Preliminary Results 2015

RNS Number : 4753R
Hochschild Mining PLC
09 March 2016
 

 

 

 

________________________________________________________________________________ 

9 March 2016

 

Hochschild Mining plc

Preliminary Results for the twelve months ended 31 December 2015

 

Financial Results highlights1

§ Net revenue of $469.1 million (2014: $493.0 million)

§ Adjusted EBITDA of $138.8 million (2014: $135.6 million)2

§ Earnings per share of $(0.14) (2014: $(0.13))

§ Cash balance of $84.0 million as at 31 December 2015 (31 December 2014: $116.0 million)

§ Net debt of $350.5 million as at 31 December 2015 (30 June 2015: $455.6 million)

§ Net debt/EBITDA of 2.5x as at 31 December 2015 (30 June 2015: 5.8x)

§ Non-cash post tax impairment charges of $170.6 million

Strong 2015 operational delivery

§ 2015 All per silver equivalent ounce from operations reduced by 26% to $12.9 exceeding guidance3

§ Inmaculada AISC per silver equivalent ounce significantly below guidance at $7.3

§ Full year production of 27.0 million attributable silver equivalent ounces exceeding guidance4

§ Inmaculada mine produced 8.3 million silver equivalent ounces exceeding guidance

Improved financial position

§ $100 million equity rights issue completed

§ $105 million of debt repaid in Q4

§ Argentina macroeconomic and tax reforms already significantly improving San Jose cash flows

Removal of export tax on dore and concentrate confirmed

Ongoing devaluation of Argentine peso reducing operating costs

§ Cashflow further protected by additional 2016 precious metal hedges:

15,000 ounces of gold at $1,244 per ounce

Zero cost collar for 3.0 million ounces of silver with a floor of $14.0 per ounce and a cap of $17.6 per ounce

55% of total 2016 attributable production target now hedged

2016 Outlook

§ Record attributable production target of 32.0 million silver equivalent ounces

§ AISC now expected to be $12.0-12.5 per silver equivalent ounce (previous guidance of $12-13 per ounce)

§ Inmaculada AISC expected to be $9-10 per silver equivalent ounce

§ Total sustaining and development capital expenditure expected to be approximately $100 million including $10 million to develop Pablo vein

 

$000, pre-exceptional unless stated

 Year ended

31 Dec 2015

Year ended

 31 Dec 2014

% change

Attributable silver production (koz)

14,752

16,187

(9)

Attributable gold production (koz)

166

101

64

Net revenue5

469,146

492,951

(5)

Adjusted EBITDA

138,837

135,586

2

Loss from continuing operations

(66,399)

(56,689)

(17)

Loss from continuing operations (post-exceptional)

(239,657)

(70,831)

(238)

Earnings per share ($ pre-exceptional)

(0.14)

(0.13)

(8)

Earnings per share ($ post-exceptional)

(0.52)

(0.16)

(225)

 

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

"Now that the Company's key investment in the low cost Inmaculada project is complete and with strong operational performance at the mine, the outlook for the Company is much brighter. Together with the encouraging geological results achieved at our existing mines, further substantial cost and debt reductions and a much more positive environment in Argentina, the improvement to profitability is now a reality."

________________________________________________________________________________ 

A presentation will be held for analysts & investors at 9.30am (UK time) on Wednesday 9 March 2016 at the offices of Hudson Sandler, 29 Cloth Fair, London, EC1A 7NN  

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

www.hochschildmining.com

To join the event via conference call, please see dial in details below:

+44(0)20 3427 1915 (Please quote confirmation code 5064692)

________________________________________________________________________________ 

Enquiries:

Hochschild Mining plc

Charles Gordon                                                                                                                                                   +44 (0)20 3714 9044

Head of Investor Relations

Hudson Sandler

Charlie Jack                                                                                                                                                          +44 (0)207 796 4133

Public Relations

________________________________________________________________________________ 

 

About Hochschild Mining plc:

Hochschild Mining plc is a leading precious metals company listed on the London Stock Exchange (HOCM.L / HOC LN) with a primary focus on the exploration, mining, processing and sale of silver and gold. Hochschild has over fifty years' experience in the mining of precious metal epithermal vein deposits and currently operates 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

Hochschild Mining has ended 2015 in a significantly enhanced operational and financial position compared to twelve months ago. The Company's key investment in the low cost Inmaculada project is now complete and I am delighted by the first six months of strong operational performance. Together with the encouraging geological results achieved at our existing mines and further cost reductions, the expected improved profitability is now a reality. In addition, the Company has taken decisive steps to reduce the debt position via the equity capital raise in the autumn and has taken a conservative approach to protect cashflows through a series of precious metal hedges. With these measures, the leverage ratios have materially improved and are reflecting the enhanced financial health of the business.

 

We were able to achieve first dore production at Inmaculada in early June 2015, marking the final stage for a project that has taken approximately six years from discovery to commissioning, a notable accomplishment in these turbulent times for the industry. The subsequent ramp-up process was smoothly executed with key operational metrics running according to or above design capacity. During the last quarter, our long-held confidence in the world class characteristics of this deposit was supported by production, costs and ultimately cashflows that surpassed our expectations. The Board believes that the entire process has been to the great credit of our management and operational and project teams who have efficiently dealt with the geological, operational and financial challenges of a new mining operation while ensuring the safety of our workforce and with due respect to the surrounding environment.  

 

Precious metals once again experienced a volatile period with both silver and gold reaching new five year lows whilst other commodities such as oil, copper and iron ore also experienced sharp declines. Despite this difficult environment, our existing operations generated positive cashflows under revised operational plans and I was particularly encouraged by the success of our brownfield exploration programme which not only yielded the discovery of the Pablo vein thus reinvigorating Pallancata but also allowed Arcata to continue to prove its resilience. Later on in the year, there were positive macroeconomic and political developments in Argentina which have led us to believe that we are entering a new era of stronger cashflow generation at our high grade San Jose mine. In short, lower prices have once again been compensated by lower costs, rising production and new higher grade resources at key operations.

 

The careful management of our financial position was of paramount importance during the year so the success of several Company initiatives has been crucial. Firstly, the Company ensured the full financing of the Inmaculada project via a combination of short and long term debt. Secondly, a target of positive cashflow generation was set at all of our operations (before the effect of hedging) resulting in a high level of cost discipline at each operating asset. Finally, with the new mine having commenced production smoothly, we were able to raise $100 million via a rights issue with the proceeds used to pre-pay and renegotiate debt. We now have a comfortable debt amortisation profile and a solid cash position. However, despite these positive results, the Board remains alert to price volatility and is maintaining its focus on continuing to repay debt and consequently is not recommending reinstating a dividend payment. We remain committed to delivering shareholder returns and the Board intends to review the position again once the Company can sustainably achieve strong margins and the debt position is further reduced.

 

Operating Responsibly

I am delighted to report that 2015 was unprecedented in that it represented the second consecutive year in which we achieved our long-term aim of zero fatalities.  In addition, the Group succeeded in reducing the year-on-year frequency of accidents as well as their severity by approximately 40% and 25% respectively. This is to the great credit of the many teams who, despite the limitation of resources, have worked relentlessly to ensure that we provide a safe workplace for all and to convey the non-negotiable message that safety comes first. As to our efforts to minimise our impact on the environment, I am pleased to report that we maintained our ISO 14001 certification, adopted a new and more robust Corporate Environmental Policy and KPI dashboard to strengthen the Group's environmental culture and made significant strides in water management. In relation to our interaction with local communities, we have continued to run the many programmes designed around our core themes of education, health and socio-economic development.  Further details on the individual projects we have supported during the year can be found in our Sustainability Report and online.

 

Board

I wish to thank my fellow Board members for their valuable insight during the year.  As reported last year, we suspended our Non-Executive succession plan to provide continuity at Board level given the difficult trading climate. The status of the plan was kept under review during 2015 and, in recognition of the benefits of a refreshed Board, resulted in the appointment of Michael Rawlinson as a Non-Executive Director with effect from 1 January 2016.  I am very pleased that we have been able to secure someone with Michael's experience and knowledge of the mining sector which will undoubtedly prove invaluable during our Board deliberations.  In line with our succession plan, Sir Malcolm Field will be retiring from the Board at the conclusion of the forthcoming AGM. Sir Malcolm has served on the Board since the Company's IPO in 2006 with tireless dedication and on behalf of my fellow Directors, I wish to express my profound gratitude for his support and wise counsel.

 

Outlook

We enter 2016 with renewed optimism. Inmaculada is a flagship producing asset operating at highly competitive costs and is expected to provide the financial stability necessary for targeting future growth plans. The operating environment in Argentina is rapidly improving and we believe that our high grade resource at San Jose will soon generate stronger cashflows. And finally, the optionality that the Arcata and Pallancata assets offer us in terms of geological potential as well as leverage to prices is a key feature that we expect to develop in this coming year.

Eduardo Hochschild, Chairman

8 March 2016

 

 

CHIEF EXECUTIVE OFFICER'S STATEMENT

At the start of last year, I noted that the Company's key objectives for 2015 were the commissioning of our new flagship mine, success from our brownfield exploration programme and achieving a stronger overall financial position by the year end. We are pleased to report that we have largely succeeded in our priorities and that we enter 2016 with confidence that, whilst the outlook for natural resources remains volatile, the prospects for the Company have substantially improved. 

 

Inmaculada

Construction at the Inmaculada site continued into its final stages in the first half of the year with the result that commercial production was declared in August following a near faultless ramp-up period. All key metrics including tonnage, grades and recoveries proved to be in line with or above expectations and although there was a disagreement with our plant contractor over construction delays and a number of submitted change orders, the dispute was resolved amicably and in the final few months of the year, the mine delivered on its world class promise. Production for the year beat the higher end of our forecast range and Inmaculada's all-in sustaining cost per silver equivalent ounce for 2015 was at a very competitive $7.3 per ounce. We can now look forward to a full year of production at costs of between $9 to $10 per silver equivalent ounce which we believe will place the operation in the first quartile of the global cost curve and will ensure strong cashflow for the Company for the foreseeable future. We remain positive about the mine's expansion potential in the medium term and will begin a drill programme in the surrounding district in 2016.

               

Cost reduction

With commodity prices experiencing a third year of declines, Hochschild continued its cashflow optimisation programme in order to ensure that all our operations were mining profitable ounces and are cashflow positive. The mine plans at Arcata and Pallancata were revised with the focus placed on accessible ore areas requiring reduced capital expenditure and assuming stringent cut off grades. The effect of these measures was somewhat mitigated during the year as both operations delivered successful brownfield exploration programmes allowing additional higher grade tonnage to be processed at Arcata in particular. At Pallancata, the discovery of the Pablo vein in August delivered the prospect of a transition to significantly lower cost feed for the Selene plant with our team expecting to have initial production from the vein towards the end of 2016. Overall, we were able to reduce all-in sustaining costs by 26% versus 2014, which is strong evidence of the Company's ability to operate flexibly in a difficult industry environment. Furthermore, the positive developments in Argentina towards the end of the year indicate the potential to continue to move our operations down the cost curve.

 

Financial position

In a year when careful management of the balance sheet was crucial, in particular with respect to the completion of our Inmaculada project, we believe we have taken substantial steps in our aim of de-risking the Company. Forming the first part of our three pronged financial strategy, the smooth progress of the new mine's ramp-up to full production started to bear fruit in the final two quarters with the generation of strong cashflow from this low cost operation. Secondly, in October, we announced a $100 million rights issue, the success of which allowed us to begin the process of strengthening our balance sheet and by the end of the year we had already paid down just over $100 million of mid to long term debt. And thirdly, we supplemented this initiative throughout the year by taking advantage of short periods of price strength to hedge around 40% of our production to ensure a degree of cashflow stability. This prudent policy has continued with approximately half of our 2016 production also protected at around the current spot prices. With net debt significantly reduced versus our peak position at the half year and with the maturities of the remaining debt adequately profiled, the Company is in a substantially healthier financial position than at the end of 2014.

 

2015 overview

One of the most pleasing aspects of the Company's ongoing response to the industry downturn has been the strength of our operations. Once again we exceeded the production target for the year, delivering 27.0 million silver equivalent ounces with both San Jose and Arcata especially, recording better than expected production. Pallancata's performance reflects an operation in a transitional period until new low cost material from the Pablo vein is introduced towards the end of the year. However, when also considering Inmaculada's maiden contribution, we believe the flexibility of the Hochschild portfolio has been amply demonstrated.

 

The average price achieved once again fell in 2015, by 12% for silver and by almost 10% for gold and consequently our revenue was lower despite total production increasing by almost 12%. However, pleasingly pre-exceptional EBITDA rose by 2% to $139m reflecting the higher margin contribution from Inmaculada and solid cost control across our operations. The cashflow from the new mine is beginning to offset the finance costs arising from our bond issue in January 2014 to fund its construction but this still affected the underlying earnings. Pre-exceptional EPS was $(0.14) per share.  The cash balance at the end of the year was $84 million with the fourth quarter debt repayment programme resulting in net debt of approximately $351 million.

 

Outlook

We expect that 2016 will mark the fourth year of increasing production and reducing costs. Attributable production for the Company is expected to rise to 32.0 million silver equivalent ounces (assuming the average silver to gold ratio for 2015 of 74:1), boosted by the first full year of output from Inmaculada. The all-in sustaining cost per silver equivalent ounce is expected to once again be reduced to between $12.0 to $12.5 which includes almost 14 million ounces of production from Inmaculada at between $9 to $10 per silver equivalent ounce. The focus of our capital expenditure budget of approximately $100 million will be on sustaining and development expenditure for our current mines but included is also an allocation of approximately $10 million for the development of the Pablo vein - a project which initial Company economics estimate has a net asset value of approximately $40 million.

 

The recent regulatory and economic policy changes in Argentina also offer a promising future for our high grade San Jose mine. Changes including the significant devaluation of the Argentine peso and the new government's cancellation of the export taxes along with management's solid operational track record now place the mine in a good position to improve its cashflow contribution.

 

2015 has been a year of transformation for the Company. Whilst the industry downturn has necessitated a continued strong focus on cost efficiency, we are extremely encouraged by the positive attitude displayed by all our employees. We have entered 2016 with a renewed sense of confidence: a fourth consecutive year of production increases and reduced costs; a new mine; renewed resources at Arcata and Pallancata; a stronger balance sheet; and several brownfield exploration targets with the potential to continue improving the quality and quantity of our existing resources.

 

Ignacio Bustamante, Chief Executive Officer

8 March 2016

 

 

OPERATING REVIEW

OPERATIONS

Note: silver/gold equivalent production figures assume the average gold/silver ratio for 2015 of 74:1.

 

Production

In 2015, Hochschild once again exceeded its full year production target, delivering attributable production of 27.0 million silver equivalent ounces (24.7 million ounces using the Company's previous gold/silver ratio of 60:1), including 14.8 million ounces of silver and 166 thousand ounces of gold. The overall production target for 2016 is 32.0 million silver equivalent ounces, assuming the average silver-to-gold ratio for 2015, which consists of just over 14 million ounces from Inmaculada, approximately 7 million attributable ounces from the 51% owned San Jose and the balance from the remaining two Peruvian operations. 2016 production is expected to be equally weighted between gold and silver.

 

Costs

The Company's all-in sustaining cost was reduced by 26% in 2015 to $12.9 per silver equivalent ounce driven by Inmaculada with a very competitive $7.3 per silver equivalent ounce6. Operational initiatives (cashflow optimisation programme), devaluation of local currencies and grade improvements at all operating units also contributed to the reduction. Please see page 12 of the Financial Review for further details on costs.

 

The all-in sustaining cost per silver equivalent ounce in 2016 is now expected to be between $12.0 and $12.5 with Inmaculada costs forecast to be between $9 and $10 per ounce, the remaining Peruvian mines at approximately $14.5 per ounce and San Jose at approximately $13 per ounce although ongoing Argentinean peso devaluation and a series of tax cancellations may reduce the target further.

 

Inmaculada (Peru)

The 100% owned Inmaculada underground operation is located in the Department of Ayacucho in southern Peru. It commenced production in June 2015.

 

Inmaculada summary 

Year ended

31 Dec 2015

Ore production (tonnes)

659,737

Average silver grade (g/t)

115

Average gold grade (g/t)

4.36

Silver produced (koz)

2,055

Gold produced (koz)

             84.64

Silver equivalent produced (koz)

8,318

Silver sold (koz)

1,638

Gold sold (koz)

67.51

Unit cost ($/t)

63.3

Total cash cost ($/oz Ag co-product)7

4.6

All-in sustaining cost ($/oz)

7.3

 

Production

Commercial production was declared at the new flagship mine in August 2015 and the Company subsequently announced on 22 September that it had received the final mill operating permit from the Peruvian government with sales of dore commencing soon afterwards.  Overall production in 2015 improved on the targeted range, coming in at 8.3 million silver equivalent ounces consisting of 84.6 thousand ounces of gold and 2.1 million ounces of silver. This was primarily driven by solid gold and silver grades and increased tonnage as the processing plant operated at closer to 3,850 tonnes per day during the last quarter of the year compared to its design capacity of 3,500 tonnes per day.

 

Costs

The all-in sustaining costs were low at $7.3 per silver equivalent ounce. This was driven by better than expected extraction costs, operational efficiencies versus the plan and by the processing of the significant ore stockpile which incurred a low cost in the plant's ramp-up phase and increased tonnage overall when mining operations commenced. The original cost of mining this stockpile was capitalised over the previous few periods. Overall all-in sustaining costs are expected to increase to the normalised forecast level of between $9 to $10 in 2016.

