TIDMHOC
RNS Number : 4171V
Hochschild Mining PLC
15 April 2016
Hochschild Mining plc
("the Company")
2015 Annual Financial Report and 2016 Annual General Meeting
("AGM")
Following the release of the Company's 2015 full year results
announcement on 9 March 2016 (the "Preliminary Announcement"), the
Company announces it has published its Annual Report and Accounts
for the year ended 31 December 2015 (the "2015 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 2015 Annual Report
-- The 2016 AGM Circular (incorporating the Notice of 2016 AGM)
-- The 2016 AGM Proxy Card (incorporating the Notice of
Availability of the 2015 Annual Report and 2016 AGM Circular)
The 2015 Annual Report and the 2016 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 2015 Annual Report and should be read in conjunction with
the Preliminary Announcement.
All page references and cross-references in the appendices are
to the 2015 Annual Report.
APPENDICES
Appendix 1
Risk Management (reproduced from pages 20 to 23 of the 2015
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,
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 Group'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 is responsible for
the oversight of risk management on behalf of the Board, taking
into account its risk appetite.
2015 RISKS
The key business risks affecting the Group set out in this
report remain largely unchanged compared to those disclosed in the
2014 Risk Management report, with the exception that:
-- Counterparty Credit Risk, meaning the risks associated with
the failure of a financial institution, is no longer considered to
be a principal risk for the Company; and
-- Refinancing risk has been identified as a new risk following
the ongoing weakness of the commodities sector and its potential
impact on the Group in light of its outstanding debt.
The year-on-year change in the profile of:
-- the risks associated with the Delivery of Projects reflects
the fact that the Inmaculada mine was successfully brought into
operation in August 2015, and
-- Macroeconomic risks and the risks relating to Community
Relations reflect the fact that 2015 was pre-electoral year in Peru
and therefore public sentiment to mining related issues has been
heightened in electoral campaigns in advance of elections in April
2016.
1. FINANCIAL RISKS
(i) Commodity Price
Change in risk profile vs 2014: UNCHANGED
Impact
Adverse movements in precious metal prices could materially
impact the Group in various ways beyond a reduction in the results
of operations. These include impacts on the feasibility of
projects, the economics of the mineral resources and heightened
personnel and sustainability related risks
Mitigation
-- Constant focus on maintaining a low cost of production and an
efficient level of administrative expense
-- Flexible hedging policy that allows the Group to contract
hedges to mitigate the effect of price movements taking into
account the Group's asset mix and forecast production
See Our Market Overview on page 5 for further details
2015 Commentary
Having achieved substantial savings through the Cash
Optimisation Programme, the Group maintained its focus during 2015
on conserving capital and optimising cash flow through:
-- further reducing operating and administrative costs;
-- minimising sustaining capital expenditure;
-- reducing debt via an equity raise; and
-- optimising working capital
In addition to the above, the Inmaculada mine, which started
commercial production in H2 2015, has started to reduce average
production costs and dilute fixed costs, the extent of which will
accelerate as the mine operates for a full financial year.
The Group hedged part of its 2015 and 2016 silver and gold
production to protect cashflow
For further details see page 11 of the Financial Review.
(ii) Refinancing Risk
Change in risk profile vs 2014: NEW
Impact
Failure to renew debt facilities (whether long-term or shorter
term credit facilities) on existing terms could result in higher
finance expense and reduce the Group's profitability. The
likelihood of this risk increases in the event that the outlook for
the sector deteriorates.
Mitigation
-- Close monitoring of cash generation with a focus on
operational performance, costs and capital expenditure
-- Flexible hedging policy that allows the Group to contract
hedges to mitigate the effect of price movements taking into
account the Group's asset mix and forecast production
-- On-going dialogue with local and international financial
institutions and securing informal and non-binding credit
approvals
2015 Commentary
Given the deterioration of the commodities sector during the
year, mitigation of this risk has included:
-- Conserving capital and optimising cashflow as described above;
-- Hedging a part of 2015 and 2016 production;
-- Securing credit commitments from five banks;
-- Maintaining an active dialogue with local and international
banks through a series of meetings and organising site visits
2. OPERATIONAL RISKS
(i) Operational Performance
Change in risk profile vs 2014: UNCHANGED
Impact
Failure to meet production targets and manage the cost base
could adversely impact the Group's profitability.
