TIDMHOC
RNS Number : 7834D
Hochschild Mining PLC
29 March 2011
29 March 2011
Hochschild Mining plc
Preliminary Results for the twelve months ended 31 December
2010
Financial highlights(1)
-- Record revenue of $752.3 million, up 39%
-- Record adjusted EBITDA of $397.7 million, up 59%
-- Record attributable profit after tax of $94.9 million, up
79%
-- Record EPS of $0.28, up 65%
-- Exceptional gain on the sale of stake in Lake Shore Gold Corp
of $63.7 million
-- Strong financial position with a year end cash balance of
$525.5 million
-- Proposed final dividend of $0.03 per share, up 50%, bringing
total dividend for 2010 to $0.05 per share
-- Repayment in full of syndicated loan facility of $114.3
million in January 2011
-- Investment in Gold Resource Corp valued at $349 million
compared to a net acquisition cost of $67 million
Operational highlights
-- Full year production of 26.4 million attributable silver
equivalent ounces
-- Exploration programme delivering positive results:
o Resource life of core operations up 23% to 8.7 years
o Advanced projects, Inmaculada, Azuca and Crespo, on track with
the potential to add a minimum of 12 million attributable silver
equivalent ounces per year starting from the end of 2013
o Number of Company Maker prospects increased from three to
eight
-- Acquisition of controlling stakes in Inmaculada (Peru) &
Victoria (Chile)
-- Option agreement for the Valeriano property in Chile
-- 2011 production target of 22.5 million silver equivalent
ounces
-- $70 million exploration budget for 2011, up 40%
( )
($000, pre-exceptional unless Year ended Year ended
stated) 31 Dec 2010 31 Dec 2009 % change
------------------------------------- ------------- ------------- ---------
Attributable silver production (koz) 17,768 18,754 (5)
Attributable gold production (koz) 144 157 (8)
Revenue 752,322 539,741 39
Adjusted EBITDA(*) 397,731 249,869 59
Profit from continuing operations 158,830 76,617 107
Profit from continuing operations
(post exceptional) 216,665 121,340 79
Earnings per share ($) 0.28 0.17 65
Earnings per share ($
post-exceptional) 0.46 0.31 48
------------------------------------- ------------- ------------- ---------
* Adjusted EBITDA is calculated as profit from continuing
operations before exceptional items, net finance costs and income
tax plus depreciation and exploration expenses other than personnel
and other exploration related fixed expenses.
(1) On a pre-exceptional basis
Commenting on the results, Ignacio Bustamante, CEO, said:
"I am pleased to report strong financial and operational results
for the full year 2010. Our strategy to focus on organic growth
through exploration has been a great success with a 23% increase in
the resource life of our core operations to 8.7 years and an
expanded project pipeline currently including eight Company Makers.
We remain extremely confident about the prospects for our three
advanced projects following positive scoping studies, particularly
at Inmaculada where we have recently announced an increase in total
resources to 128.3 million silver equivalent ounces.
We are reporting record EBITDA of $397.7 million, up 59% and
earnings per share up 65%, driven by another strong year for
precious metals. The final proposed dividend has increased by 50%
bringing the total dividend for the year to $0.05 per share,
reflecting our confidence in the sustainable operational
performance of the Group and strong cash position, with a year end
cash balance of $525.5 million."
_______________________________________________________________________
A presentation will be held for analysts & investors at
9.00am (UK time) on Tuesday 29 March 2011 at the offices of JP
Morgan Cazenove, 20 Moorgate, London, EC2R 6DA.
For a live webcast of the presentation please click on the link
below:
http://www.thomson-webcast.net/uk/dispatching/?event_id=7e62729d2d9a65b1
5e178b52d5966a14&portal_id=b48bca21de6fabf3b2a93c33e33cb205
Conference call dial in details:
UK: +44 (0)20 7138 0838 (Please quote 'Hochschild Mining
webcast' or confirmation code 9905834).
A recording of the conference call will be available for one
week following its conclusion, accessible from the following
telephone number:
UK: +44 (0)20 7111 1244 Access code: 9905834#
________________________________________________________________________
_
Enquiries:
Hochschild Mining plc
Charles Gordon +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 projects
throughout the Americas.
Chairman's Statement
I am pleased to report that Hochschild Mining has delivered a
strong performance in 2010. What was once again a turbulent year
for the global economy was, however, one of the strongest years in
history for precious metals, particularly for the silver price
which rose 83%. In this environment, the Company met its
operational expectations, strengthened its financial position and
undertook some key strategic steps which I firmly believe will
secure our future growth path and deliver further value for our
shareholders.
The Company's consistent operational efficiency coupled with
strong gold and silver prices delivered a robust financial
performance with EBITDA up 59% at $397.7 million and post
exceptional EPS also up strongly by some 48% to $0.46 per share.
Consequently, the Board is delighted to announce that we are
proposing to increase the final dividend by 50% to $0.03 per share
which reflects our strong balance sheet position and the
anticipated healthy future cashflows of the Group. We believe the
proposed increase is in accordance with capital availability and
our desire to provide a yield to shareholders whilst continuing to
respect the growth requirements of the business and the
availability of capital.
During 2010, the Board appointed a new management team led by
Ignacio Bustamante as Chief Executive Officer and Ramon Barua as
Chief Financial Officer. I believe that the realigned Company focus
on growth through exploration heralds the beginning of a new era
for Hochschild in which our excellent asset base, combined with an
immense talent pool, will unlock consistent and profitable precious
metal production growth. The 40% increase in our exploration budget
to $70 million for 2011 is firm evidence of our commitment to this
strategy and our confidence in the potential of our current project
pipeline. In addition, we now have over 70 geologists providing us
with the technical experience and expertise required to deliver a
steady stream of value accretive project opportunities.
Our management team has great confidence in the potential of the
Company to develop this aggressive exploration strategy and, allied
to this, they have promoted a disciplined approach to the
assessment of acquisitions. In this regard, the key announcements
in 2010 were the progression of our 100% owned Azuca and Crespo
projects and the acquisition of a controlling stake in the
Inmaculada project, all of which are located at the core of our
Southern Peru cluster.
Also noteworthy was the sale of our stake in Lake Shore Gold
Corp which represented a 34% gain on our original average purchase
price. The decision was made in light of our stated commitment that
acquisitions must not only deliver early stage assets, strong
geological potential and high value accretion but also a clear path
to control. The sale achieved a very profitable return on our
investment and has given us the financial strength to reinvest in
our near term project pipeline. In addition, our 25% investment in
Gold Resource Corp, in which we have invested a total of $67
million, is currently valued at approximately $349 million.
The silver market rose over 70% in the second half of 2010
boosted by strong fundamentals, unprecedented investment demand and
renewed focus on silver's value as an alternative to gold. Whilst
the corresponding rise in Hochschild's share price can be explained
partly by the buoyant precious metals market, I firmly believe that
an increasingly widespread market acceptance of our shift in
strategic focus as well as the positive results achieved to date
have also been major factors and will continue to be so in the
future.
During 2011, we can look forward to further crucial steps in the
development of our advanced projects at Inmaculada, Azuca and
Crespo which in total have the potential to add a minimum of 12
million profitable ounces per year to our current production base
from the end of 2013. Management is also confident that we are in a
very strong position to continue the investment in brownfield
expansion at our existing mines and to take advantage of any value
enhancing acquisitions and opportunities that arise which meet the
strict investment criteria I have described above.
We are committed to the safety of all our employees and have
made good progress during the past year. In 2010, we reduced our
accident frequency rate by 29% compared to 2009and continue to move
forward with the implementation of the safety management
information system jointly developed with DNV. Nonetheless, it is
with deep regret that I report two fatalities in 2010. We have
addressed the underlying safety deficiencies that led to the
occurrence of these tragic events and we continue to view any
fatalities as unacceptable.
On behalf of the Board, I would like to thank our entire team
for their continued commitment in 2010 and I am confident that such
impressive execution will remain the focus in 2011.
Eduardo Hochschild
Executive Chairman
28 March 2011
Chief Executive Officer's Statement
Having joined Hochschild Mining over 19 years ago, it gives me
great pleasure to present my first set of results as CEO. I am
pleased to announce strong full year performance, reflecting the
continuing operational and financial strength of our business.
2010 has been a pivotal year for the Group. As a new management
team, we agreed, with the full support of the Board, that focusing
on an organic growth strategy, utilising our strong exploration and
project development skills, would be the optimum strategy to
continue generating value for all our shareholders. With our
unrivalled knowledge of the Americas, premium land packages in many
of the key geological areas and extensive existing infrastructure,
we are strongly positioned to consolidate and grow our role as one
of the leading mining operators in the Americas.
Organic growth strategy
Our strategy for growth is based on three distinct pillars.
Firstly, we continue to optimise production and extend the life of
our core producing assets, Arcata, Pallancata and San Jose, which
are the bedrock of the Company. Last year, we committed to
increasing resources and I am pleased to say that we achieved this,
with resource life up 23% to 8.7 years in 2010. Particularly good
progress was made at San Jose, where we discovered nine new veins
and two extensions in the second half of 2010, thus increasing
total resource life at the property by 36% to 11.4 years and at
Arcata, where we have increased the resource life by 30% to 9.6
years.
The second pillar is our exploration pipeline which currently
contains highly promising targets at various stages of development
across four key countries - Peru, Argentina, Mexico and Chile. In
2010, we delivered some excellent results particularly at our three
advanced projects in our southern Peru cluster - Inmaculada, Azuca
and Crespo, which all moved through scoping to
pre-feasibility/feasibility stage. These three projects combined
have the potential to add a minimum of 12 million attributable
silver equivalent ounces per year to our production profile
starting from the end of 2013. Furthermore, we have increased the
number of Company Maker prospects which have the potential to
deliver 20 - 30 million silver equivalent ounces. To support our
2011 exploration programme, we have once again significantly
increased our budget by a further 40% to $70 million, more than
double 2009 levels. This will deliver an extensive drill programme
covering 335,000 metres at greenfield and brownfield sites in our
four target countries.
Finally, our corporate development team has a clear mandate to
pursue early stage, value accretive opportunities which display
significant geological potential and a clear path to control. We
saw this strategy in action in September 2010 with the acquisition
of a controlling stake in the Inmaculada project, following the
announcement of positive scoping results by our joint venture
partner International Minerals Corp ("IMZ"). In Chile, we exercised
our option to increase ownership in the Victoria project to a
controlling 60% stake and we also signed an option agreement for a
100% stake in the Valeriano property which is located in an
extremely prospective location, 27 kilometres north of Barrick Gold
Corporation's Pascua Lama project.
We have a proven track record of identifying early stage, value
accretive opportunities demonstrated by our investments in Lake
Shore Gold and Gold Resource Corp. The divestment of the Lake Shore
Gold stake at an attractive price allowed us to secure funding for
the development of our advanced projects as well as for our
exploration strategy.
2010 overview
Our operations delivered a robust performance in 2010 with
production of 26.4 million attributable silver equivalent ounces
comprised of 17.8 million ounces of silver and 144.4 thousand
ounces of gold. Pallancata and San Jose performed particularly well
with silver equivalent production up 19% and 8% year-on-year
respectively. The 6% year-on-year reduction in attributable silver
equivalent production was mainly driven by a lower contribution
from the Arcata operation where we made the firm decision of mining
reserve grades in order to achieve a consistent and sustainable
level of production.
As a result of the significant increase in precious metals
prices in the second half of 2010, our Ares mine in southern Peru
continued to operate for the full year, albeit at a declining rate.
We are monitoring the grade and cost profile of Ares and Moris, our
ageing open pit mine in Mexico, to ensure that they are in line
with our policy of producing profitable ounces. We expect both
operations to cease producing in 2011.
For 2011, we are targeting production of 22.5 million ounces
from current operations. We expect stable production at Pallancata
and San Jose and lower production at Arcata as we move towards the
reserve grade, as mentioned above. There continues to be enormous
potential at Arcata with new high grade veins continuing to be
found and resource life now at a very solid 9.6 years.
2010 was not only a year of high prices but also of high cost
inflation. The management team has worked hard to contain
controllable costs. Unit cost at underground operations increased
16%, mainly due to local price inflation in Argentina, higher
royalties and the longer than anticipated mine life at the high
cost Ares operation. Looking ahead, we are forecasting overall 2011
unit cost per tonne performance in Peru to be broadly in line with
industry cost inflation of around 10%, whilst in Argentina we
expect the rate to continue rising as a result of ongoing local
price inflation of around 25-30%.
The business is in sound financial health reporting record
revenue of $752.3 million in 2010 up 39% year on year, underpinned
by higher realised silver and gold prices, which were up 83% and
30% year-on-year respectively. Attributable profit after tax rose
79% to $94.9 million (2009: $52.9 million) with pre-exceptional EPS
of $0.28 for the full year, up 65% on 2009.
At San Jose, I am also pleased that during 2010 we resolved the
lawsuit with our joint venture partner, Minera Andes Inc ("MAI")
and we are fully committed to working together with MAI to deliver
the mine's full potential.
We closed the year with an extremely substantial cash balance of
$525.5 million which enabled us to repay our entire existing
syndicated loan facility of $114.3 million in January 2011 and
announce a 50% increase in our final dividend. This strong cash
balance, together with healthy operating cashflow which is up 52%
to $304.2 million in 2010, gives us the financial flexibility to
pursue our ambitious exploration programme in 2011 and beyond. It
also supports a full capital expenditure programme (2010: $156.5
million) including investment in our existing producing assets,
mine development, advanced exploration projects and equipment.
Finally, our strong capital position enables us to make selective,
value accretive acquisitions which are consistent with Group
strategy.
Outlook
Mining is a long-term investment proposition and we have a clear
strategy for delivering long-term growth and value for
shareholders. 2011 is already proving to be another promising year
in this important phase of Hochschild's evolution: production of
22.5 million attributable silver equivalent ounces, key stage
development at all three of our advanced projects and an
exploration programme which, with unprecedented investment, will
aim to make tangible progress in 2011 and beyond. With Hochschild's
highly talented team, solid asset base and extensive project
pipeline set to deliver long term production growth, I am confident
that we are in a strong position to create further stakeholder
value. I look forward to updating you on our progress over the
course of the year.
Ignacio Bustamante
Chief Executive Officer
28 March 2011
OPERATING REVIEW
2010 Highlights
-- Full year production of 26.4 million attributable silver
equivalent ounces, in line with market expectations
-- Strong production at Pallancata and San Jose, up 19% and 8%
respectively
-- Advanced projects, Inmaculada, Azuca and Crespo on track with
the potential to add a minimum of 12 million attributable silver
equivalent ounces per year starting from the end of 2013
-- Acquisition of controlling stake in the Inmaculada
project
CURRENT OPERATIONS
Production
Hochschild delivered another solid performance in 2010, in line
with its stated target, achieving attributable production of 26.4
million silver equivalent ounces comprised of 17.8 million ounces
of silver and 144,403 ounces of gold (2009: 28.2 million
attributable silver equivalent ounces). Production was particularly
strong at the Company's two newest mines, Pallancata and San Jose,
which now contribute approximately half of the Company's total
attributable production, offset by lower production at Arcata where
the Company is moving towards mining reserve grades in order to
achieve a consistent and sustainable level of production.
The Company has announced a production target of 22.5 million
attributable silver equivalent ounces for 2011, in line with its
mid-term forecast of 20-23 million attributable silver equivalent
ounces from current operations. Management expects stable
production at San Jose and Pallancata, offset by lower production
at Arcata, as the Company moves towards its long term goal of
mining close to the average reserve grade at each of its core
operations as anticipated in 2009.
Costs
The Company reported an increase in unit cost per tonne at its
underground operations of 16% in 2010 to $82.3 (2009: $70.7)
primarily due to significant price inflation in Argentina, higher
royalties and longer than anticipated mine life at the high cost
Ares operation. Please see page 19 of the financial review for
further details on costs.
Main operations
Arcata: Peru
Production and sales
Arcata, which commenced production in 1964, is a 100% owned
underground operation located in the Department of Arequipa in
southern Peru.
During 2010, Arcata's production was impacted by lower silver
grades due to changing geotechnical conditions at the accessible
mine areas. In order to ensure a consistent and sustainable level
of production, Arcata extraction grades were reduced during the
year, moving towards reserve grade level as anticipated in 2009.
Consequently, 2010 silver production decreased by 15% to 8.1
million ounces (2009: 9.5 million ounces). Gold production was 10%
lower at 25,834 ounces (2009: 28,639 ounces).
As at 31 December 2010, the silver equivalent reserve grade at
Arcata was 431 g/t and the Company expects to mine around this
level in 2011, notwithstanding the 10-15% variability that is
typical with these types of deposits. The Company remains positive
about the geological potential at the Arcata property and has made
excellent progress with the extension of its resource life which
increased 30% in 2010 to 9.6 years.
Costs
The Arcata operation reported a 15% increase in unit cost per
tonne in 2010, mainly as a result of higher metals prices
increasing the royalties paid by the Company and also due to higher
infrastructure costs relating to mine tunnels and stopes. This was
partly offset by efficiency measures leading to cost reductions in
contractors, explosives and maintenance.
A number of initiatives are planned for 2011 including the
construction of eight new stopes in order to optimise extraction
capacity as well as a programme to reduce energy consumption
through the replacement of existing energy pumps.
Year ended
Arcata summary Year ended 31 Dec 2010 31 Dec 2009 % change
--------------------------- ----------------------- ------------- ---------
Ore production (tonnes) 645,974 643,059 0%
Average head grade silver
(g/t) 439 503 -13%
Average head grade gold
(g/t) 1.40 1.56 -10%
Silver produced (koz) 8,099 9,542 -15%
Gold produced (koz) 25.83 28.64 -10%
Silver equivalent produced
(koz) 9,649 11,261 -14%
Silver sold (koz) 8,095 9,138 -11%
Gold sold (koz) 24.96 27.17 -8%
Unit cost (US$/t) 71.1 62.0 15%
--------------------------- ----------------------- ------------- ---------
Resource life
The resource life of Arcata currently stands at 9.6 years, up
from 7.4 years in 2009 following an intensive drill campaign
focused on the Socorro, Sorpresa, Luz, Rita and Barbara veins. A
total of 76,506 metres of diamond drilling was completed during the
year (2009: 59,582 metres) with significant intercepts
including:
Vein Results
-------- ----------------------------------------------
Sorpresa DDH-831 0.8m at 5.3 g/t Au and 621 g/t Ag
DDH 823 0.9m at 1.9 g/t Au and 1,201 g/t Ag
-------- ----------------------------------------------
Socorro DDH-169 0.8m at 13.5 g/t Au and 130 g/t Ag
-------- ----------------------------------------------
Luz DDH- 780 0.8 m at 3.77 g/t Au and 846 g/t Ag
DDH- 734 0.8 m. at 0.94 g/t Au and 784 g/t Ag
-------- ----------------------------------------------
The 2011 programme will employ geophysical methods in those
areas of the property with thick post mineral cover and will also
drill for further potential in the Mariana and Socorro veins. In
addition, the Company will develop new resources in the Socorro,
Luz, and Sorpresa veins.
Pallancata: Peru
Production and sales
The Pallancata silver/gold property is located in the Department
of Ayacucho in southern Peru, approximately 160 kilometres from the
Arcata operation. Pallancata commenced production in 2007 and is a
joint venture with International Minerals Corporation
("IMZ").Hochschild controls 60% of the joint venture and is the
mine operator. Ore from Pallancata is transported 22 kilometres to
the Selene plant for processing.
Pallancata continues to deliver strong results with record
silver equivalent production in 2010, up 19% to 12.3 million silver
equivalent ounces. Production was positively impacted by increased
treated tonnage which rose 16% year-on-year, due to the Selene
plant exclusively processing Pallancata's ore. As a result of these
effects and a higher extracted silver grade of 344 g/t (2009: 327
g/t) silver production increased 20% to 10.1 million ounces (2009:
8.4 million ounces). Gold production also increased in 2010, up 12%
to 35,848 ounces (2009: 31,975 ounces).
Following positive results from the ongoing drill programme at
Pallancata, the Company completed mine development in two new areas
in November 2010, Ranichico and Virgen del Carmen, both of which
have strong future potential. In 2011, the Company will develop two
further areas, San Javier and Pallancata East.
Costs
Pallancata's production cost is reported on a consolidated basis
with the Selene processing plant. The Pallancata operation reported
a 9% increase in unit cost per tonne year-on-year mainly due to
higher royalties paid by the Company as a result of higher
production and higher prices in 2010. Costs were also impacted by
investment in infrastructure including mine tunnels and stopes and
also in mine support facility upgrades. These effects were partly
offset by cost efficiencies resulting from the wide vein structure
of the deposit and higher production volume.
Cost initiatives undertaken during 2010 include the optimisation
of drilling and blasting procedures thus reducing the volume of
explosives used and the introduction of a new paste fill plant.
Plans for 2011 include the completion of a new tailings dam and the
implementation of a new washing circuit stage in the treatment
process which will help maintain the plant's target of 3,000 tpd
capacity throughout the year.
Year ended Year ended
Pallancata summary 31 Dec 2010 31 Dec 2009 % change
---------------------------------- ------------- ------------- ---------
Ore production (tonnes) 1,071,617 922,521 16%
Average head grade silver (g/t) 344 327 5%
Average head grade gold (g/t) 1.41 1.43 -1%
Silver produced (koz) 10,135 8,420 20%
Gold produced (koz) 35.85 31.97 12%
Silver equivalent produced (koz) 12,286 10,339 19%
Silver sold (koz) 9,998 8,405 19%
Gold sold (koz) 33.73 30.71 10%
Unit cost (US$/t) 51.8 47.3 9.3%
---------------------------------- ------------- ------------- ---------
(1) The Company has a 60% interest in Pallancata
Resource life
The resource life of the Pallancata operation currently stands
at 6.9 years, up 11% compared to 2009. During 2010, the Company
continued to advance underground development at the Mariana and
Virgen del Carmen veins. A total of 46,547 metres of diamond
drilling was executed over the course of the year (2009: 26,573
metres), mainly focused on the Cimoide, Sofia; Pallancata West and
East veins with intercepts including:
Vein Results
--------------- ---------------------------------------------
Cimoide DLPL-A605 1.3m at 1.5 g/t Au and 404 g/t Ag
--------------- ---------------------------------------------
Pallancata West DLPL-A606 7.0m at 1.3 g/t Au and 446 g/t Ag
--------------- ---------------------------------------------
Pallancata East DLPE- A47 2.75m at 0.75 g/t Au and 317 g/t Ag
--------------- ---------------------------------------------
Sofia DLPL- 606 0.9m at 0.97 g/t Au and 274 g/t Ag
--------------- ---------------------------------------------
The focus for the 2011 brownfield programme will be drilling at
the Huararani, Santa Angela, Pacapausa and Bolsa targets and the
development of new resources at the Rina, Paralela and Pallancata
West and South East Veins.
