RBC Capital cuts Hochschild Mining target but eyes key March update

RBC Capital Markets cut its target price for Hochschild Mining shares on disappointment with the South America-focused precious metals miner's fourth quarter production numbers, but said March will see a key update.

RBC, which maintained its 'outperform' rating, said the numbers were slightly weaker than expected, beating company guidance but slowing versus the third quarter as the ongoing road blockade at Pallancata weighed.

The dispute is likely to impact first-quarter production, the broker said, but was not hurting the development work at Pablo and management is confident that they will solve this dispute alongside government mediation.

For 2017 Hochschild's guidance was for production to improve sequentially by 5.7% to 37moz, though this is below RBC's prior forecast of 40moz due to a slower ramp-up at Pablo and a dipping grade at Inmaculada.

"Both of these issues are short-term in nature, as is the increase in capex, whereby there is an additional tailings dam spend at Inmaculada, higher development and infrastructure costs at Pallancata, and generally higher sustaining capex costs all totalling $45m."

Analysts think operations will improve into the second half but in advance of this, said the reserve and resource update in March should provide more clarity on the life and scaling potential at Pablo, Arcata, and Inmaculada.

"Investment case upside will come from sustained and lower-cost operations as the company delivers on its exploration plans. The update in March should be a key indicator," they wrote.

RBC's price target was cut to 290p from 330p largely due to the lower free cash flow expected in 2017.