Hochschild Mining (HOC) hit record production at its largest mine, Inmaculada, at the right time. With the help of higher precious metal prices, the silver and gold miner, which has operations in Peru, saw a 28 per cent increase in cash profits to $343m (£264m) and almost doubled its adjusted pre-tax profit to $103m during 2019.
Precious metals prices
Exploration upside
Production positives
Debt reduction
Share price weakness
Side project capex requirements
The precious metal miner produced 16.8m ounces (oz) of silver and 269,892 oz of gold last year, or 38.7m oz silver equivalent.
High gold and silver prices aside, the miner also added 12m oz net to Inmaculada’s resources, after 2019 production is considered. Last month, Hochschild also finally got the nod from authorities to explore two brownfield areas critical to extending the life at the Pallancata mine.
Chief executive Ignacio Bustamante says the Inmaculada team has been "very successful" hunting for high grade areas. “We have found an additional 46m ounces of silver equivalent material with an average rate of 475 grams per tonne,” he said. “That's a clear indication that the higher grades are there and we are going to go at full speed during the year.” Brownfield exploration funding will grow by almost 30 per cent in 2020, to $36m.
Exceptional costs took a chunk out of the 2019 statutory profit, with the $12m in layoff payments at the shuttered Arcata mine and $15m impairment from delayed production at its Pallancata mine making the biggest impact. Tax payments were also higher than expected and there was an increase in mine closure cost estimates.
The company was still confident enough to hike the final final dividend by 19 per cent to 2.3¢ a share, which took the total payout for 2019 to 4.3¢, above analyst consensus estimates of 4.0¢.
This yield is not world-beating, but Hochschild has also continued to spend on exploration and last year bought a rare earths project for $56m. Finance chief Ramón Barúa said the BioLantanidos project in Chile – on which the company will spend $7m in 2020 – would effectively be a Chinese rare earths deposit outside China.
Rare earths are used in magnets needed in renewables, electric vehicles and defence technology, and have become a strategic material in recent years because China controls the majority of the world’s supply and processing capability. Mr Barúa said there were alternatives outside China, and Hochschild believes the technology “can also be replicated”, either by the miner or by a partner.
Hochschild Mining (HOC) | |||||
ORD PRICE: | 171p | MARKET VALUE: | £860m | ||
TOUCH: | 171-172p | 12-MONTH HIGH: | 232p | LOW: | 150p |
FORWARD DIVIDEND YIELD: | 1.8% | FORWARD PE RATIO: | 20 | ||
NET ASSET VALUE: | 161ȼ | NET DEBT: | 4.5% |
Year to 31 Dec | Turnover ($m) | Pre-tax profit ($m)* | Earnings per share (ȼ)* | Dividend per share (ȼ) | |
2017 | 688 | 64 | 8.0 | 3.35 | |
2018 | 708 | 38 | 2.5 | 3.90 | |
2019 | 756 | 103 | 9.0 | 4.30 | |
2020* | 746 | 136 | 14.4 | 4.00 | |
2021* | 719 | 99 | 10.6 | 4.00 | |
% change | -4 | -27 | -26 | - | |
Normal market size: | 10,000 | ||||
Beta: | 1.78 | ||||
*Peel Hunt forecasts, adjusted PTP and EPS figures | |||||
£1=$1.3 |