TIDMHOC
RNS Number : 5065K
Hochschild Mining PLC
22 August 2012
22 August 2012
Hochschild Mining plc
Interim Results for the six months ended 30 June 2012
Financial highlights([1])
-- Revenue of $354.5 million (H1 2011: $496.8 million)
-- Adjusted EBITDA of $168.4 million (H1 2011: $297.1
million)
-- EPS of $0.08 (H1 2011: $0.27)
-- Strong financial position with a cash balance of $543.6
million as at 30 June 2012 despite temporary inventory build-up in
Argentina
-- Minority investments valued at $297.6 million([2])
-- Interim dividend of $0.03 per share (H1 2011: $0.03)
Operational highlights
-- H1 2012 attributable production of 10.2 million silver
equivalent ounces
-- 2012 production target of 20.0 million attributable silver
equivalent ounces on track
-- Unit cost performance in line with full year expectations
-- Continued progress at Inmaculada and Crespo Advanced Projects
- expected to deliver 50% production growth
-- $90 million exploration programme delivering encouraging
results
-- Continued discovery of new economic veins at core
operations
-- Good progress in greenfield exploration programme; full year
drilling and exploration target on schedule
$000, pre-exceptional unless stated Six months to Six months to % change
30 June 2012 30 June 2011
------------------------------------------------------ -------------- -------------- ---------
Attributable silver production (koz) 6,887 7,340 (6)
Attributable gold production (koz) 55.94 63.26 (12)
Attributable silver equivalent production (koz) 10,243 11,136 (8)
Net Revenue(*) 354,504 496,768 (29)
Adjusted EBITDA(**) 168,353 297,128 (43)
Profit from continuing operations 54,555 146,782 (63)
Profit from continuing operations (post exceptional) 52,755 151,057 (65)
Earnings per share ($) 0.08 0.27 (70)
Earnings per share ($ post-exceptional) 0.08 0.29 (72)
------------------------------------------------------ -------------- -------------- ---------
* Revenue presented in the financial statements is disclosed as
net revenue (in the Financial Review it is calculated as gross
revenue less commercial discounts).
** Please refer to the Adjusted EBITDA section on page 17 of the
Financial Review for an explanation of the calculation of Adjusted
EBITDA.
Commenting on the results, Eduardo Hochschild, Executive
Chairman, said:
"The first half of 2012 provided the Company with tougher
challenges than last year, although I am pleased to report that we
have delivered on our production targets and that we are on track
to meet our full year target. Despite an anticipated fall in
financial results, the Company remains in a strong financial
position and therefore the Board is maintaining the interim
dividend at $0.03 per share.
I am delighted that we were able to publish our feasibility
studies for the Inmaculada and Crespo projects in January, laying
the foundations for the next phase of our growth which is expected
to deliver a 50% increase in production. Both projects have made
good progress in the early stages of their development in the first
half of the year. In addition, our ambitious exploration campaign
continues to bear fruit with further additions to the pipeline and
the ongoing drilling campaign well underway across our
portfolio."
(1) On a pre-exceptional basis.
(2) Market value (as at 31 July 2012) of investments accounted
under equity method and available for sale financial assets.
________________ _________________________________
A live conference call & audio webcast will be held at 2pm
(London time) on Wednesday 22 August 2012 for analysts and
investors. Details as follows:
For a live webcast of the presentation please click on the link
below:
http://www.media-server.com/m/p/czg3b8bd
Conference call dial in details:
UK: +44 (0)20 7784 1036 (Please quote 'Hochschild Mining
webcast' or confirmation code 2492329).
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: 2492329#)
__________________________________________________________________
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 and one in southern Argentina. Hochschild also has
numerous long-term projects throughout the Americas.
CHIEF EXECUTIVE OFFICER'S STATEMENT
Hochschild has had a solid first half of production in 2012 with
our operations on track to deliver on our forecast for the year of
20 million attributable silver equivalent ounces despite a tough
external environment. We have delivered an adjusted EBITDA of $168
million, with earnings per share at $0.08, reflecting a fall in
prices as well as continuing industry cost inflation and an
expected year-on-year decrease in production. Our cash balance
remains at a very healthy $544 million, despite a finished goods
inventory build-up in Argentina, with our minority investments
currently valued at $298 million.
Our current operations have once again proved to be a strong
collective platform for the Company. During the period, we produced
10.2 million attributable silver equivalent ounces comprising 6.9
million ounces of silver and 55.9 thousand ounces of gold. Although
average gold prices rose by some 14% year-on-year, this was offset
by a 14% fall in the average realised silver price leading to lower
overall Group revenue of $355 million.
In Peru, the Arcata mine is performing in line with our
expectations and the mine's dore project is on track for completion
in the third quarter. In addition, we will continue with our
strategy of processing the low grade Macarena Waste Dam deposit in
the second half, thus maximising revenue from material that is not
included in our mineral resource base. At Pallancata, we also saw
some grade decline due to temporary delays in the mine plan
execution and our ongoing strategy of mining close to the average
reserve grade at each of our core operations. In Argentina, the San
Jose mine continued to run smoothly, delivering a small increase in
production year-on-year. However, as mentioned above, industry-wide
regulatory changes in the country affecting the settlement of
concentrate exports led to a temporary inventory build-up at the
mine amounting to just over one million silver equivalent ounces of
concentrate. We have now been able to resume exports and the
related revenue will be recognised in the second half.
The level of cost inflation in Peru, although high, remains
within expectations and consequently in the first half both Arcata
and Pallancata experienced double digit inflation. At Arcata, unit
cost increases were restricted to below the 15% increase predicted
for the full year, whilst at Pallancata, our move to narrower and
more dilutive veins pushed costs up more than expected. However,
for the full year, our expectation for the unit cost increase at
our Peruvian operations remains at 15%. At San Jose I am pleased to
report that unit cost increases were contained to a single digit
figure helped by increased year-on-year tonnages (including lower
cost mine development material), and a degree of local currency
devaluation which has allowed us to revise our guidance for full
year cost increases in Argentina to around 15-20%.
Early in the first half, we announced the completion of
feasibility studies at two of our Advanced Projects, Inmaculada and
Crespo which form the basis of our next phase of growth which is
expected to deliver a 50% increase in production. Following their
approval by the Board, I am pleased to report that the projects
have seen steady progress throughout the remainder of the period on
the engineering work as well as key infrastructural and procurement
requirements. Tunnelling has begun at Inmaculada whilst the
environmental and community aspects are moving forward at both
projects. We currently expect approval for both projects'
Environmental Impact Studies ('EIS') in the second half of the
year. However, the increasingly complex permit approval process in
Peru could potentially create some uncertainty on the precise
timing for receiving the final construction permits.
Exploration remains the cornerstone of our long-term strategy
for the Company and in line with this we announced a record budget
for the year of $90 million which represents a near 30% increase on
the 2011 figure. During the first half, through our brownfield
exploration programme, we have received some very positive drilling
results and have discovered a number of significant, high grade
economic veins at both Arcata and Pallancata. I am confident that
these results will not only increase the life of mine at our
current operations, but in line with our revised strategy will also
improve the grade quality of these resources in the long-term. Our
greenfield programme remained on track in the first half with a
number of projects added to the pipeline and over 19 thousand
metres of drilling carried out at our greenfield projects.
Looking to the remainder of the year, Hochschild is well
prepared for the continued uncertainty in global financial markets.
We remain confident that we will once again meet our full year
production target, strengthen our cost controls and continue with
our steady progress at Inmaculada and Crespo. With our healthy
balance sheet, we retain the flexibility to assess potential, value
accretive acquisitions in addition to capital investment
opportunities generated from our exciting project portfolio.
Ignacio Bustamante
Chief Executive Officer
21 August 2012
OPERATING REVIEW
CURRENT OPERATIONS
H1 2012 Highlights
-- Half year production of 10.2 million attributable silver
equivalent ounces
-- On track to deliver 2012 attributable production target of
20.0 million silver equivalent ounces
-- Temporary accumulation of San Jose concentrate inventory at
end of H1 2012 due to industry-wide regulatory changes in
Argentina; exports resumed and inventory to be sold in H2 2012
Production
In H1 2012 the Company delivered attributable production of 10.2
million silver equivalent ounces, which comprised 6.9 million
ounces of silver and 55.9 thousand ounces of gold, placing it on
track to fulfill its full year production target of 20.0 million
attributable silver equivalent ounces in 2012.
Costs([3])
In H1 2012, the Company reported an increase in unit cost per
tonne excluding royalties at its main operations in Peru (Arcata
and Pallancata) of 20% to $71.6 (H1 2011: $59.7). Without the
negative cost effect of the increased dore production at Arcata,
(which is more than compensated for by a reduction in commercial
discounts and selling expenses), the rise would have been 18%. The
Company maintains its guidance of a 15% increase in costs in Peru
for the full year, mainly made possible by the plant capacity
expansion at Arcata that will reduce costs in H2 2012. At San Jose
in Argentina, unit costs excluding royalties increased by a lower
than expected 4% in H1 2012, to $185.3 (H1 2011: $177.7). The
Company currently anticipates a cost increase of around 15-20% in
Argentina for the full year. Ares and Moris, the Company's two
ageing mines, have a longer than anticipated mine life and continue
to be profitable. Further details on costs are provided on page 14
of the Financial Review.
Main operations
Arcata: Peru
Arcata summary Six months Six months % change
to to
30 June 2012 30 June 2011
---------------------------- -------------- -------------- ----------------------------
Ore production (tonnes) 344,660 316,086 9
Average silver grade (g/t) 308 342 (10)
Average gold grade (g/t) 0.91 0.94 (3)
Silver produced (koz) 3,012 3,056 (1)
Gold produced (koz) 9.04 8.66 (4)
Silver equivalent produced
(koz) 3,555 3,575 (1)
Silver sold (koz) 2,659 3,020 (12)
Gold sold (koz) 7.81 8.36 (7)
Unit cost ($/t) 84.0 76.0 11
Unit cost excl. royalties
($/t) 80.5 70.8 14
Total cash cost ($/oz Ag
co-product)([4]) 13.6 12.1 12
---------------------------- -------------- -------------- ----------------------------
Production and sales
At Arcata, the Company continued to mine close to average
reserve grade levels in H1 2012, in line with its policy to ensure
a consistent level of long-term production at its core operations.
Silver equivalent production of 3.6 million ounces in H1 2012 was
broadly in line with the comparable period of 2011. The volume of
treated low grade material from the Macarena Waste Dam deposit was
similar to the first half of 2011 but is expected to rise in the
second half with incremental plant capacity of 500 tonnes per day
being added to accommodate this increase. The Arcata dore project,
to process 100% of Arcata's concentrate, remains on schedule for
completion in Q3 2012.
Costs
In H1 2012, in line with expectations, the unit cost per tonne
excluding royalties at Arcata increased by 14% versus the same
period last year, to $80.5 per tonne. Excluding the additional cost
of increased dore production, the unit cost would have increased by
10%. This was principally due to increased personnel expenses
mainly as a result of a high single digit average wage increase, as
well as increased energy costs. Finally, there was a negative
foreign exchange impact in costs due to an appreciation of the
local currency.
