TIDMHOC
RNS Number : 6524Z
Hochschild Mining PLC
20 March 2012
20 March 2012
Hochschild Mining plc
Preliminary Results for the twelve months ended 31 December
2011
Financial highlights(1)
-- Record revenue and profit
o Revenue of $987.7 million, up 31%
o Adjusted EBITDA of $563.4 million, up 42%
o Attributable profit after tax of $165.9 million, up 75%
o EPS of $0.49, up 75%
-- Strong financial position with a year end cash balance of
$627.5 million
-- Minority investments valued at $353 million(2)
-- Proposed final dividend of $0.03 per share, bringing the
total dividend for 2011 to $0.06 per share, up 20%
Operational highlights
-- Full year production of 22.6 million attributable silver
equivalent ounces in line with target
-- Exploration strategy delivering positive results:
o Resource life of main operations up 11% to 9.7 years
o Total resources up 17% to 535 million silver equivalent
ounces(3)
o Positive feasibility studies delivered on Inmaculada and
Crespo; potential to add production of 10 million attributable
silver equivalent ounces per year
o Further expansion of project pipeline: 13 'Company Maker' and
13 'Medium Scale' prospects spread across Peru, Argentina, Chile
and Mexico(4)
-- 2012 production target of 20.0 million attributable silver
equivalent ounces
-- Record $90 million exploration budget for 2012
$000, pre-exceptional unless stated Year ended Year ended % change
31 Dec 2011 31 Dec 2010
------------------------------------------------------ ------------- ------------- ---------
Attributable silver production (koz) 14,980 17,768 (16)
Attributable gold production (koz) 127 144 (12)
Net Revenue(*) 987,662 752,322 31
Adjusted EBITDA(**) 563,403 397,731 42
Profit from continuing operations 268,919 158,830 69
Profit from continuing operations (post exceptional) 272,338 216,665 26
Earnings per share ($) 0.49 0.28 75
Earnings per share ($ post-exceptional) 0.50 0.46 9
------------------------------------------------------ ------------- ------------- ---------
* Revenue presented in the financial statements is disclosed as
net revenue (in the Financial Review it is calculated as gross
revenue less commercial discounts).
** Adjusted EBITDA is calculated as profit from continuing
operations before net finance income/(cost), foreign exchange loss
and income tax plus depreciation and exploration expenses other
than personnel and other exploration related fixed expenses.
Commenting on the results, Ignacio Bustamante, CEO, said:
"I am pleased to report another year of strong financial and
operational results in 2011. Not only did we meet our full year
production target, but we also continued to make good progress on
our organic growth strategy. Our successful drilling programme in
2011 resulted in an 11% increase in the resource life of our main
operations to almost 10 years, as well as a further expansion of
our project pipeline which now includes thirteen Company Makers. We
also made excellent progress at our Advanced Projects and recently
announced the results of the feasibility studies on Inmaculada and
Crespo which have the potential to increase our annual production
by 50%, with the commissioning of both projects set for the end of
2013. We also reported significant geological upside at both
projects and are continuing work to expand their mineable resource
base.
We have delivered record financial results with EBITDA at $563.4
million, an increase of 42% compared to 2010, and pre-exceptional
earnings per share at $0.49, up 75%. The Board has significantly
increased the exploration budget for 2012 and proposed a final
dividend of $0.03 per share, bringing the total dividend for the
year to $0.06 per share an increase of 20% and reflecting our
confidence in the Group's consistent operational performance,
comprehensive exploration programme as well as our strong cash
position."
1 On a pre-exceptional basis
2 Market value (as at 31 December 2011) of investments accounted
under equity method and available for sale financial assets.
3 Total resources here exclude base metal resources
4 For full definition of the terms 'Company Maker' and 'Medium
Scale' please refer to the Exploration Review
_______________________________________________________________________
A presentation will be held for analysts & investors at
9.30am (UK time) on Tuesday 20 March 2012 at the offices of JP
Morgan Cazenove, 20 Moorgate, London, EC2R 6DA.
For a live webcast of the presentation please click on the link
below:
http://www.media-server.com/m/p/7iqk2349
Conference call dial in details:
UK: +44 (0)20 7784 1036 (Please quote 'Hochschild Mining
webcast' or confirmation code 7491117).
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: 7491117#
_________________________________________________________________________
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 almost fifty years' experience in
the mining of precious metal epithermal vein deposits and currently
operates four underground epithermal vein mines, three located in
southern Peru, one in southern Argentina and one open pit mine in
northern Mexico. Hochschild also has numerous long-term projects
throughout the Americas.
CHAIRMAN'S STATEMENT
2011 Overview
Hochschild Mining has once again delivered a resilient
performance in the wake of continuing global economic crisis.
Thanks to the dedication and creativity of our whole team, we have
been able to meet expectations on our key 2011 objectives,
including the completion of feasibility studies for two of our
Advanced Projects, the achievement of our annual operating targets
and the ongoing evolution of our exploration based strategy.
Importantly, we are also generating further opportunities to add to
our already considerable growth plans as well as having the
financial firepower to execute on attractive prospects.
A strong precious metals market again played its part in
Hochschild's record financial performance in 2011, allowing us to
significantly increase profits in the year whilst selectively
mining lower ore grades in order to enable us to produce longer
term stable future growth in uncertain markets. Despite significant
increases in cyclical costs such as royalties, the Company recorded
a considerable EBITDA increase of 42% to $563 million on the back
of revenue of almost $1 billion. Earnings per share was up by 75%
to 49 cents and the Board is therefore pleased to recommend a 20%
increase in the total dividend for the year, to 6 cents per share,
which confirms the confidence we have in the business going forward
and the ongoing strength of our balance sheet.
Our management team has utilised 2011 to firmly embed the
exploration strategy within the Company. During the year,
Hochschild has completed over 315,000 metres of drilling with this
number expected to increase by approximately 5% in 2012, reflecting
the increased exploration budget of $90 million, representing
another record for the Company. Our team has also appointed key new
exploration managers as well as increased the number of geologists
to ninety-two. This significant commitment has begun to bear fruit
with the Company further optimising the life-of-mine of our core
assets in 2011. In addition, we have swiftly brought two Advanced
Projects through the pipeline to feasibility and continue to widen
the number of drill targets and prospects, which in turn is
considerably strengthening the Hochschild project pipeline. I
firmly believe that this strategy will deliver profitable long term
production growth to our shareholders.
Precious metals markets' volatility became a more prominent
feature in 2011 than ever before with silver in particular
displaying very large swings in price. The high of almost $50/oz
was reached in May with investment demand becoming the main driver,
but by December, silver prices had fallen by some 44% to below
$30/oz again. With temperamental commodity markets reflecting
broader global economic concerns, the mining sector in the UK was
also very volatile. However, we believe that long term fundamentals
for gold and silver remain strong and are confident that our
business is well underpinned for the future.
Outlook
Over the next year, we expect to see the first crucial steps in
the construction phase of our two exciting projects at Inmaculada
and Crespo which have the potential to increase our silver
equivalent production by 50 percent, or 10 million profitable
ounces. The Board remains confident that Hochschild has the
financial flexibility to continue pursuing high return investment
opportunities whether in brownfield expansion at our existing
mines, value enhancing acquisitions or adding to our exploration
investment.
Corporate Responsibility
I am proud to report that Hochschild Mining has continued to
make progress in the key area of Corporate Responsibility. During
2011, the Group's environmental management systems at all active
operations were ISO14001 accredited. An enhanced Community
Relations strategy was also formulated, underpinning our collective
commitment to providing education as well as promoting health,
nutrition and sustainable development in our local communities. A
number of initiatives were launched during the year, most notably
the 'Maestro Lider' (Leading Teacher) and 'Medico de Cabecera'
(Mobile Doctor) programmes, further details of which will be
provided in the Annual Report.
On the issue of safety, while a year-on-year reduction in the
Group's accident frequency rate was achieved, it is with deepest
regret that we report three fatalities during 2011. Operations were
suspended immediately after each incident while investigations were
carried out. We ensured that any resulting recommendations were
immediately acted upon and that the affected families were
supported. Our ongoing goal of zero fatalities remains our highest
operational priority.
Board Composition
During the year, there were a number of changes to the Board. In
light of Dionisio Romero's decision to retire as a Non-Executive
Director at the AGM this May and Sir Malcolm Field retiring at the
end of 2012, we moved swiftly to appoint Dr Graham Birch and Rupert
Pennant-Rea to ensure the continued independent presence on the
Board. Both of these Directors have brought with them extensive and
relevant experience in the natural resource industry. I would also
like to express my sincere gratitude to both Malcolm and Dionisio
for their counsel and invaluable contributions to the Company since
joining the Hochschild Board back in 2006.
On behalf of the Board, I would like to thank the entire
talented Hochschild team for another year of strong performance,
and our shareholders for your continued support.
Eduardo Hochschild
Executive Chairman
20 March 2012
CHIEF EXECUTIVE OFFICER'S STATEMENT
I am pleased to announce another strong set of full year results
with 2011 proving to be a record year for Hochschild, reflecting a
solid operational performance and reinforcing our organic growth
strategy and financial position. We firmly believe that the
combination of our enviable operational, exploration and project
development skills, combined with our premium geological land
position spread across the Americas, is the key to maximising long
term sustainable shareholder value.
Strategic progress
The first key pillar of our strategy encompasses our current
assets and ensuring their long term sustainability. We have already
increased the life of these assets extensively since our IPO in
2006, and in 2011 we continued this trend with significant
increases at all three main operations. Resource life for the
Company grew from 8.7 years in 2010 to 9.7 in 2011 with a 20%
increase in resource life at Arcata, a 7% increase at Pallancata in
Peru, and a 7% increase at the San Jose mine in Argentina where we
continue to find new veins and extensions, thus increasing total
resources at this exciting property to 172.2 million silver
equivalent ounces.
2011 was also a key year in the development of our project
pipeline, the second pillar of our strategy. One of its
cornerstones is our aim to ensure the smooth progress of all our
projects through their developmental stages. In this regard, the
delivery of two feasibility studies on our Inmaculada and Crespo
projects early in 2012 provided ample evidence of Hochschild's
project management capability. These two exciting opportunities,
based in our southern Peru cluster, give us an expected 50% uplift
in our production base whilst generating an attractive return even
at conservative price and resource assumptions.
Our most exciting asset is the 60% owned Inmaculada project.
This is set to start construction with total initial capital
expenditure of $315 million for a 3,500 tonne per day underground
operation with total average annual production of 12 million silver
equivalent ounces and a commissioning date in the fourth quarter of
2013. Total resources have now increased to almost 150 million
silver equivalent ounces. We are confident that these resources
will grow significantly from this excellent starting point in the
same manner as our other mines and see Inmaculada develop into a
major contributor for the Company.
In addition, Hochschild is pleased to see a positive result from
its 100% owned Crespo project which is set to add another 2.7
million silver equivalent ounces from 2014 at an initial capital
cost of $111 million for a 6,850 tonne per day operation. This open
pit project is expected to have a low unit cost per tonne, high
gold recovery rates and, given its proximity to Hochschild's other
operations in southern Peru, will benefit from operational
synergies. Current Inferred resources at Crespo are likely to
deliver more mineable material for the project and the exploration
team remains positive about the geological potential of the
surrounding areas.
We remain excited by the potential of the Azuca deposit,
especially with respect to the ongoing exploration of the newly
discovered higher grade Colombiana and Cimoide Vivian veins. It is
our intention to continue exploration work at the project
throughout 2012 in order to consolidate resources and provide a
more comprehensive picture of the complex vein structures present
in the area before moving the project on to the feasibility study
stage.
Exploration work continued in 2011, with a total of 315,373
metres of drilling completed. At our greenfield targets, we had
positive results from our Company Makers pipeline at Victoria,
Valeriano and Encrucijada in Chile, Mercurio in Mexico and
Soranpampa in Peru, as well as strong progress at the Medium Scale
Mosquito project in Argentina. Overall, Hochschild has again
reaffirmed its exploration commitment with a $90 million budget for
2012, the largest in the Company's history, which will be invested
in our brownfield, Advanced Projects and greenfield exploration
programmes, which are expected to encompass drilling campaigns in
26 different locations across the Americas.
2011 overview
Our operations once again met their annual targets with
production in 2011 of 22.6 million attributable silver equivalent
ounces, comprised of 15.0 million ounces of silver and 127.3
thousand ounces of gold. San Jose continued to deliver, with silver
equivalent production up 3% on the previous year - a highly
creditable performance, with a particularly strong second half. At
Arcata and Pallancata, we continued with our policy of adjusting
the extracted grade to ensure a consistent and sustainable level of
long term production as well as taking the opportunity afforded by
high precious metal prices to process low grade material at both
mines. The high prices have also allowed our Ares mine in southern
Peru to continue operations throughout the year and into 2012,
whilst our Moris mine in Mexico contributed just over 1 million
silver equivalent ounces before its closure late in the fourth
quarter.
In 2011 we continued experiencing cyclical cost inflation in
line with the industry trend, primarily resulting from the ongoing
high commodity prices. In Peru, unit costs were up by some 14%
excluding royalties principally due to wage inflation in the
industry and a higher proportion of production from narrower veins
in the production mix at Pallancata and Arcata. In Argentina,
Hochschild continued to face the challenges of ongoing high local
inflation rates of some 25-30%, and although unit costs (excluding
royalties) at San Jose only increased by 18%, this was principally
due to a devaluation of the local currency of 6%, as well as the
extraction of low cost superficial material located in new mine
areas and also improvements in operational processes.
We expect overall 2012 unit cost inflation in Argentina to
continue to be high, at around 25-30% for the same country specific
reasons mentioned above, whilst in Peru we have forecasted an
increase in unit costs of approximately 15% excluding royalties and
the increased refining cost due to the effects of our dore project
at Arcata. The main contributory factors to this increase are
anticipated to be expected local industry inflation of 10% and the
increasing number of stopes at our main operations.
The Group again achieved record results with revenue of just
under $1 billion, up some 31% on 2010, driven by continuing strong
precious metal prices, with the average silver price for 2011 up
53% and the average gold price up by 25%. EBITDA also rose sharply,
by 42%, to $563 million (2010: $398million) with pre-exceptional
EPS of $0.49 for the full year, approximately 75% higher than
2010.
We finished 2011 with a continuing strong cash balance of $627
million which together with our healthy operating cashflow, having
increased 53% to $464.1 million in 2011, gives us the financial
ability to embark on capital expenditure programmes for our
Advanced Projects, pursue our ambitious exploration programme in
2012, continue investing in our main operations, and monitor any
potential value accretive acquisitions to be assessed against our
previously stated criteria. We also have minority investments worth
approximately $350 million as at 31 December 2011, principally
represented by our 25.2% stake in Gold Resource Corporation.
Outlook
Hochschild's production target for 2012 is 20.0 million
attributable silver equivalent ounces, which takes into account the
reduction of almost 300,000 silver equivalent ounces that will now
not be recovered at Arcata as a result of the implementation of our
dore project. The 2012 production target consists of similar levels
of production at each of the core operations to those of 2011, with
anticipated further declining production at Ares and Moris.
We have had a very busy start to 2012 with the completion of the
Inmaculada and Crespo feasibility studies and we are excited that
following the Board's approval of these projects and sanction of
their capital expenditure requirements, the key stages of project
construction can begin in earnest. Our strategy for this year will
once again be to deliver on our production target, execute the
first stages of the above mentioned project development and
demonstrate consistent progress on our ambitious exploration
programme, supported by its $90 million budget.
I am confident that Hochschild's talented and experienced team
will continue to create opportunities for future value generation
and that realising our 2012 targets will provide more evidence that
we have the optimum strategy for long term growth.
Ignacio Bustamante
Chief Executive Officer
20 March 2012
OPERATING REVIEW
2011 Highlights
-- Full year production of 22.6 million attributable silver
equivalent ounces, in line with target
-- Feasibility studies delivered on Inmaculada and Crespo
projects; expected to add 10 million attributable silver equivalent
ounces per year with production expected to commence at both
projects at the end of 2013
-- First stage of Arcata dore project completed
CURRENT OPERATIONS
Production
Hochschild once again met its full year production target in
2011, producing 22.6 million attributable silver equivalent ounces,
comprised of 15.0 million ounces of silver and 127,287 ounces of
gold. In 2011, San Jose continued to deliver a strong performance.
Lower production was reported at Pallancata and Arcata as the
Company took advantage of high precious metals prices to process
low grade material and also continued to adjust extracted grades to
provide a sustainable level of long-term production and optimise
the resource life of its main operations.
The Company has announced a production target of 20.0 million
attributable silver equivalent ounces for 2012. Production at each
of the Company's main operations is expected to be in line with
2011. As anticipated, production at the ageing Ares mine will
continue to decline, reflecting lower tonnages and grades.
Production at the Moris mine in Mexico is not expected to be
material.
Costs
In 2011, the Company reported a 14% increase in unit cost per
tonne excluding mine royalties at its main Peruvian operations
(Arcata and Pallancata), to $60.8 per tonne (2010: $53.2). This
increase was primarily due to a rise in labour costs reflecting
higher precious metal prices, higher mining costs resulting from an
increase in mined areas and a higher proportion of production from
narrower veins.
In Argentina, unit cost per tonne excluding royalties increased
by 18% to $169.6 per tonne (2010: $144.1) mainly as a result of
local inflation impacting labour and materials costs and a higher
consumption of plant reagents which in turn provided improved
metallurgical recoveries (by approximately 5%). Local inflation was
partially offset by local currency devaluation, lower mine
development and the extraction of superficial low grade material
(Saavedra). Please see page 22 of the Financial Review for further
details on costs.
Main operations
Arcata: Peru
Arcata summary Year ended Year ended % change
31 Dec 2011 31 Dec 2010
---------------------------- ------------- ------------- ---------
Ore production (tonnes) 687,966 645,974 7
Average silver grade (g/t) 312 439 (29)
Average gold grade (g/t) 0.88 1.40 (37)
Silver produced (koz) 6,081 8,099 (25)
Gold produced (koz) 17.38 25.83 (33)
Silver equivalent produced
(koz) 7,124 9,649 (26)
Silver sold (koz) 5,979 8,095 (26)
Gold sold (koz) 16.7 24.9 (33)
Unit cost ($/t) 77.0 71.1 8
Unit cost excl. royalties
($/t) 70.2 65.0 8
Total cash cost ($/oz Ag
co-product)(5) 12.8 8.5 51
---------------------------- ------------- ------------- ---------
Production and sales
Arcata is located in the Department of Arequipa in southern
Peru. It is a 100% owned underground operation that commenced
production in 1964.
During 2011, the Company continued to adjust the extraction
grades at Arcata towards the average reserve grade level in order
to ensure a consistent and sustainable level of production. Full
year silver equivalent production of 7.1 million ounces was 26%
lower than 2010 (9.6 million ounces).
The Company took advantage of strong metal prices to process
waste material from previous campaigns (see table below on Macarena
Waste Dam Deposit). This material, whilst increasing overall annual
treated tonnage by 7% to 687,966 tonnes (2010: 645,974 tonnes), was
processed at a decreased average silver grade of 95g/t. In
addition, in 2011 the Company mined in the lower grade border areas
with associated narrower veins and increased dilution. This
additional material was not part of Arcata's resource base.
Table Showing Contribution from Macarena Waste Dam Deposit
Year ended
31 Dec 2011
---------------------------- -------------
Total
Tonnage 687,966
Average gold grade (g/t) 0.88
Average silver grade (g/t) 312
---------------------------- -------------
Macarena
Tonnage 86,859
Average gold grade (g/t) 0.30
Average silver grade (g/t) 95
Stopes and Developments
Tonnage 601,107
Average gold grade (g/t) 0.97
Average silver grade (g/t) 344
---------------------------- -------------
In Q4 2011, the first stage of the project to convert 40% of
Arcata's concentrate into dore was successfully completed. The
second stage of the project will be completed in H2 2012 and
subsequently 100% of Arcata's concentrate will be converted into
dore. As a result of the metallurgical recoveries involved in the
process, there will be an estimated reduction in production in 2012
of 291,000 silver equivalent ounces. Total investment for the
project is approximately $14 million and the Company believes that
this will be a highly profitable project as the resulting decrease
in refining fees, commercial discounts and associated selling
expenses will more than offset the treatment costs associated with
the process.
Costs
Unit cost per tonne, excluding royalties, increased by 8% to
$70.2 (2010: $65.0). Including royalties, the increase in 2011 was
also 8% at $77.0 per tonne (2010: $71.1). Key drivers were a rise
in the number of contractors employed in the mine due to the
increased number of stopes, higher wage costs in line with industry
inflation and higher diesel prices. These effects were partly
offset by energy cost savings achieved following price
renegotiations and by economies of scale resulting from the
increase in treated tonnage.
In 2011, the silver/gold concentrate from Arcata was sold to
Cormin, Korea Zinc Co. ltd and MRI Trading Ag.
10% of Arcata's production was processed into dore; all of which
was sold to Johnson Matthey in 2011.
Resource life
The resource life of Arcata stands at 11.5 years as at 31
December 2011, up 20%, from 9.6 years in 2010, following an
intensive drill campaign focused on the Baja, Marion, Blanca,
Amparo, Lucrecia and Tunel 4 veins. In total, 94,656 metres of
diamond drilling was completed during the year (2010: 76,506
metres) with significant intercepts including(6) :
Vein Results
------- --------- ---------------------------------
Marion DDH-028 3.03 m at 3.88 g/t Au and 1,008
DDH-099 g/t Ag
DDH-057 1.90 m at 5.18 g/t Au and 1,704
g/t Ag
2.35 m at 4.08 g/t Au and 1,183
g/t Ag
------- --------- ---------------------------------
Amparo DDH-935 2.97 m at 3.29 g/t Au and 1,736
DDH-039 g/t Ag
3.36 m at 2.06 g/t Au and 751
g/t Ag
------- --------- ---------------------------------
Blanca DDH-079 1.17 m at 8.35 g/t Au and 3,171
DDH-914 g/t Ag
0.85 m at 4.28 g/t Au and 2,579
g/t Ag
------- --------- ---------------------------------
Baja DDH-250 1.09 m at 5.19 g/t Au and 706
g/t Ag
------- --------- ---------------------------------
In 2012, the exploration drilling campaign of 62,756 metres will
focus on the targeting of higher grade structures and increasing
the mine resource base.
Pallancata: Peru
Pallancata summary Year ended Year ended % change
31 Dec 2011 31 Dec 2010
---------------------------- ------------- ------------- ---------
Ore production (tonnes) 1,070,466 1,071,617 (0.1)
Average silver grade (g/t) 301 344 (13)
Average gold grade (g/t) 1.33 1.41 (6)
Silver produced (koz) 8,767 10,135 (13)
Gold produced (koz) 33.88 35.85 (5)
Silver equivalent produced
(koz) 10,800 12,286 (12)
Silver sold (koz) 9,064 9,998 (9)
Gold sold (koz) 33.9 33.7 0.6
Unit cost ($/t) 60.4 51.8 17
Unit cost excl. royalties
($/t) 54.5 46.2 18
Total cash cost ($/oz Ag
co-product) 9.9 7.4 34
---------------------------- ------------- ------------- ---------
([1]) The Company has a 60% interest in Pallancata
Production and sales
The Pallancata silver/gold property is located in the Department
of Ayacucho in southern Peru, approximately 160 kilometres from the
Arcata operation. Pallancata commenced production in 2007 and is a
joint venture with International Minerals Corporation ("IMZ") in
which Hochschild controls 60% and is the mine operator. Ore from
Pallancata is transported 22 kilometres to the Selene plant for
processing.
