(Reuters) - Alamos Gold Inc (AGI.TO) said it was likely to walk away from a bid to buy Aurizon Mines Ltd (ARZ.TO) AZK.A if it loses a regulatory ruling on the merits of a poison pill adopted by Aurizon and the break fee committed to rival bidder Hecla Mining Co (HL.N).
"We are not willing to pay a break fee to Hecla that essentially makes the transaction more expensive for us than it does for Hecla," Alamos CEO John McCluskey told Reuters.
Alamos, Aurizon's largest shareholder with a 16.11 percent stake, made a C$780 million hostile offer for the Canadian gold miner in January.
McCluskey said the C$27.2 million break fee pushes Alamos's cost of acquiring Aurizon beyond that of Hecla's.
"Hecla is bidding so little over and above our current bid that the break fee that is in place alone makes it even more expensive. That is quite an absurd situation," McCluskey said, reiterating that Alamos was not considering raising its offer.
At the center of the takeover battle is Aurizon's Casa Berardi gold mine, located in the Abitibi region of mining-friendly northwestern Quebec. The mine has easy access to infrastructure and labor, making it attractive at a time when miners are grappling with rising capital costs.
Hecla made a friendly offer to buy Aurizon at C$796 million, or C$4.75 per share, earlier this month.
Alamos, which last week extended its tender offer deadline to March 19, had offered about C$4.65 per Aurizon share.
Aurizon rejected Alamos's unsolicited offer in January, and adopted a new poison pill on Monday.
Alamos, in turn, filed an application with the British Columbia Securities Commission on Tuesday, seeking an order to immediately remove the poison pill and prevent the payment of the improper break fee to Hecla.
"We would expect that the securities commission will leave the pill in place in order to give all the shareholders a chance to vote ... otherwise it's allowing the minority to control and that's just inconsistent with what the commission is trying to do," Hecla Chief Executive Phillips Baker told Reuters.
Aurizon said in a statement on Tuesday that it would oppose Alamos's application at the hearing.
The hearing has been scheduled for March 15.
Alamos CEO McCluskey said the company's offer had the support of the next four largest Aurizon shareholders.
"This is going to be something that will play like a soap opera," said John Goldsmith, vice-president, deputy head of equities at Montrusco Bolton Investments, Aurizon's fourth-largest shareholder.
Montrusco Bolton Investments tendered its shares to Alamos in January, Goldsmith said.
"I would like to stay with Alamos. I want exposure to gold," Goldsmith said.
Hecla shares closed at $4.38 on the New York Stock Exchange on Tuesday. Shares of Aurizon closed at C$4.55, while those of Alamos closed at C$14.75 on the Toronto Stock Exchange.
Editing by Roshni Menon