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News Release

Hochschild Mining 2013 Preliminary Results
March 12, 2014 at 3:02 AM EDT
RNS Number : 0730C
Hochschild Mining PLC
12 March 2014
 



 

 

 

12 March 2014

Hochschild Mining plc

Preliminary Results for the twelve months ended 31 December 2013

 

Financial highlights[1]

· Revenue of $622.2 million (2012: $818.0 million)

· Adjusted EBITDA of $195.5 million (2012: $384.8 million)

· EPS of $(0.15) (2012: $0.19)

· Cash balance of $291.0 million & short term borrowings reduced to $17.8 million[2]

· Full year dividend suspended

· Minority investments valued at $52.4 million[3]

· Cashflow optimisation programme already delivered $145 million of savings[4]:

o Production costs reduced by $48 million versus initial guidance

o Administration costs reduced by $19 million versus 2012

o Sustaining capital expenditure reduced by $33 million versus initial guidance

o Exploration costs reduced by $25 million versus initial guidance

 

Acquisition & Refinancing highlights

· Key acquisition of Pallancata and Inmaculada minorities completed

o Consolidates minority shareholding in assets already controlled and operated by Hochschild

o Inmaculada set to reduce average unit cost

· Corporate refinancing completed in January 2014

o 7.75% $350 million Senior Notes issued due 2021

 

Operational highlights

· Full year production of 20.5 million attrib. silver equivalent ounces achieved, exceeding 20.0 million target

· Main operation all-in sustaining costs lowered by 14% to $18.6 per ounce[5];

· Inmaculada project set to begin commissioning in Q4 2014

o Plant construction on track with all key equipment delivered

o Mine development, infrastructure, energy and engineering targets significantly developed

· Resource life-of-mine increased to 10.0 years

 

2014 Outlook

· 2014 production target set at 21.0 million attributable silver equivalent ounces

· 2.0 million silver ounces sold forward for 2014 at $22 per ounce; 33,000 gold ounces sold forward for 2014 at $1,338 per ounce

· 0-5% reduction in all-in sustaining costs expected for 2014

· Sustaining capital expenditure expected to be $130 million

· Exploration and geology budget set at approximately $30 million

 

$000, pre-exceptional unless stated

Year ended

31 Dec 2013

Year ended

31 Dec 2012

% change

Attributable silver production (koz)

13,588

13,550

(-)

Attributable gold production (koz)

116

112

4

Net Revenue[6]

622,158

817,952

(24)

Adjusted EBITDA[7]

195,463

384,791

(49)

(Loss)/profit from continuing operations

(42,103)

128,581

(133)

(Loss)/profit from continuing operations (post-exceptional)

(128,677)

126,866

(201)

Earnings per share ($ pre-exceptional)

(0.15)

0.19

(179)

Earnings per share ($ post-exceptional)

(0.36)

0.19

(289)

 

Commenting on the results, Ignacio Bustamante, CEO, said:

"In 2013, Hochschild reacted quickly to a very negative market environment by initiating a wide-ranging cost savings programme to preserve the Company's operating profitability and, whilst maintaining production levels, capitalised on a weak market environment to consolidate our ownership in our most valuable assets. We were also able to reorganise the Company's financial position, leaving us in an advantageous position to deliver value enhancing growth. We can now look forward to a key year of construction at the Inmaculada project which, when commissioned at the end of 2014, will signal the start of four years of production growth."

____________________________________________________________________________

A presentation will be held for analysts & investors at 9.30am (UK time) on Wednesday 12 March 2014 at Holborn Bars, 138-142 Holborn, London, EC1N 2NQ.  

For a live webcast of the presentation please visit our website:

www.hochschildmining.com

Conference call dial in details:

UK: +44(0)20 3427 1900 (Please quote confirmation code 7501261) _________________________________________________________________________

Enquiries:

Hochschild Mining plc

Charles Gordon                                                                          +44 (0)20 7907 2934

Head of Investor Relations

RLM Finsbury

Charles Chichester                                                                     +44 (0)20 7251 3801

Public Relations

_________________________________________________________________________

 

About Hochschild Mining plc:

Hochschild Mining plc is a leading precious metals company listed on the London Stock Exchange (HOCM.L / HOC LN) with a primary focus on the exploration, mining, processing and sale of silver and gold. Hochschild has almost fifty years' experience in the mining of precious metal epithermal vein deposits and currently operates four underground epithermal vein mines, three located in southern Peru and one in southern Argentina. Hochschild also has numerous long-term projects throughout the Americas.

 

CHAIRMAN'S STATEMENT

 

2013 Overview

2013 proved to be a challenging year due to the considerable drop in gold and silver prices but also presented significant opportunities that we were able to capitalise on through the acquisition of International Minerals ("IMZ"). We believe that the fundamental case for stronger precious metal prices remains in place due to the financial difficulties in the world´s biggest economies continuing to threaten the confidence in currencies, and our observation of a growing scarcity of new world class assets in the precious metals universe. However, the markets have been ruthless in imposing a short term lower price environment.

 

In the first half of the year, the industry was confronted with extreme falls in precious metals prices that far exceeded existing market forecasts. In response and within a very short space of time, our management team initiated a comprehensive cashflow optimisation programme and we have already seen some very positive results with improvements in margins ensuring a better second half of the year and better prospects for 2014. However, notwithstanding another year of very solid operational performance, given the prevailing market conditions and ahead of sizeable capital expenditure on our flagship Inmaculada project, the Board proposes to not reinstate the dividend until the Company´s cash position improves.

 

The price fall provided Hochschild with a value enhancing opportunity that will allow us, not only to improve our cost position in the short term, but also to grow the Company in a precious metals market in which we truly believe. In September, we announced the acquisition of IMZ, a company that owned the 40% minority stakes in our Pallancata mine and Inmaculada project. It is my firm belief that our management have chosen an opportune stage in the cycle to execute the acquisition of assets we know extremely well and already control. 

 

In line with the IMZ transaction, Hochschild also undertook a broad corporate refinancing initiative in order to meet the cost of the acquisition, fully support the Company's anticipated remaining capital expenditure at Inmaculada and to provide capacity to satisfy the upcoming convertible bond maturity towards the end of this year. It is a great credit to our whole team that at a time of unprecedented industry volatility, we retained the focus to deliver a complex re-financing package that places the Company in an excellent position to capitalise on a period of opportunistic growth.

 

In addition, one of the key consequences of the dramatic price falls was the necessity to reduce discretionary expenditure and refocus the exploration programme for the year, reducing the budget and prioritising the most promising prospects. The Board remains convinced by the importance of the ongoing exploration strategy to the future growth potential of the Company but recognises the need to adjust the financial commitment depending on the stage in the cycle.

 

Outlook

The short term outlook for the precious metals markets remains uncertain. However, the Company continues to believe that the long term fundamentals for both silver and gold will eventually reassert themselves. I am confident that, despite a difficult 2013, we have the proven operational and geological expertise, an improving cost position, solid balance sheet and an experienced management team to navigate volatile markets and deliver profitable production into the future.

 

Operating Responsibly

Our commitment to our people, the communities and the environment remains at the core of our business model. During 2013, the Company produced its first standalone Sustainability Report demonstrating our commitment to informing our stakeholders of our progress in this area. Our ability to operate in a way that respects the environment is supported by our reporting systems which continue to be certified compliant with the international standard, ISO14001. We have also made further progress with our key Travelling Doctor and Teacher Leader initiatives and I am proud that our flagship Digital Chalhuanca project has been recognised externally for its innovation and as an example of successful public/private collaboration. Further details of all of these initiatives will be provided in the Annual Report.

 

In 2013, we made an unprecedented level of improvement in our safety record with a 37% reduction in the Group's accident frequency rate and a 43% reduction in the accident severity rate. However, as impressive as these figures are, we must continue with our efforts as there were two fatalities at our operations during 2013. We consider each accident to be avoidable and for this reason the management team are in the process of implementing a behaviour-based safety programme that will encourage our people to value safety above all else and continue improving the safety culture.

 

Board Changes

In acknowledgement of the Board's own contribution to the cashflow optimisation programme, we announced in July reductions in Directors' remuneration and the size of the Board. I would like to convey my gratitude to both Fred Vinton and Rupert Pennant-Rea for their longstanding support and commitment. 

 

These changes to the composition of the Board necessitated a review of our non-executive succession plans and I wish to record my appreciation to Sir Malcolm Field for delaying his retirement from the Board and for his ongoing support as Enrico Bombieri succeeds to the role of Senior Independent Director

 

On a final note, I wish to thank the entire Hochschild team for their contributions and our shareholders for their continued support in what will be remembered as a tough year but one from which I believe we have emerged in a stronger position.

 

Eduardo Hochschild

Executive Chairman

11 March 2014

 

CHIEF EXECUTIVE OFFICER'S STATEMENT

 

2013 presented Hochschild Mining with an unprecedented level of gold and silver price declines prompting the management team to implement a series of measures throughout the Company. The actions taken were aimed at conserving capital and to position the Company to operate profitably at all stages of the precious metals cycle while delivering our key growth project in 2014. The strategy remains focused on creating value for shareholders by optimising current operations, focusing on exploration and pursuing opportunistic, early-stage acquisitions and is underpinned by our commitment to operate responsibly.

 

Strategic progress

We announced in September a strategic milestone for Hochschild by consolidating ownership in Pallancata, currently our biggest cash flow generator and in Inmaculada, our most exciting growth project. The transaction represented an important low risk opportunity to increase our exposure to our attractive Southern Peru Cluster, reduce our overall operating cost position and to potentially enhance our cash flow generating potential at no additional ongoing administrative cost. At the same time, we announced the launch of a re-financing process which we successfully completed in January 2014 with our inaugural senior note offering raising approximately $350 million at a highly competitive rate against a backdrop of extremely difficult markets for the mining industry. We remain in a solid financial position with capacity to fund the remaining Inmaculada project capital expenditure as well as the convertible bond maturity later in 2014 whilst retaining flexibility to continue to pursue our strategic priorities.

 

The construction of the Inmaculada project is clearly the strategic focus for 2014 with the Company commencing significant production increases with the aim of reaching a target of almost 35 million ounces by 2017. In September, we received, as expected, the mill construction permit from the Peruvian government, signalling the start of the crucial final phase of this key project's development. In this regard, we have made excellent progress in 2013 with significant steps made in procurement, infrastructure, engineering and, importantly, mine development and commissioning is set to begin at the end of the year. After a ramp-up period, the average annual production for the life of mine is set at approximately 12 million silver equivalent ounces per annum. Initial production is scheduled to be sourced from one single wide vein (Angela) with reduced dilution and overall operating costs and sustaining capital expenditure expected to be the lowest of all of Hochschild's operating assets.

 

As previously announced, the strategy with regard to the Crespo Advanced Project was revised in the light of the acquisition of IMZ, resulting in the decision to delay the project in order to better sequence capital allocation with this move postponing approximately $80 million of remaining project expenditure.

 

The key area of operational focus during the last nine months has been our organisational reaction to the precious metal price falls that occurred during H1. With a plan initially prepared during the budgeting process towards the end of 2012, we were able to rapidly implement our cashflow optimisation programme. This resulted in the identification of almost $200 million of cash savings within the business, encompassing operating costs, sustaining capital expenditure, administrative costs and a refocused exploration programme. The overall exploration budget was reduced from $77 million to approximately $50 million and the greenfield programme, in particular, was significantly reduced with the focus narrowed to the most promising prospects.

 

The brownfield exploration programme, which has been so successful over the last few years, also continued with the focus on improvements in our resource base. Attributable resources increased by 8% to almost 1.3 billion silver equivalent ounces with the overall resource life-of-mine now at a comfortable 10 years. In line with the reduction in discretionary expenditure, we have also scaled back exploration work at the Volcan gold project in Chile although we can look forward to a new geological model of the porphyry system early this year and remain excited by the long term potential of this project which already has almost 10 million ounces of gold resources.

 

Other key individual initiatives included significant cuts to administrative and exploration headcount, renegotiation with suppliers and contractors, the temporary suspension of work at the Azuca project and $33 million of reductions to sustaining capital expenditure in 2013.  As a team, we are confident that, although the full annualised effects of the programme will only be evident through 2014, the strong improvements already achieved in the Company's underlying profitability allied with the concurrent fall in industry cost inflation, leave the Company in a much more robust position to withstand any further price volatility.

 

2013 overview

It is particularly pleasing that, despite all the volatility in the industry and the cashflow optimisation measures in place within the Company, Hochschild met the annual production target for the seventh year in a row producing 20.5 million silver equivalent ounces and therefore exceeding the 20.0 million ounce target. Both Pallancata in Peru and San Jose in Argentina enjoyed a very solid operational performance and at Arcata, the team have skilfully handled the complicated flow of reserve grade material from an increasing number of stopes and the low grade, low cost material from the Macarena waste dam which is now almost exhausted.  Hochschild will continue to adhere to its policy of mining close to the average reserve grade at its core operations throughout the cycle.  The two ageing operations, Ares in Peru and Moris in Mexico have now finally reached the end of their lives with Moris already closed and Ares scheduled to cease operations towards the middle of the year.

 

A number of the cost savings initiatives from our cashflow optimisation programme started to have a positive effect on the overall cost performance of the Company during the second half of the year. In addition, although 2013 began with continuing industry cost inflation, this began to subside as the year went on and allied to unanticipated devaluation in both the Peruvian Sol and the Argentinean Peso, Hochschild was able to achieve year-on-year reductions in 'all-in sustaining costs' ("AISC") at our main operations of around 14%.  This is expected to continue into 2014 with further reductions forecast although the quantum is expected to be lower at between 0-5% on an AISC basis, notwithstanding any further major local currency devaluation.

 

Hochschild has achieved a resilient set of financial results, in particular in the second half, with the 30% fall in the average silver price received in 2013 leading to a decline in Revenue to $622.2m. Pre-exceptional EBITDA was at $195.5 million but with the second half much improved by the Company's cost savings initiatives and representing 54% of the total under a significantly lower average price received. Pre-exceptional EPS was $(15) cents per share but, again, the second half saw Hochschild reduce the loss to only 5 cents per share.  The cash balance is currently $291.0 million with minority investments valued at just over $52 million which takes into account two sales from our non-core investment in Gold Resource Corporation.

 

Outlook

Hochschild's production target for 2014 is 21.0 million attributable silver equivalent ounces. This increase is explained by the inclusion of the remaining 40% of Pallancata following the completion of the IMZ acquisition, offsetting the effect of the closure of Moris and the significant fall in the contribution from Ares. Management will continue to be focused on implementing measures to further optimise costs, expenses and capex. 2014 also promises to be a year of peak project capital expenditure as we focus our efforts on beginning commissioning the now 100% owned Inmaculada project by the year end marking a new chapter of growth for the Company. However, in order to provide the Company with a degree of cashflow certainty in a crucial year of investment and with precious metal prices remaining volatile, Hochschild has forward sold four million ounces of silver equivalent production. This does not reflect our view of the long term direction of precious metal prices but increases our short term confidence as we invest in the future extraction of sustainable low cost ounces from Inmaculada.

 

We remain committed to an exploration-led long term growth strategy and the budget of almost $30 million for 2014 reflects a belief that our extensive pipeline of both brownfield, greenfield projects and current operations offer not only optionality but further scope for creating value at all stages of the investment cycle.

 

The entire Hochschild organisation has had to endure a very difficult 2013 with a significant number of job losses throughout the Company and therefore the management team is grateful for the resilience and commitment shown by all our teams in making an important contribution to an exciting future for Hochschild Mining. Although 2014 is expected to be a transitional year for us, I am confident that we are in a stronger position with a key acquisition completed, a clean financial structure, strong growth prospects and a focus on project delivery.

 

Ignacio Bustamante

Chief Executive Officer

11 March 2014

 

OPERATING REVIEW

 

2013 Highlights

·   Full year production of 20.5 million attributable silver equivalent ounces achieved, exceeding guidance

·   Main operation all-in sustaining costs reduced by 14% in 2013

·   Excellent progress at Inmaculada Advanced Project with mill permit received from Peruvian government and on track to begin commissioning at the end of 2014

CURRENT OPERATIONS

Production

In 2013, Hochschild has once again successfully exceeded its full year production target, delivering attributable production of 20.5 million silver equivalent ounces, including 13.6 million ounces of silver and 116 thousand ounces of gold. Hochschild's production target for 2014 is 21.0 million attributable silver equivalent ounces. The increase is explained by the inclusion of the remaining 40% of Pallancata following the completion of the IMZ acquisition offsetting the effect of the closure of Moris and a significant reduction in the contribution from the ageing Ares operation which is also set to close in H1 2014.

 

Costs

Although significant industry inflation persisted in the first few months of the year, the Company's all-in sustaining costs at its main operations were reduced by 14% in 2013 to $18.6 per ounce driven by operational initiatives resulting from the cashflow optimisation programme, devaluation of local operating currencies and a subsequent fall in industry cost inflation. Unit cost per tonne at its main Peruvian operations was reduced to $74.2 (2012: $75.1). In Argentina, unit cost per tonne increased by 4% to $210.0 (2012: $202.2). Please see page 19 of the Financial Review for further details on costs.

 

Main operations

Arcata: Peru

The 100% owned Arcata underground operation is located in the Department of Arequipa in southern Peru. It commenced production in 1964.

 

Arcata summary 

Year ended

31 Dec 2013

Year ended

31 Dec 2012

% change

Ore production (tonnes)

900,861

773,498

16

Average silver grade (g/t)

217

271

(20)

Average gold grade (g/t)

0.74

0.83

(11)

Silver produced (koz)

4,984

5,526

(10)

Gold produced (koz)

16.83

17.27

(3)

Silver equivalent produced (koz)

5,994

6,562

(9)

Silver sold (koz)

4,924

5,236

(6)

Gold sold (koz)

15.95

15.94

-

Unit cost ($/t)

81.3

86.3

(6)

Total cash cost ($/oz Ag co-product)[8]

12.7

14.5

(12)

All-in sustaining cost ($/oz)

20.9

23.9

(13)

 

Production and sales

Full year silver equivalent production at Arcata in 2013 was 6.0 million ounces (2012: 6.6 million ounces), slightly lower than 2012 as a result of lower grades from stopes and developments in line with the Company's policy of mining close to average reserve grade. Tonnage was higher than that of 2012 due to the planned increase in volumes processed from the low grade Macarena waste dam deposit, facilitated by the 500 tonne per day capacity expansion at the Arcata plant (completed in H2 2012). Macarena tonnage continued in the second half and after the expected processing of a small volume in Q1 2014 is now considered to be exhausted and will be replaced by tonnage from stopes and developments in 2014. In addition, production at Arcata included the decrease in ounces recovered as a result of processing 100% of Arcata's concentrate into Doré.

 

Table Showing Contribution from Macarena Waste Dam Deposit

 

 

12 mths 2013

12 mths 2012

Total



Tonnage

900,861

773,498

Average head grade gold (g/t)

0.74

0.83

Average head grade silver (g/t)

217

271

Macarena



Tonnage

290,226

133,825

Average head grade gold (g/t)

0.29

0.30

Average head grade silver (g/t)

88

105

Stopes and Developments



Tonnage

610,635

639,673

Average head grade gold (g/t)

0.95

0.94

Average head grade silver (g/t)

278

306

 

In 2013, the silver/gold doré from Arcata was sold to Johnson Matthey, Standard Bank, HSBC Bank, Argor Heraeus INTL Commodities and Auramet Trading.

 

Costs

In 2013, the unit cost per tonne at Arcata was materially better than expectations, decreasing by 6% versus the same period last year to $81.3 per tonne, despite continuing industry inflation at the start of the year.  This was mainly due to the overall effects of the cost savings initiatives initiated towards the end of the first half of the year as well as the processing of higher volumes of low cost Macarena material and a significant local currency weakening versus expectations.

 

Resource life and Brownfield exploration

The resource life of Arcata stands at 11.6 years as at 31 December 2013. In 2013, a total of 10,899 metres of drilling was carried out at Arcata. The exploration programme in the first half of the year focused on the definition of new high-grade structures from known vein systems (potential drilling), and a new geological interpretation of the Ares-Arcata corridor that identified high-grade structures. In addition, diamond drilling was conducted at the Pamela, Blanca 2, Baja 2, Tunel 3, Ramal Leslie, Tunel 4, Irma and Blanca veins. Significant intercepts included:

 

Vein

Results

Pamela

DDH425-LM13: 1.41m at 7.83 g/t Au & 2,028 Ag

DDH399-GE13: 1.76m at 6.19 g/t Au & 1,479 Ag

DDH389-GE13: 1.00m at 2.84 g/t Au & 1,208 Ag

Blanca 2

DDH373-EX13: 1.17m at 0.33 g/t Au & 1,295 Ag

Baja

DDH434-S13: 1.90m at 3.10 g/t Au & 612 Ag

Baja 2

DDH427-S13: 1.60m at 2.8 g/t Au & 1,901 Ag

Tunel 3

DDH401-GE13: 0.78m 1.82 g/t Au & 1,213 Ag

Tunel 4

DDH506-LM13: 1.20m at 1.65 g/t Au & 1,054 Ag

Irma

DDH492-GE13: 1.18m at 0.75 g/t Au & 5,029 g/t Ag

Blanca

DDH526-LM13: 1.09m at 3.24 g/t Au &1,146 g/t Ag

 

In 2014, the 25,000 metre exploration and drilling programme at Arcata will focus on the potential, near mine and inferred resource exploration, focusing on the definition of new high grade structures from known vein systems.

