TIDMHOC
RNS Number : 9395X
Hochschild Mining PLC
28 April 2023
_____________________________________________________________________________________
28 April 2023
2022 Annual Financial Report &
2023 Annual General Meeting ("AGM")
Following the release of the 2022 full year results announcement
on 20 April 2023 (the "Preliminary Announcement"), Hochschild
Mining PLC (the "Company") announces the publication of its Annual
Report and Accounts for the year ended 31 December 2022 (the "2022
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
-- 2022 Annual Report
-- 2023 AGM circular (incorporating the Notice of AGM)
-- Notice of Availability of the 2022 Annual Report and 2023 AGM 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 2022 Annual Report and
the AGM circular have been
published on the Company's website at www.hochschildmining.com .
AGM ARRANGEMENTS
The AGM will be held on Friday, 9(th) June 2023 at the offices
of Linklaters LLP, One Silk Street, London EC2Y 8HQ at 9.00
a.m.
Shareholders who wish to attend the AGM in person are requested
to register their intention to attend by emailing info@hocplc.com
by 9.00 a.m. on Wednesday, 7(th) June 2023.
We are pleased this year that shareholders will be able to
physically attend the AGM. In the event circumstances change before
the appointed time of the AGM, 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
meeting. For the safety of others, shareholders or proxies
experiencing any of the symptoms connected with COVID-19 are
requested not to attend. 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
Full details on how to submit proxy votes and the deadlines to
do so can be found in the AGM circular.
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 2022 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 2022 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 Mara Rosa Advanced Project in Brazil as well as numerous
long-term projects throughout the Americas.
LEI: 549300JK10TVQ3CCJQ89
____________________________________________________________________________________
APPICES
Appendix 1
Risk Management
(reproduced from pages 76 to 83 of the 2022 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, if any,
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.
2022 Risks
Details of the principal and emerging risks affecting the Group
and the associated mitigating actions are provided on the following
pages. The risks presented differ from those reported in the 2021
Annual Report in the following respects:
(i) the additions of:
a) Liquidity Risk given the potential financial ramifications of
a denial of, or extended delays in obtaining, the Inmaculada
Modified Environmental Impact Assessment
b) Project Development which, as described later, reflects the
importance to the Group of the mitigation of risks associated with
the construction of the Mara Rosa mine in Brazil; and
(ii) the removal of Covid-19 as a significant risk in light of
the full vaccination status of the Company's employees in Peru and
Argentina, and the overall reducing trend in both the number of
cases and the likelihood of severe illness. This notwithstanding,
the Company maintains close oversight of the health of its
employees and is ready to re-implement enhanced health protocols
whenever necessary.
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, Peru continues to
suffer from significant social unrest following the detention of
former President Castillo and the appointment of President Dina
Boluarte. As discussed further below, this has resulted in
heightened levels of risks related to:
- operational performance;
- business interruption/supply chain;
- exploration;
- political, legal and regulatory;
- labour relations; and
- community relations.
1. FINANCIAL RISKS
a) Commodity Price
Change in risk profile vs 2021: 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 reasonable 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 previously reported, the Group hedged 4 million ounces of
silver for 2022 at an average price of c.$27 per ounce to protect
cash flows in Peru. In addition, the Group has 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.
See the Market Review on pages 10 to 13 for further details on
how commodity prices performed in 2022.
b) Commercial Counterparty
Change in risk profile vs 2021: 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 Company's annual review of
existing customers entails analysis of corporate governance,
balance sheet strength and other aspects of credit quality.
Counterparty risk is also mitigated through the requirement for
advance payment of 90-98% of the value of the end-product sold.
Where considered necessary, parent guarantees are obtained.
- The Company implemented a banking solution that allowed us to
accelerate the receipt of revenue from concentrate sales while
transferring the risk to financing partners.
- 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 and monitoring credit ratings.
c) Liquidity
Change in risk profile vs 2021: NEW
Impact
The availability of financing, including a new US$200 Medium
Term Loan Committed Facility signed in Q4 2022, is conditional on
the approval of the Inmaculada MEIA which, once secured, will see
the Inmaculada mine continue in operation until 2043.
