TIDMHOC
RNS Number : 6762U
Hochschild Mining PLC
20 October 2010
________________________________________________________________________
20 October 2010
Production Report and Interim Management Statement for the three
months to
30 September 2010 ("Q3 2010")
Highlights
-- Q3 2010 production of 6.6 million attributable silver
equivalent ounces
-- Production of 19.4 million attributable silver equivalent
ounces in the first nine months of 2010
-- On track to achieve 2010 production target of 26.3 million
attributable silver equivalent ounces
-- Continued delivery of organic growth strategy:
o Positive scoping results at Inmaculada project: increased
holding to a controlling 60% interest1
o Positive scoping results at 100% owned Azuca project:
progressed to pre-feasibility stage
o Estimated production at Azuca & Inmaculada represents 38%
of Hochschild's anticipated 2010 production
o New discovery at San Jose, resource life of mine significantly
increased to approximately 12.5 years2
o Reduction in Lake Shore Gold investment from 35% to 6% with
gross proceeds of C$392 million3
-- Continued focus on profitability and cost control - costs
remain in line with guidance
-- Settlement of lawsuit with joint venture partner at San Jose
operation
Ignacio Bustamante, Chief Executive Officer commented:
"This has been an exciting period for Hochschild where we have
refined our strategy and delivered in several key areas. Our
investment in exploration is reaping rewards including a material
increase in resource life of mine at our San Jose property and the
progression of Azuca to pre-feasibility stage. I am also delighted
that we now have a controlling stake in the Inmaculada project
which has impressive geological potential, similar to our current
Pallancata operation. Finally, we have realised an excellent return
on our investment in Lake Shore Gold and will use the funds to
further accelerate our organic growth pipeline and to pursue other
value accretive opportunities.
Underpinning all of this activity is our operating base and,
with another solid quarter of production, I am pleased to announce
that we are on track to achieve our full year target of 26.3
million attributable silver equivalent ounces."
Overview
Hochschild Mining plc ("Hochschild" or "the Company") delivered
a solid performance in Q3 2010 with production of 6.6 million
attributable silver equivalent ounces, comprised of 4.5 million
ounces of silver and 34.4 thousand ounces of gold. With production
in the first nine months of the year of 19.4 million attributable
silver equivalent ounces, Hochschild remains on track to achieve
its 2010 target of 26.3 million attributable silver equivalent
ounces from its current operations.
Unit cost per tonne for the full year is in line with the
Company's annual guidance of a 10% increase on 2009 which is
primarily the result of inflation related to labour and supply
costs. Hochschild takes an extremely rigorous approach to managing
costs and is currently undertaking a number of cost efficiency and
productivity initiatives which will contribute to continued cost
containment.
Main operations
Pallancata continues to deliver strong results with production
in the first nine months up 30% and 19% year-on-year for silver and
gold respectively, to 8.9 million silver equivalent ounces. Since
June 2009, the Selene plant has exclusively processed Pallancata's
ore and, as a result, treated tonnage at Pallancata is up by 23%
year-on-year.
1 Announced on 13 October 2010
2 Unaudited figure, announced on 19 October 2010
3 Announced on 14 October 2010
As a result of the expected improvement in grade profile
connected to the ongoing development of the high grade Kospi vein,
the Company's San Jose operation reported a strong quarter, with
silver and gold production up 15% and 12% quarter-on-quarter
respectively. The Company has also agreed to settle the lawsuit
with its joint venture partner, Minera Andes Inc ("MAI"), regarding
the $65 million project financing loan provided by Hochschild to
the San Jose project. The companies have agreed to a repayment
schedule for both the project finance loan and the 2004 shareholder
loan of $50 million, over a maximum period of 8 years with a fixed
interest rate of 7% per annum. Future payments on both loans may be
accelerated based on mine performance and metal prices, maximising
cash flows for Hochschild and MAI. Both companies are committed to
working together to deliver the full potential of this asset.
As reported earlier this year, Arcata's production continues to
be impacted by lower silver grades as a result of higher dilution
due to narrower veins in the accessible mine areas and changing
geotechnical conditions. Management continues to forecast Arcata's
silver grades to be close to Q4 2009 levels over the medium
term.
