Rio Alto Mining Limited ("Rio Alto" or the "Company") (TSX:RIO)(NYSE:RIOM)(LMA:RIO)(DBFrankfurt:MS2) and Sulliden Gold Corporation Ltd. ("Sulliden") (TSX:SUE)(LMA:SUE)(OTCQX:SDDDF) jointly announce that they have signed a binding letter agreement (the "Agreement") to combine their respective businesses (the "Transaction") and create a new, leading mid-tier gold producer with operations focused in a world-class gold mining district in Peru.
The Transaction combines Rio Alto's currently producing, low cost La Arena gold oxide mine and adjoining sulphide copper-gold deposit with Sulliden's low cost, scalable Shahuindo gold development project located in Cajabamba, northern Peru. The Transaction will create a leading, mid-tier gold producer with near-term production potential of approximately 300,000 ounces of gold per year and the opportunity to materially expand production in the near-term while maintaining attractive and sustainably low cash costs. Sulliden completed a feasibility study on Shahuindo in September 2012 (based on $1,415/oz gold and $27.00/oz silver) outlining a 10,000 tonnes per day (tpd) open pit heap leach mine that would see annual production of approximately 85,000 ounces of gold over an estimated ten year mine life at cash costs of approximately $550 per ounce, based on mining 40% of the defined measured and indicated gold oxide resource.
Pursuant to the Agreement, Rio Alto will acquire each outstanding Sulliden common share for 0.525 of a Rio Alto common share (the "Exchange Ratio"). In addition, as part of the Transaction, Sulliden shareholders will receive 0.10 of a common share in a newly incorporated company ("SpinCo") for each Sulliden common share held. SpinCo will hold Sulliden's 100% interest in the East Sullivan Property in Val-d'Or, Quebec and will be capitalized with approximately C$25 million in cash which at Rio Alto's option may be provided entirely in cash or C$15 million in cash and C$10 million in common shares of Rio Alto. Following completion of the Transaction, each outstanding warrant and stock option to purchase Sulliden common shares will be exercisable to purchase 0.525 of a Rio Alto common share and 0.10 of a SpinCo common share in lieu of each Sulliden share.
The Exchange Ratio represents consideration to Sulliden shareholders of C$1.12 per Sulliden common share based on the closing price of Rio Alto common shares of C$2.13 per share on the Toronto Stock Exchange as at May 20, 2014. This value implies a 43.4% premium over the May 20, 2014 closing price of Sulliden's common shares of C$0.78 and a 46.8% premium calculated on the 20-day volume weighted average price ("VWAP") of each respective company as of May 20, 2014.
Upon completion of the Transaction, Rio Alto shareholders and Sulliden shareholders will own approximately 52% and 48%, respectively, of the outstanding Rio Alto common shares, on a basic basis. The implied transaction value, before ascribing any value to SpinCo, is approximately C$300 million.
Highlights of the Transaction
-- Creates a leading mid-tier gold producer with a strong portfolio of
assets in Peru - a world-class mining district: Current gold production
of between 200,000 and 220,000 ounces from Rio Alto's La Arena gold mine
based on 2014 guidance with Sulliden's Shahuindo gold project targeted
to produce first gold by late 2015 / early 2016.
-- Leading production growth profile with attractive and decreasing cash
costs: Significant production growth of approximately 40% from 2014E to
2016E based on analyst consensus estimates with clear potential for
additional expansion at Shahuindo supported by a robust resource base
with significant exploration upside.
-- Comparable low risk mining operations: Addition of a construction ready,
long-life gold oxide heap leach project located 30 kilometers from La
Arena with low capital intensity and attractive cash costs.
-- Proven management team to leverage the strong track record of building
and operating La Arena: Rio Alto's management team has demonstrated its
capabilities to successfully build and operate La Arena with a track
record of consistently meeting or exceeding expectations.
-- Opportunity for significant synergies, creating a unique re-valuation
opportunity: The proximity of the two companies' operations, located
only 30 kilometers from one another, provides the opportunity to unlock
considerable value through capital, operational and other regional
synergies.
-- Strong financial position: Enhanced market capitalization of $664
million with approximately $45 million in cash, strong and growing cash
flow from La Arena and greater access to low-cost capital to fund the
construction and expansion of the Shahuindo mine.
-- Strong value proposition: New Rio Alto will have an attractive valuation
compared to its peers on a price to net asset value and price to cash
flow basis. With low cost production and cash flow, a strong balance
sheet, superior growth and a proven operating team, the combined company
supports the potential for a substantial re-rating to a multiple in line
with or superior to other mid-tier gold producers.
-- Enhanced market presence: The combined company will have increased
trading liquidity with far greater market and analytical following to
improve market profile and broadened investor appeal.
