Lake Shore Gold arranges $100 million financing

Lake Shore Gold (LSG-T) is raising $100 million to pay for its aggressive expansion plans including producing 100,000 ounces of gold in 2010 and building production over the following three years to about 350,000 ounces of gold.

In a private placement with Hochschild Mining Holdings, a wholly owned subsidiary of Hochschild Mining (HOC-L), Lake Shore will raise $85 million selling 19.2 million shares at a price of $4.43 per share.

And in a separate, flow-through financing co-led by Wellington West Capital Markets and Canaccord Capital, Lake Shore will raise $15 million through the issuance of 2.7 million shares at an average price of $5.94 per share.

Through the private placement Hochschild will increase its interest in Lake Shore to about 36% of the shares on a fully diluted basis, up from its current 32%. Under the terms of a strategic alliance agreement (signed in February 2008), Hochschild’s ownership in Lake Shore is limited to 40% of the outstanding shares on a fully diluted basis. The limitation under the strategic alliance agreement expires on Nov. 22, 2010.

Together the two financing transactions represent a “blended” 18% premium to Lakeshore’s closing price the day before the announcement, the company says.

“When compared to the expected price and costs related to a marketed transaction, the premium is approximately 30%,” Anthony Makuch, Lake Shore’s president and chief executive, explained in a statement.

Over the next 12 months, Lake Shore plans to bring its Timmins mine into commercial production, establish National Instrument 43-101-compliant resources at Thunder Creek and the Bell Creek complex, start processing ore from exploration programs underway at Thunder Creek and the Bell Creek complex, and complete the expansion of the Bell Creek mill to 3,000 tonnes per day. (The Bell Creek mill, on the east side of Timmins, has been refurbished to a capacity of 1,500 tonnes per day.)

Lake Shore says it also plans to increase exploration spending to $29 million next year with a focus on its Timmins West properties, including the Timmins mine, Thunder Creek and additional targets acquired through its business combination with West Timmins Mining, as well as its Bell Creek Complex properties, including a large land position Lakeshore has agreed to acquire from Goldcorp.

In addition to the $29 million of exploration spending in 2010, Lake Shore Gold is forecasting project spending next year of $134 million (before proceeds from gold sales). Of the $134 million, new projects will account for roughly $58 million, including $30 million for the expansion of the Bell Creek mill in 2010 and $28 million for an underground advanced exploration program at Thunder Creek, which began earlier this month.

The remaining $76 million will be spent on advancing the Timmins mine to commercial production (scheduled for the fourth quarter of 2010), and developing the Bell Creek complex. Advanced underground exploration work is already underway at the Bell Creek complex, including the Bell Creek mine, Schumacher and Vogel properties, which look set to become the company’s second mining operation in the Timmins camp.

At press-time Lake Shore was trading at $3.99 per share. Over the last year the company has traded between a low of 61¢ on Nov. 20, 2008 and a high of $4.37 on Nov. 11, 2009.