Alio Gold and Rye Patch announce business combination

Monday, March 19, 2018


(This is an abridged version of the press release. For the full version click here)

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VANCOUVER, British Columbia, March 19, 2018 (GLOBE NEWSWIRE) -- Alio Gold Inc (TSX:ALO) (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