Take another look at Hochschild Mining as it regains its shine

Even for a company that specialises in digging, Hochschild Mining (HOC) has done well to unearth a better portfolio within just 18 months. The South American company has been weighed down by expensive operations and a permitting hold-up at its key mine, Inmaculada. 

But the completion of a new mine in Brazil and a path to improving the Peruvian operations does put it on the upswing. 

Adjusted Ebitda for 2023 was $274mn (£214mn), up 10 per cent on the year before. A $34mn drop in exploration spending and $21mn boost through an Argentinian preferential exchange rate programme also helped this figure, although it is still $100mn down on 2021. Analysts see improvement again this year thanks to the higher gold price and cheaper production at the new Mara Rosa mine. Production in 2023 was 300,749 gold equivalent ounces (oz), which includes silver, and the guidance for 2024 is 343,000-360,000 gold equivalent oz. 

The realities of looking for profitable new operations was obvious in the 2023 income statement: reported profits fell on $80mn of impairments and another $17mn came from a write-down on the mining unit of San Jose in Argentina. 

Debt rose in the year due to the Mara Rosa construction cost. Chief executive Eduardo Landin said the company would consider bringing back a dividend once Mara Rosa hits commercial production, expected mid-year. 

Landin, who said Peru was more stable even after a change of prime minister last week, also flagged a greater commitment to Brazil through a new option over another brownfield project, Monte do Carmo. He said this could be another Mara Rosa, if further exploration confirms the seller’s pitch in the next 12 months. 

Hochschild still has a way to go to balance out its new growth spending with managing some still ageing and expensive mines, like San Jose, but it is cheap enough and has good enough prospects to warrant getting back in. Buy. 

Last IC View: Sell, 83p,13 Sep 2023