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Alio Gold Inc and Rye Patch Gold Corp. announced they have entered into an agreement whereby Alio Gold will acquire, through a plan of arrangement all of the outstanding shares of Rye Patch.
Alio Gold Inc (TSX:ALO) and Rye Patch Gold Corp. (TSXV:RPM) announced they have entered into an agreement whereby Alio Gold will acquire, through a plan of arrangement all of the outstanding shares of Rye Patch.
As quoted in the press release:
Under the Arrangement, each common share of Rye Patch will be exchanged for 0.48 common shares of Alio Gold. The offer implies a value of C$1.57 per Rye Patch share, a 35 percent premium to Rye Patch shareholders, based on the 20-day volume weighted average trading price of Alio Gold shares on the TSX and Rye Patch shares on the TSX.V for the period ending March 16, 2018.  The offer values Rye Patch’s outstanding equity (undiluted) at approximately C$128 million. The number of Alio Gold shares to be issued will be approximately 39.0 million based on the issued and outstanding shares as of the announcement date, subject to adjustment for options, warrants and restricted stock units vested prior to the Arrangement. The transaction is expected to close on or about May 25, 2018. Existing Alio Gold and Rye Patch shareholders will own approximately 53 percent and 47 percent of the combined company, respectively, following the close of the transaction.
Highlights are as follows:
- Increased asset diversification – 165,000 ounces of gold production1 in 2018 from two open-pit, heap leach operations in the stable jurisdictions of Sonora, Mexico and Nevada, USA
- Enhanced growth profile – potential for low-capital expansion to increase expected annual gold production at Florida Canyon
- Improved cash flow generation to support development project – cash flow generation from two mines to support development of the feasibility stage Ana Paula project which is anticipated to produce 115,000 ounces of gold per year2
- Enhanced capital markets profile and potential re-rating – increased market capitalization of the combined company has the ability to appeal to a broader shareholder base and improve share trading liquidity
- Strong balance sheet – combined pro forma entity has approximately $74 million in cash and equivalents3 and $29 million in total debt3.
Greg McCunn, CEO of Alio Gold, commented:
This transaction is consistent with our strategy to create a leading mid-tier precious metals company. In addition to diversifying our asset base into one of the most attractive precious metal producing regions in the world, this transaction provides us with increased scale and liquidity to drive long term shareholder value. We see regional growth opportunities in Nevada and coupled with our high-grade, high-margin Ana Paula project, this transaction establishes a strong platform for future growth
One of our core strengths is operating high-grade, narrow-vein underground mines, and Klondex’s three operating mines – Fire Creek, Midas and Hollister – are some of the highest-grade gold mines in the world. After extensive due diligence, we see significant opportunity to improve costs, throughput and recoveries over time with our expertise. The combined approximately 110 square mile land position offers the opportunity to make discoveries and grow the reserve base as we improve our knowledge of the geology, something we have done at our other operations. We expect this transaction to be accretive on many important financial and credit metrics, with potentially significant synergies. We are pleased that two significant Klondex shareholders have committed to support this transaction, and look forward to welcoming other Klondex shareholders to our company.