Precious metals producer Hochschild Mining (LSE: HOC) plans to expand its presence in Brazil by inking a deal with Cerrado Gold (TSXV: CERT) that gives it the option to acquire the Monte Do Carmo project in the central state of Tocantins.
The South America-focused company said its subsidiary Amarillo Mineracao do Brasil had advanced $15 million by way of a 10% interest-bearing secured loan as part of the deal for the project. It also agreed to spend at least $5 million on exploration expenditures at the project in the 12.5-month period ending on March 19, 2025.
Hochschild can chose to exercise the option to buy a 100% interest in Monte Do Carmo during that period by repaying the loan and making a $45 million cash payment to Cerrado Gold, in instalments, over the next three years.
“We are pleased to have secured the option to acquire Monte Do Carmo,” chief executive officer Eduardo Landin said in the statement. “With the project holding significantly advanced permitting and compelling exploration upside potential, the transaction aligns with our strategy of adding high quality, pre-production assets.”
The Monte Do Carmo project holds 21 mineral concessions over 82,542 hectares, and hosts multiple identified gold targets along a 30 km mineralized trend. These include the Serra Alta gold deposit, which has measured and indicated resources of 1,012k ounces of gold and inferred resources of 66,000 gold ounces and was the subject of a feasibility study in October 2023.
According to the study, Monte Do Carmo can generate an annual average output of 95,000 gold ounces during a nine-year life. Initial capex is estimated at $262 million and at a $1,750/ounce gold price, the payback should happen in just over two years.
Hochschild already has an operating gold mine in Brazil, Mara Rosa, which achieved first production last month. The asset, in the state of Goias, remains on schedule to begin commercial production towards the end of the second quarter of this year.
The company has said Mara Rosa is expected to produce between 83,000 to 93,000 ounces of gold in 2024 at all-in sustaining costs of between $1,090 and $1,120 per ounce.
Analysts at UK investment bank Peel Hunt noted that previous to Tuesday’s announcement, Cerrado had identified several explorations targets at Monte Do Carmo. “We suspect it is this upside that appeals to Hochschild’s project team, seeing the potential to extend the life of the plant should the many prospects within a 10 km radius of the main deposit result in additional resources,” they wrote in a note to investors.
Canaccord Genuity experts said they saw the addition of the Monte do Carmo option as a positive move for Hochschild as it has the potential “to help rebuild its growth profile beyond the addition of the Mara Rosa mine”.
Shares in Hochschild Mining jumped on the news to 104.4p and were trading 2.7% higher than Monday’s price mid-afternoon Tuesday in London at 102.7p each. That leaves the company with a market capitalization of about £527.22 million ($669 million).
