TIDMHOC
RNS Number : 8448M
Hochschild Mining PLC
23 August 2011
23 August 2011
Hochschild Mining plc
Interim Results for the six months ended 30 June 2011
Financial highlights1
-- Record half year revenue of $496.8 million, up 62%
-- Record adjusted EBITDA of $297.1 million, up 98%*
-- Record attributable profit after tax of $92.0 million, up
137%
-- Record half year EPS of $0.27, up 145%
-- Strong financial position with a half-year end cash balance
of $691 million
-- Proposed interim dividend of $0.03 per share up 50% (H1
2010:$0.02 per share)
-- Minority investments currently valued at $420m**
Operational highlights
-- H1 2011 production of 11.1 million attributable silver
equivalent ounces
-- Production target of 22.5 million attributable silver
equivalent ounces on track
-- 3 new exploration projects acquired: San Antonio, Coriwasi
and Huachoja
-- 2011 $70m exploration programme delivering encouraging
results:
o Advanced projects, Inmaculada and Crespo, set to deliver
feasibility studies due in Q4 2011
o Azuca feasibility study due for completion in H1 2012
o Brownfield exploration at Arcata, Pallancata and San Jose
yielding outstanding intercepts
o Extensive drilling programmes in Chile, Peru, Mexico and
Argentina
-- Further exploration results expected in H2 2011
($000, pre-exceptional Six months to 30 Six months to 30
unless stated) June 2011 June 2010 % change
------------------------ ------------------- -------------------- ---------
Attributable silver
production (koz) 7,340 8,477 (13)
Attributable gold
production (koz) 63 73 (13)
Revenue 496,768 306,860 62
Adjusted EBITDA(*) 297,128 150,128 98
Profit from continuing
operations 146,782 56,098 162
Profit from continuing
operations (post
exceptional) 151,057 45,968 229
Earnings per share ($) 0.27 0.11 145
Earnings per share ($
post-exceptional) 0.29 0.08 263
------------------------ ------------------- -------------------- ---------
* 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.
**Market value (as of 30 June 2011) of investments accounted
under equity method and available for sale financial assets.
Commenting on the results, Eduardo Hochschild, Executive
Chairman, said:
"I am pleased to report a very strong set of financial results
for the first half of 2011 with large increases in many of our key
performance indicators and a continuing robust financial position.
The Board is proposing to pay an interim dividend of $0.03 per
share which represents a 50% increase versus this time last
year.
We are on track to deliver on all our stated production and cost
targets despite the prevailing challenging industry environment
with continuing strong precious metal prices likely to continue in
the second half. Key deliverables for the rest of the year include
feasibility studies at our Inmaculada and Crespo projects, ongoing
progress on maximising our resource life and further results from
this year's exploration programme.
With regards to the Board, Sir Malcolm Field and Dionisio Romero
have given advance notice of their decisions to retire as
Non-Executive Directors at the 2012 AGM. I would like to express my
sincere gratitude to both Malcolm and Dionisio for their support
and invaluable contributions to the Group since joining the
Hochschild Board back in 2006.
To ensure the continued independent presence on the Board, I am
delighted to announce the appointment of Rupert Pennant-Rea as a
Non-Executive Director on 1 September 2011. Rupert brings vast
experience from his position on the boards of mining and blue-chip
London-listed companies."
_______________________________________________________________________
A live conference call & audio webcast will be held at
2.00pm (London time) on Tuesday 23 August 2011 for analysts and
investors. Details as follows:
For a live webcast of the presentation please click on the link
below:
http://www.media-server.com/m/p/76wpe7p5
Conference call dial in details:
UK: +44 (0)20 7806 1960 (Please quote 'Hochschild Mining
webcast' or confirmation code 6498727).
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: 6498727#)
________________________________________________________________________
_
Enquiries:
Hochschild Mining plc
Charles Gordon +44 (0)20 7907 2934
Head of Investor Relations
RLM Finsbury
Charles Chichester +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.
Chief Executive Officer's Statement
Hochschild's operations have experienced a robust first half,
maintaining an emphasis on rigorous cost control and reaping the
benefits of the continuing high prices for precious metals. The
first six months of the year have seen an increase in our adjusted
EBITDA of 98% to $297 million with earnings per share up 145% to
$0.27 and a cash balance of $691 million with our minority
investments currently valued in the market at $420m.
We remain on course to deliver our stated production target of
22.5 million attributable silver equivalent ounces. The robustness
of our asset base is proving to be a key competitive advantage for
us in an environment of increasing cost inflation and more
challenging labour conditions. During the period we produced 11.1
million silver equivalent ounces comprising 7.3 million ounces of
silver and 63.3 thousand ounces of gold. Driven by average realised
prices up some 26% and 110% for gold and silver respectively versus
this time last year, revenue in H1 rose by 62% to just short of
half a billion dollars.
The results from the first half reflect that, as highlighted
previously, our core Peruvian assets are experiencing a managed
grade reduction to ensure more stable long term production levels
and a consistent resource life. A further effect on the grade
figure reported was the prudent decision to take advantage of the
continuing high precious metal prices and process low grade
material extracted from the borders of the main vein structures at
Arcata and Pallancata, utilising extra capacity at both plants. In
Argentina, despite labour disruptions in the first half, the San
Jose mine continued to deliver on its promise and we remain excited
about the geological potential at this relatively unexplored
deposit.
Our key aims for 2011 in cost control were to manage unit cost
increases in Peru at the 10% level and to keep unit cost inflation
at the San Jose mine to the local inflation rate of between 25-30%.
I am pleased to report that, excluding mine royalties (impacted by
higher prices), there has been only a small rise in unit cost per
tonne at the main operations in Peru of 6% in aggregate versus the
first half of last year. At San Jose, local price inflation has
been higher than expected with unit costs excluding royalties
increasing by 33% versus the first half of 2010. With wage
negotiations in both Peru and Argentina concluded, Hochschild is
maintaining its current cost guidance for 2011.
We have made solid progress already this year on the feasibility
studies for our three advanced projects, Inmaculada, Crespo and
Azuca. There is real excitement growing about the potential at
Inmaculada, and, in February, we announced a major increase in
resources and grade at the project further bolstering our belief
that this will be a mine to rival or even exceed Pallancata in
scale and position on the cost curve whilst also potentially
contributing to the Hochschild's production growth for many years
to come. Early on in the period, we also announced a positive
scoping study at Crespo which we currently expect to be an
attractive open cut operation whilst at Azuca work still remains to
convert requisite Inferred resources into Measured & Indicated.
We look forward to delivery of feasibility studies for Inmaculada
and Crespo in the fourth quarter of 2011 and Azuca in the first
half of 2012.
Over the last 18 months, Hochschild has consistently emphasised
the key role played by our exploration programme in the achievement
of our long term strategy. In line with this, we signalled our
intentions at the outset of 2011 by committing to a significant
increase in the exploration budget for the year to $70 million
(representing a 140% increase from 2009) and we have made a good
start to the annual drilling campaign in the first half. Although
the bulk of the work and its results will be completed in the
second half, we have seen good progress in our Medium Scale
projects at Mosquito and La Flora in Argentina as well with our
Company Makers at Mercurio in Mexico and Victoria in Chile. At the
Valeriano project, also in Chile, Hochschild is due to commence an
intensive drilling campaign in the third quarter. In addition we
have continued to see exciting intercepts in our brownfield
drilling programme at Arcata and particularly San Jose, with
further resources also being added at Inmaculada. We expect to
report to the market in full during the second half as and when the
key results are collated and analysed.
Looking forward to the rest of the year, Hochschild expects the
current uncertainty to continue in the global financial markets and
consequently the resulting volatility in precious metals markets is
set to remain. The key operational aims for the second half will be
meeting our production targets across all our mines and focusing on
mitigating against the effects of considerable cost inflation in
all our key countries and ongoing additional input cost pressures.
We look forward to the delivery of the Inmaculada and Crespo
feasibility studies towards the end of the year and in particular
progress on our brownfield and greenfield exploration programme.
With such a strong financial position, we also have the flexibility
to capitalise on any acquisition opportunities that arise and
assess any new capital investment opportunities generated from our
extensive project pipeline.
Ignacio Bustamante
Chief Executive Officer
22 August 2011
OPERATING REVIEW
CURRENT OPERATIONS
Production
In the first half of 2011, the Group has delivered 7.3 million
attributable ounces of silver and 63.3 thousand attributable ounces
of gold (11.1 million silver equivalent ounces) placing it on track
to achieve its full year production target of 22.5 million
attributable silver equivalent ounces in 2011.
Compared to H1 2010, attributable silver equivalent production
decreased by 13% in line with expectations due to declines in grade
at the Company's two main Peruvian operations, in line with its
previously mentioned long term goal of mining close to the average
reserve grade at each of its core operations. In addition, the
contribution from the Company's two ageing mines, Ares and Moris
also showed an expected decline versus the first half of
2010although the forecast closure dates for both these mines have
been delayed in the light of continued high precious metal prices.
At the San Jose mine, production was lower in the second quarter
versus the first due to industrial action at the mine leading to
the loss of 18 days of production (including five days of ramping
up).
Costs
The Company reported an increase in unit cost per tonne at its
main operations in Peru (Arcata and Pallancata) of 12% in H1 2011
to $66.5 (H1 2010: $59.6). Excluding mine royalties, which are
directly linked to higher metal prices, the unit cost of main
operations in Peru increased by only 6%. At San Jose in Argentina,
unit costs increased by 37% whilst excluding mine royalties unit
costs increased by 33%. Ares and Moris, Hochschild's two high cost
ageing mines, experienced increases of 17% and 16% respectively.
Both units have a longer than anticipated mine life and continue to
be profitable units. Further details on costs are provided on page
11 of the financial review.
Main operations
Arcata: Peru
Production
As expected, Arcata's production in the first half was 3.6
million silver equivalent ounces with the Company reducing the
extraction grade towards the average reserve grade level in order
to ensure a consistent and sustainable level of production. Q2
production was in line with the Q1 rate of 1.8 million ounces. The
Company continues to mine at reserve grade levels in the lower
grade border areas with associated narrower veins and increased
dilution but is confident that the Arcata system continues to
display strong long term geological potential. In addition,
Hochschild took advantage of the strong first half precious metal
prices by deciding to process developmental low grade material
(with an average silver grade of 114g/t) which, although increasing
the half-on-half tonnage produced by 7%, further reduced the
average treated grade.
Costs
Unit cost per tonne increased by 5% in the first half of 2011
versus the same period last year with the strong precious metal
price increases leading to significant rises in royalties.
Excluding royalties, unit cost rose 3%. In addition to wage
increases, material costs also rose principally due to the rise in
diesel and steel prices. Higher costs were partly offset by
economies of scale derived from increasing treated tonnage with
material of lower grade, at a lower cost.
