Mexico, producing much more gold for the corporate.

So, with gold costs at a document excessive, Alamos inventory making a powerful acquisition, and much more manufacturing on the way in which, the corporate actually appears like an incredible purchase — particularly as shares proceed to rise, now up 12% within the final yr alone.