RE:RE:10 Best Risk/Reward Leveraged Gold Stocks Alio Gold (5/28/2018)
Alio Gold (previously Timmins Gold) is a mid-tier producer that began producing in 2010. Their San Francisco mine is winding down. They only plan to produce 500,000 oz. through 2023, although I expect this to be extended because it currently has 800,000 oz. in reserves. All-in costs are around $1,200 per oz. Production of about 90,000 oz. is planned for 2018.
In 2015, they purchased Newstrike Capital. This allowed them to add the Ana Paula project, which is a 2 million oz. (2 gpt) open project with about $500 per oz. cash costs. It has a high IRR over 40% at $1,300 gold. Ana Paula will give them 115,000 oz. of production for about 10 years. It is currently being permitted with a feasibility study due in Q2 2018. The capex is $137 million, which will be financed with their current cash balance of $64 million, plus about $90 million in debt. Hopefully they can keep their share dilution down after their 10 to 1 reverse split in 2017.
Once Ana Paula begins production in 2020, they will also have production from San Francisco. This will give them about 175,000 oz. of production in Mexico from 2020 to around 2025. Hopefully they will find a third mine by that time to replace San Francisco. They have 500,000 acres to explore in Mexico on 10 properties.
They recently closed their merger with Rye Patch Gold, who has 4 properties in Nevada. This gives them the producing Florida Canyon mine, which adds 75,000 oz. in additional production. The bad news is that with all-in costs around $1,200 per oz., it makes both of their mines vulnerable to lower gold prices. Investors were not excited by the merger with the valuation of both companies dropping.
I'm puzzled by the lack of investor interest with this merger when you add the Ana Paula mine and exploration potential at their 10+ properties. They received a nice pipeline of projects from the Rye Patch. Lincoln Hill has a low capex to add 30,000 oz. of annual production. Wilco is a large open pit at nearly 2 million oz., although low grade (.34 gpt). It does have a significant amount of silver to increase the gold equivalent gpt. Plus, they have 45,000 acres to explore in Nevada.