Six months to 30 Six months to 30
Arcata summary June 2011 June 2010 % change
--------------------- --------------------- --------------------- ---------
Ore production
(tonnes) 316,086 295,434 7
Average head grade
silver (g/t) 342 471 (27)
Average head grade
gold (g/t) 0.94 1.59 (41)
Silver produced
(koz) 3,056 4,024 (24)
Gold produced (koz) 8.66 13.36 (35)
Silver equivalent
produced (koz) 3,575 4,826 (26)
Silver sold (koz) 3,020 4,053 (25)
Gold sold (koz) 8.36 13.06 (36)
--------------------- --------------------- --------------------- ---------
Unit cost ($/t) 76.0 72.3 5
--------------------- --------------------- --------------------- ---------
The 2011 drill programme is underway at Arcata and aims to
incorporate new resources at the Marion, Blanca and Baja veins. A
magnetometry geophysical survey was completed which will help to
delineate favourable corridors in the northern and western areas of
the mine. Positive results from the drill programme include the
following:
Vein Results
------- ---------------------------------------------------
Marion DDH-022: 1.21 metres at 1.79 g/t Au and 480 g/t
Ag
DDH-028: 3.03 metres at 3.88 g/t Au and 1,008 g/t
Ag
DDH-034: 3.32 metres at 1.02 g/t Au and 474 g/t
Ag
------- ---------------------------------------------------
Blanca DDH-015: 0.92 metres at 1.52 g/t Au and 974 g/t
Ag
DDH-039: 0.30 metres at 2.76 g/t Au and 1,010 g/t
Ag
------- ---------------------------------------------------
Baja DDH-187: 1.75 metres at 8.04 g/t Au and 243 g/t
Ag
DDH-032: 1.44 metres at 1.8 g/t Au and 451 g/t
Ag
DDH-037: 1.08 metres at 2.94 g/t Au and 452 g/t
Ag
------- ---------------------------------------------------
Pallancata: Peru
Production
At Pallancata, the Company's other main Peruvian operation,
first half silver equivalent production was reduced to 5.2 million
silver equivalent ounces, mainly driven by lower silver and gold
grades, which decreased 12% and 6% respectively year-on-year. In
the first half the mine plan focused on deeper and narrower veins
compared to H1 2010 with mined grades in line with the reserve
grade but experiencing the normal volatility associated with this
type of deposit. In addition, the Company took the opportunity
afforded by the prevailing high precious metals price environment
to process some lower grade economic material (not from the mine's
resources) extracted from the borders of the main vein
structures.
Costs
Unit cost per tonne at Pallancata rose by 15% in the period to
$60.3 principally due to the strong rise in royalties paid by the
operation. Excluding royalties, unit costs increased by 7%. In
addition, a significant portion of the rise was also due to
inflation in materials and supplies as well as salaries, all
indirectly associated to higher precious metal prices. Pallancata
has been increasing recruitment from local communities as part of
an initiative to improve community engagement in the area and
consequently this has also increased the operation's overall wage
costs.
Pallancata(1) Six months to 30 Six months to 30
summary June 2011 June 2010 % change
--------------------- --------------------- --------------------- ---------
Ore production
(tonnes) 508,734 517,343 (2)
Average head grade
silver (g/t) 299 340 (12)
Average head grade
gold (g/t) 1.31 1.39 (6)
Silver produced
(koz) 4,188 4,862 (14)
Gold produced (koz) 16.21 17.54 (8)
Silver equivalent
produced (koz) 5,160 5,914 (13)
Silver sold (koz) 4,492 4,959 (9)
Gold sold (koz) 16.57 17.48 (5)
--------------------- --------------------- --------------------- ---------
Unit cost ($/t) 60.3 52.3 15
--------------------- --------------------- --------------------- ---------
(1) The Company has a 60% interest in Pallancata
Underground development continues at the Pallancata, San Javier
and Virgen del Carmen veins. 13,397 metres of drilling was executed
as of June 2011 at the Rina, Thalia and Yanina veins. A total drill
programme of 55,292 metres is planned for the full year.
Drill results in Q2 2011 include:
Rina DLRI-A14: 2.47 metres at 3.19 g/t Au and 905 g/t
Ag
DLRI-A17: 2.45 metres at 2.15 g/t Au and 357 g/t
Ag
DLRI-A21: 1.72 metres at 6.12 g/t Au and 1,614
g/t Ag
DLRI-A22: 2.11 metres at 2.09 g/t Au and 476 g/t
Ag
------- --------------------------------------------------
Yanina DLVC-006: 0.42 metres at 11.3 g/t Au and 1,819
g/t Ag
DLVC-008: 0.71 metres at 3.1 g/t Au and 566 g/t
Ag
DLVC-009: 0.66 metres at 2.37 g/t Au and 410 g/t
Ag
DLVC-010: 0.77 metres at 6.10 g/t Au and 1,300
g/t Ag
------- --------------------------------------------------
San Jose: Argentina
Production
San Jose delivered a very strong performance in the first half
of 2011, in line with plan, despite the effects of the strike.
Silver equivalent production rose by 23% versus the first half of
2010 with improved silver grades (up 38%) resulting from a
scheduled shift to the higher reserve grade zones, as well as an
increase in gold recovery rates to 90% and silver to 87%. An
agreement has now been reached with the AOMA union (Argentine
Mining Labour Association) in line with expectations as well as a
parallel satisfactory conclusion to the annual wage
negotiations.
Costs
Unit cost per tonne in the first half of 2011 rose by 37% versus
H1 2010 to $191.3 with the strong local price inflation in
Argentina (of between 25-30%) causing large increases in wage
costs. Excluding royalties, unit costs increased by 33%. In
addition, the difficult operating environment saw strong material
price inflation with the major components being increases in fuel,
steel and reagent prices.
Six months to 30 Six months to 30
San Jose(1) summary June 2011 June 2010 % change
--------------------- --------------------- --------------------- ---------
Ore production
(tonnes) 211,947 212,743 (0.4)
Average head grade
silver (g/t) 461 334 38
Average head grade
gold (g/t) 6.03 5.86 3
Silver produced
(koz) 2,854 2,044 40
Gold produced (koz) 39.11 36.14 8
Silver equivalent
produced (koz) 5,201 4,212 23
Silver sold (koz) 2,927 2,080 41
Gold sold (koz) 39.32 37.27 6
--------------------- --------------------- --------------------- ---------
Unit cost ($/t) 191.3 140.0 37
--------------------- --------------------- --------------------- ---------
(1) The Company holds a 51% interest in San Jose.
A total drilling programme of 50,606m is planned for 2011.
During the quarter, diamond drilling was carried out at the Luli
and Susana Veins to convert inferred to measured and indicated
resources. Selected intercepts include:
Luli SJD-865: 1.63 metres at 7.52 g/t Au and 400 g/t
Ag
SJD-869: 1.05 metres at 16.89 g/t Au and 1,642
g/t Ag
SJD-871: 2.00 metres at 19.55 g/t Au and 1,721
g/t Ag
SJD-872: 9.00 metres at 6.10 g/t Au and 243 g/t
Ag
SJD-879: 0.82 metres at 11.90 g/t Au and 1,263
g/t Ag
----------- -----------------------------------------------------
Split Luli SJD-865: 0.96 metres at 6.52 g/t Au and 1,285 g/t
Ag
DJD-871: 1.00 metres at 44.48 g/t Au and 7,747
g/t Ag
SJD-875: 0.44 metres at 13.18 g/t Au and 1,090
g/t Ag
----------- -----------------------------------------------------
Susana SJD-864: 1.10 metres at 6.62 g/t Au and 1,028 g/t
Ag
0.61 metres at 6.93 g/t Au and 1,504 g/t Ag (Susana
Split)
----------- -----------------------------------------------------
Other operations
Ares: Peru
Production
The Company's ageing Ares mine produced 1.1 million silver
equivalent ounces in H1 2011 (H1 2010: 1.5 million silver
equivalent ounces). Ares continues to be a flexible deposit that is
producing not only from ore that was previously uneconomic in a
lower price environment but also yielding new marginal areas with
economic material that will allow operations to continue into 2012.
Management continues to monitor closely the grade and cost profile
of the mine to ensure that it is in line with the Company's policy
of producing profitable ounces.
Six months to 30 Six months to 30
Ares summary June 2011 June 2010 % change
--------------------- --------------------- --------------------- ---------
Ore production
(tonnes) 155,683 156,606 (1)
Average head grade
silver (g/t) 64 102 (37)
Average head grade
gold (g/t) 3.01 3.78 (20)
Silver produced
(koz) 284 446 (36)
Gold produced (koz) 14.08 17.90 (21)
Silver equivalent
produced (koz) 1,129 1,520 (26)
Silver sold (koz) 287 425 (32)
Gold sold (koz) 14.32 16.85 (15)
--------------------- --------------------- --------------------- ---------
Unit cost ($/t) 121.8 104.5 17
--------------------- --------------------- --------------------- ---------
Moris: Mexico
Production
Moris, the Company's operation in Mexico, produced 0.7 million
silver equivalent ounces in the first half of 2011 (H1 2010: 0.8
million silver equivalent ounces). The ongoing strong precious
metal prices have allowed the mine to continue operations beyond
the originally intended closure date and have now also led to the
Company evaluating further production initiatives despite the
current closure date being towards the end of 2011.
Six months to 30 Six months to 30
Moris summary June 2011 June 2010 % change
--------------------- --------------------- --------------------- ---------
Ore production
(tonnes) 612,257 648,416 (6)
Average head grade
silver (g/t) 4.83 4.41 10
Average head grade
gold (g/t) 0.94 1.25 (25)
Silver produced
(koz) 31.72 48.15 (34)
Gold produced (koz) 10.86 12.31 (12)
Silver equivalent
produced (koz) 683 787 (13)
Silver sold (koz) 31 57 (46)
Gold sold (koz) 10.82 14.24 (24)
--------------------- --------------------- --------------------- ---------
Unit cost ($/t) 17.8 15.4 16
--------------------- --------------------- --------------------- ---------
ADVANCED PROJECTS
The Company 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.
Inmaculada
On 25 February 2011, the Company announced an increase in both
the total Mineral Resource estimate and Measured and Indicated
Resources for the Inmaculada gold-silver project located in
Hochschild's existing southern Peru cluster, following the
announcement of a positive scoping study published by International
Minerals Inc ("IMZ") in September 2010. The project, in which
Hochschild now owns a controlling 60% stake (IMZ holds the
remaining 40%), is currently at the feasibility stage with
completion expected in Q4 2011. The Company expects to commence
production in December 2013 at a processing capacity of 3,000
tonnes per day. The highlights of the announcement were:
-- 59% increase in Measured & Indicated Resources to 76.0
million silver equivalent ounces
-- 29% increase in silver equivalent grades to 498 g/t
-- Total resources of 128.3 million silver equivalent ounces
Hochschild expects the results to significantly improve the
economics of the project detailed in the 2010 scoping study. An
infill drill programme commenced at the property in March 2011 to
convert Inferred Resources to Measured and Indicated Resources in
the Angela Vein and 8,105 metres of the Brownfield drilling
programme was executed as of July 2011, at the Jimena, Martha and
Angela SW Veins. A total drill programme of 26,475m is planned for
the full year with approximately 31% completed so far.
