Alio Gold Inc. T.ALO

Response to Basher

[taylor1988]

Once again I respectfully disagree with the majority of the above statements.

 

""""""""""If your portfolio depends on a share count - then keep the share count constant and wait.
Who said we needed AP up and running in 2019?
Why not wait a little longer and keep the share count?
There are always options on the table.
But here - you forgot about one fundamental thing - it was easier for them to issue. That's why they did that.
They could have done things differently - but they had a buyer for shares and they decided to ignore our interests, shareholder interests and they diluted us.""""""""""""""""""""

 

As stated in my prior post, I believe management had every intention of waiting and did not wait to finance at all, the price of gold started off the year looking like it would reach $1,300 and likely find its footing between $1,300 and $1,350 by mid summer. This did not occur as gold spent less than a day near the $1,300/oz level each time which does not make it easy for a producer to sell its ounces at the highest margins, or to have much comfort in forecasting that they will attain record cash-flow this year. The company made $34.1 M last year (an incredible amount compared to previous years), but the gold price traded between $1,200 and $1,380. Thus far this year $1,380 is now looking like a pipe dream to management who seem conservative and they decided that if they cannot beat last year's cash flow, then they simply cannot fund this internally with the timeline they want to. This FORCED management to change their mind and say "Let's finance rather than leave this up to chance, as of right now the chances of us internally funding this thing are very slim".

 

As a shareholder I would be significantly more annoyed if Alio came out and said "We're holding off on construction for Ana Paula until 2020 as we're short on cash, and were not able to internally fund Ana Paula". Well. DUH. How on earth would they have expected to in 2 years with lower gold prices than we averaged in 2016.

 

The re-valuation of Alio Gold is based on Ana Paula, they are getting little to no respect for San Francisco as it's a low-grade, average cost mine in an average jurisdiction at best. Ana Paula is the company maker, the game-changer for the company, high margin ounces, and a deposit that looks to have more upside.

 

The company should be able to turn into a cash-flow machine with Ana Paula online and finally move towards a true re-valuation. Once construction is underway here, we should see that begin to happen as there's no way a potential 200,000 ounce gold producer with the potential for $60 - $70 M in annual cash-flows is going to trade at the current enterprise value of $83 M US. It would be trading for 1.5x cash flow and this is an insane valuation that makes zero sense and is not seen across any gold producers currently.

 

They did not ignore anyone's interests (shareholders included). Those that are short-term and need this money tomorrow management does not care about and I don't blame them. I don't need this money tomorrow. Was it annoying that I took a 30% hair-cut on my profits? Sure. Is it annoying that I was up 30% on the stock and I'm now down 5%? Yes. But I'm looking at the big picture, and the position represents $5,000 worth of my assets and 2.5% of the majority of my portfolios, hardly a number that is going to affect my returns each year if it does nothing for 12 months, or affect my sleep at night.

 

Management thinks long term, management wants AP built so they can do underground drilling to add to ounces at Ana Paula (the flagship project here and the real company-maker), and management saw the opportunity to do so without shareholders taking much of a hit. For those that bought during the stage 1 breakout at $4.30 US, they are barely down. Anyone that chased this position, sized it too big, or was on margin got hit, this is not management's fault, nor the market's fault, this is their fault as they shouldn't have more than 5-10% of a portfolio in one single junior miner, shouldn't have chased the breakout, and most should have taken at least a fraction off into a 40% gain in less than 5 weeks - I know I did.

 

Do I wish I took more than 1/4 off at $5.75? Yes. But I'm not crying about it. Management made a good decision, they now have secured financing for Ana Paula, they have zero reason to dilute again, and they did it for a great reason.

 

The gold market was not responsible for this drop, but I commend management on having a crystal ball apparently and seeing this drop in the gold price. If they had waited another week to do this financing, they would have missed the opportunity to do so and would really be in trouble for financing Ana Paula as now they WOULD have to dilute at worse prices by using a lower share price to issue, or they WOULD have had to not be able to fund Ana Paula and really piss shareholders like me off who are impressed by their current time-line.

