Gold And Silver Mining
Lots Of Projects In The Pipeline
Is this a full house? Must tell Isabel. Normally we’d go for the silver bangles. But, here we have a mining company that is digging up silver and gold. It’s not over-exposed in the tip sheets despite roaring precious metal markets! Called Hochschild Mining, South American despite its name, newly arrived in London and intriguing.
These South American mining companies are so laid back when they come over here. Antofagasta is another, the world’s largest specialist copper company. It has been quoted on the London Stock Exchange for quite some time, but has a low profile. Who outside of the mining and City fraternities has ever heard of it?
Hochschild is definitely in the same style. So modest, while, in fact, it’s the world’s fourth largest silver producer! Of course, what these two have in common is that they are family controlled. Outside investors are allowed only a little bit of the action. The families don’t worry too much about their shares — they are in it for the long term.
Gold and silver mining: The aim is to
produce 50 million oz a year by 2011
As far as Hochschild is concerned the game it’s playing is ambitious and simple. It wants to produce 50 million oz of silver a year by 2011.
Antofagasta — nick-named Fags in the market — is based in Chile. While Hochschild Mining is based in Peru. Both founding families are European by origin — indigenous South American dynasties seem to be in a business minority.
Antofagasta ’s founding family the Luksics and their friends can’t help attracting more attention on their home turf — well they are billionaires. In Hochschild’s case their low profile is understandable. Nine years ago kidnappers killed the father of the present executive chairman.
The only reason these two mining giants are in London is that it is the world’s mining finance centre. When the numbers on the bills for take-overs or new mines are as big as telephone numbers then the friendliest place is the City. It has lower regulation, lower costs and is heavily populated by major international investors.
Lots of gnashing of teeth can be heard from across the pond in New York. But the fact is an increasing number of rules have lost them business. Many Kazakhs, Russians, Indians and Chinese have decided not to go there.
Gold and silver mining: The share price
had fallen so far that people began talking
All the same, both companies could be forgiven for being a bit peeved by the London Stock Exchange’s recent rating of their shares. Their lack of razzmatazz left them a bit behind their peers. That is why we came across Hochschild — its share price had fallen so far that people began talking. It fell below the level at which it made its debut last year — 350p.
Things have been improving in recent weeks, and not just because of rocketing precious metal prices. Hochschild announced its maiden financial results as a quoted company. In the first half of 2007 it made $48 million before tax, up 29% on the same time last year. To do that it turned out 5.6 million oz of silver and 90,700 oz of gold from its mines in Ares, Arcata and Selene.
The USP of Hochschild is its low costs — the silver cost it $3.92 an ounce to bring out and the gold $159! That’s the result of prudent spending to mechanise its mines. The results are very nice at current market prices.
Eduardo Hochschild, executive chairman and relative of the founder Mauricio, told investors that full 2007 silver or equivalent production should be 26 million oz. Plus, the company is increasing its access to gold and silver reserves — they rose 15% in the first half.
Satisfyingly for family ambition — and outside investors. Eduardo is rebuilding Hochschild Mining’s international network. The Hochschilds like to remind the mining community that theirs was one of the first global mining companies.
But, having started the company in 1911, going from South America into South Africa and Belgium, Mauricio sold off much of it in the 1980s. In its new form Hochschild is already back in Argentina and Mexico.
Gold and silver mining: Plenty of projects
and acquisitions in the pipeline
The pipeline of projects and acquisitions is filling up nicely, and it still has plenty of money left. The London float raised $520 million. It paid off all the company debt and left it with $310 million cash. Plus, the banks will let it top up to $750 million to spend on acquisitions.
Well versed in how to maintain local relations, Eduardo stresses that the family firm is no open-cast polluter. He says, "We are focused on underground mining projects in Latin American, because underground is much friendlier environmentally and better for communities."
Not only is this good for them, it is also cheaper for Hochschild — they have profit-margins of up to 50%.
Hochschild debuted in London only last November. So it hasn’t been in the public domain long enough for all the warts to show. There has been some shareholder grumbling about the questionable wisdom of so much control in family hands — its 70%. But so far they’ve produced the silver.
So, this could be one of the easier ways to play the silver market, with the spice of a bit of gold on the side.
Keep digging!
Erin and Isabel
First published 1st October 2007
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