2nd UPDATE: Hochschild Shares Down Despite Swing To '09 Profit

London-listed silver miner Hochschild Mining PLC's (HOC.LN) shares fell Wednesday despite a swing to net profit in 2009, after it surprised the market with a management shakeup.

Hochschild reported a net profit of $98.1 million in 2009, from a $19 million net loss in 2008, on record output and a one-off gain from its stake in Lake Shore Gold (LSG.T). However, the company took the market by surprise in also announcing the imminent departures of both its chief executive and chief financial officers.

CEO Miguel Aramburu will step down on March 31 for personal reasons and Chief Financial Officer Ignacio Rosado will resign from May 31, Hochschild said in a statement at it reported its 2009 earnings. Chief Operating Officer Ignacio Bustamante will replace Aramburu as Hochschild's CEO on April 1.

At 1035 GMT, Hochschild's shares were down 6.1% or 19 pence at 266 pence, underperforming the broader mining sector. The London mining index was down 0.9%.

In a telephone interview with Hochschild executives, outgoing CEO Aramburu said he is leaving to pursue personal projects and is likely to work as an industry advisor rather than launching his own company. Rosado said he is considering "good options" to become a chief executive elsewhere.

The board changes will hurt Hochschild's shares in the near term, but the company's prospects remain positive and its shares undervalued, analysts said.

Canaccord Adams analyst Damien Hackett said Aramburu's departure could be viewed as a sign the board was unhappy with Hochschild's share performance under the outgoing CEO's tenure. "I can see why the board might have been frustrated," Hackett said.

But the company's growth prospects remain good, and its underlying earnings are likely to nearly double in 2010 because of higher commodity prices, he said.

Hochschild's revenue in 2009 rose 24% to $539.7 million and earnings per share rose to $0.31 from a loss of $0.08 in 2008. Hochschild declared a final dividend of $0.02 a share, resulting in a total dividend for the year of $0.04 per share.

Its unit costs per metric ton fell 11%, beating its target of 5%. The miner said it expects costs to rise by 10% in 2010 because of rising labor and energy costs. It is in labor contract negotiations in Peru and expects a "reasonable agreement in the next couple of weeks," said incoming CEO Bustamante.

Hochschild said it was targeting output of 29 million silver equivalent troy ounces in 2010 and plans to up its exploration spending by 75% to $50 million.

The miner is developing an action plan for mergers and acquisitions over the next two months, Bustamante said. He said it is considering raising its stakes in Lake Shore Gold and Gold Resource Corp. (GORO) once standstill agreements limiting their stakes expire in November and next February respectively. Hochschild may raise debt later this year, but Bustamante declined to provide further details.

-By Matthew Walls, Dow Jones Newswires; +44 (0)20 7842 9412; matthew.walls@dowjones.com

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