Pallancata and Inmaculada Minorities Acquisition

 

 

 

2 October 2013

 

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES. THIS ANNOUNCEMENT DOES NOT CONSTITUTE OR FORM A PART OF ANY OFFER TO SELL OR SOLICITATION OF AN OFFER TO PURCHASE OR SUBSCRIBE FOR SECURITIES IN THE UNITED STATES, AUSTRALIA, CANADA, SOUTH AFRICA, JAPAN JERSEY OR PERU OR ANY JURISDICTION IN WHICH IT WOULD BE UNLAWFUL TO DO SO.

 

Hochschild Announces Proposed Acquisition of Pallancata and Inmaculada Minorities

 

Highlights

·      Proposed acquisition of IMZ's 40% stake in the Pallancata mine and Inmaculada Advanced Project for a total value of approximately $280 million, including net cash consideration of $271 million

·      Transaction to be structured as an acquisition of the IMZ common shares not currently held by Hochschild, after the spin-out of the remaining assets to existing IMZ shareholders

·      Consolidates minority shareholding in assets already controlled and operated by Hochschild

·      Reduces average unit cost

·      Equity placing of between 4.99% - 9.99% of Hochschild's outstanding share capital, representing approximately $48 - $96 million[1], of which Eduardo Hochschild has irrevocably undertaken to subscribe for the lower of 4.99% of the total issued share capital of the Company and $50 million (see concurrent 2 October 2013 Placing Announcement for further details).

·      $340 million acquisition bridge financing facility arranged, subject to cancellation of the $140 million Suyamarca loan facility

·      Crespo project to be deferred to focus capex spend on Inmaculada Project

 

The Acquisition

Hochschild Mining plc ("Hochschild" or the "Company") is pleased to announce that it has entered into a binding agreement to acquire the 40% interests held by International Mineral Corporation ("IMZ") in the Pallancata mine and Inmaculada Advanced Project in Peru (the "Peruvian Assets", and collectively the "Acquisition"). The transaction will be executed by way of a court-approved Plan of Arrangement under the Business Corporations Act (Yukon) (the "Canadian Act"). Prior to the Acquisition, Hochschild holds a 60% interest in the Peruvian Assets.

 

In connection with the Acquisition, each IMZ shareholder (other than Hochschild or its affiliates) will receive a cash payment of $2.38 per IMZ share (for aggregate cash consideration of $271 million) and each IMZ shareholder (including Hochschild or its affiliates) will receive one common share of a newly incorporated British Columbia, Canada company ("SpinCo") per share. Under the terms of the Acquisition, Hochschild will acquire the Peruvian Assets for a total value of approximately $280 million, taking into account the cash payment of $271 million, the undisturbed market value of Hochschild's existing 3.2% shareholding in IMZ, and the 3.2% shareholding in SpinCo which Hochschild will retain.

 

Assuming all conditions are satisfied or waived (where applicable), Hochschild currently expects the Acquisition to be completed by the end of Q4 2013.

Financing

As the first stage of a broader corporate refinancing initiative, Hochschild:

·      Has raised commitments for a $340 million acquisition bridge financing facility (the "Facility"), subject to cancellation of the $140 million Suyamarca loan facility; and

·      Is undertaking an equity placing to institutional investors, including Eduardo Hochschild, of between 4.99% - 9.99% of Hochschild's outstanding share capital, representing approximately $48 - $96 million[2] (the "Placing").

 

These new resources are in addition to Hochschild's existing cash balance of $275 million (at 31 July 2013) and its remaining 21.1% stake in Gold Resource Corporation (as described in Hochschild's 2013 Interim Results). These facilities have been sized to provide Hochschild with the requisite funding to fully support the Company's anticipated capital expenditure at Inmaculada of $230 million and to provide capacity to satisfy the Company's upcoming convertible bond maturity in October 2014.

 

A review of bond and bank refinancing alternatives for the second stage of Hochschild's balance sheet refinancing is being undertaken by Hochschild and its advisors.

 

Ignacio Bustamante, Chief Executive Officer, commented:

"We are excited to be announcing today a strategic milestone for Hochschild by consolidating ownership in Pallancata, currently our biggest cash flow generator and Inmaculada, our most exciting growth project. This step is consistent with our strategy of value accretive acquisitions with significant geological potential in a jurisdiction in which Hochschild has almost 50 years of experience.