 

Brownfield exploration

In 2016, a geological mapping programme is planned for the Inmacualda and Hualhua areas along with a 7,000 metre drilling programme in the Palca zone.

 

 

 

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 2015

Year ended

31 Dec 2014

% change

Ore production (tonnes)

648,051

701,947

(8)

Average silver grade (g/t)

323

286

13

Average gold grade (g/t)

0.99

0.85

16

Silver produced (koz)

5,613

5,827

(4)

Gold produced (koz)

15.67

16.89

(7)

Silver equivalent produced (koz)

6,772

             7,077

(4)

Silver sold (koz)

5,653

5,621

1

Gold sold (koz)

15.29

15.66

(2)

Unit cost ($/t)

109.1

89.1

22

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

11.7

12.6

(7)

All-in sustaining cost ($/oz)

14.3

17.7

(19)

 

Production

At Arcata, total silver equivalent production for 2015 was 6.8 million ounces (2014: 7.1 million ounces). Despite introducing an adjusted mine plan at the start of 2015 to ensure the extraction of profitable ounces, Arcata has delivered a much stronger year than expected. A successful brownfield exploration programme has ensured considerable tonnage at higher silver grades than expected.

 

Costs

In 2015, all-in sustaining costs fell by 19% to $14.3 per silver equivalent ounce (2014: $17.7 per ounce) due to a substantial decline in capital expenditure resulting from the  announced adjusted mine plan as well as improved grades.

 

Brownfield exploration

During 2015, the Arcata exploration programme has focused on the incorporation of resources from the Stephani, Cristina, Soledad, Macarena and Nicole veins as well as further exploration of the Tunels 3 and 4 vein systems. Just over 10,000 metres of drilling were executed. Significant intercepts included:

 

Vein

Results

North-South

DDH027-LM11: 2.12m @ 0.43 g/t Au & 719 g/t Ag

DDH768-LM14: 1.27m @ 2.46 g/t Au & 549 g/t Ag

DDH802-GE15: 1.58m @ 0.56 g/t Au & 659 g/t Ag

DDH990-GE11: 0.82m @ 0.15 g/t Au & 1,667 g/t Ag

Lucero

DDH777-LM15: 1.35m @ 1.35 g/t Au & 593 g/t Ag

DDH792-GE15: 1.01m @ 1.85 g/t Au & 395 g/t Ag

DDH800-LM15: 0.97m @ 1.49 g/t Au & 533 g/t Ag

Soledad

DDH800-LM15: 1.00m @ 4.05 g/t Au & 1,015 g/t Ag

Tunel 3

DDH871-GE15: 1.2m @1.04 g/t Au & 1,135 g/t Ag

DDH872-GE15: 1.3m @2.09 g/t Au & 1,196 g/t Ag

Tunel 4

DDH878-GE15: 1.0m @ 2.4 g/t Au & 3,479 g/t Ag

DDH883-GE15: 1.7m @ 1.6 g/t Au & 1,729 g/t Ag

 

The focus of 2016 will be a 7,000 metre drilling programme to incorporate additional resources from the Tunel 4, Marion and Alexia veins.

 

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. Ore from Pallancata is transported 22 kilometres to the Selene plant for processing.

 

Pallancata summary

Year ended

31 Dec 2015

Year ended

31 Dec 2014

% change

Ore production (tonnes)

522,431

1,051,068

(50)

Average silver grade (g/t)

259

238

9

Average gold grade (g/t)

1.28

1.03

24

Silver produced (koz)

3,664

6,527

(44)

Gold produced (koz)

16.42

24.34

(33)

Silver equivalent produced (koz)

4,879

             8,329

(41)

Silver sold (koz)

3,632

6,502

(44)

Gold sold (koz)

15.80

24.03

(34)

Unit cost ($/t)

98.9

69.3

43

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

12.5

11.0

14

All-in sustaining cost ($/oz)

15.7

16.7

(6)

 

 

Production

At Pallancata, total production for the year was 4.9 million silver equivalent ounces (2014: 8.3 million ounces). Tonnage throughout the year was significantly lower than 2014 due to the adjusted mine plan's approximate halving of capacity although silver and gold grades rose gradually throughout the year to partially compensate. The operation remains in a transitional phase with the Selene plant expected to transition to the new Pablo vein later in 2016. See further details of the Pablo vein below.  

 

Costs

All-in sustaining costs fell by 6% to $15.7 per silver equivalent ounce (2014: $16.7 per ounce) due to the scheduled decline in capex as well as better grades. These improvements were partially offset by incremental capex approved to develop the newly discovered Pablo vein. See details below of the Pablo vein's preliminary economics.

 

Brownfield exploration

The exploration team at Pallancata began a 19,100 metre exploration and drilling programme in May 2015 with the aim of focusing on inferred resource exploration at surface. In mid August, whilst pursuing the west extension of the Yurika vein to the north west of the main Pallancata vein, a new blind structure at a depth of 200 metres below surface was discovered. The Pablo vein has been recognised along an east-west strike for 700 metres and dips 50-75° south. The structure's significant thickness (greater than 10m wide) is associated with dilation zones in flexures and fault jogs. The Pablo vein is a fine-to-medium grain white quartz vein and shows a banded texture and multiple brecciation events filled with adularia and quartz crystals. It is part of a major regional structure, currently extending to about 2 km, which will be explored over the medium term.

 

Following the initial discovery of the Pablo vein, drilling continued and an initial inferred resource was achieved. The Company's preliminary economics for a two year mine life for the Pablo vein are detailed below. Resources (unaudited) are estimates based on a cut-off grade of 103g/t silver equivalent.

 

Pablo

 

Inferred resources (kt) (unaudited)

1,251

Ag grade (g/t)

344

Au grade (g/t)

1.3

LOM production (M oz Ag Eq)

12.6

LOM AISC ($/oz Ag Eq)

10.6

 

LOM Cashflows ($m)

 

Revenue

161.4

Costs

(108.5)

Selling expenses 

(3.0)

Capital expenditure

(19.7)

Taxes (SMT & Royalties)

(2.4)

Pre-tax total

27.9

NAV @5% (spot metal prices)(illustrative)

40.5

Spot metal prices: $15.5/oz Ag; $1,230/oz Au

 

Work has started on mine development to access the vein and the Company currently expects to have initial production from Pablo towards the end of 2016.

 

Drilling has continued at the deposit and 7,242 metres were drilled at Pablo and Yurika veins during the last quarter of the year. Preliminary results are below:

 

Vein

Results

Pablo

DLEP-A21: 9.0m @0.68 g/t Au & 225 g/t Ag

DLEP-A23: 7.1m @1.09 g/t Au & 389 g/t Ag

DLEP-A24: 2.9m @1.34 g/t Au & 334 g/t Ag

DLEP-A25: 9.0m @1.20 g/t Au & 324 g/t Ag

DLEP-A26: 4.7m @0.73 g/t Au & 290 g/t Ag

Yurika

DLYU-A97: 2.8m @1.66 g/t Au & 438 g/t Ag

Yurika ceiling

DLYU-A97: 1.5m @ 3.94 g/t Au & 748 g/t Ag

DLYU-A99: 1.0m @ 0.89 g/t Au & 231 g/t Ag

 

The focus of the brownfield exploration programme for 2016 will be a 5,500 metre drilling programme to add resources in from the Pablo and Yurica veins. Geological mapping of the Pallancata-Selene area will also be carried out.

 

 

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. Hochschild holds a controlling interest of 51% in the mine and is the mine operator.

 

San Jose summary*

Year ended 

31 Dec 2015

Year ended

31 Dec 2014

% change

Ore production (tonnes)

532,488

571,017

(7)

Average silver grade (g/t)

448

404

11

Average gold grade (g/t)

6.36

5.77

10

Silver produced (koz)

6,706

6,469

4

Gold produced (koz)

96.64

94.16

3

Silver equivalent produced (koz)

13,857

           13,437

3

Silver sold (koz)

6,340

6,316

-

Gold sold (koz)

88.79

91.28

(3)

Unit cost ($/t)

210.4

197.8

6

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

10.8

12.1

(11)

All-in sustaining cost ($/oz)

14.1

17.8

(21)

*The Company has a 51% interest in San Jose

 

Production

The San Jose operation once again delivered another consistent year with operation producing a record 13.9 million silver equivalent ounces (2014: 13.4 million ounces) driven by better than projected silver and gold grades.

 

On 17 December 2015, the Argentinean peso fell by approximately 40% against the dollar following the decision by the government to lift capital controls. With approximately 70% of operating costs at San Jose incurred in pesos, the effect of this significant devaluation is already having a material impact on the mine's cost position.

 

The Argentinean government published a decree on 2 November 2015 restoring the right to receive a rebate from goods exported through Patagonian ports (previously cancelled in 2009). This benefit is applicable to Hochschild at a rate of approximately 9% of the FOB value of its exports which amounts to approximately $15 million per annum. The current estimate for collection is approximately two years.

 

In late December 2015, following an announcement by the new government that they would remove export taxes on agricultural and industrial products, it was subsequently confirmed that the decree included removal of the 5% export tax on finished mining products such as dore (approximately 50% of the mine's output). Subsequently in 2016 it was confirmed that the additional 10% export tax on concentrate would also be removed from February 2016.

 

Finally it was also confirmed recently that the 1% tax on the market value of reserves that was imposed by the Province of Santa Cruz in 2013 has been removed with the resulting positive effect amounting to approximately $3 million per annum.

 

The effect of all the above-mentioned changes in Argentina is that the Company expects overall economic and operating environment in Argentina to improve significantly.

 

Costs

At San Jose, unit cost per tonne increased by 6% versus 2014 to $210.4. However, all-in sustaining costs were reduced by 21% to $14.1 per silver equivalent ounce (2014: $17.8 per ounce) driven by cost reduction initiatives, lower capex and better grades.

 

Brownfield exploration

Whilst no drilling was carried out in 2015, a 3,500 metre programme is planned for 2016 in the Los Pinos and Colorado Grande areas as well as a comprehensive mapping programme of other areas such as Agua Vivas to the South of the mine.

 

PROJECT REVIEW

 

Hochschild's portfolio currently includes three Growth Projects, Crespo, Azuca and Volcan. The continuing weakness of the precious metal markets during 2015, following the initial price declines in 2013, led to the focus on completing construction of Hochschild's flagship Inmaculada project.

 

The strategy with regards to Crespo, Azuca and Volcan was revised in late 2013 with work on these deposits remaining on hold throughout 2014 and 2015. Despite the above-mentioned prioritisation of Inmaculada, all three projects remain 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 assess capital re-allocation to these assets and potentially re-initiate development.

 

Inmaculada

During the first half of 2015, construction of the plant continued with first dore production achieved on 3 June 2015. The ramp-up phase was ongoing throughout the third quarter with tonnes per day reaching the forecast capacity of 3,500 in mid August and operating at just above that level for the remainder of the year. Gold and silver recoveries trended to close to their target of 93.7% in gold and 87.9% in silver.

 

The Hochschild team also continued underground mine development throughout the first half and a stockpile of approximately 270,000 tonnes began to be processed following commissioning of the plant whilst stope mining activities (utilising long hole and breasting methods) were being initiated. Following the declaration of commercial production at the mine in August, the Company subsequently announced on 22 September that it had received the final mill operating permit from the Peruvian government and consequently sales of dore were able to commence.

 

Construction of the paste backfill plant also continued throughout the year with the mine's laboratories, warehouses and workshops also completed.

 

During the year, the contractor Graña y Montero (GyM), made a number of requests for additional costs from the Company under the Engineering, Procurement and Construction Contract ("EPC"). In addition, Hochschild made certain claims against GyM as a result of delays in the construction of the plant and related components of the project. In September, following discussions, the Company and GyM settled their mutual claims and agreed that the total amount payable by the Company to GyM for all works under the EPC Contract (including pending work) would be fixed at approximately $159.1 million, of which $20 million represented additional amounts payable in settlement of all claims made by GyM for additional costs under the EPC Contract.  In addition, it was agreed that GyM would bear all risks and costs resulting from the completion of all pending work under the EPC Contract and, therefore, subject to certain limited exceptions, GyM would not be entitled to request further adjustments to the amounts agreed to be paid.

 

To date Hochschild has paid to GyM approximately $136 million under the EPC Contract. It was agreed that the above mentioned amount of $20 million would be paid in four instalments every six months starting in September 2017, with interest accruing at an annual rate of 5% of the outstanding balance. The remaining approximately $4 million will be paid following completion of the outstanding work.

 

Total construction capital expenditure for the Inmaculada mine was $455 million, of which $449 million has already been incurred by the end of the year with the remaining construction capital expenditure of $6 million expected to be spent during 2016 (to be funded from existing cash resources).

 

 

 

FINANCIAL REVIEW

 

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 by 5% to $469.2 million in 2015 (2014: $493.0 million) primarily driven by another substantial fall in precious metal prices.

 

Silver

Gross revenue from silver decreased 23% in 2015 to $275.3 million (2014: $358.2 million) as a result of lower prices as well as a 9% decrease in the total amount of silver ounces sold to 17,263 koz  (2014:18,981 koz) driven by the fall in ounces produced from Pallancata due to the imposition of the adjusted mine plan.

 

Gold

Gross revenue from gold increased 19% in 2015 to $217.2 million (2014: $182.7 million) as a result of a 31% rise in the total amount of gold ounces sold in 2015 (187.4 koz) offsetting the 9% fall in the average price received. The increase in gold sales came from the first output from the new Inmaculada operation.

 

Gross average realised sales prices

The following table provides figures for average realised prices (which are reported before the deduction of commercial discounts and include the effects of the existing hedging agreements) and ounces sold for 2015 and 2014:

 

Average realised prices

Year ended
31 Dec 2015

Year ended
31 Dec 2014 

 

Silver ounces sold (koz)

17,263

18,981

 

Avg. realised silver price ($/oz)

16.0

18.9

 

Gold ounces sold (koz)

187.39

142.77

 

Avg. realised gold price ($/oz)

1,159

1,279

 

 

Commercial discounts

Commercial discounts refer to refinery treatment charges, refining fees and payable deductions for processing concentrates, and are deducted 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 2015, the Group recorded commercial discounts of $23.6 million (2014: $48.1 million). This decrease is explained by the decision to switch the majority of production from Arcata back to dore in 2015 as opposed to the previous year when most was sold as concentrate due to favourable commercial terms. The ratio of commercial discounts to gross revenue in 2015 decreased to 5% (2014: 9%).

 

Net revenue

Net revenue decreased by 5% to $469.1 million (2014: $493.0 million), comprising silver revenue of $258.4 million and gold revenue of $210.5 million. In 2015 silver accounted for 55% and gold 45% of the Company's consolidated net revenue with a 10 percentage point change from 2014 due to commencement of contributions from the Inmaculada mine.

 

Revenue by mine

$000 unless otherwise indicated

Year ended
31 Dec 2015

Year ended
31 Dec 2014

% change

Silver revenue

 

 

 

Arcata

93,445

103,963

(10)

Ares

-

10,896

-

Inmaculada

25,223

-

-

Pallancata

59,803

129,042

(54)

San Jose

96,837

114,276

(15)

Moris

-

30

-

Commercial discounts

(16,929)

(37,369)

(55)

Net silver revenue

258,379

320,838

(19)

Gold revenue

 

 

 

Arcata

19,124

20,040

(5)

Ares

-

14,993

-

Inmaculada

77,080

-

-

Pallancata

19,929

31,984

(38)

San Jose

101,046

115,211

(12)

Moris

-

441

-

Commercial discounts

(6,688)

(10,713)

(38)

Net gold revenue

210,491

171,956

22

Other revenue8

276

157

76

Net revenue

469,146

492,951

(5)

 

Costs

Total pre-exceptional cost of sales was steady at $403.7 million in 2015 (2014: $404.6 million). The direct production cost was flat at $265.1 million (2014: $265.6 million) with the positive effects of Inmaculada's lower costs offsetting the additional production delivered. Depreciation in 2015 was $139.5 million (2014: $126.0 million) with the increase mainly due to Inmaculada capex depreciation. Other items, which principally include the costs associated with stoppages in Argentina, was $9.3 million in 2015 (2014: $4.4 million). Change in inventories was $10.3 million in 2015 (2014: $8.6 million).

 

 

$000

Year ended
31 Dec 2015

Year ended
31 Dec 2014 

% Change

Direct production cost excluding depreciation

265,107

265,637

-

Depreciation in production cost

139,533

125,955

11

Other items

9,272

4,406

110

Change in inventories

(10,255)

8,641

(219)

Pre-exceptional cost of sales

403,657

404,639

-

 

Unit cost per tonne

The Company reported unit cost per tonne at its main operations of $118.4 in 2015, slightly up on 2014 (2014: $106.6). For further explanation on the increase in unit cost per tonne please refer to page 6 of the Operating Review.

