Alio sells Mexico mine to Magna Gold

The San Francisco open pit mine in Sonora, Mexico. Source: Alio Gold Inc.

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Alio Gold Inc. [ALO-TSX, NYSE] said Friday March 6 that it has agreed to sell its San Francisco gold-silver mine in Mexico to Magna Gold Corp. [MGR-TSXV; MGLQF-OTCQB] for cash and shares of Magna.

The move will allow Alio to focus its energy on the Florida Canyon Mine in Nevada.

The San Francisco Mine is held through Molimentales del Noroeste S.A. de C.V., a wholly-owned subsidiary of Alio Gold, which owns a 100% interest in the mine and surrounding mineral concessions.

Under the terms of the deal, Alio will receive 9.74 million shares of Magna upon closing, representing a 19.9% stake in Magna, plus an additional $5 million in cash within 12 months of the transaction completion date.

Alio shares were unchanged at 90 cents on Friday and trade in a 52-week range of 69 cents and $1.24.

The San Francisco Mine has produced over 820,000 ounces of gold since commercial production was achieved in April, 2010. Active mining ceased in early 2019.

During the third quarter of 2019, Alio said the focus was on processing low-grade stock piles, resulting in the placement of 12,809 ounces on the leach pad. The company said it anticipated that the low-grade stock will be exhausted during the fourth quarter of 2019, after which crushing will cease and operations will solely focus on recovery of residual inventory ounces.

Aside from San Francisco, Alio holds a 100% interest in the Florda Canyon Mine in Nevada, an asset which it acquired through the purchase of all of the outstanding shares of Rye Patch Gold Corp. under a plan of arrangement deal worth $128 million in March, 2018. The company also owns the development stage Ana Paula Project in Guerrero, Mexico.

“The sale of the San Francisco Mine is a win-win for Alio Gold and Magna,” said Alio President and CEO Mark Backens. “Arturo Bonillas and his team at Magna have a lengthy history and extensive knowledge of the mine, and under his stewardship we are confident this transaction will be very beneficial to employees, contractors, suppliers and local communities that support the mine as plans are implemented to unlock value from the property.”

“The transaction transfers all current assets and liabilities associated with the property and allows Alio Gold to focus time and resources on more value enhancing opportunities at the Florida Canyon Mine, our core asset.”

The Florida Canyon Mine, located between Lovelock and Winnemucca, has been in production since the spring of 2017. Florida Canyon produced 9,620 ounces of gold and 6,793 ounces of silver in the third quarter of 2019, Alio said.

It said production for the quarter was negatively impacted by the very low mining equipment availability. This was attributed to the aged condition of the equipment where multiple pieces have over racked up 90,000 operating hours.

The company said the unsustainable condition of the mine fleet has been addressed by procurement of new loading and hauling equipment. It said the new equipment was scheduled to be phased into production in the fourth quarter of 2019 and will remove the principal cause of the low production in the previous quarters.

On Friday, Magna shares were unchanged at 40 cents and trade in a 52-week range of 19 cents and 56 cents.

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