Hochschild bids C$103m for 'challenging' Andina

Hochschild Mining to take on the Volcan gold project which, if built, could add a quarter million ounces in gold production a year.

Author: Kip Keen
Posted: Thursday , 08 Nov 2012


As Hochschild Mining made a C$103 million cash offer to takeover over Canadian junior Andina Minerals, which owns the multimillion ounce Volcan gold project in Chile, the Peru-based precious metals miner was careful to craft a prepared statement that focused on overcoming challenges at Volcan.

Hochschild CEO Ignacio Bustamante said in a prepared statement, "Although we recognise the challenges associated with the project, we expect to conduct further substantial geological and technical evaluation work on the deposit and are confident that our experienced geological and operational teams will develop its strong potential."

While not specific about what these associated challenges are, undoubtedly they include the metallurgical issues Andina has identifed as trying to overcome in order to boost modelled recoveries and lessen the reagent-sucking nature of Volcan's Dorado gold deposit, which holds some 6.6 million ounces in proven and probable reserves @ 0.73 g/t gold.

Among factors that make straightforward heap-leach processing with low reagent consumption and high recovery rates difficult to achieve at Volcan are low-pH pockets and copper mineralization within the Dorado deposit. To get around such issues, Andina has proposed selective mining techniques in an open-pit and inclusion of additional processing circuits, such as SART (sulfidation, acidification, recycling and thickening), with some success in recent testing, according to Andina.

A coming feasibility study was to include such refinements, increasing not only projected capital costs but also gold recoveries and thus potential revenue and profits over those set out in a 2011 prefeasibility study. Back then, Andina outlined a 55,000-tonne-per-day mine that would produce about 283,000 ounces gold a year over a 15-year minelife at cash operating costs of $615 per ounce. The capital cost was estimated to be $551 million.

Capital cost - and the difficulty in financing it - factored heavily in Andina's justification in supporting the Hochschild offer.

"Over the last year, along with the broader market for large-scale gold developers, Andina's share price has declined due to a number of factors," said Andina President and CEO George Bee. "Most importantly, continued capital and operating cost inflation in the mining sector has weighed on the market, along with investor concerns with respect to share dilution arising from a potential decision to develop the Volcan project or raising additional funds to maintain the business."

Andina directors and officers entered share lock-up agreements with Hochschild representing about 14 percent of Andina's outstanding shares. The offer is for C$0.80 a share, a 106 percent premium to Andina's recent shareprice since mid-October, Andina said.

About Kip Keen

Based in Halifax, Nova Scotia, Kip is Mineweb's North American junior mining specialist. Before joining Mineweb he worked for Canada's top mining publication, the Northern Miner covering the junior sector out of Vancouver.

Email: [email protected]