Operationally, precious metals group Hochschild Mining (HOC) can count 2018 as a success. Full-year production exceeded guidance at 526,650 gold-equivalent ounces, thanks to another record year for the Inmaculada mine. More importantly from a long-term investment perspective, an urgent programme to find new sources of precious metals led to the addition of 102m silver (or 1.3m gold-equivalent ounces) of inferred resources.
That’s a replacement ratio of more than 200 per cent, and marks a strong start to a multi-year effort to extend the life of Hochschild’s mines. But the cost to all of this was a surge in exploration costs, which combined with rising tax charges and royalties to crush net earnings. All-in sustaining costs also remained stubbornly high at $931 (£714) per gold-equivalent ounce, below revised guidance, but trending in the wrong direction. This year, costs of $960 to $1,000 an ounce are forecast.
Another disappointment arrived a week before these results, when Hochschild said it would suspend operations at the Arcata mine in south west Peru. Although “good progress” had been cited halfway through 2018, a degrading ore body has rendered the mine uneconomic, and helps to explain why this year’s production target has been narrowed to 457,000 ounces of gold-equivalent ounces. The silver lining is that Arcata had already been fully impaired, save for $1.3m of termination benefits for its 107 workers.
On average, analysts forecast earnings will hit 9¢ per share this year, versus 3¢ in 2018.
| HOCHSCHILD MINING (HOC) | ||||
| ORD PRICE: | 203p | MARKET VALUE: | £1.04bn | |
| TOUCH: | 202-203p | 12-MONTH HIGH: | 234p | LOW: 147p |
| DIVIDEND YIELD: | 1.5% | PE RATIO: | 88 | |
| NET ASSET VALUE: | 141¢ | NET DEBT: | 10% | |
| Half-year to 31 Dec | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
| 2014* | 493 | -68.2 | -14.7 | nil |
| 2015 | 469 | -256 | -52.0 | nil |
| 2016 | 688 | 108 | 9.0 | 2.76 |
| 2017 | 723 | 64.1 | 8.0 | 3.35 |
| 2018 | 704 | 38.4 | 3.0 | 3.92 |
| % change | -3 | -40 | -63 | +17 |
| Ex-div: | 16 May | |||
| Payment: | 12 Jun | |||
| £1=$1.30. *Adjusted for 2016 three-for-eight rights issue. | ||||
