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Is Hochschild misunderstood?

Shares in the silver miner sank on revelation of higher costs.
August 17, 2017

The day before Hochschild Mining (HOC) published its half-year accounts, the price of silver dropped 3 per cent. Such moves in precious metals markets often precede missives from the Federal Reserve, as speculators perennially ready themselves for tighter monetary policy commitments. That probably provided a bearish backdrop to what turned out to be a soft set of interim numbers. But while investors were rightly underwhelmed by an income statement weighed down by higher production, exploration and administrative costs, a 15 per cent fall in the share price seemed overly severe.

267p

Sure, a cocktail of Argentine inflation, the elimination of a Patagonian port rebate and higher detoxification costs at the Inmaculada mine meant that all-in sustaining costs were up 10 per cent at $12 (£9.38) per ounce of silver equivalent. But that was still below the guided range of $12.20-$12.70, which remains Hochschild’s forecast for 2017, and represents a margin of at least 25 per cent against the current silver price of $17 an ounce. That is just below the average London silver fix for the first half of the year, which might explain investor nerves that costs are gradually moving in the wrong direction.

Prior to these figures, analysts at Numis were guiding for pre-tax profit of $102m and EPS of 9¢ this year, against $108m and 9¢ in 2016.

HOCHSCHILD MINING (HOC)  
ORD PRICE:267pMARKET VALUE:£1.36bn
TOUCH:267-268p12-MONTH HIGH:338pLOW: 187p
DIVIDEND YIELD:0.8%PE RATIO:43
NET ASSET VALUE:142¢NET DEBT:20%
Half-year toTurnover  Pre-taxEarnings perDividend
30 Jun($m) profit ($m)share (¢) per share (¢)
201633960.36.01.38
201734139.95.01.38
% change+0.4-34-17-
Ex-div:31 Aug   
Payment:21 Sep   
£1=$1.29