In 2011, full year production at Pallancata was 10.8 million
silver equivalent ounces (2010: 12.3 million), a decrease of 12%.
Although treated tonnage remained broadly flat compared to 2010,
there was a fall in grades reflecting higher dilution from narrower
veins, as well as the Company's decision to take advantage of the
prevailing high precious metals price environment to process some
lower grade economic material extracted from the borders of the
main Pallancata vein. This additional material was not part of
Pallancata's resource base.
Costs
Excluding mine royalties, unit cost per tonne increased by 18%,
to $54.5 per tonne (2010: $46.2). Including royalties, the increase
in 2011 was 17%, to $60.4 per tonne (2010: $51.8). This rise was
principally due to increased wage costs resulting from industry
inflation. In addition, the Company incurred higher mine service
costs (transportation, energy and equipment hire) reflecting
increased diesel prices and the development of new mine areas. A
number of cost initiatives partially offset these factors,
including a change to the mine backfill process leading to lower
cement consumption, as well as cost efficiencies in explosives
consumption.
In 2011, the silver/gold concentrate from Pallancata was sold to
Teck Metals ltd., Aurubis and LS-Nikko Copper.
Resource life
The resource life of the Pallancata operation stands at 7.4
years as at 31 December 2011, up 7% compared to 2010 (6.9 years).
During 2011, a total of 50,748 metres of diamond drilling was
carried out over the course of the year (2010: 46,547 metres),
mainly focused on the San Javier, Virgen del Carmen, Rina, Luisa,
Pallancata West and Huararani veins with intercepts including(7)
:
Vein Results
---------------- ---------- ---------------------------------
Luisa DLLU-A08 9.0 m at 1.61 g/t Au and 301
g/t Ag
DLLU-015 3.25 m at 4.89 g/t Au and 1,382
DLLU-A01 g/t Ag
8.4 m at 2.79 g/t Au and 565
g/t Ag
0.99 m at 40.66 g/t Au and 670
g/t Ag
---------------- ---------- ---------------------------------
Pallancata West DLPL-A796 4.16 m at 6.08 g/t Au and 1,484
g/t Ag
---------------- ---------- ---------------------------------
Yanina DLVC-010 0.77 m at 6.10 g/t Au and 1,300
g/t Ag
---------------- ---------- ---------------------------------
Rina DLRI-A21 1.72 m at 6.12 g/t Au and 1,614
DLRI-A40 g/t Ag
10.36 m at 2.76 g/t Au and 812
g/t Ag
---------------- ---------- ---------------------------------
Huararani DLPL-A745 4.4 m at 18.45 g/t Au and 954
g/t Ag
---------------- ---------- ---------------------------------
The 2012 exploration programme at Pallancata will target new
mineralised structures to the north, west and south of the main
operation area, with 59,140 metres of drilling planned.
San Jose: Argentina
San Jose summary(*) Year ended Year ended % change
31 Dec 2011 31 Dec 2010
---------------------------- ------------- ------------- ---------
Ore production (tonnes) 462,825 461,134 0.4
Average silver grade (g/t) 444 397 12
Average gold grade (g/t) 5.86 6.14 (5)
Silver produced (koz) 5,870 5,324 10
Gold produced (koz) 80.95 84.30 (4)
Silver equivalent produced
(koz) 10,727 10,382 3
Silver sold (koz) 6,087 5,284 15
Gold sold (koz) 82.4 85.0 (3)
Unit cost ($/t) 181.7 152.3 19
Unit cost excl. royalties
($/t) 169.6 144.1 18
Total cash cost ($/oz Ag
co-product) 13.7 10.7 28
---------------------------- ------------- ------------- ---------
(*) The Company has a 51% interest in San Jose
Production and sales
The San Jose silver/gold mine is located in Argentina, in the
province of Santa Cruz, 1,750 kilometres south-southwest of Buenos
Aires. San Jose commenced production in 2007 and is a joint venture
with McEwen Mining Inc (formerly Minera Andes Inc.). Hochschild
controls 51% of the joint venture and is the mine operator.
San Jose delivered a robust performance in 2011, with silver
equivalent production up 3% to 10.7 million ounces (2010: 10.4
million ounces). This was mainly a result of an anticipated
increase in silver grades, as well as operational efficiencies that
led to an increase in recovery rates to 89% for gold and 86% for
silver (an increase of approximately 5% for both gold and silver
compared to 2010). Silver grades rose by 12% year-on-year and
silver production by 10% to 5.9 million ounces (2010: 5.3 million
ounces). In line with the mine plan, the average gold head grade
decreased by 5% and gold production by 4% to 80.95 thousand ounces
(2010: 84.30 thousand ounces).
On 4 May 2011, following a 15 day production stoppage at the
operation, the Group successfully concluded negotiations with the
AOMA union (Argentine Mining Labour Association).
Costs
Unit cost per tonne, excluding royalties, increased by 18% to
$169.6 (2010: $144.1). Including royalties, the increase in 2011
was 19%, at $181.7 per tonne (2010: $152.3). Local inflation in
Argentina continues to run at between 25% and 30% and consequently
the key driver of the rise in costs was wage cost inflation. A
higher consumption of reagents also contributed to the increase in
costs although this was offset by a significant improvement in
recoveries. The high local inflation also impacted materials and
supplies but was partly offset by a 6% devaluation of the
Argentinian peso, lower mine development, the extraction of low
cost, low grade, superficial material located in new mine areas
(Saavedra) as well as efficiencies gained from improving
operational processes (maintenance and other support processes).
The Company expects cost increases in 2012 to be in the range of
25-30%, in line with the above mentioned local inflation.
In 2011, the dore produced at San Jose was sold to Argor Heraeus
S.A. and Johnson Matthey Inc. The concentrate produced at the
operation was sold to Teck Metals ltd., Aurubis and LS-Nikko
Copper.
Resource life
Following an intensive drill campaign in 2011, the Company
increased the resource life of the San Jose property by 7%, to 12.2
years (as at 31 December 2011). A significant portion of the San
Jose property continues to be open at depth and laterally.
After a successful drilling campaign in the first half of 2011,
the second half of the year was dedicated to completing geophysical
and magnetometry workin order to identify new targets at the
property. This work was successfully completed and provided areas
of potential that were targeted in the Q4 drilling campaign and
continuing into 2012. During the year, 55,678 metres of diamond
drilling was conducted (2010: 53,692 metres), focused on the Luli,
Susana, Orion and Pilar veins with significant intercepts
including(8) :
Vein Results
------- ---------- ----------------------------------
Luli SJM-157 1.28 m at 20.11 g/t Au and 1,409
SJD-1015 g/t Ag
2.00 m at 45.51 g/t Au and 4,257
g/t Ag
------- ---------- ----------------------------------
Susana SJD-1020 2.15 m at 54.84 g/t Au and 4,949
SJD-1033 g/t Ag
2.50 m at 11.43 g/t Au and 1,105
g/t Ag
------- ---------- ----------------------------------
Pilar SJD-996 17.17 m at 11.33 g/t Au and 436
SJD-992 g/t Ag
17.72 m at 6.28 g/t Au and 356
g/t Ag
------- ---------- ----------------------------------
In 2012, the exploration programme includes a 93,320 metre
drilling campaign (110,583 metres including infill drilling) that
will evaluate extensions of already known mineralised structures
and also the targeting of new veins.
Other operations
Ares: Peru
Ares summary Year ended Year ended % change
31 Dec 2011 31 Dec 2010
---------------------------- ------------- ------------- ---------
Ore production (tonnes) 344,085 301,726 14
Average silver grade
(g/t) 61 92 (33)
Average gold grade
(g/t) 2.90 3.58 (19)
Silver produced (koz) 581 786 (26)
Gold produced (koz) 29.03 32.53 (11)
Silver equivalent produced
(koz) 2,323 2,738 (15)
Silver sold (koz) 598 810 (26)
Gold sold (koz) 29.7 32.7 (9)
---------------------------- ------------- ------------- ---------
Production and sales
The Ares mine, which commenced production in 1998, is a 100%
owned operation located approximately 275 kilometres from the city
of Arequipa in southern Peru. The Ares mine continued to operate
for the full year, albeit at a lower level, producing 2.3 million
silver equivalent ounces (2010: 2.7 million silver equivalent
ounces).
Although production at Ares was expected to end in 2011, the
Company continues to extract mineral from new veins and production
will continue in 2012.Management also continues to monitor the
grade and cost profile of the operation to ensure that it is in
line with the Company's policy of producing profitable ounces. A
new exploration programme for Ares is currently being developed for
2012, with the aim of identifying new resources.
100% of Ares' production is processed into dore, all of which
was sold to Johnson Matthey in 2011.
Moris: Mexico
Moris summary Year ended Year ended % change
31 Dec 2011 31 Dec 2010
---------------------------- ------------- ------------- ---------
Ore production (tonnes) 858,028 1,148,826 (25)
Average silver grade
(g/t) 5.02 4.44 13
Average gold grade
(g/t) 0.96 1.14 (16)
Silver produced (koz) 64 86 (26)
Gold produced (koz) 19.26 21.53 (11)
Silver equivalent produced
(koz) 1,220 1,378 (11)
Silver sold (koz) 64 95 (33)
Gold sold (koz) 19.3 23.5 (18)
---------------------------- ------------- ------------- ---------
Production and sales
The 100% owned Moris mine, is an open pit mine and is located in
the district of Chihuahua, Mexico. Mine production ceased at Moris
in September 2011, although continued leaching of the pads produced
further ounces towards the end of the year. Full year production
was 1.2 million silver equivalent ounces (2010: 1.4 million
ounces).
Moris is currently in the final stage of the pads' cyanidation
process although exploration continues in the area and the Company
has been able to identify new exploration targets at Moris with the
goal of identifying new resources.
In 2011, the gold/silver dore produced at Moris was sold to
Johnson Matthey.
ADVANCED PROJECTS
The Company has three Advanced Projects: Inmaculada, Crespo and
Azuca. The Company recently announced the results of feasibility
studies, conducted by Ausenco, an independent consultant, on
Inmaculada and Crespo. These projects are expected to contribute an
average attributable annual production of 10 million silver
equivalent ounces, increasing current production levels by 50%.
Both projects are due to be commissioned in Q4 2013 and have an
initial combined capital cost estimated at $426 million ($335
million attributable to Hochschild).
At Azuca, the Company has delayed the feasibility study to
continue exploration work at the project throughout 2012 in order
to consolidate resources and provide a more comprehensive picture
of the complex vein structures in the area.
Inmaculada
Inmaculada is a 20,000 hectare gold-silver project located in
the Company's existing operational cluster in southern Peru and is
60% owned and controlled by Hochschild, following the acquisition
of a controlling stake in October 2010. The remaining 40% is held
by the Company's joint venture partner at Pallancata, International
Minerals Corporation ('IMZ').
The project is now set to start construction, with total initial
capital expenditure of $315 million for a 3,500 tonne per day
('tpd') underground operation with average annual production of 12
million silver equivalent ounces (7 million attributable ounces),
and is due to be commissioned in Q4 2013. The Company is also
progressing with the exploration programme at the property which
consists of 40 mining concessions with resources which are
currently estimated at a total of 150 million silver equivalent
ounces.
Changes from the 2010 scoping study resulting from the
feasibility study process include: an update of the mineral
resource; the use of only Measured & Indicated resources as the
basis for the initial reserves; a change in the metallurgical
process from flotation to leaching with the resulting change from a
concentrate to dore as the final product; and an increase in the
plant capacity from 3,000 tpd to 3,500 tpd. In addition, as a
result of feasibility level geotechnical studies, the rock quality
was determined to be poorer than anticipated which has affected
dilution, mine capex and mining costs. All of these factors were
incorporated in the new capex, cost and Net Present Value ('NPV')
figures presented in the feasibility study results.
The feasibility study was conducted using only measured and
indicated resources from the Angela vein. Summary results (on a
100% basis, applying a 1.5 g/t gold equivalent cut-off grade) are
as follows:
-- Measured & Indicated resources: 7.07mt at an average
grade of 4.07 g/t gold and 144 g/t silver containing approximately
925,100 ounces of gold and 32.8 million ounces of silver.
-- Inferred resources of 4.94mt at an average grade of 3.91 g/t
gold and 152 g/t silver containing approximately 620,000 ounces of
gold and 24.2 million ounces of silver.
-- Estimated mineral reserves (at a cut-off grade of 2.3 g/t
gold equivalent): 7.80 mt at an average grade of 3.37g/t gold and
120 g/t silver containing approximately 845,000 ounces of gold and
30.1 million ounces of silver.
The project has been shown to be profitable even under
conservative gold and silver price assumptions. The single, wide
vein will also allow for lower mining costs and a metallurgical
process with estimated recovery rates of 95.6% for gold and 90.6%
for silver. The project's proximity to the Company's existing
operations also offers logistical synergies and reduces execution
risk. The principal execution risks facing the Inmaculada project
are possible disruptions to the project schedule resulting from
social or political instability and the project's dependence on
third party supplies of electricity.
The feasibility study results confirmed that the project
provides strong returns based on the existing reserve base.
However, Hochschild is confident that the mineable resource base
will be expanded by upgrading the inferred mineral resources in the
South West and North East extensions of the Angela vein. Current
project economics do not factor in almost five million tonnes of
inferred resource containing over 60 million silver equivalent
ounces which could almost double the life of mine. In addition,
there is further geological potential at the Inmaculada property
which hosts over 25 kilometres of gold/silver-bearing quartz veins
of the low sulphidation type - veins which remain largely
untested.
In 2011, exploration drilling at Inmaculada totalled 25,341
metres and in 2012, the drilling programme of 54,650 metres will
focus on further exploration of the Angela vein and other known
veins in the district.
Crespo
Crespo is 100% owned by Hochschild and is located in the
Company's existing operating cluster in southern Peru. Crespo is
also set to begin construction, with total initial capital
expenditure of $111 million for a 6,850 tpd operation with an
average annual production of 2.7 million silver equivalent ounces
from 2014. This will be a relatively simple open pit project with
high gold recovery rates, and again, will benefit from operational
synergies due to its proximity to the Company's existing
operations. The principal execution risks facing the Crespo project
are possible disruptions to the project schedule resulting from
social or political instability and the project's dependence on
third party supplies of electricity.
Changes from the January 2011 scoping study resulting from the
feasibility study process include: an update of the mineral
resource; an increase in the plant capacity from 5,650 tpd to 6,850
tpd; and a change in the source of power, to a 25 km 60 KV
transmission line connecting the Arcata operation to Crespo.
Significant metallurgical testing was also carried out in order to
review the overall process and optimise recoveries. These updates
were all incorporated in the new capex, cost and NPV figures
presented in the feasibility study results.
The updated resource estimate for Crespo replaced the previous
estimate published in the scoping study and represented an increase
in Measured and Indicated gold equivalent resources of 58% (304,000
ounces). Measured & Indicated resources now total 23.4 million
tonnes at 0.45 g/t of gold and 39 g/t of silver containing 340,000
ounces of gold and 29.2 million ounces of silver.
Ore reserves, calculated by Ausenco, total 20.48 million tonnes
at 0.46 g/t of gold and 39 g/t of silver with a cut-off grade of
0.33 g/t gold equivalent and metals prices of $1,300/ounce gold and
$23/ounce silver.
The Crespo feasibility study results do not factor in almost 3.8
million tonnes of in-pit inferred resource, containing 6.6 million
silver equivalent ounces with the potential to add almost 18% of
mineable material at no further mining cost to the Company. There
is also further geological upside at the Queshca gold target, to
the north of the current feasibility study resource base. In
addition, a drilling gap exists between Crespo and Queshca and
encouraging geological evidence would suggest further potential for
economic mineralisation.
The 2012 drill programme of 5,500 metres is focused on
converting Inferred resources to the Indicated resource category
and to increase the resource base and to continue exploring the
Queshca target.
Azuca
The 100% owned Azuca project is also located in the Company's
southern Peru operating cluster. In January 2012, the Company took
the decision to delay the feasibility study at Azuca and continue
exploration work at the project throughout 2012 in order to
consolidate resources and to provide a more comprehensive picture
of the dispersed vein structures present in the area.
Moreover, the Company believes that the geological potential of
the Azuca property may produce richer structures that could further
support the investment required to develop the asset but could
alter the design and location of future mine and plant
infrastructure, tailings ponds and other key equipment. The
Hochschild Board has therefore approved an exploration programme
for Azuca in 2012.
As of December 2011, the Azuca project has Measured &
Indicated resources totalling 7.05 million tonnes at 0.77 g/t of
gold and 188 g/t of silver containing 173,500 ounces of gold and
42.7 million ounces of silver.
Exploration at the site is ongoing, with promising higher grade
intercepts suggesting the presence of new higher grade veins. The
2012 drilling programme will be focused on identifying further
extensions of the Vivian-Yanamayo, Colombiana and Azuca West veins,
with a drilling programme of 28,000 metres expected to be carried
out in these new areas.
EXPLORATION REVIEW
2011 Highlights
-- $71 million invested in exploration in 2011; 33%
brownfield,15% Advanced Projects and 36% greenfield(9)
-- Resource life up 11% to 9.7 years
-- Total resources up 17% to 535 million silver equivalent ounces(10)
-- Increase in 'Company Maker' pipeline from 8 to 13 projects
-- Record 2012 exploration budget of $90 million; 30%
brownfield, 19% Advanced Projects, 35% greenfield, others and
support 12% and technical support 4%.
-- 330,804 metres of drilling to be undertaken at 26 greenfield
and brownfield projects across four countries
Hochschild's commitment to its exploration strategy has been
reaffirmed with a 29% increase in the exploration budget for 2012
to $90 million, (from $70 million in 2010), the largest exploration
budget ever for the Company. In 2011, investment in exploration
totalled $71 million and 315,373 metres of drilling was completed
at the Company's brownfield, Advanced Projects, greenfield and
copper projects. The 2012 budget, representing 330,804 metres, will
be split between exploration work at the Company's existing
operations, the Advanced Projects and greenfield opportunities in
Peru, Argentina, Mexico and Chile.
In 2011, the exploration programme delivered positive results,
especially in respect to its key aims of increasing the resource
life of the Company's core operations and expanding its project
pipeline which now includes 13 'Company Makers' and 13 'Medium
Scale' projects.
In 2012, exploration work at the Company's core operations will
be mainly focused on improving resource quality. The main objective
of exploration work at the Advanced Projects will be to incorporate
additional resources at Inmaculada and Crespo, and at Azuca, to
concentrate on the exploration of high quality resources that
better support a significant investment. Exploration at the Company
Maker projects will include continued drilling and further
analysis. At the Company's Medium Scale projects, work will
continue to develop those high-quality, early stage projects that
have the potential to move through the pipeline to production. Work
will also continue at the Company's copper projects and on the
Company's generative programme to conduct further exploration on
the Company's extensive land package of premium properties in four
key countries. In 2011, the number of geologists employed by the
Company was 92.
Brownfield exploration
In 2011, approximately 33% of the exploration budget was
invested in brownfield drilling in the areas immediately
surrounding Hochschild's three main operations. As a result, there
was an 11% increase in resource life to 9.7 years (2010: 8.7
years).
The Company takes a very conservative approach to resource
delineation and applies the same cut-off grades to reserves and
resources. As a result, the Company has a high rate of conversion
from resources to reserves.
For full reserve and resource tables, please see page 57.
Greenfield exploration
Approximately 36% of the 2011 exploration budget in 2011 was
invested in the Company's greenfield programme, and in 2012, the
proportion will be 35%. In 2011, a total of 41,546 metres were
drilled as part of the greenfield exploration programme and in
2012, this is expected to increase to 47,500 metres.
Company Makers
The Company currently has 13 potential "Company Makers" which
are projects with the potential to achieve 20-30 million silver
equivalent ounces per year. These are typically high sulphidation,
disseminated or gold/copper porphyry deposits and are generally
open pit operations. In 2011, $12.4 million was invested in finding
and developing such deposits and the 2012 budget has increased to
$15.8 million.
Victoria
The Victoria project in northern Chile is 60% owned by
Hochschild, with the remaining 40% held by Iron Creek Capital.
Exploration work is delivering positive results at the property
which covers 46,100 hectares of continuous strike length at the
highly productive Domeyko Fault Zone. In 2011, 7,359 metres of
drilling was completed. Exploration focused on the porphyry
potential of the property and work was completed on a number of
targets. The Picaron target was drill tested and significant
alteration and anomalous copper mineralisation was encountered,
proving it to be a true copper porphyry system. The resource is
open and may increase in grade and thickness downstream. Selected
intercepts from these exploration programmes include(11) :
Intercept Results
-------------- ----------------------------------------------------
VPI-DD-11-003 From 224.0-265.0m depth - 41.0m at 1,293 ppm Cu
-------------- ----------------------------------------------------
VPI-DD-11-003 From 316.0-350.0m depth - 34.6m at 869 ppm Cu, 15.6
ppm Mo
-------------- ----------------------------------------------------
VPI-DD-11-003 From 357.0-368.0m depth - 11.0m at 2,102 ppm Cu,
27.8 ppm Mo and 0.1 g/t Au
-------------- ----------------------------------------------------
VPI-RC-11-010 From 18.0-32.0m depth - 14.0m at 0.39% Cu and 0.43%
Mn
Includes: 6.0m at 0.53% Cu and 0.62% Mn
-------------- ----------------------------------------------------
The drilling campaign of 6,800 metres in 2012 will include
offset drilling of the recently reported intercepts in and around
the Picaron target as well as continued definition drilling of the
exotic copper oxide deposit. A data compilation and surface
exploration programme will also be carried out over the entire
Victoria property in 2012 and the drilling of defined targets will
subsequently take place in the second half of the year.
Valeriano
The 100% owned Valeriano property in Chile is located 27
kilometres north of Barrick Gold Corporation's Pascua Lama project,
in close proximity to the border with Argentina, and covers an area
of 3,750 hectares. The property hosts both high-sulphidation as
well as porphyry style disseminated gold mineralisation. The
property has been explored by a number of mining companies in the
past, including Phelps Dodge (1989-1991) and Barrick (1995-1997),
both of which completed drill campaigns totalling 12,575 metres. No
significant exploration had been undertaken at the property since
1997.
Hochschild commenced drilling at Valeriano in October 2011 and
at the end of the year, 2,302 metres had been drilled, with
anomalous gold and molybdenum intercepts reported. Further detailed
geological work has identified targets in and adjacent to the
primary tested target. Positive intercepts reported included:
Intercept Results
------------ -------------------------------------------------------
VALDD11-001 From 245.12-252.8m depth - 7.68m at 0.75% Cu and
0.08 g/t Au
------------ -------------------------------------------------------
VALDD11-002 From 572.0-606.4m depth - 34.4m at 0.19% Cu and 116.24
ppm Mo. Includes 6m at 0.19 g/t Au
------------ -------------------------------------------------------
In 2012, the 2,500 metre drilling programme will continue the
drill testing of the target at depth during the first half of the
year, with follow up drilling and drill testing of the near surface
high sulphidation target planned for the second half.
