UK Edition
Hochschild Mining goes on the hunt for gold with M&A on the agenda
Hochschild Mining is to ramp up its hunt for gold as it steps up spending on exploration in three different countries and signals its renewed interest in acquisitions.
The FTSE 250 gold and silver miner, based in Peru, will allocate $10m (£7.2m) to “greenfields” development - that is, virgin mine sites - this year, its highest level since 2013. It will pursue four to six “attractive” targets in Peru, Chile and the US.
Ignacio Bustamante, chief executive, said the company had “reshuffled its portfolio to make it leaner and more attractive”. “Between 2013 and 2017 we stopped drilling, but that didn’t mean we stopped doing work in greenfield. We dropped projects we didn’t like and added the ones we liked,” he said.
Hochschild is also excited about “brownfields” expansion at its existing mines, particularly Inmaculada in Peru. It will nearly double its spending on brownfields work to $17m.
Mr Bustamante said the company had been further bolstered by paying off one-third of the $300m it had outstanding in bonds, and refinancing the rest so it pays a much reduced interest rate.
This would help give Hochschild the firepower to pursue mergers and acquisitions, he added, with the company reviewing three to five projects at a time.
“The most important part is focusing on forming associations with junior companies that have already developed a resource but do not necessarily have the experience of putting them into production,” Mr Bustamante said, adding that Hochschild would need be the majority owner and operator of any asset it buys.
The mining group is 54pc owned by the Hochschild family of Peru, which founded the business in 1911. It beat City forecasts in the year to Dec 31, reporting earnings before interest, tax, depreciation and amortisation of $300m, and raised its final dividend 42pc to 1.97 US cents a share.
However shares fell 4.7pc in morning trade to 209p after its pre-tax profits slumped 69pc to $64.1m. The company blamed the drop on the increased investment in exploration, higher costs, and the expiration of some tax breaks in Argentina.
Revenue was up 4.7pc to $722.6m during 2017 and its beat its own forecasts to produce a record 513,000 ounces of gold and silver during the year.