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We retain our Buy rating given the share price decline on 27 August post the company update. We view the impact as temporary and continue to expect Mara Rosa to operate at c.95kozpa from 2H26E. Factoring in Monte do Carmo and Royropata, the growth outlook seems to be intact.
Hochschild Mining plc
Lower production guidance and one-off costs to remediate the Mara Rosa plant mean expectations have to adjust. Longer term, we are confident the mine is a 90-100koz producer, creating an opportunity in any sell-off.
The detailed reset plans at Mara Rosa look likely to increase design output to c.95koz a year. More importantly, the plans appear to be on track, and are starting to restore confidence in Mara Rosa and the Monte do Carmo project. Ongoing strong cash flows drive our TP upgrade. Buy.
The 2Q performance was as expected operationally, although costs look higher than we allowed. Management looks set to be in a position to give a detailed update at the interims, a catalyst that could see the shares recover further relative to peers. We reiterate our 290p target price and Buy rating.
We assume the six-week shutdown takes place in 3Q, and with mining continuing expect almost no reduction in site costs, despite the reduced output. We lower our TP from 315p to 290p, but retain our Buy rating, believing the shares may overreact to the downside on the news.
The Mara Rosa plant will need to sustain ore throughput of 8ktpd during 2H in order to meet 2025E mine guidance of 94koz. However, we take a more conservative stance. We retain our 315p target price on our unchanged 2026E forecasts. Reiterate Buy.
On top of the usual holiday periods, the extended rainy season limited output from Mara Rosa. The mining contractor has started to recover the stripping backlog, but it does mean a very 2H-weighted production year to meet Mara Rose guidance. We reiterate our Buy rating and 315p TP.
Higher revenues drop through to increased dividends, making it easier to fund Monte do Carmo with cash building up. Greater uncertainty is likely to sustain the appeal of gold and silver equities, therefore we reiterate Buy.
The new dividend policy looks a good balance between a consistent returns and ensuring sufficient cash available to reinvest for growth. Higher EBITDA plus increased confidence on its projects drives the 35p increase to our target price, now 265p, and we reiterate our Buy recommendation.
The reintroduction of dividends places visible discipline on management and with exploration adding significantly to the operating asset resource base, cash flow duration is extended. We reiterate our Buy recommendation and 230p target price.
Net, our TP falls to 230p, reflecting higher near-term costs, increased capex, and more time to reach a net cash position, but we have greater confidence in longer-term growth. Offering c.19% upside, we reiterate Buy.
Given guidance, we plan to update our forecasts. We expect the higher cost levels implied by the increased net debt and AISC to roll into 2025E. While it is pleasing to see operations running as intended, we anticipate investors will need to adjust to the higher cost levels.
We continue to see significant longer-term value in HOC shares, of up to 450p, as the value in Royropata and Monte do Carmo is unlocked. In the meantime, the potential for Mara Rosa to mine at higher rates could drive upside to our revised estimates. We reiterate Buy, TP 280p.
From our discussions during our recent site visit, the Monte Do Carmo project is extremely prospective, should be relatively easy to develop considering HOC’s experience and contacts gained through Mara Rosa, and is on the way to being fully permitted. We believe it is an excellent fit for HOC’s portfolio, providing the next stage of production growth.
The 3Q beats roll through our estimates for 2024E onwards, lifting our target price from 260p to 280p. Monte do Carmo looks increasingly likely, opening out our longer-term 450p valuation scenario. We reiterate Buy.
Hochschild reported a strong quarter, with sustainable production growth bolstered by high gold prices. If the first 22 days of October are anything to go by, ongoing robust gold and silver prices plus QoQ production growth expected in 4Q should further bolster the balance sheet, allowing it to recommence sustainable dividends. We reiterate Buy, TP 260p.
We were impressed by the speedy ramp-up at Mara Rosa and saw little not to like on site (although we did only have an afternoon). Operations staff were impressive, and we look forward to the decision on Monte de Carmo, which looks extremely prospective and relatively easy to develop, with lessons learned from Mara Rosa. We reiterate Buy and our 260p TP.
