Last checked at 13 Oct 2010 07:02
13 October 2010
Hochschild acquires controlling interest in Inmaculada project in southern Peru cluster
Transaction highlights
·; Value accretive acquisition to increase holding in Inmaculada to a controlling 60% interest
·; Initial cash consideration of $15 million and agreement to fund 100% of the project's first $100 million of capital expenditure
·; $20 million private placement in joint venture partner, International Minerals Corporation
·; Commitment by the joint venture to complete 20,000 metres of drilling annually for the first three years in areas outside of the main Angela vein
Inmaculada project
·; Potential to generate pre-tax cashflow1 of $1,026 million non-discounted, $699 million at a 5% discount rate and $483 million at a 10% discount rate
·; IRR of over 50% at current spot prices
·; Estimated average annual total silver equivalent production of 11 million ounces
·; Estimated average annual attributable silver equivalent production of 6.6 million ounces, representing 25% of Hochschild's anticipated 2010 production
·; Feasibility study to be completed by the end of 2011 with production to commence in 2014
·; Main Angela vein remains open with significant additional upside potential in several other structures within the property
Hochschild Mining plc ("Hochschild") is pleased to announce that it has reached an agreement with its joint partner International Minerals Corporation ("IMZ") to increase its stake in Inmaculada, a 20,000 hectare gold-silver project located within its existing cluster in southern Peru. This follows positive results from an independent scoping study reported last month by IMZ, which estimated average annual total silver equivalent production of 11 million ounces from the project's Angela vein. The project currently reports total resources of 115 million silver equivalent ounces (1.9 million gold equivalent ounces) and Hochschild is now fast tracking the project with the aim of completing feasibility by the end of 2011. The transaction is due to close by the end of the year.
Results of the scoping study indicate that at base case gold and silver price assumptions of $1,000/oz and $17/oz respectively, the project could return a cumulative total pre-tax cash flow2 of $660 million, with a pre-tax internal rate of return ("IRR") of 41%. Using spot prices of $1,300/oz and $22.1/oz for gold and silver respectively, the project could return a cumulative total pre-tax cash flow3 of approximately $1,026 million, equivalent to $699 million at a 5% discount rate and $483 million at a 10% discount rate, with an IRR for the project of approximately 58%.
1 Using spot prices of $1,300/oz for gold and $22.1/oz for silver
2 Non-discounted
3 Non-discounted
Ignacio Bustamante, CEO of Hochschild Mining said:
"We are delighted to announce today that we are increasing our interest in the Inmaculada project to a controlling stake of 60%. The acquisition is an excellent fit with our strategy of securing early stage, highly value accretive projects which have significant upside potential and a clear path to control. As project operators, we will be able to leverage the skill base and infrastructure that we have established in our southern Peru cluster and our extensive experience in bringing early stage projects into development. IMZ has done a fantastic job in bringing the project to this stage of development and we now look forward to building on our excellent working relationship to realise the full operational and geological potential of the asset."
IMZ's President and CEO, Stephen Kay stated:
"We are pleased to sign this agreement with Hochschild to fast-track production at Inmaculada. Hochschild has proven that it has an unparalleled track record of building and operating low-cost underground precious metal mines in the high Andes. It also has a long history of permitting expertise, strong community relations programs and environmental management policies at its mining operations. We look forward to working with them again and to participating in another successful mine at Inmaculada".
The transaction effectively increases Hochschild's ownership in the project from 30% to a controlling stake of 60% based on IMZ's stated intention to earn-in the 70% interest by funding and completing a feasibility study by September 2013 and by issuing 200,000 IMZ shares to Hochschild, in line with the terms of the original agreement. Under the terms of the framework agreement announced today, Hochschild will pay IMZ $15 million and will fund 100% of the first $100 million of capital expenditure towards the project's feasibility and development. Any further capital expenditure required to achieve commercial production will be contributed by each joint venture partner in proportion to their ownership interests. Additionally, Hochschild will acquire approximately 3.7 million shares or 3.2% of the issued and outstanding share capital of IMZ4, by way of a private placement which is expected to close by the end of this month, for a total cash consideration of $20 million.
The transaction is highly value accretive and exemplifies Hochschild's strategy of securing controlling positions in early stage projects which have significant geological potential in key mining regions. Hochschild's extensive experience as mine operators in southern Peru as well as existing infrastructure will support the development of the Inmaculada operation.
Hochschild intends to fast-track completion of the feasibility study to the end of 2011 with production targeted to commence in the first half of 2014 at a rate of 3,000 tonnes per day. In addition, the joint venture has committed to complete 20,000 metres of drilling per year for the first three years in areas outside of the main Angela vein.
As part of the wider relationship with IMZ, Hochschild has agreed to an ongoing management fee of 7% for the Inmaculada project and also for the current Pallancata operation (previously 10%).
Scoping study undertaken by IMZ and published on 10 September 2010
The independent scoping study was overseen by P & E Mining Consultants Inc. of Brampton, Ontario Canada ("P&E"), with Golder Associates Perú S.A. ("Golder") responsible for the tailing disposal facility and fresh water supply studies and FSS Canada Consultants Inc. ("FSS") responsible for the updated resource estimate.
