November 08, 2006
Hochschild Gives A South American Boost To Londons Mining Sector


Quite a feather in Londons cap to have Hochschild Mining taking a full listing. At first glance Toronto or New York might have seemed a more logical destination, but the Sabanes-Oxley Act has meant that compliance requirements in North America have reached stratospheric levels and London looked more attractive, though a full listing on the LSE is certainly no walkover. Geographically, also, it has advantages as both JP Morgan Cazenove and Goldman Sachs International, the joint sponsors, joint global co-ordinators and joint bookrunners for the IPO are both based in London, as are Canaccord Adams the co-lead manager and Nomura International, the co-manager. The shares were placed at 350 p each to raise around 270 million from institutional investors in the UK, Europe, the US and Canada. On this basis its market capitalisation is just over 1 billion which takes it straight to 99th position in the FTSE 250 Index and makes it worthy of consideration by all types of investors.

The history of this Peruvian mining company is fascinating as it comprises the mining operations of the Hochschild Group which was founded in Chile in 1911 by Mauricio Hochschild. After World War 1 it expanded into Bolivia where the target was tin and it did not start its Peruvian operations until 1925. Even then it stuck to metal trading and beneficiation until the 1940s and during the 2nd World War the Group was a key supplier of tin and other metals to the allied forces. The next major advance came in the 1960s when the Arcata mine was developed in Peru and it is still in production today. Over the next ten years or so more mines were opened in Brazil, Peru and Chile such as the well known Mantos Blancos copper mine in Chile.

It is here that the history gets a bit complicated as in November 1984 Anglo American bought the South African mining operations of Hochschild Group and immediately sold the Peruvian operations to Luis Hochschild who is clearly a descendant of the founder, though the exact relationship is not clear. Anyway it is his son Eduardo who is now executive chairman of the company, having started as a safety assistant at Arcata in 1987 and working his way up to be boss of the company 12 years later. At the executive level he is supported by Roberto Danino as deputy chairman and Alberto Beeck which is director of strategy and corporate development.

The operations sold back to Luis became the basis of Hochschild Mining which then launched an aggressive expansion campaign in Peru as well as in Mexico, Argentina and Chile. In order to spread the financial risk joint ventures were agreed with other local and overseas mining partners to develop the San Jose, Pallacanta, Mina Moris and San Felipe projects. Hochschild Mining is now the fourth largest silver producer in the world with an output of around 10.5 million ounces plus just under 250,000 ounces of gold in 2005. In that year its cash costs of production amounted to US$2.65/oz for silver and US$169/oz for gold which puts it in the first quartile of the 2005 global cost curve for both metals.

Its specialisation is in epithermal vein deposits and it currently has three underground mines Arcata, Ares and Salene - in production in southern Peru. Next up are two advanced and two early stage development projects in Argentina, Mexico and Peru and then a swathe of prospects at various stages. The overall strategy is to bring a sequence of these projects into production and the aim is to push towards annual production of 50 million silver equivalent ounces, or 830,000 gold equivalent ounces if preferred, by 2011. This is quite an uplift from the 2005 figures, but Hochschild is not the sort of company which would risk undershooting a declared target, so it may err on the conservative side.





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Yes had seen that thanks. It does move sharply up and down but think they'll be adding some nice niche acquisitions in due course. Both silver and gold had a further turnaround yesterday. Greater volatility to come in the next 3 weeks too.

charts are a bit iffy for HOC anyway because it is so illiquid and thus volatile ..... good to see POG doing its bit at last, albeit without much impetus

Yes very illiquid. HOC's investment in Exmin is more a gold play in Mexico so indirectly starts to be bit more of a gold play (though still silver is the main business).

Silver showing bullish gains this afternoon and the graph looks positive to retest highs. Not yet influencing the share price!

Now we appear to be off. Dollar getting sold strongly. Gold and silver rising sharply. Equities to gain strongly on the Dow open I suspect

Nice gains coming through today with silver and gold continuing their run higher.

Would be good to see gradual rise to nearer 500p for nice inverted head and shoulders. HOC sitting on a lot of cash so I expect further silver/gold acquisitions to come.

Would be good to see gradual rise to nearer 500p for nice inverted head and shoulders. HOC sitting on a lot of cash so I expect further silver/gold acquisitions to come.

Disappointing outlook for Ares/Selene in 2008. That said they are sitting on substantial cash so hopefully the future strategy remains intact.

horrid .... may well get out

I wanted to hold for medium term; looks like I'll have to! I wonder now to what extent it's overdone only for the big boys to make some quick bucks on a correction.

Some info:

"It looks like they are attempting to curb some of the more bullish market earnings forecasts" Damien Hackett, an analyst at Canaccord Adams Ltd in London, said today by telephone. "The reaction seems a bit excessive as we were already looking for higher depreciation charges."

The company's 2008 net income will be $150m according to mediun of 4 estimates compiled by Bloomberg. That's 69% higher than the $93m profit forecast for 2007.

Goldman have come out today with price target of 425p - neutral/attractive.

well i have dumped mine ..... it was HOC who came out with the profit warning and no one else ..... experience shows that bad news follows bad news ..... sounds like an attempt at damage limitation for their clients by Canaccord and Goldman

Maybe.

Luckily not in this one, but could have been, hope you guys live to fight another day, see you on other threads.

I've been out a couple of weeks, but see we continue to head back from early Jan falls. The Lake Shore gold alliance also looks very encouraging for the business.

Very robust rise in silver taking us over $19. That should underpin the share price here now.

On our way back to 500p highs now I'd have thought.

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Poor management, increasing production at the wrong time would only sees its shares go down further. SELL at 135p.