 

A share dilution of 22.5% is a lot to build a mine? Are you kidding me? No offense and don't mean to come off as snarky, but how long have you been investing in junior miners that become producers?

 

A 22.5% to finance a mine is NOTHING, one of the lowest dilutions ever. Most companies have to taken on massive debt to build a mine, and are diluting to the tune of 40-50% of their market cap. The fact that Ana Paula should be able to bring in $200 M in cash-flow at least and the current market cap is $200 M means that as long as they did it at under 50% dilution they did a good job. They did it at 22.5% and we are likely fully funded now.

 

Most companies need to go into debt to build a mine, need to finance and dilute 20-25%, and often need to sell streams, I commend management for this decision.

 

If you wish to sell your Alio shares at an $83 M enterprise value when this company has the potential to generate $70 M in cash-flow once Ana Paula is built, that is completely up to you. Even with the current share dilution my conservative target price now sits at $7.00 per share assuming a $1,200/oz gold price, nearly 100% higher than current levels. Based on a better gold price scenario ($1,350+), $8.50 - $9.00 is not unreasonable by mid 2019.

 

""""""They may find more gold on one of their vast properties - and say - we now need 100M dollars to put up ANOTHER MINE. They even say publicly they are searching and drilling now for more gold. Do I want another AP disaster dilution?""""""

 

What is wrong with wanting to find more gold and making a project more economic? The capital cost of a mine is all over-head costs, the more gold that is available to mine, the more economic it becomes. I have followed the Ana Paula Project for 7 years when it was under Newstrike's hands before they were bought out by Timmins (Alio now). The project is extremely impressive, is seated on the Guerrero Gold Belt (an extremely impressive gold belt), and is situated next to Torex Gold who just made a massive discovery with more UNDERGROUND drilling.

 

Torex's average grade is 2.5~ grams per tonne gold but is currently pumping gold through its mill that has an average grade of over 90 grams per tonne GOLD - NINETY. That is 5x higher than the average gold grade of the highest grade producer currently Pretium Resources and they were previously a mid-grade explorer. The Guerrero Gold Belt is very well endowed, the company has barely scratched the surface and with the discovery Torex has made with an extra several thousand ounces at 3-4 ounces per tonne gold, I do not blame them AT ALL for wanting to do some more exploring. Torex had no clue they had these grades under their pits, why would Alio (Torex's NEIGHBOUR) not take a look too? IF Alio manages to stumble upon something similar at Ana Paula, it will blow this story wide open.

 

You have no right to speak to management the way you have, you're extremely off the mark on the majority of your comments, and you're crazy to think that management or any management team in the world would not dilute 22.5% to build a mine. That is a dream for most gold CEO's.

 

Extra $50 M does several things:

 

- Add ounces to Ana Paula
- Peace of mind and possibility to finance construction
- Potential for new discovery at Ana Paula as we have extra $ to discover
- Share price now has a floor under it near the $4.00 level and money has been raised as otherwise large investors who want a piece of Alio would pinch the share price and drive it down knowing that the lower they can get it, the lower they can hopefully get a financing done and really steal from shareholders.

 

This was a great move by management, short term it sucks - no denying it. Long term, I love the real estate of AP, I love the project and its upside potential, I love that we're fully financed now and I look forward to a re-valuation in 2019.

[Platin2014]

Taylor, very good post

[Weeble]

Taylor, great post.   Thanks.

[azstetson]

Taylor, I just took the time to read your post, and agree with you 100%.  I doubled down last week at just under $4.00 US and now have 8,000 shares.  I will look for a dip, and hope to acumulate 10K shares to sit on.  As soon as this bought deal closes, I look for stock to move up to the offering price and Im more than happy to wait for AP.