Encrucijada
At the 51% owned Encrucijada property in Chile, 1,397 metres
were drilled in 2011. Preliminary results indicated a true porphyry
copper - gold system, with individual intercepts of anomalous gold
and silver up to 0.26 g/t and 95 g/t respectively. Positive
drilling results included the following intercepts(12) :
Intercept Results
---------- -------------------------------------------
END11-026 From 0 - 603m depth - 603m at 670ppm Cu
Includes: 0 - 68m depth - 68m at 0.12% Cu
54-66m depth - 12m at 0.20% Cu
382-404m depth - 22m at 0.13% Cu
---------- -------------------------------------------
In 2012, the exploration programme and 2,000 metre drilling
campaign at Encrucijada will continue the offset drilling of
results reported in 2011 and will also include additional
geophysical interpretation and targeting of the porphyry style
mineralisation below the San Bernardo tourmaline breccias and dome
complex, and in the surrounding area.
Mercurio
Mercurio is a 100% owned 36,388 hectare property in Mexico,
located between two high grade mines, Sombrerete and Fresnillo. In
2011, 7,735 metres of drilling was completed; results to date
indicate strong base metal, as well as moderate silver
mineralisation, associated with a large vein system similar to
Fresnillo.
Drilling results included (11) :
Intercept Results
---------- ------------------------------------------------------
Hole 21 From 338.55-341.9m depth - 35m at 128.6 g/t Ag, 1.95%
Zn, 0.66% Pb and 0.16% Cu
---------- ------------------------------------------------------
Hole 24 From 186.56-189.66 depth - 3.1m at 75 g/t Ag, 7.9%
Zn, 6.45% Pb and 0.5% Cu
---------- ------------------------------------------------------
Hole 29 From 368.35-374.25m depth - 5.9m at 115 g/t Ag, 8.5%
Zn, 0.67% Pb and 0.6% Cu
---------- ------------------------------------------------------
In 2012 the Company plans to drill an additional 8,000 metres at
Mercurio, around recently reported intercepts and will continue
exploration activities, including drilling on adjacent targets.
Apacheta
At the 100% owned Apacheta project in Peru, 3,044 metres of
drilling was completed in 2011 and the project moved up the project
pipeline from prospect to drill target. The initial drilling
programme tested high sulphidation and porphyry targets identified
in the 2010 exploration programme. Drilling intercepted strongly
altered rock with anomalous trace element geochemistry. In 2012 the
7,700 metre drilling campaign will complete the initial exploration
programme at the Apacheta 1 and 2 targets and further targets will
be defined
by a surface sampling programme.
Soranpampa
At the 100% owned Soranpampa project in Peru, 2,896 metres of
drilling was carried out in 2011. The first phase of exploration
was completed, with anomalous gold and molybdenum intercepts
reported. Further detailed geophysical work has identified targets
in and adjacent to the primary target already tested. Positive
intercepts included(13) :
Intercept Results
---------- -----------------------------------------------
DDHPA1104 From 356.4-374.0m depth - 17.6m at 0.15% Mo
---------- -----------------------------------------------
DDHPA1109 From 332.0-362.3m depth - 30.3m at 0.15 g/t Au
---------- -----------------------------------------------
In 2012, the 2,500 metres drilling programme will focus on
targets defined by the IP geophysical survey.
Other Company Maker projects
Coriwasi
This is a 9,800 hectare high sulphidation epithermal and
porphyry copper-gold type target in northern Peru optioned from a
private party. The Company is in the process of completing the
relevant permits and approvals process for the project.
Huachoja
This is a 3,000 hectare, high sulphidation epithermal target in
southern Peru optioned from Teck Peru SA. A surface mapping and
sampling programme will be completed in the first half of 2012 in
order to select targets for drilling. An initial 1,500 metres drill
programme will then be carried out in the second half of the year
to test identified targets.
La Falda
The La Falda property in northern Chile, is located close to the
Company's other projects in the area and was acquired in December
2011 as an earn-in project. The target is a porphyry gold-copper
system. The Company has completed the permits and approvals process
and will look to assign the necessary exploration budget for the
project in order to commence a drilling campaign.
Medium scale projects
The Company's project pipeline also contains various Medium
Scale properties in the prospects and drill target categories.
These projects each have the potential to contribute 5-10 million
silver equivalent ounces of production per year and tend to be low
sulphidation epithermal gold/silver type deposits with varying base
metal content and are typically mined underground.
In 2011, $7.9 million was assigned to finding and developing
Medium Scale projects, and in 2012 the Company plans to invest $7.0
million in this category. Positive results were reported at a
number of the Company's Medium Scale projects in 2011 and a number
of properties entered the pipeline. These include the Pomona
project in Argentina, the San Antonio project in Chile, and the
Huacullo and Cuello Cuello properties in Peru.
Mosquito
Two rounds of drilling were completed at the 100% owned Mosquito
property in Argentina in 2011. A total of 8,495 metres was drilled,
testing over twelve different vein targets. The majority of the
drilling did not intercept any anomalous vein mineralisation. In
2012 the 2,000 metre drilling programme will include offset
drilling in and around the most anomalous intercepts reported to
date. These intercepts are along the extension of the Cerro Morro
(Extorre) vein deposit and positive results in 2011 included (13)
:
Intercept Results
---------- --------------------------------------------------
MQD11-15 From 149.8-152.4m depth - 2.6m at 3.07 g/t Au and
MQD11-16 64 g/t Ag
From 128.25-128.71m depth - 0.46m at 0.56 g/t Au
and 64 g/t Ag
---------- --------------------------------------------------
La Flora
At the La Flora project in Argentina, two large vein systems
have been identified since drilling commenced in H2 2010. In 2011,
a total of 1,812 metres was drilled at La Flora and a number of
vein targets were tested. Drilling was successful in intercepting
anomalous gold and silver mineralisation. Positive intercepts
included(13) :
Intercept Results
----------- -----------------------------------------------------
LFD11-019 From 0.0-3.0m depth - 3m at 0.96 g/t Au and 3.2 g/t
LFD11-019 Ag
From 11.0-19.3m depth - 8.3m at 1.48 g/t Au and 8.6
g/t Ag
----------- -----------------------------------------------------
In 2012, the exploration programme and 4,000 metre drilling
campaign at La Flora will include a detailed mapping and sampling
programme around the anomalous surface samples and drill hole
intercepts identified in 2011. An IP geophysical survey will also
be completed and identified targets will be subsequently
drilled.
Argenta
At the 100% owned Argenta project in Argentina, 853 metres were
drilled in 2011 to test the known vein system which reports
strongly anomalous gold and silver mineralisation at surface and in
drill hole. Assay results are being analysed before a drilling
programme is put in place for 2012.
Astana/Farallon
Astana is a 100% owned project located in the Company's southern
Peru cluster, with high sulphidation of disseminated gold/silver
mineralisation. Historical drilling at superficial levels reported
anomalous results in gold and silver associated to pyrite with
values of 200 to 390 g/t Ag eq.
Farallon is a 100% owned low sulphidation silver veins system,
located 1.5 km to the east of Astana. Previous drilling at
superficial levels reported anomalous results in gold, silver, lead
and zinc.Work conducted in 2011 was focused on attaining the
relevant government and community permits and approvals for both
projects. The community permit has been received, and in 2012 the
exploration programme will include a 1,106 metre drilling campaign.
Exploration activity will be carried out at Farallon, as well as
the testing of anomalies in the Astana area.
San Martin
In 2011, work at the San Martin project in Peru was focused on
obtaining the relevant government and community permits and
approvals. The community permit has been received, and in 2012 the
1,800 metre drilling campaign will focus on defining potential
mineralisation following previous drilling campaigns that
intercepted high quality mineralisation.
Other Medium Scale projects
Huacullo
At the Huacullo project in Peru, the Company is in the process
of completing the relevant government and community permits and
approvals process. In 2012 the 485 metre drilling campaign and
exploration programme will test potential economic mineralisation
in low to intermediate sulphidation veins previously drilled by
other companies.
Ibel
At the Ibel project in Peru, in 2011 work focused on the
completion of the relevant government and community permits and
approval process. In 2012 the 445 metre drilling campaign at Ibel
will test potential economic mineralisation in low to intermediate
sulphidation veins and hydrothermal breccias located in sedimentary
rocks.
San Antonio
A mapping and sampling programme to define drill targets is in
progress at the San Antonio project in Chile, and drilling should
commence in the second quarter of 2012.
Cuello Cuello
At the Cuello Cuello project in Peru, the relevant government
and community permits and approvals were received in December 2011.
In 2012 the 1,179 metre drilling campaign that will test potential
economic silver-gold mineralisation in a high sulphidation
epithermal prospect will commence in the second quarter.
Pomona
In 2011, an initial field review was carried out at the Pomona
project in Argentina. In 2012 the Company will conduct detailed
mapping and sampling and IP geophysical survey programmes in order
to define targets for drilling.
Copper projects
Following the acquisition of Southwestern Resources in 2008, the
Company currently holds a number of copper projects located in the
southern Andes in Peru, within a highly prospective area for copper
deposits. The Company has committed 6% of the total 2012 budget and
a dedicated exploration team to drilling at the properties in order
to establish potential value.
Jasperoide
In 2011, the exploration programme at Jasperoide included
detailed geological mapping on the Huinihuini Mountain area of
interest and in the surrounding area, and a 3,726 metre drilling
campaign with 20 drill holes. The results of the drilling campaign
indicate Inferred Resources for a cut off with 0.2% Cu: 12.19 mt
with 1.32 % Cu, 0.32 g/t Au. Positive intercepts included (14)
:
Intercept Results
---------- -----------------------------------------------------
JA-001 From 86.0-160.0m depth - 74.0m at 1.54% Cu and 0.20
g/t Au
---------- -----------------------------------------------------
JA-003 From 57.9-208.5m depth - 150.6m at 1.19% Cu and 0.46
g/t Au
---------- -----------------------------------------------------
JA-013 From 0.0-184.0m depth - 184.0m at 0.65% Cu and 0.20
g/t Au
Includes: From 141.8-158.0m depth - 16.2m at 2.90%
Cu and 0.61 g/t Au
---------- -----------------------------------------------------
In 2012, a second drilling campaign of 3,500 metres will focus
on the already identified mineralised zone and surrounding area to
locate new skarn blankets and to test for a potential associated
porphyritic system.
Alpacocha
In 2011, 408 metres were drilled at the Alpacocha copper
project. Exploration was focused mainly on the Paraiso target, a
porphyry-skarn type deposit, where two areas of interest were
identified, Paraiso West and Paraiso East. The drilling programme
in 2012 will increase significantly, to 3,000 metres and will focus
on the Paraiso target (East and West), where geological mapping,
sampling and geophysics will also be completed.
Antay
At the 100% owned Antay copper project, the Company is in the
process of obtaining the necessary access permits for the
project.
Generative
The Company holds over one million hectares of prime land in key
geological regions across four countries and has committed 3% of
the total 2012 budget to conduct further exploration in these
premium areas.
FINANCIAL REVIEW
Key performance indicators
(before exceptional items, unless otherwise indicated)
$000 unless otherwise indicated Year ended Year ended % change
31 Dec 2011 31 Dec 2010
------------------------------------------------------ -------------- ------------- ---------
Net Revenue(1) 987,662 752,322 31
Attributable silver production (koz) 14,980 17,768 (16)
Attributable gold production (koz) 127 144 (12)
Cash costs ($/oz Ag co-product) (2) 11.96 8.74 37
Cash costs ($/oz Au co-product) (2) 561 504 11
Adjusted EBITDA(3) 563,403 397,731 42
Profit from continuing operations 268,919 158,830 69
Profit from continuing operations (post exceptional) 272,338 216,665 26
Earnings per share (pre exceptional) $0.49 $0.28 75
Earnings per share (post exceptional) $0.50 $0.46 9
Cash flow from operating activities (4) 464,110 304,232 53
Resource life of mine (years) 9.7 8.7 11
------------------------------------------------------ -------------- ------------- ---------
(1) Revenue presented in the financial statements is disclosed
as net revenue (in this Financial Review it is calculated as gross
revenue less commercial discounts).
(2) Includes Hochschild's main operations: Arcata, Pallancata
and San Jose. Cash costs are calculated to include cost of sales,
treatment charges, and selling expenses before exceptional items
less depreciation included in cost of sales.
(3) Adjusted EBITDA is calculated as profit from continuing
operations before net finance income/(cost), foreign exchange loss
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 30% to
$1,043.7 million in 2011 (2010: $802.7 million) driven by higher
metal prices during the year which offset lower Group
production.
Silver
Gross revenue from silver increased 37% in 2011 to $755.8
million (2010: $549.7 million) as a result of higher prices. The
total amount of silver ounces sold in 2011 decreased to 21,792 koz
(2010: 24,283 koz) mainly due to lower year-on-year production.
Gold
Gross revenue from gold increased 14% in 2011 to $287.8 million
(2010: $253.0 million) also as a result of higher prices. The total
amount of gold ounces sold in 2011 decreased to 182.0 koz (2010:
199.9 koz) mainly due to lower year-on-year production.
Gross average realised sales prices
The following table provides figures for average realised prices
and ounces sold for 2011 and 2010:
Average realised prices Year ended Year ended
31 Dec 2011 31 Dec 2010
----------------------------------- ------------- -------------
Silver ounces sold (koz) 21,792 24,283
Avg. realised silver price ($/oz) 34.7 22.6
Gold ounces sold (koz) 182.0 199.9
Avg. realised gold price ($/oz) 1,582 1,266
----------------------------------- ------------- -------------
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 2011, the
Group recorded commercial discounts of $56.0 million (2010: $50.5
million). The ratio of commercial discounts to gross revenue in
2011 decreased to 5% (2010: 6%).
Net revenue
Net revenue increased by 31% to $987.7 million (2010: $752.3
million), comprising silver revenue of $708.3 million and gold
revenue of $279.2 million. In 2011 silver accounted for 72% and
gold 28% of the Company's consolidated net revenue compared to 68%
and 32% respectively in 2010.
Revenue by mine
$000 unless otherwise indicated Year ended Year ended % change
31 Dec 2011 31 Dec 2010
--------------------------------- ------------- ------------- ---------
Silver revenue
Arcata 207,429 173,942 19
Ares 21,168 16,586 28
Selene - 13 (100)
Pallancata 316,344 233,789 35
San Jose 208,579 123,393 69
Moris 2,273 1,946 17
Commercial discounts (47,465) (41,392) 15
Net silver revenue 708,328 508,277 39
Gold revenue
Arcata 26,449 31,264 15
Ares 46,929 40,239 17
Selene - 2 (100)
Pallancata 54,437 43,712 25
San Jose 129,994 108,849 19
Moris 30,025 28,953 4
Commercial discounts (8,584) (9,079) (5)
Net gold revenue 279,250 243,940 14
--------------------------------- ------------- ------------- ---------
Other revenue(1) 84 105 (20)
--------------------------------- ------------- ------------- ---------
Net revenue 987,662 752,322 31
--------------------------------- ------------- ------------- ---------
(1) Other revenue includes revenue from (i) the sale of energy
in Peru and, (ii) administrative services in Mexico.
Costs
Total pre-exceptional cost of sales increased 17% to $404.3
million in 2011 (2010: $345.7 million) mainly as a result of the
increase in the direct production cost of 16% to $261.2 million
(2010: $225.2 million). The direct production cost increment
occurred mainly in mine costs as a result of an increase in the
number of stopes mined. Direct costs also increased due to
inflation in labour, supplies and oil prices in Peru and Argentina.
Depreciation cost was $103.7 million in 2011 (2010: $101.6
million), other items costs which principally includes workers'
profit sharing, were $32.4 million in 2011 (2010: $22.6 million)
and change in inventories was $6.9 million in 2011 (2010: $(3.7)
million).
Unit cost per tonne
The Company reported an overall increase in unit cost per tonne
at its main operations of 16% in 2011 to $95.32 (2010: $82.3). For
further explanation on the increase in unit cost per tonne please
refer to page 7 of the Operating Review.
Unit cost per tonne by operation (including royalties)*:
Operating unit ($/tonne) Year ended Year ended % change
31 Dec 2011 31 Dec 2010
-------------------------- ------------- -------------- ---------
Main operations 91.4 78.8 16
Peru 67.1 59.0 14
Arcata 77.0 71.1 8
Pallancata 60.4 51.8 17
-------------------------- ------------- -------------- ---------
Argentina 181.7 152.3 19
San Jose 181.7 152.3 19
-------------------------- ------------- -------------- ---------
Others 53.1 35.1 51
Ares 120.6 107.5 12
Moris 17.9 16.3 10
-------------------------- ------------- -------------- ---------
Total Company 79.1 61.3 29
-------------------------- ------------- -------------- ---------
*Unit cost per tonne is calculated by dividing mine and geology
costs by extracted tonnage and plant and other costs by treated
tonnage.
Unit cost per tonne by operation (excluding royalties)*:
Operating unit ($/tonne) Unit cost per Unit cost % change
tonne 2011 per
tonne 2010
-------------------------- -------------- -------------------------- ---------
Main operations 83.8 72.5 16
Peru 60.8 53.2 14
Arcata 70.2 65.0 8
Pallancata 54.5 46.2 18
-------------------------- -------------- -------------------------- ---------
Argentina 169.6 144.1 18
San Jose 169.6 144.1 18
-------------------------- -------------- -------------------------- ---------
Others 52.1 34.3 52
Ares 118.0 103.6 14
Moris 17.9 16.3 10
-------------------------- -------------- -------------------------- ---------
Total Company 73.5 57.2 28
-------------------------- -------------- -------------------------- ---------
Cash costs
Co-product silver/gold cash costs are total cash costs
multiplied by the percentage of revenue from silver/gold, divided
by the number of silver/gold ounces sold in the year. Silver and
gold cash costs increased from $9.3 to $13.0 per ounce and from
$535 to $613 per ounce, respectively. Silver and gold cash costs
from main operations (Arcata, Pallancata and San Jose) increased
from $8.7 to $12.0 per ounce and from $504 to $561 per ounce,
respectively. The increase in silver cash costs resulted from
higher production costs and grade declines at both main Peruvian
operations due to the incorporation of lower grade material. In
addition, cash costs also increased due to higher precious metal
prices causing rises in workers profit sharing contributions,
higher commercial discounts and increased export taxes at San
Jose.
By-product silver/gold cash costs are total cash costs less
revenue from gold/silver, divided by the number of silver/gold
ounces sold in the year. By-product cash costs for the period were
$4.9 per silver ounce (2010:$ 3.0 per silver ounce) and ($1,987)
per gold ounce (2010: ($1,153) per gold ounce).
Cash cost reconciliation*:
$000 unless otherwise Year ended Year ended % change
indicated 31 Dec 2011 31 Dec 2010
------------------------------- ----------------------------- ------------------------- ---------------------------
Group Cash Cost 394,225 323,560 22
------------------------------- ----------------------------- ------------------------- ---------------------------
(+) Cost of sales 404,291 345,667 17
(-) Depreciation in Cost
of Sales (105,085) (99,498) 6
(+) Selling expenses 38,970 26,920 45
(+) Commercial deductions 56,049 50,471 11
Gold 8,584 9,079 (5)
Silver 47,465 41,392 15
------------------------------- ----------------------------- ------------------------- ---------------------------
Revenue 987,662 752,322 31
------------------------------- ----------------------------- ------------------------- ---------------------------
Gold 279,250 243,940 14
Silver 708,328 508,277 39
Others 84 105 (20)
------------------------------- ----------------------------- ------------------------- ---------------------------
Ounces Sold 21,974 23,702 (7)
------------------------------- ----------------------------- ------------------------- ---------------------------
Gold 182 196 (7)
Silver 21,792 23,506 (7)
------------------------------- ----------------------------- ------------------------- ---------------------------
Group Cash Cost ($/oz)
------------------------------- ----------------------------- ------------------------- ---------------------------
Co product Au 613 535 15
Co product Ag 13.0 9.30 40
By product Au (1,987) (1,153) 72
By product Ag 4.88 3.00 63
------------------------------- ----------------------------- ------------------------- ---------------------------
* 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 decreased by 3%
to $64.4 million (2010: $66.2 million) mainly due to a lower
provision for the Long-term Incentive Plan and the elimination of
the Voluntary Contribution to the Peruvian Government following a
revision to the tax regime in Peru.
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 14% to $47.3 million in
2011 (2010: $41.5 million). Further detail on the exploration
programme can be found in the exploration section on page 15.
In addition, the Group capitalises part of its brownfield
exploration, which mostly relates to costs incurred converting
potential resource to the Inferred or Measured and Indicated
category. In 2011, the Group capitalised $13.2 million relating to
brownfield exploration compared to $12.0 million in 2010, bringing
the total investment in exploration for 2011 to $60.6 million
(2010: $53.5 million). In addition, $10.1 million was invested in
the Company's Advanced Projects.
Furthermore, in 2011, in line with the Company's strategy to
further develop its production assets, capital expenditure on
Advanced Projects and current operations included an additional $14
million to convert Inferred resources into Measured and Indicated
resources.
Selling expenses
Selling expenses increased to $39.0 million (2010: $26.9
million) mainly as a result of export duties at San Jose, driven by
the increase in gold and silver prices (export duties in Argentina
are levied at 10% of revenue for concentrate and 5% of revenue for
dore).
Other income/expenses
Other income before exceptional items was $7.1 million (2010:
$5.6 million), mainly reflecting a $3.3 million export tax credit
in Argentina. Other expenses before exceptional items reached $15.8
million (2010: $11.0 million), the principal component being an
increase in mine closure provisions of $8.2 million due to the
revision of the mine closure plans in all units.
Profit from continuing operations
Profit from continuing operations before exceptional items, net
finance costs and income tax increased to $424.0 million (2010:
$266.6 million) as a result of the factors detailed above.
Adjusted EBITDA
Adjusted EBITDA increased by 42% over the period to $563.4
million (2010: $397.7 million) driven primarily by higher silver
and gold prices.
Adjusted EBITDA is calculated as profit from continuing
operations before net finance income/(cost), foreign exchange loss
and income tax plus depreciation and exploration expenses other
than personnel and other exploration related fixed expenses.
$000 unless otherwise indicated Year ended Year ended % change
31 Dec 2011 31 Dec 2010
----------------------------------------------------------------------------- ------------- ------------- ---------
Profit from continuing operations before exceptional items, net finance
cost, foreign exchange
loss and income tax 423,973 266,626 59
Operating margin 43% 35%
Depreciation and amortisation in cost of sales 105,085 99,498 6
Depreciation and amortisation in administrative expenses 1,903 2,048 (7)
Exploration expenses 47,336 41,537 14
Personnel and other exploration related fixed expenses (14,894) (11,978) (24)
----------------------------------------------------------------------------- ------------- ------------- ---------
Adjusted EBITDA 563,403 397,731 42
----------------------------------------------------------------------------- ------------- ------------- ---------
Adjusted EBITDA margin 57% 53%
----------------------------------------------------------------------------- ------------- ------------- ---------
Impact of the Group's investments in joint ventures and
associates
An associate is an entity in which Hochschild has significant
influence but not control and is accounted for using the equity
method.
Hochschild's pre exceptional share of the profit/(loss) after
tax of associates totalled $11.7 million in 2011 (2010: ($4.6)
million), a result of the gain in the value of the Group's holding
of Gold Resource Corp's common shares.
Finance income
Finance income before exceptional items increased by 15% to $4.7
million (2010: $4.1 million) mainly due to the increase of interest
received on time deposits.
Finance costs
Finance costs decreased by 28% to $21.3 million in 2011 (2010:
$29.5 million). Interest costs decreased to $15.3 million in 2011
(2010: $17.3 million). In addition, finance costs in 2010 included
a $7.6 million loss on Zero Cost Collar derivative contracts.