We believe sustained strong gold and silver prices will enable Hochschild to continue growing and recommence a sustainable dividend programme. Higher ongoing cash generation drives our TP up to 260p. Reiterate Buy.
Rapid deleveraging through 2025E sees Hochschild very well positioned to press ahead with the Monte do Carmo project, whilst also renewing sustained cash returns. We increase our target price from 210p to 225p, reiterate Buy, and would use present weakness to add to positions.
Lower costs drove the EBITDA beat, and AISC at Inmaculada and Mara Rosa were smaller than we expected. We expect the current gold prices to accelerate a further reduction in net debt through 2H.
We suspect the better implied EBITDA is due to higher prices. Mara Rosa is approaching steady state throughput, driving a surge in output in 2H. We expect this to drive a significant reduction in net debt by year-end.
Higher output and the stronger 2Q prices mean that group EBITDA and cash generation look better than we expected. With prices sustaining at high levels and production stepping up, 2H cash generation looks set to be even stronger. We reiterate our Buy rating and 200p TP.
We sit down with CEO Eduardo Landin and discuss the strategy changes he has made, upcoming projects, and the benefits of successful community engagement.
Management expects the ramp-up to complete in June, meaning good project delivery. Completion frees up senior management’s time to refocus on the Royropata MEIA application and the exploration results from the initial Monte do Carmo project. We reiterate our Buy rating and 180p TP.
News that Mara Rosa is entering its continuity test phase with strong ore stockpiles gives us confidence that output will rise in 2024E. Exploration updates hint at a potential resource uplift later this year. We reiterate our Buy rating and 180p TP.
As well as better output, initial exploration results across its sites, if sustained through 2024, could provide a further uplift in resources later this year. Given that continuity testing is underway, we expect production to step-up significantly in 2Q. We continue to view the shares as appealing.
Today's news and views, plus announcements from: AZN, HSBA, HOC, RWI & HZM.
Now Mara Rosa has started-up, we expect to see a significant step-up in output and cash generation in FY24E. Trading at just 3.4x EV/EBITDA and offering longer-term growth potential, we reiterate our Buy rating.
2023 was a mixed year, punctuated by a strong H2 for the flagship Inmaculada mine. Profit and cash flow were better than we expected due to lower costs than we’d originally estimated. We are confident 2024 cash generation will be strong, given the anticipated increase in total production, with Mara Rosa coming online. However, this will be damped slightly by rising costs.
Net income of US$9.5m was lower than our US$27m estimate, due to higher-than-expected deferred tax changes (related to the Peso devaluation) and higher-than-expected rehabilitation provisions. However, both are non-cash adjustments and do not impact our valuation of Hochschild. We reiterate our view that the shares offer cheap exposure to strong gold prices and maintain our Buy rating and 170p TP.
Today's news and views, plus announcements from: AHT, GSK, ITRK, HSX, HOC, GRG, SPT, & AVCT.
Hochschild Mining plc Avacta Group PLC
We suspect the Hochschild geologists are confident of being able to add to the 1Moz resource over the next 12.5 months, allowing management to take a view on when to execute the option, which could add in a further growth project and reinforce Hochschild’s emerging Brazilian business. We reiterate Buy, TP 170p.
We continue to view HOC as a cheap stock, particularly given its Mara Rosa project is ramping to capacity. Its upcoming 2023 results give another opportunity for management to highlight the positive volume and cost shift the Mara Rosa mine has on the Hochschild portfolio. We reiterate Buy.
Completion of the Mara Rosa build on time and on budget is impressive in the present capital cost environment. Mara Rosa unlocks significant production and cash flow growth for 2024E, de-risking the HOC investment case. We reiterate our Buy rating and 170p target price.
We raise our target price by 10p to 170p, due to higher ongoing EBITDA and lower forecast net debt. We still see over 60% upside to the shares, which we expect to be released through 2024E as Mara Rosa ramps to its low-cost potential. We reiterate our Buy rating.