Exploration
Positive results were received from the exploration programme at
Arcata in H1 2012. A high grade resource was discovered in the
Tunel 4 area (a vein system readily accessible from the existing
mine infrastructure), which will not only increase the life of mine
but will improve the average grade quality of the resource in the
long-term. During H1 2012, 29.6 thousand metres of drilling was
carried out at Arcata, with exploration work focused on the
definition of new high grade structures and the incorporation of
high quality resources from known and new vein systems, as well as
to provide further geological interpretation of the district.
Significant intercepts include([5]) :
Vein Results
-------------- ---------------------------------------
Socorro Oeste DDH171 0.79m at 8.81 g/t Au & 1,108.67
g/t Ag
-------------- ---------------------------------------
Tunel 4 DDH306-S-12 1.15m at 6.87 g/t Au &
2,387.39 g/t Ag
DDH312-S-12 1.08m at 3.38 g/t Au &
1,261.64 g/t Ag
DDH304-S-12 1.33m at 3.48 g/t Au &
2,815.12 g/t Ag
-------------- ---------------------------------------
Marion DDH216-GE12 0.82m at 1.35 g/t Au &
428.86 g/t Ag
-------------- ---------------------------------------
Sandra DDH301-S-12 1.18m at 2.06 g/t Au &
1,059.53 g/t Ag
-------------- ---------------------------------------
In H2 2012 the near-mine exploration programme at Arcata will
continue, with drilling focused on the definition of new high grade
structures and on improving the average grade of the resource. An
estimated 35.2 thousand metres of drilling is planned for H2
2012.
Pallancata: Peru
Pallancata summary(*) Six months to Six months to % change
30 June 2012 30 June 2011
---------------------------- -------------- -------------- ---------
Ore production (tonnes) 528,300 508,734 4
Average silver grade (g/t) 256 299 (14)
Average gold grade (g/t) 1.04 1.31 (21)
Silver produced (koz) 3,606 4,188 (14)
Gold produced (koz) 12.01 16.21 (26)
Silver equivalent produced
(koz) 4,326 5,160 (16)
Silver sold (koz) 3,556 4,492 (21)
Gold sold (koz) 11.43 16.57 (31)
Unit cost ($/t) 65.7 60.3 9
Unit cost excl. royalties
($/t)** 65.7 52.5 25
Total cash cost ($/oz Ag
co-product) 11.0 10.1*** 9
---------------------------- -------------- -------------- ---------
* The Company holds a 60% interest in Pallancata.
** Please see footnote 3 on page 4 relating to the treatment in
the Company's accounts of mining royalties at the Pallancata and
Ares units in H1 2012.
*** The H1 2011 Ag co-product cash cost would have been $9.4/ oz
excluding royalties.
Production and sales
At Pallancata, the Company's other main Peruvian operation,
despite an increase in production in Q2 2012 versus the first
quarter, overall half year production fell by 16% versus H1 2011,
to 4.3 million silver equivalent
ounces. This decrease was due to a decline in grades resulting
from two factors. Firstly, temporary delays in the mine execution
plan led to the treatment of an increased volume of lower grade
material from the mine although these delays are not expected to
continue in the second half. In addition, the Company continues
with its previously-mentioned strategy of mining close to the
average reserve grade at each of its core operations in order to
ensure a consistent level of long-term production.
Costs
Unit cost per tonne excluding royalties at Pallancata rose by
25% in H1 2012, to $65.7. As detailed above, mining was
concentrated on narrower veins further from the central and wider
mining area, therefore requiring an increased number of employees
and higher mining cost (support and services). Additional
contributing factors year-on-year included industry-wide wage
increases as well as higher cement consumption for the mine
backfill process, higher energy costs and local currency
appreciation.
Exploration
In H1 2012, exploration work at Pallancata focused on
identifying wider structures and the incorporation of new
resources. Positive results were received from the Bolsa and
Huararani areas, two new vein systems located 6.5km and 1.0km
respectively from the main Pallancata vein. These discoveries will
not only increase the life of mine but will improve the average
grade quality of the resource in the long-term. During the period,
drilling continued at the Luisa, Pallancata Este, Ramal Este and
Teresa veins, with a total of 22.4 thousand metres of diamond
drilling completed. Promising intercepts include([6]) :
Vein Results
---------------- -----------------------------------------
Luisa DLLU-A26 3.79m at 4.44 g/t Au & 1,060.70
g/t Ag
DLLU-A88 3.03m at 1.76 g/t Au & 522.69
g/t Ag
---------------- -----------------------------------------
Pallancata Este DLPE-A83 7.01m at 8.54 g/t Au & 1,088.24
g/t Ag
---------------- -----------------------------------------
Paola DLLU-A28 7.13m at 2.52 g/t Au & 279.11
g/t Ag
---------------- -----------------------------------------
Ramal Huararani DLHU-A09 6.41m at 1.72 g/t Au & 702.15
g/t Ag
---------------- -----------------------------------------
Ramal Este DLPE-A91 1.04m at 1.38 g/t Au & 358.50
g/t Ag
---------------- -----------------------------------------
Bolsa DLBO-A05 1.50m at 24.67 g/t Au & 79.66
g/t Ag
---------------- -----------------------------------------
In H2 2012, exploration will focus on identifying new high grade
areas, with an estimated 22.9 thousand metres of drilling
planned.
San Jose: Argentina
San Jose summary(*) Six months Six months % change
to to
30 June 2012 30 June 2011
---------------------------- -------------- -------------- ---------
Ore production (tonnes) 244,334 211,947 15
Average silver grade (g/t) 423 461 (8)
Average gold grade (g/t) 5.98 6.03 (1)
Silver produced (koz) 2,855 2,854 -
Gold produced (koz) 42.30 39.11 8
Silver equivalent produced
(koz) 5,393 5,201 4
Silver sold (koz) 2,178 2,927 (26)
Gold sold (koz) 32.00 39.32 (19)
Unit cost ($/t) 198.6 191.3 4
Unit cost excl. royalties
($/t) 185.3 177.7 4
Total cash cost ($/oz Ag
co-product) 14.1 14.3 (1)
---------------------------- -------------- -------------- ---------
* The Company holds a 51% interest in San Jose.
Production and sales
San Jose delivered a strong production performance in the first
half of 2012. Silver equivalent production rose by almost 4% versus
the first half of 2011, to 5.4 million ounces, resulting from
increased tonnages.
In Q2 2012, there was an accumulation in concentrate inventory
at the San Jose mine due to the impact of industry-wide regulatory
changes in Argentina that significantly reduced the time in which
export contracts were required to be settled. As at 30 June 2012,
approximately 1.2 million silver equivalent ounces of concentrate
remained in finished goods inventory. However, exports have now
resumed and sales of this inventory will be reflected in the second
half sales figures, with no impact to full year figures.
Costs
Unit cost per tonne excluding royalties in the first half of
2012 rose by 4% versus H1 2011 to $185.3 at San Jose. Despite local
inflation, costs increased at a lower rate due to the extraction of
economic, low cost mine development material, and the comparative
devaluation of the Argentine peso in H1 2012. In addition,
economies of scale and operational efficiencies were achieved as a
result of increased mine and plant throughput in H1 2012. The
Company has therefore lowered its expectations for full year cost
increases in Argentina to around 15-20% for the full year.
Exploration
The exploration programme at San Jose continued to deliver
positive results in H1 2012 with a total of 43.6 thousand metres of
exploration drilling carried out to incorporate further resources
and new economic areas. Positive results were received from the
drilling campaign which took place on several veins with
significant intercepts including([7]) :
Vein Results
-------- ------------------------------------------
Nuevo 1 SJD-1099 0.75m at 5.18 g/t Au & 216.32
g/t Ag
-------- ------------------------------------------
Kospi SJD-1100 2.45m at 6.37 g/t Au & 382.30
g/t Ag
-------- ------------------------------------------
Frea SJD-1119 1.70m at 3.11 g/t Au & 238.61
g/t Ag
-------- ------------------------------------------
Chenque SJD-1121 1.70m at 11.05 g/t Au & 1,186.36
g/t Ag
-------- ------------------------------------------
R350 SJD-1125 0.50m at 3.06 g/t Au & 329.63
g/t Ag
-------- ------------------------------------------
In H2 2012, the exploration programme in and around the San Jose
mine will continue and the geological map of the southern area of
the district will be completed. An estimated 46.4 thousand metres
of exploration drilling is planned for H2 2012.
Other operations
Ares: Peru
Ares summary Six months to Six months to % change
30 June 2012 30 June 2011
---------------------------- --------------- ---------------- ---------
Ore production (tonnes) 160,632 155,683 3
Average silver grade
(g/t) 51 64 (20)
Average gold grade
(g/t) 2.56 3.01 (15)
Silver produced (koz) 227 284 (20)
Gold produced (koz) 12.63 14.08 (10)
Silver equivalent produced
(koz) 985 1,129 (13)
Silver sold (koz) 178 287 (38)
Gold sold (koz) 9.94 14.32 (31)
---------------------------- --------------- ---------------- ---------
Production and sales
The Company's ageing Ares mine in Peru continued to operate
during H1 2012 and produced 985 thousand silver equivalent ounces.
The Company continues to monitor production closely at Ares to
ensure the extraction of profitable ounces during the last stage of
its life cycle. Subject to additional resources, and the price
environment, production at Ares is expected to continue throughout
H2 2012. In H1 2012 there was an inventory build-up at Ares due to
delays in shipping that contributed to a fall in sales. These were
however recovered during July.
Exploration
Exploration work at Ares in H1 2012 focused on identifying new
economic structures. During the period, 4.2 thousand metres of
drilling was carried out on the Olga, Isabel and Rosario veins.
Promising intercepts include([8]) :
Vein Results
------- ---------------------------------------
Olga AM-1482 2.65m at 0.13 g/t Au & 448.31
g/t Ag
------- ---------------------------------------
Isabel AM-1482 6.05m at 0.44 g/t Au & 154.78
g/t Ag
AM-1481 0.60m at 0.54 g/t Au & 303.24
g/t Ag
------- ---------------------------------------
Additional exploration initiatives have been approved for Ares
in order to continue increasing the life of mine. In H2 2012,
exploration will focus on the definition of new economic structures
beyond the known areas of the mine, with an estimated 22.8 thousand
metres of drilling planned.
Moris: Mexico
Moris summary Six months to Six months to % change
30 June 2012 30 June 2011
---------------------------- --------------- ---------------- ---------
Ore production (tonnes) - 612,257 -
Average silver grade - 4.83 -
(g/t)
Average gold grade - 0.94 -
(g/t)
Silver produced (koz) 28 32 (12)
Gold produced (koz) 5.48 10.86 (50)
Silver equivalent produced
(koz) 357 683 (48)
Silver sold (koz) 24 31 (23)
Gold sold (koz) 4.73 10.82 (56)
---------------------------- --------------- ---------------- ---------
Production
At Moris, the Company's open pit operation in Mexico, leaching
of the pads continued, yielding a further 357 thousand silver
equivalent ounces in H1 2012, despite mine production ceasing back
in September 2011. The pads' cyanidation process has reached the
final stages, with exploration continuing at the property.