 

Unit cost per tonne by operation (including royalties)9:

Operating unit ($/tonne)

Year ended

31 Dec 2015

 Year ended

31 Dec 2014

% change

Peru

90.7

77.3

17

Arcata

109.1

89.1

22

Inmaculada

63.3

-

-

Pallancata

98.9

69.3

43

Argentina

 

 

 

San Jose

210.4

197.8

6

Others

 

 

 

Ares

-

119.3

-

Total

118.4

107.4

10

 

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 reconciliation10:

$000 unless otherwise indicated

Year ended

 31 Dec 2015

Year ended

 31 Dec 2014

% change

Group cash cost

313,939

353,736

                       (11)

(+) Cost of sales

403,657

404,639

(-) Depreciation and amortisation in cost of sales

(135,645)

(128,480)

                      (5)

(+) Selling expenses

21,729

28,697

                      (24)

(+) Commercial deductions

24,198

48,880

            (50)

Gold

6,714

10,752

                      (38)

Silver

17,484

38,128

             (54)

Revenue

469,146

492,951

                      (5)

Gold

210,491

171,956

                      22

Silver

258,379

320,838

(19)

Others

276

157

                      76

Ounces Sold

 

 

 

Gold

187.4

142.8

                      31

Silver

17,263

18,981

                      (9)

Group Cash Cost ($/oz)

 

 

 

Co product Au

752

865

(13)

Co product Ag

10.0

12.1

(17)

By product Au

203

(37)

  648

By product Ag

5.6

9.0

(38)

 

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 ounce11

 

Year ended 31 Dec 2015

$000 unless otherwise indicated

Arcata

Inmac

Pallancata

San José

Main operations

Other operations

Corporate & others

Total

(+) Production cost excluding depreciation

71,128

32,765

51,599

108,101

263,593

-

-

263,593

(+) Other items in cost of sales

2,133

1,544

1,610

5,499

10,786

-

-

10,786

(+) Operating and exploration capex for units

14,600

13,704

10,683

38,451

77,438

-

1,193

78,631

(+) Brownfield exploration expenses

62

6

2,457

1,463

3,988

-

1,990

5,978

(+) Administrative expenses (excl depreciation and before exceptional items)

2,641

2,515

1,796

7,095

14,046

-

22,569

36,614

(+) Royalties

-

1,037

741

-

1,778

-

-

1,778

Sub-Total

90,564

51,571

68,885

160,609

371,629

-

25,751

397,380

Au Ounces produced

15,670

72,226

16,419

96,638

200,953

-

-

200,953

Ag Ounces produced (000s)

5,613

1,746

3,664

6,706

17,728

-

-

17,728

Ounces produced (Ag Eq oz)

6,772

7,090

4,879

13,857

32,599

-

-

32,599

Sub-total  ($/oz)

13.4

7.3

14.1

11.6

11.4

-

-

12.2

(+) Commercial deductions

5,144

4

6,687

12,363

24,198

-

-

24,198

(+) Selling expenses

962

12

1,048

19,707

21,729

-

-

21,729

Sub-total

6,106

16

7,735

32,070

45,927

-

-

45,927

Au Ounces sold

15,289

67,513

15,795

88,793

187,390

-

-

187,390

Ag Ounces sold (000s)

5,653

1,638

3,632

6,340

17,263

-

-

17,263

Ounces sold (Ag Eq oz)

6,784

6,634

4,801

12,910

31,130

-

-

31,130

Sub-total  ($/oz)

0.9

-

1.6

2.5

1.5

-

-

1.5

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

14.3

7.3

15.7

14.1

12.9

-

-

13.7

 

 

 

Year ended 31 Dec 2014

$000 unless otherwise indicated

Arcata

Inmac

Pallancata

San José

Main operations

Other operations

Corporate & others

Total

(+) Production cost excluding depreciation

62,644

-

71,742

110,089

244,475

17,853

-

262,328

(+) Other items in cost of sales

1,301

-

834

1,724

3,859

546

-

4,406

(+) Operating and exploration capex for units

28,867

-

34,657

51,350

114,874

 

1,613

116,487

(+) Brownfield exploration expenses

2,038

-

1,728

1,003

4,769

42

3,232

8,043

(+) Administrative expenses (excl depreciation and before exceptional items)

     5,266

-

        7,317

8,270

      20,853

      362

20,049

41,263

(+) Royalties

-

-

1,370

-

1,370

         241

-

1,611

Sub-Total

100,116

-

117,648

172,436

390,200

19,044

24,894

434,138

Au Ounces produced

16,892

-

24,345

94,161

135,398

11,633

-

147,031

Ag Ounces produced (000s)

5,827

-

6,527

6,469

26,947

534

-

19,357

Ounces produced (Ag Eq oz)

6,841

-

7,988

12,119

26,947

1,232

-

28,179

Sub-total  ($/oz)

       14.6

-

        14.7

      14.2

          14.5

        15.5

-

15.4

(+) Commercial deductions

18,016

-

13,666

17,198

48,880

-

-

48,880

(+) Selling expenses

1,987

-

1,995

24,648

28,630

67

-

28,697

Sub-total

20,003

-

15,661

41,846

77,510

67

-

77,577

Au Ounces sold

15,663

-

24,025

91,277

130,965

11,449

-

142,770

Ag Ounces sold (000s)

5,621

-

6,502

6.316

18,439

540

-

18,981

Ounces sold (Ag Eq oz)

    6,560

-

     7,944

  11,793

    26,297

      1,250

-

27,547

Sub-total  ($/oz)

        3.0

-

          2.0

       3.5

           2.9

          0.1

-

2.8

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

      17.7

-

       16.7

     17.8

         17.4

       15.5

-

18.2

 

 

Administrative expenses

Administrative expenses before exceptional items decreased by 12% to $38.1 million (2014: $43.3 million) primarily due to the continuing impact of the cashflow optimisation programme.

 

Exploration expenses

In 2015, pre-exceptional exploration expenses, decreased by 46% to $9.3 million (2014: $17.3 million). 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 2015, the Company capitalised $2.6 million relating to brownfield exploration compared to $1.5 million in 2014, bringing the total investment in exploration for 2015 to $11.8 million (2014: $18.8 million). 

 

Selling expenses

Selling expenses decreased by 24% versus 2014 at $21.7 million (2014: $28.7 million) mainly due to lower prices impacting the export taxes in Argentina and the decision to switch the majority of production from Arcata back to dore. Selling expenses in 2015 consisted of export duties at San Jose (export duties in Argentina were previously levied at 10% of revenue for concentrate and 5% of revenue for dore) and logistic costs for the sale of concentrate.

 

Other income/expenses

Other income before exceptional items was $8.0 million (2014: $4.1 million) mainly due to incremental revenue from logistic services provided to third parties and an export credit from dore bars in Argentina. Other expenses before exceptional items reached $15.3 million (2014: $17.5 million) mainly due to an increase in mine closure provisions of $7.6 million ($2014: $9.1 million).

 

Adjusted EBITDA

Adjusted EBITDA increased by 2% over the period to $138.8 million (2014: $135.6 million) driven primarily by the positive effects of the new low cost Inmaculada contribution but largely offset by significantly lower precious metal prices.

 

Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs and income tax plus non-cash items (depreciation and changes in mine closure provisions) and exploration expenses other than personnel and other exploration related fixed expenses.

 

$000 unless otherwise indicated

Year ended

31 Dec 2015

Year ended

31 Dec 2014

% change

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

(10,886)

(14,374)

24

Depreciation and amortisation in cost of sales

135,645

128,480

6

Depreciation and amortisation in administrative expenses

1,534

2,072

(26)

Exploration expenses

9,255

17,254

(46)

Personnel and other exploration related fixed expenses

(4,301)

(6,934)

38

Other non cash expenses12

7,590

9,088

(16)

Adjusted EBITDA

138,837

135,586

2

Adjusted EBITDA margin

30%

28%

 

 

 

Finance income

Finance income before exceptional items of $1.9 million reduced slightly from 2014 ($2.2 million) mainly due to lower interest received on deposits, partially offset by income generated from the repurchase of bonds below par value.

 

Finance costs

Finance costs before exceptional items decreased from $33.1 million in 2014 to $31.4 million in 2015, principally due to the repurchase of $55.2 million of Senior Notes with a coupon rate of 7.75% and the $50.0 million prepayment of the medium term loan, both in the fourth quarter.

 

Foreign exchange losses

The Group recognised a foreign exchange loss of $5.6 million (2014: $5.0 million loss) as a result of exposures in currencies other than the functional currency specifically the Peruvian Nuevo Sol and Argentinean Peso, both of which depreciated in the year against the US Dollar.

 

Income tax

The Company's pre-exceptional income tax charge was $20.4 million (2014: $6.5 million). The increase is mainly explained by the impact of local currency devaluation in Peru and Argentina which significantly reduced the tax basis of PP&E and therefore generating a deferred tax liability.

 

Exceptional items

Exceptional items in 2015 totalled $(173.3) million losses after tax (2014: $(14.1) million). The tables below detail the exceptional items excluding the exceptional tax effect that amounted to $36.9 million (2014: $3.8 million).

 

2015 negative exceptional items:

Main items

$000

Description of main items

Cost of sales

(1,514)

Termination benefits

Impairment and write-off of non-financial assets (net)

(207,146)

Impairment of: Arcata unit ($72.4 million); Volcan unit ($57.1 million); Pallancata unit ($39.0 million);  Crespo  project ($14.4 million); Azuca project ($12.8 million); San Felipe project ($10.9 million); PP&E write-off ($0.6 million)

Finance cost

(1,486)

Interest on disputed tax charge

 

 

 

Cash flow & balance sheet review               

Cash flow:

$000 unless otherwise indicated

Year ended

31 Dec 2015

Year ended

31 Dec 2014

Change

Net cash generated from operating activities

133,256

93,779

39,477

Net cash used in investing activities

(223,319)

(263,007)

39,668

Cash flows generated in financing activities

61,027

5,039

55,988

Net decrease in cash and cash equivalents during the period

(29,036)

(164,189)

(135,153)

 

Operating cash flow increased from $93.8 million in 2014 to $133.3 million in 2015, mainly due to the maiden cash contribution from the new Inmaculada mine, partially offset by lower prices. Net cash used in investing activities decreased to $(223.3) million in 2015 from $(263.0) million in 2014 mainly due to moderately lower pre-operating capex incurred at the Inmaculada project in 2015 as well as reduced sustaining capex at the other operations. Finally, cash generated from financing activities increased to $61.0 million from $5.0 million in 2014, primarily as a result of the proceeds from the equity rights issue and short term debt raised in Peru ($75 million) offset by the significant repayment of $105 million of debt in the second half of the year. As a result, total cash outflow decreased from $(164.2) million in 2014 to $(29.0) million in 2015 ($135.2 million difference).

 

 

Working capital

$000 unless otherwise indicated

Year ended 

31 Dec 2015

Year ended

31 Dec 2014

Trade and other receivables

135,014

173,526

Inventories

70,286

58,417

Net other financial assets

20,126

2,809

Net income tax receivable

17,628

20,467

Trade and other payables and provisions

(249,788)

(226,603)

Working capital

(6,734)

28,616

 

 

The Group's working capital position improved by $35.4 million to $(6.7) million in 2015 from $28.6 million in 2014. This was primarily explained by: lower trade and other receivables ($(38.5) million) due to higher proportion of dore sales (lower collection period) at Arcata and lower prices; and higher trade and other payables and provisions ($(23.2) million), in line with improved payment terms obtained from vendors. These effects were partially offset by higher net financial assets ($17.4 million) and by higher inventories ($11.9 million), mainly resulting from accumulation of concentrate in Argentina in December 2015.

 

 

Net debt

$000 unless otherwise indicated

Year ended
31 Dec 2015

Year ended
31 Dec 2014

Cash and cash equivalents

84,017

115,999

Long term borrowings

(339,778)

(440,834)

Short term borrowings13

(94,760)

(27,882)

Net debt

(350,521)

(352,717)

 

The Group reported net debt position was $350.5 million as at 31 December 2015 (2014: ($352.7) million). The reduction includes the net effect of the equity rights issue ($95 million), the prepayment of the Scotiabank medium term loan (($50) million), the repurchase of senior notes (($55) million), the withdrawal of short term pre-shipment loans in Peru ($75 million) and the cash outflow required to complete the construction of Inmaculada.

 

Capital expenditure14

$000 unless otherwise indicated

Year ended
31 Dec 2015

Year ended
31 Dec 2014

Arcata

14,600

28,867

Ares

25

-

Selene

139

497

Pallancata

10,683

34,160

San Jose

38,451

51,350

Moris

-

-

Operations

63,898

114,874

Inmaculada

166,336

198,112

Crespo

2,842

4,206

Volcan

958

1,463

Azuca

211

853

Other

3,914

1,613

Total

238,159

321,121

 

2015 capital expenditure of $238.2 million (2014: $321.1 million) mainly comprised of operational capex of $63.9 million (2014: $114.9 million) and Inmaculada capital expenditure of $166.3 million (2014: $198.1 million).

 

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 2015

 

 

 

 

Year ended 31 December 2015

 

Year ended 31 December 2014

 

 

Notes

 

Before exceptional items US$000

 

Exceptional items

(note 11)

US$000

 

Total
 US$000

 

Before exceptional items US$000

 

Exceptional items

 (note 11)

US$000

 

Total
 US$000

Continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

3,5

 

469,146

 

-

 

469,146

 

492,951

 

-

 

492,951

Cost of sales

 

6

 

(403,657)

 

(1,514)

 

(405,171)

 

(404,639)

 

(6,065)

 

(410,704)

Gross profit

 

 

 

65,489

 

(1,514)

 

63,975

 

88,312

 

(6,065)

 

82,247

Administrative expenses

 

7

 

(38,148)

 

-

 

(38,148)

 

(43,335)

 

(2,752)

 

(46,087)

Exploration expenses

 

8

 

(9,255)

 

-

 

(9,255)

 

(17,254)

 

(886)

 

(18,140)

Selling expenses

 

9

 

(21,729)

 

-

 

(21,729)

 

(28,697)

 

-

 

(28,697)

Other income

 

12

 

8,021

 

-

 

8,021

 

4,112

 

-

 

4,112

Other expenses

 

12

 

(15,264)

 

-

 

(15,264)

 

(17,512)

 

(2,963)

 

(20,475)

Impairment and write-off of assets, net

 

11

 

-

 

(207,146)

 

(207,146)

 

-

 

109

 

109

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

 

 

 

(10,886)

 

(208,660)

 

(219,546)

 

(14,374)

 

(12,557)

 

(26,931)

Finance income

 

13

 

1,898

 

-

 

1,898

 

2,215

 

4,061

 

6,276

Finance costs

 

13

 

(31,414)

 

(1,486)

 

(32,900)

 

(33,074)

 

(9,491)

 

(42,565)

Foreign exchange loss

 

 

 

(5,627)

 

-

 

(5,627)

 

(4,990)

 

-

 

(4,990)

Loss from continuing
operations before income tax

 

 

 

(46,029)

 

(210,146)

 

(256,175)

 

(50,223)

 

(17,987)

 

(68,210)

Income tax (expense)/benefit

 

14

 

(20,370)

 

36,888

 

16,518

 

(6,466)

 

3,845

 

(2,621)

Loss for the year from continuing operations

 

 

 

(66,399)

 

(173,258)

 

(239,657)

 

(56,689)

 

(14,142)

 

(70,831)

Attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity shareholders of the Company

 

 

 

(61,852)

 

(172,758)

 

(234,610)

 

(54,963)

 

(13,914)

 

(68,877)

Non-controlling interests

 

 

 

(4,547)

 

(500)

 

(5,047)

 

(1,726)

 

(228)

 

(1,954)

 

 

 

 

(66,399)

 

(173,258)

 

(239,657)

 

(56,689)

 

(14,142)

 

(70,831)

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

 

15

 

(0.14)

 

(0.38)

 

(0.52)

 

(0.13)

 

(0.03)

 

(0.16)

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2015               

 

 

 

 

Year ended 31 December

 

 

Notes

 

2015
US$000

 

2014
US$000

Loss for the year

 

 

 

(239,657)

 

(70,831)

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

 

 

 

 

 

 

Exchange differences on translating foreign operations

 

 

 

(597)

 

(1,716)

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

 

19

 

(86)

 

(3,106)

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

 

 

 

104

 

2,096

Change in fair value of cash flow hedges

 

 

 

35,887

 

18,945

Recycling of the gain on cash flow hedges

 

 

 

(18,962)

 

(14,603)

Deferred income tax relating to components of other comprehensive income

 

14

 

(4,739)

 

(1,216)

Other comprehensive gain for the period, net of tax

 

 

 

11,607

 

400

Total comprehensive expense for the year

 

 

 

(228,050)

 

(70,431)

Total comprehensive expense attributable to:

 

 

 

 

 

 

Equity shareholders of the Company

 

 

 

(223,003)

 

(68,477)

Non-controlling interests

 

 

 

(5,047)

 

(1,954)

 

 

 

 

(228,050)

 

(70,431)

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2015

 

 

Notes

 

As at
31 December 2015
US$000

 

As at
31 December 2014
 US$000

ASSETS

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

Property, plant and equipment

 

16

 

1,045,516

 

1,076,310

Evaluation and exploration assets

 

17

 

138,171

 

207,290

Intangible assets

 

18

 

27,981

 

42,815

Available-for-sale financial assets

 

19

 

366

 

455

Trade and other receivables

 

20

 

10,187

 

6,488

Income tax receivable

 

 

 

47

 

-

Deferred income tax assets

 

27

 

-

 

1,574

 

 

 

 

1,222,268

 

1,334,932

Current assets

 

 

 

 

 

 

Inventories

 

21

 

70,286

 

58,417

Trade and other receivables

 

20

 

124,827

 

167,038

Income tax receivable

 

 

 

20,384

 

25,584

Other financial assets

 

 

 

21,267

 

4,342

Cash and cash equivalents

 

