HOC Hochschild Mining Plc

 

TIDMHOC 
 
RNS Number : 5926O 
Hochschild Mining PLC 
10 March 2009 
 

 
 
10 March 2009 
 
 
Hochschild signs letter of agreement to acquire Southwestern Resources and 
announces 
 additional short term forward sales contract 
 
 
 
 
Hochschild Mining plc ("Hochschild") is pleased to announce that it has signed a 
binding letter of agreement to acquire all the outstanding shares of 
Southwestern Resources Corp ("Southwestern") for a total cash consideration of 
US$17.5 million or US$0.39 per share. As at 30 September 2008, Southwestern had 
US$15.9 million* in cash and cash equivalents and no long-term debt. 
 
 
This is a strategic acquisition for Hochschild: 
 
 
  *  Consolidation of Hochschild's position in one of its key operational clusters - 
  Southwestern is a Canadian listed mineral exploration company with a number of 
  gold, silver and base metals projects in southern Peru 
  *  Enables the Group to leverage its existing infrastructure and knowledge of the 
  regional geology (see map and description of projects in notes to editors) 
  *  Acquisition includes remaining 50% of the Liam JV property, in which Hochschild 
  acquired a 50% interest in August 2008 for US$33.3 million. The 282,000 hectare 
  land package is in close proximity to  Hochschild's  four existing operations; 
  Arcata, Ares, Selene and Pallancata 
  *  To date, 38 exploration projects have been identified at Liam. Under the 
  existing Liam JV, Hochschild can earn an additional 20% of any individual 
  precious metal project by producing a positive feasibility study and financing 
  the costs to production. With 100% of Liam, Hochschild achieves full upside 
  potential at the property 
  *  Acquisition increases Hochschild's stake in the Pacapausa property to 80% 
  (previously 30%). Pacapausa comprises 7,933 hectares of exploration concessions 
  and is a potential satellite source of material for Hochschild's Pallancata 
  operation 
  *  The transaction also includes the Millo property (a 30% joint venture with 
  Yamana) which is adjacent to Azuca, Hochschild's wholly owned project in 
  southern Peru, located 80km from Arcata and Selene 
  *  Southwestern also has three other early stage exploration projects: Cristo de 
  los Andes, Antay and Alpacocha, all located in southern Peru. 
 
 
 
The transaction is subject to customary conditions, including the completion of 
due diligence by Hochschild and approval by Southwestern's shareholders.  The 
parties have agreed to negotiate and use their best efforts to enter into a 
definite agreement by 23 March 2009. If completed, the transaction would 
represent a premium of 117% over the price on 6 March 2009. Hochschild believes 
that the transaction offers significant potential upside and further 
consolidates its strategic position in Peru. 
 
 
Forward sales contract 
 
 
Further to its statement of 21 January 2009, Hochschild has now sold forward a 
total of 10.7 million ounces of its 2009 silver equivalent production, comprised 
of 8.9 million ounces of silver at an average price of $12.09 and 30  thousand 
ounces of gold at an average price of $972. None of 2010's production has been 
sold forward and management does not plan to undertake any further forward sales 
contracts in 2009. 
 
 
The decision to sell forward a portion of 2009 production was driven by the 
desire to have more stable cash flows which will fund operating capex and future 
M&A, similar to the acquisition announced today. Hochschild remains positive 
about the long term prospects for silver and gold but in light of current market 
conditions, believes that it is prudent to focus on cash preservation in the 
current financial year. 
 
 
* using C$/US$ exchange rate at 30 September 2008 
 
 
 
 
Miguel Aramburú, Chief Executive Officer of Hochschild Mining plc, commented; 
 
 
"Hochschild has operated successfully in southern Peru for over 40 years and the 
acquisition of Southwestern will further strengthen our position in this key 
mining district. The acquisition supports our cluster consolidation strategy and 
will enable us to leverage our existing infrastructure and knowledge of the 
regional geology. 
 
 
The decision to sell forward a portion of 2009 production was driven by the 
desire to have more stable cash flows which will fund operating capex and future 
M&A, similar to the acquisition announced today. We remain positive about the 
long term prospects for silver and gold but in light of current market 
conditions, believe that it is prudent to focus on cash preservation in the 
current financial year." 
____________________________________________________________________ 
 
 
Notes to editors: 
Southwestern is a Vancouver-based mineral exploration company engaged in the 
identification, acquisition, evaluation and exploration of gold, silver and base 
metals mineral properties. The Company has a number of significant projects, 
including the Liam gold-silver project in Peru. Southwestern is a reporting 
issuer in British Columbia, Alberta, Manitoba, and Ontario and trades on the 
Toronto Stock Exchange under the symbol SWG. 
 
