Hochschild Bids $103m for Chile's Andina

Issue 21, November 2012

Hochschild Mining’s $103m bid for Andina Minerals, valuing the company at twice its prior market capitalization, is a fleckless example of an acquisition strategy that has proved highly accretive to shareholders.

Hochschild has historically eschewed the ‘big deal’ policies of many of its peers, pursuing smaller targets, often bought at the bottom of the market. With cash of $130m in late 2008, Hochschild pounced on low prices in 2009, buying Southwestern Resources for $18m, 27 per cent of Gold Resource Corp and buying out its co-owner of the Moris mine in Mexico.

Southwestern had $16m in cash, but was left vulnerable when its chief executive was found guilty of fraud. The acquisition expanded Hochschild’s landholding around its Pallancara mine in Peru and gave the company full ownership of the Crespo project, containing 29m ounces of silver.

Andina Minerals has likewise suffered a share price collapse, on investor concern that the complex metallurgy of its Dorado gold deposit in Chile would prove prohibitive for the company to develop. The high premium offered by Hochschild is therefore only equal to the share price earlier this year.

Hochschild’s ‘bolt-on’ policy has in part been a symptom of its narrow-vein resource base in Peru, which offers limited production transparency, encouraging frequent acquisitions; the group’s aggregated mine life is less than ten years.

Chief executive Ignacio Bustamante has said Dorado could add 9.5m gold ounces to Hochschild’s total resource, with production in four to five years. Andina’s shareholders will vote on the deal before the end of the year and an environmental review would take “all of 2013”, he told Peru’s business newspaper Gestion.

Eduardo Hochschild, who chairs the company and owns 54 per cent of the shares, is regarded as an aristocrat of South America’s mining industry. Mauritz Hochschild, or Don Mauricio, founded the group in 1911 as one of Bolivia’s tin barons who thrived during the Second World War.

Eduardo’s father Luis subsequently took control, until he was shot in Lima in 1998 when his Volvo was ambushed by gunmen. Eduardo was kidnapped in the attack but released and has led the group since.

Subscribe

Subscribe

RELATED NEWS

Hochschild Blows Out Balance Sheet in $271m Consolidating Bid

Silver miner swings into net debt on bridging loan from Merrill Lynch and Goldman Sachs

............................................

Silver Wheaton Shows its Mettle in Pascua Lama Terms

Delays at $8.5bn mega-project ounce accretive for silver group
due to recourse clause

............................................

Rio Alto Profits
from Capital
Discipline

Non-dilutive financing and incremental growth reflect high management ownership levels

............................................

Loeb-Aron-&-Co..jpeg
Hallgarten-&-Co..png

............................................

Franco-Nevada Calls
for Syndicated Royalty Deals

Now is the time to buy assets says Franco's David Harquail,
with cash of $840m