22

 

84,017

 

115,999

 

 

 

 

320,781

 

371,380

Total assets

 

 

 

1,543,049

 

1,706,312

EQUITY AND LIABILITIES

 

 

 

 

 

 

Capital and reserves attributable to shareholders of the Parent

 

 

 

 

 

 

Equity share capital

 

 

 

223,805

 

170,389

Share premium

 

 

 

438,041

 

396,021

Treasury shares

 

 

 

(898)

 

(898)

Other reserves

 

 

 

(203,649)

 

(217,335)

Retained earnings

 

 

 

218,093

 

451,047

 

 

 

 

675,392

 

799,224

Non-controlling interests

 

 

 

90,113

 

95,160

Total equity

 

 

 

765,505

 

894,384

Non-current liabilities

 

 

 

 

 

 

Trade and other payables

 

24

 

20,379

 

92

Borrowings

 

25

 

339,778

 

440,834

Provisions

 

26

 

121,402

 

111,751

Deferred income

 

23

 

25,000

 

25,000

Deferred income tax liabilities

 

27

 

64,274

 

84,959

 

 

 

 

570,833

 

662,636

Current liabilities

 

 

 

 

 

 

Trade and other payables

 

24

 

101,892

 

111,890

Other financial liabilities

 

 

 

1,141

 

1,533

Borrowings

 

25

 

94,760

 

27,882

Provisions

 

26

 

6,115

 

2,870

Income tax payable

 

 

 

2,803

 

5,117

 

 

 

 

206,711

 

149,292

Total liabilities

 

 

 

777,544

 

811,928

Total equity and liabilities

 

 

 

1,543,049

 

1,706,312

 

These financial statements were approved by the Board of Directors on 8 March 2016 and signed on its behalf by:

 

Ignacio Bustamante

Chief Executive Officer

8 March 2016

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2015

 

 

 

 

 

Year ended 31 December

 

 

Notes

 

2015
US$000

 

2014
US$000

Cash flows from operating activities

 

 

 

 

 

 

Cash generated from operations

 

 

 

166,234

 

129,993

Interest received

 

 

 

726

 

1,931

Interest paid

 

 

 

(36,445)

 

(25,585)

Payment of mine closure costs

 

26

 

(2,538)

 

(5,524)

Income tax received/(paid)

 

 

 

5,279

 

(7,036)

Net cash generated from operating activities

 

 

 

133,256

 

93,779

Cash flows from investing activities

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

 

(216,188)

 

(309,033)

Purchase of evaluation and exploration assets

 

 

 

(6,861)

 

(6,071)

Purchase of intangibles

 

 

 

(612)

 

(281)

Dividends received

 

 

 

-

 

494

Proceeds from deferred income

 

23

 

 -

 

3,223

Proceeds from sale of available-for-sale financial assets

 

 

 

3

 

48,097

Proceeds from sale of property, plant and equipment

 

 

 

339

 

564

Net cash used in investing activities

 

 

 

(223,319)

 

(263,007)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds of borrowings

 

 

 

175,948

 

482,393

Repayment of borrowings

 

 

 

(209,173)

 

(458,132)

Transaction costs of borrowings

 

 

 

-

 

(9,166)

Dividends paid

 

28

 

(964)

 

(10,056)

Proceeds from issue of ordinary shares

 

 

 

95,216

 

-

Cash flows generated in financing activities

 

 

 

61,027

 

5,039

Net decrease in cash and cash equivalents during the year

 

 

 

(29,036)

 

(164,189)

Exchange difference

 

 

 

(2,946)

 

(6,247)

Cash and cash equivalents at beginning of year

 

 

 

115,999

 

286,435

Cash and cash equivalents at end of year

 

22

 

84,017

 

115,999

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year 31 December 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Unrealised gain/
(loss) on hedges
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
2014

 

 

 

170,389

 

396,021

 

(898)

 

1,024

 

-

 

8,432

 

(11,289)

 

(210,046)

 

736

 

(211,143)

 

511,492

 

865,861

 

104,375

 

970,236

Other comprehensive (loss)/income

 

 

 

-

 

-

 

-

 

(1,010)

 

3,126

 

-

 

(1,716)

 

-

 

-

 

400

 

-

 

400

 

-

 

400

Loss for the year

 

 

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(68,877)

 

(68,877)

 

(1,954)

 

(70,831)

Total comprehensive income/(loss)
for the year

 

 

 

-

 

-

 

-

 

(1,010)

 

3,126

 

-

 

(1,716)

 

-

 

-

 

400

 

(68,877)

 

(68,477)

 

(1,954)

 

(70,431)

Transfer to retained earnings

 

 

 

-

 

-

 

-

 

-

 

-

 

(8,432)

 

-

 

-

 

-

 

(8,432)

 

8,432

 

-

 

-

 

-

CEO LTIP

 

 

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

610

 

610

 

-

 

610

 

-

 

610

Deferred bonus plan

 

 

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

1,230

 

1,230

 

-

 

1,230

 

-

 

1,230

Dividends declared to non-controlling interests

 

28

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(7,261)

 

(7,261)

Balance at
31 December
2014

 

 

 

170,389

 

396,021

 

(898)

 

14

 

3,126

 

-

 

(13,005)

 

(210,046)

 

2,576

 

(217,335)

 

451,047

 

799,224

 

95,160

 

894,384

Other comprehensive (loss)/income

 

 

 

-

 

-

 

-

 

18

 

12,186

 

-

 

(597)

 

-

 

-

 

11,607

 

-

 

11,607

 

-

 

11,607

Loss for the year

 

 

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(234,610)

 

(234,610)

 

(5,047)

 

(239,657)

Total comprehensive income/(loss)
for the year

 

 

 

-

 

-

 

-

 

18

 

12,186

 

-

 

(597)

 

-

 

-

 

11,607

 

(234,610)

 

(223,003)

 

(5,047)

 

(228,050)

Issuance of shares of deferred bonus plan

 

 

 

220

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(1,560)

 

(1,560)

 

1,340

 

-

 

-

 

-

Issuance of shares

 

 

 

53,196

 

46,812

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

100,008

 

-

 

100,008

Transaction costs related to issuance of shares

 

 

 

-

 

(4,792)

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(4,792)

 

-

 

(4,792)

Restricted share plan

 

 

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

2,843

 

2,843

 

-

 

2,843

 

-

 

2,843

Deferred bonus plan

 

 

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

469

 

469

 

-

 

469

 

-

 

469

CEO LTIP

 

 

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

327

 

327

 

316

 

643

 

-

 

643

Balance at
31 December 2015

 

 

 

223,805

 

438,041

 

(898)

 

32

 

15,312

 

-

 

(13,602)

 

(210,046)

 

4,655

 

(203,649)

 

218,093

 

675,392

 

90,113

 

765,505

                                                               

 

 

 

1 Notes to the consolidated financial statements

For the year ended 31 December 2015

 

The financial information for the year ended 31 December 2015 and 2014 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 2015 and 2014 have been extracted from the consolidated financial statements of Hochschild Mining plc for the year ended 31 December 2015 which have been approved by the directors on 8 March 2016 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

Changes in accounting policy and disclosures

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 2014.

Standards, interpretations and amendments to existing standards that are not yet effective and have not been previously adopted by the Group

Certain new standards, amendments and interpretations to existing standards have been published and are mandatory for the Group's accounting periods beginning on or after 1 January 2016 or later periods but which the Group has not previously adopted. Those that are applicable to the Group are as follows:

·     IAS 1 Disclosure Initiative - Amendments to IAS 1, applicable for annual periods beginning on or after 1 January 2016.

·     IAS 16 and IAS 38 - Clarification of Acceptable Methods of Depreciation and Amortisation - Amendments to IAS 16 and IAS 38, applicable for annual periods beginning on or after 1 January 2016.

·    AIP IFRS 5 Non-current Assets Held for Sale and Discontinued Operations - Changes in methods of disposal, applicable for annual periods beginning on or after 1 January 2016.

·     AIP IFRS 7 Financial Instruments: Disclosures - Servicing contracts, applicable for annual periods beginning on or after 1 January 2016.

·     AIP IAS 19 Employee Benefits - Discount rate: regional market issue, applicable for annual periods beginning on or after 1 January 2016.

·     IFRS 15 Revenue from Contracts with Customers, applicable for annual periods beginning on or after 1 January 2018.

·     IFRS 9 Financial Instruments, applicable for annual periods beginning on or after 1 January 2018.

·     IFRS 12 Disclosure of Interests in Other Entities, applicable for annual periods beginning on or after 1 January 2016.

·     IFRS 16 Leases, applicable for annual periods beginning on or after 1 Jan 2019.

·     IAS 7 Statement of cash flows, applicable for annual periods beginning on or after 1 January 2017.

·     IAS 12 Income Taxes, applicable for annual periods beginning on or after 1 January 2017.

 

The Group is analysing the effect of the standards and plans to adopt the new standard on the required effective date.

 

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 at market prices. 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 units - Arcata and San Jose, which generate revenue from the sale of gold, silver, dore and concentrate.

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

·     Operating unit - Inmaculada, which will generate revenue from the sale of gold, silver and dore.

·     Operating unit - Ares, in suspension, which generated revenue from the sale of gold and silver, disclosed as a segment until 31 December 2014. This operation did not meet the quantitative thresholds to be a separate reportable segment in 2015 and accordingly has been included in 'Other'. The comparative segment information has been restated to reflect these changes.

·    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 costs charged to the profit and loss and capitalised as assets.

·   Other - includes the profit or loss generated by Empresa de Transmisión Callalli S.A.C. (a power transmission company), HMX, S.A. de C.V. (a service company in Mexico), Empresa de Transmisión Aymaraes S.A.C. (a power transmission company), Ares unit, Moris unit and the Selene plant (used to process some of the Group's production).

 

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

 

 

 

Arcata US$000

 

Pallancata US$000

 

San Jose US$000

 

Inmaculada US$000

 

Exploration
US$000 

 

Other1



US$000

 

Adjustment
and
eliminations
US$000

 

Total
US$000

Year ended
31 December 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from
external customers

 

107,425

 

73,045

 

186,097

 

102,303

 

-

 

276

 

-

 

469,146

Inter segment revenue

 

-

 

-

 

-

 

-

 

-

 

2,437

 

(2,437)

 

-

Total revenue

 

107,425

 

73,045

 

186,097

 

102,303

 

-

 

2,713

 

(2,437)

 

469,146

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment profit/(loss)

 

(1,340)

 

(17,002)

 

13,297

 

49,759

 

(10,710)

 

384

 

(1,397)

 

32,991

Others2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(289,166)

Loss from continuing operations before
income tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(256,175)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other segment information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation3

 

 

(33,506)

 

(35,415)

 

(45,286)

 

(32,093)

 

(1,496)

 

(2,816)

 

-

 

(150,612)

Amortisation

 

-

 

-

 

(1,013)

 

-

 

(457)

 

(34)

 

-

 

(1,504)

Impairment and write-off of assets, net

 

(72,718)

 

(39,245)

 

(57)

 

-

 

(95,113)

 

(13)

 

-

 

(207,146)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditure

 

14,600

 

10,683

 

38,451

 

166,336

 

4,011

 

4,078

 

-

 

238,159

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

17,456

 

13,818

 

63,941

 

31,958

 

30

 

5,435

 

-

 

132,638

Other non-current assets

 

53,458

 

50,591

 

220,307

 

633,169

 

181,662

 

72,481

 

-

 

1,211,668

Total segment assets

 

70,914

 

64,409

 

284,248

 

665,127

 

181,692

 

77,916

 

-

 

1,344,306

Not reportable assets4

 

 

-

 

-

 

-

 

-

 

-

 

198,743

 

-

 

198,743

Total assets

 

70,914

 

64,409

 

284,248

 

665,127

 

181,692

 

276,659

 

-

 

1,543,049

1 'Other' revenue relates to revenues earned by Empresa de Transmisión Callalli S.A.C.and Empresa de Transmisión Aymaraes S.A.C.

2  Comprised of administrative expenses of US$38,148,000, other income of US$8,021,000, other expenses of US$15,264,000, impairment and write-off of assets of US$207,146,000, finance income of US$1,898,000, finance expense of US$32,900,000, and foreign exchange loss of US$5,627,000.

3  Includes US$1,793,000 and US$6,077,000 of depreciation capitalised in the Crespo and the Inmaculada projects respectively.

4  Not reportable assets are comprised of available-for-sale financial assets of US$366,000, other receivables of US$72,662,000, income tax receivable of US$20,431,000, other financial assets of US$21,267,000 and cash and cash equivalents of US$84,017,000.

 

 

 

 

 

Arcata US$000

 

Pallancata US$000

 

San Jose US$000

 

Inmaculada
US$000

 

Exploration
US$000 

 

Other1


US$000 

 

Adjustment
and
eliminations
US$000

 

Total
US$000

Year ended
31 December 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from
external customers

 

106,061

 

147,360

 

213,013

 

-

 

-

 

26,517

 

-

 

492,951

Inter segment revenue

 

-

 

-

 

-

 

-

 

-

 

2,857

 

(2,857)

 

-

Total revenue

 

106,061

 

147,360

 

213,013

 

-

 

-

 

29,374

 

(2,857)

 

492,951

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment profit/(loss)

 

5,054

 

20,894

 

28,429

 

-

 

(18,662)

 

447

 

(752)

 

35,410

Others2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(103,620)

Loss from continuing operations before
income tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(68,210)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other segment information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation3

 

 

(31,348)

 

(48,008)

 

(46,820)

 

(7,558)

 

(930)

 

(3,014)

 

-

 

(137,678)

Amortisation

 

-

 

-

 

(1,181)

 

-

 

(458)

 

-

 

-

 

(1,639)

Impairment and write-off of assets, net

 

(499)

 

(31)

 

(717)

 

(85)

 

1,580

 

(139)

 

-

 

109

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditure

 

28,867

 

34,160

 

51,350

 

193,445

 

6,522

 

6,777

 

-

 

321,121

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

27,993

 

21,174

 

66,995

 

5,877

 

35

 

9,161

 

-

 

131,235

Other non-current assets

 

143,524

 

112,365

 

223,295

 

497,771

 

277,829

 

71,631

 

-

 

1,326,415

Total segment assets

 

171,517

 

133,539

 

290,290

 

503,648

 

277,864

 

80,792

 

-

 

1,457,650

Not reportable assets4

 

 

-

 

-

 

-

 

-

 

-

 

248,662

 

-

 

248,662

Total assets

 

171,517

 

133,539

 

290,290

 

503,648

 

277,864

 

329,454

 

-

 

1,706,312

1 'Other' revenue relates to revenue for the sale of gold and silver generated by the Ares and Moris mine, revenues earned by  Empresa de Transmisión Callalli S.A.C., and 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$46,087,000, other income of US$4,112,000, other expenses of US$20,475,000, gain on the reversal of impairment net of write-off of assets of US$109,000, finance income of US$6,276,000, finance expense of US$42,565,000, and foreign exchange loss of US$4,990,000.

3 Includes US$967,000 and US$7,558,000 of depreciation capitalised in the Crespo and the Inmaculada projects respectively.

4 Not reportable assets are comprised of available-for-sale financial assets of US$455,000, other receivables of US$100,708,000, income tax receivable of US$25,584,000, deferred income tax assets of US$1,574,000, other financial assets of US$4,342,000 and cash and cash equivalents of US$115,999,000.

 

 

(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

 

 

2015
US$000

 

2014
US$000

External customer

 

 

 

 

USA

 

229,229

 

96,427

Peru

 

63,328

 

178,217

Canada

 

58,154

 

36,421

Germany

 

7,428

 

10,987

Switzerland

 

12,174

 

45,020

United Kingdom

 

17,273

 

2,450

Korea

 

81,580

 

121,868

Japan

 

(20)

 

1,561

Total

 

469,146

 

492,951

Inter-segment

 

 

 

 

Peru

 

2,437

 

1,804

Mexico

 

-

 

1,053

Total

 

471,583

 

495,808

 

 

 

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 2015

 

Year ended 31 December 2014

 

 

US$000

 

% Revenue

 

Segment

 

US$000

 

% Revenue

 

Segment

Republic Metals Corporation

 

106,339

 

23%

 

Arcata, Inmaculada and San Jose

 

44,725

 

9%

 

San Jose

LS Nikko

 

81,580

 

17%

 

Pallancata and San Jose

 

121,868

 

25%

 

Arcata, Pallancata and San Jose

Glencore Perú S.A.C.

 

38,502

 

8%

 

Arcata and Pallancata

 

114,192

 

23%

 

Arcata and Pallancata

 

 

Non-current assets, excluding financial instruments and deferred income tax assets, were allocated to the geographical areas in which the assets are located as follows:

 

 

As at 31 December

 

 

2015
US$000

 

2014
US$000

Peru

 

897,824

 

942,411

Argentina

 

220,307

 

223,295

Mexico

 

31,005

 

41,944

Chile

 

62,532

 

118,765

Total non-current segment assets

 

1,211,668

 

1,326,415

Available-for-sale financial assets

 

366

 

455

Trade and other receivables

 

10,187

 

6,488

Income tax receivable

 

47

 

-

Deferred income tax assets

 

-

 

1,574

Total non-current assets

 

1,222,268

 

1,334,932

 

4 Acquisitions and disposals

 

(a) Sale of subsidiary

In 2015 there were no acquisitions or disposals undertaken by the Group.

 

Minas Santa María de Moris, S.A. de C.V.

