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Hochschild’s silver suffering

Despite operational improvements, the miner has had no help from precious metals prices
August 15, 2018

There’s not too much more investors could have asked from Hochschild Mining (HOC) in the first half of 2018. Gold and silver output climbed 14 and 8 per cent respectively, and is on course to hit 38m silver-equivalent ounces in 2018. All-in sustaining costs of $11.90 (£9.38) per silver-equivalent ounce, buttressed by record production from the Inmaculada mine in Peru, are in line with full-year guidance. Exploration is even starting to boost long-term resources.

IC TIP: Buy at 167p

The latter had been a particular worry, so long-term holders will no doubt cheer news of “good progress” at the Arcata mine in Peru, and the addition of 59.2m silver-equivalent ounces at Inmaculada. And while second-half exploration costs are forecast to increase by a third to $80m, January’s bond redemption means full-year interest costs will be contained to just $7m, more than two-thirds down on the 2017 figure.

The $11.4m premium paid to retire those bonds was the largest exceptional item in the period, and explains the drag on half-year earnings. Lower silver prices provided the other blip in an otherwise solid set of results, despite a tightening market for the grey metal.

On average, analysts expect pre-tax profit of $179m and adjusted EPS of 4.8¢ this year, rising to $239m and 13.3¢ in 2019.

HOCHSCHILD MINING (HOC)  
ORD PRICE:167pMARKET VALUE:£ 850m
TOUCH:166.7-167p12-MONTH HIGH:333pLOW: 167p
DIVIDEND YIELD:1.9%PE RATIO:35
NET ASSET VALUE:144¢NET DEBT:8.3%
Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
201734139.95.01.380
201837238.63.01.965
% change+9-3-40+42
Ex-div:30 Aug   
Payment:20 Sep   
£1=$1.27