18th Jan 2017 12:01
LONDON (Alliance News) - Hochschild Mining PLC on Wednesday said it beat its production target in 2016 to hit a new record level of output, helped by outperformance from the Inmaculada mine in Peru, as the company said growth should continue this year.
Hochschild shares were trading 1.0% higher on Wednesday at 235.10 pence per share.
The gold and silver miner operating in Peru and Argentina said the Inmaculada mine performed better than expected during its first full year of operation, producing 16.9 million silver equivalent ounces, or 229,000 ounces of gold equivalent.
That was more than double the contribution from Inmaculada in 2015, when it produced 8.3 million silver equivalent ounces, or 112,410 ounces of gold equivalent.
Average silver grades edged slightly higher to 133 grammes per tonne from 115 grammes, but the gold grade dipped to 4.21 grammes from 4.36 grammes. Tonnage was considerably higher in 2016, treating 1.3 million tonnes of ore compared to only 659,737 tonnes in 2015.
Inmaculada helped to push overall production in 2016 to 35.5 million silver equivalent ounces, nearly one-third higher than the 27 million ounces produced in 2015. On a gold equivalent basis, production rose year-on-year to 479,600 ounces from 365,400 ounces.
In 2017, Hochschild is aiming to lift production further to 37 million silver equivalent ounces, or 500,000 gold equivalent ounces. Previously, the miner said it was targeting annual production of just 35 million silver equivalent ounces. If the new guidance is delivered, production in 2017 will rise by around 4.2% year-on-year.
All-in sustaining cash costs in 2016 averaged between USD11.00 and USD11.50 per silver equivalent ounce, but Hochschild is expecting that to rise to a range of USD12.20 to USD12.70 per ounce in 2017 due to increased brownfield exploration investment and expected spending on the Pablo vein.
For comparison, the average silver price over the course of 2016 was USD15 an ounce, flat from prices in 2015. Gold prices averaged USD1,139 per ounce, slightly higher than the average price of USD1,116 per ounce in 2015. On Wednesday, spot gold was trading higher at USD1,212 per ounce.
However, once commercial discounts and hedging is removed, Hochschild said the average silver price in 2016 was USD17.10 per ounce whilst gold traded at UD1,216 per ounce.
Excluding the planned exploration at existing sites and the one-off investment to be made into the Pablo vein, costs in 2017 will be USD11.50 to USD12.00 per ounce.
Inmaculada will have a lower cost per ounce this year of USD9.00 to USD9.50 per ounce, Hochschild said.
Inmaculada is expected to be the lowest cost producer in 2017 out of Hochschild's four producing mines. The Arcata mine, also in Peru, will have the highest operating costs of USD14.50 to USD15 per silver equivalent ounce.
Inmaculada will also be the largest contributor to group production this year. Hochschild said 17 million of the overall 37 million ounces expected this year will come from the mine. Aracata will contribute 7 million silver equivalent ounces, Pallancata 6 million ounces and San Jose will contribute about 7 million ounces.
That suggests there will be no annual growth in output from Inmaculada this year. A big portion of the expected growth is likely to come from Pallancata, which is not currently producing following a halt in output back in November.
Pallancata is in Peru as well, while San Jose is in Argentina.
Members of the local community blocked access to Pallancata in protest as they demanded renegotiation of the existing land easements - the agreements that allow the local population to benefit from operations - and discussions are still ongoing to find a resolution.
Pallancata produced 3.5 million silver equivalent ounces in 2016, or 47,780 ounces of gold equivalent. In the previous year, the mine produced 4.9 million silver equivalent ounces, or 65,940 ounces of gold equivalent.
Pallancata enjoyed soaring grades to allow a much lower level of throughput, but that also fell due to the closure. Gold grades rose to 1.86 grammes per tonne from just 1.28 grammes, while silver grades leapt to 381 grammes from 259 grammes. As a result, only 244,765 tonnes had to be treated in 2016 rather than the 522,431 tonnes processed last year.
Hochschild's guidance for Pallancata means output in 2017 is expected to almost double, implying Hochschild believes the operation can be back up and running early on this year. Prior to the suspension, Pallancata was transitioning toward commercial production of the Pablo vein, where a further one-off investment will be made in 2017.
Arcata produced 8 million silver equivalent ounces, or 108,260 ounces of gold equivalent in 2016, rising from 6.8 million silver equivalent ounces and 91,520 ounces of gold equivalent produced in 2015.
The mine enjoyed its best operational performance since 2010, Hochschild said, with gold grades rising to 1.24 grammes per tonne from 0.99 grammes last year and with silver grades increasing to 337 grammes from 323 grammes. Throughput was also a touch higher at 677,309 tonnes versus 648,051 tonnes in 2015.
Guidance for Arcata in 2017 implies a drop in annual output of around 13%.
The San Jose mine reported a small dip in annual production in 2016 to 13.7 million silver equivalent ounces from 13.9 million ounces. On a gold equivalent basis, output declined to 185,420 ounces from 187,250 ounces.
Throughput of ore was a little higher year-on-year at 536,024 tonnes from 532,488 tonnes. Silver grades dipped to an average of 444 grammes per tonne from 448 grammes while gold grades were lower at 6.28 grammes compared to 6.36 grammes a year ago.
Guidance this year implies production from San Jose will fall significantly in 2017, by around 49%.
The miner said total sustaining and development spend in 2017 will be USD120 million to USD130 million, including USD20 million for work on the Pablo vein and the surrounding infrastructure.
Around USD45 million to USD50 million will be spent on Inmaculada this year, USD20 million on Arcata, USD20 million to USD25 million on Pallancata and USD35 million will be spent on San Jose.
Work on the Pablo vein started in the final quarter of 2016, and results will be published alongside the company's full-year results sometime in March. Further results from drilling the Cerro Colorado hill at San Jose are expected shortly, alongside data from drilling at the extension of Tunel 4, Macarena and Roxana veins at the Arcata mine.
Hochschild said it ended 2016 with net debt of USD183 million, reducing significantly from the USD366 million pile at the end of 2015. Cash stood at USD140 million, rising from USD84 million. Net debt currently stands about 0.55 times higher than Hochschild's "long-term" earnings before interest, tax, depreciation and amortisation.
By Joshua Warner; [email protected]; @JoshAlliance
Copyright 2017 Alliance News Limited. All Rights Reserved.
Related Shares:
Hochschild