TIDMHOC
RNS Number : 4004A
Hochschild Mining PLC
07 October 2009
________________________________________________________________________
7 October 2009
Production Report for the three months to 30 September 2009 ("Q309") &
Interim Management Statement
Highlights
· Q3 production of 7.5 million attributable silver equivalent ounces, up 20%
year-on-year
· On track to achieve full year production target of 28 million attributable
silver equivalent ounces: representing a 7% increase on 2008
· Maintained focus on profitable ounces and cost reduction
· Increased strategic investment in Gold Resource Corporation from 17% to 24%
· Continued development of project pipeline and resource base
· Convertible bond offering and placing to raise approximately $250 million, as
announced separately today
Miguel Aramburú, Chief Executive Officer commented;
"I am delighted to report another quarter of strong production. With our
production target on track, our focus is now on advancing our acquisition and
investment strategy and developing our project pipeline to ensure a strong
resource base for future growth. This is an exciting period for the Company. Our
strategic investments in Lake Shore Gold and Gold Resource Corporation were well
timed and both companies are making great strides towards production. With the
support of the capital raising also announced today, we will continue to deliver
our growth strategy in the interests of our shareholders."
Overview
Production in the third quarter increased 20% year-on-year and 3%
quarter-on-quarter to 7.5 million attributable silver equivalent ounces,
comprised of 5.0 million ounces of silver and 41.9 thousand ounces of gold.
With attributable production in the first nine months of 2009 up 18%
year-on-year at 21.4 million silver equivalent ounces, the Company remains
confident of reaching its full year production target of 28 million attributable
silver equivalent ounces, comprised of approximately 19.1 million ounces of
silver and 148.2 thousand ounces of gold.
Production at Arcata, Pallancata and San José continue to benefit from the
capacity expansions which were completed in the second half of 2008. Results
were particularly strong at Pallancata where both silver and gold production
more than doubled year-on-year and at Arcata, where silver and gold production
increased 11% and 30% respectively.
San José also reported impressive results, with silver and gold production up
42% and 82% respectively. This is despite temporary production stoppages in the
second half due to industrial action at the operation, which has not impacted
the Company's ability to achieve its full year production target. Hochschild
continues to work closely with employees and unions to ensure that it maintains
good relations across its operations.
The Company is focused on producing profitable ounces and diligently controlling
costs. Good progress was made in this area in the first half of the year and
management continues to implement and assess projects which will increase long
term operational efficiency. For example, the conversion of Arcata's production
to doré, which is due to be completed in 2010, will improve operational
efficiency, maximise revenue, lower working capital requirements and allow the
Company to benefit from more stable commercial terms.
Acquisitions
Hochschild maintains its disciplined approach to acquisitions, focusing on high
margin precious metals projects, particularly in existing operational clusters
or in new mineral rich regions of the Americas. Following an extremely active 18
months, in which the Company has spent $340 million on acquisitions and
investments, Hochschild has announced today that it intends to raise additional
funding via an equity placing and convertible bond offering. Proceeds will be
used to reinforce the Company's balance sheet, pre-pay part of its syndicated
loan facility and to provide increased financial flexibility to continue to
pursue its M&A strategy, including potential further investment in its current
strategic partners; Lake Shore Gold Corp. and Gold Resource Corporation ("GRC").
Lake Shore Gold continues to progress towards production with targets of 30,000
ounces of gold by the end of 2009, increasing to 100,000 ounces in 2010 and
200,000 ounces in 2011. Hochschild has invested a total of $182.2 million to
date in Lake Shore Gold and currently maintains a 40% investment in the company,
which has a market capitalisation of over $600 million.
In August 2009, Lake Shore Gold announced a definitive business combination
agreement to acquire West Timmins Mining Inc. ("WTM"), creating the new
large-scale, wholly-owned Timmins West Gold Mine Complex and giving Lake Shore
Gold a dominant position in this highly prospective area. The Complex will
consist of Lake Shore Gold's 100%-owned Timmins Mine with existing mine
infrastructure, the Thunder Creek Joint Venture, where high-grade intercepts
have been reported within 800 metres of the Timmins shaft, and an extensive land
package of adjacent exploration properties. Hochschild is fully supportive of
the transaction.
During the quarter, Hochschild increased its stake in GRC from 17% to 24%,
bringing its total investment in the company to $38 million. GRC, which has a
current market capitalisation in excess of $315 million, is a precious metals
mining company with a number of 100% owned, high grade development projects in
southern Mexico including the El Aguila project. This project is scheduled to
begin production by the end of 2009 and the company expects to produce
approximately 70,000 ounces of gold (4.2 million silver equivalent ounces) in
its first full year of operation.
Hochschild is extremely confident about the long term potential of this
investment and has the ability to increase its stake in GRC from 24% to 40% with
the full support of the GRC board. After the standstill period ends in February
2011, Hochschild can purchase additional shares in GRC without restriction.
Average realisable prices and sales
Average realisable prices (which include commercial discounts) in Q309 were
$957.53/oz for gold and $14.82/oz for silver (excluding forward sales
contracts). Average realisable precious metals prices for the nine months to 30
September 2009 were $921.95/oz for gold and $13.71/oz for silver.
In response to the extreme market volatility in the second half of 2008,
Hochschild announced in Q109 that it had sold forward 10.7 million silver
equivalent ounces of its 2009 production comprised of 8.9 million ounces of
silver and 30,000 ounces of gold. As at 30 September, 2.2 million ounces of
silver and 9.0 thousand ounces of gold were outstanding at an average price of
$12.11/oz and $971.75/oz respectively. A realised loss of $6.7 million will be
recorded under finance income/expense for the third quarter of 2009,
representing the difference between the average monthly market prices and the
prices contracted in the above mentioned forward sales contracts. The
mark-to-market unrealised loss amounts to $9.6 million as at 30 September 2009.
In order to ensure an ongoing level of cash flow stability to continue to fund
its growth strategy, Hochschild has secured a 'zero cost collar' for 5.5 million
ounces of its 2010 silver production with an average 'floor' at $12.7/oz and an
average 'cap' at $19.7/oz. Hochschild will continue to monitor market trends and
will consider further collars as appropriate.
Exploration
Exploration is a vital part of Hochschild's strategy and the Company continues
to commit significant investment to expanding its resource base with the aim of
increasing future profitable production.