 

Pallancata: Peru

The 100% owned Pallancata silver/gold property is located in the Department of Ayacucho in southern Peru, approximately 160 kilometres from the Arcata operation. Pallancata commenced production in 2007 and up until December 2013 was a joint venture, in which Hochschild held a controlling interest of 60% with International Minerals Corporation ("IMZ"). Following the purchase of IMZ, Hochschild now owns 100% of the operation. Ore from Pallancata is transported 22 kilometres to the Selene plant for processing.

 

 

Pallancata summary*

Year ended

31 Dec 2013

Year ended

31 Dec 2012

% change

Ore production (tonnes)

1,088,712

1,094,250

(1)

Average silver grade (g/t)

264

256

3

Average gold grade (g/t)

1.13

1.09

4

Silver produced (koz)

7,628

7,441

3

Gold produced (koz)

27.83

26.23

6

Silver equivalent produced (koz)

9,298

9,014

3

Silver sold (koz)

7,567

7,280

4

Gold sold (koz)

26.67

25.07

6

Unit cost ($/t)

68.3

67.2

2

Total cash cost ($/oz Ag co-product)

10.3

11.4

(10)

All-in sustaining cost ($/oz)

16.7

19.5

(14)

 

Production and sales

Overall in 2013, Pallancata enjoyed a very solid year of production, delivering silver equivalent production of 9.3 million ounces (2012: 9.0 million) with higher average grades the result of a higher proportion of material from stopes.

 

In 2013, the silver/gold concentrate from Pallancata was sold to Teck Metals Ltd., LS-Nikko Copper Inc and Glencore.

 

Costs

Unit cost per tonne at Pallancata also enjoyed a better 2013 than expected increasing by only 2% in 2013, to $68.3despite continuing industry inflation at the start of the year. As at Arcata, costs were positively impacted by the cashflow optimisation programme as well as the higher than expected depreciation of the local currency. Further positive pressure resulted from lower personnel and supply costs as a higher proportion of mineral was extracted using mechanised methods.

 

Resource life and Brownfield exploration

The resource life of the Pallancata operation has been increased substantially in 2013 to 8.2 years as at 31 December 2013. During 2013, a total of 20,972 metres of diamond drilling was carried out over the course of the year (2012: 50,326 metres). Both infill and potential drilling were carried out at Pallancata during the year, to further delineate inferred resources and to test new possible vein extensions.

 

The Yurika West vein mapping programme continued, and identified major structural lineaments trending NE-EW associated with silicified hydrothermal breccias. New gold-rich high-grade structures were identified in the northern part of the district with resource development drilling continuing at the Yurika and Charo veins. Step-out drilling was conducted in the Teresa vein with strong silicification results and towards the end of the year, mapping campaigns focused on the south side of Pallancata (at the Sonia, San Angela, Virgen del Carmen, Lilina and Debora veins) with total coverage for the whole year of 1,164 ha.

 

Significant intercepts included:

Vein

Results

Yurika

DLYU-A08: 1.02m at 17.86 g/t Au & 1,702 g/t Ag

DLYU-A16: 2.17m at 11.17 g/t Au & 949 g/t Ag

DLYU-A20: 2.75m at 6.35 g/t Au & 931 g/t Ag

DLYU-A12: 0.91m at 6.72 g/t Au & 539 g/t Ag

Luisa

DLLU-A134: 1.96m at 1.11 g/t Au & 727 g/t Ag

DLLU-A136: 1.17m at 1.09 g/t Au & 420 g/t Ag

Yanely

DLYU-A02: 0.82m at  33.91 g/t Au & 326 g/t Ag

Nine

DLRI-A107: 1.35m at 4.19 g/t Au & 1,026 g/t Ag

Rina NW (Charo)

DLRI-A97: 0.88m at 2.92 g/t Au & 617 g/t Ag

 

In 2014, the 25,000 metre exploration programme at Pallancata will focus on increasing life-of-mine through drilling in the Yurika, Charo, Mercedes and Sonia veins with potential drilling set to be targeting the Mercedes, Jacqueline, San Cayetano, Charo, Paola and Rina veins.

 

San Jose: Argentina

The San Jose silver/gold mine is located in Argentina, in the province of Santa Cruz, 1,750 kilometres south-southwest of Buenos Aires. San Jose commenced production in 2007 and is a joint venture with McEwen Mining Inc(formerly Minera Andes Inc.). Hochschild holds a controlling interest of 51% of the joint venture and is the mine operator.

 

San Jose summary*

Year ended

31 Dec 2013

Year ended

31 Dec 2012

% change

Ore production (tonnes)

536,937

509,851

5

Average silver grade (g/t)

425

417

2

Average gold grade (g/t)

6.42

5.79

11

Silver produced (koz)

6,357

5,953

7

Gold produced (koz)

98.83

85.77

15

Silver equivalent produced (koz)

12,286

11,099

11

Silver sold (koz)

6,278

5,897

6

Gold sold (koz)

94.76

84.29

12

Unit cost ($/t)

210.0

202.2

4

Total cash cost ($/oz Ag co-product)

13.4

14.4

(7)

All-in sustaining cost ($/oz)

19.0

22.1

(14)

*The Company has a 51% interest in San Jose

 

Production and sales

2013 has been a strong year for the San Jose operation with silver equivalent production up 11% to 12.3 million ounces (2012: 11.1 million) driven by increased tonnages and increased grades, in particular gold. Higher tonnage was explained by the 10% plant capacity increase completed in December 2012 with higher grades resulting from incorporation of new high grade reserves into the mine plan.

 

In 2013, the dore produced at San Jose was sold to Argor Heraeus and Republic Metals whilst the concentrate produced at the operation was sold to Teck Metals ltd., Aurubis AG, LS-Nikko Copper Inc, Consorcio Minero and Glencore.

 

Costs

At San Jose, unit cost per tonne rose by only 4% versus 2012 to $210.0. The increase was slightly below the 2013 revised guidance of 5-10% due to the impact of the cashflow optimisation initiatives and a stronger than expected devaluation of the Argentine peso offsetting the effects of continuing high local inflation and a number of brief stoppages at the mine during the first half.

 

Resource life and Brownfield exploration

The resource life of San Jose stands at 11.8 years as at 31 December 2013. The key event in exploration at the mine was the incorporation of various surrounding properties, from both Hochschild and McEwen Mining, into the Minera Santa Cruz JV.

 

For much of 2013 the exploration programme at San Jose focused on the geological mapping of the district area and identifying new structures, with new high-grade structures identified in the northern part of the district. A total of 10,529 metres of diamond drilling was completed during 2013. In addition, new structures were identified in the Juanita vein system located in the south of the property. Drilling was conducted on the Huevos Verdes, Emilia and Juanita veins with detailed surface mapping and sampling being completed over the Colorado Grande, Juanita, Saavedra and Tres Colores areas. Significant intercepts included:

 

Vein

Results

Ramal Huevos Verdes

SJD-1387: 0.87m at 70.03 g/t Au & 2060 g/t Ag

SJD-1387: 0.73m at 2.08 g/t Au & 234 g/t Ag

Emilia

SJD-1393: 5.00m at 40.08 g/t Au & 882 g/t Ag

SJD-1398: 1.50m at 4.28 g/t Au & 152 g/t Ag

Antonella

SJD-1450: 0.70m at 2.27 g/t Au & 210 g/t Ag

Kospi SE

SJD-1408: 1.00m at 7.42 g/t Au & 522 g/t Ag

 

In 2014, the 2,000 metre potential drilling campaign will focus on the definition of the new Ayelen, Nuevo 1 and Karina veins as well as drilling in the Los Pinos area.

 

Other operations

Ares: Peru

The Ares mine, which commenced production in 1998, is a 100% owned operation located approximately 25 kilometres from Hochschild's Arcata mine in southern Peru.

 

Ares summary

Year ended

31 Dec 2013

Year ended

31 Dec 2012

% change

Ore production (tonnes)

329,095

336,423

(2)

Average silver grade (g/t)

82

54

52

Average gold grade (g/t)

2.39

2.65

(10)

Silver produced (koz)

757

481

57

Gold produced (koz)

23.40

26.28

(11)

Silver equivalent produced (koz)

2,162

2,058

5

Silver sold (koz)

761

473

 61

Gold sold (koz)

23.25

25.75

 (10)

 

Production and sales

The Company's ageing Ares mine in Peru continued to operate in 2013, delivering total silver equivalent production of 2.2 million silver equivalent ounces a 5% improvement on the 2012 figure of 2.1 million ounces. Ares is currently expected to cease production in H1 2014. The Company continues to monitor production closely at Ares to ensure the extraction of profitable ounces during the last few months of its mine life.

 

100% of Ares' production is processed into dore, all of which was sold to Johnson Matthey in 2013.

 

Brownfield exploration

The exploration programme at Ares in 2013 focused on the exploration of potential mineralisation in the extensions of known veins and the definition of new high-grade structures. In addition, exploration continued at the Isabel, Paola, Karina and Victoria veins. In the Paola, Falla Marion and Ares West veins, surface mapping and sampling was conducted over an area of 3,567 ha. A new geophysical survey was also completed.

 

In 2014, geological work will continue to generate targets within the Ares-Arcata corridor and a 2000 metre drilling campaign is planned.

 

Moris: Mexico

The 100% owned Moris mine, is an open pit mine and is located in the district of Chihuahua, Mexico.

 

Moris summary

Year ended

31 Dec 2013

Year ended

31 Dec 2012

% change

Ore production (tonnes)

-

-

-

Average silver grade (g/t)

-

-

-

Average gold grade (g/t)

-

-

-

Silver produced (koz)

27

43

(37)

Gold produced (koz)

8.33

8.79

(5)

Silver equivalent produced (koz)

527

570

(8)

Silver sold (koz)

26

42

(38)

Gold sold (koz)

7.93

8.74

(9)

 

Production and sales

Despite mine production at Moris having ceased in September 2011, in 2013 continued leaching of the pads produced a further 527 thousand silver equivalent ounces (2012: 570 thousand ounces). However, towards the end of the year the Moris operation was finally closed and subsequently transferred to a local third party.

 

In 2013, the gold/silver dore produced at Moris was sold to Johnson Matthey, INTL Commodities and Auramet Trading.

 

Brownfield exploration

Exploration work at Moris during 2013 continued to focus on identifying new economic structures and the completion of the potential geological model of the property to identify new drill targets. Two new structures were discovered to the north of the original mine location including the Los Alamos area, and preliminary data suggested significant mineralisation in the surrounding extensions of the veins. However, the final conclusion was that no further work was needed in the area.

 

PROJECT REVIEW

 

Hochschild started 2013 with one Advanced Project, Inmaculada and three Growth Projects, Crespo, Azuca and Volcan. Following the significant price declines towards the middle of the year, the Company renewed its commitment to the flagship Inmaculada project. The acquisition of the IMZ minorities, completed in December 2013, gave the Company 100% of this project which is expected to contribute, after a ramp-up period, almost 12 million silver equivalent ounces on average per annum with the start of commissioning due towards the end 2014. 

 

The strategy with regards to Crespo has been revised and in early October 2013, the Company announced plans to delay the project in order to better sequence overall Company capital allocation, with the focus now firmly on the construction of the Inmaculada project and the acquisition of the IMZ minorities. This is expected to postpone approximately $80 million of remaining Crespo project expenditure. Despite the prioritisation of Inmaculada, Crespo remains an important component of the company's portfolio of development assets. It is management's intention that in the event that precious metals markets show sustained improvement, this would allow the Company to re-allocate capital to the Crespo project and potentially re-initiate development sooner than would be otherwise anticipated.

 

The Volcan gold project in Chile, acquired following the acquisition of Andina Minerals Inc in November 2012, also had its budgeted exploration capital expenditure reduced as part of the Company's cashflow optimisation programme. However, Hochschild remains excited by the potential for this long term project, which has almost 10 million ounces of gold resources and will continue with desktop geological work in the first part of 2014.  

 

Although a portion of drilling was completed at Azuca during the first half, work has since ceased and the project is now on hold. The Company remains excited by the potential of this large mineralised district but capital allocation is now refocused on more advanced projects.

 

Inmaculada

Inmaculada is a 20,000 hectare gold-silver project located in the Company's existing operational cluster in southern Peru and is 100% owned and controlled by Hochschild, following the acquisition of the remaining 40% from IMZ stake in December 2013.

 

Following the announcement on 20 September 2013 that the Peruvian government had approved the mill construction permit for the Inmaculada project, work began in Q4 on the construction of the plant with major site clearance and earthworks ongoing throughout the quarter. Procurement of the main plant equipment is also almost complete with only lime slakers still to be delivered. These are expected in March.

 

The detailed civil and underground engineering continued throughout the year and is close to completion with mine development plans updated in line with a recently completed and approved mine schedule. In addition, the detailed engineering for the electricity transmission line was also completed during the first half, and procurement commenced and was completed in the third quarter. Tests were also successfully carried out on the main equipment and electrical substations.

 

Underground mine development progressed well during 2013 with almost 5.7km of tunneling and 1.8km of raised boring carried out during the year bringing the total to over 10.4km achieved since the project's commencement. In addition, the project's infrastructure requirements also made good progress with construction of the camp now complete, and the main access road expected to be finished in the first quarter of 2014.

 

The exploration drilling programme in and around the Inmaculada project continued in 2013. Surface exploration drilling was completed, with one drill rig in operation to test geophysical anomalies and alteration lineaments parallel to the Mirella vein, and to test the NE extension of the Martha vein. In addition, a new potential high-grade vein, Mayte, was intercepted. In the second half of the year surface mapping and sampling campaigns started over the Huarmapata 3 area identifying a high sulphidation system with advanced argillic alteration.

 

During the year, a total of 4,796 metres were drilled in Shakira, Mirella, Susana, Angela, Roxana and Mayte veins, with significant results including:

 

 

Vein

Results

Mayte

MIR13-003: 1.51m at 2.37 g/t Au & 9 g/t Ag

Mirella

MIR13-001: 1.53m at 4.21 g/t Au & 72 g/t Ag

Shakira

SHK13-003: 1.10m at 4.10 g/t Au & 10 g/t Ag

Martha

MIR13-001: 0.20m at 31.02 g/t Au & 3,269 g/t Ag

Roxana

MIR13-003: 0.88m at 5.96 g/t Au & 330 g/t Ag

 

In 2014, the exploration programme will involve a 5,000 metre programme consisting of potential drilling in the Mayte vein corridor as well as near mine exploration at selected targets , in order to expand the number of current resources.

 

Crespo

Crespo is 100% owned by Hochschild and is located in the Company's existing operating cluster in southern Peru. This has the potential to be a relatively simple open pit project with high gold recovery rates, and as with the Inmaculada project, will benefit from operational synergies due to its proximity to the Company's existing operations. The project has an estimated total capital expenditure of approximately $110 million for a 6,850 tonne per day operation with an average annual production of 2.7 million silver equivalent ounces.

 

Work continued on the Crespo project up until the decision to delay the development in the third quarter. In the first half of the year, the detailed integration engineering continued and was completed in Q3 2013. Basic and detailed engineering for the mine also progressed as did construction of the new access road to the mine site which was completed in December.

 

With regards to the permit application process, the surface land agreement for the project was approved by the local community on 11 January 2013 and the underground water study was approved in Q2 2013. In addition, in July, the Company received the Environmental Impact Study ('EIS') permit. Hochschild also submitted the project's construction permit application at the end of February and received positive feedback from the Peruvian government and currently remains under evaluation.

 

Although exploration work ceased altogether in the third quarter, in the first half of the year district surface exploration was carried out and a new high sulphidation target, Jackelin, was identified. Furthermore, surface geochemistry sampling programmes were completed, with gold and silver anomalies reported.

 

Volcan

Exploration was not scheduled at the long term Volcan project for 2013. However, work continued throughout the second half in line with the refocused exploration budget and comprised systematic relogging of 56,331 metres of the Andina Minerals drill core in order to construct a more robust geological model of the porphyry system which is expected to be completed in the first half of this year.

 

Azuca

In H1 2013, a total of 13,108 metres of diamond drilling were completed at Azuca although these campaigns at Azuca were subsequently halted in late April following the decision to place the project on hold.

 

 

EXPLORATION REVIEW

 

In 2013, investment in exploration totalled $51.9 million and 91,429 metres of drilling was completed at the Company's brownfield, Advanced and Growth Projects and greenfield projects. As part of Hochschild's cashflow optimisation programme, initiated as a response to the volatility in precious metal prices towards the middle of the year, the Company conducted a detailed review of discretionary elements of its exploration budget with the result that the Company reduced its 2013 exploration budget from the original $77 million forecast. Exploration at the Company's main operations focused on the development of potential resources as opposed to increasing resource life-of-mine, reflecting the Company's confidence in their long term sustainability. In addition, the Company's greenfield exploration programme was significantly curtailed to concentrate only on the Company's most promising prospects.

 

The 2014 budget, representing 63,500 metres, will be split between exploration work at the Company's existing operations, Advanced Projects and greenfield opportunities in Peru and Mexico. The  main focus will continue to be brownfield exploration.

 

In 2014, exploration work at the core operations will be mainly focused on identifying new potential and near mine high grade areas to further improve the resource quality whilst at the Inmaculada Advanced Project, efforts will be focused on identifying new potential high grade areas.

 

Exploration at Company Maker projects will include continued drilling and further analysis and at the Company's Medium Scale projects work will continue to develop those high-quality, early stage projects that have the potential to move through the pipeline to production. Hochschild also aims to continue its generative programme to conduct further exploration on the Company's extensive land package of premium geological properties.

 

Mines and Advanced Projects exploration

Approximately 33% of the exploration budget was invested in mines and Advanced and Growth Project exploration in 2013.

 

Greenfield exploration

In 2013, approximately 41% of the 2013 exploration budget was invested in the Company's greenfield programme, with the proportion set to be 17% in 2014. In 2013, a total of 27,958 metres was drilled at the Company's greenfield projects.

 

Company Makers

Valeriano

At the Valeriano Company Maker project, a total of 6,669 metres were drilled during 2013 to further test at depth, the porphyry copper and gold mineralisation encountered in the 2012 drilling campaign. The exploration confirmed the discovery of a potentially significant porphyry Cu - Au deposit at depth. However, there are no plans for further drilling in 2014 until market conditions improve.

 

Pachuca

The Pachuca project is located in Mexico and was added to the Company's project pipeline as a Company Maker project in Q2 2013. The Pachuca property encompasses approximately 19,000 hectares of mineral rights in and around the Pachuca silver-gold mining district. Historic production from the Pachuca district totals approximately 1.4 billion ounces of silver and over 7.0 million ounces of gold, making it one of the largest silver-gold districts in the world.

 

The JV with Solitario Exploration & Royalty Corp (TSX: SLR) has been focusing on the northwestern extension of the historical vein mining district. Following extensive geological mapping and geochemical sampling along the vein systems, almost half of the 5,000 metre programme has already been drilled during November and December. The assay results from the Escondida vein have shown some significant intersections and a new reinterpretation of the data has led to further drilling focus on the Sorpresa vein, a splay off the Escondida vein, with a potential extension of 2km. In light of this progress, a further 3,000 metres of drilling is scheduled for 2014.

 

La Falda

At the La Falda Company Maker project in Chile, four holes were completed in the drilling campaign, totaling 2,605 metres. Surface exploration was held to identify new drill targets but no further work has been scheduled for 2014, or until market conditions improve.

 

Potrero

At the Potrero Company Maker project in Chile, drilling commenced in January 2013 and centred around known mineralised structures as well as to the North East along the projected strike of the mineralisation.   During the first quarter, a total of 2,763 metres of diamond drilling were completed and significant gold anomalies were reported. No further drilling campaign has been scheduled for 2014.

 

Mercurio

In 2013, a total of 2,898 metres of drilling were carried out at the Mercurio Company Maker project in Mexico focused on the Barite zone. As a result of the cashflow optimisation programme, the project area was significantly refocused to the more prospective north-western Barite area.  Soil sampling has delineated a zone of Au mineralisation, which will be followed up by a geochemistry grid over the relevant area. No further drilling has been scheduled for 2014.

