Strategic Investment

19 Feb 2008 07:01

Hochschild Mining PLC19 February 2008 ______________________________________________________________________ 19 February 2008 Hochschild Mining plc acquires a 19.99% stake in Lake Shore Gold Corp. for C$64.6 million Key Highlights: - Hochschild Mining plc ("Hochschild") announces a strategic investmentin Lake Shore Gold Corp. ("Lake Shore"), a Toronto listed gold company withprime exploration and development projects in the Abitibi belt of the Timminsregion, Ontario, Canada - Initial purchase of 19.99% with the right for Hochschild to increaseits interest to 40% by the end of 2008 (up to 35% through financings and thebalance through the market) - Total cash consideration of C$64.6 million, funded entirely throughexisting cash - Price of C$2.30 per share represents 30% premium to five day volumeweighted average price - Proceeds will be used by Lake Shore to continue advancing projectstowards production and accelerating their aggressive exploration campaign Eduardo Hochschild, Executive Chairman of Hochschild Mining plc, commented; "At a time when gold companies are struggling to find profitable, high-gradegold resources, our strategic investment in Lake Shore allows Hochschild tocapture significant exposure to a high-grade, long-life asset in a miningfriendly jurisdiction, without the costs associated with establishing agreenfield operation. Lake Shore is a well run Canadian mining company withsignificant progress towards production and a strong portfolio of projects in aprolific gold mining region in Canada." "This step marks a key milestone towards a deepening and mutually beneficialrelationship between the two companies, acknowledging the complementarystrengths of Hochschild's underground mining expertise and Lake Shore's existingasset base and wealth of geological knowledge of the region. We continue toinvest in high quality assets which we believe will maximize value for ourshareholders in the long term at the same time as offering exciting prospects inthe short term." Alan Moon, Chairman of Lake Shore Gold Corp., commented; "This investment by Hochschild is a strong endorsement of Lake Shore's assetsand management. Forming the strategic alliance with Hochschild provides LakeShore access to the investment dollars required to become a significant goldproducer, and it also provides access to Hochschild's experience and expertise,and their extensive network of industry connections, all of which will help LakeShore achieve its goals." "With this commitment of funds from Hochschild, Lake Shore is now positioned tocomplete the advanced underground exploration program at Timmins West, therefurbishment of the Bell Creek mill and dewatering and refurbishing the BellCreek mine. This investment and the investment contemplated to bring Hochschildto 35% will carry Lake Shore into production and expand our explorationprograms." Hochschild announces that it has made a strategic investment in Lake Shore, aToronto listed gold company with prime exploration and development projects inthe Abitibi belt of the Timmins region, Ontario, Canada. This investment willenable Hochschild to build its exposure to high-grade, long-life gold resourcesthrough a structure that offers significant exploration potential and long termgrowth. Lake Shore will direct the proceeds to advancing projects towardsproduction and accelerating their aggressive exploration campaign. Hochschild has initially purchased by way of a private placement 28,172,302common shares representing approximately 19.99% of the non-diluted common sharesof Lake Shore subject to satisfaction of certain conditions. Hochschild has theright to increase its ownership to 40% (up to 35% through financings and thebalance through the market) on a fully diluted basis by the end of 2008, subjectto Lake Shore shareholder approval. Lake Shore's Board has irrevocably agreedto support Hochschild's ability to increase its participation beyond the initial19.99% investment by seeking shareholder approval within the next 60 days. As part of the overall agreement, Hochschild is subject to a standstill for fiveyears but is able to make an offer for Lake Shore's remaining outstanding sharesif supported by Lake Shore's Board or if made in response to an offer for LakeShore from a third party. The total cash consideration of C$64.6 million or C$2.30 per share represents a30% premium over the volume weighted average price of Lake Shore's shares overthe previous five day trading period. Hochschild will finance this amount fromits existing cash. As part of the agreement, Hochschild has the right to appoint tworepresentatives to the Lake Shore Board (currently comprising seven members)and, going forward, will have the right to board representation in proportion toits ownership interest. In addition, for as long as it maintains its 19.99%interest in Lake Shore, Hochschild has a right of first offer over any newproperty in Canada that Lake Shore decides to joint venture. Lake Shore provides Hochschild with a foothold into long-life gold deposits inthe Timmins mining district of Northern Ontario, where more than 67 millionounces of gold have been produced over the past 100 years. In addition to LakeShore's exposure to high-quality gold projects, it has