The Company is focused on brownfield exploration in order to expand the mine
life of its main operations, Arcata, Pallancata and San José. The drill
programme at Arcata, the Company's flagship silver mine in southern Peru, is
delivering positive results with the discovery of three new mineralised
structures in close proximity to the property's existing Mariana vein:
+-----------------------------+---------------------------+---------------------------+
| Alexandra | Socorro | 800 vein |
| vein | vein | |
| New | | |
| discovery | | |
| at mine | | |
| site: | | |
+-----------------------------+---------------------------+---------------------------+
| 0.9m at 5.56g/t Au & | 0.7m at 4.6 g/t Au & 468 | 0.7m at 2.7 g/t Au, 533 |
| 2,065g/t Ag | g/t | g/t Ag |
+-----------------------------+---------------------------+---------------------------+
| | 0.6m at 1.7 g/t Au and | 0.2m at 14.4 g/t Au & 437 |
| | 539 g/t Ag | g/t Ag |
+-----------------------------+---------------------------+---------------------------+
| | 0.5m at 7.8 g/t Au & | |
| | 3,910 g/t Ag | |
+-----------------------------+---------------------------+---------------------------+
At Pallancata in Peru, the Company is mainly focused on the eastern extension of
the Pallacata vein and in the newly discovered Rina vein:
+-------------------------------+----------------------------------------+
| Pallancata | Rina |
| East | |
+-------------------------------+----------------------------------------+
| Recognized for additional | 1.2m at 0.8 g/t Au & 344 g/t Ag |
| 800m along strike, still open | |
| to the SE: | |
+-------------------------------+----------------------------------------+
| 0.7m at 0.9 g/t Au & 325 g/t | |
| Ag | |
+-------------------------------+----------------------------------------+
| 0.7m at 1.20 g/t Au & 370 g/t | |
| Ag | |
+-------------------------------+----------------------------------------+
| 0.70m at 2.0 g/t Au and 306 | |
| g/t Ag | |
+-------------------------------+----------------------------------------+
In Argentina, the Company has discovered two new veins at San José which are
rapidly being drilled to increase the resource and reserve base of the
operation:
+-------------------------------+----------------------------------------+
| Ramal Kospi 861D: High-grade | Ramal Ayelen |
| intersects | |
+-------------------------------+----------------------------------------+
| 1.5m. at 60.9 g/t Au &1,376 | 1.0 m 5.81g/t Au & 655 g/t Ag |
| g/t Ag | |
+-------------------------------+----------------------------------------+
| 1.3m. at 7.4 g/t Au & 928 g/t | 2.7 m at 4.0 g/t Au & 515 g/t Ag |
| Ag | |
+-------------------------------+----------------------------------------+
Azuca, is a 100% owned development in Peru, where we are moving towards an
initial economic assessment. It has an initial resource of 1.8 million tonnes
with 327 g/t silver and 1.34 g/t gold (as of December 2008). Two new veins
discovered this year with very encouraging results:
+-------------------------------+----------------------------------------+
| Azuca Oeste vein | Yanamayo vein |
+-------------------------------+----------------------------------------+
| Wide drill intercept | High grade silver and gold |
+-------------------------------+----------------------------------------+
| 12.1m at 2.4 g/t Au & 350 g/t | 0.9m at 4.6 g/t Au & 1,442 g/t Ag in |
| Ag | surface samples |
+-------------------------------+----------------------------------------+
| | 1.6m at 6.4 g/t Au & 830 g/t Ag in |
| | surface samples |
+-------------------------------+----------------------------------------+
The Company has an active pipeline with numerous projects throughout Argentina,
Canada, Chile, Mexico and
Peru at various stages of development. All projects
are subject to a rigorous evaluation process to ensure that investment is
targeted towards quality assets that will ultimately be brought to production.
The Company is currently focusing its greenfield exploration activities on its
extensive land package in southern Peru: Preliminary results at Crespo, which
was acquired as part of the Liam land package, show gold/silver deposits with
high grade zones and we aim to have the first resource estimation on this
project by the end of the year.
In Chile, the Company's two joint ventures are reporting encouraging results.
The Encrucijada project is located along the same structural corridor and
equivalent geological context as Yamana's El Peñon mine, located 100km north
(endowment approx. 9.0 moz Au eq). At the North target a 10 hole (3,362m) fence
revealed multiple concealed gold vein structures in a 120 metre wide structural
corridor that averages 0.4 g/t Au (best intercepts include 2m at 4.0 g/t Au; 3m
at 3.8 g/t Au; 1m at 4.5 g/t Au). Follow-up drilling along strike as well as
first-pass drilling in three more targets are to be tested by the end of the
year.
At the Victoria project, significant precious metal mineralisation has been
identified at the Vaquillas target where 4,000m was drilled in 14 holes. Partial
results from 9 holes confirm a broad zone of highly anomalous gold and silver
over an area of 1km by 1 km, with high-grade discrete veins (open in all
directions). Significant results include: 12m at 1,8 g/t Au & 208 g/t Ag; 8m at
5.5 g/t Au & 15 g/t Ag (includes 1m at 37.7 g/t Au & 60 g/t Ag).
=------------------------------------------------------------------------------
=----------------------------------------------
Other than as described in this announcement, there have been no material events
or transactions in the period from 1 July 2009 to 6 October 2009 which have
affected Hochschild's financial position.
=------------------------------------------------------------------------------
=-----------------------------------------------------
A conference call will be held at 3.15pm (London time) on 7 October 2009 for
analysts and investors.
Dial in details as follows:
UK+44 (0) 203 003 2666
A recording of the conference call will be available for one week following its
conclusion, accessible from the following telephone number:
UK+ 44 (0) 208 196 1998
Access code8906758#
__________________________________________________________________
Enquiries:
Hochschild Mining plc
Isabel Lütgendorf+44 (0)20 7907 2934
Head of Investor Relations
Finsbury
Robin Walker+44 (0)20 7251 3801
Public Relations
__________________________________________________________________
About Hochschild Mining plc:
Hochschild Mining plc is a leading precious metals company listed on the London
Stock Exchange (HOCM.L / HOC LN) with a primary focus on the exploration,
mining, processing and sale of silver and gold. Hochschild has over forty years'
experience in the mining of precious metal epithermal vein deposits and
currently operates four underground epithermal vein mines, three located in
southern Peru, one in southern Argentina and one open pit mine in northern
Mexico. Hochschild also has numerous long-term prospects throughout the
Americas.
TOTAL GROUP PRODUCTION1
+--------------------------+-----------+-----------+-----------+------------+
| | Q3 | Q2 | Q3 | 9mths |
| | 2009 | 2009 | 2008 | 2009 |
+--------------------------+-----------+-----------+-----------+------------+
| Silver production (koz) | 6,668 | 6,217 | 4,890 | 18,460 |
+--------------------------+-----------+-----------+-----------+------------+
| Gold production (koz) | 56.80 | 53.62 | 45.98 | 160.53 |
+--------------------------+-----------+-----------+-----------+------------+
| Total silver equivalent | 10,075 | 9,434 | 7,649 | 28,092 |
| (koz) | | | | |
+--------------------------+-----------+-----------+-----------+------------+
| Total gold equivalent | 167.92 | 157.24 | 127.48 | 468.19 |
| (koz) | | | | |
+--------------------------+-----------+-----------+-----------+------------+
| Silver sold (koz) | 6,969 | 6,485 | 4,661 | 17,874 |
+--------------------------+-----------+-----------+-----------+------------+
| Gold sold (koz) | 61.15 | 59.30 | 47.36 | 159.76 |
+--------------------------+-----------+-----------+-----------+------------+
Total production includes 100% of all production, including production
attributable to joint venture partners at San José and Pallancata.