Denial of, or significant delays in securing, the Inmaculada
MEIA, could therefore have a material adverse effect on the Group's
business, financial condition and results of operations.
Mitigation
- A cross-disciplinary team, led by the Vice-President of Legal
and Corporate Affairs and the Corporate Director of Sustainability
comprising specialist consultants and advisers engage on a regular
basis with the relevant governmental authorities to support the
official review process of the Inmaculada MEIA
Commentary
As at the date of this report, the permitting process for
Inmaculada's Second Modified Environment Impact Assessment ("MEIA")
continues and the Company's revised expectation is a decision by
the Peruvian government during Q2 2023. The Company believes that
the outcome of the permitting process will be positive.
In light of the continued delays in securing the Inmaculada
MEIA, management has implemented a number of cash optimisation
measures including:
- Reductions in administrative and other operating costs;
- Deferral of capital expenditure; and
- Hedging a proportion of 2023 production from Inmaculada.
A plan of contingency measures has also been prepared in
collaboration with the Company's financial advisers in the event
that a denial of the Inmaculada MEIA or additional significant
delays in its approval were to occur. The principal lenders are
informed of the contingency measures and are supportive.
2. OPERATIONAL RISKS
a) Operational Performance
Change in risk profile vs 2021: UNCHANGED
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 2022 the Group's production was 25.8m 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 $18.9 per silver equivalent ounce (excluding exceptional
items).
Outlook
Inmaculada MEIA
Failure to secure approval of the Inmaculada MEIA (see Liquidity
risk commentary above) would result in a suspension of operations
at Inmaculada during H2 2023 until a new MEIA is approved. The
specific date of suspension will depend on operational factors that
are being evaluated.
b) Business Interruption/Supply chain
Change in risk profile vs 2021: 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 by insurance brokers and insurers
(to coincide with policy renewals) assist management's efforts to
understand and mitigate operational risks.
- Negotiation of long-term power supply contracts and the
procurement of contingent generators and transformers.
Commentary
In addition to maintaining insurance policies covering machinery
breakdown, mitigating actions include the following:
- the use of a Maintenance Module of SAP HANA to monitor
critical supplies and inventory;
- maintaining back-up equipment to ensure power supply in Peru
and Argentina; and
- a Crisis Response Plan (CRP) on how to mount a co-ordinated
response to unforeseen disruption.
Specifically with regards to supply chain risks, the
Company:
- has identified alternative suppliers for numerous critical
consumables;
- has restored stocks of critical consumables and strategic
spare parts to pre-pandemic levels;
- requires, of certain suppliers, the maintenance of minimum
stock levels; and
- monitors the financial position of key suppliers.
c) Information security and cybersecurity
Change in risk profile vs 2021: 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 information and networks are guaranteed
through the following means:
- we have world class cybersecurity tools supported by
artificial intelligence that secure and protect our network as well
as our computer assets and the information that resides in them.
Additionally, we have a CiberSOC (Cyber Security Operation Center)
that works 24x7 to monitor the different events and possible
attacks that may arise;
- every year we perform ethical hacking evaluations to identify
possible vulnerabilities at the level of our technological
infrastructure as well as the different applications that we use to
operate;
- we train colleagues and keep them informed about the risks
that exist relating to cybercrime and information theft, as well as
good practices associated with cybersecurity; and
- our Information Security Management System (ISMS) is BSI
certified.
We are currently in the process of transferring server backups
to the cloud.
d) Exploration & Reserve and Resource Replacement
Change in risk profile vs 2021: UNCHANGED
(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.
The Group undertakes greenfield exploration primarily through
the negotiation of earn-in/joint venture opportunities. The aim is
for this to 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 continued to be tense with higher demands and social
conflicts involving mining projects. From an exploration
perspective, this has led to continued delays in securing permits
from the communities, impacting the Group's exploration programme.
