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22 Nov 2021 | 11:33

BoA downgrades Hochschild Mining to 'underperform' after Peru announces plans to close two mines

(Sharecast News) - Analysts at Bank of America downgraded their recommendation for shares of Hochschild Mining from 'buy' to 'underperform', marking down their target price from 280.0p to 90.0p in the process. The latter, they said, valued the company at 0.5 times its net present value, which was at the trough end of its historical price-to-net present value valuation range.

They specifically cited the Peruvian government's announcement that it would close four mines for the move.

Two of those, Inmaculada and Pallancata, represented roughly three quarters of their net present value-to-discounted cash flow valuation for the company and approximately 70% of its earnings before interest, taxes, depreciation and amortisation.

Inmaculada alone was responsible for 60% of the minerĀ“s EBITDA.

Hochschild's remaining mine, San Jose, was located in Argentina.

"While the company will likely dispute this decision we don't see equity outperforming until the dispute is resolved."

The analysts also weighed in on the possible implications for copper miners in the country.

Copper accounted for about 40% of Peru's exports and gold for 16%.

"No information suggests that the government will close other mines but we cannot rule out it will go after large(r) mines. Other companies with exposure to Peru: Southern Copper, Glencore, Anglo American (inter alia). We also note that Peru is one of the world's larger producers of copper (c. 11% of global output)."

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