 

Baborigame

At the Baborigame Company Maker project in Mexico, exploration drilling commenced in March 2013. Drilling was carried out on the Cebolla target to test for mineralisation following the indication of gold mineralisation from surface geochemistry. A total of 4,018 metres of diamond drilling were completed in the quarter. No further work has been scheduled for 2014, or until market conditions improve.

 

Julieta

At the Julieta project, Hochschild completed a 2,000 metres diamond drill programme during Q4 2013. The programme was aimed at testing the hydrothermal breccias found during the surface reconnaissance of the area. Seven drill holes were completed in December 2013 employing two rigs. Favorable alteration was encountered throughout the volcanic sequence in six of the holes, some of which show lengthy anomalous gold intercepts. The seventh hole cut a wide mineralised hydrothermal breccia with locally significant gold mineralization although the extent of this breccia body has not been determined. Significant results from the drill programme are summarised below:

 

Results

DDHJU-1303: from 145 to 338 // 189m at 0.16 g/t Au

DDHJU-1307: from 182 to 252 // 70m at 0.33 g/t Au

DDHJU-1307: from 195 to 207 // 12m at 1.07 g/t Au

 

Riverside Joint Venture

Hochschild has supplied Riverside with additional funding to carry out further target generation on the Clemente project in the northern part of the state of Sonora, Mexico. The funding will be used for further mapping, geochemistry and trenching work in order to better delineate drill targets within the highly prospective mega shear. This JV agreement continues into 2014.

 

Medium Scale projects

Farallón

At the Farallon Medium Scale project in Peru, the first stage of exploration drilling was completed in Q1 2013 with three drill holes and a total of 1,257 metres of drilling completed. Results have indentified multiple intercepts of quartz veins and veinlets with sphalerite, galena and chalcopyrite up to one metre in width, associated with tensional structures. No further work has been scheduled for 2014, or until market conditions improve.

 

Cuello Cuello

At the Cuello Cuello Medium Scale project in Peru, during H1 2013, a total of 310 metres were drilled. This was the second drilling programme carried out at the property and near surface mineralised structures were again intersected, and two structural trends were identified. Metallurgical tests on ore show that some areas of the deposit are amenable to cyanide leaching with good recoveries.  The Company is currently evaluating the economics of the project before defining the next phase of the exploration programme although no further work has been scheduled for 2014.

 

Fresia

At the Fresia Medium Scale project, a town hall meeting was held in the project area, whereby the Company´s plans for the upcoming drill programme in the area were presented to the local communities and authorities. The successful completion of this process allows the Company to proceed with filing an application for an exploration drill permit for the project. A 1,500 metre programme is scheduled to begin in Q2 2014.

 

San Martin

At the San Martin Medium Scale project in Peru, a total of 3,003 metres of exploration drilling were carried out to explore the continuity of quartz veins outside of the Rhyodacite dome.  Drilling holes intercepted structures with good mineralisation including sphalerite, galena, ruby silver and high grade gold and silver mineralisation. No further work has been scheduled for 2014, or until market conditions improve.

 

Ibel

At the Ibel Medium Scale project in Peru, surface mapping and sampling has identified at least five distinct exploration targets, including a large gold-bearing hydrothermal breccia with consistent anomalous gold values over an area measuring 1.5km x 300 metres. No further work has been scheduled for 2014, or until market conditions improve.

 

FINANCIAL REVIEW

 

Key performance indicators   

(before exceptional items, unless otherwise indicated)

 

 $000 unless otherwise indicated

Year ended

31 Dec 2013

Year ended

31 Dec 2012

% change

Net Revenue[9]

622,158

817,952

(24)

Attributable silver production (koz)

13,588

13,550

(-)

Attributable gold production (koz)

116

112

(4)

Cash costs ($/oz Ag co-product)[10]

12.31

13.41

(8)

Cash costs ($/oz Au co-product) 24

748

735

2

Total all-in sustaining costs ($/oz)

19.9

23.8

(16)

Main operation all-in sustaining costs ($/oz)

18.6

21.7

(14)

Adjusted EBITDA[11]

195,463

384,791

(49)

(Loss)/profit from continuing operations

(42,103)

128,581

(133)

(Loss)/profit from continuing operations (post exceptional)

(128,677)

126,866

(201)

Earnings per share (pre exceptional)

(0.15)

0.19

(179)

Earnings per share (post exceptional)

(0.36)

0.19

(289)

Cash flow from operating activities[12]

64,674

254,879

(75)

Resource life of mine (years)

10.0

9.8

2

 

The reporting currency of Hochschild Mining plc is U.S. dollars. In discussions of financial performance the Group removes the effect of exceptional items, unless otherwise indicated, and in the income statement results are shown both pre and post such exceptional items. Exceptional items are those items, which due to their nature or the expected infrequency of the events giving rise to them, need to be disclosed separately on the face of the income statement to enable a better understanding of the financial performance of the Group and to facilitate comparison with prior years.

 

Revenue

Gross revenue

Gross revenue from continuing operations decreased 24% to $658.2 million in 2013 (2012: $869.1 million) driven by the significant fall in precious metal prices.

 

Silver

Gross revenue from silver decreased 28% in 2013 to $432.5 million (2012: $599.4 million) as a result of lower prices offsetting the increase in the total amount of silver ounces sold which rose by 3% to 19,555 koz (2012:18,928 koz).

 

Gold

Gross revenue from gold decreased 16% in 2013 to $225.6 million (2011: $269.2 million) also as a result of lower prices although offset to some extent by a 5% increase in gold sales - the total amount of gold ounces sold in 2013 at 168.6 koz (2012: 160.0 koz).

 

Gross average realised sales prices

The following table provides figures for average realised prices and ounces sold for 2013 and 2012:

 

 

Average realised prices

Year ended
31 Dec 2013

Year ended
31 Dec 2012


Silver ounces sold (koz)

19,555

18,928


Avg. realised silver price ($/oz)

22.12

31.6


Gold ounces sold (koz)

168.56

159.8


Avg. realised gold price ($/oz)

1,338

1,684


 

Commercial discounts

Commercial discounts refer to refinery treatment charges, refining fees and payable deductions for processing concentrates, and are discounted from gross revenue on a per tonne basis (treatment charge), per ounce basis (refining fees) or as a percentage of gross revenue (payable deductions). In 2013, the Group recorded commercial discounts of $36.1 million (2012: $51.2 million). This decrease is explained by lower prices and a lower volume of concentrate sold in 2013, mainly as a result of the Arcata dore project. The ratio of commercial discounts to gross revenue in 2013 remained at 6% (2012: 6%).

 

Net revenue

Net revenue decreased by 24% to $622.2 million (2012: $818.0 million), comprising silver revenue of $405.5 million and gold revenue of $216.6 million. In 2013 silver accounted for 65% and gold 35% of the Company's consolidated net revenue compared to 68% and 32% respectively in 2012.

 

Revenue by mine

$000 unless otherwise indicated

Year ended

31 Dec 2013

Year ended

31 Dec 2012

% change

Silver revenue




Arcata

115,522

165,464

(30)

Ares

17,712

14,653

21

Pallancata

163,394

232,503

(30)

San Jose

135,291

184,635

(27)

Moris

650

1,315

(51)

Commercial discounts

(27,050)

(40,784)

(34)

Net silver revenue

405,519

557,786

(27)

Gold revenue




Arcata

22,271

26,850

(17)

Ares

32,650

42,927

(24)

Pallancata

35,189

42,620

(17)

San Jose

123,905

142,151

(13)

Moris

11,597

14,616

(21)

Commercial discounts

(9,036)

(9,528)

(5)

Net gold revenue

216,576

259,636

(17)

Other revenue[13]

63

530

(88)

Net revenue

622,158

817,952

(24)

 

Costs

Total pre-exceptional cost of sales increased 11% to $466.8 million in 2013 (2012: $420.3 million). The direct production cost increased by 3% in 2013, to $311.7 million (2012: $301.5 million) mainly as a result of an increase in tonnage treated mainly in Arcata and San José as a result of plant expansions. Depreciation in 2013 was $144.1 million (2012: $121.2 million), with the increase mainly due to full depreciation of the Ares operation, depreciation of new tailings dams at Arcata as well as a higher future capex depreciation resulting from the increasing cost to convert resources into reserves in all operating units. Other items, which principally includes workers' profit sharing, was $7.0 million in 2013 (2012: $15.4 million) and change in inventories which was $3.9 million in 2013 (2012: $(17.7) million).

 

$000

Year ended
31 Dec 2013

Year ended
31 Dec 2012

% Change

Direct production cost excluding depreciation

311,699

301,476

3

Depreciation in production cost

144,137

121,156

19

Other items

7,004

15,401

(55)

Change in inventories

3,926

(17,708)

(122)

Pre-exceptional Cost of Sales

466,766

420,325

11

 

Unit cost per tonne

The Company reported unit cost per tonne at its main operations of $103.2 in 2013, flat compared to 2012 (2012: $103.2). For further explanation on the increase in unit cost per tonne please refer to page 7 of the Operating Review.

 

Unit cost per tonne by operation (including royalties)[14]:

Operating unit ($/tonne)

Year ended

31 Dec 2013

Year ended

31 Dec 2012

% change

Main operations

103.2

103.2

-

Peru

74.2

75.1

(1)

Arcata

81.3

86.3

(6)

Pallancata[15]

68.3

67.2

2

Argentina

210.0

202.2

4

San Jose

210.0

202.2

4

Others

128.3

138.4

(7)

Ares

128.3

138.4

(7)

Total

106.1

107.8

(2)

 

Cash costs

Cash costs include cost of sales, commercial deductions and selling expenses before exceptional items, less depreciation included in cost of sales.

 

Cash cost reconciliation[16]:

$000 unless otherwise indicated

Year ended

31 Dec 2013

Year ended

31 Dec 2012

% change

Group Cash Cost

387,686

392,825

(1)

(+) Cost of sales

466,766

420,325

11

(-) Depreciation in Cost of Sales

(144,923)

(117,627)

23

(+) Selling expenses

28,785

39,460

(27)

(+) Commercial deductions

37,058

51,197

(28)

Gold

9,065

9,552

(5)

Silver

27,993

41,645

(33)

Revenue

622,158

817,952

(24)

Gold

216,576

259,636

(17)

Silver

405,519

557,786

(27)

Others

63

530

(88)

Ounces Sold

19,724

19,088

3

Gold

168.6

159.8

6

Silver

19,555

18,928

3

Group Cash Cost ($/oz)




Co product Au

801

781

3

Co product Ag

12.9

14.2

(9)

By product Au

(272)

(1,293)

(79)

By product Ag

8.3

6.5

28

 

Cash costs are calculated based on pre-exceptional figures. Co-product cash cost per ounce is the cash cost allocated to the primary metal (allocation based on proportion of revenue), divided by the ounces sold of the primary metal. By-product cash cost per ounce is the total cash cost minus revenue and commercial discounts of the by-product divided by the ounces sold of the primary metal.

 

All-in sustaining cost reconciliation

All-in sustaining cash costs per silver equivalent ounce[17]

 

Year ended 31 Dec 2013

$000 unless otherwise indicated

Arcata

Pallancata

San José

Main Operations

Other Operations

Corporate & Others

Total

(+) Production Cost excluding depreciation

72,706

75,321

112,764

260,791

50,908

-

311,699

(+) Other items in Cost of Sales

-638

571

7,074

7,007

-3

-

7,004

(+) Operating & Exploration capex for units

43,255

44,356

56,502

144,113

4,715

2,510

151,338

(+) Brownfield exploration expenses

2,052

2,149

1,795

5,996

581

3,201

9,778

(+) Administrative expenses (w/o depreciation)

6,469

11,472

8,589

26,530

2,983

22,274

51,787

(+) Royalties

-

1,822

-

1,822

522

-

2,344

Sub-Total

123,844

135,691

186,724

446,259

59,706

27,985

533,950

Ounces Produced (Ag Eq oz)

5,994

9,298

12,286

27,578

2,689

-

30,267

Sub-total ($/oz)

20.7

14.6

15.2

16.2

22.2

 

17.6

(+) Commercial deductions

920

16,788

19,335

37,043

15

-

37,058

(+) Selling expenses

325

2,369

25,899

28,593

192

-

28,785

Sub-total

1,245

19,157

45,234

65,636

207

-

65,843

Ounces Sold (Ag Eq oz)

5,881

9,167

11,963

27,011

2,658

-

29,669

Sub-total ($/oz)

0.2

2.1

3.8

2.4

0.1

 

2.2

Total cash cost ($/oz Ag Eq)

12.2

10.3

13.5

12.1

19.0

-

12.7

All-in sustaining costs ($/oz Ag Eq)

20.9

16.7

19.0

18.6

22.3

-

19.9

 

 

Year ended 31 Dec 2012

$000 unless otherwise indicated

Arcata

Pallancata

San José

Main Operations

Other Operations

Corporate & Others

Total

(+) Production Cost excluding depreciation

65,522

72,101

106,621

244,244

55,002

2,230

301,476

(+) Other items in Cost of Sales

6,691

4,686

-

11,377

4,024

-

15,401

(+) Operating & Exploration capex for units

52,791

56,871

71,188

180,850

8,322

604

189,776

(+) Brownfield exploration expenses

4,467

4,062

5,788

14,317

1,820

6,976

23,113

(+) Administrative expenses (w/o depreciation)

7,109

13,723

9,957

30,790

3,800

36,120

70,710

(+) Royalties

-

3,267

-

3,267

567

-

3,834

Sub-Total

136,580

154,710

193,554

484,845

73,535

45,930

604,310

Ounces Produced (Ag Eq oz)

6,562

9,014

11,099

26,676

2,628

-

29,304

Sub-total  ($/oz)

20.8

17.2

17.4

18.2

28.0

 

20.6

(+) Commercial deductions

16,512

17,398

17,287

51,197

-

-

51,197

(+) Selling expenses

2,381

3,523

33,457

39,361

99

-

39,460

Sub-total

18,893

20,921

50,744

90,558

99

-

90,657

Ounces Sold (Ag Eq oz)

6,192

8,784

10,955

25,931

2,585

-

28,516

Sub-total  ($/oz)

3.1

2.4

4.6

3.5

-

-

3.2

Total cash cost ($/oz Ag Eq)

14.1

10.9

14.2

13.1

22.5

 

14.0

All-in sustaining costs ($/oz Ag Eq)

23.9

19.5

22.1

21.7

28.0

 

23.8

 

Administrative expenses

Administrative expenses before exceptional items decreased by 25% to $54.4 million (2012: $73.0 million) primarily due to the impact of the cashflow optimisation programme. Post-exceptional administrative expenses in 2013 totaled $56.8 million and include an expense of $2.4 million due to termination benefits paid to employees following the restructuring as part of the above mentioned cashflow optimisation programme.

 

Exploration expenses

In 2013, pre-exceptional exploration expenses, decreased by 34% to $42.9 million (2012: $64.6 million). Post-exceptional exploration expenses in 2013 totaled $46.3 million and include an expense of $3.5 million due to termination benefits paid to employees following the restructuring as part of the Company's cashflow optimisation programme.

 

In addition, the Group capitalises part of its brownfield exploration, which mostly relates to costs incurred converting potential resource to the Inferred or Measured and Indicated category. In 2013, the Company capitalised $1.7 million relating to brownfield exploration compared to $15.9 million in 2012, bringing the total investment in exploration for 2013 to $44.6 million (2012: $80.5 million).  In addition, $7.4 million was invested in the Company's Advanced and Growth Projects.

 

Selling expenses

Selling expenses were lower than 2012at $28.8 million (2012: $39.5 million) as a result of lower prices. Selling expenses mainly consist of export duties at San Jose (export duties in Argentina are levied at 10% of revenue for concentrate and 5% of revenue for dore).

 

Other income/expenses

Other income before exceptional items was $4.0 million (2012: $8.7 million), mainly reflecting a $1.7 million export tax credit in Argentina. Other expenses before exceptional items reached $15.6 million (2012: $9.5 million) mainly due to an increase in mine closure provisions of $5.5m and the new reserves tax in Argentina of $2.5 million.

 

Profit from continuing operations before exceptional items, net finance costs, foreign exchange loss and income tax

Profit from continuing operations before exceptional items, net finance costs and income tax decreased to $17.7 million (2012: $219.8 million) as a result of the factors detailed above.

 

Adjusted EBITDA

Adjusted EBITDA decreased by 49% over the period to $195.5 million (2012: $384.8 million) driven primarily by significantly lower silver prices.

 

Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs and income tax plus depreciation and exploration expenses other than personnel and other exploration related fixed expenses.

 

$000 unless otherwise indicated

Year ended

31 Dec 2013

Year ended

31 Dec 2012

% change

Profit from continuing operations before exceptional items, net finance cost, foreign exchange loss and income tax

17,730

219,768

(92)

Operating margin

3%

27%


Depreciation and amortisation in cost of sales

144,923

117,627

23

Depreciation and amortisation in administrative expenses

2,638

2,285

15

Exploration expenses

42,871

64,612

(34)

Personnel and other exploration related fixed expenses

(12,699)

(19,501)

(35)

Adjusted EBITDA

195,463

384,791

(49)

Adjusted EBITDA margin

31%

47%


 

Impact of investment in associate

The Company's pre-exceptional share of the profit/(loss) after tax of associates totaled $5.9 million in 2013

(2012: $6.5 million). In both 2013 and 2012, the Company's share of post tax profits/(losses) in associates reflects profits related to its holdings in Gold Resource Corporation ('GRC').

 

Since March 2013, the Company no longer recognised this profit due to the loss of significant influence with regards to its investment in GRC, and its resulting reclassification from an associate to an available-for-sale asset.

 

Finance income

Finance income before exceptional items of $10.7 million was higher than that of 2012 (2012: $2.0 million) mainly due to interest received on deposits and liquidity funds ($6.8 million) and dividends received from Gold Resource Corporation (considered as available-for-sale financial asset since 27 March 2013 ($3.6 million).

 

Finance costs

Finance costs before exceptional items decreased by 9% to $11.7 million in 2013 (2012: $12.9 million).

 

At 31 Dec 2013, the Group had no outstanding positions on currency or commodity hedges.

 

Foreign exchange losses

The Group recognised a foreign exchange loss of $19.8 million (2012: $1.2 million loss). This loss is principally the result of the impact of a devaluation of the Peruvian Sol versus the US Dollar on cash deposits held in Peru. This impact will be more than offset by the positive effects of the local currency weakening on the Company's unit costs and capital expenditure programme.

 

 

Income tax

The Company's pre-exceptional income tax was $45.0 million (2012: $85.5 million). The reduction is mainly explained by lower metal prices reflected in a reduced pre-exceptional profit before income tax ($2.9 million in 2013 vs. $214.1 million in 2012). This effect was partially offset by the devaluation of the Peru and Argentina local currencies which generated a negative impact of $(30.4) million in income tax.

 

Exceptional items

Exceptional items in 2013 totalled $(86.6) million after tax (2012: $(1.7) million). The tables below detail the exceptional items excluding the exceptional tax effect that amounted to $35.9 million.

 

Exceptional items in 2013 totalled ($122.5) million before tax (2012: $1.9 million). This mainly comprises the following items:

 

Positive exceptional items:

Main items

$000

Description of main items

Other income

2,442

Gain on sale of exploration concessions in Peru

Gain on transfer from investment accounted for under the equity method to available-for-sale financial assets

107,942

 

Gain on the reclassification of GRC shares from an investment accounted for under equity method to an available-for-sale financial asset of $107.9 million, as a result of ceasing to have the ability to exercise significant influence over GRC.


2,417

Adjustment of fair value of International Mineral Corporation (IMZ) shares as a result of the IMZ acquisition

 

Negative exceptional items:

Main items

$000

Description of main items

Termination benefits

(8,273)

 

 

Termination benefits paid to employees between April and September 2013, following the restructuring plan approved by management during the first half of 2013 (Cost of Sales: $2.5 million, administrative expense: $2.4 million and exploration expenses: $3.5 million)

Other expenses

 

(90,671)

 

Impairment of the San Jose mine unit of $40.9 million, the Azuca project of $30.3 million, the Crespo project $29.1 millio, the Ares unit $3.8m and $1.0 million of write-off of PP&E; and reversal of impairment of the San Felipe property of $14.4 million.

 

Finance cost

(136,353)

The impairment of investments in GRC of $105.3 million, IMZ of $12.9 million and other Available-for-Sale assets of $11.4 million. Also includes $4.7 million of transaction costs related to the Bridge Loan Facility and the undrawn Suyamarca Medium Term loan. Also includes $7.8 million of loss on disposal of GRC shares.

