Argonaut Gold to acquire Alio in friendly deal

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

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Argonaut Gold Inc. [AR-TSX; ARNGF-OTC] and Alio Gold Inc. [ALO-TSX, NYSE America] on Monday March 30 announced a friendly merger deal that will create an intermediate gold producer with four operations and annual production of 235,000 ounces of gold equivalent annually.

The combined entity expects to benefit from an enhanced asset portfolio and improved geographical diversification with assets in Mexico, Canada and the United States.

Under the agreement, Argonaut Gold will acquire all of the issued and outstanding shares of Alio, which will be exchanged on the basis of 0.67 of an Argonaut common share for each Alio common share.

The exchange ratio has been agreed to that was based on the volume weighted average prices of Argonaut and Alio common shares over the 20 trading days ended on March 27, 2020. Once the transaction is complete, existing Argonaut and Alio shareholders will own approximately 76% and 24% of the pro forma company, respectively, on a fully-diluted, in-the-money basis.

Argonaut advanced on the news, rising 7.5% or $0.08 to $1.14. The shares are currently trading in a 52-week range of 76 cents and $2.87. Alio jumped 5.8% or $0.04 to 73 cents to trade in a 52-week range of 43 cents and $1.24.

Argonaut has previously said it was aiming to create the next quality mid-tier gold producer in the Americas with a production target this year of 175,000 to 185,000 gold equivalent ounces.  Its portfolio of Mexican operations, include the 100%-owned La Colorada Mine in Sonora, and El Castillo Complex in Durango state. The company’s advanced development-stage projects include the Cerro del Gallo Project in Guanajuato, Mexico and the Magino Project in Canada.

The El Castillo Complex is made up of the El Castillo and San Agustin Mines which share infrastructure and resources. Back in March, 2018, Argonaut Gold reported a 74% increase in contained gold ounces at El Castillo, where reserves now stand at 40.8 million tonnes, grading 0.40 g/t, containing 522,000 ounces of gold.  It said the increase was largely achieved through the addition of the San Juan concessions that were recently acquired from Fresnillo PLC [FRES-LON], a major Mexico-based precious metals company.

Alio Gold is a Canadian gold mining company engaged in production, development and exploration in Mexico. After recently agreeing to sell its San Francisco gold-silver mine in Mexico to Magna Gold Corp. [MGR-TSXV; MGLQF-OTCQB] for cash and shares of Magna, Alio’s principal assets are the Florida Canyon Mine near Winnemucca, Nevada and the development-stage Ana Paula development project in Guerrero, Mexico.

Alio holds a 100% interest in the Florida Canyon Mine, an asset 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.

Alio has said it expects Florida Canyon to produce between 60,000 and 70,000 ounces of gold this year.

“This transaction is very positive for Alio Gold shareholders, as it maintains meaningful exposure to the turn-around underway at the Florida Canyon gold mine and the potential of the Ana Paula Project, while removing the substantial risk that is inherent in a one-mine company,” said Mark Backens, President and CEO of Alio Gold.

Ana Paula hosts a Measured and Indicated Resource of 21 million tonnes, grading 2.17 g/t gold and 4.8 g/t silver (1.46 million ounces of gold and 3.27 million ounces of silver).

In order to proceed, the merger requires the approval of 66 2/3% of the votes cast by Alio shareholders at a special meeting and a simple majority of Argonaut shareholders who will also vote at a special meeting.

Argonaut will continue to be managed by the executive team in Reno, Nevada, led by Peter Dougherty as CEO and David Ponczoch as Chief Financial Officer.


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