San Jose: Argentina
Production and sales
The San Jose silver/gold mine is located in Argentina, in the
province of Santa Cruz, 1,750 kilometres southwest of Buenos Aires.
San Jose commenced production in 2007 and is a joint venture with
Minera Andes Inc ("MAI") in which Hochschild controls 51% and is
the mine operator.
San Jose reported strong results in 2010, with silver production
up 7% to 5.3 million ounces (2009: 5.0 million ounces) and gold
production up 9% to 84,303 ounces (2009: 77,075 ounces). This was
mainly due to higher volumes from new mining areas, including the
high grade Kospi vein and also due to the successful installation
of a Merrill Crowe circuit in the mill to process residual tailings
recoveries. This project has exceeded the Company's initial
recovery estimate of 500,000 silver equivalent ounces with a
one-off 665,280 silver equivalent ounces recovered in 2010.
As expected, the grade profile of San Jose increased over the
course of the year following lower production in the first quarter
of 2010. As is common in the early stages of operation, grades were
lower as a result of the mix of material with lower grade
development mineral surrounding the high grade Kospi vein which
increased steadily as mining progressed. The Kospi vein contributed
over 188,803 tonnes of ore to the mine's production in 2010 and, as
expected, has positively impacted results with full year silver
equivalent production up 8% to 10.4 million silver equivalent
ounces.
Additionally, in September 2010, the Company agreed to settle
the lawsuit with MAI, regarding the $65 million project financing
loan provided by Hochschild to the San Jose project. The companies
committed to a new repayment schedule for both the project finance
loan and the 2004 shareholder loan of $50 million, over a maximum
period of 8 years with a fixed interest rate of 7% per annum.
Future payments on both loans may be accelerated based on mine
performance and metal prices.
Argentina continues to be a challenging economic and operating
environment although the Company remains positive about the high
grade potential of the San Jose mine and surrounding property.
Costs
Local cost inflation in Argentina remains high and consequently
San Jose reported an increase in unit cost per tonne of 29% in
2010. This was mainly due to higher personnel expenses relating to
an increase in the number of employees at the operation and the
associated transportation, catering and maintenance costs, as well
as a 25% increase in salaries. The mine's management team continues
to introduce initiatives and technology which improve productivity
and reduce costs.
Year ended Year ended
San Jose summary 31 Dec 2010 31 Dec 2009 % change
---------------------------------- ------------- ------------- ---------
Ore production (tonnes)( ) 461,134 460,971 0%
Average head grade silver (g/t) 397 398 0%
Average head grade gold (g/t) 6.14 6.19 -1%
Silver produced (koz)( ) 5,324 4,998 7%
Gold produced (koz) 84.30 77.08 9%
Silver equivalent produced (koz) 10,382 9,622 8%
Silver sold (koz)( ) 5,284 5,174 2%
Gold sold (koz)( ) 84.96 78.80 8%
Unit cost (US$/t) 152.3 118.5 29%
---------------------------------- ------------- ------------- ---------
(1) The Company has a 51% interest in San Jose
Resource life
Following an intensive drill campaign in 2010 which resulted in
the discovery of nine new high-grade gold/silver veins and two
extensions, the Company materially increased the resource life of
the San Jose property by 36% to 11.4 years (2009: 8.4 years). A
significant portion of the San Jose property continues to be open
at depth and laterally. During 2010, 53,692 metres of diamond
drilling was completed focusing on the Ayelen, Micaela, Kospi and
Ramal Kospi veins with significant intercepts including:
Vein Results
----------- -----------------------------------------------
Ayelen SJD-816 1.9m at 2.3 g/t Au and 251 g/t Ag
SJD-799 3.50m at 2.98 g/t Au and 268.53 g/t Ag
----------- -----------------------------------------------
Micaela SJD-806 0.7m at 12.3 g/t Au and 2,389 g/t Ag
SJD-797 0.3m at 8.4 g/t Au and 485 g/t Ag
----------- -----------------------------------------------
Kospi SJD 594 0.9m at 4.8 g/t Au and 296 g/t Ag
----------- -----------------------------------------------
Ramal Kospi SJD 582 1.6m at 60.9 g/t Au and 1,376 g/t Ag
----------- -----------------------------------------------
The 2011 exploration programme at San Jose includes developing
resources at the newly discovered Susana vein and the Saavedra West
breccia. The Company is planning to expand geophysical coverage
(induced polarisation and ground magnetics) to an additional 10,000
hectares south of the mine area.
Other operations
Ares: Peru
Production and sales
The Ares mine, which commenced production in 1998, is a 100%
owned operation located approximately 275 kilometres from the city
of Arequipa in southern Peru. Following the significant increase in
prices in the second half of 2010, the mine continued to operate
for the full year, albeit at a lower level, producing 2.7 million
silver equivalent ounces (2009: 3.5 million silver equivalent
ounces).
As previously announced, Ares is expected to close in the second
half of 2011. Management is monitoring the grade and cost profile
of the operation to ensure that it is in line with the Company's
policy of producing profitable ounces.
Year ended Year ended
Ares summary 31 Dec 2010 31 Dec 2009 % change
---------------------------------- ------------- ------------- ---------
Ore production (tonnes) 301,726 341,273 -12%
Average head grade silver (g/t) 92 96 -4%
Average head grade gold (g/t) 3.58 4.17 -14%
Dore total (koz) 822 947 -13%
Silver produced (koz) 786 900 -13%
Gold produced (koz) 32.53 42.59 -24%
Silver equivalent produced (koz) 2,738 3,455 -21%
Silver sold (koz) 810 873 -7%
Gold sold (koz)( ) 32.70 41.82 -22%
---------------------------------- ------------- ------------- ---------
Unit cost (US$/t) 107.5 82.7 30%
---------------------------------- ------------- ------------- ---------
Moris: Mexico
Production and sales
The 100% owned Moris mine, is the Group's only open pit mine and
is located in the district of Chihuahua, Mexico. Moris provided a
key stepping stone into Mexico, which is of key strategic
importance to the Group. As previously disclosed, Moris is an
ageing deposit with a declining production profile. The operation
produced 86,408 ounces (2009: 96,583 ounces) of silver and 21,532
ounces (2009: 28,344 ounces) of gold in 2010 or 1.4 million silver
equivalent ounces (2009: 1.8 million silver equivalent ounces).
Moris is scheduled for closure in 2011. Management is monitoring
the grade and cost profile of the operation to ensure that it is in
line with the Company's policy of producing profitable ounces.
Year ended Year ended
Moris summary 31 Dec 2010 31 Dec 2009 % change
---------------------------------- ------------- ------------- ---------
Ore production (tonnes) 1,148,826 1,282,461 -10%
Average head grade silver (g/t) 4.44 5.02 -11%
Average head grade gold (g/t) 1.14 1.38 -17%
Silver produced (koz) 86.41 96.58 -11%
Gold produced (koz) 21.53 28.34 -24%
Silver equivalent produced (koz) 1,378 1,797 -23%
Silver sold (koz)( ) 95.07 86.69 10%
Gold sold (koz)( ) 23.54 26.29 -10%
Unit cost (US$/t) 16.3 13.8 18%
---------------------------------- ------------- ------------- ---------
ADVANCED PROJECTS
The Company now has three advanced projects, Inmaculada, Azuca
and Crespo, which have the combined potential to add a minimum of
12 million attributable silver equivalent ounces per annum to the
Company's profile with production due to commence at the end of
2013. Approximately 15% of the total 2011 exploration budget of $70
million will be focused on resource development at these three
projects to ensure a stable mine life prior to commencing
production.
Inmaculada
Inmaculada, a 20,000 hectare gold-silver project located in the
Company's existing operational cluster in southern Peru, is 60%
owned and controlled by Hochschild, following the acquisition of a
controlling stake in October 2010. The remaining 40% is held by the
Company's joint venture partner at Pallancata, IMZ. Hochschild has
progressed the project to feasibility which it aims to complete by
the end of 2011 with production planned to commence by December
2013.
The scoping study published by IMZ in September 2010 estimated
average annual total silver equivalent production of 11 million
ounces from the project's Angela vein and total resources of 115
million silver equivalent ounces (1.9 million gold equivalent
ounces). In February 2011, Hochschild published a 12% increase in
total resources to 128.3 million silver equivalent ounces and a 29%
increase in the silver equivalent grade to 498 g/t, based on the
180 g/t cut-off used by IMZ in the scoping study. When assuming the
98 g/t silver equivalent cut-off grade which reflects the
anticipated marginal cost of production, resources increase further
to 137.3 million silver equivalent ounces, an increase of 20%.
Summary results (on a 100% basis, applying a 180 g/t silver
equivalent cut-off grade and a silver to gold ratio of 60:1) are as
follows:
-- Measured & Indicated resources: 4.7mt at an average grade
of 5.2 g/t gold and 186 g/t silver containing approximately 795,000
ounces of gold and 28.3 million ounces of silver.
-- Inferred resources of 2.7mt at an average grade of 6.1 g/t
gold and 247 g/t silver containing approximately 521,000 ounces of
gold and 21.0 million ounces of silver.
Hochschild expects the results to significantly improve the
economics of the project detailed in the above mentioned 2010
scoping study. Furthermore, after applying the Company's marginal
silver equivalent cut-off grade of 98 g/t, the resource figures
increase further. Updated project economics will be published with
the completion of the feasibility study.
The Company is moving forward with an exploration programme at
the property which consists of 40 mining concessions. The main
Angela vein remains open with significant additional upside
potential in several other structures and the joint venture has
committed to undertake a 20,000 metre drilling programme annually
for the first three years to further develop resources. In 2011,
the Company will undertake geophysical work at the Jimena vein and
at the north eastern extension of the Angela vein in preparation
for drilling later in the year.
Results from the scoping study indicated that at base case gold
and silver prices of $1,000/oz and $17/oz respectively, the project
could return a cumulative total pre-tax cash flow
(undiscounted)approximately $660 million and a pre-tax internal
rate of return ("IRR") of 41%. Using prices for gold and silver of
$1,400/oz and $34/oz respectively, the project could return a
cumulative total pre-tax cash flow (undiscounted) of approximately
$1,417 million and 74% IRR.
Azuca
In September 2010, the Company announced positive results from
the scoping study undertaken at its 100% owned Azuca property,
estimating initial average annual silver equivalent production of
3.5 million ounces, which represents around 16% of Hochschild's
2011 attributable production. At base case gold and silver prices
of $1,000/oz and $17/oz respectively, the scoping study indicates
that the project could return a cumulative total pre-tax cash flow
(undiscounted) of approximately $107 million and 21% IRR. Using
prices for gold and silver of $1,400/oz and $34/oz respectively,
the project could return a cumulative total pre-tax cash flow
(undiscounted) of approximately $533.7 million and 95% IRR. The
study, which was completed by an independent third party, assumes
plant throughput of 750 tonnes per day with engineering designed to
easily accommodate future capacity increases.
Azuca has reached resources of 70.3 million silver equivalent
ounces as at 31 December 2010 and is now at pre-feasibility stage
with targeted completion in Q1 2012. The Company is currently
undertaking an intensive exploration programme at the property with
the aim of expanding the scale and profitability of the project. In
2010, 59,811 metres of drilling was undertaken (2009: 38,600
metres) with positive results at the Karla, Vivian, Prometida and
Prometida Ramal Techo veins including:
Vein Results
--------------------- -------------------------------------------------------
Karla DAKA-A1007 0.9m at 1.3 g/t Au and 1,318 g/t Ag
DAKA- A1008 1.0m at 2.3 g/t Au and 946 g/t Ag
--------------------- -------------------------------------------------------
Vivian DAVI- A1026 0.8m at 25.6 g/t Au
and 2,567 g/t Ag; 0.5m at 1.2 g/t
Au and 651 g/t Ag; 0.6m at 0.7
g/t Au and 632 g/t Ag
--------------------- -------------------------------------------------------
Prometida DAAW- A1007 2.1m at 2.6 g/t Au and 686 g/t Ag
--------------------- -------------------------------------------------------
Prometida Ramal Techo DAAW- A1007 1.1m at 2.0 g/t Au and 1,050 g/t Ag
--------------------- -------------------------------------------------------
Crespo
In January 2011, Hochschild reported positive results from a
scoping study completed by an independent company, Ausenco, at the
Company's 100% owned Crespo project, located in the Company's
existing operating cluster in southern Peru. The scoping study is
based on resources of 31.3 million silver equivalent ounces
(measured and indicated) and estimates annual silver equivalent
production of 2.3 million ounces starting from 2014 and a mine life
of 7.5 years.
Crespo, which is expected to be an open pit deposit, is one of a
number of properties acquired by the Company in 2008 as part of the
Liam JV/Southwestern Resources land package and is the first of
these to progress to pre-feasibility.
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 flow (undiscounted) of $53.5 million, with an IRR of
19%. Using prices of $1,400/oz and $34/oz for gold and silver
respectively, the project could return a cumulative total pre-tax
cash flow (undiscounted) of approximately $230.8 million, with an
IRR for the project of approximately 60%.
During 2010, the Company completed 1,740 metres of drilling as
well as a 537 metre underground audit to confirm the resource
model. The 2011 drill programme is focused on converting inferred
resources to the indicated resource category and to explore the
Queshca target located a few kilometres away from the main
target.
EXPLORATION REVIEW
2010 Highlights
-- $53.5 million invested in exploration in 2010
-- Resource life up 23% to 8.7 years
-- Increase in Company Maker pipeline from three to eight
projects
-- Acquisition of controlling stake in the Victoria project in
Chile
-- Option agreement for the Valeriano property in Chile
-- 2011 exploration budget up 40% to $70 million
-- 335,000 metres of drilling to be undertaken at greenfield and
brownfield projects across 4 countries
Exploration is a key part of Hochschild's growth strategy,
demonstrated by the significant increase in budget which has more
than doubled since 2009 to $70 million in 2011. A total of 300,086
metres of drilling was undertaken by the Company's local
exploration teams in 2010 (2009: 149,99 metres), at both existing
sites and at new, greenfield projects in Peru, Argentina, Mexico
and Chile. The Company now has over 70 geologists providing the
technical experience and expertise required to deliver a steady
stream of value accretive opportunities.
The Company has achieved positive results particularly with
regards to its key objective of increasing the resource life of its
main operations and on expanding its project pipeline which now
includes three advanced projects and eight Company Makers (projects
with the potential to achieve 20-30 million silver equivalent
ounces per year).
The significant investment in 2011 will support the delivery of
an extensive and targeted drill programme covering 335,000 metres
across the four target countries mentioned above. The budget will
be split between exploration work at the Company's existing
operations and on identifying and developing high-quality, early
stage projects which have the potential to move through the
pipeline to production.
Brownfield exploration
Approximately 49% of the 2010 budget was invested in brownfield
drilling in the areas immediately surrounding Hochschild's three
main operations and resulted in a significant 23% increase in
resource life to 8.7 years as at 31 December 2010 (2009: 7.1 years
in 2009). For further details on the Company's brownfield
exploration programme, please see pages 7-12.
The Company takes a very conservative approach to resource
delineation and is one of the few companies that applies the same
cut off grades to reserves and resources.
For full reserve and resource tables, please see pages
57-62.
Greenfield exploration
Company Makers
As mentioned above, 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. These are
typically high sulphidation, disseminated or gold/copper porphyry
deposits and are generally open pit operations. In 2010, $11.2
million was invested in finding and developing such deposits and
this has increased to $13.1 million in 2011. The Company currently
has eight potential Company Makers in the pipeline:
Victoria
In November 2010, the Company exercised its option to increase
its holding in the Victoria project in northern Chile to 60% by
incurring $6.0 million in exploration expenditure (Iron Creek
Capital hold the remaining 40%). Although still at an early stage,
exploration work is delivering positive results at the property
which covers 37 kilometres of continuous strike length at the
highly productive Domeyko Fault Zone. Drilling indicates
significant mineralisation with recent results including:
Intercept Results
------------ -------------------------------------------------
VVQDD-10-035 78.5m at 0.9 g/t Au & 16.0 g/t Ag, including 1.2m
at 18.8 g/t Au and 392 g/t Ag
VVQDD-10-034 15.1m at 0.80 g/t Au and 6.5 g/t Ag
VVQDD-10-036 21.0m at 0.6 g/t Au and 4.8 g/t Ag
VVQDD-10-039 1.8m at 6.0 g/t Au and 12.7 g/t Ag
VVQDD-10-032 101.9m at 0.91g/t Au and 57g/t Ag
------------ -------------------------------------------------
Drilling has extended the overall strike length of the
mineralised trend to approximately 1 kilometre. A large area of
hydrothermal alteration, including extensive local silicification
and alunite at Lena, in the southeast area of the property, was
also discovered. The programme included mapping of a quartz-vein
stockwork over an area of approximately 800 metres by 400 metres
associated with porphyry copper style alteration and supergene
turquoise mineralisation at the Picaron prospect on the west side
of Victoria.
The Company has also undertaken drilling at the Vida target
which appears to display many of the characteristics of a mafic
porphyry Au (+/-Cu) system, cross-cut by later, northwest trending
structures that are the focus of higher-grade gold mineralisation.
Three new RC holes covering a total of 946 metres have been drilled
to date and revealed high-grade, cross-cutting, sulphide-rich
breccia/fault structures that are oxidised near surface. Results
include:
Intercept Results
------------ ------------------------------------------
VCNRC-10-004 8m at 10.5 g/t Au and 29 g/t Ag
VCNRC-10-021 4m at 8.9 g/t Au and 38.8 g/t Ag from 240m
------------ ------------------------------------------
Total drilling of 10,000 metres is planned for the Victoria
property in 2011.
Valeriano
In November 2010, Hochschild entered into an option agreement
with Sociedad Contractual Minera Valleno for the Valeriano property
which is located 27 kilometres north of Barrick Gold Corporation's
Pascua Lama project. Valeriano covers an area of 3,750 hectares in
close proximity to the Argentinian border and hosts both
high-sulphidation as well as porphyry style, disseminated gold
mineralisation.
The property has been explored in the past by Phelps Dodge
(1989-1991) and Barrick (1995-1997), both of which completed drill
campaigns totalling 12,575 metres. No significant exploration has
been undertaken at the property since 1997. A number of highly
mineralised intercepts have been reported from this drilling
including:
-- 100 metres at 1.37 g/t Au in typical shallow high
sulphidation style mineralisation starting at 19 metres depth
-- 41 metres at 0.61 g/t Au, 12 g/t Ag and 0.30% Cu, porphyry
type mineralisation starting at 70 metres depth
Exploration work commenced in January 2011 with a review of the
existing data set and re-interpretation of geophysical data and
drilling to test the deep porphyry-style target as well as the near
surface high-sulphidation system. Field work is also underway
including sampling and mapping surface exposures and acquisition of
deep IP and resistivity surveys. A 2,500 metre drill campaign is
scheduled to commence in H2 2011 to test targets defined by this
exploration campaign.
Mercurio
Mercurio is a 100% owned, 36,388 hectare property in Mexico,
located between two high grade mines, approximately 43 kilometres
from Sombrerete and 68 kilometres from Fresnillo. During the year,
6,945 metres of drilling was undertaken at the project with results
including 86 metres at 20 g/t Ag (0.2% Cu, 0.5% Pb, 1.4% Zn) and
3.5 metres at 300 g/t Ag (4.4% Cu, 1.2% Pb, 7.5% Zn).
Drilling focused on a system of low sulphidation veins which
have reported anomalous silver and base metal results. Deeper
drilling is planned for the first half of 2011.
Josnitoro
Josnitoro is a 100% owned project located in Peru. The project
was acquired as part of the Southwestern Resources acquisition,
with visible gold mineralisation starting at surface. The Company
is working towards completing the necessary permits and approval
process.
Corazon de Tinieblas
The Corazon de Tinieblas property in Mexico was acquired in H1
2010 by the Company and is currently completing the permit process.
A number of areas have been defined for drill testing and more
detailed mapping is scheduled to better define the controls to
mineralisation and the overall lithologic stratigraphy of the area
which will reveal the structural setting.
Apacheta
At the 100% owned Apacheta project in Peru, the Company is in
the process of completing the permit process and is also
undertaking mapping, geochemical sampling and geophysics to define
drill targets within this extensive land package.
Parihuana
The Parihuana project is 100% owned by Hochschild and is located
in Peru. The project entered the pipeline in 2010 and drill targets
have been selected for testing in the first half of 2011.
Alteration mineralogical studies indicate typical high-sulphidation
affiliation and clay mineralogy also indicates a central zone of
higher temperature and acid conditions.
Sabina
At the 100% owned Sabina project in Peru, drilling to date has
not reported significant mineralisation. However, a vertical
anomalous feeder system has been identified at the Chaquella target
with the intensity of the alteration system indicating a powerful
hydrothermal system and the Company therefore plans to complete the
current drill programme in 2011.
Medium scale projects
The Company's pipeline currently contains various medium scale
properties in the prospects and drill target categories which each
have the potential to deliver 5-10 million silver equivalent ounces
of production per year. These tend to be low sulphidation
epithermal gold/silver type deposits with varying base metal
content and are typically mined underground.
In 2010, $6.9 million was dedicated to finding and developing
medium scale projects and the Company plans to increase this
investment to $8.6 million in 2011. Positive results have been
reported at a number of these projects, particularly at La Flora
which has moved up the pipeline from prospect to drill target. Two
new properties also entering the pipeline in 2010 were the Cricket
prospect in Argentina as well as the more advanced Pausi project in
Peru which is now at 'drill target' stage.
La Flora
At the La Flora project in Argentina, two large vein systems
have been identified since drilling commenced in H2 2010. The
project has progressed to 'drill targets' and a detailed
exploration programme is underway. Logging of the drill holes
indicated that the anomalous gold mineralisation is associated with
the upper reaches of a hydrothermal system. In 2011, geophysical
work and deeper drilling will be undertaken to test the potential
of higher grade mineralisation.
Encrucijada
Three drill holes were completed at the Encrucijada property (a
joint venture with Andina Minerals) in 2010 focusing on the San
Bernardo Dome target with associated advanced argillic alteration
and tourmaline breccias. Alteration and mineralisation indicates a
possible copper porphyry system with anomalous gold and molybdenum
also reported from these intercepts:
Intercept Results
---------- -------------------------------------
ENCRC10_23 From 65m depth - 43m at 3,556 ppm Cu
108 to 258m; 150m at 813 ppm Zn
ENCRC10_24 From 90m depth - 211m at 828 ppm Cu
From 144m depth - 157m at 578 ppm Zn
ENCRC10_25 From 94m depth - 106m at 739 ppm Cu
From 111m depth - 89m at 539 ppm Zn
---------- -------------------------------------
Mosquito
The Company is making progress at the Mosquito project in
Argentina, where seven new vein targets have been identified. A
total of 9,984 metres was drilled in 2010 with results pending. All
targets have cut vein structures associated with surface
mapping.