 

 

   Cash flow & balance sheet review

    Cash flow:

$000 unless otherwise indicated

Year ended

31 Dec 2013

Year ended

31 Dec 2012

Change

Net cash generated from operating activities

64,674

254,879

(190,205)

Net cash used in investing activities

(218,113)

(427,869)

209,756

Cash flows generated/(used) in financing activities

99,830

(94,842)

194,672

Net (decrease)/increase in cash and cash equivalents during the period

(53,609)

(267,832)

214,223

 

Operating cash flow decreased from $254.9 million in 2012 to $64.7 million in 2013, mainly due to significantly lower silver prices. Net cash used in investing activities decreased to $(218.1) million in 2013 from $(427.9) million in 2012 mainly due to (i) lower capital expenditures in line with the implementation of the cashflow optimisation programme during 2013 ($(246.6) million vs. $(297.5) million in 2012), (ii) Andina Minerals Inc acquisition ($90.1 million) in 2012, (iii) proceeds from deferred income related to the sale of San Felipe ($16.0 million) in 2013 and (iv) proceeds from the sale of Gold Resource Corporation shares ($33.5 million) in 2013. Finally, cash used in financing activities increased to $99.8 million from $(94.8) million in 2012, primarily as a result of the bridge loan facility disbursed in 2013 ($270.0 million), proceeds from equity placing ($71.9 million) and lower dividends paid in 2013 ($18.5 million vs. $62.5 million paid in 2012). This effects were partially offset by the acquisition of IMZ minority interest in 2013 ($271 million) As a result, total cash generated increased from $(267.8) million in 2012 to $(53.6) million in 2013 ($214.2 million difference).

 

Working capital

$000 unless otherwise indicated

Year ended

31 Dec 2013

Year ended

31 Dec 2012

Trade and other receivables

179,868

174,786

Inventories

69,556

76,413

Net other financial assets / (liabilities)

(2,294)

(6,741)

Net Income tax receivable / (payable)

20,842

(4,459)

Trade and other payables and provisions

(208,618)

(252,823)

Working Capital

59,354

(12,824)

 

The Company's working capital position increased to $59.4 million in 2013 from $(12.8) million in 2012. This was primarily explained by higher income tax receivables ($25.3 million) due to lower tax provision in line with lower prices; and by lower provisions ($(44.2) million) resulted from lower personnel bonus provisions and workers profit sharing provisions in 2013.

 

Net cash

$000 unless otherwise indicated

Year ended
31 Dec 2013

Year ended
31 Dec 2012

Cash and cash equivalents

286,435

358,944

Long term borrowings

-

(106,850)

Short term borrowings[18]

(435,925)

(6,973)

Net cash/(debt)

(149,490)

245,121

  

The Group reported net cash of $(149.5) million as at 31 December 2013 (2012: $245.1 million). This was primarily driven by the acquisition of International Minerals Corporation in 2013 and lower cash generated as a result of the drop of metal prices.

 

The Company's short-term borrowings are its convertible bond that has a current conversion price of £3.80 due in October 2014, the bridge loan facility ($270.0 million) refinanced in January 2014 with a $350 million 7-year Senior Unsecured bond, and short term debt raised in Peru and Argentina. 

 

Capital expenditure[19] 

$000 unless otherwise indicated

Year ended
31 Dec 2013

Year ended
31 Dec 2012

Arcata

43,255

52,791

Ares

3,783

7,476

Selene

1,364

1,152

Pallancata

42,992

55,719

San Jose

56,502

71,188

Moris

932

846

Operations

148,828

189,172

Inmaculada

98,614

96,060

Crespo

21,469

17,984

Volcan

4,312

86,631

Azuca

4,741

12,476

Other

3,614

18,062

Total

281,578

420,385

 

2013 capital expenditure of $281.6 million (2012: $420.4 million) includes operating capex of $147.3 million, capitalised exploration costs of $1.7 million in respect of the Group's operating mines, $98.6 million capitalised in Inmaculada, $21.5 capitalised in Crespo, $9.0 million in Azuca and Volcan, and administrative capital expenditure of $3.6 million.

 

Capital expenditure at Arcata was lower in 2013 without the effect of two important projects completed in 2012: the plant capacity increase and the Doré project. In addition, the implementation of the cashflow optimisation programme also reduced capex. In Pallancata and San Jose, lower capital expenditure is mainly due to reduced mine development as well as the above-mentioned cashflow optimisation programme.

 

Forward looking Statements

This announcement contains certain forward looking statements, including such statements within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In particular, such forward looking statements may relate to matters such as the business, strategy, investments, production, major projects and their contribution to expected production and other plans of Hochschild Mining plc and its current goals, assumptions and expectations relating to its future financial condition, performance and results.

Forward-looking statements include, without limitation, statements typically containing words such as "intends", "expects", "anticipates", "targets", "plans", "estimates" and words of similar import. By their nature, forward looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will or may occur in the future. Actual results, performance or achievements of Hochschild Mining plc may be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Factors that could cause or contribute to differences between the actual results, performance or achievements of Hochschild Mining plc and current expectations include, but are not limited to, legislative, fiscal and regulatory developments, competitive conditions, technological developments, exchange rate fluctuations and general economic conditions. Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser.

The forward looking statements reflect knowledge and information available at the date of preparation of this announcement. Except as required by the Listing Rules and applicable law, Hochschild Mining plc does not undertake any obligation to update or change any forward looking statements to reflect events occurring after the date of this announcement. Nothing in this announcement should be construed as a profit forecast.

Statement of Directors' responsibilities

The Directors confirm that to the best of their knowledge:

- the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

- the Management report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

 

Consolidated income statement

For the year ended 31 December 2013

 



Year ended 31 December 2013


Year ended 31 December 2012


Notes

Before exceptional items US$000


Exceptional items US$000


Total
 US$000


Before exceptional items
US$000


Exceptional items
US$000


Total
US$000

Continuing operations


 

 

 

 

 







Revenue

3,5

622,158

 

-

 

622,158


817,952

 

-

 

817,952

Cost of sales

6

(466,766)

 

(2,466)

 

(469,232)


(420,325)

 

-

 

(420,325)

Gross profit


155,392

 

(2,466)

 

152,926


397,627

 

-

 

397,627

Administrative expenses

7

(54,425)

 

(2,351)

 

(56,776)


(72,995)

 

-

 

(72,995)

Exploration expenses

8

(42,871)

 

(3,456)

 

(46,327)


(64,612)

 

-

 

(64,612)

Selling expenses

9

(28,785)

 

-

 

(28,785)


(39,460)

 

-

 

(39,460)

Other income

11

3,974

 

2,442

 

6,416


8,733

 

1,099

 

9,832

Other expenses

 

(15,555)

 

-

 

(15,555)


(9,525)

 

-

 

(9,525)

Impairment and write-off of assets net

11

-

 

(90,671)

 

(90,671)


-

 

(245)

 

(245)

Profit/(loss) from continuing operations before net finance income/(cost), foreign exchange loss and income tax


17,730

 

(96,502)

 

(78,772)


219,768

 

854

 

220,622

Share of post-tax profit/(losses)
of associates and joint ventures
accounted for under equity method

11,18

5,921

 

-

 

5,921


6,456

 

(1,376)

 

5,080

Finance income

11,12

10,675

 

2,417

 

13,092


1,988

 

-

 

1,988

Gain on transfer from investment accounted for under the equity method to available-for-sale financial assets

 

-

 

107,942

 

107,942


-

 

-

 

-

Finance costs

11,12

(11,697)

 

(136,353)

 

(148,050)


(12,870)

 

(1,334)

 

(14,204)

Foreign exchange loss


(19,753)

 

-

 

(19,753)


(1,212)

 

-

 

(1,212)

(Loss)/profit from continuing
operations before income tax


2,876

 

(122,496)

 

(119,620)


214,130

 

(1,856)

 

212,274

Income tax (expense)/benefit

13

(44,979)

 

35,922

 

(9,057)


(85,549)

 

141

 

(85,408)

(Loss)/profit for the year from continuing operations


(42,103)

 

(86,574)

 

(128,677)


128,581

 

(1,715)

 

126,866

Attributable to:


 

 

 

 

 


 

 

 

 

 

Equity shareholders of the Company


(50,345)

 

(72,738)

 

(123,083)


64,830

 

(1,759)

 

63,071

Non-controlling interests


8,242

 

(13,836)

 

(5,594)


63,751

 

44

 

63,795



(42,103)

 

(86,574)

 

(128,677)


128,581

 

(1,715)

 

126,866

Basic and diluted (loss)/earnings per ordinary share
from continuing operations for the year (expressed in US dollars per share)

14

(0.15)

 

(0.21)

 

(0.36)


0.19

 

-

 

0.19

 

 

Consolidated statement of comprehensive income

For the year ended 31 December 2013



Year ended 31 December


Notes

2013
US$000


2012
US$000

(Loss)/profit for the year


(128,677)


126,866

Other comprehensive income to be reclassified to profit or loss in subsequent periods:


 


 

Exchange differences on translating foreign operations


(842)


268

Change in fair value of available-for-sale financial assets

19

(125,932)


(9,269)

Recycling of the loss on available-for-sale financial assets


130,286


266

Deferred income tax relating to components of other comprehensive income

13

-


615

Other comprehensive gain/(loss) for the period, net of tax


3,512


(8,120)

Total comprehensive (expense)/income for the year


(125,165)


118,746

Total comprehensive (expense)/income attributable to:


 


 

Equity shareholders of the Company


(119,571)


54,951

Non-controlling interests


(5,594)


63,795



(125,165)


118,746

 

Consolidated statement of financial position

As at 31 December 2013


Notes

As at
31 December 2013
US$000


As at
31 December 2012
 US$000

ASSETS


 



Non-current assets


 



Property, plant and equipment

15

873,477


636,555

Evaluation and exploration assets

16

204,643


396,557

Intangible assets

17

43,683


43,903

Investments accounted for under equity method

18

-


78,188

Available-for-sale financial assets

19

51,658


30,609

Trade and other receivables

20

12,128


8,613

Deferred income tax assets

 

2,416


856



1,188,005


1,195,281

Current assets


 


 

Inventories

21

69,556


76,413

Trade and other receivables

20

167,740


166,173

Income tax receivable


22,156


23,023

Other financial assets

22

-


150

Cash and cash equivalents

23

286,435


358,944



545,887


624,703

Total assets


1,733,892


1,819,984

EQUITY AND LIABILITIES


 


 

Capital and reserves attributable to shareholders of the Parent


 


 

Equity share capital

 

170,389


158,637

Share premium

 

396,021


395,928

Treasury shares

 

(898)


(898)

Other reserves


(211,143)


(214,946)

Retained earnings


511,492


720,011



865,861


1,058,732

Non-controlling interests


104,375


264,518

Total equity


970,236


1,323,250

Non-current liabilities


 


 

Trade and other payables

24

174


-

Borrowings

25

-


106,850

Provisions

26

79,649


76,550

Deferred income

24(3)

22,000


-

Deferred income tax liabilities

 

93,505


95,715



195,328


279,115

Current liabilities


 


 

Trade and other payables

24

119,222


149,585

Other financial liabilities

22

2,294


6,891

Borrowings

25

435,925


6,973

Provisions

26

9,573


26,688

Income tax payable


1,314


27,482



568,328


217,619

Total liabilities


763,656


496,734

Total equity and liabilities


1,733,892


1,819,984

 

These financial statements were approved by the Board of Directors on 11 March 2014 and signed on its behalf by:

 

Ignacio Bustamante

Chief Executive Officer

11 March 2014

Consolidated statement of cash flows

For the year ended 31 December 2013



Year ended 31 December


Notes

2013
US$000


2012
US$000

Cash flows from operating activities


 



Cash generated from operations

 

116,084


344,119

Interest received


6,236


2,614

Interest paid


(10,292)


(9,987)

Payment of mine closure costs

26

(4,781)


(3,667)

Tax paid


(42,573)


(78,200)

Net cash generated from operating activities


64,674


254,879

Cash flows from investing activities


 


 

Purchase of property, plant and equipment


(248,335)


(297,537)

Purchase of evaluation and exploration assets


(10,781)


(46,903)

Purchase of intangibles

 

(1,625)


-

Acquisition of subsidiary

4(b)

(14,615)


(96,332)

Dividends received


2,423


-

Dividends received from associates


3,385


8,454

Proceeds from deferred income

24(3)

17,593


4,000

Proceeds from sale of available-for-sale financial assets


33,498


-

Proceeds from sale of property, plant and equipment


344


449

Net cash used in investing activities


(218,113)


(427,869)

Cash flows from financing activities


 


 

Proceeds from borrowings


440,010


53,500

Repayment of borrowings


(116,701)


(93,221)

Transaction costs of borrowings


(9,145)


-

Acquisition of non-controlling interest


(272,127)


-

Proceeds from issue of ordinary shares

 

71,916


-

Dividends paid

27

(18,503)


(62,467)

Capital contribution from non-controlling interests


4,380


7,346

Cash flows generated/(used) in financing activities


99,830


(94,842)

Net decrease in cash and cash equivalents during the year


(53,609)


(267,832)

Exchange difference


(18,900)


(705)

Cash and cash equivalents at beginning of year


358,944


627,481

Cash and cash equivalents at end of year

23

286,435


358,944

 

Consolidated statement of changes in equity

For the year 31 December 2013



 


 


 


 


Other reserves


 


 


 


 



Notes


Equity share capital US$000


Share premium US$000


Treasury shares US$000


Unrealised gain/
(loss) on available-for-sale financial assets
US$000


Bond
equity component (note 25(b)) US$000


Cumulative translation adjustment US$000


Merger reserve US$000


Share- based payment reserve US$000


Total
Other reserves US$000


Retained earnings US$000


Capital and reserves attributable to shareholders
of the Parent
US$000


Non-controlling interests
US$000


Total
equity
US$000

Balance
at 1 January 2012




158,637


395,928


(898)


5,058


8,432


(10,715)


(210,046)


154


(207,117)


677,218


1,023,768


195,299


1,219,067

Other comprehensive (loss)/income




-


-


-


(8,388)


-


268


-


-


(8,120)


-


(8,120)


-


(8,120)

Profit for the year




-


-


-


-


-


-


-


-


-


63,071


63,071


63,795


126,866

Total comprehensive income for 2012




-


-


-


(8,388)


-


268


-


-


(8,120)


63,071


54,951


63,795


118,746

Capital contribution from non-controlling interest




-


-


-


-


-


-


-


-


-


-


-


39,568


39,568

CEO LTIP




-


-


-


-


-


-


-


291


291


-


291


-


291

Expiration of dividends




-


-


-


-


-


-


-


-


-


-


-


733


733

Dividends


27


-


-


-


-


-


-


-


-


-


(20,278)


(20,278)


-


(20,278)

Dividends paid to non-controlling interests


27

 

-


-


-


-


-


-


-


-


-


-


-


(34,877)


(34,877)

Balance
at 31 December 2012



 

158,637


395,928


(898)


(3,330)


8,432


(10,447)


(210,046)


445


(214,946)


720,011


1,058,732


264,518


1,323,250

Other comprehensive (loss)/income




-


-


-


4,354


-


(842)


-


-


3,512


-


3,512


-


3,512

Loss for the year




-


-


-


-


-


-


-


-


-


(123,083)


(123,083)


(5,594)


(128,677)

Total comprehensive income/(loss)
for 2013




-


-


-


4,354


-


(842)


-


-


3,512


(123,083)


(119,571)


(5,594)


(125,165)

Capital contribution from non-controlling interest




-


-


-


-


-


-


-


-


-


-


-


4,380


4,380

Purchase of shares from non-controlling interest


4(a)


-


-


-


-


-


-


-


-


-


(135,368)


(135,368)


(148,185)


(283,553)

Issuance of shares




11,752


93


-


-


-


-


60,071


-


60,071


-


71,916


-


71,916

Transfer to retained earnings




-


-


-


-


-


-


(60,071)


-


(60,071)


60,071


-


-


-

CEO LTIP




-


-


-


-


-


-


-


291


291


-


291


-


291

Expiration of dividends




-


-


-


-


-


-


-


-


-


-


-


(38)


(38)

Dividends


27


-


-


-


-


-


-


-


-


-


(10,139)


(10,139)


-


(10,139)

Dividends paid to non-controlling interests


27


-


-


-


-


-


-


-


-


-


-


-


(10,706)


(10,706)

Balance
at 31 December 2013




170,389


396,021


(898)


1,024


8,432


(11,289)


(210,046)


736


(211,143)


511,492


865,861


104,375


970,236

 

1 Notes to the consolidated financial statements

For the year ended 31 December 2013

 

The financial information for the year ended 31 December 2013 and 2012 contained in this document does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the years ended 31 December 2013 and 2012 have been extracted from the consolidated financial statements of Hochschild Mining plc for the year ended 31 December 2013 which have been approved by the directors on 11 March 2014 and will be delivered to the Registrar of Companies in due course. The auditor's report on those financial statements was unqualified and did not contain a statement under section 498 of the Companies Act 2006.

 

2 Significant accounting policies

The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those applied in the preparation of the consolidated financial statement for the year ended 31 December 2012, except for the adoption of the following standards and interpretations:

·  IFRS 13 "Fair value measurement", applicable for annual periods beginning on or after 1 January 2013

IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The amendment affects disclosure but has no impact on the Group's financial position and performance.

·  IAS 1 "Financial statements presentation - Presentation of items in other comprehensive income", applicable for annual periods beginning on or after 1 July 2012

The amendments to IAS 1 change the grouping of items presented in other comprehensive income. Items that could be reclassified (or recycled) to profit and loss at a future point in time would be presented separately from items that will never be reclassified. The amendment affects presentation only and has no impact on the Group's financial position and performance.

·  IAS 19 "Employee benefits (amendment)", applicable for annual periods beginning on or after 1 January 2013

The IASB has issued numerous amendments to IAS 19. These range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording. The application of this new standard has no impact on the Group's financial position or performance.

·  IFRIC 20 "Stripping costs in the production phase of a surface mine", applicable for annual periods beginning on or after 1 January 2013

This interpretation applies to waste removal (stripping) costs incurred in surface mining activity, during the production phase of the mine. There can be two benefits accruing to the entity from the stripping activity: usable ore that can be used to produce inventory and improved access to further quantities of material that will be mined in future periods. When the benefit from the stripping activity is the production of inventory, an entity is required to account for the stripping activity costs as part of the cost of inventory. When the benefit is the improved access to ore, the entity recognises these costs as a non-current asset only if certain criteria are met, which is referred to as the stripping activity asset. The amendment has no material impact on the Group's financial position and performance.

·  "Improvements to IFRSs (issued in May 2012)", applicable for annual periods beginning on or after 1 January 2013

The IASB issued improvements to IFRSs, including IAS 1 Presentation of Financial Statements, IAS 16 Property Plant and Equipment, IAS 32 Financial Instruments, Presentation, and IAS 34 Interim Financial Reporting.

The Group made an assessment of the changes and determined there is no significant impact in its financial position and performance

 

3 Segment reporting

The Group's activities are principally related to mining operations which involve the exploration, production and sale of gold and silver. Products are subject to the same risks and returns and are sold through the same distribution channels. The Group undertakes a number of activities solely to support mining operations including power generation and services. Transfer prices between segments are set on an arm's length basis in a manner similar to that used for third parties. Segment revenue, segment expense and segment results include transfers between segments. Those transfers are eliminated on consolidation.

For internal reporting purposes, management takes decisions and assesses the performance of the Group through consideration of the following reporting segments:

·  Operating unit - Ares, which generates revenue from the sale of gold and silver

·  Operating unit - Arcata, which generates revenue from the sale of gold, silver and concentrate

·  Operating unit - Pallancata, which generates revenue from the sale of concentrate

·  Operating unit - San Jose, which generates revenue from the sale of gold, silver, concentrate and dore

·  Operating unit - Moris, which generates revenue from the sale of gold and silver

·  Exploration, which explores and evaluates areas of interest in brownfield and greenfield sites with the aim of extending the
life-of-mine of existing operations and to assess the feasibility of new mines. The exploration segment includes expenses reflected through profit and loss and capitalised as assets

·  Other - includes the profit or loss generated by Empresa de Transmisión Callalli S.A.C. (a power generation company), HMX, S.A. de C.V. (a service company in Mexico), Empresa de Transmisión Aymaraes S.A.C. (a power generation company), and the Selene mine, that closed in 2009 and which, as a consequence, is not considered to be a reportable segment.

The Group's administration, financing, other activities (including other income and expense), and income taxes are managed at a corporate level and are not allocated to operating segments.

Segment information is consistent with the accounting policies adopted by the Group. Management evaluates the financial information based on International Financial Reporting Standards (IFRS) as adopted for use in the European Union.

The Group measures the performance of its operating units by the segment profit or loss that comprises gross profit, selling expenses and exploration expenses.

Segment assets include items that could be allocated directly to the segment.

