Latin America-focused precious metals miner Hochschild Mining continues to be buoyed by high realised silver and gold prices - up 33 per cent and 29 per cent, respectively, year on year - which underpinned record first-half revenue. First-half production of 12.8m attributable silver equivalent ounces comprised 8.5m ounces of silver and 72,500 ounces of gold, and keeps Hochschild on track to achieve its full-year output target of 26.3m silver equivalent ounces.
The company has reiterated the importance of exploration to its strategy, as evidenced by the 75 per cent increase in the 2010 exploration budget to $50m (£32m). First-half exploration expenditure of $24.4m has already yielded positive results, and in particular has increased the resource life of the main operations - Arcata and Pallancata in Peru and San José in Argentina - by 11 per cent to 7.9 years.
A high conversion ratio of resources to reserves maintains confidence that Hochschild will be able to build production from its existing projects. In addition, Hochschild is also making good progress developing its most advanced 'company maintainer' projects, Azuca and Crespo in Peru. These have resources of 50m and 44.1m silver equivalent ounces, respectively. The company aims to continue to increase both resources to around 60m ounces by the end of the year, by which time it also aims to have completed scoping studies to confirm economics and set out mining plans. Hochschild is also looking to add further bolt-on acquisitions to its existing investments in Lake Shore Gold (37 per cent shareholding) and Gold Resource (30 per cent), which carry a combined value of over $650m.
Unit costs per tonne in the first half increased by 6 per cent and the company aims to cap the full-year increase at 10 per cent. Underlying operating profit was up 75 per cent to $97.8m, which resulted in pre-exceptional EPS of 11¢, up from 4¢ in the corresponding period last year. Prior to these results, broker Canaccord Genuity was expecting full-year adjusted EPS of 30¢.
| HOCHSCHILD MINING (HOC) | ||||
|---|---|---|---|---|
| ORD PRICE: | 324p | MARKET VALUE: | £1.09bn | |
| TOUCH: | 323-325p | 12-MONTH HIGH: | 371p | LOW: 220p |
| DIVIDEND YIELD: | 0.8% | PE RATIO: | 15 | |
| NET ASSET VALUE: | 220¢ | NET DEBT: | 30% | |
| Half-year to 30 Jun | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2009 | 231 | 23.9 | 5.00 | 2.00 |
| 2010 | 307 | 74.6 | 8.00 | 2.00 |
| % change | +33 | +213 | +60 | - |
Ex-div: 1 Sep Payment: 22 Sep £1=$1.553 | ||||
