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Hochschild well ahead on costs

Hochschild delivered an encouraging operating performance in the first half, but capital constraints remain an issue.
August 20, 2014

Hochschild Mining (HOC) managed to slash its reported interim loss in the first half, as the twin benefits of an aggressive cost-cutting programme and increased output from its mines in Peru and Argentina started to kick in. The silver miner's top-line performance was encouraging, given lower precious metals prices, while underlying cash profits ticked up by 4 per cent to $94m (£57m).

IC TIP: Hold at 161p

Hochschild also delivered a strong operational performance, producing 11.9m silver-equivalent ounces at a much lower overall cost than last year. This was partly thanks to increased production at the Arcata mine in Peru, where higher-grade ore bodies have been targeted.

In addition to ambitious expansion projects, management has been focussed on optimising cash flow. The results of this optimisation programme aren't immediately obvious, given Hochschild's heavy capital commitments, but management has exceeded its original target with $270m of savings across the organisation. Hochschild has put the kibosh on dividend payments until its financial situation improves; the drain on capital from its flagship Inmaculada gold and silver project in southern Peru continues. The group intends to raise output by around 70 per cent over the next few years, bringing another mine on stream once Inmaculada is up and running - probably in the fourth quarter.

Westhouse Securities said it would be reviewing its 'neutral' recommendation and 175p target price on the back of "relatively robust results".

HOCHSCHILD MINING (HOC)
ORD PRICE:161pMARKET VALUE:£591m
TOUCH:160-161p12-MONTH HIGH:290pLOW: 119p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:234¢NET DEBT:27%

Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (p)
2013309-49-10nil
2014282-3.4-4nil
% change-9---

Ex-div:-

Payment:-

£1=$1.66