Hochschild shines after results boost

Hochschild Mining results are buoyed by the gold price, driving the FTSE 250 stock up by more than 10%.

The upside from a recent surge in gold and silver prices helped FTSE 250 index listed Hochschild Mining (LSE:HOC) produce a big jump in full-year profits today.

The supportive environment for precious metals — due to declining US interest rates as well as geopolitics and global trade risks — meant safe haven gold posted its biggest year-end price gain since 2010. This was almost matched by silver, which rose by around 15%.

Hochschild said these favourable conditions had reinforced its belief in its long-term strategy, which includes a focus on low cost brownfield exploration. It currently operates three underground mines, with two located in southern Peru and one in southern Argentina.

Full-year production of 477,400 gold equivalent ounces exceeded its previous guidance of  457,000 and was only 5% lower than in 2018, despite its Arcata mine in Peru being placed in temporary care-and-maintenance in the first quarter of the year.

Hochschild said its flagship Inmaculada mine in the country was the cornerstone of production with 260,126 gold equivalent ounces at $798 per ounce. San Jose in Argentina also delivered a record year with 15.4 million silver equivalent ounces at $13.8 per ounce.

The brownfield exploration programme continued in 2019 with the key highlight being the 46 million silver equivalent ounces of additional resources discovered at Inmaculada.

Combined with the impact of higher prices, Hochschild said revenues rose 7% to US$756 million in 2019 while pre-tax profits doubled to $76.8 million as the company also benefited from continued tight cost controls.

Strong cash generation meant Hochschild reduced leverage to enable net debt to more than halve to $33.2 million, while its final dividend increased 19% to 2.335 cents.

Looking ahead to this year's performance, the company expects production of 422,000 gold equivalent ounces will reflect the impact of lower output at Pallancata in Peru in order to preserve the life of the mine.

Shares jumped 11% to 179p following the results, but are still lower than a year ago despite the surge in gold and silver prices. UBS cut its price target from 230p to 170p in December.

The Swiss bank said growth in mine life was key to a re-rating for Hochschild but that this was unlikely to occur in the next 12 months, adding it was questionable whether the company will achieve its target of five years of reserve life and five years of additional resource life at each mine by 2021.