Exploration
In H1 2012, exploration work at Moris focused on identifying new
economic structures. During H1 2012, 5.9 thousand metres of
drilling was carried out on the Creston, Eureka and La Nopalera
areas. Promising intercepts include(8) :
Vein Results
----------------------- ---------------------------------------
Veta del Bajo San Luis DM-04 12.0m at 0.64 g/t Au & 1.14 g/t
Ag
DM-04 3.55m at 1.33 g/t Au & 1.00 g/t
Ag
----------------------- ---------------------------------------
Exploration at Moris in H2 2012 will focus on increasing the
life of mine at the operation, with an estimated 11.9 thousand
metres of drilling planned.
(3) Following the revision of the mining royalty regime in Peru
in 2011 (as detailed in the Company's 2011 Full Year Results
announcement), the mine royalties levied on the output of the
Pallancata and Ares units are now accounted for as Income Tax,
whereas previously, royalties for both units were treated as
production costs. The effect of this change should be taken into
account when comparing the units' production cost per tonne, cash
costs and Adjusted EBITDA metrics in H1 2012 with those of H1
2011.
(4) Cash costs are calculated to include cost of sales,
treatment charges, and selling expenses before exceptional items
less depreciation included in cost of sales.
(5) Please note that all mineralised intersections referred to
in this release are quoted as down-hole lengths, not true
widths.
(6) Please note that all mineralised intersections referred to
in this release are quoted as down-hole lengths, not true
widths.
(7,8) Please note that all mineralised intersections referred to
in this release are quoted as down-hole lengths, not true
widths.
ADVANCED PROJECTS
On 11 January 2012, Hochschild announced the successful
completion of the Inmaculada and Crespo feasibility studies which
are forecast to increase production by 50% with a contribution of
10 million silver equivalent ounces of attributable production on
average per annum at an initial combined capital cost of $335
million (attributable). Full details of the feasibility studies can
be found in the announcement. In H1 2012 both projects saw good
progress and are running to schedule.
Inmaculada
During H1 2012, the Company made steady progress at Inmaculada.
The suppliers for the main site equipment were selected, and orders
have been placed. The contract for the plant construction ($142
million) was also awarded in H1 2012 within the Company's budget
expectations, to an established local engineering and construction
firm. Construction of three exploration tunnels commenced and the
contract for the construction of the main access road to the site
was granted, with completion due by the end of 2012. Project
engineering continued during the period with a geotechnical
drilling programme completed in June, whilst engineering contracts
for the maintenance workshops and stores and the main camps were
also granted at the end of June. The contract for the construction
of the electricity transmission line was awarded and work began
during the period.
The project's overall social development programme has received
support from the local communities and in the first half of 2012,
the Company continued to implement several initiatives in the areas
surrounding Inmaculada. Approval of the EIS is currently expected
in the second half of the year.
In June, the Peruvian Government revised the submission
requirements for construction permit applications which, together
with the unprecedented number of industry applications currently
under consideration, could potentially create some uncertainty on
the precise timing for receiving the final construction permit.
In H1 2012, resource exploration continued at Inmaculada, with
seven drill rigs in operation by the end of Q2; 42 drill holes were
completed during the first half, with six more in progress at the
end of June. In H1 2012 a total of 19.2 thousand metres of
exploration drilling was carried out at Inmaculada in order to
continue with the incorporation of inferred resources and to
identify new structures. Drilling was carried out in the Cimoide
Angela SW, and Lucy veins, with encouraging results including([9])
:
Vein Results
------------------ -----------------------------------------
Angela SW ASW12-029 1.35m at 2.19 g/t Au & 128.83
g/t Ag
ASW12-033 1.70m at 1.00 g/t Au & 569.25
g/t Ag
------------------ -----------------------------------------
Cimoide Angela SW ASW12-033 1.00m at 4.62 g/t Au & 123.58
g/t Ag
------------------ -----------------------------------------
Lucy ASW12-032 0.90m at 7.75 g/t Au & 232.10
g/t Ag
ASW12-025 1.58m at 3.16 g/t Au & 107.47
g/t Ag
------------------ -----------------------------------------
In H2 2012, exploration will focus on the definition and
incorporation of potential systems outside of the current resource
area, with an estimated 30.8 thousand metres of drilling
planned.
Crespo
At the Company's 100% owned Crespo project, in H1 2012
engineering contracts for the plant, leach pads, waste dump and
parts of the infrastructure were awarded to a local contractor.
Tender proposals for the construction of the main access road to
Crespo were received in June and the contract was awarded in
July.
The project's overall social development programme has received
support from the local communities and in the first half of 2012,
the Company continued to implement several initiatives in the areas
surrounding Crespo. We are currently expecting approval of the EIS
in the second half of the year.
In June, the Peruvian Government revised the submission
requirements for construction permit applications which, together
with the unprecedented number of industry applications currently
under consideration, could potentially create some uncertainty on
the precise timing for receiving the final construction permit.
The surface sampling programme continued at Crespo in H1 2012,
and the lithological and alteration models were completed. In H2
2012, a drilling programme will commence at Crespo in order to
identify new potential areas of disseminated mineralisation with an
estimated 5.4 thousand metres of drilling planned
Azuca
In H1 2012, surface geology work and detailed mapping were
conducted at Azuca and the drilling programme continued on the
Colombiana and Veronika veins, with two drill rigs in operation. In
H2 2012, exploration will focus on identifying new potential areas
with an estimated 22.2 thousand metres of drilling planned.
(9) Please note that all mineralised intersections referred to
in this release are quoted as down-hole lengths, not true
widths.
EXPLORATION REVIEW
Greenfield Exploration
Approximately 35% of the record $90 million exploration budget
in 2012 has been allocated to the Company's greenfield programme,
which saw good progress in H1 2012. During the period, a total of
19.3 thousand metres was drilled and the Company is on track to
meet its full year drilling targets. In H1 2012, drilling was
carried out at 11 projects; of which, six were Company Maker
projects and five were Medium Scale projects.
Company Makers
The Company currently has 14 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 H1 2012, the Company made two additions to
its Company Makers portfolio with the Potrero project in Chile, and
the Encruijada project which was re-categorised as a Company Maker
project. Highlights from the H1 2012 exploration programme for a
number of our Company Maker projects include the following:
Victoria
At the 60% owned Victoria project in northern Chile, exploration
work delivered good results in H1 2012. A total of 3.7 thousand
metres of drilling was completed, with exploration work focusing on
the porphyry potential of the property. Drilling to better define
the Picaron porphyry mineralisation and exotic copper oxide targets
was carried out, and geological mapping and target delineation was
continued. Further targets will be drilled in Q3 2012. An estimated
3.4 thousand metres of drilling is planned for H2.
Valeriano
Drilling commenced at Valeriano in October 2011 and, in H1 2012,
2.6 thousand metres of drilling was carried out at the property to
test the epithermal high sulphidation and porphyry copper targets
identified last year. In H2 2012 the drilling programme will
include follow up drilling and drill testing of the near surface
high sulphidation target with an estimated 2.7 thousand metres
planned.
Encrucijada
Following positive results from the exploration programme at the
51% owned Encrucijada property in Chile, the project was
re-categorised as a Company Maker project in Q1 2012. In H1 2012,
1.7 thousand metres of drilling was carried out. Additional
geophysical interpretation and targeting of the porphyry style
mineralisation below the San Bernardo tourmaline breccias and dome
complex, and in the surrounding area, was also carried out.
Mercurio
In H1 2012 the drilling campaign continued at the Mercurio
property in Mexico, with the focus on expanding the known
mineralisation and identifying new mineralised structures. A total
of 2.9 thousand metres of drilling was carried out. Drilling
commenced on the Santa Rosa vein system and geochemical sampling
also continued at the property. In H2 2012, the drilling campaign,
of an estimated 5.1 thousand metres, will focus on the Santa Rosa
and Virginia vein areas and along the large north east structural
zone which hosts a barite vein.
Apacheta
At the Apacheta project in Peru, 2.5 thousand metres of drilling
was completed in H1 2012 to complete the initial exploration
programme at Apacheta 1, and a surface sampling programme was
carried out in order to define further targets. In H2 2012,
exploration work will focus on obtaining the social permits for
Apacheta 2 in order to initiate the drilling programme there.
Soranpampa
The drilling programme was initiated at the Soranpampa project
in Peru in June. Drilling was carried out on a geophysical anomaly
area in order to identify economic near-surface gold
mineralisation. Further detailed geophysical work has identified
targets in and adjacent to the primary target and exploration work
will continue into the second half with an estimated 2.4 thousand
of metres of drilling planned.
Huachoja
At the Huachoja project in Peru, an airborne geophysics
programme was completed in H1 2012 and new targets identified.
Following the exploration work conducted in H1 2012, an exploration
drilling programme will be conducted in H2 2012 with an estimated
1.5 thousand metres of drilling planned.
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. Following
positive results obtained from exploration work during H1 2012, the
El Tanque project in Mexico was added to the exploration pipeline
as a Medium Scale project.
Cuello Cuello
At the Cuello Cuello project in Peru, the relevant government
and community permits and approvals were received in December 2011.
At the end of H1 2012 the drilling programme commenced at the
project, with one drill rig in operation. A total of 1.2 thousand
metres of drilling was carried out. Four silica structures with
high sulphide content were identified. In H2 2012, exploration work
will continue, with 700 metres of drilling planned.
El Tanque
In H2 2012, an exploration drilling campaign will be conducted
at the El Tanque project in Mexico, with 2.5 thousand metres
planned.
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 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 H1 2012, 566 metres of drilling was carried out at the
Jasperoide copper project in Peru, focused on the already
identified mineralised zone and surrounding area to locate new
skarn blankets and to test for a potential associated porphyritic
system. In H2 2012 exploration work will continue with 2.9 thousand
metres of drilling planned.
Alpacocha
At the Alpacocha project in Peru, in H2 2012, an estimated five
thousand metres of exploration drilling will be carried out.
FINANCIAL REVIEW
Key performance indicators:
(before exceptional items, unless otherwise indicated)
$000 unless otherwise indicated Six months to 30 June 2012 Six months to % change
30 June 2011
------------------------------------------------------ --------------------------- -------------- ---------
Net Revenue(1) 354,504 496,768 (29)
Attributable silver production (koz) 6,887 7,340 (6)
Attributable gold production (koz) 55.94 63.26 (12)
Cash costs ($/oz Ag co-product) (2) 12.77 12.08 6
Cash costs ($/oz Au co-product) (2) 708 496 43
Adjusted EBITDA(3) 168,353 297,128 (43)
Profit from continuing operations (pre exceptional) 54,555 146,782 (63)
Profit from continuing operations (post exceptional) 52,755 151,057 (65)
Earnings per share (pre exceptional) $0.08 $0.27 (70)
Earnings per share (post exceptional) $0.08 $0.29 (72)
Cash flow from operating activities (4) 64,096 236,903 (73)
------------------------------------------------------ --------------------------- -------------- ---------
(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 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. Please refer to paragraph
below on the changes of accounting treatment.
(3) Please refer to the Adjusted EBITDA section on page 17 of
the Financial Review for an explanation of the calculation of
Adjusted EBITDA.
(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.