 

Hochschild and IMZ have enjoyed an excellent relationship over the last few years and the joint venture has benefited greatly from each other's respective skill sets. However, thistransaction represents an important opportunity to increase our exposure to our southern Peru cluster, reduce our overall operating cost position and to potentially enhance our cash flow generating potential at no additional ongoing administrative cost."

 

This summary should be read in conjunction with the full text of this announcement.

 

______________________________________________________________________

Enquiries:

Hochschild Mining plc

Charles Gordon                                                                         +44 (0)20 7907 2934

Head of Investor Relations

BofA Merrill Lynch                                                                  +44 (0)20 7628 1000

Omar Davis      

Ken McLaren

Edward Peel (Corporate Broking)

Matthew Blawat (Corporate Broking)

Goldman Sachs International                                                  +44 (0)20 7774 1000

Richard Cormack

Dominic Lee

Adrian Beidas

Duncan Stewart

RBC Capital Markets                                                                +1 416 842 7588

Justin Barr

Timothy Loftsgard

J.P. Morgan Cazenove                                                             +44 (0)20 7777 2000

Ben Davies

RLM Finsbury

Charles Chichester (Public Relations)                                           +44 (0)20 7251 3801

______________________________________________________________________

 

A live conference call & audio webcast will be held at 8:30am (London time) on Wednesday 2 October 2013 for analysts and investors. Details as follows:

For a live webcast of the presentation please click on the link below:

http://www.media-server.com/m/p/hf9z4hgp

 

Conference call dial-in details:

UK: +44 (0)20 3427 0503 (Please use the following confirmation code: 6781983).

 

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 3427 0598 (Access code: 6781983)

 

The On Demand version of the webcast will be available within two hours after the end of the presentation and is accessible using the same webcast link.

 

Notes and Disclaimers:

Note: All dollar amounts in this announcement refer to U.S. dollars.

 

This announcement may contain certain forward-looking statements with respect to Hochschild's expectation and plans, strategy, management's objectives, future performance, production, costs, revenues and other trend information. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that may occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts. The statements have been made with reference to forecast price changes, economic conditions and the current regulatory environment. Nothing in this presentation should be construed as a profit forecast. Past share performance cannot be relied on as a guide to future performance. Except as required by applicable law or regulation, the Group does not undertake any obligation to update or change any forward-looking statements contained in this announcement or any other forward-looking statement it may make.

 

This announcement does not constitute or form part of an offer or solicitation to purchase or subscribe for shares in the capital of the Company in the United States. The securities referred to herein have not been and will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act") or with any securities regulatory authority of any state or other jurisdiction of the United States and may not be offered, sold, resold, transferred or delivered, directly or indirectly, in the United States except pursuant to registration under, or an exemption from the registration requirements of, the Securities Act. The Placing securities referred to in this announcement are being offered and sold only outside the United States in "offshore transactions" (as defined in Regulation S) meeting the requirements of Regulation S and may be made within the United States to institutional investors who are qualified institutional buyers within the meaning of Rule 144A under the Securities Act in transactions that are exempt from, or not subject to, the registration requirements under the Securities Act. There will be no public offering of securities in the United States.

 

Merrill Lynch International ("BofA Merrill Lynch"), which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, is acting exclusively for Hochschild and no-one else in connection with the Acquisition and the Placing. Merrill Lynch International will not regard any other person as its client in relation to the Acquisition or the Placing and will not be responsible to anyone other than Hochschild for providing the protections afforded to its clients, nor for providing advice in relation to the Acquisition, the Placing, the contents of this announcement or any transaction, arrangement or other matter referred to herein.

 

Goldman Sachs International, which is authorised by the Prudential Regulation Authority and regulated by the  Financial Conduct Authority and the Prudential Regulation Authority, is acting for Hochschild and no one else in connection with the distribution of this document and will not be responsible to anyone other than Hochschild for providing the protections afforded to clients of Goldman Sachs International nor for providing advice in connection with the Acquisition or the Placing.

 

J.P. Morgan Cazenove, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, is acting for Hochschild and no one else in connection with the distribution of this document and will not be responsible to anyone other than Hochschild for providing the protections afforded to clients of J.P. Morgan Cazenove nor for providing advice in connection with the Acquisition or the Placing.

 

RBC Capital Markets is a trading name used by subsidiaries of the Royal Bank of Canada including RBC Dominion Securities Inc., RBC Capital Markets LLC and RBC Europe Limited (collectively, "RBC Capital Markets"). RBC Europe Limited, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, is acting for Hochschild and no one else in connection with the distribution of this document and will not be responsible to anyone other than Hochschild for providing the protections afforded to clients of RBC Europe Limited nor for providing advice in connection with the Acquisition or the Placing.

