Hochschild to Acquire Amarillo Gold
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF THE MARKET ABUSE (AMENDMENT) (EU EXIT) REGULATIONS 2019/310.
For immediate release
30 November 2021
Hochschild Signs Definitive Agreement to Acquire Amarillo Gold
Hochschild Mining PLC ("Hochschild" or the "Company") (LSE: HOC) (OTCQX: HCHDF) is pleased to announce that it has entered into a definitive agreement with Amarillo Gold Corporation ("Amarillo") (TSXV: AGC) (OTCQB: AGCBF) pursuant to which Hochschild has agreed to acquire all of the issued and outstanding shares of Amarillo (the "Transaction") at a price of C$0.40 per share in cash (the "Cash Offer"). Pursuant to the Transaction, Hochschild will acquire a 100% interest in Amarillo's flagship Posse gold project ("Posse") located in Goiás State, Brazil.
In addition, shareholders of Amarillo will receive shares in a newly formed company, Lavras Gold Corp., which will hold a stake in the Lavras do Sul project, C$10 million 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 net acquisition cost to Hochschild, including the Cash Offer, cash provided to Lavras Gold Corp. and Amarillo's net cash as at September 30, 2021, is estimated to be C$135 million.
The Transaction constitutes a Class 1 Transaction under the UK Listing Rules due to the level of Posse's Proven and Probable Reserves relative to those of Hochschild. As such, the Transaction is subject to Hochschild shareholder approval as well as the approvals of Amarillo shareholders, the Canadian court, regulatory authorities and the satisfaction of certain other customary conditions. The Transaction has been unanimously recommended by the board of directors of Amarillo and has the full support of Amarillo's major shareholders, Baccarat Trade Investments Ltd. and Eric Sprott. The board of directors of Hochschild (the "Board") believes the Transaction is in the best interests of Hochschild's shareholders. Accordingly, the Board unanimously intends to recommend that shareholders vote in favour of the Transaction. Completion is expected to occur in the first quarter of 2022.
Key Acquisition Highlights
§ Aligns with Hochschild's core strengths and long-term strategy of acquiring and optimising development stage projects in the Americas
§ Enhances the Company's portfolio by adding a long-life asset located in a mining friendly jurisdiction
§ Provides exposure to a high-quality project with attractive costs where certain infrastructure construction is underway
§ Offers compelling near-mine and regional exploration opportunities
§ Complementary ESG-led approach with strong local community and government support
§ Maintains Hochschild's financial strength and flexibility
Ignacio Bustamante, Chief Executive Officer, said:
"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. 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 and generate strong sustainable value for the Company and the project's local stakeholders."
Posse is an open pit gold project located in Mara Rosa in the mining friendly jurisdiction of Goiás State, Brazil. The brownfield project benefits from existing infrastructure and attractive costs. Construction of certain infrastructure is underway, with the project having received the License to Install from state regulators in February 2021 and approval for the power line in October 2021. Hochschild has revised the Posse mine plan contained in the August 2020 Definitive Feasibility Study, and will include further details in a mineral expert's report to be incorporated in a shareholder circular (the "Circular") to be sent to holders of Hochschild's ordinary shares ("Hochschild Shareholders") in connection with the Transaction.
Table 1: Hochschild's Posse Mine Plan Forecasts
Initial Mine Life
Average Annual Production
~80koz Au (~100koz Au over the first four years)
Average Annual AISC
US$750/oz Au - US$850/oz Au
US$180m - US$200m
After-Tax NPV5% at US$1,600/oz Au
US$150m - US$160m
After-Tax IRR at US$1,600/oz Au
18% - 20%
After-Tax NPV5% at US$1,800/oz Au
US$200m - US$240m
After-Tax IRR at US$1,800/oz Au
24% - 26%
Table 2: Posse NI 43-101 Proven and Probable Reserves
Proven and Probable
Table 3: Posse NI 43-101 Measured, Indicated and Inferred Resources
Measured and Indicated
Exploration Potential Overview
Hochschild has identified compelling near-mine and regional exploration opportunities for Posse and the Mara Rosa property. Posse is open down plunge to the southwest, providing potential to extend the mine life near the existing pit shell. There is also an opportunity to define multiple satellite deposits along the 10 km Posse structural trend including the Araras, Speti 24 and Pastinho priority targets. Recent drilling has identified Pastinho as a promising target with similar geological characteristics to Posse and multiple parallel gold structures extending from the surface to approximately 200 m of vertical depth while remaining open. In addition to the 2,500 hectares of mining concessions containing the Posse deposit and the 6,000 hectares of exploration concessions on the Posse structural trend, Hochschild will acquire an additional 59,000 hectares of regional exploration concessions on the Mara Rosa property.
Transaction Summary and Details
The Cash Offer represents a premium of approximately 66% to the 20-day volume weighted average price of Amarillo's common shares on the TSX Venture Exchange on 29 November 2021.