The year therefore saw a suspension of greenfield exploration in
Peru which was subsequently followed by a reduced programme of
activity in light of the focus to reduce costs.
Despite the above conditions, the Company increased its
attributable Reserve and Resource additions by 35% and 18%
respectively. Furthermore, 51.2 moz Ag Eq of inferred mineral
resources were identified in the Royropata Zone at Pallancata.
Further details on brownfield exploration are provided on page
35.
(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 207 for further details .
(e) Personnel: Recruitment and Retention
Change in risk profile vs 2021: 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
General
The Group has undertaken a number of initiatives to improve the
retention of employees. These include the use of financial benefits
such as the LTIP and non-financial benefits (e.g. flexible working
arrangements for office-based staff) and personal development
through tailored personal plans, training on leadership and
cultural transformation in the areas of safety and environmental.
In addition, initiatives have been launched on causes 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.
For further details see the Directors' Remuneration Report on
page 112.
(f) Personnel: Labour Relations
Change in risk profile vs 2021: 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.
- 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.
Enactment of new laws by Castillo's Government empowers labour
unions and will result in higher wage expectations and potential
labour conflicts. We monitor, on an ongoing basis, the social risk
and work with all stakeholders to prevent disruption arising from
these risks.
Argentina
In Argentina the Company maintains constructive relations with
the labour unions through ongoing and regular dialogue. In addition
to AOMA (Mining National Union for hourly workers), ASIJEMIN
(National Union for mining employees) has been confirmed by
national authorities and the Company maintains open and regular
dialogue with them.
(g) Project development
Change in risk profile vs 2021: NEW
Impact
Failure to manage the timely construction/development of
projects within budget could adversely impact the Group's financial
position, production profile and reputation.
Mitigation
- Cross-disciplinary project teams, which report to the relevant
Vice-President, monitor execution against agreed timelines and
budget.
- Support by corporate departments, such as HR, Internal Audit
and Procurement, to ensure compliance with Group procedures and
standards.
Commentary
Mara Rosa (Brazil)
During the year, the Mara Rosa project team, supported by
relevant Group functions, has successfully:
- obtained all environmental permits;
- commenced construction of a 138 kv powerline for completion in
June 2023;
- ordered all construction equipment identified as having
extended leadtimes; and
- commenced ESG-related programmes under the oversight of the
recently recruited ESG Manager.
Snip (Canada)
Key developments in 2022 comprise the following:
- established dialogue with Tahltan First Nation on the Group's
plans at the project;
- completion of a Preliminary Economic Assessment; and
- completed implementation of mitigating actions following risk
assessment taking into account physical risks and those associated
with the project's remote location.
Further details on Mara Rosa are provided on pages 8, 9 and
33.
3. MACRO-ECONOMIC RISKS
Political, Legal and Regulatory
Change in risk profile vs 2021: HIGHER
Impact
Changes in the government, 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, including specifically Inmaculada's
Second Modified Environmental Impact Assessment (MEIA) 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
The impeachment of former president Castillo, following his
failed coup in which he attempted to dissolve Congress and control
the judiciary, triggered violent protests across the country.
Protesters blocked key highways and roads, and invaded airports and
destroyed public and private property, demanding the resignation of
his successor Dina Boluarte, the dissolution of Congress, and the
approval of a constituent assembly to draft and approve a new
constitution. With the exception of the region of Puno, Boluarte's
government has been able to contain the social unrest for now, but
the risk of further social unrest remains high given the
government's high disapproval and the fact that a very high
percentage of the population favours new general elections.
However, to date, there is no consensus in Congress to approve the
constitutional amendment required to hold general elections
early.
General
Environmental Permits
With regards to environmental permits for operating activities,
the permitting process for the Inmaculada MEIA continues and the
Company's revised expectation is a decision by the Peruvian
government during Q2 2023.