Following the revision of the mining royalty regime in Peru in
2011 (as detailed in the Company's 2011 Full Year Results
announcement), the mine royalties incurred by the Pallancata and
Ares units are now accounted for as Income Tax, whereas previously,
royalties for both units were treated as production costs. The
effect of this change should be taken into account when comparing
the units' production cost per tonne, cash costs and Adjusted
EBITDA metrics in H1 2012 with those of H1 2011.
Revenue
Gross revenue: Gross revenue from continuing operations
decreased by 28% to $378.0 million in H1 2012 (H1 2011: $523.3
million) driven by lower ounces sold and lower silver prices.
Silver: Gross revenue from silver decreased by 32% in H1 2012 to
$268.0 million (H1 2011: $392.2 million) as a result of lower
prices and fewer ounces sold. The total amount of silver ounces
sold in H1 2012 decreased to 8,596 koz (H1 2011: 10,758 koz) mainly
due to lower production and the accumulation of inventory at San
Jose as previously mentioned in the Operating Review.
Gold: Gross revenue from gold decreased by 16% in H1 2012 to
$110.0 million (H1 2011: $131.1 million) also as a result of lower
ounces sold. The total amount of gold ounces sold in H1 2012
decreased to 65.9 koz (H1 2011: 89.4 koz) mainly due to lower
production and the accumulation of inventory at San Jose.
Gross average realised sales prices
The following table provides figures for average realised prices
and ounces sold for H1 2010 and H1 2011:
Average realised prices Six months to Six months
30 June 2012 to 30 June
2011
----------------------------------- -------------- ------------
Silver ounces sold (koz) 8,596 10,758
Avg. realised silver price ($/oz) 31.18 36.46
Gold ounces sold (koz) 65.91 89.39
Avg. realised gold price ($/oz) 1,669 1,466
----------------------------------- -------------- ------------
Commercial discounts
Commercial discounts refer to refinery treatment charges,
refining fees and payable deductions for processing concentrates,
and are discounted from gross revenue on a per tonne basis
(treatment charge), per ounce basis (refining fees) or as a
percentage of gross revenue (payable deductions). In H1 2012, the
Group recorded commercial discounts of $23.7 million (H1 2011:
$26.6 million). The ratio of commercial discounts to gross revenue
in H1 2012 increased to 6% (H1 2011: 5%).
Net revenue
Net revenue decreased by 29% to $354.5 million, comprising
silver revenue of $248.2 million and gold revenue of $106.1
million. In H1 2012, silver accounted for 70% and gold 30% of the
Company's consolidated net revenue compared to 74% and 26%
respectively in H1 2011.
Net revenue by mine
$000 unless otherwise indicated Six months to Six months to % change
30 June 2012 30 June 2011
--------------------------------- ------------------------ ------------------------- ---------
Silver revenue
Arcata 83,294 108,666 (23)
Ares 5,551 10,229 (46)
Pallancata 110,462 167,239 (34)
San Jose 67,946 104,975 (35)
Moris 767 1,132 (32)
Commercial discounts (19,867) (22,984) (14)
Net silver revenue 248,153 369,257 (33)
Gold revenue
Arcata 13,026 12,299 6
Ares 16,421 21,046 (22)
Pallancata 19,188 24,519 (22)
San Jose 53,520 57,301 (7)
Moris 7,846 15,900 (51)
Commercial discounts (3,860) (3,587) 8
Net gold revenue 106,141 127,478 (17)
--------------------------------- ------------------------ ------------------------- ---------
Other revenue(1) 210 33 536.4
--------------------------------- ------------------------ ------------------------- ---------
Net revenue 354,504 496,768 (29)
--------------------------------- ------------------------ ------------------------- ---------
(1) Other revenue includes revenue from sale of energy in Peru
and revenue from administrative services in Mexico.
Costs
Total pre-exceptional cost of sales in the first half decreased
11% to $174.4 million (H1 2011: $195.6 million) principally due to
lower sales volumes mainly related to lower production and the
accumulation of concentrate inventory at San Jose due to the impact
of industry-wide regulatory changes in Argentina. Direct production
costs increased by 11% to $134.4 million (H1 2011: $120.6 million)
mainly due to rises in personnel costs across the Group and
increases in energy and material costs. Further details can be
found in the Operating Review. Depreciation and amortisation was
higher than H1 2011, at $55.7 million (H1 2011: $47.2 million).
Other costs, which principally includes workers' profit sharing,
fell to $8.8 million (H1 2011: $22.2 million) mainly due to lower
workers' profit sharing at the mining units in Peru and fewer
stoppages in H1 2012 compared to H1 2011. Change in inventories
reduced cost of sales by $24.5 million in H1 2012 (H1 2011: change
in inventories increased cost of sales by $5.7 million) mainly as a
result of inventory accumulation at San Jose.
Unit cost per tonne
The Company reported an overall increase in unit cost per tonne
at its main operations excluding royalties of 16% in H1 2012 to
$97.6 (H1 2011: $83.8). Further detail on unit costs per tonne can
be found on page 4 of the Operating Review.
Unit cost per tonne by operation (including royalties)*:
Operating unit ($/tonne) Unit cost per Unit cost per % change
tonne H1 2012 tonne H1 2011
-------------------------- ------------------- ------------------- ---------
Main operations 102.1 92.0 11
Peru 73.0 66.5 10
Arcata 84.0 76.0 11
Pallancata 65.7 60.3 9
-------------------------- ------------------- ------------------- ---------
Argentina 198.6 191.3 4
San Jose 198.6 191.3 4
-------------------------- ------------------- ------------------- ---------
Others
Ares 130.4 121.8 7
Total underground 105.7 96.0 10
-------------------------- ------------------- ------------------- ---------
Moris - 17.8 -
-------------------------- ------------------- ------------------- ---------
*Unit cost per tonne is calculated by dividing mine and geology
costs by extracted tonnage and plant and other costs by treated
tonnage.
Please refer to paragraph on page 13 relating to the treatment
in the Company's accounts of mining royalties
at the Pallancata and Ares units in H1 2012.
Unit cost per tonne by operation (excluding royalties)*:
Operating unit ($/tonne) Unit cost per Unit cost per % change
tonne H1 2012 tonne H1 2011
-------------------------- --------------- --------------- ---------
Main operations 97.6 83.8 16
Peru 71.6 59.7 20
Arcata 80.5 70.8 14
Pallancata 65.7 52.5 25
-------------------------- --------------- --------------- ---------
Argentina 185.3 177.7 4
San Jose 185.3 177.7 4
-------------------------- --------------- --------------- ---------
Others
Ares 130.4 118.5 10
Total underground 101.9 88.4 15
-------------------------- --------------- --------------- ---------
Moris - 17.8 -
-------------------------- --------------- --------------- ---------
*Unit cost per tonne is calculated by dividing mine and geology
costs by extracted tonnage and plant and other costs by treated
tonnage.
Please refer to paragraph on page 13 relating to the treatment
in the Company's accounts of mining royalties at the Pallancata and
Ares units in H1 2012.
Cash costs
Cash costs include cost of sales, commercial deductions and
selling expenses before exceptional items, less depreciation
included in cost of sales.
Co-product silver/gold cash costs are total cash costs
multiplied by the percentage of revenue from silver/gold, divided
by the number of silver/gold ounces sold in the first half. Silver
cash costs increased from $13.2 to $13.5 per ounce and gold cash
costs increased from $549 to $751 per ounce. Silver and gold cash
costs at the Company's main operations (Arcata, Pallancata and San
Jose) increased from $12.1 to $12.8 per ounce and from $496 to $708
per ounce, respectively. The increase in silver cash costs resulted
from higher production costs at all mines and lower average grades
in line with the Company's policy of mining close to the average
reserve grade.
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 first half. By-product cash costs for the period
were $6.4 per silver ounce (H1 2011:$5.6 per silver ounce) and
($1,564) per gold ounce (H1 2011: ($2,251) per gold ounce).
Cash cost reconciliation*:
$000 Six months Six months % change
to to
30 June 2012 30 June 2011
--------------------------- ------------------------- ------------------------- --------------------------
Group Cash Cost 165,307 191,063 (14)
--------------------------- ------------------------- ------------------------- --------------------------
(+) Cost of sales 174,352 195,631 (11)
(-) Depreciation in Cost
of Sales (49,029) (48,842) 0.4
(+) Selling expenses 15,908 17,703 (10)
(+) Commercial deductions 24,076 26,571 (9)
Gold 3,870 3,587 8
Silver 20,206 22,984 (12)
--------------------------- ------------------------- ------------------------- --------------------------
Revenue 354,504 496,768 (29)
--------------------------- ------------------------- ------------------------- --------------------------
Gold 106,141 127,478 (17)
Silver 248,153 369,257 (33)
Others 210 33 536
--------------------------- ------------------------- ------------------------- --------------------------
Ounces Sold
--------------------------- ------------------------- ------------------------- --------------------------
Gold 66 89 (26)
Silver 8,596 10,758 (20)
--------------------------- ------------------------- ------------------------- --------------------------
Group Cash Cost ($/oz)
--------------------------- ------------------------- ------------------------- --------------------------
Co product Au 751 549 37
Co product Ag 13.47 13.20 2
By product Au (1,564) (2,251) 31
By product Ag 6.43 5.58 15
--------------------------- ------------------------- ------------------------- --------------------------
* Cash costs are calculated to include cost of sales, treatment
charges, and selling expenses before exceptional items less
depreciation included in cost of sales.
Please refer to paragraph on page 13 relating to the treatment
in the Company's accounts of mining royalties at the Pallancata and
Ares units in H1 2012.
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.
As detailed in the introduction to the Financial Review, in
calculating 2012 cash costs royalties at Pallancata and Ares are
now excluded from the cost of sales figure used. Consequently, for
comparison purposes, please see below 2011 Group cash costs
adjusting the royalties effect.
Restated Group Cash Cost ($/oz) Six months Six months % change
to 30 June to 30 June
2012 2011
--------------------------------- ------------------- ----------------- ---------
Co-product Au 751 536 40
Co-product Ag 13.47 12.91 4
By-product Au (1,564) (2,298) 32
By-product Ag 6.43 5.18 24
--------------------------------- ------------------- ----------------- ---------
Administrative expenses
Administrative expenses before exceptional items increased by
12% to $34.1 million (H1 2011: $30.6 million) primarily due to
rises in personnel expenses mainly resulting from local inflation
and the appreciation of local currencies. An increase in the
Company's LTIP provision, with the introduction of the 2012 LTIP,
also contributed to the increase. These increases were partially
offset by the absence of voluntary contributions in H1 2012.
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 60% to $30.3 million in H1
2012 (H1 2011: $19.0 million).
In addition, in H1 2012, the Group capitalised $8.0 million
relating to brownfield exploration compared to $4.9 million in H1
2011, bringing the total investment in exploration for the six
month period to 30 June 2012 to $38.4 million. The previously
announced 2012 exploration budget of $90 million constitutes the
total investment in exploration (greenfield and brownfield).
Furthermore, as part of Hochschild's aim to further develop the
Company's production assets, the 2012 budget for Advanced Projects
and operations includes an additional $3.8 million to convert
Inferred resources into Measured and Indicated resources.
Selling expenses
Selling expenses decreased to $15.9 million (H1 2011: $17.7
million), due to lower sales at San Jose following the build-up in
inventory in H1 2012.