The Transaction will be implemented by way of a statutory plan of arrangement under the Business Corporation Act (British Columbia). The Transaction will be subject to the approval of 66 2/3% of the votes cast by the holders of Amarillo's common shares ("Amarillo Shareholders") present in person or represented by proxy at the special meeting relating to the Transaction (the "Special Meeting"). In addition to security holder approval, the Transaction is subject to the receipt of court approval and other customary closing conditions for transactions of this nature.
Amarillo's board of directors has unanimously recommended that Amarillo Shareholders vote in favour of the Transaction at the Special Meeting, as the Amarillo directors and officers that hold securities in Amarillo intend to do in respect of their own beneficial holdings of Amarillo's securities, representing approximately 7% of the existing share capital of Amarillo as at 29 November 2021.
Baccarat Trade Investments Ltd., Eric Sprott and the directors and officers of Amarillo, holding common shares and options reflecting in aggregate approximately 46% of Amarillo's issued and outstanding common shares on a fully diluted basis, have entered into voting and support agreements with Hochschild, pursuant to which they have agreed, among other things, to vote their Amarillo securities in favour of the Transaction.
As a Class 1 transaction, it will also require the approval of a simple majority of the votes cast by Hochschild Shareholders. Hochschild expects to send the Circular to Hochschild Shareholders in due course convening a general meeting (the "General Meeting") to vote on a resolution approving the Transaction.
Hochschild's Board unanimously intends to recommend that Hochschild Shareholders vote in favour of the Transaction, as each of the Hochschild directors that holds ordinary shares in Hochschild intends to do in respect of their own beneficial holdings, representing approximately 39% of Hochschild's issued share capital as at 29 November 2021.
Pelham Investment Corporation, an entity controlled by Eduardo Hochschild and a holder of approximately 38% of Hochschild's issued and outstanding ordinary shares, has entered into a voting and support agreement pursuant to which it has agreed, among other things, to vote its Hochschild ordinary shares in favour of the Transaction.
The definitive agreement includes customary deal-protection provisions. Amarillo has agreed not to solicit or initiate any discussion regarding any other business combination, subject to customary "fiduciary out" rights. Amarillo has also granted Hochschild a right to match any superior proposal and will pay a termination fee of C$5.0 million to Hochschild in certain circumstances, including if the definitive agreement is terminated in connection with Amarillo pursuing a superior proposal. Hochschild has agreed to pay a termination fee of C$2.5 million to Amarillo if Hochschild terminates the definitive agreement in certain circumstances or if Hochschild Shareholders fail to approve the Transaction at the General Meeting.
Further details of the Transaction and the definitive agreement will be included in the Circular, which will be sent to Hochschild Shareholders in due course. The Transaction is expected to close in the first quarter of 2022.
The Transaction will be funded from Hochschild's current cash balance and/or undrawn credit facility.
Amarillo Financial Information
Amarillo had C$32.3 million of cash, gross assets of C$92.4 million and no debt as at 30 September 2021, and generated a loss before income tax of C$3.9 million for the year ended 31 December 2020.
Advisors and Counsel
Hochschild has engaged RBC Capital Markets as its financial advisor, sole sponsor and corporate broker, Stikeman Elliott LLP as its Canadian legal counsel, Pinheiro Neto Advogados as its Brazilian legal counsel, and Linklaters LLP as its UK legal counsel in connection with the Transaction.
A special committee comprised of directors of Amarillo has engaged Research Capital Corporation as its advisor. Research Capital Corporation has provided its verbal fairness opinion to Amarillo's special committee and board of directors, as of the date of the fairness opinion, and subject to the limitations, qualifications and assumptions disclosed to Amarillo's special committee and board of directors in connection therewith, that the consideration to be received by Amarillo's shareholders pursuant to the Transaction is fair, from a financial point of view, to Amarillo's shareholders. The full text of the written fairness opinion, which describes the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken, will be included in Amarillo's management information circular. Amarillo has engaged Irwin Lowy LLP as its legal counsel and Osler, Hoskin & Harcourt LLP as counsel to its special committee in connection with the Transaction.
A webcast will be held at 12pm (London time) on 30 November 2021 for analysts and investors.
To attend, please register at:
Hochschild Mining PLC
Charlie Gordon +44 (0)20 3709 3260
Head of Investor Relations
Charlie Jack +44 (0)207 796 4133
RBC Capital Markets +44 (0)207 653 4000
Financial Advisor, Sole Sponsor and Corporate Broker
About Hochschild Mining PLC
Hochschild Mining PLC is a leading precious metals company listed on the London Stock Exchange (HOCM.L / HOC LN) and cross-trades on the OTCQX Best Market in the U.S. (HCHDF), with a primary focus on the exploration, mining, processing and sale of silver and gold. Hochschild has over fifty years' experience in the mining of precious metal epithermal vein deposits and currently operates three underground epithermal vein mines, two located in southern Peru and one in southern Argentina. Hochschild also has numerous long-term projects throughout the Americas.