ATTRIBUTABLE GROUP PRODUCTION1
+--------------------------+-----------+-----------+-----------+------------+
| | Q3 | Q2 | Q3 | 9mths |
| | 2009 | 2009 | 2008 | 2009 |
+--------------------------+-----------+-----------+-----------+------------+
| Silver production (koz) | 4,978 | 4,839 | 4,041 | 14,228 |
+--------------------------+-----------+-----------+-----------+------------+
| Gold production (koz) | 41.94 | 40.16 | 36.73 | 119.54 |
+--------------------------+-----------+-----------+-----------+------------+
| Attrib. silver | 7,494 | 7,249 | 6,245 | 21,400 |
| equivalent (koz) | | | | |
+--------------------------+-----------+-----------+-----------+------------+
| Attrib. gold equivalent | 124.90 | 120.82 | 104.08 | 356.67 |
| (koz) | | | | |
+--------------------------+-----------+-----------+-----------+------------+
Attributable production includes 100% of all production from Arcata, Ares and
Moris, 60% from Pallancata and 51% from San José.
QUARTERLY PRODUCTION BY MINE
ARCATA
+--------------------------+------------+----------+----------+------------+
| Product | Q3 | Q2 | Q3 | 9mths |
| | 2009 | 2009 | 2008 | 2009 |
+--------------------------+------------+----------+----------+------------+
| Ore production (tonnes) | 168,718 | 161,999 | 158,893 | 480,224 |
+--------------------------+------------+----------+----------+------------+
| Average head grade | 493.81 | 547.91 | 533.66 | 524.32 |
| silver (g/t) | | | | |
+--------------------------+------------+----------+----------+------------+
| Average head grade gold | 1.68 | 1.62 | 1.48 | 1.63 |
| (g/t) | | | | |
+--------------------------+------------+----------+----------+------------+
| Concentrate produced | 5,456 | 6,064 | 5,502 | 16,844 |
| (tonnes) | | | | |
+--------------------------+------------+----------+----------+------------+
| Silver grade in | 14.21 | 13.54 | 13.86 | 13.82 |
| concentrate (kg/t) | | | | |
+--------------------------+------------+----------+----------+------------+
| Gold grade in | 0.05 | 0.04 | 0.04 | 0.04 |
| concentrate (kg/t) | | | | |
+--------------------------+------------+----------+----------+------------+
| Silver produced (koz) | 2,475 | 2,624 | 2,236 | 7,445 |
+--------------------------+------------+----------+----------+------------+
| Gold produced (koz) | 8.31 | 7.44 | 6.39 | 22.39 |
+--------------------------+------------+----------+----------+------------+
| Silver sold (koz) | 2,512 | 2,080 | 1,683 | 6,686 |
+--------------------------+------------+----------+----------+------------+
| Gold sold (koz) | 8.04 | 5.64 | 4.27 | 20.02 |
+--------------------------+------------+----------+----------+------------+
ARES
+--------------------------+------------+----------+----------+------------+
| Product | Q3 | Q2 | Q3 | 9mths |
| | 2009 | 2009 | 2008 | 2009 |
+--------------------------+------------+----------+----------+------------+
| Ore production (tonnes) | 88,933 | 84,671 | 89,798 | 250,897 |
+--------------------------+------------+----------+----------+------------+
| Average head grade | 106.91 | 84.05 | 139.66 | 95.51 |
| silver (g/t) | | | | |
+--------------------------+------------+----------+----------+------------+
| Average head grade gold | 3.91 | 4.99 | 5.67 | 4.57 |
| (g/t) | | | | |
+--------------------------+------------+----------+----------+------------+
| Doré total (koz) | 273.73 | 209.32 | 368.74 | 699 |
+--------------------------+------------+----------+----------+------------+
| Silver produced (koz) | 262 | 196 | 352 | 661 |
+--------------------------+------------+----------+----------+------------+
| Gold produced (koz) | 10.30 | 12.79 | 15.47 | 34.46 |
+--------------------------+------------+----------+----------+------------+
| Silver sold (koz) | 246 | 221 | 934 | 641 |
+--------------------------+------------+----------+----------+------------+
| Gold sold (koz) | 10.41 | 14.09 | 23.13 | 34.06 |
+--------------------------+------------+----------+----------+------------+
PALLANCATA1
+--------------------------+------------+----------+----------+------------+
| Product | Q3 | Q2 | Q3 | 9mths |
| | 2009 | 2009 | 2008 | 2009 |
+--------------------------+------------+----------+----------+------------+
| Ore production (tonnes) | 269,128 | 220,288 | 88,247 | 644,969 |
+--------------------------+------------+----------+----------+------------+
| Average head grade | 334.72 | 306.81 | 337.22 | 316.09 |
| silver (g/t) | | | | |
+--------------------------+------------+----------+----------+------------+
| Average head grade gold | 1.49 | 1.37 | 1.56 | 1.40 |
| (g/t) | | | | |
+--------------------------+------------+----------+----------+------------+
| Concentrate produced | 2,160 | 1,781 | 909 | 5,164 |
| (tonnes) | | | | |
+--------------------------+------------+----------+----------+------------+
| Silver grade in | 36.10 | 32.88 | 30.76 | 34.27 |
| concentrate (kg/t) | | | | |
+--------------------------+------------+----------+----------+------------+
| Gold grade in | 0.14 | 0.13 | 0.11 | 0.13 |
| concentrate (kg/t) | | | | |
+--------------------------+------------+----------+----------+------------+
| Silver produced (koz) | 2,507 | 1,883 | 899 | 5,689 |
+--------------------------+------------+----------+----------+------------+
| Gold produced (koz) | 9.62 | 7.17 | 3.35 | 21.73 |
+--------------------------+------------+----------+----------+------------+
| Silver sold (koz) | 2,351 | 2,054 | 824 | 5,542 |
+--------------------------+------------+----------+----------+------------+
| Gold sold (koz) | 8.78 | 7.36 | 3.02 | 20.22 |
+--------------------------+------------+----------+----------+------------+
The Company has a 60% interest in Pallancata.