In January 2011 Hochschild repaid in full its syndicated bank
loan facility. The Group has no outstanding positions on currency
or commodity hedges.
Foreign exchange losses
The Group recognised a foreign exchange loss of $1.6 million
(2010: $0.03 million gain) as a result of transactions in
currencies other than the functional currency.
Income tax
The Group's pre-exceptional effective tax rate increased to
35.6% in 2011 (2010: 32.9%). This increase is mainly explained by
three new taxes introduced in Peru in Q4 2011, the New Mining
Royalty ('NMR'), the Special Mining Tax ('SMT') and the Special
Mining Assessment ('SMA'); detailed information on these taxes
(collectively referred to as the 'New Taxes') is provided below. In
addition, in 2011 Hochschild recognised the impact of a withholding
tax related to dividends declared from the operating companies to
the UK parent company.
Overview of the New Taxes
The application of the New Taxes is dependent on the presence or
otherwise of a tax stability agreement with the Peruvian
Government. These taxes replace a royalty, (the "Former Royalty")
and a Voluntary Contribution (the 'Voluntary Contribution'). The
Voluntary Contribution was calculated using a formula which, in the
case of Hochschild, is approximate to 1.25% of Net Income.
NMR
The NMR applies to operating assets without stability
agreements. It differs from the Former Royalty by changing the
basis of calculation from sales to operating income. The NMR is
calculated by applying a progressive scale of rates that range from
1% to 12% depending on the level of operating margin. A minimum
amount of NMR is payable equivalent to 1% of Revenue. The Former
Royalty was accounted for in the Cost of Sales line but the NMR
will be accounted for in the Income Tax line.
SMT
The SMT is a new tax, also payable by mining companies with
respect to operating assets without stability agreements, and is
calculated on the same basis as the NMR. The rate of the SMT ranges
from 2% to 8.4% depending on the level of operating margin. Unlike
the NMR however, there is no minimum tax payable. The SMT is
accounted for in the Income Tax line.
SMA
The SMA is an assessment raised on mining companies with respect
to operating assets with stability agreements, to calculate an
amount payable to the State on a voluntary basis. The rate used to
calculate the assessment ranges from 4% to 13.12% of operating
income, depending on the level of operating margin. The SMA is
calculated on operating income after the deduction of payments due
under the Former Royalty, which continues to be payable.
Hochschild does not have a stability agreement in place for Ares
or Pallancata, and is therefore required to pay the NMR and the SMT
in respect of those assets. The same will also apply for mines
operated by the Company in Peru in the future (for example
Inmaculada and Crespo).
In the case of Arcata, having reported to the Government that it
waived its tax stability agreement in June 2009, the Company is
required to pay the SMT. However the Peruvian Government is yet to
confirm the waiver of the stability agreement. Therefore, Arcata
will continue to pay the Former Royalty (which is accounted for in
the Cost of Sales line).
The NMR and SMT payments will be deductable for the calculation
of workers' profit share and Income Tax.
Exceptional items
Exceptional items in 2011 totaled $3.4 million after tax (2010:
($57.8 million). This mainly comprises:
Positive exceptional items:
Main items $000 Description of main items
---------------------------------------------------- ------ --------------------------------------------------------
Reversal/(Impairment and write-off of assets) (net) 1,210 Corresponds to the reversal of the write-off recorded
in 2010 related to the 100% dore project
at the San Jose mine.
Finance income 5,989 Corresponds to the gain of $6,386,000 on the sale of
the residual stake in Lake Shore Gold,
net of the loss generated by the sale of Golden
Minerals Company shares of $397,000.
---------------------------------------------------- ------ --------------------------------------------------------
Negative exceptional items:
Main items $000 Description of main items
------------ -------- ---------------------------------------------------------------------------------------------------------
Other (1,408) The provision of termination benefits due to workers as a result of the closure of the Moris
expenses mine.
Share of (261) Loss
post tax resulting
losses of from
associates dilution
and joint of
ventures holding
accounted in Gold
under Resource
equity Corp.
method
Loss from (2,111) Mainly corresponds to the fair value adjustment of the warrants in Golden Minerals Company
changes in and Iron Creek Capital Corp of $1,563,000 and $139,000 respectively. In addition, this amount
the fair includes the impairment of Brionor Resources and Empire Petroleum Corp of $380,000 and $50,000
value of respectively.
financial
instruments
------------ -------- ---------------------------------------------------------------------------------------------------------
Cash flow & balance sheet review
Cash flow:
$000 Year ended Year ended Change
31 Dec 2011 31 Dec 2010
------------------------------- ------------- ------------- -----------
Net cash generated from
operating activities 464,110 304,232 159,878
Net cash used in investing
activities (139,898) 198,963 (338,861)
Cash flows generated/(used)
in financing activities (221,901) (55,010) (166,891)
------------------------------- ------------- ------------- -----------
Net (decrease)/increase
in cash and cash equivalents
during the period 102,311 448,185 (345,874)
------------------------------- ------------- ------------- -----------
Operating cashflow increased 53% to $464.1 million from $304.2
million in 2010, mainly due to higher metal prices. Net cash from
investing activities decreased to $(139.9) million in 2011 from
$199.0 million in 2010, primarily due to the reduction in the
Company's holding in Lake Shore Gold during 2010 and planned
increases in capital expenditure commitments during 2011 including
the costs associated with progressing the Advanced Projects through
to feasibility. Finally, cash from financing activities decreased
to $(221.9) million from $(55.0) million in 2010, primarily as a
result of the prepayment of the syndicated loan ($114.3 million),
and incremental dividend payments to Hochschild Mining plc
shareholders ($13.5 million in 2011 compared to $20.3 million in
2010) and to IMZ, the Group's joint venture partner in Pallancata
($26.0 million in 2011 compared to $54.0 million in 2010). As a
result, total cash generated decreased from $448.2 million in 2010
to $102.3 million in 2011 ($346 million difference).
Working capital
$000 Year ended Year ended
31 Dec 2011 31 Dec 2010
-------------------------------------------- ------------- -------------
Trade and other receivables 175,672 182,752
Inventories 53,032 55,130
Net other financial assets / (liabilities) (12,803) 18,732
Net Income tax receivable / (payable) (23,859) (10,977)
Trade and other payables and provisions (259,907) (246,781)
-------------------------------------------- ------------- -------------
Working capital (67,865) (1,144)
-------------------------------------------- ------------- -------------
The Group's working capital position decreased to $(67.8)
million in 2011 from $(1.1) million in 2010 primarily due to a
decline of $31.5 million that resulted in a net other financial
liability position in 2011, driven by a change in the value of
embedded derivatives. The decrease was also a result of a higher
net income tax position in 2011 compared to 2010 reflecting higher
commodity prices, and higher trade and other payables and
provisions in 2011 compared to 2010, due to higher workers profit
sharing and mine closure provisions.
Net cash
$000 Year ended Year ended
Dec 2011 31 Dec 2010
--------------------------- ----------- -------------
Cash and cash equivalents 627,481 525,482
Long term borrowings (104,866) (248,380)
Short term borrowings* (46,334) (69,272)
--------------------------- ----------- -------------
Net cash 476,281 207,830
--------------------------- ----------- -------------
*Includes pre-shipment loans which were previously reported
under working capital.
The Group reported net cash of $476.3 million as at 31 December
2011 (2010: $207.8 million). This was primarily driven by the
increase in cash and cash equivalents from operating activities (of
$102.0 million) and the decrease in long term and short term
borrowings. In January 2011, the Group paid down in full its
syndicated loan facility of $114.3 million.
In October 2011, the Group's 51% owned Joint Venture entity in
Argentina repaid the entire outstanding principal and accrued
interest on its shareholder and project finance loans. Hochschild
received net proceeds of approximately $96 million from this
repayment, consisting of approximately $66 million from the
repayment of the project finance loan and approximately $30 million
from the shareholder loan. Hochschild's joint venture partner,
McEwen Mining Inc (formerly named Minera Andes Inc), received net
proceeds of approximately $29 million from this repayment.
The Company's Convertible Bond has a conversion price (before
adjustment for the recommended dividend) of GBP3.94 and allows the
Company to force conversion of the bonds at any time after 20
October 2012 if, on each of at least 20 dealing days out of 30
consecutive dealing days, the Company's share price exceeds 130% of
the conversion price (currently GBP5.12).
Capital expenditure(1)
$000 Year ended Year ended
31 Dec 2011 31 Dec 2010(2)
------------ ------------- ----------------
Arcata 33,040 30,230
Ares 2,673 5,422
Selene 4,570 5,839
Pallancata 50,489 38,116
San Jose 62,994 55,183
Moris 555 2,728
Inmaculada 19,447 -
Crespo 10,232 2,738
Azuca 31,641 13,741
------------ ------------- ----------------
Other 2,306 2,486
------------ ------------- ----------------
Total 217,947 156,483
------------ ------------- ----------------
(1) Includes additions in property, plant and equipment and
evaluation and exploration assets (confirmation of resources) and
excludes increases in the closure of mine assets.
(2) Additions of $90.6 million in respect of the acquisition of
Inmaculada is not reflected in this table.
2011 capital expenditure of $217.9 million (2010: $156.5
million) includes operating capex of $141.4 million, capitalised
exploration costs of $13.2 million in respect of the Group's
operating mines, $61.3 million capitalised in respect of Advanced
Projects (Inmaculada, Crespo and Azuca) and administrative capex of
$2.0 million.
Capital expenditure at Pallancata rose by $12.4 million in 2011
due to higher mine development costs reflecting an increase in
mined areas developed, and higher mine contractors' rates. The
construction of a new tailings dam and higher equipment costs also
contributed to the rise.
Capital expenditure at San Jose increased by $7.8 million in
2011, reflecting local inflation in mine development costs.
Dividends
The directors recommend a final dividend of $0.03 per ordinary
share which, subject to shareholder approval at the 2012 AGM, will
be paid on 29 May 2012 to those shareholders appearing on the
register on 4 May 2012. If approved, this will result in a total
dividend for the year of $0.06 per share. Dividends are declared in
US dollars. Unless a shareholder elects to receive dividends in US
dollars, they will be paid in pounds sterling with the US dollar
dividend converted into pound sterling at exchange rates prevailing
at the time of payment. Our dividend policy takes into account the
profitability of the business and the underlying growth in earnings
of the Company, as well as its capital requirements and cash
flow.
Dividend dates 2012
----------------------------------------------- -------
Ex-dividend date 2 May
Record date 4 May
Deadline for return of currency election forms 9 May
Payment date 29 May
----------------------------------------------- -------
Forward looking Statements
This announcement contains certain forward looking statements,
including such statements within the meaning of Section 27A of the
US Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. In particular, such
forward looking statements may relate to matters such as the
business, strategy, investments, production, major projects and
their contribution to expected production and other plans of
Hochschild Mining plc and its current goals, assumptions and
expectations relating to its future financial condition,
performance and results.
Forward-looking statements include, without limitation,
statements typically containing words such as "intends", "expects",
"anticipates", "targets", "plans", "estimates" and words of similar
import. By their nature, forward looking statements involve risks
and uncertainties because they relate to events and depend on
circumstances that will or may occur in the future. Actual results,
performance or achievements of Hochschild Mining plc may be
materially different from any future results, performance or
achievements expressed or implied by such forward looking
statements. Factors that could cause or contribute to differences
between the actual results, performance or achievements of
Hochschild Mining plc and current expectations include, but are not
limited to, legislative, fiscal and regulatory developments,
competitive conditions, technological developments, exchange rate
fluctuations and general economic conditions. Past performance is
no guide to future performance and persons needing advice should
consult an independent financial adviser.
The forward looking statements reflect knowledge and information
available at the date of preparation of this announcement. Except
as required by the Listing Rules and applicable law, Hochschild
Mining plc does not undertake any obligation to update or change
any forward looking statements to reflect events occurring after
the date of this announcement. Nothing in this announcement should
be construed as a profit forecast.
Statement of Directors' responsibilities
The Directors confirm that to the best of their knowledge:
- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
taken as a whole; and
- the Management report includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face.
(5) Cash costs are calculated to include cost of sales,
treatment charges, and selling expenses before exceptional items
less depreciation included in cost of sales.
(6) Please note that all mineralised intersections in this
release are quoted as down-hole lengths, not true widths.
(7) Please note that all mineralised intersections in this
release are quoted as down-hole lengths, not true widths.
(8) Please note that all mineralised intersections in this
release are quoted as down-hole lengths, not true widths.
(9) Amount disclosed refers to expenditure from the Group's
exploration budget and does not include expenditure from the
operational budget.
(10) Total resources here exclude base metal resources
(11) Please note that all mineralised intersections in this
release are quoted as down-hole lengths, not true widths.
(12) Please note that all mineralised intersections in this
release are quoted as down-hole lengths, not true widths.
(13) Please note that all mineralised intersections in this
release are quoted as down-hole lengths, not true widths
(14) Please note that all mineralised intersections in this
release are quoted as down-hole lengths, not true widths.
Consolidated income statement
For the year ended 31 December 2011
Year ended 31 December Year ended 31 December
2011 2010
--------------------------------------- ------------------------------------
Before Before
exceptional Exceptional exceptional Exceptional
items items Total items items Total
Notes US$000 US$000 US$000 US$000 US$000 US$000
-------------------------------- ----- --------------- ----------- --------- ------------ ----------- ---------
Continuing operations
Revenue 3,5 987,662 - 987,662 752,322 - 752,322
6,
Cost of sales 11 (404,291) - (404,291) (345,667) (8,861) (354,528)
-------------------------------- ----- --------------- ----------- --------- ------------ ----------- ---------
Gross profit 583,371 - 583,371 406,655 (8,861) 397,794
Administrative expenses 7 (64,354) - (64,354) (66,221) - (66,221)
Exploration expenses 8 (47,336) - (47,336) (41,537) - (41,537)
Selling expenses 9 (38,970) - (38,970) (26,920) - (26,920)
Other income 11 7,062 - 7,062 5,605 77,197 82,802
Other expenses 11 (15,800) (1,408) (17,208) (10,956) - (10,956)
Impairment and write-off of
assets (net) 11 - 1,210 1,210 - (24,018) (24,018)
-------------------------------- ----- --------------- ----------- --------- ------------ ----------- ---------
Profit from continuing
operations
before net finance
income/(cost),
foreign exchange loss and
income
tax 423,973 (198) 423,775 266,626 44,318 310,944
Share of post tax
profit/(losses)
of associates and joint
ventures
accounted under equity method 11,17 11,707 (261) 11,446 (4,607) (1,473) (6,080)
Finance income 11,12 4,689 5,989 10,678 4,140 9,204 13,344
Finance costs 11,12 (21,331) (2,111) (23,442) (29,542) - (29,542)
Foreign exchange loss (1,562) - (1,562) 29 - 29
-------------------------------- ----- --------------- ----------- --------- ------------ ----------- ---------
Profit from continuing
operations
before income tax 417,476 3,419 420,895 236,646 52,049 288,695
Income tax (expense)/benefit 13 (148,557) - (148,557) (77,816) 5,786 (72,030)
-------------------------------- ----- --------------- ----------- --------- ------------ ----------- ---------
Profit for the year from
continuing
operations 268,919 3,419 272,338 158,830 57,835 216,665
-------------------------------- ----- --------------- ----------- --------- ------------ ----------- ---------
Attributable to:
Equity shareholders of the
Company 165,890 2,826 168,716 94,924 61,687 156,611
Non-controlling interests 103,029 593 103,622 63,906 (3,852) 60,054
-------------------------------- ----- --------------- ----------- --------- ------------ ----------- ---------
268,919 3,419 272,338 158,830 57,835 216,665
-------------------------------- ----- --------------- ----------- --------- ------------ ----------- ---------
Basic earnings per Ordinary
Share from continuing
operations
for the year (expressed in
US dollars per share) 14 0.49 0.01 0.50 0.28 0.18 0.46
-------------------------------- ----- --------------- ----------- --------- ------------ ----------- ---------
Diluted earnings per Ordinary
Share from continuing
operations
for the year (expressed in
US dollars per share) 14 0.49 0.01 0.50 0.29 0.17 0.46
-------------------------------- ----- --------------- ----------- --------- ------------ ----------- ---------
Consolidated statement of comprehensive income
For the year ended 31 December 2011
Year ended
31 December
-----------------
2011 2010
Notes US$000 US$000
------------------------------------------------------- ----- -------- -------
Profit for the year 272,338 216,665
Other comprehensive income
Recycling of the exchange differences on translating
foreign operations due to Lake Shore Gold sale - 2,143
Exchange differences on translating foreign operations (1,143) 2,982
Change in fair value of available-for-sale financial
assets 18 (33,078) 47,573
Recycling of the gain on available-for-sale financial
assets (6,836) (5,915)
Change in fair value of cash flow hedges taken
to equity - (2,346)
Recycling of the change in fair value of cash flow
hedges taken to equity 1,930 429
Deferred income tax relating to components of other
comprehensive income 13 7,164 (7,189)
------------------------------------------------------- ----- -------- -------
Other comprehensive income for the period, net
of tax (31,963) 37,677
------------------------------------------------------- ----- -------- -------
Total comprehensive income for the year 240,375 254,342
------------------------------------------------------- ----- -------- -------
Total comprehensive income attributable to
Equity shareholders of the Company 136,689 194,288
Non-controlling interests 103,686 60,054
------------------------------------------------------- ----- -------- -------
240,375 254,342
------------------------------------------------------- ----- -------- -------
Consolidated statement of financial position
As at 31 December 2011
As at As at
31 December 31 December
2011 2010
Notes US$000 US$000
-------------------------------------------------- ----- ------------ ------------
ASSETS
Non-current assets
Property, plant and equipment(1) 15 461,554 406,914
Evaluation and exploration assets(1) 16 274,507 212,080
Intangible assets 18,772 20,166
Investments accounted under equity method 17 83,201 79,068
Available-for-sale financial assets 18 40,769 153,620
Trade and other receivables 8,741 36,817
Income tax receivable - 2,401
Deferred income tax assets - 5,229
-------------------------------------------------- ----- ------------ ------------
887,544 916,295
-------------------------------------------------- ----- ------------ ------------
Current assets
Inventories 53,032 55,130
Trade and other receivables 166,931 145,935
Income tax receivable 601 917
Other financial assets 28 20,662
Cash and cash equivalents 19 627,481 525,482
-------------------------------------------------- ----- ------------ ------------
848,073 748,126
-------------------------------------------------- ----- ------------ ------------
Total assets 1,735,617 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 (207,117) (175,244)
Retained earnings 677,218 528,788
-------------------------------------------------- ----- ------------ ------------
1,023,768 908,109
-------------------------------------------------- ----- ------------ ------------
Non-controlling interests 195,299 147,120
-------------------------------------------------- ----- ------------ ------------
Total equity 1,219,067 1,055,229
-------------------------------------------------- ----- ------------ ------------
Non-current liabilities
Trade and other payables 8 2,393
Borrowings 20 104,866 248,380
Provisions 21 68,430 86,443
Deferred income tax liabilities 68,152 28,534
-------------------------------------------------- ----- ------------ ------------
241,456 365,750
-------------------------------------------------- ----- ------------ ------------
Current liabilities
Trade and other payables 117,037 116,074
Other financial liabilities 12,831 1,930
Borrowings 20 46,334 69,272
Provisions 21 74,432 41,871
Income tax payable 24,460 14,295
-------------------------------------------------- ----- ------------ ------------
275,094 243,442
-------------------------------------------------- ----- ------------ ------------
Total liabilities 516,550 609,192
-------------------------------------------------- ----- ------------ ------------
Total equity and liabilities 1,735,617 1,664,421
-------------------------------------------------- ----- ------------ ------------
1 31 December 2010 figures are subject to a reclassification as
disclosed in note 2(z).
These financial statements were approved by the Board of
Directors on 19 March 2012 and signed on its behalf by:
Ignacio Bustamante
Chief Executive Officer
19 March 2012
Consolidated statement of cash flow
For the year ended 31 December 2011
Year ended
31 December
--------------------
2011 2010
Notes US$000 US$000
--------------------------------------------------------- ----- --------- ---------
Cash flows from operating activities
Cash generated from operations 520,262 351,261
Interest received 13,690 1,749
Interest paid (29,474) (20,604)
Payment of mine closure costs 21 (4,113) (4,634)
Tax paid (36,255) (23,540)
--------------------------------------------------------- ----- --------- ---------
Net cash generated from operating activities 464,110 304,232
--------------------------------------------------------- ----- --------- ---------
Cash flows from investing activities
Purchase of property, plant and equipment (140,004) (122,836)
Purchase of evaluation and exploration assets (73,010) (35,980)
Proceeds from sale of investment in associates - 383,614
Acquisition of subsidiary 4(a) (15,594) -
Dividends received from associates 6,603 2,633
Investment in associates - (20,336)
Purchase of available-for-sale financial assets (491) (20,785)
Purchase of intangibles - (94)
Proceeds from sale of available-for-sale financial
assets 82,485 11,915
Proceeds from sale of property, plant and equipment 113 832
--------------------------------------------------------- ----- --------- ---------
Net cash (used in)/generated from investing activities (139,898) 198,963
--------------------------------------------------------- ----- --------- ---------
Cash flows from financing activities
Proceeds of borrowings 117,670 37,650
Repayment of borrowings (272,379) (52,447)
Transaction costs associated with borrowing - (690)
Purchase of treasury shares (898) -
Dividends paid 22 (74,285) (39,523)
Capital contribution from non-controlling interests 7,991 -
--------------------------------------------------------- ----- --------- ---------
Cash flows (used in)/generated from financing activities (221,901) (55,010)
--------------------------------------------------------- ----- --------- ---------
Net increase/(decrease) in cash and cash equivalents
during the year 102,311 448,185
Exchange difference (312) (547)
Cash and cash equivalents at beginning of year 525,482 77,844
--------------------------------------------------------- ----- --------- ---------
Cash and cash equivalents at end of year 19 627,481 525,482
--------------------------------------------------------- ----- --------- ---------
Consolidated statement of changes in equity
For the year ended 31 December 2011
Other reserves
--------------------------------------------------------------------------------------
Capital
and
reserves
Unrealised Unrealised attributable
gain/(loss) gain/(loss) to
on on Share- shareholders
Equity available-for-sale cash Bond Cumulative based Total of
share Share Treasury financial flow equity translation Merger payment Other Retained the Non-controlling Total
capital premium shares assets hedges component adjustment reserve reserve reserves earnings Parent interests equity
Notes US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000
---------------- ----- ------- ------- -------- ------------------ ----------- --------- ----------- --------- ------- --------- -------- ------------ --------------- ---------
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
income/(loss) - - - 34,469 (1,917) - 5,125 - - 37,677 - 37,677 - 37,677
Profit for
the year - - - - - - - - - - 156,611 156,611 60,054 216,665
---------------- ----- ------- ------- -------- ------------------ ----------- --------- ----------- --------- ------- --------- -------- ------------ --------------- ---------
Total
comprehensive
income for
2010 - - - 34,469 (1,917) - 5,125 - - 37,677 156,611 194,288 60,054 254,342
Capital
contribution
from
non-controlling
interests - - - - - - - - - - - - 36,940 36,940
Dividends
declared
during the
year 22 - - - - - - - - - - (13,523) (13,523) - (13,523)
Dividends paid
to
non-controlling
interests 22 - - - - - - - - - - - - (26,000) (26,000)
---------------- ----- ------- ------- -------- ------------------ ----------- --------- ----------- --------- ------- --------- -------- ------------ --------------- ---------
Balance at
31 December
2010 158,637 395,928 37,808 (1,930) 8,432 (9,508) (210,046) - (175,244) 528,788 908,109 147,120 1,055,229
Other
comprehensive
income/(loss) - - - (32,750) 1,930 - (1,207) - - (32,027) - (32,027) 64 (31,963)
Profit for
the year - - - - - - - - - - 168,716 168,716 103,622 272,338
---------------- ----- ------- ------- -------- ------------------ ----------- --------- ----------- --------- ------- --------- -------- ------------ --------------- ---------
Total
comprehensive
income for
2011 - - - (32,750) 1,930 - (1,207) - - (32,027) 168,716 136,689 103,686 240,375
Capital
contribution
from
non-controlling
interest - - - - - - - - - - - - 7,991 7,991
CEO LTIP
provision - - - - - - - - 154 154 - 154 - 154
Treasury shares - - (898) - - - - - - - - (898) - (898)
Dividends
declared
during the
year 22 - - - - - - - - - - (20,286) (20,286) - (20,286)
Dividends
declared
to
non-controlling
interests 22 - - - - - - - - - - - - (63,498) (63,498)
---------------- ----- ------- ------- -------- ------------------ ----------- --------- ----------- --------- ------- --------- -------- ------------ --------------- ---------
Balance at
31 December
2011 158,637 395,928 (898) 5,058 - 8,432 (10,715) (210,046) 154 (207,117) 677,218 1,023,768 195,299 1,219,067
---------------- ----- ------- ------- -------- ------------------ ----------- --------- ----------- --------- ------- --------- -------- ------------ --------------- ---------
1 Notes to the consolidated financial statements
For the year ended 31 December 2011
The financial information for the year ended 31 December 2011
and 2010 contained in this document does not constitute statutory
accounts as defined in section 435 of the Companies Act 2006. The
financial information for the years ended 31 December 2011 and 2010
have been extracted from the consolidated financial statements of
Hochschild Mining plc for the year ended 31 December 2011 which
have been approved by the directors on 19 March 2012 and will be
delivered to the Registrar of Companies in due course. The
auditor's report on those financial statements was unqualified and
did not contain a statement under section 498 of the Companies Act
2006.
