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Hochschild Mining to raise Lake Shore Gold stake to 36 pct through C$85 million private placement

Last updated: 14:22 19 Nov 2009 GMT, First published: 15:22 19 Nov 2009 GMT

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Hochschild Mining PLC (LSE: HOC) said it has agreed to acquire a further 19.2 million shares in Lake Shore Gold Corp (TSX: LSG) in a private placement, to raise its stake in the group to 36 percent from 32 percent.

It is paying C$85 million, or an average price of C$4.43 per share, representing a 10 percent premium over the reference closing price on November 17 2009 of C$4.02.

Hochschild in early October announced a placing and convertible bond offer to raise US$250 million it planned to use for further acquisitions, for further investments in Lake Shore Gold Corp and Gold Resource Corp (OTCBB: GORO) as well as for paying down debt.

Since 2008, Hochschild has invested a total of C$343 million in its stake in Lake Shore Gold at an average price of C$2.68 per share. The investment to date reflects its confidence in the significant production potential and long-term growth of Lake Shore Gold, which has a current market capitalisation of approximately C$1.3 billion.

Lake Shore Gold last week completed its business combination with West Timmins Mining, creating the new large-scale, wholly-owned Timmins West Gold Mine complex. Lake Shore Gold has announced a production target of 100,000 ounces of gold in 2010, building production over the following three years to upwards of 350,000 ounces annually over the next several years and accelerating its development as Canada's next mid-tier gold producer.
 
The proceeds from today's private placement will be used  to advance Lake Shore Gold’s  key projects which include bringing the Timmins Mine to commercial production over the next 12 months and completing the expansion of the Bell Creek Mill to 3,000 tonnes per day as well as to increase its exploration spend. The transaction is expected to close within the next few days.

Lake Shore Gold announced the deal in a separate statement, noting that under the terms of the strategic alliance agreement, entered into as part of a initial financing in February 2008, Hochschild's ownership in the group is limited to 40 percent of the outstanding common shares. This limitation expires on November 22 2010.

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