TIDMHOC
RNS Number : 7806I
Hochschild Mining PLC
20 April 2022
_________________________________________________________________________________
20 April 2022
2021 Annual Financial Report,
2022 Annual General Meeting ("AGM") and
Circular relating to an Extraordinary General Meeting ("EGM")
(incorporating the Notice of EGM)
Following the release of Hochschild Mining PLC's 2021 full year
results announcement on 23 February 2022 (the "Preliminary
Announcement"), the Company announces it has published its Annual
Report and Accounts for the year ended 31 December 2021 (the "2021
Annual Report").
In accordance with LR 9.6.1 R, the Company also announces that
the following documents have been submitted to the National Storage
Mechanism and will be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
-- 2021 Annual Report
-- AGM circular (incorporating the Notice of AGM)
-- EGM circular (incorporating the Notice of EGM)
-- Notice of Availability of the 2021 Annual Report, AGM circular and EGM circular
The above documents will be posted shortly or otherwise made
available to shareholders and, in accordance with the Disclosure
Guidance and Transparency Rules ("DTR"), the 2021 Annual Report,
the AGM circular and EGM
circular have been published on the Company's website at www.hochschildmining.com .
GENERAL MEETING ARRANGEMENTS
The EGM and AGM (the "Hochschild Meetings") will be held on
Thursday, 26th May 2022 at the offices of Hudson Sandler LLP, 25
Charterhouse Square, London EC1M 6AE at 8.45 a.m. and 9.00 a.m.
respectively.
- EGM
The EGM circular, which was approved today by the Financial
Conduct Authority, sets out proposals to (a) rectify certain
historic dividends (the "Relevant Dividends") and enter into deeds
of release in favour of the Company's shareholders and directors;
and (b) create distributable reserves for the Company by way
of:
(i) a capitalisation of the Company's merger reserve followed by
a cancellation of the shares that are issued (the "Merger Reserve
Capitalisation and Cancellation");
(ii) the subsequent reduction of all or part of the Company's
share premium account, including share premium created through the
Merger Reserve Capitalisation and Cancellation, and the crediting
of the amount by which the share premium account is reduced to the
Company's retained earnings reserve (the "Share Premium
Reduction"); and
(iii) the reduction in the nominal value of the ordinary shares
from 25 pence per ordinary share to 1 pence per ordinary share (the
"Capital Reduction" and, together with the Share Premium Reduction,
the "Company Reductions").
The EGM circular includes a letter from the Chairman of the
Company, which is reproduced in Appendix 4 without material
adjustment or amendment.
Completion of the dividend rectification and entry into the
related party transactions and the Company Reductions remain
conditional on, among other things, the approval of the Company's
shareholders and, in the case of the Company Reductions, approval
by the Court of England and Wales.
- Attendance at the Hochschild Meetings
Shareholders who wish to attend either of the Hochschild
Meetings in person are requested to register their intention to
attend by emailing info@hocplc.com no later than 48 hours prior to
the relevant Hochschild Meeting to allow us to ensure that the
venue can remain secure against COVID-19 and allow us to make
various health, safety and risk assessments.
We are pleased this year that shareholders will be able to
physically attend the Hochschild Meetings. In the event
circumstances change before the appointed time of the relevant
Hochschild Meeting, we will notify shareholders of any change to
the arrangements through announcements via the London Stock
Exchange and by publishing details on the Company's website at
www.hochschildmining.com as early as is possible before the
Hochschild Meetings. For the safety of others, shareholders or
proxies experiencing any of the symptoms connected with COVID-19
are requested not to attend either of the Hochschild Meetings. To
mitigate the risk that shareholders or proxies cannot attend
because of COVID-19 or for whatever other reason, we would
encourage all shareholders to appoint the chairman as their proxy
to exercise their votes in accordance with their instructions.
- Proxy Voting at Hochschild Meetings
Full details on how to submit proxy votes and the deadlines to
do so can be found in the Notices of AGM and EGM.
Appendices 1 to 3 to this announcement contain the information
required to be disclosed under DTR 6.3.5 which has been reproduced
from the 2021 Annual Report and should be read in conjunction with
the Preliminary Announcement. All page references and
cross-references in Appendices 1 to 3 are to the 2021 Annual
Report.
________________________________________________________________________________
Enquiries:
Hochschild Mining PLC
Raj Bhasin
+44 (0)7825 533495
Company Secretary
Hudson Sandler
Charlie Jack
+44 (0)20 7796 4133
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) and
crosstrades on the OTCQX Best Market in the U.S. (HCHDF), with a
primary focus on the exploration, mining, processing and sale of
silver and gold. Hochschild has over fifty years' experience in the
mining of precious metal epithermal vein deposits and currently
operates three underground epithermal vein mines, two located in
southern Peru and one in southern Argentina. Hochschild also owns
the Posse Advanced Project in Brazil which is currently in
construction as well as numerous long-term projects throughout the
Americas.
LEI: 549300JK10TVQ3CCJQ89
APPICES
Appendix 1
Risk Management
(reproduced from pages 68 to 75 of the 2021 Annual Report)
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 a management committee tasked with
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, Country General Managers and the head of the Internal
Audit function. A 'live' risk matrix is reviewed which maps the
significant risks faced by the business as well as those considered
to be emerging risks. The matrix is updated at each Risk Committee
meeting, and the most significant current and emerging risks, as
well as actions to mitigate them, are reported to the Group's Audit
Committee, and if considered appropriate, also to the Board. In
light of their strategic importance, sustainability risks and their
mitigation plans are monitored by the Sustainability Committee.
Risk appetite
Defining risk appetite is crucial in ensuring that a risk
management system is embedded into Hochschild's organisational
culture. Our risk appetite approach is to minimise our exposure to
reputational, compliance and excessive financial risk, whilst
accepting a certain level of risk to achieve our strategic goals.
As part of setting risk appetite, the Board will consider and
monitor the level of acceptable risk it is willing to take in each
of the principal risk areas.
Appetite for risk will vary according to the activity
undertaken, and is predicated on the fact that a risk will only be
tolerated after a full understanding of the potential benefits and
its implications before proceeding with a course of action, and
that sensible mitigation measures are identified and
implemented.