Q4 production was strong and balanced lower production earlier in the year due to delayed development mining at Inmaculada in Peru. Total 2023 production came in ~10% lower than 2022, also due to Pallancata being placed on care & maintenance and lower grades at San Jose. 2024 production is expected to be 15% higher than last year, as Mara Rosa begins production (first gold expected in February).
Importantly, the Mara Rosa project is running through final commissioning with first gold expected in February. We expect this to drive a substantial improvement in EBITDA generation for the group, something yet to be priced into the shares. We reiterate our Buy rating and 160p TP.
2023E should be the production low point for Hochschild. Mara Rosa and the recovering Inmaculada drive near-term growth, before the expected return of Pallancata in 2027E extends the trajectory. We raise our target price from 100p to 160p and reiterate our Buy recommendation.
We have completed a model update for Hochschild, noting particularly the improved outlook for the flagship gold mine, Inmaculada, in Peru, now it is permitted for another 20 years. Whilst the Pallancata mine will go on care & maintenance in Q4, we expect first production from the Mara Rosa gold project in Brazil in H1 2024.
Hochschild’s H1 financial results were weaker than the previous year, which was expected given operational impacts from the delay to the (now received) EIA permit renewal for the flagship Inmaculada project. This meant the company delayed key development mining, which impacted ore supply to the plant.
With the MEIA in hand, the Hochschild team can return to normal activities on site, developing into higher-grade zones for the medium term. Mara Rosa project delivery should also help transform the profile of the group, opening out upside beyond our present 100p target price. Buy.
After a delay, Hochschild has received the critical extension to its environmental permit for its flagship Inmaculada gold mine in Peru. This is very positive news and will come as a relief to the company, allowing Inmaculada to continue production. The mine drives well over half of the company’s revenues.
Hochschild mining has announced its Q2 production report, with improved production vs Q1, but overall H1 production ~12% down vs H1 2022. This is a result of protestor related disruptions in Q1, declining production profile at Pallancata and the delayed EIA for Inmaculada impacting development mining and therefore the current schedule of run of mine ore. This delayed EIA remains a key risk for the flagship Inmaculada mine.
The MEIA remains the major upcoming catalyst for the group. We would expect guidance for FY23, when issued, to reflect lower tonnage at Inmaculada. We reiterate our Buy rating and 100p target price.
Hochschild’s production and profit was down for FY2022, and guidance for this year is for a further drop in production and increase in costs. Mara Rosa, which is in construction, will be an important asset, forecast to account for >40% of production from FY2026. Political opposition in Peru remains a risk to Hochschild’s key Inmaculada mine, the primary reason we retain our Hold recommendation.
Hochschild’s Q1 production was lower than we anticipated, a result of ongoing disruptions to the company’s flagship Inmaculada project in Peru and development mining due to the delayed Environmental Impact Assessment. Despite this, FY2023 production guidance is unchanged. Construction is progressing on schedule at the Mara Rosa gold project in Brazil. Financial performance will be aided by prevailing high gold and silver prices.
Hochschild is in line to hit guidance this year, providing it is granted the MEIA for Inmaculada in 2Q. The MEIA remains the major upcoming catalyst for the group, with any slippage in timelines likely to impact ounces for the year. We reiterate our Buy rating and 100p target price.
Hochschild has reported 2022 results in line at the EBITDA level. Higher corporate and financial costs meant that adjusted net income was US$6.7m vs PHe US$28m and consensus at US$28. Increased regulatory engagement suggests the long-awaited Inmaculada permit is coming. Buy, TP 100p
Inmaculada MEIA in focus – We think HOC is making progress towards receiving the Inmaculada permit in 1Q23, as guided by management. For that reason we maintain our Buy rating on HOC.
Hochschild has announced results from its operations in Peru and Argentina for Q4 & FY2022. Guidance was marginally missed, and production was down 7% vs. FY2021, but was 4% ahead of PG estimates. We maintain caution, amid an uncertain political situation in Peru currently posing a real risk to the key Immaculada and Pallancata operations. Rising cost guidance into FY2023 is a concern, but we anticipate this reversing once the Mara Rossa project in Brazil begins producing, guided for H1 2024.
