The double bull market for gold and equities has seen both asset classes hit record highs. But the global pandemic has kept some precious metals companies from making the most of gold climbing 25 per cent this year to over $2,000 (£1,512) an ounce (oz).
Hochschild Mining (HOC) first suspended production from its mines in Peru and Argentina in March on government orders, and then had to shutter the key Inmaculada operation again in July after several cases of Covid-19. It expects the mine to be back at full capacity by the end of August.
Because of the closures, the gold and silver producer made an underlying loss of $4m in the first half, or $9m with the exceptional Covid-19 costs included. Last year - before the gold run started - Hochschild managed an underlying profit of $25m in the first half.
The loss came down to the major cost of shutting down mines, combined with the actual loss of production. Silver output was around half that of a year ago, at 4moz, while gold fell 43 per cent, to 79,000oz.
Because of the shutdowns, Hochschild’s net debt climbed by three-quarters to $58m. Gearing is still less than 10 per cent. RBC Capital Markets forecasts a cash-profit bounce in the second half, taking the full-year number to $334m, just a 3 per cent drop on 2019. Hochschild saw cash profits of $81m in the first half.
The higher prices made up some of the deficit from lost production, but the loss and suspended dividend is a far cry from the high cash flow situations at most other precious metal miners.
Hochschild’s share price was down 7 per cent on the interim results release, to 259p.
Silver miners are rarer in London than on the North American exchanges, but one of the best FTSE 100 performers of the year has been Fresnillo (FRES), which has mines in Mexico. The Mexican government allowed mines to keep running for the most part. Fresnillo had a six-week suspension of openpit mining, which cut its gold production, but kept underground work going and was allowed to continue processing already-mined ore. Its gold guidance was brought down to 785,000-815,000oz from 815,000-900,000oz while silver has been held at 51m-56moz.
Fresnillo had looked like the riskier play operationally coming into 2020, because of its poor record on hitting its targets and silver lagging behind gold. It took over a year of a gold bull market for silver to climb to similar highs, despite speculation based on its past attachment to the gold price.
There was some pullback in the past week, with gold falling back below $2,000/oz and silver dropping back below $26/oz, but this was short-lived.
Saxo Bank’s head of commodity strategy Ole Hansen outlined the risks to both metals’ heady prices this week. “Both metals [recently] suffered a long overdue correction, triggered by vaccine hopes, better-than-expected US data, a stronger dollar and not least rising real yields,” he said.