Covid-19
As reported in the 2020 Annual Report, in response to the
Covid-19 pandemic, Hochschild Mining established a Crisis Committee
which oversaw the implementation of the Covid-19 Crisis Plan. This
plan resulted in the instigation of, among other things, enhanced
health protocols designed to prioritise employee welfare. In 2021
the protocols on testing and social distancing measures at the
operations remained in place to control the spread of the virus
among employees.
2021 Risks
Details of the principal and emerging risks affecting the Group
and the associated mitigating actions are provided on the following
pages. The risks differ from those reported in the 2020 Annual
Report in the following respects:
- Acknowledging the reduced impact of Covid-19 on the Group's
principal risks in 2021, Covid-19 has this year been presented as a
separate risk; and
- The inclusion of Climate Change as a new risk which, as
described later, discusses both the impact on the business of the
physical aspects of climate change, as well as the impact on the
Group in light of the transition to a low-carbon economy which may
include increased costs of compliance and governance.
Reasons for the year-on-year change in the profile of a specific
risk can be found in the commentary section of the relevant risk,
which also provides an outlook on the risk for the current
financial year.
Outlook
At the time of approval of this Annual Report, the number of new
daily cases in Peru and Argentina is falling from a recent peak due
to the Omicron variant which, although more transmissible, is
resulting in a much lower proportion of severe illness.
The Company continues to monitor the situation and, as described
later in this report, is able to scale up the implementation of the
Covid-19 Crisis Plan as required.
1. FINANCIAL RISKS
a) Commodity Price
Change in risk profile vs 2020: UNCHANGED
Impact
Adverse movements in precious metal prices could materially
impact the Group in various ways beyond a reduction in the
financial results of operations. These include impacts on the
feasibility of projects, the economics of mineral resources,
heightened personnel retention and sustainability related
risks.
Mitigation
- Constant focus on maintaining a low all-in sustaining cost of
production and an efficient level of administrative expense.
- Policy to maintain low levels of financial leverage to ensure
flexibility through price cycles.
- Flexible hedging policy that allows the Company to contract
hedges to mitigate the effect of price movements taking into
account the Group's asset mix and forecast production.
Commentary
The Group's principal strategy to mitigate against commodity
price volatility is focused on conserving capital and optimising
cash flow through:
- controlling operating and administrative costs;
- optimising sustaining capital expenditure; and
- maintaining low working capital.
As reported in the Financial Review, the Group increased
borrowing by an additional $100m under its medium-term
facility.
The Group has ended the year with a net cash position and is
therefore in a robust financial position.
As previously reported, in early February 2021 the Group hedged
4 million ounces of silver for both 2021 and 2022 at an average
price of c.$27 per ounce to protect cash flows in Peru. In
addition, in November 2021, the Group hedged 3.3 million ounces of
silver for 2023 at $25 per ounce. These hedges will ensure
profitable production from existing resources mainly at Pallancata
while brownfield exploration efforts continue to add near-term
resources.
See the Market Review on pages 10 to 13 for further details on
how commodity prices performed in 2021.
b) Commercial Counterparty
Change in risk profile vs 2020: UNCHANGED
Impact
Insolvency of a customer or other business counterparty (bank,
insurance company, contractor, etc) could result in the Group's
inability to collect accounts receivable or to access funds or to
receive services which could adversely impact the Group's
profitability.
Mitigation
- Active assessment of customers and business counterparties.
- Risk mitigation practices seeking to diversify the Group's
customer base and/or to limit the size of shipments.
- Ongoing assessment of methods to mitigate collection risk
Commentary
During the year, the Group undertook the following:
- Annual counterparty analysis: The annual review of existing
customers incorporated analysis of corporate governance, balance
sheet strength and other aspects of credit quality. Although the
counterparty risk analysis did not raise any material issues, we
continue to require customers to make advance payments for 90% -
98% of the amount sold. We also obtained parent guarantees;
- Review of financial counterparties: The Group has implemented
policies to identifying suitable financial counterparties to
support the Group's treasury and insurance needs. On an ongoing
basis, the Group has adopted a number of practices such as the
placing of limits on cash balances invested with financial
institutions, monitoring of advanced payments from customers and
ensuring diversification.
2. OPERATIONAL RISKS
a) Operational Performance
Change in risk profile vs 2020: LOWER
Impact
Failure to meet production targets and manage the cost base
could adversely impact the Group's profitability.
Mitigation
- Close monitoring of operational performance, costs and capital
expenditure as well as the overall profitability at all stages of
the mining value chain.
- Monitoring the adequacy and safety of key mining components
such as tailing dams, waste rock deposits and pipelines in close
liaison with relevant departments ensuring that procurement,
construction and permitting are undertaken appropriately.
Commentary
In 2021 the Group benefited from a year of uninterrupted
operations enabling it to meet its production target for the year
of 31.2m silver equivalent ounces.
In setting budgets for the year, the Group continued to focus on
maintaining controlled levels of costs, capital expenditure and
expenses.
As reported in the Financial Review from page 36, the all-in
sustaining cost from operations was in line with guidance for the
year, at $14.4 per silver equivalent ounce (excluding exceptional
items including Covid costs).
b) Business Interruption/Supply chain
Change in risk profile vs 2020: UNCHANGED
Impact
Assets used in the Group's operations may cease to function or
the provision of supplies or of electricity may be disrupted (e.g.
as a result of technical malfunction or earthquake damage) thereby
causing production stoppages with material effects.
Mitigation
- Insurance coverage to protect against major risks.
- Management reporting systems to support appropriate levels of inventory.
- Inspections every 18 months (to coincide with renewal) by
insurance brokers and insurers assist management's efforts to
understand and mitigate operational risks.
- Negotiation of long-term power supply contracts and the
procurement of contingent generators.
Commentary
In addition to maintaining insurance policies covering machinery
breakdown, mitigating actions during the year include the
following:
- A thorough review of critical supplies and inventory was
performed with data uploaded onto the Maintenance Module of SAP
HANA;
- Maintaining back-up equipment to ensure power supply in Peru and Argentina; and
- A Crisis Response Plan ('CRP') was developed in 2019 with the
support of external consultants. Management received training on
the CRP in Q1 2020 on how to mount a co-ordinated response to
unforeseen disruption.
