Berenberg lowers target price on Hochschild Mining

Berenberg said Hochschild's 2020 guidance update from last week had been ill-received, with production guidance of 35 million ounces coming in below its estimates of 38.6moz and, given the 14% drop in the share price over the past few days, clearly below market expectations as well.

The German bank said the main disappointments came in the form of delays to permits at the group's Pallancata project, which impact tonnes processed guidance and speed of new resource discovery, and higher capital expenditures at Inmaculada.

"Taking a step back, we still believe that the company can deliver free cash flow of more than $100m in 2020E ($125m at spot), implying a yield of 10%, and think that the share price move is a severe reaction," said Berenberg.

On a short-term basis, Berenberg still thinks the company has the potential to generate attractive free cashflow, but reckons there is some risk of a grade rollover at Inmaculada, which makes up around 75% of mine free cashflow.

"This, coupled with what we think is still quite an expensive valuation (1.34x NAV), means we maintain our 'hold' rating, but with a revised price target of 170p."