The FTSE 250 miner has been a 'sell' for Berenberg as the main vein at its flagship gold and silver mine Inmaculada in Peru was expected to be exhausted by 2022.
READ: Hochschild to become one of "lowest cost rare earth producers" after acquisition of Chilean deposit
Although the grades are improving thanks to infill drilling, analysts at the German bank believe the company needs a second mine with a similar financial impact to minimise risks.
Hochschild, historically a precious metals miner, last week acquired full ownership of the BioLantánidos rare earths deposit in Chile for US$56mln, after having acquired an initial stake earlier this year.
With the shares having fallen around 13% over the previous fortnight since the deal, Berenberg on Monday reduced its price target from 190p to 180p, saying the BioLantánidos deal seemed “ill-received” by the market despite being relatively small.
According to the analysts, investors need to know exact numbers on the economics of BioLantánidos to better understand the transaction, are perturbed by the “relative opacity of the rare earths market” and see the bigger step into rare earths “as a departure from its core strategy of precious metals (although management refutes this)”.
While the project is likely to offer margins of 64%, it is forecast to be a small part of total revenues and underlying profits, at up to 7% and 13% respectively, and will not “provide a material draw on medium-term cash flow”.
The FTSE 250 company’s share price rose 4% to 186p by early afternoon.