Alio Gold aims to diversity via Rye Patch merger

Rye Patch Gold's Florida Canyon Mine looking northwest. Source Rye Patch Gold Corp.

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Alio Gold Inc. [ALO-TSX, NYSE American] said Monday March 19 that it has agreed to acquire all of the outstanding shares of Rye Patch Gold Corp. [RPM-TSXV; RPMGF-OTCQX] under a plan of arrangement deal worth $128 million.

Rye Patch Gold’s Florida Canyon Mine looking northwest. Source Rye Patch Gold Corp.

Under the arrangement, each common share of Rye Patch will be exchanged for 0.48 common shares of Alio Gold.

The offer values Rye Patch at $128 million, or $1.57 per share, marking a 35% premium based on the 20-day volume weighted average trading price of Alio Gold and Rye Patch shares during the period ended March 16, 2018.

“This transaction is consistent with our strategy to create a leading mid-tier previous metals company,” said Alio Gold CEO Greg McCunn.

Alio Gold is a Canadian gold mining company engaged in production, development and exploration in Mexico. Its principal assets include the producing San Francisco gold mine in Sonora and the development-stage Ana Paula project in Guerrero.

Rye Patch recently billed itself as Nevada’s newest gold producer. Its Florida Canyon gold mine between Lovelock and Winnemucca, has been in production since the spring of 2017. The company said it expected to reach a commercial production rate from heap leach operations of 75,000 ounces in early 2018.

The Florida Canyon property consists of the Florida Canyon Mine and Standard Mine. Prior to the recent restart, Florida Canyon was in production between 1986 to 2011. The Standard Mine operated between 2004 and 2007 and again between 2001 through to the second quarter of 2015. Together both mines have produced in excess of 2.5 million ounces of gold.

Rye Patch acquired the assets from Admiral Financial Group and Jipangu International Inc. through the acquisition of their subsidiary companies after agreeing to pay US$15 million and issue 20 million Rye Patch shares. A further contingent payment of US$5 million and 15 million warrants are also payable following the start of commercial production. The warrants are exercisable for one common share of Rye Patch at $0.50 per share.

In conjunction with the proposed transaction, Macquarie Bank Ltd. has agreed not to exercise its right to require immediate repayment of the existing Florida Canyon project loan as a result of this change of control, subject to certain conditions. At the closing of the transaction, the outstanding principal owing on the Macquarie Bank loan is expected to be $15 million.

Transaction highlights are as follows:

  • Increased asset diversification – 165,000 ounces of gold production in 2018 from two open-pit, heap leach operations in the stable jurisdictions of Sonora, Mexico and Nevada, U.S.A.
  • Enhanced growth profile – potential for low-capital expansion to increase expected annual gold production at Florida Canyon.
  • Strong balance sheet – combined pro forma entity has $74 million in cash and equivalents and $29 million in total debt.

On Monday, Alio Gold shares eased 9.15% or $0.29 to $2.88. Rye Patch advanced 5.56% or $0.07 to $1.33.

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