Dividend up, profits down for Hochschild Mining

Hochschild Mining (HOC) shareholders must have watched with envy as other precious metals miners saw profits soar in 2020. The company has been negatively affected by Covid-19 disruption, but all is not lost. Hochschild has increased its dividend and reached its first net cash position in almost a decade. Shareholders will be paid a final dividend of 2.335ȼ (1.67p), bringing the total for 2020 to 6.335ȼ. 

Its profits and sales fell below 2019 despite the stronger gold and silver prices because of Covid-19 shut-downs. The company’s mines in Peru were shut down for much of the June quarter and its Argentina operation was also suspended at the end of 2020. 

 Adjusted cash profits for the year were down a fifth on 2019 at $271m. 

Chief executive Ignacio Bustamente told Investors’ Chronicle the company still had a strong financial footing after the pandemic-hit year. 

“[This year] we should be generating a material amount of cash flow that should allow us to easily be able to complete our capex plans to continue paying dividends and also generating additional cash,” he said. That additional cash could go towards acquisitions, Bustamente said. 

The capital spending plan for 2021 is extensive, with $34m going to mine expansion works and $11m going to assets that are still in the exploration phase. 

Hochschild has guided a production recovery in 2021, with a forecast of 360,000-372,000 gold equivalent ounces. RBC Capital Markets analyst Tyler Broda sees the miner’s cash profits climbing by half this year, to $412m. 

At the end of 2019, the company made the surprise purchase of a rare earth elements project in Chile. Now, the decision looks prescient as geopolitics continue to dominate the market for the critical ingredient in wind turbines, electric vehicles and military technology. China dominates rare earths supply and processing. This week, the Financial Times reported the country would bring in tighter export controls of the materials. 

Bustamente said the Biolantanidos project was still in the early planning stages, but that “many different entities” had already made contact hoping to make supply deals. Hochschild will release a feasibility study on the mine before mid-year, which will give estimates of costs and potential profits from the operation. 

Hochschild lacks the impressive valuation increase of fellow Americas-focused precious metals miners - Fresnillo (FRES) particularly - but still offers plenty to shareholders after a very difficult year. Buy at 214p.