Alio Gold to acquire Rye Patch in all-share deal

In an effort to diversify geopolitical risk and transform itself from a single-asset producer, Mexico-focused Alio Gold (TSX: ALO; NYSE: ALO) is buying Rye Patch Gold (TSXV: RPM; US-OTC: RPMGF) and its Florida Canyon mine in Nevada, one of two acquisitions announced this week of companies with projects in the mining friendly and prolific gold-producing state.

Rye Patch’s 100%-owned Florida Canyon mine is a past-producing open pit, heap-leach operation that was restarted in December 2017. Alio Gold’s 100%-owned producing open-pit mine, San Francisco, is in Mexico’s Sonora state, and its fully owned development project, Ana Paula, is in the country’s state of Guerrero.

“As two single-asset companies in a challenging precious metals market environment, this consolidation has the potential to improve valuations for both sets of shareholders,” Greg McCunn, Alio Gold’s CEO, said on a conference call, adding that the business combination “creates a platform to grow into a mid-tier gold company.”

Looking northeast at Rye Patch Gold’s past-producing Florida Canyon gold mine in Nevada. Credit: Rye Patch Gold.

Workers at Rye Patch Gold’s Florida Canyon gold mine in Nevada. Credit: Rye Patch Gold.

If the transaction is completed, the company will produce an estimated 165,000 ounces of gold this year from the two open-pit heap leach operations, Alio Gold says, basing its estimate on analyst consensus.

“Combining the San Francisco mine, which is expected to produce between 90,000 and 100,000 ounces of gold this year, with Florida Canyon, creates a production profile which we believe can be expanded to 180,000 to 200,000 ounces of gold with minimal capital expenditures,” McCunn said. “Adding the potential 115,000 oz. per year from our feasibility stage Ana Paula project would create a plus-300,000-oz. per year mid-tier gold company with a pipeline of exploration and development projects.”

Alio Gold’s Ana Paula gold project on the northwestern extension of the Guerrero gold belt in southern Mexico. Credit: Alio Gold.

In addition to the San Francisco mine and Ana Paula, Alio Gold has control of a 56,000-hectare land package along the Guerrero gold belt, and a portfolio of other exploration assets in Mexico, while Rye Patch’s other assets in Nevada include over 18,000 hectares of land along the Oreana Trend, with 100% interests in Lincoln Hill, an open-pit gold-silver project at the PEA stage, and Wilco, a gold silver project.

Incremental free cash flow from greater annual gold production will also help Alio Gold finance construction of the high-grade Ana Paula project, McCunn noted.