Mitigation
-- Close monitoring by management of operational performance, costs and capital expenditure
-- Negotiation of long-term supply contracts where appropriate
2015 Commentary
2015 budgets across the Group focused on maintaining controlled
levels of administrative expenses and sustaining capex.
Production goals at all operations were met with the focus on
the extraction of profitable ounces.
Increased operational flexibility also resulted from the
commencement of production at Inmaculada.
Going forward, management closely monitors specific risks that
could affect operational performance.
(ii) Delivery of Projects
Change in risk profile vs 2014: REDUCED
Impact
Unanticipated delays in delivering projects could have negative
consequences including delaying cash inflows and increasing capital
costs, which could ultimately reduce profitability.
Mitigation
-- Teams comprising specialist personnel and world class
consultants and contractors are involved in all aspects of project
planning and execution
-- Project teams meet with senior management on a weekly basis
to monitor ongoing progress against project schedules
2015 Commentary
Commissioning at the plant at Inmaculada started in Q2 2015 with
commercial production declared in the following quarter.
Despite certain delays in commissioning, the ramping up of
production has occurred in a shorter than expected time frame with
the mine producing consistently at above design capacity.
Further details on Inmaculada can be found on pages 8 and 11
(iii) Business Interruption
Change in risk profile vs 2014: HIGHER
Impact
Assets used in the Group's operations and, in particular, at
Inmaculada, given the Group's reliance on that asset, may break
down and insurance policies may not cover against all forms of
risks.
Mitigation
-- Insurance coverage to protect against major risks
-- 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
2015 Commentary
Insurance advisors conducted site visits and completed a full
review of operational risks to ensure that adequate property damage
and business interruption risk management processes and insurance
policies are in place at our 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
Change in risk profile vs 2014: HIGHER
(a) Impact
The Group's operating margins and future profitability depend
upon its ability to find mineral resources and to replenish
reserves.
(a) Mitigation
-- Implementing and maintaining an annual exploration drilling plan
-- Ongoing evaluation of acquisition and joint venture
opportunities to acquire additional ounces
-- High-end software programmes implemented to statistically estimate mineral resources
(a) 2015 Commentary
In 2015, all brownfield exploration goals were achieved,
including the discovery of the Pablo vein at Pallancata.
The continued focus on cost control has resulted in our
exploration activity being primarily focused on current
operations.
(MORE TO FOLLOW) Dow Jones Newswires
April 15, 2016 12:29 ET (16:29 GMT)
In 2016, exploration activity will be primarily focused on
brownfield exploration in order to maintain or improve our resource
base. As a direct consequence of the continued low price
environment, the level of exploration of new projects and appraisal
of acquisition/joint venture opportunities has been reduced
substantially and will affect our ability to replace ageing
operations. The substantial reduction in sustaining capital
expenditure in 2016 could affect the Group's ability to replace
reserves at its historic rates.
(b) Impact
Reserves stated in this Annual Report are estimates.
(b) Mitigation
-- Engagement of independent experts to undertake annual audit
of mineral reserve and resource estimates
-- Adherence to the JORC Code and guidelines therein
(b) 2015 Commentary
The Group has engaged P&E Consultants to undertake the
annual audit of mineral reserve and resource estimates.
See page 122 for further details
(v)(a) Personnel: Recruitment and Retention
Change in risk profile vs 2014: UNCHANGED
Impact
Inability to retain or attract personnel through a shortage of
skilled personnel.
Mitigation
-- The Group's approach to recruitment and retention provides
for the payment of competitive compensation packages, well defined
career plans and training and development opportunities
2015 Commentary
The Group has continued to implement a number of low cost/high
impact initiatives to improve the retention of employees. These
include the use of non-financial benefits (e.g. flexible working
arrangements for Head Office staff).
