Alio Gold Inc. (ALO, Financial) has informed shareholders on its website that it has authorized the acquisition of Rye Patch Gold Corp. (RPM.V) for an estimated $102 million.
Alio Gold will purchase the entire common stock in Rye Patch Gold Corp at an implied share price of about $1.25. That represents a bonus of 35% to Rye Patch’s shareholders. The transaction price is an appraisal of the last 20 days of trading of the two stocks.
Alio Gold will proceed with an equity issuance consisting of 39 million shares. That volume may be adjusted because of other financial instruments outstanding that Alio Gold issued prior to the agreement with Rye Patch Gold Corp.
The shareholders of Rye Patch will receive for each share they possess in the company a total of 0.48 ordinary shares of Alio Gold.
Following the closing, which is expected to take place around May 25, the existing shareholders of Alio Gold will hold about 53% of the stock in the new company, while the shareholders of Rye Patch will own a stake of about 47%.
Rye Patch Gold Corp. is a Canadian precious metal exploration company with mineral interests in Nevada. The company has total measured and indicated mineral resources of 3.2 million equivalent ounces of gold and 104.3 million equivalent ounces of silver. Rye Patch Gold Corp is also a developer of the properties that it acquired.
Rye Patch Gold Corp. has only one gold and silver producing asset, the Florida Canyon mine, which is located in Pershing County, Nevada. While the other properties, which are located on the Oreana Trend and on the Cortez Trend, are still in an exploration status.
According to the Rye Patch’s website, Florida Canyon, the company’s flagship that achieved production of payable metal last year December, has a net present value of $48.5 million and an internal rate of return of 34.4% in the 100% of base case. The net present value is based on a discount ratio of 7.5%. Rye Patch Gold Corp. has approximately 81.1 million shares outstanding.
Alio Gold' CEO Greg McCunn commented:
“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.”
Source: Alio Gold's news release
Once the new assets are fully integrated into Alio Gold’s portfolio, the company will be provided with new development and exploration opportunities for near-term production growth. The combined company will be characterized by a lower cost profile than the two companies that contributed to its creation. That, as a consequence, will increase Alio Gold’s ability to generate the necessary cash to finance the project at Ana Paula.
Also, on the front of Rye Patch Gold Corp’s shareholders, the combined company will provide meaningful revaluation potential.
Alio Gold Inc. (ALO, Financial) and Rye Patch Gold Corp. (RPM.V) have underperformed the Van Eck Vectors Gold Miners ETF (GDX) for the 52-weeks through March 19 by 32.4% and 18.2% having returned loss of 42.11% and 27.87%.
Source: Yahoo Finance
Alio Gold Inc. has a price-book ratio of 0.51 times and an EV-to-Ebitda ratio of 1.90 times. While Rye Patch Gold Corp. has a price-book ratio of 1.2 times and a negative value for the EV-to-Ebitda ratio of 19.02 times.
The industry has averages of 2.06 and 9.90 times for the two aforementioned ratios.
(Disclosure: I have no positions in any security mentioned in this article.)