The feasibility study for the project is due for completion on
schedule towards the end of the year with the Environmental Impact
Study ("EIS") due to be presented to the relevant authorities also
towards the end of 2011.
Azuca
Intensive drilling continues at the 100% owned Azuca property
with the aim of expanding the scale of the project. The Company
expects to complete feasibility in the first half of 2012 with
production targeted for Q4 2013 at an initial estimate of 3.5
million silver equivalent ounces per year.
Year to date, 73,838 metres of infill drilling have been
completed at the Azuca and Azuca Oeste veins which aims to convert
Inferred Resources to the Indicated category and advance the
project to feasibility stage. Assays are pending from drilling at
the Minaspata vein worked in the past by Hochschild. The EIS is
also underway and is on track for submission to the relevant
authorities at the beginning of 2012.
A total drill programme of 91,891m is planned for the full
year.
Crespo
At the start of the year, 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 initial production of
2.3 million silver equivalent ounces per annum starting from the
end of 2013. Hochschild already has 5.0 million additional ounces
of Measured & Indicated resources that will be added for the
feasibility study. For further details of the scoping study, please
see the press release published on 19 January 2011.
Both the feasibility study and the EIS have made good progress
in the first half and remain on track for completion in the fourth
quarter of 2011. Drilling for the hydrogeological, geotechnical and
geomechanical studies commenced in late June with results due in
the second half. In parallel, metallurgic test work is underway and
expected to be finished in the third quarter of 2011. This
information will be used to complete the feasibility study during
Q4.
EXPLORATION REVIEW
Greenfield exploration
Victoria
The Victoria project in Chile is 60% owned by Hochschild, with
the remaining 40% held by Iron Creek Capital. A 5,000m drilling
programme is due to recommence in H2 after geological
reinterpretation and target validation of the Vida, Cenizas, and
Picaron areas are complete. Metallurgical testing of old ore at the
Vaquillas target has been completed and data is currently under
review.
Valeriano
At the Valeriano property in Chile which is located 27
kilometres north of Barrick Gold Corporation's Pascua Lama project,
preliminary results received to date have confirmed the anomalies
identified in past drill reports. Results of the geophysical survey
have been interpreted with the definition of a porphyry-like
anomaly at depth which corresponds with the surface geochemistry
studies as well as the historic magnetic survey. Preliminary drill
targets have been selected and the Company is planning to commence
an intensive drilling campaign in H2 2011.
Mercurio
The 100% owned Mercurio project in Mexico is located within the
prolific silver belt of the Fresnillo-Sombrerete deposits. Initial
surface mapping and sampling have been completed in the property
and drilling is underway. The 8,000m drilling programme for 2011 is
focused on deeper areas of the project to evaluate potential
similarities to comparable mines in the vicinity.
Mosquito
At the 100% owned Mosquito project in Argentina, strong
anomalous mineralisation results have been reported for a number of
the drill holes completed in H1 2011. The programme for the second
half which includes a geophysical survey and a number of further
promising drill targets will be completed by the end of the
year.
In addition to the above, Hochschild has incorporated three new
property agreements into its exploration pipeline, two in Peru and
one in Chile.
Coriwasi (Peru).
Coriwasi is a 9,800 hectare, high sulphidation epithermal and
porphyry copper-gold type target in northern Peru optioned from a
private party. Under the terms of the agreement, Hochschild will
earn in 100% by incurring $4.0m in staged payments over a four year
period with the vendor maintaining a 1.4% net smelter return
royalty. The project has Company Maker potential.
Huachoja (Peru).
Huachoja is a 3,000 hectare high sulphidation, epithermal target
in southern Peru which has been optioned from Teck Peru SA. In
order to vest, Hochschild is required to spend $4.0m over a four
year period (option to 60%). Teck can back in to 60% if the
resource found is base metal dominant, compensating Hochschild for
its investment. The project has Company Maker Potential.
San Antonio (Chile).
San Antonio is a 350 hectare gold property in northern Chile
optioned from a number of private parties. Hochschild may earn in
from 60% to 80% in the San Antonio prospect after a resource has
been issued. The project has medium scale potential.
FINANCIAL REVIEW
Key performance indicators:
(before exceptional items, unless otherwise indicated)
$000 unless otherwise Six months to 30 Six months to 30
indicated June 2011 June 2010 % change
---------------------- -------------------- --------------------- ---------
Net Revenue(1) 496,768 306,860 62
Attributable silver
production (koz) 7,340 8,477 (13)
Attributable gold
production (koz) 63.26 72.53 (13)
Cash costs ($/oz Ag
co-product) (2) 12.08 7.53 60
Cash costs ($/oz Au
co-product) (2) 496 508 (2)
Adjusted EBITDA (3) 297,128 150,128 98
Earnings per share
(pre exceptional) 0.27 0.11 145
Earnings per share
(post exceptional) 0.29 0.08 263
Cash flow from
operating activities
(4) 236,903 112,191 111
---------------------- -------------------- --------------------- ---------
(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 based on pre-exceptional figures and
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 58% to $523.3 million in H1 2011 (H1 2010: $330.2
million) driven by higher metal prices during the period which more
than offset lower Group production.
Silver: Gross revenue from silver increased 84% in H1 2011 to
$392.2 million (H1 2011: $213.0 million) as a result of higher
prices. The total amount of silver ounces sold in H1 2011 decreased
to 10,758 koz (H1 2010: 11,575 koz2) mainly due to lower
half-on-half production.
Gold: Gross revenue from gold increased 12% in H1 2011 to $131.1
million (H1 2010: $117.2 million) also as a result of higher
prices. The total amount of gold ounces sold in H1 2011 decreased
to 89.4 koz (H1 2010: 98.9 koz3) again mainly due to lower
year-on-year production.
Gross average realised sales prices
As of December 2010, the Company discloses average realised
prices calculated as gross revenue divided by gross ounces sold.
Previously, the Company disclosed average realised prices
calculated as net revenue divided by net ounces sold. Net revenue
is calculated as gross revenue minus commercial discounts, see
paragraph below.
The following table provides figures for average realised prices
and ounces sold for H1 2010 and H1 2011:
Six months
Six months to to 30 June
Average realised prices 30 June 2011 2010
----------------------------------- -------------- ------------
Silver ounces sold (koz) 10,758 11,575
Avg. realised silver price ($/oz) 36.46 18.40
Gold ounces sold (koz) 89.39 98.90
Avg. realised gold price ($/oz) 1,466 1,185
----------------------------------- -------------- ------------
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 H1 2011, the
Group recorded commercial discounts of $26.6 million (H1 2010:
$23.3 million). The ratio of commercial discounts to gross revenue
in H1 2011 decreased to 5% (H1 2010: 7%).
Net revenue
Net revenue increased by 62% to $496.8 million, comprising
silver revenue of $369.3 million and gold revenue of $127.5
million. In H1 2011, silver accounted for 74% and gold 26% of the
Company's consolidated net revenue compared to 63% and 37%
respectively in H1 2010.
Net revenue by mine
$000 unless Six months to 30 Six months to 30
otherwise indicated June 2011 June 2010 % change
--------------------- --------------------- --------------------- ---------
Net silver revenue
Arcata 108,666 73,411 48
Ares 10,229 7,546 36
Selene - 13 (100)
Pallancata 167,239 93,185 79
San Jose 104,975 37,784 178
Moris 1,132 1,024 11
Commercial discounts (22,984) (18,767) 22
Net silver revenue 369,257 194,196 90
Net gold revenue
Arcata 12,299 15,469 (20)
Ares 21,046 19,490 8
Selene - 2 (100)
Pallancata 24,519 21,355 15
San Jose 57,301 44,264 29
Moris 15,900 16,619 (4)
Commercial discounts (3,587) (4,564) (21)
Net gold revenue 127,478 112,635 13
--------------------- --------------------- --------------------- ---------
Other revenue(1) 33 29 14
--------------------- --------------------- --------------------- ---------
Net revenue 496,768 306,860 62
--------------------- --------------------- --------------------- ---------
(1) Other revenue includes revenue from sale of energy in Peru
and revenue from administrative services in Mexico.
Costs
Total pre-exceptional cost of sales in the first half increased
29% to $195.6 million (H1 2010: $152.0 million) mainly as a result
of the increase in direct production cost of 35% to $146.8 million
(H1 2010: $108.6 million). Direct production cost increased mainly
due to inflation with respect to wages, supplies and energy costs,
particularly in Argentina. In addition, mining royalties increased
as a result of the higher metal prices. Depreciation and
amortisation increased 12% in the period to $48.8 million (H1 2010:
$43.4 million), also contributing to higher cost of sales.
Unit cost per tonne
The Company reported an overall increase in unit cost per tonne
at its main operations of 21% as of June 2011 to $92.0 (June 2010:
$76.3). This increase is mainly explained by higher royalties as
well as overall input cost inflation in the industry.
Unit cost per tonne by operation*:
Unit cost per Unit cost per
Operating unit ($/tonne) tonne H1 2011 tonne H1 2010** % change
--------------------------- ---------------- ------------------ ----------
Main Operations 92.0 76.3 21
--------------------------- ---------------- ------------------ ----------
Peru 66.5 59.6 12
Arcata 76.0 72.3 5
Pallancata 60.3 52.3 15
Argentina 191.3 140.0 37
San Jose 191.3 140.0 37
--------------------------- ---------------- ------------------ ----------
Others 41.7 32.3 29
--------------------------- ---------------- ------------------ ----------
Ares 121.8 104.5 17
Moris 17.8 15.4 16
--------------------------- ---------------- ------------------ ----------
Total Group 71.7 56.5 27
--------------------------- ---------------- ------------------ ----------
*Unit cost per tonne is calculated by dividing mine and geology
costs by extracted tonnage and plant and other costs by treated
tonnage
** As presented at the Full Year 2010, in order to further
increase transparency, the Company has restated its unit cost per
tonne figures to include certain indirect operating expenses
including health, safety and environmental accreditations.
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 half. Silver cash
costs increased from $7.8 to $13.2 per ounce and gold cash costs
increased from $531 to $549 per ounce. The increase in silver cash
costs was explained by higher production costs at all the mines. In
addition, cash costs increased due to higher workers profit share
contributions, higher commercial discounts and increased export
taxes at San Jose, all resulting from higher precious metal prices.
