Hochschild Mining pulls dividend as profits slide

Hochschild Mining (HOC) has come through 2022 with its eyes on expansion beyond Peru, as events during the year validated that approach. The gold and silver miner saw lower production, partly related to “substantial community disruption” in the final months of the year, as well as expected lower grades at its Inmaculada and Pallancata operations. The company is expecting lower output again in 2023, at around 307,000 ounces (oz) gold equivalent, a 14 per cent drop on 2022 and 21 per cent drop on 2021. 

Hochschild has two clear plans to bring back production – the expansion of Inmaculada and the construction of the Mara Rosa mine in Brazil, which it bought through the takeover of Amarillo Gold last year. First production at Mara Rosa is expected in the first half of 2024. Inmaculada is less clear – Hochschild is waiting on approval from the Peruvian government for the expanded mine. This is much delayed, and a denial would see Inmaculada production stop at the end of the year.  

Company chairman and 38 per cent shareholder Eduardo Hochschild said this year could prove a winner still. “We can maintain significant levels of profitability and continued good cash flow,” he said. 

That cash flow will be helped by the gold price climbing in recent weeks, although costs remain high and high spending is needed on Mara Rosa. Investors will see the impact through the board’s decision to not pay a final dividend for 2022. 

Adjusted cash profit for 2022 was $250mn (£201mn), down 35 per cent, because of lower production and higher costs. Overall, the adjusted margin slid 13 percentage points for the year, to 34 per cent. 

All-in sustaining costs (which include capital expenditure) were $1,364 per gold equivalent oz in the year, and a modest increase is expected again this year, to $1,370-$1,450 an oz. 

The ageing Pallancata mine will keep driving overall costs up, with its all-in cost per oz well above the sales price for gold and silver last year. 

Another headache for the company, on paper at least, is the spun-off rare earths company Aclara Resources (CN:ARA). The value of its 20 per cent holding tanked last year from $37mn to $7.7mn ($10mn at its current share price), although Hochschild still has that stake valued at $33mn on the balance sheet. 

Hochschild could come out of this year with its Inmaculada permit and another mine not far from production. We still see risks ahead, however, given the continued high costs and rising debt pile. Sell.