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") for consideration with a fair value of nil. The terms of the transaction stipulate that:

·     the Group was entitled to a 1% net smelter return over the Moris concessions once production reaches 50,000 ounces of gold equivalent following the sale; and

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

 

The carrying value of the net assets disposed was US$2,963,000 and the transaction resulted in a loss of US$2,963,000.

 

 

5 Revenue

 

 

Year ended 31 December

 

 

2015
US$000

 

2014
US$000

Gold (from dore bars)

 

142,077

 

62,911

Silver (from dore bars)

 

142,397

 

67,418

Gold (from concentrate)

 

68,414

 

109,045

Silver (from concentrate)

 

115,982

 

253,420

Services

 

276

 

157

Total

 

469,146

 

492,951

 

Included within revenue is a loss of US$7,275,000 relating to provisional pricing adjustments representing the change in the fair value of embedded derivatives (2014: loss of US$16,518,000) arising on sales of concentrates and dore (refer to note 2(p).

 

The realised gain on gold and silver swaps contracts in the period recognised within revenue was US$18,962,000 (gold: US$7,012,000, silver: US$11,950,000) (2014: US$14,603,000, gold: US$2,451,000, silver: US$12,152,000).

 

6 Cost of sales

 

Included in cost of sales are:

 

 

Year ended 31 December

 

 

2015
US$000

 

2014
US$000

Depreciation and amortisation

 

142,712

 

128,720

Personnel expenses (notes 10 and 11)

 

107,823

 

114,322

Mining royalty (note 30)

 

5,968

 

6,581

Change in products in process and finished goods

 

(10,255)

 

8,641

 

 

7 Administrative expenses

 

 

Year ended 31 December

 

 

2015
US$000

 

2014
US$000

Personnel expenses (notes 10 and 11)

 

22,427

 

24,206

Professional fees

 

3,095

 

3,846

Social and community welfare expenses1

 

 

597

 

1,943

Lease rentals

 

1,415

 

1,442

Travel expenses

 

576

 

865

Communications

 

560

 

579

Indirect taxes

 

2,147

 

2,678

Depreciation and amortisation

 

1,534

 

2,072

Technology and systems

 

745

 

718

Security

 

790

 

951

Supplies

 

134

 

188

Other

 

4,128

 

6,599

Total

 

38,148

 

46,087

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

 

8 Exploration expenses

 

 

Year ended 31 December

 

 

2015
US$000

 

2014
US$000

Mine site exploration1

 

 

 

 

 

Arcata

 

62

 

2,038

Ares

 

50

 

42

Selene

 

-

 

58

Inmaculada

 

6

 

-

Pallancata

 

2,457

 

1,728

San Jose

 

1,463

 

1,003

 

 

4,038

 

4,869

Prospects2

 

 

 

 

 

Peru

 

303

 

788

Argentina

 

43

 

73

Mexico

 

-

 

195

Chile

 

71

 

237

 

 

417

 

1,293

Generative3

 

 

 

 

 

Peru

 

499

 

1,180

Argentina

 

-

 

11

Mexico

 

-

 

2,588

Chile

 

-

 

379

 

 

499

 

4,158

Personnel (notes 10 and 11(1))

 

2,967

 

7,412

Others

 

1,334

 

408

Total

 

9,255

 

18,140

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 Group determines the cash flows which relate to the exploration activities of the companies engaged only in exploration. Exploration activities incurred by Group operating companies are not included since it is not practivable to separate the liabilities related to the exploration activities of these companies from their operating liabilities.

 

Cash outflows on exploration activities were US$1,190,000 in 2015 (2014: US$3,362,000).

 

 

9 Selling expenses

 

 

Year ended 31 December

 

 

2015
US$000

 

2014
US$000

Transportation of dore, concentrate and maritime freight

 

3,548

 

6,020

Sales commissions

 

200

 

429

Personnel expenses (note 10)

 

254

 

249

Warehouse services

 

1,610

 

2,930

Taxes

 

12,994

 

15,609

Other

 

3,123

 

3,460

Total

 

21,729

 

28,697

 

10 Personnel expenses1

 

 

Year ended 31 December

 

 

2015
US$000

 

2014
US$000

Salaries and wages

 

103,433

 

115,770

Workers' profit sharing

 

-

 

(34)

Other legal contributions

 

20,735

 

22,168

Statutory holiday payments

 

6,534

 

7,074

Long Term Incentive Plan

 

1,013

 

(657)

Restricted share plan

 

2,843

 

-

Termination benefits

 

3,623

 

11,570

Other

 

1,584

 

1,805

Total

 

139,765

 

157,696

1    Personnel expenses are distributed in cost of sales, administrative expenses, exploration expenses, selling expenses, other expenses and capitalised as property plant and equipment amounting to US$107,823,000 (2014: US$114,322,000), US$22,427,000 (2014: US$24,206,000), US$2,967,000 (2014: US$7,412,000), US$254,000 (2014: US$249,000), US$1,218,000 (2014: US$1,642,000) and US$5,076,000 (2014: US$9,865,000) respectively.

 

 

Average number of employees for 2015 and 2014 were as follows:

 

 

Year ended 31 December

 

 

2015

 

2014

Peru

 

2,575

 

2,852

Argentina

 

1,129

 

1,179

Mexico

 

-

 

19

Chile

 

3

 

11

United Kingdom

 

10

 

9

Total

 

3,717

 

4,070

 

 

11 Pre-tax exceptional items

 

Exceptional items are those significant 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 facilitate comparison with prior years.

 

 

Year ended 31 December

 

 

2015
US$000

 

2014
US$000

Cost of sales

 

 

 

 

Termination benefits1

 

 

(1,514)

 

(1,327)

Termination benefits Ares mine unit2

 

 

-

 

(3,511)

Work stoppage at Arcata mine unit

 

-

 

(1,227)

Total

 

(1,514)

 

(6,065)

Administrative expenses

 

 

 

 

Termination benefits1

 

 

-

 

(2,752)

Total

 

-

 

(2,752)

Exploration expenses

 

 

 

 

Termination benefits1

 

 

-

 

(886)

Total

 

-

 

(886)

Other expenses

 

 

 

 

Loss on sale of subsidiary3

 

 

-

 

(2,963)

Total

 

-

 

(2,963)

Impairment and write-off of assets (net)

 

 

 

 

Impairment and write-off of assets4

 

 

(207,146)

 

(1,534)

Reversal of impairment of assets5

 

 

-

 

1,643

Total

 

(207,146)

 

109

Finance income

 

 

 

 

Gain on sale of available-for-sale financial assets6

 

 

-

 

4,061

Total

 

-

 

4,061

Finance costs

 

 

 

 

Amortisation of transaction costs on secure bank loans7

 

 

-

 

(3,336)

Loss from changes in the fair value of financial instruments8

 

 

-

 

(6,155)

Interest on disputed tax charges9

 

 

(1,486)

 

-

Total

 

(1,486)

 

(9,491)

Income tax benefit

 

36,888

 

3,845

Total

 

36,888

 

3,845

1 Termination benefits paid to workers following the cashflow optimisation programme approved by management, amounting to US$1,514,000 (2014:US$4,965,000).

2 Termination benefits generated in connection with the suspension of the Ares mine unit.

3 Loss generated by the sale of the Group´s interest in Moris (refer to note 4(a)).

4 As at 31 December 2015 corresponds to the impairment of the Pallancata mine unit of US$39,026,000, the Arcata mine unit of US$72,424,000, the Crespo project of US$14,350,000, the Azuca project of US$12,766,000,  the Volcan project of US$57,070,000 and the San Felipe project of US$10,927,000, and to the write-off of assets of US$583,000.  As at 31 December 2014 corresponds to the write-off of assets of US$1,534,000.

5 Corresponds to a reversal of previously recorded impairment at the San Felipe property of US$1,643,000 (note 17).

6 Corresponds to the gain on sale of the Group´s holding in Gold Resource Corp ('GRC') of US$2,642,000, Chaparral Gold of US$842,000, Mirasol Resources Ltd of US$556,000 and Northern Superior Resources Inc of US$21,000.

7 Corresponds to the attributable issue cost of the syndicated US$270,000,000 loan, granted in 2013 and repaid in January 2014, to Compañía Minera Ares S.A.C., disclosed as an exceptional item as a significant one-off expense.

8 As at 31 December 2014 corresponds to the impairment of the investments in Pembrook Mining Corp of US$6,000,000, Brionor Resources of US$54,000, Revelo Resources Corp (formerly Iron Creek Capital Corp) of US$53,000, Northern Superior Resources Inc of US$45,000 and Empire Petroleum Corp of US$3,000.

9 Interest on overdue tax charges owed by the Group following a change in circumstances surrounding a tax dispute with the Peruvian tax authority, resulting in the exposure now being assessed as 'probable', rather than 'possible'.

 

12 Other income and other expenses before exceptional items

 

 

Year ended
31 December 2015

 

Year ended
31 December 2014

 

 

Before
exceptional
items
US$000

 

Before
exceptional
items
US$000

Other Income

 

 

 

 

Export credit

 

2,743

 

1,386

Lease rentals

 

443

 

586

Logistic services

 

3,699

 

-

Other

 

1,136

 

2,140

 

 

8,021

 

4,112

Other expenses

 

 

 

 

Increase in provision for mine closure (note 26(4))

 

(7,590)

 

(9,088)

Tax on mining reserves in Argentina (note 30)

 

(441)

 

(3,453)

Provision of obsolescence of supplies

 

(1,046)

 

945

Contingencies

 

(108)

 

(1,680)

Write off of value added tax

 

(795)

 

(37)

Other

 

(5,284)

 

(4,199)

Total

 

(15,264)

 

(17,512)

 

 

13 Finance income and finance costs before exceptional items

 

 

Year ended
31 December 2015

 

Year ended
31 December 2014

 

 

Before
exceptional
items
US$000

 

Before
exceptional
items
US$000

Finance income

 

 

 

 

Interest on deposits and liquidity funds

 

648

 

1,567

Interest income

 

648

 

1,567

Dividends

 

-

 

525

Gain on repurchase of bonds

 

856

 

-

Other

 

394

 

123

Total

 

1,898

 

2,215

Finance costs

 

 

 

 

Interest on secured bank loans (note 25)

 

(5,842)

 

(5,027)

Interest on convertible bond1

 

 

-

 

(5,364)

Other interest

 

(1,657)

 

-

Interest on bond (note 25)

 

(22,096)

 

(20,302)

Interest expense

 

(29,595)

 

(30,693)

Unwind of discount

 

(505)

 

(1,865)

Loss from changes in the fair value of financial instruments

 

(116)

 

(90)

Other

 

(1,198)

 

(426)

Total

 

(31,414)

 

(33,074)

1 Relates to US$115,000,000 of senior unsecured convertible bonds, due in 2014, which were convertible into ordinary shares of Hochschild Mining plc. The Group settled the convertible bonds in cash upon their maturity in October 2014. The bonds had a coupon of 5.75% per annum payable semi-annually on 28 January and 28 July of each year.

 

14 Income tax expense

 

 

Year ended 31 December 2015

 

Year ended 31 December 2014

 

 

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

 

5,200

 

(259)

 

4,941

 

10,082

 

(251)

 

9,831

Current mining royalty charge (note 30)

 

1,778

 

-

 

1,778

 

1,611

 

-

 

1,611

Current special mining tax charge (note 30)

 

755

 

-

 

755

 

375

 

-

 

375

Withholding taxes

 

(142)

 

-

 

(142)

 

(343)

 

-

 

(343)

 

 

7,591

 

(259)

 

7,332

 

11,725

 

(251)

 

11,474

Deferred taxation

 

 

 

 

 

 

 

 

 

 

 

 

Origination and reversal of temporary differences from continuing operations (note 27)

 

12,637

 

(36,629)

 

(23,992)

 

(457)

 

(3,851)

 

(4,308)

Effect of change in tax rate

 

142

 

-

 

142

 

(4,802)

 

257

 

(4,545)

 

 

12,779

 

(36,629)

 

(23,850)

 

(5,259)

 

(3,594)

 

(8,853)

Total taxation charge/(credit) in the income statement

 

20,370

 

(36,888)

 

(16,518)

 

6,466

 

(3,845)

 

2,621

 

The weighted average statutory income tax rate was 25.4% for 2015 and 28.7% for 2014. 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.

 

In December 2014, the Peruvian government approved a schedule for the gradual reduction of the statutory income tax rate, from its current level of 30% to 26% by 2019.

 

 

 

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

 

 

As at 31 December

 

 

2015
US$000

 

2014
US$000

Deferred taxation:

 

 

 

 

Deferred income tax relating to fair value gains on cash flow hedges

 

4,739

 

1,216

Total tax charge in the statement of other comprehensive income

 

4,739

 

1,216

 

 

 

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

 

 

2015
US$000

 

2014
US$000

Loss from continuing operations before income tax

 

(256,175)

 

(68,210)

At average statutory income tax rate of 25.4% (2014: 28.7%)

 

(65,017)

 

(19,547)

Expenses not deductible for tax purposes

 

1,040

 

3,058

Non-taxable income1

 

 

-

 

(851)

Deferred tax recognised on special investment regime

 

(691)

 

(780)

Movement in unrecognised deferred tax2

 

16,565

 

6,700

Change in statutory income tax rate

 

142

 

(4,545)

Withholding tax

 

(142)

 

(343)

Special mining tax and mining royalty3

 

 

2,533

 

1,986

Derecognition of deferred tax asset

 

1,251

 

-

Foreign exchange rate effect4

 

 

24,964

 

14,473

Other

 

2,837

 

2,470

At average effective income tax rate of 6.4% (2014: -3.8%)

 

(16,518)

 

2,621

Taxation charge attributable to continuing operations

 

(16,518)

 

2,621

Total taxation charge in the income statement

 

(16,518)

 

2,621

1 2014: Mainly corresponds to the gain on sale of Gold Resource Corp shares.

2 Includes the effect of the impairment of Volcan and San Felipe projects of US$11,414,000 and US$3,278,000 respectively.

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

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

 

15 Basic and diluted earnings per share

Earnings per share ('EPS') is calculated by dividing profit/(loss) 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 a result of the rights issue being at a discounted price, the number of ordinary shares outstanding has increased due to the bonus element resulting in the calculation of basic and diluted earnings per share for all periods presented having been adjusted retrospectively.

 

As at 31 December 2015 and 2014, EPS has been calculated as follows:

 

 

 

As at 31 December

 

 

2015

 

2014

Basic loss per share from continuing operations

 

 

 

 

Before exceptional items (US$)

 

(0.14)

 

(0.13)

Exceptional items (US$)

 

(0.38)

 

(0.03)

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

 

(0.52)

 

(0.16)

Diluted loss per share from continuing operations

 

 

 

 

Before exceptional items (US$)

 

(0.14)

 

(0.13)

Exceptional items (US$)

 

(0.38)

 

(0.03)

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

 

(0.52)

 

(0.16)

 

 

 

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

 

 

As at 31 December

 

 

2015

 

2014

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

 

(234,610)

 

(68,877)

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

 

172,758

 

13,914

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

 

(61,852)

 

(54,963)

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

 

(61,852)

 

(54,963)

 

 

The following reflects the share data used in the basic and diluted loss per share computations:

 

 

As at 31 December

 

 

2015

 

2014

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

 

449,511

 

421,783

Dilutive potential ordinary shares related to contingently issuable shares (thousands)1

 

 

-

 

-

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

 

449,511

 

421,783

1 The potential ordinary shares related to the contingently issuable shares under the Enhanced Long Term Incentive Plan and Restricted Share Plan" have not been included in the calculation of diluted EPS for 2015 and 2014 as they have an antidilutive effect.

 

16 Property, plant and equipment

 

 

Mining properties and development
costs1
 
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 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2015

 

999,777

 

257,171

 

389,042

 

6,030

 

96,213

 

237,308

 

1,985,541

Additions

 

91,862

 

632

 

31,455

 

-

 

-

 

106,737

 

230,686

Change in discount rate

 

-

 

-

 

-

 

-

 

(755)

 

-

 

(755)

Change in mine closure estimate

 

-

 

-

 

-

 

-

 

7,928

 

-

 

7,928

Disposals

 

-

 

(195)

 

(952)

 

(196)

 

-

 

-

 

(1,343)

Write-offs

 

 

 

 

 

(2,382)

 

(118)

 

 

 

(5)

 

(2,505)

Transfer from intangibles

 

582

 

-

 

-

 

-

 

-

 

-

 

582

Transfers and other movements2

 

 

4,886

 

214,485

 

63,584

 

435

 

-

 

(281,648)

 

1,742

At 31 December 2015

 

1,097,107

 

472,093

 

480,747

 

6,151

 

103,386

 

62,392

 

2,221,876

Accumulated depreciation
and impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2015

 

526,824

 

134,638

 

193,210

 

3,663

 

49,486

 

1,410

 

909,231

Depreciation for the year

 

91,129

 

23,333

 

32,053

 

913

 

3,184

 

-

 

150,612

Disposals

 

-

 

(179)

 

(223)

 

(124)

 

-

 

-

 

(526)

Impairment

 

60,259

 

20,752

 

30,451

 

71

 

7,120

 

-

 

118,653

Write-offs

 

-

 

-

 

(1,839)

 

(83)

 

-

 

-

 

(1,922)

Transfers and other movements2

 

 

335

 

492

 

(264)

 

7

 

-

 

(258)

 

312

At 31 December 2015

 

678,547

 

179,036

 

253,388

 

4,447

 

59,790

 

1,152

 

1,176,360

Net book amount at 31 December 2015

 

418,560

 

293,057

 

227,359

 

1,704

 

43,596

 

61,240

 

1,045,516

There were borrowing costs capitalised in property, plant and equipment amounting to US$8,252,000 (2014: US$9,904,000). The capitalisation rate used was 6.79% (2014: 8.83%).