Focus on Inmaculada –With the MEIA for Inmaculada now expected by the end of 1Q23, it seems as if HOC management is now more confident it can deliver. If not, the mine could be suspended in 2H23.
HOC still hanging on the Inmaculada EIA – We see potential upside of 70+% to our revised target price, but the main overhang on the HOC stock remains the issuance of the Inmaculada EIA. Without this approval, mine life could be severely impacted, as could the valuation for the company as a whole.
3Q22 production beats by 11%, net debt in line HOC reported a strong production beat in 3Q22, which is typically the type of beat we see in the last quarter of the year. All mines beat our production forecasts, driven by stronger throughput at each operation. This is a positive operational turn, around a quarter earlier than we anticipated. Net debt was in line at US$151m. 2022 guidance was maintained but we believe HOC could also deliver a strong 4Q. The Inmaculada EIA is still expected by year-end and Mara Rosa is on track and on budget. Pallancata’s medium-term prospects also improved with recent drilling results for which HOC will release an inferred resource. Tim.Huff@peelhunt.com, Peter.Mallin-Jones@peelhunt.com
Lowering target price by 4% to 130p We have made only small adjustments to our production, sales and EBITDA forecasts for the coming two years. However, with a US$65m working cap outflow in 1H22, we have lowered our cash forecast and raised our year-end net debt forecast to US$142m, from US$101m previously. Our target price reduces by 4% to 130p (from 135p), but we maintain our Buy rating. Tim.Huff@peelhunt.com, Peter.Mallin-Jones@peelhunt.com 2-page note
Hochschild Mining’s H1 results were down vs the same period last year. H1 production at Immaculada and Pallancata was down vs H1 FY2021, due to lower grades. This combined with higher costs due to inflation resulted in significantly lower profit for the half. Cost increases were in line with company expectations and both FY2022 production and cost guidance remains unchanged.
1H22 in line, 2022 production and cost guidance maintained Hochschild has reported a good set of 1H22 financials with most key metrics relatively in line. EBITDA was a small beat while EPS in 1H22 was a small miss, but net debt of US$109m was in line. Importantly, management has maintained its production and cost guidance for 2022. Mara Rosa construction and the Snip PFS are both on schedule, with HOC maintaining its overall capex spend for 2022. Tim.Huff@peelhunt.com, Peter.Mallin-Jones@peelhunt.com
Hochschild’s Q2 FY2021 production results were up vs Q1, but marginally below our forecasts, with a return to normal production levels at San Jose, following reduced production in Q1 due to seasonal holidays and COVID-related staff shortages. H1 2022 production at Immaculada and Pallancata was down vs H1 2021, due to lower grades. Annual production and cost guidance remains unchanged.
Strong 2Q production, guidance for 2022 maintained HOC reported good 2Q production, driven mainly by a strong recovery at the San Jose operations. San Jose beat by c.6k oz of AuEq, driving attributable production at HOC to 86k oz AuEq vs PHe at 81k oz. Importantly, management maintained production and costs guidance for the year. Net debt was higher at US$106m vs PHe at US$39m, due mainly to advance progress at the Mara Rosa project. HOC is already 7% complete with the project, while we expected significant capex to start in 3Q22. The Snip PFS is still expected to be complete in 2022 and HOC has also made good progress at Pallancata with drilling. Tim.Huff@peelhunt.com, Peter.Mallin-Jones@peelhunt.com
Target price up 4% to 135p, upgrade to Buy We remodel HOC to include its Mara Rosa project, which we see as a good medium-term catalyst for the stock. The environmental permit for Inmaculada remains a near-term focus and could also serve as a potential catalyst. We bump our target price up 4% from 130p to 135p. With the stock trading below 110p this week, we see 24% potential upside to our revised HOC target price. With recent share price weakness and forecast earnings momentum in 2H22E, we upgrade the stock from Hold to Buy. Tim.Huff@peelhunt.com, Peter.Mallin-Jones@peelhunt.com 2-page note
Hochschild’s Q1/FY2022 results were mixed, balanced by strong production at Immaculada but reduced output at San Jose. Production increases at Immaculuada were driven by improved recoveries, particularly for silver. COVID and seasonal holidays in Argentina resulted in staff shortages and an almost 50% decrease in ore tonnes through the mill vs. Q4 2021 at San Jose, although production is expected to return to normal levels in Q2 and annual guidance remains unchanged. Hochschild plans to begin construction at the newly acquired Mara Rosa project (renamed from Posse) in Q2 this year, dependent on receipt of permits – expected imminently.
