Hochschild Mining loses shine as costs rise

Hochschild Mining loses shine as costs rise

The company operates three mines in Peru and one in Argentina and has other projects under development. It said that “production and prices achieved in the first half were broadly similar” to the year before, but its costs had risen because of “increased investment in exploration-led growth”, the removal of port rebates in Patagonia and a backfill process at the Inmaculada mine in Peru.

Higher costs have tarnished the latest figures from Hochschild Mining, reducing its first-half profits by a third.

The South America-focused silver and gold specialist said that pre-tax profits had fallen from $60 million to $40 million in the six months to June.

Revenues were broadly flat, edging up $1.5 million to just under $341 million, but the cost of sales increased from $239 million to $261 million.

The company operates three mines in Peru and one in Argentina and has other projects under development. It said that “production and prices achieved in the first half were broadly similar” to the year before, but its costs had risen because of “increased investment in exploration-led growth”, the removal of port rebates in Patagonia and a backfill process at the Inmaculada mine in Peru.

Silver production increased by 9 per cent and gold production by 3 per cent, compared with the same period last year.

Analysts at RBC Capital Markets downgraded Hochschild to “sector perform” from “outperform” yesterday, citing the rising costs. The company had strong long-term potential and a “much-improved balance sheet, profit margin and growth profile”, but they argued that the company’s share price, which has risen significantly over the past year, reflected this. The shares fell 573⁄4p, more than 18 per cent, yesterday to 2591⁄4p.

Ignacio Bustamante, Hochschild’s chief executive, said that production and cost targets for 2017 were on track.

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