VANCOUVER (miningweekly.com) – The TSX-V-listed equity of Rye Patch Gold jumped more than 11% on Monday following a joint announcement with junior explorer Alio Gold that the companies have agreed to execute a plan of arrangement through which Alio will acquire Rye Patch.

Vancouver-based Alio, which is operating the San Francisco mine, in Sonora state, Mexico, and working on drilling out the development stage Ana Paula project, in Guerrero state, will gain a foothold in the US's most promising gold mining district of Nevada, where Rye Patch has control over about 18 000 ha of land in the Oreana Trend.

This includes the Florida Canyon mine, which was recently restarted and which achieved commercial production in December.

The proposed deal will lift Alio's pro forma output by 65% this year to 165 000 oz of gold from two openpit, heap leach operations in the stable jurisdictions.

"This transaction is consistent with our strategy to create a leading midtier precious metals company. In addition to diversifying our asset base into one of the most attractive precious metal producing regions in the world, this transaction provides us with increased scale and liquidity to drive long-term shareholder value. We see regional growth opportunities in Nevada and, coupled with our high-grade, high-margin Ana Paula project, this transaction establishes a strong platform for future growth," stated Alio CEO Greg McCunn.

The deal will also result in a strong balance sheet for the combined pro forma entity of about $74-million in cash and equivalents and $29-million in total debt.

Under the terms of the arrangement, each Rye Patch share will be exchanged for 0.48 of a common share of Alio. The offer implies a value of C$1.57 per Rye Patch share, which reflects a 35% premium to Rye Patch shareholders, based on the 20-day volume weighted average trading price of Alio shares on the TSX and Rye Patch shares on the TSX-V for the period up to Friday.

The offer values Rye Patch's outstanding undiluted equity at about C$128-million. Alio expects to issue about 39-million shares, subject to adjustment for options, warrants and restricted stock units vested prior to the arrangement.

Pending regulatory, stock exchange and shareholder approvals, the transaction is expected to close by May 25 and existing Alio and Rye Patch shareholders will own about 53% and 47% of the combined company, respectively. Both companies' boards have unanimously approved the transaction.

Following the announcement, Rye Patch Gold's TSX-V-listed equity rose C$0.14 a share to an intra-day high of C$1.40 a share. Alio's TSX-listed stock fell 13% on Monday to a new 52-week low of C$2.76 a share, as is usually the case when an acquirer announces a deal publicly.