ELKO — The Florida Canyon Mine could be under new ownership by the end of May if shareholders of Rye Patch Gold Corp. and Alio Gold Inc. approve combining the businesses at upcoming special meetings.
“When I founded Rye Patch 12 years ago, I envisioned creating a mid-tier, North American gold producer,” said William C. Howald, Rye Patch Gold’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.”
Leaders of the two single-asset companies said the transaction would benefit shareholders and create a strong growth platform. Rye Patch Gold and Alio Gold announced the proposed agreement in the first quarter of 2018, and if approved, the acquisition is expected to be completed in late May.
Rye Patch Gold owns the Florida Canyon gold and silver mine between Lovelock and Winnemucca, along with several other exploration projects in the state. The Nevada-based company acquired the surface mine in late 2016, and after rehabilitation, began production last spring.
Alio Gold’s principal assets are in Mexico, including the San Francisco Mine in Sonora and the Ana Paula Project in Guerrero.
“With increased scale from a large asset base, the combined company would have a stronger positioning in the market, which improves our access to capital, increases our liquidity and increases our potential to appeal to a larger shareholder base,” said Greg McCunn, CEO of Alio Gold, in a March conference call.
Under the proposed agreement, Alio Gold would acquire all the outstanding shares of Rye Patch Gold. Existing Alio Gold and Rye Patch shareholders will own approximately 53 percent and 47 percent of the combined company, respectively, if the transaction closes, according to a joint press release.
The combined company would have cash and cash equivalents of about $74 million and a debt of $29 million. Repayment of the loan is not immediately required upon change of ownership, and the bank has agreed to consider refinancing.
A proposed benefit to Alio Gold shareholders is immediate production growth. The free cash flow generated could be used to continue other projects and conduct exploration.
“Overall we believe this transaction provides Alio Gold with a stronger and more diversified platform for a stronger and more cash flow generation, and strengthens our ability to provide long-term shareholder value,” McCunn said.
Proposed benefits to Rye Patch Gold shareholders include an upfront premium of 35 percent, an improved balance sheet, asset diversification and expanded operational capabilities.
“The vision I had when I formed Rye Patch Gold is further advanced by this combination,” Howald said.
Florida Canyon produced 10,844 ounces of gold and 5,457 ounces of silver in the first quarter of 2018, according to Rye Patch Gold’s first-quarter results.
If the transaction is approved, the Alio Gold team plans to invest in low capital projects to increase production at the Nevada mine. Alio Gold anticipates being able to ramp up production to 100,000 ounces a year, McCunn said.
“What we see from our technical due diligence is that we are quite encouraged by the asset,” McCunn said, “and it’s definitely an asset we would like to own and have in our portfolio.”