2 Significant accounting policies
The accounting policies adopted are consistent with those of the
previous financial year except for the adoption of new and amended
standards.
The Group has adopted the following new and amended IFRS and
IFRIC interpretations during the year. Adoption of these revised
standards and interpretations did not have any effect on the
financial performance or position of the Group.
-- 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 any 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 any 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 any 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.
3 Segment reporting
The Group's activities are principally related to mining
operations which involve the exploration, production and sale of
gold and silver. Products are subject to the same risks and returns
and are sold through the same distribution channels. The Group
undertakes a number of activities solely to support mining
operations including power generation and services. Transfer prices
between segments are set on an arm's-length basis in a manner
similar to that used for third parties. Segment revenue, segment
expense and segment results include transfers between segments.
Those transfers are eliminated on consolidation.
For internal reporting purposes, management takes decisions and
assesses the performance of the Group through consideration of the
following reporting segments:
-- Operating unit - Ares, which generates revenue from the sale
of gold and silver.
-- Operating unit - Arcata, which generates revenue from the
sale of gold, silver and concentrate.
-- Operating unit - Pallancata, which generates revenue from the
sale of concentrate.
-- Operating unit - San Jose, which generates revenue from the
sale of gold, silver and concentrate.
-- Operating unit - Moris, which generates revenue from the sale
of gold and silver.
-- Exploration, which explores and evaluates areas of interest
in brownfield and greenfield sites with the aim of extending the
life of mine of existing operations and to assess the feasibility
of new mines. The exploration segment includes expenses reflected
through profit and loss and capitalised as assets.
-- Other - for the year 2011 the amount disclosed includes the
profit or loss generated by Empresa de Transmision Callalli S.A.C.
(a power generation company), HMX, S.A. de C.V. (a service company
in Mexico), and the Selene mine, that closed in 2009 which, a
consequence, is not considered to be a reportable segment . For the
year 2010 the amount disclosed includes the profit or loss
generated by Empresa de Transmision Callalli S.A.C. (a power
generation company), Servicios Corporativos Hochschild Mining
Mexico S.A. de C.V. (a service company in Mexico), and the Selene
mine.
The Group's administration, financing, other activities
(including other income and expense), and income taxes are managed
at a corporate level and are not allocated to operating
segments.
Segment information is consistent with the accounting policies
adopted by the Group. Management evaluates the financial
information based on International Financial Reporting Standards
(IFRS) as adopted for use in the European Union.
The Group measures the performance of its operating units by the
segment profit or loss that comprises gross profit, selling
expenses and exploration expenses.
Segment assets include the items that could be allocated
directly to the segment.
(a) Reportable segment information
Adjustment
San and
Ares Arcata Pallancata Jose Moris Exploration Other(1) eliminations Total
US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000
------------------- ------- -------- ---------- -------- ------- ----------- -------- ------------- ---------
Year ended
31 December 2011
Revenue for
external
customers 68,097 209,239 352,642 325,302 32,298 - 84 987,662
Inter segment
revenue - - - - - - 7,966 (7,966) -
------------------- ------- -------- ---------- -------- ------- ----------- -------- ------------- ---------
Total revenue 68,097 209,239 352,642 325,302 32,298 - 8,050 (7,966) 987,662
------------------- ------- -------- ---------- -------- ------- ----------- -------- ------------- ---------
Segment
profit/(loss) 20,297 125,209 230,281 160,017 9,086 (50,048) 6,864 (4,641) 497,065
Others(2) (76,170)
Profit/(loss) from
continuing
operations
before income tax 420,895
Other segment
information
Depreciation(3) (1,291) (22,502) (34,923) (43,343) (1,929) (383) (1,903) - (106,274)
Amortisation - - - (1,454) - - (100) - (1,554)
Impairment - - - - - - - - -
Assets
Capital expenditure 2,673 33,040 55,059 62,994 555 61,629 1,997 - 217,947
Current assets 4,798 31,826 62,348 59,064 7,338 276 2,761 - 168,411
Other non-current
assets(4) 10,971 94,583 141,635 231,757 - 255,473 20,414 - 754,833
------------------- ------- -------- ---------- -------- ------- ----------- -------- ------------- ---------
Total segment
assets 15,769 126,409 203,983 290,821 7,338 255,749 23,175 - 923,244
------------------- ------- -------- ---------- -------- ------- ----------- -------- ------------- ---------
Not reportable
assets(5) - - - - - - 812,373 - 812,373
------------------- ------- -------- ---------- -------- ------- ----------- -------- ------------- ---------
Total assets 15,769 126,409 203,983 290,821 7,338 255,749 835,548 - 1,735,617
------------------- ------- -------- ---------- -------- ------- ----------- -------- ------------- ---------
1 "Other" revenue primarily relates to revenues earned by HMX
S.A. de C.V. for services provided to the Moris mine, and the
Mexican exploration activities.
2 Comprised of administrative expenses of US$64,354,000, other
income of US$7,062,000, other expenses of US$17,208,000, reversal
of impairment of assets of US$ 1,210,000, share of gains of
associates and joint ventures of US$11,446,000, finance income of
US$10,678,000, finance cost of US$23,442,000, and foreign exchange
loss of US$1,562,000.
3 Includes US$28,000 of depreciation capitalised in Minera
Hochschild Mexico S.A. de C.V. due to the San Felipe project.
4 Includes goodwill in respect of San Jose amounting to
US$2,091,000.
5 Not reportable assets are comprised of investments accounted
under the equity method of US$83,201,000, available-for-sale
financial assets of US$40,769,000, other receivables of
US$60,293,000, income tax receivable of US$601,000, deferred income
tax assets of US$Nil, other financial assets of US$28,000 and cash
and cash equivalents of US$627,481,000.
Adjustment
San and
Ares Arcata Pallancata Jose Moris Exploration Other(1) eliminations Total
US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000
------------------ ------- -------- ---------- -------- -------- ----------- -------- ------------- ---------
Year ended
31 December 2010
Revenue for
external
customers 56,824 181,778 261,877 220,825 30,899 - 119 - 752,322
Inter segment
revenue - - - - - - 6,992 (6,992) -
------------------ ------- -------- ---------- -------- -------- ----------- -------- ------------- ---------
Total revenue 56,824 181,778 261,877 220,825 30,899 - 7,111 (6,992) 752,322
------------------ ------- -------- ---------- -------- -------- ----------- -------- ------------- ---------
Segment
profit/(loss)(2) 15,053 104,677 158,528 92,804 766 (49,277) 5,030 1,756 329,337
Others(3) (40,642)
Profit/(loss) from
continuing
operations
before income tax 288,695
Other segment
information
Depreciation(4) (2,788) (18,214) (33,939) (34,730) (10,865) (218) (1,692) - (102,446)
Amortisation - - - (2,067) - - (301) - (2,368)
Impairment (42) (1,328) (102) (6,728) - (15,464) (354) - (24,018)
Assets
Capital
expenditure 5,422 30,230 43,955 55,183 2,728 108,218 2,305 - 248,041
Current assets 4,661 20,934 69,968 39,739 7,295 11 1,926 - 144,534
Other non-current
assets(5) 9,670 82,983 127,869 210,010 1,428 194,111 12,939 - 639,010
------------------ ------- -------- ---------- -------- -------- ----------- -------- ------------- ---------
Total segment
assets 14,331 103,917 197,837 249,749 8,723 194,122 14,865 - 783,544
------------------ ------- -------- ---------- -------- -------- ----------- -------- ------------- ---------
Not reportable
assets(6) - - - - - - 880,877 - 880,877
------------------ ------- -------- ---------- -------- -------- ----------- -------- ------------- ---------
Total assets 14,331 103,917 197,837 249,749 8,723 194,122 895,742 - 1,664,421
------------------ ------- -------- ---------- -------- -------- ----------- -------- ------------- ---------
1 "Other" revenue primarily relates to revenues earned by
Servicios Corporativos Hochschild Mining Mexico S.A. de C.V. for
services provided to the Moris mine, and the Mexican exploration
activities.
2 Segment profit for the operating segments Ares, Arcata, Selene
and Pallancata includes an exceptional item in cost of sales of
US$8,861,000 (refer to note 6(1)).
3 Comprised of administrative expenses of US$66,221,000, other
income of US$82,802,000, other expenses of US$10,956,000,
impairment of assets of US$24,018,000, share of loss of associates
and joint ventures of US$6,080,000, finance income of
US$13,344,000, finance cost of US$29,542,000, and foreign exchange
gain of US$29,000.
4 Includes US$61,000 of depreciation capitalised in Minera
Hochschild Mexico S.A. de C.V. due to the San Felipe project.
5 Includes goodwill in respect of San Jose amounting to
US$2,091,000.
6 Not reportable assets are comprised of intangibles of
US$150,000, investments accounted under the equity method of
US$79,068,000, available-for-sale financial assets of
US$153,620,000, other receivables of US$93,348,000, income tax
receivable of US$3,318,000, deferred income tax assets of
US$5,229,000, other financial assets of US$20,662,000 and cash and
cash equivalents of US$525,482,000.
(b) Geographical information
Based on the entity-wide disclosure stated in IFRS 8, the
revenue for the period based on the country in which the customer
is located is as follows:
Year ended
31 December
----------------
2011 2010
US$000 US$000
------------------ ------- -------
External customer
USA 153,301 147,701
Peru 82,223 158,540
Canada 148,023 137,713
Germany 185,447 128,834
Switzerland 152,612 88,457
United Kingdom 50,540 38,802
Korea 215,516 52,275
------------------ ------- -------
Total 987,662 752,322
------------------ ------- -------
Inter-segment
Peru 667 882
Mexico 7,299 6,110
------------------ ------- -------
Total 995,628 759,314
------------------ ------- -------
In the periods set out below, certain customers accounted for
greater than 10% of the Group's total revenues as detailed in the
following table:
Year ended 31 December Year ended 31 December
2011 2010
------------------------------- -------------------------------
US$000 % Revenue Segment US$000 % Revenue Segment
--------------------------------- ------- --------- ----------- ------- --------- -----------
Aurubis AG Pallancata Selene
(formerly Nordeutsche Affinerie and San Pallancata
AG) 185,447 19% Jose 128,834 17% San Jose
Pallancata Pallancata
and San and San
LS Nikko 176,397 18% Jose 52,275 7% Jose
Teck Metals Ltd. Pallancata
(formerly Teck Cominco Metals and San Arcata
Ltd) 148,023 15% Jose 137,713 18% Pallancata
Ares
Ares Arcata Arcata
San Jose San Jose
Johnson Matthey Inc. 96,293 10% and Moris 79,384 11% Moris
Arcata
and San Arcata
Consorcio Minero S.A. 82,174 8% Jose 158,464 21% San Jose
--------------------------------- ------- --------- ----------- ------- --------- -----------
Based on the entity-wide disclosure requirements set out in IFRS
8, non-current assets, excluding financial instruments and income
tax assets, were allocated based on the geographical area where the
assets are located as follows:
As at 31 December
-------------------
2011 2010
US$000 US$000
------------------------------------ --------- --------
Peru 496,395 399,905
Argentina 231,892 210,265
Mexico 26,224 28,699
Chile 146 68
United Kingdom 83,377 79,291
------------------------------------ --------- --------
Total non-current segment assets 838,034 718,228
Available-for-sale financial assets 40,769 153,620
Trade and other receivables 8,741 36,817
Deferred income tax assets - 5,229
Income tax receivable - 2,401
------------------------------------ --------- --------
Total non-current assets 887,544 916,295
------------------------------------ --------- --------
4 Acquisitions and disposals
(a) Acquisition of assets
Minera Quellopata S.A.C.
On 12 October 2010, the Group signed a Framework Agreement with
International Minerals Corporation " IMZ", through which the Group
acquired an additional 30% interest in the Inmaculada project
(totalling 60%) in exchange for: (i) the purchase of US$20,000,000
of common shares in IMZ by way of a private placement, (ii) a
payment of US$15,000,000, (iii) a commitment to fund the first
US$100,000,000 needed to plan, develop and construct a mining
operation within the Inmaculada property, and (iv) the transfer of
Minera del Suroeste S.A.C.'s ownership in Minas Pacapausa S.A.C. to
Minera Suyamarca S.A.C. Minera Oro Vega which transferred to Minera
Quellopata S.A.C. "Quellopata", together with the Puquiopata
project. The Group is the operator of the new venture pursuant to a
separate management agreement similar in form and substance to the
Pallancata management agreement.
This transaction has been accounted for as an asset acquisition
on the basis that Quellopata has no existing processes.
As a result of the acquisition, the Group obtained control over
Quellopata and consolidated it as a subsidiary. The net assets
received in the asset acquisition were US$91,782,000 and the IMZ
interest generated by the transaction was US$36,940,000. At 31
December 2010, the Group recognised a contingent consideration of
US$39,243,000 and an obligation to IMZ of US$15,594,000.
During 2011 the Group paid to IMZ its obligation of
US$15,594,000.
Gold Resource Corporation
Between 26 January 2010 and 5 February 2010 the Group acquired
440,500 shares of its associate Gold Resource Corp. for
US$4,351,000 in the open market. In addition, on 8 March 2010 the
Group signed a subscription agreement with Gold Resource Corp. by
which the Group acquired 600,000 shares for a total consideration
of US$5,172,000.
In addition on 27 May 2010 the Group acquired 631,579 shares of
Gold Resource Corp. for a total consideration of US$6,000,000.
Following completion of this purchase the Group's ownership in its
associate increased to 25.28% on a fully diluted basis as at 31
December 2010.
At 31 December 2011 the Group's ownership in Gold Resource Corp.
is 25.2% on a fully diluted basis.
(b) Disposal of shares
Lake Shore Gold Corp.
On 14 October 2010 the Group entered into an agreement with RBC
Dominion Securities Inc., BMO Nesbitt Burns Inc. and CIBC World
Markets Inc. to dispose of 109,000,000 shares held in Lake Shore
Gold (approximately 27.3%) pursuant to a bought deal transaction,
at a price of CAD$3.60 per share. The sale was completed on 3
November 2010. After this transaction the Group holds approximately
a 5.4% interest, no longer has Board representation and no longer
exercises significant influence over Lake Shore Gold. On 2 December
2010 the Group entered into a Block Trade Letter Agreement ("the
Agreement") with RBC Capital Markets to dispose of the Group's
remaining 21,540,992 common shares in Lake Shore Gold
(approximately 5.4% interest in Lake Shore Gold on a fully diluted
basis) at a price of CAD$3.70 per share raising total net proceeds
of CAD$79,701,670. Due to the size of the combined sales (the
initial disposal of 27.3% of Lake Shore Gold in November 2010 and
the subsequent disposal of the remaining 5.4%), the second
transaction was subject to shareholder approval which was granted
on 8 February 2011. The transaction closed on the same date and a
gain of US$6,385,878 was recognised in 2011 in respect of the
disposal.
5 Revenue
As at 31 December
-------------------
2011 2010
US$000 US$000
-------------------------- --------- --------
Gold (from dore bars) 144,812 125,613
Silver (from dore bars) 155,122 98,431
Gold (from concentrate) 134,438 118,327
Silver (from concentrate) 553,206 409,846
Services 84 105
-------------------------- --------- --------
Total 987,662 752,322
-------------------------- --------- --------
Included within revenue is a gain of US$12,395,086 relating to
provisional pricing adjustments representing the change in the fair
value of embedded derivatives (2010: gain of US$60,473,436) arising
on sales of concentrates and dore.
6 Cost of sales
Included in cost of sales are:
Year ended
31 December
----------------
2011 2010
US$000 US$000
------------------------------------------------- ------- -------
Depreciation and amortisation 105,897 102,705
Personnel expenses(1) (note 10) 109,011 97,055
Mining royalty (note 24) 17,950 15,091
Change in products in process and finished goods 6,893 (3,609)
------------------------------------------------- ------- -------
1 2010 personnel expenses amount includes an exceptional item
that corresponds to a one-off bonus paid to the mining workers in
Peru, relating to 2009, of US$8,861,000.
7 Administrative expenses
Year ended
31 December
----------------
2011 2010
US$000 US$000
----------------------------------------- ------- -------
Personnel expenses 32,376 34,337
Professional fees 6,256 9,557
Social and community welfare expenses(1) 7,717 6,686
Lease rentals 1,088 1,176
Travel expenses 1,878 1,756
Communications 823 133
Indirect taxes 3,147 2,008
Depreciation 1,869 1,747
Amortisation of software licences 34 301
Contribution to Peruvian Government 26 1,814
Technology and systems 565 1,354
Security 457 437
Supplies 453 250
Other 7,665 4,665
----------------------------------------- ------- -------
Total 64,354 66,221
----------------------------------------- ------- -------
1 Represents amounts expended by the Group on social and
community welfare activities surrounding its mining units.
8 Exploration expenses
Year ended
31 December
----------------
2011 2010
US$000 US$000
------------------------- ------- -------
Mine site exploration(1)
Arcata 4,512 2,476
Ares 2 -
Pallancata 2,917 3,742
San Jose 1,612 2,153
------------------------- ------- -------
9,043 8,371
------------------------- ------- -------
Prospects(2)
Peru 2,952 5,292
Argentina 3,534 2,767
Mexico 2,419 1,485
Chile 6,558 7,607
------------------------- ------- -------
15,463 17,151
------------------------- ------- -------
Generatives(3)
Peru 7,093 3,356
Argentina 117 46
Mexico 562 460
Chile 164 175
------------------------- ------- -------
7,936 4,037
------------------------- ------- -------
Personnel 10,882 7,851
Others 4,012 4,127
------------------------- ------- -------
Total 47,336 41,537
------------------------- ------- -------
1 Mine-site exploration is performed with the purpose of
identifying potential minerals within an existing mine-site, with
the goal of maintaining or extending the mine's life. Once an
inferred resource has been identified, costs incurred converting it
to indicated and measured resources are capitalised.
2 Prospects expenditure relates to detailed geological
evaluations in order to determine zones which have mineralisation
potential that is economically viable for exploration. Exploration
expenses are generally incurred in the following areas: detail
mapping, detail sampling, geophysics, identification of local
targets and reconnaissance drilling.
3 Generative expenditure is very early stage exploration
expenditure related to the basic evaluation of the region to
identify prospects areas that have the geological conditions
necessary to contain mineral deposits. Related activities include
regional and field reconnaissance, satellite images, compilation of
public information and identification of exploration targets.
The following table lists the liabilities (generally payables)
outstanding at the year end, which relate to the exploration
activities of Group companies engaged only in exploration.
Liabilities related to exploration activities incurred by Group
operating companies are not included since it is not possible to
separate the liabilities related to the exploration activities of
these companies from their operating liabilities.
As at 31 December
-------------------
2011 2010
US$000 US$000
---------------------------------------------- --------- --------
Liabilities related to exploration activities 1,808 1,117
---------------------------------------------- --------- --------
Cash flows of exploration activities are as follows:
As at 31 December
-------------------
2011 2010
US$000 US$000
--------- --------- --------
Payments 22,708 21,036
--------- --------- --------
9 Selling expenses
As at 31 December
-------------------
2011 2010
US$000 US$000
--------------------------------------------------------- --------- --------
Transportation of dore, concentrate and maritime freight 5,215 7,559
Sales commissions 3,300 1,466
Personnel expenses 340 296
Warehouse services 27,151 15,146
Other 2,964 2,453
--------------------------------------------------------- --------- --------
Total 38,970 26,920
--------------------------------------------------------- --------- --------
10 Personnel expenses(1)
As at 31 December
-------------------
2011 2010
US$000 US$000
--------------------------- --------- --------
Salaries and wages 90,061 77,803
Workers' profit sharing 31,444 22,830
Other legal contributions 17,780 15,215
Statutory holiday payments 6,202 5,406
Long-term incentive plan 2,574 6,975
Termination benefits 2,232 2,768
Other 12,170 14,307
--------------------------- --------- --------
Total 162,463 145,304
--------------------------- --------- --------
1 Personnel expenses are distributed in cost of sales,
administrative expenses, exploration expenses, selling expenses and
capitalised as property plant and equipment amounting to
US$109,011,000 (2010: US$97,055,000), US$32,376,000 (2010:
US$34,337,000), US$10,882,000 (2010: US$7,851,000), US$340,000
(2010: US$296,000) and US$9,854,000 (2010: US$5,765,000)
respectively.
