- Precious metal miner’s shares slip from February’s all-time high
- All-in sustained cost of production continues to exceed estimates
- Rising gold and silver prices more than compensate, at least for now
- Shares not as cheap as they were on a net asset value basis
“If the soaraway silver price has been a pleasant surprise for leading producer Hochschild Mining, the company’s rising cost base and disappointing output have not, but for the moment rising prices are digging the Peruvian company out of trouble,” says AJ Bell investment director Russ Mould.
“The share price hit a new all-time high in February, but the combination of a lower silver price and a reaffirmation of guidance for further cost increases, and only modestly higher output in 2026, is taking a little of the shine off the stock, while shareholders may yet have to contend with the potential impact of higher oil prices, too.
Source: LSEG Refinitiv data
“One year ago, management predicted gold equivalent output of between 350,000 and 378,000 ounces, with an All-In Sustained Cost (AISC) of production between $1,587 and $1,687, across the firm’s gold and silver mines.
“Wind on twelve months and the actual outcomes were output of 311,509 gold equivalent ounces and an AISC of $2,138, marginally above the level targeted at the time of last August’s profit warning, delivered alongside the first-half results.
“The price of silver and gold really did save the profit and loss account.
Source: Company accounts
“Would-be investors could therefore be forgiven for approaching Hochschild’s guidance for 2026 with a degree of caution.
“Management is targeting output between 300,000 and 328,000 gold equivalent ounces, with an AISC between $2,157 and $2,320.
“At the mid-point that implies a 1% increase in output and a 5% increase in AISC, while at the top of the range the forecasts suggest a 5% advance in production and a 9% jump in costs.
Source: Company accounts, mid-points of management guidance for 2026E
“The good news is that the silver price is currently $88 an ounce, even after its sharp retreat from January’s highs near $120, compared to just $33 an ounce at this time a year ago. That will more than compensate for the expected increase in AISC at Hochschild Mining and support a big jump in profits and the dividend in 2026.
Source: LSEG Refinitiv data
“Ultimately, therefore, the direction of the silver and gold prices is likely to be a bigger driver than near-term company fundamentals, although Hochschild would be able to maximise the benefit of near-record-high metal prices if it can get the Mara Rosa gold mine to live up to expectations.
“All seems to be going to plan at the Immaculada mine in Peru and the 51%-owned San Jose site in Argentina, both of which produce silver and gold, and it is Mara Rosa which continues to let the side down.
“The site, 350 kilometres north of Brasilia, was acquired in 2022. Hochschild Mining first poured gold there in early 2024 and commercial production levels were reached that 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.
“Last year was a disaster, as the AISC surged to $3,697 and production fell to 40,000 ounces. The good news is production improved in the fourth quarter of 2025 compared to the third, and management has outlined plans for a further increase in 2026, with the concomitant benefits for output costs.
Source: Company accounts. *Mid-point of management guidance for 2026E
“Improved performance at Mara Rosa, even with stable gold and silver prices from here, would boost profits considerably and thus retained earnings.
“That should, in turn, boost shareholders’ funds and thus tangible net asset, or book, value per share.
“Hochschild does not look especially cheap on the metric of price-to-book value, which is often used instead of earnings, owing to the profit volatility that tends to characterise mining companies.
“The stock comes on a similar multiple to that of Fresnillo, another London-listed silver and gold miner, but neither sits in the bargain basement category when compared to other major silver miners around the world, although if the silver price stays where it is then profits are likely to rocket and drag net asset value higher over time.”
Source: Company accounts, Marketscreener, consensus analysts’ forecasts
Source: Company accounts, Marketscreener, consensus analysts’ forecasts