(a) Reportable segment information



Ares
US$000


Arcata US$000


Pallancata US$000


San Jose US$000


Moris
US$000


ExplorationUS$000 


Other1


US$000 


Adjustment
and
eliminations
US$000


Total
US$000

Year ended
31 December 2013


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Revenue from
external customers


50,362

 

136,968

 

181,795

 

240,723

 

12,247

 

-

 

63

 

-


622,158

Inter segment revenue


-

 

-

 

-

 

-

 

-

 

-

 

8,796

 

(8,796)


-

Total revenue


50,362

 

136,968

 

181,795

 

240,723

 

12,247

 

-

 

8,859

 

(8,796)


622,158



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Segment profit/(loss)


(3,515)

 

31,710

 

49,357

 

44,142

 

1,430

 

(50,894)

 

4,037

 

1,547


77,814

Others2  


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(185,284)

Profit from continuing operations before
income tax


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(107,470)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Other segment information


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Depreciation3


(8,723)

 

(31,044)

 

(50,222)

 

(52,790)

 

(1,757)

 

(1,927)

 

(3,151)

 

-


(149,614)

Amortisation


-

 

-

 

-

 

(1,300)

 

-

 

(441)

 

-

 

-


(1,741)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Assets


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Capital expenditure


3,783

 

43,255

 

44,356

 

56,502

 

932

 

119,671

 

13,079

 

-


281,578



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Current assets


13,211

 

14,009

 

34,735

 

73,844

 

1,269

 

1,874

 

316

 

-


139,258

Other non-current assets


1,328

 

142,618

 

149,057

 

217,344

 

12

 

594,263

 

29,331

 

-


1,133,953

Total segment assets


14,539

 

156,627

 

183,792

 

291,188

 

1,281

 

596,137

 

29,647

 

-


1,273,211

Not reportable assets4


-

 

-

 

-

 

-

 

-

 

-

 

472,831

 

-


472,831

Total assets


14,539

 

156,627

 

183,792

 

291,188

 

1,281

 

596,137

 

502,478

 

-


1,746,042

1  'Other' revenue primarily relates to revenues earned by HMX S.A. de C.V. for services provided to the Moris mine, and the Mexican exploration activities.

2  Comprised of administrative expenses of US$56,776,000, other income of US$6,416,000, other expenses of US$15,555,000, impairment and write-off of assets of US$78,521,000, share of gains of associates and joint ventures of US$5,921,000, gain on transfer from onvestments accounted under the equity method to available-for-sale financial assets of US$107,942,000, finance income of US$13,092,000, finance expense of US$148,050,000, and foreign exchange loss of US$19,753,000.

3  Includes US$28,000, US$613,000 and US$1,158,000 of depreciation capitalised in San Jose mine unit, the Crespo project and the Inmaculada project respectively.

4  Not reportable assets are comprised of available-for-sale financial assets of US$51,658,000, other receivables of US$110,166,000, income tax receivable of US$22,156,000, deferred income tax assets of US$2,416,000 and cash and cash equivalents of US$286,435,000.

 

 

3 Segment reporting (continued)

(a) Reportable segment information



Ares
US$000


Arcata US$000


Pallancata US$000


San Jose US$000


Moris
US$000


ExplorationUS$000 


Other1


US$000 


Adjustment
and
eliminations
US$000


Total
US$000

Year ended
31 December 2013


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Revenue from
external customers


50,362

 

136,968

 

181,795

 

240,723

 

12,247

 

-

 

63

 

-


622,158

Inter segment revenue


-

 

-

 

-

 

-

 

-

 

-

 

8,796

 

(8,796)


-

Total revenue


50,362

 

136,968

 

181,795

 

240,723

 

12,247

 

-

 

8,859

 

(8,796)


622,158



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Segment profit/(loss)


(3,515)

 

31,710

 

49,357

 

44,142

 

1,430

 

(50,894)

 

4,037

 

1,547


77,814

Others2  


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(185,284)

Profit from continuing operations before
income tax


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(107,470)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Other segment information


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 


(8,723)

 

(31,044)

 

(50,222)

 

(52,790)

 

(1,757)

 

(1,927)

 

(3,151)

 

-


(149,614)

Amortisation


-

 

-

 

-

 

(1,300)

 

-

 

(441)

 

-

 

-


(1,741)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Assets


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Capital expenditure


3,783

 

43,255

 

44,356

 

56,502

 

932

 

119,671

 

13,079

 

-


281,578



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Current assets


13,211

 

14,009

 

34,735

 

73,844

 

1,269

 

1,874

 

316

 

-


139,258

Other non-current assets


1,328

 

142,618

 

149,057

 

217,344

 

12

 

594,263

 

29,331

 

-


1,133,953

Total segment assets


14,539

 

156,627

 

183,792

 

291,188

 

1,281

 

596,137

 

29,647

 

-


1,273,211

Not reportable assets4


-

 

-

 

-

 

-

 

-

 

-

 

472,831

 

-


472,831

Total assets


14,539

 

156,627

 

183,792

 

291,188

 

1,281

 

596,137

 

502,478

 

-


1,746,042

1  'Other' revenue primarily relates to revenues earned by HMX S.A. de C.V. for services provided to the Moris mine, and the Mexican exploration activities.

2  Comprised of administrative expenses of US$56,776,000, other income of US$6,416,000, other expenses of US$15,555,000, impairment and write-off of assets of US$78,521,000, share of gains of associates and joint ventures of US$5,921,000, gain on transfer from onvestments accounted under the equity method to available-for-sale financial assets of US$107,942,000, finance income of US$13,092,000, finance expense of US$148,050,000, and foreign exchange loss of US$19,753,000.

3  Includes US$28,000, US$613,000 and US$1,158,000 of depreciation capitalised in San Jose mine unit, the Crespo project and the Inmaculada project respectively.

4  Not reportable assets are comprised of available-for-sale financial assets of US$51,658,000, other receivables of US$110,166,000, income tax receivable of US$22,156,000, deferred income tax assets of US$2,416,000 and cash and cash equivalents of US$286,435,000.

3 Segment reporting (continued)

(b) Geographical information

The revenue for the period based on the country in which the customer is located is as follows:



Year ended 31 December



2013
US$000


2012
US$000

External customer


 



USA


148,201


118,409

Peru


91,781


63,769

Canada


53,664


104,509

Germany


4,901


75,202

Switzerland


149,452


154,200

United Kingdom


38,697


40,664

Mexico


-


480

Korea


135,100


260,719

Japan


362


-

Total


622,158


817,952

Inter-segment


 


 

Peru


3,122


1,324

Mexico


5,674


5,177

Total


630,954


824,453

 

In the periods set out below, certain customers accounted for greater than 10% of the Group's total revenues as detailed
in the following table:



Year ended 31 December 2013


Year ended 31 December 2012



US$000


% Revenue


Segment


US$000


% Revenue


Segment

LS Nikko


135,100

 

22%

 

Pallancata and San Jose


234,066

 

29%

 

Pallancata
and San Jose

Argor Heraus


105,730

 

17%

 

Ares, Arcata and San Jose


121,122

 

15%

 

San Jose

Johnson Matthey Inc.


70,547

 

11%

 

Ares, Arcata and Moris


25,194

 

3%

 

Ares, Arcata, Moris and San Jose

Teck Metals Ltd. (formerly Teck Cominco Metals Ltd)


53,664

 

9%

 

Pallancata and San Jose


104,509

 

13%

 

Pallancata
and San Jose

 

3 Segment reporting (continued)

Non-current assets, excluding financial instruments and income tax assets, were allocated based on the geographical area where the assets are located as follows:



As at 31 December

 


2013
US$000


2012
US$000

Peru


746,211


684,471

Argentina


217,415


251,935

Mexico


40,591


27,075

Chile


117,466


113,387

United Kingdom


120


78,335

Total non-current segment assets


1,121,803


1,155,203

Available-for-sale financial assets


51,658


30,609

Trade and other receivables


12,128


8,613

Deferred income tax assets


2,416


856

Total non-current assets


1,188,005


1,195,281

 

4 Acquisitions and disposals

(a) Acquisition of Non-controlling interest 

Minera Suyamarca S.A.C.

On October 2013, Hochschild Mining entered into a binding agreement to acquire the 40% interests held by International Minerals Corporation ("IMZ") in Minera Suyamarca S.A.C., which holds the Pallancata mine and Inmaculada Advanced Project in Peru (the "Peruvian Assets"). The transaction was executed by way of a court-approved Plan of Arrangement under the Business Corporations Act (Yukon) ("the Canadian Act"). Prior to the Acquisition, Hochschild held a 60% interest in the Peruvian Assets.

IMZ was a Canadian public company headquartered in Scottsdale, Arizona, with interests in gold and silver properties, both producing and under development, in Peru and the USA. The company was listed on the Toronto and Swiss stock exchanges under the symbol "IMZ" and quoted on the Frankfurt stock exchange under the symbol "MIW". 117,636,376 common shares were issued and outstanding, of which 3,755,746 shares (3.2%) were owned by Hochschild.

As a condition to the completion of the acquisition, IMZ transferred all of its assets (other than the Peruvian Assets) and all of its liabilities (other than the liabilities related to the Peruvian Assets), to Chaparral Gold. The IMZ internal re-organisation was effected pursuant to the terms of a master re-organisation agreement among IMZ, Chaparral Gold and the directly-held, non-Peruvian subsidiaries of IMZ.

In connection with the acquisition, each IMZ shareholder (other than Hochschild or its affiliates) received a cash payment of $2.38 per IMZ share (for aggregate cash consideration of $271 million) and each IMZ shareholder (including Hochschild and its affiliates) received one common share of Chaparral Gold Corp ("Chaparral Gold") per IMZ share.

Hochschild (through a newly established Canadian acquisition subsidiary, HOC Holdings Canada Inc.) acquired 100% of the shares of IMZ (which, at the point of acquisition, held only the Peruvian Assets and liabilities related to the Peruvian Assets) that it did not already own by way of the plan of arrangement under the Canadian Act. IMZ was delisted on 20 December 2013.

IMZ is 100% owner of Minera Oro Vega S.A.C. ("MOV"). MOV is 40% owner of Minera Suyamarca S.A.C and 100% owner of Minera Qorihuayta S.A.C., all registered in Peru.

In compliance with the Group´s accounting policy, the difference between the consideration paid and the carrying value of the non-controlling interest at the acquisition date has been recognised in retained earnings as follows:



US$000

Cash and cash equivalents (US$2.38 per share)


(271,036)

Cash and cash equivalents (transaction costs paid)


(1,091)

Transaction costs pending of payment


(4,264)

Available-for-sale financial assets (note 19)


(8,939)

Net assets received from Minera Oro Vega S.A.C


1,777

Total consideration


(283,553)

Non-controlling interest


148,185

Retained earnings


(135,368)

(b) Acquisition of assets 

Andina Minerals Inc

On 8 November 2012, the Group made a CAD$0.80 per share all-cash offer for all of the issued and outstanding common
shares of Andina Minerals Inc ('Andina'), a TSX-V listed gold exploration company with projects in Chile, for a total consideration of C$103,416,870. The Board of Directors of Andina unanimously recommended that its shareholders vote in favour of the transaction.

Andina's major asset, the 100% owned Volcan project, includes the Dorado area.

Andina was based in Alberta, Canada and was the 100% owner of Quitovac Mining Company Limited and Andina Holdings Inc, both based in Canada. Andina Holdings Inc owned 99.99% of Andina Minerals Chile Limitada, based in Santiago, Chile. The Chilean company owned two properties: Encrucijada and Volcan and 50% of Sociedad Contractual Minera Pampa Buenos Aires.

At 31 December 2012, the Group had paid US$90,156,869, for 112,124,252 common shares of Andina, representing an 81.4% interest on a fully diluted basis (86.7% basic basis ). As a result of the acquisition the Group incurred directly attributable transaction costs of US$11,441,742. The Group recognised a liability of US$13,787,427 in respect of the Group´s commitment to acquire 17,146,835 remaining shares as at 31 December 2012.

The fair value total cost of assets acquired and liabilities assumed comprise the following:


US$000

Cash and cash equivalents

3,190

Trade and other receivables

543

Evaluation and exploration assets

86,301

Property, plant and equipment

330

Water permits

26,583

Total assets

116,947

Accounts payable and other liabilities

1,559

Total liabilities

1,559

Net assets acquired

115,388


 

Cash consideration

90,157

Liability to acquire non-controlling interests

13,788

Transaction costs

11,443

Total

115,388


 

Cash paid to acquire controlling interest

90,157

Transaction costs paid

9,365

Less cash acquired

(3,190)

Net cash flow on acquisition

96,332

Based on the Group´s ownership interest as at 31 December 2012, the Group was deemed to have control over Andina and therefore consolidated it as a subsidiary undertaking from that date. The transaction was recognised as an asset acquisition, and the fair value of the net assets acquired was US$115,388,000.

The outstanding balance at 31 December 2012 of US$13,787,427 was paid between January 2013(US$4,268,605) and February 2013(US$9,518,822). The Group completed the acquisition on 20 February 2013. The total consideration was settled in cash.

During 2013 the Group´s 50% interest in Sociedad Contractual Minera Pampa Buenos Aires was transferred to Iron Creek Chile (BVI) Ltd. and all the Canadian companies were dissolved.

 

5 Revenue


Year ended 31 December


2013
US$000


2012
US$000

Gold (from dore bars)

112,855


124,581

Silver (from dore bars)

179,773


153,509

Gold (from concentrate)

103,721


135,055

Silver (from concentrate)

225,746


404,277

Services

63


530

Total

622,158


817,952

Included within revenue is a loss of US$29,866,952 relating to provisional pricing adjustments representing the change in the fair value of embedded derivatives (2012: loss of US$4,015,265) arising on sales of concentrates and dore (refer to note 2(r) and footnote 1 of note 22).

6 Cost of sales

Included in cost of sales are:


Year ended 31 December


2013
US$000


2012
US$000

Depreciation and amortisation

146,918


124,387

Personnel expenses (note 10)

124,834


121,775

Mining royalty (note 30)

8,293


9,672

Change in products in process and finished goods

3,926


(17,708)

7 Administrative expenses


Year ended 31 December


2013
US$000


2012
US$000

Personnel expenses (note 10 and 11(1))

28,445


40,006

Professional fees

5,553


6,180

Social and community welfare expenses1  

3,216


6,459

Lease rentals

1,925


1,510

Travel expenses

1,342


2,443

Communications

834


990

Indirect taxes

3,044


3,723

Depreciation and amortisation

2,638


2,285

Technology and systems

1,092


828

Security

1,083


991

Supplies

243


238

Other

7,361


7,342

Total

56,776


72,995

1    Represents amounts expended by the Group on social and community welfare activities surrounding its mining units.

8 Exploration expenses


Year ended 31 December


2013
US$000


2012
US$000

Mine site exploration1

 

 



Arcata

2,052


4,467

Ares

452


1,507

Sipan

600


1,415

Pallancata

2,149


4,062

San Jose

1,795


5,788

Moris

129


313


7,177


17,552

Prospects2

 

 



Peru

1,459


4,795

Argentina

294


1,028

Mexico

3,504


6,605

Chile

12,696


9,580


17,953


22,008

Generative3

 

 



Peru

3,502


4,798

Argentina

53


141

Mexico

1,157


497

Chile

330


115


5,042


5,551

Personnel (note 10 and 11(1))

12,302


13,865

Others

3,853


5,636

Total

46,327


64,612

1  Mine-site exploration is performed with the purpose of identifying potential minerals within an existing mine-site, with the goal of maintaining or extending
the mine's life.

2  Prospects expenditure relates to detailed geological evaluations in order to determine zones which have mineralisation potential that is economically viable
for exploration. Exploration expenses are generally incurred in the following areas: mapping, sampling, geophysics, identification of local targets and
reconnaissance drilling.

3  Generative expenditure is very early stage exploration expenditure related to the basic evaluation of the region to identify prospects areas that have the geological conditions necessary to contain mineral deposits. Related activities include regional and field reconnaissance, satellite images, compilation of public information and identification of exploration targets.

The following table lists the liabilities (generally payables) outstanding at the year-end, which relate to the exploration activities of Group companies engaged only in exploration. Liabilities related to exploration activities incurred by Group operating companies are not included since it is not practicable to separate the liabilities related to the exploration activities of these companies from their operating liabilities.


As at 31 December


2013
US$000


2012
US$000

Liabilities related to exploration activities

1,636


2,082

Cash flows on exploration activities are as follows:


As at 31 December


2013
US$000


2012
US$000

Payments

23,441


27,285

9 Selling expenses


Year ended 31 December


2013
US$000


2012
US$000

Transportation of dore, concentrate and maritime freight

4,256


5,745

Sales commissions

1,050


2,264

Personnel expenses (note 10)

210


374

Warehouse services

3,256


3,918

Taxes

16,596


23,323

Other

3,417


3,836

Total

28,785


39,460

 

10 Personnel expenses1

 


Year ended 31 December

 

2013
US$000


2012
US$000

Salaries and wages

128,225


129,208

Workers' profit sharing

(737)


18,487

Other legal contributions

24,641


21,084

Statutory holiday payments

7,860


7,600

Long Term Incentive Plan

(1,127)


7,891

Termination benefits

10,487


975

Other

6,584


13,079

Total

175,933


198,324

1    Personnel expenses are distributed in cost of sales, administrative expenses, exploration expenses, selling expenses and capitalised as property plant and equipment amounting to US$124,834,000 (2012: US$121,775,000), US$28,445,000 (2012: US$40,006,000), US$12,302,000 (2012: US$13,865,000), US$210,000 (2012: US$374,000) and US$10,142,000 (2012: US$22,304,000) respectively.

Average number of employees for 2013 and 2012 were as follows:


As at 31 December


2013


2012

Peru

3,226


3,011

Argentina

1,227


1,226

Mexico

122


135

Chile

38


40

United Kingdom

12


12

Total

4,625


4,424

 

11 Pre-tax exceptional items


Year ended
31 December
2013
US$000


Year ended
31 December
2012
US$000

Cost of sales

 


 

Termination benefits1  

(2,466)

 

-

Total

(2,466)


-

Administrative expenses

 


 

Termination benefits1  

(2,351)

 

-

Total

(2,351)


-

Exploration expenses

 


 

Termination benefits1

(3,456)

 

-

Total

(3,456)


-

Other income

 


 

Termination benefits2

-


1,099

Gain on sale of property, plant and equipment

2,442


-

Total

2,442


1,099

Impairment and write-off of assets (net)

 


 

Impairment and write-off of assets3

(105,071)


(484)

Reversal of write-off and impairment of assets4  

14,400


239

Total

(90,671)


(245)

Share of post-tax losses of associates and joint ventures accounted under equity method5 

-


(1,376)

Total

-


(1,376)

Finance income

 


 

Gain from changes in the fair value of financial instruments6  

2,417


-

Total

2,417


-

Gain on transfer from investment accounted under the equity method to available-for-sale financial assets7  

107,942


-

Total

107,942


-

Finance costs

 


 

Amortisation of transaction costs on secure bank loans8  

(1,072)


-

Transaction costs on bank loans9 

(2,577)


-

Loss from changes in the fair value of financial instruments10  

(124,899)


(1,334)

Loss on sale of available-for-sale financial assets11  

(7,805)

 

-

Total

(136,353)


(1,334)

1  Termination benefits paid to workers between April and September 2013 following the restructuring plan approved by management during the first half of 2013, amounting to US$8,273,000.

2  Reversal of the provision of termination benefits for the workers of the Moris mine of US$1,099,000. At 30 September 2012 the restructuring plan agreed at 31 December 2011 was not in effect, and Moris was still in operation.

3  As at 31 December 2013 corresponds to the impairment of the San José mine unit of US$40,869,000, the Azuca project of US$30,290,000, the Crespo project of US$29,150,000 and the Ares unit of US$3,771,000, and to the write-off of assets of US$991,000. As at 31 December 2012 mainly corresponds to the write-off of assets in Compañía Minera Ares of US$471,000.

4  As at 31 December 2013 corresponds to the reversal of the impairment of San Felipe property of US$14,400,000. As at 31 December 2012 corresponds to the reversal of the write-off recorded in 2010 related to the 100% dore project at the San Jose mine.

5  Corresponds to the loss from dilution related to Gold Resource Corp. investment (note 18).

6  Corresponds to the recycling of the unrealised gain generated by the shares of International Minerals Corporation, due to the acquisition (refer to note 4(a)).

7  Gain on the reclassification of Gold Resource Corp ('GRC') shares from an investment accounted for under the equity method to an available-for-sale financial asset of US$107,942,000, as a result of the Company ceasing to have the ability to exercise significant influence (refer to note 18).

8  Corresponds to the attributable issue cost of the syndicated loan granted to Compania Minera Ares S.A.C. (note 25), disclosed as an exceptional item as it is a significant one off expense.

9  Corresponds to the write-off of transaction costs related to bank loans facilities never drawn by Minera Suyamarca S.A.C. disclosed as an exceptional item as it is a significant one off expense.