 

Banco Bilbao Vizcaya Argentaria, S.A. ("BBVA"), is a Spanish Bank authorised and regulated by the Bank of Spain, is acting exclusively for Hochschild and no-one else in connection with the Acquisition and the Placing. BBVA will not regard any other person as its client in relation to the Acquisition or the Placing and will not be responsible to anyone other than Hochschild for providing the protections afforded to its clients, nor for providing advice in relation to the Acquisition, the Placing, the contents of this announcement or any transaction, arrangement or other matter referred to herein.

 

 

Hochschild Announces Proposed Acquisition of Pallancata and Inmaculada Minorities

 

1.   Overview of the Acquisition

Hochschild is pleased to announce that it has entered into a binding agreement to acquire the 40% interests held by IMZ in the Peruvian Assets. The transaction will be executed by way of a court-approved Plan of Arrangement under the Canadian Act. Prior to the Acquisition, Hochschild holds a 60% interest in the Peruvian Assets.

 

In connection with the Acquisition, each IMZ shareholder (other than Hochschild or its affiliates) will receive a cash payment of $2.38 per IMZ share (for aggregate cash consideration of $271 million) and each IMZ shareholder (including Hochschild or its affiliates) will receive one common share of SpinCo per share. Under the terms of the Acquisition, Hochschild will acquire the Peruvian Assets for a total value of approximately $280 million, taking into account the cash payment of $271 million, the undisturbed market value of Hochschild's existing 3.2% shareholding in IMZ, and the 3.2% shareholding in SpinCo which Hochschild will retain.

 

2.   Information on IMZ and the Peruvian Assets

IMZ is a Canadian public company headquartered in Scottsdale, Arizona, with interests in gold and silver properties, both producing and under development, in Peru and the USA. The company currently is listed on the Toronto and Swiss stock exchanges under the symbol "IMZ" and quoted on the Frankfurt stock exchange under the symbol "MIW". 117,636,376 common shares are issued and outstanding, 3,755,746 shares (3.2%) of which are owned by Hochschild.

 

Hochschild is primarily acquiring IMZ's 40% interests in two mineral assets in Peru:

·      Pallancata, an underground mine principally producing silver since 2007, with current annual production of 7.4 million ounces of silver and 26,230 ounces of gold and an estimated resource mine life of 7.4 years based on existing measured and indicated resources; and

·      Inmaculada, an underground gold and silver deposit scheduled for production in Q4 2014.  It has an expected total production of approximately 12 million silver equivalent ounces per annum and an estimated mine life of at least 6.3 years based on existing resources. On 20 September 2013, Hochschild announced that the Peruvian government had approved the mill construction permit for Inmaculada. This represents completion of the final stage of the project's construction permitting process with commissioning on track for Q4 2014.

 

Hochschild owns the remaining 60% in each asset and operates both assets. Consolidating 100% of both assets will increase the Company's geographic production exposure to Peru to approximately 85% once Inmaculada is at full production.

 

3.   Rationale for the Acquisition

The Board of Hochschild believes that the Acquisition will have the following effect on the Company:

·      The acquisition of the IMZ minority interests will allow a low risk consolidation of well understood assets already controlled and operated by Hochschild. The Pallancata mine has, since its commissioning in 2007, grown to become Hochschild's biggest current cash flow generator and one of the most important contributing assets in the portfolio with strong potential to continue to expand the resource life-of-mine as well as the incorporation of additional higher grade veins. The Inmaculada project has been progressed through Hochschild's project pipeline since the acquisition of a controlling stake from IMZ in 2010 and a feasibility study was published in January 2012. Following the recent approval of the final construction permit by the Peruvian government, the project is moving into its final phase of plant construction and is on track to commission in Q4 2014. The consolidation of the IMZ assets is also expected to deliver tax efficiencies going forward arising from the intended merging of the Compania Minera Ares and Suyamarca entities, which is expected to be executed following completion of the Acquisition.

 

·      The consolidation of the IMZ assets will deliver production growth in a familiar, low risk jurisdiction at no additional administrative cost to the Company. Hochschild has been operating in the south west of Peru for almost 50 years, a region with increasingly strong government support for the mining industry.  Its cluster strategy has allowed it to build up a strong local reputation and amongst the local governments, communities and suppliers in remote areas. As well as the Pallancata mine and the Inmaculada project, Hochschild also operates the original Arcata mine, the Selene plant close to Pallancata and the smaller Ares operation.

