Hochschild to spin off Chilean rare earths company

Hochschild Mining (LSE: HOC; US-OTC: HCHDF) is spinning off its Chilean rare earth subsidiary Aclara Resources and plans to list it on the Toronto Stock Exchange. It will retain a 20% ownership in the new company.

The company said the move, expected to happen by year-end, would allow Aclara to access the capital needed to become a supplier to the clean energy industry. The new rare earth company will raise funds through an IPO whose size has not yet been determined. 

“This is the logical next step forward for our rare earth business,” Eduardo Hochschild, Hochschild’s chairman, said in a press release.  “It is our belief that, as two standalone businesses, both Hochschild and Aclara will have the greatest potential for delivering long-term value creation.” 

Hochschild said it wants to keep its focus on precious metals. 

Aclara has 451,585 hectares of concessions in the Maule, Nuble, Biobio and Araucania regions of Chile, and is initiating development of its resources through a project called Penco, which has a surface area of about 600 hectares that has ionic clays rich in rare earth elements. The aim is to produce a rare earth concentrate through a processing plant that will be fed by clays from nearby deposits, Hochschild says.

The company noted that Penco would employ simple metallurgy and a straightforward mining process, which would  not require explosives or tailings dams, and the deposit contains little to no radioactivity. 

Set to begin production in 2024, Aclara’s operations would account for about 2% of global dysprosium production, or 28% of supply outside of China and Myanmar. 

The concentrates produced will need to be processed by third parties and the company has not ruled out the use of a plant in China, India or Estonia. Longer-term the new company would look at building its own separation plant, it added.

Hochschild bought Aclara for US$56 million in cash in October 2019, saying it expected the rare earth market to grow “exponentially.” 

“We are not surprised to see Hochschild pursuing a spinout of Aclara,” Ryan Thompson, a precious metals analyst at BMO, commented in a research note to clients. “We are currently carrying Aclara at $160 million in our model, which is in line with the value announced in the September PEA.” 

Aclara is a unique heavy rare earth project, according to the expert, as there are very few of its kind outside China. It contains dysprosium and terbium, key heavy rare earth elements used in high performance magnets, which are found in electric vehicles (EVs), wind turbines, drones, planes, and home appliances. 

“We view this as the best way to achieve fair value for the rare earths business that should trade at a premium to the company’s mature precious metals business,” analysts at Berenberg said. “This, however, creates an issue for Hochschild as Aclara was, by a margin, the most interesting development project in its portfolio.” 

Hochschild said its chief financial officer, Ramon Barua, would step down to lead the new business. Eduardo Hochschild will be Aclara’s chairman, and Hochschild’s current CEO, Ignacio Bustamante, will join its board of directors.