SELENE1
+--------------------------+------------+----------+----------+------------+
| Product | Q3 | Q2 | Q3 | 9mths |
| | 2009 | 2009 | 2008 | 2009 |
+--------------------------+------------+----------+----------+------------+
| Ore production (tonnes) | - | 44,881 | 67,659 | 109,893 |
+--------------------------+------------+----------+----------+------------+
| Average head grade | - | 191.26 | 205.09 | 216.76 |
| silver (g/t) | | | | |
+--------------------------+------------+----------+----------+------------+
| Average head grade gold | - | 0.95 | 1.23 | 1.09 |
| (g/t) | | | | |
+--------------------------+------------+----------+----------+------------+
| Concentrate produced | - | 430 | 845 | 1,057 |
| (tonnes) | | | | |
+--------------------------+------------+----------+----------+------------+
| Silver grade in | - | 16.48 | 13.05 | 18.55 |
| concentrate (kg/t) | | | | |
+--------------------------+------------+----------+----------+------------+
| Gold grade in | - | 0.07 | 0.07 | 0.09 |
| concentrate (kg/t) | | | | |
+--------------------------+------------+----------+----------+------------+
| Silver produced (koz) | - | 228 | 400 | 628 |
+--------------------------+------------+----------+----------+------------+
| Gold produced (koz) | - | 1.03 | 2.20 | 3.02 |
+--------------------------+------------+----------+----------+------------+
| Silver sold (koz) | 60 | 393 | 364 | 610 |
+--------------------------+------------+----------+----------+------------+
| Gold sold (koz) | 0.28 | 1.77 | 1.93 | 2.83 |
+--------------------------+------------+----------+----------+------------+
Selene was closed on 28 May 2009
SAN JOSÉ1
+--------------------------+------------+----------+----------+------------+
| Product | Q3 | Q2 | Q3 | 9mths |
| | 2009 | 2009 | 2008 | 2009 |
+--------------------------+------------+----------+----------+------------+
| Ore production (tonnes) | 122,342 | 119,184 | 67,589 | 360,511 |
+--------------------------+------------+----------+----------+------------+
| Average head grade | 406.63 | 400.17 | 546.58 | 411.36 |
| silver (g/t) | | | | |
+--------------------------+------------+----------+----------+------------+
| Average head grade gold | 6.65 | 5.65 | 6.78 | 5.87 |
| (g/t) | | | | |
+--------------------------+------------+----------+----------+------------+
| Silver produced (koz) | 1,402 | 1,265 | 990 | 3,966 |
+--------------------------+------------+----------+----------+------------+
| Gold produced (koz) | 22.47 | 18.08 | 12.34 | 57.11 |
+--------------------------+------------+----------+----------+------------+
| Silver sold (koz) | 1,783 | 1,709 | 846 | 4,330 |
+--------------------------+------------+----------+----------+------------+
| Gold sold (koz) | 28.14 | 21.93 | 9.76 | 61.45 |
+--------------------------+------------+----------+----------+------------+
The Company has a 51% interest in San José.
MORIS
+--------------------------+------------+----------+----------+------------+
| Product | Q3 | Q2 | Q3 | 9mths |
| | 2009 | 2009 | 2008 | 2009 |
+--------------------------+------------+----------+----------+------------+
| Ore production (tonnes) | 316,725 | 341,413 | 193,009 | 949,222 |
+--------------------------+------------+----------+----------+------------+
| Average head grade | 5.04 | 5.18 | 6.31 | 5.02 |
| silver (g/t) | | | | |
+--------------------------+------------+----------+----------+------------+
| Average head grade gold | 1.44 | 1.37 | 1.53 | 1.39 |
| (g/t) | | | | |
+--------------------------+------------+----------+----------+------------+
| Silver produced (koz) | 22 | 23 | 14 | 71 |
+--------------------------+------------+----------+----------+------------+
| Gold produced (koz) | 6.09 | 7.11 | 6.24 | 21.82 |
+--------------------------+------------+----------+----------+------------+
| Silver sold (koz) | 16 | 28 | 10 | 65 |
+--------------------------+------------+----------+----------+------------+
| Gold sold (koz) | 5.51 | 8.51 | 5.25 | 21.20 |
+--------------------------+------------+----------+----------+------------+
The securities mentioned herein (the "Securities") have not been, and will not
be, registered under the United States Securities Act of 1933 (the "Securities
Act") and may not be offered or sold into the United States absent registration
or an exemption from the registration requirements of the Securities Act. There
will be no public offer of the Securities in the United States.
Forward looking statements
This announcement contains certain forward looking statements, including such
statements within the meaning of Section 27A of the US Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
In particular, such forward looking statements may relate to matters such as the
business, strategy, investments, production, major projects and their
contribution to expected production and other plans of Hochschild Mining plc and
its current goals, assumptions and expectations relating to its future financial
condition, performance and results.
Forward-looking statements include, without limitation, statements typically
containing words such as "intends", "expects", "anticipates", "targets",
"plans", "estimates" and words of similar import. By their nature, forward
looking statements involve risks and uncertainties because they relate to events
and depend on circumstances that will or may occur in the future. Actual
results, performance or achievements of Hochschild Mining plc may be materially
different from any future results, performance or achievements expressed or
implied by such forward looking statements. Factors that could cause or
contribute to differences between the actual results, performance or
achievements of Hochschild Mining plc and current expectations include, but are
not limited to, legislative, fiscal and regulatory developments, competitive
conditions, technological developments, exchange rate fluctuations and general
economic conditions. These factors, risks and uncertainties are referred to in
the section of this announcement entitled 'Risks' which, in turn, refers to
matters disclosed in the Risk Management section of the 2008 Annual Report. Past
performance is no guide to future performance and persons needing advice should
consult an independent financial adviser.
The forward looking statements reflect knowledge and information available at
the date of preparation of this announcement. Except as required by the Listing
Rules and applicable law, the Board of Hochschild Mining plc does not undertake
any obligation to update or change any forward looking statements to reflect
events occurring after the date of this announcement. Nothing in this
announcement should be construed as a profit or production forecast.
Risks Relating to the Issuer
Risks relating to the operations of the Issuer and its subsidiary undertakings
(the "Group")
The business of mining metals involves a number of risks and hazards, not all of
which are fully covered by insurance.
The mining business is subject to risks and hazards, many of which are outside
the Group's control. These risks include, but are not limited to, environmental
hazards, industrial accidents, the encountering of unusual or unexpected
geological formations, cave-ins, flooding, earthquakes and periodic
interruptions due to inclement or hazardous weather conditions. These
occurrences could result in damage to, or destruction of, mineral properties or
production facilities, personal injury or death, environmental damage, reduced
production and delays in mining, asset write-downs, monetary losses and possible
legal liability. In particular, the Group's Peruvian and Mexican mines and
projects are located in areas of high seismic risk. Although the facilities have
been designed to take account of such potential activity, a major earthquake
could lead not only to significant damage to the Group's facilities, but also to
the collapse of tailings dams which could result in significant environmental
damage.
Although the Group maintains insurance in an amount that it considers to be
adequate, liabilities might exceed policy limits, in which event the Group could
incur significant costs that could materially and adversely affect its results
of operations. Insurance fully covering many environmental risks (including
potential liability for pollution or other hazards as a result of disposal of
waste products occurring from exploration and production) is not generally
available to the Group or to other companies in the mining industry. The
realisation of any significant liabilities in connection with the Group's mining
activities as described above could have a material adverse effect on its
results of operations or financial condition.
The Group's financial performance is highly dependent upon the price of silver
and gold.
