Diversified platform with production from four operations totaling more than 235,000 gold equivalent ounces per year

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Argonaut Gold and Alio Gold announce friendly at-market merger. (Credit: Pixabay/Gerd Altmann)

Argonaut Gold and Alio Gold are pleased to announce that they have entered into a definitive agreement for an at-market merger whereby Argonaut will acquire all of the issued and outstanding shares of Alio.  Under the terms of the Arrangement Agreement, all of the Alio issued and outstanding common shares will be exchanged on the basis of 0.67 of an Argonaut common share per each Alio common share (the “Exchange Ratio”).

The Exchange Ratio has been agreed based on the volume-weighted average prices of Argonaut and Alio common shares over the 20 trading days ended on March 27, 2020.  Upon completion of the Transaction, existing Argonaut and Alio shareholders will own approximately 76% and 24% of the pro forma company, respectively, on a fully-diluted, in-the-money basis.
Transaction Highlights

Creates Diversified Intermediate Producer:
Diversified platform with production from four operations totaling more than 235,000 gold equivalent ounces annually.

Enhanced asset portfolio and Mineral Reserve and Mineral Resource base.

Improved geographical diversification with assets in Mexico, USA and Canada.

Captures Significant Operating and Jurisdictional Synergies:

Argonaut has demonstrated operational excellence in open pit, heap leach mining over the last decade.

The Florida Canyon mine is in close proximity to Argonaut’s corporate headquarters.
Synergies at corporate and asset level G&A.

Robust Growth Pipeline:

Strong internal growth optionality from strengthened asset base.

Mexico: Ana Paula and Cerro del Gallo.

Canada: Magino.

Improved Capital Markets Scale:

Appeals to a broader institutional shareholder base.

Increases research coverage.

Improves trading liquidity.

Financial Flexibility:

Pro forma $55 million cash and $25 million debt as at December 31, 2019.

$31 million available from Argonaut’s existing revolving credit facility.

Improved credit potential from cash flow growth.

Pete Dougherty, President & CEO of Argonaut stated: “This is a transaction which makes sense for both sets of shareholders.  Combining complementary assets into one larger, more relevant company generates significant synergies.  With a solid production base of over 235,000 gold equivalent ounces expected this year, a strong balance sheet and strong cash flow generation at current gold prices, we will be well positioned to evaluate and execute on growth opportunities from within the combined company’s development asset portfolio.”

Benefits to Argonaut Shareholders:

Enhanced Size: Elevates Argonaut within its peer group through an expanded asset portfolio and market presence.

Improved Life of Mine Profile: Florida Canyon adds immediate growth and then replaces El Castillo, which is scheduled to close in 2022.

Diversification: Addition of an operating mine in a market preferred geography (Nevada, USA).

Improved Growth Profile: Provides immediate growth with additional long-term development optionality.

Re-rate Potential: Catalyst for a share price re-rate through expanded production base and enlarged corporate size.

Benefits to Alio Shareholders:

Improved Financial Profile: Removes liquidity restrictions by way of a strengthened pro forma balance sheet, as well as cash flow generation potential from a diversified asset base.

Ownership: Meaningful participation in a stronger combined company with a strong technical open pit, heap leach skill set.

Diversification: Exposure to a multi-mine portfolio in low-risk geographies with a long history of profitable, cash generating production.

Strong Development Pipeline: Enhanced upside potential from a strong suite of growth assets including the Magino project in Ontario, Canada and the Cerro del Gallo project in Guanajuato, Mexico in addition to the Ana Paula project in Mexico.

Increased Capital Markets Exposure: Increased analyst coverage and share liquidity.

Re-rate Potential: Catalyst for a share price re-rate through expanded production base and enlarged corporate size.

“This transaction is very positive for Alio Gold shareholders, as it maintains meaningful exposure to the turn-around underway at the Florida Canyon gold mine and the potential of the Ana Paula project, while removing the substantial risk that is inherent in a one-mine company,” said Mark Backens, President and CEO of Alio Gold.  “The combination with Argonaut benefits our shareholders through participation in a larger, well-funded, and more diverse company that has the ability to invest in high-return projects across the portfolio to unlock a significant value re-rating.  Pete and the Argonaut team have a long track record of delivering value from mines very similar to Florida Canyon and we have no doubt that success will continue to benefit all stakeholders.”

Management and Board

Argonaut will continue to be managed by the executive team in Reno, Nevada led by Peter Dougherty as Chief Executive Officer and David Ponczoch as Chief Financial Officer.

Argonaut’s Board of Directors will continue to be led by Chairman, James Kofman and Argonaut has invited two directors from Alio Gold to join the combined board.  Ms. Paula Rogers and Mr. Stephen Lang have been put forward as the Alio Gold members to join Argonaut’s Board.  Committees are expected to be reconstituted at the first board of directors’ meeting following the close of the transaction.

Board of Directors’ Recommendations

The Arrangement Agreement has been unanimously approved by the Boards of Directors of Argonaut and Alio, and each board recommends that their respective shareholders vote in favour of the Transaction.

The financial advisor to Argonaut, Scotiabank, has provided a fairness opinion to the Board of Directors of Argonaut that, subject to the assumptions, limitations and qualifications set out therein, the Exchange Ratio provided for in the Arrangement Agreement is fair, from a financial point of view to Argonaut.  RBC Capital Markets has provided a fairness opinion to the Board of Directors of Alio that, subject to the assumptions, limitations and qualifications set out in such fairness opinion, the consideration provided for in the Arrangement Agreement is fair from a financial point of view to the shareholders of Alio.

Source: Company Press Release