Thursday tips round-up: Hochschild Mining, Gem Diamonds

21st Aug 2014 11:01

Investors in Latin-America focused precious metals miner Hochschild Mining should be wary. The company has made good progress cutting its costs, delivering $70m more in savings last year than the $200m originally envisaged. However, cost reductions can only go so far. The company's quandary is much the same as for many other miners. It over invested during the good times, when the prices for gold, and especially silver, were much higher. Thus, the investment phase for its new Inmaculada mine in southern Peru is now almost over, but the prices for those metals have yet to recover. As well, the company is vague on when the new facility will reach full production - even if it is indeed completed at the end of the year, as expected. What all of that means is that it is not yet certain when the dividend may be reinstated. The most advisable course of action, then, may be to sell and take advantage of the improved sentiment as it does not reflect the inherent risks, The Times's Tempus says.Gem Diamond's share price may be set to shine. The company's Letseng mine in South Africa saw production ramp up by 30% over the first six months of the year, allowing the company to more than double its pre-tax profits. That came as the average price per carat of its diamonds shot up by 58% versus last year, to reach £1,650, with prices having moved even higher at the most recent auction. Helping all of the above along is increased demand from Chinese investors over the last five years. As well, a new diamond mine at Ghaghoo, in Botswana, is about to come on line. Interestingly, while analysts at Westhouse Securities currently ascribe a value of only 6p to the same, it could end up being significantly higher. Over the next four months it is hoped that Ghaghoo will be producing enough diamonds so as to calculate its value at full production. Although the price of rough stones can be extremely volatile the stock still looks reasonably valued at 11 times' forecast earnings. "A speculative buy," says The Daily Telegraph's Questor column. AB Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.