Proactiveinvestors recommends
Pdf

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

10th Nov 2009, 9:07 am Hochschild Mining will try to retain 40% holding in Lake Shore Gold - Fox-Davies Capital

Event


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.

 

No investment advice

The Company is a publisher and is not registered with or authorised by the Financial Services Authority (FSA). You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person. You further understand that none of the information providers or their affiliates will advise you personally concerning the nature, potential, advisability, value or suitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter.

You understand that the Site may contain opinions from time to time with regard to securities mentioned in other products, including company related products, and that those opinions may be different from those obtained by using another product related to the Company. You understand and agree that contributors may write about securities in which they or their firms have a position, and that they may trade such securities for their own account. In cases where the position is held at the time of publication and such position is known to the Company, appropriate disclosure is made. However, you understand and agree that at the time of any transaction that you make, one or more contributors may have a position in the securities written about. You understand that price and other data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that neither such data nor such calculations are guaranteed by these sources, the Company, the information providers or any other person or entity, and may not be complete or accurate.

From time to time, reference may be made in our marketing materials to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.