The Group's financial performance is highly dependent on the market price of
silver, which accounted for approximately 61 per cent. of its revenue in 2008,
and the market price of gold, which accounted for approximately 39 per cent. of
its revenue in 2008. These prices have historically been subject to wide
fluctuations and are affected by numerous factors beyond the Group's control,
including international economic and political conditions, levels of supply and
demand, the availability and costs of substitutes, inventory levels maintained
by producers and others, and actions of participants in the commodities markets.
To a lesser extent, the market prices of silver and gold are also subject to the
effects of inventory carrying costs and currency exchange rates. In addition,
the market prices of silver and gold have occasionally been subject to
short-term changes. The market price of silver and gold on 30 June 2009 were
$13.94 per ounce and $934.50 per ounce (p.m. price where applicable),
respectively, according to the London Bullion Market Association, compared with
30 December 2008 prices of $10.83 per ounce and $869.75 per ounce (p.m. price
where applicable), respectively. The price of silver and gold may decline in the
future. Factors that are generally understood to contribute to a decline in the
price of silver and gold include sales by private and government holders, and,
in relation to silver, a general global economic slowdown. Future prolonged
reductions or declines in the world silver and gold prices could have a material
adverse effect on the Group's revenues, profitability and reserves.
The Group's business will be affected by its ability to raise funding to meet
its capital expenditure needs and to achieve its operational and strategic
objectives.
The mining business is capital intensive and the development and exploitation of
silver and gold reserves and the acquisition of machinery and equipment require
substantial capital expenditure. The Group has a number of development projects
and prospects, as well as plans for its existing operations, which involve
significant capital expenditure. In particular, the Group must continue to
invest significant capital to maintain or to increase the amount of reserves
that it exploits and the amount of metal that it produces. Some of the Group's
development projects and prospects may require greater investment than currently
planned. In addition, the Group's ability to continue its exploration,
exploitation, development and operational activities will depend ultimately on
its ability to attract financing. There can be no assurance that the Group will
be able to maintain its production levels and generate sufficient cash flow, or
that the Group will have access to sufficient investments, loans or other
financing alternatives, to continue its exploration, exploitation, development
and processing activities at or above present levels and failure to do so, could
result in delay of projects, postponement of further exploration, assessment or
development of certain properties or projects.
The Group's future performance will be affected by its ability to realise its
existing reserves base, convert resources into reserves and mineralised
potential into resources, and conduct successful exploration.
As at 31 December 2008, the average life of mine of the Group's operating mines
was 3.2 years. To ensure the continued operation of the business and the
delivery of its growth strategy, it is essential that the Group continues to
realise its existing identified reserves, convert resources into reserves,
develop its resource base through the realisation of identified mineralised
potential, and/or undertake successful exploration or acquire new resources.
The Group's mineral reserves and resources constitute estimates that comply with
standard evaluation methods generally used in the international mining industry
and are stated in conformity with the JORC Code. In respect of these estimates,
no assurance can be given that the anticipated tonnages and grades will be
achieved, that the indicated level of recovery will be realised or that mineral
reserves can be mined or processed profitably. Actual reserves may not conform
to geological, metallurgical or other expectations, and the volume and grade of
ore recovered may be below the estimated levels. In addition, there can be no
assurance that mineral recoveries in small scale laboratory tests will be
duplicated in larger-scale tests under on-site conditions or during production.
Lower market prices, increased production costs, reduced recovery rates and
other factors may render the Group's reserves uneconomic to exploit and may
result in revision of its reserve estimates from time to time. Reserve data are
not indicative of future results of operations. If the Group's actual mineral
reserves and resources are less than current estimates or, if the Group fails to
develop its resource base through the realisation of identified mineralised
potential, the Group's results of operations or financial condition may be
materially and adversely affected.
Minerals exploration is highly speculative in nature, involves many risks and is
frequently unsuccessful. Once mineralisation is discovered, it may take a number
of years to complete the geological surveys to assess whether production is
possible and, even if production is possible, the economic feasibility of
production may change during that time. Substantial capital expenditure is
required to identify and delineate ore reserves through geological surveying,
trenching and drilling, to determine metallurgical processes to extract the
metals from the ore and, in the case of new properties, to construct mining and
processing facilities. In particular, the geological characteristics of the
Group's operating mines mean that it is difficult to prove up reserves without
significant investment in underground development. Notwithstanding, the Group is
committed to expanding its reserve and resource base with the aim of increasing
future production and continues to dedicate significant investment to achieving
a minimum 8 year total resource life, including a 4 year reserve life (except
the Ares and Moris mines). However, despite the Group's consistent track record
of replacing its reserves and the Group's expertise in relation to mineral
deposits of this nature, there can be no assurance that the Group will be able
to identify future reserves or continue to extend the mine life of its existing
operations. Any failure by the Group to identify and delineate ore reserves in
the future could have a material adverse effect on its results of operations or
financial condition.
An increase in the Group's production costs could materially and adversely
affect its profitability.
Changes in the Group's production costs could have a major impact on its
profitability. Its main production expenses are personnel costs, materials and
energy. Changes in the costs of the Group's mining and processing operations
could occur as a result of unforeseen events, including international and local
economic and political events, and could result in changes in profitability or
reserve estimates. Many of these factors may be beyond the Group's control.
The Group relies on third party suppliers for a number of its raw materials,
including for the supply of cement, wood, cyanide and steel used in the
construction and continuing development of its mines and the processing of ore.
Any material increase in the cost of raw materials, or the inability by the
Group to source third party suppliers for the supply of its raw materials, could
have a material adverse effect on the Group's results of operations or financial
condition.
The Group's current operations, projects and prospects are located in remote
areas and the Group's production, processing and product delivery relies on the
infrastructure being adequate and remaining available.
The Group's mining, processing, development and exploration activities depend,
to one degree or another, on adequate infrastructure. The regions where the
Group's current operations, projects and prospects are located are sparsely
populated and difficult to access. The Group requires reliable roads, bridges,
power sources and water supplies to access and conduct its operations and the
availability and cost of this infrastructure affects capital and operating costs
and the Group's ability to maintain expected levels of production and sales.
Unusual weather or other natural phenomena, sabotage, government or other
interference in the maintenance or provision of such infrastructure could impact
development of a project, reduce mining volumes, increase mining or exploration
costs, or delay the transportation of raw materials to the mines and projects or
doré and concentrate to customers. Any such issues arising in respect of the
infrastructure supporting or on the Group's sites could materially and adversely
affect the Group's results of operations or financial condition.
Furthermore, any failure or unavailability of the Group's operational
infrastructure (for example, through equipment failure at its concentrator or
leaching facilities or disruption to its transportation arrangements) could
adversely affect the production output from its mines or impact its exploration
activities or development of a mine or project.
In particular, the Group sources the electricity supply for each of its
operating units in Peru and Argentina from the national grid via supply lines
(the Moris mine in Mexico operates with power generators). Whilst back-up power
generators are located at each of the operating units in Peru and Argentina, in
the event of a failure of these supply lines from the national grid, there can
be no assurance that these back-up generators will be effective in preventing
any interruption to the operations of the Group. Any prolonged or persistent
failure of the power supply from the national grid could increase production
costs, significantly delay or halt operations and, consequently, have a material
adverse effect on the Group's results of operations or financial condition.
