(Reuters) - Canada's Alamos Gold Inc (>> Alamos Gold Inc) will buy smaller rival Richmont Mines Inc (>> Richmont Mines Inc.) in a deal valued at about C$905 million ($747 million) to create a top-10 gold producer in North America.

Richmont shareholders will receive 1.385 Alamos share for each share held, or C$14.20, representing a 22 percent premium to Richmont's last close.

Shares of Alamos slumped 12 percent to C$9.02 on the Toronto Stock Exchange in early trading, while Richmont surged 6.7 percent C$12.40.

The combined company, which will have majority of its production in Canada, is expected to produce 500,000 ounces of gold in 2017, the companies said in a statement.

The deal includes Richmont's flagship Island Gold Mine in Ontario, known for its high-grade yield and low cost. As a result, Alamos's production is expected to increase at an average of 25 percent annually.

Upon completion of the deal, which is expected by mid-November, Alamos will own 77 percent of the combined company and Richmont the rest.

BMO Capital Markets was Alamos' financial adviser, while Macquarie Capital Markets Canada Ltd and Maxit Capital LP advised Richmont.

(Reporting by Ahmed Farhatha in Bengaluru; Editing by Maju Samuel)

Stocks treated in this article : Alamos Gold Inc, Richmont Mines Inc.