(v)(b) Personnel: Labour Relations
Change in risk profile vs 2014: UNCHANGED
Impact
Failure to maintain good labour relations with workers and/or
unions may result in work slowdown, stoppage or strike.
Mitigation
-- Development of a tailored labour relations strategy focusing
on profit sharing, working conditions, management style,
development opportunities, motivation and communication
2015 Commentary
The reduction in profitability due to lower precious metal
prices has resulted in no statutory profit sharing for Peruvian
mineworkers.
Management has conducted monthly meetings with mineworkers and
unions during 2015 to ensure complete understanding of their
requirements and concerns and to keep all parties updated on the
Group's financial performance with the aim of preparing the
groundwork for the 2016 union negotiations.
3. SUSTAINABILITY RISKS
(i) Health and Safety
Change in risk profile vs 2014: UNCHANGED
Impact
Group employees working in the mines may be exposed to health
and safety risks.
Failure to manage these risks may result in occupational
illness, 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 to ensure the safety of employees at the
operations via stringent controls, training and prevention
programmes
-- 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
2015 Commentary
In 2015, the Group achieved its on-going objective of Zero
Fatalities for the second consecutive year.
In addition, there have been reductions year-on-year in the
accident frequency rate and accident severity index of c.40% and
c.25% respectively.
(ii) Environmental
Change in risk profile vs 2014: UNCHANGED
Impact
The Group may be liable for losses arising from environmental
hazards associated with the Group's activities and production
methods, ageing infrastructure, or may be required to undertake
corrective actions or extensive remedial clean-up action or pay for
governmental remedial clean-up actions or be subject to fines
and/or penalties.
Mitigation
-- The Group has a team responsible for environmental management
-- The Group has adopted a number of policies and procedures to
limit and monitor its environmental impact
2015 Commentary
Relevant developments in 2015 include:
-- the continued resourcing of an environmental team with over
100 people working in related operational roles and environmental
management;
-- the launch of a new Corporate Environmental Policy and
redesigned Key Performance Indicators as part of an effort to
reinforce an environmentally-conscious culture;
-- Improvements in the treatment and consumption of water at the mining units;
-- Enhanced environmental controls at mining units; and
-- Improved performance in external audits.
(iii) Community Relations
Change in risk profile vs 2014: HIGHER
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.
These actions may result in loss of production, increased costs
and decreased revenues and in longer lead times and additional
costs for exploration and 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 with local communities
-- Community Relations strategy focuses on promoting education,
health and nutrition, and sustainable development
-- Allocation of budget and personnel for the provision of community support activities
-- Policy to actively recruit workers from local communities
2015 Commentary
During H2 2015, protests by communities close to Inmaculada
resulted in a 25-day blockade preventing use of the main access
road to the Inmaculada mine. The blockade did not affect the
Group's production target for the year; however, the conflict
disrupted normal operations, increased costs, and led to the
intervention by the government to lift the blockade by facilitating
an informal mediation between the Group and the relevant
communities.
Working groups continue to meet periodically.
In addition, the Group has:
(i) actively engaged with other local communities to fully
understand their needs and to implement an action plan; and
(ii) secured access to alternative roads to Inmaculada and
Pallancata.
The risk of additional stoppages or blockades will continue to
be present if the working groups do
not reach long-term agreements between the parties involved
Further details on the Group's activities to mitigate
sustainability risks can be found in the sustainability report on
pages 16 to 19
3. MACRO-ECONOMIC RISKS
(i) Political, Legal and Regulatory
Change in risk profile vs 2014: HIGHER
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 specialist personnel continually monitor and react, as necessary, to policy changes
-- Active dialogue with governmental authorities
-- Participation in local industry organisations
2015 Commentary
The measures adopted by the Peruvian authorities in 2014
continued to impact the mining sector in 2015.
These include:
-- the prioritisation of remediation orders over fines for breach of environmental regulations;
-- new permitting requirements which will lead to longer
permitting periods and additional costs;
-- implementation of the "Prior Consultation" law requiring the
approval of indigenous communities before certain mining activities
can be undertaken.
