Investors Hochschild Mining (LSE: HOC) Understandably, the stock price has dropped by half this morning! Shares of the gold and silver mining business fell 45% after an official document was leaked, indicating an intention to disrupt flagship mining activities in southern Peru.
This downward trajectory has erased the gains made in recent weeks and pushed the 12-month return to a disappointing -60%. So what exactly is happening? And is this actually a buying opportunity?
Collapsed Hochschild share price
Management announced this morning that it had discovered documents relating to environmental allegations against several mining companies, including itself, in the Ayakucho region of Peru. The document was the minutes of a meeting signed by the Peruvian cabinet chief, vice-ministers and representatives of regional authorities.
It called for the closure of several mines, including Hutchchild’s flagship Inmaculada and the Pallankata project. What’s more, the head of the cabinet has indicated that no further approval will be given for mining or exploration activities in the area.
Hochschild strongly denies allegations of environmental pollution. This is stated in a statement “Works under the highest environmental standards and applies industry best practices”. He described the government’s decision as illegal. And it will take all necessary legal action to protect the rights of the company.
Needless to say, this is terrible news for the mining business. Suppose its flagship projects are closed or their expansion is limited. In that case, it could have serious consequences for the company’s future growth prospects. So seeing Hochschild share price fall is quite understandable in my mind.
Taking a step back
This document has been leaked to various media. Therefore, there has been no formal communication between Hutchischild and the Peruvian government. And the firm seems to be gaining a lot of support already. Trade unions, the National Confederation of Private Business and the National Society of Mining, Energy and Oil have spoken out in support of the company.
With strong opposition to this decision, it is possible that the Peruvian government took no action. As a result, the firm will continue to operate smoothly.
The company’s CEO Ignacio Bustamante also said “We are ready to enter into a dialogue with the government to resolve any misunderstandings about our mining activities.“
If the decision is reversed, Hochschild’s share price could recover quickly. Having said that, it is too soon to say what will be the fate of the firm’s Peruvian mining activities.
Undoubtedly it was a devastating blow. And there could be more volatility on the horizon for Hochschild share prices, if the worst could happen. With that in mind, I will put this business on my watchlist when the situation arises.
Javan Borajian has no position in any of the shares mentioned. Motley Flower UK has no position on any of the shares mentioned. The opinions expressed about the companies mentioned in this article may differ from those of the authors and therefore the official recommendations in our subscription services such as Share Advisor, Hidden Winner and Pro. Here at The Motley Fool we believe that considering insights from different ranges makes us better investors.