TIDMHOC
RNS Number : 7746C
Hochschild Mining PLC
19 April 2013
Hochschild Mining plc ("the Company")
2012 Annual Financial Report and 2013 Annual General Meeting
("AGM")
Following the release of the Company's 2012 full year results
announcement on 13 March 2013 (the "Preliminary Announcement"), the
Company announces it has published its Annual Report and Accounts
for the year ended 31 December 2012 (the "2012 Annual Report").
In accordance with LR 9.6.1, the following documents have been
submitted to the National Storage Mechanism and will be available
for inspection at www.Hemscott.com/nsm.do
-- The 2012 Annual Report
-- The 2013 AGM Circular (incorporating the Notice of 2013 AGM)
-- The 2013 AGM Proxy Card (incorporating the Notice of
Availability of the 2012 Annual Report and 2013 AGM Circular)
The 2012 Annual Report and the 2013 AGM Circular are also
available on the Company's website at www.hochschildmining.com
The appendices to this announcement contain the information
required to be disclosed under DTR 6.3.5 which has been reproduced
from the 2012 Annual Report and should be read in conjunction with
the Preliminary Announcement.
All page references and cross-references in the appendices are
to the 2012 Annual Report.
APPENDICES
Appendix 1
Risk Management (reproduced from pages 57 to 61 of the 2012
Annual Report)
As with all businesses, management of the Group's operations and
execution of its growth strategies are subject to a number of
risks, the occurrence of which could adversely affect the
performance of the Group. The Group's risk management framework is
premised on the continued monitoring of the
prevailing environment and the risks posed by it, and the
evaluation of potential actions to mitigate those risks.
The Risk Committee is responsible for implementing the Group's
policy on risk management and monitoring the effectiveness of
controls in support of the Company's business objectives. It
meets four times a year and more frequently if required. The
Risk Committee comprises the CEO, the Vice Presidents and the head
of the internal audit function. A 'live' risk matrix is compiled
and updated at each Risk Committee meeting and the most significant
risks as well as potential actions to mitigate those risks are
reported to the Group's Audit Committee which has oversight of risk
management on behalf of the Board.
The key business risks affecting the Group set out in this
report differ from those disclosed in the 2011 Risk Management
report in the following respects:
-- foreign currency risks in respect of the cost impact that
arises from changes in the value of local currencies (given that
the Group's revenue is denominated in US dollars) has been removed
as it is no longer considered to be a principal risk;
-- the risk previously disclosed as 'Costs' has been
re-categorised as 'Operational Performance' to incorporate the risk
of failure to meet the Group's production goals; and
-- the addition of 'Delivery of Projects', which has become
increasingly important to the Group in light of the advancement of
the Inmaculada and Crespo projects.
1. FINANCIAL RISKS
(i) Commodity Price
Impact
Adverse movements in precious metals' prices could have a
material impact on the Group's results of operations.
Mitigation
-- Constant focus on maintaining low cost base and low leverage policy
-- Prices closely monitored by management with oversight by the board
2012 Commentary
The Company maintained continued focus on cost controls, reduced
debt and did not participate in any hedging activity.
(ii) Counterparty credit risk
Impact 1
Loss of revenue resulting from defaulting customers.
Mitigation
-- Sales contracts for concentrate incorporate various
protection measures including provision for advance payment,
delaying transfer of title on non-payment
-- Parent company guarantees are sought, where appropriate
-- Risk profiling of key and new customers and active review of
accounts receivables
2012 Commentary
The Company completed the significant investment at its Arcata
mine to convert its entire production into dore thereby reducing
its exposure to counterparty risk (since the sale of dore, as
opposed to concentrates, is settled almost immediately).
Impact 2
The Group may lose financial resources through the failure of
financial institutions
Mitigation
-- Surplus cash invested with a diverse list of select highly
rated financial institutions within investment limits set by the
Board
-- The Board receives regular reports on the management of
cash
2012 Commentary
Management has continued to operate its policy with oversight by
the Board without any change during the year.
(iii) Liquidity
Impact
The Group may be unable to raise funds to meet its nancial
commitments as they fall due
Mitigation
-- Board and senior management continually monitor the Group's
requirements for short- and
medium-term liquidity
-- The Company maintains a cash position, strong banking
relationships, and access to credit lines, and limits indebtedness
to ensure an appropriate level of financing
2012 Commentary
The Company benefits from considerable balance sheet strength
with a year-end cash balance of $359 million1 and no debt except
for the Convertible Bonds.
2. OPERATIONAL RISKS
(i) Operational Performance
Impact
Failure to meet production targets and manage the cost base
could adversely impact the Group's pro tability
Mitigation
-- Close monitoring by management of operational performance,
costs and capital expenditure
-- Negotiation of long-term supply contracts where
appropriate
-- Exploration to increase high quality resources
2012 Commentary
As stated in the Operating and Financial Reviews there has been
a considerable increase in unit costs during the year primarily due
to the increasingly challenging geological conditions of
ageing assets, labour inflation and the cost of raw
materials.
