Hochschild Mining lowers guidance as approvals are delayed

The share price of Hochschild Mining (HOC) came under pressure after the precious metals miner lowered its full-year production and cost guidance. The market had already been aware that first-half production would be constrained by the delay in securing approval for the Inmaculada mine's Modified Environmental Impact Assessment (MEIA), a process that has also slowed development at the site, but Hochschild's shares were marked down anyway.

Approval has been granted post-period-end, which will extend the project's lifespan for an additional 20 years. Management is now guiding for a revised production target of between 289,000 and 303,000 gold equivalent ounces, down from prior estimates, while all-in sustaining costs (AISC) are now pitched between $1,490 and $1,580 (£1,194 and £1,267) per gold equivalent ounce.

During the period under review, the AISC increased from $1,466 per gold equivalent ounce in the first half of 2022, to $1,572 at the 2023 half-year mark. The increase reflects the impact of the MEIA delay, falling production at the Pallancata mine and lower grades at San Jose. It effectively wiped out any potential gains through the 4 per cent rise in the average gold price received. Production also pulled back, coming in at 136,878 gold equivalent ounces compared with 157,380 ounces at the 2022 interim mark. Equivalent silver production contracted by 13 per cent.

The operational issues weighed on profitability and cash generation, with interim cash profits down by a quarter to $99.5mn, while cash and cash equivalents decreased from $144mn at the year-end to $93.6mn.

The discount to net asset value (NAV) has narrowed since the year-end, and the miner’s short- and long-term moving averages are starting to coalesce, suggesting that the shares may be bottoming out. Yet the renewed advance in the US dollar could weigh on near-term valuations given the greenback’s inverse correlation to precious metals' prices. Sell.

Last IC view: Sell, 76p, 20 Apr 2023