 

·      The Inmaculada mine is expected to be the lowest cost producer in the Hochschild portfolio. The feasibility study estimated the operating costs of the Inmaculada operation to be in line with those of Pallancata. Initial production set to be mined from the single wide 'Angela' vein, extraction is expected to be relatively simple with reduced dilution and overall operating costs and sustaining capital expenditure expected to be the lowest of all of Hochschild's operating assets. In addition, the consolidation of the Pallancata mine, which is currently Hochschild's lowest cost operation will also contribute to the lowering of the Company's average cash cost.

 

·      The acquisition of the IMZ minority stake increases exposure to the exciting Inmaculada project with strong geological upside potential. The feasibility study details a base case average annual production of approximately 12 million silver equivalent ounces per annum. However, Hochschild strongly believes that the mineable resource base will be expanded by upgrading the inferred mineral resources in the south west and north east extensions of the Angela vein, into the reserve category through additional definition drilling work. In addition, the Inmaculada district hosts over 25 kilometres of gold/silver-bearing quartz veins of the low sulphidation type which remain largely untested.

 

4.   Structure of the Acquisition

In connection with the Acquisition, each IMZ shareholder (other than Hochschild or its affiliates) will receive a cash payment of $2.38 per IMZ share (for aggregate cash consideration of $271 million) and each IMZ shareholder (including Hochschild or its affiliates) will receive one common share of SpinCo per share.

 

As a condition to the completion of the Acquisition, IMZ will transfer all of its assets (other than the Peruvian Assets) and all of its liabilities (other than the liabilities related to the Peruvian Assets), to SpinCo that will initially be a wholly-owned subsidiary of IMZ (the "IMZ Internal Re-organisation"). The IMZ Internal Re-organisation will be effected pursuant to the terms of a master re-organisation agreement among IMZ, SpinCo and the directly-held, non-Peruvian subsidiaries of IMZ. The following non-Peruvian assets and liabilities of IMZ will be transferred to SpinCo prior to closing: (i) IMZ's remaining cash and receivables (estimated at approximately $58 million) and (ii) IMZ's non-Peruvian (primarily Nevada) subsidiaries and related liabilities.

 

As required by Canadian securities laws, IMZ has obtained a formal, independent valuation of the IMZ shares and SpinCo shares. The formal valuation results are required to be included in the notice and materials for the IMZ shareholder meeting.

 

SpinCo intends to apply to have its shares listed on a Canadian stock exchange and IMZ's shareholders (including Hochschild through an affiliate) will receive shares of SpinCo by way of a plan of arrangement under the Canadian Act in proportion to their existing shareholdings in IMZ. Any listing will be subject to meeting the initial listing requirements of such exchange, and there can be no assurance as to if, or when, the SpinCo shares will be listed or traded on any such stock exchange.

 

Hochschild (through a newly established Canadian acquisition subsidiary) will acquire 100% of the common shares of IMZ (which will, at this stage, hold only the Peruvian Assets and liabilities related to the Peruvian Assets) that it does not already own by way of the plan of arrangement under the Canadian Act. In connection with the Acquisition of the Peruvian Assets, Hochschild will be acquiring and retaining the current listed company, IMZ. SpinCo has indemnified the Company and certain other entities with respect to all damages that they may suffer or incur as a result of, or arising directly or indirectly out of, or in connection with, or from the failure of SpinCo to satisfy any assumed liability, which includes liabilities and obligations of IMZ related to the non-Peruvian companies being transferred to SpinCo as well as change of control payments, the termination fee, and taxes which may become payable as a result of the re-organisation or the distribution of SpinCo shares, as well as tax liabilities for taxation years ending prior to the acquisition. To the extent that the indemnity is insufficient or unenforceable, the Company or IMZ may be liable for such liabilities after the acquisition.

 

In connection with and for the sole purpose of implementing the plan of arrangement under the Canadian Act, Hochschild and IMZ will enter into an arrangement agreement under Canadian law (the "Arrangement Agreement") which will contain customary terms and conditions of a transaction of this nature including, but not limited to: (a) unanimous and unqualified support of both Hochschild's and IMZ's board of directors and a positive recommendation from each respective board of directors to its shareholders, (b) usual representations, warranties and covenants, including to carry-on business in the ordinary course, conditions and completion mechanics for the Acquisition, and (c) a non-solicitation covenant on the part of IMZ, subject to customary "fiduciary out" provisions, that entitles IMZ to consider and accept a superior proposal, and a right in favor of Hochschild to match any superior proposal within five business days, during which time it may (but is not required) to amend the terms of this transaction to match or better any superior proposal that may arise.