Other operations
Production at Ares remains relatively stable with 2.1 million
silver equivalent ounces produced in the first nine months of the
year. Depending on conditions in the next quarter, production at
Ares may continue beyond the scheduled closure this year, in line
with the Company's policy of only mining profitable ounces. Moris,
the Company's only open pit operation, which produced 1.1 million
silver equivalent ounces in the first nine months of 2010, is
expected to close in the first half of 2011, as previously
indicated.
Average realisable prices and sales
Average realisable prices (after commercial discounts) in Q3
2010 were $1,235/oz for gold and $20.15/oz for silver. Average
realisable prices for the first nine months of the year were
$1,184/oz for gold and $18.28/oz for silver.
As disclosed in May 2009, in order to ensure an ongoing level of
cash flow stability 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. For the first nine months of 2010, the Company
has realised a marginal loss of $1.3 million relating to the
collar.
Acquisitions & divestments
Inmaculada project
During the quarter, the Company's joint venture partner
International Minerals Corporation ("IMZ") reported positive
scoping results from the Inmaculada project, a 20,000 hectare
gold-silver project located in southern Peru. As a result of this,
on 13 October 2010, Hochschild announced an agreement to increase
its holding in the project from 30% to a controlling 60% interest4.
Under the terms of the agreement, Hochschild will pay IMZ $15
million and will fund 100% of the first $100 million of capital
expenditure towards the project's feasibility and development. Any
further capital expenditure required to achieve commercial
production will be contributed by each joint venture partner in
proportion to their ownership interests. Additionally, the Company
will acquire approximately 3.7 million shares or 3.2% of the issued
and outstanding share capital of IMZ5, by way of a private
placement which is expected to close by the end of this month, for
a total cash consideration of $20 million.
Scoping results estimate average annual total silver equivalent
production of 11 million ounces from the project's main Angela
vein, with significant potential in the surrounding property. On an
attributable basis, estimated average annual silver equivalent
production of 6.6 million ounces represents 25% of Hochschild's
anticipated 2010 production. Results of the scoping study indicate
that, at base case gold and silver price assumptions of $1,000/oz
and $17/oz respectively, the project could return a cumulative
total pre-tax cash flow6 of $660 million, with apre-tax internal
rate of return ("IRR") of 41%. Using spot prices of $1,300/oz and
$22.1/oz for gold and silver respectively, the project could return
a cumulative total pre-tax cash flow7 of approximately $1,026
million, equivalent to $699 million at a 5% discount rate and $483
million at a 10% discount rate, with an IRR for the project of
approximately 58%.Hochschild is now fast tracking the project and
aims to complete feasibility by the end of 2011 with production
targeted for 2014.
4 Based on IMZ's stated intention to earn-in a 70% interest by
funding and completing a feasibility study by September 2013 and by
issuing 200 000 IMZ shares to Hochschild
5 Based on prevailing exchange rates
6 Non-discounted
7 Non-discounted
Lake Shore Gold
Also following the quarter end, Hochschild announced the
reduction of its stake in Lake Shore Gold Corp ("Lake Shore Gold")
from approximately 35% to 6% for total gross proceeds of C$392.4
million. Proceeds will be used to support the Company's organic
growth strategy, including funding Azuca and Inmaculada to
production and also to pursue further opportunities which provide a
positive capital return. RBC Dominion Securities Inc., BMO Nesbitt
Burns Inc. and CIBC World Markets Inc. have agreed to purchase
109,000,000 of the common shares of Lake Shore Gold held by
Hochschild, on a bought deal basis for onward sale. The purchase
price of C$3.60 represents a 33% gain on Hochschild's average
purchase price of C$2.70 per share.
Gold Resource Corp
Finally, the Company's stake in Gold Resource Corp ("GRC") was
reduced from 30% to 28%, following the capital raising undertaken
by GRC during the quarter. Hochschild remains supportive of GRC,
however, the Company decided not to participate in the transaction
in order to focus on its own extensive and rapidly expanding
exploration pipeline.
