$ALO : Alio Gold – Independent Economic Analysis

Updated, 8 January 2020

Long-Term Price Case$1,700/oz.
ProjectFlorida Canyon
Mineral Reserves1 Mozs.
Shares Outstanding84,700,000
Market Cap$65,219,000
Average Annual Production85,000 ozs.*
Recovery71%
LoM9.8 Years
Payable Product734,200 ozs.
True All-in Cost (TAIC) $1,283/oz.
Gross Revenue$1,248,140,000
Royalty($57,414,440)
Refining Charges($3,369,978)
Gross Income$1,187,355,582
Total Operating Costs($662,900,000)
Operating Profit$524,455,582
Income Taxes($136,358,451)
Total Capital Costs($81,900,000)
Net Income$306,197,131
Net Profit Margin25%
Absolute Cost Structure (ACS)75%
Total True Value$3.62/sh.
Cash Flow Multiple5x
Average Net Annual Cash Flow$35,445,000
Future Market Cap$177,225,000
Future Market Cap Growth172%
Target$2.72/sh.

Notes: All Values in U.S. Dollars

Alio Gold, with Mark Backens at the helm, has done more soul-searching than is common for a small producer. As a result, it has rapidly been transformed into an enterprise with few illusions and a no-nonsense mission.

At Fahy Capital Management, we typically invest in the deposit first and management second, but the reverse is true with Alio Gold. With this particular investment, we are primarily investors in Mark Backens, as he has made the hard choices required to bolster shareholder confidence.

From the bold sale of non-core assets and the negotiation of a smart financing package with Sprott to the recent lease agreement with Caterpillar and the swift development of a critical Phase II leach pad, Backens has attacked Florida Canyon with a laudable all-or-nothing attitude. He has spearheaded a right-sized capital spending program that is effecting material results for shareholders. He has transitioned San Francisco to residual leach, while pursuing a potential monetization of the mine. Meanwhile, spending at Ana Paula has been reduced to holding costs until the asset is monetized or a JV** is in place.

In closing, as we are confident that Alio Gold will boost production by up to 50% at Florida Canyon in 2020 and grow mineral inventory through brown field exploration, we have boosted our stake for the 3rd time in 24 months.

*For the time-being, we have included an approximately 12,500 ozs. of residual leach output from San Francisco in our valuation model. This will taper down over time.

**We think a JV is the ideal path forward for Ana Paula, an asset on which we have spent a lot of research hours, as well as one that we believe will prove of value to shareholders in the latter half of the decade.