 

1 Mining properties and development costs related to Azuca, Crespo and Volcan projects are not currently being depreciated.

2 Net of transfers and other movements of US$1,430,000 were transferred from evaluation and exploration assets.

 

At the end of 2015, given the continued challenging environment for the mining sector, the Group carried out an impairment review of all of its operating mines (Arcata, Pallancata, Inmaculada and San Jose), and its growth projects (Crespo, Azuca, San Felipe and Volcan). As a result of this review the Group recognised an impairment charge in the Pallancata mine unit of US$39,026,000, the Arcata mine unit of US$72,424,000, the Crespo project of US$14,350,000, the Azuca project of US$12,766,000, San Felipe project of US$10,927,000 and the Vocan project of US$57,070,000. The impairment recognised in property plant and equipment was US$118,653,000, in evaluation and exploration assets was US$74,550,000 and in intangibles was US$13,360,000 (refer to note 17 and 18).

 

The recoverable values of these CGUs were determined using a fair value less costs of disposal (FVLCD) methodology. FVLCD was determined using a combination of level 2 and level 3 inputs to construct a discounted cash flow model to estimate the amount that would be paid by a willing third party in an arm's length transaction. The key assumptions on which management has based its determination of FVLCD, and the associated recoverable values calculated are presented below.

 

 

Gold and silver prices

US$ per oz.

 

2016

 

2017

 

2018

 

2019

 

Long-term

Gold

 

1,175

 

1,200

 

1,213

 

1,240

 

1,224

Silver

 

16

 

17

 

18

 

19

 

18

 

 

Other key assumptions

 

 

Arcata

 

Pallancata

 

San Jose

 

Inmaculada

 

Crespo

 

Azuca

San Felipe

 

 

Volcan

Discount rate (post tax)

 

6.3%

 

6.3%

 

9.7%

 

6.3%

 

7.8%

 

n/a

n/a

 

 

n/a

Value per in-situ ounce (per tonne in the case of San Felipe)

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

0.25

16.21

 

 

6.55

1 With respect to the Azuca, Volcan and San Felipe growth projects, given their early stage, 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 Azuca, Volcan which includes the water permits held by the Group, and San Felipe CGUs. The enterprise value used in the calculation performed at 31 December 2015 was US$6.55 per gold equivalent ounce of resources (Volcan), $0.25 per silver equivalent ounce of resources (Azuca) and US$16.21 per zinc equivalent tonne of resources (San Felipe). The enterprise value figures are based on observable external market information.

 

Current carrying value of CGU, net of deferred tax (US$000)

 

Arcata

 

Pallancata

 

San Jose

 

Inmaculada

 

Crespo

 

Azuca

San Felipe

 

 

Volcan

31 December 2015

 

42,956

 

49,331

 

160,055

 

587,208

 

46,275

 

26,102

4,218

 

 

62,512

 

Crespo, Azuca and San Felipe projects correspond to the exploration segment.

 

Sensitivity analysis

Other than as disclosed below, management believes that no reasonably possible change in any of the key assumptions above would cause the carrying value of any of its cash generating units to exceed its recoverable amount.

 

The estimated recoverable amounts of the following of the Group's CGUs are equal to, or not materially greater than, their carrying values; consequently, any adverse change in the following key assumptions would, in isolation, cause an impairment loss to be recognised:

Approximate impairment resulting from the following changes (US$000)

 

Arcata

 

Pallancata

 

San Jose

 

Inmaculada

 

Crespo

 

Azuca

San Felipe

Volcan

Prices (10% decrease)

 

(42,956)

 

(14,892)

 

(89,961)

 

(86,439)

 

(16,308)

 

n/a

n/a

n/a

Post tax discount rate (3% increase)

 

(5,354)

 

(3,525)

 

(28,570)

 

(50,812)

 

(12,348)

 

n/a

n/a

n/a

Production costs (10% increase)

 

(42,956)

 

(8,082)

 

(48,914)

 

(20,495)

 

(7,397)

 

n/a

n/a

n/a

Value per in-situ ounce (per tonne in the case of San Felipe)  (10% decrease)

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

(2,610)

(422)

(6,251)

 

 

 

 

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 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2014

 

869,780

 

220,083

 

371,079

 

6,511

 

74,362

 

136,383

 

1,678,198

Additions

 

136,742

 

1,913

 

20,281

 

46

 

-

 

157,192

 

316,174

Change in discount rate

 

-

 

-

 

-

 

-

 

4,357

 

-

 

4,357

Change in mine closure estimate

 

-

 

-

 

-

 

-

 

18,741

 

-

 

18,741

Disposals

 

-

 

(178)

 

(2,657)

 

(309)

 

-

 

(61)

 

(3,205)

Write-offs

 

(114)

 

(276)

 

(3,943)

 

(308)

 

-

 

-

 

(4,641)

Disposal of subsidiary (note 4(a))

 

(11,015)

 

(7,851)

 

(6,972)

 

(355)

 

(1,247)

 

-

 

(27,440)

Transfers and other movements1

 

 

4,384

 

43,480

 

11,254

 

445

 

-

 

(56,206)

 

3,357

At 31 December 2014

 

999,777

 

257,171

 

389,042

 

6,030

 

96,213

 

237,308

 

1,985,541

Accumulated depreciation
and impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2014

 

452,777

 

120,923

 

175,453

 

3,645

 

48,425

 

3,498

 

804,721

Depreciation for the year

 

84,928

 

19,836

 

29,854

 

752

 

2,308

 

-

 

137,678

Disposals

 

-

 

(178)

 

(2,385)

 

(256)

 

-

 

-

 

(2,819)

Write-offs

 

(51)

 

(184)

 

(2,677)

 

(195)

 

-

 

-

 

(3,107)

Disposal of subsidiary (note 4(a))

 

(11,015)

 

(7,851)

 

(6,969)

 

(345)

 

(1,247)

 

-

 

(27,427)

Transfers and other movements1

 

 

185

 

2,092

 

(66)

 

62

 

-

 

(2,088)

 

185

At 31 December 2014

 

526,824

 

134,638

 

193,210

 

3,663

 

49,486

 

1,410

 

909,231

Net book amount at 31 December 2014

 

472,953

 

122,533

 

195,832

 

2,367

 

46,727

 

235,898

 

1,076,310

1 Net of transfers and other movements of US$3,172,000 were transferred from evaluation and exploration assets.

 

17 Evaluation and exploration assets

 

 

Azuca
US$000

 

Crespo
US$000

 

San Felipe US$000

 

Volcan US$000

 

Others
US$000

 

Total
US$000

Cost

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2014

 

75,540

 

29,176

 

55,950

 

90,575

 

10,684

 

261,925

Additions

 

821

 

-

 

-

 

1,463

 

2,382

 

4,666

Transfers from/( to) property, plant and equipment

 

3,593

 

(3,620)

 

-

 

(3)

 

(3,822)

 

(3,852)

Balance at 31 December 2014

 

79,954

 

25,556

 

55,950

 

92,035

 

9,244

 

262,739

Additions

 

211

 

224

 

-

 

958

 

5,468

 

6,861

Transfers from/(to) property plant and equipment

 

-

 

-

 

-

 

-

 

(1,742)

 

(1,742)

Balance at 31 December 2015

 

80,165

 

25,780

 

55,950

 

92,993

 

12,970

 

267,858

Accumulated impairment

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2014

 

29,862

 

9,130

 

16,550

 

-

 

1,740

 

57,282

Impairment1

 

 

-

 

-

 

(1,643)

 

-

 

-

 

(1,643)

Transfers from/(to) property, plant and equipment

 

3,430

 

(3,620)

 

-

 

-

 

-

 

(190)

Balance at 31 December 2014

 

33,292

 

5,510

 

14,907

 

-

 

1,740

 

55,449

Impairment1

 

 

12,584

 

4,368

 


10,927

 

44,381

 

2,290

 

74,550

Transfers from/(to) property, plant and equipment

 

-

 

-

 

-

 

-

 

(312)

 

(312)

Balance at 31 December 2015

 

45,876

 

9,878

 

25,834

 

44,381

 

3,718

 

129,687

Net book value as at 31 December 2014

 

46,662

 

20,046

 

41,043

 

92,035

 

7,504

 

207,290

Net book value as at 31 December 2015

 

34,289

 

15,902

 

30,116

 

48,612

 

9,252

 

138,171

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

 

1 In 2015 the Group recognised an impairment charge of US$74,550,000, mainly related to the Volcan project (refer to note 16). The FVLCD calculation is detailed in note 16. In 2014, the Group partially reversed the impairment of the San Felipe project of US$1,643,000.

 

18 Intangible assets

 

 

Transmission 
line
1



US$000 

 

 Water permits2


US$000 

 

Software
licences
US$000

 

Legal rights3 


US$000 

 

Total
US$000

Cost

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2014

 

22,157

 

26,583

 

1,348

 

6,404

 

56,492

Additions

 

-

 

-

 

4

 

277

 

281

Transfer

 

-

 

-

 

421

 

-

 

421

Balance at 31 December 2014

 

22,157

 

26,583

 

1,773

 

6,681

 

57,194

Additions

 

-

 

-

 

25

 

587

 

612

Transfer

 

-

 

-

 

-

 

(582)

 

(582)

Balance at 31 December 2015

 

22,157

 

26,583

 

1,798

 

6,686

 

57,224

Accumulated amortisation and impairment

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2014

 

10,022

 

-

 

1,238

 

1,549

 

12,809

Amortisation for the year4

 

 

1,102

 

 

-

 

79

 

 

458

 

1,639

Transfer

 

-

 

-

 

(69)

 

-

 

(69)

Balance at 31 December 2014

 

11,124

 

-

 

1,248

 

2,007

 

14,379

Amortisation for the year4

 

 

946

 


-

 

67

 


491

 

1,504

Impairment5

 

 

-

 


12,686

 

-

 


674

 

13,360

Balance at 31 December 2015

 

12,070

 

12,686

 

1,315

 

3,172

 

29,243

Net book value as at 31 December 2014

 

11,033

 

26,583

 

525

 

4,674

 

42,815

Net book value as at 31 December 2015

 

10,087

 

13,897

 

483

 

3,514

 

27,981

1 The transmission line is amortised using the units of production method. At 31 December 2015 the remaining amortisation period is approximately 10 years.

2 Corresponds to the acquisition of water permits of Andina Minerals Group ("Andina"). They have an indefinite life according to Chilean law. 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 Volcan cash-generating unit, which includes the water permits held by the Group. The enterprise value used in the calculation performed at 31 December 2015 was US$10.29 per gold equivalent ounce of resources (2014: US$18.00). The enterprise value figures are based on observable external market information

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 2015 the remaining amortisation period is 10 years.

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

5 Correspond to the impairment of the Crespo and Volcan projects (refer to note 16).

 

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

 

19 Available-for-sale financial assets

 

 

Year ended 31 December

 

 

2015
US$000

 

2014
US$000

Beginning balance

 

455

 

51,658

Fair value change recorded in equity

 

(86)

 

(3,106)

Disposals1

 

 

(3)

 

(48,097)

Ending balance

 

366

 

455

1  As at 31 December 2014 corresponds to the sales of 9,451,874 shares of Gold Resource Corp., 3,334,000 shares of Norther Superior Resources Inc., 3,755,746 shares of Chaparral Gold Corp., and 500,000 shares of Mirasol Resources Ltd.

 

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 investments in ECI Exploration and Mining Inc. and Pembrook Mining Corp. were fully impaired as at 31 December 2014 and 2015.

 

20 Trade and other receivables

 

 

As at 31 December

 

 

2015

 

2014

 

 

Non-current
US$000

 

Current
US$000

 

Non-current
US$000

 

Current
US$000

Trade receivables

 

-

 

62,352

 

-

 

72,818

Advances to suppliers

 

-

 

6,567

 

-

 

5,347

Duties recoverable from exports of Minera Santa Cruz

 

4,698

 

-

 

2,016

 

6,000

Receivables from related parties (note 29(a))

 

-

 

11

 

-

 

45

Loans to employees

 

991

 

149

 

1,192

 

748

Interest receivable

 

-

 

36

 

-

 

78

Receivable from Kaupthing, Singer and Friedlander Bank

 

-

 

252

 

-

 

264

Other1

 

 

1,567

 

13,518

 

2,186

 

15,939

Provision for impairment2

 

 

-

 

(5,327)

 

-

 

(5,136)

Assets classified as receivables

 

7,256

 

77,558

 

5,394

 

96,103

Prepaid expenses

 

60

 

1,157

 

389

 

11,336

Value Added Tax (VAT)3

 

 

2,871

 

46,112

 

705

 

59,599

Total

 

10,187

 

124,827

 

6,488

 

167,038

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

 

1  Mainly corresponds to account receivables from contractors for the sale of supplies of US$4,791,000 (2014: US$9,763,000), a tax claim related to the withholding tax on the GRC dividends received of US$142,000 (2014: US$1,447,000), other tax claims of US$2,840,000 (2014: US$2,767,000 ). 

2  Includes the provision for impairment of trade receivable from a customer in Peru of US$1,108,000 (2014: US$1,108,000), the impairment of deposits in Kaupthing, Singer and Friedlander of US$252,000 (2014: US$264,000) and other receivables of US$3,967,000 (2014: US$3,764,000) that mainly relates to an exploration project that would be recovered through an ownership interest if it succeeds.

3  Primarily relates to US$13,078,000  (2014: US$19,583,000) of VAT receivable 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 Compañía Minera Ares S.A.C. of US$32,086,000 (2014: US$35,026,000). The VAT is valued at its recoverable amount.

 

 

 

Movements in the provision for impairment of receivables:

 

 

Individually
impaired
US$000

At 1 January 2014

 

5,084

Provided for during the year

 

110

Released during the year

 

(58)

At 31 December 2014

 

5,136

Provided for during the year

 

446

Released during the year

 

(255)

At 31 December 2015

 

5,327

 

As at 31 December 2015 and 2014, none of the financial assets classified as receivables (net of impairment) were past due.

 

21 Inventories

 

 

As at 31 December

 

 

2015
US$000

 

2014
US$000

Finished goods valued at cost

 

14,120

 

7,147

Finished goods at net realisable value

 

1,856

 

-

Products in process valued at cost

 

13,632

 

13,326

Products in process at net realizable value

 

1,121

 

-

Supplies and spare parts

 

44,855

 

42,404

 

 

75,584

 

62,877

Provision for obsolescence of supplies

 

(5,298)

 

(4,460)

Total

 

70,286

 

58,417

 

Finished goods include ounces of gold and silver, dore and concentrate.  Products in process include dore, concentrate and stockpile.

 

The Group either sells dore bars as a finished product or if it is commercially advantageous to do so, delivers the bars for refining into gold and silver ounces which are then sold. In the latter scenario, the dore bars are classified as products in process. The amount of dore on hand at 31 December 2015 included in products in process is US$3,827,000 (2014: US$1,405,000).

 

Concentrate is sold to smelters, but in addition could be used as a product in process to produce dore.

 

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$78,525,000 (2014: US$75,066,000).

 

Movements in the provision for obsolescence comprise an increase in the provision of US$1,046,000 (2014: US$192,000) and the reversal of US$Nil relating to the sale of supplies and spare parts, that had been provided for (2014: US$1,137,000).

 

 

22 Cash and cash equivalents

 

 

As at 31 December

 

 

2015
US$000

 

2014
US$000

Cash at bank

 

368

 

293

Liquidity funds1

 

 

337

 

935

Current demand deposit accounts2

 

 

47,717

 

76,850

Time deposits3

 

 

35,595

 

37,921

Cash and cash equivalents considered for the statement of cash flows4

 

 

84,017

 

115,999

 

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  14 days as at 31 December 2015 (2014: average of 10 days).

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

3  These deposits have an average maturity of 2 days (2014: Average of 2 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 2015 is US$11,696,000 (2014: US$14,233,000), which is not readily available for use in subsidiaries outside of Argentina.

 

 

 

23 Deferred income

 

On 3 August 2011, Hochschild entered into an agreement with Impulsora Minera Santa Cruz ("IMSC") whereby IMSC acquired the right to explore the San Felipe properties and an option to purchase the related concessions. Under the terms of this agreement the Group has received the following non-refundable payments to date:

 

 

As at 31 December

 

 

 

2015
US$000

 

2014
US$000

 

San Felipe contract

 

25,000

 

25,000

 

 

These payments reduce the total consideration IMSC will be required to pay upon exercise of the option on December 2016, and constitute an advance of the final purchase price, rather than an option premium, as such, they were recorded as deferred income. On 7 July 2015, IMSC renegotiated terms of the agreement, postponing the advance payment of US$5,000,000 from 1 December 2015 to 1 December 2016.