Finally, cash cost was negatively impacted by lower average grades
due to the incorporation of lower grade material at Arcata and
Pallancata.
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 half. By-product cash costs for the period were
$5.6 per silver ounce (H1 2010:$2.2 per silver ounce) and ($2,251)
per gold ounce (H1 2010: ($708) per gold ounce).
Cash cost reconciliation*:
Six months
Six months to to 30 June
$000 30 June 2011 2010 % change
--------------------------- -------------- ------------ ---------
Group Cash Cost 191,063 142,954 34
--------------------------- -------------- ------------ ---------
(+) Cost of sales 195,631 152,017 29
(-) Depreciation in Cost
of Sales (48,842) (43,409) 13
(+) Selling expenses 17,703 11,016 61
(+) Commercial deductions 26,571 23,330 14
Gold 3,587 4,563 (21)
Silver 22,984 18,767 22
--------------------------- -------------- ------------ ---------
Revenue 496,768 306,860 62
--------------------------- -------------- ------------ ---------
Gold 127,478 112,635 13
Silver 369,257 194,196 90
Others 33 29 14
--------------------------- -------------- ------------ ---------
Ounces Sold 10,847 11,674 (7)
--------------------------- -------------- ------------ ---------
Gold 89 99 (10)
Silver 10,758 11,575 (7)
--------------------------- -------------- ------------ ---------
Group Cash Cost ($/oz)
--------------------------- -------------- ------------ ---------
Co product Au 549 531 3
Co product Ag 13.20 7.82 69
By product Au (2,251) (708) 218
By product Ag 5.58 2.23 150
--------------------------- -------------- ------------ ---------
* Cash costs are calculated to include cost of sales, treatment
charges, and selling expenses before exceptional items less
depreciation included in cost of sales.
Cash costs are calculated based on pre-exceptional figures.
Co-product cash cost per ounce is the cash cost allocated to the
primary metal (allocation based on proportion of revenue), divided
by the ounces sold of the primary metal. By-product cash cost per
ounce is the total cash cost minus revenue and commercial discounts
of the by-product divided by the ounces sold of the primary
metal.
Administrative expenses
Administrative expenses before exceptional items increased by 3%
to $30.6 million (June 2010: $29.7 million) primarily explained by
inflation in personnel expenses and higher voluntary contributions
to the Peruvian Government ($0.9 million) resulting from higher
metal prices. In addition, H1 2011 administrative expenses do not
include non-recurring items recorded in H1 2010 in relation to
senior management termination benefits and professional fees.
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 33% to $19.0 million in
2011 (June 2010: $14.3 million).
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. As of June 2011, the Group capitalised $4.9 million
relating to brownfield exploration compared to $6.1 million as of
June 2010 bringing the total investment in exploration for June
2011 to $23.9 million. The previously announced 2011 exploration
budget of $70 million constitutes the total investment in
exploration (greenfield and brownfield).
Furthermore, as part of Hochschild's aim to further develop the
production assets, the 2011 budget for advanced projects and
operations includes an additional $18 million to convert inferred
resources into measured and indicated resources.
Selling expenses
Selling expenses increased to $17.7 million (June 2010: $11.0
million) mainly in Argentina due to higher revenue driven by the
increase in gold and silver prices which triggered higher export
duties. 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 $4.1 million (H1 2010:
$1.9 million). There were no exceptional items related to other
income in H1 2011.
Other expenses before exceptional items reached $2.4 million (H1
2010: $4.0 million). There were no exceptional items related to
other expenses in H1 2011.
Profit from continuing operations
Profit from continuing operations before exceptional items, net
finance costs and income tax increased to $235.6 million (H1 2010:
$97.8 million) as a result of the effects detailed above.
Adjusted EBITDA
Adjusted EBITDA increased by 98% over the period to $297.1
million (H1 2010: $150.1 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.
$000 unless Six months to 30 Six months to 30
otherwise indicated June 2011 June 2010 % change
--------------------- --------------------- --------------------- ---------
Profit from
continuing
operations before
exceptional items,
net finance cost,
foreign exchange
loss and income
tax 235,624 97,762 141
Operating margin 47% 32%
Depreciation and
amortisation in
cost of sales 48,842 43,409 13
Depreciation and
amortisation in
administrative
expenses 952 950 0.21
Exploration expenses 18,992 14,340 32
Personnel and other
exploration related
fixed expenses (7,282) (6,333) (15)
--------------------- --------------------- --------------------- ---------
Adjusted EBITDA 297,128 150,128 98
--------------------- --------------------- --------------------- ---------
Adjusted EBITDA
margin 60% 49%
--------------------- --------------------- --------------------- ---------
Impact of the Group's investments in joint ventures and
associates
Hochschild's pre-exceptional share of the profit/(loss) after
tax of associates totaled $ 2.3 million at 30 June 2011 (30 June
2010: $(1.2) million). In 2011, the Company's share in associates
was explained by profits relating to its holdings in Gold Resource
Corp. In 2010, the Company's share in associates mainly relates to
its investments in Lake Shore Gold and Gold Resource Corp.
Finance income and finance cost
Finance income before exceptional items was similar to that of
last year (June 2011: $3.3 million / June 2010: $3.1 million).
Finance cost before exceptional items equal that of June 2010
($12.1 million)
Foreign exchange losses
The Group recognised a foreign exchange loss of $2.8 million
(June 2010: $0.2 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
35.1% in H1 2011 (H1 2010: 35.8%). In addition, the
post-exceptional effective tax rate decreased to 34.5% (H1 2010:
38.4%).
Exceptional items
Exceptional items in H1 2011 totaled $4.3 million after tax (H1
2010: ($10.1 million). This principally includes:
- The gain on sale of Lake Shore Gold shares amounting to $6.4m
net by the loss on sale of Golden Minerals Co shares of $0.1m.
- The loss arising from the fair value adjustment of the Golden
Minerals Co and Iron Creek warrants of $1.6m and $0.1m
respectively.
- The share of post tax losses of associates of US$0.3m,
relating to the dilution of the Gold Resource Corporation
investment.
Cash flow & balance sheet review:
Cash flow:
Six months to Six months to
$ thousands 30 June 2011 30 June 2010 change
------------------------------ -------------- -------------- ---------
Net cash generated from
operating activities 236,903 112,191 124,712
Net cash used in investing
activities (21,475) (73,886) 52,411
Cash flows used in financing
activities (50,748) (25,096) (25,652)
------------------------------ -------------- -------------- ---------
Net increase in cash and
cash equivalents during
the period 164,680 13,209 151,471
------------------------------ -------------- -------------- ---------
Total cash generated increased from $13.2 million in H1 2010 to
$164.7 million in H1 2011 ($151.5 million difference). Operating
cashflow increased 111% to $236.9 million from $112.2 million in H1
2010 ($124.7 million difference), mainly due to higher metal
prices. Net cash used in investing activities decreased to $(21.5)
million in H1 2011 from $(73.9) million in H1 2010, primarily due
to the reduction in the Company's holding in Lake Shore Gold and
increases in capital expenditure. Finally, cash flows used in
financing activities increased to $(50.7) million from $(25.1)
million, primarily as a result of the prepayment of syndicated loan
($114.3 million), and incremental dividend payments to Hochschild
plc shareholders ($3.4 million) and to joint venture partner in
Pallancata ($10.1 million) versus H1 2010. These effects were
partially offset by short term debt raised at Cia. Minera Ares
($99.0 million).
Working capital:
As at As at
$000 30 June 2011 31 December 2010
------------------------------------------ -------------- ------------------
Trade and other receivables 185,100 182,752
Inventories 53,522 55,130
Net other financial assets (7,088) 18,732
Net Income tax payable (15,247) (10,977)
Trade and other payables incl.provisions (222,255) (246,781)
------------------------------------------ -------------- ------------------
Working Capital (5,968) (1,144)
------------------------------------------ -------------- ------------------
The Company's working capital position decreased to $(6.0)
million in H1 2011 from $(1.1) million in December 2010. This was
primarily explained by a decrease in net other financial assets
($25.8 million) primarily driven by a change in embedded
derivatives and higher net income tax payable ($4.3 million). These
effects were partially offset by lower trade and other payables
($24.5 million).
Net cash:
As at
As at 31 December
$000 unless otherwise indicated 30 June 2011 2010
--------------------------------- -------------- -------------
Cash and cash equivalents 690,818 525,482
Long term borrowings (104,610) (248,380)
Short term borrowings (188,132) (69,272)
--------------------------------- -------------- -------------
Net cash 398,076 207,830
--------------------------------- -------------- -------------
The Company reported net cash of $398.1 million as at 30 June
2011 (FY 2010: $207.8 million). This was primarily driven by the
significant increase in cash and cash equivalents from operating
activities ($236.9 million) although partially offset by cash from
investing activities ($21.5 million) and cash used in financing
activities ($50.7 million). During H1 2011, the Company paid down
its full syndicated loan facility of $114.3 million and drew down
$99.0 million from short term financial credit lines.
The Convertible bond currently outstanding has a conversion
price of GBP3.94 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 share price exceeds 130% of the conversion price
(GBP5.12).
Capital expenditure(1)
Six months
to 30 June Six months to 30 June
$(000) unless otherwise indicated 2011 2010
----------------------------------- ------------ ----------------------
Arcata 12,772 12,997
Ares 1,041 721
Selene 1,261 3,947
Pallancata 22,617 14,641
San Jose 24,504 26,074
Moris 513 1,034
Other(2) 22,698 5,684
----------------------------------- ------------ ----------------------
Total 85,406 65,098
----------------------------------- ------------ ----------------------
(1) Includes additions in property, plant and equipment and
evaluation and exploration assets (confirmation of resources) and
excludes increases in closure of mine assets.
(2) Other capex includes mainly Azuca ($15.9 million),
Inmaculada ($3.8 million), Crespo ($2.4 million)
H1 2011 capital expenditure of $85.4 million (H1 2010: $65.1
million) includes evaluation and exploration of $25.6 million,
conversion of resources into reserves of $15.8 million, development
costs of $18.7 million and investment in fixed assets of $25.3
million.
Dividends:
The directors recommend an interim dividend of $0.03 per
ordinary share which will be paid on 22 September 2011 to those
shareholders appearing on the register on 2 September 2011.
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 31 August
Record date 2 September
Deadline for return of currency election forms 6 September
Payment date 22 September
------------------------------------------------ -------------
BOARD COMPOSITION
The Company announces that Sir Malcolm Field and Dionisio Romero
have informed the Board of their wish to retire as Non-Executive
Directors of the Company at the 2012 AGM after over five years on
the Board.
As part of the Group's succession planning and to ensure the
continued independent presence on the Board, the Company announces
the appointment of Rupert Pennant-Rea as an independent
Non-Executive Director of the Company with effect from 1 September
2011.
