TIDMHOC
RNS Number : 9245B
Hochschild Mining PLC
24 April 2012
Hochschild Mining plc ("the Company")
2011 Annual Financial Report and 2012 Annual General Meeting
("AGM")
Following the release of the Company's 2011 full year results
announcement on 20 March 2012 (the "Preliminary Announcement"), the
Company announces it has published its Annual Report and Accounts
for the year ended 31 December 2011 (the "2011 Annual Report").
In accordance with LR 9.6.1, the following documents have been
submitted to the National Storage Mechanism and will be available
for inspection at www.Hemscott.com/nsm.do
-- The 2011 Annual Report
-- The 2012 AGM Circular (incorporating the Notice of 2012 AGM)
-- The 2012 AGM Proxy Card (incorporating the Notice of
Availability of the 2011 Annual Report and 2012 AGM Circular)
The 2011 Annual Report and the 2012 AGM Circular are also
available on the Company's website at www.hochschildmining.com
The appendices to this announcement contain the information
required to be disclosed under DTR 6.3.5 which has been reproduced
from the 2011 Annual Report and should be read in conjunction with
the Preliminary Announcement.
All page references and cross-references in the appendices are
to the 2011 Annual Report.
APPENDICES
Appendix 1 - Risk Management (reproduced from pages 57 to 59 of
the 2011 Annual Report)
Overview
As with all businesses, management of the Group's operations and
execution of its growth strategies are subject to a number of
risks. The occurrence of any of these risks may adversely affect
the execution of growth strategies and hence the performance of the
Group. The Group's risk management framework is premised on
continued monitoring of the prevailing environment and the risks
posed by it as well as the management of risks which, in light of
either likelihood and/or impact on the business, are categorised as
signi cant risks.
A Risk Committee is responsible for implementing the Group's
policy on risk management and monitoring the effectiveness of
controls in support of the Company's business objectives.
It meets four times a year and more frequently if required. The
Risk Committee comprises the CEO, the Vice Presidents and the head
of the internal audit function. A "live" risk matrix is compiled
and updated at each Risk Committee meeting and the most signi cant
risks are reported to the Group's Audit Committee which has
oversight of risk management on behalf of the Board. Further
details on the Audit Committee's activities are provided in the
Corporate Governance Report on pages 70 and 71. The key business
risks affecting the Group are set out in the table below. The steps
taken by the Group to mitigate these risks, where possible, are
also described.
1. FINANCIAL RISKS
(i) Commodity Price
Description of risk
Adverse movements in precious metals' prices could have a
material impact on the Group's results of operations
Mitigating Steps
Derivative facilities have been negotiated with major banking
institutions to facilitate hedging activity as and when considered
appropriate.
To mitigate the impact of this risk, and other risks which could
potentially impact the Group's results of operations, the Company
continuously focuses on reducing costs and expenses and maintains a
low leverage policy thus maintaining the lowest level of fixed
commitments possible.
(ii) Counterparty credit risk
Description of risk
Loss of revenue resulting from defaulting customers
Mitigating steps
The Company has invested during 2011, and continues to invest,
in increasing its dore capabilities, significantly reducing its
exposure to counterparty risk (since the sale of dore, as opposed
to concentrates, is settled almost immediately).
The Group's sales contracts for concentrate incorporate various
protection measures including (i) inbuilt provision for advance
payment or the delay in transferring title of goods sold in the
event of non-payment, and (ii) the requirement to provide parent
company guarantees where possible. In addition, the Group
implements risk pro ling to appraise key and new customers. The
Group's diversi ed customer base further mitigates the risk of
default.
Description of risk
The Group may lose financial resources through the failure of
financial institutions
Mitigating steps
The Company has elected a small number of top tier financial
counterparties with whom to invest excess cash. Management and the
Board have defined limits for the amount of exposure to each
counterparty based on a credit risk assessment. The Board receives
regular reports on the management of cash and, in particular,
oversees the implementation of procedures to monitor counterparty
risk.
(iii) Liquidity
Description of risk
The Group may be unable to raise funds to meet its nancial
commitments as they fall due
Mitigating Steps
Notwithstanding the strength of the Company's balance sheet, the
Board and senior management continually monitor the Group's
requirements for short- and medium-term liquidity. The Company
maintains strong banking relationships and access to credit lines
to ensure an appropriate level of nancing.
(iv) Foreign Currency
Description of Risk
Given the combination of US dollar denominated sales and certain
costs denominated in local currencies, adverse foreign currency
movements may impact the Group's results
Mitigating Steps
Local currency exposures may be partially mitigated by
offsetting variances in revenues due to silver and gold price
movements. However, management periodically reviews the
profitability of every operation, which may be impacted by foreign
currency movements, to ensure their positive cash flow
generation.
2. OPERATIONAL RISKS
(i) Costs
Description of Risk
Increase in production costs could impact on the Group's pro
tability
Mitigating Steps
As stated in the Operating Review there has been cost inflation
during the year across the mining industry and the Group seeks to
mitigate the impact of this by entering into long-term supply
contracts, where possible. Costs are monitored by management on a
monthly basis.
(ii) Business Interruption
Description of Risk
Assets used in operations may break down and insurance policies
may not cover against all forms of risks due to certain exclusions
and limitations
Mitigating Steps
The Group has combined property damage and business interruption
insurance policies for all operations, and adequacy of coverage is
regularly reviewed with appointed advisers. Management reporting
systems have been implemented to ensure that an appropriate level
of inventory of critical parts is maintained. Adequate preventative
maintenance programmes, supported by the SAP Maintenance Module,
are in place in the operating units. Annual inspections by
insurance brokers and insurers take place and recommendations are
addressed in order to mitigate operational risks. Contingent power
supplies are provided at each of the Group's operations.