(ii) Delivery of Projects
Impact
Delays in delivering projects such as Inmaculada and Crespo
could have several negative consequences including delaying cash
inflows and increasing capital costs which could ultimately reduce
profitability
Mitigation
-- Teams comprising specialist personnel and world class
consultants are involved in all aspects of project planning and
execution including the commissioning of an Independent feasibility
study and the securing of permits and financing
-- Project teams meet on a weekly basis to monitor on-going
progress against project schedules with a
Procurement Committee ensuring timely sourcing of materials and
services to meet project schedules
2012 Commentary
Notable project milestones achieved for Inmaculada include the
completion of the feasibility study, approval of the Environmental
Impact Study ('EIS'), awarding of the EPC contract and the start of
construction of the necessary infrastructure for a dedicated
electricity supply.
With respect to Crespo, the feasibility study was completed, the
EIS was submitted and agreement reached for the requisite power
supply.
Delivery of projects is also exposed to risks relating to
Community Relations and the Political, Legal
& Regulatory environment.
(iii) Business Interruption
Impact
Assets used in operations may break down and insurance policies
may not cover all forms of risk
Mitigation
-- Adequate insurance coverage
-- Management reporting systems to support appropriate levels of
inventory
-- Annual inspections by insurance brokers and insurers with
recommendations addressed in order to
mitigate operational risks
-- Availability of contingency power supplies at all operating
units
2012 Commentary
A third-party review was completed to ensure that appropriate
and adequate property damage and
business interruption insurance policies are in place for all
operations.
Management reporting systems ensured that an appropriate level
of inventory of critical parts is maintained. Adequate preventative
maintenance programmes, supported by the SAP Maintenance
Module, are in place at the operating units.
(iv) Exploration & Reserve and Resource Replacement
Impact 1
The Group's operating margins and future profitability depend
upon its ability to find mineral and to replenish reserves
Mitigation
-- Retain and incentivise world-class geologists
-- Implementing and maintaining an annual exploration drilling
plan
-- Ongoing evaluation of acquisition and joint-venture
opportunities to acquire additional ounces
2012 Commentary
The Group allocated $90 million in 2012 to fund its exploration
and geology activities. The 2013 budget has been set at $77
million.
The 2012 drilling plan was revised on a quarterly basis with
exploration targets continually evaluated and new targets
incorporated.
Impact 2
Reserves stated in this Annual Report are estimates
Mitigation
-- Develop internal expertise and processes in managing mineral
reserves and resources
-- Engagement of independent experts to undertake annual audit
of mineral reserve and resource estimates.
2012 Commentary
The Group engaged P&E Consultants to undertake the annual
audit of mineral reserve and resource estimates
(v) Personnel
Impact 1
Inability to retain or attract personnel either through a
shortage of skilled personnel or the commencement of mining
operations in the vicinity of the Group's core operations or
projects
Mitigation
Implementation of the Group's HR recruitment and retention
strategies which incorporate the provision of competitive
compensation packages, well-de ned career plans and training &
development opportunities
2012 Commentary
In addition to the Long Term Incentive Plan the Group continued
to operate the Exploration Incentive Plan which provides additional
rewards for geologists based on the mineral content discovered at a
given project.
A series of specially commissioned courses for employees across
the organisation were conducted in 2012 to develop leadership and
effective management skills.
Impact 2
Failure to maintain good labour relations with workers and/or
unions may result in work slowdown, stoppage or strike
Mitigation
A tailored labour relations strategy focusing on profit sharing,
working conditions, management style, development opportunities,
motivation and communication
2012 Commentary
In addition to the annual negotiations with unions on pay and
benefits, monthly meetings with workers and unions were held during
2012 to ensure a complete and accurate understanding of matters of
concern and requirements.
3. MACROECONOMIC RISKS
(i) Political, Legal and Regulatory Risks
Impact
Changes in the legal, tax and regulatory landscape could result
in significant additional expense, restrictions on or suspensions
of operations and may lead to delays in the development of
current
operations and projects. Implementation of exchange controls
could impede the Group's ability to convert or remit hard currency
out of its operating countries
Mitigation
-- Local specialised personnel continually monitor and react, as
necessary, to policy changes
-- Active dialogue with Governmental authorities
-- Participation in local industry organisations
2012 Commentary
Following the election of the new administration in Peru in
2011, new obligations impacting mining companies were enacted
including:
-- a law requiring the prior consultation of indigenous
communities as part of the planning of mining activities; and
-- the creation of new protected nature reserves.
Whilst the Company remains in dialogue with the relevant
authorities, the procedures required to comply with these new
requirements have not yet been officially established.
The authorities of Argentina and Peru levied new taxes and
royalties on mining companies during the year. In addition, in
Argentina, the Federal Government imposed foreign exchange controls
which
have affected the Company's ability to access and remit hard
currency abroad.