10             As at 31 December 2013 corresponds to the impairment of investments in Gold Resource Corp. of US$105,298,000, International Minerals of US$12,920,000, Pembrook Mining Corp. of US$5,745,000, Mariana Resources Ltd. of US$281,000, Northern Superior Resources Inc. of US$422,000, Iron Creek Capital Corp. of US$207,000, Empire Petroleum Corp. of US$22,000 and Brionor Resources of US$4,000. As at 31 December 2012 mainly corresponds to the impairment of Iron Creek Capital Corp, Brionor Resources and Empire Petroleum Corp of US$1,043,671, US$105,000 and US$8,000 respectively.

11             Corresponds to the loss on sale of part of the Group's holding in Gold Resource Corp. of US$7,805,000. The Group sold 3,375,000 and 1,800,000 shares on 11 July 2013 and 12 December 2013, respectively.

 

12 Finance income and finance costs before exceptional items


Year ended
31 December 2013
Before
exceptional
items
US$000


Year ended
31 December 2012
Before
exceptional
items
US$000

Finance income

 



Interest on deposits and liquidity funds

6,751


1,429

Interest on loans to non-controlling interests (note 20)

-


123

Interest income

6,751


1,552

Dividends

3,551


-

Other

373


436

Total

10,675


1,988

Finance costs

 


 

Interest on secured bank loans (note 25)

(4,633)


(1,924)

Interest on convertible bond (note 25)

(4,594)


(8,956)

Interest expense

(9,227)


(10,880)

Unwind of discount rate

(1,267)


(731)

Loss from changes in the fair value of financial instruments

(220)


-

Other

(983)


(1,259)

Total

(11,697)


(12,870)

13 Income tax expense


Year ended 31 December 2013


Year ended 31 December 2012


Before
exceptional
items
US$000


Exceptional items
US$000


Total
US$000


Before
exceptional
items
US$000


Exceptional
items
US$000


Total
US$000

Current corporate income tax from
continuing operations

 

 

 

 

 







Current corporate income tax charge

10,971

 

(752)

 

10,219


48,285

 

-

 

48,285

Current mining royalty charge (note 30)

2,344

 

-

 

2,344


3,834

 

-

 

3,834

Current special mining tax charge (note 30)

905

 

-

 

905


4,256

 

-

 

4,256

Withholding taxes

(641)

 

-

 

(641)


1,571

 

-

 

1,571


13,579

 

(752)

 

12,827


57,946

 

-

 

57,946

Deferred taxation

 

 

 

 

 


 

 

 

 

 

Origination and reversal of temporary differences from continuing operations 

31,400

 

(35,170)

 

(3,770)


28,627

 

(141)

 

28,486

Recognition of deferred tax not
previously recognised following
a change in estimate/outlook 

-

 

-

 

-


(1,024)

 

-

 

(1,024)


31,400

 

(35,170)

 

(3,770)


27,603

 

(141)

 

27,462

Total taxation charge in the income statement

44,979

 

(35,922)

 

9,057


85,549

 

(141)

 

85,408

The weighted average statutory income tax rate was 28.5% for 2013 and 32.4% for 2012. This is calculated as the average of the statutory tax rates applicable in the countries in which the Group operates, weighted by the profit/(loss) before tax of the Group companies in their respective countries as included in the consolidated financial statements.

The change in the weighted average statutory income tax rate is due to a change in the weighting of profit/(loss) before tax in the various jurisdictions in which the Group operates.

The tax related to items charged or credited to equity is as follows:


As at 31 December


2013
US$000


2012
US$000

Deferred taxation:

 



Deferred income tax relating to fair value gains on available-for-sale financial assets

-


(615)

Total tax charge in the statement of other comprehensive income

-


(615)

The total taxation charge on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to the consolidated profits of the Group companies as follows:


As at 31 December


2013
US$000


2012
US$000

Loss/(profit) from continuing operations before income tax

(119,620)


212,274

At average statutory income tax rate of 28.4% (2012: 32.4%)

(34,140)


68,814

Expenses not deductible for tax purposes

2,685


4,163

Non-taxable income1  

(1,366)


(275)

Utilisation of losses in respect of deferred tax not previously recognised2

(2,214)


(1,024)

Non-taxable share of gains of associates

(1,377)


(1,181)

Net deferred tax assets generated in the year not recognised

15,262


6,795

Deferred tax recognised on special investment regime

(4,246)


(2,481)

Derecognition of deferred income tax assets

-


615

Withholding tax

(641)


1,571

Special mining tax and mining royalty2  

3,249


8,090

Foreign exchange rate effect3  

30,366


(1,303)

Other

1,479


1,624

At average effective income tax rate of -11.8% (2012: 40.2%)

9,057


85,408

Taxation charge attributable to continuing operations

9,057


85,408

Total taxation charge in the income statement

9,057


85,408

1  Mainly corresponds to dividends received from Gold Resource Corp. and International Minerals Corporation (2012: Mainly corresponds to the reversal of accrued non deductible personnel expenses recorded in 2011).

2  Corresponds to the impact of the new mining royalty and special mining tax in Peru (note 30).

3  Mainly corresponds to the foreign exchange effect from converting tax bases and monetary items from local currency to the functional currency.

 

14 Basic and diluted (loss)/earnings per share

(Loss)/earnings per share ('EPS') is calculated by dividing profit for the year attributable to equity shareholders of the Company by the weighted average number of ordinary shares issued during the year.

The Company has dilutive potential ordinary shares.


As at 31 December


2013


2012

Basic (loss)/earnings per share from continuing operations

 



Before exceptional items (US$)

(0.15)


0.19

Exceptional items (US$)

(0.21)


-

Total for the year and from continuing operations (US$)

(0.36)


0.19

Diluted (loss)/earnings per share from continuing operations

 


 

Before exceptional items (US$)

(0.15)


0.19

Exceptional items (US$)

(0.21)


-

Total for the year and from continuing operations (US$)

(0.36)


0.19

Net (loss)/profit from continuing operations before exceptional items and attributable to equity holders of the parent is derived as follows:


As at 31 December


2013


2012

(Loss)/profit for the year from continuing operations (US$000)

(128,677)


126,866

Less non-controlling interests (US$000)

5,594


(63,795)

(Loss)/profit attributable to equity holders of the parent - continuing operations (US$000)

(123,083)


63,071

Exceptional items after tax - attributable to equity holders of the parent (US$000)

72,738


1,759

(Loss)/profit from continuing operations before exceptional items attributable to equity holders
of the parent (US$000)

(50,345)


64,830

Interest on convertible bond (US$000)1  

-


-

Diluted (loss)/profit from continuing operations before exceptional items attributable to equity
holders of the parent (US$000)

(50,345)


64,830

The following reflects the share data used in the basic and diluted (loss)/earnings per share computations:


As at 31 December


2013


2012

Basic weighted average number of ordinary shares in issue (thousands)

345,225


338,022

Dilutive potential ordinary shares related to convertible bond (thousands)1  

-


-

Diluted weighted average number of ordinary shares in issue and dilutive potential
ordinary shares (thousands)

345,225


338,022

1    The potential ordinary shares related to the convertible bond have not been included in the calculation of diluted EPS for 2013 and 2012 as they have an anti dilutive effect.

15 Property, plant and equipment

 

Mining properties and development
costs
 US$000


Land and buildings US$000


Plant and equipment
US$000


Vehicles US$000


Mine
 closure
 asset
US$000


Construction in progress and capital advances US$000


Total
US$000

Year ended 31 December 2013














Cost














At 1 January 2013

540,324

 

179,940

 

313,457

 

5,360

 

67,356

 

119,381

 

1,225,818

Additions

141,504


2,823


49,700


323


-


73,421


267,771

Change in discount rate

-


-


-


-


(1,481)


-


(1,481)

Disposals

-


-


(724)


(43)


-


-


(767)

Write-offs

(321)


(57)


(7,089)


(150)


-


-


(7,617)

Change in mine closure estimate

-


-


-


-


8,487


-


8,487

Transfers and other movements

(50)


37,377


15,611


1,021


-


(56,419)


(2,460)

Transfers from evaluation and
exploration assets

188,323


-


-


-


-


-


188,323

Foreign exchange

-


-


124


-


-


-


124

At 31 December 2013

869,780

 

220,083

 

371,079

 

6,511

 

74,362

 

136,383

 

1,678,198

Accumulated depreciation
and impairment














At 1 January 2013

306,443

 

87,679

 

146,823

 

2,574

 

44,808

 

936

 

589,263

Depreciation for the year

96,862


20,377


29,316


989


2,070


-


149,614

Write-offs

(41)


(9)


(5,567)


(110)


-


-


(5,727)

Disposals

-


-


(351)


(14)


-


-


(365)

Impairment2  

42,080

 

5,883

 

8,520

 

204

 

1,547

 

3,899

 

62,133

Transfers from evaluation and exploration assets

7,418

 

-

 

-

 

-

 

-

 

-

 

7,418

Transfers and other movements

15

 

6,993

 

(3,350)

 

2

 

-

 

(1,337)

 

2,323

Foreign exchange

-


-


62


-


-


-


62

At 31 December 2013

452,777

 

120,923

 

175,453

 

3,645

 

48,425

 

3,498

 

804,721

Net book amount at 31 December 2013

417,003

 

99,160

 

195,626

 

2,866

 

25,937

 

132,885

 

873,477

1    The carrying value of plant and equipment held under finance leases at 31 December 2013 was US$539,627 (2012: US$991,230). Additions during
the year included US$Nil (2012: US$Nil) of plant and equipment under finance leases. Leased assets are pledged as security for the related finance lease.

2    There were borrowing costs capitalised in property, plant and equipment amounting to US$5,736,000 (2012:US$Nil). The capitalisation rate used was 9.45%.

3    The Group recorded an impairment of US$450,000 with respect to the Azuca project, US$22,535,000 with respect to the Crespo project, US$35,377,000 with respect to the San Jose mine unit and US$3,771,000 with respect to the Ares mine unit. These impairment charges arose primarily as a result of decreases in the prices of silver and gold and were determined using the fair value less costs to dispose (FVLCD) methodology. FVLCD was determined using a discounted cash flow model to estimate the amount that would be paid by a willing third party in an arm's length transaction. Any variation in the key assumptions would either result in further impairment or a reduction of the impairment.

 

15 Property, plant and equipment (continued)


Mining properties and development
costs
 US$000


Land and buildings US$000

 

Plant and equipment
US$000


Vehicles US$000


Mine
closure
 asset
US$000


Construction in progress and capital advances US$000


Total
US$000

Year ended 31 December 2012














Cost














At 1 January 2012

382,556


143,764


264,948


4,614


63,185


70,836


929,903

Additions

148,148


4,337


34,469


98




103,319


290,371

Change in discount rate

-


-


-


-


688


-


688

Disposals

-


(62)


(5,135)


(314)


-


-


(5,511)

Write-offs

-


-


(1,289)


(31)


-


-


(1,320)

Change in mine closure estimate

-


-


-


-


3,483


-


3,483

Transfers and other movements

455


31,901


20,429


991


-


(54,774)


(998)

Transfers from evaluation and
exploration assets

9,165


-


-


-


-


-


9,165

Foreign exchange

-


-


35


2


-


-


37

At 31 December 2012

540,324

 

179,940

 

313,457

 

5,360

 

67,356

 

119,381

 

1,225,818

Accumulated depreciation
and impairment














At 1 January 2012

233,103


70,750


118,832


2,091


42,637


936


468,349

Depreciation for the year

73,340


16,975


31,974


701


2,171


-


125,161

Write-offs

-


-


(811)


(18)


-


-


(829)

Disposals

-


(46)


(3,190)


(200)


-


-


(3,436)

Foreign exchange

-


-


18


-


-


-


18

At 31 December 2012

306,443

 

87,679

 

146,823

 

2,574

 

44,808

 

936

 

589,263

Net book amount at 31 December 2012

233,881

 

92,261

 

166,634

 

2,786

 

22,548

 

118,445

 

636,555

16 Evaluation and exploration assets

 

 

Azuca
US$000


Crespo
US$000


Inmaculada US$000


San Felipe US$000


Dorado US$000


Others
US$000


Total
US$000

Cost














Balance at 1 January 2012

58,353


65,418


108,677


55,950


-


28,156


316,554

Additions

12,326


1,777


8,085


-


86,301


21,525


130,014

Foreign exchange

-


276


-


-


-


-


276

Transfers from/to property, plant and equipment

125


144


-


-


-


(8,509)


(8,240)

Balance at 31 December 2012

70,804

 

67,615

 

116,762

 

55,950

 

86,301

 

41,172

 

438,604

Additions

4,736


179


965


-


4,300


2,006


12,186

Foreign exchange

-


(512)


-


-


-


-


(512)

Write- off

-


-


-


-


(26)


(4)


(30)

Transfers from/(to) property plant and equipment

-

 

(38,106)

 

(117,727)

 

-

 

-

 

(32,490)

 

(188,823)

Balance at 31 December 2013

75,540

 

29,176

 

-

 

55,950

 

90,575

 

10,684

 

261,925

Accumulated impairment














Balance at 1 January 2012

22


9,904


-


30,950


-


1,171


42,047

Balance at 31 December 2012

22


9,904


-


30,950


-


1,171


42,047

Impairment2  

29,840


5,507


-


(14,400)


-


1,706


22,653

Transfers from property, plant and equipment

-

 

(6,281)

 

-

 

 

 

-

 

(1,137)

 

(7,418)

Balance at 31 December 2013

29,862

 

9,130

 

-

 

16,550

 

-

 

1,740

 

57,282

Net book value as at 31 December 2012

70,782

 

57,711

 

116,762

 

25,000

 

86,301

 

40,001

 

396,557

Net book value as at 31 December 2013

45,678

 

29,046

 

-

 

39,400

 

90,575

 

8,944

 

204,643

1    There were no borrowing costs capitalised in evaluation and exploration assets.

2    The Group recorded an mpairment with respect to the Azuca project of US$29,840,000 , the Crespo project of US$5,507,000 and the San Jose mine unit of US$1,706,000, and partially reversed the impairment of the San Felipe project of US$14,400,000. These impairment charges arose primarily as a result of decreases in the prices of silver and gold and were determined using the fair value less costs to dispose (FVLCD) methodology. FVLCD was determined using a discounted cash flow model to estimate the amount that would be paid by a willing third party in an arm's length transaction. Any variation in the key assumptions would either result in further impairment or a reduction of the impairment.

 

17 Intangible assets


Goodwill
US$000


Transmission
line1
US$000 


 Water  permits2
US$000 


Software
licences
US$000


Legal rights3 US$000


Total
US$000

Cost












Balance at 1 January 2012

2,091


22,157 



1,260


-


25,508

Additions

-



26,583 


5


-


26,588

Transfer

-




72


-


72

Balance at 31 December 2012

2,091


22,157 


26,583 


1,337


-


52,168

Additions

-


-


-


-


1,621


1,621

Transfer

-


-


-


11


4,783


4,794

Balance at 31 December 2013

2,091


22,157


26,583


1,348


6,404


58,583

Accumulated amortisation





 







Balance at 1 January 2012

-


5,686 



1,050



6,736

Amortisation for the year4  

-


1,452 



77



1,529

Balance at 31 December 2012

-


7,138 



1,127



8,265

Amortisation for the year4  

-

 

1,213

 

-

 

87

 

441

 

1,741

Impairment of the period5  

2,091

 

1,671

 

-

 

24

 

1,108

 

4,894

Balance at 31 December 2013

2,091


10,022


-


1,238


1,549


14,900

Net book value as at 31 December 2012

2,091

 

15,019 

 

26,583 

 

210

 

-

 

43,903

Net book value as at 31 December 2013

-

 

12,135

 

26,583

 

110

 

4,855

 

43,683

1  The transmission line is amortised using the units of production method. At 31 December 2013 the remaining amortisation period is 10 years.

2  Corresponds to the acquisition of water permits of Andina Minerals Group ("Andina") (refer to note 4(b)).  They have an indefinite life according the Chilean law.

3  Legal rights correspond to expenditures required to give the Group the right to use a property for the surface exploration work, development and production. At 31 December 2013 the remaining amortisation period is 12 years.

4  The amortisation for the period is included in cost of sales and administrative expenses in the income statement.

5  The Group recorded an impairment in relation to all of the goodwill of US$2,091,000 and other intangibles of US$1,695,000 related to the San Jose mine unit, and US$1,108,000 related to the Crespo project. These impairment charges arose primarily as a result of decreases in the prices of silver and gold and were determined using the fair value less costs to dispose (FVLCD) methodology. FVLCD was determined using a discounted cash flow model to estimate the amount that would be paid by a willing third party in an arm's length transaction. Any variation in the key assumptions would either result in further impairment or a reduction of the impairment (not in the case of the goodwill).

The carrying amount of goodwill and water permits is reviewed annually to determine whether it is in excess of its recoverable amount.

In the case of the goodwill, the fair value less cost of disposal is determined at the cash-generating unit level, in this case being the San Jose, by discounting the expected cash flows estimated by management over the life of the mine.

(a)   Goodwill:

The calculation of fair value less cost of disposal is most sensitive to the following assumptions:

·  Commodity prices - Commodity prices of gold and silver are based on prices considered in the Group's 2013 forecast (2012: 2013 budget) and external market consensus forecasts. The prices considered in the 2013 (2012) impairment tests were:

Year

2013


2014


2015


2016


2017


2018


2019


2020-2024

2013 - Gold - US$/oz

1,343.9


1,405.9


1,379.3


1,319.3


1,272.1


1,272.1


1,272.1


1,272.1

2013 - Silver - US$/oz

21.2


25.0


23.5


20.7


22.3


22.3


22.3


22.3

2012 - Gold - US$/oz

1,823.0


1,723.0


1,550.0


1,411.0


1,411.0


1,411.0


1,411.0


1,411.0

2012 - Silver - US$/oz

35.0


31.0


29.0


26.0


26.0


26.0


26.0


26.0

 

·  Estimation of reserves and resources - Reserves and resources are based on management's estimates using appropriate exploration and evaluation techniques;

·  Production volumes and grades - Tonnage produced was estimated at plant capacity with 12 days of maintenance per year (2012: 12 days);

·  Capital expenditure - The cash flows for each mining unit include capital expenditures to maintain the mine and to convert resources to reserves;

·  Operating costs - Costs are based on historical information from previous years and current mining conditions;

·  Discount rates - The cash flows are discounted at real pre-tax rates that reflect the current market assessments of the time value of money and the risks specific to the cash-generating unit. These rates are based on the weighted average cost of capital specific to each cash-generating unit. The pre-tax discount rate used in the 2013 impairment test was 23.77% (2012: 25.59%).

·  As at 31 December 2012, management believed that the following changes to the main assumptions would have caused the carrying value of the cash generating unit (including the goodwill) to equal its recoverable amount. Therefore, any higher deviation would have caused the carrying value of goodwill to exceed its recoverable amount resulting in the recognition of an impairment provision. As goodwill has been fully impaired during the year ended 31 December 2013, no such analysis has been prepared as at 31 December 2013.

Assumption



2012
Variation

Gold price



(19.3)%

Silver price



(15.5)%

Reserves and resources



(109.6)%

Costs



17.7%

Discount rates



99.4%

 

Cash flows used for impairment tests were based on the annual 2013 forecast. The starting point in all cases was January 2013. Individual cash flows are based on the annual 2013 forecast and an estimated set of reserves and resources as of December 2012 provided by the Exploration and Operations teams. In addition, in respect of subsequent years, the Group makes the necessary conservative adjustments to accurately reflect the nature of each operation. In the case of revenue, production figures were estimated assuming reserve grade (after extracted tonnage) and full capacity. In the case of operating expenses, all figures are based on the 2013 forecast. Future capital expenditure is based on the 2013 forecast, excluding one-off expenses and considering the Operations team's view of developments and infrastructure, according to the estimated set of reserves and resources.

Headroom for the 2012 impairment test was US$92,349,000

Water permits:

In the case of the water permits the Group applied a value in situ methodology, which applies a realisable 'enterprise value' to unprocessed mineral resources. The methodology is used to determine the fair value less costs of disposal of the Andina cash-generating unit, which includes the water permits held by the Group. The enterprise value used in the calculation performed at 31 December 2013 was US$13.60 per gold equivalent ounce of resources. The enterprise value figures are based on observable external market information.

Headroom for the 2013 impairment test was US$14,172,000.

A change in key assumptions on which the recoverable amount of the Andina cash-generating unit was determined could cause the unit´s carrying value to exceed its recoverable amount.

 

18 Investments accounted under equity method

Gold Resource Corp.

The Group has an interest in Gold Resource Corp.("GRC"), which is involved in the exploration for and production of gold and silver in Mexico. The company is incorporated under the laws of the State of Colorado, USA, where the principal executive offices are located. The operations are conducted through two wholly-owned subsidiaries, located in Mexico, Don David Gold S.A. de C.V. and Golden Trump Resources S.A. de C.V.