Exploration
-- New discovery at San Jose resulting in a significant increase
in resource life to approximately 12.5 years8
-- Positive scoping results at 100% owned Azuca project:
progressed to pre-feasibility stage
-- 100% owned Crespo project at scoping stage with results
expected in H1 2011
-- Active drilling undertaken at potential company maker
projects; Victoria in Chile, Mercurio in Mexico and Sabina in
Peru
Exploration is a vital part of Hochschild's growth strategy and
the Company has committed $50 million in 2010 to increasing the
resource life of its main operations as well as developing its
extensive project portfolio.
Resource life of mine
Hochschild continues to build on the significant progress made
in the first half of the year, when resource life of mine increased
by 11% from 7.1 years as at 31 December 2009 to 7.9 years9 as at 30
June 2010. The Company has materially increased the resource life
of the San Jose property from 8.4 to approximately 12.5 years10
following the discovery of nine new high-grade gold/silver veins
and two extensions, announced earlier this month. This is a result
of an intensive 47,431 metre drilling programme undertaken by the
Company in the first nine months of the year which has increased
total resources by 63 million ounces. To date, a significant
portion of the San Jose property continues to be open at depth and
laterally. Exploration drilling is focused on expanding resources
in the known veins, including Ayelen and Odin, and in other areas
of the property, such as the Saavedra and Aguas Vivas targets.
Hochschild takes a very conservative approach to resource
delineation and is one of the few companies that apply the same cut
off grades to reserves and resources. As a result, resources are
also economic and the Company has a high rate of conversion from
resources to reserves.
Hochschild is also undertaking intensive drilling campaigns at
its other core properties. At Arcata, the Company continues to
increase resources at the Socorro and Luz veins through diamond
drilling. Significant intercepts were in Luz DDH-791, 0.6m at 1.2
g/t Au & 484 g/t Ag; in Socorro DDH-789, 0.8m at 8.1 g/t Au and
1,214 g/t Ag and DDH 148, 0.8m at 4.0 g/t Au and 846 g/t Ag.
At Pallancata, underground preparation and development continues
at the Virgen del Carmen, Diana and Pallancata veins. In addition,
diamond drilling is underway at the San Cayetano, Pallancata Oeste
and Este veins with results including DLPL-A583 which double
intersected 2.7 metres at 10.7 g/t Au and 1,471 g/t Ag and 1.9
metres at 0.9 g/t Au and 292 g/t Ag.
Project pipeline
During the quarter, Hochschild announced positive results from a
scoping study completed by an independent party at the 100% owned
Azuca project in southern Peru, one of the key 'company maintainer'
projects. Results estimate initial silver equivalent production of
3.5 million ounces per year on average, representing more than 13%
of Hochschild's 2010 attributable production. At base case gold and
silver prices of $1 000/oz and $17/oz
8 Unaudited figure, announced on 19 October 2010
9 Unaudited figure
10 Unaudited figure, announced on 19 October 2010
respectively, the project could return a cumulative total
pre-tax cash flow11 of approximately $107 million and 21% IRR.
Using spot prices for gold and silver of $1,300/oz and $21.9/oz
respectively, the project could return a cumulative total pre-tax
cash flow12 of approximately $247 million and 46% IRR. The study
assumes initial plant throughput of 750 tonnes per day with
engineering designed to easily accommodate future capacity
increases. Azuca has reached resources of 60.8 million silver
equivalent ounces and is now in pre-feasibility stage with targeted
completion in H2 2011. The Company is undertaking an intensive
drilling campaign to develop additional resources with a view to
continue extending the scale and profitability of the project.
'Company maintainers' are projects that have the potential to
deliver 5-10 million silver equivalent ounces of production per
year. This includes the Crespo project where the Company is
building on the 44.1 million silver equivalent ounces reported at
the end of 2009 with the aim of completing scoping in H1 2011. The
exploration cross-cut to confirm drill-hole grades and controls of
the Au-Ag disseminated mineralisation continues to advance and
underground resource development drilling will follow once the
cross-cut is completed.
As previously mentioned, Hochschild has increased its ownership
of 'company maintainer', Inmaculada, which is located approximately
40km south of Hochschild's Pallancata operation from 30% to 60%.