Mr Pennant-Rea is Chairman of Henderson Group plc and of the
Economist Group and is a Non-Executive Director of Go-Ahead Group
plc and Gold Fields Limited (South Africa). He was Deputy Governor
of the Bank of England from 1993 to 1995, prior to which he spent
16 years with The Economist, where he was editor from 1986 to 1993.
Rupert serves on the Board of First Quantum Minerals Limited and
has served on the Boards of various companies including British
American Tobacco plc. (1998-2007), Rio Narcea Gold Mines Ltd
(2003-2007), Sherritt International Corporation (1995-2008), Acuity
VCT Plc (2001-2011) and Acuity Growth VCT Plc (2004-2011).
There are no other matters to disclose in respect of Mr
Pennant-Rea in accordance with paragraph 9.6.13R of the FSA's
Listing Rules.
The Board notes the publication of the Davies Review on Women on
Boards earlier in the year and the subsequent consultation of the
Financial Reporting Council on changes to the UK Corporate
Governance Code, which may result in the Code including a
recommendation that companies adopt a policy on boardroom
diversity.
The Board acknowledges the benefits of greater diversity of the
board, not just limited to gender diversity, and will continue to
ensure that candidates for board appointments shall be considered
on merit.
Risks
The principal risks and uncertainties facing the Group in
respect of the year ended 31 December 2010 were set out in detail
in the Risk Management section of the 2010 Annual Report and in
Note 37 to the 2010 Consolidated Financial Statements. These risks
continue to apply to the Group in respect of the remaining six
months of the current financial year.
The key risks disclosed in the 2010 Annual Report were
categorised as:
- Financial risks which include commodity price risk and foreign
currency risk;
- Operational risks including the risks associated with business
interruption, reserve and resource replacement and the retention of
key personnel;
- Macro-Economic Risks which include political, legal and
regulatory risks; and
- Corporate Social Responsibility related risks including health
and safety, environmental and social risks.
The 2010 Annual Report is available at
www.hochschildmining.com
GOING CONCERN
The Directors confirm that they are satisfied that the Company
has sufficient resources to continue in operation for the
foreseeable future. Accordingly, adoption of the going concern
basis in the preparation of the financial statements contained
herein is considered to be appropriate.
RELATED PARTY TRANSACTIONS
Details regarding related party transactions are included in
Note 15.
Statement of Directors' Responsibilities The Directors confirm
that, to the best of their knowledge, the interim condensed
consolidated financial statements have been prepared in accordance
with IAS 34 "Interim Financial Reporting" as adopted by the
European Union and that the interim management report includes a
fair review of the information required by Disclosure and
Transparency Rules 4.2.7 and 4.2.8. A list of current Directors is
maintained on the Company's website which can be found at
www.hochschildmining.com. For and on behalf of the Board
Ignacio Bustamante Chief Executive Officer
22 August 2011
INDEPENDENT REVIEW REPORT TO HOCHSCHILD MINING PLC
Introduction
We have been engaged by Hochschild Mining plc (the Company) to
review the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2011 which
comprises the Interim consolidated income statement, the Interim
consolidated statement of comprehensive income, the Interim
consolidated statement of financial position, the Interim
consolidated statement of cash flows, the Interim consolidated
statement of changes in equity and the related notes 1 to 17. We
have read the other information contained in the half yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Services Authority.
As disclosed in note 2, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2011 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority.
Ernst & Young LLP
London
22 August 2011
Interim consolidated income statement
Six-months ended 30 Six-months ended 30
Notes June 2011 (Unaudited) June 2010 (Unaudited)
----- ------------------------------------ ------------------------------------
Exceptional Exceptional
Before items Before items
exceptional (Note exceptional (Note
items 5) Total items 5) Total
----------- ----------- -------- ----------- ----------- --------
US$ (000)
Continuing
operations
Revenue 4 496,768 - 496,768 306,860 - 306,860
Cost of sales (195,631 ) - (195,631) (152,017) (8,861) (160,878)
----------- ----------- -------- ----------- ----------- --------
Gross profit 301,137 - 301,137 154,843 (8,861) 145,982
Administrative expenses (30,570 ) - (30,570) (29,684) - (29,684)
Exploration expenses (18,992 ) - (18,992) (14,340) - (14,340)
Selling expenses (17,703 ) - (17,703) (11,016) - (11,016)
Other income 4,139 - 4,139 1,932 13,543 15,475
Other expenses (2,387 ) - (2,387) (3,973) - (3,973)
Impairment and
write-off of assets
(net) - - - - (14,702) (14,702)
Profit/(loss) from
continuing operations
before net finance
income/(cost), foreign
exchange gain/(loss)
and income tax 235,624 - 235,624 97,762 (10,020) 87,742
Share of post tax
profit/(losses) of
associates and joint
ventures accounted
under the equity
method 2,337 (324) 2,013 (1,168) (2,021) (3,189)
Finance income 6 3,314 6,254 9,568 3,077 - 3,077
Finance costs 6 (12,190 ) (1,655) (13,845) (12,143) (689) (12,832)
Foreign exchange loss (2,765 ) - (2,765) (180) - (180)
----------- ----------- -------- ----------- ----------- --------
Profit/(loss) from
continuing operations
before income tax 226,320 4,275 230,595 87,348 (12,730) 74,618
Income tax expense 7 (79,538 ) - (79,538) (31,250) 2,600 (28,650)
----------- ----------- -------- ----------- ----------- --------
Profit/(loss) for the
period from continuing
operations 146,782 4,275 151,057 56,098 (10,130) 45,968
Attributable to:
Equity shareholders
of the Company 91,957 4,275 96,232 38,856 (9,616) 29,240
Non-controlling
interests 54,825 - 54,825 17,242 (514) 16,728
----------- ----------- -------- ----------- ----------- --------
146,782 4,275 151,057 56,098 (10,130) 45,968
=========== =========== ======== =========== =========== ========
Basic earnings per
ordinary share from
continuing operations
and for the period
(expressed in U.S.
dollars per share) 0.27 0.02 0.29 0.11 (0.03) 0.08
=========== =========== ======== =========== =========== ========
Diluted earnings per
ordinary share from
continuing operations
and for the period
(expressed in U.S.
dollars per share) 0.27 0.01 0.28 0.11 (0.03) 0.08
=========== =========== ======== =========== =========== ========
Interim consolidated statement of comprehensive income
Six-months ended
Notes 30 June
------ -----------------------------------
2011 (Unaudited) 2010 (Unaudited)
---------------- ----------------
US$ (000)
Profit for the period 151,057 45,968
Other comprehensive income
Exchange differences on translating
foreign operations 1,979 (4,657)
Change in fair value of
available-for-sale financial
assets (18,966) (203)
Recycling of the change in fair
value of available-for-sale
financial assets (7,328) -
Change in fair value of cash flow
hedges taken to equity - (2,444)
Recycling of the change in fair
value of cash flow hedges taken to
equity 1,930 -
Income tax relating to components of
other comprehensive income 3,059 (141)
---------------- ----------------
Other comprehensive (loss) for the
period, net of tax (19,326) (7,445)
---------------- ----------------
Total comprehensive income for the
period 131,731 38,523
---------------- ----------------
Total comprehensive income
attributable to:
Equity shareholders of the Company 76,843 21,795
Non-controlling interests 54,888 16,728
---------------- ----------------
131,731 38,523
================ ================
Interim consolidated statement of financial position
As at 30
June As at 31
2011 December
Notes (Unaudited) 2010
----- ------------ ---------
US$ (000)
ASSETS
Non-current assets
Property, plant and equipment(1) 8 418,372 406,914
Evaluation and exploration assets(1) 9 237,136 212,080
Intangible assets 19,535 20,166
Investments accounted under equity
method 78,009 79,068
Available-for-sale financial assets 10 55,547 153,620
Trade and other receivables 5,766 36,817
Income tax receivable 2,843 2,401
Deferred income tax assets 912 5,229
818,120 916,295
------------ ---------
Current assets
Inventories 53,522 55,130
Trade and other receivables 179,334 145,935
Income tax receivable 841 917
Other financial assets 11 54 20,662
Cash and cash equivalents 12 690,818 525,482
------------ ---------
924,569 748,126
------------ ---------
Total assets 1,742,689 1,664,421
============ =========
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
Treasury shares (898) -
Other reserves (194,633) (175,244)
Retained earnings 614,877 528,788
------------ ---------
973,911 908,109
Non-controlling interests 178,619 147,120
Total equity 1,152,530 1,055,229
------------ ---------
Non-current liabilities
Trade and other payables 8 2,393
Borrowings 13 104,610 248,380
Provisions 87,508 86,443
Deferred income tax liabilities 49,089 28,534
------------ ---------
241,215 365,750
------------ ---------
Current liabilities
Trade and other payables 100,715 116,074
Other financial liabilities 11 7,142 1,930
Borrowings 13 188,132 69,272
Provisions 34,024 41,871
Income tax payable 18,931 14,295
------------ ---------
348,944 243,442
------------ ---------
Total liabilities 590,159 609,192
------------ ---------
Total equity and liabilities 1,742,689 1,664,421
============ =========
(1) 31 December 2010 figures are subject to a reclassification
as disclosed in note 2 (c)
Interim consolidated statement of cash flows
Six-months ended
Notes 30 June
----- -----------------------------------
2011 (Unaudited) 2010 (Unaudited)
---------------- ----------------
US$ (000)
Cash flows from operating
activities
Cash generated from
operations 267,093 129,866
Interest received 12,955 316
Interest paid (17,665) (3,970)
Payments of mine closure
costs (1,878) (1,311)
Income tax (paid)/received (23,602) (12,710)
---------------- ----------------
Net cash generated from
operating activities 236,903 112,191
---------------- ----------------
Cash flows from investing
activities
Purchase of property, plant
and equipment (61,035) (53,175)
Purchase of evaluation and
exploration assets (25,617) (10,070)
Investment in associates - (20,336)
Dividends received from
associates 2,235 -
Acquisition of subsidiary (15,404) -
Purchase of
available-for-sale financial
assets (2,419) (568)
Purchase of intangibles - (35)
Proceeds from sale of
property, plant and
equipment 313 664
Proceeds from sale of
available-for-sale financial
assets 80,452 286
Proceeds from sale of
investment in associate - 9,348
Net cash used in investing
activities (21,475) (73,886)
---------------- ----------------
Cash flows from financing
activities
Proceeds of borrowings 13 107,560 12,611
Repayment of borrowings 13 (124,100) (14,946)
Purchase of treasury shares (898) -
Dividends paid 14 (36,226) (22,761)
Capital contribution from
non-controlling interest 2,916 -
Cash flows used in financing
activities (50,748) (25,096)
---------------- ----------------
Net increase in cash and cash
equivalents during the
period 164,680 13,209
Exchange difference 656 (64)
Cash and cash equivalents at
beginning of period 525,482 77,844
---------------- ----------------
Cash and cash equivalents at
end of period 12 690,818 90,989
================ ================
Interim consolidated statement of changes in equity
Other reserves
-----------------------------------------------------------------------------
Capital and
reserves
Unrealised attributable
Unrealised gain/(loss) to
Equity gain/(loss) on on cash Bond Cumulative Total shareholders
share Share Treasury available-for-sale flow equity translation Merger other Retained of the Non-controlling Total
Notes capital premium Shares financial assets hedges component adjustment reserve reserves earnings Parent interests Equity
US$(000)
Balance at 1
January 2011 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
------- ------- -------- ------------------ ----------- --------- ----------- --------- --------- -------- ------------ --------------- ---------
Other comprehensive
(loss)/income - - (23,235) 1,930 - 1,916 - (19,389) - (19,389) 63 (19,326)
Profit for the
period - - - - - - - - 96,232 96,232 54,825 151,057
-------- ------------------ ---------
Total comprehensive
(loss)/income for
the period - - - (23,235) 1,930 - 1,916 - (19,389) 96,232 76,843 54,888 131,731
Capital
contribution from
non-controlling
interest - - - - - - - - - - - 2,694 2,694
Treasury shares - - (898) - - - - - - - (898) - (898)
Dividends paid to
non-controlling
interests 14 - - - - - - - - - - (26,083) (26,083)
Dividends 14 - - - - - - - - (10,143) (10,143) - (10,143)
------- ------- -------- ------------------ ----------- --------- ----------- --------- --------- -------- ------------ --------------- ---------
Balance at 30 June
2011 158,637 395,928 (898) 14,573 - 8,432 (7,592) (210,046) (194,633) 614,877 973,911 178,619 1,152,530
======= ======= ======== ================== =========== ========= =========== ========= ========= ======== ============ =============== =========
Balance at 1
January 2010 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
(loss)/income - - - (344) (2,444) - (4,657) - (7,445) - (7,445) - (7,445)
Profit for the
period - - - - - - - - - 29,240 29,240 16,728 45,968
-------- ------------------ ---------
Total comprehensive
(loss)/income for
the period - - - (344) (2,444) - (4,657) - (7,445) 29,240 21,795 16,728 38,523
Dividends paid to
non-controlling
interests 14 - - - - - - - - - - - (16,000) (16,000)
Dividends 14 - - - - - - - - - (6,761) (6,761) - (6,761)
-------- ------------------ ---------
Balance at 30 June
2010 158,637 395,928 - 2,995 (2,457) 8,432 (19,290) (210,046) (220,366) 408,179 742,378 76,854 819,232
======= ======= ======== ================== =========== ========= =========== ========= ========= ======== ============ =============== =========
Notes to the interim consolidated financial statements
1 Corporate Information
Hochschild Mining plc (hereinafter the "Company") is a public
limited company incorporated on 11 April 2006 under the Companies
Act 1985 as a limited company and registered in England and Wales
with registered number 05777693. The Company's registered office is
located at 46 Albemarle Street, London W1S 4JL, United Kingdom. Its
ordinary shares are traded on the London Stock Exchange.
