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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This is an excellent stock in my opinion also benefitting from being fully ISA/Pepable. I expect to see substantial moves higher and it is highly profitable.

The Independent


The mining sector has been on fire since 2004. But there are some pockets of value left and given global political tension, the precious metals end of the market is particularly attractive. Hochschild Mining is a low-cost producer because it follows seams of silver, rather than proving reserves before starting. The shares trade on 10 times forecast 2009 earnings so investors with a healthy appetite for risk should, within reason, ignore the lack of liquidity. Buy

Also think this has been tipped in the Momentum Investor recently, if anyone can confirm?

Bucking the trend with another 5% rise so far today. Anyone else in on this?

Rising nicely in the turbulence. Details of Q3 results from their website below:-

http://www.hochschildmining.com/press/HOC_Production_Report_Q307_Final.pdf

unquestionably a stunning performance in a grim market .... and it's a decent sized company too!

Well I'm glad you had a look Cynic! Very profitable and running low cost mines. I have this one nicely wrapped away in the ISA, hopefully as a long term hold. It reminds me of POG a few years ago and therefore I find the potential here quite exciting. Cash generative too.

certainly one worth watching, though arguably only about 50p upside before it runs into quite heavy resistance at all-time high point.

though HOC is heavily silver biased and POG is gold, the latter may have further to run in the immediate future, as it has been hit quite hard and without cause in the latest shambles

Drilling taking place in Azuca in Peru, Gonzalito and Claudia in Argentina. An update is expected by year end.

Another very good start to the day here.

Back to start testing the highs probably today at this rate. I suspect mining updates and possible further acquisitions are not too far away.

Citigroup have buy rec out today, target 535p

will be interesting to see what happens next

It will, 535p target is hardly sticking your neck out, the way this moves around. I've read about some dramatic profit increases in the next couple of years. It would be nice to pick up a good 5 year stock to hold, with the characteristics of RIO, POG...I'm overdue one!! And I don't mean something like Sola that's up 400% and gives us a rocky ride.

don't knock SOLA .... i think it must be the only stock where i have consistently made money either on long or short tack ...... and you think POG isn't a roller coaster? ..... look at their chart!

That's so true, likewise!

New closing highs today. With gold and silver up over 2.3% right now and a nice inverted head and shoulders pattern, we could look to see a break over 500p next week.

closing all-time high looks to have been 504 on 7/11/07

Take it back you're quite right.

Strong gold today so looks good for a break here today. Not yet got much of a following but I think that will change gradually.