Average number of employees for 2011 and 2010 were as
follows:
As at 31 December
-------------------
2011 2010
--------------- --------- --------
Peru 2,402 2,323
Argentina 1,188 1,083
Mexico 148 160
Chile 28 19
United Kingdom 11 9
--------------- --------- --------
Total 3,777 3,594
--------------- --------- --------
11 Pre-tax exceptional items
Year Year
ended ended
31 December 31 December
2011 2010
US$000 US$000
-------------------------------------------------------------------- ------------ ------------
Cost of sales:
Personnel expenses (note 6(1)) - (8,861)
-------------------------------------------------------------------- ------------ ------------
Total - (8,861)
-------------------------------------------------------------------- ------------ ------------
Other income:
Gain on sale of investment in El Quevar(1) - 6,010
Gain on sale of investment in Zincore Metals Inc.(2) - 7,533
Gain on sale of investment in Lake Shore Gold(3) - 63,654
-------------------------------------------------------------------- ------------ ------------
Total - 77,197
-------------------------------------------------------------------- ------------ ------------
Other expenses:
Termination benefits(4) (1,408) -
-------------------------------------------------------------------- ------------ ------------
Total (1,408) -
-------------------------------------------------------------------- ------------ ------------
Impairment and write-off of assets (net):
Impairment and write-off of assets(5) - (24,018)
Reversal of write-off of assets(6) 1,210 -
-------------------------------------------------------------------- ------------ ------------
Total 1,210 (24,018)
-------------------------------------------------------------------- ------------ ------------
Share of post tax losses of associates and joint ventures accounted
under equity method (261) (1,473)
-------------------------------------------------------------------- ------------ ------------
Total (261) (1,473)
-------------------------------------------------------------------- ------------ ------------
Finance income:
Gain on sale and exchange of available-for-sale financial assets(7) 5,989 5,915
Gain from changes in the fair value of financial instruments(8) - 3,289
-------------------------------------------------------------------- ------------ ------------
Total 5,989 9,204
-------------------------------------------------------------------- ------------ ------------
Finance expenses:
Loss from changes in the fair value of financial instruments(9) (2,111) -
-------------------------------------------------------------------- ------------ ------------
Total (2,111) -
-------------------------------------------------------------------- ------------ ------------
1 Corresponds to the gain generated from 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 at a price per share of US$15.
2 Corresponds to the gain generated from the sale of the Group's
interest in Zincore Metals Inc. to Inversiones Pacasmayo S.A., a
related party of the Group.
3 Corresponds to the gain generated from the sale of 109,000,000
Lake Shore Gold shares on 3 November 2010.
4 Relates to the provision of termination benefits due to
workers as a result of the closure of Moris mine.
5 Mainly comprises the effects of the result of the physical
verification exercise performed every three years at the Peruvian
unit mines which resulted in a write-off in the Ares mine unit of
US$1,727,000 and in the Pallancata mine unit of US$102,000. In
addition, includes a write off of US$12,000 in Mexico, US$747,000
in Peru related to the Crespo project and US$6,728,000 in Argentina
related to the proposed conversion of San Jose's production to dore
only. In 2010, the Group has impaired the San Felipe property by
US$14,702,000. The impairment was triggered by the conclusion of
the marketing process conducted during the year and reflects the
Company's estimate of the recoverable amount.
6 Corresponds to the reversal of the write-off recorded in 2010
related to the 100% dore project in the San Jose mine.
7 In 2011 the amount corresponds to the gain on sale of the
remaining Lake Shore Gold shares held of US$6,386,000, net of the
loss generated by the sale of Golden Minerals Company shares of
US$397,000. In 2010 the amount corresponds to the gain on sale of
Golden Minerals and Fortuna River shares of US$5,833,000 and
US$53,000 respectively, net of the loss generated by the sale of
Dia Bras Exploration and Lara Explorations Ltd shares of US$152,000
and US$21,000 respectively, and the gain for receiving shares of
International Minerals Corporation due to the merger with Ventura
Gold Corp of US$202,000.
8 In 2010 the amount corresponds to the gain from change in the
fair value of Golden Minerals Company and Iron Creek Capital Corp
warrants of US$2,972,000 and US$168,000 respectively. In addition
includes US$149,000 related to the fair value adjustment on
acquisition of International Minerals shares on November 2010
9 Mainly corresponds to the fair value adjustment of the Golden
Minerals Company and Iron Creek Capital Corp warrants of
US$1,563,000 and US$139,000 respectively. In addition the amount
includes the impairment of Brionor Resources and Empire Petroleum
Corp of US$380,000 and US$50,000 respectively.
12 Finance income and finance costs before exceptional items
Year ended Year ended
31 December 31 December
2011 2010
Before Before
exceptional exceptional
items items
US$000 US$000
------------------------------------------------------------- ------------ ------------
Finance income:
Interest on deposits and liquidity funds(1) 2,225 350
Interest on loans to non-controlling interests(1) 2,352 2,514
Change in discount rate - 283
Other 112 993
------------------------------------------------------------- ------------ ------------
Total 4,689 4,140
------------------------------------------------------------- ------------ ------------
Finance costs:
Interest on bank loans and long-term debt(1) (note
20) (6,517) (8,744)
Interest on convertible bond(1) (note 20) (8,760) (8,588)
Unwind of discount rate (1,684) (538)
Loss from changes in the fair value of financial instruments (1,810) (9,094)
Other (2,560) (2,578)
------------------------------------------------------------- ------------ ------------
Total (21,331) (29,542)
------------------------------------------------------------- ------------ ------------
1 Interest income and expense from assets and liabilities that
are not at fair value through the profit and loss are as
follows:
As at 31 December
-------------------
2011 2010
US$000 US$000
----------------------------------------------------------------- --------- --------
Interest income from financial assets that are not at fair value
through the profit and loss 4,577 2,864
Interest expense from financial liabilities that are not at fair
value through the profit and loss (15,277) (17,332)
----------------------------------------------------------------- --------- --------
Total (10,700) (14,468)
----------------------------------------------------------------- --------- --------
13 Income tax expense
Year ended 31 December Year ended 31 December
2011 2010
---------------------------------- -----------------------------------
Before Before
exceptional Exceptional exceptional Exceptional
items items Total items items Total
US$000 US$000 US$000 US$000 US$000 US$000
--------------------------------------- ------------ ----------- ------- ------------ ----------- --------
Current corporate income tax
from continuing operations:
--------------------------------------- ------------ ----------- ------- ------------ ----------- --------
Current corporate income tax
charge 86,154 - 86,154 50,138 (2,659) 47,479
Current mining royalty charge
(note 24) 2,536 - 2,536 - - -
Current special mining tax charge
(note 24) 3,002 - 3,002 - - -
Withholding taxes 4,963 - 4,963 513 - 513
--------------------------------------- ------------ ----------- ------- ------------ ----------- --------
96,655 - 96,655 50,651 (2,659) 47,992
--------------------------------------- ------------ ----------- ------- ------------ ----------- --------
Deferred taxation:
--------------------------------------- ------------ ----------- ------- ------------ ----------- --------
Origination and reversal of
temporary differences from continuing
operations 54,277 - 54,277 41,690 (3,127) 38,563
Recognition of deferred tax
not previously recognised following
a change in estimate/outlook (2,375) - (2,375) (14,525) - (14,525)
--------------------------------------- ------------ ----------- ------- ------------ ----------- --------
51,902 - 51,902 27,165 (3,127) 24,038
--------------------------------------- ------------ ----------- ------- ------------ ----------- --------
Total taxation charge in the
income statement 148,557 - 148,557 77,816 (5,786) 72,030
--------------------------------------- ------------ ----------- ------- ------------ ----------- --------
The weighted average statutory income tax rate was 31.8% for
2011 and 31.4% for 2010. This is calculated as the average of the
statutory tax rates applicable in the countries in which the Group
operates, weighted by the profit/(loss) before tax of the Group
companies in their respective countries as included in the
consolidated financial statements.
The change in the weighted average statutory income tax rate is
due to a change in the weighting of profit/(loss) before tax in the
various jurisdictions in which the Group operates.
The tax related to items charged or credited to equity is as
follows:
As at 31 December
-------------------
2011 2010
US$000 US$000
----------------------------------------------------------------------- --------- --------
Deferred taxation:
Deferred income tax relating to fair value gains on available-for-sale
financial assets (7,164) 7,189
----------------------------------------------------------------------- --------- --------
Total tax charge in the statement of other comprehensive income (7,164) 7,189
----------------------------------------------------------------------- --------- --------
The total taxation charge on the Group's profit before tax
differs from the theoretical amount that would arise using the
weighted average tax rate applicable to the consolidated profits of
the Group companies as follows:
As at 31 December
-------------------
2011 2010
US$000 US$000
-------------------------------------------------------------- -------- ---------
Profit from continuing operations before income tax 420,895 288,695
At average statutory income tax rate of 31.8% (2010: 31.4%) 133,881 90,594
Expenses not deductible for tax purposes 2,742 2,250
Non-taxable income(1) (3,096) (17,976)
Recognition of previously unrecognised deferred tax assets(2) (2,375) (14,525)
Non-taxable share of losses/(gains) of associates (3,033) 1,702
Net deferred tax assets generated in the year not recognised 8,636 8,179
Deferred tax recognised on special investment regime (2,092) (1,017)
Derecognition of deferred income tax assets 5,981 -
Adjustment of tax base of Minera Quellopata S.A.C (2,692) -
Withholding tax 4,963 513
Special mining tax and new royalty(3) 5,538 -
Foreign exchange rate effect(4) 4,532 (430)
Other (4,428) 2,740
-------------------------------------------------------------- -------- ---------
At average effective income tax rate of 35.3% (2010: 25.0%) 148,557 72,030
-------------------------------------------------------------- -------- ---------
Taxation charge attributable to continuing operations 148,557 72,030
-------------------------------------------------------------- -------- ---------
Total taxation charge in the income statement 148,557 72,030
-------------------------------------------------------------- -------- ---------
1 Mainly corresponds to the non taxable gain on the sale of Lake
Shore Gold shares of US$1,692,000 (2010: US$17,743,000).
2 In 2011 mainly corresponds to the recognition of previously
unrecognised mine closure provision of US$8,278,000. In 2010,
mainly corresponded to the use of previously unrecognised tax
losses.
3 Corresponds to the effect generated by the new mining royalty
and special mining tax (note 24).
4 Mainly corresponds to the foreign exchange effect from
converting tax bases and monetary items from local currency to the
functional currency.
14 Basic and diluted earnings per share
Earnings per share ("EPS") is calculated by dividing profit for
the year attributable to equity shareholders of the Company by the
weighted average number of ordinary shares issued during the
year.
The Company has dilutive potential ordinary shares.
As at 31 December 2011 and 2010, EPS has been calculated as
follows:
As at 31 December
-------------------
2011 2010
--------------------------------------------------------- --------- --------
Basic and earnings per share from continuing operations:
Before exceptional items (US$) 0.49 0.28
Exceptional items (US$) 0.01 0.18
--------------------------------------------------------- --------- --------
Total for the year and from continuing operations (US$) 0.50 0.46
--------------------------------------------------------- --------- --------
Diluted earnings per share from continuing operations:
Before exceptional items (US$) 0.49 0.29
Exceptional items (US$) 0.01 0.17
--------------------------------------------------------- --------- --------
Total for the year and from continuing operations (US$) 0.50 0.46
--------------------------------------------------------- --------- --------
Net profit from continuing operations before exceptional items
and attributable to equity holders of the parent is derived as
follows:
As at 31 December
-------------------
2011 2010
------------------------------------------------------------------------ --------- --------
Profit for the year from continuing operations (US$000) 272,338 216,665
Less non-controlling interests (US$000) (103,622) (60,054)
------------------------------------------------------------------------ --------- --------
Profit attributable to equity holders of the parent - continuing
operations (US$000) 168,716 156,611
Exceptional items after tax - attributable to equity holders of
the parent (US$000) (2,826) (61,687)
------------------------------------------------------------------------ --------- --------
Profit from continuing operations before exceptional items attributable
to equity holders of the parent (US$000) 165,890 94,924
Interest on convertible bond (US$000) 8,760 8,588
------------------------------------------------------------------------ --------- --------
Diluted profit from continuing operations before exceptional items
attributable to equity holders of the parent (US$000) 174,650 103,512
------------------------------------------------------------------------ --------- --------
The following reflects the share data used in the basic and
diluted earnings per share computations:
As at 31 December
-------------------
2011 2010
---------------------------------------------------------------------- --------- --------
Basic weighted average number of ordinary shares in issue (thousands) 338,022 338,085
Dilutive potential ordinary shares related to convertible bond
(thousands) 18,161 18,161
Diluted weighted average number of ordinary shares in issue and
dilutive potential ordinary shares (thousands) 356,183 356,246
---------------------------------------------------------------------- --------- --------
15 Property, plant and equipment
Mining Construction
properties Mine in progress
and development Land Plant closure and capital
costs and buildings and equipment(1) Vehicles asset advances Total
US$000 US$000 US$000 US$000 US$000 US$000 US$000
---------------------- ---------------- -------------- ----------------- -------- -------- ------------ -------
Year ended 31 December
2011
Cost
At 1 January 2011 299,871 120,948 234,888 3,606 56,093 61,925 777,331
Additions 79,284 5,806 16,345 9 782 43,654 145,880
Change in discount
rate - - - - 2,884 - 2,884
Disposals - - (1,867) (155) - - (2,022)
Write-off (6,379) - (321) (21) - - (6,721)
Change in mine closure
estimate - - - - 3,318 - 3,318
Transfers and other
movements 509 17,040 16,028 1,192 - (34,769) -
Transfers from
evaluation and
exploration assets 9,269 - - - - - 9,269
Foreign exchange 2 (30) (125) (17) 108 26 (36)
---------------------- ---------------- -------------- ----------------- -------- -------- ------------ -------
At 31 December 2011 382,556 143,764 264,948 4,614 63,185 70,836 929,903
---------------------- ---------------- -------------- ----------------- -------- -------- ------------ -------
Accumulated
depreciation and
impairment
At 1 January 2011 179,672 52,987 94,332 1,562 40,766 1,098 370,417
Depreciation for the
year 59,830 17,763 26,329 664 1,871 (183) 106,274
Write-off (6,379) - (261) (15) - - (6,655)
Disposals - - (1,500) (104) - - (1,604)
Transfers to
evaluation and
exploration assets (22) - - - - - (22)
Foreign exchange 2 - (68) (16) - 21 (61)
---------------------- ---------------- -------------- ----------------- -------- -------- ------------ -------
At 31 December 2011 233,103 70,750 118,832 2,091 42,637 936 468,349
---------------------- ---------------- -------------- ----------------- -------- -------- ------------ -------
Net book amount at 31
December
2011 149,453 73,014 146,116 2,523 20,548 69,900 461,554
---------------------- ---------------- -------------- ----------------- -------- -------- ------------ -------
1 The carrying value of plant and equipment held under finance
leases at 31 December 2011 was US$5,741,000 (2010: US$7,936,000).
Additions during the year included US$900,000 (2010: US$1,239,000)
of plant and equipment under finance leases. Leased assets are
pledged as security for the related finance lease.
There were no borrowing costs capitalised in property, plant and
equipment as no significant qualifying assets were constructed
during 2011
Mining Construction
properties Mine in progress
and development Land Plant closure and capital
costs and buildings and equipment Vehicles asset advances Total
US$000 US$000 US$000 US$000 US$000 US$000 US$000
----------------------- ------------------ ------------- -------------- -------- -------- ------------ --------
Year ended 31 December
2010
Cost
At 1 January 2010 283,887 109,127 215,577 3,708 55,131 59,284 726,714
Reclassification (60,173) - - - - - (60,173)
---------------------------- ------------- ------------- -------------- -------- -------- ------------ --------
Restated balance at 1
January
2010 223,714 109,127 215,577 3,708 55,131 59,284 666,541
---------------------------- ------------- ------------- -------------- -------- -------- ------------ --------
Additions 71,473 80 14,138 14 1,081 39,572 126,358
Acquisition of subsidiary - - 5 - - - 5
Change in discount rate - - - - 989 - 989
Disposals - - (1,498) (448) - - (1,946)
Transfer of leases - - (717) - - - (717)
Write-off (934) (2,705) (7,624) (43) - (6,803) (18,109)
Change in mine closure
estimate - - - - (1,108) - (1,108)
Transfers and other
movements 273 14,438 15,068 366 - (30,145) -
Transfer from evaluation and
exploration assets 4,249 - - - - - 4,249
Foreign exchange 1,096 8 (61) 9 - 17 1,069
---------------------------- ------------- ------------- -------------- -------- -------- ------------ --------
At 31 December 2010 299,871 120,948 234,888 3,606 56,093 61,925 777,331
---------------------------- ------------- ------------- -------------- -------- -------- ------------ --------
Accumulated
depreciation and
impairment
At 1 January 2010 135,750 37,667 74,768 1,541 36,932 1,098 287,756
Reclassification (9,904) - - - - - (9,904)
---------------------------- ------------- ------------- -------------- -------- -------- ------------ --------
Restated balance at 1
January
2010 125,846 37,667 74,768 1,541 36,932 1,098 277,852
---------------------------- ------------- ------------- -------------- -------- -------- ------------ --------
Depreciation for the year 54,027 17,976 26,201 408 3,834 - 102,446
Write-off (201) (2,657) (5,911) (24) - - (8,793)
Disposals - - (648) (373) - - (1,021)
Transfer of leases - - (123) - - - (123)
Foreign exchange - 1 45 10 - - 56
---------------------------- ------------- ------------- -------------- -------- -------- ------------ --------
At 31 December 2010 179,672 52,987 94,332 1,562 40,766 1,098 370,417
---------------------------- ------------- ------------- -------------- -------- -------- ------------ --------
Net book amount at 31
December
2010 120,199 67,961 140,556 2,044 15,327 60,827 406,914
---------------------------- ------------- ------------- -------------- -------- -------- ------------ --------
16 Evaluation and exploration assets
Azuca Crespo Inmaculada San Felipe Others Total
US$000 US$000 US$000 US$000 US$000 US$000
--------------------------------- ------- ------- ---------- ---------- ------- -------
Cost
Balance at 1 January 2010 7,079 1,238 - 53,185 10,857 72,359
Reclassification 8,076 52,097 - - - 60,173
--------------------------------- ------- ------- ---------- ---------- ------- -------
Restated balance at 1 January
2010 15,155 53,335 - 53,185 10,857 132,532
--------------------------------- ------- ------- ---------- ---------- ------- -------
Additions 13,162 2,436 91,507 581 15,078 122,764
Foreign exchange - - - 3,058 - 3,058
Transfers to property, plant
and equipment 22 - - - (4,271) (4,249)
--------------------------------- ------- ------- ---------- ---------- ------- -------
Balance at 31 December 2010 28,339 55,771 91,507 56,824 21,664 254,105
Additions 30,014 9,927 16,920 39 15,949 72,849
Foreign exchange - (280) 62 (913) - (1,131)
Transfers from/(to) property
plant and equipment - - 188 - (9,457) (9,269)
--------------------------------- ------- ------- ---------- ---------- ------- -------
Balance at 31 December 2011 58,353 65,418 108,677 55,950 28,156 316,554
--------------------------------- ------- ------- ---------- ---------- ------- -------
Accumulated impairment
Balance at 1 January 2010 - - - 15,360 1,171 16,531
Reclassification - 9,904 - - - 9,904
--------------------------------- ------- ------- ---------- ---------- ------- -------
Restated balance at 1 January
2010 - 9,904 - 15,360 1,171 26,435
--------------------------------- ------- ------- ---------- ---------- ------- -------
Impairment - - - 14,702 - 14,702
Foreign exchange - - - 888 - 888
--------------------------------- ------- ------- ---------- ---------- ------- -------
Balance at 31 December 2010 - 9,904 - 30,950 1,171 42,025
Transfers from property,
plant and equipment 22 - - - - 22
--------------------------------- ------- ------- ---------- ---------- ------- -------
Balance at 31 December 2011 22 9,904 - 30,950 1,171 42,047
--------------------------------- ------- ------- ---------- ---------- ------- -------
Net book value as at 31 December
2010 20,263 53,943 91,507 25,874 20,493 212,080
--------------------------------- ------- ------- ---------- ---------- ------- -------
Net book value as at 31 December
2011 58,331 55,514 108,677 25,000 26,985 274,507
--------------------------------- ------- ------- ---------- ---------- ------- -------
There were no borrowing costs capitalised in evaluation and
exploration assets.
17 Investments accounted under equity method (a) Gold Resource
Corp.
The Group has a 25.2% interest in Gold Resource Corp., which is
involved in the exploration for and production of gold and silver
in Mexico. The company was organised under the laws of the State of
Colorado, USA, where the principal executive offices are located.
The operations are conducted through two wholly-owned subsidiaries,
located in Mexico, Don David Gold S.A. de C.V. and Golden Trump
Resources S.A. de C.V.
At 31 December 2011, the capital and reserves were
US$132,582,000, and US$3,978,000 (loss on currency translation)
respectively.
The profit of the period was US$46,464,000.
The following table summarises the financial information of the
Group's investment in Gold Resource Corp:
Year ended
31 December
------------------
2011 2010
US$000 US$000
---------------------------------------------------------- -------- --------
Share of the associate's statement of financial position:
Current assets 20,258 15,087
Non-current assets 57,919 56,065
Current liabilities (7,605) (1,632)
Non-current liabilities (11,727) (14,808)
---------------------------------------------------------- -------- --------
Net assets 58,845 54,712
---------------------------------------------------------- -------- --------
Goodwill on acquisition 24,356 24,356
---------------------------------------------------------- -------- --------
Share of the associate's revenue, profit and loss:
Revenue 26,496 3,730
Profit/(losses)(1) 11,446 3,711
Carrying amount of the investment 83,201 79,068
---------------------------------------------------------- -------- --------
1 Share of the associate's profit in 2011 includes (1) a
pre-exceptional gain from the Group's share in the results of the
period of Gold Resource Corp. of US$11,707,000 (2010: loss of
US$3,171,000) and (2) an exceptional loss from dilution of
US$261,000 (2010: gain of US$6,882,000).
(b) Lake Shore Gold Corp.
The profit and loss effect in 2010 was a loss of US$9,785,000
which included (1) a pre-exceptional loss from the Group's share in
the results of the period of Lake Shore Gold of US$1,430,000, (2)
an exceptional loss from dilution of the Group's interest from
35.9% to 35.7% on 30 June 2010 of US$2,021,000, (3) an exceptional
gain from dilution of the Group's interest from 35.7% to 33.6% on
10 September 2010 of US$3,817,000 and (4) an exceptional loss from
dilution of the Group's interest from 33.6% to 32.7% on 6 October
2010 of US$10,151,000.
18 Available-for-sale financial assets
Year ended
31 December
------------------
2011 2010
US$000 US$000
--------------------------------------------------------- -------- --------
Beginning balance 153,620 19,185
Additions(1) 2,910 25,786
Impairment (198) -
Fair value change recorded in equity (33,078) 47,573
Disposals(2) (82,485) (11,924)
Reclassification from investments accounted under equity
method(3) - 73,000
--------------------------------------------------------- -------- --------
Ending balance 40,769 153,620
--------------------------------------------------------- -------- --------
1 The amount represents the fair value of shares at the date of
acquisition and mainly includes: (i) the conversion of Golden
Minerals Company warrants into shares of U$2,419,000, (ii) the
conversion of Iron Creek Capital Corp warrants into shares of US$
83,000 and the purchase of shares of Iron Creek Capital Corp. for
US$408,000.
2 Explained by the sale of: (i) 21,540,992 shares of Lake Shore
Gold Corp, and (ii) 104,889 shares of Golden Minerals Company. In
2010 corresponds to the sale of: (i) 663,600 shares of Fortuna
River, (ii) 3,751,047 shares of Dia Bras Exploration, (iii) 495,200
shares of Lara Explorations Ltd. and (iv) 400,000 shares of Golden
Minerals.
3 Corresponds to the reclassification of the Group's Lake Shore
Gold shares from investments accounted under equity method to
available-for-sale financial assets as at 31 December 2010, as the
Group no longer had significant influence over this company.
