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Amarillo Gold agrees to around C$164.5M takeover offer from UK's Hochschild Mining

Last updated: 17:25 30 Nov 2021 GMT, First published: 12:56 30 Nov 2021 GMT

Hochschild Mining PLC -
The Posse gold project is located in the municipality of Mara Rosa in Brazil. Photo credit: Amarillo Gold Corp

Amarillo Gold Corp, owner of the Posse gold project in Brazil, has agreed to a takeover offer from UK-listed Hochschild Mining PLC (LSE:HOC, OTCQX:HCHDF) pitched at C$0.40 (£0.23) per share in cash

Amarillo shareholders will also receive shares in a newly formed company, Lavras Gold Corp, which will hold a stake in the Lavras do Sul project, C$10mln of cash, and a 2.0% net smelter revenue royalty on certain exploration properties owned by Amarillo and located outside the current Posse resource and mine plan at Amarillo's Mara Rosa property.

The cash consideration (not including the value of the Lavras SpinCo shares) represents a premium of 66% over the 20-trading day volume-weighted average trading price of the Amarillo shares on the TSX Venture Exchange of C$0.24.

The total transaction value is approximately C$164.5 million, excluding Lavras SpinCo’s asset value and C$10 million of cash. It is anticipated that Lavras SpinCo will complete a share consolidation immediately following the completion of the plan of arrangement.

WATCH: Amarillo Gold to be acquired by Hochschild Mining PLC

In a statement, Mike Mutchler, president and chief executive officer of Amarillo commented: “This acquisition delivers an immediate and compelling opportunity for our shareholders to monetize their investment in Amarillo at an attractive valuation and significant premium to the current and historical trading price of Amarillo’s shares.

"The transaction also provides our shareholders with additional value through their continued participation in the future exploration and advancement of the prospective Lavras Project through Lavras SpinCo, where our leadership team will be focussed on unlocking the true value of this project.”

Following an extensive review and detailed analysis of the proposed arrangement and the recommendation of the special committee of the board, the Amarillo board of directors has unanimously approved the arrangement agreement which it has determined is in the best interests of Amarillo and is fair, from a financial point of view, to Amarillo’s shareholders, and determined to recommend that Amarillo’s shareholders vote in favour of the arrangement.

The arrangement is subject to the approval of Amarillo shareholders with a special meeting expected to be held in early 2022 to consider the arrangement, with an information circular to be mailed to Amarillo shareholders prior to the meeting.

Backing from directors and Eric Sprott

Directors and officers of Amarillo who collectively hold 6.51% of the outstanding shares of Amarillo have entered into voting and support agreements with Hochschild and have agreed to vote their shares held in favour of the approval of the arrangement at the special meeting.

In addition, Eric Sprott, through 2176423 Ontario Ltd., a corporation which is beneficially owned by him, and Baccarat Trade Investments Limited, which beneficially hold 68,300,000 and 76,099,500 Amarillo shares (representing 17.69% and 19.71% of the outstanding shares), respectively, have also entered into similar voting and support agreements with Hochschild supporting the arrangement.

Amarillo said the arrangement is a culmination of the company’s exploration and development successes in Brazil. The company's management views the arrangement as an opportunity for its shareholders to realize value for a large portion of Amarillo’s assets, at an attractive premium to the recent market performance of its shares and other metrics, while continuing to participate directly in the upside of Lavras SpinCo’s planned exploration at the Lavras Project in Brazil.

Lavras SpinCo is expected to be well-capitalized at inception with significant cash, no debt, and led by Amarillo’s current management team.

Subject to the satisfaction of all of the conditions to closing set out in the arrangement agreement, it is anticipated that the arrangement will close in the first quarter of 2022.

Amarillo is advancing two gold projects located near excellent infrastructure in mining-friendly states in Brazil. The development stage Posse Gold Project is on the company’s Mara Rosa Property in Goiás State. It has a positive definitive feasibility study that shows it can be built into a profitable operation with low costs and a strong financial return.

Mara Rosa also shows the potential for discovering additional near-surface deposits that will extend Posse’s mine life beyond its initial 10 years. The exploration stage Lavras do Sul Project in Rio Grande do Sul State has more than 23 prospects centered on historic gold workings.

READ: Hochschild Mining says mines can continue to operate after Peru retracts closure threat

In its own statement, one of the reasons FTSE 250 index component Hochschild gave for the transaction is that it enhances its portfolio by adding a long-life asset located in a mining-friendly jurisdiction, helping it to diversify following the recent threat of closure at its two biggest mines in Peru.

The precious metals miner saw its shares slump earlier this month on concerns that the Peruvian government could close the company's two mines in the country: Pallancata and Inmaculada. The mines accounted for 80% of Hochschild’s attributable production in 2020 with the company’s only other mine in Argentina. The Peruvian government later clarified its position and said the mines could continue to operate, but Hochschild shares never fully recovered.  

Still, Hochschild does have a number of exploration projects in the US, Canada and Mexico as well as in Peru and Argentina.

"The acquisition of Amarillo enhances the company's project pipeline and is the result of a long-term company review process of a wide range of growth opportunities,” said Hochschild chief executive Ignacio Bustamante in its statement.

“Posse is an attractive low-cost project with relatively near-term production and strong exploration upside potential. With our significant experience in developing precious metal deposits in the Americas, Hochschild is ideally placed to take Posse to its next stage, he added.

 -- Adds details from Amarillo's statement --

Contact the author at jon.hopkins@proactiveinvestors.com

Amarillo Gold to be acquired by Hochschild Mining PLC

Amarillo Gold CEO Mike Mutchler joined Steve Darling from Proactive to share news Amarillo Gold Corporation (TSX-V:AGC, OTCQB:AGCBF) has entered into an agreement with Hochschild Mining PLC (LSE:HOC, OTCQX:HCHDF) to acquire all of the outstanding shares of Amarillo in exchange for cash...

on 30/11/21