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October 2, 2013 12:28 pm
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 its lowest-cost mine as well as a project set to come in at lower cost 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.
One of the mines, Pallancata, produces more than 7m oz of silver and is Hochschild’s biggest cash flow generator. The other, Inmaculada, is set to be commissioned towards the end of next year and to produce about 12m oz annually.
The acquisition comes amid volatility in gold and silver prices and as some producers are setting aside expansion plans. Ignacio Bustamante, chief executive, said Inmaculada was one of the best deposits discovered in recent years and one that Hochschild wanted to focus on.
“This is the most logical acquisition we could make and something we have wanted for a long time, but market conditions would not allow us to do something that was a win-win for both parties. Current market conditions do allow us to do that,” he said.
Shares in Hochschild fell 11 per cent to 155p. Eduardo Hochschild, the group’s chairman and majority shareholder, will fund half of the equity increase.
Hochschild also announced $340m of acquisition bridge financing as part of a refinancing review. It still has to spend $230m to develop Inmaculada and will delay another Peruvian mine project, Crespo, postponing $80m of capital spending.
“We want to take a conservative approach and . . . have enough of a cushion to put Inmaculada into production,” said Mr Bustamante.
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.”
Nick Hatch, analyst at Westhouse, said: “This is a low risk deal. Hochschild already manages the assets . . . this is less risky than any other acquisition deal or project development that the company could possibly undertake.”
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