Specifically with regards to supply chain risks, the
Company:
- has identified alternative suppliers;
- has increased its stocks of critical consumables and strategic spare parts; and
- maintains ongoing dialogue with vendors and shippers.
c) Information security and cybersecurity
Change in risk profile vs 2020: UNCHANGED
Impact
Failure of any of the Group's business critical information
systems as a result of unauthorised access by third parties may
affect the Group's ability to operate.
Mitigation
- Compliance with ISO 27001, an internationally recognised
certification to evaluate information security management
systems.
- Dedicated team within the IT department focused on preventing cyber-attacks.
- Audits performed by the internal audit department and third
parties to test systems and issue recommendations.
- Primary information processing supported by SAP Hana which has
best-in-class security features
Commentary
Security of the Group's network infrastructure is assured
through the following means:
- The inclusion of industrial networks into the Group's IS
Management System ('ISMS') which accordingly benefit from
associated security enhancements;
- SMS received BSI certification; and
- The implementation of the principal recommendations arising
from an ethical hacking assessment.
To counter the heightened risks as a result of the widespread
use of remote working, the Group has adopted use of VPN software,
enhanced security monitoring efforts and upgraded anti-spam
software for use with corporate email services. In addition,
internal communication campaigns were launched to ensure best
practices in remote working.
d) Exploration & Reserve and Resource Replacement
Change in risk profile vs 2020: HIGHER
(d)(i) Impact
The Group's future operating margins and profitability depend
upon its ability to find mineral resources and to replenish
reserves.
Mitigation
- Implementing and maintaining an annual exploration drilling plan.
- Ongoing evaluation of acquisition and joint venture
opportunities to acquire additional ounces.
- Implementation of a comprehensive permitting strategy led by a Permitting Committee.
- Comprehensive engagement activities with communities and
governmental authorities (see later sections on Macroeconomic and
Sustainability risks).
Commentary
General
The Group has an internal Permitting Committee led by two Vice
Presidents to co-ordinate efforts with a view to streamlining the
permitting process for exploration and operational requirements.
Senior executives actively participate in industry initiatives to
simplify the permitting process.
Greenfield exploration is primarily conducted through the
negotiation of earn-in/joint venture opportunities. These provide
the Group with a balanced portfolio of advanced and early-stage
opportunities in stable jurisdictions in the Americas.
Developments during the year
As described elsewhere in the Annual Report, social conditions
in Peru have worsened leading to higher social demands and social
conflicts involving mining projects. This has led to delays in
securing permits from the communities, impacting the Group's
exploration programme.
Following events in southern Ayacucho in November 2021 (as
described in the commentary of Political, legal and regulatory
risks), the risk of delay in the granting of environmental permits
for exploration in Ayacucho, where Pallancata and Inmaculada are
located, has increased substantially.
Further details on brownfield exploration are provided on pages
33 and 34 and in relation to greenfield projects, on page 34.
(d)(ii) Impact
Reserves stated in this Annual Report are estimates.
Mitigation
- Engagement of independent experts to undertake annual audit of
mineral reserve and resource estimates.
- Adherence to the JORC Code and guidelines therein.
Commentary
The Group has engaged P&E Consultants to undertake the
annual audit of mineral reserve and resource estimates.
See page 198 for further details
(e) Personnel: Recruitment and Retention
Change in risk profile vs 2020: UNCHANGED
Impact
Inability to attract or retain 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, training and development opportunities and the
overall employee value proposition.
Commentary
The Group has undertaken a number of initiatives to improve the
retention of employees. These include the use of non-financial
benefits (e.g. flexible working arrangements for office-based
staff) and tailored personal development plans. In addition to the
five-year Leadership programme implemented at all operations, a new
Leadership model aligned with the Company's culture is being
deployed.
Training programmes for supervisors and hourly workers continued
to be delivered virtually during 2021.
Enhancing the Group's employee value proposition includes the
launching of initiatives related to causes that are valued by
employees; providing employees with the opportunity to contribute
to the relaunched purpose of the Company which includes innovation,
community relations and environmental performance.
To assist retention of key personnel, the Company has a
Long-Term Incentive Plan.
(f) Personnel: Labour Relations
Change in risk profile vs 2020: HIGHER
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.
- Monthly meetings with mineworkers and unions to ensure a
complete understanding of expectations and to keep all parties
updated on the Group's financial performance.
Commentary
Peru
The Group's Peruvian operation generated sufficient taxable
income to give rise to an entitlement to statutory profit sharing
for Peruvian mineworkers.
In keeping with recent practice, as part of the salary increases
agreed with the Peruvian labour unions, the Company has approved an
additional bonus plan incorporating safety and productivity
goals.
The left-wing Castillo administration, elected in July 2021, has
expressed its support for the country's labour unions and the right
for employees to strike. This has resulted in an increased risk in
labour relations overall relative to 2020.
Argentina
In Argentina the Company maintains constructive relations with
the labour unions through ongoing and regular dialogue.
3. MACRO-ECONOMIC RISKS
Political, Legal and Regulatory
Change in risk profile vs 2020: HIGHER
Impact
Changes in the political, 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.
Changes in the political, 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.
Delays in granting/securing the necessary environmental permits
for exploration or operations could affect future production and
financial results of the Group.
Mitigation
- Local specialist personnel continually monitor and react, as
necessary, to policy changes. In addition, political, social and
communications advisers have been engaged to support the Group in
responding to developments.
- Participation in local industry organisations.
Commentary
Peru
- General
After suffering from the devastating impact of the Covid-19
pandemic in 2020, the first half of the year saw political
uncertainty in Peru in the lead up to the Presidential elections.
The second round of voting in June polarised the country along
political lines and saw a contested victory by Pedro Castillo of
the left-wing Free Peru party who was inaugurated in late July
2021.
On assuming office, President Castillo announced his
government's intentions to increase state participation in the
economy and to form a constituent assembly to oversee
constitutional reform. The
government's stated focus with regards to the mining sector was
to implement a policy of enhancing 'social profitability' which
would see mining companies facilitating the promotion of local
development, increasing State revenues and facilitating the
redistribution of wealth. President Castillo has appointed four
successive Prime Ministers who have been vocal proponents of the
government's stated objectives.
