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Hochschild Mining: SQ production: on target, but recommendation reduced to Sell

Contributed by Fox-Davies Capital

Hochschild announced its September quarterly production figures. For the three months ending 30 September, the Company produced an attributable 5.14M oz of silver equivalent, taking production to 15.38M z of silver equivalent for the first 9 months of 2012. This was in line with expectations and maintains Hochschild just above guidance of 20.0M oz of silver equivalent for 2012. Actual gold and silver production for the quarter amounted to 4.942M oz of silver and 41.53k oz of gold. Hochschild received $1,728.55/oz for gold sold and $34.13/oz for silver sold.

The Company remains on track to achieve the 20M oz of silver equivalent this year. The exploration at the existing mines continues to look good, especially at Areata and Inmaculada. At Areata we expect to see an increase in tonnes and grade when the ore reserves are next updated.

Cash on hand at the end of the period was approximately $477M, which was significantly below our estimate due to investment in advanced projects and debt repayments.

In the short term it is difficult to see what is going to drive the share price higher. Production is very steady and we have no doubts that guidance will be met, however we believe that we will have to wait until around March before we see the results of the 2012 exploration spend in terms of additional mine life and possibly better returns on Crespo. It is not until very late 2013 that production at Inmaculada kicks in and the growth story does not really begin until 2014. With the short term thinking of most funds today, we believe that this is beyond their time horizons.