(Alliance News) - Hochschild Mining PLC on Tuesday announced the acquisition of Amarillo Gold Corp, the owner of the Posse gold project in Brazil, for an expected net cost of CAD135 million, around USD105.6 million.
"The acquisition of Amarillo enhances the company's project pipeline and is the result of a long-term company review process of a wide range of growth opportunities," said Hochschild Chief Executive Ignacio Bustamante.
Hochschild, which is a silver and gold miner in South America, said it will buy Amarillo at a price of CAD0.40 per share.
Amarillo closed at CAD0.23 per share on the Canadian Venture Exchange on Monday in Calgary.
Hochschild shares were up 0.1% to 130.50 pence each on Tuesday morning in London.
The acquisition likely will be welcomed by Hochschild investors, who were reminded recently of the importance of geographic diversification.
Hochschild had a scare last week Monday when the Peruvian government threatened to close two of its three running gold and silver mines, one of which is its biggest producing mine. But on Wednesday, the Peruvian government backtracked.
Hochschild shares have recovered somewhat from the scare, which knocked almost a third off their value. The stock is up 9.6% in the past five trading days, but still down 37% since the start of the year.
Outside of Peru, Hochschild already has operations in Argentina and a project in Chile.
In addition to the CAD0.40 per share offer, shareholders of Amarillo will receive shares in a newly formed company, called Lavras Gold Corp, which will hold a stake in the Lavras do Sul project, CAD10 million in cash, and a 2.0% net smelter revenue royalty on some exploration properties owned by Amarillo and located outside the current Posse resource and mine plan at Amarillo's Mara Rosa property.
Posse is an open pit gold project located in Mara Rosa, in the mining-friendly jurisdiction of Goias State, Brazil. Construction of some infrastructure is underway, with the project having received the license to install from state regulators in February this year and then approval for a power line in October.
The mine is expected to have an mine life of 10 years, with average annual production of around 100,000 ounces of gold over the first four years. This will then taper to around 80,000 ounces.
By Greg Roxburgh; gregroxburgh@alliancenews.com
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Hochschild (HOC)