With the arrival of the new administration, mining has become
highly politicised and has prompted many social conflicts with
local communities seeking to capitalise on the Government's
commitments
during the presidential campaign and election (see commentary on
Community relations risks for further details). In line with its
election campaign pledge, the Executive sought to increase taxes on
the mining industry but failed to seek the requisite authority from
Congress.
- The Coracora Act
As announced by the Company, in November 2021, a meeting by the
Head of Cabinet and certain vice-ministers in a town in southern
Ayacucho resulted in the publication of minutes (the 'Coracora
Act')
which (a) alleged undisclosed environmental complaints, and (b)
established a commission (the 'Executive Commission') to negotiate
the timetable and terms for the closure and withdrawal of certain
mining projects in southern Ayacucho including the Company's
Pallancata and Inmaculada mines. It was further announced that
approvals would no longer be granted to authorise additional
mining, exploration, or expansion activities in relation to these
mines.
In response to protests from the industry, the business
community in general and other organisations, official statements
were issued expressing the Government's commitment to upholding the
rule of law and acknowledging the continued rights of mining
companies to request extensions and modifications of existing
permits for mining and exploration activities.
In mid-December 2021, the Government announced its intention to
issue, before the end of the year, a decree formalising the
Executive Commission. In mid-January 2022, a temporary working
group for
the development of certain provinces in southern Ayacucho was
established to oversee the implementation of the Coracora Act.
- Environmental permits
With regards to environmental permits for operating activities,
the Group was expecting to hold the virtual townhall in
mid-December 2021 in connection with the second modification of the
detailed Environmental Impact Study ('EIS') for Inmaculada. Less
than 24 hours prior to the scheduled time of the event, the Company
was notified by the relevant authority (SENACE) of its cancellation
citing safety concerns. The Company believes that this decision was
premature and unfounded and it made its position known to the
relevant officials and authorities.
As a result, the virtual townhall had to be rescheduled and was
held on 12 February 2022 which, in turn, will cause the EIS
approval process to be delayed, potentially impacting future mine
developments and production at Inmaculada. The virtual townhall was
held successfully and the EIS approval process continues to
advance, with approval expected during H2 2022.
Argentina
President Fernandez's administration has been very cautious in
supporting and promoting the mining industry. Covid-19 and certain
populist measures have negatively impacted the overall
investment
climate in Argentina including in the extractive industry
sector.
Mid-term congressional elections in November 2021 saw the ruling
Peronist Government lose its majority in Congress as well as the
key stronghold of Buenos Aires province.
2022 Outlook
- Peru
The political outlook for 2022 in Peru remains uncertain with
opponents to mining accusing the Castillo Government of reneging on
its commitments in the Coracora Act and calling for strikes and
other
action. Accordingly, the risk of stoppage has increased
substantially, as well as the granting of new permits for
explorations and operations under complex social conditions. In
addition, with regional and local elections scheduled for October
2022, the risk of further political turmoil and polarisation
remains high.
The Government has announced that it plans to submit a
legislative bill to Congress to increase taxes on the mining sector
during the first quarter of 2022.
- Argentina
President Fernandez's administration is expected to continue
cautiously supporting mining activity, however its approach will be
influenced by the dynamics within the coalition government and the
general state of the economy which is expected to be dominated by
high rates of inflation and limited growth.
4. SUSTAINABILITY RISKS
(a) Health and Safety
Change in risk profile vs 2020: UNCHANGED
Impact
Group employees working in the mines may be exposed to severe
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.
- Systematic 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.
Commentary
The Group reported two fatalities at its operations during 2021
which occurred at the San Jose and Aclara sites. For further
details on the investigation of these accidents, please refer to
the Sustainability Report on pages 59 and 60.
During the year, there was a particularly tragic traffic
accident involving a bus operated by one of our contractors
resulting in the loss of 26 lives. The Group worked together with
the contractor in question and the relevant authorities to take all
necessary measures to collectively mitigate the risk of such a
tragic accident from recurring.
Management continued with the implementation of 'Safety 2.0', an
action plan to reinforce a safety-first culture. The plan, which
combines technical and people-led approaches, comprises seven key
attributes covering training, effective communication, recognition
and aligning compensation with measurable safety performance.
In addition, during the year:
- a new internal safety indicator, the Seguscore, was developed
for roll-out in 2023; and
- the Health team partnered with the Community Relations team to
visit local families to promote early childhood development.
For further details on the above, please refer to the safety
section of the Sustainability Report on pages 59 and 60.
(b) Covid-19
Change in risk profile vs 2020: LOWER
Impact
Another wave of infections, whether in general in
Peru/Argentina, or localised at the Group's operations, could
result in a) operational disruption or stoppages (e.g. due to
personnel shortage,
disruption in the supply chain etc), b) increased costs and c)
reputational risks.
Secondary Covid-19 risks include legal risks (e.g. litigation
from suppliers/contractors), permitting
delays, IT risks (in light of increased reliance on IT systems)
and fraud risk due to increased use of
remote working.
Mitigation
- Covid-19 Crisis Plan
Commentary
Management designed and implemented the Covid-19 Crisis Plan
following the outbreaks in 2020 (further details of which can be
found in the 2020 Annual Report). The protocols in the Crisis Plan
continue to be largely in place and can be scaled up at short
notice on the signs of an increase in the level of infections. In
summary, these protocols include:
- a comprehensive testing programme;
- the increased presence of medical personnel and availability
of medical facilities;
- the redeployment of high-risk employees;
- the adaptation of working areas and transportation;
- the use of technology-based systems to monitor cases and
support the logistics related to shift changes; and
- adapting the focus and style of delivery of our Community
Relations programmes.
As reported in the 2020 Annual Report, a tailored Covid-19 risk
matrix was compiled which, in addition to forming the basis of the
operating protocols referred to above, also established mitigating
actions with regards to secondary Covid-19 risks.
During 2021, the Company took a number of steps to increase its
level of preparedness through:
- the commissioning of an audit of its biosecurity protocols
which were certified by Bureau Veritas; and
- the procurement of stocks of medication, personal protective
equipment and testing kits.
(c) Environmental
Change in risk profile vs 2020: UNCHANGED
Impact
The Group may suffer from reputational risk and 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 dedicated team responsible for environmental
management.
