Why Shares In Hochschild Mining Plc Plummeted

Hochschild Mining Plc (LON: HOC) suspends dividend on falling revenue.

Mark Stones

Mark Stones (TMFMumbojumbones) joined The Motley Fool in 2014 and initially worked as a writer for Fool.co.uk, before joining the Fool’s analyst programme. Mark earned a BA in English from Loughborough University. Although he spends more time reading annual reports than Russian literature these days, he still appreciates a novelist’s antipathy toward the accepted view, which is a useful attitude when trying to sniff out hidden gems on the stock market. His approach to investing has been largely influenced by the principles of Warren Buffett and Peter Lynch. He also takes a special interest in the work of healthcare companies. Outside of investing, Mark plays guitar, enjoys good writing and has a guilty passion for combat sports.

Published 12 March, 2014 11:24 am GMT

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Although we don’t believe in timing the market or panicking over every stock fluctuation, understanding how a business is performing, competing and changing is vital to sensible investment.

What: Shares in the the Latin America based mining company Hochschild (LSE: HOC) dived 11% to 177p during early trading this morning, after the publication of its annual results which revealed revenue slumped by almost 25%. Because of this the full year dividend was suspended.

A steep decline in precious metals prices in 2013 saw revenue fall to $622m from $818m a year earlier.

In the last 12 months shares in Hochschild are down nearly 50%.

So what: The firm has admitted that, in the short term, the outlook for the precious metals markets “remains uncertain”.

Analysts had previously penciled in a dividend per share of 4.25p, and should the dividend be resumed at previous levels in 2014, at today’s share price it would yield 2%.

The chief executive, Ignacio Bustamante, offered:

“In 2013, Hochschild reacted quickly to a very negative market environment by initiating a wide-ranging cost savings programme to preserve the Company’s operating profitability and, whilst maintaining production levels, capitalised on a weak market environment to consolidate our ownership in our most valuable assets.”

Now what: As part of the cost-cutting effort a 30% cut in salary was imposed for the chairman and non-executive directors, while the chief executive’s salary was cut by 10%.

The company is commencing production increases with the aim of reaching 35 million silver equivalent ounces by 2017.

Of course, whether tightening the purse strings is enough, and the firm’s operational expertise can see the firm return to growth in the long term, remains to be seen.