18th Mar 2015 09:00
LONDON (Alliance News) - Hochschild Mining PLC Wednesday reported a steep drop in revenue in 2014, hit by a further drop in gold and silver prices, but its net loss narrowed sharply as the huge writedowns made in the previous year weren't repeated to the same extent.
The precious metals miner, which has already said production will increase in 2015 as it brings the Inmaculada project in Peru online in the second half of the year, reported a net loss of USD68.9 million for 2014, compared with the USD123.1 million loss it reported in 2013, after the previous year's result was hit by USD90.7 million in impairments and writeoffs booked mainly as a result of falling precious metals prices.
Still, revenue fell to USD493.0 million, from USD622.2 million, as production of both gold and silver fell and prices also continued to fall. Its closely-watched adjusted earnings before interest, tax, depreciation and amortisation, which strips out exceptional items, net finance costs and exploration expenses, dropped by a third to USD135.6 million, from USD201.0 million.
"Financial results for 2014 reflected the effect of a near 15% fall in the average price achieved of silver despite some relief provided by the hedges taken out during the year," it said.
The miner's outlook is based on bringing the Inmaculada project into production. It said the overall project is now 90% complete and it has almost 200,000 tonnes of development mineral ready for processing. The production target for the mine in 2015 is 6 million to 7 million silver equivalent ounces.
Hochschild had already set a total production target of 24.0 million silver equivalent ounces for 2015, up from 22.2 million in 2014 when it exceeded its 21.0 million ounce target.
Its main operation all-in sustaining costs per silver equivalent ounce fell by 6% to USD17.4 in 2014, better than the reduction of up to 5% that it had guided for, as it optimised its existing operations in Peru and cut headcount. It is forecasting an all-in sustaining cost of between USD15 and USD16 per silver equivalent ounce in 2015.
"It remains challenging to predict the short term direction of precious metal markets although we retain our belief that the strong underlying fundamentals will reassert themselves. However, the board is reassured that considerable steps have been taken to ensure the company's resilience in a low price environment but also to capitalise on an upturn when it happens with low cost, value accretive growth," it said.
Hochschild is also targeting operational expenditure of USD45 million in 2015, down from USD114.9 million in 2014, although it also estimates remaining Inmaculada construction expenditure of USD72 million, down from USD198.1 million in 2014. It said it won't reinstate a full-year dividend while its cash position is being restricted by project capital expenditure, although it will look again at dividends once it returns to profit. It suspended the dividend last year.
"In 2015, the focus of expenditure will remain firmly on completing and ramping up Inmaculada, brownfield exploration at our current operations and a drilling campaign at the Corina project in Peru. Whilst exploration-led growth remains an important part of Hochschild's long term strategy, the cashflow optimisation programme has led to significant reductions in our exploration initiatives especially at our greenfield projects, which we expect to resume once prices recover," it said.
The company's 2014 profit was hit by higher financing costs as it raised USD350 million through an inaugural senior note offering to fund the previous year's International Minerals acquisition, repay a convertible loan, and help with the spending at Inmaculada. Later in the year, it then took out a USD100 million medium-term credit facility.
"We also took advantage of short periods of price improvement to hedge almost 30% of our 2014 production in order to realise a degree of cashflow certainty during the year. We believe that such a strategy will remain appropriate during commissioning and ramp up of the new mine as we transition to lower cost production," it said.
Its finance costs before exceptional items increased to USD33.1 million in 2014, from USD11.7 million in 2013. mainly due to the interest due on the notes.
Hochschild Mining shares were up 3.4% at 68.00 pence early Wednesday, although the stock is still down 63% over the past 52 weeks.
By Steve McGrath; [email protected]; @stevemcgrath1
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