 
Liam JV 
In August 2008, Hochschild acquired a 50% interest in the Liam Regional Joint 
Venture ("Liam JV") from Newmont Peru SRL and Newmont Mining Peru Limited, both 
subsidiaries of Newmont Mining Corporation, for a total cash consideration of 
$33.3 million. The transaction was funded entirely through existing cash. 
 
 
The Liam JV consists of over 282,000 hectares in the Tertiary Volcanic Belt of 
southern Peru, a region with significant mineral potential approximately 170 
kilometres northwest of Arequipa. It is currently one of the largest single 
claim blocks in Peru and is in close proximity to Hochschild's four existing 
operations; Arcata, Ares, Selene and Pallancata. 
 
 
To date, 38 exploration prospects have been identified and evaluated in the Liam 
project area, nine of which have been drilled and include both high and low 
sulphidation veins. Generative exploration was carried out in several areas of 
the property in 2007 and resulted in a number of new, encouraging prospects. Of 
particular importance are the Cerro Crespo/Queshca, Aluja, Huacullo, Farallon 
and Astana projects, details below. 
 
To view all details, please follow the link below. 
 
 http://www.rns-pdf.londonstockexchange.com/rns/5926O_-2009-3-10.pdf 
 
Cerro Crespo/Cerro Queshca 
 
 
Cerro Crespo/Cerro Queshca is composed of multiple zones of high sulphidation 
gold and silver mineralization hosted in the tertiary volcanic rocks and 
associated with volcanic and hydrothermal breccias. Eighty eight holes have been 
drilled for a total of 13,735 metres. Both silver dominant and gold dominant 
disseminated zones were discovered with higher-grade mineralization associated 
with late, cross-cutting limonite and barite rich hydrothermal breccias. 
 
 
Cerro Crespo is a prominent mountain composed of massive and vuggy silica and 
silica-alunite alteration. The mineralization is oxidized to a depth of over 200 
metres. The cross-cutting breccias commonly carry high-grade silver with grades 
greater than 1,000 grams per tonne. Block modeling and metallurgical testing at 
Cerro Crespo has demonstrated that the deposit could be mined by open-pit 
methods at a very low strip-ratio and is amenable to low-cost heap-leach 
processing. Economic studies to advance the project to production are underway. 
Additional development drilling and metallurgical testing to optimize recoveries 
is planned. 
 
 
Aluja 
 
 
Aluja is a strongly developed high-sulphidation system that covers 2.0 x 1.5 
kilometres. Aluja consists of both mineralized and oxidized silica alteration 
zones exposed on the surface and also large areas of upper level, vapour-phase 
derived, granular silica which suggests preservation of possible mineralized 
zones at depth. Rock chip samples collected on the project total 2, 312. 
Thirty-five samples were collected from silicified structures and cross-cutting 
breccias and contain from 404 to 54,600 parts per billion gold, with 10 of those 
samples containing greater than 1000 parts per billion. 
 
 
One hundred and forty-nine samples were collected from upper level alteration 
phases and contain from 50 to 394 parts per billion gold. Nine holes were 
drilled in 2007 and modest widths or grades of mineralization were intersected, 
such as 21.0 metres grading 1.37 grams per tonne gold and 1.5 metres grading 
2.79 grams per tonne gold. Much of the alteration at Aluja remains un-drill 
tested and a new evaluation of the data is planned to remodel the targets and 
generate new targets for possible future drilling. 
 
 
Huacullo 
 
 
The Huacullo area is comprised of multiple, epithermal, low sulphidation veins 
and vein/breccia zones trending in a northwest-southeast direction. The largest 
of these zones extends for two kilometres and varies from one to 20 metres in 
width. Vein textures and trace element signatures are similar to veins being 
mined in the nearby Aracata district. Thirteen holes have been drilled in two 
phases on this project to test five different vein systems. Several significant 
vein intersections have been made, including: 1.05 metres grading 22.4 grams per 
tonne gold and 70.60 grams per tonne silver; 1.65 metres grading 133.5 grams per 
tonne silver and 1.35 grams per tonne gold and 0.45 metres grading 144 grams per 
tonne silver and 3.18 grams per tonne gold. Results of drilling have shown that 
some of the grades of the vein systems are increasing dramatically at depth. 
 
