Alio Gold Inc. (ALO, Financial) has informed the market that it has completed a wholesale restructuring of its existing debt facility at Macquarie Bank, involving a loan for the Florida Canyon Project.
The miner has three years to refund its secured and guaranteed loan to the bank by the payment of 12 quarterly installments of $1.25 million. The company is also expected to pay interest on the principal amount based on a Libor plus 8% rate. The first instalment will be paid on Sept. 30.
In afternoon trading on Thursday, Alio Gold surged 4.76% to $1.54 per share, signaling the market's giddiness after learning the news.
Alio Gold acquired the debt facility at Macquarie Bank with the purchase in May of Rye Patch Gold Corp. (RPM.V) for about $102 million. Rye Patch is required to reimburse the loan by the end of 2018. Rye Patch is a Canadian precious metal exploration company with mineral interests in Nevada.
The renegotiation of the loan with Macquarie Bank is important to shareholders because it opens a channel for additional financial support for the company's Ana Paula Project in Mexico. Also, it allows the Florida Canyon mine to rise to a level of steady production and fund exploration activities at the Oreana Trend and Cortez Trend in Nevada.
At a gold price of $1,285 per troy ounce, the Florida Canyon mine has already demonstrated it can generate cash flow of about $13.06 million over the last 12 months of operations. Prior to the takeover, Alio Gold turned out an operating cash flow of $1.5 million. Alio Gold is well positioned to support its strategy to become a top mid-tier precious metals producer.
CEO Greg McCunn said that the renegotiation of the loan will enhance the financial flexibility of the company. As a result, Alio Gold can better focus on operational efficiencies and cutting costs.
With the addition of the Florida Canyon Mine to its portfolio of assets, Alio Gold has inherited total measured and indicated mineral resources of 3.2 million ounces of gold and 104.3 million ounces of silver.
That volume of resources adds to 0.9 million ounces of gold in proven and probable reserves available at the San Francisco mine in Mexico, and one million ounces of gold in proven and probable reserves nestled in the deposit at Ana Paula.
Alio Gold is trading below the 200, 100 and 50-SMA lines and slightly above the 52-week low of $1.32 per share and plainly below the 52-week high of $4.94 per share.
The stock in Alio Gold has a market capitalization of $130.35 million, a price-book ratio of 0.34 times and an enterprise value to earnings before interest, taxes, depreciation and amortization or Ebitda ratio of 1.34.
At current valuations, the stock seems to be cheap. The recommendation rating is 2.4 out of 5 and the average target price is $5.47 per share.
(Disclosure: I have no positions in any security mentioned in this article.)