The Group depends upon trucking to deliver fuel, wood, cement, cyanide, steel
and other supplies to its operations and to deliver its commodities to its
customers. These transport services in some cases may not be adequate to support
the Group's existing operations or to support the Group's expanded operations.
Disruptions of these transport services because of weather-related problems, key
equipment failures, strikes, lock-outs or other events could temporarily impair
the Group's ability to supply its commodities to its customers which could
materially and adversely affect the Group's results of operations or financial
condition.
The Group depends on a pumping system to extract water located underground at
the Arcata unit and to prevent the Arcata mine from flooding. Whilst the Group
has infrastructure in place for the extraction and storage of water, any
prolonged or persistent failure in the operation of the pumping system leading
to a significant delay in extracting water could lead to flooding of the Arcata
mine which, in turn, could result in damage to, or destruction of, a portion of
the Group's production facilities or injury to the Group's employees and
contracted personnel. Any damage to or destruction of such production facilities
or injury to employees or contracted personnel could have a material adverse
effect on the Group's results of operations, financial condition or reputation.
Delay or failure by the Group to complete its development projects could have a
material adverse effect on the Group's growth prospects.
Successful completion of the Group's development projects is subject to various
factors, many of which are not within its control. These factors include the
granting of consents and permits from the relevant government departments, the
availability, terms, conditions and timing of acceptable arrangements for
transportation, construction and refining and the performance of engineering and
construction contractors, mining contractors, suppliers and consultants. The
lack of availability of acceptable contractual terms, or a slower than
anticipated performance by any contractor, could delay or prevent the successful
completion of any of the Group's development projects. Completion or further
expansion of the Group's development projects may be compromised in the event of
a prolonged decline in price levels for silver and gold. There can be no
guarantee as to when the Group's development projects will be completed, whether
the resulting operations will achieve the anticipated production volumes or
whether the costs in developing these projects will be in line with those
anticipated. The Group's inability to complete its development projects as
planned may have a material adverse effect on the results of operations or
financial condition of the Group.
The Group's joint venture arrangements and options may not be successful.
The Group has entered into joint venture arrangements and options for certain of
its development projects in order to gain access to mineral assets as part of
its growth strategy. Some of these joint ventures are fundamental to the Group's
business plan to achieve production growth. The Group is currently operating the
San José (Argentina) and Pallancata (Peru) mines under joint venture
arrangements. The Group is also developing advanced and early stage development
projects through joint venture arrangements. Although the Group has sought to
protect its interests in these development projects by ensuring it has
management control and through the terms of the governing agreements, joint
ventures necessarily involve special risks associated with the possibility that
the joint venture partners may (i) have economic or business interests or goals
that are inconsistent with those of the Group, (ii) take action contrary to the
Group's policies or objectives with respect to its investments, for instance by
veto of proposals in respect of the joint venture operations, or (iii) as a
result of financial or other difficulties, be unable or unwilling to fulfil
their obligations under the joint venture or other agreements. Any of the
foregoing may have a material adverse effect on the results of operations,
financial condition or prospects of the Group through the delay or non-
completion of its development projects. In addition, the termination of certain
of these joint ventures, if not replaced on similar terms, could have a material
adverse effect on the results of operations, financial condition or prospects of
the Group.
If the Group fails to consummate or integrate acquisitions successfully, the
Group's rate of expansion could slow and its results of operations or financial
condition could suffer.
The Group has expanded operations in the Americas through both development and
acquisition of new projects, and the Group expects to continue to do so in the
future. The Group intends to pursue a strategy of identifying and acquiring
early stage projects and/or existing businesses with a view to expanding its
operating businesses. There can be no assurance that the Group will continue to
identify suitable projects, acquisitions and strategic investment opportunities
or that any business acquired will prove to be profitable at all, or as
profitable as its current operations. In addition, acquisitions and investments
involve a number of risks, including possible adverse effects on the Group's
operating results, diversion of management's attention, failure to retain key
personnel in the acquired businesses, risks associated with unanticipated events
or liabilities and difficulties in the integration of the operations.
Fluctuations in currencies may adversely affect the Group's results of
operations and financial condition.
The Group's revenues are almost entirely in U.S. dollars, whilst a substantial
proportion of the Group's costs are incurred in local currencies at its
different operating locations. In addition, the Group expects the amount of
these costs it incurs in local currencies to increase if its pipeline of
development projects and prospects in the Americas commences production. The
Group does not undertake any hedging activities in relation to exchange rates.
As a result, if these local currencies were to significally strengthen against
the U.S. dollar, this could have a material adverse effect on the Group's
financial condition and results of operations. Similarly, Peru and the other
Latin American countries where the Group's projects are located have experienced
periods of high inflation and substantial currency devaluation over recent
decades. Although inflation has been largely stable in recent years in these
jurisdictions, if it were to increase without a corresponding devaluation of the
relevant local currency relative to the U.S. dollar, the Group's financial
condition and results of operations could be materially and adversely affected
The Group engages in limited hedging activities and, therefore, is exposed to
future changes in commodity prices.
The Group is exposed to the effect of changes in commodity prices (in
particular, to the price of silver and gold and to changes in interest rates).
The Group engages in limited hedging activities in relation to prices of silver
and gold, principally (but not limited to) in connection with the security
arrangements for its long-term financing. Accordingly, the Group's results of
operations are exposed to changes in commodity prices.
The Group's revenues are primarily derived from silver and gold production at
five facilities.
The Group's current revenues are primarily from silver and gold produced by the
Arcata, Ares and Pallancata mines in Peru, the San José mine in Argentina and
the Moris mine in Mexico and plant processing services at its Selene Mine Plant.
If mining or processing operations in any one of these complexes were materially
reduced, interrupted or curtailed, then the Group's results of operations or
financial condition could be materially and adversely affected.
A reduction or discontinuance in the Group's refining arrangements could have an
adverse effect on the Group's cashflows, results of operations or financial
condition.
There are a limited number of refineries available throughout the world for the
refining of the Group's doré . The doré produced by the Group is primarily sent
to Johnson Matthey and Argor Heraeus for refining under contracts which are
renewed on a yearly basis. If the refineries were to reduce or discontinue the
arrangements it has in place with the Group or did not agree to a renewal of its
contract, no assurance can be given that an alternative refiner would be
available on acceptable contractual terms, or that delays or disruptions in
sales would not be experienced that could result in an adverse effect on the
Group's cash flows, results of operations or financial condition.
The Group's sales of concentrate could be adversely affected if there were to be
a reduction or discontinuance of purchases by the Group's main customers.
The Group currently sells its concentrate production to a limited number of
smelters and traders worldwide. These sales contracts normally last for a
calendar year and are therefore subject to annual negotiations. If any of these
customers were unexpectedly to reduce or discontinue its purchasing of the
Group's concentrate or did not agree to a renewal of its contract, no assurance
can be given that delays or disruptions in sales would not be experienced until
such time as alternative customers could be found, or that arrangements with
alternative customers would be entered into on terms as favourable to the Group.