(iii) Reserve and Resource Replacement
Description of Risk
The Group's future pro tability and operating margins depend
upon its ability to replenish reserves with geological
characteristics to enable mining at competitive costs. Reserves
stated in this Annual Report are estimates
Mitigating Steps
The Group allocated $70 million in 2011 to fund its exploration
and geology activities. The 2012 budget has been increased to $90
million.
Specific initiatives have been, and continue to be taken to
retain and incentivise the Group's Geologists (see Mitigating Steps
for Personnel-related risks below for further information).
The Group has an annual drilling plan which is revised on a
monthly basis with exploration targets continually evaluated and
new targets incorporated. In parallel, the Group's Business
Development function continually evaluates acquisition and
joint-venture opportunities.
(iv) Personnel
Description of Risk
(i) Loss of key senior management and personnel including highly
skilled engineers and geologists;
(ii) the lack of availability of individuals with relevant
mining experience in the vicinity of the Group's operations,
particularly when neighbouring projects commence operations;
and
(iii) failure to maintain good labour relations with workers
and/or unions which may result in work slowdown, stoppage or
strike
Mitigating Steps
(i) The Group seeks to provide competitive compensation
arrangements and develop well-de ned career plans for positions of
strategic importance through the Group's Talent Inventory Review.
With respect to incentives, in addition to the launch of a Long
Term Incentive Plan, during 2011 the Group designed and implemented
the Exploration Incentive Plan which provides additional rewards
for geologists based on the mineral content of a given project;
(ii) and (iii)a labour relations strategy focusing on working
conditions, management style, development opportunities, motivation
and communication has been developed to ensure that employees'
needs are identi ed and met. Regular meetings are held with workers
and unions to ensure a full and accurate understanding of matters
of concern and requirements.
3. MACROECONOMIC RISKS
(i) Political, Legal and Regulatory Risks
Description of Risk
Costs associated with ensuring compliance with all relevant laws
and regulations are substantial. Furthermore, changes in the legal
or regulatory landscape including increases in taxes and/or
royalties could result in additional expense, restrictions on or
suspensions of, operations and may lead to delays in the
development of current operations and early stage projects
Mitigating Steps
2011 saw new administrations take office in Peru and Argentina
which resulted in a number of legislative developments impacting on
mining companies.
The Group has local teams to monitor constantly and react, as
necessary, to policy changes. It also seeks to participate actively
in legislative consultations either directly or through
participation in trade associations.
Regional risk assessments are performed when investments in new
countries are considered. These incorporate reviews of political
environments and likelihood of changes in policy that are likely to
impact the Group's results from operations.
4. CORPORATE RESPONSIBILITY RISKS
(i) Health and Safety
Description of risk
Group employees working in the mines may be exposed to health
and safety risks. Failure to manage these risks may result in
accidents, a work slowdown, stoppage or strike and/or may damage
the reputation of the Group and hence its ability to operate
Mitigating Steps
During the year, the Group attained Level 7 of the DNV safety
management information system at Arcata and Pallancata and Level 6
at San Jose.
A number of initiatives were taken during 2011 further
reinforcing the Group's commitment to safety.
(ii) Environmental
Description of risk
The Group may be liable for losses arising from environmental
hazards associated with the Group's activities and production
methods, or may be required to undertake extensive remedial
clean-up action or pay for governmental remedial clean-up
actions
Mitigating Steps
The Group has a dedicated team of professionals with an
allocated budget for environmental management. Monthly audits are
carried out to monitor the implementation of third-party
environmental recommendations and achievement of targets. Air and
water quality are monitored on a quarterly and weekly basis
respectively.
Our operations are ISO14001 certified.
(iii) Community Relations
Description of risk
Communities living in the areas surrounding Hochschild's
operations may oppose the activities carried out by the Group at
existing mines or, with respect to development projects and
prospects, may invoke their rights to be consulted under new laws
enacted during the year.
These actions may result in longer lead times and additional
costs in bringing assets into production and lead to an adverse
impact on the Group's ability to obtain the relevant permissions
for current or future projects.
Mitigating Steps
During the year, the Group has restructured its Community
Relations ("CR") department to facilitate an ongoing dialogue with
local communities. A specific CR strategy focusing on Education,
Health & Nutrition, and Sustainable Development was designed,
with associated action plans. Furthermore, the Group maintains a
database of all agreements with communities to ensure that all
social commitments are met.
Specific initiatives during the year include the "Maestro Lider"
campaign, a training programme for community teachers, and "Medico
de Cabecera", a programme taking healthcare to the rural
populations.
Appendix 2 - Related Party Transactions (reproduced from pages
140 and 141 of the 2011 Annual Report)
30 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 - 28 - -
S.A.
--------------------------- ------------- ------- ------- -------------------
Cementos Pacasmayo S.A.A. 222 291 32 23
--------------------------- ------------- ------- ------- -------------------
Gold Resource Corp (note
18(a)) 710 1,290 - -
--------------------------- ------------- ------- ------- -------------------
Total 932 1,609 32 -
--------------------------- ------------- ------- ------- -------------------
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
provided to Gold
Resource Corp 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
-------------------------------------------- -------------------------------------
Compensation of key management personnel 2011 US$000 2010 US$000
(including directors)
-------------------------------------------- ----------------------- ------------
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$199,960 (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 partner, 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))."
Appendix 3 - Statement of Directors' Responsibilities
(reproduced from page 64 of the 2011 Annual Report)
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.
This information is provided by RNS
The company news service from the London Stock Exchange
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