HOC Hochschild Mining Plc

 

TIDMHOC 
 
RNS Number : 8135F 
Hochschild Mining PLC 
20 January 2010 
 

 
 
 
 
 
 
 
 
Performance Update and Production Report for the three months to 31 December 
2009 ("Q409") 
 
 
Highlights 
 
 
  *  Record full year production, up 8%, achieving target of 28 million attributable 
  silver equivalent ounces 
  *  Achieved target to reduce unit cost per tonne by at least 5% in 2009 
  *  Continued focus on exploration: 2010 budget up 67% to $50 million 
  *  Solid financial position with total cash of approximately $75 million 
  *  Convertible bond offering and equity placing raised approximately $260 million, 
  supporting Hochschild's growth strategy: 
  *  
    *  C$139.5 million invested in Lake Shore Gold, increasing the Group's stake to 
    38%1 
    *  $16 million invested in Gold Resource Corporation, increasing the Group's stake 
    to 27%2 
    *  $85 million pre-payment of $200 million syndicated loan facility 
 
  *  2010 production target of 29 million silver equivalent ounces, including 2.7 
  million silver equivalent ounces from Hochschild's interests in Lake Shore Gold 
  and Gold Resource Corp. 
 
 
 
Miguel Aramburú, Chief Executive Officer commented; 
"With production of 28.2 million attributable silver equivalent ounces in 2009, 
Hochschild has once again delivered on its production targets and proven the 
operational strength of the business. Following our capital raising in October 
2009, we have already increased our strategic investments in Lake Shore Gold and 
Gold Resource Corporation which will add to our production in 2010. We have 
also prepaid a portion of our debt facility which provides increased financial 
flexibility and allows us to deliver our growth strategy." 
 
 
2009 Overview 
 
 
Production 
Hochschild has successfully achieved its full year production target, producing 
28.2 million attributable silver equivalent ounces in 2009, which represents an 
8% year-on-year increase in production. This comprised 18.8 million ounces of 
silver and 156.8 thousand ounces of gold, representing a record year of 
production for the Company. 
 
 
The year-on-year increase in production was primarily driven by strong 
production at Pallancata, San José and Arcata following the capacity expansions 
completed in the second half of 2008. Results were particularly strong at 
Pallancata where both silver and gold production doubled year-on-year and at San 
José, where silver and gold production increased 14% and 42% respectively. 
Arcata also reported positive results with silver and gold production increasing 
6% and 19% respectively. 
 
 
Production in Q409 of 6.8 million silver equivalent ounces was impacted by 
temporary stoppages at San José caused by a dispute between the mining and truck 
drivers' unions which has been resolved. Arcata's production was also negatively 
impacted in the fourth quarter due to lower silver grades as a result of higher 
dilution due to narrower veins in the accessible mine areas and changing 
geotechnical conditions. As anticipated and previously disclosed, average 
extracted grades and production at Ares are declining due to the ageing and 
geological nature of the deposit. 
 
 
Costs 
Hochschild is committed to producing profitable ounces and diligently 
controlling costs. Good progress was made in this area in 2009 and the Company 
has achieved its target to reduce unit cost per tonne for the full year by at 
least 5% with final numbers due to be released on 24 March 2010. 
 
 
ISO Accreditation 
Following a rigorous audit process, Hochschild's laboratories in Peru have been 
awarded ISO 17025 accreditation by the Standards Council of Canada, in 
recognition of the high standards adopted by the Company and its ability to 
consistently produce valid results. ISO 17025 is an international standard that 
specifies the general requirements for the competence to carry out tests and/or 
calibrations, including sampling. 
 
 
Average realisable prices and sales 
Average realisable prices (which include commercial discounts) in Q409 were 
$1,132.67/oz for gold and $16.87/oz for silver (excluding forward sales 
contracts). Average realisable precious metals prices for the twelve months to 
31 December 2009 were $970.33/oz for gold and $14.49/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. A realised loss of $25 million will be 
recorded under finance costs for the full year 2009 in relation to this. 
 