 

 

24 Trade and other payables

 

 

As at 31 December

 

 

2015

 

2014

 

 

Non-current
US$000

 

Current
US$000

 

Non-current
US$000

 

Current
US$000

Trade payables1

 

 

-

 

58,655

 

-

 

64,458

Salaries and wages payable2

 

 

-

 

20,278

 

-

 

23,890

Dividends payable

 

-

 

826

 

-

 

1,789

Taxes and contributions

 

57

 

9,605

 

-

 

11,441

Guarantee deposits

 

-

 

7,163

 

-

 

7,327

Mining royalty (note 30)

 

-

 

796

 

-

 

951

Accounts payable to related parties (note 29)

 

-

 

40

 

-

 

49

Account payable to Graña & Montero3

 

 

20,322

 

-

 

-

 

-

Other

 

-

 

4,529

 

92

 

1,985

Total

 

20,379

 

101,892

 

92

 

111,890

 

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 relates to remuneration payable. There were no board members remuneration and long term incentive plan payable at 31 December 2015 and 2014.

3  Related to the construction of Inmaculada mine unit. Includes the principal of US$20,000,000 plus interests of US$322,000, calculated at a 5% interest rate. The payment of the amount owing is to be made in four instalments every six months starting in September 2017.

 

 

 

25 Borrowings

 

 

As at 31 December

 

 

2015

 

2014

 

 

Effective
interest rate

 

Non-current
US$000

 

Current
US$000

 

Effective
interest rate

 

Non-current
US$000

 

Current
US$000

Bond payable (a)

 

8.56%

 

290,230

 

8,777

 

8.48%

 

342,043

 

13,457

Secured bank loans (b)

 

 

 

 

 

 

 

 

 

 

 

 

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

 

29.64%

 

-

 

10,554

 

29.08%

 

-

 

13,843

·  Medium-term bank loan

 

3.82%

 

49,548

 

229

 

3.47%

 

98,791

 

582

·  Short-term bank loans

 

0.7% to 1.35%

 

-

 

75,200

 

-

 

-

 

-

Total

 

 

 

339,778

 

94,760

 

 

 

440,834

 

27,882

 

(a) Bond payable

On 23 January 2014 the Group issued US$350,000,000 7.75% Senior Unsecured Notes of Compañía Minera Ares S.A.C. guaranteed by Hochschild Mining plc and Hochschild Mining (Argentina) Corporation S.A.The interest is paid semiannually, until maturity in 23 January 2021.During November and Decembe 2015, the Group repurchased bonds amounting to US$55,225,000 for $54,369,000, giving rise to a gain on repurchase of US$856,000 (see note 12). The balance at 31 December 2015 comprises the carrying value, including accrued interest payable, of US$299,007,000 (2014: US$355,500,000) determined in accordance with the effective interest method.

 

The following options could be taken before the maturity:

·     Optional Redemption with Proceeds of Equity Offerings: Up to 35% at 107.750% prior to 23 January 2017

·     Optional Redemption with Make-Whole Premium: At any time prior to 23 January 2018, the issuer may redeem all or part of the notes, at a price equal to 100% of the outstanding principal amount of the notes plus accrued and unpaid interest and additional amounts, if any, to the redemption date, plus a "make-whole" premium at Treasury Rate + 50 bps.

·     Optional Redemption without Make-Whole Premium: The issuer may redeem all or part of the notes on or after 23 January 2018 at the redemption prices specified plus accrued and unpaid interest and additional amounts, if any, to the redemption date. The Make Whole Premium requires repayment of 103.875%, 101.938% or 100% of the outstanding principal balance if exercised in 2018, 2019 or 2020 respectively.

·     Optional Redemption Upon Tax Event: 100% of the outstanding principal amount plus accrued and unpaid interest and additional amounts, if any.

·     Change of Control Offer: 101% of principal amount plus accrued and unpaid interest.

 

(b) Secured bank loans:

Medium-term bank loan:

Credit agreement of US$100,000,000 with Scotiabank Peru S.A.A. acting as Lead Arranger and The Bank of Nova Scotia and Corpbanca as lenders. The borrower is Compañía Minera Ares S.A.C. and the loan is guaranteed by Hochschild Mining plc. The loan has an interest rate of LIBOR + 2.6% payable quarterly. On November 2015 the Group paid US$50,000,000 of principal and modified the schedule of repayments, starting on 30 March 2018 until maturity on 30 December 2019. The carrying value including accrued interest payable at 31 December 2015 of US$49,777,000 (2014: US$99,373,000) was determined in accordance with the effective interest method.

 

Short-term bank loans:

Six credit agreements signed by Compañía Minera Ares S.A.C. with BBVA Continental. The loans have an interest rate ranging from 0.7% to 1.35%. The carrying value including accrued interest payable at 31 December 2015 is US$75,200,000 (2014: US$Nil)

The maturity of non-current borrowings is as follows:

 

 

As at 31 December

 

 

2015
US$000

 

2014
US$000

Between 1 and 2 years

 

-

 

16,660

Between 2 and 5 years

 

49,548

 

82,131

Over 5 years

 

290,230

 

342,043

Total

 

339,778

 

440,834

 

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

 

 

2015
US$000

 

2014
US$000

 

2015
US$000

 

2014
US$000

Secured bank loans

 

49,548

 

98,791

 

48,223

 

99,083

Bond payable

 

290,230

 

342,043

 

274,878

 

348,250

Total

 

339,778

 

440,834

 

323,101

 

447,333

 

The fair value of secured bank loans was determined by discounting the remaining principal and interest payments at the three month U.S. LIBOR rate plus 2.6 percent. The U.S. LIBOR rate is a Level 1 input. In the case of the bond payable, the fair value was determined with reference to the quoted price of these bonds in an active market, another Level 1 input.

 

26 Provisions

 

 

Provision for 
mine closure1


US$000 

 

Workers' 
profit 
sharing2


US$000 

 

Long Term Incentive 
Plan3


US$000 

 

Other
US$000

 

Total
US$000

At 1 January 2014

 

82,149

 

374

 

1,879

 

4,820

 

89,222

Additions

 

-

 

-

 

-

 

1,680

 

1,680

Accretion

 

242

 

-

 

-

 

-

 

242

Change in discount rate

 

4,357

 

-

 

-

 

-

 

4,357

Change in estimates

 

27,8294

 

 

-

 

(1,285)

 

-

 

26,544

Payments

 

(5,524)

 

(374)

 

-

 

(260)

 

(6,158)

Sale of subsidiary (note 4(a))

 

(1,266)

 

-

 

-

 

-

 

(1,266)

At 31 December 2014

 

107,787

 

-

 

594

 

6,240

 

114,621

Less current portion

 

-

 

-

 

-

 

(2,870)

 

(2,870)

Non-current portion

 

107,787

 

-

 

594

 

3,370

 

111,751

At 1 January 2015

 

107,787

 

-

 

594

 

6,240

 

114,621

Additions

 

-

 

-

 

544

 

108

 

652

Accretion

 

69

 

-

 

-

 

-

 

69

Change in discount rate

 

(755)

 

-

 

-

 

-

 

(755)

Change in estimates

 

15,5174

 

 

-

 

(175)

 

-

 

15,342

Foreign exchange effect

 

-

 

-

 

-

 

126

 

126

Payments

 

(2,538)

 

-

 

-

 

-

 

(2,538)

At 31 December 2015

 

120,080

 

-

 

963

 

6,474

 

127,517

Less current portion

 

2,000

 

-

 

-

 

4,115

 

6,115

Non-current portion

 

118,080

 

-

 

963

 

2,359

 

121,402

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 2015 and 2014 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 rate used was 0.07% (2014: 0.02%).

2  On the basis that no profit was recognised by the Peruvian companies of the Group, no legal or voluntary provision has been recognised as at 31 December 2015 and 2014.

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) 2015 awards, granted in March 2015, payable in March 2018 (Ii) 2014 awards, granted in March 2014, payable in March 2017. 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 2015 there is change to the provision and corresponding expense of US$369,000 (2014: US$-1,285,000) that is disclosed under administrative expenses US$372,000 (2014: US$-1,064,000), exploration expenses US$-3,000 (2014: US$-221,000).

4  Based on the 2015 and 2014 internal review of mine rehabilitation budgets, an increase of US$15,517,000 (2014: US$27,829,000) was recognised, of which US$7,590,000 (2014: US$9,088,000) related to project already closed and has therefore been recognised directly in the income statement.

 

27 Deferred income tax

 

The changes in the net deferred income tax assets/(liabilities) are as follows:

 

 

As at 31 December

 

 

2015
US$000

 

2014
US$000

Beginning of the year

 

(83,385)

 

(91,089)

Income statement charge (note 14)

 

23,850

 

8,853

Deferred income tax arising on net unrealised gains cash flow hedges recognised in equity (note 14)

 

(4,739)

 

(1,216)

Others

 

-

 

67

End of the year

 

(64,274)

 

(83,385)

 

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets and liabilities relate to the same fiscal authority.

 

 

The movement in deferred income tax assets and liabilities before offset during the year is as follows:

 

 

Differences
in cost
of PP&E
US$000

 

Mine development US$000

 

Financial instruments US$000

 

Others
US$000

 

Total
US$000

Deferred income tax liabilities

 

 

 

 

 

 

 

 

 

 

At 1 January 2014

 

34,464

 

91,183

 

2,109

 

3,018

 

130,774

Income statement (credit)/charge

 

7,453

 

(11,202)

 

-

 

(844)

 

(4,593)

Deferred income tax arising on net unrealised gains cash flow hedges recognised in equity

 

-

 

-

 

1,216

 

-

 

1,216

At 31 December 2014

 

41,917

 

79,981

 

3,325

 

2,174

 

127,397

Income statement (credit)/charge

 

6,050

 

(19,874)

 

-

 

2,588

 

(11,236)

Deferred income tax arising on net unrealised gains cash flow hedges recognised in equity

 

-

 

-

 

4,739

 

-

 

4,739

At 31 December 2015

 

47,967

 

60,107

 

8,064

 

4,762

 

120,900

 

 

The amounts after offset, as presented on the face of the Statement of Financial Position, are as follows:

 

 

As at 31 December

 

 

2015
US$000

 

2014
US$000

Deferred income tax liabilities

 

(64,274)

 

(84,959)

 

 

 

 

 

Differences
in cost
of PP&E
 US$000

 

Provision
for mine
closure
US$000

 

Tax
losses
US$000

 

Mine developmentUS$000

 

Financial instruments US$000

 

Others
US$000

 

Total
US$000

Deferred income tax assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2014

 

18,426

 

12,832

 

640

 

-

 

2,394

 

5,393

 

39,685

Income statement credit/(charge)

 

(8,879)

 

1,703

 

7,911

 

697

 

(132)

 

2,960

 

4,260

Foreign exchange effect

 

-

 

-

 

-

 

-

 

-

 

67

 

67

At 31 December 2014

 

9,547

 

14,535

 

8,551

 

697

 

2,262

 

8,420

 

44,012

Income statement credit/(charge)

 

(1,685)

 

8,318

 

8,263

 

257

 

(9)

 

(2,530)

 

12,614

At 31 December 2015

 

7,862

 

22,853

 

16,814

 

954

 

2,253

 

5,890

 

56,626

 

 

The amounts after offset, as presented on the face of the Statement of Financial Position, are as follows:

 

 

As at 31 December

 

 

2015
US$000

 

2014
US$000

Deferred income tax assets

 

-

 

1,574

Tax losses expire in the following years:

 

 

As at 31 December

 

 

2015
US$000

 

2014
US$000

Unrecognised

 

 

 

 

Expire in one year

 

1,075

 

-

Expire in two years

 

2,733

 

1,256

Expire in three years

 

3,903

 

3,184

Expire in four years

 

3,978

 

6,017

Expire after four years

 

109,315

 

108,143

 

 

121,004

 

118,600

 

 

Other unrecognised deferred income tax assets comprise (gross amounts):

 

 

As at 31 December

 

 

2015
US$000

 

2014
US$000

Provision for mine closure1

 

 

66,577

 

55,637

Impairments of assets2

 

 

14,692

 

(493)

1 This relates to provision for mine closure expenditure which is expected to be incurred in periods in which taxable profits are not expected against which the expenditure can be offset.

2 Related to the impairment of San Felipe and Volcan project (2014: Corresponds to the reversal of impairment of San Felipe project) (note 17).

 

Unrecognised deferred tax liability on retained earnings

At 31 December 2015, there was no recognised deferred tax liability (2014: nil) for taxes that would be payable on the unremitted earnings of certain of the Group's subsidiaries as the intention is that these amounts are permanently reinvested.

 

 

28 Dividends paid and proposed

 

 

2015
US$000

 

2014
US$000

Declared and paid during the year

 

 

 

 

Equity dividends on ordinary shares:

 

 

 

 

Final dividend for 2014: US$Nil (2013: US$Nil)

 

-

 

-

Interim dividend for 2015: US$Nil (2014: US$Nil)

 

-

 

-

Dividends declared to non-controlling interests: US$Nil (2014: US$0.04 and US$Nil)

 

-

 

5,542

Dividends declared and paid

 

-

 

5,542

Dividends declared to non-controlling interests: US$Nil (2014: US$0.04)

 

-

 

1,719

Dividends declared and not paid

 

-

 

1,719

Total dividends declared

 

-

 

7,261

Final dividend for 2015: US$Nil (2014: US$Nil)

 

-

 

-

Dividends per share

The Directors of the Company are not recommending a dividend in respect of the year ended 31 December 2015 and 31 December 2014.

 

 

29 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 2015 and 2014. The related parties are companies owned or controlled by the main shareholder of the parent company or associates.

 

 

Accounts receivable
as at 31 December

 

Accounts payable
as at 31 December

 

 

2015
US$000

 

2014
US$000

 

2015
US$000

 

2014
US$000

Current related party balances

 

 

 

 

 

 

 

 

Cementos Pacasmayo S.A.A.1

 

 

11

 

45

 

40

 

49

Total

 

11

 

45

 

40

 

49

1 The account receivable relates to reimbursement of expenses paid by the Group on behalf of Cementos Pacasmayo S.A.A. The account payable relates to the payment of rentals.

 

As at 31 December 2015 and 2014, all accounts are, or were, non-interest bearing.  No security has been granted or guarantees given by the Group in respect of these related party balances.

 

Principal transactions between affiliates are as follows:

 

 

Year ended

 

 

2015
US$000

 

2014
US$000

Expenses

 

 

 

 

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

 

(285)

 

(185)

 

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

(b) Compensation of key management personnel of the Group

 

 

As at 31 December

 

 

2015
US$000

 

2014
US$000

Short-term employee benefits

 

5,613

 

5,369

Long Term Incentive Plan, Deferred Bonus Plan and Restricted Share Plan

 

2,641

 

679

Total compensation paid to key management personnel

 

8,254

 

6,048

 

This amount includes the remuneration paid to the Directors of the parent company of the Group of US$4,155,759 (2014: US$4,005,780), out of which US$Nil (2014: US$160,462) relates to pension payments.

 

(c) Participation in rights issue by Pelham Investment Corporation ("Pelham") and Inversiones ASPI SA ("ASPI")

As at the record date of the rights issue, Eduardo Hochschild held his investment in the Company through Pelham.  Following receipt of its entitlement under the rights issue, Pelham transferred, for nil consideration, its nil paid rights in respect of 74,745,101 new ordinary shares to ASPI an entity that is also under the control of Eduardo Hochschild. Under the terms of an irrevocable undertaking signed between Pelham, ASPI and the Company, it was agreed that:

 

(i) ASPI would, among other things, subscribe for at least 68,887,508 new ordinary shares at an issue price of 47 pence per new ordinary share (the "Subscription Commitment"); and

(ii) the Company would, among other things, pay ASPI a fee of 1% of the Subscription Commitment of approximately US$500,000.

 

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 "Income Taxes".

 

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 2015, the amount payable as under the former mining royalty (for the Arcata mining unit), the new mining royalty (for the Ares, Pallancata and Inmaculada mining units), and the SMT amounted to US$272,000 (2014: US$395,000), US$1,080,000 (2014: US$266,000), and US$745,000 (2014: US$Nil) 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$1,205,000 (2014: US$1,279,000) representing the former mining royalty, classified as cost of sales, US$1,778,000 (2014: US$1,611,000) of new mining royalty and US$755,000 (2014: US$375,000) 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 2012 Minera 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 2015, the amount payable as mining royalties amounted to US$524,000 (2014: US$556,000). The amount recorded in the income statement as cost of sales was US$4,763,000 (2014: US$5,302,000).

 

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. According to these regulations, the tax applies only on "proved reserves" and certain deductions (related to the production cost) apply. Minera Santa Cruz S.A. (a subsidiary of Hochschild Mining plc) is affected by this tax. 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. Additionally, on 2 November  2015, Minera Santa Cruz S.A. filed a precautionary measure under which it requested the Argentine Supreme Court to order the Province of Santa Cruz not to claim to Minera Santa Cruz S.A. the payment of any amount related to the tax on mining reserves until a final decision on the constitutionality of the tax is rendered. The precautionary measure was granted on 9 December 2015, furthermore no tax was paid during 2015. As at 31 December 2015, the amount payable as tax on mining reserves was US$4,054,000 (2014: US$4,088,000) recorded as 'Trade and other payables'. The amount recorded in the income statement was US$441,000 (2014: US$3,453,000) as other expenses. The tax on mining reserves was eliminated on 30 December 2015.

31 Subsequent events

 

a) On 11 February 2016, the Group signed a zero cost collar contract with JP Morgan Chase Bank, National Association, London Branch over 2,999,997 ounces of silver at a call/put price of US$17.60 and US$14.00 per ounce, from 12 February to 30 December 2016. In addition, on 12 February 2016, the Group signed a commodity swap contract with Citibank, NA to hedge 15,000 ounces of gold at a price of US$1,244.25 per ounce from 12 February to 30 December 2016.