1Q22 production just below PHe, net cash also a bit low Both production and net cash were slightly below our forecast in 1Q22. The main source of production weakness was San Jose, but we do not see this weakness continuing into 2Q22. The company maintained production and cost guidance for the year and we remain on the conservative side. The Amarillo acquisition completed on 1 April, with construction to commence this quarter. Tim.Huff@peelhunt.com, Peter.Mallin-Jones@peelhunt.com
Hochschild’s Q1 FY2021 production results were mixed against our estimates as operational issues at San Jose dragged down what would have been an “in-line” outcome. Despite the disruption during the period, the company has reiterated that it remains on track to meet its FY2022 production and cost targets.
Hochschild’s FY2021 preliminary results were better than our estimates and close to company-supplied consensus forecasts. As highlighted in our recent revision to forecasts, the impact of rising operational costs and increased investment into the company’s assets, alongside the known corporate actions from Q4, provides a sense of transition at Hochschild with a pivot to growth investment.
Hochschild’s Q4/FY2021 production results were marginally better than our estimates and within company guidance. Following on from the operational disruptions in FY2020, FY2021 has seen a material uptick in production output, driven by Inmaculada. However, the impact of rising operational costs and increased investment into the company’s assets alongside the known corporate actions from Q4 provide a sense of transition at Hochschild. In this note, we have revised our forecasts in line with the company’s guidance and increased our discount rate, largely in response to investor feedback towards the current geopolitical situation.
Target price up 7% to 120p, Hold maintained While the 4Q21 HOC production report indicated an in-line end to 2021, it also highlighted cost challenges ahead in 2022. We have increased our 2022 production forecast by 6% and added another two years of full HOC production out to 2024E. However, we have also raised both our 2022 AISC by 10% and our 2022 capex by 30%. Our revised target price is up 7% to 120p, from 112p previously. However, with a tough cost year ahead we maintain our Hold rating on Hochschild Mining. Tim.Huff@peelhunt.com, Peter.Mallin-Jones@peelhunt.com 2-page note
2021 production and net debt in line, 2022 guidance higher Hochschild Mining’s year-end production report implies a greater degree of stability at the operations and certainty to the outlook than just a few months back. Production and net debt for 2021 were in line with our expectations. Guidance for 2022 implies a stable production platform and some cost inflation for both unit costs as well as capex, in line with peers. The strong balance sheet will be put to work with allocations to growth projects outside Peru. We see today’s report as a solid end to a volatile year for Hochschild. Tim.Huff@peelhunt.com, Peter.Mallin-Jones@peelhunt.com
Hochschild’s Q4/FY2021 production results were marginally better than our estimates and within company guidance. Following on from the operational disruptions in FY2020, FY2021 has seen a material uptick in production output, driven by Inmaculada. Corporately, Q4 was a busy period and we anticipate a number of catalysts key to a valuation reappraisal in FY2022.
Amarillo Gold acquired for net cost of C$135m Even using our conservative outlook for HOC, we think the Amarillo acquisition and cost of building the Posse project is very affordable for HOC. It also provides a good use of cash, in our view, being deployed into a long LOM, lower-risk gold growth project outside Peru. Posse should increase production by 20-25% by 2024E and help to lower HOC operating costs. We also see HOC FCF as strong enough to support just a modest net debt position through the 2022-23 construction period. Tim.Huff@peelhunt.com, Peter.Mallin-Jones@peelhunt.com
Atlantic Lithium* (ALL LN) – Shareholders approve demerger of gold assets Castillo Copper (CCZ LN) – Extension of options to acquire the Litchfield and Picasso lithium projects Cornish Lithium (Private) – $18m funding package secured from TechMet Hochschild (HOC LN) – Shares rise as government appears to back away from closure plans Hummingbird Resources (HUM LN) – Updated mineral reserves extend Yanoflila LOM and delivers maiden estimate at Kouroussa Phoenix Copper* (PXC LN) – Deep drilling results from the Empire mine Premier African Minerals (PREM LN) – Zulu lithium/tantalum drilling
HOC HUM PXC PREM NFM ALL
Overnight, the Presidency of the Council of Ministers clarified statements made by the Head of Cabinet on 19 November.