The property consists of 40 mining concessions and is characterised
by both low and high sulphidation epithermal mineralised systems,
hosted by veins, breccias and disseminations within tertiary
volcanics. The new joint venture will undertake a 20,000 metre
drilling programme annually for the first three years to further
develop resources which are currently estimated at a total of 115
million silver equivalent ounces (1.9 million gold equivalent
ounces).
In addition, the Company is undertaking diamond drilling at the
100% owned Cerro Blanco Au-Ag epithermal vein project in its
southern Peru cluster totaling 3,200 metres and also at the La
Flora and Mosquito Au-Ag epithermal vein projects in Argentina.
The Company is also continuing to focus on 'company makers'
which are projects with the potential to achieve 20-30 million
silver equivalent ounces per year. During the quarter, Hochschild
reported positive drill results at the Victoria joint venture in
northern Chile, a property which covers 37km of continuous strike
length of the highly productive Domeyko Fault Zone. Hochschild's
work to date is focused on the Vaquillas mine which is part of the
Victoria joint venture with Iron Creek Capital Corp. ("Iron
Creek"). Highlights include diamond drill hole VVQDD-10-033 that
cut 10.50 metres at 8.90 g/t Au and 116.31 g/t Ag including one
exceptional intercept of 1.13 metres with grades of 78.3 g/t Au and
802 g/t Ag. Hochschild is currently undertaking a new 5,000 metre
programme of diamond core drilling to further test the oxide Au and
Ag resource at Vaquillas. Hochschild has the option to acquire a
60% interest in the Victoria joint venture by incurring $6.0
million in exploration expenditures by 31 December 2013.
Sabina is a 100% owned project in Peru where the Company has
completed field work and commenced drilling in June 2010. In
addition, during H1 2010, Hochschild acquired two new early stage
projects which have the potential to be 'company makers', Corazon
de Tinieblas in Mexico and Apacheta in Peru where preliminary field
work is underway.
Summary
The Company is in a strong financial position and remains
focused on delivering its organic growth strategy by developing its
extensive exploration programme, maximising resource life of mine
at its core operations and securing early stage, highly value
accretive projects which have significant upside potential and a
clear path to control.
________________________________________________________________________
Other than as described in this announcement, there have been no
material events or transactions in the period from 1 July 2010 to
20 October 2010 which have affected Hochschild's financial
position.
________________________________________________________________________
11 Non-discounted
12Non-discounted A conference call will be held at 2pm (London
time) on Wednesday 20 October 2010 for analysts and investors.
Dial in details as follows:
+44 (0) 20 3003 2666
A recording of the conference call will be available for one
week following its conclusion, accessible from the following
telephone number:
+44 (0) 20 8196 1998
Access code 3995454#
________________________________________________________________________
Enquiries:
Hochschild Mining plc
Isabel Lutgendorf +44 (0)20 7907 2934
Head of Investor Relations
Finsbury
Faeth Birch +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 PRODUCTION (100% of all operations)
Q3 2010 Q2 2010 Q3 2009
------------------------- -------- -------- --------
Silver production
(koz) 6,227 6,133 6,668
Gold production (koz) 48.53 50.95 56.80
Total silver equivalent
(koz) 9,139 9,191 10,075
Total gold equivalent
(koz) 152.31 153.18 167.92
Silver sold (koz) 5,693 6,328 6,722
Gold sold (koz) 44.00 60.62 57.69
------------------------- -------- -------- --------
ATTRIBUTABLE GROUP PRODUCTION (Production attributable to
Hochschild1)
Q3 2010 Q2 2010 Q3 2009
--------------------------- -------- -------- --------
Silver production
(koz) 4,532 4,524 4,978
Gold production (koz) 34.44 37.57 41.94
Attrib. silver equivalent
(koz) 6,598 6,778 7,494
Attrib. gold equivalent
(koz) 109.97 112.97 124.90
--------------------------- -------- -------- --------
1 Attributable production includes 100% of all production from
Arcata, Ares and Moris, 60% from Pallancata and 51% from San
Jose.