Available-for-sale financial assets include the following:
Year ended
31 December
----------------
2011 2010
US$000 US$000
---------------------------------------------- ------- -------
Equity securities - quoted Canadian companies 27,175 131,603
Equity securities - quoted US companies 31 39
Equity securities - quoted British companies 1,722 8,397
Equity securities - unquoted(1) 11,841 13,581
---------------------------------------------- ------- -------
Total 40,769 153,620
---------------------------------------------- ------- -------
1 Includes Pembrook Mining Corp and Electrum Capital Inc.
shares.
During the period there were no reclassifications between quoted
and unquoted investments.
The fair value of the listed shares is determined by reference
to published price quotations in an active market.
The investments in unlisted shares (Pembrook Mining Corp. and
ECI Exploration and Mining Inc.) were recognised at cost given that
there is not an active market for these investments. The investment
in ECI Exploration and Mining Inc. is fully impaired.
Available-for-sale financial assets are denominated in the
following currencies:
2011 2010
US$000 US$000
----------------- ------- -------
Canadian dollars 39,016 145,184
US dollars 31 39
Pounds sterling 1,722 8,397
----------------- ------- -------
Total 40,769 153,620
----------------- ------- -------
19 Cash and cash equivalents
As at 31 December
-------------------
2011 2010
US$000 US$000
--------------------------------------------------------------- --------- --------
Cash at bank 349 694
Liquidity funds(1) 370,021 424,049
Current demand deposit accounts(2) 45,030 44,346
Time deposits(3) 212,081 56,393
--------------------------------------------------------------- --------- --------
Cash and cash equivalents considered for the statement of cash
flows 627,481 525,482
--------------------------------------------------------------- --------- --------
The fair value of cash and cash equivalents approximates their
book value. The Group does not have undrawn borrowing facilities
available in the future for operating activities or capital
commitments.
1 The liquidity funds are mainly invested in certificates of
deposit, commercial papers and floating rate notes with a weighted
average maturity between 5 to 24 days as at 31 December 2011 (2010:
between 33 and 56 days). In addition, liquidity funds include US
Treasury bonds amounting to US$199,924,000.
2 Relates to bank accounts which are freely available and bear
interest.
3 These deposits have an average maturity from 10 to 83 days
(2010: 1 to 30 days).
20 Borrowings
As at 31
December
-------- -------- ------- ------- -----------------
2011 2010
-------- -------- ------- ------- -------- -------
Non- Non-
current Current current Current
EIR US$000 US$000 EIR US$000 US$000
------------------------------------------------------------ -------- -------- ------- ------- -------- -------
Secured bank loans (a)
1.3% to 1.6% to
* Pre-shipment loans in Minera Santa Cruz 6.0% - 38,500 2.4% 20,000
3.25% to
* Leasing agreement with Banco de Credito 3.5% 336 760 3.25% 817 2,897
* Leasing agreement with Banco Interamericano de
Finanzas 5% to 6% 24 461 5.5% 486 877
* Syndicated loan with JP MorganChase Bank N.A. - - - 1.75% 84,222 29,256
Amount due to non-controlling
interests (b) - - - 7% 59,028 11,074
Convertible bond payable (c) 5.75% 104,506 6,613 5.75% 103,827 5,145
Amounts due to related parties
(note 23) - - - 0% - 23
------------------------------------------------------------ -------- -------- ------- ------- -------- -------
Total 104,866 46,334 248,380 69,272
------------------------------------------------------------ -------- -------- ------- ------- -------- -------
(a) The following table demonstrates the present value and
maturity of future minimum lease payments as at 31 December 2011
and 2010:
As at 31 December
-------------------
2011 2010
US$000 US$000
------------------------ --------- --------
Not later than one year 1,221 3,774
Between 1 and 2 years 360 1,279
Between 2 and 5 years - 24
------------------------ --------- --------
Total 1,581 5,077
------------------------ --------- --------
The following table reconciles the total minimum lease payments
and their present values as at 31 December 2011 and 2010:
As at 31 December
-------------------
2011 2010
US$000 US$000
----------------------------- --------- --------
Present value of leases 1,581 5,077
Future interest 40 155
----------------------------- --------- --------
Total minimum lease payments 1,621 5,232
----------------------------- --------- --------
The carrying amount of net lease liabilities approximate their
fair value.
(b) Amounts due to non-controlling interests
The balance as at 31 December 2010 mainly corresponded to a loan
from Minera Andes Inc. to Minera Santa Cruz S.A. for an amount of
US$64,070,000 with an interest rate of 7%, and a further loan of
US$6,032,000 advanced to Minera Santa Cruz S.A. by Minera Andes
S.A. with an interest rate of 7%. These loans were repaid in full
during 2011.
(c) Convertible bond payable
Relates to the placement of US$115,000,000 of senior unsecured
convertible bonds, due 2014, which are convertible into ordinary
shares of Hochschild Mining plc. The bonds have a coupon of 5.75%
per annum payable semi-annually on 28 January and 28 July of each
year. The issuer has the option to call the bonds on or after 20
October 2012 until maturity in the event the trading price of the
ordinary shares exceeds 130% of the conversion price over a certain
period. In addition, the Group has the right to redeem the bonds if
at any time the aggregate principal amount of the bonds outstanding
is equal to or less than 15% of the aggregate principal amount of
the bonds initially issued.
The following information has to be considered for conversion of
the bonds into ordinary shares:
-- Conversion premium: 35% above the Reference Share Price.
-- Reference Share Price: GBP 2.95.
-- Initial Conversion Price: GBP 3.9825.
-- Fixed Exchange Rate: US$1.59/GBP 1.00.
The balance as at 31 December 2011 is comprised of the principal
of US$115,000,000 (2010: US$115,000.000) plus accrued interest of
US$7,292,000 (2010: US$5,145,000), net of transaction costs of
US$2,741,000 (2010: US$2,741,000) and the bond equity component of
US$8,432,000 (2010: US$8,432,000).
The maturity of non-current borrowings is as follows:
As at 31 December
-------------------
2011 2010
US$000 US$000
---------------------- --------- --------
Between 1 and 2 years 1,039 59,265
Between 2 and 5 years 103,827 136,951
Over 5 years - 52,164
---------------------- --------- --------
Total 104,866 248,380
---------------------- --------- --------
The carrying amount of current borrowings approximates their
fair value. The carrying amount and fair value of the non-current
borrowings are as follows:
Carrying amount Fair value
as at 31 December as at 31 December
-------------------- --------------------
2011 2010 2011 2010
US$000 US$000 US$000 US$000
----------------------------------------- --------- --------- --------- ---------
Secured bank loans 360 85,525 375 84,728
Amounts due to non-controlling interests
and related parties (fixed rates) - 59,028 - 80,184
Convertible bond payable 104,506 103,827 116,413 121,709
----------------------------------------- --------- --------- --------- ---------
Total 104,866 248,380 116,788 286,621
----------------------------------------- --------- --------- --------- ---------
21 Provisions
Provision Workers' Contributions Long-term
for mine profit to Peruvian incentive Contingent
closure(1) sharing(2) Government plan(3) consideration(4) Other Total
US$000 US$000 US$000 US$000 US$000 US$000 US$000
------------------- ----------- ----------- ------------- ------------------ ----------------- ------- --------
At 1 January 2010 61,321 1,996 893 - - 2,371 66,581
Additions 1,081 30,199 1,814 1,061 39,243 378 73,776
Accretion 538 - - - - - 538
Change in discount
rate 1,137 - - - - - 1,137
Change in estimate 2,583 - - - - - 2,583
Payments (4,634) (10,862) (725) - - - (16,221)
Foreign exchange - (26) (162) - - 108 (80)
------------------- ----------- ----------- ------------- ------------------ ----------------- ------- --------
At 31 December 2010 62,026 21,307 1,820 1,061 39,243 2,857 128,314
Less current
portion (10,592) (21,307) (1,820) - (5,859) (2,293) (41,871)
------------------- ----------- ----------- ------------- ------------------ ----------------- ------- --------
Non-current portion 51,434 - - 1,061 33,384 564 86,443
------------------- ----------- ----------- ------------- ------------------ ----------------- ------- --------
At 1 January 2011 62,026 21,307 1,820 1,061 39,243 2,857 128,314
Additions 782 31,444 38 2,594 - 1,000 35,858
Accretion 533 - - - 204 - 737
Change in discount
rate 3,541 - - - 313 - 3,854
Change in
estimate(5) 10,856 - - - 7 - 10,863
Payments (4,113) (23,398) (1,776) - (7,389) (484) (37,160)
Foreign exchange - 478 (82) - - - 396
------------------- ----------- ----------- ------------- ------------------ ----------------- ------- --------
At 31 December 2011 73,625 29,831 - 3,655 32,378 3,373 142,862
Less current
portion (9,791) (29,831) - - (32,378) (2,432) (74,432)
------------------- ----------- ----------- ------------- ------------------ ----------------- ------- --------
Non-current portion 63,834 - - 3,655 - 941 68,430
------------------- ----------- ----------- ------------- ------------------ ----------------- ------- --------
1 The provision represents the discounted values of the
estimated cost to decommission and rehabilitate the mines at the
expected date of closure of each of the mines. The present value of
the provision has been calculated using a real pre-tax annual
discount rate, based on a US Treasury bond of an appropriate tenure
as at 31 December 2011 and 2010 respectively, and the cash flows
have been adjusted to reflect the risk attached to these cash
flows. Uncertainties in the timing for using this provision include
changes in the future that could impact the time of closing the
mines, as new resources and reserves are discovered.
2 Corresponds to the legal and voluntary workers profit sharing
of the Group. Legal workers profit sharing represents 8% of taxable
income of Peruvian companies. Voluntary workers profit sharing is
determined by the Group taking into account the market conditions
of employment. The balance of the provision as at 31 December 2011
is: (i) Legal (US$21,584,000), (ii) Voluntary (US$8,247,000).
3 Corresponds to the provision related to the long term
incentive plans granted to designated personnel of the Group.
Includes the following benefits: (i) Long term incentive plan,
granted April 2011, payable April 2014, (ii) Long term incentive
plan, granted May 2010, payable May 2013, and (iii) Exploration
incentive plan, granted January 2011, payable 50% March 2013 and
50% March 2014. Only employees who remain in the Group's employment
until the vesting date will be entitled to a cash payment, subject
to exceptions approved by the Remuneration Committee of the Board.
The provision represents the discounted values of the estimated
cost of the long-term employee benefit. In 2011 there is a
provision of US$2,594,000 that is disclosed under administrative
expenses (US$1,467,000), exploration expenses (US$146,000) and
capitalised as evaluation and exploration expenses
(US$981,000).
4 This contingent consideration provision relates to
International Minerals Corporation's discounted share of
Hochschild's commitment to fund the first $100,000,000 needed to
plan, develop and construct a mining operations within the
Inmaculada property.
5 During 2011 the Group made an external review of the provision
for mine closure for all its mining units. Consequently, at 31
December 2011 an increase of US$10,856,000 was recognised.
22 Dividends paid and proposed
2011 2010
US$000 US$000
-------------------------------------------------------------------- ------- -------
Declared and paid during the year:
Equity dividends on ordinary shares:
Final dividend for 2010: US$0.03 (2009: US$0.02) 10,143 6,762
First interim for 2011: US$0.03 (2010: US$0.02) 10,143 6,761
Dividends paid to non-controlling interest: US$0.55 (2010: US$0.40) 53,999 26,000
Dividends declared to non-controlling interest: US$0.06 (2010:
Nil) 9,499 -
-------------------------------------------------------------------- ------- -------
Dividends declared and paid 83,784 39,523
-------------------------------------------------------------------- ------- -------
Proposed for approval by shareholders at the AGM:
Final dividend for 2011: US$0.03 (2010: US$0.03) 10,135 10,143
-------------------------------------------------------------------- ------- -------
Dividends per share
The dividends declared in August 2011 were US$10,142,557
(US$0.03 per share). A dividend in respect of the year ending 31
December 2011 of US$0.03 per share, amounting to a total dividend
of US$10,134,951 is to be proposed at the Annual General Meeting on
2 June 2012. These financial statements do not reflect this
dividend payable.
23 Related-party balances and transactions (a) Related-party
accounts receivable and payable
The Group had the following related-party balances and
transactions during the years ended 31 December 2011 and 2010. The
related parties are companies owned or controlled by the main
shareholder of the parent company, joint ventures or
associates.
Accounts receivable Accounts payable
at 31 December at 31 December
--------------------- ------------------
2011 2010 2011 2010
US$000 US$000 US$000 US$000
-------------------------------- ---------- --------- -------- --------
Current related party balances
Fosfatos del Pacifico S.A. - 28 - -
Cementos Pacasmayo S.A.A. 222 291 32 23
Gold Resource Corp (note 18(a)) 710 1,290 - -
-------------------------------- ---------- --------- -------- --------
Total 932 1,609 32 23
-------------------------------- ---------- --------- -------- --------
As at 31 December 2011 and 2010 all other accounts are, or were,
non-interest bearing.
No security has been granted or guarantees given by the Group in
respect of these related party balances.
Principal transactions between affiliates are as follows:
Year ended
----------------
2011 2010
US$000 US$000
----------------------------------------------------------------------- ------- -------
Income
Gain on sale of Zincore Metals Inc. shares to Inversiones Pacasmayo
S.A. - 7,533
Dividend recognised for Gold Resource Corp. investment (note 18(a)) 7,313 2,633
Revenue recognised for services performed to Gold Resource Corporation 35 29
----------------------------------------------------------------------- ------- -------
Expenses
Expense recognised for the rental paid to Cementos Pacasmayo S.A.A. (170) (231)
----------------------------------------------------------------------- ------- -------
Transactions between the Group and these companies are on an
arm's-length basis.
(b) Compensation of key management personnel of the Group
As at 31 December
-------------------
2011 2010
Compensation of key management personnel (including directors) US$000 US$000
--------------------------------------------------------------- --------- --------
Short term employee benefits 6,504 6,751
Termination benefits - 1,170
Long term incentive plan 1,200 2,348
Workers profit sharing 184 205
Others 950 647
--------------------------------------------------------------- --------- --------
Total compensation paid to key management personnel 8,838 11,121
--------------------------------------------------------------- --------- --------
This amount includes the remuneration paid to the Directors of
the parent company of the Group of US$4,816,370 (2010:
US$6,996,557), out of which US$199,660 (2010: US$239,975) relates
to pension payments.
(c) Purchase of additional interest in Inmaculada project
During 2010, the Group acquired an additional interest in the
Inmaculada project effectively diluting the interest of its
joint-venture partners, International Minerals Corporation ("IMZ").
This acquisition qualified as a small related party transaction
under the UKLA Listing Rules in light of IMZ's 40% interest in the
Pallancata Joint-Venture (note 4(a)).
24 Mining royalties
Peru
In accordance with Peruvian legislation, owners of mining
concessions must pay a mining royalty for the exploitation of
metallic and non-metallic resources. Mining royalties have been
calculated with rates ranging from 1% to 3% of the value of mineral
concentrate or equivalent, based on quoted market prices.
In October 2011 changes came into effect for mining companies,
with the following features:
a) Introduction of a Special Mining Tax ("SMT"), levied on
mining companies at the stage of exploiting mineral resources. The
new tax is calculated by applying a progressive scale of rates
ranging from 2% to 8.4%, of the quarterly operating profit. This
new tax is in addition to existing mining royalties.
b) Modification of the mining royalty calculation, which
consists of applying a progressive scale of rates ranging from 1%
to 12%, of the quarterly operating profit. The former calculation
was based on the monthly sales value of mineral concentrates.
The SMT and modified mining royalty are accounted for as an
income tax in accordance with IAS12.
c) For companies that have mining projects benefiting from tax
stability regimes, mining royalties are calculated and recorded as
they were previously, applying an additional new special charge on
mining, that is calculated using progressive scale rates, ranging
from 4% to 13.12% of quarterly operating profit. This was the case
for the Arcata mine unit.
As at 31 December 2011, the amount payable as former mining
royalty (for mining unit Arcata), the new mining royalty (for
mining units Ares and Pallancata), and the SMT amounted to
US$709,000 (2010: US$2,946,000), US$1,261,000 (2010: Nil), and
US$1,394,000 (2010: Nil) respectively. The former mining royalty is
recorded as "Trade and other payables", and the new mining royalty
and SMT as "Income tax payable" in the statement of financial
position. The amount recorded in the income statement was
US$11,921,000 of former mining royalty, disclosed as cost of sales
(2010: US$11,223,000), and US$2,536,000 of new mining royalty and
US$3,002,000 of SMT, both disclosed as income tax (2010: Nil).
Argentina
In accordance with Argentinean legislation, Provinces (being the
legal owners of the mineral resources) are entitled to request
royalties from mine operators. For San Jose, the mining royalty is
fixed at 1.85% of the pit-head value of the production where the
final product is dore and 2.55% where the final product is mineral
concentrate or precipitates. As at 31 December 2011, the amount
payable as mining royalties amounted to US$496,000 (2010:
US$591,000). The amount recorded in the income statement as cost of
sales was US$6,029,000 (2010: US$3,868,000).
Profit by operation(1)
(Segment report reconciliation) as at December 2011
Consolidation
Company (US$000) Ares Arcata Pallancata San Jose Moris adjustment Total
--------------------------------------- -------- -------- ---------- --------- -------- ------------- ---------
Revenue 68,097 209,239 352,642 325,302 32,298 84 987,662
--------------------------------------- -------- -------- ---------- --------- -------- ------------- ---------
Cost of sales (pre-consolidation) (47,708) (80,962) (118,206) (133,599) (23,212) (604) (404,291)
Consolidation adjustment 75 567 970 (395) (613) (604) -
Cost of sales (post-consolidation) (47,783) (81,529) (119,176) (133,204) (22,599) - (404,291)
Production cost w/o
depreciation (42,168) (52,970) (63,496) (86,749) (15,859) - (261,242)
Depreciation in
production
cost (1,023) (23,291) (34,863) (42,608) (1,929) - (103,714)
Other items (4,738) (6,575) (17,475) (3,654) - - (32,442)
Change in inventories 146 1,307 (3,342) (193) (4,811) - (6,893)
--------------------------------------- -------- -------- ---------- --------- -------- ------------- ---------
Gross profit 20,389 128,277 234,436 191,703 9,086 (520) 583,371
--------------------------------------- -------- -------- ---------- --------- -------- ------------- ---------
Administrative expenses - - - - - (64,354) (64,354)
Exploration expenses - - - - - (47,336) (47,336)
Selling expenses (92) (3,068) (4,155) (31,686) - 31 (38,970)
Other income/expenses - - - - - (10,146) (10,146)
--------------------------------------- -------- -------- ---------- --------- -------- ------------- ---------
Operating profit before
impairment 20,297 125,209 230,281 160,017 9,086 (122,325) 422,565
--------------------------------------- -------- -------- ---------- --------- -------- ------------- ---------
Impairment of assets - - - - - 1,210 1,210
Investments under equity
method - - - - - 11,446 11,446
Finance income - - - - - 10,678 10,678
Finance costs - - - - - (23,442) (23,442)
FX gain/(loss) - - - - - (1,562) (1,562)
--------------------------------------- -------- -------- ---------- --------- -------- ------------- ---------
Profit/(loss) from continuing
operations before income
tax(2) 20,297 125,209 230,281 160,017 9,086 (123,995) 420,895
--------------------------------------- -------- -------- ---------- --------- -------- ------------- ---------
Income tax - - - - - (148,557) (148,557)
--------------------------------------- -------- -------- ---------- --------- -------- ------------- ---------
Profit/(loss) for the year
from continuing operations 20,297 125,209 230,281 160,017 9,086 (272,552) 272,338
--------------------------------------- -------- -------- ---------- --------- -------- ------------- ---------
1 On a post exceptional basis.
2 Hochschild profit before income tax reflected in 2011 annual
report
Reserves and resources
Ore reserves and mineral resources estimates
Hochschild Mining plc reports its mineral resources and reserves
estimates in accordance with the Australasian Code for Reporting of
Exploration Results, Mineral Resources and Ore Reserves 2004
edition ("the JORC Code"). This establishes minimum standards,
recommendations and guidelines for the public reporting of
exploration results and mineral resources and reserves estimates.
In doing so it emphasises the importance of principles of
transparency, materiality and confidence. The information on ore
reserves and mineral resources on pages -- to -- were prepared by
or under the supervision of Competent Persons (as defined in the
JORC Code). Competent Persons are required to have sufficient
relevant experience and understanding of the style of
mineralisation, types of deposits and mining methods in the area of
activity for which they are qualified as a Competent Person under
the JORC Code. The Competent Person must sign off their respective
estimates of the original mineral resource and ore reserve
statements for the various operations and consent to the inclusion
of that information in this report, as well as the form and context
in which it appears.
Hochschild Mining plc employs its own Competent Person who has
audited all the estimates set out in this report. Hochschild Mining
Group companies are subject to a comprehensive programme of audits
which aim to provide assurance in respect of ore reserve and
mineral resource estimates. These audits are conducted by Competent
Persons provided by independent consultants. The frequency and
depth of an audit depends on the risks and/or uncertainties
associated with that particular ore reserve and mineral resource,
the overall value thereof and the time that has lapsed since the
previous independent third party audit.
The JORC Code requires the use of reasonable economic
assumptions. These include long-term commodity price forecasts
(which, in the Group's case, are prepared by ex-house specialists
largely using estimates of future supply and demand and long-term
economic outlooks).
Ore reserve estimates are dynamic and are influenced by changing
economic conditions, technical issues, environmental regulations
and any other relevant new information and therefore these can vary
from year to year. Mineral resource estimates can also change and
tend to be influenced mostly by new information pertaining to the
understanding of the deposit and secondly the conversion to ore
reserves.
The estimates of ore reserves and mineral resources are shown as
at 31 December 2011, unless otherwise stated. Mineral resources
that are reported include those mineral resources that have been
modified to produce ore reserves. All tonnage and grade information
has been rounded to reflect the relative uncertainty in the
estimates; there may therefore be small differences. The prices
used for the reserves calculation were: Au Price: US$1080 per ounce
and Ag Price: US$18 per ounce.
Attributable metal reserves as at 31 December 2011
Proved
and probable Ag Au Ag Au Ag Eq
Reserve category (t) (g/t) (g/t) (moz) (koz) (moz)
----------------------- ------------- ------- ------ ------ ------ ------
MAIN OPERATIONS(1)
----------------------- ------------- ------- ------ ------ ------ ------
Arcata
Proved 1,059,998 343 1.0 11.7 34.4 13.7
Probable 1,304,008 313 1.0 13.1 40.7 15.6
----------------------- ------------- ------- ------ ------ ------ ------
Total 2,364,006 327 1.0 24.8 75.1 29.3
----------------------- ------------- ------- ------ ------ ------ ------
Pallancata
Proved 1,643,165 289 1.4 15.3 72.6 19.6
Probable 426,591 278 1.3 3.8 18.4 4.9
Total 2,069,755 287 1.4 19.1 91.1 24.6
San Jose
Proved 410,654 475 7.0 6.3 92.3 11.8
Probable 446,672 354 5.8 5.1 83.1 10.1
----------------------- ------------- ------- ------ ------ ------ ------
Total 857,326 412 6.4 11.4 175.4 21.9
----------------------- ------------- ------- ------ ------ ------ ------
Main operations total
Proved 3,113,817 332 2.0 33.2 199.3 45.2
Probable 2,177,270 315 2.0 22.0 142.3 30.6
----------------------- ------------- ------- ------ ------ ------ ------
Total 5,291,087 325 2.0 55.3 341.6 75.8
----------------------- ------------- ------- ------ ------ ------ ------
OTHER OPERATIONS
----------------------- ------------- ------- ------ ------ ------ ------
Ares
Proved 159,677 106 4.1 0.5 20.9 1.8
Probable 67,445 138 2.5 0.3 5.4 0.6
----------------------- ------------- ------- ------ ------ ------ ------
Total 227,122 115 3.6 0.8 26.3 2.4
----------------------- ------------- ------- ------ ------ ------ ------
Other operations total
Proved 159,677 106 4.1 0.5 20.9 1.8
Probable 67,445 138 2.5 0.3 5.4 0.6
----------------------- ------------- ------- ------ ------ ------ ------
Total 227,122 115 3.6 0.8 26.3 2.4
----------------------- ------------- ------- ------ ------ ------ ------
Group total
Proved 3,273,494 321 2.1 33.8 220.2 47.0
Probable 2,244,715 310 2.0 22.3 147.7 31.2
----------------------- ------------- ------- ------ ------ ------ ------
TOTAL 5,518,209 316 2.1 56.1 367.8 78.2
----------------------- ------------- ------- ------ ------ ------ ------
Note: Where reserves are attributable to a joint venture
partner, reserve figures reflect the Company's ownership only.