2016 is an electoral year in Peru and therefore the mining
sector is expected to be subject to heightened political debate
with consequences for, amongst other things, labour and community
relations and the regulatory regime.
The change in government in July 2016 will inevitably lead to a
transitional period during which permitting periods will be further
extended.
In Argentina, the year was dominated by the change of government
following elections in October 2015.
Relevant developments since then include:
-- partial removal of currency controls resulting in a marked devaluation of the Peso; and
-- abolition of the tax on the export of dore.
Following the implementation of a new regional tax on mining
companies' reserves in 2013, the Group launched a challenge
regarding the constitutionality of the provincial law. The Supreme
Court has decided to hear the case and, in the interim, has granted
an injunction in favour of the Group's subsidiary entity, Minera
Santa Cruz.
Further information on the financial risk can be found in note
36 to the Consolidated Financial Statements.
Appendix 2
Related-Party Balances and Transactions (reproduced from pages
99 and 100 of the 2015 Annual Report)
30 Related-party balances and transactions
(a) Related-party accounts receivable and payable
(MORE TO FOLLOW) Dow Jones Newswires
April 15, 2016 12:29 ET (16:29 GMT)
The Group had the following related-party balances and
transactions during the years ended 31 December 2015 and 2014. The
related parties are companies owned or controlled by the main
shareholder of the parent company or associates.
Accounts receivable Accounts payable
as at 31 December as at 31 December
--------------------- --------------------
2015 2014 2015 2014
US$000 US$000 US$000 US$000
---------- --------- --------- ---------
Current related
party balances
Cementos Pacasmayo
S.A.A.(1) 11 45 40 49
Total 11 45 40 49
------------------- ---------- --------- --------- ---------
(1) The account receivable relates to reimbursement of expenses
paid by the Group on behalf of Cementos Pacasmayo S.A.A. The
account payable relates to the payment of rentals.
As at 31 December 2015 and 2014, 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
--------------
2015 2014
US$000 US$000
------ ------
Expenses
Expense recognised for the
rental paid to Cementos Pacasmayo
S.A.A. (285) (185)
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 2015 2014
personnel (including directors) US$000 US$000
--------- --------
Short-term employee benefits 5,613 5,369
Long Term Incentive Plan,
Deferred Bonus Plan and Restricted
Share Plan 2,641 679
Total compensation paid to
key management personnel 8,254 6,048
------------------------------------ --------- --------
This amount includes the remuneration paid to the Directors of
the parent company of the Group of US$4,155,759 (2014:
US$4,005,780), out of which US$Nil (2014: US$160,462) relates to
pension payments.
(c) Participation in rights issue by Pelham Investment
Corporation ("Pelham") and Inversiones ASPI SA ("ASPI")
As at the record date of the Rights Issue, Eduardo Hochschild
held his investment in the Company through Pelham. Following
receipt of its entitlement under the Rights Issue, Pelham
transferred, for nil consideration, its Nil Paid Rights in respect
of 74,745,101 new ordinary shares to ASPI an entity that is also
under the control of Eduardo Hochschild. Under the terms of an
irrevocable undertaking signed between Pelham, ASPI and the
Company, it was agreed that:
(i) ASPI would, among other things, subscribe for at least
68,887,508 new ordinary shares at an issue price of 47 pence per
new ordinary share (the "Subscription Commitment"); and
(ii) the Company would, among other things, pay ASPI a fee of 1%
of the Subscription Commitment of approximately US$500,000.
Appendix 3
Statement of Directors' Responsibilities (reproduced from page
27 of the 2015 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 (which comprises the Strategic report,
this Directors' Report and the other parts of this Annual Report
incorporated therein by reference) 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
15 April 2016
This information is provided by RNS
The company news service from the London Stock Exchange
END
ACSSFWFMIFMSEEL
(END) Dow Jones Newswires
April 15, 2016 12:29 ET (16:29 GMT)
Hochschild Mining (LSE:HOC)
Historical Stock Chart
From Jul 2024 to Aug 2024
Hochschild Mining (LSE:HOC)
Historical Stock Chart
From Aug 2023 to Aug 2024