 
As disclosed in May 2009, in order to ensure an ongoing level of cash flow 
stability to continue to fund its growth strategy, Hochschild secured a 'zero 
cost collar' for 5.2 million ounces of its 2010 silver production with an 
average 'floor' at $12.7/oz and an average 'cap' at $19.7/oz. An unrealised loss 
of $2.5 million will be recorded under finance costs in 2009 in relation to the 
2010 collar. Hochschild will continue to monitor market trends and will consider 
further collars as appropriate. 
 
 
Exploration 
Brownfield 
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, where it remains 
committed to achieving its long term objective of a minimum 8 year total 
resource life, including a 4 year reserve life. 
 
 
The drilling 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. At 
Pallancata in Peru, the Company is mainly focused on the newly discovered 
eastern extension of the main Pallacata vein and on the Virgen del Carmen vein. 
 
 
In addition, the Company is moving towards an initial economic assessment at 
Azuca, a 100% owned brownfield project within Hochschild's existing operational 
cluster in southern Peru. As at 31 December 2008, Azuca had an initial resource 
of 1.8 million tonnes with 327 g/t silver and 1.34 g/t gold. The Company is 
working towards increasing reserves and resources at Azuca and expects to 
publish updated results on 24 March 2010. 
 
 
Greenfield 
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. 
At Crespo in Peru, drilling along the eastern extension resulted in the best 
historical intercept of the project: 76 metres at 1.0 g/t Au, 95 g/t Ag (2.6 g/t 
gold equivalent), including 7.4 metres at 11.9 g/t Au, 1,050 g/t Ag. 
Metallurgical testing of high-grade material is currently in progress. 
 
 
In addition, Hochschild reported positive drilling results at the Vaquillas 
project in Chile, which is part of the Victoria Joint Venture with Iron Creek 
Capital Corp. Hochschild has completed 14 drill holes over a total of 3,869 
metres which, together with previous drilling results, suggest that the 
Vaquillas project has potential for high-grade gold and silver veins, as well as 
bulk-tonnage low-grade gold and silver mineralisation. On 23 December 2009, the 
agreement was amended and the Victoria joint venture was expanded to include 
Iron Creek's remaining properties in their adjoining porphyry copper project. 
 
 
In November 2009, Hochschild signed a joint venture agreement with Mariana 
Resources Ltd, ("Mariana") an AIM quoted exploration and development company 
focused in Argentina and Chile, to explore and develop three adjoining 
prospective gold-silver tenements totaling 13,455 hectares, located in the Santa 
Cruz area in the western sector of the Deseado Massif in southern Argentina. 
These tenements consist of Mariana's Amigos I and Amigos II license areas and 
Hochschild's San Augustin property which are located approximately 110km south 
of Hochschild's San José operation. 
Hochschild will publish reserves and resources tables as at 31 December 2009 on 
24 March 2010. 
 
 
Capital raising & acquisitions 
Hochschild undertook a successful capital raising in October 2009 to provide 
increased financial flexibility to pursue its growth strategy and to refinance 
existing debt. The transaction raised a total of $260 million via the placing of 
30.735 million new ordinary shares, generating gross proceeds of approximately 
$145 million, and the placing of $115 million in senior unsecured convertible 
bonds with a coupon of 5.75%. 
 
 
On 27 August 2009, Hochschild's strategic partner, Lake Shore Gold Corp. ("Lake 
Shore Gold"), announced a definitive business combination agreement to acquire 
all of the outstanding common shares of West Timmins Mining Inc. ("WTM"). The 
transaction created the new large-scale, wholly-owned Timmins West Gold Mine 
Complex, an extension of the world class Timmins gold mining trend which has 
supplied approximately 70 million ounces of gold over the last century. As a 
result of the business combination, Hochschild's 40% stake in Lake Shore Gold 
would have been diluted to approximately 27% (on an outstanding basis). 
 
 
In line with its stated strategy, Hochschild has increased its ownership of Lake 
Shore Gold by investing a further C$159.5 million (C$139.5 million in Q409) 
increasing its stake to 38% on an outstanding basis (36% on a fully diluted 
basis). The investments include the purchase of WTM shares (now fully owned by 
Lake Shore Gold), a C$85 million private placement and the subsequent purchase 
of Lake Shore Gold shares totaling C$5.5 million. Since its initial acquisition 
in February 2008, Hochschild has invested a total of C$348.3 million in Lake 

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