VANCOUVER, March 19, 2018 /CNW/ - Alio Gold Inc
(TSX, NYSE AMERICAN: ALO) ("Alio Gold" or the "Company") and
Rye Patch Gold Corp. (TSX.V: RPM; OTCQX: RPMGF; FWB:5TN) ("Rye
Patch") are pleased to announce they have entered into an agreement
whereby Alio Gold will acquire, through a plan of arrangement (the
"Arrangement") all of the outstanding shares of Rye Patch.
Alio Gold will host a conference call at 11:00am EDT (Toronto) time today to discuss the transaction
and the details of the call can be found at the end of the
release. Management from both Alio Gold and Rye Patch will
participate in the conference call.
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% 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% and 47% of the combined company, respectively,
following the close of the transaction.
Transaction Highlights
- 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
"This transaction is consistent with our strategy to create a
leading mid-tier precious metals company" said Greg McCunn, CEO of Alio Gold. "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."
In conjunction with the proposed transaction, Macquarie Bank
Limited ("MBL") has agreed not to exercise its right to require
immediate repayment of the existing Florida Canyon project loan as
a result of this change of control, subject to certain conditions.
At the closing of the transaction, the outstanding principal
owing on the MBL project loan is expected to be $15 million. MBL and the Company have
commenced discussions regarding a restructuring of the loan at or
after closing of the transaction and MBL has provided indicative
terms for such a restructuring which remain subject to credit
approval. The indicative terms for the restructuring envision
the principal remaining at the closing of the transaction will be
repaid over 12 equal quarterly payments along with accrued
interest. Project loan type covenants including
forward-looking financial ratios, cash sweep for early repayment of
the loan and debt service and capital reserve account requirements
would be replaced with a corporate guarantee and security from Alio
Gold and certain of its affiliates. The Company intends to continue
to work with MBL to seek final credit approval ahead of the close
of the transaction.
Benefits to Rye Patch Shareholders
- Immediate up-front premium of approximately 35% based on the
20-day volume weighted average prices of both companies while
maintaining meaningful equity participation
- Improved balance sheet with $45
million of pro forma net cash as at December 31, 20173 and the flexibility
to support advancement of Rye Patch projects
- Asset diversification with exposure to a second producing asset
and meaningful ownership in Alio Gold's high-grade, high-margin
Ana Paula project
- Expands operational capabilities, adding proven expertise in
open pit mining and heap leaching
- Combined company provides significant revaluation potential as
a diversified company with growth opportunities
"When I founded Rye Patch twelve years ago, I envisioned
creating a mid-tier, North American gold producer," stated
William C. Howald, Rye Patch's
President and CEO. "This business combination with Alio Gold
achieves that goal and creates a company with gold mining
operations located in two stellar mining jurisdictions,
Mexico and Nevada, with tremendous exploration
upside. The Alio Gold management team has a positive track
record in Mexico and combined with
Rye Patch will expect to repeat that success in Nevada."
Benefits to Alio Gold Shareholders
- Strengthens and de-risks portfolio with the addition of a
second producing asset
- Establishes an operating presence in Nevada, providing further geopolitical
diversification
- Provides near-term production growth while lowering combined
cost profile
- Strengthens Alio Gold's ability to generate free cash flow on a
per share basis
- Incremental free cash flow to finance Ana Paula construction
- Adds significant exploration potential with a large, district
scale land package and strong pipeline of development and
exploration opportunities
Management and Board
Alio Gold will continue to be managed by the executive team in
Vancouver, Canada led by
Greg McCunn as Chief Executive
Officer and Colette Rustad as Chief
Financial Officer. In addition, the Company will seek to
retain Doug Jones from Rye Patch as
its Chief Operating Officer.
Alio Gold's Board of Directors will continue to be led by
Chairman, Bryan Coates and Alio Gold
have invited two directors from Rye Patch, Tim Baker and John
Mansanti, to join the combined board. Committees are
expected to be reconstituted at the first board of directors'
meeting following the close of the transaction.
Boards of Directors' Recommendations
The Arrangement has been unanimously approved by the board of
directors and the special committee of Rye Patch and will be
subject, among other things, to the favourable vote of 66 2/3% of
the Rye Patch common shares voted at a special meeting of
shareholders called to approve the transaction. Officers and
directors of Rye Patch as well as other shareholders including
Primevest Capital Corp have entered into lock-up and support
arrangements with Alio Gold under which they have agreed to vote in
favour of the transaction. Capital West Partners has provided an
opinion to the Rye Patch Board of Directors that the consideration
offered is fair, from a financial point of view, to Rye Patch
shareholders.
The Arrangement has been unanimously approved by the board of
directors of Alio Gold and will be subject, among other things, to
the favourable vote of a majority of the Alio Gold shareholders at
its annual and special meeting. RBC Capital Markets has provided an
opinion to the Alio Gold Board of Directors that the consideration
offered is fair, from a financial point of view, to Alio
Gold.
Deal Protection
In the event that the transaction is not completed, a
termination fee of C$4.0 million is
payable to either Alio Gold or Rye Patch, respectively, upon
termination of this transaction by the terminating party on terms
customary for a transaction of this nature. Rye Patch has
also provided Alio Gold with certain other customary rights,
including a right to match competing offers.