Any of the foregoing risks could result in an adverse effect on the Group's cash
flows, results of operations or financial condition.
The Group faces competition from other mining companies for the acquisition of
new properties.
Mines have finite lives and, as a result, the Group seeks to replace and expand
its reserves through the acquisition of new properties and by developing
projects. There is a limited supply of desirable properties with potential
mineralisation available in the areas where the Group would consider conducting
exploration and/or production activities. Because the Group faces competition
for new properties from other mining companies, some of which may have greater
financial resources than the Group, the Group may be unable to acquire
attractive new mining properties on terms that it considers acceptable. As a
result, the Group's revenues from the sale of silver and gold may decline over
time, thereby materially and adversely affecting its results of operations or
financial condition.
The Group depends on its key personnel. If the Group is unable to attract and
retain key personnel, its business may be materially and adversely affected.
The Group's business depends in significant part upon the contributions of a
number of the Group's key senior management and personnel, in particular its
highly skilled team of engineers and geologists. There can be no certainty that
the services of its key personnel will continue to be available to the Group.
Factors critical to retaining the Group's present staff and attracting
additional highly qualified personnel include the Group's ability to provide
these individuals with competitive compensation arrangements. If the Group is
not successful in retaining or attracting highly qualified individuals in key
management positions and highly skilled engineers and geologists, its business
may be materially harmed. In some of the jurisdictions where the Group's
operations and development projects are located, particularly Argentina, it may
be difficult for the Group to find or hire qualified people in the mining
industry who are situated in those jurisdictions or to obtain all of the
necessary services or expertise locally or to conduct operations on its projects
at reasonable rates.
If qualified people and services or expertise cannot be obtained in those
jurisdictions, those services will need to be obtained from people located
elsewhere which will require work permits and compliance with applicable laws
and could result in delays and higher costs to develop its projects.
The Group's business depends on good relations with its employees and with the
communities surrounding its operations.
Although management believes that labour and community relations are currently
stable, there can be no assurance that this will continue and that disruption to
the Group will not occur as a result of work slowdown, work stoppage or strike
or through the failure to maintain good relations with the communities living in
the localities of the Group's operations. During 2009, the Group has had to
suspend operations at its mines in Peru and Argentina due to industrial action
and work stoppages. Work slowdowns, stoppages or other labour-related
developments or community related disputes could result in a decrease in the
Group's production levels and lead to adverse publicity, which could have a
material adverse effect on the Group's results of operations or financial
condition.
Termination of the Group's stability arrangements could have a material adverse
effect on its financial condition or operating results.
The Group has been granted stability certificates by the Ministry of Mines in
Argentina in respect of its San José mine whereby the national and provincial
tax regimes are frozen for a period of 30 years from 15 May 2006 and 20 June
2006, respectively. The termination, renegotiation or withdrawal of the Group's
stability certificates, or any successful challenge as to the validity of these
stability certificates could result in an increase in the amount of tax or
royalties the Group might have to pay or the imposition of new duties or
charges, including a claim for previous non-payment of tax or governmental
royalties covered by these arrangements, which in turn could have a material
adverse effect on the financial condition and operating results of the Group.
The Group is subject to significant laws and governmental regulations, and their
related costs may negatively affect the Group's business.
The Group's operations and exploration and development activities are subject to
extensive laws and regulations governing various matters. These include laws and
regulations relating to environmental protection, management and use of toxic
substances and explosives, management of natural resources, exploration,
development of mines, production and post- closure reclamation, exports, price
controls, repatriation of capital and exchange controls, taxation, mining
royalties, labour standards and occupational health and safety, including mine
safety, and historic and cultural preservation.
The costs associated with compliance with these laws and regulations are
substantial and possible future laws and regulations, changes to existing laws
and regulations (including the imposition of higher taxes and mining royalties)
or more stringent enforcement or restrictive interpretation of current laws and
regulations by governmental authorities, could cause additional expense, capital
expenditures, restrictions on or suspensions of the Group's operations and
delays in the development of its properties. Moreover, these laws and
regulations may allow governmental authorities and private parties to bring
lawsuits based upon damages to property and injury to persons resulting from the
environmental, health and safety impacts of the Group's past and current
operations, and could lead to the imposition of substantial fines, penalties or
other civil or criminal sanctions.
The Group's activities are subject to environmental hazards as a result of the
processes and chemicals used in the Group's extraction and production methods,
which could have a material adverse effect on the Group's business, financial
condition or result of operations.
Mining activities are generally subject to environmental hazards as a result of
the processes and chemicals used in the extraction and production methods. In
particular, the Group employs cyanide in the production of its doré and high
levels of naturally occurring arsenic may be found in its concentrate production
at the Arcata unit. As a result, environmental hazards may exist at the Group's
properties which are currently unknown to it or may arise irrespective of
whether the Group is in compliance with current environmental regulations. In
addition, the storage of tailings may present a risk to the environment,
property and persons. Whilst the design of the Group's tailings dams is in
accordance with governmental guidance in each of the countries where it operates
and the Group has only previously experienced minor leakage from one of its dams
at the Arcata unit in Peru, there remains a risk of leakage from or failure of
the Group's tailings dams. Furthermore, whilst the Group treats the water
discharged from its operating facilities in accordance with Peruvian, Mexican
and Argentine law and current international standards, the long term
implications of such discharge on the environment are difficult to predict.
The Group may be liable for losses associated with such hazards, or may be
forced to undertake extensive remedial clean-up action or to pay for
governmental remedial clean-up actions, even in cases where such hazards have
been caused by previous or subsequent owners or operators of the property, or by
the past or present owners of adjacent properties or by natural conditions.
Although the Directors believe the Group is in substantial compliance with
applicable laws and regulations, they cannot guarantee that any such law,
regulation, enforcement or private claim will not have a material adverse effect
on the Group's business, financial condition or results of operations.
In addition, Peru, Argentina and Mexico are all signatories to, and have each
ratified, the Kyoto Protocol. The Kyoto Protocol is intended to limit or capture
emissions of greenhouse gases such as carbon dioxide and methane. Whilst the
precise nature of the revised environmental regulations and enforcement regime
within these jurisdictions is yet to be finalised, compliance with new
environmental requirements that may be enacted to ensure compliance with the
Kyoto Protocol may require the Group to incur significant capital expenditure
and failure to comply with any new legislation could result in the Group
incurring fines and other penalties.
The Group's mining concessions may be terminated in certain circumstances.
Under the laws of the jurisdictions where the Group's operations, development
projects and prospects are located, mineral resources belong to the state and
government concessions are required to explore for and exploit mineral reserves.