- The Group has adopted a number of policies and procedures to
manage its environmental footprint.
- The Group has developed a tool which allows it to measure and
manage environmental performance.
- The Group continues to adopt measures to minimise natural
resource use, with particular emphasis on water consumption in its
operations.
- A specific tailings management framework is in place for TSFs,
including independent third-party review.
Commentary
In 2021, the Group performed highly in its ECO Score (with a
score of 5.29 out of 6 (2020: 5.74)), reflecting the following
notable achievements:
- Four operations achieving a perfect score of 6 out of 6
(Inmaculada, San Jose, Pallancata and Arcata);
- The lowest water consumption since 2015;
- The lowest amount of waste generated since 2015 (0.98
kg/person/day);
- The highest level of environmental culture compliance (using
an internal scoring system).
In addition, during the year:
- the Environmental team had an unprecedented year in terms of
reporting on the Group's environmental performance by participating
in numerous reporting initiatives;
- there was continued progress with the implementation of the
Environment Culture Transformation Plan (ECTP) which, in 2021,
focused on people, innovation and technology; and
- as part of the ECTP, 85 environmental ambassadors were
appointed across the operations in Peru and Argentina tasked with
promoting a robust environmental culture across the
organisation.
As disclosed in the Operational risks, the Group has published
information on its website regarding its TSFs, including their
construction method and risk profile. It also continues to
commission independent third-party reviews of all such facilities
and monitors on an ongoing basis their stability, with particular
emphasis on older TSFs such as the Ares facility which is in the
process of being closed.
The independent review conducted in 2021 did not identify any
material issues.
For further details, please refer to the environmental section
of the Sustainability Report on pages 56 to 58.
(d) Climate Change
Change in risk profile vs 2020: NEW
Impact
Changes in climate and weather patterns, including the
occurrence of extreme weather events such as higher rainfall,
droughts, and storm conditions, may cause operational disruption
and, at worse, could result in a suspension of operations.
Failure to comply with climate-related laws and regulations
could result in reputational risks for the
Group, increased costs and longer permitting delays.
Lack of climate change actions could result in restricted access
to capital.
Mitigation
- Enhanced management oversight and operating protocols to:
-- maximise the use of natural resources and minimize energy consumption.
-- monitor weather projections for operations, incorporating
weather assessments in operating applications.
- Promoting transparency with regards to the Group's performance
through participation in investor-led reporting initiatives.
Commentary
Actions taken in 2021 include:
- The recognition of climate-change related risks on the Group
Risk Register resulting in the monitoring of mitigating actions by
the Risk Committee, Sustainability Committee and, as appropriate,
by the Board;
- Increasing the percentage of recycled water used in processing
plants at Inmaculada and San Jose;
- Assessing purchasing increased levels of energy from renewable
sources.
Reporting of the Group's performance has been enhanced
through:
- external assurance of the calculation of the Group's carbon
footprint at operations;
- participation in CDP information request; and
- voluntary TCFD disclosure in respect of 2020.
The 2022 Action Plan includes, most notably, the launch of
Hochschild's Carbon Neutral strategy.
Read our 2021 TCFD Report from page 64.
(e) Community Relations
Change in risk profile vs 2020: HIGHER
Impact
Communities living in the areas surrounding the Group's
operations may oppose the activities carried out 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, longer lead times, additional costs for
exploration and have an adverse impact on the Group's ability to
obtain the relevant permits.
Mitigation
- The Group has a dedicated team responsible for Community
Relations.
- Constructive engagement with local communities based on
several years of positive relations.
- Community Relations strategy focuses on promoting education,
health and nutrition, and sustainable development.
- Policy to actively recruit workers from local communities.
- Policy of hiring service providers from local communities.
- The Group has also engaged with local governments to support
public investment initiatives through technical assistance and
direct investment.
Commentary
- Overall
The overall social climate has become markedly hostile to mining
since July 2021 as the promises made by the governing party during
the presidential campaign resulted in increased and unrealistic
expectations. Social conflicts have led to the temporary stoppage
of major mining operations such as Las Bambas and Antamina. In
addition, in October 2021, violent protests against the Apumayo
mining unit in Southern Ayacucho led to the attack and burning down
of Apumayo's camp and certain mining infrastructure.
The Group experienced brief stoppages at Pallancata and
Inmaculada but they did not affect production during the year.
However, social conflicts have led to the stoppage of certain of
the Group's exploration projects in Peru, such as Corina and
Huacullo.
As described earlier (in relation to political, legal and
regulatory risks), given the actions of the Government in Southern
Ayacucho since November 2021, the political and social risks have
increased substantially as the Government has further raised
expectations which, if not met, could lead to further acts of
violence and attempts to disrupt mining operations in general.
Governmental authorities remain very sensitive to conflicts
between communities and mining companies and typically take a
cautious approach by prioritising dialogue between parties and
supporting social demands regardless of their merit.
- Hochschild developments
The Group continues to implement its social engagement strategy
in recognition of its responsibilities to host communities. The
Group invested significant resources to understand the needs and
expectations of local communities and governments.
During the year:
- the Group spent or donated $5.4m to benefit local communities
and supported local community-run businesses;
- we continued to support the communities with a wide range of
programmes covering our areas of focus: education, health and
nutrition, and sustainable development;
- the Community Relations team continued to support the
business, for example, by successfully securing surface rights and
concluding prior consultation processes to facilitate exploration
activities.
Further details can be found in the Sustainability Report from
page 54.
Appendix 2
Related-Party Balances and Transactions, and
Compensation of key management personnel of the Group
(reproduced from pages 174 and 175 of the 2021 Annual
Report)
(a) Related-party accounts receivable and payable
The Group had the following related-party balances and
transactions during the years ended 31 December 2021 and 2020. 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
--------------------- --------------------
2021 2020 2021 2020
US$000 US$000 US$000 US$000
---------- --------- --------- ---------
Current related party
balances
Cementos Pacasmayo S.A.A.(1) 217 387 152 146
Tecsup(2) 1 1 115 120
Universidad UTEC(2) - - 5 -
REE UNO SpA(3) 6 - - -
Aclara Resources Inc(3) - - 12 -
Total 224 388 284 266
----------------------------- ---------- --------- --------- ---------
(1) The account receivable relates to reimbursement of expenses
paid by the Group on behalf of Cementos Pacasmayo S.A.A., an entity
controlled by Eduardo Hochschild. The account payable relates to
the payment of rentals.
