(Adds analyst comments, outlook.)

By Devon Maylie

   Of DOW JONES NEWSWIRES

Hochschild Mining PLC (HOC.LN) Wednesday reported its full-year production that met guidance but now the company must tap into its developing projects and exploration to battle falling output.

Hochschild chief executive Ignacio Bustamante said Wednesday that the miner is increasing its exploration budget by 40% on the year in 2011 to $70 million.

The precious metal miner joins the ranks of major miners in boosting spending budgets in an effort to get more resources out of the ground amid rising prices for commodities and aging assets. At the end of last year both Rio Tinto PLC (RIO) and Xstrata PLC (XTA.LN) announced increased spending plans.

“Exploration remains the focus [of Hochschild] with the pressure on to fill the production dip over the next few years,” Numis Securities Ltd. said in a note following the miner’s full-year production results.

The miner produced 26.4 million attributable silver equivalent ounces in 2010, in line with expectations, and down slightly from 2009 output of 24.6 million ounces. It forecasts 2011 silver output to be lower still at 22.5 million silver equivalent ounces.

New projects will be important to shareholders, Canaccord analysts said in a note. Hochschild said production at the aging Ares mine will continue to decline and it expects to close the mine in the second half of 2011. Moris, the company’s Mexican operation, is also scheduled for closure in 2011.

Hochschild chief executive Bustamante said the increased exploration budget will be directed to long-term projects which currently comprises 28 different drill targets at its existing mines and exploration sites throughout the Americas, among them seven potential “company makers,” he said.

In addition, Bustamante said Hochschild will progress with feasibility studies at Inmaculada, Azuca and Crespo, which together have the potential to add over 12 million attributable silver equivalent ounces per year to the miner’s production profile from 2014.

“This reemphasis [on exploration spending] reflects a redirection away from the acquisition strategy that seemed to drive the moves into Canada and Mexico,” said mining analysts at Canaccord.

Hochschild said Wednesday that it has already had success in its new project development. Following a scoping study at its 100% owned Crespo mine, Hochschild estimates it will produce silver equivalent of 2.3 million ounces annually starting from 2014.

There will be pressures on the miner, however. Hochschild said that it expects the overall 2010 unit cost per metric ton increase to be slightly higher than expected as a result of substantially higher metal prices, which have increased royalties, the effect of the longer-than-anticipated mine life at the high cost Ares operation, and local price inflation in Argentina.

Hochschild, based in Lima, Peru, operates five mines in Peru, Argentina and Mexico.

-By Devon Maylie, Dow Jones Newswires; +44 20 7842 9483; [email protected]

(END) Dow Jones Newswires