Astana Farallon
Astana Farallon is a 100% owned gold/silver epithermal vein
project in the Company's southern Peru cluster. A 5,600 metre drill
programme is planned for H2 2011 which is designed to test a known
productive horizon at depth. Historic drilling at shallow levels
reported anomalous results reported in Au, Ag, Pb, and Zn.
Pariguanas
In June 2010, the Company signed an agreement with Compania de
Minas Buenaventura ("Buenaventura") to create the Pariguanas joint
venture through the combination of neighbouring properties of
similar size owned by the two companies. Hochschild holds 40% of
the property which covers 4,437 hectares of land located
approximately 18 kilometres from the Company's existing Ares
operation. Buenaventura currently holds the remaining 60% of the
joint venture with the obligation to achieve production by
2018.
Pariguanas is a low sulphidation, predominantly underground vein
system where up to five prospective areas have been outlined. A
total of 7,290 metres in 31 holes has been drilled by Buenaventura
to date, mainly focused on the San Pedro vein. Positive results
include:
-- 2.7 metres at 0.7 g/t Au and 1,194 g/t Ag including 0.9
metres at 1.6 g/t Au and 3,016 g/t Ag
-- 4.4 metres at 3.1 g/t Au and 2,376 g/t Ag including 1.6
metres at 7.4 g/t Au and 6,288 g/t Ag
In the event that Buenaventura does not commence production by
2018, Hochschild will have the option to assume control of the
project by committing to certain payments linked to Buenaventura's
investment.
Copper projects
Following the acquisition of Southwestern Resources in 2008, the
Company currently holds a number of copper projects located in the
southern Andes within a highly prospective area for copper
deposits. The Company has committed approximately 4% of the total
2011 budget and a dedicated exploration team to drilling at the
properties in order to establish potential value.
Generative
The Company holds over 1 million hectares of prime land in key
geological regions across four countries and has committed around
6% of the total 2011 budget to further expand its land package in
premium areas.
FINANCIAL REVIEW
Key performance indicators:
(before exceptional items, unless otherwise indicated)
Year ended Year ended
US$(000) unless otherwise indicated 31 Dec 2010 31 Dec 2009 % change
------------------------------------- ------------- ------------- ---------
Net Revenue(1) 752,322 539,741 39
Attributable silver production (koz) 17,768 18,754 (5)
Attributable gold production (koz) 144 157 (8)
Cash costs ($/oz Ag co-product) (2) 8.74 7.14 22
Cash costs ($/oz Au co-product) (2) 503.5 480.2 5
Adjusted EBITDA (3) 397,731 249,869 59
Earnings per share (pre exceptional) $0.28 $0.17 65
Earnings per share (post
exceptional) $0.46 $0.31 48
Cash flow from operating activities
(4) 304,232 200,524 52
Resource life of mine (years) 8.7 7.1 23
------------------------------------- ------------- ------------- ---------
(1 ) Revenue presented in the financial statements is disclosed
as net revenue (in this Financial Review it is calculated as gross
revenue less commercial discounts)
(2) Includes Hochschild's main operations: Arcata, Pallancata
and San Jose. Cash costs are calculated to include cost of sales,
treatment charges, and selling expenses before exceptional items
less depreciation included in cost of sales.
(3 ) Adjusted EBITDA is calculated as profit from continuing
operations before exceptional items, net finance costs and income
tax plus depreciation and exploration expenses other than personnel
and other exploration related fixed expenses.
(4) Cash flow from operations is calculated as profit for the
year from continuing operations after exceptional items, plus the
add-back of non-cash items within profit for the year (such as
depreciation and amortisation, impairments and write-off of assets,
gains/losses on sale of assets, amongst others) plus/minus changes
in liabilities/assets such as trade and other payables, trade and
other receivables, inventories, net tax assets, net deferred income
tax liabilities, amongst others.
The reporting currency of Hochschild Mining plc is U.S. dollars.
In discussions of financial performance the Group removes the
effect of exceptional items, unless otherwise indicated, and in the
income statement results are shown both pre and post such
exceptional items. Exceptional items are those items, which due to
their nature or the expected infrequency of the events giving rise
to them, need to be disclosed separately on the face of the income
statement to enable a better understanding of the financial
performance of the Group and to facilitate comparison with prior
years.
Revenue
Gross revenue: Gross revenue from continuing operations
increased 36% to $802.7 million in 2010 (2009: $589.9 million)
driven by higher metal prices during the year.
Silver: Gross revenue from silver increased 44% in 2010 to
$549.7 million (2009: $382.4 million) as a result of higher prices.
The total amount of silver ounces sold in 2010 decreased to 24,283
koz (2009: 24,330 koz(2) ) mainly due to lower year-on-year
production.
Gold: Gross revenue from gold increased 22% in 2010 to $253.0
million (2009: $207.5 million) also as a result of higher prices.
The total amount of gold ounces sold in 2010 decreased to 199.9 koz
(2009: 207.8 koz(3) ) mainly due to lower year-on-year
production.
Gross average realised sales prices
As of December 2010, the Company discloses average realised
prices calculated as gross revenue divided by gross ounces sold.
Previously, the Company disclosed average realised prices
calculated as net revenue divided by net ounces sold. Net revenue
is calculated as gross revenue minus commercial discounts, see
paragraph below.
(2) Restated
(3) Restated
The following table provides restated figures for average
realised prices and ounces sold for 2009 and 2010:
Year ended Year ended
Average realised 31 Dec 2010 31 Dec 2009 Year ended Year ended
prices (restated) (restated) 31 Dec 2010 31 Dec 2009
------------------ ------------- ------------- ------------- -------------
Silver ounces
sold (koz) 24,283 24,330 23,506 23,563
Avg. realised
silver price
($/oz) 22.6 15.7 21.6 14.5
Gold ounces sold
(koz) 199.9 207.8 196.2 204.1
Avg. realised
gold price
($/oz) 1,266 999 1,244 970
------------------ ------------- ------------- ------------- -------------
Commercial discounts
Commercial discounts refer to refinery treatment charges,
refining fees and payable deductions for processing concentrates,
and are discounted from gross revenue on a per tonne basis
(treatment charge), per ounce basis (refining fees) or as a
percentage of gross revenue (payable deductions). In 2010, the
Group recorded commercial discounts of $50.5 million (2009: $50.4
million). The ratio of commercial discounts to gross revenue in
2010 decreased to 6% (2009: 9%).
Net revenue
Increased by 39% to $752.3 million, comprising silver revenue of
$508.3 million and gold revenue of $243.9 million. In 2010, silver
accounted for 68% and gold 32% of the Company's consolidated net
revenue compared to 63% and 37% respectively in 2009.
Net revenue by mine
Year ended Year ended
US$(000) unless otherwise indicated 31 Dec 2010 31 Dec 2009 % change
------------------------------------- ------------- ------------- ---------
Net silver revenue
Arcata 173,942 141,816 23
Ares 16,586 13,038 27
Selene 13 8,805 (100)
Pallancata 233,789 139,124 68
San Jose 123,393 78,352 57
Moris 1,946 1,245 56
Commercial discounts (41,392) (40,904) 1
Net silver revenue 508,277 341,476 49
Net gold revenue
Arcata 31,264 27,364 14
Ares 40,239 40,278 0
Selene 2 2,819 (100)
Pallancata 43,712 32,443 35
San Jose 108,849 79,430 37
Moris 28,953 25,195 15
Commercial discounts (9,079) (9,492) (4)
Net gold revenue 243,940 198,037 23
Other revenue(1) 105 228 (54)
------------------------------------- ------------- ------------- ---------
Net revenue 752,322 539,741 39
------------------------------------- ------------- ------------- ---------
(1) Other revenue includes revenue from sale of energy in Peru,
revenue from administrative services in Mexico and revenue from
base metal components in the concentrate sold from the Arcata mine
net of commercial discounts in 2009 only.
Costs
Total pre-exceptional cost of sales increased 24% to $345.7
million in 2010 (2009: $279.3 million) mainly as a result of the
increase in direct production cost of 21% to $225.2 million (2009:
$186.3 million). Direct production cost increased mainly due to
inflation in personnel, supplies and energy expenses, particularly
in Argentina. In addition, mining royalties increased as a result
of higher metal prices. Depreciation and amortisation, which
increased 23% to $102.7 million (2009: $83.4 million), also
contributed to higher cost of sales.
Unit cost per tonne
The Company reported an overall increase in unit cost per tonne
at its underground operations of 16% in 2010 to $82.3 (2009:
$70.7). This increase is mainly explained by higher royalties as
well as price inflation in Argentina.
In order further to increase transparency, the Company is
restating its unit cost per tonne figures to include certain
indirect operating expenses including health, safety and
environmental accreditations. In addition, Pallancata's 2009 unit
cost per tonne has been restated to exclude the depreciation
component of the Selene plant processing fee. With these
restatements, the unit cost per tonne of the Company's underground
operations in 2009 reduces from $71.2 to $70.7.
Unit cost per tonne by operation*:
Unit cost Unit cost
Operating per tonne per tonne Unit cost Unit cost
unit 2010 2009 per tonne per tonne
($/tonne) (restated) (restated) % change 2010 2009 % change
------------ ---------- ---------- -------- --------- --------- --------
Peru 66.2 59.9 10.6 64.0 60.8 5.2
Arcata 71.1 62.0 14.7 68.3 59.6 14.6
Pallancata 51.8 47.3 9.3 50.5 53.0 (4.8)
Ares 107.5 82.7 29.9 103.3 81.0 27.5
Selene n.a 95.1 n.a n.a 92.1 n.a
Argentina 152.3 118.5 28.5 152.3 118.5 28.5
San Jose 152.3 118.5 28.5 152.3 118.5 28.5
------------ ---------- ---------- -------- --------- --------- --------
Total
underground 82.3 70.7 16.4 80.5 71.2 13.0
Mexico 16.3 13.8 18.1 16.3 13.5 20.7
Moris 16.3 13.8 18.1 16.3 13.5 20.7
------------ ---------- ---------- -------- --------- --------- --------
Total
Company 61.3 50.7 21.0 60.1 51.1 17.5
------------ ---------- ---------- -------- --------- --------- --------
*Unit cost per tonne is calculated by dividing mine and geology
costs by extracted tonnage and plant and other costs by treated
tonnage. Dividing total production cost disclosed in the segmental
report on page 55 by treated tonnage reported in the production
report provides a good approximation for unit cost per tonne.
Cash costs
Cash costs include cost of sales, commercial deductions and
selling expenses before exceptional items, less depreciation
included in cost of sales.
Co-product silver/gold cash costs are total cash costs
multiplied by the percentage of revenue from silver/gold, divided
by the number of silver/gold ounces sold in the year. Silver and
gold cash costs increased from $7.1 to $9.3 per ounce and from $476
to $535 per ounce, respectively. Silver and gold cash costs from
main operations (Arcata, Pallancata and San Jose) increased from
$7.1 to $8.7 per ounce and from $480 to $504 per ounce,
respectively. The increase was mainly explained by higher
production costs and the lower average grades, mainly at Arcata and
Ares.
By-product silver/gold cash costs are total cash costs less
revenue from gold/silver, divided by the number of silver/gold
ounces sold in the year. By-product cash costs for the period were
$3.0 per silver ounce (2009:$2.4 per silver ounce) and ($1,153) per
gold ounce (2009: ($576) per gold ounce).
Administrative expenses
Administrative expenses before exceptional items increased by
30% to $66.2 million (2009: $51.1 million) mainly as a result of: a
35% increase in personnel expenses to $34.3 million (2009: $25.4
million) and a 45% increase in professional fees to $9.6 million
(2009: $6.6 million).
Personnel expenses increased primarily due to the provision for
a management long-term incentive plan, termination benefits due to
changes in management and higher salaries. Professional fees
increased mainly due to higher legal fees mainly related to the
Minera Andes dispute.
Exploration expenses
As a result of the Group's decision to focus on organic growth
through exploration, exploration expenses, which primarily relate
to greenfield exploration, increased by 109% to $41.5 million in
2010 (2009: $19.9 million). Further detail on this programme can be
found in the exploration section on page 13.
In addition, the Group capitalises part of its brownfield
exploration, which mostly relates to costs incurred converting
potential resource to the inferred or measured and indicated
category. In 2010, the Group capitalised $12.0 million relating to
brownfield exploration compared to $8.6 million in 2009 bringing
the total investment in exploration for the full year 2010 to $53.5
million. In addition, $10.2 million was invested in the Company's
advanced projects.
Selling expenses
Selling expenses increased to $26.9 million (2009: $21.0
million) mainly due to higher export duties at San Jose, driven by
the increase in gold and silver prices (export duties in Argentina
are levied at 10% of revenue for concentrate and 5% of revenue for
dore).
Other income/expenses
Other income before exceptional items was $5.6 million (2009:
$4.5 million). Other income post exceptional items was $82.8
million (2009: $13.3 million), mainly as a result of the divestment
in the Company's stake in Lake Shore Gold from 35% to 6%, which
generated a gain of $63.7 million.
Other expenses before exceptional items reached $11.0 million
(2009: $19.3 million). There were no exceptional items related to
other expenses in 2010.
Profit from continuing operations
Profit from continuing operations before exceptional items, net
finance costs and income tax increased to $266.6 million (2009:
$153.6 million) as a result of the effects detailed above.
Adjusted EBITDA
Adjusted EBITDA increased by 59% over the period to $397.7
million (2009: $249.9 million) driven primarily by higher silver
and gold prices. Adjusted EBITDA is calculated as profit from
continuing operations before exceptional items, net finance costs
and income tax plus depreciation and exploration expenses other
than personnel and other exploration related fixed expenses.
US$(000) unless 12 months ended 31 12 months ended 31
otherwise indicated December 2010 December 2009 % change
--------------------- --------------------- --------------------- ---------
Profit from
continuing
operations before
exceptional items,
net finance cost,
foreign exchange
loss and income
tax 266,626 153,600 74%
Operating margin 35% 28%
Depreciation and
amortisation in
cost of sales 99,498 85,789 16%
Depreciation and
amortisation in
administrative
expenses 2,048 796 (157%)
Exploration expenses 41,537 19,941 (108%)
Personnel and other
exploration related
fixed expenses (11,978) (10,257) (17%)
--------------------- --------------------- --------------------- ---------
Adjusted EBITDA 397,731 249,869 59%
--------------------- --------------------- --------------------- ---------
Adjusted EBITDA
margin 53% 46%
--------------------- --------------------- --------------------- ---------
Impact of the Group's investments in joint ventures and
associates
An associate is an entity in which Hochschild has significant
influence but not control and is accounted for using the equity
method.
Hochschild's pre exceptional share of the profit/(loss) after
tax of associates totalled $(4.6) million in 2010 (2009: $7.6
million). In 2010, the Company's share in associates was mainly
explained by losses relating to its holdings in Gold Resource Corp
and Lake Shore Gold of $3.2 million and $1.4 million, respectively.
In 2009, the Company's share in associates was mainly explained by
a gain of $9.2 million from Lake Shore Gold; partially offset by a
loss of $1.0 million in Gold Resource Corp.
Hochschild reduced its stake in Lake Shore Gold from 35% to 6%
in November 2010. The divestment of the remaining 6% stake in Lake
Shore Gold, which took place in February 2011, will be recorded in
the Company's 2011 accounts.
Hochschild also divested its holdings in Cabo Sur (89%) and
Zincore Metals Inc (37%) during the year. The Company continues to
hold a 25% stake in Gold Resource Corp.
Finance income
Finance income before exceptional items decreased by 36% to $4.1
million (2009: $6.4 million) mainly driven by accounting non-cash
adjustments in Argentina ($2.5 million) in respect of the
discounting of San Jose's VAT receivables.
Finance costs
Finance cost decreased 36% to $29.5 million in 2010 (2009: $46.0
million). Interest costs increased to $17.3 million in 2010 (2009:
$15.6 million) mainly due to the refinancing of upcoming syndicated
bank loan maturities in November 2009 with a longer-dated
convertible bond at a higher interest rate. Nonetheless, the
reduction in recognised losses from the use of derivatives in 2010
to $(9.1) million (2009: $28.4 million) resulted in a decrease in
finance costs.
Hochschild repaid, in full, its syndicated bank loan facility in
January 2011. In addition, the Company has no outstanding currency
or commodity hedge positions.
Foreign exchange losses
The Group recognised a foreign exchange gain of $0.3 million
(2009: $0.3 million loss) as a result of transactions in currencies
other than the functional currency.
Income tax
The Company's pre-exceptional effective tax rate decreased to
32.5% in 2010 (2009: 36.8%) mainly as a result of the reversal in
2010 of a provision for tax credits of $4.8 million, which was
recognised at the end of 2009.
In addition, the post-exceptional effective tax rate increased
to 24.7% (2009: 21.6%) primarily driven by a lower proportion of
non-taxable, exceptional gains to profit before income tax in 2010
compared to 2009, which represented a decrease in the effective
income tax rate of 8% in 2010 compared to 12% in 2009.
Exceptional items
Exceptional items in 2010 totaled $57.8 million after tax (2009:
($44.7 million). This mainly includes:
Positive exceptional items:
Main items $000 Description of main items
--------------- ------- ----------------------------------------------------
Other income 77,197 Gain of $63.7 million related to the reduction of
the Company's stake in Lake Shore Gold from 35% to
6%. A gain of $7.5 million related to the sale of
Zincore Metals which the Company received as part
of the acquisition of Southwestern Resources Inc.
in 2008. A gain of $6.0 million related to the
exchange of El Quevar property in Mexico for Golden
Minerals shares.
Finance income 9,204 A gain of $5.8 million related to the sale of
Golden Minerals. A gain of $3.0 million related to
the change in fair value of the Golden Minerals
warrants held by the Company.
--------------- ------- ----------------------------------------------------
Negative exceptional items:
Main items $000 Description of main items
---------------------------------- ------- ---------------------------------
Cost of sales 8,861 Negotiated compensation paid in
2010 to workers at the Peruvian
mines for 2009 exercise period.
Impairment and write-off of 24,018 Mainly explained by: i)
assets impairment of the San Felipe
property by $14.7 million,
triggered by the conclusion of
the marketing process conducted
during H1 2010 (the new value of
San Felipe reflects the
Company's estimate of the fair
value less cost to sell) and ii)
impairment of $6.7 million
related to the 100% dore project
in San Jose following a decision
to suspend the project
indefinitely.
---------------------------------- ------- ---------------------------------
Cash flow & balance sheet review:
Cash flow:
12 months ended 12 months ended
31 December 31 December
$ thousands 2010 2009 Change
------------------------------ ---------------- ---------------- ----------
Net cash generated from
operating activities 304,232 200,524 103,708
------------------------------ ---------------- ---------------- ----------
Net cash used in investing
activities 198,963 (373,021) 571,984
------------------------------ ---------------- ---------------- ----------
Cash flows generated/(used)
in financing activities (55,010) 134,443 (189,453)
------------------------------ ---------------- ---------------- ----------
Net (decrease)/increase
in cash and cash equivalents
during the period 448,185 (38,054) 486,239
------------------------------ ---------------- ---------------- ----------
Total cash generated increased from $(38.1) million in 2009 to
$448.2 million in 2010 ($486.3 million difference). Operating
cashflow increased 51% to $304.2 million from $200.5 million in
2009 ($103.7 million difference), mainly due to higher metal
prices. Net cash from investing activities increased to $199.0
million in 2010 from $(373.0) million in 2009, primarily due to the
reduction in the Company's holding in Lake Shore Gold. Finally,
cash from financing activities decreased to $(55.0) million from
$134.4 million, primarily as a result of the higher dividend paid
to International Minerals Inc of $26 million in 2010, compared to
an equity issuance of $145 million in 2009.
Working capital:
12 months ended 31 12 months ended 31
$ millions December 2010 December 2009
------------------------- ------------------------ -------------------------
Trade and other
receivables 182,752 168,014
Inventories 55,130 45,813
Net other financial
assets 18,732 (1,945)
Net Income tax payable (10,977) (10,751)
Trade and other payables
incl. provisions (246,781) (135,163)
------------------------- ------------------------ -------------------------
Working capital (1,144) 65,968
------------------------- ------------------------ -------------------------
The Company's working capital position decreased to $(1.1)
million in 2010 from $66.0 million in 2009 as a result of higher
trade and other payables and provisions. This was primarily
explained by; payments to International Minerals Inc relating to
the Inmaculada acquisition ($54.8 million), workers profit sharing
($21.3 million), higher commercial payables ($20.4 million) and a
provision for the management long term incentive plan ($7.0
million).
Net debt:
As at As at
US$(000) unless otherwise indicated 31 December 2010 31 December 2009
------------------------------------- ------------------ ------------------
Cash and cash equivalents (525,482) (77,844)
Long term borrowings 248,380 219,681
Short term borrowings* 69,272 112,908
------------------------------------- ------------------ ------------------
Net debt/(net cash) (207,830) 254,745
------------------------------------- ------------------ ------------------
*Includes pre-shipment loans which were previously reported
under working capital (2009 figures have been restated to reflect
this change)
The Company reported net cash of $207.8 million as at 31
December 2010 (2009: $254.7 million). This was primarily driven by
the significant increase in cash and cash equivalents from $77.8
million to $525.5 million during the year. In January 2011, the
Company paid down its full syndicated loan facility of $114.3
million, which will be recorded in its 2011 accounts.
The Convertible bond currently outstanding has a conversion
price of GBP3.98 and allows the Company to force conversion of the
bonds at anytime after 20 October 2012 if, during a 20 day period,
the Company's stock price exceeds 130% of the conversion price
(GBP5.17).
Capital expenditure(1)
US$(000) unless otherwise 12 months ended 12 months ended
indicated 31 December 2010 31 December 2009
--------------------------- ------------------ ------------------
Arcata 30,230 29,688
Ares 5,422 3,484
Selene 5,839 16,579
Pallancata 38,116 24,117
San Jose 55,183 26,113
Moris 2,728 480
Other(2) 18,965 8,074
--------------------------- ------------------ ------------------
Total 156,483(3) 108,535
--------------------------- ------------------ ------------------
(1) Includes additions in property, plant and equipment and
evaluation and exploration assets and excludes increases in closure
of mine assets.
(2) Other capex includes mainly Azuca ($13.8 million), Crespo
($2.7 million) and administrative capex of ($1.5 million)
(3) Capex does not include the $90.6 million additions in
respect of the acquisition of Inmaculada
2010 capital expenditure of $156.5 million (2009: $108.5
million) includes mine development of $71.5 million, equipment of
$53.8 million, capitalized exploration costs of $12.0 million in
respect of the Group's operating mines and $16 million capitalized
in respect of advanced projects (Azuca and Crespo).
Dividends:
The directors recommend a final dividend of $0.03 per ordinary
share which, subject to shareholder approval at the 2011 AGM, will
be paid on 7 June 2011 to those shareholders appearing on the
register on 13 May 2011. If approved, this will result in a total
dividend for the year of $0.05 per share. Dividends are declared in
US dollars. Unless a shareholder elects to receive dividends in US
dollars, they will be paid in pounds sterling with the US dollar
dividend converted into pound sterling at exchange rates prevailing
at the time of payment. Our dividend policy takes into account the
profitability of the business and the underlying growth in earnings
of the Company, as well as its capital requirements and cash
flow.