Other income/expenses
Other income before exceptional items was $2.6 million (H1 2011:
$4.1 million). There were no exceptional items related to other
income in H1 2012.
Other expenses before exceptional items reached $4.5 million (H1
2011: $2.4 million). There were no exceptional items related to
other expenses in H1 2012.
Profit from continuing operations before exceptional items, net
finance costs, foreign exchange loss and income tax
Profit from continuing operations before exceptional items, net
finance costs, foreign exchange loss and income tax decreased to
$97.9 million (H1 2011: $235.6 million) as a result of the effects
detailed above.
Adjusted EBITDA
Adjusted EBITDA decreased by 43% over the period to $168.3
million (H1 2011: $297.1 million) driven primarily by lower profit
from continuing operations as a result of fewer ounces sold.
Adjusted EBITDA is calculated as profit from continuing operations
before exceptional items, net finance costs and income tax plus
depreciation and exploration expenses other than personnel and
other exploration related fixed expenses.
Six months to Six months to 30 June 2011 % change
$000 unless otherwise indicated 30 June 2012
-------------------------------------------------------------- -------------- --------------------------- ---------
Profit from continuing operations before exceptional items,
net finance cost, foreign exchange
loss and income tax 97,915 235,624 (58)
Operating margin 28% 47%
Depreciation and amortisation in cost of sales 49,029 48,842 0.4
Depreciation and amortisation in administrative expenses 1,059 952 11
Exploration expenses 30,337 18,992 60
Personnel and other exploration related fixed expenses (9,987) (7,282) 37
-------------------------------------------------------------- -------------- --------------------------- ---------
Adjusted EBITDA* 168,353 297,128** (43)
-------------------------------------------------------------- -------------- --------------------------- ---------
Adjusted EBITDA margin 47% 60%
-------------------------------------------------------------- -------------- --------------------------- ---------
* Please refer to paragraph on page 13 relating to the treatment
in the Company's accounts of mining royalties at the Pallancata and
Ares units in H1 2012.
** 2011 EBITDA includes royalties for Ares and Pallancata of
$4.2 million and a Group voluntary contribution to the Peruvian
Government of $1.6 million. Excluding these effects H1 2011 EBITDA
would have been $303.0 million.
Impact of the Group's investments in joint ventures and
associates
Hochschild's pre-exceptional share of the profit/(loss) after
tax of associates totalled $3.8 million in H1 2012 (H1 2011: $2.3
million). In both H1 2012 and H1 2011, the Company's share in
associates reflects profits relating to its holdings in Gold
Resource Corporation. After exceptional items, the share of the
profit/(loss) after tax of associates totalled $2.8 million.
Finance income and finance costs
Finance income before exceptional items at $0.7 million was
lower than that of last year (H1 2011: $3.3 million). Finance costs
before exceptional items was $7.1 million (H1 2011: $12.2 million).
The decrease in finance income mainly reflects lower interest rates
on deposits ($1.1 million), and lower interest from reduced loan
balances to minority interests ($1.5 million). Finance costs were
lower in H1 2012 reflecting lower interest due to a reduced average
debt balance ($1.0 million) as well as an associated interest rate
swap cost recognition in 2011 ($1.8 million).
Foreign exchange losses
The Group recognised a foreign exchange loss of $1.2 million in
H1 2012 (H1 2011: $2.8 million loss) as a result of transactions in
currencies other than the functional currency.
Income tax
The Group's pre-exceptional effective tax rate increased to
42.0% in H1 2012 (H1 2011: 35.1%). This increase is partly due to
the introduction of three new taxes in Peru in Q4 2011 - the New
Mining Royalty, the Special Mining Tax and the Special Mining
Assessment. Detailed information on these taxes (collectively
referred to as the 'New Taxes') is provided in the Company's 2011
Preliminary Results announcement released on 20 March 2012.
In H1 2012, income tax included $4.3 million from the New Mining
Royalty and Special Mining Tax. Excluding these impacts, the
effective tax rate was 37.4% compared to 35.1% in H1 2011. The
increase in the tax rate mainly reflects lower profit before income
tax in the operating companies (due to lower sales) and higher
non-deductable expenses, mainly related to increases in exploration
budgets.
Exceptional items
Exceptional items in H1 2012 totalled $(1.8) million after tax
(H1 2011: ($4.3 million). This mainly comprises:
Positive exceptional items:
Main items $000 Description of main items
---------------------------------------------------- ----- ---------------------------------------------------------
Reversal/(Impairment and write-off of assets) (net) 238 Corresponds to the reversal of the impairment recorded
in 2010 related to the 100% dore project
at the San Jose mine.
---------------------------------------------------- ----- ---------------------------------------------------------
Negative exceptional items:
Main items $000 Description of main items
----------------------------------------------------- -------- -----------------------------------------------------
Share of post tax losses of associates and joint (948) Loss resulting from dilution of holding in Gold
ventures accounted under equity method Resource Corp.
Finance cost (1,090) Includes the losses arising from the fair value
adjustments in relation to the Iron Creek
Capital Corp. warrants of $25,000, the impairment of
Brionor Resources and Iron Creek Capital
Corp. of $67,000 and $998,000 respectively.
----------------------------------------------------- -------- -----------------------------------------------------
Cash flow & balance sheet review:
Cash flow:
$000 Six months to Six months to change
30 June 2012 30 June 2011
--------------------------------- -------------- -------------- ----------
Net cash generated from
operating activities 64,096 236,903 (172,807)
Net cash used in investing
activities (115,499) (21,475) (94,024)
Cash flows generated /
(used) in financing activities (31,943) (50,748) 18,805
--------------------------------- -------------- -------------- ----------
Net (decrease) / increase
in cash and cash equivalents
during the period (83,346) 164,680 (248,026)
--------------------------------- -------------- -------------- ----------
Total cash generated decreased from $164.7 million in H1 2011 to
$(83.3) million in H1 2012 ($248.0 million difference). Operating
cashflow decreased by $172.8 million mainly due to lower ounces
sold and lower commodity prices. Net cash used in investing
activities increased by $94.0 million, primarily due to higher
expenditure in operations and Advanced Projects during H1 2012
($27.7 million) and the sale of Lake Shore Gold shares during H1
2011 ($80.5 million). Finally, cash flows used in financing
activities decreased by $18.8 million, primarily as a result of the
prepayment of a syndicated loan ($114.3 million), partially offset
by short term debt raised in Peru ($99.0 million) during H1
2011.
Working capital:
$000 unless otherwise indicated As at As at
30 June 2012 30 June 2011
-------------------------------------------- ---------------- --------------
Trade and other receivables 161,300 185,100
Inventories 78,148 53,522
Net other financial assets / (liabilities) (5,264) (7,088)
Net Income tax receivable / (payable) 6,353 (15,247)
Trade and other payables and provisions (229,695) (222,255)
-------------------------------------------- ---------------- --------------
Working Capital 10,842 (5,968)
-------------------------------------------- ---------------- --------------
The Company's working capital position increased to $10.8
million in H1 2012 from $(6.0) million in H1 2011. This was
primarily explained by higher net income tax receivable ($21.6
million) as a result of lower operating income in H1 2012, as well
as higher inventories, mainly explained by the accumulation of
inventory at San Jose. These effects were partially offset by lower
trade and other receivables and higher trade and other
payables.
Net cash:
$000 unless otherwise indicated As at As at
30 June 2012 31 December
2011
--------------------------------- -------------- -------------
Cash and cash equivalents 543,557 627,481
Long term borrowings (103,876) (104,866)
Short term borrowings (48,114) (46,334)
--------------------------------- -------------- -------------
Net cash 391,567 476,281
--------------------------------- -------------- -------------
The Company reported net cash of $391.6 million as at 30 June
2011 (FY 2011: $476.3 million). This was primarily driven by the
decrease in cash and cash equivalents from investing and financing
activities ($147.4 million), partially offset by cash from
operating activities ($64.1 million) during H1 2012.
The convertible bond has a current conversion price of GBP3.90
and, under its terms, the Company is entitled to force conversion
of the bonds at any time after 20 October 2012 if, for a period of
20 out of 30 consecutive days, the average share price, calculated
under the terms of the bonds, exceeds 130% of the conversion price
(GBP5.07).
Capital expenditure(1)
$(000) unless otherwise indicated Six months to Six months
30 June 2012 to
30 June 2011
----------------------------------- -------------- --------------
Arcata 21,891 12,772
Ares 3,172 1,041
Selene 930 1,261
Pallancata 25,920 22,617
San Jose 32,190 24,504
Moris - 513
Inmaculada 21,018 3,805
Crespo 5,834 2,350
Azuca 4,706 15,871
Other 574 672
----------------------------------- -------------- --------------
Total 116,235 85,406
----------------------------------- -------------- --------------
(1) Includes additions in property, plant and equipment and
evaluation and exploration assets (confirmation of resources) and
excludes increases in closure of mine assets.
H1 2012 capital expenditure of $116.2 million (H1 2011: $85.4
million) includes operations capital expenditure of $70.8 million,
opportunity project capital expenditure of $5.4 million (including
the dore project at Arcata and the plant expansion to treat
Macarena Waste Dam deposit material), capitalised exploration costs
of $8.0 million in respect of the Group's operating mines, $31.6
million capitalised in respect of the Advanced Projects
(Inmaculada, Crespo and Azuca) and administrative capital
expenditure of $0.4 million.
Interim Dividend
The Directors have declared an interim dividend of $0.03 per
ordinary share which will be paid on 20 September 2012 to those
shareholders appearing on the register on 31 August 2012.
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. The
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 29 August
Record date 31 August
Deadline for return of currency election forms 4 September
Payment date 20 September
----------------------------------------------- -------------
RISKS
The principal risks and uncertainties facing the Company in
respect of the year ended 31 December 2011 were set out in detail
in the Risk Management section of the 2011 Annual Report and in
Note 36 to the 2011 Consolidated Financial Statements. These risks
continue to apply to the Company in respect of the remaining six
months of the current financial year.
The key risks disclosed in the 2011 Annual Report (available at
www.hochschildmining.com) are categorised as:
- Financial risks which include commodity price risk,
counterparty credit risk, liquidity risk and foreign currency
risk;
- Operational risks including the risks associated with costs,
business interruption, reserve and resource replacement and
personnel;
- Macroeconomic risks which include political, legal and regulatory risks; and
- Corporate responsibility risks including health and safety,
environmental and community relations risks.
Whilst not specifically mentioned in the section headed
'Macroeconomic risks', the Directors acknowledge the increasingly
difficult environment of undertaking mining and exploration
activities in Argentina. By way of example, changes in Argentine
law during H1 2012, which were subsequently relaxed, impacted the
Group principally by shortening, beyond industry practice, the time
in which sales contracts for concentrate were required to be
settled. This led to a build-up of the inventory of concentrate at
San Jose as reported in the Operating Review section of this
release.
In addition, the implementation of restrictions on converting
Argentine Pesos into US Dollars and the repatriation of cash out of
the country means that the remittance of cash from the Group's
Argentine operations is not guaranteed.
The Board will continue to monitor the situation closely.
GOING CONCERN
After considering budgets and cash flow forecasts, the Directors
confirm that they are satisfied that the Company has sufficient
resources to continue in operation for the foreseeable future.
