Hochschild Mining PLC (LSE: HOC) completed the placing and convertible bond offer it announced yesterday, raising US$260 million it plans to use for further acquisitions, for further investments in Lake Shore Gold Corp (TSX: LSG) and Gold Resource Corp (OTCBB: GORO) as well as for paying down debt.
In a separate statement yesterday, the group said production in the third quarter to end-September 2009 rose 20 percent from a year earlier to 7.5 million attributable silver equivalent ounces, and it is on track to achieve the full year production target of 28 million attributable silver equivalent ounces, a 7 percent increase over 2008.
Hochschild placed 30.735 million ordinary shares at 295 pence each, raising US$145 million before expenses, slightly less than the US$150 million envisaged in yesterday’s announcement. However, the offering of senior unsecured convertible bonds due 2014 was increased to US$115 million from the initially stated US$100 million.
The initial conversion price for the bonds - following a lock-up period of 180 days after the closing - is set at a premium of 35 percent to the clearing price of the concurrent equity placing of 295 pence.Following an extremely active 18 months, in which the company has spent around US$340 million on acquisitions and investments, the additional funding will enable Hochschild to pursue further opportunities in key mining districts within the Americas.
It plans to maintain its current 40 percent stake in Lake Shore Gold which will be diluted to around 27 percent when the previously announced acquisition of West Timmins Mining Inc completes. The board of Lake Shore Gold has committed to look at ways in which Hochschild can return to a 40 percent shareholding in the enlarged company.
The new entity will create the new large-scale, wholly-owned Timmins West gold mine complex, an extension of the world class Timmins gold mining trend which has supplied approximately 70 million ounces of gold over the last century.
The growth prospects for Lake Shore Gold are impressive, Hochschild said, with current production targets of 30,000 ounces of gold by the end of 2009, increasing to 100,000 ounces in 2010 and 200,000 ounces in 2011. The new Timmins West gold mine complex will consist of Lake Shore Gold's 100 percent-owned Timmins Mine with existing mine infrastructure, the Thunder Creek property, where high-grade intercepts have been reported within 800 metres of the Timmins shaft, and an extensive land package of adjacent exploration properties, giving Lake Shore Gold a leading position in this highly prospective area.
Additionally, Hochschild has the right to increase its stake in Gold Resource Corporation from 24 percent to 40 percent, with the full support of the GRC board. GRC, which has a current market capitalisation in excess of US$315 million, is a precious metals mining company with a number of 100% owned, high grade development projects in southern Mexico including the El Aguila project.
This project is scheduled to begin production by the end of 2009 and the company expects to produce approximately 70,000 ounces of gold in its first full year of production production. Hochschild is extremely confident about the long term potential of this investment. After the standstill period ends in February 2011, Hochschild can purchase additional shares in GRC without restriction.
Hochschild is focused on producing profitable ounces and continues to identify and invest in projects which increase long term operational efficiency. In the past year, it has completed plant expansions at three of its operations which increased production capacity by 29 percent and also the construction of new power lines in Peru and Argentina, ensuring a cost effective and reliable supply of energy.
Furthermore, in June 2009, the company announced the project to convert Arcata's production to doré which will improve operational efficiency, maximise revenue, lower working capital requirements and allow the company to benefit from more stable commercial terms. The project is on schedule for completion in 2010.
Money from the fundraising will also be used to pre-pay the first three instalments, totalling US$85 million, of the company's existing syndicated loan facility of US$200 million in order to extend its debt maturity until 2014 and provide increased financial flexibility in 2010, Hochschild added.