On 27 March 2013 equity accounting for the investment was discontinued as a result of developments during the period which resulted in the Group concluding that it no longer had the ability to influence significantly that company´s strategic, operational and financial direction. The investment in GRC was reclassified as an available-for-sale financial asset. As of 27 March 2013 the Group had a 27.77% interest in GRC.

The following table summarises the financial information of the Group's investment in GRC:



Year ended 31 December



2013
US$000


2012
US$000

Share of the associate's statement of financial position:


 



Current assets


-


17,872

Non-current assets


-


51,002

Current liabilities


-


(3,742)

Non-current liabilities


-


(11,300)

Net assets


-


53,832

Goodwill on acquisition


-


24,356

Share of the associate's revenue, profit and loss:


 


 

Revenue


11,750


33,737

Profit1  


5,921


5,080

Carrying amount of the investment


-


78,188

1    Share of the associate's profit in 2013 includes (1) a pre-exceptional gain from the Group's share of GRC´s results for the period in which it exercised significant influence of US$5,921,000 (2012: US$6,456,000) and (2) an exceptional loss from dilution of US$Nil (2012: US$1,376,000).

 

19 Available-for-sale financial assets



Year ended 31 December



2013
US$000


2012
US$000

Beginning balance


30,609


40,769

Additions1  


1,119


-

Impairment


-


(891)

Fair value change recorded in equity


(125,932)


(9,269)

Reclassification from investments accounted under the equity method2  


189,418


-

Disposals3  


(33,498)


-

Other4  


(10,058)


-

Ending balance


51,658


30,609

1    Represents 3,755,746 shares of Chaparral Gold Corp. received due to the Group´s 3.2% interest in International Minerals Corporation (refer to note 4(a))

2    Reclassification of the Group's Gold Resource Corp. shares from an associate accounted for under the equity method to an available-for-sale financial asset on 27 March 2013. Equity accounting of the investment was discontinued as a result of developments during the period that led the Company to conclude that it no longer had the ability to influence significantly that company's strategic, operational and financial direction. Consequently, the asset is now recognised as an available-for-sale asset at fair value.

3   Sale of 3,375,000 and 1,800,000 share sof Gold Resource Corp on 11 July 2013 and 12 December 2013 respectively.

4    In connection with the acquisition of the non-controlling interest of Minera Suyamarca S.A.C. the Group disposed of its 3,755,746 shares of International Minerals Corporation (IMZ) and received 3,755,746 class A shares of IMZ, recognising them as investment in subsidiary and consequently eliminating them in consolidation (refer to note 4(a)).

 

Available-for-sale financial assets include the following:



Year ended 31 December



2013
US$000


2012
US$000

Equity securities - quoted Canadian companies


2,030


17,800

Equity securities - quoted US companies1  


42,883


23

Equity securities - quoted British companies


745


777

Equity securities - unquoted2  


6,000


12,009

Total


51,658


30,609

1     Primarily includes Gold Resource Corp shares of US$42,817,000 (2012: US$Nil).

2     Includes Pembrook Mining Corp and ECI Exploration and Mining Inc. shares.

 

The fair value of the listed shares is determined by reference to published price quotations in an active market.

The investments in unlisted shares (Pembrook Mining Corp. and ECI Exploration and Mining Inc.) were recognised at cost less any recognised impairment losses given that there is not an active market for these investments. The investment in ECI Exploration and Mining Inc. is fully impaired.

Available-for-sale financial assets are denominated in the following currencies:



2013
US$000


2012
US$000

Canadian dollars


8,030


29,809

US dollars


42,883


23

Pounds sterling


745


777

Total


51,658


30,609

 

20 Trade and other receivables



As at 31 December



2013


2012



Non-current
US$000


Current
US$000


Non-current
US$000


Current
US$000

Trade receivables 


-

 

69,702


-

 

88,435

Advances to suppliers


-

 

22,667


-

 

17,916

Credit due from exports of Minera Santa Cruz


5,776

 

-


5,609

 

2,578

Due from non-controlling interests1


-

 

-


-

 

2,224

Receivables from related parties


-

 

111


-

 

1,017

Loans to employees


2,030

 

909


2,276

 

1,608

Interest receivable


-

 

600


-

 

85

Receivable from Kaupthing, Singer and Friedlander Bank


-

 

294


-

 

361

Other


2,638

 

19,115


102

 

6,575

Provision for impairment2 


-

 

(5,084)


-

 

(3,819)

Financial assets classified as receivables


10,444

 

108,314


7,987

 

116,980

Prepaid expenses


755

 

11,602


626

 

10,237

Value Added Tax (VAT)3  


929

 

47,824


-

 

38,956

Total


12,128

 

167,740


8,613

 

166,173

The fair values of trade and other receivables approximate their book value.

1     Corresponds to an amount receivable from Iron Creek Capital Corp.

2     Includes the provision for impairment of trade receivable from a customer in Peru of US$1,108,000 (2012: US$1,108,000), the impairment of deposits in Kaupthing, Singer and Friedlander of US$294,000 (2012: US$361,000) and other receivables of US$3,682,000 (2012: US$2,350,000).

3     This includes an amount of US$17,807,000 (2012: US$18,736,000) VAT paid related to the San Jose project that will be recovered through future sales of gold and silver by Minera Santa Cruz S.A. It also includes the VAT of Minera Suyamarca of US$10,639,000 (2012: US$6,388,000), Compañía Minera Ares S.A.C. of US$11,005,000 (2012: US$8,574,000) and Minas Santa María de Moris of US$3,108,000 (2012: US$2,445,000). The VAT is valued at its recoverable amount.

Movements in the provision for impairment of receivables:



Individually
impaired
US$000


At 1 January 2012


2,406

 

Provided for during the year


1,567


Released during the year


(154)


At 31 December 2012


3,819

 

Provided for during the year


1,485


Released during the year


(220)


At 31 December 2013


5,084

 

As at 31 December, the ageing analysis of financial assets classified as receivables net of impairment is as follows:







Past due but not impaired

Year


Total
US$000


Neither past due nor impaired
US$000


Less than
30 days US$000


30 to
60 days US$000


61 to
90 days US$000



91 to
120 days
US$000


Over
120 days US$000

2013


118,758

 

118,758

 

-

 

-

 

-

 

-

 

-

2012


124,967

 

124,967

 

-

 

-

 

-

 

-

 

-

 

21 Inventories



As at
31 December 2013
US$000


As at
31 December 2012
US$000

Finished goods


7,871


4,874

Products in process


21,246


28,162

Raw materials


2


1

Supplies and spare parts


47,118


49,021



76,237


82,058

Provision for obsolescence of supplies


(6,681)


(5,645)

Total


69,556


76,413

Finished goods include ounces of gold and silver, dore and concentrate. Dore is an alloy containing a variable mixture of silver, gold and minor impurities delivered in bar form to refiners and is considered a product in process. The refined products are then sold to the customers and/or refiners. Concentrate is a product containing sulphides with a variable content of base and precious metals and is sold to smelters.

The amount of dore on hand at 31 December 2013 included in products in process is US$697,000 (2012: US$9,370,000).

As part of the Group's short-term financing policies, it acquires pre-shipment loans which are guaranteed by the sales contracts.

The amount of expense recognised in profit and loss related to the consumption of inventory of supplies, spare parts and raw materials is US$94,235,000 (2012: US$85,651,000).

Movements in the provision for obsolescence comprise an increase in the provision of US$1,832,000 (2012: US$3,608,000) and the reversal of US$Nil relating to the sale of supplies and spare parts, that had been provided for (2012: US$504,000).

The amount of income relating to the reversal of the inventory provision is US$90,000 (2012: US$Nil).

 

22 Other financial assets and liabilities



As at 31 December



2013
US$000


2012
US$000

Other financial assets


 



Warrants in Iron Creek Capital Corp.


-


1

Bonds


-


149

Total financial assets at fair value through profit or loss


-


150

Other financial liabilities


 


 

Embedded derivatives1  


2,294


6,891

Total financial liabilities at fair value through profit or loss


2,294


6,891

1    Sales of concentrate and certain gold and silver volumes are provisionally priced at the time the sale is recorded. The price is then adjusted after an agreed period of time (usually linked to the length of time it takes for the smelter to refine and sell the concentrate or for the refiner to process the dore into gold and silver), with the Group either paying or receiving the difference between the provisional price and the final price. This price exposure is considered to be an embedded derivative in accordance with IAS 39 'Financial Instruments: Recognition and Measurement'. The gain or loss that arises on the fair value of the embedded derivative is recorded in 'Revenue' (refer to note 5).

 

23 Cash and cash equivalents



As at 31 December



2013
US$000


2012
US$000

Cash at bank


454


322

Liquidity funds1  


8,751


72,803

Current demand deposit accounts2  


62,259


61,654

Time deposits3  


214,971


224,165

Cash and cash equivalents considered for the statement of cash flows4  


286,435


358,944

The fair value of cash and cash equivalents approximates their book value. The Group does not have undrawn borrowing facilities available in the future for operating activities or capital commitments.

1  The liquidity funds are mainly invested in certificates of deposit, commercial papers and floating rate notes with a weighted average maturity of 8 days as at 31 December 2013 (2012: average of 5 days). In addition, liquidity funds include US Treasury bonds amounting to US$Nil (2012: US$49,967,000).

2  Relates to bank accounts which are freely available and bear interest.

3  These deposits have an average maturity of 27 days (2012: Average of 36 days).

4  Funds deposited in Argentinean institutions are effectively restricted for transfer to other countries and are invested locally. Included within cash and cash equivalents at 31 December 2013 is US$29,112,000 (2012: US$25,452,000), which is not readily available for use in subsidiaries outside of Argentina.

24 Trade and other payables



As at 31 December



2013


2012



Non-
current
US$000


Current
US$000


Non-
current
US$000


Current
US$000

Trade payables1


-

 

73,339


-

 

76,012

Salaries and wages payable2


-

 

18,620


-

 

31,935

Dividends payable


-

 

4,584


-

 

2,242

Taxes and contributions


-

 

8,264


-

 

9,077

Accrued expenses


-

 

-


-

 

383

Guarantee deposits


-

 

7,266


-

 

6,325

Mining royalty (note 30)


-

 

840


-

 

1,630

Deferred income3  


-

 

-


-

 

4,000

Amount payable to non-controlling interest4  


-

 

-


-

 

13,787

Accounts payable to related parties (note 30)


-

 

16


-

 

-

Other


174

 

6,293


-

 

4,194

Total


174

 

119,222


-

 

149,585

 

The fair value of trade and other payables approximate their book values.

1     Trade payables relate mainly to the acquisition of materials, supplies and contractors' services. These payables do not accrue interest and no guarantees have been granted.

2     Salaries and wages payable were as follows:



2013
US$000


2012 US$000

Remuneration payable


17,885


26,404

Board members' remuneration


152


581

Executive Long Term Incentive Plan


583


4,950

Total


18,620


31,935

3     Deferred income represents non-refundable advance receipts in respect of an option granted to a third party to acquire the Group´s San Felipe project in Mexico. On August 2013 the Group signed an amendment to extend the option for the third party to purchase the San Felipe project to 31 October 2015. Due to the significance of the amount advanced the Group deemed it appropriate to disclose the amount separately on the face of the consolidated statement of financial position for the year 2013. A further US$22,000,000 payment is expected to be made by the third party to fulfil the option agreement and acquire a full interest in the project.

4     Amount payable to complete the purchase of Andina Minerals Inc non-controlling shareholders' interests (note 4(b)).

25 Borrowings



As at 31 December



2013


2012



Effective
interest rate


Non-
current
US$000


Current
US$000


Effective
interest rate


Non-
current
US$000


Current
US$000

Secured bank loans (a)













Pre-shipment loans in Minera Santa Cruz (note 21)


 

 

-

 

24,122


-

 

-

 

-

Pre-shipment loans in Minera Suyamarca S.A.C.(note 21)


 

 

-

 

30,053


-

 

-

 

-

Leasing agreement with Banco de Credito
del Peru


-

 

-

 

-


3.5%

 

-

 

336

Leasing agreement with Banco Interamericano de Finanzas


-

 

-

 

-


6%

 

-

 

24

Syndicated loan


25.26%

 

-

 

265,877


-

 

-

 

-

Convertible bond payable (b)


8.26%

 

-

 

115,873


8.26%

 

106,850

 

6,613

Total


 

 

-

 

435,925


 

 

106,850

 

6,973

(a) Secured bank loans:

Leasing agreements:

 The following table demonstrates the present value and maturity of future minimum lease payments as at 31 December 2013 and 2012:



As at 31 December



2013
US$000


2012
US$000

Not later than one year


-


360

Between 1 and 2 years


-


-

Between 2 and 5 years


-


-

Total


-


360

 

The following table reconciles the total minimum lease payments and their present values as at 31 December 2013 and 2012:



As at 31 December



2013
US$000


2012
US$000

Present value of leases


-

 

360

Future interest


-

 

4

Total minimum lease payments


-

 

364

The carrying amount of net lease liabilities approximate their fair value.

Syndicated loan:

Loan facility with a syndicate of lenders with Bank of America acting as the Administrative Agent. Total secured term loan facility of US$340,000,000 that accrued an effective interest rate of 25.26% and is guaranteed by a group of subsidiaries headed by Hochschild Mining plc. The balance at 31 December 2013 is comprised of the carrying value of US$265,560,000  determined in accordance with the effective interest method plus accrued interest payable of US$317,000. The loan was repaid on 23 January 2014.

Upon initial recognition, the syndicated loan was recorded at a value of US$263,432,000, representing a principal of US$270,000,000 less transaction costs of US$6,568,000.

(b) Convertible bond payable

Relates to the placement of US$115,000,000 of senior unsecured convertible bonds, due 2014, which are convertible into ordinary shares of Hochschild Mining plc. The Group expect to settle the convertible bond in cash. The bonds have a coupon of 5.75% per annum payable semi-annually on 28 January and 28 July of each year. The issuer has the option to call the bonds on or after 20 October 2012 until maturity in the event the trading price of the ordinary shares exceeds 130% of the conversion price over a certain period. In addition, the Group has the right to redeem the bonds if, at any time, the aggregate principal amount of the bonds outstanding is equal to or less than 15% of the aggregate principal amount of the bonds initially issued.

The following information has to be considered for conversion of the bonds into ordinary shares:

·  Conversion Price: GBP 3.80;

·  Fixed Exchange Rate: US$1.59/GBP 1.00.

 

The balance at 31 December 2013 is comprised of the carrying value of US$113,118,000 determined in accordance with the effective interest method plus accrued interest payable of US$2,755,000.

 

Upon initial recognition, the convertible bonds were recorded at a value of US$ 103,827,000, representing a principal of US$115,000,000 less transaction costs of US$2,741,000 and the bond equity component of $8,432,000.

 

The maturity of non-current borrowings is as follows:



As at 31 December



2013
US$000


2012
US$000

Between 1 and 2 years


-


106,850

Between 2 and 5 years


-


-

Over 5 years


-


-

Total


-


106,850

The carrying amount of current borrowings differs their fair value only with respect to differences arising under the effective interest rate calculations described above. The carrying amount and fair value of the non‑current borrowings are as follows:



Carrying amount
as at 31 December


Fair value
as at 31 December



2013
US$000


2012
US$000


2013
US$000


2012
US$000

Secured bank loans


-


-


-


-

Convertible bond payable


-


106,850


-


112,867

Total


-


106,850


-


112,867

26 Provisions


Provision 
for mine  closure1
US$000 


Workers' 
profit 
sharing2
US$000 


Long Term  Incentive 
Plan3
US$000 


Contingent 
consideration4
US$000°


Other
US$000


Total
US$000

At 1 January 2012

73,625 

 

29,831 

 

3,655 

 

32,378 

 

3,373

 

142,862

Additions


18,487 


7,322 



1,041


26,850

Accretion

123 





-


123

Change in discount rate

769 





-


769

Change in estimates5  

3,362 





-


3,362

Payments

(3,667) 


(30,893) 



(32,222) 


-


(66,782)

Amounts transferred to payables



(4,950) 



-


(4,950)

Foreign exchange


1,124 



(156) 


34


1,004

At 31 December 2012

74,214 

 

18,549 

 

6,027 

 

 

4,448

 

103,238

Less current portion

(4,105) 


(18,549) 


(1,211) 



(2,823)


(26,688)

Non-current portion

70,109 



4,816 



1,625


76,550

At 1 January 2013

74,214 

 

18,549 

 

6,027 

 

 

4,448

 

103,238

Additions

-


-


-


-


1,171


1,171

Accretion

224


-


-


-


-


224

Change in discount rate

(1,481)


-


-


-


-


(1,481)

Change in estimates

14,0055 


(427)


(2,960)


-


-


10,618

Payments

(4,781)


(17,645)


(651)


-


(83)


(23,160)

Amounts transferred to payables

-


-


(537)


-


-


(537)

Foreign exchange

(32)


(103)


-


-


(716)


(851)

At 31 December 2013

82,149

 

374

 

1,879

 

-

 

4,820

 

89,222

Less current portion

(6,311)


(374)



-


(2,888)


(9,573)

Non-current portion

75,838


-


1,879


-


1,932


79,649

1  The provision represents the discounted values of the estimated cost to decommission and rehabilitate the mines at the expected date of closure of each of the mines. The present value of the provision has been calculated using a real pre-tax annual discount rate, based on a US Treasury bond of an appropriate tenure adjusted for the impact of quantitative easing as at 31 December 2013 and 2012 respectively, and the cash flows have been adjusted to reflect the risk attached to these cash flows. Uncertainties on the timing for use of this provision include changes in the future that could impact the time of closing the mines, as new resources and reserves are discovered. The discount rates used are from 0.29% to 0.56%.

2  Corresponds to the legal and voluntary workers' profit sharing of the Group. Legal workers' profit sharing represents 8% of taxable income of Peruvian companies. Voluntary workers' profit sharing is determined by the Group taking into account the market conditions of employment. The balance of the provision as at 31 December 2013 is: (i) Legal US$374,000 (2012: US$5,788,000), (ii) Voluntary US$Nil (2012: US$12,761,000).

3  Corresponds to the provision related to awards granted under the Long Term Incentive Plan to designated personnel of the Group. Includes the following benefits: (i) 2013 awards, granted in March 2013, payable in March 2016 (ii) 2012 awards, granted in March 2012, payable in March 2015. Only employees who remain in the Group's employment on the vesting date will be entitled to a cash payment, subject to exceptions approved by the Remuneration Committee of the Board. The provision represents the discounted values of the estimated cost of the long-term employee benefit. In 2013 there is a provision of US$-2,960,000 (2012: US$7,322,000) that is disclosed under administrative expenses US$-1,698,000 (2012: US$5,420,000), exploration expenses US$-244,000 (2012: US$843,000) and capitalised as evaluation and exploration expenses US$-1,018,000 (2012: US$1,059,000). The amount of US$537,000 corresponds to the Exploration incentive Plan award and was transferred to salary and wages payable as the performance period ended at 31 December 2012 (note 24(2)).

4  This contingent consideration provision relates to International Minerals Corporation's discounted share of Hochschild's commitment to fund the first $100,000,000 needed to plan, develop and construct mining operations within the Inmaculada property. The amount of US$32,222,000 was settled as a capital contribution from non-controlling interest (refer to consolidated statement of changes in equity).

5  Based on the 2013 and 2012 internal review of mine rehabilitation budgets, an increase of US$14,005,000 (2012: US$3,362,000) was recognised.

27 Dividends paid and proposed



2013
US$000


2012
US$000

Declared and paid during the year





Equity dividends on ordinary shares:





Final dividend for 2012: US$0.03 (2011: US$0.03)


10,139


10,139

Interim dividend for 2013: US$Nil (2012: US$0.03)


-


10,139

Dividends declared to non-controlling interests: US$0.03 and US$0.05 (2012: US$0.18 and 0.08)


6,197


32,690

Dividends declared and paid

 

16,336

 

52,968

Dividends declared to non-controlling interests: US$0.03 (2012: US$0.08)


4,509


2,187

Dividends declared and not paid

 

4,509

 

2,187

Total dividends declared


20,845


55,155

Proposed for approval by shareholders at the AGM


 


 

Final dividend for 2013: US$Nil (2012: US$0.03)


-


10,139

Dividends per share

A final dividend in respect of the year ended 31 December 2012 of US$0.03 per share, amounting to a total dividend of US$10,139,237 was approved by shareholders at the Annual General Meeting held on 30 May 2013. The Directors of the Company have not declared a dividend in respect of the year ended 31 December 2013.

28 Related-party balances and transactions

(a) Related-party accounts receivable and payable

The Group had the following related-party balances and transactions during the years ended 31 December 2013 and 2012. The related parties are companies owned or controlled by the main shareholder of the parent company, joint ventures or associates.