Timing
Full details of the Arrangement will be included in the
management information circulars of Alio Gold and Rye Patch and
both circulars are expected to be mailed to their respective
shareholders on or about April 17,
2018. It is anticipated that both shareholder meetings
and closing of the transaction will take place on or about
May 25, 2018.
Advisors and Counsel
Alio Gold's financial advisor is RBC Capital Markets, its legal
advisors are Blake, Cassels & Graydon LLP in Canada and Paul, Weiss, Rifkind, Wharton
& Garrison LLP in the United
States. PI Financial Corp. has been engaged as a
Strategic Advisor for Alio Gold as part of the transaction.
Rye Patch's financial advisor is Capital West Partners, its
legal advisors are Koffman Kalef LLP in Canada and Dorsey & Whitney LLP in
the United States.
Shareholders and other interested parties are advised to read
the materials relating to the transaction that will be filed with
securities regulatory authorities in Canada and with the United States Securities
and Exchange Commission when they become available because they
will contain important information. Anyone may obtain copies
of these documents when available free of charge at the Canadian
Securities Administrators' website at www.sedar.com and from the
United States Securities and Exchange Commission at its website at
www.sec.gov. This announcement is for informational purposes
only and does not constitute an offer to purchase, a solicitation
of an offer to sell the Shares or a solicitation of a proxy.
Conference Call and Webcast
Alio Gold will host a conference call and webcast today at
[11:00] am EDT for members of the investment community to discuss
the transaction. Management from both Alio Gold and Rye Patch will
participate in the conference call. Participants may join the
conference call using the following call-in details:
Toll Free (US and
Canada):
|
(855)
427-9509
|
Toll Free (Outside
North
America):
|
(210)
229-8822
|
Conference
ID:
|
5577778
|
Webcast:
|
https://edge.media-server.com/m6/p/w7s3y7at
|
Replay:
|
To be available at
www.aliogold.com
|
Annual Documents
Alio Gold would also like to notify shareholders in accordance
with the requirements of the NYSE American, that the Company's
audited financial statements for the years ended December 31, 2017 and 2016 are available on the
Company's website at www.aliogold.com. Shareholders may also
request a hard copy of the complete audited financial statements
free of charge at info@aliogold.com. The Company's annual
report on Form 40-F has been filed with the Securities and Exchange
Commission and is available at www.sec.gov and also at
www.aliogold.com.
About Alio Gold
Alio Gold is a growth oriented gold mining company, focused on
exploration, development and production in Mexico. Its
principal assets include its 100%-owned and operating San Francisco
Mine in Sonora, Mexico and its
100%-owned development stage Ana Paula Project in Guerrero, Mexico. Located within the highly
prospective Guerrero Gold Belt on
56,000 hectares of underexplored land, the Ana Paula Project is a
high-grade, high margin project currently in the definitive
feasibility stage. An underground decline to provide access for an
exploration drill program has been initiated. The drill program
will target the continuation of the high-grade gold mineralization
below the proposed pit which has the potential to significantly
enhance the robust economics of the project. The Company also has a
portfolio of other exploration properties, all of which are located
in Mexico.
About Rye Patch Gold
Rye Patch's assets are all located in Nevada, USA and include its 100%-owned Florida
Canyon Mine. The mine is a past producing, open pit, heap leach
operation that was recently restarted and achieved commercial
production in December 2017. Rye Patch also controls a
sizeable 18,000 hectare land package along the Oreana Trend in
Nevada with a 100% interest in
Lincoln Hill, a PEA stage, open pit gold-silver project and a 100%
interest in Wilco, a gold silver project with an NI 43-101
resource. Rye Patch also holds the Gold Ridge and Garden Gate
Pass exploration properties.
Footnotes:
|
1)
|
Gold production
estimate for 2018 is based on analyst consensus
|
2)
|
Production estimate
for the Ana Paula project from the technical report entitled "NI
43-101 Preliminary Feasibility Study, Guerrero, Mexico", dated May
16, 2017 which is available on Alio Gold's SEDAR profile at
www.sedar.com.
|
3)
|
Cash balance and debt
outstanding as of December 31, 2017 and adjusted for subsequent
events
|
Cautionary Note Regarding Forward-Looking Statements
This news release includes certain "Forward-Looking Statements"
within the meaning of the United States Private Securities
Litigation Reform Act of 1995 and "forward-looking information"
under applicable Canadian securities laws. These forward-looking
statements or information relate to, among other things:
anticipated benefits of the Arrangement to Alio Gold, Rye Patch and
their respective shareholders; the timing and receipt of required
shareholder, court, stock exchange, creditor and regulatory
approvals for the Arrangement; the ability of Alio Gold and Rye
Patch to satisfy the other conditions to, and to complete, the
Arrangement; the anticipated timing of the mailing of the
information circulars regarding the Arrangement, the closing of the
Arrangement; future growth potential for Alio Gold, Rye Patch and
their respective businesses; future mine development plans at the
Ana Paula Project; estimates regarding production at the
San Francisco and Florida Canyon
Mines; and estimates of production costs and the possible
revaluation potential.