The Group's principal business is the mining, processing and
sale of silver and gold. The Group has three operating mines: Ares,
Arcata, Pallancata, and a plant, Selene, which treats ore from the
Pallancata mine, all of which are located in Southern Peru; one
operating mine, San Jose, located in Argentina; and one operating
mine, Moris, located in Mexico. The Group also has a portfolio of
projects located across Peru, Argentina, Mexico and Chile at
various stages of exploration, evaluation and development.
These interim consolidated financial statements were approved
for issue on behalf of the Board of Directors on 22 August
2011.
2 Significant Accounting Policies
(a) Basis of preparation
These interim condensed consolidated financial statements set
out the Group's financial position as at 30 June 2011 and 31
December 2010 and its financial performance and cash flows for the
periods ended 30 June 2011 and 30 June 2010.
They have been prepared in accordance with IAS 34 Interim
Financial Reporting in accordance with International Financial
Reporting Standards ('IFRS') as adopted by the European Union.
Accordingly, the interim condensed consolidated financial
statements do not include all the information required for full
annual financial statements and therefore, should be read in
conjunction with the Group's 2010 annual consolidated financial
statements as published in the 2010 Annual Report.
The interim condensed consolidated financial statements do not
constitute statutory accounts as defined in the Companies Act 2006.
The financial information for the full year is based on the
statutory accounts for the financial year ended 31 December 2010. A
copy of the statutory accounts for that year, which were prepared
in accordance with International Financial Reporting Standards
('IFRS') as adopted by the European Union has been delivered to the
Registrar of Companies. The auditors' report under section 495 of
the Companies Act 2006 in relation to those accounts was
unqualified and did not include a reference to any matters to which
the auditors drew attention by way of emphasis without qualifying
the report and did not contain a statement under s498(2) or s498(3)
of the Companies Act 2006.
The impact of the seasonality or cyclicality of operations is
not regarded as significant on the interim condensed consolidated
financial statements.
The interim condensed consolidated financial statements have
been prepared on a historical cost basis except for derivatives and
available-for-sale financial instruments which have been measured
at fair value. The financial statements are presented in US dollars
($) and all monetary amounts are rounded to the nearest thousand
($000) except when otherwise indicated.
(b) Changes in accounting policies and disclosures
The accounting policies adopted in the preparation of the
interim condensed consolidated financial statements are consistent
with those applied in the preparation of the consolidated financial
statement for the year ended 31 December 2010, except for the
adoption of the following standards and interpretations:
-- IAS 24 "Related Party Transactions (Amendment)", applicable
for annual periods beginning on or after 1 January 2011.
The IASB has issued an amendment to IAS 24 that clarifies the
definitions of a related party. The new definitions emphasise a
symmetrical view of related party relationships as well as
clarifying in which circumstances persons and key management
personnel affect related party relationships of an entity.
Secondly, the amendment introduces an exemption from the general
related party disclosure requirements for transactions with a
government and entities that are controlled, jointly controlled or
significantly influenced by the same government as the reporting
entity. The adoption of the amendment did not have any impact on
the financial position or performance of the Group.
-- IAS 32 "Financial Instruments: Presentation - Classification
of Rights Issues", applicable for annual periods beginning on or
after 1 February 2010.
The amendment changed the definition of a financial liability in
order to classify rights issues (and certain options or warrants)
as equity instruments in cases where such rights are given pro rata
to all of the existing owners of the same class of an entity's
non-derivative equity instruments, or to acquire a fixed number of
the entity's own equity instruments for a fixed amount in any
currency. This amendment did not have impact on the Group after
initial application.
-- IFRIC 14 "Prepayments of a minimum funding requirement
(Amendment)", applicable for annual periods beginning on or after 1
January 2011.
The amendment provides guidance on assessing the recoverable
amount of a net pension asset. The amendment permits an entity to
treat the prepayment of a minimum funding requirement as an asset.
The amendment did not have impact on the financial statements of
the Group.
-- IFRIC 19 "Extinguishing Financial Liabilities with Equity
Instruments", applicable for annual periods beginning on or after 1
July 2010.
The interpretation clarifies that equity instruments issued to a
creditor to extinguish a financial liability qualify as
consideration paid. The equity instruments issued are measured at
their fair value. In case this cannot be reliably measured, they
are measured at the fair value of the liability extinguished. Any
gain or loss is recognised immediately in profit or loss. The
adoption of this interpretation did not have effect on the
financial statements of the Group.
-- "Improvements to IFRSs (issued in May 2010)", applicable for
annual periods beginning on or after 1 July 2010 or 1 January
2011.
The IASB issued Improvements to IFRSs, an omnibus of amendments
to its IFRS standards including IFRS 3 Business Combinations, IFRS
7 Financial Instruments - Disclosures, IAS1 Presentation of
Financial Statements and IAS 34 Interim Financial Statements. The
adoption of these amendments resulted in the following changes to
accounting policies, but did not have any impact on the financial
position or performance of the Group:
-- IFRS 3 Business Combinations: The measurement options
available for non-controlling interest (NCI) have been amended.
Only components of NCI that constitute a present ownership interest
that entitles their holder to a proportionate share of the entity's
net assets in the event of liquidation shall be measured at either
fair value or at the present ownership instruments proportionate
share of the acquiree's identifiable net assets. All other
components are to be measured at their acquisition date fair
value.
-- IFRS 7 Financial Instruments Disclosures: The amendment was
intended to simplify the disclosures provided by reducing the
volume of disclosures around collateral held and improving
disclosures by requiring qualitative information to put the
quantitative information in context.
-- IAS 1 Presentation of Financial Statements: The amendment
clarifies that an option to present an analysis of each component
of other comprehensive income may be included either in the
statement of changes in equity or in the notes to the financial
statements.
-- IAS 34 Interim Financial Statements: The amendment requires
additional disclosures for fair values and changes in
classification of financial assets, as well as changes to
contingent assets and liabilities in interim condensed financial
statements.
The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet
effective.
(c) Comparatives
Where applicable, comparatives have been reclassified on the
same basis as current period figures. This includes the
reclassification of the costs associated with the Crespo project
which were previously classified as Mining properties and
development costs. Given the stage of the project, the capitalized
costs of US$50,269,000 have been reclassified to Evaluation and
exploration assets. The reclassification has been made in the 2010
financial statements, to ensure comparability of the two balance
sheets presented.
3 Segment Reporting
The following tables present revenue, profit and asset
information for the Group's operating segments for the six months
ended 30 June 2011 and 2010 respectively:
Six-months Adjustments
ended San and
30 June Ares Arcata Pallancata Jose Moris Exploration Other eliminations Total
2011 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000
-------------- ------ ------- ---------- ------- ------ ----------- ------- ------------ ---------
Revenue
from external
customers 31,274 110,240 182,199 155,990 17,032 - 33 - 496,768
Inter
segment
revenue - - - - - - 3,588 (3,588) -
Total
revenue 31,274 110,240 182,199 155,990 17,032 - 3,621 (3,588) 496,768
------ ------- ---------- ------- ------ ----------- ------- ------------ ---------
Segment
profit/(loss) 9,497 69,051 123,083 79,555 3,081 (19,439) 3,119 (3,505) 264,442
Others(1) (33,847)
---------
Profit/(loss)
from
continuing
operations
before income
tax 230,595
---------
Assets
Capital
expenditure 1,041 12,772 23,878 24,504 513 22,170 528 - 85,406
Current
assets 3,990 24,089 64,509 57,897 4,974 183 2,500 - 158,142
Other
non-current
assets 10,293 90,742 129,994 216,088 445 221,070 6,297 - 674,929
------ ------- ---------- ------- ------ ----------- ------- ------------ ---------
Total
segment
assets 14,283 114,831 194,503 273,985 5,419 221,253 8,797 - 833,071
Not reportable
assets(2) - - - - - - 909,618 - 909,618
------ ------- ---------- ------- ------ ----------- ------- ------------ ---------
Total
assets 14,283 114,831 194,503 273,985 5,419 221,253 918,415 - 1,742,689
------ ------- ---------- ------- ------ ----------- ------- ------------ ---------
(1) Comprised of administrative expenses of US$30,570,000, other
income of US$4,139,000, other expenses of US$2,387,000, share of
profit of associates and joint ventures of US$2,013,000, finance
income of US$9,568,000, finance costs of US$13,845,000, and foreign
exchange loss of US$2,765,000.