(2) Peruvian not for profit educational institutions controlled
by Eduardo Hochschild.
(3) Associated companies of the Aclara Group (refer to notes 4
and 19).
As at 31 December 2021 and 2020, 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 31 December
------------------------
2021 2020
US$000 US$000
----------- -----------
Expenses
Expense recognised for the rental paid to Cementos Pacasmayo S.A.A. (403) (469)
Expense donations to Tecsup - (505)
Expense donations to Universidad UTEC - (875)
Expense technical services from Tecsup (292) (190)
--------------------------------------------------------------------- ----------- -----------
Transactions between the Group and these companies are at an
arm's length basis.
(b) Compensation of key management personnel of the Group
Year ended 31 December
------------------------
Compensation of key management personnel 2021 2020
(including directors) US$000 US$000
----------- -----------
Short-term employee benefits 7,509 7,330
Long Term Incentive Plans 776 808
Total compensation paid to key management
personnel 8,285 8,138
------------------------------------------ ----------- -----------
This amount includes the remuneration paid to the Directors of
the Parent Company of the Group of US$3,967,000 (2020:
US$3,821,000).
(c) Related party transaction
Participation of Pelham Investment Corporation in the IPO of
Aclara
As announced by the Company on 3 December 2021, Pelham
Investment Corporation ('Pelham'), a company controlled by the
Chairman, Eduardo Hochschild, entered into a subscription agreement
with Aclara on 2 December 2021 pursuant to which Pelham agreed to
purchase, on a prospectus exempt basis in Canada, 22,791,399 Aclara
shares at a price of C$1.70 per share (the 'Offering Price'). In
addition, Pelham subscribed for 9,855,660 Aclara shares at the
Offering Price as part of the IPO. These share acquisitions, which
are in addition to the Aclara shares acquired by Pelham as part of
the demerger dividend, constitute a smaller related party
transaction for the purposes of the UK Listing Rules. Accordingly,
as also announced, the Company obtained a written confirmation from
a sponsor that the terms of the smaller related party transaction
were fair and reasonable as far as the shareholders of the Company
are concerned.
Appendix 3
Statements of Directors' Responsibilities
A) Reproduced from page 82 of the 2021 Annual Report
The Directors confirm that to the best of their knowledge:
- that the consolidated financial statements, prepared in
accordance with UK-adopted international accounting standards give
a true and fair view of the assets, liabilities, financial position
and profit of the
parent company and undertakings included in the consolidation taken as a whole;
- the Annual Report, including the Strategic 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; and
- that they consider the Annual Report, taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's position,
performance, business
model and strategy.
B) Reproduced from page 124 of the 2021 Annual Report
The Directors are responsible for preparing the Annual Report
and the Group and Parent Company financial statements in accordance
with applicable United Kingdom law and regulations.
Company law requires the Directors to prepare Group and Parent
Company financial statements for each financial year. Under that
law the Directors have elected to prepare the Group and Parent
Company financial statements in accordance with UK-adopted
international accounting standards ('IFRS'). Under company law the
Directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of
affairs of the Group and the Parent Company and of their profit or
loss for that period.
Under the Financial Conduct Authority's Disclosure Guidance and
Transparency Rules, group financial statements are required to be
prepared in accordance with UK-adopted international accounting
standards.
In preparing those financial statements, the Directors are
required to:
- select suitable accounting policies in accordance with IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors and
then apply them consistently;
- make judgements and accounting estimates that are reasonable
and prudent;
- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
- provide additional disclosures when compliance with the
specific requirements in IFRS is insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the Group and Parent Company financial position and
financial performance;
- in respect of the Group financial statements, state whether
UK-adopted international accounting standards have been followed,
subject to any material departures disclosed and explained in the
financial statements;
- in respect of the Parent Company financial statements, state
whether UK-adopted international accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
- prepare the financial statements on the going concern basis
unless it is appropriate to presume that the Parent Company and/ or
the Group will not continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Parent
Company's and Group's transactions and disclose with reasonable
accuracy at any time the financial position of the Parent Company
and the Group and enable them to ensure that the Parent Company and
the Group financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Parent
Company and the Group and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Report and Corporate Governance Statement
that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Appendix 4
Letter from the Chairman of Hochschild Mining PLC
Directors: Registered Office:
Eduardo Hochschild (Chairman) 17 Cavendish Square
Ignacio Bustamante (Chief Executive Officer) London W1G 0PH
Michael Rawlinson (Senior Independent Director) United Kingdom
Dr Graham Birch (Independent Non-Executive
Director)
Jorge Born Jr. (Independent Non-Executive
Director)
Jill Gardiner (Independent Non-Executive
Director)
Eileen Kamerick (Independent Non-Executive
Director)
Tracey Kerr (Independent Non-Executive
Director)
Dionisio Romero Paoletti (Non-Executive
Director)
20 April 2022
Dear Shareholder,
Proposed dividend rectification, capitalisation of Merger
Reserve, reduction of Share Premium Account and reduction of the
nominal value of the Ordinary Shares
1 Introduction
In August 2021, the board of directors of the Company (the
"Board") became aware of an issue concerning technical compliance
with the Companies Act 2006 ("CA 2006") in relation to the payment
of certain historic dividends paid between 2018 and 2021, being the
2017 Final Dividend, the 2018 Interim Dividend, the 2018 Final
Dividend, the 2019 Interim Dividend, the 2020 Interim Dividend and
the 2020 Final Dividend (the "Relevant Dividends"). In particular,
the Relevant Dividends were paid to shareholders when the Company
did not have adequate distributable reserves. Significant
corrective transactions (namely, a capital reduction and dividend
distribution by the Company's wholly owned subsidiary, Hochschild
Mining Holdings Limited) were implemented by the Company in
September 2021, shortly after discovery of the issue. Had these
internal corporate transactions been implemented prior to the
payment of the first of the Relevant Dividends, adequate
distributable reserves would have been available to the
Company.