 
Farallon and Astana 
 
 
Both of these closely located projects contain significant potential for 
economic mineralization. Both disseminated low-sulphidation (Round 
Mountain-style) gold - silver and high sulphidation gold systems are present. 
Twenty-six holes have been completed on three different target areas. Drill 
results that indicate potentially significant gold mineralization include: 102.0 
metres grading 0.84 grams per tonne, 68.5 metres grading 0.47 grams per tonne 
and 44.6 metres grading 0.43 grams per tonne. The mineralization at Astana 
remains open to the south and east. Detailed data modeling and evaluation is 
underway to determine if additional drilling is warranted in 2009 to advance 
these prospects to production decision points. 
 
 
Pacapausa 
 
 
Pacapausa is a gold and silver exploration property covering 7,933 hectares in 
southern Peru. Pacapausa is located between Hochschild's Explorador and Selene 
silver mines to the north and the Pallancata silver property (jointly owned by 
International Minerals and Hochschild) being advanced to production to the 
south. This project is owned by Minas Pacapausa (S.A.C). Southwestern and a 
company jointly owned by International Minerals Corp. and Hochschild Mining each 
own 50% of Minas Pacapausa. 
 
 
Targets at Pacapausa include low-sulphidation epithermal silver and gold vein 
systems and possibly high sulphidation gold mineralization. In excess of 2,000 
rock chip samples have been collected on the property. Of 261 vein samples on 
the project, silver values range from 33 to 2,309 grams per tonne, with 147 
samples containing over 100 grams per tonne silver. Gold results from 191 
samples from various veins and alteration zones on the property range from 301 
to 23,400 parts per billion, with 47 samples containing over 1,000 parts per 
billion gold. A 4.3 metre channel sample from a stockwork zone adjacent to a 
vein zone returned 148 grams per tonne silver and 2.3 grams per tonne gold. A 
2,000-metre drill program completed in 2007 was followed in 2008 by additional 
fieldwork to evaluate the entire property for additional targets. 
 
 
 
 
Millo 
 
 
Millo is located 130 kilometres southwest of Cusco, Peru. The project is 100% 
owned by Southwestern; and Yamana Gold Inc. is earning a 70% interest by funding 
all exploration costs through the completion of a pre-feasibility study. Yamana 
operates the project. 
 
 
A first phase drilling program was completed in 2006 on three low-sulphidation 
epithermal vein systems at La Española. Several exceptional intersections 
include 20.3 metres grading 317 grams per tonne silver and 2.65 grams per tonne 
gold, and 17.1 metres grading 162 grams per tonne silver and 1.8 grams per tonne 
gold. A second phase drill program was completed in 2007, and nine of the 15 
holes were drilled to follow up on two of the three vein systems tested in 2006. 
The remaining six holes tested a high sulphidation system, other vein systems 
and follow-up drilling at La Española. A total of 20 drill holes (totalling 
5,123 metres) has now outlined several low-sulphidation epithermal vein systems 
at La Española, some up to 3.5 kilometres long, which contain variable widths of 
significant gold and silver. 
 
 
A third phase drilling program of 2798.90 metres was completed in 2008 to test 
for extensions and vein continuity of the known mineralization at La Española 
and to conduct first pass drilling at the Azucar epithermal vein area. 
 
 
 
 
 
 
______________________________________________________________________ 
 
 
Enquiries: 
 
 
Hochschild Mining plc 
Isabel Lutgendorf                                    +44 (0) 7876 717671 
Head of Investor Relations 
 
 
Finsbury 
Robin Walker                                     +44 (0) 20 7251 3801 
Public Relations 
______________________________________________________________________ 
 
 
About Hochschild Mining plc: 
 
 
Hochschild Mining plc is a leading precious metals company listed on the London 
Stock Exchange (HOCM.L for Reuters / HOC LN for Bloomberg) with a primary focus 
on the exploration, mining, processing and sale of silver and gold. Hochschild 
currently operates five underground epithermal vein mines, four located in 
southern Peru and one in southern Argentina and one open pit mine in northern 
Mexico. Hochschild also has over sixteen long-term prospects throughout the 
Americas. Hochschild has over forty years experience in the mining of precious 
metal epithermal vein deposits. 
 
 
For further information please visit www.hochschildmining.com 
 
 
______________________________________________________________________ 
 
 
Certain statements in this announcement are or may be forward looking statements 
regarding Hochschild Mining plc's financial position and results, business 
strategy, production, plans and objectives. By their nature, all forward-looking 
statements involve risk and uncertainty because they relate to future events and 
circumstances which are beyond the Group's control. As a result, the Group's 
actual future financial condition, performance and results may differ materially 
from the plans, goals and expectations set forth in such forward-looking 
statements. Except as required by applicable law or regulation, the Group does 
not undertake any obligation to update or change any forward-looking statements 
contained in this announcement or any other forward-looking statement it may 
make. 
 
 
- ends - 
 
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