After initially halving in value, shares in precious metals miner Hochschild Mining (HOC) were down 39% to 100.4p on a threat to close two of its flagship mines in Peru.
Historically, miners have been at the mercy of so-called ‘resource nationalism’ where governments look to take a greater share of the resources in their respective countries.
However, a recently-elected, left-leaning Peruvian administration wants to shut down production entirely on environmental grounds.
This news has implications beyond just Hochschild as Peru is a major global producer of gold, silver, zinc and tin.
Over the weekend Peruvian prime minister Mirtha Vasquez said four mines in the Ayacucho region, two of which are flagship mines for Hochschild, would be ‘closed as soon as possible’.
WHAT OPERATIONS ARE AFFECTED
The two mines affected are Pallacanta and Immaculada - which in 2020 accounted for nearly 80% of the group’s total production of gold and silver (Hochschild also operates the San Jose mine in Argentina). Investment bank Berenberg characterises the company’s assets as follows: ‘The Pallancata mine is mature and higher cost with a short mine life, while both Inmaculada and San Jose have reported good exploration results.
The company has pledged to ‘vigorously defend its position’ using all legal avenues and pointed to its high environmental standards. Hochschild has also pointed to the fact it employs 5,000 people in Peru with its mines apparently supporting 40,000 jobs.
Bank of America noted that Hochschild’s Peruvian mines account for 70% of the company’s cash flow and represent three quarters of its estimated value for the company.
It added: ‘No information suggests that the government will close other mines but we cannot rule out it will go after large(r) mines. Other companies with exposure to Peru: Southern Copper, Glencore (GLEN), Anglo American (AAL) (inter alia). We also note that Peru is one of the world’s larger producers of copper (c. 11% of global output).’
