UBS-Hochschild Mining PLC Gold silver leverage operational improvement-20251017

Potential to 'catch-up' as market stretches for cheap valuation & improvement

HOC has had a challenging 12m missing guidance at Mara Rosa in 2024, further issues at Mara Rosa have led to downgrades to 2025 guidance and we expect the mine to remain well below nameplate capacity in 2026. Poor operational performance has been overwhelmed by the bull market in gold/silver; but HOC has still underperformed peers with the stock only up 115% YTD vs GDX +140%, FRES +375% & EDV +170%. We are increasingly nervous of excessive short-term enthusiasm in the gold trade (LINK);assuming high prices persist but the recent run of relentless positive price momentum moderates; in our view equity investors are likely to search for 'laggards' with cheap valuation and operational turnaround potential against low market expectations. In our view HOC meets this criteria and scarce exposure to silver is likely to support renewed investor interest as market searches for 2nd/3rd derivatives of gold for more leverage.

Mara Rosa: After a ~4 week shutdown in in June production resumed in July using two of the four tailings filters and the remaining two expected to restart in October. The installation of a tailings thickener is planned for H126 that will enable the plant to reach full capacity. We assume throughput is constrained to <5ktpd until the the thickener is installed and assume 1H26 production of ~25koz, lifting to ~40koz in 2H, as a result we forecast FY26 production fo 65-70koz. We see modest downside to FY26 consensus of 78koz (only 4 contributors), but after poor execution we believe expectations have been reset lower and see a path towards ramping back towards nameplate capacity (7koz per day) after the tailings thickener has been put in place in 1H26.