Hochschild Mining plc is a London-listed precious metals mining company headquartered in Lima, Peru, and focused on the exploration, mining, and sale of silver and gold, operating across South America.
Eduardo, last year was exciting for the company and for you personally, as you became CEO. Let's begin with your recent acquisition in Brazil. Could you share why this is exciting news for Hochschild Mining?
In April 2022 we saw a great opportunity for Hochschild to enter Brazil and completed our acquisition of the Mara Rosa asset. Our M&A team had been actively searching for the right assets, and success in this industry heavily depends on the quality of what you acquire, particularly the grades and potential yields. When we evaluated the Mara Rosa project, it met all of our expectations. We saw it as a solid entry point into Brazil and our Chief Operating Officer, Rodrigo Nunes, who is Brazilian and well-versed in the local market, was instrumental in developing this opportunity.
Mara Rosa has been a success so far, being brought into production on time and on budget—something quite rare in Brazil over the last decade. The mine has a projected life of 10 years, producing around 100,000 ounces in its first four years and approximately 60,000 ounces thereafter. However, we are exploring additional resources to extend the mine’s lifespan beyond this. The Brazilian authorities, particularly in the state of Goiás, have been incredibly supportive, making this a highly positive experience for us in the region.
You have also entered into an option to acquire another Brazilian mine, Monte do Carmo. What do you see as the prerequisites for a successful acquisition in a competitive industry?
The first and most critical step is ensuring the resource is truly present. This involves thorough testing and drilling to verify the grades and recoveries. Beyond the geology, it is essential to understand how the project will be developed—what mining methods will be employed, and the type of plant needed. Building a team of experienced professionals with this knowledge is vital. We also conduct a detailed due diligence process covering all environmental, technical, and social aspects to ensure everything is in order.
Additionally, it is crucial to physically visit the site. I personally visited Monte do Carmo recently to see the infrastructure and meet with local authorities. The state of Tocantins, where the project is located, shares many positive attributes with Goiás, making development a lot easier. Purchasing the asset at the right price is equally important. We have paid $15 million for the option and are now in the process of confirming the resource is there. If everything aligns, we are confident we can develop Monte do Carmo as successfully as Mara Rosa by following a detailed engineering process and securing strong contract negotiations.
Do you currently produce more gold or silver?
At the moment, we produce more gold, with around 70% of our output being gold and 30% silver. However, we have an exciting silver deposit called Royropata, a continuation of our previous Pallancata mine. Pallancata operated from 2007 until 2019 before we paused it and placed it on care and maintenance. Royropata currently holds 60 million ounces of silver, but we are waiting for an environmental permit to begin mining. It could take about two to three years to secure the necessary approvals, but the silver deposit is promising.
Royropata offers high mineralization, with deposits averaging five meters in width. This allows for highly efficient mining, and we believe it will be a significant silver producer. It is rare to find pure silver mines these days, but we expect Royropata to produce between 10 and 12 million ounces of silver annually. With silver representing 90% of the deposit, this will be a great addition to our portfolio.
Given the outlook for both gold and silver, when do you think the gold-silver ratio will normalize?
While I am not a specialist in predicting market ratios, I would say we are bullish on silver. The demand for silver is especially high due to its role in the energy transition, and there are few new silver mines emerging. This creates a favorable supply-demand dynamic for the metal. We believe this trend will continue, driven by technological advancements and the increasing need for silver in green energy solutions.
You had some issues with the Peruvian government a few years ago concerning your sustainability credentials. How do you ensure your operations are environmentally friendly irrespective of the jurisdiction?
Yes, we did have some difficulties under the Castillo Government, but the mining industry in Peru supported us, defending our position. The controversy arose around the environmental permit for our Inmaculada mine, where the former Prime Minister suggested it would not be renewed. However, today the mine has a 20-year permit, and I can confidently say our reputation remains strong. We have been mining for 110 years, with 60 of those in Peru, and we have built an excellent track record. Our current relationship with the Peruvian Government is strong, and we are working closely with the new Minister of Mines, who is a mining engineer himself.
In terms of ESG, safety is our top priority. We have a great safety record, with a lost-time injury frequency rate of 1 for underground mining, which is exceptional compared to industry averages. Environmentally, our standards are on par with global best practice, and Peru’s regulations are stringent. We have consistently met these standards, and I would argue that we operate at a level comparable to the US and Canada, if not better. This demonstrates our commitment to maintaining the highest possible sustainability practices.
Have retail investors become more important for companies like Hochschild? If so, do you welcome this change?
Retail investors have indeed become more significant, primarily because they contribute to the liquidity of a company’s shares. Having small movements in the market is important, and I believe retail investors have a great opportunity with companies like ours because we produce 350,000 ounces of gold, giving them exposure to attractive commodity prices, and with a clear path to growth. We have promising projects, like Monte do Carmo in Brazil and Royropata in Peru, which position us for continued expansion.
In the future, we could produce up to 550,000 ounces of gold annually and, with favorable prices, this translates to strong free cash flow. This would enable us to pay off debt, return capital to shareholders, and finance our own growth without needing to take on more debt. It is an exciting time for retail investors to get involved in a company with a solid growth trajectory and strong financial health like Hochschild.
Finally, if we speak again next year, what do you hope to tell us about your progress?
By next year, I hope to share that our new strategy, implemented in November 2023, has been successful. We have begun executing this plan in early 2024, and so far, things are going really well. Our employees are happy, and I’m proud to report that a recent internal poll showed about 70% of our staff are extremely satisfied working with us. This is a great sign that the strategy is working.
Looking ahead, we will continue focusing on finding the best possible resources, growing through our branching strategy, and ensuring we are efficient. This industry operates in cycles, and we must be prepared to thrive in both high and low price environments. Being resilient and adaptable will be key to our long-term success, and I look forward to reporting continued growth and stability.
