Hochschild Mining boss at a loss to explain tumbling shares amid rebounding profits
Hochschild Mining (Hochschild) chief executive Ignatio Bustamante was highly encouraged and excited by the group’s full-year result, but remains unsure why this was not reflected in the group’s stock market performance.
Despite its improved performance reflected in its freshly published full year results, shares are down 4.55 per cent on the FTSE 250.
He told City A.M. “We remain significantly undervalued compared to our peers, and this should present a very attractive story to the market.”
Despite the miner reporting doubling profits and a hefty 30 per cent rebound in revenues, its shares have dropped 4.55 per cent on the FTSE 250.
Bustamante argued: “I do believe that the market is still looking at us cautiously.”
Hochschild’s rebounding results were in line with market expectations, but the company has faced difficulties from both Covid-driven supply chain disruption and the Peruvian authorities in recent months.
Last November, the Peruvian head of cabinet indicated that approvals mining exploration would no longer be granted following environmental complaints.
As a consequence, the London-listed miner seemingly faced being removed from its sites in southern Ayacucho, Pallancata and Inmaculada, which sent its share price plunging from 164.6p to just 70p.
Thankfully, its performance recovered after the government U-turned from this position, with Hochschild maintaining its Peruvian projects.
JP Morgan has outlined potential headwinds over its operations in its latest analyst note.
The investment bank said: “We continue to believe there are mixed operating risks, particularly around extending the reserve lives of its mines.”
However, JP Morgan has remained overweight in the miner, and considers the group’s latest acquisitions to present opportunity to boost its growth and diversity its business beyond Peru.
In particular it praised its recent acquisition of Amarillo Gold, with the deal expected to be wrapped up imminently.
It said: “Hochschild does not look excessively expensive on an absolute and relative basis. The recent acquisition of Amarillo Gold also offers it nearer-term growth with the Posse project in Brazil and helps diversify the group outside of Peru.”
Miner’s revenues recover following pandemic disruption
The London-listed miner, which boasts mining operations across South America, has published its full-year results, revealing its revenues have risen 30 per cent from $621.8m last year to $811.4m, while its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortisation) has soared from $382.8m from $270.9m
This follows significant hikes in silver and gold production, with its silver output increasing 24 per cent from last year to 12.2m ounces, up from 9.8m ounces in the prior year.
Crucially, gold production also rose to 221,420 ounces, up 26 per cent from 175,240 ounces in 2020.
Profits before income tax has more than doubled to $137.3m from $62.9m, while earnings per share have spiked from $0.06 to $0.14.
The miner now has a cash equivalent balance of $386.8m as of 31 December 2021, up from $231.9m the previous year.
It has also quadrupled its net cash to $86.3 million, from $21.6m, over the same period.
Consequently, Hoschchild has set a final proposed dividend of 2.3 cents per share ($12m) bringing the full-year total cash dividend to $22m, down from $32.6m in 2020.
The group’s results follow its purchase of Amarillo Gold – with the group planning $120m capital expenditure in Brazil.
It has also exercised an option start earning 60 per cent interest in Skeena Resources’ Snip gold project, while it has also completed the demerger and listing of Aclara Resources.