Dividend dates 2011
------------------------------------------------ -------
Ex-dividend date 11 May
Record date 13 May
Deadline for return of currency election forms 17 May
Payment date 7 June
------------------------------------------------ -------
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. 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, 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 forecast.
Statement of Directors' responsibilities
The Directors confirm that to the best of their knowledge:
- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
taken as a whole; and
- the Management report includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face.
Consolidated income statement
For the year ended 31 December 2010
Year ended 31 December Year ended 31 December
2010 2009
----------------------------------- -----------------------------------
Before Before
exceptional Exceptional exceptional Exceptional
items items Total items items Total
Notes US$000 US$000 US$000 US$000 US$000 US$000
------------------ ----- ----------- ----------- --------- ----------- ----------- ---------
Continuing
operations
Revenue 3 752,322 - 752,322 539,741 - 539,741
Cost of sales (345,667) (8,861) (354,528) (279,298) (6,918) (286,216)
------------------ ----- ----------- ----------- --------- ----------- ----------- ---------
Gross profit 406,655 (8,861) 397,794 260,443 (6,918) 253,525
Administrative
expenses (66,221) - (66,221) (51,068) - (51,068)
Exploration
expenses (41,537) - (41,537) (19,941) (1,049) (20,990)
Selling expenses (26,920) - (26,920) (21,005) - (21,005)
Other income 5 5,605 77,197 82,802 4,501 8,782 13,283
Other expenses 5 (10,956) - (10,956) (19,330) (1,247) (20,577)
Impairment and
write-off of
assets (net) 9,10 - (24,018) (24,018) - (26,713) (26,713)
------------------ ----- ----------- ----------- --------- ----------- ----------- ---------
Profit from
continuing
operations before
net finance
income/(cost),
foreign exchange
loss and income
tax 266,626 44,318 310,944 153,600 (27,145) 126,455
Share of post tax
(losses)/profit
of associates and
joint ventures
accounted under
equity method 12 (4,607) (1,473) (6,080) 7,617 39,606 47,223
Finance income 6 4,140 9,204 13,344 6,384 22,300 28,684
Finance costs 6 (29,542) - (29,542) (46,040) (1,256) (47,296)
Foreign exchange
loss 29 - 29 (256) - (256)
------------------ ----- ----------- ----------- --------- ----------- ----------- ---------
Profit from
continuing
operations before
income tax 236,646 52,049 288,695 121,305 33,505 154,810
Income tax
(expense)/benefit 7 (77,816) 5,786 (72,030) (44,688) 11,218 (33,470)
------------------ ----- ----------- ----------- --------- ----------- ----------- ---------
Profit for the
year from
continuing
operations 158,830 57,835 216,665 76,617 44,723 121,340
------------------ ----- ----------- ----------- --------- ----------- ----------- ---------
Attributable to:
Equity
shareholders of
the Company 94,924 61,687 156,611 52,892 45,188 98,080
Non-controlling
interests 63,906 (3,852) 60,054 23,725 (465) 23,260
------------------ ----- ----------- ----------- --------- ----------- ----------- ---------
158,830 57,835 216,665 76,617 44,723 121,340
------------------ ----- ----------- ----------- --------- ----------- ----------- ---------
Basic earnings per
Ordinary Share
from continuing
operations and
for the year
(expressed in US
dollars per
share) 8 0.28 0.18 0.46 0.17 0.14 0.31
------------------ ----- ----------- ----------- --------- ----------- ----------- ---------
Diluted earnings
per Ordinary
Share from
continuing
operations and
for the year
(expressed in US
dollars per
share) 8 0.29 0.17 0.46 0.17 0.14 0.31
------------------ ----- ----------- ----------- --------- ----------- ----------- ---------
Consolidated statement of comprehensive income
For the year ended 31 December 2010
Year ended 31 December
------------------------
2010 2009
Notes US$000 US$000
-------------------------------------------- ------ ----------- -----------
Profit for the year 216,665 121,340
Other comprehensive income
Recycling of the exchange differences on translating
foreign operations due to Lake Shore Gold sale 2,143 -
Exchange differences on translating foreign
operations 2,982 25,707
Change in fair value of available-for-sale financial
assets 47,573 23,019
Recycling of the gain on available-for-sale
financial assets (5,915) (19,329)
Change in fair value of cash flow hedges taken
to equity (2,346) (4,736)
Recycling of the change in fair value of cash
flow hedges taken to equity 429 4,723
Deferred income tax relating to components of
other comprehensive income (7,189) 71
---------------------------------------------------- ----------- -----------
Other comprehensive income for the period, net
of tax 37,677 29,455
---------------------------------------------------- ----------- -----------
Total comprehensive income for the year 254,342 150,795
---------------------------------------------------- ----------- -----------
Total comprehensive income attributable to
Equity shareholders of the Company 194,288 127,558
Non-controlling interests 60,054 23,237
---------------------------------------------------- ----------- -----------
254,342 150,795
--------------------------------------------------- ----------- -----------
Consolidated statement of financial position
As at 31 December 2010
As at 31 December
2010 As at 31 December
Notes US$000 2009 US$000
--------------------------------- ----- ----------------- -----------------
ASSETS
Non-current assets
Property, plant and equipment 9 457,183 438,958
Evaluation and exploration assets 10 161,811 55,828
Intangible assets 11 20,166 22,425
Investments accounted under
equity method 11 79,068 450,665
Available-for-sale financial
assets 12 153,620 19,181
Trade and other receivables 36,817 3,150
Income tax receivable 2,401 1,302
Deferred income tax assets 5,229 15,852
--------------------------------- ----- ----------------- -----------------
916,295 1,007,361
--------------------------------- ----- ----------------- -----------------
Current assets
Inventories 55,130 45,813
Trade and other receivables 145,935 164,864
Income tax receivable 917 9,280
Other financial assets 20,662 695
Cash and cash equivalents 525,482 77,844
--------------------------------- ----- ----------------- -----------------
748,126 298,496
--------------------------------- ----- ----------------- -----------------
Total assets 1,664,421 1,305,857
--------------------------------- ----- ----------------- -----------------
EQUITY AND LIABILITIES
Capital and reserves attributable
to shareholders of the Parent
Equity share capital 158,637 158,637
Share premium 395,928 395,928
Other reserves (175,244) (212,921)
Retained earnings 528,788 385,700
--------------------------------- ----- ----------------- -----------------
908,109 727,344
--------------------------------- ----- ----------------- -----------------
Non-controlling interests 147,120 76,126
--------------------------------- ----- ----------------- -----------------
Total equity 1,055,229 803,470
--------------------------------- ----- ----------------- -----------------
Non-current liabilities
Trade and other payables 2,393 81
Borrowings 13 248,380 219,681
Provisions 14 86,443 55,176
Deferred income tax liabilities 28,534 10,662
--------------------------------- ----- ----------------- -----------------
365,750 285,600
--------------------------------- ----- ----------------- -----------------
Current liabilities
Trade and other payables 116,074 68,501
Other financial liabilities 1,930 2,640
Borrowings 13 69,272 112,908
Provisions 14 41,871 11,405
Income tax payable 14,295 21,333
--------------------------------- ----- ----------------- -----------------
243,442 216,787
--------------------------------- ----- ----------------- -----------------
Total liabilities 609,192 502,387
--------------------------------- ----- ----------------- -----------------
Total equity and liabilities 1,664,421 1,305,857
--------------------------------- ----- ----------------- -----------------
These financial statements were approved by the Board of
Directors on 28 March 2011 and signed on its behalf by:
Ignacio Bustamante Chief Executive Officer
28 March 2011
Consolidated statement of cash flows
For the year ended 31 December 2010
Year ended 31 December
------------------------
2010 2009
Notes US$000 US$000
--------------------------------------------- ----- ----------- -----------
Cash flows from operating activities
Cash generated from operations 351,261 215,698
Interest received 1,749 1,041
Interest paid (20,604) (12,902)
Payments of mine closure costs 14 (4,634) (2,831)
Tax paid (23,540) (482)
--------------------------------------------- ----- ----------- -----------
Net cash generated from operating activities 304,232 200,524
--------------------------------------------- ----- ----------- -----------
Cash flows from investing activities
Purchase of property, plant and equipment (122,836) (116,009)
Purchase of evaluation and exploration assets (35,980) (8,636)
Proceeds from sale of investment in
associates 383,614 -
Acquisition of subsidiary - (19,246)
Dividends received from associates 2,633 -
Investment in associates (20,336) (216,943)
Purchase of available-for-sale financial
assets (20,785) (1,857)
Purchase of intangibles (94) (16,330)
Proceeds from sale of available-for-sale
financial assets 11,915 3,861
Proceeds from sale of property, plant and
equipment 832 2,139
--------------------------------------------- ----- ----------- -----------
Net cash generated from/(used in) investing
activities 198,963 (373,021)
--------------------------------------------- ----- ----------- -----------
Cash flows from financing activities
Proceeds of borrowings 37,650 285,461
Repayment of borrowings (52,447) (277,185)
Transaction costs associated with borrowing (690) (3,568)
Acquisition of non-controlling interests - (1,500)
Dividends paid (39,523) (20,048)
Proceeds from issue of ordinary shares under
Global offer - 143,621
Transaction costs associated with issue of
shares - (3,453)
Capital contribution from non-controlling
interests - 11,115
--------------------------------------------- ----- ----------- -----------
Cash flows (used in)/generated from financing
activities (55,010) 134,443
--------------------------------------------- ----- ----------- -----------
Net increase/(decrease) in cash and cash
equivalents during the year 448,185 (38,054)
Exchange difference (547) (249)
Cash and cash equivalents at beginning of
year 77,844 116,147
--------------------------------------------- ----- ----------- -----------
Cash and cash equivalents at end of year 525,482 77,844
--------------------------------------------- ----- ----------- -----------
Consolidated statement of changes in equity
For the year 31 December 2010
Capital and
reserves
attributable
Unrealised Unrealised to
Equity gain/(loss) on gain/(loss) Bond Cumulative Total shareholders
share Share available-for-sale on cash equity translation Merger Other Retained of the Non-controlling Total
capital premium financial assets flow hedges component adjustment reserve reserves earnings Parent interests equity
Notes US$000 US$000 and US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000
---------------- ------ ------- ------- ------------------ ----------- --------- ----------- --------- --------- -------- ------------ --------------- ---------
Balance
at
1 January
2009 146,466 395,928 (410) - - (40,375) (210,046) (250,831) 167,767 459,330 66,293 525,623
Other comprehensive
income/(loss) - - 3,749 (13) - 25,742 - 29,478 - 29,478 (23) 29,455
Profit
for the
year - - - - - - - - 98,080 98,080 23,260 121,340
------------------------ ------- ------- ------------------ ----------- --------- ----------- --------- --------- -------- ------------ --------------- ---------
Total comprehensive
income
for 2009 - - 3,749 (13) - 25,742 - 29,478 98,080 127,558 23,237 150,795
Issuance
of shares 12,171 - - - - - 127,997 127,997 - 140,168 - 140,168
Transfer
to retained
earnings - - - - - - (127,997) (127,997) 127,997 - - -
Issuance
of convertible
bond - - - - 8,432 - - 8,432 - 8,432 - 8,432
Purchase
of shares
from
non-controlling
interests - - - - - - - - 4,150 4,150 (5,650) (1,500)
Dividends
declared
during
the year - - - - - - - - (12,294) (12,294) - (12,294)
Dividends
paid to
non-controlling
interests - - - - - - - - - - (7,754) (7,754)
------------------------ ------- ------- ------------------ ----------- --------- ----------- --------- --------- -------- ------------ --------------- ---------
Balance
at
31 December
2009 158,637 395,928 3,339 (13) 8,432 (14,633) (210,046) (212,921) 385,700 727,344 76,126 803,470
Other comprehensive
income - - 34,469 (1,917) - 5,125 - 37,677 - 37,677 - 37,677
Profit
for the
year - - - - - - - - 156,611 156,611 60,054 216,665
------------------------ ------- ------- ------------------ ----------- --------- ----------- --------- --------- -------- ------------ --------------- ---------
Total comprehensive
income
for 2010 - - 34,469 (1,917) - 5,125 - 37,677 156,611 194,288 60,054 254,342
Capital
contribution
from non-controlling
interest - - - - - - - - - - 36,940 36,940
Dividends
declared
during
the year - - - - - - - - (13,523) (13,523) - (13,523)
Dividends
paid to
non-controlling
interests - - - - - - - - - - (26,000) (26,000)
------------------------ ------- ------- ------------------ ----------- --------- ----------- --------- --------- -------- ------------ --------------- ---------
Balance
at
31 December
2010 158,637 395,928 37,808 (1,930) 8,432 (9,508) (210,046) (175,244) 528,788 908,109 147,120 1,055,229
------------------------ ------- ------- ------------------ ----------- --------- ----------- --------- --------- -------- ------------ --------------- ---------
Notes to the consolidated financial statement
For the year ended 31 December 2010
1 Notes To the consolidated financial statements
For the year ended 31 December 2010
The financial information for the year ended 31 December 2010
and 2009 contained in this document does not constitute statutory
accounts as defined in section 435 of the Companies Act 2006. The
financial information for the years ended 31 December 2010 and 2009
have been extracted from the consolidated financial statements of
Hochschild Mining plc for the year ended 31 December 2010 which
have been approved by the directors on 28 March 2011 and will be
delivered to the Registrar of Companies in due course. The
auditor's report on those financial statements was unqualified and
did not contain a statement under section 498 of the Companies Act
2006.
2 Significant accounting policies
The accounting policies adopted are consistent with those of the
previous financial year except for the adoption of new and amended
standards.
The Group has adopted the following new and amended IFRS and
IFRIC interpretations during the year. Adoption of these revised
standards and interpretations did not have any effect on the
financial performance or position of the Group.
-- IFRS 3 "Business Combinations (revised January 2008)",
applicable for annual periods beginning on or after 1 July
2009.
The revised standard will have an impact on the profit or loss
reported in the period of an acquisition, the amount of goodwill
recognised in a business combination and the profit or loss
reported in future periods. IFRS 3 applies prospectively to
business combinations occurring after 1 July 2009 and had no impact
on the financial statements.
-- IAS 27 "Consolidated and Separate Financial Statements
(revised January 2008)", applicable for annual periods beginning on
or after 1 July 2009.
IAS 27 requires that a change in the ownership interest of a
subsidiary (without loss of control) is accounted for as a
transaction with owners in their capacity as owners. The Group has
changed the reference 'minority interest' to 'non-controlling
interest', in accordance with the standard.
-- IFRIC 17 "Distributions of Non-cash Assets to Owners",
applicable for annual periods beginning on or after 1 July
2009.
This interpretation provides guidance on accounting for
arrangements whereby an entity distributes non-cash assets to
shareholders either as a distribution of reserves or as dividends.
The interpretation had no effect on the financial position or
performance of the Group.
-- IAS 39 "Financial Instruments: Recognition and Measurement -
Eligible Hedged Items", applicable for annual periods beginning on
or after 1 July 2009.
The amendment addresses the designation of a one-sided risk in a
hedged item, and the designation of inflation as a hedged risk or
portion in particular situations. The amendment had no effect on
the financial position or performance of the Group.
-- IFRS 2 'Group Cash-settled Share-based Payment Arrangements',
applicable for annual periods beginning on or after 1 January
2010.
The standard has been amended to clarify the accounting for
group cash-settled share-based payment transactions, where a
subsidiary receives goods or services from employees or suppliers
but the parent or another entity in the group pays for those goods
or services. IFRIC 8 and IFRIC 11 have been withdrawn. This
amendment had no effect on the financial position or performance of
the Group.
-- Improvements to International Financial Reporting Standards
(issued 2009).
Includes 15 amendments to 12 standards.
Applicable for annual periods beginning on or after 1 July 2009:
IFRS 2 Share-based Payment, IAS 38 Intangible Assets, IFRIC 9
Reassessment of Embedded Derivatives, IFRIC 16 Hedges of a net
Investment in a Foreign Operation.
Effective immediately on issue date in April 2009: IAS 18
Revenue.
Applicable for annual periods beginning on or after 1 January
2010: IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations, IFRS 8 Operating Segments, IAS 1 Presentation of
Financial Statements, IAS 7 Statement of Cash Flows, IAS 17 Leases,
IAS 36 Impairment of Assets, IAS 39 Financial Instruments:
Recognition and Measurement. These improvements had no impact on
the financial position or performance of the Group.
3 SEGMENT REPORTING
The Group's activities are principally related to mining
operations which involve the exploration, production and sale of
gold and silver. Products are subject to the same risks and returns
and are sold through the same distribution channels. The Group
undertakes a number of activities solely to support mining
operations including power generation and services. Transfer prices
between segments are set on an arm's-length basis in a manner
similar to that used for third parties. Segment revenue, segment
expense and segment results include transfers between segments.
Those transfers are eliminated on consolidation.
For internal reporting purposes, management takes decisions and
assesses the performance of the Group through consideration of the
following reporting segments:
-- Operating unit - Ares, which generates revenue from the sale
of gold and silver.
-- Operating unit - Arcata, which generates revenue from the
sale of gold, silver and concentrate.
-- Operating unit - Selene, which until June 2009 generated
revenue from the sale of gold, silver and concentrate. The
operating unit is no longer considered a reporting segment.
-- Operating unit - Pallancata, which generates revenue from the
sale of concentrate.
-- Operating unit - San Jose, which generates revenue from the
sale of gold, silver and concentrate.
-- Operating unit - Moris, which generates revenue from the sale
of gold and silver.
-- Exploration, which explores and evaluates areas of interest
in brownfield and greenfield sites with the purpose of extending
the life of mine of existing operations and to assess the
feasibility of new mines. The exploration segment includes expenses
reflected through profit and loss and capitalised as assets.
-- Other - for the year 2010 the amount disclosed includes the
profit or loss generated by Empresa de Transmision Callalli S.A.C.
(a power generation company), Servicios Corporativos Hochschild
Mining Mexico S.A. de C.V. (a service company in Mexico), and
Selene mine that closed in 2009 which, as a consequence, was not
considered to be a reportable segment. For the year 2009 the amount
disclosed includes the profit or loss generated by Empresa de
Transmision Callalli S.A.C., Servicios Corporativos Hochschild
Mining Mexico S.A. de C.V. and Compania Minera Arcata S.A.
The Group's administration, financing, other activities
(including other income and expense), and income taxes are managed
at a corporate level and are not allocated to operating
segments.
Segment information is consistent with the accounting policies
adopted by the Group. Management evaluates the financial
information based on International Financial Reporting Standards
(IFRS) as adopted for use in the European Union.
The Group measures the performance of its operating units by the
segment profit or loss that comprises gross profit, selling
expenses and exploration expenses.
Segment assets include the items that could be allocated
directly to the segment.
(a) Reportable segment information
Adjustment
San and
Ares Arcata Pallancata Jose Moris Exploration Other(1) eliminations Total
US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000
----------------- ------- -------- ---------- -------- -------- ----------- -------- ------------ ---------
Year ended
31 December 2010
Revenue for
external
customers 56,824 181,778 261,877 220,825 30,899 - 119 - 752,322
Inter segment
revenue - - - - - - 6,992 (6,992) -
----------------- ------- -------- ---------- -------- -------- ----------- -------- ------------ ---------
Total revenue 56,824 181,778 261,877 220,825 30,899 - 7,111 (6,992) 752,322
----------------- ------- -------- ---------- -------- -------- ----------- -------- ------------ ---------
Segment
profit/(loss)(2) 15,053 104,677 158,528 92,804 766 (49,277) 5,030 1,756 329,337
Others(3) (40,642)
---------
Profit/(loss)
from continuing
operations
before income
tax 288,695
---------
Other segment
information
Depreciation(4) (2,788) (18,214) (33,939) (34,730) (10,865) (218) (1,692) - (102,446)
Adjustment
San and
Ares Arcata Pallancata Jose Moris Exploration Other(1) eliminations Total
US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000
Amortisation - - - (2,067) - - (301) - (2,368)
Non-cash expenses (42) (1,328) (102) (6,728) - (15,464) (354) - (24,018)
Assets
Capital
expenditure 5,422 30,230 43,955 55,183 2,728 108,218 2,305 - 248,041
Current assets 4,661 20,934 69,968 39,739 7,295 11 1,926 - 144,534
Other non-current
assets(5) 9,670 82,983 127,869 210,010 1,428 194,111 12,939 - 639,010
----------------- ------- -------- ---------- -------- -------- ----------- -------- ------------ ---------
Total segment
assets 14,331 103,917 197,837 249,749 8,723 194,122 14,865 - 783,544
----------------- ------- -------- ---------- -------- -------- ----------- -------- ------------ ---------
Not reportable
assets(6) - - - - - - 880,877 - 880,877
----------------- ------- -------- ---------- -------- -------- ----------- -------- ------------ ---------
Total assets 14,331 103,917 197,837 249,749 8,723 194,122 895,742 - 1,664,421
----------------- ------- -------- ---------- -------- -------- ----------- -------- ------------ ---------
1 "Other" revenue primarily relates to revenues earned by
Servicios Corporativos Hochschild Mining Mexico S.A. de C.V. for
services provided to the Moris Mine, and the Mexican exploration
activities.
2 Segment profit for the operating segments Ares, Arcata, Selene
and Pallancata includes an exceptional item in cost of sales of
US$8,861,000..
3 Others is comprised of administrative expenses of
US$66,221,000, other income of US$82,802,000, other expenses of
US$10,956,000, impairment of assets of US$24,018,000, share of loss
of associates and joint ventures of US$6,080,000,, finance income
of US$13,344,000, finance cost of US$29,542,000, and foreign
exchange gain of US$29,000.
4 Includes US$61,000 of depreciation capitalised in Minera
Hochschild Mexico S.A. de C.V. due to the San Felipe project.
5 Includes the goodwill of San Jose unit amounting to
US$2,091,000.
6 Not reportable assets are comprised of intangibles of
US$150,000, investments accounted under the equity method of
US$79,068,000, available-for-sale financial assets of
US$153,620,000, other receivables of US$93,348,000, income tax
receivable of US$3,318,000, deferred income tax assets of
US$5,229,000, other financial assets of US$20,662,000 and cash and
cash equivalents of US$525,482,000.