Accordingly, adoption of the going concern basis in the preparation
of the financial statements contained herein is considered to be
appropriate.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors confirm that, to the best of their knowledge, the
interim condensed consolidated financial statements have been
prepared in accordance with IAS 34 "Interim Financial Reporting" as
adopted by the European Union and that the interim management
report includes a fair review of the information required by
Disclosure and Transparency Rules 4.2.7 and 4.2.8.
A list of current Directors and their functions is maintained on
the Company's website.
For and on behalf of the Board
Ignacio Bustamante
Chief Executive Officer
21 August 2012
INDEPENDENT REVIEW REPORT TO HOCHSCHILD MINING PLC
Introduction
We have been engaged by Hochschild Mining plc (the Company) to
review the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2012 which
comprises the Interim consolidated income statement, the Interim
consolidated statement of comprehensive income, the Interim
consolidated statement of financial position, the Interim
consolidated statement of cash flows, the Interim consolidated
statement of changes in equity and the related notes 1 to 17. We
have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Services Authority.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2012 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority.
Ernst & Young LLP
London
21 August 2012
Interim consolidated income statement
Six-months ended 30 Six-months ended 30
Notes June 2012 (Unaudited) June 2011 (Unaudited)
----- ------------------------------------- ---------------------------------------
Exceptional Exceptional
Before items Before items
exceptional (Note exceptional (Note
items 6) Total items 6) Total
----------- ----------- --------- ----------- ----------- -----------
US$ (000)
Continuing
operations
Revenue 4 354,504 - 354,504 496,768 - 496,768
Cost of sales 5 (174,352) - (174,352) (195,631) - (195,631)
----------- ----------- --------- ----------- ----------- -----------
Gross profit 180,152 - 180,152 301,137 - 301,137
Administrative expenses (34,134) - (34,134) (30,570) - (30,570)
Exploration expenses (30,337) - (30,337) (18,992) - (18,992)
Selling expenses (15,908) - (15,908) (17,703) - (17,703)
Other income 2,627 - 2,627 4,139 - 4,139
Other expenses (4,485) - (4,485) (2,387) - (2,387)
Impairment and
write-off
of assets (net) - 238 238 - - -
Profit from continuing
operations before
net finance
income/(cost),
foreign exchange
gain/(loss)
and income tax 97,915 238 98,153 235,624 - 235,624
Share of post tax
profit/(losses) of
associates and joint
ventures accounted
under the equity
method 3,766 (948) 2,818 2,337 (324) 2,013
Finance income 7 671 - 671 3,314 6,254 9,568
Finance costs 7 (7,099) (1,090) (8,189) (12,190) (1,655) (13,845)
Foreign exchange loss (1,197) - (1,197) (2,765) - (2,765)
----------- ----------- --------- ----------- ----------- -----------
Profit/(loss) from
continuing operations
before income tax 94,056 (1,800) 92,256 226,320 4,275 230,595
Income tax expense 8 (39,501) - (39,501) (79,538) - (79,538)
----------- ----------- --------- ----------- ----------- -----------
Profit/(loss) for
the period from
continuing
operations 54,555 (1,800) 52,755 146,782 4,275 151,057
Attributable to:
Equity shareholders
of the Company 28,430 (1,917) 26,513 91,957 4,275 96,232
Non-controlling
interests 26,125 117 26,242 54,825 - 54,825
----------- ----------- --------- ----------- ----------- -----------
54,555 (1,800) 52,755 146,782 4,275 151,057
=========== =========== ========= =========== =========== ===========
Basic earnings per
ordinary share from
continuing operations
and for the period
(expressed in U.S.
dollars per share) 0.08 - 0.08 0.27 0.02 0.29
=========== =========== ========= =========== =========== ===========
Diluted earnings per
ordinary share from
continuing operations
and for the period
(expressed in U.S.
dollars per share) 0.09 - 0.09 0.27 0.01 0.28
=========== =========== ========= =========== =========== ===========
Interim consolidated statement of comprehensive income
Six-months ended
Notes 30 June
------ ----------------------------------
2012 (Unaudited) 2011 (Unaudited)
---------------- ----------------
US$ (000)
Profit for the period 52,755 151,057
Other comprehensive income
Exchange differences on translating foreign
operations (164) 1,979
Change in fair value of available-for-sale
financial assets (6,567) (18,966)
Recycling of the change in fair value
of available-for-sale financial assets 266 (7,328)
Recycling of the change in fair value
of cash flow hedges taken to equity - 1,930
Deferred income tax relating to components
of other comprehensive income 615 3,059
---------------- ----------------
Other comprehensive (loss) for the period,
net of tax (5,850) (19,326)
---------------- ----------------
Total comprehensive income for the period 46,905 131,731
---------------- ----------------
Total comprehensive income attributable
to:
Equity shareholders of the Company 20,663 76,843
Non-controlling interests 26,242 54,888
---------------- ----------------
46,905 131,731
================ ================
Interim consolidated statement of financial position
As at 30
June As at 31
2012 December
Notes (Unaudited) 2011
----- ------------- ----------
US$ (000)
ASSETS
Non-current assets
Property, plant and equipment 9 502,936 461,554
Evaluation and exploration assets 10 294,209 274,507
Intangible assets 18,049 18,772
Investments accounted under equity
method 81,192 83,201
Available-for-sale financial assets 11 33,403 40,769
Trade and other receivables 10,335 8,741
Deferred income tax assets 105 -
940,229 887,544
------------- ----------
Current assets
Inventories 78,148 53,032
Trade and other receivables 150,965 166,931
Income tax receivable 8,428 601
Other financial assets 12 3 28
Cash and cash equivalents 13 543,557 627,481
------------- ----------
781,101 848,073
------------- ----------
Total assets 1,721,330 1,735,617
============= ==========
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) (898)
Other reserves (212,822) (207,117)
Retained earnings 693,592 677,218
------------- ----------
1,034,437 1,023,768
Non-controlling interests 207,564 195,299
Total equity 1,242,001 1,219,067
------------- ----------
Non-current liabilities
Trade and other payables - 8
Borrowings 14 103,876 104,866
Provisions 70,632 68,430
Deferred income tax liabilities 90,302 68,152
------------- ----------
264,810 241,456
------------- ----------
Current liabilities
Trade and other payables 112,955 117,037
Other financial liabilities 12 5,267 12,831
Borrowings 14 48,114 46,334
Provisions 46,108 74,432
Income tax payable 2,075 24,460
------------- ----------
214,519 275,094
------------- ----------
Total liabilities 479,329 516,550
------------- ----------
Total equity and liabilities 1,721,330 1,735,617
============= ==========
Interim consolidated statement of cash flows
Six-months ended
Notes 30 June
----- ----------------------------------
2012 (Unaudited) 2011 (Unaudited)
---------------- ----------------
US$ (000)
Cash flows from operating activities
Cash generated from operations 93,753 267,093
Interest received 1,335 12,955
Interest paid (4,877) (17,665)
Payments of mine closure costs (2,476) (1,878)
Income tax (paid)/received (23,639) (23,602)
---------------- ----------------
Net cash generated from operating
activities 64,096 236,903
---------------- ----------------
Cash flows from investing activities
Purchase of property, plant and equipment (100,902) (61,035)
Purchase of evaluation and exploration
assets (19,481) (25,617)
Dividends received from associates 4,827 2,235
Acquisition of subsidiary - (15,404)
Purchase of available-for-sale financial
assets - (2,419)
Proceeds from sale of property, plant
and equipment 57 313
Proceeds from sale of available-for-sale
financial assets - 80,452
Net cash used in investing activities (115,499) (21,475)
---------------- ----------------
Cash flows from financing activities
Proceeds of borrowings 14 44,963 107,560
Repayment of borrowings 14 (45,297) (124,100)
Purchase of treasury shares - (898)
Dividends paid 15 (31,609) (36,226)
Capital contribution from non-controlling
interest - 2,916
Cash flows used in financing activities (31,943) (50,748)
---------------- ----------------
Net (decrease)/increase in cash and
cash equivalents during the period (83,346) 164,680
Exchange difference (578) 656
Cash and cash equivalents at beginning
of period 627,481 525,482
---------------- ----------------
Cash and cash equivalents at end
of period 13 543,557 690,818
================ ================
Interim consolidated statement of changes in equity
Other reserves
Capital
Unrealised and reserves
gain/(loss) Unrealised attributable
on gain/(loss) to
Equity available-for-sale on cash Bond Cumulative Share-based Total shareholders
share Share Treasury financial flow equity translation Merger payment other Retained of the Non-controlling Total
Notes capital premium Shares assets hedges component adjustment reserve reserve reserves earnings Parent interests Equity
Balance at 1
January
2012 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
------- ------- ----- -------- ------- ----- -------- --------- --- --------- -------- --------- -------- ---------
Other
comprehensive
(loss) - - - (5,686) - - (164) - - (5,850) - (5,850) - (5,850)
Profit for the
period - - - - - - - - - - 26,513 26,513 26,242 52,755
----- -------- ----- ---
Total
comprehensive
(loss)/income
for
the period - - - (5,686) - - (164) - - (5,850) 26,513 20,663 26,242 46,905
Capital
contribution
from
non-controlling
interest - - - - - - - - - - - - 10,900 10,900
CEO LTIP - - - - - - - - 145 145 - 145 - 145
Dividends paid
to
non-controlling
interests 15 - - - - - - - - - - - - (24,877) (24,877)
Dividends 15 - - - - - - - - - - (10,139) (10,139) - (10,139)
------- ------- ----- -------- ------- ----- -------- --------- --- --------- -------- --------- -------- ---------
Balance at 30
June
2012 158,637 395,928 (898) (628) - 8,432 (10,879) (210,046) 299 (212,822) 693,592 1,034,437 207,564 1,242,001
======= ======= ===== ======== ======= ===== ======== ========= === ========= ======== ========= ======== =========
Balance at 1
January
2011 158,637 395,928 - 37,808 (1,930) 8,432 (9,508) (210,046) - (175,244) 528,788 908,109 147,120 1,055,229
----- -------- ----- ---
Other
comprehensive
(loss)/income - - (23,235) 1,930 - 1,916 - - (19,389) - (19,389) 63 (19,326)
Profit for the
period - - - - - - - - - 96,232 96,232 54,825 151,057
----- -------- ----- ---
Total
comprehensive
(loss)/income
for
the period - - - (23,235) 1,930 - 1,916 - - (19,389) 96,232 76,843 54,888 131,731
Capital
contribution
from
non-controlling
interest - - - - - - - - - - - - 2,694 2,694
Treasury shares - - (898) - - - - - - - - (898) - (898)
Dividends paid
to
non-controlling
interests 15 - - - - - - - - - - - (26,083) (26,083)
Dividends 15 - - - - - - - - - (10,143) (10,143) - (10,143)
----- -------- ----- ---
Balance at 30
June
2011 158,637 395,928 (898) 14,573 - 8,432 (7,592) (210,046) - (194,633) 614,877 973,911 178,619 1,152,530
======= ======= ===== ======== ======= ===== ======== ========= === ========= ======== ========= ======== =========
Notes to the interim consolidated financial statements
1 Corporate Information
Hochschild Mining plc (hereinafter the "Company") is a public
limited company incorporated on 11 April 2006 under the Companies
Act 1985 as a limited company and registered in England and Wales
with registered number 05777693. The Company's registered office is
located at 46 Albemarle Street, London W1S 4JL, United Kingdom. Its
ordinary shares are traded on the London Stock Exchange.
