An interview with Eduardo Hochschild

An interview with Eduardo HochschildEduardo Hochschild
45 years old. A mechanical engineer, he graduated from Tufts University in Boston. In 1998, after the violent death of his father, a victim of organized crime, he took charge of the group companies. In CADE 2009, Peru’s largest business summit, he gave a lecture on the goal for Peruvian companies to expand internationally to keep growing.
The Company
Name: Hochschild Mining and Cementos Pacasmayo
Location: Lima
Age: 84 years
Business: It is dedicated to exploration, extraction and processing of gold and silver, as well as cement. Last year an investment in a phosphate plant was announced and a thermoelectric plant is hoped to be built to ensure its energy supply. 

In 2010, will the price of gold and silver stay the same or grow?
The gurus say prices will stay the same, or that they could go up, but in 50 percent of cases, the gurus are wrong. What is important is that companies that will survive in the future are those that are best in handling costs. We must aim for that, we must go beyond prices because we are talking about commodities whose prices are cyclical.

How did you end 2009? Did you achieve your goal of producing 28 million ounces of silver?
There was never any doubt that we would not make it.

A month ago, you said that in 2009 you were going to break your sales record? Did you?
We had sales of over 4% (compared to 2008). Having had a tough first half, we had a second half with a growth of over 10%.

2009 has been quite dynamic with respect to your acquisitions in mining. You have increased your participation in Lake Shore Gold Corp (Canada) as well as Gold Resources Corporation (USA). Will your long term goal be to control both to gain more power in Latin America?
Gold Resources has a mine in Mexico, called El Aguila (in Oaxaca). It is extremely promising. We increased our stake to 27%.

Are you planning to acquire 50% or more of the shares?
Yes, definitely. We have already talked with them (a group of geologists) and they want to rely on us for production. They want to continue exploring and we will focus solely on production.

Would that also be the plan for Lake Shore Gold?
In Lake Shore we already had 40%, but this company merged with West Timmins, so our share percentage went down to 20%. So that is why we started to buy; we now have 36%. Our goal is to continue buying up to 50% plus one.

An interview with Eduardo HochschildThis year you also acquired the operation Southwestern Gold in Peru. What are you looking for with these purchases?
A company that does not grow, dies. We look forward to further growth. The acquisition of 100% of Southwestern Gold gave us projects in the south of Peru that are very interesting. There is gold and silver but also copper and we are beginning to explore and develop it. There will be very intense development this 2010.

A challenge for all companies in the coming years will be to ensure the supply of energy that their growth demands. Are you still interested in building a thermo electric power plant in Chilca? How are you going to solve this problem?
It’s an issue we have to look at, it is critical but not as much as you suggest. We are big energy consumers, but we’re not the greatest. But if Peru continues to grow at this pace, the situation is going to get complicated. We need to secure our energy supply, but we’re not so worried.

But have you acquired land in Chilca?
We have acquired land, but we are not doing anything yet.

Pluspetrol has said to you, just like it has said to many other enterprises, that they will not be able to provide gas …
There are other sources of energy. We are looking for a deal that will give us security regarding energy. We did not find it in 2009 and if we do not find it this year, it will still not be critical. It is an issue that we will probably solve in 2011.

You had the hydroelectric plant Energía Pacasmayo. Do you regret having left the industry?
It was an interesting hydropower, but it only worked on peak hours. It was useful for any generators that were bigger than us but not for what we needed. We sold at a pretty good price and that allowed us to do other things in Cementos Pacasmayo.

Would you invest in a power plant only for you own consumption or perhaps are you planning on playing a greater role in the energy sector?
We’re not looking to do business in energy, we’ll leave that to those who know. Our business is the transformation of raw materials and the sale of commodities.

The issue of climate change lies within the challenges of companies looking to survive in the future. As a mining company that uses a lot of water, what precautions are being taken when facing the possibility that the resource becomes increasingly scarce?
We’re trying to recirculate the water we consume. We have not done reached 100% yet but for the coming years we will succeed. Thus, we will reduce the impact of mining on the environment.

In the cement business, where have you invested to maintain your growth?
In the business of phosphates, with Fosfatos del Pacifico. It is a field in which we expected to find between two and five million tons of phosphates, hoping to reach 20. Today we know that there are 600 million tons and even a lot more.

Do you still intend to invest US $300 million in that plant?
It depends. By having this amount of reserves, what will define the investment is consumption. We have focused on developing the site; we now need to find the size of the plant we want in terms of consumption. Once we defined this, we will decide on the size of investment, which could be between $250 million and $400 million.

What do you think the cement sales in 2010 will be like?
In the case of cement, the start of 2009 was bad. There was a month when sales fell compared to 2008, but the second half was better. If we project this last stretch of the year, I believe that 2010 will be a good year. We will grow between 6% and 15%.

What is your greatest fear in 2010?
The electoral campaigns.

Some candidates go to the communities surrounding the mine and say that gold and silver belongs to the communities and not to the mining companies…
The only thing that will bring development to the highlands is mining. But we must do it in harmony with the communities. If you do not pollute the air and recirculate the water, you are providing jobs without polluting the environment. Formal miners aim for that. The state should address more forcefully the political movements that threaten security. The lack of presence of the state in the highlands allows there to be caciques (political bosses) that generated difficult situations. Peru will continue where it is. It would be illogical to not continue in the same way.

Have formal miners understood that for further growth they should contribute to economic development in surrounding communities?
There have been three periods. First, before (the violence of Shining Path) when there was much affinity with the communities, people always participated with them. There was lots of communication although not as much as there is today. Then (the violence of Shining Path) came and forced mines to retreat. That drew us away and created antagonism among communities. Mining was halted for many years. Now that the sector has grown it has been hard to reach and understanding again. But today we are experiencing a return to the past, but with more planning. Seventy percent of roads in the highlands are there thanks to mining, the education is there thanks to the mines. Mining is central to the development of the highlands.

Translated from Spanish by Diana Schwalb