Accounts receivable
as at 31 December


Accounts payable
as at 31 December



2013
US$000


2012
US$000


2013
US$000


2012
US$000

Current related party balances


 




 



Cementos Pacasmayo S.A.A.


111


139


16


-

Gold Resource Corp (note 18)


-


878


-


-

Total


111


1,017


16


-

As at 31 December 2013 and 2012, 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



2013
US$000


2012
US$000

Income


 



Dividend recognised for Gold Resource Corp. investment (note 18)


2,633


10,093

Expenses


 


 

Expense recognised for the rental paid to Cementos Pacasmayo S.A.A.


(164)


(164)

Transactions between the Group and these companies are on an arm's length basis.

29 Related-party balances and transactions (continued)

(b) Compensation of key management personnel of the Group



As at 31 December

Compensation of key management personnel (including Directors)


2013
US$000


2012
US$000

Short-term employee benefits


5,781


6,742

Termination benefits


77


-

Long Term Incentive Plan


(434)


2,789

Workers' profit sharing


-


44

Others


1


556

Total compensation paid to key management personnel


5,425


10,131

This amount includes the remuneration paid to the Directors of the parent company of the Group of US$4,410,956 (2012: US$5,467,700), out of which US$193,831 (2012: US$199,606) relates to pension payments.

(c) Participation in placing by Inversiones Pacasmayo S.A. ("IP SA")

IP SA, a company controlled by Eduardo Hochschild, participated in a placing of the Company's Ordinary Shares ("Shares") in October 2013 by subscribing for 16,905,066 Shares at a price of 155p per Share.

 

30 Mining royalties

Peru

In accordance with Peruvian legislation, owners of mining concessions must pay a mining royalty for the exploitation of metallic and non-metallic resources. Mining royalties have been calculated with rates ranging from 1% to 3% of the value of mineral concentrate or equivalent sold, based on quoted market prices.

In October 2011 changes came into effect for mining companies, with the following features:

a) Introduction of a Special Mining Tax ('SMT'), levied on mining companies at the stage of exploiting mineral resources. The additional tax is calculated by applying a progressive scale of rates ranging from 2% to 8.4%, of the quarterly operating profit.

b) Modification of the mining royalty calculation, which consists of applying a progressive scale of rates ranging from 1% to 12%, of the quarterly operating profit. The former royalty was calculated on the basis of monthly sales value of mineral concentrates.

The SMT and modified mining royalty are accounted for as an income tax in accordance with IAS 12.

c) For companies that have mining projects benefiting from tax stability regimes, mining royalties are calculated and recorded as they were previously, applying an additional new special charge on mining that is calculated using progressive scale rates, ranging from 4% to 13.12% of quarterly operating profit.

d) In the case of the Arcata mine unit, the company quit the tax stability agreement, but has mantained the agreement for the mining royalties, such that the  Arcata unit, is liable for the new SMT but the mining royalties remain payable at the same rate as they were, before the modification in 2011.

As at 31 December 2013, the amount payable as under the former mining royalty (for the Arcata mining unit), the new mining royalty (for the Ares and Pallancata mining units), and the SMT amounted to US$389,000 (2012: US$835,000), US$629,000 (2012: US$1,089,000), and US$148,000 (2012: US$1,051,000) respectively. The former mining royalty is recorded as 'Trade and other payables', and the new mining royalty and SMT as 'Income tax payable' in the Statement of Financial Position. The amount recorded in the income statement was US$1,784,000 (2012: US$3,224,000) representing the former mining royalty, classified as cost of sales, US$2,344,000 (2012: US$3,834,000) of new mining royalty and US$904,000 (2012: US$4,256,000) of SMT, both classified as income tax.

Argentina

In accordance with Argentinian legislation, Provinces (being the legal owners of the mineral resources) are entitled to request royalties from mine operators. For San Jose, the mining royalty was originally fixed at 1.85% of the pit-head value of the production where the final product is dore and 2.55% where the final product is mineral concentrate or precipitates. In October 2012 a new provincial law was passed, which increased the mining royalty applicable to dore and concentrate to 3% of the pit-head value. Since November 2012Minera Santa Cruz S.A. has been paying and expensing the increased 3% royalty although it has filed an administrative claim against the new law. As at 31 December 2013, the amount payable as mining royalties amounted to US$451,000 (2012: US$795,000). The amount recorded in the income statement was US$6,509,000 (2012: as cost of sales of US$6,448,000).

On 13 June 2013, the congress of the Province of Santa Cruz passed Law No. 3318, which created a tax on mining reserves. Accordingly, the owners of mining concessions located in the Province of Santa Cruz must pay a tax on mining reserves at a rate of 1%, calculated at the end of each year and determined according to the international price of metals at that date. This law was later regulated by the Provincial Government Decree No. 1252/2013 and by the Provincial Tax Authority Disposition No. 084/2013. According to these regulations, the tax applies only on "measured reserves" and certain deductions (related to the production cost) apply. Minera Santa Cruz S.A. (an affiliate of Hochschild Mining plc) is affected by this tax, and therefore, has been paying it. On 20 December 2013, Minera Santa Cruz S.A. filed before the Argentine Supreme Court a legal claim against the tax on mining reserves. Such legal claim challenges the legality of the tax on mining reserves arguing its unconstitutionality on the grounds that it violates the Federal Mining Policy created by national law No. 24.196. As at 31 December 2013, the amount payable as tax on mining reserves was US$1,381,000 recorded as 'Trade and other payables'. The amount recorded in the income statement was US$2,453,000 as other expenses.

 

31 Subsequent events

·  On 1 January 2014, following the acquisition of International Minerals Corporation (note 4(a)), the Group proceeded with the merger of Compañía Minera Ares S.A.C. and Minera Suyamarca S.A.C.

·  On 23 January 2014, the Group completed an offering of US$350,000,000 of Senior Notes with a coupon rate of 7.750% due for repayment in 2021 via its wholly owned subsidiary, Compañía Minera Ares S.A.C. The Notes were offered only to qualified institutional buyers under Rule 144A under the Securities Act and to non-U.S. persons outside the United States in reliance on Regulation S of the Securities Act. The Notes are guaranteed by Hochschild Mining plc and certain of its subsidiaries. The net proceeds from the sale of the Notes was used to repay the outstanding borrowings under the Syndicated Loan (see note 25) in full, plus accrued and unpaid interest, and to pay related fees and expenses.

·  On 28 February 2014 the Group sold its interest in Minas Santa María de Moris, S.A. de C.V. ("Moris") to Exploraciones y Desarrollos Regiomontanos, S.A. de C.V. ("EDR") and Arturo Préstamo Elizondo ("APE").  The terms of the transaction stipulate that:

the Group is entitled to a 1% net smelter return over the Moris concessions; and

EDR and APE will assume all costs associated with the mine and plant rehabilitation obligations.

The transaction does not include the cash balances of Moris, which will be transferred to the Group.

The transaction resulted in a loss of US$2,963,000.

·  In March 2014, the Group signed agreements with Citibank N.A., Goldman Sachs International and JP Morgan to hedge the sale of 1,000,000 ounces of silver at US$22 per ounce, 1,000,000 ounces of silver at US$22 per ounce and 3,300 ounces of gold at US$1,338.45 per ounce, during the period from March to December 2014.



 

Profit by operation¹

(Segment report reconciliation) as at 31 December 2013

 

Company (US$ 000)

Ares

Arcata

Pallancata

San Jose

Moris

Consolidation adjustment and  others

Total/HOC

 

 

Revenue

50,362

136,968

181,795

240,723

12,247

63

622,158


 

Cost of sales (Pre consolidation)

(53,684)

(104,933)

(130,034)

(170,682)

(10,817)

918

(469,232)


 

Consolidation adjustment

647

1,253

(2,821)

3

-

918

-


 

Cost of sales (Post consolidation)

(54,331)

(106,186)

(127,213)

(170,685)

(10,817)

-

(469,232)


 

Production cost excluding

depreciation

(42,521)

(73,128)

(75,934)

(114,053)

(8,529)

-

(314,165)


 

                Depreciation in production cost

(9,029)

(32,038)

(50,142)

(51,173)

(1,755)

-

(144,137)


 

                Other items

3

638

(571)

(7,074)

-

-

(7,004)


 

                Change in inventories

(2,784)

(1,658)

(566)

1,615

(533)

-

(3,926)


 

Gross profit

(3,322)

32,035

51,761

70,041

1,430

981

152,926


 

Administrative expenses

-

-

-

-

-

(56,776)

(56,776)


 

Exploration expenses

-

-

-

-

-

(46,327)

(46,327)


 

Selling expenses

(193)

(325)

(2,404)

(25,899)

-

36

(28,785)


 

Other income/expenses

-

-

-

-

-

(9,139)

(9,139)


 

Operating profit before impairment

(3,515)

31,710

49,357

44,142

1,430

(111,225)

11,899


 

Impairment of assets

-

-

-

-

-

(90,671)

(90,671)


 

Investments under equity method

-

-

-

-

-

5,921

5,921


 

Finance income

-

-

-

-

-

121,034

121,034


 

Finance costs

-

-

-

-

-

(148,050)

(148,050)


 

FX loss

-

-

-

-

-

(19,753)

(19,753)


 

Profit/(loss) from continuing operations before income tax

(3,515)

31,710

49,357

44,142

1,430

(242,744)

(119,620)


 

Income tax

-

-

-

-

-

(9,057)

(9,057)


 

Profit/(loss) for the year from continuing operations

(3,515)

31,710

49,357

44,142

1,430

(251,801)

(128,677)


 

 

 

1  On a post exceptional basis.

 

Reserves and resources

Ore reserves and mineral resources estimates

Hochschild Mining plc reports its mineral resources and reserves estimates in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves 2004 edition ("the JORC Code"). This establishes minimum standards, recommendations and guidelines for the public reporting of exploration results and mineral resources and reserves estimates. In doing so it emphasises the importance of principles of transparency, materiality and confidence. The information on ore reserves and mineral resources on pages 65 to 69 were prepared by or under the supervision of Competent Persons (as defined in the JORC Code). Competent Persons are required to have sufficient relevant experience and understanding of the style of mineralisation, types of deposits and mining methods in the area of activity for which they are qualified as a Competent Person under the JORC Code. The Competent Person must sign off their respective estimates of the original mineral resource and ore reserve statements for the various operations and consent to the inclusion of that information in this report, as well as the form and context in which it appears.

Hochschild Mining plc employs its own Competent Person who has audited all the estimates set out in this report. Hochschild Mining Group companies are subject to a comprehensive programme of audits which aim to provide assurance in respect of ore reserve and mineral resource estimates. These audits are conducted by Competent Persons provided by independent consultants. The frequency and depth of an audit depends on the risks and/or uncertainties associated with that particular ore reserve and mineral resource, the overall value thereof and the time that has lapsed since the previous independent third-party audit.

The JORC Code requires the use of reasonable economic assumptions. These include long-term commodity price forecasts (which, in the Group's case, are prepared by ex-house specialists largely using estimates of future supply and demand and long-term economic outlooks).

Ore reserve estimates are dynamic and are influenced by changing economic conditions, technical issues, environmental regulations and any other relevant new information and therefore these can vary from year-to-year. Mineral resource estimates can also change and tend to be influenced mostly by new information pertaining to the understanding of the deposit and secondly the conversion to ore reserves.

The estimates of ore reserves and mineral resources are shown as at 31 December 2013, unless otherwise stated. Mineral resources that are reported include those mineral resources that have been modified to produce ore reserves. All tonnage and grade information has been rounded to reflect the relative uncertainty in the estimates; there may therefore be small differences. The prices used for the reserves calculation were: Au Price: US$1,200 per ounce and Ag Price: US$20 per ounce.

Attributable metal reserves as at 31 December 2013

 

Reserve category

 

Proved and probable
(t)

 

 Ag
(g/t)

 

Au
(g/t)

 

Ag
(moz)

 

Au
(koz)

 

Ag Eq
(moz)

MAIN OPERATIONS¹

 

 

 

 

 

 

 

 

 

 

 

 

Arcata

 

 

 

 

 

 

 

 

 

 

 

 

Proved

 

803,568

 

324


0.9

 

8.4


23.7


9.8

Probable

 

1,205,831

 

304


0.8

 

11.8


32.7


13.7

Total

 

2,009,399

 

312


0.9

 

20.1


56.4


23.5

Pallancata

 

 

 

 

 

 

 

 

 

 

 

 

Proved

 

1,742,995


251


1.2

 

14.1


64.9


18.0

Probable

 

1,121,338


241


1.1

 

8.7


39.6


11.1

Total

 

2,864,332


247


1.1

 

22.8


104.5


29.0

San Jose

 

 

 

 

 

 

 

 

 

 

 

 

Proved

 

484,606


597


7.8

 

9.3


121.8


16.6

Probable

 

440,167


426


6.2

 

6.0


87.1


11.2

Total

 

924,773


515


7.0

 

15.3


208.9


27.9

Main operations total

 

 

 

 

 

 

 

 

 

 

 

 

Proved

 

3,031,169


326


2.2


31.7


210.5


44.4

Probable

 

2,767,336


298


1.8


26.5


159.4


36.1

Total

 

5,798,505


312


2.0


58.2


369.9


80.4

OTHER OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

Ares

 

 

 

 

 

 

 

 

 

 

 

 

Proved

 

76,997


148


2.1


0.4


5.2


0.7

Probable

 

19,085


184


1.6


0.1


1.0


0.2

Total

 

96,082


155


2.0


0.5


6.2


0.9

ADVANCED PROJECTS

 

 

 

 

 

 

 

 

 

 

 

 

Inmaculada2

 

 

 

 

 

 

 

 

 

 

 

 

Proved

 

3,840,000


106


3.4


13.1


424.7


38.6

Probable

 

3,960,000


134


3.3


17.0


424.5


42.5

Total

 

7,800,000


120


3.4


30.1


849.2


81.1

Group total

 

 

 

 

 

 

 

 

 

 

 

 

Proved

 

6,948,166


202


2.9


45.2


640.4


83.6

Probable

 

6,746,421


201


2.7


43.6


584.8


78.7

TOTAL

 

13,694,587


202


2.8


88.9


1,225.2


162.4

Note: Where reserves are attributable to a joint venture partner, reserve figures reflect the Company's ownership only. Includes discounts for ore loss and dilution.

1 Main operations were audited by P&E Consulting.

2 Inmaculada reserves as published in the Feasibility Study released on 11 January 2012.  Prices used for reserves calculation: Au: $1,100/oz and Ag: $18/oz.

 

Attributable metal resources as at 31 December 2013

 

Resource category

 

Tonnes (t)

 

Ag (g/t)

 

Au (g/t)

 

Zn (%)

 

Pb (%)

 

Cu (%)

 

Ag Eq (g/t)

 

Ag (moz)

 

Au (koz)

 

Ag Eq (moz)

 

Zn (kt)

 

Pb (kt)

 

Cu (kt)

MAIN OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Arcata

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

1,451,282

 

456

 

1.35

 

-

 

-

 

-

 

537

 

21.3

 

63.0

 

25.1

 

-

 

-

 

-

Indicated

 

2,233,235

 

368

 

1.31

 

-

 

-

 

-

 

446

 

26.4

 

93.7

 

32.0

 

-

 

-

 

-

Total

 

3,684,517

 

403

 

1.32

 

-

 

-

 

-

 

482

 

47.7

 

156.7

 

57.1

 

-

 

-

 

-

Inferred

 

3,489,726

 

309

 

1.14

 

-

 

-

 

-

 

377

 

34.7

 

127.9

 

42.4

 

-

 

-

 

-

Pallancata

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

3,384,579

 

340

 

1.57

 

-

 

-

 

-

 

434

 

37.0

 

170.6

 

47.3

 

-

 

-

 

-

Indicated

 

1,307,053

 

293

 

1.34

 

-

 

-

 

-

 

374

 

12.3

 

56.2

 

15.7

 

-

 

-

 

-

Total

 

4,691,631

 

327

 

1.50

 

-

 

-

 

-

 

417

 

49.3

 

226.8

 

63.0

 

-

 

-

 

-

Inferred

 

3,943,208

 

284

 

1.41

 

-

 

-

 

-

 

369

 

36.0

 

179.0

 

46.7

 

-

 

-

 

-

San Jose

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

777,207

 

640

 

8.85

 

-

 

-

 

-

 

1,171

 

16.0

 

221.1

 

29.3

 

-

 

-

 

-

Indicated

 

1,465,734

 

448

 

6.71

 

-

 

-

 

-

 

850

 

21.1

 

316.0

 

40.1

 

-

 

-

 

-

Total

 

2,242,941

 

515

 

7.45

 

-

 

-

 

-

 

962

 

37.1

 

537.2

 

69.3

 

-

 

-

 

-

Inferred

 

944,372

 

455

 

7.23

 

-

 

-

 

-

 

889

 

13.8

 

219.6

 

27.0

 

-

 

-

 

-

Main operations total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

5,616,068

 

412

 

2.52

 

-

 

-

 

-

 

563

 

74.3

 

454.8

 

101.6

 

-

 

-

 

-

Indicated

 

5,006,022

 

372

 

2.90

 

-

 

-

 

-

 

546

 

59.9

 

466.0

 

87.8

 

-

 

-

 

-

Total

 

10,619,090

 

393

 

2.70

 

-

 

-

 

-

 

555

 

134.1

 

920.7

 

189.4

 

-

 

-

 

-

Inferred

 

8,377,307

 

314

 

1.95

 

-

 

-

 

-

 

431

 

84.5

 

526.5

 

116.1

 

-

 

-

 

-

OTHER OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

523,206

 

184

 

5.82

 

-

 

-

 

-

 

533

 

3.1

 

97.9

 

9.0

 

-

 

-

 

-

Indicated

 

152,060

 

199

 

3.02

 

-

 

-

 

-

 

380

 

1.0

 

14.8

 

1.9

 

-

 

-

 

-

Total

 

675,266

 

187

 

5.19

 

-

 

-

 

-

 

499

 

4.1

 

112.6

 

10.8

 

-

 

-

 

-

Inferred

 

414,112

 

171

 

3.74

 

-

 

-

 

-

 

395

 

2.3

 

49.7

 

5.3

 

-

 

-

 

-

Other operations total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

523,206

 

184

 

5.82

 

-

 

-

 

-

 

533

 

3.1

 

97.9

 

9.0

 

-

 

-

 

-

Indicated

 

152,060

 

199

 

3.02

 

-

 

-

 

-

 

380

 

1.0

 

14.8

 

1.9

 

-

 

-

 

-

Total

 

675,266

 

187

 

5.19

 

-

 

-

 

-

 

499

 

4.1

 

112.6

 

10.8

 

-

 

-

 

-

Inferred

 

414,112

 

171

 

3.74

 

-

 

-

 

-

 

395

 

2.3

 

49.7

 

5.3

 

-

 

-

 

-

ADVANCED/GROWTH PROJECTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inmaculada1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

3,283,431

 

128

 

4.10

 

-

 

-

 

-

 

374

 

13.5

 

432.8

 

39.4

 

-

 

-

 

-

Indicated

 

3,782,818

 

159

 

4.05

 

-

 

-

 

-

 

402

 

19.3

 

492.3

 

48.9

 

-

 

-

 

-

Total

 

7,066,249

 

144

 

4.07

 

-

 

-

 

-

 

389

 

32.8

 

925.1

 

88.3

 

-

 

-

 

-

Inferred

 

4,937,776

 

152

 

3.91

 

-

 

-

 

-

 

387

 

24.2

 

620.0

 

61.4

 

-

 

-

 

-

1  Inmaculada resources as published in the Feasibility Study released on 11 January 2012.  Prices used for resources calculation: Au: $1,100/oz and Ag: $18/oz.

 

Attributable metal resources as at 31 December 2013 (continued)

 

 

Tonnes (t)

 

Ag (g/t)

 

Au (g/t)

 

Zn (%)

 

Pb (%)

 

Cu (%)

 

Ag Eq (g/t)

 

Ag (moz)

 

Au (koz)

 

Ag Eq
(moz)

 

Zn (kt)

 

Pb (kt)

 

Cu (kt)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,211,058

 

47

 

0.47

 

-

 

-

 

-

 

75

 

7.9

 

78.6

 

12.6

 

-

 

-

 

-

 

17,298,228

 

38

 

0.40

 

-

 

-

 

-

 

62

 

21.0

 

222.5

 

34.3

 

-

 

-

 

-

 

22,509,286

 

40

 

0.42

 

-

 

-

 

-

 

65

 

28.8

 

301.0

 

46.9

 

-

 

-

 

-

 

775,429

 

46

 

0.57

 

-

 

-

 

-

 

80

 

1.1

 

14.2

 

2.0

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

190,602

 

244

 

0.77

 

-

 

-

 

-

 

290

 

1.5

 

4.7

 

1.8

 

-