Berenberg lowers Hochschild to 'hold'

Berenberg stated that Hochschild had seen lower-than-expected grades at its Pallancata asset, as well as a lower silver price, leading the group to update its plan for the mine in 2022. Hochschild also noted that it is considering all options with regards to future ore production.

While Hochschild's decision to reiterate guidance, Berenberg expects that Pallancata's weakness will be offset by improved production elsewhere, it noted that management had cautioned that unless the exploration team at the site can discover "meaningful ounces" to be added to the mine's plan, it will likely be placed on temporary care and maintenance.

"Consensus expects the mine to stop operating in FY 2024, alongside cost reductions; we believe this may be challenging, implying risk to the downside to current consensus forecasts. Without Pallancata in our model, our FY23 production estimates fall by 11% to 22Moz (SE) and our revenue estimates by 9% due to the lower production," said the analysts, who also lowered their target price on the stock from 150.0p to 100.0p.

However, the German bank stated that improved costs across Hochschild's portfolio had led to an improvement in underlying earnings of roughly 1%.

"We also envisage risk at Inmaculada, for which the company is awaiting an environmental permit extension that would allow the operation to continue to 2041; the company expects this to be granted in H2," added the analysts.

"If this is not approved, we expect further reductions to consensus estimates. We believe that lower-risk silver exposure under coverage can be found through Wheaton Precious Metals, Fresnillo, and Yamana Gold while mid-cap gold exposure can be found through Centamin."

Reporting by Iain Gilbert at Sharecast.com