Alamos Gold Inc. has abandoned its hostile bid for Aurizon Mines Ltd. after a provincial regulator refused to strike down a controversial break fee from a rival offer.
The move frees up Hecla Mining Co. to complete a friendly $796-million takeover of Aurizon, combining two companies focused on precious metals in North America.
Last week, Alamos chief executive John McCluskey warned that he would drop his bid for Aurizon if the British Columbia Securities Commission did not cease-trade the $27.2-million break fee that Alamos would have to pay Hecla.
The BCSC upheld the break fee on Monday, and Mr. McCluskey kept his promise on Tuesday. His view is that the break fee makes the cost of the transaction too high.
“In pursuing our growth objectives, we will not deviate from the fiscal discipline that has made us one of the world’s most successful gold companies, and the payment of this break fee in these circumstances would violate that discipline,” he said in a statement.
Alamos thought the break fee in this transaction was improper and “possibly illegal.” Typically, break fees are designed to pay a friendly bidder for its time and effort in case a higher offer is made. But in this case, Mr. McCluskey believes it was designed to simply block the Alamos offer, and included a low trigger threshold to induce the offer from Hecla.
Alamos also objected to a shareholder rights plan (or poison pill) that Aurizon adopted, believing the only goal of it was to interfere with the hostile bid.
Ultimately, the BCSC struck down the rights plan, but upheld the break fee. That was enough to convince Alamos to walk away.
Alamos maintained its bid was better than the friendly offer from Hecla. While it has a much smaller cash component, the company said that its paper is far more valuable than Hecla’s.
Mr. McCluskey said that the future for his company remains bright, and that he still sees “tremendous value” in the gold industry. With roughly US$480-million in cash and equity investments, Alamos has the financial firepower to pursue many other deals if it chooses.
“Alamos has no debt, a robust balance sheet, excellent cash flow, no hedging and an attractive near-term growth profile. We remain committed to our strategy and look forward to pursuing new initiatives that will drive value for our shareholders,” he said.