Will Hochschild Mining achieve its FY2021 production target?

Summary

  • Hochschild Mining Plc has reported a cash balance of $196 million as of 30 September 2020.
  • The Company will pay an interim dividend of 4.0 US cents per share on 31 December 2020.
  • Total capital expenditure budget for FY21 is kept between $120 million - $130 million.
  • All three operational mines have ongoing drilling campaigns.

Hochschild Mining Plc (LON: HOC) is the LSE listed metals & mining stock. Based on 1-year performance, shares of HOC have generated a return of 18.53%.

Hochschild Mining Plc is the FTSE 250 listed Company, which is the producer of high-grade silver and gold currently has its operations in three underground mines, two located in southern Peru (Inmaculada and Pallancata) and one in southern Argentina (San Jose). The Company is having a 100% stake in Inmaculada and Pallancata and 51% stake in San Jose.

Recent Developments

20 November 2020: Approval of Interim dividend. 

On 20 November 2020, the Company provided an update on its interim dividend. The Board has approved payment of an interim dividend of 4.0 US cents per share totalling to $20.6 million. The payment date of an interim dividend is 31 December 2020. The Company will decide regarding its final dividend payment for the financial year ending on 31 December 2020 in its next Board meeting to be held in February 2021.

Production Guidance for FY21 as reported on 11 November 2020

(Source: Company update)

The overall target of the Company for Gold production is ranging from 360 koz gold equivalent to 372 koz gold equivalent while the target for silver production is ranging from 31 Moz silver equivalent to 32 Moz equivalent.

(Source: Company update)

The Company is expecting the gold operating cost to be ranging from $1,210 per gold equivalent ounce to $1,250 per gold equivalent ounce and silver operating expense to be ranging from $14.1 per silver equivalent ounce to $14.5 per silver equivalent ounce including mine development cost in San Jose.

(Source: Company update)

  • The total capital expenditure budget for FY 21 is estimated to be ranging from $120 million to $130 million allocated for sustaining and development expenditure.
  • The brownfield exploration budget target for FY21 is approximately $34 million. The Company has estimated the greenfield and advanced project budget to be around $11 million and BioLantanidos rare earth deposit in Chile to be about $14 million.

 

21 October 2020: Production Report for Q3 FY20.

(Source: Company update)

  • The Company has delivered more than 100 % growth in production volumes in Q3 FY20 with attributable production of 68.42 koz gold equivalent and 5.9 moz silver equivalent, reflecting a strong recovery from the Q2 FY20 However, the Inmaculada mine, in particular, was still adversely affected by Covid-19 pandemic during the period. 
  • The Company has a resilient financial position which is demonstrated by a cash balance of  $196 million as of 30 September 2020 against $162 million as of 30 June 2020. The Company has reduced its net debt to $21 million as of 30 September 2020.
  • The Company has witnessed a significant increase in average realized precious metal prices as it stood at $1,788/ounce for gold and $20.5/ounce for silver during the first nine months of FY20. In comparison, it was $1,389/ounce for gold and $16.2/ounce for silver for the first nine months during FY19.
  • The Company has also updated regarding the progress of drilling programmes at Arcata and Crespo. All three currently operating mines also have ongoing drilling campaigns.

H1 FY20 results (ended 30 June 2020) as reported on 19 August 2020

(Source: Company result)

  • The net sales of the Company have declined by 34.6% year-on-year and stood at $232.0 million during H1 FY20 due to Covid-19 stoppages from mid of March 2020 till the end of May. Similarly, EBITDA also dropped by 47.56% to $80.6 million.
  • Regarding the financial position, the Company has a closing cash balance of $162.1 million as of 30 June 2020 while it was $166.4 million as of 30 June 2019. The net debt was $58.4 million at the end of the reporting period.
  • Gold production and silver production volumes were affected by Covid-19 pandemic due to closure of mines. The Company has reported a decline in volumes despite a 28% rise in average gold price and 8% growth in silver price during the period. The Company has sold 94 koz of gold during H1 FY20 which is 42% lower than 160 koz of gold during H1 FY19. The silver sales declined by 52% from 10,221 koz in H1 FY19 to 4,897 koz in H1 FY20. 

23 July 2020: Appointment of Director

The Company has appointed Jill Gardiner as an Independent Non-Executive Director with effect from 1 August 2020.

Share Price Performance Analysis of Hochschild Mining Plc

(Source: Refinitiv, chart created by Kalkine group)

Shares of Hochschild Mining Plc last traded at GBX 225.80 as on 20 November 2020. HOC's 52-week High and Low were GBX 326.80 and GBX 80.40, respectively. Hochschild Mining Plc had a market capitalization of around £1.13 billion.

Business Outlook

The Company is all set to meet production guidance of target of gold production ranging from 280 koz gold equivalent to 290 koz gold equivalent while the target for silver production is ranging from 24 moz silver equivalent to 25 moz silver equivalent during FY20. The operation cost is expected to have significant decline and likely to remain in the range from $1,200 to $1,250 per gold equivalent ounce and from $14.0 to $14.5 per silver equivalent ounce during FY20.

The Board has considered the resumption of dividends due to its strong financial position, and they have shown full confidence in the prospects of the Company by giving FY21 guidance for production, costs and capital expenditure. The Company will remain in a healthy financial position well supported by the strong performance of precious metal prices during the year and ongoing development of various exploration programmes. However, the Company is also cautious that Covid-19 pandemic will continue to impact operations of all three mines.


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