The Group's principal business is the mining, processing and
sale of silver and gold. The Group has three operating mines (Ares,
Arcata and Pallancata) and a plant (Selene used to treat ore from
the Pallancata mine) located in Southern Peru, one operating mine
(San Jose) located in Argentina and one plant (Moris) located in
Mexico. The Group also has a portfolio of projects located across
Peru, Argentina, Mexico and Chile at various stages of
development.
These interim condensed consolidated financial statements were
approved for issue on behalf of the Board of Directors on 21 August
2012.
2 Significant Accounting Policies
(a) Basis of preparation
These interim condensed consolidated financial statements set
out the Group's financial position as at 30 June 2012 and 31
December 2011 and its financial performance and cash flows for the
periods ended 30 June 2012 and 30 June 2011.
They have been prepared in accordance with IAS 34 Interim
Financial Reporting in accordance with International Financial
Reporting Standards ('IFRS') as adopted by the European Union.
Accordingly, the interim condensed consolidated financial
statements do not include all the information required for full
annual financial statements and therefore, should be read in
conjunction with the Group's 2011 annual consolidated financial
statements as published in the 2011 Annual Report.
The interim condensed consolidated financial statements do not
constitute statutory accounts as defined in the Companies Act 2006.
The financial information for the full year is based on the
statutory accounts for the financial year ended 31 December 2011. A
copy of the statutory accounts for that year, which were prepared
in accordance with International Financial Reporting Standards
('IFRS') as adopted by the European Union has been delivered to the
Registrar of Companies. The auditors' report under section 495 of
the Companies Act 2006 in relation to those accounts was unmodified
and did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying the
report and did not contain a statement under s498(2) or s498(3) of
the Companies Act 2006.
The impact of the seasonality or cyclicality of operations is
not regarded as significant on the interim condensed consolidated
financial statements.
The interim condensed consolidated financial statements have
been prepared on a historical cost basis except for derivatives and
available-for-sale financial instruments which have been measured
at fair value. The financial statements are presented in US dollars
($) and all monetary amounts are rounded to the nearest thousand
($000) except when otherwise indicated.
(b) Changes in accounting policies and disclosures
The accounting policies adopted in the preparation of the
interim condensed consolidated financial statements are consistent
with those applied in the preparation of the consolidated financial
statement for the year ended 31 December 2011, except for the
adoption of the following standards and interpretations:
-- IAS 12 "Income Taxes", applicable for annual periods beginning on or after 1 January 2012.
Under IAS 12, an entity is to measure the deferred tax relating
to an asset depending on whether the entity expects to recover the
carrying amount of the asset through use or sale. The amendment
introduces a presumption that recovery of the carrying amount will
normally be through sale. The amendment is deemed to have no impact
on the financial statements of the Group.
The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet
effective.
3 Segment Reporting
The following tables present revenue, profit and asset
information for the Group's operating segments for the six months
ended 30 June 2012 and 2011 respectively:
Six months San Adjustments
ended 30 Ares Arcata Pallancata Jose Moris Exploration Other and eliminations Total
June 2012 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000
------------------ ------- ------- ---------- ------- ------- ----------- ------- ----------------- ---------
Revenue
from external
customers 21,972 85,521 122,049 116,139 8,613 - 210 - 354,504
Inter segment
revenue - - - - - - 3,265 (3,265) -
Total revenue 21,972 85,521 122,049 116,139 8,613 - 3,475 (3,265) 354,504
------- ------- ---------- ------- ------- ----------- ------- ----------------- ---------
Segment
profit/(loss) 3,837 43,717 62,425 49,638 3,779 (31,119) 2,137 (507) 133,907
Others(1) (41,651)
---------
Profit/(loss)
from continuing
operations
before income
tax 92,256
---------
Assets
Capital
expenditure 3,172 21,891 26,850 32,190 - 31,674 458 - 116,235
Current
assets 10,419 26,616 48,397 75,645 1,308 994 431 - 163,810
Other non-current
assets 12,066 106,231 150,244 240,777 - 292,463 13,413 - 815,194
------- ------- ---------- ------- ------- ----------- ------- ----------------- ---------
Total segment
assets 22,485 132,847 198,641 316,422 1,308 293,457 13,844 - 979,004
Not reportable
assets(2) - - - - - - 742,326 - 742,326
------- ------- ---------- ------- ------- ----------- ------- ----------------- ---------
Total assets 22,485 132,847 198,641 316,422 1,308 293,457 756,170 - 1,721,330
------- ------- ---------- ------- ------- ----------- ------- ----------------- ---------
(1) Comprised of administrative expenses of US$34,134,000, other
income of US$2,627,000, other expenses of US$4,485,000, reversal of
impairment of assets of US$238,000, share of profit of associates
and joint ventures of US$2,818,000, finance income of US$671,000,
finance costs of US$8,189,000, and foreign exchange loss of
US$1,197,000.
(2) Not reportable assets are comprised of investments accounted
under the equity method of US$81,192,000, available-for-sale
financial assets of US$33,403,000, other receivables of
US$75,638,000, income tax receivable of US$8,428,000, deferred
income tax assets of US$105,000, other financial assets of
US$3,000, and cash and cash equivalents of US$543,557,000.
Six-months San Adjustments
ended 30 Ares Arcata Pallancata Jose Moris Exploration Other and eliminations Total
June 2011 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000
------------------ ------- ------- ---------- ------- ------- ----------- ------- ----------------- ---------
Revenue
from external
customers 31,274 110,240 182,199 155,990 17,032 - 33 - 496,768
Inter segment
revenue - - - - - - 3,588 (3,588) -
Total revenue 31,274 110,240 182,199 155,990 17,032 - 3,621 (3,588) 496,768
------- ------- ---------- ------- ------- ----------- ------- ----------------- ---------
Segment
profit/(loss) 9,497 69,051 123,083 79,555 3,081 (19,439) 3,119 (3,505) 264,442
Others(1) (33,847)
---------
Profit/(loss)
from continuing
operations
before income
tax 230,595
---------
Year ended
31 December
2011
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 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(2) - - - - - - 812,373 - 812,373
------- ------- ---------- ------- ------- ----------- ------- ----------------- ---------
Total assets 15,769 126,409 203,983 290,821 7,338 255,749 835,548 - 1,735,617
------- ------- ---------- ------- ------- ----------- ------- ----------------- ---------
(1) Comprised of administrative expenses of US$30,570,000, other
income of US$4,139,000, other expenses of US$2,387,000, share of
profit of associates and joint ventures of US$2,013,000, finance
income of US$9,568,000, finance costs of US$13,845,000, and foreign
exchange loss of US$2,765,000.
(2) Not reportable assets are comprised of 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$627,481,000.
4 Revenue
Six-months ended
30 June
----------------------------------
2012 (Unaudited) 2011 (Unaudited)
---------------- ----------------
US$(000)
Gold (from dore bars) 48,636 68,437
Silver (from dore bars) 51,636 78,274
Gold (from concentrate) 57,505 59,041
Silver (from concentrate) 196,517 290,983
Services 210 33
354,504 496,768
================ ================
5 Cost of sales
Included in cost of sales are:
Six-months ended
30 June
----------------------------------
2012 (Unaudited) 2011 (Unaudited)
---------------- ----------------
US$(000)
Depreciation and amortisation 56,717 48,185
Personnel expenses 58,371 57,609
Mining royalty 4,778 8,687
Change in products in process and finished
goods (24,531) 5,682
---------------- ----------------
6 Exceptional items
Exceptional items in the six months ended 30 June 2012 relate
to:
a) Gain of US$238,000 generated by the reversal of the write-off
recorded in 2010 related to the 100% dore project at the San Jose
mine.
b) Loss from dilution of US$948,000 generated by the Group's investment in Gold Resource Corp.
c) The losses arising from the fair value adjustments in
relation to the Iron Creek Capital Corp. warrants of US$25,000.
d) The impairment of Brionor Resources and Iron Creek Capital Corp. of US$67,000 and US$998,000 respectively.
Exceptional items in the six months ended 30 June 2011 relate
to:
a) Loss from dilution of US$324,000 generated by the Group's investment in Gold Resource Corp.
b) The overall gain on the sale of the holding of shares in Lake
Shore Gold Corporation amounting to US$6,385,878 net of the loss on
the sale of Golden Minerals Company shares of US$132,155.
c) The losses arising from the fair value adjustments in
relation to the Golden Minerals Company warrants and Iron Creek
warrants of US$1,563,200 and US$113,116 respectively.
7 Finance income and finance cost before exceptional items
The Group recognised the following finance income and finance
cost before exceptional items:
Six-months ended
30 June
------------------------------------
2012 (Unaudited) 2011 (Unaudited)
---------------- ----------------
US$(000)
Finance income:
Interests on deposits and liquidity
funds 415 1,564
Interest on loans to non-controlling
interests 141 1,683
Change in discount rate - 26
Others 115 41
---------------- -----------------
671 3,314
---------------- -----------------
Finance cost:
Interest on bank loans and long-term
debt (1,090 ) (4,415)
Interest on convertible bond (4,430 ) (4,324)
Unwind of discount rate (878 ) (583)
Loss from changes in the fair value
of derivative instruments(1) - (1,810)
Others (701 ) (1,058)
(7,099 ) (12,190)
================ =================
1 Represented the loss of US$1,810,000 arising from the two swap
contracts signed with BBVA and Citibank to fix the interest rate of
the JP Morgan led syndicated loan at 1.75% that was accounted for
as a fair value hedge. These contracts were cancelled in January
2011 when the syndicated loan was repaid.
8 Income tax expense
Six-months ended
30 June
----------------------------------
2012 (Unaudited) 2011 (Unaudited)
---------------- ----------------
US$(000)
Current income tax expense 11,868 46,855
Current mining royalty charge 1,927 -
Current special mining tax charge 2,405 -
Deferred income tax relating to origination
and reversal of temporary differences 22,653 28,104
Withholding taxes 648 4,579
Total taxation charge in the income statement 39,501 79,538
================ ================
The tax related to items charged or credited to equity is as
follows:
Six-months ended
30 June
----------------------------------
2012 (Unaudited) 2011 (Unaudited)
---------------- ----------------
US$(000)
Deferred income tax relating to origination
and reversal of temporary differences (615) (3,059)
Total taxation (credit)/charge in the
statement of comprehensive income (615) (3,059)
================ ================
9 Property, plant and equipment
During the six months ended 30 June 2012, the Group acquired
assets with a cost of US$96,789,000 (2011: US$59,789,000). The
additions for the period ended 30 June 2012 relate to:
Other property
Mining properties plant and
and development equipment
----------------- --------------
US$(000)
San Jose 22,155 6,389
Pallancata 12,938 9,579
Inmaculada 13,672 4,005
Arcata 10,901 8,085
Crespo 4,497 340
Others 726 3,502
----------------- --------------
64,889 31,900
================= ==============
Assets with a net book value of US$67,000 were disposed of by
the Group during the six month period ended 30 June 2012 (2011:
US$277,000), resulting in a net loss on disposal of US$10,000
(2011: gain on disposal of US$36,000).
