Hochschild Mining – Sell-off offers good entry point

UK listed gold and silver producer Hochschild Mining warned this morning on production from its Brazilian mine, Mara Rosa. The mine faced challenges from heavy rainfall and contractor issues, limiting access to high-grade ore and delaying waste removal. Originally set to produce 94–104koz of gold in 2025, the mine produced 25koz by end May, and output is now expected to be ‘significantly’ below guidance, and this will have a corresponding impact on the operation’s costs, the company argued. A six-week processing plant suspension for maintenance is set to take place, though mining continues. Conversely, the company confirmed that operations at its two other flagship mines in Peru and Argentina are consistent with expectations.

The stock took a beating, down more than 20% intrada-day. This reaction is overdone in our view, and the stock offers an attractive entry point. Mara Rosa only accounts for c15% of EV. From a valuation standpoint and for illustration purposes, were we to assume a value of zero for this mine, the Hochschild shares would still offer c60% fair value upside at say $3000/oz gold and $36/oz silver, on our numbers. We have taken a long position here.

Hochschild sum of the parts ($3000/oz gold, $33/oz silver)

Source: Asymmetric Research. Note: DCF based for operating mines, WACCs 10%.

Amongst the UK listed gold and silver miners, Hochschild offers the biggest upside.

UK listed precious metals miners – Fair value upsides at various commodity price assumptions

Source: Asymmetric Research. Note: DCF based, WACCs ranges: 9.5%-11%. Silver relevant for Fresnillo and Hochschild.

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These are our views only and not investment advice. We own shares in Hochschild and Greatland. We have not been paid by the companies for this research nor have they seen it prior to publication.