Adjustment
and
Ares Arcata Selene Pallancata San Jose Moris Exploration Other(1) eliminations Total
US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000
----------------- -------- -------- ------- ---------- -------- ------- ----------- -------- ------------ ---------
Year ended
31 December
2009
Revenue for
external
customers 53,312 141,574 10,757 160,416 147,102 26,440 - 140 - 539,741
Inter segment
revenue - - - - - - - 3,027 (3,027) -
----------------- -------- -------- ------- ---------- -------- ------- ----------- -------- ------------ ---------
Total revenue 53,312 141,574 10,757 160,416 147,102 26,440 - 3,167 (3,027) 539,741
----------------- -------- -------- ------- ---------- -------- ------- ----------- -------- ------------ ---------
Segment
profit/(loss)(2) 18,907 74,922 (2,874) 84,810 41,767 7,674 (24,558) 2,160 8,722 211,530
Others(3) (56,720)
---------
Profit/(loss)
from continuing
operations
before income
tax 154,810
---------
Other segment
information
Depreciation(4) (5,362) (19,292) (8,235) (15,324) (29,510) (4,868) (202) (1,129) - (83,922)
Non-cash expenses (15,263) - (4,805) - - 3,446 (10,091) (6,185) - (32,898)
Assets
Capital
expenditure 3,484 29,688 16,579 24,117 26,113 480 5,778 2,296 - 108,535
Current assets 5,239 21,004 2,708 51,228 33,190 8,307 - 1,118 - 122,794
Adjustment
and
Ares Arcata Selene Pallancata San Jose Moris Exploration Other(1) eliminations Total
US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000
----------------- -------- -------- ------- ---------- -------- ------- ----------- -------- ------------ ---------
Other non-current
assets(5) 7,114 72,979 60,574 55,882 200,170 9,489 97,100 13,561 - 516,869
----------------- -------- -------- ------- ---------- -------- ------- ----------- -------- ------------ ---------
Total segment
assets 12,353 93,983 63,282 107,110 233,360 17,796 97,100 14,679 - 639,663
----------------- -------- -------- ------- ---------- -------- ------- ----------- -------- ------------ ---------
Not reportable
assets(6) - - - - - - - 666,194 - 666,194
----------------- -------- -------- ------- ---------- -------- ------- ----------- -------- ------------ ---------
Total assets 12,353 93,983 63,282 107,110 233,360 17,796 97,100 680,873 - 1,305,857
----------------- -------- -------- ------- ---------- -------- ------- ----------- -------- ------------ ---------
1 "Other" revenue primarily relates to revenues earned by
Servicios Corporativos Hochschild Mining Mexico S.A. de C.V. for
services provided to the Moris mine, and the Mexican exploration
activities.
2 Segment profit for the operating segments Ares, Arcata, Selene
and Pallancata includes an exceptional item in cost of sales of
US$6,918,000.
3 Others is comprised of administrative expenses of
US$51,068,000, other income of US$13,283,000, other expenses of
US$20,577,000, impairment of property, plant and equipment of
US$26,713,000, share of gains of associates and joint ventures of
US$47,223,000, finance income of US$28,684,000, finance cost of
US$47,296,000, and foreign exchange loss of US$256,000.
4 Includes US$11,000 of depreciation capitalised in Minera
Hochschild Mexico S.A. de C.V. due to the San Felipe project.
5 Includes the goodwill of San Jose unit amounting to
US$2,091,000.
6 Not reportable assets are comprised of intangibles of
US$342,000, investments accounted under the equity method of
US$450,665,000, available-for-sale financial assets of
US$19,181,000, other receivables of US$91,033,000, income tax
receivable of US$10,582,000, deferred income tax assets of
US$15,852,000, other financial assets of US$695,000 and cash and
cash equivalents of US$77,844,000.
(b) Geographical information
Based on the entity-wide disclosure stated in IFRS 8, the
revenue for the period based on the country in which the customer
is located is as follows:
Year ended 31 December
------------------------
2010 2009
US$000 US$000
------------------ ----------- -----------
External customer
USA 147,701 130,126
Peru 158,540 159,339
Canada 137,713 98,960
Germany 128,834 84,121
Switzerland 88,457 57,549
United Kingdom 38,802 1,925
Korea 52,275 7,721
------------------ ----------- -----------
Total 752,322 539,741
------------------ ----------- -----------
Inter-segment
Peru 882 1,161
Mexico 6,110 1,866
------------------ ----------- -----------
Total 759,314 542,768
------------------ ----------- -----------
In the periods set out below, certain customers accounted for
greater than 10% of the Group's total revenues as detailed in the
following table:
Year ended 31 December Year ended 31 December
2010 2009
------------------------------- -------------------------------
US$000 % Revenue Segment US$000 % Revenue Segment
---------------------- ------- --------- ----------- ------- --------- -----------
Arcata,
Arcata, Pallancata,
Consorcio Minero S.A. 158,464 21% San Jose 155,182 29% San Jose
Teck Metals Ltd. Arcata,
(formerly Teck Arcata, Selene,
Cominco Metals Ltd) 137,713 18% Pallancata 98,960 18% Pallancata
Aurubis AG (formerly Selene, Selene,
Nordeutsche Affinerie Pallancata, Pallancata,
AG) 128,834 17% San Jose 84,121 16% San Jose
Ares,
Ares, Arcata,
Arcata, Selene,
San Jose, San Jose,
Johnson Matthey Inc. 79,384 11% Moris 47,375 9% Moris
Ares,
Ares, Arcata,
International Arcata, Selene,
Commodities Inc. 42,853 6% Moris 61,979 11% Moris
---------------------- ------- --------- ----------- ------- --------- -----------
Based on the entity-wide disclosure requirements set out in IFRS
8, non-current assets, excluding financial instruments and income
tax assets, were allocated based on the geographical area where the
assets are located as follows:
As at 31 December
-------------------
2010 2009
US$000 US$000
------------------------------------ -------- ---------
Peru 399,905 242,170
Argentina 210,265 200,384
Mexico 28,699 49,328
Chile 68 54
Canada - 24,902
United Kingdom 79,291 451,038
------------------------------------ -------- ---------
Total non-current segment assets 718,228 967,876
Available-for-sale financial assets 153,620 19,181
Trade and other receivables 36,817 3,150
Deferred income tax assets 5,229 15,852
Income tax receivable 2,401 1,302
------------------------------------ -------- ---------
Total non-current assets 916,295 1,007,361
------------------------------------ -------- ---------
4 Acquisitions
(a) Acquisition of associates
Lake Shore Gold Corp.
On 9 March 2009 the Group acquired 14,900,000 shares of Lake
Shore Gold Corp. ("Lake Shore Gold") for US$18,003,000 as part of
its commitment to participate in the bought-deal financing
agreement entered into by Lake Shore Gold. After completion of the
transaction, the Group's ownership in Lake Shore Gold was
maintained at 39.99%.
On 6 November 2009 Lake Shore Gold acquired all of the
outstanding common shares of West Timmins Mining Inc. ("West
Timmins") by issuing 103,951,125 common shares and 8,550,264
options and warrants. At the date of the transaction the Group held
an interest of 18.40% in West Timmins (acquired between August and
November of 2009 for a total consideration of US$63,782,000). As a
consequence of the transaction the Group's interest in Lake Shore
Gold was diluted from 39.99% to 26.10% and a net gain of
US$42,279,000 was recognised as an exceptional item in the
consolidated income statement within the caption "Share on post tax
profit/loss of associates" (refer to note 11). On the same day,
28,300,000 shares held by the Group in West Timmins were converted
into 20,700,000 shares in Lake Shore Gold, increasing the Group's
interest in Lake Shore Gold to 32.20%.
During December 2009 the Group acquired an additional interest
of 3.88% in Lake Shore Gold for a total consideration of
US$86,168,000. Also, at 31 December 2009 the accumulated interest
held by the Group of 36.09% was diluted to 35.69% due to the
issuance of a package of shares, options and warrants by Lake Shore
Gold. The total loss recognised in connection with the dilution of
US$4,493,000 is recognised as an exceptional item in the
consolidated income statement within the caption "Share on post tax
profit/loss of associates" (refer to note 11).
On 16 February 2010 the Group acquired 1,273,036 shares of Lake
Shore Gold for CAD$5,130,000 (US$4,813,000). After completion of
the transaction, the Group's ownership in Lake Shore Gold increased
from 35.69% to 35.92%.
At 6 October 2010 the Group diluted its interests in Lake Shore
Gold to 32.7%.
On 14 October 2010 the Group entered into an agreement with RBC
Dominion Securities Inc., BMO Nesbitt Burns Inc. and CIBC World
Markets Inc. to dispose 109,000,000 shares held in Lake Shore Gold
(approximately 27.3% interest) pursuant to a bought deal
transaction, at a price of CAD$3.60 per share. The sale was
completed on 3 November 2010. After this transaction the Group
holds approximately a 5.4% interest, no longer has Board
representation and no longer exercises significant influence in
Lake Shore Gold.
Gold Resource Corporation
In connection with the Strategic Alliance Agreement signed with
Gold Resource Corporation, an underground precious metals mining
company with a number of development projects in Mexico, the Group
purchased 1,670,000 common shares (4.9%) for US$5,010,000 on 5
December 2008. The Group also acquired an option to purchase a
further 4,330,000 common shares for US$12,990,000 (US$3 per
share).
On 25 February 2009, the Group exercised its option to purchase
a further 4,330,000 common shares. As a result of the acquisition
of the second tranche, the Group held a 13.6% interest in Gold
Resource Corporation and appointed one of the four directors,
giving the Group significant influence over that company. In
compliance with the Group's policy and IAS 28, the investment has
been treated as an associate and accounted for using the equity
method since 25 February 2009.
On 30 June 2009, the Group exercised its option to purchase an
additional 5,000,000 common shares for a total cash consideration
of US$20,000,000.
The purchase was completed in two tranches: US$5,000,000 which
closed on 30 June 2009 and a second tranche of US$15,000,000 which
closed on 20 July 2009.
On 16 December 2009, the Group purchased 1,954,795 common shares
for a total cash consideration of US$16,000,000.
Between 26 January 2010 and 5 February 2010 the Group acquired
440,500 shares of its associate Gold Resource Corp. for
US$$4,351,000 in the open market. In addition, on 8 March 2010 the
Group signed a subscription agreement with Gold Resource Corp. by
which the Group acquired 600,000 shares for a total consideration
of US$5,172,000.
In addition on 27 May 2010 the Group acquired 631,579 shares of
Gold Resource Corp. for a total consideration of US$6,000,000.
Following completion of this purchase the Group's ownership in its
associate increased to 25.28% on a fully diluted basis as at 31
December 2010.
(b) Acquisition of assets
Minera Quellopata S.A.C.
On 13 August 2007, the Group and Ventura Gold Corp. ("Ventura")
entered into a letter of agreement by which the Group granted the
option to Ventura to earn in an initial interest of 51% in the
Inmaculada Property (located in Peru). Under the Agreement, Ventura
was required to drill a minimum of 15,000m and issue 1,000,000
shares of Ventura throughout three years. Also, to maintain the
option Ventura was required to issue 2,000,000 additional shares
throughout a period of 5 more years (2011 - 2015).
On 19 December 2008 Ventura exercised its option to acquire an
initial 51% interest in the project after completing the initial
drilling and the issuance of the first million shares required
(which was effectively completed during 2009).
Pursuant to the letter of agreement, the Group and International
Minerals - ("IMZ") (which acquired 100% of Ventura and became party
to the letter of agreement) formed a Peruvian company called Minera
Quellopata S.A.C. ("Quellopata"), owned 51% by IMZ and 49% by the
Group and entered into a Shareholders agreement on October 2009
(the "Quellopata Shareholders Agreement"). The Group contributed
the Inmaculada Property and IMZ contributed all the exploration
studies, in respect of the Inmacualada property, to Quellopata.
Ventura had the option to acquire an additional 19% interest in
the project (totalling 70%) in exchange for the funding of the
feasibility study within 6 years.
On 12 October 2010, the Group signed a Framework Agreement with
IMZ, through which the Group acquired an additional 30% in the
Inmaculada project (totalling 60% interest) in exchange for: (i)
the purchase of US$20,000,000 of common shares of IMZ in a private
placement, (ii) a payment of US$15,000,000, (iii) funding the first
US$100,000,000 needed to plan, develop and construct a mining
operation within the Inmaculada Property, (iv) the transfer of
Minera del Suroeste S.A.C.'s ownership in Minas Pacapausa S.A.C. to
Minera Suyamarca S.A.C. Minera Oro Vega which will transfer to
Quellopata, together with the Puquiopata project. The Group will be
the operator of the new venture pursuant to a separate Management
Agreement similar in form and substance to the Pallancata
Management Agreement.
On 23 December 2010 ("effective date"), the Group signed the New
Joint Venture Agreement Pallancata - Inmaculada ("New JV
Agreement") with IMZ, which details the approved structure and plan
for the project and terminates the Quellopata Shareholders
Agreement and the Pallancata Joint Venture Agreement.
This transaction has been accounted for as an asset acquisition
as on the basis that Quellopata has no existing processes.
As a result of the acquisition, the Group obtained control over
Quellopata and has consolidated it as a subsidiary. The net assets
received in the asset acquisition were US$91,782,000 and the
Non-Controlling Interest generated by the transaction was
US$36,940,000. The Group recognised a contingent consideration of
US$39,243,000 and an obligation to IMZ of US$15,594,000 disclosed
in the notes 26 and 24 of the Annual Report respectively.
(c) Acquisition of subsidiaries
Southwestern Resources Corporation
On 21 May 2009, the Group acquired a 100% interest of
Southwestern Resources Corp. ("Southwestern), a mineral exploration
company with a number of gold, silver and base metals projects
adjacent to the Group's operations in southern Peru. The
acquisition has been accounted for using the purchase method of
accounting.
The net assets acquired in the transaction and the negative
goodwill arising were as follows:
Fair
value
US$000
----------------------------------------- -------
Cash and cash equivalents 5,349
Available-for-sale financial assets 949
Investment in asociate 361
Property, plant and equipment 24,266
Other assets 200
Deferred income tax liability (3,663)
Other current liabilities (522)
----------------------------------------- -------
Net assets 26,940
Negative goodwill arising on acquisition (7,694)
----------------------------------------- -------
Total acquisition cost 19,246
----------------------------------------- -------
The total acquisition cost of US$19,246,000 comprised a cash
payment of US$19,056,000 and cost of US$190,000 directly
attributable to the acquisition.
(d) Acquisition of non- controlling interest
Minas Santa Maria de Moris
On 5 June 2009, the Group acquired the remaining 30% interest in
Minas Santa Maria de Moris from its former partner Exmin S.A. de
C.V., obtaining full ownership of its subsidiary for a total cash
consideration of US$1,500,000.
In compliance with the Group's accounting policy, the difference
between the consideration paid of US$1,500,000 and the carrying
value of the non-controlling interest at the acquisition date of
US$5,650,000 has been recognised as an increase of retained
earnings.
5 Other income and other expenses
Year ended 31 December Year ended 31 December
2010 2009
---------------------------------- ----------------------------------
Before Before
exceptional Exceptional exceptional Exceptional
items items Total items items Total
US$000 US$000 US$000 US$000 US$000 US$000
--------------- ----------- ----------- -------- ----------- ----------- --------
Other income:
Export
incentive 1,843 - 1,843 1,921 - 1,921
Gain on
recovery of
expenses 210 - 210 472 - 472
Gain on sale of
property,
plant and
equipment - - - - 153 153
Lease rentals 151 - 151 302 - 302
Gain on sale of
investment in
El Quevar(1) - 6,010 6,010 - - -
Gain on sale of
investment in
Zincore Metals
Inc. (2) - 7,533 7,533 - - -
Gain on sale of
investment in
Lake Shore
Gold(3) - 63,654 63,654 - - -
Recovery of
impairment of
deposits in
Kaupthing,
Singer and
Friedlander
Bank 135 - 135 - 584 584
Negative
goodwill on
acquisition of
subsidiary - - - - 7,694 7,694
Reversal of
Electroperu
contingency - - - - 351 351
Other 3,266 - 3,266 1,806 - 1,806
--------------- ----------- ----------- -------- ----------- ----------- --------
Total 5,605 77,197 82,802 4,501 8,782 13,283
--------------- ----------- ----------- -------- ----------- ----------- --------
Other expenses:
Increase in
provision for
mine
closure(4) (3,839) - (3,839) (11,526) - (11,526)
Write off of
value added
taxes (949) - (949) - - -
Termination
benefits(5) - - - - (662) (662)
Loss on sale of
property,
plant and
equipment (93) - (93) - - -
Loss on sale of
other assets (373) - (373) (1,635) - (1,635)
Compensation
claims
provision(6) (378) - (378) (1,850) - (1,850)
Provision for
obsolescence
of
supplies(7) (1,252) - (1,252) (1,128) (585) (1,713)
Impairment of
trade
receivables(8) (241) - (241) (1,116) (1,116)
Other (3,831) - (3,831) (2,075) - (2,075)
--------------- ----------- ----------- -------- ----------- ----------- --------
Total (10,956) - (10,956) (19,330) (1,247) (20,577)
--------------- ----------- ----------- -------- ----------- ----------- --------
1 Corresponds to the gain generated due to the sale of the
Group's interest in the El Quevar project in Argentina in exchange
for 400,000 common shares and a warrant to purchase 300,000 common
shares of Golden Minerals Co at a price per share of US$15.
2 Corresponds to the gain generated by the sale of the Group's
interest in Zincore Metals Inc. to Inversiones Pacasmayo S.A., a
related party of the Group.
3 Correponds to the gain generated by the sale of 109,000,000 of
Lake Shore Gold shares on 3 November 2010 (refer to note 4(a)).
4 In 2010 corresponds to changes in the estimated mine closure
costs of closed operations in Peru of US$3,691,000 (2009:
US$11,800,000), refer to note 14 (1); together with the loss
generated due to the change in the discount rate of US$148,000
(2009: net of gain of US$274,000).
5 In 2009 represents the termination benefits paid to the
employees due to the closing of the Selene mine.
6 Corresponds to compensation claims provisions related to the
Peruvian companies.
7 In 2010 mainly includes the provision of obsolescence of
supplies in Cia Minera Ares and Minera Suyamarca of US$319,000,
Minas Santa Maria de Moris of US$426,000 and Minera Santa Cruz of
US$ 486,000. In 2009 mainly corresponds to the write-off of
supplies at the Sipan mine that could not be sold or used in the
other mining units of Peru and the obsolescence of supplies at the
Selene mine due to the closure of the mine.
8 In 2010 corresponds to the impairment of an account receivable
in Cia Minera Ares. In 2009 mainly corresponds to the impairment of
a trade receivable from a customer in Peru.
6 Finance income and finance costs
Year ended 31 December Year ended 31 December
2010 2009
---------------------------------- ----------------------------------
Before Before
exceptional Exceptional exceptional Exceptional
items items Total items items Total
US$000 US$000 US$000 US$000 US$000 US$000
------------------- ----------- ----------- -------- ----------- ----------- --------
Finance income:
Interest on time
deposits(1) 350 - 350 819 - 819
Gain from changes
in the fair value
of financial
instruments(2) - 3,289 3,289 - 9,045 9,045
Gain on sale of
available-for-sale
financial
assets(3) - 5,713 5,713 - 623 623
Gain on exchange of
available-for-sale
financial
assets(4) - 202 202 - 12,632 12,632
Interest on loans
to non-controlling
interests 2,514 - 2,514 2,609 - 2,609
Change in discount
rate(5) 283 - 283 2,837 - 2,837
Other 993 - 993 119 - 119
------------------- ----------- ----------- -------- ----------- ----------- --------
Total 4,140 9,204 13,344 6,384 22,300 28,684
------------------- ----------- ----------- -------- ----------- ----------- --------
Finance costs:
Interest on bank
loans and
long-term debt
(note 13) (8,744) - (8,744) (13,976) - (13,976)
Interest on
convertible bond
(note 13) (8,588) - (8,588) (1,663) - (1,663)
Unwind of discount
rate(6) (538) - (538) (278) - (278)
Loss from changes
in the fair value
of forward
contracts(7) (3) - (3) (25,962) - (25,962)
Loss from changes
in the fair value
of financial
instruments(8) (9,091) - (9,091) (2,452) (1,256) (3,708)
Other (2,578) - (2,578) (1,709) - (1,709)
------------------- ----------- ----------- -------- ----------- ----------- --------
Total (29,542) - (29,542) (46,040) (1,256) (47,296)
------------------- ----------- ----------- -------- ----------- ----------- --------
1 Mainly corresponds to interest on liquidity funds.
2 In 2010 the amount corresponds to the gain from change in the
fair value of Golden Minerals and Iron Creek warrants of
US$2,972,000 and US$168,000 respectively. In addition includes
US$149,000 related to the fair value adjustment in acquisition of
International Minerals shares on November 2010. In 2009 the amount
mainly corresponds to the gain realised upon the exercise of an
option over shares in Gold Resource Corp. on 25 February 2009 of
US$5,493,000, the gain of the option contract to buy 3,750,000
shares of Gold Resource Corp. of US$1,912,500 and the change in the
fair value of Fortuna Silver Mine Inc. warrants of
US$1,639,000.
3 In 2010 corresponds to the gain on sale of Golden Minerals and
Fortuna River shares of US$5,833,000 and US$53,000 respectively,
net of the loss generated by the sale of Dia Bras Exploration and
Lara Explorations Ltd shares of US$152,000 and US$21,000
respectively. In 2009 corresponds to the sale of 3,287,570 shares
in Fortuna Silver Mines Inc. resulting in a realised gain of
US$623,000 which has been recycled from equity into the income
statement.
4 In 2010 corresponds to the gain for receiving shares of
International Minerals due to the merger with Ventura Gold Corp. In
2009 mainly corresponds to the gain from change in the fair value
of West Timmins Mining Inc. Shares due to their exchange for
additional Lake Shore Gold shares. The 2009 amount also includes
the gain for receiving shares of Dia Bras Exploration due to the
merger with EXMIN Resources Inc. of US$391,000 and for receiving
shares of Lara Exploration Ltd. due to the merger with Maxy Gold
Corp. of US$112,000.
5 Corresponds to the gain arising on the reduction in the
discount rate used to the calculation of the recoverable amount of
VAT of Minera Santa Cruz of US$283,000 (2009: US$2,837,000)
6 Corresponds to the unwind of the discount on the provision for
mine closure of US$538,000 (2009: US$278,000).
7 Corresponds to the realised loss due to changes in the fair
value of derivative instruments, being the future contracts of gold
and silver signed with Citibank, JP Morgan and INTL Commodities
Inc. with the intention to remove the risk of the fluctuations in
metal prices.
8 Corresponds to the loss due to changes in the fair value of
the zero cost collar contracts signed by Cia. Minera Ares in 2009.
These contracts were over 5,200,000 ounces of silver, with a cap of
US$17/oz for 1,400,000 ounces, US$19.5/oz for 400,000 ounces and
US$19.95/oz for 400,000 ounces, and a floor of US$11.00/oz, and
contracts with a cap of US$20.92/oz and floor of US$13.80/oz for
1,500,000 ounces, and a cap of US$21/oz and a floor of US$14/oz for
1,500,000 ounces. The contracts expired between January and
December 2010. In addition includes a loss of US$1,495,000 (2009:
US$1,256,000) relating to the fair value of the swap contract
signed with BBVA and Citibank to fix the interest rate of the JP
Morgan led syndicated loan at 1.75% (refer to note 13).
