Hochschild Mining PLC (LON: HOC)

Hochschild Mining PLC (LON: HOC) is an FTSE 250 index quoted Mining Company which focuses on gold and silver deposits. The Company has been operating over the past 50 years and has operations in the region of Argentina, Chile, and Peru. It currently operates with one underground mine in the southern part of Argentina and three underground mines in the southern part of Peru.

Recent trend of dividend payments

The Company has a progressive dividend policy to pay out to shareholders, and it will pay a final dividend of 2.3 US cents per share on 07 June 2022, while the ex-dividend date will be 05 May 2022. Moreover, it has taken the full-year total cash dividend to USD 22.0 million for FY21. 

Growth Prospects

• Operational Strength: The Company had managed to meet FY21 production guidance and delivered strong operational performance despite the impact of Covid protocols in 2021. HOC had achieved production of 362,972 gold equivalent ounces (31.2 million silver equivalent ounces) during FY21.
• Increased Reserves: The Company had increased its total reserves by approximately 12%, with reserve grade up approximately 19% when compared with the prior-year levels.
• Acquisition & Demerger: HOC had completed the demerger of its Chilean rare earth business, renamed Aclara Resources, in December 2021. Moreover, the Company had completed the acquisition of Amarillo Gold in Brazil on 22 March 2022.
  

Key Risks 

• FOMC Meeting Minutes: The Federal Open Market Committee's meeting minutes scheduled to be released on 06 April 2022 will bring more clarity regarding the path for interest rate hikes.
• Record UK Inflation: British inflation hit a 30-year high of around 6.2% in February 2022, which may cause a further interest rate hike.
• Ukraine Tension: The mounting concern over the Russian invasion of Ukraine can continue to weigh on the equity market.

Key Fundamental and Shareholders Statistics of Hochschild Mining PLC.

Hochschild Beeck (Eduardo) is the most significant shareholder as it holds nearly 196.90 million shares as of 31 March 2022.

FY21 Financial Highlights (for the year ended 31 December 2021, as of 23 February 2022)

(Source: Company Filings)

• Top-Line Business: The Company’s top-line revenue grew by around 30%, from USD 621.8 million during FY20 to USD 811.3 million for FY21.
• Profitability: On the profitability front, the Basic earnings per share (post-exceptional) witnessed an excellent year-on-year jump of around 400% during FY21.
• Balance Sheet: The cash balance stood at USD 386.8 million as of 31 December 2021.

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 06 April 2022 at 11:10 AM GMT+1, HOC’s shares were trading at GBX 133.00, down by around 0.75% against the previous day’s closing price. Stock’s 52-week High and Low were GBX 212.39 and GBX 67.24, respectively.

On a daily chart, the stock price is sustained above the 20-days exponential moving average of GBX 128.71. Hence, there could be an uptick in the stock price in the near term. Moreover, the MACD line has given a bullish crossover against the signal line.

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative)

Business Outlook

The Company had an impressive top-line revenue growth and demonstrated an excellent jump in profitability during FY21. Moreover, the Company had shown remarkable growth in production volumes for gold & silver during FY21. Meanwhile, the Company had anticipated a total sustaining and development capital expenditure ranging from USD 150 million to USD 160 million for FY22, with a significant amount to be incurred towards Amarillo/Posse gold project. In terms of production guidance, HOC expects production volumes of 360,000-375,000 gold equivalent ounces for FY22 using a 72x gold-silver ratio. Overall, the Company remained confident of generating increased shareholders’ returns driven by several brownfield exploration projects and favourable commodity prices over the medium term.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the decent fundamentals, strong operational progress, strong production volumes, consistent dividend payments, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Hochschild Mining PLC at the current market price of GBX 133.00 (as of 06 April 2022 at 11:10 AM GMT+1), with lower-double digit upside potential based on 14.55x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.  

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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