About Amarillo Gold Corporation
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 Amarillo'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 ten years. The exploration stage Lavras do Sul Project in Rio Grande do Sul State has more than 23 prospects centred on historic gold workings. Amarillo trades on the TSX Venture Exchange under the symbol AGC and on the OTCQB under the symbol AGCBF.
Certain statements contained in this announcement that are not historical fact may be "forward-looking" statements. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Company's control and all of which are based on the Company's current beliefs and expectations about future events. Forward-looking statements are typically identified by the use of forward-looking terminology such as "believes", "expects", "may", "will", "could", "should", "intends", "estimates", "plans", "assumes" or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. In addition, from time to time, the Company or its representatives have made or may make forward-looking statements orally or in writing. Furthermore, such forward-looking statements may be included in, but are not limited to, press releases or oral statements made by or with the approval of an authorised executive officer of the Company. These forward-looking statements, and other statements contained in this announcement regarding matters that are not historical facts, involve predictions. No assurance can be given that such future results will be achieved; actual events or results may differ materially as a result of risks and uncertainties facing the Company and its subsidiaries. Such risks and uncertainties could cause actual results to vary materially from the future results indicated, expressed or implied in such forward-looking statements.
The forward-looking statements reflect knowledge and information available at the date of preparation of this announcement. Except as required by applicable law and/or regulatory obligations, the Company does not undertake any obligation to update or change any forward-looking statements to reflect events occurring after the date of this announcement. Nothing in this announcement is intended as a profit forecast or estimate for any period and no statement in this announcement should be interpreted to mean that earnings or earnings per share or income, cash flow from operations or free cash flow for the Company for the current or future financial years would necessarily match or exceed the historical published earnings or earnings per share or income, cash flow from operations or free cash flow for the Company.
The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (Regulation (EU) No.596/2014), as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018. Upon the publication of this announcement via a Regulatory Information Service, this inside information is shall be considered to be in the public domain.
RBC Europe Limited ("RBC"), which is authorised in the UK by the Prudential Regulation Authority and regulated in the UK by the Financial Conduct Authority, is acting exclusively for the Company and no one else in connection with the Transaction. RBC will not regard any other person as a client in relation to the Transaction and will not be responsible to any person other than the Company for providing the protections afforded to clients of RBC, nor for providing advice in connection with the Transaction or any other matter, transaction or arrangement referred to in this announcement.
Shareholders and prospective investors will be deemed to have acknowledged that they have not relied on RBC or any person affiliated with it in connection with any investigation of the accuracy of any information contained in this announcement for their investment decision.
Apart from the responsibilities and liabilities, if any, which may be imposed on RBC by the Financial Services and Markets Act 2000 or the regulatory regime established thereunder, neither RBC nor any of its affiliates accept any responsibility or liability whatsoever for the contents of this announcement, including its accuracy, completeness or verification, or for any other statement made or purported to be made by it, or on its behalf, in connection with the Company or the Transaction, and nothing in this announcement is, or shall be relied upon as, a promise or representation in this respect, whether or not to the past or future. RBC and its affiliates accordingly disclaim all and any duty, liability or responsibility whatsoever (whether direct or indirect and whether arising in tort, contract, under statute or otherwise (save as referred to above)) which it might otherwise have in respect of this announcement or any such statement.
This announcement is not intended to, and does not constitute or form part of, and should not be construed as, any offer, invitation, solicitation or recommendation of an offer to purchase, sell, subscribe for or otherwise dispose of or acquire any securities or the solicitation of any vote or approval in any jurisdiction and neither the issue of the information nor anything contained herein shall form the basis of or be relied upon in connection with, or act as an inducement to enter into, any investment activity. No shares are being offered to the public by means of this announcement. This announcement does not constitute either advice or a recommendation regarding any securities, or purport to contain all of the information that may be required to evaluate any investment in the Company or any of its securities and should not be relied upon to form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. Past performance is not an indication of future results and past performance should not be taken as a representation that trends or activities underlying past performance will continue in the future.
The distribution of this announcement in or from certain jurisdictions may be restricted or prohibited by the laws of any jurisdiction other than the UK. Recipients are required to inform themselves of, and comply with, all restrictions or prohibitions in such other jurisdictions. Any failure to comply with applicable requirements may constitute a violation of the laws and/or regulations of other such jurisdiction.
This announcement has been prepared for the purposes of complying with the applicable law and regulation of the UK (including the Listing Rules and the Disclosure Guidance and Transparency Rules) and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws and regulations of any jurisdiction outside of the UK.
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1 Based on limited drilling at depth