Investors could bank a 57% return by short selling Hochschild Mining (LON:HOC), says Goldman Sachs.
The investment banking heavyweight reckons investors have been overly bullish on HOC.
It says the silver miner needs to cut costs and it is set to have balance sheet problems.
“HOC shares have rallied 56% in the past month which in our view is due to investors being bullish on silver, given its significant recent fall,” said analyst Eugene King.
“Our view is that there are three catalysts for the stock to underperform from this level.”
“Like other precious metal companies in our coverage it is focused on cutting costs by reducing capex, exploration and corporate expenses.
“However, given the continued cash burn in 2013/14/15E and refinancing of the October 2014 $115mln convert, we believe it will have balance sheet issues going into 2H14/1H15.”
King also highlights the possibility of a weakening of silver prices, as the US Federal Reserve begins tapering its quantitative easing programme, which Goldman expects will start in September.
It is expected that precious metals will de-value as tapering kicks in and the US dollar is progressively strengthened – thus undermining gold and silver as financial ‘safe havens’.
Goldman also reckons HOC’s Inmaculada and Crespo development projects have the potential for delays and/or capital overspends.
With a ‘sell’ recommendation Goldman Sachs has a 104p price target for HOC shares, which currently change hands for 234p.
HOC shares were down 2% today following the investment bank’s sell note.