(2) Not reportable assets are comprised of intangibles of
US$114,000, investments accounted under the equity method of
US$78,009,000, available-for-sale financial assets of
US$55,547,000, other receivables of US$80,480,000, income tax
receivable of US$3,684,000, deferred income tax assets of
US$912,000, other financial assets of US$54,000, and cash and cash
equivalents of US$690,818,000.
Six-months Adjustments
ended San and
30 June Ares Arcata Pallancata Jose Moris Exploration Other eliminations Total
2010 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000
-------------- ------ ------- ---------- ------- ------ ----------- ------- ------------ ---------
Revenue
from external
customers 27,035 77,473 107,441 77,225 17,643 - 43 - 306,860
Inter
segment
revenue - - - - - - 3,384 (3,384) -
Total
revenue 27,035 77,473 107,441 77,225 17,643 - 3,427 (3,384) 306,860
------ ------- ---------- ------- ------ ----------- ------- ------------ ---------
Segment
profit/(loss) 7,638 41,014 57,875 22,357 4,698 (16,152) 1,981 1,215 120,626
Others(1) (46,008)
---------
Profit/(loss)
from
continuing
operations
before income
tax 74,618
---------
Year ended
31 December
2010
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 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(2) - - - - - - 880,877 - 880,877
------ ------- ---------- ------- ------ ----------- ------- ------------ ---------
Total
assets 14,331 103,917 197,837 249,749 8,723 194,122 895,742 - 1,664,421
------ ------- ---------- ------- ------ ----------- ------- ------------ ---------
(1) Comprised of administrative expenses of US$29,684,000, other
income of US$15,475,000, other expenses of US$3,973,000, impairment
of assets of US$14,702,000, share of losses of associates and joint
ventures of US$3,189,000, finance income of US$3,077,000, finance
costs of US$12,832,000 and foreign exchange loss of US$180,000.
(2) 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$525,482,000.
4 Revenue
Six-months ended
30 June
----------------------------------
2011 (Unaudited) 2010 (Unaudited)
---------------- ----------------
US$(000)
Gold (from dore bars) 68,437 58,419
Silver (from dore bars) 78,274 36,226
Gold (from concentrate) 59,041 54,216
Silver (from concentrate) 290,983 157,970
Services 33 29
496,768 306,860
================ ================
The total net volume of gold and silver sold were as
follows:
Six-months ended
30 June
----------------------------------
2011 (Unaudited) 2010 (Unaudited)
---------------- ----------------
(in thousands of
ounces)
Gold 88 97
Silver 10,443 11,203
5 Exceptional items
Exceptional items in the six months ended 30 June 2011 relate
to:
a) Loss from dilution of US$324,000 generated by the Group's
investment in Gold Resource Corp.
b) The overall gain on the sale of the holding of shares in Lake
Shore Gold Corporation ("Lake Shore Gold") amounting to
US$6,385,878 net of the loss on the sale of Golden Minerals Company
shares of US$132,155.
c) The losses arising from the fair value adjustments in
relation to the Golden Minerals Company warrants and Iron Creek
warrants of US$1,563,200 and US$113,116 respectively.
Exceptional items in the six months ended 30 June 2010 relate
to:
a) The bonuses paid to the workers at the Peruvian mines in
March 2010 following negotiations with the unions in relation to
the 2009 financial year, amounting to US$8,861,000. The Group now
believes that a constructive obligation has been created for these
bonuses, and future bonuses will be accrued each year and recorded
as a pre-exceptional item.
b) The gain of US$6,010,000 generated on 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 Company at a price per share of
US$15.
c) The gain of US$7,533,000 generated by the sale of the Group's
interest in Zincore Metals Inc. to Inversiones Pacasmayo S.A., a
related party of the Group.
d) The impairment of US$ 14,702,000 with respect to the San
Felipe project, located in Mexico.
e) The loss arising from the dilution of the Group's interest in
Lake Shore Gold of US$2,021,000.
f) The loss from changes in the fair value of financial
instruments of US$689,000, mainly related to the adjustment of
warrants of Golden Minerals Company.
g) Deferred tax credits in respect of the above items totalling
$2,600,000.
6 Finance income and finance cost before exceptional items
The Group recognised the following finance income and finance
cost before exceptional items:
Six-months ended
30 June
----------------------------------
2011
(Unaudited) 2010 (Unaudited)
--------------- ----------------
US$(000)
Finance income:
Interests on time deposits 1,564 88
Gain from changes in the fair value
of derivative instruments(1) - 826
Interest on loans to minority
shareholders 1,683 1,297
Interest on loans to third parties 32 -
Change in discount rate 26 440
Gain on exchange of
available-for-sale financial assets - 211
Others 9 215
--------------- -----------------
3,314 3,077
--------------- -----------------
Finance cost:
Interest on bank loans and long-term
debt (4,415) (5,760)
Interest on convertible bond (4,324) (4,235)
Unwind of discount rate (583) (354)
Loss from changes in the fair value
of derivative instruments(2) (1,810) (1,133)
Others (1,058) (661)
(12,190) (12,143)
=============== =================
1 This amount represents the gain arising from changes in the
fair value of the zero cost collar contracts signed by Cia. Minera
Ares S.A.C. during 2009. The contracts expired in December
2010.
2 Represents the loss of US$1,810,000 (2010: US$1,133,000)
arising from the two swap contracts signed with BBVA and Citibank
to fix the interest rate of the JP Morgan led syndicated loan at
1.75% that was accounted for as a fair value hedge. These contracts
were cancelled in January 2011 when the syndicated loan was
repaid.
7 Income tax expense
Six-months ended
30 June
----------------------------------
2011 (Unaudited) 2010 (Unaudited)
---------------- ----------------
US$(000)
Current income tax expense 46,855 18,286
Deferred income tax relating to
origination and reversal of temporary
differences 28,104 10,091
Withholding taxes 4,579 273
Total taxation charge in the income
statement 79,538 28,650
================ ================
The tax related to items charged or credited to equity is as
follows:
Six-months ended
30 June
-----------------------------------
2011 (Unaudited) 2010 (Unaudited)
---------------- ----------------
US$(000)
Deferred income tax relating to
origination and reversal of temporary
differences (3,059) 141
Total taxation (credit)/charge in the
statement of comprehensive income (3,059) 141
================ ================
8 Property, plant and equipment
During the six months ended 30 June 2011, the Group acquired
assets with a cost of US$59,789,000 (2010: US$126,358,000). The
additions for the period ended 30 June 2011 relate to:
(i) US$34,506,000 of mining properties and development additions
which include US$15,640,000 at San Jose, US$10,484,000 at
Pallancata and US$7,947,000 at Arcata.
(ii) US$25,283,000 of other property, plant and equipment
additions which include US$10,480,000 at Pallancata, US$6,841,000
at San Jose and US$2,989,000 at Arcata.
Assets with a net book value of US$277,000 were disposed of by
the Group during the six month period ended 30 June 2011 (2010:
US$925,000), resulting in a net gain on disposal of US$36,000
(2010: loss of US$93,000).
For the six months ended 30 June 2011, the depreciation charge
on property, plant and equipment was US$48,513,000 (2010:
US$102,446,000).
9 Evaluation and exploration assets
During the six months ended 30 June 2011, the Group acquired
evaluation and explorations assets with a cost of US$25,617,000
(2010: US$122,764,000). The additions mainly corresponded to:
(i) US$14,625,000 with respect to the Azuca project
(ii) US$3,176,000 with respect to the Inmaculada project
(iii) US$1,998,000 with respect to the Crespo project
During the six months ended 30 June 2010, the Group impaired the
San Felipe property by US$14,702,000. The impairment was triggered
by the conclusion of the marketing process conducted during this
year and reflects the Company's estimate of the fair value less
cost to sell.
10 Available-for-sale financial assets
As at 30
June As at
2011 31 December
(Unaudited) 2010
------------ ------------
US$(000)
Opening balance 153,620 19,181
Additions(1) 2,419 25,786
Increase in value of available-for-sale
financial assets due to merger of companies - 4
Fair value change recorded in equity (18,966) 47,573
Disposals(2) (81,526) (11,924)
Reclassification from investments accounted
under equity method - 73,000
------------ ------------
Closing balance(3) 55,547 153,620
============ ============
1 The amount represents the fair value of shares at the date of
acquisition and includes the purchase of shares of Golden Minerals
Company.
2 Corresponds to the sale of 21,540,992 shares of Lake Shore
Gold Corp. and 51,898 shares of Golden Minerals Company.
3 As at 30 June 2011, the amount mainly represents the fair
value of shares of International Minerals (US$29,750,000), Pembrook
Mining Corp. (US$14,160,000), Mariana Resources Ltd.
(US$3,930,000), Northern Superior Resources Inc. (US$3,128,000),
and Mirasol Resources Ltd. (US$2,229,000).
11 Other financial assets and liabilities
As at 30
June As at
2011 31 December
(Unaudited) 2010
------------ ------------
US$ (000)
Other financial assets
Embedded derivatives(1) - 16,512
Warrants in Golden Minerals Company - 3,982
Warrants on Iron Creek Capital Corp. 54 168
------------ ------------
Other financial assets 54 20,662
============ ============
Other financial liabilities
Embedded derivatives(1) 7,142 -
Swap contracts - 1,930
------------ ------------
Other financial liabilities 7,142 1,930
============ ============
1 Sales of concentrate and certain gold and silver volumes are
provisionally priced at the time the sale is recorded. The price is
then adjusted after an agreed period of time usually linked to the
length of time it takes for the smelter to refine and sell the
concentrate or for the refiner to process the dore into gold and
silver, with the Group either paying or receiving the difference
between the provisional price and the final price. At 30 June 2011
the provisional price adjustment resulted in a liability due to the
decrease of forward prices of gold and silver (At 31 December 2010
it resulted in an asset due to the increase of forward prices of
gold and silver).