4. SUSTAINABILITY RISKS
(i) Health and Safety
Impact
Group employees working in the mines may be exposed to health
and safety risks. Failure to
manage these risks may result in accidents, a work slowdown,
stoppage or strike and/or may
damage the reputation of the Group and hence its ability to
operate
Mitigation
-- Health & Safety operational policies and procedures
reflect the Group's zero tolerance approach to accidents
-- Use of world-class DNV safety management systems
-- Dedicated personnel not only assure the safety of employees
at the operations but, through the Health & Hygiene team, there
is continued focus on the prevention of accidents and occupational
illness
-- Rolling programme of training, communication campaigns and
other initiatives promoting safe
working practices
-- Use of reporting and management information systems to
monitor the incidence of accidents and
enable preventative measures to be implemented
2012 Commentary
During the year, the Group maintained Level 7 of the DNV safety
management information system at Arcata and Pallancata-Selene and
Level 6 at San Jose. In addition, Level 3 was achieved at the
Inmaculada project.
Following the occurrence of fatalities at the Group's mine, a
Safety Day was held to raise awareness among employees of the
importance of safety. A video recording of the Chairman addressing
all employees on safety was produced and broadcast across all
operating sites.
The internal competition for the Luis Hochschild Safety
Innovation Award was once again held in 2012.
(ii) Environmental
Impact
The Group may be liable for losses arising from environmental
hazards associated with the Group's activities and production
methods, or may be required to undertake extensive remedial
clean-up actions or be subject to fines and/or penalties
Mitigation
-- The Group has a dedicated and specialised team of
professionals with an allocated budget for
environmental management
-- Robust procedures and policies have been adopted to monitor
and limit the Group's environmental impact
-- Investment in leading environmental management information
systems
2012 Commentary
During the year:
-- the Group achieved compliance with over 90% of its internal
Compliance Performance Indicators, which was validated by an
external third party;
-- the operations in Peru and Argentina maintained their
ISO14001 certification;
-- the Group obtained the approval of the Environmental Impact
Study for the Inmaculada project; and
-- the Group completed the first carbon footprint study of its
operations.
(iii) Community Relations
Impact
Communities living in the areas surrounding Hochschild's
operations may oppose the activities carried out by the Group at
existing mines or, with respect to development projects and
prospects, may invoke their rights to be consulted under new laws
enacted during the year. These actions may result in longer lead
times and additional costs in bringing assets into production and
lead to an adverse impact on the Group's ability to obtain the
relevant permissions for current or future projects.
Mitigation
-- Constructive engagement and management of relationships with
local communities
-- Community Relations strategy focuses on promoting education,
health & nutrition, and sustainable development
-- Allocation of budget and personnel for the provision of
community support activities
-- Policy to actively recruit workers from local communities
2012 Commentary
The Group launched the Digital Chalhuanca initiative in
Apurimac.
Other initiatives during the year include the continuation of
the 'Maestro Líder' campaign, a training programme for community
teachers, and 'Médico deCabecera', a programme taking healthcare to
the rural populations.
A database of all agreements with communities was maintained and
updated on a monthly basis to ensure that all social commitments
were met.
Appendix 2
Related Party Transactions (reproduced from pages 147 and 148 of
the 2012 Annual Report)
30 Related-party balances and transactions
(a) Related-party accounts receivable and payable
The Group had the following related-party balances and
transactions during the years ended 31 December 2012 and 2011. The
related parties are companies owned or controlled by the main
shareholder of the parent company, joint ventures or
associates.
Accounts receivable Accounts payable
as at 31 December as at 31 December
--------------------- --------------------
2012 2011 2012 2011
US$000 US$000 US$000 US$000
---------- --------- --------- ---------
Current related party
balances
Cementos Pacasmayo S.A.A. 139 222 - 32
Gold Resource Corp (note
18) 878 710 - -
Total 1,017 932 - 32
-------------------------- ---------- --------- --------- ---------
As at 31 December 2012 and 2011 all other accounts are, or were,
non-interest bearing.
No security has been granted or guarantees given by the Group in
respect of these related party balances.
Principal transactions between affiliates are as follows:
Year ended
--------------
2012 2011
US$000 US$000
------ ------
Income
Dividend recognised for Gold Resource
Corp. investment (note 18) 10,093 7,313
Revenue recognised for services provided
to Gold Resource Corp - 35
----------------------------------------- ------ ------
Expenses
Expense recognised for the rental paid
to Cementos Pacasmayo S.A.A. (164) (170)
Transactions between the Group and these companies are on an
arm's length basis.
(b) Compensation of key management personnel of the Group
As at 31 December
------------------------
Compensation of key management personnel 2012 US$000 2011 US$000
(including directors)
----------- -----------
Short-term employee benefits 6,742 6,504
Termination benefits - -
Long Term Incentive Plan 2,789 1,200
Workers' Profit Sharing 44 184
Others 556 950
Total compensation paid to key management
personnel 10,131 8,838
This amount includes the remuneration paid to the Directors of
the parent company of the Group of US$5,467,700 (2011:
US$4,816,370), out of which US$199,606 (2011: US$199,660) relates
to pension payments.
Appendix 3
Statement of Directors' Responsibilities (reproduced from page
68 of the 2012 Annual Report)
The Directors confirm that to the best of their knowledge:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit of the
Company and the undertakings included in the consolidation taken as
a whole; and
-- the Management report includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face.
On behalf of the Board
Raj Bhasin
Company Secretary
12 March 2013
This information is provided by RNS
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