Why this FTSE 250 high-flier lost its shine

Retail investors circled Hochschild Mining (LSE:HOC) shares today after weaker output guidance cut the value of one of the best-performing FTSE 250 stocks of the past two years.

A record gold price, return to the dividend ranks and the start of commercial production at a new mine in Brazil have fired up recent interest in the Americas-focused business.

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However, this summer has been much more challenging after the new Mara Rosa mine was affected by heavier-than-usual seasonal rainfall and contractor performance issues.

The impact has been much greater than the City feared after today’s interim results included a big downgrade to Hochschild’s estimate for Mara Rosa output across this year.

Shares, which peaked at 320p in April after a 340% surge since the end of 2022, fell 49.6p to 257p as the worst-performing stock in the FTSE 250 index. 

The slide drew the interest of interactive investor customers as Hochschild ranked as this morning’s second-most traded stock on our platform, with 84% buy orders.

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The support was echoed by broker Peel Hunt, which reiterated its Buy rating and 370p price target in the wake of the results. RBC cut its estimate from 340p to 320p but retained an “Outperform” recommendation.

Peel Hunt said: “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 90-100,000 ounce producer, creating an opportunity in any sell-off.”

The downgrade came after chief executive Eduardo Landin conducted a review of Mara Rosa’s mining, processing and disposal activities.

This included a four-week suspension of the processing plant to enable maintenance activities and mechanical filter repairs, but with mining operations continuing as planned.

The production target for Mara Rosa is now 35,000-45,000 gold equivalent ounces, down from a previous estimate of 94,000-104,000 ounces.

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Landin said: “While challenges at our Mara Rosa mine affected first-half performance, we are confident that we now have the right team in place to drive a turnaround.

“The operational review and temporary suspension of the plant will enable us to set a foundation for reliable production.”

The issues at Mara Rosa cast a shadow over stronger results as higher production and a 28% increase in the average gold price helped lift revenues by 33% to $520 million (£387 million). Adjusted earnings rose 27% to $224.5 million, slightly better than the City’s $220 million forecast.

Hochschild’s flagship Inmaculada mine in Peru recorded production slightly ahead of expectations at 106,197 gold equivalent ounces. At San Jose in Argentina, output was moderately lower than expected at 52,769 ounces but is expected to improve in the second half.

Solid cash generation from Inmaculada and the benefit of higher precious metal prices helped reduce net debt to $202.3 million, while the company announced plans to distribute a dividend of one US cent a share worth $5.1 million on 3 October.