It was debt, not dividends, to which Hochschild Mining (HOC) directed its free cash firepower in 2016. Full-year results for the South American silver and gold miner showed that $127.4m (£105m) worth of borrowings were repaid in the period, a figure just shy of the entire adjusted cash profit result for the previous 12 months. Together with a $56m bump in cash-at-hand, Hochschild has significantly depleted a gearing ratio that stood at 46 per cent just a year ago. Now, following the retirement of a further $25m of short-term debt in February, the ratio will be even lower.
It's not hard to spot the source of this virtuous cycle: a surge in super low-cost production from Inmaculada, which helped matters by sucking in a lot less capital. Statistics for the Peruvian mine, which now accounts for 30 per cent of silver production and two-thirds of group gold output, speak for themselves. In its first full-year of operation, the underground mine doubled ore production while keeping all-in sustaining costs at $8.70 per silver equivalent ounce, or $644 in gold terms.
That could increase this year, as the group chases a record production target of 37m silver equivalent ounces. Excluding investment in growth projects, Inmaculada's sustaining costs are expected to rise to between $9 and $9.50 an ounce, while average group costs could hit $12.70. Against those estimates, average market forecasts are for adjusted EPS of 8.5¢ in 2017, rising to 16.1¢ next year.
HOCHSCHILD MINING (HOC) | ||||
---|---|---|---|---|
ORD PRICE: | 227p | MARKET VALUE: | £1.15bn | |
TOUCH: | 227-228p | 12-MONTH HIGH: | 328p | LOW: 81p |
DIVIDEND YIELD: | 1% | PE RATIO: | 31 | |
NET ASSET VALUE: | 139¢ | NET DEBT: | 24% |
Year to 31 Dec | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
---|---|---|---|---|
2012* | 818 | 212 | 14.7 | 4.60 |
2013* | 622 | -120 | -27.8 | nil |
2014* | 493 | -68.2 | -14.7 | nil |
2015 | 469 | -256 | -52.0 | nil |
2016 | 688 | 108 | 9.0 | 2.76 |
% change | +47 | - | - | - |
Ex-div: 20 Apr Payment: 17 May £1=$1.22. *Adjusted for 2016 three-for-eight rights issue |