Hochschild acquires Amarillo Gold to control Posse Gold Project in Brazil

London-based Hochschild Mining has announced a $105 million cash acquisition of Amarillo Gold.

The offer, at 40 cents per Amarillo share, will give Hochschild control of the target's flagship Posse gold project in the Brazilian state of Goas.

The cash offer represents a 66 per cent premium over the 20-day volume-weighted average price of Amarillo common shares on TSXV on November 29th.

As of September 30, Amarillo had $25.2 million in cash, $72.2 million in total assets and no debt. It reported an annual pre-income tax loss of $3 million for the year to 2020.

As part of the deal, Hochschild will spin off Lavras Gold Corp to take a stake in the advanced Lavras do Sul exploration project, also located in Brazil. Amarillo shareholders will receive shares in NewCo, which will be capitalized with $7.8 million in cash and hold 2 per cent of net smelter return royalties for concessions in addition to the current Posse resources and mine plans of the larger Mara Rosa property.

The company said the deal was in line with Hochschild's core strengths and its long-term strategy to acquire and optimize development projects in the Americas.

Given the reduced investment certainty in Peru, where Hochschild's largest mine is located, the deal will strengthen the company's portfolio by adding long-lived assets located in mining-friendly jurisdictions.

It also exposes Hochschild to attractive, high-quality projects that are under way for specific infrastructure construction. Posse also offers near-mine and regional exploration opportunities.

The deal was unanimously recommended by Amarillo's board of directors and fully supported by Amarilo shareholders Baccarat Trade and Investment and Eric Sprot. Hochschild's board of directors unanimously intends to recommend that shareholders vote in favor of the deal.

At present, Posse is a ready gold project, which is expected to be completed within two years after groundbreaking.

In February, the project was granted a construction permit from the national regulator, and the power line was approved in October. Hochschild has revised the Posse mine plan included in the final feasibility study in August 2020 and will provide more details in the forthcoming shareholder circular.

The nearby town of Mararosa has a workforce and it is said that most people support the project.

According to BFS, once completed, the mine will produce 102000 ounces of gold in each of the first four years, with an average annual distribution of 84000 ounces based on the initial 10-year mine life.

The total maintenance cost over the life of the mine is expected to average $750 to $850 per ounce of gold.

Posse has 23.8 million tons of proven and possible reserves of 902000 ounces per ton and a grade of 1.18g. The total measured and indicated resources are 32 million tons, 1.1g per ton, with a gold content of 1.2 million ounces.

Hochschild has identified near-mine and regional exploration opportunities for Posse and Mara Rosa assets. With the opening of Posse to the southwest, it is possible to extend the life of mines near the existing pit crust.

In addition to the 2500 hectare mining concession for the Posse deposit and the 6000 hectare exploration concession for Posse structural trends, Hochschild will be granted an additional 59000 hectare exploration concession for Mara Rosa assets.

The deal is expected to close in the first quarter of 2022.