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DAILY NEWS Apr 15, 2014 4:27 PM - 0 comments

Impressive production from Hochschild

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Hochschild Mining (LON: HOC) is dealing with weaker commodity prices the old fashion way: offset lower sales prices with more production.

The company reported first quarter results that showed 4.3 million oz. of silver production, and that total was enough to beat BMO Capital Market’s analyst Andrew Kaip’s estimate by 9%, as he was expecting to see 4.1 million oz.

The beat came on the back of strong results from the company’s Arcata mine in Peru, as higher grades and higher recoveries helped offset the lower sales price for its silver and gold.

Overall silver equivalent production was up 26% year-over-year to 5.9 million oz. compared to the 4.7 million it produced in the first quarter of last year. Arcata was responsible for 1.9 million of the total, which was a 36% improvement over last year’s first quarter results.

Also helping the cause was its San Jose mine in Argentina which saw an uptick in production due to increased throughput capacity. Production from its Pallancata mine in Peru came in at roughly the same amount as last year.

The solid state of its key assets let the company reaffirm its guidance of 21 million oz. of silver equivalent production for the full year.

And the good news wasn’t limited to silver. Hochschild also trumped Kaip’s forecast on the gold side, as well, this time by 25% as it managed to turn out 27,500 oz. of gold against the 22,300 Kaip had expected to see. The extra yellow metal came not only out of the strong results from Arcata but also its Ares mine, which is also in Peru.

Those growing production totals are especially important in a softer commodity price environment. For all of last year the company said its average realized silver price was US$22.12 per oz and its average realized gold price was US$1,338 per oz. Those numbers don’t stand up well against 2012’s numbers, when it received an average of US$31.62 per oz. for its silver and US$1,684 per oz. for its gold.

Despite weaker prices Hochschild is pushing hard on the development of its Inmaculada project in Peru, as it said both the camp and access roads are now finished.

Mill construction at the site got underway in March and 2.3-km of underground development was done during the first quarter. The company is on track to get Inmaculada commissioned in the latter part of this year.

On top of the strong production and development news, Hochschild also flaunted a strong balance sheet at the end of the quarter with $274 million in cash against just $11 million of short-term borrowings, although that figure doesn’t include the US$114.9 million in convertible bonds that come due in the fourth quarter of this year.

Kaip has Hochschild rated as ‘outperform’ with a £2.50 target price. In London on April 15 the company’s stock was off 6% to £1.69 on a day when both gold and silver prices took a hit.

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