Hochschild Mining reinstates dividend, ups guidance after strong first half

Building on strong silver and gold production and buoyant precious metals markets, Hochschild Mining enjoyed a profitable half year and reinstated its interim dividend.

A 31% rise in silver production to 8,210koz and 188% increase gold production to 118koz in the six months to 30 June led to revenue rising 78% on last year to $339.3m.

Last year's interim loss was reversed to a $60.3m profit before tax, better than forecast, with adjusted earnings per share of $0.05.

Thanks to breaking back into the black, cutting net debt by $84m since December to $267m and ahead of what is expected to be a record second half, a modest interim dividend of 1.38 US cents per share was declared.

For the full year the production target has increased by over 6% to 34m silver equivalent ounces following the good performances at the Inmaculada and Arcata mines in the first half.

With all-in sustaining cost reduced by 27% to $10.9 per silver equivalent ounce in the first half, expectations for 2016 have also been improved to between $11.0 and $11.5 per silver equivalent ounce.

Analysts at RBC Capital Markets said the resumption of the dividend, although small, "is a good indicator of the company’s commitment to disciplined capital allocation" but they felt the shares' outperformance since the start of the year means they are more fairly valued.

"However the ability for HOC to add to its NAV via exploration, as we expect to be highlighted through the upcoming capital markets day, and more cost progress in today’s results should allow the share price momentum to continue."

JP Morgan was impressed by the results and the much improved leverage, but said "one wrinkle" was the indefinite permitting delay at the new Pablo vein, "which we believe may negatively impact plant utilisation and unit costs in 2017", but said on its revised forecasts "HOC is inexpensive versus peers".