The Group holds mining, exploration and other related concessions in each of the
jurisdictions where it is operating and where it is carrying on development
projects and prospects. The concessions held by the Group in respect of its
operations, development projects and prospects may be terminated under certain
circumstances, including where minimum investment or production levels are not
achieved by the Group (or a corresponding penalty is not paid), if certain fees
are not paid or if environmental and safety standards are not met. Termination
of any one or more of the Group's mining, exploration or other concessions could
have a material adverse effect on the Group's financial condition or results of
operations.
Costs associated with the Mine Closure Laws in Peru, Argentina and Mexico could
have a material adverse effect on the Group's financial condition or results of
operations.
Mine operators in Peru, Argentina and Mexico are subject to the mine closure
obligations under the existing legislation or pursuant to contractual
arrangements. Although the Issuer has provisions for mine closures, there can be
no assurance that costs associated with closure of any of the Group's operating
mines would not exceed such provisions, which could have a material adverse
effect on its financial condition or results of operations.
The Group is required to obtain governmental permits to expand operations or
commence new operations. The costs and delays associated with such approvals
could affect the Group's operations, reduce the Group's revenues, and negatively
affect the Group's business as a whole.
The Group is required to seek governmental permits for the expansion of existing
operations or for the commencement of new operations in each of the
jurisdictions where its operations, development projects and prospects are
located. Obtaining the necessary governmental permits is a complex and
time-consuming process often involving public hearings and costly undertakings.
The duration and success of permitting efforts are contingent on many factors
that are outside the Group's control. The governmental approval process may
increase costs and cause delays, depending on the nature of the activity to be
permitted, and could cause the Group not to proceed with the development of a
mine.
Risks relating to operating in Peru, Mexico and Argentina
Local economic and political conditions may have a material adverse effect on
the Group's financial condition or results of operations.
The Group's operating mines are located in Peru, Mexico and Argentina.
Accordingly, the Group's business, financial condition or results of operations
could be adversely affected by changes in economic or other policies of the
Peruvian, Mexican or Argentinean governments or other political, regulatory or
economic developments in these jurisdictions.
Latin America in general, and the jurisdictions where the Group's operations,
development projects and prospects are located in particular, have had a history
of political instability that has included a succession of regimes with
differing policies and programmes. Past governments in each of these
jurisdictions have frequently intervened in the nation's economy and social
structure. Among other actions, past governments have imposed controls on
prices, exchange rates and local and foreign investment as well as limitations
on imports, restricted the ability of companies to dismiss employees,
expropriated private sector assets (including mining companies) and prohibited
the remittance of profits to foreign investors.
The Directors cannot predict future election results nor whether the elected
parties will maintain policies that are conducive to a business environment
within the relevant country.
Localised violence in Mexico linked to drug-trafficking could lead to disruption
in the Group's Mexican operations, development projects and prospects which, in
turn, could have a material adverse effect on the Group's financial condition or
results of operations.
Certain areas in the north of Mexico have experienced outbreaks of localised
violence linked to drug-trafficking in the region. Whilst the Group's Mexican
operations, projects and prospects have, to date, been materially unaffected by
such outbreaks, any increase in the level of violence, or a concentration of the
violence in areas where the Group's Mexican operations, projects and prospects
are located, could have a material adverse effect on the Group's financial
condition or results of operations.
Potential local opposition to mining could lead to disruption in the Group's
mine development projects and prospects which could have a material adverse
effect on the Group's financial condition or results of operations.
There is the potential for local opposition to mine development projects and
prospects. Opposition in each of the jurisdictions where the Group's operations,
development projects and prospects are located has arisen in the past. Whilst
the Group believes it maintains good relations with local communities, the Group
cannot rule out the possibility of local opposition arising in the future in
respect of its existing operations, development projects or prospects or in
relation to obtaining concessions for current or future projects. If the Group
were to experience opposition in connection with its existing operations or
current or future projects, it could have a material adverse effect on the
Group's financial condition or results of operations.
The courts of the jurisdictions in which the Group operates or might operate in
the future may offer less certainty as to the judicial outcome or less effective
forms of redress or a more protracted judicial process than is the case in the
United States and western Europe which could result in risks for the Group.
The courts and legal systems in the jurisdictions in which the Group operates or
might operate in the future may offer less certainty as to judicial outcome and
less effective forms of redress than is the case in the United States or western
Europe. Accordingly, the Group could, inter alia, face risks from (i) a higher
degree of discretion on the part of governmental authorities; (ii) the lack of
judicial or administrative guidance on interpreting applicable rules and
regulations; (iii) inconsistencies or conflicts between and with various laws,
regulations, decrees, orders and resolutions; (iv) relative inexperience of the
judiciary and courts in such matters; or (v) a more protracted judicial process
resulting in delays in reaching a judicial outcome. Similarly, there may be less
certainty that government officials and agencies will abide by legal
requirements, licences, permits and negotiated agreements. There can be no
assurance that the foregoing would not have an adverse effect on the validity or
enforceability of the joint ventures, licences, permits or other legal
arrangements entered into by the Group or the application or enforcement of laws
and regulations to which the Group is subject.
Risks relating to the Group's structure
Certain principal shareholders exercise significant control over the Group and,
as a result, investors may not be able to influence the outcome of important
decisions in the future.
The principal shareholder of the Issuer (the "Principal Shareholder"), which is
controlled by Eduardo Hochschild, the Executive Chairman of the Issuer,
beneficially owns over 50 per cent. of the issued Ordinary Shares in the Issuer.
As a result, this Principal Shareholder will be able to exercise significant
influence over all matters requiring shareholder approval, including the
election of Directors and significant corporate transactions. The Issuer has
entered into a relationship agreement with the Principal Shareholder and Eduardo
Hochschild dated 20 October 2006 (the "Relationship Agreement") to ensure that
the Group is capable of carrying on its business independently, and to ensure
that transactions and relationships between the Group, the Principal Shareholder
and Eduardo Hochschild are at arm's length and on normal commercial terms.
However, the concentration of ownership may have the effect of delaying or
deterring a change in control of the Group, could deprive shareholders of an
opportunity to receive a premium for their Ordinary Shares as part of a sale of
the Group and might affect the market price and liquidity of the Ordinary
Shares.
Because the Issuer is primarily a holding company, its ability to pay dividends
depends upon the ability of its subsidiaries to pay dividends and to advance
funds.
A13.2
The payment of dividends by the Issuer is subject to the Issuer having
sufficient distributable reserves for such purposes. The Issuer is reliant upon
receiving dividends from its subsidiaries in order to generate distributable
reserves, which may impact the Issuer's ability to pay dividends. Other
contractual and legal restrictions applicable to the Issuer's subsidiaries could
also limit its ability to obtain cash from them, including under the terms of
the secured loan agreement dated 28 January 2008 (the "Secured Loan Agreement").
The Issuer's rights to participate in any distribution of its subsidiaries'
assets upon their liquidation, reorganisation or insolvency would generally be
subject to prior claims of the subsidiaries' creditors, including any trade
creditors.
- ends -
This information is provided by RNS
The company news service from the London Stock Exchange
END
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