Hochschild still faces a sceptical market

The historically strong silver and gold prices of this year helped Hochschild Mining (HOC) in the first half, which posted higher profits despite rising costs. Silver and gold aren’t as lofty as last year but $25 (£18) an ounce (oz) and $1,800 an ounce (oz) respectively were still enough for a healthy increase in free cash flow at Hochschild, from negative territory last year to $54m. 

The miner's net cash position also grew to $51m, from $22m at the end of 2020. 

Hochschild has not declared an interim dividend yet, however, because of a compliance issue with “certain historic dividends” for which the company “did not have sufficient distributable reserves at the appropriate point”. 

Subject to creating these reserves, the interim payout will be announced by the end of the month. 

Other difficulties might be harder to fix. Chief executive Ignacio Bustamante said the company was “deeply affected” by a traffic accident that killed 26 workers in June, on top of the ongoing pandemic issues and a new “far-left” government in Peru that would likely raise taxes and push tougher “social investment requirements”. 

However, Hochschild has reiterated production and cost guidance for the year of 31-32moz silver equivalent and $14.1-14.5/oz silver equivalent, and analysts forecast a hefty increase in full-year adjusted cash profits compared to last year, from $271m to $442m.

Despite this outlook, Hochschild is trading almost a third down year-to-date, to 154p. A sizeable interim dividend may get some more investors onside. Buy. 

Last IC View: Buy, 214p, 18 Feb 2021