With gold prices hitting new heights in recent weeks you’d think shares in gold miners would be soaring. But rising production costs have capped the perceived advantage for Hochschild Mining (HOC).

Shares in the FTSE 250 gold and silver miner have dropped 3% to 215p after it reported a 13.2% fall in revenue to $354.5m and a slight dip in adjusted EBITDA to $153.7m in the six months to 30 June.


The results were in line with expectations, but Shore Capital analyst Yuen Low said the figures were ‘largely disappointing’, given the miner’s production figures.

In the period, Hochschild reported the second highest ever level of production in its history, producing 245,325 of gold and 19.9m ounces of silver, but evidently wasn’t able to fully take advantage in terms of revenue and profit.

Offsetting the rise in production was an increase in Hochschild’s all-in sustaining costs, which rose to $921 per ounce of gold compared to $909 per ounce in the same period last year, and $11.4 per silver ounce, up from $11.2 the previous year.


However, from Shore Capital’s point of view, Low said most ‘important of all’ from Hochschild’s results was that net operational cash generation of $100.5m ‘handily covered’ investing and financing costs, leading to a rise in the company’s cash balance, as well as a reduction in net debt.

Given the cyclical nature of mining, being in a strong financial position and having cash in the bank is always important for miners so they can survive the inevitable downturn when commodity prices go down and still be around on the upturn to capitalise when prices go up.


Hochschild also reiterated its full year production guidance of 457,000 ounces of gold at a cost of $960-1000 per ounce, and 37m ounces of silver at a cost of $11.8-12.3 per ounce.

The firm noted that from mid-June, the gold price began to ‘rise significantly on the back of global uncertainty and a fall in the US dollar’, and that silver also rose in July, making it hopeful of strong cash flow generation in the second half of the year if prices hold up.

It also declared an interim dividend of two cents per share which the firm said reflects its ‘ongoing successful strategic and operational performance’.

Find out how to deal online from £1.50 in a SIPP, ISA or Dealing account.

Issue Date: 14 Aug 2019