The most impressive advance in the stock market this year is a little-known Peruvian miner that rode the comeback in silver.
Hochschild Mining PLC, which operates three mines in Peru and one in Argentina, has soared 460 per cent in 2016, beating every other company in the Bloomberg world index of 5,125 stocks. The shares slid 5.2 per cent in London trading on Thursday.
Higher silver prices, new production from its flagship Inmaculada mine in Peru and the weakening Argentine peso have made the stock a favourite for investors. Hochschild has cut back on debt and is expected to report its first profit after three years of losses.
Now the company's strategy is focusing on finding new reserves of silver and gold near current plants and using more of its processing capacity, according to Ignacio Bustamante, chief executive officer of Hochschild. He plans to avoid buying any new assets.
"There's going to be a lot of pressure from investors not to do [a merger or acquisition]," Mr. Bustamante said. "There's been a lot of value destruction in acquisitions."
It's yet another example of how mining companies have reset their ambition. After racking up billions of dollars in debt in the race to feed China's commodities demand, many are now going in reverse. Debt levels are falling as companies cut costs, sell assets and pursue only the most-profitable mines. Rio Tinto Group's CEO summed it up last month when he said the world's second-biggest miner could be "boring" for a long time.
For silver companies, though, this year has been a surprising recovery. Precious metals rallied on signs that the U.S. Federal Reserve will keep interest rates low, boosting the appeal of investments that don't generate a yield. Silver is up 37 per cent in 2016, on track for the biggest annual gain since 2010.
The second-best performance in the Bloomberg world index is also a silver producer. Coeur Mining Inc., a Chicago-based company, soared 390 per cent this year.
For Hochschild, the best stock gains are likely in the past, according to analysts at BMO Nesbitt Burns. There are no "significant catalysts going forward, certainly not like the deleveraging of its balance sheet earlier this year," the bank said in a report last week.
The company, which plans to mine the equivalent of 34 million ounces of silver this year, is currently using only about 70 per cent of its capacity. Uncovering new reserves could add another 10 million ounces a year to output, Mr. Bustamante said.
Further gains in silver will depend on the pace of U.S. rate increases, the strength of the dollar and the outcome of the U.S. presidential election, Mr. Bustamante said.
"In the long-term, based on the macro trends we are seeing, prices should go up," he said. "Right now, we're in a volatile price environment. Prices can go back down again."