 

If the Arrangement Agreement is terminated in certain circumstances, including: (a) if IMZ enters into an agreement with respect to a superior proposal; (b) if the Board of Directors withdraws or modifies its recommendation with respect to the proposed transaction; or (c) IMZ shareholders do not approve the Acquisition, a termination fee of $10 million would be payable by IMZ to Hochschild. A termination fee of $10 million would be payable by Hochschild to IMZ should the transaction not close in the event of material adverse change in the price of gold or silver.

 

It is intended that IMZ will de-list from the TSX and the SIX Swiss Exchange and end the quotation of its shares on the Frankfurt stock exchange upon the closing of the Acquisition.

 

5.   Hochschild Irrevocable Undertaking

The Acquisition is treated as a Class 1 transaction for Hochschild under the Listing Rules of the United Kingdom, and therefore Hochschild is required to obtain shareholder approval for the Acquisition in an extraordinary general meeting.  The Acquisition also constitutes a related party transaction under chapter 11 of the Listing Rules of the United Kingdom.  As such, completion of the Acquisition is also conditional, amongst other things, on approval being received from the shareholders of Hochschild at the extraordinary general meeting of Hochschild. An extraordinary general meeting of Hochschild will be held for the purposes of approving the Acquisition. A notice convening the extraordinary general meeting will be set out in the circular to Hochschild shareholders, which will be published and posted to Hochschild shareholders in due course.

 

Eduardo Hochschild, Executive Chairman of Hochschild Mining plc, has provided an irrevocable undertaking to vote all his current issued shares in Hochschild, representing, in aggregate, 182,415,206 shares, or 54.0% of the currently issued share capital, as well as all shares that he indirectly subscribes to as part of the Placing, in favour of the acquisition at an extraordinary general meeting of Hochschild shareholders that will be convened in due course to approve the Acquisition.

 

The Hochschild Board considers the Acquisition to be in the best interests of the Company's Shareholders as a whole. Accordingly, the Board unanimously recommends the Company's Shareholders to vote in favour of the Acquisition, as each individual Director intends to do in respect of their own beneficial holdings, at the extraordinary general meeting of Hochschild to be held in due course.

 

6.   IMZ Voting Arrangements

Approval of the Acquisition will require the favourable vote of IMZ securityholders of at least: (a) 66 2/3% of the votes cast by IMZ securityholders, and (b) a simple majority of the votes cast by minority shareholders of IMZ (excluding Hochschild's 3.76 million shares and any other shares of any other shareholders to be excluded pursuant to applicable Canadian securities laws) who vote in person or by proxy at an annual and special meeting of IMZ.

 

Customary voting agreements for a Canadian transaction of this nature have also been entered into between the Company and directors and officers of IMZ, pursuant to which such shareholders have agreed to support and vote in favour of the Acquisition at the annual and special meeting of IMZ in relation to the Acquisition. Locked‐up common shares held by directors and officers of IMZ represent in the aggregate approximately 2.4% of the common shares of IMZ calculated on a non‐diluted basis. Taking into account Hochschild's indirect 3.2% shareholding in IMZ, it is expected that approximately 5.6% of the common shares of IMZ outstanding on a non‐diluted basis shall be voted in favour of the Acquisition pursuant to voting agreements. Further, following the public announcement of this proposed transaction, IMZ has undertaken to use commercially reasonable efforts to obtain support for the Acquisition by obtaining signed voting agreements from non-management IMZ shareholders. Acceptance of a superior proposal (as defined in the Arrangement Agreement) by IMZ automatically terminates the obligations under the above voting agreements with Hochschild.

 

7.   Financing

As the first stage of a broader corporate refinancing initiative, Hochschild has raised commitments for a $340 million senior secured bridge loan facility, subject to cancellation of the $140 million Suyamarca loan facility and is today undertaking an equity placing to institutional investors, including Eduardo Hochschild, of between 4.99% - 9.99% of Hochschild's outstanding share capital, representing approximately $48 - $96 million[3] (see concurrent 2 October 2013 Placing Announcement).