For the six months ended 30 June 2012, the depreciation charge
on property, plant and equipment was US$57,016,000 (2011:
US$48,513,000).
10 Evaluation and exploration assets
During the six months ended 30 June 2012, the Group acquired
evaluation and explorations assets with a cost of US$19,446,000
(2011: US$25,617,000). The additions mainly correspond to:
US$(000)
--------
Azuca 4,577
San Jose 3,646
Pallancata 3,403
Inmaculada 3,341
Arcata 2,905
Crespo 997
Others 577
--------
19,446
========
11 Available-for-sale financial assets
As at 30
June
2012 As at
31 December
(Unaudited) 2011
------------- -------------
US$(000)
Opening balance 40,769 153,620
Additions - 2,910
Impairment (799) (198)
Fair value change recorded in equity (6,567) (33,078)
Disposals - (82,485)
Closing balance(1) 33,403 40,769
============= =============
1 As at 30 June 2012, the amount mainly represents the fair
value of shares of International Minerals Corporation
(US$17,684,000), Pembrook Mining Corp. (US$11,725,000), Northern
Superior Resources Inc. (US$1,727,000), Mariana Resources Ltd.
(US$948,000), and Mirasol Resources Ltd. (US$800,000).
12 Other financial assets and liabilities
As at 30
June
2012 As at
31 December
(Unaudited) 2011
------------- -------------
US$ (000)
Other financial assets
Warrants in Iron Creek Capital Corp. 3 28
------------- -------------
Other financial assets 3 28
============= =============
Other financial liabilities
Embedded derivatives(1) 5,267 12,831
Other financial liabilities 5,267 12,831
============= =============
1 Sales of concentrate and certain gold and silver volumes are
provisionally priced at the time the sale is recorded. The price is
then adjusted after an agreed period of time usually linked to the
length of time it takes for the smelter to refine and sell the
concentrate or for the refiner to process the dore into gold and
silver, with the Group either paying or receiving the difference
between the provisional price and the final price. At 30 June 2012
and at 31 December 2011 the provisional price adjustment resulted
in a liability due to the decrease of forward prices of gold and
silver.
13 Cash and cash equivalents
As at 30
June
2012 As at
31 December
(Unaudited) 2011
------------- -------------
US$ (000)
Cash at bank 253 349
Liquidity funds(1) 384,165 370,021
Current demand deposit accounts(2) 47,367 45,030
Time deposits(3) 111,772 212,081
------------- -------------
Cash and cash equivalents 543,557 627,481
============= =============
1 The liquidity funds are mainly invested in certificate of
deposits, commercial papers and floating rate notes with a weighted
average maturity between 5 and 26 days as at 30 June 2012 (as at 31
December 2011: between 5 and 24 days). In addition, liquidity funds
include US Treasury bonds amounting to US$199,924,000 (as at 31
December 2011: US$199,924,000)
2 Relates to bank accounts which are readily accessible to the Group and bear interest.
3 These deposits have an average maturity from 1 to 45 days (as
at 31 December 2011: 10 to 83 days).
14 Borrowings
The movement in borrowings during the period to 30 June 2012 is
as follows:
As at 1
January As at 30
2012 Additions Repayments Reclassifications June 2012
-------------- ---------- ----------- ------------------ -----------
US$ (000)
Current
Bank loans 39,721 44,963 (45,297) 311 39,698(1)
Convertible
bond payable 6,613 4,430 (3,306) 679 8,416
46,334 49,393 (48,603) 990 48,114
Non-current
Bank loans 360 - - (311) 49
Convertible
bond payable 104,506 - - (679) 103,827
104,866 - - (990) 103,876
-------------- ---------- ----------- ------------------ -----------
Accrued Interest: (7,292) (4,430) 3,306 - (8,416)
Net of accrued
interest 143,908 44,963 (45,297) - 143,574
============== ========== =========== ================== ===========
1 Mainly relates to pre-shipment loans for a total amount of
US$37,500,000 advanced to Minera Santa Cruz S.A. (at 31 December
2011: US$38,500,000). These obligations accrue an effective annual
interest rate ranging from 3.50% to 6.60% and are guaranteed by the
inventories and the trade receivables of the Company (at 31
December 2011: 1.30% to 6.00%). Pre-shipment loans are credit lines
given by banks to meet payment obligations arising from the exports
of the Group.
15 Dividends paid and declared
Six-months ended 30 June
2012 2011
------------ ------------
US$(000)
Declared and paid during the period:
Equity dividends on ordinary shares:
Final dividend for 2011: US$0.03 (2010: US$0.03) 10,139 10,143
Dividends paid to non-controlling interest: US$0.03 (2010: US$0.32) 24,877 26,083
Dividends paid 35,016 36,226
------------ ------------
Declared dividend to be paid:
2012 Interim dividend: US$0.03 (2011: US$0.03) 10,139 10,143
------------ ------------
A final dividend in respect of the year ended 31 December 2011
of US$0.03 per share, amounting to a total dividend of
US$10,138,718 was approved by shareholders at the Annual General
Meeting held on 23 May 2012. An interim dividend of US$0.03 per
share in respect of the year ending 31 December 2012 has been
declared by the Directors of the Company which will be paid to
shareholders on 20 September 2012 to those shareholders appearing
on the register on 31 August 2012. These financial statements do
not reflect this dividend payable.
16 Related party transactions
During the period, in addition to the normal arrangements the
Group has with its related parties, the Group recognised a dividend
from its associate, Gold Resource Corporation of US$4,826,869 (30
June 2011: US$3,071,643). At 30 June 2012 the dividend receivable
from Gold Resource Corporation amounted to US$877,612 (31 December
2011: US$710,000).
17 Commitments
a) Mining rights purchase options
During the ordinary course of business, the Group enters into
agreements to carry out exploration under concessions held by third
parties. Generally, under the terms of these agreements, the Group
has the option to acquire the concession or invest in the entity
holding the concession. In order to exercise the option the Group
must satisfy certain financial and other obligations over the
agreement term. The option lapses in the event that the Group does
not meet the financial requirements. At any point in time, the
Group may cancel the agreements without penalty, except in certain
specific circumstances.
The Group continually reviews its requirements under the
agreements and determines on an annual basis whether to proceed
with the financial commitment. Based on management's current
intention regarding these projects, the commitments at the balance
sheet date are as follows:
As at As at
30 June 2012 31 December 2011
------------- -----------------
US$ (000)
Less than one year 1,798 4,064
Later than one year 32,154 19,200
b) Capital commitments
The future capital commitments of the Group are as follows:
As at As at
30 June 2012 31 December 2011
------------- -----------------
US$ (000)
Peru 55,111 39,472
Argentina 6,910 3,472
Mexico 3,955 51
------------- -----------------
65,976 42,995
------------- -----------------
Profit by operation(1)
(Segment report reconciliation) as at 30 June 2012
Consolidation
adjustment
Company (US$ 000) Ares Arcata Pallancata San Jose Moris and others Total/HOC
----------------------------------------- -------- -------- ---------- -------- ------- ------------- ---------
Revenue 21,972 85,521 122,049 116,139 8,613 210 354,504
Cost of sales (Pre consolidation) (18,096) (40,531) (57,835) (53,677) (4,834) 621 (174,352)
----------------------------------------- -------- -------- ---------- -------- ------- ------------- ---------
Consolidation adjustment 141 891 (1,718) (29) - 621 (94)
Cost of sales (Post consolidation) (18,237) (41,422) (56,117) (53,648) (4,834) - (174,258)
Production cost excluding
depreciation (19,860) (27,808) (32,030) (51,037) (3,578) - (134,313)
Depreciation in production
cost (1,711) (12,026) (18,174) (23,815) - - (55,726)
Other items (2,046) (3,929) (2,775) - - - (8,750)
Change in inventories 5,380 2,341 (3,138) 21,204 (1,256) - 24,531
----------------------------------------- -------- -------- ---------- -------- ------- ------------- ---------
Gross profit 3,876 44,990 64,214 62,462 3,779 831 180,152
----------------------------------------- -------- -------- ---------- -------- ------- ------------- ---------
Administrative expenses - - - - - (34,134) (34,134)
Exploration expenses - - - - - (30,337) (30,337)
Selling expenses (39) (1,273) (1,789) (12,824) - 17 (15,908)
Other income/expenses - - - - - (1,858) (1,858)
----------------------------------------- -------- -------- ---------- -------- ------- ------------- ---------
Operating profit before
impairment 3,837 43,717 62,425 49,638 3,779 (65,481) 97,915
----------------------------------------- -------- -------- ---------- -------- ------- ------------- ---------
Impairment of assets - - - - - 238 238
Investments under equity
method - - - - - 2,818 2,818
Finance income - - - - - 671 671
Finance costs - - - - - (8,189) (8,189)
FX gain/(loss) - - - - - (1,197) (1,197)
----------------------------------------- -------- -------- ---------- -------- ------- ------------- ---------
Profit/(loss) from continuing
operations before income
tax 3,837 43,717 62,425 49,638 3,779 (71,140) 92,256
----------------------------------------- -------- -------- ---------- -------- ------- ------------- ---------
Income tax (39,501) (39,501)
----------------------------------------- -------- -------- ---------- -------- ------- ------------- ---------
Profit/(loss) for the year
from continuing operations 3,837 43,717 62,425 49,638 3,779 (110,641) 52,755
----------------------------------------- -------- -------- ---------- -------- ------- ------------- ---------
1 On a post exceptional basis.
SHAREHOLDER INFORMATION
Company website
Hochschild Mining plc Interim and Annual Reports and results
announcements are available via the internet on our website at
www.hochschildmining.com. Shareholders can also access the latest
information about the Company and press announcements as they are
released, together with details of future events and how to obtain
further information.
Registrars
Enquiries concerning shareholdings, dividends and changes in
personal details should be referred to the Company's registrars,
Capita as detailed below.
By post: Capita Registrars, The Registry, 34 Beckenham Road,
Beckenham, Kent BR3 4TU
By telephone:
-- If calling from the UK: 0871 664 0300 (Calls cost 10p per
minute plus network extras, lines are open 8.30am - 5.30pm
Mon-Fri)
-- If calling from overseas: +44 20 8639 3399
By fax: +44 (0) 20 8639 2342
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 4 September 2012 in respect of the 2012 interim
dividend.
The Company's registrars can also arrange for the dividend to be
paid directly into a shareholder's UK bank account. To take
advantage of this facility in respect of the 2012 interim dividend,
a dividend mandate form, also available from the Company's
registrars, should be completed and returned to the registrars by 4
September 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 the London office by
writing to the registered office (given below) or by telephone on
020 7907 2930 or by email to info@hocplc.com.
Financial Calendar
Dividend dates 2012
----------------------------------------------- -------------
Ex-dividend date 29 August
Record date 31 August
Deadline for return of currency election forms 4 September
Payment date 20 September
----------------------------------------------- -------------
Hochschild Mining plc
46 Albemarle Street
London
W1S 4JL
Registered in England and Wales with Company Number 5777693
This information is provided by RNS
The company news service from the London Stock Exchange
END
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