* Deal for C$300 mln in stock
* To pay 0.525 in stock, which equals C$1.12 per share
* Combined co's annual output potential is 300,000 ounces
* Deal value excludes Sulliden's stake in a Quebec prospect (Adds details from statement, background)
May 21 (Reuters) - Rio Alto Mining Ltd said it would buy Sulliden Gold Corp Ltd in a deal valued at about C$300 million ($275 million), creating a gold miner focused on Peru, the fifth biggest gold producer in the world.
Rio Alto will pay 0.525 of one Rio Alto share for each outstanding Sulliden share. The offer values Sulliden at C$1.12 per share, representing a 43 percent premium to the stock's Tuesday close on the Toronto Stock Exchange.
The deal will combine Rio Alto's producing La Arena gold mine and the adjoining sulphide copper-gold deposit in Peru with Sulliden's Shahuindo project in Cajabamba, Peru.
The combined company will have a near-term production potential of about 300,000 ounces of gold per year, with the ability to expand output while maintaining low cash costs, Sulliden said in a statement.
Rio Alto's La Arena gold mine is expected to produce between 200,000 and 220,000 ounces in 2014, while Sulliden's Shahuindo gold project is slated to start production by late 2015 or early 2016.
The deal value excludes the stake Sulliden shareholders will get in a new company that will hold Sulliden's stake in a East Sullivan prospect in Val-d'Or, Quebec.
Deal activity in the mining sector is returning as companies look to cut costs and improve operational efficiency.
Osisko Mining Corp agreed last month to sell most of its assets to Yamana Gold Inc and Agnico-Eagle Mines Ltd for C$3.9 billion to thwart a hostile offer from larger rival Goldcorp Inc.
There have also been unsuccessful merger talks between the world's two top gold producers, Barrick Gold Corp and Newmont Mining Corp.
Rio Alto's financial adviser is GMP Securities L.P. and its legal counsel is Davis LLP. Sulliden's financial adviser is Cormark Securities Inc and legal adviser is Cassels Brock & Blackwell LLP.
Rio Alto shares closed at C$2.13. ($1 = 1.0898 Canadian Dollars) (Reporting by Swetha Gopinath in Bangalore; Editing by Savio D'Souza)