- Silver and gold prices remain firm
- Oil prices, a key input cost for miners, remain weak
- Hochschild Mining still unable to fully capitalise thanks to problems at Brazilian gold mine
- Miner cuts output and raises production cost forecasts for its gold operations in 2025
“In theory, the outlook is bright for precious metal miners, thanks to lofty gold and silver prices, how a depressed oil price should be limiting input cost growth and dollar weakness, which is traditionally seen as helpful to metal demand – and yet Hochschild Mining is still making a mess of it,” says AJ Bell investment director Russ Mould.
“Further difficulties at the Mara Rosa open pit mine in Brazil mean that gold output will miss expectations and production costs exceed them for the second year in a row and the share price fall shows exactly how investors feel about the latest setback.
“Silver stands at almost $40 an ounce, its highest level since 2011, and gold is trading just below this year’s new all-time peaks north of $3,400 an ounce.
Source: LSEG Refinitiv data
“Hochschild Mining’s shares, however, languish at less than half of the zenith reached in 2011.
Source: LSEG Refinitiv data
“All seems to be going to plan at the Immaculada mine in Peru and the San Jose site in Argentina, both of which produce silver and gold. The problems all seem to lie at the Mara Rosa gold mine in Brazil, 350 kilometres north of Brasilia, acquired in 2022. First gold was poured there in early 2024 and commercial production levels were reached in spring, only for issues with a mining contractor and faulty mechanical filters to take the shine off proceedings.
“Mara Rosa managed output of 63,770 gold equivalent ounces in 2024, below targets of 83,000 to 93,000, and did so at an all-in sustained cost of $1,408 per ounce, way above Hochschild’s initial expectations of between $1,090 and $1,120.
“Hochschild has inserted a new management team at Mara Rosa, but they clearly have had their work cut out.
“In 2025, Mara Rosa is now expected to undershoot output and exceed cost estimates for the second year in a row.
“Management has slashed production forecasts to between 35,000 and 45,000 ounces of gold, down from hopes for 94,000 to 104,000.
“As a result of the reduced output, cost per ounce will soar, both at Mara Rosa and across Hochschild as a whole.
“For the whole group, management had budgeted for an all-in sustained cost of production of $1,587 to $1,687 per gold equivalent ounce, or $19.1 to $20.3 per silver equivalent ounce.
“Now, however, management expects $1,980 to $2,080 per gold equivalent ounce, or $22.5 to $23.6 per silver equivalent ounce, applying the current gold/silver price ratio of some 88 times.
Source: Company accounts, management guidance for 2025E
“Investors now have to decide for themselves whether Hochschild can turn around Mara Rosa and capitalise more effectively upon the prevailing silver and gold prices (and any retreat in those would be a further complication).
“Even after the share price tumble of 2025, Hochschild does not look especially cheap on the basis of price to book, or net asset, value per share, a metric often used instead of earnings, owing to the profit volatility that tends to characterise mining companies. It looks cheaper than Fresnillo, another London-listed miner, but is not in the bargain basement category when compared to other major silver miners around the world.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts
Source: Company accounts, Marketscreener, consensus analysts’ forecasts
“The additional slant toward gold output represented by Mara Rosa is one explanation for this, but then Hochschild needs to prove it can run that asset properly and generate maximum value from it, across the current expected initial 10-year mine life.”