The Company believes that the outcome of the permitting process
will be positive. However, failure to secure approval of the MEIA
would result in a suspension of operations at Inmaculada during H2
2023 until a new MEIA is approved. The specific date of suspension
will depend on operational factors that are being evaluated. The
Company has commenced the environmental permitting process,
including baseline studies, to enable production from the Royropata
zone at Pallancata and to support the ongoing associated brownfield
activities.
Easement and other permits
Among the approvals and permits required to be obtained by the
Company in the ordinary course of business, the Company has been
granted an easement by the State over the land on which the key
mining components of the Inmaculada mine are located. The Company
is in the process of renewing this easement for an additional
10-year period which is expected to be secured in H1 2023.
Argentina
President Fernandez's administration has been very cautious
active in supporting and promoting the mining industry. Covid-19 as
they see it as one of the pillars for the future Argentine economy;
however, two of the main problems that affect the industry (the
peso-dollar exchange rate and certain populist measures the
restrictions on imports) remain unresolved.
Very high levels of inflation and poverty, and the low level of
international reserves are three of the principal challenges faced
by Argentina over the past decade. These factors together with the
continuous disputes within the government coalition have negatively
adversely impacted the overall investment climate in Argentina
including in the extractive industry sector. President's reputation
as well as his chances of re-election.
Brazil
Presidential elections were held in October 2022 and Lula da
Silva was elected President by a narrow majority. Lula is expected
to govern based on a centre-left political and economic platform.
The Governor of the State of Goias, where Mara Rosa is located, was
re-elected for another term.
2023 Outlook
Peru
Given the lack of consensus in Congress regarding the amendment
required to hold general elections early, the possibility that Dina
Boluarte will continue until July 2026 cannot be discarded.
However, because of the political turmoil described above, the risk
that violent protests will resume remains high.
Argentina
President Fernandez's administration is expected to continue
cautiously supporting mining activity; however, the above economic
challenges will continue to hinder the industry in the absence of
significant policy changes. The chances of implementation of such a
policy during 2023, an electoral year, are low.
From a political and social perspective, 2023 will be dominated
by the presidential elections. Primaries will take place in August
and the general election in October. The chances of the government
coalition being re-elected are highly influenced by: (i)
performance of the economy; (ii) the level of conflict within the
government coalition and how it is handled; and (iii) the ability
of the opposition to field a leader with sufficient political
backing.
4. SUSTAINABILITY RISKS
(a) Health and Safety
Change in risk profile vs 2021: LOWER
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 and 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 is pleased to report on its strong safety performance
in 2022 with accident frequency at 1.37 and accident severity at 93
and the attainment of its ongoing objective of Zero Fatalities.
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 rolled out to better measure the Group's safety
performance by combining traditional indicators (including those
referred to above) with leading indicators reflecting the outcome
of internal and external safety audits.
For further details on the above, please refer to the safety
section of the Sustainability Report on pages 61 and 62.
(b) Environmental
Change in risk profile vs 2021: 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 2022, the Group performed strongly in its ECO Score (with a
score of 5.27 out of 6 (2021: 5.29)), reflecting the following
notable achievements:
- two operations achieving a perfect score of 6 out of 6 (Arcata
and Sipan);
- the lowest water consumption since 2015 (171.2 l/person/day);
and
- the highest level of environmental culture compliance since
2015 (using an internal scoring system).
In addition, during the year:
- our Environmental Policy was updated in February 2022 and now
includes specific provisions regarding climate change and
protection of biodiversity;
- completed the development of a tailor-made Environmental
Management System comprising of 15 key processes;
- the Environmental team continued with its efforts on reporting
widely on the Group's environmental performance by participating in
numerous reporting initiatives; and
- there was continued progress with the implementation of the
Environmental Culture Transformation Plan (ECTP) which in 2022 saw
the training of 78 Environmental Ambassadors and the launch of
Company-wide courses held on climate change and mine closure.
As disclosed in the Operational risks section, 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 their stability on an ongoing basis.
For further details, please refer to the environmental section
of the Sustainability Report on pages 57 to 60.