 

The Facility has been entered into via a commitment letter with BofA Merrill Lynch, BBVA and Goldman Sachs (the "Lenders" or "Lead Arrangers"). The Facility will be made available to Compañía Minera Ares, S.A.C. a Peruvian sociedad anónima cerrada (the "Borrower"), a wholly-owned subsidiary of Hochschild, by the Lenders, with Hochschild, Hochschild Mining (Perú) S.A. and Minera Suyamarca S.A.C., among others, as Guarantors, subject to satisfactory completion of final loan documentation and other customary conditions, and may be further syndicated. The closing date is expected to occur substantially concurrently with the closing of the Acquisition (the "Closing Date").

 

The Facility will have two tranches: (i) $270 million to finance the acquisition of all of the equity interests in IMZ not then owned by the Borrower and its affiliates, and (ii) $70 million available until 31 January 2014, to finance working capital and other general corporate purposes. The aggregate principal amount of the Facility is up to $340 million at an initial coupon of LIBOR plus a margin between 250 - 475 basis points, dependent on (i) rating, (ii) a market flex mechanism and (iii) an increasing ratchet over time between three and 16 months post-closing to a maximum margin of 600 - 800 basis points. The Borrower shall also pay the lenders under the Facility a commitment fee at a rate per annum equal to 35% of the then Applicable Margin on the daily average amount of the commitments of the Senior Lenders in respect of the Facility and will commence to accrue on the date on which the credit agreement evidencing the Facility is executed, and shall cease to accrue on the date on which the commitments in respect of the Facility terminate.

 

The Facility contains customary terms pursuant to which the Lead Arrangers can require the issuance of debt instruments to refinance the Facility subject to certain caps on yield dependent on whether the Company has obtained a credit rating and, if so, the level of the rating obtained. Such conversion may be required at any point from 1 February 2014, and the highest yield at which such take-out financing could be set is fixed at a rate equal to the indicative yield the Company would pay to issue debt securities if it were to issue them on signing of the Facility, plus a spread of 275 basis points.

 

All interest and fees payable by the Borrower to the Lenders under the Facility will be payable in U.S. Dollars. The Facility will be secured by, among others, a valid and perfected first priority lien and security interest in favour of the senior lenders in all shares of capital stock of, and equity rights in the Borrower and each Guarantor, other than Hochschild (the "Collateral"). The Facility will mature on the 12 month anniversary of the Closing Date, but may be extended by the Borrower for an additional 4 months. The Facility can be repaid prior to maturity.

 

The Company is also undertaking an equity placing of between 4.99% - 9.99% of Hochschild's outstanding share capital, representing approximately $48 - $96 million[4] at the time of announcement of the Acquisition. The Placing is not conditional upon completion of the Acquisition. Therefore subject to the conditions of the Placing being satisfied and the placing agreement not being terminated, the net proceeds of the Placing will be collected before completion of the Acquisition. Eduardo Hochschild has irrevocably undertaken to subscribe, through Inversiones Pacasmayo S.A. (an entity controlled by him), for the lower of: (i) such number Placing Shares as is equal to an amount representing not more than 4.99 per cent. of the total issued share capital of the Company prior to completion of the Placing and (ii) such number of Placing Shares as results in an aggregate consideration of an amount equal to not less than $50,000,000 being payable for such Placing Shares such that immediately following completion of the Placing, Eduardo Hochschild will indirectly hold not less than 50.1% of the total issued share capital of the Company on a fully diluted basis. This commitment is subject to the Placing proceeding in accordance with the terms of the Placing Agreement and the Placing Agreement not being terminated prior to admission. Further details of the Placing can be found in the Placing Announcement to be announced separately today.

 

These new resources are in addition to Hochschild's existing cash balance of $275 million (at 31 July 2013) and its remaining 21.1% stake in Gold Resource Corporation (as described in Hochschild's interim results). These facilities have been sized to provide Hochschild with the requisite funding to fully support the Company's anticipated capital expenditure at Inmaculada of $230 million and to provide capacity to satisfy the Company's upcoming convertible bond maturity in October 2014.

 

A review of bond and bank refinancing alternatives for the second stage of Hochschild's balance sheet refinancing is being undertaken by Hochschild and its advisors.

 

8.   Financial Effects

Hochschild expects the Acquisition to be earnings enhancing in the first full year of ownership.

