Hochschild Buys Silver Mines in Peru

October 2, 2013 at 12:56

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Hochschild Mining is to buy out its minority partner in two Peruvian silver mines in a $280m deal.

The acquisition by the UK-listed silver producer will increase its stake in a mine that should be its lowest-cost asset when it goes into operation next year.

Hochschild plans to issue between $48m and $96m of shares to contribute towards funding the acquisition. The miner will buy out the 40 per cent share in the two assets owned by IMZ, a Canada-listed miner in which Hochschild owns a 3.2 per cent stake.

Eduardo Hochschild, the group’s chairman and largest shareholder, will fund half of the equity increase.

Ignacio Bustamante, chief executive, said the Pallancata mine was Hochschild’s biggest cash flow generator while Inmaculada, which is set to be commissioned towards the end of next year, was its “most exciting growth project”.

“This transaction represents an important opportunity to increase our exposure to our southern Peru cluster, reduce our overall operating cost position and to potentially enhance our cash flow generating potential at no additional ongoing administrative cost,” he said.

Shares in Hochschild fell 5.6 per cent to 164.6p.
Analysts at Citigroup said the deal was a good long-term move at an “in line” price but came at a time when they expected the silver price to fall.

“It will now be a tough 18 months justifying the purchase into a falling silver price,” they said. “We would understand if analysts more positive than us on silver saw the purchase as more positive than we do.”

Hochschild also announced $340m of acquisition bridge financing as part of a refinancing review. It still has to spend $230m to develop Inmaculada.