Cutting target to 112p, lowering to Hold recommendation The HOC announcement this morning has resulted in a 35% share price decline. With exploration permits our key issue, management has stated they can operate through 2022 and into 2023. We have cut our 2023E EBITDA by 52% to US$182m, but risks still remain. We see a near-term share valuation range of 94-130p to reflect outstanding downside and upside risks to our revised target of 112p. We lower our rating to Hold from Buy. Tim.Huff@peelhunt.com, Peter.Mallin-Jones@peelhunt.com 3-page note
Polar Capital : Good core profits Analysts - Phil Dobbin +44 (0)20 7886 2776, Ege Yigiter +44 (0)20 7886 2945 & Rae Maile +44 (0)20 7886 2860 The company delivered good core profit performance in H1/22, and an interim dividend ahead of our estimate, but no performance fees were booked in the period. Core operating profit was £36.3m vs. our estimate of £35.6m (H1/21 £22.0m) from net management fees of £92.2m (in line with our estimate, AUM to the period end had already been reported). The interim DPS is 14p vs. our 13p estimate, and +5p from a year ago, which is a sign of management’s confidence we believe. The company has recently launched its Smart Energy and Smart Mobility Funds, while 74% and 93% of AUM is in the top two quartiles relative to peers over the last three and five years respectively. The company is confident, therefore, of continued momentum in fund raising. The absence of performance fees in H1/22 relative to our estimates of £2m in the entire year is a small disappointment but not necessarily a guide for the full year. In our valuation we apply a discount to performance fee profits relative to management fee profits, so the mix of profit declared today is supportive of the valuation. We maintain unchanged estimates for the full year, and an unchanged target price of 1001p. BUY. Read More... Hochschild Mining : Response to media speculation Analyst - Kieron Hodgson +44 (0)20 7886 2773 Hochschild has today announced that the Peruvian Government has moved to restrict additional permits to facilitate additional mining or exploration activities at the company’s Inmaculada and Pallancata operations in Peru. Read More... Taseko Mines : Draft permit for Florence received Analyst - Kieron Hodgson +44 (0)20 7886 2773 Taseko today announced that the initial draft of underground injection control permit has been received from the US Environmental Protection Agency. Taseko's project technical team will complete a review of the permit wording within the two-week allotted timeframe, following which the EPA is expected to commence a public comment period of approximately 45 days. Read More...
HOC POLR TKO
Inmaculada and Pallancata futures uncertain Hochschild has noted that the Peruvian Head of Cabinet has potentially indicated that additional mining and exploration activities may not be permitted for some mines in the Ayacucho region, including Inmaculada and Pallancata. While the context of the minutes is not yet known, the two mines do account for 75% of our operational NPV and will likely add to recent negative sentiment for HOC. The company is to hold a call at 9am today to further clarify the situation. Tim.Huff@peelhunt.com, Peter.Mallin-Jones@peelhunt.com
Hochschild has today announced that the Peruvian Government has moved to restrict additional permits to facilitate additional mining or exploration activities at the company’s Inmaculada and Pallancata operations in Peru.
Hochschild’s Q3 FY2021 production results were just 1% away from our estimates. A strong operational performance at Inmaculada, positive drilling results coupled with the news the company have exercised the option over Snip and announced the intention to demerge Aclara, it has been a busy, yet incrementally positive period. Possibly more importantly, the company has reaffirmed that it remains on track to meet both its production and cost guidance for the year.
Hochschild today announced the intention to demerge 80% of the issued share capital of Aclara Resources (formally known as Biolantanidos), the company’s rare earth mineral resources project. Whilst disappointing for many shareholders that were warming to the investment case, the retention of a 20% stake will ensure some valuation linkage remains.