 

b) On 12 February 2016, the Argentinian government published Decreto 349/2016 that eliminated the export tax on the sale of concentrate.

 

 

Profit by operation¹

(Segment report reconciliation) as at 31 December 2015

 

Company (US$000)

Arcata

Pallancata

Inmaculada

San Jose

Consolidation adjustment and others

Total/HOC

 

 

Revenue

107,425

73,045

102,303

186,097

276

469,146

 

 

Cost of sales (Pre consolidation)

(107,803)

(88,999)

(52,532)

(153,093)

(2,744)

(405,171)

 

 

Consolidation adjustment

165

(194)

(2,621)

(94)

2,744

-

 

 

Cost of sales (Post consolidation)

(107,638)

(89,193)

(153,187)

-

(405,171)

 

 

Production cost
excluding depreciation

(71,128)

(51,599)

(109,615)

-

(265,107)

 

 

Depreciation in production cost

(33,360)

(35,725)

(43,205)

-

(139,533)

 

 

Other items

(2,133)

(1,610)

(5,499)

-

(10,786)

 

 

Change in inventories

(1,017)

(259)

6,399

5,132

-

10,255

 

 

Gross profit

(378)

(15,954)

49,771

33,004

(2,468)

63,975

 

 

Administrative expenses

-

-

-

-

(38,148)

(38,148)

 

 

Exploration expenses

-

-

-

(9,255)

(9,255)

 

 

Selling expenses

(962)

(1048)

(19,707)

-

(21,729)

 

 

Other income/expenses

-

-

-

-

(7,243)

(7,243)

 

 

Operating profit before impairment

(1,340)

(17,002)

49,759

13,297

(57,114)

(12,400)

 

 

Impairment of assets

-

-

-

-

(207,146)

(207,146)

 

 

Finance income

-

-

-

1,898

1,898

 

 

Finance costs

-

-

-

(32,900)

(32,900)

 

 

FX loss

-

-

-

-

(5,627)

(5,627)

 

 

Profit/(loss) from continuing operations before income tax

(1,340)

(17,002)

49,759

13,297

(300,889)

(256,175)

 

 

Income tax

-

-

-

-

16,518

16,518

 

 

Profit/(loss) for the year from continuing operations

(1,340)

(17,002)

49,759

13,297

(284,371)

(239,657)

 

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 2015, 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 20151

Reserve category

 

Proved and probable
(t)

 

 Ag
(g/t)

 

Au
(g/t)

 

Ag
(moz)

 

Au
(koz)

 

Ag Eq
(moz)

OPERATIONS¹

 

 

 

 

 

 

 

 

 

 

 

 

Arcata

 

 

 

 

 

 

 

 

 

 

 

 

Proved

 

652,377

 

347

 

1.1

 

7.3

 

22.6

 

8.6

Probable

 

881,991

 

311

 

1.1

 

8.8

 

31.0

 

10.7

Total

 

1,534,369

 

326

 

1.1

 

16.1

 

53.6

 

19.3

Inmaculada2

 

 

 

 

 

 

 

 

 

 

 

 

Proved

 

2,950,174

 

126

 

4.1

 

12.0

 

391.2

 

35.4

Probable

 

4,025,378

 

155

 

4.5

 

20.1

 

584.5

 

55.2

Total

 

6,975,552

 

143

 

4.4

 

32.0

 

975.7

 

90.6

Pallancata

 

 

 

 

 

 

 

 

 

 

 

 

Proved

 

618,107

 

286

 

1.5

 

5.7

 

29.6

 

7.5

Probable

 

614,625

 

261

 

1.2

 

5.2

 

24.4

 

6.6

Total

 

1,232,732

 

274

 

1.4

 

10.9

 

54.0

 

14.1

San Jose

 

 

 

 

 

 

 

 

 

 

 

 

Proved

 

626,967

 

521

 

7.4

 

10.5

 

149.7

 

19.5

Probable

 

334,696

 

414

 

6.5

 

4.5

 

70.1

 

8.7

Total

 

961,663

 

484

 

7.1

 

15.0

 

149.7

 

28.1

Total

 

 

 

 

 

 

 

 

 

 

 

 

Proved

 

4,847,625

 

227

 

3.8

 

35.4

 

593.2

 

71.0

Probable

 

5,856,689

 

205

 

3.8

 

38.5

 

710.0

 

81.1

TOTAL

 

10,704,315

 

215

 

3.8

 

73.9

 

1,303.1

 

152.1

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 Operations were audited by P&E Consulting. 

2 Inmaculada reserves and resources 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 2015

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)

OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Arcata

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

1,758,822

 

457

 

1.41

 

-

 

-

 

-

 

542

 

25.9

 

79.5

 

30.6

 

-

 

-

 

-

Indicated

 

2,086,114

 

370

 

1.27

 

-

 

-

 

-

 

447

 

24.8

 

85.5

 

30.0

 

-

 

-

 

-

Total

 

3,844,936

 

410

 

1.33

 

-

 

-

 

-

 

490

 

50.7

 

165.0

 

60.6

 

-

 

-

 

-

Inferred

 

4,348,694

 

335

 

1.22

 

-

 

-

 

-

 

408

 

46.8

 

170.2

 

57.0

 

-

 

-

 

-

Inmaculada1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

2,707,568

 

155

 

5.05

 

-

 

-

 

-

 

458

 

13.5

 

439.4

 

39.8

 

-

 

-

 

-

Indicated

 

3,793,491

 

188

 

5.41

 

-

 

-

 

-

 

513

 

22.9

 

660.4

 

62.6

 

-

 

-

 

-

Total

 

6,501,060

 

174

 

5.26

 

-

 

-

 

-

 

490

 

36.4

 

1,099.8

 

102.4

 

-

 

-

 

-

Inferred

 

3,733,302

 

124

 

2.98

 

-

 

-

 

-

 

303

 

14.9

 

357.6

 

36.3

 

-

 

-

 

-

Pallancata

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

2,442,908

 

360

 

1.71

 

-

 

-

 

-

 

463

 

28.2

 

134.7

 

36.3

 

-

 

-

 

-

Indicated

 

1,050,863

 

289

 

1.37

 

-

 

-

 

-

 

371

 

9.8

 

46.3

 

12.5

 

-

 

-

 

-

Total

 

3,493,771

 

338

 

1.61

 

-

 

-

 

-

 

435

 

38.0

 

181.0

 

48.9

 

-

 

-

 

-

Inferred

 

4,305,774

 

283

 

1.14

 

-

 

-

 

-

 

352

 

39.2

 

158.1

 

48.7

 

-

 

-

 

-

San Jose

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

1,015,679

 

575

 

8.33

 

-

 

-

 

-

 

1,075

 

18.8

 

272.1

 

35.1

 

-

 

-

 

-

Indicated

 

1,251,369

 

395

 

5.69

 

-

 

-

 

-

 

737

 

15.9

 

229.1

 

29.6

 

-

 

-

 

-

Total

 

2,267,048

 

476

 

6.88

 

-

 

-

 

-

 

888

 

34.7

 

501.2

 

64.7

 

-

 

-

 

-

Inferred

 

781,685

 

390

 

6.06

 

-

 

-

 

-

 

754

 

9.8

 

152.4

 

18.9

 

-

 

-

 

-

GROWTH PROJECTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crespo2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

5,211,058

 

47

 

0.47

 

-

 

-

 

-

 

75

 

7.9

 

78.6

 

12.6

 

-

 

-

 

-

Indicated

 

17,298,228

 

38

 

0.40

 

-

 

-

 

-

 

62

 

21.0

 

222.5

 

34.3

 

-

 

-

 

-

Total

 

22,509,286

 

40

 

0.42

 

-

 

-

 

-

 

65

 

28.8

 

301.0

 

46.9

 

-

 

-

 

-

Inferred

 

775,429

 

46

 

0.57

 

-

 

-

 

-

 

80

 

1.1

 

14.2

 

2.0

 

-

 

-

 

-

Azuca

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

190,602

 

244

 

0.77

 

-

 

-

 

-

 

290

 

1.5

 

4.7

 

1.8

 

-

 

-

 

-

Indicated

 

6,858,594

 

187

 

0.77

 

-

 

-

 

-

 

233

 

41.2

 

168.8

 

51.3

 

-

 

-

 

-

Total

 

7,049,197

 

188

 

0.77

 

-

 

-

 

-

 

234

 

42.7

 

173.5

 

53.1

 

-

 

-

 

-

Inferred

 

6,946,341

 

170

 

0.89

 

-

 

-

 

-

 

223

 

37.9

 

199.5

 

49.9

 

-

 

-

 

-

Volcan3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

105,918,000

 

-

 

0.738

 

-

 

-

 

-

 

44

 

-

 

2,511.0

 

150.7

 

-

 

-

 

-

Indicated

 

283,763,000

 

-

 

0.698

 

-

 

-

 

-

 

42

 

-

 

6,367.0

 

382.0

 

-

 

-

 

-

Total

 

389,681,000

 

-

 

0.709

 

-

 

-

 

-

 

43

 

-

 

8,878.0

 

532.7

 

-

 

-

 

-

Inferred

 

41,553,000

 

-

 

0.502

 

-

 

-

 

-

 

30

 

-

 

671.0

 

40.3

 

-

 

-

 

-

OTHER PROJECTS4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

1,393,716

 

69

 

0.02

 

7.12

 

3.10

 

0.39

 

315

 

3.1

 

0.9

 

14.1

 

99.3

 

43.1

 

5.5

Indicated

 

1,354,261

 

82

 

0.06

 

6.14

 

2.73

 

0.31

 

295

 

3.6

 

2.4

 

12.9

 

83.2

 

37.0

 

4.2

Total

 

2,747,977

 

76

 

0.04

 

6.64

 

2.92

 

0.35

 

305

 

6.7

 

3.3

 

27.0

 

182.4

 

80.1

 

9.7

Inferred

 

13,445,001

 

8

 

0.30

 

0.58

 

0.21

 

1.22

 

160

 

3.4

 

128.6

 

69.0

 

77.8

 

28.5

 

163.6

GRAND TOTAL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

120,638,353

 

25

 

0.91

 

0.08

 

0.04

 

0.00

 

83

 

97.5

 

3,520.9

 

321.1

 

99.3

 

43.1

 

5.5

Indicated

 

317,455,921

 

14

 

0.76

 

0.03

 

0.01

 

0.00

 

60

 

143.2

 

7,782.0

 

615.2

 

83.2

 

37.0

 

4.2

Total

 

438,094,275

 

17

 

0.80

 

0.04

 

0.02

 

0.00

 

66

 

240.7

 

11,302.9

 

936.3

 

182.4

 

80.1

 

9.7

Inferred

 

75,889,227

 

63

 

0.76

 

0.10

 

0.04

 

0.22

 

132

 

136.1

 

1,851.4

 

322.2

 

77.8

 

28.5

 

163.6

1 Inmaculada resources as published in the Feasibility Study released on 11/01/ 2012.  Prices used for resources calculation: Au: $1,100/oz and Ag: $18/oz

2 Prices used for resources calculation: Au: $1,200/oz and Ag: $20/oz.

3 Resources reported in the NI 43-101 Technical Report published by Andina Minerals, January 2011.  Price used for resources calculation: Au: $950/oz.

4 Includes the Jasperoide copper project and the San Felipe zinc/silver project. The silver equivalent grade (147 g/t Ag Eq) has being calculated applying the following ratios, Cu/Ag=96.38 and Au/Ag=60

 

 

CHANGE IN ATTRIBUTABLE RESERVES AND RESOURCES

Ag equivalent content (million ounces)

 

Category

 

Percentage attributable
December
2014

 

December
2014

Att.¹

 

December  2015 
Att

 

Net difference

 

% change

Arcata

 

Resource

 

100%

 

108.7

 

117.6

 

8.9

 

8.2

 

 

Reserve

 

 

 

25.6

 

19.3

 

(6.3)

 

(24.5)

Inmaculada

 

Resource

 

100%

 

149.7

 

138.7

 

(10.9)

 

(7.3)

 

 

Reserve

 

 

 

81.1

 

90.6

 

9.5

 

11.7

Pallancata

 

Resource

 

100%

 

80.7

 

97.6

 

16.9

 

21.0

 

 

Reserve

 

 

 

18.7

 

14.1

 

(4.6)

 

(24.5)

San Jose

 

Resource

 

51%

 

87.7

 

83.7

 

(4.0)

 

(4.6)

 

 

Reserve

 

 

 

27.5

 

28.1

 

(0.6)

 

(2.2)

Crespo

 

Resource

 

100%

 

48.9

 

48.9

 

-

 

-

 

 

Reserve

 

 

 

 -

 

 -

 

 -

 

 -

Azuca

 

Resource

 

100%

 

103.0

 

103.0

 

-

 

-

 

 

Reserve

 

 

 

 -

 

 -

 

 -

 

 -

Volcan

 

Resource

 

100%

 

572.9

 

572.9

 

-

 

-

 

 

Reserve

 

 

 

 -

 

 -

 

 -

 

 -

 

 

Reserve

 

 

 

 -

 

 -

 

 -

 

 -

Other projects total

 

Resource

 

100% 

 

96.0

 

96.0

 

 -

 

 -

 

 

Reserve

 

 

 

 -

 

 -

 

-

 

 -

Total

 

Resource

 

 

 

1,247.6

 

1,258.5

 

(10.9)

 

(0.9)

 

 

Reserve

 

 

 

152.9

 

152.1

 

(0.7)

 

(0.5)

1 Attributable reserves and resources based on the Group's percentage ownership of its joint venture projects.

 

 

 

TOTAL RESOURCES: PRICE ASSUMPTION SENSITIVITY ANALYSIS (OPERATIONS)

The below table is based on internal calculations and has not been audited by the external third party consultant.

 

 

 

1,200/Au oz & 20/Ag oz

 

1,200/Au oz & 17/Ag oz

 

Resources

 

Tonnes

 

Ag Eq (g/t

 

Ag Eq (moz

 

Tonnes

 

Ag Eq (g/t

 

Ag Eq (moz

Measured

 

8,900,825

 

614

 

175,640,365

 

8,667,406

 

626

 

174,538,787

Indicated

 

9,384,134

 

541

 

163,175,127

 

9,055,796

 

555

 

161,569,307

Inferred

 

13,920,487

 

400

 

179,221,889

 

13,039,859

 

418

 

175,372,258

Total

 

32,205,447

 

500

 

518,037,382

 

30,763,062

 

517

 

511,480,352

Variation (%)

 

-

 

-

 

-

 

(4%)

 

3%

 

(1%)

 

 

 

 

 

 

 

 

 

 

 

 

 

Reserves

 

 

 

 

 

 

 

 

 

 

 

 

Proven

 

5,450,005

 

512

 

89,719,230

 

5,157,545

 

522

 

86,529,372

Probable

 

6,178,260

 

450

 

89,443,807

 

5,810,036

 

461

 

86,152,341

Total

 

11,628,265

 

479

 

179,163,037

 

10,967,581

 

490

 

172,681,714

Variation (%)

 

-

 

-

 

-

 

(6%)

 

2%

 

(4%)

                               

 

 

 

 

1On a pre-exceptional basis

2Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs, foreign exchange loss and income tax plus depreciation, and exploration expenses other than personnel and other exploration related fixed expenses and other non-cash expenses

3All-in sustaining cost per silver equivalent ounce: Calculated before exceptional items and includes cost of sales less depreciation and change in inventories, administrative expenses, brownfield exploration, operating capex and royalties divided by silver equivalent ounces produced using a gold ratio of 74:1  

4All equivalent figures assume the average gold/silver ratio for 2015 of 74:1 unless otherwise stated

5Revenue presented in the financial statements is disclosed as net revenue (in the Financial Review it is calculated as gross revenue less commercial discounts)

6All-in sustaining cash cost per silver equivalent ounce: Calculated before exceptional items includes cost of sales less depreciation and change in inventories, administrative expenses, brownfield exploration, operating capex and royalties divided by silver equivalent ounces produced using a ratio of 74:1 (Au/Ag). Also includes commercial discounts and selling expenses divided by silver equivalent ounces sold using a ratio of 74:1 (Au/Ag). 

7Cash costs are calculated to include cost of sales, treatment charges, and selling expenses before exceptional items less depreciation included in cost of sales.

8Other revenue includes revenue from (i) the sale of energy in Peru and, (ii) administrative services in Mexico.

9Unit cost per tonne is calculated by dividing mine and geology costs by extracted tonnage and plant and other costs by treated tonnage.

10Cash costs are calculated to include cost of sales, treatment charges, and selling expenses before exceptional items less depreciation included in cost of sales.  

11 All-in sustaining cash cost per silver equivalent ounce: Calculated before exceptional items includes cost of sales less depreciation and change in inventories, administrative expenses, brownfield exploration, operating capex and royalties divided by silver equivalent ounces produced using a ratio of 60:1 (Au/Ag) for 2014 and 74:1 for 2015. Also includes commercial discounts and selling expenses divided by silver equivalent ounces sold using a ratio of 60:1 (Au/Ag).

12 In 2014, Adjusted EBITDA has been presented before the effect of significant non-cash expenses related to changes in mine closure provisions for those mines which have already closed as these were material.

13Includes pre-shipment loans and short term interest payables.

14Includes additions in property, plant and equipment and evaluation and exploration assets (confirmation of resources) and excludes increases in the expected closure costs of mine asset


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