Canaccord Genuity initiates coverage on Hochschild Mining at 'buy'

Hochschild Mining operates three gold mines located in Peru and Argentina and is currently in the process of constructing its fourth mine located in Brazil, which Canaccord Genuity believes could be at "a profitability inflection point" for the first time in three years.

Canaccord thinks 2023 will mark an adjusted underlying earnings low of roughly $200.0m, driven by weak production at its Inmaculada and Pallancata mines but also higher costs across all operations. However, the analysts also noted we were "almost at the point" where 2023 was in the rearview mirror.

"Production guidance for 2024 given at the recent capital markets day was much stronger than we anticipated at Mara Rosa - we think reflecting management confidence in the ramp-up ahead. We forecast 70k oz of production in 2024, below guidance of 83-93k oz. Overall, this leaves our 2024 attributable production forecast at 331k oz vs guidance at 343-360k oz," said Canaccord.

"We forecast operating costs to remain high in 2024, as well as capex. For this reason, we forecast peak net debt in mid-2024, followed by a significant deleveraging to occur from 2H24 all the way into 2026. We also use a conservative gold price forecast of sub-US$2000/oz until 3Q25, which we think provides some potential upside to our forecasts should gold prices hold."

The Canadian bank also reckons that the first gold pour and commercial production at Mara Rosa should provide two strong near-term potential catalysts for Hochschild in the first and second quarters of 2024, respectively.

Reporting by Iain Gilbert at Sharecast.com