Hochschild Will Sell Shares to Fund $280 Million PurchaseThomas Biesheuvel
Hochschild Mining Plc, a producer of precious metals in Peru and Argentina, will sell shares to buy out a Peruvian silver project for $280 million.
The company expects to raise $48 million to $96 million to acquire the 40 percent of the project it doesn’t already own from International Minerals Corp., London-based Hochschild said today in a statement. The purchase gives it full ownership of the Pallancata and Inmaculada mines.
Hochschild is seeking to stem a decline in silver output, which is set to drop for a third straight year. The company has slumped 65 percent in London trading in 2013 after prices for silver and gold -- haven assets -- sank on prospects for a U.S. economic recovery. Net income tumbled 63 percent last year.
It’s a “brave time for management to be doing such a large acquisition,” Kate Craig, an analyst at Liberum Capital Ltd. in London, said in a note. “We expect cash available to complete development of Inmaculada will be tight.”
Hochschild said Sept. 20 that it received the final mill construction permit for Inmaculada and expects output to start in the fourth quarter of next year.
The shares fell as much as 5.1 percent to 165.6 pence in London, the lowest in two months, and traded at 165.9 pence as of 9:57 a.m. local time. The stock, which has dropped for seven of the past nine days, declined 31 percent last month after being left out of NYSE Euronext’s NYSE Arca Gold Miners Index.
Today’s deal will help increase total output to 34.7 million ounces by 2017 from the 20 million ounces targeted by the company this year, it said. Hochschild, which produced more than 26 million ounces in 2010, said it will delay the development of its Crespo mine while it focuses on Inmaculada.
The latter is “our most exciting growth project,” while Pallancata is “our biggest cash-flow generator,” Chief Executive Officer Ignacio Bustamante said in the statement.
Chairman and majority owner Eduardo Hochschild plans to subscribe to the lower end of the share placing, representing 5 percent of the company’s outstanding share capital.