- Precious metal miner’s shares move back toward February’s all-time high
- All-in sustained cost (AISC) of production continues to exceed estimates
- Rising gold and silver prices more than compensate, at least for now
“One of the hardest things for analysts to model when it comes to company profit forecasts is operational gearing – or in plain English, the degree to which earnings change in relation to a 1% change in sales – and silver and gold miner Hochschild Mining’s first-half results release is a classic case in point,” says AJ Bell investment director Russ Mould.
“The combination of a drop in output volumes and sharp increases in the all-in sustained cost (AISC) of production could lead to disaster, but soaring silver and gold prices mean that an 8% drop in production still translated into a 62% jump in sales and a 235% surge in pre-tax income during the first six months of this year.
“Hochschild’s balance sheet shows $1.3 billion in fixed assets, such as its mines and production equipment, and the cash flow statement reveals a first-half depreciation charge of $86 million, or 10% of interim sales. Both figures show the degree of fixed costs in the business, so even small changes in prices or volumes will make a huge difference to profits.
Source: Company accounts, Marketscreener, analysts’ consensus forecasts
“The bad news is that the all-in sustained cost of production continues to rise sharply. The Peruvian miner began 2026 with a forecast that the gold equivalent AISC would increase by around 5% this year, on top of 2025’s 37% surge, to a mid-point of some $2,239 an ounce. Now management believes this figure will come within a range of $2,380 to $2,500, for a mid-point of $2,440.
“The increase reflects higher pay and bonuses for staff, higher royalty payments, currency movements and inflation in Argentina, while higher oil prices will be a hindrance as well, given how energy-intensive mines are. The ongoing turnaround programme at the Brazilian Mara Rosa mine will also be a factor, as Hochschild fights to get volume growth back on track at the site.
“The better news is that management is sticking to forecasts of gold equivalent production of between 300,000 and 328,000 ounces. At the mid-point, that implies growth of just 1% compared to 2025. This is nothing flashy, but it does at least imply 10% year-on-year growth in the second half of 2026, as Mara Rosa starts to hit its stride.
Source: Company accounts, mid-points of management guidance for 2026E
“That volume growth, if it is delivered, will help to both compensate for the higher costs and capitalise upon strong precious metal prices.
“Even after the pullback witnessed in the first half of this year, gold and silver spot prices are still up by 35% and 78% respectively over the past 12 months, in dollar terms.
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.
“The site, 350 kilometres north of Brasilia, was acquired in 2022. Hochschild Mining poured first 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. As a result, 2025 was a torrid year, as production fell and costs surged.
“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 silver and gold prices even just stay where they are, then profits are likely to grow rapidly and drag net asset value higher over time.”
Source: Company accounts, Marketscreener, consensus analysts’ forecasts
Source: Company accounts, Marketscreener, consensus analysts’ forecasts
