Hochschild Mining shares: should I buy for my 2021 portfolio?
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Hochschild Mining (LSE: HOC) shares rose about 35% in the past year. Commodity prices have been on an upward movement in the past few months. I believe that mining stocks will be in favour as the gradual lifting of pandemic restrictions might restart global economic growth.
Hochschild Mining’s results
The company released its 2020 results on 18 February 2021. Revenue dropped 18% year-over-year to $621.8m. The drop in revenue was primarily from production stoppages due to Covid-19. The rise in average realised precious metal prices reduced the negative impact of the pandemic. The average realised gold price increased by 28% y-o-y to $1,814 per ounce, and the silver price increased by 35% y-o-y to $22.3 per ounce.
Adjusted EBITDA (earnings before interest, tax, depreciation, and amortisation) fell by 21% y-o-y to $270.9m. Management attributes the drop in EBITDA to the reduced production as well as a rise in mine closure provisions of $16.1m. The company’s earnings per share were $0.03 compared to $0.06 for 2019. There was an exceptional after-tax cost of $22m of Covid-19 response initiatives.
Hochschild Mining’s balance sheet is good. It had net cash of $21.6m. This was the first time in eight years the company had a net cash position. This was possible mainly due to higher precious metal prices combined with strong free cash flow generation.
The management’s production outlook for 2021 is between 360,000 and 372,000 gold equivalent ounces when compared to the production of 289,293 gold equivalent ounces for the year 2020. This is however lower than the 2019 production of 477,400 gold equivalent ounces.
The company also launched an Environmental Culture Transformation Plan in 2020. I believe this is positive since more and more investors prefer companies that are economically friendly.
Risks to consider in Hochschild Mining shares
The mining industry is highly capital intensive. Profits depend on commodity prices. There is no guarantee that production will reach pre-pandemic levels in the next couple of years. If the production level fails then the company’s revenue will fall again.
The company will also have to comply with various environmental regulations and this could delay the company’s operations. The company’s chairman, Eduardo Hochschild, has reduced his stake in the company by 12% to 38% of the issued shared capital. The stock sold off in December on the news as investors got worried about any slowing growth.
Overall, Hochschild Mining shares have performed well in the past year. The recent results are good, taking into consideration the production stoppages and other costs involved due to Covid-19. I feel the company is better than another mining stock I reviewed recently. However, there is still a lot of uncertainty in commodity prices this year. I will wait and take a look at a couple of other mining stocks to see which is better for my portfolio.
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Royston Roche has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.