* Deal for C$300 mln in stock
* Rio Alto shares drop on price concerns
* To pay 0.525 in stock, equals C$1.12 per share
* Combined annual output potential pegged 300,000 ounces (Recasts with analyst comment, stock moves)
May 21 (Reuters) - Canada's Rio Alto Mining Ltd said on Wednesday it would buy Sulliden Gold Corp Ltd for about C$300 million ($275 million) in an all-stock deal to create a Peru-focused gold miner.
After the announcement Rio Alto's stock fell on concerns the price it was paying was steep.
The friendly takeover will combine Rio Alto's producing La Arena gold mine with Sulliden's nearby Shahuindo project to create a combined company with near-term production potential of about 300,000 ounces of gold per year.
The proximity of the operations to each other, Shahuindo's decent gold grades and Rio Alto's experience at developing open pit heap leach projects made the acquisition a good fit, said Christos Doulis, an analyst at PI Financial in Toronto.
"But the price raises some question marks. Did they pay too much? It values an unbuilt asset at a similar level to a built 200,000 ounce-a-year project today," Doulis said.
Shares in Rio Alto fell 7.5 percent to C$1.97 on the Toronto Stock Exchange. Sulliden's stock rose 33 percent to C$1.04.
Rio Alto said it 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.
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.
After a moribund year, deal activity in the mining sector is picking up as companies look for synergies to help cut costs and improve operational efficiency.
Canada's Osisko Mining Corp agreed last month to sell most of its assets to fellow Canadian miners 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. ($1 = 1.0898 Canadian) (Reporting by Nicole Mordant in Vancouver and Swetha Gopinath in Bangalore; Editing by Savio D'Souza and Sofina Mirza-Reid)