NEW YORK (The Deal) -- Alamos Gold Inc. (ALG) - Get Report and AuRico Gold Inc. (AUQ)  have agreed to merge their operations to create a $1.5 billion gold producer with mines in Canada and Mexico and projects in Turkey and the U.S.

The deal, announced on Monday, brings together cash-rich Alamos and the larger, but indebted, AuRico Gold, giving the combined company the balance sheet to increase output at AuRico's flagship Young-Davidson mine in Canada.

Under the terms of the deal, Alamos will pay $83.3 million to buy 9.9% of Aurico at $2.99 per share. Alamos shareholders will then swap each share for one share in the merged company and $0.0001 of cash. AuRico Gold shareholders will get 0.5046 of a new share for each share held. The resulting company will be about 50% owned by each of the existing firms' shareholders.

The merged company, which will be called Alamos Gold, will produce about 375,000 ounces to 425,000 ounces of gold. It will be led by Alamos CEO John McCluskey and chaired by AuRico Chairman Alan Edwards.

"The key premise of the merger is really one of realizing a re-rating of the companies' valuations and I think the market will recognize the value that is there as a result of this combination," McCluskey said on an analyst call on Monday.

Gold companies have been striking deals following a slump in the price of the precious ore that has left some producers short of cash and prey to bidders. The price of gold has tumbled just over 9% in the past year to $1,200 an ounce, extending a more than four-year decline from its high of over $1,800 in April 2011.

Toronto and New York-listed Alamos has $358 million in liquid assets and no debt. AuRico has $89 million of cash and $333 million of debt. The companies have similar market capitalizations of about $750 million, though AuRico's enterprise value of $1 billion makes it far larger than Alamos, which has an enterprise value of $392 million.

AuRico's Young-Davidson is expected to produce as much as 180,000 ounces and has proven and probable reserves of 3.8 million ounces and an expected mine life of as much as 20 years. Alamo operates two open-pit mines in Mexico, and produces the vast bulk of its output from the Mulatos mine, which is forecast to produce as much as 170,000 ounces this year and has proven and probable reserves of 1.7 million ounces.

The merger partners will spin off a company, called AuRico Metals Inc., that will hold stakes in certain AuRico assets and will be funded with $20 million of cash. Ownership of that company will be split 50/50 between the merger partners' existing shareholders.

The merger, which will be implemented by a plan of arrangement, needs the support of two-thirds of the shareholders of both companies. Alamos has agreed to a termination fee of $28.4 million, while AuRico will pay $37.5 million if the deal falls through.

Alamos tapped Maxit Capital LP for financial advice and took legal counsel in both Canada and the U.S. from Torys LLP. AuRico took financial advice from Scotiabank. Its Canadian legal adviser was Fasken Martineau DuMoulin LLPand its U.S. counsel was Paul, Weiss, Rifkind, Wharton & Garrison LLP.