Exercises SNIP gold project option HOC has exercised its option to earn up to a 60% stake in the SNIP gold project in Canada. There is no upfront payment, but HOC must commit a minimum of C$7.5m in capex pa over a three-year period. The option can be cancelled without further liability, which gives HOC financial flexibility on the project. However, heavier capex could be required in 2023-24E (up to C$100m) in order to earn the full 60% stake. For now, it gives HOC a good high-grade option for future development in a region with low geopolitical risk. We maintain our Buy rating and 275p TP. Tim.Huff@peelhunt.com, Peter.Mallin-Jones@peelhunt.com
Rare earths project kicks off Hochschild has released limited key metrics on its rare earths project in Chile, renamed Aclara. The estimated NPV of US$152-177m is substantial enough to be a good short-term catalyst for the shares in our opinion, but details on the construction and production timelines are not due out until later today. Investors will also be curious to see if management intends to run the project internally or see if they have plans to spin it out. We maintain our Buy rating and 275p TP. Tim.Huff@peelhunt.com, Peter.Mallin-Jones@peelhunt.com
Hochschild has released its interim results for H1 2021, which are much improved compared with H1 2020 numbers. This improvement has been driven by higher average Gold and Silver prices, as well as a strong rebound in production, following the COVID-related shutdowns affecting H1 2020 numbers.
Hochschild announced Q2/H1 FY2021 production results that reaffirmed the company’s expectations for the full year. Following the change in government in Peru and the scale of the current valuation discount, the market is currently pricing in a “terrible” outcome, so one that is just merely “bad” could have a short-term positive effect on Hochschild’s share price. In this note, we highlight the changes to our assumptions.
Maintaining 2021E EBITDA on strong realised pricing Despite slightly weaker than anticipated 2Q production, HOC has left its 2021 production and cost guidance unchanged, which we find reassuring. We maintain both our 1H21E and full-year 2021E EBITDA estimates on the back of stronger than expected realised pricing in both gold and silver in 2Q. Continued below-the-line cost items could be a feature of the interims in August, but the real catalyst for HOC should come in September when management is expected to detail its plans for the BioLantanidos rare earth project in Chile. We maintain our Buy rating and 275p target price. Tim.Huff@peelhunt.com, Peter.Mallin-Jones@peelhunt.com 2-page note
Production in 2Q 5% below PHe, 2021 in line With production for the quarter slightly below our forecasts, we are assuming that seasonality will be strong again this year and will adjust our numbers to account for a stronger 4Q. With pricing remaining strong but cash also 7% below our unadjusted forecasts, we would also look for higher below the line costs and taxes at the interim stage. We maintain our Buy recommendation and 275p target price. Tim.Huff@peelhunt.com, Peter.Mallin-Jones@peelhunt.com
Hochschild’s Q2/H1 FY2021 production results were slightly behind our estimates but importantly, the company has reaffirmed that it remains on track to meet both its production and cost guidance for the year.
