Hochschild Mining PLC

Hochschild Mining PLC (LON: HOC) is an FTSE 250 index listed Mining Company, which focuses on gold and silver deposits.

HOC will pay an interim dividend of 1.95 US cents per share on 28 September 2021, while the ex-dividend date was 09 September 2021.

Investment Rationale for Valuation – Speculative Buy at GBX 139.60

• HOC had witnessed a favourable turnaround from reporting net loss during H1 FY20 to delivering net profit for H1 FY21.
• The top-line revenue had demonstrated solid growth, while the net cash position witnessed a tremendous improvement during H1 FY21.
• From a technical standpoint, HOC is hovering around the lower Bollinger band, indicating an upside potential in the stock price.
• Moreover, the 14-days RSI of ~35.48 supports an upside momentum in the stock price.

Key Risks

• The Gold market is cyclical and sensitive to economic changes and numerous factors, which are beyond the Company’s control.
• Furthermore, the business needs to adhere to the stringent environmental and compliance guidance, failure to adhere to those policies can have an adverse impact on output and cause legal actions as well.
  

H1 FY21 Financial & Operational Highlights (for six months ended 30 June 2021, as of 18 August 2021)

(Source: LSE Website)

• The top-line revenue grew by 70% from USD 232.0 million during H1 FY20 to USD 394.75 million during H1 FY21.
• With regards to the balance sheet, HOC had shown significant improvement in net cash position from USD 21.60 million as of 31 December 2020 to USD 51.10 million as of 30 June 2021.
• On the production front, the gold production witnessed a year-on-year rise of around 34%, and the silver production had shown a year-on-year increase of about 44% during H1 FY21.

One Year Share Price Chart

(Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company seems well-equipped to reach FY21 production targets ranging from 360,000 to 372,000 gold equivalent ounces, equivalent to 31-32 million silver equivalent ounces. Furthermore, the all-in sustaining costs would be ranging from USD 1,210 to USD 1,250 per gold equivalent ounce for FY21. The stock made a 52-week low and high of GBX 138.80 and GBX 275.88, respectively.

Based on the robust top-line revenue and bottom-line profitability during H1 FY21 and valuation as done using the above method, we have given a “Speculative Buy” recommendation on Hochschild Mining PLC at the closing market price of GBX 139.60 (as of 20 September 2021), with lower-double digit upside potential based on 11.38x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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