12 Cash and cash equivalents
As at 30
June As at
2011 31 December
(Unaudited) 2010
============ ============
US$ (000)
==========================
Cash at bank 438 694
============ ============
Liquidity funds(1) 218,238 424,049
============ ============
Current demand deposit accounts(2) 30,038 44,346
============ ============
Time deposits(3) 442,104 56,393
============ ============
Cash and cash equivalents 690,818 525,482
============ ============
1 The liquidity funds are mainly invested in certificate of
deposits, commercial papers and floating rate notes with a weighted
average annual effective interest rate of 0.10% and a weighted
average maturity of 8 days as at 30 June 2011 (0.26% and 33 to 56
days as at 31 December 2010).
2 Relates to bank accounts which are readily accessible to the
Group and bear an interest average of 1% (0.03% and 1.1% as at 31
December 2010).
3 The effective interest rate as at 30 June 2011 was 2.51% (as
at 31 December 2010: 1.95%). These deposits have a maturity of 1 to
180 days (as at 31 December 2010: 1 to 30 days).
13 Borrowings
The movement of borrowings during the period to 30 June 2011 is
as follows:
As at 1
January As at 30
2011 Additions Repayments Reclassifications June 2011
--------- ---------- ----------- ------------------ -----------
US$ (000)
Current
Secured bank (121,428)
loans 53,030 105,387 (1) 84,742 121,731(2)
Amounts due to
non-controlling
interest(3) 11,074 2,310 (12,205) 59,028 60,207
Convertible
bond payable 5,145 4,324 (3,307) - 6,162
Amounts due
to related
parties 23 3,127 (3,118) - 32
69,272 115,148 (140,058) 143,770 188,132
Non-current
Secured bank
loans 85,525 - - (84,742) 783
Amounts due to
non-controlling
interest(3) 59,028 - - (59,028) -
Convertible
bond payable 103,827 - - - 103,827
248,380 - - (143,770) 104,610
--------- ---------- ----------- ------------------ -----------
Accrued
Interest: (22,268) (7,588) 15,958 - (13,898)
Net of accrued
interest 295,384 107,560 (124,100) - 284,857
========= ========== =========== ================== ===========
1 Mainly relates to the repayment, in January 2011, of the loan
facility with a syndicate of lenders with JP Morgan Chase Bank
N.A., acting as the administrative agent. The balance as at 31
December 2010 comprised of the secured term loan facility of:
US$114,320,000 plus accrued interest of US$2,393,000 and net of
transaction costs of US$3,235,000. The obligation accrued an
effective interest rate of LIBOR + 1% and was guaranteed by all the
equity share capital, free and clear of any liens, of Compania
Minera Ares S.A.C. During 2010 the Group had a swap contract with
BBVA and Citibank to fix the interest rate of the loan at
1.75%.
2 Mainly relates to pre-shipment loans for a total amount of
US$99,000,000 advanced to Compania Minera Ares S.A.C. and
US$20,000,000 advanced to Minera Santa Cruz S.A. (at 31 December
2010: Nil and US$20,000,000 respectively). These obligations accrue
an effective annual interest rate ranging from 1.40% to 3.60% and
are guaranteed by the inventories and the trade receivables of the
Company (at 31 December 2010: 1.60% to 2.40%). Pre-shipment loans
are credit lines given by banks to meet payment obligations arising
from the exports of the Group.
3 The balance as at 30 June 2011 mainly relates to loans from
Minera Andes Inc. to Minera Santa Cruz S.A. for an amount of
US$54,016,000 (2010: US$64,070,000) which bears interest at a rate
of 7% (2010: 7%). There is an additional loan of US$5,858,000
advanced to Minera Santa Cruz S.A. by Minera Andes S.A. (2010:
US$6,032,000) which bears interest at a rate of 7% (2010: 7%).
14 Dividends paid and proposed
Six months ended 30 June
2011 2010
------------ ------------
US$(000)
Declared and paid during the period:
Equity dividends on ordinary shares:
Final dividend for 2010: US$0.03 (2009: US$0.02) 10,143 6,761
Dividends paid to non-controlling interest:
US$0.32 (2009: US$0.48) 26,083 16,000
Dividends paid 36,226 22,761
------------ ------------
Proposed for approval by shareholders at the AGM:
First interim dividend for 2011: US$0.03 (2010:
US$0.02) 10,143 6,762
------------ ------------
A dividend in respect of the year ended 31 December 2010 of
US$0.030 per share, amounting to a total dividend of US$10,142,557,
was approved by shareholders at the Annual General Meeting held on
2 June 2011. An interim dividend of US$0.03 per share in respect of
the year ending 31 December 2011 has been declared by the Directors
of the Company which will be paid to shareholders on 22 September
2011 to those shareholders appearing on the register on 2 September
2011. These financial statements do not reflect this dividend
payable.
15 Related party transactions
During the period, in addition to the normal arrangements the
Group has with its related parties, the Group recognised a dividend
income from its associate, Gold Resource Corporation of
US$3,071,643 (30 June 2010: Nil). At 30 June 2011 the dividend
receivable from Gold Resource Corporation amounted to US$837,000
(31 December 2010: US$1,290,000).
16 Commitments
a) Mining rights purchase options
During the ordinary course of business, the Group enters into
agreements to carry out exploration under concessions held by third
parties. Generally, under the terms of these agreements, the Group
has the option to acquire the concession or invest in the entity
holding the concession. In order to exercise the option the Group
must satisfy certain financial and other obligations over the
agreement term. The option lapses in the event that the Group does
not meet the financial requirements. At any point in time, the
Group may cancel the agreements without penalty, except in certain
specific circumstances.
The Group continually reviews its requirements under the
agreements and determines on an annual basis whether to proceed
with the financial commitment. Based on management's current
intention regarding these projects, the commitments at the balance
sheet date are as follows:
As at As at
30 June 31 December
2011 2010
---------- ------------
US$ (000)
Less than one year 1,893 1,208
Later than one year 9,710 5,760
b) Capital commitments
The future capital commitments of the Group are as follows:
As at As at
30 June 31 December
2011 2010
---------- ------------
US$ (000)
Peru 35,660 39,490
Argentina 414 6,200
Mexico - 34
--------- ------------
36,074 45,724
--------- ------------
17 Subsequent events
On 3 August 2011 a definitive Exploration and Option Agreement
was signed between Minera Hochschild Mexico SA de CV ("MHM") with
Impulsora Mexicana Santa Cruz S.A. de C.V. ("IMSC"), a
privately-owned Mexican mining company.
The key terms of the agreement are:
-- MHM grants IMSC the right to explore the San Felipe
properties and an option to acquire 100% of the San Felipe project
for US$45,000,000. The option will remain valid until 15 November
2012, at which time full payment will be due.
-- As consideration for the option, MHM will receive
US$1,000,000 payment upon signature of the definitive agreement and
a second payment of $1,000,000 by 15 December 2011. These two
payments will be applied to the US$ 45,000,000 payment if IMSC
exercises the option to acquire the project.
-- IMSC will invest US$3,000,000 in exploration between the
closing date and 15 December 2012 and will be responsible for
making a payment of US$280,000 to the surface owners of the project
in January 2012.
-- If IMSC does not exercise the option, MHM can terminate the
agreement and keep (at no cost) the results of the exploration work
conducted on the properties.
-- MHM will maintain an option to keep the El Gachi property, if
Hochschild decides to keep El Gachi, the consideration to be paid
by IMSC will be reduced by US$5,000,000.
Profit by operation(1)
(Segment report reconciliation) as at 30 June 2011
Consolidation
Company (US$ 000) Ares Arcata Pallancata San Jose Moris adjustment Total/HOC
--------------------- -------- -------- ---------- -------- -------- ------------- ---------
Revenue 31,274 110,240 182,199 155,990 17,032 33 496,768
Cost of sales (Pre
consolidation) (21,744) (39,859) (57,156) (62,037) (13,951) (884) (195,631)
--------------------- -------- -------- ---------- -------- -------- ------------- ---------
Consolidation
adjustment 41 206 1,245 (80) (528) (884) -
Cost of sales (Post
consolidation) (21,785) (40,065) (58,401) (61,957) (13,423) - (195,631)
Production cost w/o
depreciation (18,531) (23,971) (28,507) (39,875) (9,677) - (120,561)
Depreciation in
production cost (367) (11,316) (16,780) (17,301) (1,466) - (47,230)
Other items (3,349) (4,584) (10,590) (3,635) - - (22,158)
Change in inventories 462 (194) (2,524) (1,146) (2,280) - (5,682)
--------------------- -------- -------- ---------- -------- -------- ------------- ---------
Gross profit 9,530 70,381 125,043 93,953 3,081 (851) 301,137
--------------------- -------- -------- ---------- -------- -------- ------------- ---------
Administrative
expenses - - - - - (30,570) (30,570)
Exploration expenses - - - - - (18,992) (18,992)
Selling expenses (33) (1,330) (1,960) (14,398) - 18 (17,703)
Other income/expenses - - - - - 1,752 1,752
--------------------- -------- -------- ---------- -------- -------- ------------- ---------
Operating profit
before impairment 9,497 69,051 123,083 79,555 3,081 (48,643) 235,624
--------------------- -------- -------- ---------- -------- -------- ------------- ---------
Impairment of assets - - - - - - -
Investments under
equity method - - - - - 2,013 2,013
Finance income - - - - - 9,568 9,568
Finance costs - - - - - (13,845) (13,845)
FX gain/(loss) - - - - - (2,765) (2,765)
--------------------- -------- -------- ---------- -------- -------- ------------- ---------
Profit/(loss) from
continuing
operations before
income tax(2) 9,497 69,051 123,083 79,555 3,081 (53,672) 230,595
--------------------- -------- -------- ---------- -------- -------- ------------- ---------
Income tax (79,538) (79,538)
--------------------- -------- -------- ---------- -------- -------- ------------- ---------
Profit/(loss) for the
year from continuing
operations 9,497 69,051 123,083 79,555 3,081 (133,210) 151,057
--------------------- -------- -------- ---------- -------- -------- ------------- ---------
1 On a post exceptional basis.
2 Hochschild profit before income tax reflected in 2011 half
year report.
SHAREHOLDER INFORMATION
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
Enquiries concerning shareholdings, dividends and changes in
personal details should be referred to the Company's registrars,
Capita as detailed below.
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-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 6 September 2011 in respect of the 2011 interim
dividend.
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 in respect of the 2011 interim dividend,
a dividend mandate form, also available from the Company's
registrars, should be completed and returned to the registrars by 6
September 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 the London office by
writing to the registered office (given below) or by telephone on
020 7907 2930 or by email to info@hocplc.com.
Financial Calendar
Dividend dates 2011
------------------------------------------------ -------------
Ex-dividend date 31 August
Record date 2 September
Deadline for return of currency election forms 6 September
Payment date 22 September
------------------------------------------------ -------------
Hochschild Mining plc
46 Albemarle Street
London
W1S 4JL
Registered in England and Wales with Company Number 5777693
1 On a pre-exceptional basis
2 Restated
3Restated
This information is provided by RNS
The company news service from the London Stock Exchange
END
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