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Market: AIM
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Web Site: Fox-Davies Capital
Other Articles: 08-02-201005-02-201004-02-2010

Fox-Davies Capital

Fox-Davies Capital specialises in international resource companies and has a substantial background in emerging markets. FDC is dedicated to providing in depth sector, commodity, regional and company specific reports, driven by the aim of being specialist providers of high quality analysis on natural resource companies worldwide. Find out more at www.fox-davies.com
Tuesday, November 10, 2009

Hochschild Mining will try to retain 40% holding in Lake Shore Gold - Fox-Davies Capital

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Hochschild has announced the purchase of 26.1M shares in West Timmins Mining Inc for a total cash consideration of C$61.6M or a weighted average price of C$2.36/share through several market transactions.
 
Comment


Since 2008 when Hochschild first acquired an interest in Lake Shore Gold, it had built up its position to 40%, at a total consideration of $182M. Lake Shore commenced production at its Timmins project began in the first quarter of 2009, and is expected to be at 500tpd by the end of the year yielding around 30,000oz of gold. Production levels are then expected to increase to 1,500tpd by the end of 2010 yielding 100,000oz of gold and the target for 2011 is 200,000oz of gold. The company also has several gold exploration properties in the area. In August 2009, Lake Shore Gold announced it would acquire all of the outstanding common shares of West Timmins Mining Inc. (“WTM”), and Hochschild Mining is fully supportive of the transaction.

Under terms of the agreement, which is subject to shareholder approval, WTM shareholders are to receive 0.73 Lake Shore Gold shares per WTM share, valuing WTM at approximately C$319 million.
 
 Hochschild had said that it wished to keep its investment at the 40% level and we see this move as the first step in achieving this target. We calculate that it ensures that once the acquisition is complete, then Hochschild's position in Lake Shore will not drop below 30% compared to 26% if it had not purchased the shares.
 
When converted into Lake Shore shares at 0.73 Lake Shore Gold shares per WTM share, it represents an entry price of C$3.233/share compared to the current spot price of Lake Shore of C$4.08/share. We believe that this indicates that Hochschild are being prudent and not overpaying to maintain its 40% interest.
 
We anticipate more moves by Hochschild’s to retain as near as possible a 40% holding in Lake Shore Gold.

 

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