(c) Climate Change
Change in risk profile vs 2021: UNCHANGED
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:
- quantify and verify carbon footprint, including Scope 3;
- maximise the use of natural resources and minimise energy
consumption;
- maximise the use of renewable energy; and
- promoting transparency with regards to the Group's performance
through participation in investor-led reporting initiatives.
Commentary
Actions taken in 2022 include:
- Ares and Arcata switched entirely to renewable energy
consumption;
- the completion of a climate change physical risk
assessment;
- a commitment to achieve Net Zero by 2050;
- updated the Corporate Environmental Policy to identify and
mitigate climate change-related risks; and
- ongoing reporting to the Board and Sustainability Committee on
status of climate change-related risks.
Reporting of the Group's performance has been enhanced
through:
- continued external assurance of the calculation of the Group's
carbon footprint at operations; and
- participation in CDP information request (improved score from
C in 2021 to B in 2022).
The 2023 Action Plan includes, most notably setting interim
Carbon Neutral targets for 2030 to achieve Net Zero by 2050.
(d) Community Relations
Change in risk profile vs 2021: 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 polarised political climate in Peru has led to an increase
in social conflicts by some local communities which are trying to
take advantage of the situation to increase their economic demands.
As a result, social conflicts (e.g. invasion or attacks of mining
units and workers) has increased, with numerous sites suffering
from blockades. Conflicts in other sectors could affect our supply
of materials (e.g. transportation services) and disrupt the change
of shift of our workers.
The Inmaculada mine was attacked by members of a local community
at the end of October 2022 and severely damaged certain
non-critical installations. Members of another community also
attempted to violently invade the industrial area of the Inmaculada
mine in order to disrupt operations. Despite the presence of a
pre-existing agreement with both communities, numerous rounds of
discussions have been held and will continue.
As reported elsewhere in this report, the invasion of Inmaculada
was partially responsible for a short period of disruption to
production.
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.
As described earlier (in relation to political, legal and
regulatory risks), given the impeachment of President Castillo in
December 2022, political and social risks have increased
substantially as widespread protests have seen supporters
challenging the legitimacy of Dina Boluarte's appointment and her
cabinet and demanding the reinstatement of Castillo.
- 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 $7.0million 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; and
- the Community Relations team continued to support the
business, for example, in relation to permitting and environmental
studies.
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 page 184 of the 2022 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 2022 and 2021. 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
--------------------- --------------------
2022 2021 2022 2021
US$000 US$000 US$000 US$000
---------- --------- --------- ---------
Current related party
balances
Cementos Pacasmayo S.A.A.(1) 733 217 249 152
Tecsup(2) - 1 352 115
Universidad UTEC(2) - - 5 5
REE UNO SpA(3) 30 6 - -
Aclara Resources Inc(3) 9 - - 12
Aclara Resources Peru
S.A.C.(3) 2 - 16 -
Total 774 224 622 284
----------------------------- ---------- --------- --------- ---------
(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(a) and 19).
As at 31 December 2022 and 2021, 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
------------------------
2022 2021
US$000 US$000
----------- -----------
Expenses
Expense recognised for the rental paid to Cementos Pacasmayo S.A.A. (376) (403)
Expense donations to Tecsup (418) (292)
Income from reimbursement of expenses of Cementos Pacasmayo S.A.A. 494 729
Income from administrative services to REE UNO SpA 248 -
--------------------------------------------------------------------- ----------- -----------
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 2022 2021
(including Directors) US$000 US$000
----------- -----------
Long Term Incentive Plans 7,121 7,509
Total compensation paid to key management
personnel 1,174 776
Total compensation paid to key management
personnel 8,295 8,285
------------------------------------------ ----------- -----------
This amount includes the remuneration paid to the Directors of
the Parent Company of the Group of US$4,228,000 (2021:
US$3,967,000).
(c) Related party transaction
Participation of Pelham Investment Corporation in the IPO of
Aclara
As announced by the Company on 3rd 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 90 of the 2022 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 132 of the 2022 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.
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END
ACSUWVSRONUSUAR
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