OREANDA-NEWS. In Fitch Ratings view, the capital increase announced by Hochschild Mining Plc (Hochschild, 'BB+'/Stable Outlook) today demonstrates strong commitment from the main shareholder and management to supporting the company's capital structure following a period of heavy investments coinciding with a significant decline in silver and gold prices. Approximately half of the $100 million of new equity proceeds will be applied to repay gross debt that stood at $540 million as of June 30, 2015, with the balance held as cash to support liquidity, decreasing net debt to around $356 million for the period.

The timely rights issue reinforces Hochschild's ratings following the completion of Inmaculada, and provides the company with room to manoeuvre should silver and gold prices decline unexpectedly. This equity increase is consistent with Eduardo Hochschild's previous actions to bolster the capital structure of the company, as demonstrated by the $70 million of equity used to partially fund the acquisition of the remaining 40% interest held in Inmaculada and Pallancata in 2013. Fitch has previously cited further shareholder commitment as a possible source of additional liquidity, should it be required.

Fitch's base case indicates a year-end 2015 net debt-to-EBITDA ratio of 2.4x post capital increase, taking into account six months of production of low-cost silver equivalents totalling 7 million Oz to come from Inmaculada, declining to 1.6x in 2016 as production ramps-up to above 12 million Oz from this mine. This compares to Fitch's previous net debt-to-EBITDA ratio expectations of 3.0x for 2015 and 2.0x for 2016. Total debt-to-EBITDA is now expected at around 3.0x in 2015 and 2.2x in 2016.

Hochschild has also hedged 44% of silver equivalents production for the rest of 2015 and 41% of production for 2016 following the recent nascent recovery in silver and gold prices to around $16/Oz and $1,180/Oz, respectively, to guard against future cash flow volatility during this period.