Hochschild Q3 output falls, but on track for annual target

* Q3 attributable production 4.8 mln silver equiv ounces

* Keeps FY production target of 21 mln silver equiv ounces

* Sees further cost savings next year

* Shares (Berlin: DI6.BE - news) fall as much as 3.6 pct (Rewrites first paragraph, adds detail)

By Esha Vaish

Oct 23 (Reuters) - Peruvian precious metals (CDNX: PPX.V - news) miner Hochschild posted a decline in third-quarter production, hit by lower grades at its Pallancata mine and a two-week strike at its Arcata asset, but said was it was still on track to reach its annual target.

The company, which gets the bulk of its production from underground mines in southern Peru, said attributable production dropped to 4.8 million silver equivalent ounces in the three months ended Sept. 30, from 6.3 million silver equivalent ounces a year earlier.

However, thanks to strong output in the first half, Hochschild kept its production target of 21 million silver equivalent ounces for the year.

"Everybody was thinking that they're going to beat their numbers quite strongly for the year, and it doesn't look like it's going to be quite so strong," Numis Securities analyst Cailey Barker told Reuters.

Analysts on average are expecting full-year EBITDA of $155.9 million, on revenue of $516.18 million, according to Thomson Reuters I/B/E/S.

Last year, a sudden and sharp drop in bullion prices to their lowest in a decade knocked miners cold, putting their balance sheets under stress and forcing many of them to slash costs to limit the damage.

Hochschild responded by halting dividend payments, slashing directors' salaries and cutting costs at its mines -- measures that ultimately helped it exceed its target of saving $200 million this year.

The company, which also operates in Argentina, said on Thursday it had already saved about $270 million so far this year and expected all-in sustaining costs per silver equivalent ounce to fall by 0-5 percent. Further cost savings of about $50 million has been identified for 2015, said Hochschild.

Barker said given the weakness in prices, the company's 2015 savings needed to be close to the 2014 amount, although it would be a "tall order for them".

Silver, which lost 36 percent in value in 2013, has fallen yet another 8 percent since the beginning of the year. Gold has risen 2.9 percent, barely denting the impact of the 28 percent tumble it took last year.

"They're still under water at these prices ... It's all predicated on Inmaculada coming in and what sort of costs that will eventually come out with," analyst Barker said.

Although Hochschild had expected its Inmaculada project in southern Peru to be commissioned at the end of the year, analysts at Barclays (LSE: BARC.L - news) said the company was still a "bit behind" on plant construction.

"It appears first production will probably be slightly delayed compared to the original (plan of) Q4 2014," Barclays analysts said, but kept their price target of 163 pence on Hochschild stock.

The company's shares, which have been trading near their lowest in more than five years, closed down more than 3 percent. They have shed 13 percent in value since the start of the year. (Reporting by Esha Vaish in Bangalore; Additional reporting by Silvia Antonioli in London; Editing by Gopakumar Warrier and Mark Potter)