Results of the scoping study for the Inmaculada project indicate that at base case gold and silver prices of $1,000/oz and $17/oz respectively and a 3,000 tpd throughput, an underground mining project could return a pre-tax non-discounted cash flow of approximately $660 million based on the Scoping study conceptual diluted mine production of 8.0 Mt at a grade of 3.8 g/t gold and 137 g/t silver.
Highlights of scoping study
Base case using $1,000 per ounce ("/oz") gold and $17/oz silver and a 60:1 silver-to-gold equivalent ratio. All currency amounts in US dollars, on a 100% project basis.
·; Conceptual mine production (after 5% mining loss and 20% mining dilution): 8.0 million tonnes ("Mt") at an average grade of 3.8 g/t gold and 137 g/t silver or 6.1 g/t gold equivalent
·; Recovered ounces: 858,000 ozs gold and 29.3 million ozs silver or approximately 1.35 million ounces of gold equivalent (based on metallurgical recoveries of 88% for gold and 83% for silver)
·; Pre-tax cash flows: $660 million non-discounted, $434 million at a 5% discount rate and $286 million at a 10% discount rate
·; Pre-tax cash flows based on spot prices5: $1,026 million non-discounted, $699 million at a 5% discount rate and $483 million at a 10% discount rate
·; Pre-tax Internal Rate of Return ("IRR"): 41%
·; Total cash operating cost per tonne: $52
·; Total cash operating cost per oz:
- Basis gold with silver credited as a by-product: negative $94 per oz of gold (indicating that silver by-product revenue is greater than the total cash operating cost.)
- Basis gold equivalent: $311 per oz of gold equivalent.
·; Initial Capital: $168 million (including $32.9 million in contingency)
·; Total cash operating cost per oz, including capital:
- Basis gold with silver credited as a by-product: $231 per oz
- Basis gold equivalent: $517 per oz
·; 3,000 tonnes per day ("tpd") underground mine using a long hole stoping mining method and
conventional recovery process by flotation to produce a saleable gold-silver concentrate.
For further details relating to the scoping study, please see the press release dated 10 September 2010 at www.hochschildmining.com.
4 At current exchange rates
5 Using spot prices of $1,300/oz for gold and $22.1/oz for silver
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A conference call will be held at 2pm (London time) on Wednesday 13 October 2010 for analysts and investors. A presentation will be available for download prior to the call at www.hochschildmining.com under Investors - Presentations.
Dial in details as follows:
UK +44 (0) 20 3003 2666
A recording of the conference call will be available for one week following its conclusion, accessible from the following telephone number:
UK +44 (0) 20 8196 1998
Access code 8357405#
Enquiries:
Hochschild Mining plc
Isabel Lütgendorf +44 (0)20 7907 2934
Head of Investor Relations
Finsbury
Faeth Birch +44 (0)20 7251 3801
Public Relations
About Hochschild Mining plc:
Hochschild Mining plc is a leading precious metals company listed on the London Stock Exchange (HOCM.L / HOC LN) with a primary focus on the exploration, mining, processing and sale of silver and gold. Hochschild has over forty years' experience in the mining of precious metal epithermal vein deposits and currently operates four underground epithermal vein mines, three located in southern Peru, one in southern Argentina and one open pit mine in northern Mexico. Hochschild also has numerous long-term prospects throughout the Americas.
About International Minerals
International Minerals is a silver-gold producer and developer with silver and gold production from its 40%-owned Pallancata Mine in Peru, one of the top-10 primary silver mines in the world. Production of approximately 10 million ounces of silver and 33,000 ounces of gold (on a 100% project basis) is estimated by IMZ in calendar year 2010. In addition to the Pallancata Mine, IMZ also controls a 40% interest in the Inmaculada gold-silver project in Peru and majority or 100% ownership interests in development stage gold projects in Nevada (Goldfield and Converse) and Ecuador (Rio Blanco and Gaby). IMZ also owns a 3% net smelter return ("NSR") royalty from Barrick Gold's Ruby Hill gold mine in Nevada, which produced approximately 100,000 gold ounces in 2009. IMZ is listed on the Toronto Stock Exchange (since 1994) and the Swiss Stock Exchange (since 2002).
Forward looking statements:
This announcement may contain forward looking statements. By their nature, forward looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will or may occur in the future. Actual results, performance or achievements of Hochschild Mining plc may, for various reasons, be materially different from any future results, performance or achievements expressed or implied by such forward looking statements.
The forward looking statements reflect knowledge and information available at the date of preparation of this announcement. Except as required by the Listing Rules and applicable law, the Board of Hochschild Mining plc does not undertake any obligation to update or change any forward looking statements to reflect events occurring after the date of this announcement.
The statement in this press release relating to the results of the scoping study commissioned by International Minerals Corporation and the advancement and development of the Inmaculada Project is a forward looking statement within the meaning of securities legislation. The statement is based on the public disclosure of International Minerals Corporation, dated 9 September 2010, which is available on SEDAR at www.sedar.com under International Minerals Corporation, and is subject to the statements by International Minerals Corporation about such forward looking statements and the assumptions and risks associated with it. Hochschild Mining does not accept any responsibility for the adequacy or inadequacy of the disclosure made in this news release and any responsibility is hereby disclaimed in all respects.