an experienced managementteam with technical and community relations expertise. Furthermore, Lake Shoreprovides Hochschild with significant exploration potential and an impressivepipeline of projects at various stages of exploration, from grass roots throughto pre-feasibility and a proprietary database of exploration targets. The strategic investment does not require approval of Hochschild's shareholders.The strategic investment has been made by private agreement through awholly-owned subsidiary within the Hochschild Group. Hochschild does not ownany other shares in Lake Shore. Hochschild's purchase of 19.99% of the issued share capital of Lake Shore givesit a proportional interest in the assets of Lake Shore and will be equityaccounted under IFRS. ends ___________________________________________________________________________ A conference call will be held at 09:30 am (London time) on Tuesday 19 Februaryfor the investment market and a presentation can be found at our website www.hochschildmining.com under Reports and Presentations. Dial in details as follows: UK +44 20 7162 0125 International +1 334 323 6203 A recording of the conference call will be available following its conclusion,accessible from the following telephone numbers: UK +44 20 7031 4064 International +1 954 334 0342 Access code 785748 Enquiries: Hochschild Mining plc Wray Barber +44 (0)20 7152 6014 Head of Investor Relations Finsbury Robin Walker +44 (0)20 7251 3801 Public Relations Notes to Editors: About Hochschild(www.hochschildmining.com) Hochschild Mining plc (HOCM.L for Reuters / HOC LN for Bloomberg) is a leadingprecious metals company listed on the London Stock Exchange with a primary focuson the exploration, mining, processing and sale of silver and gold. Hochschildcurrently operates five underground epithermal vein mines, four located insouthern Peru and one in southern Argentina and one open pit mine in northernMexico. Hochschild also has one early stage development project in Mexico andfifteen long-term prospects throughout Latin America. Hochschild has over fortyyears experience in the mining of precious metal epithermal vein deposits. About Lake Shore(www.lsgold.com) Lake Shore Gold Corp. (LSG.TO for Reuters / LSG CN for Bloomberg) is a Torontolisted mineral exploration company focused on the acquisition, exploration anddevelopment of mineral properties with prospects for hosting economic golddeposits in the Canadian Shield in Ontario and Quebec. Lake Shore is currentlyexploring six high-grade deposits in northern Ontario (Timmins West, Bell Creek,Vogel/Schumacher, Thunder Creek and Blakelock). The principal and most advancedproperty, Timmins West, is located at the west end of the Timmins gold miningdistrict, 18 kilometres west of the city of Timmins and north of the mainPorcupine-Destor Fault Zone. The Bell Creek complex provides productioncapacity and the proximity of the plant to Timmins West, Vogel and Schumacherhelps facilitate Lake Shore's bringing into production profitable ounces quicklyand with minimal capital costs. Timmins WestAssuming capacity of 1,000 tonnes per day, Timmins West currently has an 11 yearmine life based on reserves. At Timmins West, a pre-feasibility study wascompleted by SRK in 2007 and indicated annual production of 71,400 ounces ofgold (using cut reserves) at an estimated cash cost of US$234 per ounce (uncut)and US$319 per ounce (cut). Bell CreekLake Shore acquired the Bell Creek complex from Goldcorp in 2007. Currently incare and maintenance, Bell Creek is located immediately adjacent to the Vogeland Schumacher properties also in the Timmins gold mining district and is only40 kilometres from the Timmins West property. At Bell Creek, there is anexisting shaft that extends to a depth of 280 metres, and the mill has a nominalcapacity of processing up to 1,500 tonnes per day utilizing gravityconcentration, cyanide leaching and carbon-in-pulp gold absorption process. Reserves & resources--------------------- Tonnes Grade (g/t Au) Ounces ---------- ---------- ----------Timmins West--------------Probable reserves (1):Uncut 3,600,000 10.40 1,200,000Cut 3,400,000 7.60 830,000-------------------- ---------- ---------- ----------Indicated resources (2):Uncut 3,268,000 12.29 1,291,000Cut 3,268,000 8.62 905,000-------------------- ---------- ---------- ----------Inferred resources (2):Uncut 968,000 5.79 207,000Cut 968,000 5.54 174,700-------------------- ---------- ---------- ---------- Bell Creek (3)-------------Indicated resources 190,900 8.25 50,641Inferred resources 346,000 7.70 85,888-------------------- ---------- ---------- ---------- Vogel (4)--------Measured & indicated resources 642,000 12.2 261,200Inferred resources 933,800 12.2 379,800-------------------- ---------- ---------- ---------- Schumacher (5)-------------Measured & indicated resources (uncut) 156,000 5.99 30,043 ---------- ---------- ------------------------------ (1) August 2007 - SRK Consulting and 43-101 compliant (2) November 2006 - Audited Watts, Griffis and McOuat Limited (3) 43-101 Compliant, 2004 (4) 1999 CIM Historic Resource (5) 1997 Historic Resource For more information on Lake Shore's assets please visit www.lsgold.com. This information is provided by RNS The company news service from the London Stock Exchange