Whilst this breach is technical in nature, the Company
theoretically has claims against all shareholders past and present
who received dividends as well as persons who were directors of the
Company at the time of payment of the Relevant Dividends. The
Company has no intention to follow up on such claims and wishes to
take steps to rectify this breach.
The Resolutions, as explained further in the EGM Circular, seek
to put Shareholders, the Directors and the Former Director into the
position in which they were intended to be. The entry by the
Company into the Shareholders' Deed of Release and the Directors'
Deed of Release (further details of which are included in the EGM
Circular) constitute a related party transaction as defined in the
Listing Rules. Additionally, the Company proposes to take a number
of actions to create additional distributable reserves.
Finally, I would like to emphasise that none of the actions
proposed will impact the Company's financial position. To effect
these changes we are asking our shareholders to vote on the three
Resolutions.
This letter sets out the details of proposals to (a) rectify the
Relevant Dividends and enter into the Shareholders' Deed of Release
and the Directors' Deed of Release in connection with their issue
and (b) create distributable reserves for the Company by way
of:
(i) a capitalisation of the Company's merger reserve followed by
a cancellation of the shares that are issued (the "Merger Reserve
Capitalisation and Cancellation");
(ii) the subsequent reduction of all or part of the Company's
share premium account, which will include the share premium created
through the Merger Reserve Capitalisation and Cancellation (the
"Share Premium Account"), and the crediting of the amount by which
the Share Premium Account is reduced to the Company's retained
earnings reserve (the "Share Premium Reduction"); and
(iii) the reduction in the nominal value of the Ordinary Shares
from 25 pence per Ordinary Share to 1 pence per Ordinary Share (the
"Capital Reduction" and, together with the Share Premium Reduction,
the "Company Reductions").
Entry into the Shareholders' Deed of Release and the Directors'
Deed of Release, the Merger Reserve Capitalisation and Cancellation
and the Company Reductions are conditional upon, among other
things:
-- the Resolutions being passed at the Hochschild General Meeting;
-- the confirmation of the Company Reductions by the Court at the Court Hearing; and
-- a copy of the Court Order having been delivered to the
Registrar of Companies and registered by them.
A full explanation of the proposed Resolutions are set out in
Part II of the EGM Circular.
1.1 Dividend rectification
The Relevant Dividends were paid to shareholders when the
Company did not have adequate distributable reserves. Had certain
internal corporate transactions been implemented prior to the
payment of the 2017 Final Dividend, adequate distributable reserves
would have been available to the Company.
The CA 2006 provides that a public company may pay a dividend
out of its distributable profits as shown in the last annual
accounts circulated to shareholders or, if those accounts do not
show sufficient distributable reserves, interim accounts must be
prepared. The CA 2006 also requires that interim accounts, where
used by a public company to justify the declaration of an interim
dividend, must be prepared on an individual accounting basis and
filed at Companies House prior to payment of the relevant dividend.
Accordingly, each of the Relevant Dividends was distributed
otherwise than in accordance with the CA 2006.
The Company has been advised that, as a consequence of the
Relevant Dividends having been distributed otherwise than in
accordance with the CA 2006, it may have claims against past and
present shareholders who were recipients of the Relevant Dividends
and against persons who were directors of the Company at the time
of payment of the Relevant Dividends. It is therefore proposed that
the Company put resolutions before Shareholders to complete the
rectification of the Relevant Dividends and the Company enter into
(i) a deed of release in favour of all shareholders who appeared on
the register of members on the record date for each of the Relevant
Dividends from any and all claims which the Company has or may have
in respect of the payment of those Relevant Dividends (the
"Shareholders' Deed of Release") and (ii) a deed of release by
which the Company waives any rights to make claims against the
Directors and the Former Director in respect of the Relevant
Dividends (the "Directors' Deed of Release"). The maximum potential
amount to which the Shareholders' Deed of Release will relate is
$73,766,000, being the aggregate amount of the Relevant Dividends
paid to Shareholders. The maximum potential amount to which the
Directors' Deed of Release will relate is $73,766,000, being the
aggregate amount of the Relevant Dividends which were approved by
the Directors.
The entry by the Company into the Directors' Deed of Release and
the Shareholders' Deed of Release constitute related party
transactions (as defined in the Listing Rules). Therefore, the
Resolutions will also seek the specific approval of the Company's
Shareholders for the entry into the Directors' Deed of Release and
the Shareholders' Deed of Release as related party transactions, in
accordance with the requirements of the Listing Rules.
1.2 Merger Reserve Capitalisation and Cancellation
As a matter of company law, a merger reserve cannot be reduced
directly in a reduction of capital and so an additional
intermediate step will be required in order to effect the reduction
of capital. The reduction of capital will therefore be executed
through a capitalisation issue of the Bonus Shares paid up out of
the Merger Reserve, followed by the cancellation of the Bonus
Shares in a court-approved reduction of capital.
The capitalisation of the Merger Reserve will be achieved by
means of an issue of new fully paid-up deferred ordinary shares in
the capital of the Company (whereby the nominal value of such
shares is equal to the sum that is obtained by dividing the number
of such shares to be issued into US$303,268,000) (the "Bonus
Shares") to each Shareholder, on the basis of one Bonus Share for
each Ordinary Share held at the Company Reductions Record Time.
Immediately following the issuance of the Bonus Shares, the Bonus
Shares will then be cancelled. The cancellation of the Bonus Shares
will result in the nominal value of such shares being credited to
the Share Premium Account.
1.3 Share Premium Reduction
The Company will undertake a reduction of the Company's Share
Premium Account.
Share premium forms part of the capital of the Company which
arises on the issue by the Company of Ordinary Shares at a premium
to their nominal value. The premium element is credited to the
Share Premium Account. Under the CA 2006, the Company is generally
prohibited from paying any dividends or making other distributions
in the absence of positive distributable reserves, and the Share
Premium Account, being a non-distributable reserve, can be applied
by the Company only for limited purposes.
However, provided the Company obtains the approval of
Shareholders by way of a special resolution and the subsequent
confirmation by the Court, it may undertake the Share Premium
Reduction.