Interest income and expense from assets and liabilities that are
not at fair value through the profit and loss are as follows:
As at 31 December
-------------------
2010 2009
US$000 US$000
--------------------------------------------------- --------- --------
Interest income from financial assets that are not
at fair value through the profit and loss 2,864 3,428
Interest expense from financial liabilities that
are not at fair value through the profit and loss (17,332) (15,639)
--------------------------------------------------- --------- --------
Total (14,468) (12,211)
--------------------------------------------------- --------- --------
7 Income tax expense
Year ended 31 December Year ended 31 December
2010 2009
--------------------------------- ---------------------------------
Before Before
exceptional Exceptional exceptional Exceptional
items items(1) Total items items Total
US$000 US$000 US$000 US$000 US$000 US$000
------------ ----------- ----------- ------- ----------- ----------- -------
Current tax:
Current tax
charge from
continuing
operations 50,138 (2,659) 47,479 30,946 (2,275) 28,671
------------ ----------- ----------- ------- ----------- ----------- -------
50,138 (2,659) 47,479 30,946 (2,275) 28,671
------------ ----------- ----------- ------- ----------- ----------- -------
Deferred
taxation:
Origination
and
reversal of
temporary
differences
from
continuing
operations 27,165 (3,127) 24,038 12,486 (8,943) 3,543
------------ ----------- ----------- ------- ----------- ----------- -------
27,165 (3,127) 24,038 12,486 (8,943) 3,543
------------ ----------- ----------- ------- ----------- ----------- -------
Withholding
taxes 513 - 513 1,256 - 1,256
------------ ----------- ----------- ------- ----------- ----------- -------
Total
taxation
charge in
the income
statement 77,816 (5,786) 72,030 44,688 (11,218) 33,470
------------ ----------- ----------- ------- ----------- ----------- -------
1 This amount mainly relates to a current tax credit of
US$2,659,000 in connection with the one-off bonus paid to the
mining workers in Peru (2009: US$2,076,000), and US$3,127,000
deferred tax credit in connection with a write-off recognised in
the period (US$9,048,000 in connection with an impairment loss
recognised in 2009).
The weighted average statutory income tax rate was 31.4% for
2010 and 30.1% for 2009. This is calculated as the average of the
statutory tax rates applicable in the countries in which the Group
operates, weighted by the profit/(loss) before tax of the Group
companies in their respective countries as included in the
consolidated financial statements.
The change in the weighted average statutory income tax rate is
due to a change in the weighting of profit/(loss) before tax in the
various jurisdictions in which the Group operates.
The tax related to items charged or credited to equity is a
deferred tax charge of US$7,189,000 (2009: a deferred tax credit of
US$71,000).
The total taxation charge on the Group's profit before tax
differs from the theoretical amount that would arise using the
weighted average tax rate applicable to the consolidated profits of
the Group companies as follows:
As at 31 December
-------------------
2010 2009
US$000 US$000
--------------------------------------------------------- --------- --------
Profit from continuing operations before income tax 288,695 154,810
At average statutory income tax rate of 31.4% (2009:
30.1%) 90,594 46,702
Expenses not deductible for tax purposes 2,250 2,049
Non-taxable income(1) (17,976) (6,662)
Non-taxable negative goodwill(2) - (2,308)
Deferred tax recognised on special investment regime - (629)
Recognition of previously unrecognised deferred tax
assets(3) (14,525) (4,222)
Non-taxable share of losses/(gains) of associates 1,702 (13,276)
Net deferred tax assets generated in the year not
recognised 8,179 11,204
Change in tax regime - (2,002)
Change in statutory income tax rate - (786)
Foreign exchange rate effect(4) (430) 25
Derecognition of deferred tax assets previously
recognised(5) - 4,790
Other 2,236 (1,415)
--------------------------------------------------------- --------- --------
At average effective income tax rate of 25.0% (2009:
21.62%) 72,030 33,470
--------------------------------------------------------- --------- --------
Taxation charge attributable to continuing operations 72,030 33,470
--------------------------------------------------------- --------- --------
Total taxation charge in the income statement 72,030 33,470
--------------------------------------------------------- --------- --------
1 Mainly corresponds to the non taxable gain on sale of Lake
Shore Gold shares of US$17,743,000.
2 In 2009, corresponds to non-taxable negative goodwill on
acquisition of the Southwestern Group.
3 Mainly corresponds to the use of previously unrecognised tax
losses in 2010 of US$15,736,000 (US$7,687,000 in 2009), recognised
tax losses upon tax restructuring of the Mexican companies of
US$6,329,000 (US$7,392,000 in 2009), the reversal of the write-off
of tax credits of US$4,790,000, previously written off in 2009,
following certain steps taken to increase the probability of the
assets being available in the future, and the non taxable gain on
sale of Zincore Metals Inc. shares of US$2,586,000.
4 Mainly corresponds to the foreign exchange effect from
converting tax bases and monetary items from local currency to the
functional currency.
5 Relates to the reversal of a deferred tax asset previously
recognised, as the ability to utilise this potential deferred tax
asset against future taxable profits is now uncertain.
8 Basic and diluted earnings per share
Earnings per share ("EPS") is calculated by dividing profit for
the year attributable to equity shareholders of the Company by the
weighted average number of ordinary shares issued during the
year.
The Company has dilutive potential ordinary shares.
As at 31 December 2010 and 2009, EPS has been calculated as
follows:
As at 31 December
-------------------
2010 2009
-------------------------------------------------------- --------- --------
Basic and earning per share from continuing operations:
Before exceptional items (US$) 0.28 0.17
Exceptional items (US$) 0.18 0.14
-------------------------------------------------------- --------- --------
Total for the year and from continuing operations
(US$) 0.46 0.31
-------------------------------------------------------- --------- --------
Diluted earning per share from continuing operations:
Before exceptional items (US$) 0.29 0.17
Exceptional items (US$) 0.17 0.14
-------------------------------------------------------- --------- --------
Total for the year and from continuing operations
(US$) 0.46 0.31
-------------------------------------------------------- --------- --------
Net profit from continuing operations before exceptional items
and attributable to equity holders of the parent is derived as
follows:
As at 31 December
-------------------
2010 2009
-------------------------------------------------------- --------- --------
Profit for the year from continuing operations (US$000) 216,665 121,340
Less non-controlling interests (US$000) (60,054) (23,260)
-------------------------------------------------------- --------- --------
Profit attributable to equity holders of the parent
- continuing operations (US$000) 156,611 98,080
Exceptional items after tax - attributable to equity
holders of the parent (US$000) (61,687) (45,188)
-------------------------------------------------------- --------- --------
Profit from continuing operations before exceptional
items attributable to equity holders of the parent
(US$000) 94,924 52,892
Interest on convertible bond (US$000) 8,588 1,663
-------------------------------------------------------- --------- --------
Diluted profit from continuing operations before
exceptional items attributable to equity holders
of the parent (US$000) 103,512 54,555
-------------------------------------------------------- --------- --------
The followings reflects the share data used in the basic and
diluted earnings per share computations:
As at 31 December
-------------------
2010 2009
--------------------------------------------------------- --------- --------
Basic weighted average number of ordinary shares
in issue (thousands) 338,085 314,043
Dilutive potential ordinary shares related to convertible
bond 18,161 3,564
Diluted weighted average number of ordinary shares in
issue and dilutive potential ordinary shares
(thousands) 356,246 317,607
--------------------------------------------------------- --------- --------
9 Property, plant and equipment
Mining
properties Construction
and Mine in progress
development Land and Plant and closure and capital
costs buildings equipment(1) Vehicles asset advances Total
US$000 US$000 US$000 US$000 US$000 US$000 US$000
----------------- ----------- --------- ------------ -------- ------- ------------ --------
Year ended 31
December 2009
Cost
At 1 January 2009 237,818 100,393 183,245 3,420 41,681 65,933 632,490
Additions 50,969 381 16,032 160 - 32,357 99,899
Acquisition of
subsidiary 23,800 - 347 119 - - 24,266
Change in
discount rate - - - - (1,770) - (1,770)
Disposals (1,148) - (1,639) (96) - (169) (3,052)
Write-off (27,718) (1,894) (5,496) (162) - 62 (35,208)
Change in mine
closure
estimate - - - - 15,220 - 15,220
Reclassification
to intangibles - - (5,891) - - - (5,891)
Transfers and
other movements - 10,244 28,433 255 - (38,932) -
Transfer to
evaluation and
exploration
assets (1,921) - - - - - (1,921)
Foreign exchange 2,087 3 546 12 - 33 2,681
----------------- ----------- --------- ------------ -------- ------- ------------ --------
At 31 December
2009 283,887 109,127 215,577 3,708 55,131 59,284 726,714
----------------- ----------- --------- ------------ -------- ------- ------------ --------
Accumulated
depreciation and
impairment
At 1 January 2009 107,516 21,311 51,628 1,306 33,376 788 215,925
Depreciation for
the year 45,229 13,719 23,345 375 1,254 - 83,922
Write-off(2) (26,666) (1,147) (2,924) (80) 130 - (30,687)
Impairment(3) 9,671 4,390 5,093 50 2,172 310 21,686
Disposals - - (956) (110) - - (1,066)
Reclassification
to intangibles - (606) (1,559) - - - (2,165)
Foreign exchange - - 141 - - - 141
----------------- ----------- --------- ------------ -------- ------- ------------ --------
At 31 December
2009 135,750 37,667 74,768 1,541 36,932 1,098 287,756
----------------- ----------- --------- ------------ -------- ------- ------------ --------
Net book amount
at 31 December
2009 148,137 71,460 140,809 2,167 18,199 58,186 438,958
----------------- ----------- --------- ------------ -------- ------- ------------ --------
Mining
properties Construction
and Mine in progress
development Land and Plant and closure and capital
costs buildings equipment(1) Vehicles asset advances Total
US$000 US$000 US$000 US$000 US$000 US$000 US$000
------------- ----------- --------- ------------ -------- ------- ------------ --------
Year ended 31
December
2010
Cost
At 1 January
2010 283,887 109,127 215,577 3,708 55,131 59,284 726,714
Additions 71,473 80 14,138 14 1,081 39,572 126,358
Acquisition
of
subsidiary - - 5 - - - 5
Change in
discount
rate - - - - 989 - 989
Disposals - - (1,498) (448) - - (1,946)
Transfer of
leases - - (717) - - - (717)
Write-off(2) (934) (2,705) (7,624) (43) - (6,803) (18,109)
Change in
mine closure
estimate - - - - (1,108) - (1,108)
Transfers and
other
movements 273 14,438 15,068 366 - (30,145) -
Transfer from
evaluation
and
exploration
assets 4,249 - - - - - 4,249
Foreign
exchange 1,096 8 (61) 9 - 17 1,069
------------- ----------- --------- ------------ -------- ------- ------------ --------
At 31
December
2010 360,044 120,948 234,888 3,606 56,093 61,925 837,504
------------- ----------- --------- ------------ -------- ------- ------------ --------
Accumulated
depreciation
and
impairment
At 1 January
2010 135,750 37,667 74,768 1,541 36,932 1,098 287,756
Depreciation
for the
year 54,027 17,976 26,201 408 3,834 - 102,446
Write-off(2) (201) (2,657) (5,911) (24) - - (8,793)
Disposals - - (648) (373) - - (1,021)
Transfer of
leases - - (123) - - - (123)
Foreign
exchange - 1 45 10 - - 56
------------- ----------- --------- ------------ -------- ------- ------------ --------
At 31
December
2010 189,576 52,987 94,332 1,562 40,766 1,098 380,321
------------- ----------- --------- ------------ -------- ------- ------------ --------
Net book
amount at 31
December
2010 170,468 67,961 140,556 2,044 15,327 60,827 457,183
------------- ----------- --------- ------------ -------- ------- ------------ --------
1 The carrying value of plant and equipment held under finance
leases at 31 December 2010 was US$7,936,000 (2009: US$11,177,000).
Additions during the year included US$1,239,000 (2009:
US$6,058,000) of plant and equipment under finance leases. Leased
assets are pledged as security for the related finance lease.
2 Mainly comprises the effects of the result of the physical
verification exercise performed every three years at the Peruvian
unit mines which resulted in a write-off in the Ares mine unit of
US$1,727,000 and in the Pallancata mine unit of US$102,000. In
addition, 2010 includes a write off of US$12,000 in Mexico,
US$747,000 in Peru related to the Crespo project and US$6,728,000
in Argentina related to the proposed conversion of San Jose's
production to dore only. In 2009, due to the cessation of mining
activities at the Selene mine unit, the remaining net book value of
assets of US$4,523,000 was written off.
3 During 2010 the Group tested its mine units Arcata, San Jose
and Moris for impairment and determined that there was no
impairment to be recorded in profit and loss. At 31 December 2009,
the Group recognised impairments totalling US$21,686,000, which
included (i) a charge of US$15,041,000 in respect of the Ares mine
unit; (ii) a charge of US$10,091,000 in respect of the Liam
property; and (iii) a reversal of the impairment loss in respect of
the Moris unit of US$3,446,000. The trigger for the impairment of
Ares was the proximity of the closing and the resulting revision to
its remaining recoverable reserves and resources. In assessing
whether an impairment is required to the carrying value of the
assets related to each mining unit, its carrying value is compared
with its recoverable amount. The recoverable amount is the higher
of the asset's fair value less costs to sell and the value in use.
The recoverable amount used in assessing the impairment charges
described below is value in use. The Group generally estimates
value in use using a discounted cash flow model for each mining
unit covering its remaining useful life.
There were no borrowing costs capitalised in property, plant and
equipment as no significant qualifying assets were constructed
during 2010.
10 Evaluation and exploration assets
Total
US$000
----------------------------------------- -------
Cost
Balance at 1 January 2009 60,480
Additions 8,636
Write-off (284)
Foreign exchange 1,606
Transfers and other movements 1,921
----------------------------------------- -------
Balance at 31 December 2009 72,359
Additions(1) 122,764
Foreign exchange 3,058
Transfers and other movements (4,249)
----------------------------------------- -------
Balance at 31 December 2010 193,932
----------------------------------------- -------
Accumulated impairment
Balance at 1 January 2009 15,754
Impairment(2) 222
Foreign exchange 555
----------------------------------------- -------
Balance at 31 December 2009 16,531
Impairment(2) 14,702
Foreign exchange difference 888
----------------------------------------- -------
Balance at 31 December 2010 32,121
----------------------------------------- -------
Net book value as at 31 December 2009(3) 55,828
----------------------------------------- -------
Net book value as at 31 December 2010(3) 161,811
----------------------------------------- -------
1 Mainly comprises the increase in evaluation and exploration
assets due to the acquisition of the subsidiary Minera Quellopata
S.A.C. of US$91,507,000
2 The Group has impaired the San Felipe property by
US$14,702,000. The impairment was triggered by the conclusion of
the marketing process conducted during the year and reflects the
Company's estimate of the recoverable amount. In 2009, the Group
also impaired the Ares mine unit by US$222,000. The trigger for
this impairment was the proximity of the closing of Ares and the
resulting revision to the remaining recoverable reserves and
resources.
3 Of the net book value at 31 December 2010, US$25,874,000
corresponds to the investment in San Felipe (2009: US$37,825,000),
US$20,241,000 corresponds to the Azuca project (2009:
US$7,079,000), US$91,507,000 corresponds to the Inmaculada project
in Peru (2009: Nil) and the balance relates to amounts capitalized
in respect of converting inferred resources to indicated and
measured resources at the Group's unit mines.
There were no borrowing costs capitalised in evaluation and
exploration assets.
11 Investments accounted under equity method
Carrying value Share of profit/(loss)
Year ended 31 Year ended 31
December December
------------------------ ---------------- ------------------------
2010 2009 2010 2009
US$000 US$000 US$000 US$000
------------------------ ------- ------- ----------- -----------
Lake Shore Gold Corp(a) - 386,190 (9,785) 46,951
Cabo Sur(b) - (57) (6) (61)
Gold Resource Corp.(c) 79,068 62,467 3,711 (1,240)
Zincore Metals Inc.(d) - 2,065 - 1,704
Minas Pacapausa S.A.C. - - - (131)
------------------------ ------- ------- ----------- -----------
Total 79,068 450,665 (6,080) 47,223
------------------------ ------- ------- ----------- -----------
(a) Lake Shore Gold Corp
The share of LSG's loss in 2010 includes a (1) pre-exceptional a
loss from the Group's share in the results of the period of Lake
Shore Gold of US$1,430,000, (2) an exceptional loss from dilution
of the Group's interest from 35.9% to 35.7% on 30 June 2010 of
US$2,021,000, (3) an exceptional gain from dilution of the Group's
interest from 35.7% to 33.6% on 10 September 2010 of US$3,817,000
and (4) an exceptional loss from dilution of the Group's interest
from 33.6% to 32.7% on 6 October 2010 of US$10,151,000. Share of
the associate's profit in 2009 includes (1) a gain of
US$101,503,000 from the Group's share in Lake Shore Gold's
acquisition of 100% of West Timmins' net assets, (2) a gain from
the Group's share in the results of the period of Lake Shore Gold
of US$9,165,000, (3) a loss from dilution of the Group's interest
from 39.99% to 26.1% on 6 November 2009 of US$59,224,000, and (4) a
loss from dilution of the Group's interest from 36.09% to 35.69% on
31 December 2009 of US$4,493,000.
On 3 November 2010 the Group disposed 109,000,000 shares held in
Lake Shore Gold (approximately 27.3% interest) for a total
consideration of US$374,016,000 generating a gain of US$63,654,000.
After of this transaction the Group no longer has significant
influence over Lake Shore Gold.
(b) Cabo Sur
During 2010 the Group sold its interest in Cabo Sur to Mirasol
Resources Ltd. for 6,300 Argentinian Pesos (approximately
US$2,000). As a result of this transaction the Group no longer has
significant influence over this company.
(c) Gold Resource Corp.
The share of GRC's profit in 2010 includes (1) a pre-exceptional
loss from the Group's share in the results of the period of Gold
Resource Corp. of US$3,171,000 (2009: US$995,000), (2) an
exceptional gain from dilution of US$6,882,000 (2009: loss of
US$245,000)
(d) Zincore Metals Inc.
On 21 May 2009, the Group acquired Southwestern Resources
Corporation which resulted in the acquisition of 38,100,000 shares
of Zincore Metals Inc. equivalent to a 48.2% interest. In September
2009, Zincore Metals Inc. issued 24,060,000 shares resulting in a
dilution of the Group's interest to 36.8% which generated a gain by
the Group of US$2,065,000.
On 5 March 2010, The Group sold its 36.8% interest to
Inversiones Pacasmayo S.A., a related party of the Group, at a
price of C$0.27 per share (a total of C$10,287,000) representing a
11.6% premium over the 20 day average closing price, realising a
gain on disposal of US$7,533,000. As a result of the transaction,
the Group on longer has an interest in Zincore.
The disposal was approved on behalf of Hochschild by a committee
comprising solely independent Non-Executive Directors ("the
Independent Committee"). The Independent Committee was advised by
Canaccord Adams Limited that the terms of the disposal were fair
and reasonable as far as shareholders are concerned.
12 Available-for-sale financial assets
Year ended 31 December
------------------------
2010 2009
US$000 US$000
---------------------------------------------------- ----------- -----------
Beginning balance 19,181 17,794
Additions(1) 25,786 70,022
Increase in value of available-for-sale financial
assets due to merger of companies 4 357
Fair value change recorded in equity 47,573 23,019
Disposals(2) (11,924) (4,749)
Reclassification to investments accounted under
equity method(3) - (87,262)
Reclassification from investments accounted under
equity method(4) 73,000 -
---------------------------------------------------- ----------- -----------
Ending balance 153,620 19,181
---------------------------------------------------- ----------- -----------
1 The amount represents the fair value of shares at the date of
acquisition and mainly includes the purchase of shares of (i)
International Minerals for US$20,150,000, (ii) Golden Minerals for
US$5,000,000, (iii) Iron Creek Capital Corp for US$67,000 and (iv)
Brionor Resources for US$568,000 (2009: mainly includes the
purchase of shares of (i) Fortuna Silver Mines Inc. for
US$3,196,000, (ii) Ventura Gold Corp. for US$158,000, (iii)
Pembrook Mining Corp. fot US$1,857,000, (iv) West Timmins Mining
Inc. fot US$63,782,000, (v) Northern Superior Resources Inc. for
US$705,000, (vi) Empire Petroleum Corp. for US$82,000, and (vii)
Maxy Gold Corp at for US$243,000).
2 In 2010 corresponds to the sale of (i) 663,600 shares of
Fortuna River, (ii) 3,751,047 shares of Dia Bras Exploration, (iii)
495,200 shares of Lara Explorations Ltd. and (iv) 400,000 shares of
Golden Minerals. In 2009 corresponds to the sale of 3,287,570
shares in Fortuna Silver Mines Inc. (refer to note 6).
3 Corresponds to the reclassification to investments accounted
under the equity method of the West Timmins Mining Inc. shares of
US$82,252,000 and of Gold Resource Corp. of US$5,010,000 on the
date is they became associates of the Group.
4 Corresponds to the reclassification of the Group's Lake Shore
Gold shares from investments accounted under equity method to
available-for-sale financial assets as at 31 December 2010, The
Group does not have significant influence over this company.
Available-for-sale financial assets include the following:
Year ended 31 December
------------------------
2010 2009
US$000 US$000
---------------------------------------------- ----------- -----------
Equity securities - quoted Canadian companies 131,603 4,225
Equity securities - quoted US companies 39 119
Equity securities - quoted British companies 8,397 3,086
Equity securities - unquoted(1) 13,581 11,743
Bonds - 8
---------------------------------------------- ----------- -----------
Total 153,620 19,181
---------------------------------------------- ----------- -----------
1 Includes Pembrook Mining Corp and Electrum Capital Inc.
shares.
13 Borrowings
As at 31 December
------------------------------------
2010 2009
-------- ------- -------- -------
Non- Non-
current Current current Current
US$000 US$000 US$000 US$000
---------------------------------------- -------- ------- -------- -------
Secured bank loans (a) 85,525 53,030 115,854 34,773
Amount due to non-controlling interests
(b) 59,028 11,074 - 75,570
Convertible bond payable (c) 103,827 5,145 103,827 1,663
Amounts due to related parties (note 15) - 23 - 902
---------------------------------------- -------- ------- -------- -------
Total 248,380 69,272 219,681 112,908
---------------------------------------- -------- ------- -------- -------
(a) Secured bank loans
As at 31 December 2010, the balance corresponds to:
i. Pre-shipment loans for a total amount of US$20,000,000 in
Minera Santa Cruz S.A. These obligations accrue an effective annual
interest rate ranging from 1.60% to 2.40% and are guaranteed by the
inventories and the trade receivables of the company. Pre-shipment
loans are credit lines given by the Banks to pay obligations
related to the exports of the Group.
ii. Leasing agreement with Banco de Credito for an amount of
US$3,714,000 in Compania Minera Ares S.A.C.. This obligation
accrues an effective annual interest rate of 3.25%.
iii. Leasing agreement with BIF for an amount of US$1,363,000 in
Compania Minera Ares. This obligation accrues an effective annual
interest rate of 5.5%.