 

The Pallancata and Inmaculada operations are currently fully consolidated in Hochschild's accounts. As a result, the primary impact of the Acquisition on Hochschild's profits before subtracting non-controlling interests will be an increase in finance costs, and the only impact on Hochschild's balance sheet other than a reduction in non-controlling interests will be a change to the Company's cash and debt position as a result of the acquisition financing. Profit attributable to non-controlling interests will reduce materially, with the 49% stake not held in the San Jose operations representing Hochschild's only material remaining non-controlling interest.

 

The consolidation of the IMZ assets is expected to deliver tax efficiencies going forward arising from the intended merging of the Compania Minera Ares and Suyamarca entities, which is expected to be executed following completion of the Acquisition.

 

The Acquisition increases the Company's pro forma cash flow and capital cost from the existing operations at Pallancata and the development cost of Inmaculada. However, the additional leverage reduces the Company's ability to take on further debt financing for the purposes of additional strategic capital allocation. Subject to the Acquisition's completion, the strategy with regards to Crespo, as approved by the Board, is to delay the project in order to better sequence capital allocation, with the focus now firmly on the construction of the Inmaculada project with the increased resulting capital expenditure. This is expected to postpone approximately $80 million of remaining Crespo project expenditure. Despite the prioritisation of Inmaculada, Crespo remains an important component of the company's portfolio of development assets. It is the management's intention that in the event that precious metals markets show sustained improvement, this would allow the Company to re-allocate capital to the Crespo project and potentially re-initiate development sooner than would be otherwise anticipated.

 

As a consequence of the Acquisition and of the Crespo delay, the Company is targeting an attributable production capacity profile going forward following completion of the acquisition of:

Production Capacity*	2013	2014	2015	2016	2017
Attributable Production Capacity (Moz Ag eq.)**	20.0	21.0	28.0	32.0	34.7

* There can be no assurance that actual production will match expected production capacity

** Forward looking production capacity figures are presented on the basis of existing public disclosure. Existing operations are expected to maintain current production, ageing operations are expected to maintain their declining trend and Advanced Projects are expected to achieve their previously stated production targets on the basis of the latest development phasing (assuming Inmaculada ramp-up to two-thirds of full production capacity in 2015). 2017 production forecast includes an indicative contribution from the delayed Crespo project.

 

9.   Current Trading

On 21 August 2013, Hochschild published its Interim Results for the six months ended 30 June 2013. Hochschild is of the view that there has been no significant change to the Group's trading and prospects since that date. Hochschild remains on track to produce 20 million attributable silver equivalent ounces in 2013. In addition, since Hochschild's results, there has been no material change to the overall level of cost savings expected to be delivered as part of the Company's cash flow optimisation programme, first announced in May 2013.

 

10.  Other Conditions to Completion

Completion of the Acquisition is also subject to the shares of SpinCo being conditionally listed on the TSX, the approval of the Plan of Arrangement by the Supreme Court of Yukon, any anti-trust or foreign investment approvals (if required), there being no material adverse effect to IMZ, the Peruvian Assets or IMZ's Peruvian subsidiaries^[5], and the Swiss Take-Over Board either confirming that Swiss take-over laws do not apply to the transaction or exempting Hochschild from the application of Swiss take-over laws and that the Swiss Take-Over Board's relevant decision becoming final and binding. In addition, pursuant to the terms of the Arrangement Agreement, the Acquisition must be completed prior to 31 January 2014.

 

Applicable Canadian law also grants shareholders of IMZ the right to dissent and to be paid fair value in cash, as determined by the Supreme Court of Yukon, if they do not support the transaction and if they strictly follow the dissent requirements of the Canadian Act. It is a condition to completion of the Acquisition that shareholders holding no more than 5% of the IMZ shares exercise dissent rights, otherwise Hochschild will have the right (but not the obligation) to terminate the Arrangement Agreement.

 

Assuming all conditions are satisfied or waived (where applicable), Hochschild currently expects the Acquisition to be completed by the end of Q4 2013.

 

11.  Advisors

RBC Capital Markets is acting as financial advisor to Hochschild in respect of the Acquisition and Stikeman Elliott LLP is acting as the Company's Canadian legal advisor.

 

BofA Merrill Lynch is acting as financial advisor, sponsor and corporate broker to Hochschild in relation to the Acquisition and joint bookrunner in relation to the Placing.

 

Goldman Sachs is acting as financial advisor to Hochschild in relation to the Acquisition and joint bookrunner in relation to the Placing.

 

J.P. Morgan Cazenove is joint corporate broker to Hochschild.

