Rio Alto Mining (TSX:RIO, Stock Forum), a Vancouver-based resource firm engaged in the development of the 21,000 ha La Arena gold-copper project located in north-central Peru, announced today that the company had signed a binding letter of agreement with Sulliden Gold (TSX:SUE, Stock Forum) to create a mid-tier gold producing producer focused on operating in the prolific gold mining district of Peru.
According to the news release, the transaction puts together Rio's currently producing La Arena gold mine and adjoining sulphide copper-gold deposit with Sulliden's Shahuindo gold development project located in Cajabamba, northern Peru.
The deal will create a mid-tier gold producer with near-term production potential of approximately 300,000 ounces of gold annually with the opportunity to materially expand production in the near-term while maintaining low cash costs.
As a result of the agreement, Rio will acquire all outstanding Sulliden shares with a share swap at a rate of one Sulliden common share for every 0.525 Rio common share. In addition, Sulliden shareholders will receive 0.10 of a common share in the newly incorporated company (“SpinCo”) for each Sulliden share held.
The SpinCo will retain Sulliden's 100% interest in the East Sullivan property located in Val-d'Or, Quebec and will be capitalized with approximately $25.0 million which at Rio's option may be provided entirely in cash or $15 million in cash and $10 million in Rio common shares.
The implied transaction value, before ascribing any value to SpinCo, is approximately $300 million.
Rio president and CEO, Alex Black, commented on the deal, “This transaction represents a logical combination for Rio Alto given the complementary nature and proximity of our respective operations.”
He continued, “We are looking forward to expanding upon the excellent work completed to date by the management team of Sulliden and believe the development of Shahuindo leverages our core strengths as an organization and is analogous in many respects to our La Arena mine, which was built on time and on budget and has continuously outperformed expectations.”
Then went on to explain, “This acquisition positions Rio Alto on solid footing with material current production, substantial growth and a significant resource base able to support a long operating mine life. We have successfully demonstrated through our development and operational track record that our management team is capable of generating solid returns to shareholders and we see the opportunity to do that again with Shahuindo.”
Sulliden CEO and Co-Chairman, Peter Tagliamonte, concluded, “We are very excited about the prospects of Rio Alto going forward and strongly believe this is the right transaction for our shareholders. Our shareholders will receive a substantial premium, as well as a meaningful ownership position in Rio Alto and all the benefits that come along with that as La Arena continues its track record of outperformance and the Shahuindo project is developed into the high quality mining operation that we envisioned.”
Sulliden was in the news recently when the company was highlighted as a takeover target back in December.
Shares gained 35.06% on the news to $1.04 per share.
Currently there are 314.5m outstanding shares with a market cap of $324.0 million.