15th Oct 2015 07:11
LONDON (Alliance News) - Hochschild Mining PLC shares dropped on Thursday after it said it plans to launch a heavily discounted rights issue to raise around GBP64.8 million and said production since the start of 2015 is lower than it was a year earlier.
Hochschild shares were down 7.0% to 83.45 pence per share on Thursday morning.
Hochschild said although it has managed to execute its strategy using its existing resources, it believes the rights issue will provide funds to give the company "financial flexibility going forward", despite reporting a cash balance of USD75.0 million at the end of September.
"In accordance with the ongoing focused management of the group's financial position, the net proceeds of the rights issue will strengthen the balance sheet and provide the flexibility necessary to enable the company to continue to implement its strategy to increase long-term value for shareholders," it said in a statement.
Importantly, the miner said "no less than 50%" of the net proceeds from the rights issue will be used to repay outstanding debt, with the remainder being held as cash to "to ensure certainty of access to the funds and liquidity in light of the prevailing price volatility in precious metal prices."
That would suggest Hochschild will have around USD105.5 million in cash after the rights issue, alongside a lower amount of debt.
The GBP64.8 million will be raised through a three for eight rights issue of 137.9 million new shares at a price of 47.0 pence per share, a huge 47.6% discount to its closing share price on Wednesday of 89.75 pence per share.
The miner said investors from ASPI SA, the company by which Chairman Eduardo Hochschild will exercise his rights to subscribe for new shares, has submitted irrevocable undertakings to subscribe for 68.9 million new shares.
Importantly, the rights issue is fully underwritten by JP Morgan Cazenove, Bank of America Merrill Lynch and RBC Capital Markets.
In a separate statement Thursday, Hochschild released its third quarter production figures, which was the first full quarter of production from the new Immaculada mine in southern Peru.
The miner produced 7.6 million ounces of silver equivalent in the third quarter of 2015, comprised of 4.1 million ounces of silver and 56,970 ounces of gold. That was up from only 4.8 million ounces in the second quarter of 2015 and 4.8 million ounces a year earlier.
Year-to-date production however, dropped to 16.3 million silver equivalent ounces from 16.7 million ounces.
The company's Immaculada mine experienced its first full quarter of production, producing 36,100 ounces of gold and 900,000 ounces of silver. The mine is expected to reach an annual production rate of 6.0 to 7.0 million ounces of silver equivalent, and all-in-sustaining costs in September are expected to be below USD10 per silver equivalent ounce, it said.
"The third quarter has been a robust one in terms of production as we have delivered a strong first full quarter at our new Inmaculada mine and we are firmly on track to meet our full year production target. The ramp-up at the operation has been accomplished in a short space of time," said Chief Executive Ignacio Bustamante.
Overall, the miner aims to produce 24.0 million ounces of silver equivalent in 2015, suggesting it needs a significantly better fourth quarter to produce the 7.7 million ounces needed to hit that target, which should be achievable with the addition of the Immaculada mine.
All-in-sustaining cash costs for the full year also remain on track to be in the range of USD13 to USD14 per ounce.
Hochschild also agreed further hedges to try and mitigate falling commodity prices. The miner said it has 38,000 ounces of gold hedged at USD1,158 per ounce for the remainder of 2015, alongside 71,000 ounces of gold hedged in 2016 at a price of USD1,154 per ounce and another 29,000 ounces of gold at USD1,145 per ounce.
To put that into perspective, gold was trading at just under USD1,184 per ounce on Thursday morning.
It has also hedged 6.0 million silver ounces in 2016 at USD15.93 per ounce.
Based on the Immaculada mine having an AISC cost of less than USD10 per ounce in September, that would give the miner a healthy USD5.93 per ounce margin, but compared to its full year cost guidance its margin on those silver hedges is only around USD1.93 to USD2.93 per ounce.
In the third quarter, gold prices averaged USD1,165 per ounce and silver prices averaged USD15.50 per ounce, both of which are lower than the company's hedging prices.
By Joshua Warner; [email protected]; @JoshAlliance
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