QUARTERLY PRODUCTION BY MINE
ARCATA (100% owned)
Product Q3 2010 Q2 2010 Q3 2009
----------------------------- -------- -------- --------
Ore production (tonnes) 179,270 152,754 168,718
Average head grade silver
(g/t) 418 483 494
Average head grade gold
(g/t) 1.27 1.65 1.68
Concentrate produced
(tonnes) 5,533 5,449 5,456
Silver grade in concentrate
(kg/t) 12.07 12.43 14.21
Gold grade in concentrate
(kg/t) 0.04 0.04 0.05
Silver produced (koz) 2,130 2,156 2,475
Gold produced (koz) 6.66 7.22 8.31
Silver equivalent produced
(koz) 2,529 2,590 2,973
Silver sold (koz) 1,882 2,142 2,512
Gold sold (koz) 5.87 7.50 8.04
----------------------------- -------- -------- --------
ARES (100% owned)
Product Q3 2010 Q2 2010 Q3 2009
---------------------------- -------- -------- --------
Ore production (tonnes) 68,524 77,965 88,933
Average head grade silver
(g/t) 81 92 107
Average head grade gold
(g/t) 3.35 3.62 3.91
Dore total (koz) 165 214 274
Silver produced (koz) 158 204 262
Gold produced (koz) 6.91 8.56 10.30
Silver equivalent produced
(koz) 572 717 880
Silver sold (koz) 171 187 246.5
Gold sold (koz) 7.1 12.6 10.4
---------------------------- -------- -------- --------
PALLANCATA (60% owned)
Product Q3 2010 Q2 2010 Q3 2009
----------------------------- -------- -------- --------
Ore production (tonnes) 273,239 269,311 269,128
Average head grade silver
(g/t) 337 341 335
Average head grade gold
(g/t) 1.32 1.39 1.49
Concentrate produced
(tonnes) 2,360 2,558 2,160
Silver grade in concentrate
(kg/t) 33.10 30.77 36.10
Gold grade in concentrate
(kg/t) 0.11 0.11 0.14
Silver produced (koz) 2,511 2,528 2,507
Gold produced (koz) 8.27 9.32 9.62
Silver equivalent produced
(koz) 3,007 3,087 3,085
Silver sold (koz) 2,407 2,672 2,351
Gold sold (koz) 7.7 10.0 8.8
----------------------------- -------- -------- --------
SAN JOSE (51% owned)
Product Q3 2010 Q2 2010 Q3 2009
---------------------------- -------- -------- --------
Ore production (tonnes) 112,681 116,259 122,342
Average head grade silver
(g/t) 423 368 407
Average head grade gold
(g/t) 6.42 5.81 6.65
Silver produced (koz) 1,409 1,221 1,402
Gold produced (koz) 22.02 19.71 22.47
Silver equivalent produced
(koz) 2,730 2,403 2,751
Silver sold (koz) 1,220 1,295 1,536
Gold sold (koz) 19.9 22.2 24.7
---------------------------- -------- -------- --------
MORIS (100% owned)
Product Q3 2010 Q2 2010 Q3 2009
---------------------------- -------- -------- --------
Ore production (tonnes) 251,260 346,095 316,725
Average head grade silver
(g/t) 4.67 4.89 5.04
Average head grade gold
(g/t) 1.16 1.26 1.44
Silver produced (koz) 20 24 22
Gold produced (koz) 4.67 6.15 6.09
Silver equivalent produced
(koz) 300 393 387
Silver sold (koz) 13.4 33.0 16.0
Gold sold (koz) 3.4 8.3 5.5
---------------------------- -------- -------- --------
Forward looking statements
This announcement may contain forward looking statements. 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, for
various reasons, be materially different from any future results,
performance or achievements expressed or implied by such forward
looking statements.
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.
- ends -
This information is provided by RNS
The company news service from the London Stock Exchange
END
IMSPGGUAUUPUUAU
Hochschild Mining (LSE:HOC)
Historical Stock Chart
From Jun 2024 to Jul 2024
Hochschild Mining (LSE:HOC)
Historical Stock Chart
From Jul 2023 to Jul 2024