 

Banco Bilbao Vizcaya Argentaria, S.A. ("BBVA") is acting as co-manager in relation to the Placing.

 

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Enquiries:

Hochschild Mining plc

Charles Gordon                                                                         +44 (0)20 7907 2934

Head of Investor Relations

BofA Merrill Lynch                                                                  +44 (0)20 7628 1000

Omar Davis      

Ken McLaren

Edward Peel (Corporate Broking)

Matthew Blawat (Corporate Broking)

Goldman Sachs International                                                 +44 (0)20 7774 1000

Richard Cormack

Dominic Lee

Adrian Beidas

Duncan Stewart

RBC Capital Markets                                                                +1 416 842 7588

Justin Barr

Timothy Loftsgard

J.P. Morgan Cazenove                                                            +44 (0)20 7777 2000

Ben Davies

RLM Finsbury

Charles Chichester (Public Relations)                                          +44 (0)20 7251 3801

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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 almost fifty years' experience in the mining of precious metal epithermal vein deposits and currently operates four underground epithermal vein mines, three located in southern Peru and one in southern Argentina. Hochschild also has numerous long-term projects throughout the Americas.

 

 

Notes and Disclaimers:

Note: All dollar amounts in this announcement refer to U.S. dollars.

 

This announcement may contain certain forward-looking statements with respect to Hochschild's expectation and plans, strategy, management's objectives, future performance, production, costs, revenues and other trend information. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that may occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts. The statements have been made with reference to forecast price changes, economic conditions and the current regulatory environment. Nothing in this presentation should be construed as a profit forecast. Past share performance cannot be relied on as a guide to future performance. Except as required by applicable law or regulation, the Group does not undertake any obligation to update or change any forward-looking statements contained in this announcement or any other forward-looking statement it may make.

 

This announcement does not constitute or form part of an offer or solicitation to purchase or subscribe for shares in the capital of the Company in the United States. The securities referred to herein have not been and will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act") or with any securities regulatory authority of any state or other jurisdiction of the United States and may not be offered, sold, resold, transferred or delivered, directly or indirectly, in the United States except pursuant to registration under, or an exemption from the registration requirements of, the Securities Act. The Placing securities referred to in this announcement are being offered and sold only outside the United States in "offshore transactions" (as defined in Regulation S) meeting the requirements of Regulation S and may be made within the United States to institutional investors who are qualified institutional buyers within the meaning of Rule 144A under the Securities Act in transactions that are exempt from, or not subject to, the registration requirements under the Securities Act. There will be no public offering of securities in the United States.

 

Merrill Lynch International ("BofA Merrill Lynch"), which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, is acting exclusively for Hochschild and no-one else in connection with the Acquisition and the Placing. Merrill Lynch International will not regard any other person as its client in relation to the Acquisition or the Placing and will not be responsible to anyone other than Hochschild for providing the protections afforded to its clients, nor for providing advice in relation to the Acquisition, the Placing, the contents of this announcement or any transaction, arrangement or other matter referred to herein.

 

Goldman Sachs International, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, is acting for Hochschild and no one else in connection with the distribution of this document and will not be responsible to anyone other than Hochschild for providing the protections afforded to clients of Goldman Sachs International nor for providing advice in connection with the Acquisition or the Placing.

 

J.P. Morgan, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, is acting for Hochschild and no one else in connection with the distribution of this document and will not be responsible to anyone other than Hochschild for providing the protections afforded to clients of J.P. Morgan nor for providing advice in connection with the Acquisition or the Placing.

 

RBC Capital Markets is a trading name used by subsidiaries of the Royal Bank of Canada including RBC Dominion Securities Inc., RBC Capital Markets LLC and RBC Europe Limited (collectively, "RBC Capital Markets"). RBC Europe Limited, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, is acting for Hochschild and no one else in connection with the distribution of this document and will not be responsible to anyone other than Hochschild for providing the protections afforded to clients of RBC Europe Limited nor for providing advice in connection with the Acquisition or the Placing.

 

BBVA, is a Spanish Bank authorised and regulated by the Bank of Spain, is acting exclusively for Hochschild and no-one else in connection with the Acquisition and the Placing. BBVA will not regard any other person as its client in relation to the Acquisition or the Placing and will not be responsible to anyone other than Hochschild for providing the protections afforded to its clients, nor for providing advice in relation to the Acquisition, the Placing, the contents of this announcement or any transaction, arrangement or other matter referred to herein.