Hochschild Mining shares are down nearly 50%. But is there a silver lining?

Hochschild Mining (LSE:HOC) shares have been volatile lately. While I’ve never held this company as part of my portfolio, I’m eager to see whether this South American-based gold and silver mining stock now presents an exciting buying opportunity for me. Let’s take a closer look. 

Falling silver price

In the past year, the shares have fallen 49.5%, while over the last month they’ve dropped 26%. At the time of writing, they’re trading at just shy of 81p.

The share price took a particularly hard hit in the past couple of months. This was chiefly as a result of the falling silver price. The price of silver per ounce fell from around $21 to about $18. This essentially means that the value of Hochschild’s produce declined, leading to a lower company share price.

This prompted investment bank Berenberg to downgrade the firm from ‘buy’ to ‘hold’ because it saw the underlying silver price movement as overwhelmingly negative.

However, with the US now technically in recession, many investors have sought precious metals as a ‘safe haven’. As a result, the silver price is back above $20 and may have much further to travel upwards. This is good news for Hochschild.

Solid production and profit margins

The business also recently stated that it was on track to meet its production targets for both silver and gold in 2022.

These targets were set at between 360,000 and 375,000 gold ounces, and between 26m and 27m silver ounces. It’s worth noting, however, that further pandemic variants could impact mining capabilities, thus hindering the ability to meet production targets.

On the other hand, the firm has reported that it expects all-in sustaining costs to be between $18.50 and $19 per silver ounce. In addition, the cost per gold ounce is between $1,330 and $1,370. The profit margin on gold mining is particularly large, given that the price per gold ounce on the market is currently about $1,765.

This is an indication that the company is running an efficient operation.

It has also enjoyed consistent growth in pre-tax profit. Between 2017 and 2021, pre-tax profit more than doubled from $64.08m to $137.33m.

Furthermore, earnings per share (EPS) grew from ¢8 and ¢14 over the same period. By my calculations, this results in a compound annual EPS growth rate of 11.8%. 

This is both strong and consistent. However, it’s worth noting that this growth rate is by no means guaranteed to continue in the future.

Overall, the Hochschild share price has taken a bit of a pounding in recent months. Nevertheless, the company’s financial results are strong and it’s now benefiting from an improving silver price. To that end, I’ll add this firm to my portfolio to gain greater exposure to precious metals and solid growth.