In respect of the forward-looking statements and information
concerning the anticipated completion of the proposed Arrangement
and the anticipated timing for completion of the Arrangement, the
parties have provided them in reliance on certain assumptions that
they believe are reasonable at this time, including assumptions as
to the time required to prepare and mail shareholder meeting
materials, including the required joint management information
circular; the ability of the parties to receive, in a timely
manner, the necessary shareholder, court, stock exchange, creditor
and regulatory approvals; and the ability of the parties to
satisfy, in a timely manner, the other conditions to the closing of
the Arrangement. These dates may change for a number of reasons,
including unforeseen delays in preparing meeting material;
inability to secure necessary shareholder, court, stock exchange,
creditor and regulatory approvals in the time assumed or the need
for additional time to satisfy the other conditions to the
completion of the Arrangement. Accordingly, readers should not
place undue reliance on the forward-looking statements and
information contained in this news release concerning these
times.
Forward-looking information relating to future production,
analyst coverage, liquidity, cash flow and potential revaluation of
Alio Gold shares, future growth potential for Alio Gold, Rye Patch
and their respective businesses, future mine development plans,
estimates regarding the recovery of minerals, and estimates of
production costs is based on management of the applicable parties'
reasonable assumptions, estimates, expectations, analyses and
opinions, which are based on such management's experience and
perception of trends, current conditions and expected developments,
and other factors that management believes are relevant and
reasonable in the circumstances, but which may prove to be
incorrect. Assumptions have been made regarding, among other
things, the price of silver, gold, and other metals; costs of
development and production; estimated production rates for gold and
other metals produced by the parties; the estimated costs of
development of development projects; Alio Gold and/or Rye Patch's
ability to operate in a safe and effective manner and their ability
to obtain financing on reasonable terms.
These statements reflect the parties' respective current views
with respect to future events and are necessarily based upon a
number of assumptions and estimates that, while considered
reasonable by the respective parties, are inherently subject to
significant business, economic, competitive, political and social
uncertainties and contingencies. Many factors, both known and
unknown, could cause actual results, performance or achievements to
be materially different from the results, performance or
achievements that are or may be expressed or implied by such
forward-looking statements or information and the parties have made
assumptions and estimates based on or related to many of these
factors. Such factors include, without limitation: satisfaction or
waiver of all applicable conditions to closing of the Arrangement
including, without limitation, receipt of all necessary
shareholder, court, stock exchange, creditor and regulatory
approvals or consents and lack of material changes with respect to
Alio Gold and Rye Patch and their respective businesses, all as
more particularly set forth in the Arrangement Agreement; the
synergies expected from the Arrangement not being realized;
business integration risks; fluctuations in general macro-economic
conditions; fluctuations in securities markets and the market price
of Alio Gold's shares; fluctuations in the spot and forward price
of gold and other metals or certain other commodities (such as
natural gas, fuel oil and electricity); fluctuations in the
currency markets (such as the Canadian dollar, Mexican peso and the
U.S. dollar); changes in national and local government,
legislation, taxation, controls, regulations and political or
economic developments in Canada,
the United States or Mexico; operating or technical difficulties in
connection with mining or development activities; risks and hazards
associated with the business of mineral exploration, development
and mining (including environmental hazards, industrial accidents,
unusual or unexpected formations, pressures, cave-ins and
flooding); risks relating to the credit worthiness or financial
condition of suppliers, refiners and other parties with whom the
parties do business; inability to obtain adequate insurance to
cover risks and hazards; and the presence of laws and regulations
that may impose restrictions on mining, including those currently
enacted in the United States and
Mexico; employee relations;
relationships with and claims by local communities and indigenous
populations; availability and increasing costs associated with
mining inputs and labour; the speculative nature of mineral
exploration and development, including the risks of obtaining
necessary licenses, permits and approvals from government
authorities; diminishing quantities or grades of mineral reserves
as properties are mined; title to properties; and the factors
identified under the caption "Risk Factors" in Alio Gold's Annual
Information Form, and under the caption "Risk Factors" in Rye
Patch's Annual Information Form. In addition, the failure of a
party to comply with the terms of the Arrangement Agreement may
result in that party being required to pay a termination fee to the
other party, the result of which could have a material adverse
effect on the paying party's financial position and results of
operations and its ability to fund growth prospects and current
operations.
Readers are cautioned against attributing undue certainty to
forward-looking statements or information. Although the parties
have attempted to identify important factors that could cause
actual results to differ materially, there may be other factors
that cause results not to be anticipated, estimated or intended.
The parties do not intend, and do not assume any obligation, to
update these forward-looking statements or information to reflect
changes in assumptions or changes in circumstances or any other
events affecting such statements or information, other than as
required by applicable law.
Neither the TSX, TSX Venture Exchange nor its Regulation
Services Provider (as that term is defined in the policies of the
TSX, TSX Venture Exchange) nor the New York Stock Exchange American
accepts responsibility for the adequacy or accuracy of this news
release.
SOURCE Rye Patch Gold