A weak 1Q and Castillo holding back HOC While the seasonally weak 1Q for HOC was light due to Pallancata weakness, Inmaculada continued to surprise on the upside and support HOC’s cash flows. We lower our 2021E EBITDA by 3% but maintain our 275p target price and Buy rating. However, the upcoming presidential election in Peru is a focus for near-term investor sentiment, with a potential Castillo win an understandable cause for concern. Tim.Huff@peelhunt.com, Peter.Mallin-Jones@peelhunt.com 3-page note
Q1 production on the low side, 2021 guidance maintained Inmaculada and San Jose production were on track in Q1, with Pallancata a little behind our forecasts. However, with production and cost guidance maintained we expect to see improving trends in production as we move through the year. Net cash was reported at US$38m, with a cash balance of US$245m. HOC remains in a strong financial position, which we expect to improve throughout 2021. Tim.Huff@peelhunt.com, Peter.Mallin-Jones@peelhunt.com
Lowering target price 11% to 280p – Buy maintained Our revisions to HOC focus on Pallancata over the coming two years as the company produces less at the mine but stays in profit due to the c.US$27/oz hedge in place. We have reduced our P&L forecasts through 2023, but believe free cash generation will remain strong at a 13-16% yield. We lower our target price by 11% to 280p, but maintain our Buy recommendation. Tim.Huff@peelhunt.com, Peter.Mallin-Jones@peelhunt.com 4-page note
P&L for 2020 in line, dividend slightly ahead of PHe Due to strong guidance at the 2020 production reporting stage, there were few surprises on the HOC P&L reported today. Taxes were lower than forecast, Covid-19-related costs were higher than forecast and the dividend slightly beat. With a US$21m net cash position, HOC can now also afford to drive forward a few projects in 2021 like BioLantanidos and hopefully focus more on Pallancata drilling. Maintain Buy and 315p TP. Tim.Huff@peelhunt.com, Peter.Mallin-Jones@peelhunt.com
Below-the-line adjustments drop 2020E EPS by 50% We have very few changes to our forecasts apart from additional below-the-line cost additions to account for disruption costs at San Jose toward year-end and a higher H2 tax rate. Our EBITDA for 2020E rises 1%, but EPS drops 50% to USc4 (from USc7) due to the added costs. We maintain our 315p target price and our Buy rating. Tim.Huff@peelhunt.com, Peter.Mallin-Jones@peelhunt.com 3-page note
Strong net cash position going into 2021 Despite HOC’s operational issues in 2020, and gradual recovery expected in 2021, its financial position keeps improving. With stronger silver prices sustaining into 2021 we see potential for it to continue to build its net cash position substantially this year. However, we do need to see progress at Pallancata. Tim.Huff@peelhunt.com, Peter.Mallin-Jones@peelhunt.com
WOMEN IN MINING – Fourth Edition of ‘100 Global Inspirational Women in Mining’ (WIM100) now available to download | HOCHSCHILD MINING^ (HOC, NR, CNP) – On-track for FY20 production target at lower cost, FY21 guidance issued; interim divi declared
ers decision on Jansen potash mine Hochschild (HOC LN) – Interims highlight coronavirus related operational challenges with dividends remaining suspended | Hummingbird Resources (HUM LN) – Mali update | KEFI Gold and Copper* (KEFI LN) – Maiden Hawiah resource delivers 19.3mt at 1.9% CuEq Kenmare Resources (KMR LN) – Interim results | IronRidge Resources* (IRR LN) – Further drilling results at Zaranou Gold Project, Cote d’Ivoire | Polymetal International (POLY LN) – Underground electric vehicle partnership signed with SMT Scharf AG | Resolute Mining (RSG LN) – Mali update | Rio Tinto (RIO LN) – Rio Tinto report delays to the restart of the Kennecott smelter in Utah, USA
HOC HUM KEFI KMR ALL RIO BHP POLY
HOCHSCHILD MINING^ (HOC, NR, CNP) – Strong 2019 financials but paltry divi; 2020 production guidance and budgets reiterated | SALT LAKE POTASH^ (SO4, NR, CNP) – Lake Way: binding term-sheet for further 4ktpa SOP
Hochschild Mining plc Salt Lake Potash Limited
HOCHSCHILD MINING^ (HOC, NR, CNP) – H1 2019: good op. cash generation, and hopefully better yet to come in H2 2019 | HORIZONTE MINERALS^ (HZM, NR, CNP) – We look forward to Vermelho PFS later in Q3 2019; Araguaia funding talks to continue for “the remainder of 2019” | SALT LAKE POTASH^ (SO4, NR, CNP) – Trio of executive appointments; Mark Wilde presumably replaces CCO Luke Jarvis
HOC HZM SO4
Hochschild Mining (HOC LN) has reported robust production figures which indicate that it is on track for full year guidance of 37mnoz silver equivalent. H1 2017 production of 17.9mnoz on an attributable basis was up 5% YoY with a 9% increase in silver production to 8.9mnoz and a 3% increase in gold production to 121koz.
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This Morning’s News Hochschild Mining (HOC LN)
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