The following table demonstrates the present value and maturity
of future minimum lease payments as at 31 December 2010 and
2009:
As at 31 December
-------------------
2010 2009
US$000 US$000
------------------------ --------- --------
Not later than one year 3,774 4,406
Between 1 and 2 years 1,279 3,664
Between 2 and 5 years 24 935
------------------------ --------- --------
Total 5,077 9,005
------------------------ --------- --------
The following table reconciles the total minimum lease payments
and the in present values as at 31 December 2010 and 2009:
As at 31 December
-------------------
2010 2009
US$000 US$000
----------------------------- --------- --------
Present value of leases 5,077 9,005
Future interest 155 718
----------------------------- --------- --------
Total minimum lease payments 5,232 9,723
----------------------------- --------- --------
The carrying amount of net lease liabilities approximate their
fair value.
iv. Loan facility with a syndicate of lenders with JP Morgan
Chase Bank N.A. acting as the Administrative Agent. Total secured
term loan facility of US$200,000,000 that accrues an effective
interest rate of LIBOR +1% and is guaranteed by all the equity
share capital, free and clear of any liens, of Compania Minera Ares
S.A.C. The balance as at 31 December 2010 is comprised of the
secured term loan facility of US$114,320,000 plus accrued interest
of $2,393,000 and net of transaction costs of US$3,235,000. During
2010 and 2009 the Group has a swap contract with BBVA and Citibank
to fix the interest rate of the loan at 1.75%.
The schedule of payments is as follows:
2010
Date US$000
---------------- -------
13 July 2011 28,560
15 January 2012 28,560
15 July 2012 28,560
13 January 2013 28,640
---------------- -------
Total payments 114,320
---------------- -------
The balance at 31 December 2009 corresponds to:
i. Pre-shipment loans for a total amount of US$8,750,000 in CMA
and US$20,000,000 in Minera Santa Cruz S.A. These obligations
accrue an effective annual interest rate ranging from 1.05% to
4.75% and are guaranteed by the inventories and the trade
receivables of the Company.
ii. Leasing agreement with Banco de Credito for an amount of
US$5,693,000 in CMA. This obligation accrues an effective annual
interest rate ranging from 6.80% to 7.60%.
iii. Leasing agreement with BIF for an amount of US$3,016,000
entered into by CMA. This obligation accrues an effective annual
interest rate ranging from 7.15% to 8.25%.
iv. Leasing agreement with Interbank for an amount of US$296,000
entered into by CMA . This obligation accrues an effective annual
interest rate of 9.01%.
v. Loan facility with a syndicate of lenders with JP Morgan
Chase Bank N.A. acting as the Administrative Agent. Total secured
term loan facility of US$200,000,000 that accrues an effective
interest rate of LIBOR + 1% and is guaranteed by all the equity
share capital, free and clear of any liens, of CMA S.A.C. The
balance as at 31 December 2009 comprise of the secured-term loan
facility of US$114,320,000 plus accrued interest of US$1,787,000
and net of transaction costs of US$3,235,000. During 2009 the Group
signed a swap contract with BBVA and Citibank to fix the interest
rate of the loan at 1.75%
(b) Amounts due to non-controlling interests
The balance as at 31 December 2010 mainly corresponds to a loan
from Minera Andes Inc. to Minera Santa Cruz S.A. for an amount of
US$64,070,000 (2009: US$67,124,000) with interest rate of 7% (2009:
between 7.86% and 12%). There is a further loan of US$6,032,000
advanced to Minera Santa Cruz S.A. by Minera Andes S.A. (2009:
US$8,446,000) with an interest rate of 7% (2009: 12%) (refer to
note 37(g) of the Annual Report).
(c) Convertible bond payable
Placement of US$115,000,000 of senior unsecured convertible
bonds, due 2014, which are convertible into ordinary shares of
Hochschild Mining plc. The bonds have a coupon of 5.75% per annum
payable semi-annually on 28 January and 28 July of each year. The
issuer has the option to call the bonds on or after 20 October 2012
until maturity in the event the trading price of the ordinary
shares exceeds 130% of the conversion price over a certain period.
In addition, the Group has the right to redeem the bonds if at any
time the aggregate principal amount of the bonds outstanding is
equal to or less than 15% of the aggregate principal amount of the
bonds initially issued.
The following information has to be considered for conversion of
the bonds into ordinary shares:
-- Conversion premium: 35% above the Reference Share Price.
-- Reference Share Price: GBP 2.95.
-- Initial Conversion Price: GBP 3.9825.
-- Fixed Exchange Rate: US$1.59/GBP 1.00.
The balance as at 31 December 2010 is comprised of the principal
of US$115,000,000 (2009: US$115,000,000) plus accrued interest of
US$5,145,000 (2009: US$1,663,000) and net of transaction costs of
US$2,741,000 (2009: US$2,741,000) and the bond equity component of
US$8,432,000 (2009: US$8,432,000).
The maturity of non-current borrowings is as follows:
As at 31 December
-------------------
2010 2009
US$000 US$000
---------------------- --------- --------
Between 1 and 2 years 59,265 31,586
Between 2 and 5 years 136,951 188,095
Over 5 years 52,164 -
---------------------- --------- --------
Total 248,380 219,681
---------------------- --------- --------
The carrying amount of current borrowings approximates their
fair value. The carrying amount and fair value of the non-current
borrowings are as follows:
Carrying amount Fair values
as at 31 December as at 31 December
-------------------- --------------------
2010 2009 2010 2009
US$000 US$000 US$000 US$000
---------------------------------- --------- --------- --------- ---------
Bank loans
Secured 85,525 115,854 84,728 116,358
Amounts due to non-controlling
interests and related parties
(fixed rates) 59,028 - 80,184 -
Convertible bond payable 103,827 103,827 121,709 126,331
---------------------------------- --------- --------- --------- ---------
Total 248,380 219,681 286,621 242,689
---------------------------------- --------- --------- --------- ---------
14 Provisions
Bonus
Provision Workers' Contributions Long-term to
for mine profit to Peruvian Incentive Contingency mining
closure(1) sharing(2) Government Plan(3) Consideration(4) workers Other Total
US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000
--------------- ---------- ---------- ------------- --------- ---------------- ------- ------- --------
At 1 January
2009 38,899 861 991 - - - 1,213 41,964
Additions - 2,073 870 - - 6,918 1,499 11,360
Accretion 278 - - - - - - 278
Change in
discount rate (2,045) - - - - - - (2,045)
Change in
estimate 27,020 - - - - - - 27,020
Payments (2,831) (948) (956) - - (6,918) (371) (12,024)
Foreign
exchange - (78) (12) - - - 30 (60)
Other - 88 - - - 88
--------------- ---------- ---------- ------------- --------- ---------------- ------- ------- --------
At 31 December
2009 61,321 1,996 893 - - - 2,371 66,581
Less current
portion (6,640) (1,996) (893) - - - (1,876) (11,405)
--------------- ---------- ---------- ------------- --------- ---------------- ------- ------- --------
Non-current
portion 54,681 - - - - - 495 55,176
--------------- ---------- ---------- ------------- --------- ---------------- ------- ------- --------
At 1 January
2010 61,321 1,996 893 - - - 2,371 66,581
Additions 1,081 14,487 1,814 1,061 39,243 15,712 378 73,776
Accretion 538 - - - - - - 538
Change in
discount rate
(refer to note
5(4) and 9) 1,137 - - - - - - 1,137
Change in
estimate 2,583 - - - - - 2,583
Payments (4,634) (2,001) (725) - - (8,861) - (16,221)
Foreign
exchange - (40) (162) - - 14 108 (80)
--------------- ---------- ---------- ------------- --------- ---------------- ------- ------- --------
At 31 December
2010 62,026 14,442 1,820 1,061 39,243 6,865 2,857 128,314
Less current
portion (10,592) (14,442) (1,820) - (5,859) (6,865) (2,293) (41,871)
--------------- ---------- ---------- ------------- --------- ---------------- ------- ------- --------
Non-current
portion 51,434 - - 1,061 33,384 - 564 86,443
--------------- ---------- ---------- ------------- --------- ---------------- ------- ------- --------
1 The provision represents the discounted values of the
estimated cost to decommission and rehabilitate the mines at the
expected date of depletion of each of the deposits. The present
value of the provision has been calculated using a real pre-tax
annual discount rate, based on a US Treasury bond of an appropriate
tenure as at 31 December 2010 and 2009 respectively, and the cash
flows have been adjusted to reflect the risk attached to these cash
flows. Uncertainties in the timing for using this provision
includes changes in the future that could impact the time of
closing the mines, as new resources and reserves are discovered.
During 2010 the Group made an internal review of the provision for
mine closure for all its mining units. Consequently, at 31 December
2010 an increase of US$3,664,000 (addition in estimate of
US$1,081,000 plus change in estimate of US$2,583,000) has been
recognised mainly related to five additional years of water
treatment at the Sipan mine unit. Of the total amount, US$1,108,000
has been recognised as a decrease in the mine closure asset,
US$1,081,000 as an addition (refer to note 9) and the remaining
US$3,691,000 has been recognised within other expenses (refer to
note 5 (4)). This increase in estimate relates to the Sipan
(US$3,819,000), Moris (US$176,000), Crespo (US$620,000), Azuca
(US$461,000) net by a decrease at Ares (US$38,000), Selene
(US$128,000), Arcata (US$4,000), Pallancata (US$194,000), and San
Jose (US$1,048,000).
2 Corresponds to the workers profit sharing of Compania Minera
Ares S.A.C. (US$3,235,000) and Minera Suyamarca S.A.C.
(US$11,207,000).
3 In May 2010, a grant of awards under the Group's cash based
Long-Term Incentive Plan was made. The awards will rest on
satisfaction of a TSR-based performance condition relative to a
comparator group comprising international silver and gold mining
companies over a three-year performance period. . The performance
period runs from 1 January 2010 to 31 December 2012 and should
awards vest a cash payment will be made to participants in May
2013. . Only employees who remain in the Group's employment until
this date will be entitled to a cash payment on vesting subject to
exceptions approved by the Remuneration Committee of the Board. The
provision represents the discounted values of the estimated cost of
the long-term employee benefit. In 2010 there is a provision of
US$1,061,109 that is disclosed under administrative expenses
(US$909,154) and exploration expenses (US$151,955).
4 This contingent consideration provision relates to
International Minerals Corporation's discounted share of
Hochschild's commitment to fund the first $100,000,000 needed to
plan, develop and construct a mining operations within the
Inmaculada property (refer to note 4(b)).
15 Related-party balances and transactions
(a) Related-party accounts receivable and payable
The Group had the following related-party balances and
transactions during the years ended 31 December 2010 and 2009. The
related parties are companies owned or controlled by the main
shareholder of the parent company, joint ventures or
associates.
Accounts receivable Accounts payable
at 31 December at 31 December
--------------------- ------------------
2010 2009 2010 2009
US$000 US$000 US$000 US$000
----------------------------------- ---------- --------- -------- --------
Other
Fosfatos del Pacifico S.A. 28 28 - -
Cementos Pacasmayo S.A.A. 291 - 23 -
Gold Resource Corp (refer to note
11(c)) 1,290 - - -
----------------------------------- ---------- --------- -------- --------
1,609 28 23 -
----------------------------------- ---------- --------- -------- --------
Joint ventures
Cabo Sur - 968 - 902
----------------------------------- ---------- --------- -------- --------
- 968 - 902
----------------------------------- ---------- --------- -------- --------
Total 1,609 996 23 902
----------------------------------- ---------- --------- -------- --------
Current related party balances 1,609 996 23 902
----------------------------------- ---------- --------- -------- --------
Total 1,609 996 23 902
----------------------------------- ---------- --------- -------- --------
As at 31 December 2010 and 2009 all other accounts are, or were,
non-interest bearing.
No security has been granted or guarantees given by the Group in
respect of these related party balances.
Principal transactions between affiliates are as follows:
As at 31 December
-------------------
2010 2009
US$000 US$000
--------------------------------------------------------- --------- --------
Income
Gain on sale of Zincore Metals Inc. shares to Inversiones
Pacasmayo S.A. (refer to note 11(d)) 7,533 -
Dividend recognised for Gold Resource Corp. investment
(refer to note 11(c)) 2,633 -
Revenue recognised for services performed to Gold
Resource Corporation 29 -
--------------------------------------------------------- --------- --------
Transactions between the Group and these companies are on an
arm's-length basis.
(b) Compensation of key management personnel of the Group
Key management personnel include the members of the senior
management team and Directors who receive remuneration.
As at 31 December
-------------------
2010 2009
US$000 US$000
---------------------------------------------------- --------- --------
Salaries and bonuses 11,121 8,679
---------------------------------------------------- --------- --------
Total compensation paid to key management personnel 11,121 8,679
---------------------------------------------------- --------- --------
This amount includes the remuneration paid to the Directors of
the parent company of the Group of US$6,996,557 (2009:
US$5,931,185), out of which US$239,975 (2009: US$399,117) relates
to pension payments.
As at 31 December
-------------------
Compensation of key management personnel (including 2010 2009
directors) US$000 US$000
--------------------------------------------------------- --------- --------
Short term employee benefits 6,751 7,971
Termination benefits 1,170 63
Long term incentive plan 2,348 -
Workers profit sharing 205 99
Others 647 546
--------------------------------------------------------- --------- --------
Total compensation 11,121 8,679
--------------------------------------------------------- --------- --------
In 2009, the Group made a loan to one of the Directors of
US$200,000 with an interest rate of 7.45% until 30 April 2009,
3.50% from 1 May 2009 to 31 July 2009 and 3.00% from 1 August 2009.
The balance as at 31 December 2010 was nil (2009: US$227,214,
composed of principal of US$200,000 and interest of US$27,214).
(c) Participation in placing by Pelham Investment Corporation
("Pelham")
Pelham, a company controlled by the Executive Chairman, Eduardo
Hochschild, participated in a placing of the Company's Ordinary
Shares ("Shares") in October 2009 by subscribing for 1,064,780
Shares at a price of 295p per Share.
(d) Purchase of additional interest in Inmaculada project
During the year, the Group acquired an additional interest in
the Inmaculada project effectively diluting the interest of its
joint-venture partners, International Minerals Corporation ("IMZ").
This acquisition qualified as a small related party transaction
under the UKLA Listing Rules in light of IMZ's 40% interest in the
Pallancata Joint-Venture. See note 4(b) for further details
16 Subsequent events
(a) Repayment of syndicated loan facility led by JP Morgan
On 28 January 2011, the Group repaid the total outstanding
principal amount of US$114,320,000 plus interest under US$383,448
of the syndicated loan facility led by JP Morgan. In addition, on
31 January 2011, the Group cancelled the two interest rate swap
contracts signed with Citibank and BBVA related to this facility.
The amount paid to cancel these contracts was US$1,667,500.
(b) Payment of Project Finance Loan interests and receipt of
interest from Minera Andes Inc ("MAI")
In January 2011, Minera Santa Cruz S.A. paid US$9,120,786 of
interest that had arisen under the Project Finance Loan from MAI.
In addition, the Group collected the same amount from MAI,
representing interest on the Project Finance Loan advanced by the
Group to MAI.
(c) Sale of remaining interest in Lake Shore Gold
On 2 December 2010 the Group entered into a Block Trade Letter
Agreement ("the Agreement") with RBC Capital Markets to dispose of
the Group's remaining 21,540,992 common shares in Lake Shore Gold
(approximately 5.4% interest in Lake Shore Gold on a fully diluted
basis) at a price of CAD$3.70 per share raising total net proceeds
of CAD$79,701,670. Due to the size of the combined sales (the
initial disposal of 27.3% of Lake Shore Gold in November 2010 and
the remaining 5.4%), the second transaction was subject to
shareholder approval which was granted on 8 February 2011. The
transaction closed on the same date and a gain of US$4,950,000 will
be recognised in 2011 in respect of the disposal.
Profit by operation(1)
(Segment report reconciliation) as at December 2010
Consolidation
Company (US$ 000) Ares Arcata Pallancata San Jose Moris adjustment Total/HOC
--------------------- -------- -------- ---------- --------- -------- ------------- ---------
Revenue 56,824 181,778 261,877 220,825 30,899 119 752,322
Cost of sales (Pre
consolidation) (41,652) (74,526) (99,812) (107,282) (30,133) (1,123) (354,528)
--------------------- -------- -------- ---------- --------- -------- ------------- ---------
Consolidation
adjustment 55 129 (53) (286) 289 (1,123) (989)
Cost of sales (Post
consolidation) (41,707) (74,655) (99,759) (106,996) (30,422) - (353,539)
Production cost w/o
depreciation (32,018) (46,017) (56,345) (71,711) (19,065) - (225,156)
Depreciation in
production cost (2,649) (18,991) (34,409) (34,664) (10,865) - (101,578)
Other items (6,658) (9,146) (12,454) (2,227) - - (30,485)
Change in inventories (382) (501) 3,449 1,606 (492) - 3,680
--------------------- -------- -------- ---------- --------- -------- ------------- ---------
Gross profit 15,172 107,252 162,065 113,543 766 (1,004) 397,794
--------------------- -------- -------- ---------- --------- -------- ------------- ---------
Administrative
expenses - - - - - (66,221) (66,221)
Exploration expenses - - - - - (41,537) (41,537)
Selling expenses (119) (2,575) (3,537) (20,739) - 50 (26,920)
Other income/expenses - - - - - 71,846 71,846
--------------------- -------- -------- ---------- --------- -------- ------------- ---------
Operating profit
before impairment 15,053 104,677 158,528 92,804 766 (36,866) 334,962
--------------------- -------- -------- ---------- --------- -------- ------------- ---------
Impairment of assets - - - - - (24,018) (24,018)
Investments under
equity method - - - - - (6,080) (6,080)
Finance income - - - - - 13,344 13,344
Finance costs - - - - - (29,542) (29,542)
FX gain/(loss) - - - - - 29 29
--------------------- -------- -------- ---------- --------- -------- ------------- ---------
Profit/(loss) from
continuing
operations before
income tax(2) 15,053 104,677 158,528 92,804 766 (83,133) 288,695
--------------------- -------- -------- ---------- --------- -------- ------------- ---------
Income tax - - - - - (72,030) (72,030)
--------------------- -------- -------- ---------- --------- -------- ------------- ---------
Profit/(loss) for the
year from continuing
operations 15,053 104,677 158,528 92,804 766 (155,163) 216,665
--------------------- -------- -------- ---------- --------- -------- ------------- ---------
1 On a post exceptional basis.
2 Hochschild profit before income tax reflected in 2010 annual
report.
Reserves and resources
Ore reserves and mineral resources estimates
Hochschild Mining plc reports its mineral resources and reserves
estimates in accordance with the Australasian Code for Reporting of
Exploration Results, Mineral Resources and Ore Reserves 2004
edition ("the JORC Code"). This establishes minimum standards,
recommendations and guidelines for the public reporting of
exploration results and mineral resources and reserves estimates.
In doing so it emphasises the importance of principles of
transparency, materiality and confidence. The information on ore
reserves and mineral resources on pages 57 to 62 were prepared by
or under the supervision of Competent Persons (as defined in the
JORC Code). Competent Persons are required to have sufficient
relevant experience and understanding of the style of
mineralisation, types of deposits and mining methods in the area of
activity for which they are qualified as a Competent Person under
the JORC Code. The Competent Person must sign off their respective
estimates of the original mineral resource and ore reserve
statements for the various operations and consent to the inclusion
of that information in this report, as well as the form and context
in which it appears.
Hochschild Mining plc employs its own Competent Person who has
audited all the estimates set out in this report. Hochschild Mining
Group companies are subject to a comprehensive programme of audits
which aim to provide assurance in respect of ore reserve and
mineral resource estimates. These audits are conducted by Competent
Persons provided by independent consultants. The frequency and
depth of an audit depends on the risks and/or uncertainties
associated with that particular ore reserve and mineral resource,
the overall value thereof and the time that has lapsed since the
previous independent third party audit.
The JORC Code requires the use of reasonable economic
assumptions. These include long-term commodity price forecasts
(which, in the Group's case, are prepared by ex-house specialists
largely using estimates of future supply and demand and long-term
economic outlooks).
Ore reserve estimates are dynamic and are influenced by changing
economic conditions, technical issues, environmental regulations
and any other relevant new information and therefore these can vary
from year to year. Mineral resource estimates can also change and
tend to be influenced mostly by new information pertaining to the
understanding of the deposit and secondly the conversion to ore
reserves.
The estimates of ore reserves and mineral resources are shown as
at 31 December 2010, unless otherwise stated. Mineral resources
that are reported include those mineral resources that have been
modified to produce ore reserves. All tonnage and grade information
has been rounded to reflect the relative uncertainty in the
estimates; there may therefore be small differences. The prices
used for the reserves calculation were: Au Price: US$900 per ounce
and Ag Price: US$15 per ounce.
