Mr. Greg McCunn of Alio reports
ALIO GOLD AND RYE PATCH GOLD ANNOUNCE BUSINESS COMBINATION
Alio Gold Inc. and Rye Patch Gold Corp. have entered into an agreement whereby Alio Gold will acquire, through a plan of arrangement all of the outstanding shares of Rye Patch. Alio Gold will host a conference call at 11 a.m. Eastern Daylight Time today to discuss the transaction and the details of the call can be found at the end of this 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 share of Alio Gold. The offer implies a value of $1.57 per Rye Patch share, a 35-per-cent premium to Rye Patch shareholders, based on the 20-day volume-weighted average trading price of Alio Gold shares on the Toronto Stock Exchange and Rye Patch shares on the TSX Venture Exchange for the period ending March 16, 2018. The offer values Rye Patch's outstanding equity (undiluted) at approximately $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 per cent and 47 per cent of the combined company, respectively, following the close of the transaction.
Increased asset diversification -- 165,000 ounces of gold production in 2018 from two open-pit, heap leach operations in the stable jurisdictions of Sonora, Mexico, and Nevada;
- 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 year;
- Enhanced capital markets profile and potential rerating -- 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 with approximately $74-million in cash and equivalents and $29-million in total debt.
"This transaction is consistent with our strategy to create a leading mid-tier precious metals company," said Greg McCunn, chief executive officer 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 Ltd. (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 upfront premium of approximately 35 per cent 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 Dec. 31, 2017, 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 12 years ago, I envisioned creating a mid-tier, North American gold producer," stated William C. Howald, Rye Patch's president and chief executive officer. "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 derisks 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 Mr. 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 has 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 66-2/3rds per cent 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.
In the event that the transaction is not completed, a termination fee of $4-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.
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.
Advisers and counsel
Alio Gold's financial adviser is RBC Capital Markets, its legal advisers 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 adviser for Alio Gold as part of the transaction.
Rye Patch's financial adviser is Capital West Partners, its legal advisers 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 U.S. 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 SEDAR and from the U.S. Securities and Exchange Commission at its website.
Conference call and webcast
Alio Gold will host a conference call and webcast today at 11 a.m. Eastern Daylight Time 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 (U.S. and Canada):
Toll-free (outside North America): 210-229-8822
Conference ID: 5577778
Alio Gold would also like to notify shareholders in accordance with the requirements of the New York Stock Exchange, that the company's audited financial statements for the years ended Dec. 31, 2017, and 2016 are available on the company's website. Shareholders may also request a hard copy of the complete audited financial statements free of charge by e-mailing the company. The company's annual report on Form 40-F has been filed with the Securities and Exchange Commission and is available at its website and also at Alio's website.
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-per-cent-owned and operating San Francisco mine in Sonora, Mexico, and its 100-per-cent-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 targeting 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.
About Rye Patch Gold Corp.
Rye Patch Gold is a Nevada based, Tier 1 mining company engaged in the mining and development of quality resource based gold and silver mines and projects along the established Oreana trend in west-central Nevada. Leveraging its strong financial position and cash to acquire the operating Florida Canyon gold mine, Rye Patch Gold now controls a trend-scale platform with mining operations, resource projects and exploration upside. The combination of operations and organic growth along a major Nevada gold trend positions Rye Patch as an emerging mid-tier gold producer with tremendous value-added potential.
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