1.4 Capital Reduction
Under the CA 2006, a company may, with the sanction of a special
resolution and the confirmation of the Court, reduce or cancel its
existing share capital, provided the company's articles of
association do not contain any provisions restricting or
prohibiting such reduction or cancellation.
The Company's articles of association do not prohibit the
Company from reducing or cancelling its share capital and the
Company therefore proposes the Capital Reduction.
A full explanation of the proposed Resolutions is set out in
Part II of the EGM Circular.
2 Notice of Extraordinary General Meeting
The Notice of Extraordinary General Meeting convening the
Hochschild General Meeting is contained at the end of the EGM
Circular. The Hochschild General Meeting will be held at the
offices of Hudson Sandler LLP, 25 Charterhouse Square, London EC1M
6AE, United Kingdom to consider and, if thought appropriate, pass
the proposed Resolutions as special resolutions.
Definitions for capitalised terms used in this letter can be
found in Part IV (Definitions and Glossary) of the EGM
Circular.
3 Action to be taken
Whether or not you will be attending the Hochschild General
Meeting, I would urge you to appoint a proxy in accordance with the
instructions below and ensure that such proxy is lodged and
received by the Company's Registrars, Link Group, as soon as
possible and, in any event, by no later than 8.45 a.m. on Tuesday
24 May 2022.
A Shareholder can appoint a proxy by:
-- logging on to www.signalshares.com and following the instructions;
-- requesting a hard copy form of proxy from the Company's Registrars, Link Group, by:
-- sending a letter addressed to Link Group at 10th Floor,
Central Square, 29 Wellington Street, Leeds LS1 4DL, United
Kingdom; or
-- contacting Link Group on +44 (0) 371 664 0300 (calls are
charged at the standard geographic rate and will vary by provider.
Calls outside the United Kingdom will be charged at the applicable
international rate. Lines are open between 9.00 a.m. and 5.30 p.m.,
Monday to Friday excluding public holidays in England and Wales
(the " Shareholder Helpline "). Please note that the helpline
operators cannot provide advice on the merits of the Resolutions or
give any financial, legal or tax advice),
and completing, signing and returning such hard copy form of
proxy in accordance with the instructions set out thereon; or
-- in the case of CREST Members, utilising the CREST electronic
proxy appointment service in accordance with the procedures set out
in note 6 of the Notice of Extraordinary General Meeting set out on
page 21 of the EGM Circular,
in each case so that such proxy is received no later than 8.45
a.m. on Tuesday 24 May 2022.
If you are an institutional investor, you may be able to appoint
a proxy electronically via the Proxymity platform. For further
information regarding Proxymity, please go to www.proxymity.io.
Your proxy must be lodged by 8.45 a.m. on Tuesday 24 May 2022 in
order to be considered valid.
Further details in relation to the appointment of proxies,
including the CREST electronic proxy appointment service, are given
in the notes to the Notice of Extraordinary General Meeting set out
on pages 21 and 22 of the EGM Circular.
Additional forms of proxy may be obtained by contacting Link
Group on the Shareholder Helpline.
Appointing a proxy online, completing and returning a hard copy
form of proxy or appointing a proxy using the CREST electronic
proxy appointment service will not preclude Shareholders from
attending and voting in person at the Hochschild General Meeting,
should they so wish.
The attention of corporate Shareholders wishing to appoint more
than one corporate representative is drawn to note 8 of the Notice
of Extraordinary General Meeting set out on page 22 of the EGM
Circular.
If you are in any doubt as to the action you should take, you
are recommended to seek your own financial and/or legal advice
immediately from your stockbroker, bank manager, solicitor,
accountant or other independent financial adviser authorised under
FSMA, if you are resident in the United Kingdom or, if not, from
another appropriately authorised independent financial adviser.
4 Further information
Your attention is drawn to the further information contained in
the remaining sections of the EGM Circular. Shareholders should
read the whole of the EGM Circular and not rely solely on
information summarised in this letter.
5 Recommendation
5.1 Resolution 1 (Relevant Dividend rectification and release
and related party transactions)
In shareholder circulars it is customary for directors to (i)
state that the proposed resolutions are in the best interests of
the company and its shareholders as a whole and (ii) recommend
shareholders to vote in favour of the proposed resolutions.
However, as the Directors have an interest in Resolution 1 as
beneficiaries of the Directors' Deed of Release, they are unable to
make the customary statement and recommendation with respect to
Resolution 1. The Board does, however, recommend that Shareholders
vote on Resolution 1.
Given the interests of the Board in Resolution 1 (Relevant
Dividend rectification and release and related party transactions),
and as required by the Listing Rules:
(a) the Board has not considered whether Resolution 1 is in the
best interests of the Company. Accordingly, the Board cannot
recommend that Shareholders vote in favour of Resolution 1 but
recommends that Shareholders vote on it. However, as required by
Listing Rule 13.6.1(5), each of (i) the waiver of claims against
the Directors and the Former Director pursuant to paragraph (d) of
Resolution 1, (ii) the entry into of the Directors' Deed of
Release, (iii) the waiver of claims against Shareholders pursuant
to paragraph (b) of Resolution 1, and (iv) the entry into of the
Shareholders' Deed of Release, is fair and reasonable as far as the
shareholders of the Company are concerned and the Directors have
been so advised by RBC, in its capacity as the Company's sponsor;
and
(b) each of the Directors, the Related Party Former Director,
the Substantial Shareholder and each of their respective associates
are precluded from voting on Resolution 1. Therefore, each of them
will not vote on, and have undertaken to take all reasonable steps
to ensure that their associates abstain from voting on, Resolution
1.
The Board has taken steps to ensure that, in future, the issues
referred to in the EGM Circular do not arise in relation to the
payment of future dividends. We are grateful for Shareholders'
understanding in respect of the issues set out in the EGM
Circular.
5.2 Resolution 2 (Capitalisation of Merger Reserve and
cancellation of Bonus Shares) and Resolution 3 (Reduction of
Capital)
The Directors consider that, for the reasons set out in this
document, Resolutions 2 and 3 are, in the Board's opinion, in the
best interests of the Company and its Shareholders as a whole and
unanimously recommend Shareholders to vote in favour of them, as
they intend to in respect of their own beneficial holdings.
Yours faithfully,
[Signed]
Eduardo Hochschild
Chairman
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