Following the release of drilling results from the Ana Paula project, Alio Gold Inc. (ALO, Financial) surged 4.17% and closed at a share price of $2.
Drillings returned with positive results.The exploration team also targeted the complex breccia extension just underneath the suggested open pit. The best mineral findings have been retrieved by two holes, which have been identified as drill hole number AP-18-284 and drill hole number AP-18-285.
Below the proposed open-pit the exploration team has intersected intervals of valuable mineral deposits, which concentration ranges between 1.91 and 2.03 grams per ton of ore in the complex breccia. Subspace of valuable mineral in the complex breccia starts at a 456.2 meters depth for a 40.9 to 48.2 meter ranging width.
Exploration activities conducted at the hydrothermal breccia, the surface which is immediately below the proposed open-pit, also came back with encouraging results.
Ana Paula will become the second core asset of Alio Gold.
The miner is defining a high-grade gold deposit at Ana Paula, where proven and probable gold reserves are estimated at 1 million ounces. The average grade of these reserves is 2.36 grams ton of ore. The total volume of valuable ore hosted at Ana Paula approximates 13.4 million tons.
The development project is located in the Mexican province of Guerrero, in a prolific gold belt, and is fully owned by Alio Gold. Here on 56,000 hectares extended land, the company proposes a gold/silver open-pit production through crushing and milling. The metal will be recovered by gravity- Inline Leach Reactor, flotation and Carbon-In-Leach Cyanidation.
The pre-feasibility study suggests an annual average production of 116,000 ounces of gold at an all-in sustain cost of $524 per ounce of metal sold and some silver output. Capital costs are estimated at $150.6 million. According to Alio Gold, the mine will be fruitful for more than seven years.
The internal rate of return is 34%. The rate means that Ana Paula’s financial strength can be purchased at a considerable 60% discount to the share price of $2.
The stock in the publicly-traded mining company also is trading cheaply because the current market valuation is below the 200, 100 and 50-SMA lines:
If we then compare the share price with the 52-Week range of 1.70 to $6.06, there should be no doubt that the gold stock is undervalued.
Analysts are for a 174% growth from the current valuation to materialize within a 12-month trading timeframe.
About 60% of Wall Street recommends to buy Alio Gold. I would suggest to buy the stock because the company also has recently acquired an additional catalyst. Many articles on the Alio Gold/Rye Patch Gold deal are flooded with information on costs, production and related expectations, but are missing an issue that may be crucial for Alio Gold. Rye Patch must repay the Florida Canyon project loan of $15 million to Macquarie Bank. However, the bank chose to overlook the immediate restitution of the loan and is in talks with Alio Gold regarding a restructuring of the allowance. The first restructuring terms disclosed by the news release talk about a repayment of the loan by installments over a period of three years. Perhaps that will open a new channel for Alio Gold to have extra financial resources to support its Ana Paula project.
Paradoxically, the real target of Alio Gold could be the Florida Canyon project loan and not just the Rye Patch’s assets in Nevada.
(Disclosure: I have no positions in any stock mentioned in this article.)