Includes discounts for ore loss and dilution.
1 Main operations were audited by P&E Consulting.
Attributable metal resources as at 31 December 2011
Resource Tonnes Ag Au Zn Pb Cu Ag Eq Ag Ag Eq Pb Cu
category (kt) (g/t) (g/t) (%) (%) (%) (g/t) (moz) Au (koz) (Moz) Zn (kt) (kt) (kt)
-------------- --------- ------- ------ ---- ---- ---- ------ ------- -------- ------ ------- ----- -----
MAIN
OPERATIONS(1)
-------------- --------- ------- ------ ---- ---- ---- ------ ------- -------- ------ ------- ----- -----
Arcata
Measured 1,339,610 492 1.46 - - - 579 21.2 62.9 25.0 - - -
Indicated 1,335,478 423 1.32 - - - 502 18.2 56.7 21.6 - - -
Total M & I 2,675,088 457 1.39 - - - 541 39.3 119.6 46.5 - - -
Inferred 4,424,489 376 1.45 - - - 463 53.4 205.9 65.8 - - -
-------------- --------- ------- ------ ---- ---- ---- ------ ------- -------- ------ ------- ----- -----
Pallancata
Measured 2,517,648 382 1.76 - - - 487 30.9 142.6 39.5 - - -
Indicated 491,568 323 1.53 - - - 414 5.1 24.1 6.6 - - -
Total M & I 3,009,216 372 1.72 - - - 476 36.0 166.7 46.0 - - -
Inferred 1,687,576 347 1.46 - - - 434 18.8 79.4 23.6 - - -
-------------- --------- ------- ------ ---- ---- ---- ------ ------- -------- ------ ------- ----- -----
San Jose
Measured 589,252 560 8.21 - - - 1,053 10.6 155.6 20.0 - - -
Indicated 1,791,762 423 6.53 - - - 815 24.4 376.2 46.9 - - -
Total M & I 2,381,014 457 6.95 - - - 874 35.0 531.9 66.9 - - -
Inferred 924,843 384 5.30 - - - 702 11.4 157.6 20.9 - - -
-------------- --------- ------- ------ ---- ---- ---- ------ ------- -------- ------ ------- ----- -----
Main
operations
total
Measured 4,446,510 439 2.53 - - - 590 62.7 361.1 84.4 - - -
Indicated 3,618,808 409 3.93 - - - 645 47.6 457.1 75.1 - - -
Total M & I 8,065,319 425 3.16 - - - 615 110.3 818.1 159.4 - - -
Inferred 7,036,908 370 1.96 - - - 487 83.7 442.9 110.2 - - -
-------------- --------- ------- ------ ---- ---- ---- ------ ------- -------- ------ ------- ----- -----
OTHER
OPERATIONS
-------------- --------- ------- ------ ---- ---- ---- ------ ------- -------- ------ ------- ----- -----
Ares
Measured 470,660 161 6.18 - - - 532 2.4 93.5 8.0 - - -
Indicated 151,650 157 3.63 - - - 375 0.8 17.7 1.8 - - -
Total M & I 622,310 160 5.56 - - - 493 3.2 111.2 9.9 - - -
Inferred 379,639 167 3.32 - - - 367 2.0 40.6 4.5 - - -
-------------- --------- ------- ------ ---- ---- ---- ------ ------- -------- ------ ------- ----- -----
Other
operations
total
Measured 470,660 161 6.18 - - - 532 2.4 93.5 8.0 - - -
Indicated 151,650 157 3.63 - - - 375 0.8 17.7 1.8 - - -
Total M & I 622,310 160 5.56 - - - 493 3.2 111.2 9.9 - - -
Inferred 379,639 167 3.32 - - - 367 2.0 40.6 4.5 - - -
-------------- --------- ------- ------ ---- ---- ---- ------ ------- -------- ------ ------- ----- -----
Resource Tonnes Ag Au Zn Pb Cu Ag Eq Ag Eq Pb Cu
category (kt) (g/t) (g/t) (%) (%) (%) (g/t) Ag (moz) Au (koz) (M oz) Zn (kt) (kt) (kt)
----------- ---------- ------- ------ ---- ---- ---- ------ -------- -------- ------- ------- ----- -----
ADVANCED
PROJECTS
----------- ---------- ------- ------ ---- ---- ---- ------ -------- -------- ------- ------- ----- -----
Inmaculada
Measured 1,970,058 128 4.10 - - - 374 8.1 259.7 23.7 - - -
Indicated 2,269,691 159 4.05 - - - 402 11.6 295.4 29.3 - - -
Total M & I 4,239,749 144 4.07 - - - 389 19.7 555.0 53.0 - - -
Inferred 2,962,666 152 3.91 - - - 387 14.5 372.0 36.8 - - -
----------- ---------- ------- ------ ---- ---- ---- ------ -------- -------- ------- ------- ----- -----
Crespo
Measured 4,582,255 51 0.49 - - - 80 7.5 71.6 11.8 - - -
Indicated 18,804,956 36 0.44 - - - 63 21.7 268.4 37.8 - - -
Total M & I 23,387,211 39 0.45 - - - 66 29.2 340.0 49.6 - - -
Inferred 5,171,188 31 0.35 - - - 52 5.2 58.5 8.7 - - -
----------- ---------- ------- ------ ---- ---- ---- ------ -------- -------- ------- ------- ----- -----
Azuca
Measured 190,602 244 0.77 - - - 290 1.5 4.7 1.8 - - -
Indicated 6,858,594 187 0.77 - - - 233 41.2 168.8 51.3 - - -
Total M & I 7,049,197 188 0.77 - - - 234 42.7 173.5 53.1 - - -
Inferred 6,946,341 170 0.89 - - - 223 37.9 199.5 49.9 - - -
----------- ---------- ------- ------ ---- ---- ---- ------ -------- -------- ------- ------- ----- -----
Jasperoide
Measured 0 - 0.00 - - 0.00 0 - 0.00 0.0 - - 0.0
Indicated 0 - 0.00 - - 0.00 0 - 0.00 0.0 - - 0.0
Total M & I 0 - 0.00 - - 0.00 0 - 0.00 0.0 - - 0.0
Inferred 12,187,270 - 0.32 - - 1.32 147 - 126.8 57.6 - - 161.2
----------- ---------- ------- ------ ---- ---- ---- ------ -------- -------- ------- ------- ----- -----
San Felipe
Measured 1,393,716 69 0.02 7.12 3.10 0.39 315 3.1 0.9 14.1 99.3 43.1 5.5
Indicated 1,354,261 82 0.06 6.14 2.73 0.31 295 3.6 2.4 12.9 83.2 37.0 4.2
Total M & I 2,747,977 76 0.04 6.64 2.92 0.35 305 6.7 3.3 27.0 182.4 80.1 9.7
Inferred 1,257,731 84 0.05 6.18 2.26 0.19 283 3.4 1.9 11.5 77.8 28.5 2.3
----------- ---------- ------- ------ ---- ---- ---- ------ -------- -------- ------- ------- ----- -----
Advanced
projects
total
Measured 8,136,631 77 1.29 1.22 0.53 0.07 196 20.2 336.8 51.4 99.3 43.1 5.5
Indicated 29,287,502 83 0.78 0.28 0.13 0.01 139 78.1 735.1 131.3 83.2 37.0 4.2
Total M & I 37,424,134 82 0.89 0.49 0.21 0.03 152 98.2 1,071.9 182.7 182.4 80.1 9.7
Inferred 28,525,195 67 0.83 0.27 0.10 0.57 179 61.0 758.7 164.4 77.8 28.5 163.6
----------- ---------- ------- ------ ---- ---- ---- ------ -------- -------- ------- ------- ----- -----
TOTAL
----------- ---------- ------- ------ ---- ---- ---- ------ -------- -------- ------- ------- ----- -----
Measured 13,053,802 203 1.89 0.76 0.33 0.04 343 85.3 791.5 143.8 99.3 43.1 5.5
Indicated 33,057,961 119 1.14 0.25 0.11 0.01 196 126.5 1,209.9 208.2 83.2 37.0 4.2
Total M & I 46,111,762 143 1.35 0.40 0.17 0.02 237 211.8 2,001.3 352.0 182.4 80.1 9.7
Inferred 35,941,742 127 1.07 0.22 0.08 0.46 242 146.7 1,242.2 279.1 77.8 28.5 163.6
----------- ---------- ------- ------ ---- ---- ---- ------ -------- -------- ------- ------- ----- -----
1 Main operations and other projects (excluding San Felipe) were
audited by P&E Consulting.
Note: Resources include undiscounted reserves, where resources
are attributable to a joint venture partner, resources figures
reflect the Company's ownership only. No ore loss or dilution has
been included, and stockpiled ore excluded.
Change in total reserves and resources
Ag equivalent content December December
(million ounces) Category 2010 Production(1) Movements(2) 2011 Net difference % change
----------------------- ---------- -------- ------------- ------------ -------- -------------- --------
Arcata Resource 98.7 13.6 112.3 13.6 13.7%
Reserve 29.1 7.8 7.9 29.3 0.2 0.8%
Pallancata Resource 109.0 6.9 116.0 6.9 6.3%
Reserve 49.4 13.1 4.7 41.0 -8.4 -20.6%
San Jose Resource 156.9 15.2 172.1 15.2 9.7%
Reserve 39.2 11.8 15.6 42.9 3.7 8.6%
---------------------------------- -------- ------------- ------------ -------- -------------- --------
Main operations total Resource 364.7 35.7 400.4 35.7 9.8%
Reserve 117.8 32.7 28.1 113.2 -4.5 -4.0%
---------------------------------- -------- ------------- ------------ -------- -------------- --------
Ares Resource 12.4 1.9 14.3 1.9 15.5%
Reserve 1.7 2.3 3.0 2.4 0.7 29.7%
Moris Resource 1.8 -1.8 0.0 -1.8 -100.0%
Reserve 1.3 1.7 0.4 0.0 -1.3 0.0%
---------------------------------- -------- ------------- ------------ -------- -------------- --------
Other operations total Resource 14.2 0.1 14.3 0.1 0.8%
Reserve 3.1 4.0 3.4 2.4 -0.6 -24.0%
---------------------------------- -------- ------------- ------------ -------- -------------- --------
Azuca Resource 70.3 32.7 103.0 32.7 46.6%
Reserve
Crespo Resource 47.4 10.9 58.3 10.9 22.9%
Reserve
Inmaculada Resource 137.3 12.3 149.7 12.3 9.0%
Reserve
San Felipe Resource 38.5 0.0 38.5 0.0 0.0%
Reserve
Jasperoide Resources 0.0 57.6 57.6 57.6 -.-
Reserve
----------------------- ---------- -------- ------------- ------------ -------- -------------- --------
Other projects total Resource 293.5 113.5 407.0 113.5 38.7%
Reserve
----------------------- ---------- -------- ------------- ------------ -------- -------------- --------
Total Resource 672.4 149.3 821.7 149.3 22.2%
Reserve 120.8 36.7 31.5 115.6 -5.1 -4.4%
---------------------------------- -------- ------------- ------------ -------- -------------- --------
1 Depletion: reduction in reserves based on ore delivered to the mine plant.
2 Increase in reserves and resources due mainly to mine site
exploration but also to price increases.
Change in attributable reserves and resources
December December
Ag equivalent content (million Percentage 2010 2011
ounces) Category attributable Att.(1) Att.(1) Net difference % change
------------------------------- --------- ------------- -------- -------- -------------- --------
Arcata Resource 100% 98.7 112.3 13.6 13.7%
Reserve 29.1 29.3 0.2 0.8%
Pallancata Resource 60% 65.4 69.6 4.1 6.3%
Reserve 29.7 24.6 -5.1 -20.9%
San Jose Resource 51% 80.0 87.8 7.7 9.7%
Reserve 20.0 21.9 1.9 8.6%
----------------------------------------- ------------- -------- -------- -------------- --------
Main operations total Resource 244.2 269.7 25.5 10.4%
Reserve 78.8 75.8 -3.0 -4.0%
----------------------------------------- ------------- -------- -------- -------------- --------
Ares Resource 100% 12.4 14.3 1.9 15.5%
Reserve 1.7 2.4 0.7 29.7%
Moris Resource 100% 1.8 0.0 -1.8 -100.0%
Reserve 1.3 0.0 -1.3 -100.0%
----------------------------------------- ------------- -------- -------- -------------- --------
Other operations total Resource 14.2 14.3 0.1 0.8%
Reserve 3.1 2.4 -0.6 -24.0%
----------------------------------------- ------------- -------- -------- -------------- --------
Azuca Resource 100% 70.3 103.0 32.7 46.6%
Reserve
Crespo Resource 100% 47.4 58.3 10.9 22.9%
Reserve
Inmaculada Resource 100% 82.4 89.8 7.4 9.0%
Reserve
San Felipe Resource 100% 38.5 38.5 0.0 0.0%
Reserve
Jasperoide Resource 100% 0.0 57.6 57.6 -.-
Reserve
------------------------------- --------- ------------- -------- -------- -------------- --------
Other total Resource 238.5 347.1 108.6 45.5%
Reserve
------------------------------- --------- ------------- -------- -------- -------------- --------
Total Resource 497.0 631.1 134.1 27.0%
Reserve 81.8 78.2 -3.6 -4.6%
----------------------------------------- ------------- -------- -------- -------------- --------
1 Attributable reserves and resources based on the Group's
percentage ownership of its joint venture projects.
2 The Company increased its holdings in the Inmaculada project
to 60% in 2010.
Production
Total Group production(1)
Year ended Year ended
31 December 31 December
2011 2010 % change
------------------------------ ------------ ------------- --------
Silver production (koz) 21,363 24,430 (13)
Gold production (koz) 180.51 200.05 (10)
Total silver equivalent (koz) 32,193 36,434 (12)
Total gold equivalent (koz) 536.56 607.23 (12)
Silver sold (koz) 21,792 24,283 (10)
Gold sold (koz) 182.0 199.9 (9)
------------------------------ ------------ ------------- --------
(1) Total production includes 100% of all production, including
production attributable to joint venture partners at San Jose and
Pallancata.
Attributable Group production(2)
Year ended Year ended
31 December 31 December
2011 2010 % change
-------------------------------- ------------ ------------- --------
Silver production (koz) 14,980 17,768 (16)
Gold production (koz) 127.29 144.40 (12)
Attrib. silver equivalent (koz) 22,617 26,432 (14)
Attrib. gold equivalent (koz) 377.0 440.5 (14)
-------------------------------- ------------ ------------- --------
(2) Attributable production includes 100% of all production from
Arcata, Ares and Moris, 60% from Pallancata and 51% from San
Jose.
2011 production by mine
Arcata
Year ended Year ended
31 December 31 December
Product 2011 2010 % change
--------------------------------- ------------ ------------- ------------------
Ore production (tonnes) 687,966 645,974 7
Average silver grade (g/t) 312 439 (29)
Average gold grade (g/t) 0.88 1.40 (37)
Silver produced (koz) 6,081 8,099 (25)
Gold produced (koz) 17.38 25.83 (33)
Silver equivalent produced (koz) 7,124 9,649 (26)
Silver sold (koz) 5,979 8,095 (26)
Gold sold (koz) 16.7 24.9 (33)
--------------------------------- ------------ ------------- ------------------
Ares
Year ended Year ended
31 December 31 December
Product 2011 2010 % change
--------------------------------- ------------ ------------- --------
Ore production (tonnes) 344,085 301,726 14
Average silver grade (g/t) 61 92 (34)
Average gold grade (g/t) 2.90 3.58 (19)
Silver produced (koz) 581 786 (11)
Gold produced (koz) 29.03 32.53 (15)
Silver equivalent produced (koz) 2,323 2,738 (29)
Silver sold (koz)(1) 598 810 (26)
Gold sold (koz)(2) 29.7 32.7 (9)
--------------------------------- ------------ ------------- --------
Pallancata(3)
Year ended Year ended
31 December 31 December
Product 2011 2010 % change
--------------------------------- ------------ ------------- --------
Ore production (tonnes) 1,070,466 1,071,617 (0.1)
Average silver grade (g/t) 301 344 (13)
Average gold grade (g/t) 1.33 1.41 (6)
Silver produced (koz) 8,767 10,135 (13)
Gold produced (koz) 33.88 35.85 (5)
Silver equivalent produced (koz) 10,800 12,286 (12)
Silver sold (koz) 9,064 9,998 (9)
Gold sold (koz) 33.9 33.7 0.6
--------------------------------- ------------ ------------- --------
(3) The Company has a 60% interest in Pallancata.
San Jose(4)
Year ended Year ended
31 December 31 December
Product 2011 2010 % change
--------------------------------- ------------ ------------- --------
Ore production (tonnes) 462,825 461,134 0.4
Average silver grade (g/t) 444 397 12
Average gold grade (g/t) 5.86 6.14 (5)
Silver produced (koz) 5,870 5,324 10
Gold produced (koz) 80.95 84.30 (4)
Silver equivalent produced (koz) 10,727 10,382 3
Silver sold (koz) 6,087 5,284 15
Gold sold (koz) 82.4 85.0 (3)
--------------------------------- ------------ ------------- --------
(4) The Company has a 51% interest in San Jose.
Moris
Year ended Year ended
31 December 31 December
Product 2011 2010 % change
--------------------------------- ------------ ------------- ----------------
Ore production (tonnes) 858,028 1,148,826 (25)
Average silver grade (g/t) 5.02 4.44 13
Average gold grade (g/t) 0.96 1.14 (16) (17)
Silver produced (koz) 64 86 (26)
Gold produced (koz) 19.26 21.53 (11)
Silver equivalent produced (koz) 1,220 1,378 (11)
Silver sold (koz) 64 95.07 (33)
Gold sold (koz) 19.3 23.5 (18)
--------------------------------- ------------ ------------- ----------------
Glossary
Ag
Silver
Adjusted EBITDA
Adjusted EBITDA is calculated as profit from continuing operations
before net finance income/(cost), foreign exchange loss and income
tax plus depreciation and exploration expenses other than personnel
and other exploration related fixed expenses.
Au
Gold
Attributable after tax profit
Profit for the year before dividends attributable to the equity shareholders
of Hochschild Mining plc from continuing operations before exceptional
items and after minority interest
Average head grade
Average ore grade fed into the mill
Board
The Board of Directors of the Company
Company
Hochschild Mining plc
CSR
Corporate social responsibility
Cu
Copper
Directors
The Directors of the Company
DNV
Det Norske Veritas is an independent foundation with the purpose
of safeguarding life, property, and the environment
Dore
Dore bullion is an impure alloy of gold and silver and is generally
the final product of mining and processing; the dore bullion will
be transported to be refined to high purity metal
Dollar or $
United States dollars
Effective Tax Rate
Income tax expense as a percentage of profit from continuing operations
before income tax
EPS
The per-share (using the weighted average number of shares outstanding
for the period) profit available to equity shareholders of the Company
from continuing operations after exceptional items
eq
equivalent
Exceptional item
Events that are significant and which, due to their nature or the
expected infrequency of the events giving rise to them, need to be
disclosed separately
g/t
Grammes per tonne
GAAP
Generally Accepted Accounting Principles
Group
Hochschild Mining plc and subsidiary undertakings
IAS
International Accounting Standards
IASB
International Accounting Standards Board
IFRS
International Financial Reporting Standards
JV
Joint venture
koz
Thousand ounces
kt
Thousand tonnes
ktpa
Thousand tonnes per annum
Listing or IPO (Initial Public Offering) or Global Offer
The listing of the Company's Ordinary Shares on the London Stock
Exchange on 8 November 2006
LTI
Lost Time Injury, meaning an occupational injury or illness that
results in days away from work
LTIFR
Lost Time Injury Frequency Rate = LTI x 1,000,000/hours worked
moz
Million ounces
Ordinary Shares
Ordinary Shares of 25p each in the Company
Pb
Lead
Spot or spot price
The purchase price of a commodity at the current price, normally
this is at a discount to the long-term contract price
t
tonne
tpa
tonnes per annum
tpd
tonnes per day
Zn
Zinc
Shareholder information
Annual General Meeting ('AGM')
The AGM will be held at 10am on 23 May 2012 at the offices of
Linklaters LLP, One Silk Street, London, EC2Y 8HQ.
Company website
Hochschild Mining plc Interim and Annual Reports and results
announcements are available via the internet on our website at
www.hochschildmining.com. Shareholders can also access the latest
information about the Company and press announcements as they are
released, together with details of future events and how to obtain
further information.
Registrars
The Registrars can be contacted as follows for information about
the AGM, shareholdings, dividends and to report changes in personal
details:
- By post
Capita Registrars, The Registry, 34 Beckenham Road, Beckenham,
Kent BR3 4TU
- By telephone
If calling from the UK: 0871 664 0300 (Calls cost 10p per minute
plus network extras, lines are open 8.30am - 5.30pm Mon to Fri) If
calling from overseas: +44 20 8639 3399
- By fax
+44 (0)1484 600 911
Currency option and dividend mandate
Shareholders wishing to receive their dividend in US dollars
should contact the Company's registrars to request a currency
election form. This form should be completed and returned to the
registrars by 9 May 2012.
The Company's registrars can also arrange for the dividend to be
paid directly into a shareholder's UK bank account. To take
advantage of this facility, a dividend mandate form, also available
from the Company's registrars, should be completed and returned to
the registrars by 9 May 2012. 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: Marianna Adams, by
writing to the London Office address (see below), by phone on 020
7907 2933 or by email at marianna.adams@hocplc.com.
Financial calendar
Dividend payments
Ex-dividend date 2 May 2012
Record date 4 May 2012
Deadline for return of currency election form 9 May 2012
Final dividend payable 29 May 2012
Other dates
Annual General Meeting 23 May 2012
Half-yearly results announced August 2012
London Office and Registered Office address
46 Albemarle Street London W1S 4JL United Kingdom
Company Secretary
R D Bhasin
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LFFLIVTIALIF
Hochschild Mining (LSE:HOC)
Historical Stock Chart
From Jun 2024 to Jul 2024
Hochschild Mining (LSE:HOC)
Historical Stock Chart
From Jul 2023 to Jul 2024