Attributable metal reserves AS AT 31 DECEMBER 2010
Proved
and probable Ag Au Ag Au Ag Eq
Reserve category (t) (g/t) (g/t) (moz) (koz) (moz)
----------------------- ------------- ------ ------ ------ ------ ------
MAIN OPERATIONS(1)
----------------------- ------------- ------ ------ ------ ------ ------
Arcata
Proved 998,441 375 1.11 12.0 35.5 14.2
Probable 1,105,447 356 1.09 12.7 38.6 15.0
----------------------- ------------- ------ ------ ------ ------ ------
Total 2,103,888 365 1.10 24.7 74.1 29.1
----------------------- ------------- ------ ------ ------ ------ ------
Pallancata
Proved 2,012,015 308 1.48 19.9 95.8 25.7
Probable 315,662 313 1.35 3.2 13.7 4.0
----------------------- ------------- ------ ------ ------ ------ ------
Total 2,327,677 308 1.46 23.1 109.5 29.7
----------------------- ------------- ------ ------ ------ ------ ------
San Jose
Proved 363,389 511 7.26 6.0 84.8 11.1
Probable 385,769 394 5.45 4.9 67.6 8.9
----------------------- ------------- ------ ------ ------ ------ ------
Total 749,158 451 6.33 10.9 152.5 20.0
----------------------- ------------- ------ ------ ------ ------ ------
Main operations total
Proved 3,373,845 349 1.99 37.9 216.1 50.9
Probable 1,806,878 357 2.06 20.7 120.0 27.9
----------------------- ------------- ------ ------ ------ ------ ------
Total 5,180,723 352 2.02 58.6 336.10 78.8
----------------------- ------------- ------ ------ ------ ------ ------
OTHER OPERATIONS
----------------------- ------------- ------ ------ ------ ------ ------
Ares
Proved 111,771 99 4.72 0.4 17.0 1.4
Probable 39,133 109 3.02 0.1 3.8 0.4
----------------------- ------------- ------ ------ ------ ------ ------
Total 150,904 102 4.28 0.5 20.8 1.7
----------------------- ------------- ------ ------ ------ ------ ------
Moris
Proved 94,401 5 1.48 0.0 4.5 0.3
Probable 330,007 5 1.54 0.1 16.3 1.0
----------------------- ------------- ------ ------ ------ ------ ------
Total 424,408 5 1.52 0.1 20.8 1.3
----------------------- ------------- ------ ------ ------ ------ ------
Other operations total
Proved 206,172 56 3.23 0.4 21.4 1.7
Probable 369,140 16 1.69 0.2 20.1 1.4
----------------------- ------------- ------ ------ ------ ------ ------
Total 575,312 30 2.25 0.6 41.5 3.1
----------------------- ------------- ------ ------ ------ ------ ------
Group total
Proved 3,580,017 333 2.06 38.3 237.5 52.5
Probable 2,176,018 299 2.00 20.9 140.0 29.3
----------------------- ------------- ------ ------ ------ ------ ------
TOTAL 5,756,035 320 2.04 59.2 377.6 81.8
----------------------- ------------- ------ ------ ------ ------ ------
Note: Where reserves are attributable to a joint venture
partner, reserve figures reflect the Company's ownership only.
Includes discounts for ore loss and dilution.
1 Main operations were audited by P&E Consulting.
Attributable metal resources AS AT 31 DECEMBER 2010
Resource Ag Au Zn Pb Cu Ag Eq Ag Au Ag Eq Zn Pb Cu
category (g/t) (g/t) (%) (%) (%) (g/t) (moz) (koz) (Moz) (kt) (kt) (kt)
-------------- ---------- ----- ----- --- --- --- ----- ----- ----- ----- ---- ---- ----
MAIN
OPERATIONS(1)
-------------- ---------- ----- ----- --- --- --- ----- ----- ----- ----- ---- ---- ----
Arcata
Measured 1,411,118 489 1.47 578 22.2 66.6 26.2
Indicated 1,241,366 451 1.34 532 18.0 53.3 21.2
Total 2,652,484 472 1.41 556 40.2 120.0 47.4
Inferred 3,282,100 402 1.40 486 42.5 147.5 51.3
-------------- ---------- ----- ----- --- --- --- ----- ----- ----- ----- ---- ---- ----
Pallancata
Measured 2,561,183 390 1.82 500 32.1 150.0 41.1
Indicated 377,990 345 1.48 434 4.2 18.0 5.3
Total 2,939,173 385 1.78 491 36.3 168.0 46.4
Inferred 1,441,039 329 1.35 410 15.3 62.5 19.0
-------------- ---------- ----- ----- --- --- --- ----- ----- ----- ----- ---- ---- ----
San Jose
Measured 527,951 570 8.10 1,056 9.7 137.5 17.9
Indicated 1,029,953 426 6.14 795 14.1 203.3 26.3
Total 1,557,904 475 6.80 883 23.8 340.8 44.2
Inferred 1,522,859 373 5.96 731 18.3 291.8 35.8
-------------- ---------- ----- ----- --- --- --- ----- ----- ----- ----- ---- ---- ----
Main
operations
total
Measured 4,500,252 443 2.45 589 64.0 354.1 85.3
Indicated 2,649,309 426 3.22 620 36.3 274.6 52.8
Total 7,149,561 437 2.74 601 100.4 628.7 138.1
Inferred 6,245,998 379 2.50 528 76.0 501.8 106.1
-------------- ---------- ----- ----- --- --- --- ----- ----- ----- ----- ---- ---- ----
OTHER
OPERATIONS
-------------- ---------- ----- ----- --- --- --- ----- ----- ----- ----- ---- ---- ----
Ares
Measured 452,204 161 6.02 522 2.3 87.5 7.6
Indicated 124,667 145 3.78 372 0.6 15.1 1.5
Total 576,871 157 5.54 489 2.9 102.7 9.1
Inferred 285,782 183 3.03 365 1.7 27.8 3.3
-------------- ---------- ----- ----- --- --- --- ----- ----- ----- ----- ---- ---- ----
Moris
Measured 281,909 4.1 1.12 71 0.0 10.1 0.6
Indicated 375,383 4.9 1.44 91 0.1 17.4 1.1
Total 657,292 4.5 1.30 83 0.1 27.5 1.7
Inferred 26,335 3.7 1.13 71 0.0 1.0 0.1
-------------- ---------- ----- ----- --- --- --- ----- ----- ----- ----- ---- ---- ----
Other
operations
total
Measured 734,113 101 4.14 349 2.4 97.7 8.2
Indicated 500,050 40 2.02 161 0.6 32.5 2.6
Total 1,234,163 76 3.28 273 3.0 130.2 10.8
Inferred 312,117 168 2.87 340 1.7 28.8 3.4
-------------- ---------- ----- ----- --- --- --- ----- ----- ----- ----- ---- ---- ----
ADVANCED
PROJECTS
-------------- ---------- ----- ----- --- --- --- ----- ----- ----- ----- ---- ---- ----
Azuca
Measured 0 0 0.00 0 0.0 0.0 0.0
Indicated 2,048,718 226 0.96 284 14.9 63.0 18.7
Total 2,048,718 226 0.96 284 14.9 63.0 18.7
Inferred 5,945,438 206 1.07 270 39.3 204.9 51.6
-------------- ---------- ----- ----- --- --- --- ----- ----- ----- ----- ---- ---- ----
Crespo
Measured 2,966,294 51 0.65 90 4.8 62.1 8.6
Indicated 13,922,275 31 0.55 63 13.7 245.8 28.4
Total 16,888,568 34 0.57 68 18.5 307.9 37.0
Inferred 8,872,647 11 0.42 37 3.2 121.1 10.4
-------------- ---------- ----- ----- --- --- --- ----- ----- ----- ----- ---- ---- ----
Ag Eq
Resource Ag Au Zn Pb Cu Ag Eq Ag Au (M Zn Pb Cu
category (g/t) (g/t) (%) (%) (%) (g/t) (moz) (koz) oz) (kt) (kt) (kt)
----------- ---------- ----- ----- ---- ---- ---- ----- ----- ------- ------ ----- ---- ----
Inmaculada
Measured 656,374 125 4.65 405 2.6 98.2 8.5
Indicated 2,710,576 177 4.65 456 15.4 405.6 39.8
Total 3,366,949 167 4.65 446 18.1 503.7 48.3
Inferred 2,131,994 199 4.97 498 13.7 340.7 34.1
----------- ---------- ----- ----- ---- ---- ---- ----- ----- ------- ------ ----- ---- ----
San Felipe
Measured 1,393,716 69 0.02 7.12 3.10 0.39 315 3.1 0.9 14.1 99.3 43.1 5.5
Indicated 1,354,261 82 0.06 6.14 2.73 0.31 295 3.6 2.4 12.9 83.2 37.0 4.2
Total 2,747,977 76 0.04 6.64 2.92 0.35 305 6.7 3.3 27.0 182.4 80.1 9.7
Inferred 1,257,731 84 0.05 6.18 2.26 0.19 283 3.4 1.9 11.5 77.8 28.5 2.3
----------- ---------- ----- ----- ---- ---- ---- ----- ----- ------- ------ ----- ---- ----
Advanced
projects
total
Measured 5,016,383 66 1.00 1.98 0.86 0.11 194 10.6 161.2 31.2 99.3 43.1 5.5
Indicated 20,035,829 74 1.11 0.42 0.18 0.02 155 47.6 716.8 99.7 83.2 37.0 4.2
Total 25,052,213 72 1.09 0.73 0.32 0.04 163 58.1 878.0 130.9 182.4 80.1 9.7
Inferred 18,207,809 102 1.14 0.43 0.16 0.01 184 59.5 668.6 107.6 77.8 28.5 2.3
----------- ---------- ----- ----- ---- ---- ---- ----- ----- ------- ------ ----- ---- ----
TOTAL
----------- ---------- ----- ----- ---- ---- ---- ----- ----- ------- ------ ----- ---- ----
Measured 10,250,749 234 1.86 0.97 0.42 0.05 379 77.0 613.0 124.7 99.3 43.1 5.5
Indicated 23,185,188 113 1.37 0.36 0.16 0.02 208 84.5 1,023.9 155.1 83.2 37.0 4.2
Total 33,435,937 150 1.52 0.55 0.24 0.03 260 161.5 1,636.9 279.8 182.4 80.1 9.7
Inferred 24,765,924 172 1.51 0.31 0.11 0.01 273 137.2 1,199.1 217.1 77.8 28.5 2.3
----------- ---------- ----- ----- ---- ---- ---- ----- ----- ------- ------ ----- ---- ----
Note: Resources include undiscounted reserves, where resources
are attributable to a joint venture partner, resources figures
reflect the Company's ownership only. No ore loss or dilution has
been included, and stockpiled ore excluded.
1 Main operations were audited by P&E Consulting.
Change in total reserves and resources
Ag equivalent
content (million December December Net
ounces) Category 2009 Production(1) Movements(2) 2010 difference % change
----------------- --------- -------- ------------- ------------ -------- ---------- --------
Arcata Resource 79.4 19.4 98.7 19.4 24.4%
Reserve 29.8 12.9 12.2 29.1 (0.7) (2.4)%
Pallancata Resource 108.9 0.1 109.0 0.1 0.1%
Reserve 55.9 15.2 8.7 49.4 (6.5) (11.6)%
San Jose Resource 110.0 47.0 156.9 47.0 42.7%
Reserve 43.7 12.7 8.3 39.2 (4.5) (10.2)%
--------------------------- -------- ------------- ------------ -------- ---------- --------
Main operations
total Resource 298.3 66.5 364.7 66.5 22.3%
Reserve 129.4 40.8 29.2 117.8 (11.6) (8.9)%
--------------------------- -------- ------------- ------------ -------- ---------- --------
Ares Resource 14.7 (2.2) 12.4 (2.2) (15.3)%
Reserve 3.7 2.9 0.9 1.7 (2.0) (54.5)%
Moris Resource 4.5 (2.7) 1.8 (2.7) (59.8)%
Reserve 2.8 2.4 0.9 1.3 (1.5) (53.6)%
--------------------------- -------- ------------- ------------ -------- ---------- --------
Other operations
total Resource 19.2 (4.9) 14.2 (4.9) (25.8)%
Reserve 6.5 5.3 1.9 3.1 (3.4) (52.6)%
--------------------------- -------- ------------- ------------ -------- ---------- --------
Azuca Resource 44.1 26.2 70.3 26.2 59.4%
Reserve 0.0 0 0.0 0.0 0.0 -
Crespo Resource 44.7 2.7 47.4 2.7 6.0%
Reserve 0.0 0 0.0 0.0 0.0 -
Inmaculada Resource 66.9 70.4 137.3 70.4 105.3%
Reserve 0.0 0 0.0 0.0 0.0 -
San Felipe Resource 38.5 0.0 38.5 0.0 0.0%
Reserve 0.0 0 0.0 0.0 0.0 -
--------------------------- -------- ------------- ------------ -------- ---------- --------
Advanced projects
total Resource 194.2 99.3 293.5 99.3 51.1%
Reserve 0.0 0 0.0 0.0 0.0 -
--------------------------- -------- ------------- ------------ -------- ---------- --------
Total Resource 511.6 160.8 672.4 160.8 31.4%
Reserve 135.9 46.1 31.0 120.8 (15.1) (11.1)%
--------------------------- -------- ------------- ------------ -------- ---------- --------
1 Depletion: reduction in reserves based on ore delivered to the
mine plant.
2 Increase in reserves and resources due mainly to mine site
exploration but also to price increases.
Change in attributable reserves and resources
Ag
equivalent
content December December
(million Percentage 2009 2010 Net
ounces) Category attributable Att.(1) Att.(1) difference % change
----------- --------- ------------ -------- -------- ---------- --------
Arcata Resource 100% 79.4 98.7 19.4 24.4%
Reserve 29.8 29.1 (0.7) (2.4)%
Pallancata Resource 60% 65.3 65.4 0.1 0.1%
Reserve 33.5 29.7 (3.9) (11.6)%
San Jose Resource 51% 56.1 80.0 23.9 42.7%
Reserve 22.3 20.0 (2.3) (10.2)%
--------------------- ------------ -------- -------- ---------- --------
Main
operations
total Resource 200.8 244.2 43.4 21.6%
Reserve 85.6 78.8 (6.9) (8.0)%
--------------------- ------------ -------- -------- ---------- --------
Ares Resource 100% 14.7 12.4 (2.2) (15.3)%
Reserve 3.7 1.7 (2.0) (54.5)%
Moris Resource 100% 4.5 1.8 (2.7) (59.8)%
Reserve 2.8 1.3 (1.5) (53.6)%
--------------------- ------------ -------- -------- ---------- --------
Other
operations
total Resource 19.2 14.2 (4.9) (25.8)%
Reserve 6.5 3.1 (3.5) (54.1)%
--------------------- ------------ -------- -------- ---------- --------
Azuca Resource 100% 44.1 70.3 26.2 59.4%
Reserve 0.0 0.0 0.0 -
Crespo Resource 100% 44.7 47.4 2.7 6.0%
Reserve 0.0 0.0 0.0 -
49% -
Inmaculada Resource 60% 32.8 82.4 49.6 151.3%
Reserve 0.0 0.0 0.0 -
San Felipe Resource 100% 38.5 38.5 0.0 0.0%
Reserve 0.0 0.0 0.0 -
--------------------- ------------ -------- -------- ---------- --------
Advanced
projects
total Resource 160.1 238.5 78.4 49.0%
Reserve 0.0 0.00 0.0 -
--------------------- ------------ -------- -------- ---------- --------
Total Resource 380.1 497.0 116.9 30.8%
Reserve 100% 92.1 81.8 (10.4) (11.3)%
--------------------- ------------ -------- -------- ---------- --------
1 Attributable reserves and resources based on the Group's
percentage ownership of its joint venture projects.
Production
Total Group production(1)
Year ended Year ended
31 December 31 December
2010 2009 % change
------------------------------ ------------ ------------ --------
Silver production (koz) 24,430 24,585 (1)
Gold production (koz) 200.05 211.64 (5)
Total silver equivalent (koz) 36,434 37,283 (2)
Total gold equivalent (koz) 607.23 621.38 (2)
Silver sold (koz) 24,283 23,563 3
Gold sold (koz) 199.9 204.09 (2)
------------------------------ ------------ ------------ --------
1 Total production includes 100% of all production, including
production attributable to joint venture partners at San Jose and
Pallancata.
Attributable Group production(1)
Year ended Year ended
31 December 31 December
2010 2009 % change
-------------------------------- ------------ ------------ --------
Silver production (koz) 17,768 18,754 (5)
Gold production (koz) 144.40 156.77 (8)
Attrib. silver equivalent (koz) 26,432 28,160 (6)
Attrib. gold equivalent (koz) 440.53 469.34 (6)
-------------------------------- ------------ ------------ --------
1 Attributable production includes 100% of all production from
Arcata, Ares and Moris, 60% from Pallancata and 51% from San
Jose.
2010 production by mine
Arcata
Year ended Year ended
31 December 31 December
Product 2010 2009 % change
--------------------------------- ------------ ------------ --------
Ore production (tonnes) 645,974 643,059 0
Average head grade silver (g/t) 439 503 (13)
Average head grade gold (g/t) 1.40 1.56 (10)
Silver produced (koz) 8,099 9,542 (15)
Gold produced (koz) 25.83 28.64 (10)
Silver equivalent produced (koz) 9,649 11,261 (14)
Silver sold (koz) 8,095 9,138 (11)
Gold sold (koz) 24.96 27.17 (8)
--------------------------------- ------------ ------------ --------
Ares
Year ended Year ended
31 December 31 December
Product 2010 2009 % change
--------------------------------- ------------ ------------ --------
Ore production (tonnes) 301,726 341,273 (12)
Average head grade silver (g/t) 92 96 (4)
Average head grade gold (g/t) 3.58 4.17 (14)
Dore total (koz) 822 947 (13)
Silver produced (koz) 786 900 (13)
Gold produced (koz) 32.53 42.59 (24)
Silver equivalent produced (koz) 2,738 3,455 (21)
Silver sold (koz)(1) 810 873 (7)
Gold sold (koz)(2) 32.70 41.82 (22)
--------------------------------- ------------ ------------ --------
Pallancata(1)
Year ended Year ended
31 December 31 December
Product 2010 2009 % change
--------------------------------- ------------ ------------ --------
Ore production (tonnes) 1,071,617 922,521 16
Average head grade silver (g/t) 344 327 5
Average head grade gold (g/t) 1.41 1.43 (1)
Silver produced (koz) 10,135 8,420 20
Gold produced (koz) 35.85 31.97 12
Silver equivalent produced (koz) 12,286 10,339 19
Silver sold (koz) 9,998 8,405 19
Gold sold (koz) 33.7 30.7 10
--------------------------------- ------------ ------------ --------
1 The Company has a 60% interest in Pallancata.
San Jose(1)
Year ended Year ended
31 December 31 December
Product 2010 2009 % change
--------------------------------- ------------ ------------ --------
Ore production (tonnes) 461,134 460,971 0
Average head grade silver (g/t) 397 398 0
Average head grade gold (g/t) 6.14 6.19 (1)
Silver produced (koz) 5,324 4,998 7
Gold produced (koz) 84.30 77.08 9
Silver equivalent produced (koz) 10,382 9,622 8
Silver sold (koz) 5,284 5,174 2
Gold sold (koz) 84.96 78.80 8
--------------------------------- ------------ ------------ --------
1 The Company has a 51% interest in San Jose.
Moris
Year ended Year ended
31 December 31 December
Product 2010 2009 % change
--------------------------------- ------------ ------------ --------
Ore production (tonnes) 1,148,826 1,282,461 (10)
Average head grade silver (g/t) 4.44 5.02 (11)
Average head grade gold (g/t) 1.14 1.38 (17)
Silver produced (koz) 86.41 96.58 (11)
Gold produced (koz) 21.53 28.34 (24)
Silver equivalent produced (koz) 1,378 1,797 (23)
Silver sold (koz) 95.07 86.69 (10)
Gold sold (koz) 23.54 26.29 (10)
--------------------------------- ------------ ------------ --------
Glossary
Ag
Silver
Adjusted EBITDA
Adjusted EBITDA is calculated as profit from continuing operations
before exceptional items, net finance costs and income tax plus depreciation
and exploration expenses other than personnel and other expenses
Au
Gold
Attributable after tax profit
Profit for the year before dividends attributable to the equity shareholders
of Hochschild Mining plc from continuing operations before exceptional
items and after minority interest
Average head grade
Average ore grade fed into the mill
Board
The Board of Directors of the Company
Company
Hochschild Mining plc
CSR
Corporate social responsibility
Cu
Copper
Directors
The Directors of the Company
DNV
Det Norske Veritas is an independent foundation with the purpose
of safeguarding life, property, and the environment
Dore
Dore bullion is an impure alloy of gold and silver and is generally
the final product of mining and processing; the dore bullion will
be transported to be refined to high purity metal
Dollar or $
United States dollars
Effective Tax Rate
Income tax expense as a percentage of profit from continuing operations
before income tax
EPS
The per-share (using the weighted average number of shares outstanding
for the period) profit available to equity shareholders of the Company
from continuing operations after exceptional items
eq
equivalent
Exceptional item
Events that are significant and which, due to their nature or the
expected infrequency of the events giving rise to them, need to be
disclosed separately
g/t
Grammes per metric tonne
GAAP
Generally Accepted Accounting Principles
Group
Hochschild Mining plc and subsidiary undertakings
IAS
International Accounting Standards
IASB
International Accounting Standards Board
IFRS
International Financial Reporting Standards
JV
Joint venture
koz
Thousand ounces
kt
Thousand metric tonnes
ktpa
Thousand metric tonnes per annum
Listing or IPO (Initial Public Offering) or Global Offer
The listing of the Company's Ordinary Shares on the London Stock
Exchange on 8 November 2006
LTI
Lost Time Injury, meaning an occupational injury or illness that
results in days away from work
LTIFR
Lost Time Injury Frequency Rate = LTI x 1,000,000/hours worked
moz
Million ounces
Ordinary Shares
Ordinary Shares of 25p each in the Company
Pb
Lead
Spot or spot price
The purchase price of a commodity at the current price, normally
this is at a discount to the long-term contract price
t
tonne
tpa
tonnes per annum
tpd
tonnes per day
Zn
Zinc
Shareholder information
Annual General Meeting ('AGM')
The AGM will be held at 10am on 2 June 2011 at the offices of
Linklaters LLP, One Silk Street, London, EC2Y 8HQ.
Company website
Hochschild Mining plc Interim and Annual Reports and results
announcements are available via the internet on our website at
www.hochschildmining.com. Shareholders can also access the latest
information about the Company and press announcements as they are
released, together with details of future events and how to obtain
further information.
Registrars
The Registrars can be contacted as follows for information about
the AGM, shareholdings, dividends and to report changes in personal
details:
- By post
Capita Registrars, The Registry, 34 Beckenham Road, Beckenham,
Kent BR3 4TU
- By telephone
If calling from the UK: 0871 664 0300 (Calls cost 10p per minute
plus network extras, lines are open 8.30am - 5.30pm Mon to Fri) If
calling from overseas: +44 20 8639 3399
- By fax
+44 (0)1484 600 911
Currency option and dividend mandate
Shareholders wishing to receive their dividend in US dollars
should contact the Company's registrars to request a currency
election form. This form should be completed and returned to the
registrars by 17 May 2011.
The Company's registrars can also arrange for the dividend to be
paid directly into a shareholder's UK bank account. To take
advantage of this facility, a dividend mandate form, also available
from the Company's registrars, should be completed and returned to
the registrars by 17 May 2011. This arrangement is only available
in respect of dividends paid in UK pounds sterling. Shareholders
who have already completed one or both of these forms need take no
further action.
Investor relations
For investor enquiries please contact: Jane Flynn, Investor
Relations Associate by writing to the London Office address (see
below), by phone on 020 7907 2933 or by email at
jane.flynn@hocplc.com.
Financial calendar
Dividend payments Ex-dividend date 11 May 2011 Record date 13
May 2011 Deadline for return of currency election form 17 May 2011
Final dividend payable 7 June 2011
Other dates
Annual General Meeting 2 June 2011 Half-yearly results announced
August 2011
London Office and Registered Office address
46 Albemarle Street London W1S 4JL United Kingdom
Company Secretary
R D Bhasin
This information is provided by RNS
The company news service from the London Stock Exchange
END
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