BMO cuts Hochschild Mining target on cost concerns

On Thursday, BMO Capital Markets revised its price target for Hochschild Mining Plc (LSE:HOC) (OTC:HCHDF), reducing it to £2.50 from the previous £3.00, while maintaining an Outperform rating on the stock. The adjustment follows the company's disclosure of higher-than-anticipated operating expenses projected for 2024 and 2025. The stock, which has seen a sharp 13.66% decline over the past week, currently maintains a market capitalization of $1.17 billion. According to InvestingPro analysis, the company's shares appear to be trading below their Fair Value, suggesting potential upside despite recent challenges.

Kevin O'Halloran, an analyst at BMO, noted that Hochschild's fourth-quarter production and its 2025 production outlook aligned with expectations. However, the miner indicated that its operating costs for the next two years would exceed initial estimates. The new cost guidance for 2024 represents a 5-10% increase above prior forecasts, and the all-in sustaining cost (AISC) for 2025 is set at $1,587-$1,687 per ounce, significantly higher than BMO's estimate of $1,444 per ounce and the company's earlier projection of $1,300-$1,400 per ounce. Despite these cost pressures, InvestingPro data shows the company achieved a solid revenue growth of 9.91% in the last twelve months, with analysts forecasting continued sales growth this year.

The elevated costs have been attributed to a range of factors including inflationary pressures, currency fluctuations in Argentina, operational delays at the Mara Rosa project, and increased sustaining capital expenditures at the Inmaculada mine.

In response to these developments, BMO has updated its cost projections across Hochschild's portfolio. The revised price target reflects the anticipated impact of these higher costs on the company's financial performance.

Hochschild Mining, which operates precious metal mines in the Americas, has not publicly responded to the revised price target at the time of this report. The company's shares will continue to be monitored by investors as they assess the implications of the increased cost guidance on future profitability and operations. With an EBITDA of $304.63 million in the last twelve months and positive earnings expectations, InvestingPro has identified 8 additional key investment factors for this stock. Subscribers can access the comprehensive Pro Research Report, which provides detailed analysis of the company's financial health and growth prospects among 1,400+ top stocks.

In other recent news, Hochschild Mining Plc experienced a revision in stance from RBC Capital Markets due to inflation and capital expenditure concerns. RBC downgraded the stock from Outperform to Sector Perform and reduced its price target from GBP3.00 to GBP2.60. Despite these adjustments, Hochschild Mining's year-end financial performance met expectations, and the company exhibited strong revenue growth of 9.91% over the last twelve months.

Simultaneously, the mining company reported its strongest quarterly production in nearly five years. Hochschild produced 96,327 gold equivalent ounces and 8.0 million silver equivalent ounces in the third quarter, marking a 16% increase over the previous quarter. The company also maintained its full-year production guidance for 2024, projecting 343,000-360,000 gold equivalent ounces.

RBC Capital's Marina Calero indicated that while the mining company's valuation remains discounted and the forecast for free cash flow in 2025 is positive, recent guidance downgrades and the stock's significant one-year return have prompted a more conservative outlook. Despite economic pressures, particularly inflation, impacting operational costs and capital expenditure forecasts, RBC Capital maintains that Hochschild Mining's investment case still holds merit, largely due to the anticipated free cash flow inflection point in the fiscal year 2025.

Hochschild also highlighted its commitment to environmental, social, and governance standards, reporting metrics such as a Lost Time Injury Frequency Rate of 1.03 and a Water Consumption rate of 137 liters per person per day. These recent developments continue to shape the financial narrative of Hochschild Mining in the investment sphere.

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