UPDATE 2-Silver miner Hochschild surpasses cost-savings target

Wed Jul 16, 2014 5:15am EDT

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(Adds details on Hochschild's Inmaculada project, Fresnillo Plc results, adds analyst comment)

By Karen Rebelo

July 16 (Reuters) - Hochschild Mining Plc said it has exceeded its target of saving $200 million and identified new ways to cut the cost of mining silver in Peru and Argentina, sending its shares up more than 5 percent.

The company, which operates three underground mines in southern Peru and one in Argentina, also reported a small rise in silver output for the first half of the year and said it was on track to meet its 2014 production target.

Many gold and silver miners were forced to slash costs last year after prices of the precious metals fell to their lowest in a decade. Gold fell 28 percent and silver plunged 36 percent in 2013.

Hochschild reduced the size of its board and slashed directors' salaries last year as part of its cost-cutting drive to assuage investors' concerns.

In March, the company suspended dividend payments pending an improvement in its cash position. Hochschild said it had total cash of about $225 million and minority investments worth about $40 million at the end of the quarter.

Hochschild said on Wednesday that it had identified further cost-saving initiatives "in administration, operations and exploration". It did not give further details about these plans.

"We expect earnings to more than double over the next three years (versus 2013) and unit costs to continue to fall," Barclays analysts wrote in a note.

Hochschild said in a statement that attributable silver equivalent production for the six months ended June 30 rose to 11.85 million ounces from 11.48 million ounces a year earlier.

The miner, which is headquartered in the Peruvian capital Lima, said it expected to meet its 2014 production target of 21 million attributable silver equivalent ounces.

Another Latin American miner, Fresnillo Plc, also said it was on track to meet its 2014 output target when it reported second-quarter production on Wednesday.

Fresnillo, which prides itself on production costs among the lowest in the industry, said quarterly silver output was flat as higher production and ore processing at two of its Mexican operations made up for lower ore grades at another.

Hochschild, meanwhile, said it planned to start commissioning its Inmaculada project in Peru in the last quarter of this year. The company hopes the project will help to boost total production to 35 million ounces by 2017.

The company said average realisable precious metal prices - the price before commercial discounts and including the effects of hedging - were $1,328 per ounce of gold and $20.5 per ounce of silver in the first half of 2014.

This compared with $1,367 per ounce of gold and $23.04 per ounce of silver a year earlier.

Shares in Hochschild, among the top percentage gainers in early trading on the London Stock Exchange, were up 1.9 percent at 164.4 pence at 0912 GMT. (Additional reporting by Roshni Menon in Bangalore; Editing by Gopakumar Warrier and Robin Paxton)

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