Credit Suisse says: "Perplexing proposition; Revising Estimates
and Lowering Target Price to $17 (from $22).
On January 14, Alamos (AGI.TO) bid $780M (cash and shares) for
Aurizon (AUZ.TO): "The deal values ARZ equity at C$4.65/sh.
Assuming the full $305M in cash consideration, Credit Suisse est.
that AGI will issue 30.77M, increasing shares to 151.38M. Credit
Suisse views the transaction as mildly dilutive (~3%)."
Why now? AGI's stand-alone growth profile better than ARZ and
better than MergeCo: "AGI has positioned itself as a low cost
producer with Mulatos expected to produce 180-200kozs at
$500-$520/oz total cash costs in 2013. Kirazli (Q4/14) and Agi Dagi
(Q4/16) are in the permitting phase and are expected to provide
166kozspa over nine years at $579/oz. Five year growth for AGI's
assets are 147%, while ARZ's flattish production dilutes AGI's
growth on a pro-forma basis (89% for MergeCo)."
Value add: "Diversification & corporate tax synergies? Yes.
But better operational execution? Our analysis shows both companies
have a comparable production track record, with ARZ slightly worse
than AGI in 2012. Aurizon presents AGI with the new challenge of
operating an underground mine (AGI's operating history lies in open
pit mining) which has struggled recently transitioned to
owner-managed mining with constraints as it completes
infrastructure work. This adds to the inherent risk in a hostile
takeover from a due diligence perspective. Last, in our view AGI
adds burden to its growth plans without actually adding any
"We are now modeling ~11-12g/t (from 13.6g/t) material in 2013
at Escondida, for conservatism, but because with 9 months out of a
30 month orebody completed and grades only reconciling in-line with
reserves, we view grades at reserve grade scenario as the likely
scenario. We don't expect to be materially surprised to the upside
on Escondida grades."
Estimates: "Our target price is reduced to $17 (from $22) on
lower NAV and OpCFa estimates, primarily due to higher long term
capital and operating cost estimates at Mulatos. We are revising
our 2012/2013/2014 EPS estimates to $1.03/$1.18/$1.10 from