Final Results

RNS Number : 8855W
Hochschild Mining PLC
20 April 2023
 

   

 

 

20 April 2023

 

 



Hochschild Mining PLC

 


Preliminary Results

Year ended 31 December 2022

HOCHSCHILD MINING PLC RESULTS FOR YEAR ENDED 31 DECEMBER 2022

 

2022 Financial performance

§ Revenue of $735.6 million (2021: $811.4 million) [1]

§ Adjusted EBITDA of $249.6 million (2021: $382.8 million)[2]

§ Profit before income tax (pre-exceptional) of $24.3 million (2021: $148.7 million)

§ Profit before income tax (post-exceptional) of $25.8 million (2021: $137.3 million)

§ Basic earnings per share (pre-exceptional) of $0.01 (2021: $0.14)

§ Basic earnings per share (post-exceptional) of $0.01 (2021: $0.15)

§ Cash and cash equivalent balance of $143.8 million as at 31 December 2022 (2021: $386.8 million)

§ Net debt of $175.1 million as at 31 December 2022 (2021: net cash of $86.3 million)

2022 Operational resilience [3]  

§ Peruvian government decision on Inmaculada Modified Environmental Impact Assessment expected during Q2 2023

§ All-in sustaining costs (AISC) from operations of $1,364 per gold equivalent ounce (2021: $1,153) or $18.9 per silver equivalent ounce (2021: $16.0) in line with full year cost guidance of $1,330-$1,370 per gold equivalent ounce or $18.5-19.0 per silver equivalent ounce [4]

§ Full year attributable production of 3 58,826 gold equivalent ounces (25.8 million silver equivalent ounces)

§ Solid operational performance despite moderate impact in Q4 from Peru social disruptio

2022 Exploration & Project Highlights

§ 2022 Attributable Reserve & Resource additions:

o  Reserves up 35%

o  Resources up 18%

§ Inferred Mineral Resource of 51.2 million silver equivalent ounces announced at Royropata Zone, Pallancata

o  Average width of 5 metres at a combined Ag Eq grade of 848g/t

§ Mara Rosa project in Brazil advancing on schedule and on budget - total project progress at over 70% with first production anticipated in H1 2024

o  27,600oz of gold hedged from March to December 2024 at a price of $2,100 per ounce

§ Option over Snip project in Canada recently terminated

2022 ESG KPIs

§ Lost Time Injury Frequency Rate of 1.37 (2021: 1.26) [5]

§ Accident Severity Index of 93 (2021: 676) [6]

§ Water consumption of 171lt/person/day (2021: 193lt/person/day)

§ Domestic waste generation of 1.05 kg/person/day (2021: 1.00kg/person/day)

§ ECO score of 5.27 out of 6 (2021: 5.29) [7]

2023 Outlook

§ Production target:

o  301,000-314,0000 gold equivalent ounces (25.0-26.0 million silver equivalent ounces) using 83x gold silver ratio

§ All-in sustaining costs target:

o  $1,370-$1,450 per gold equivalent ounce ($16.5-$17.5 per silver equivalent ounce) using 83x gold silver ratio

§ Total sustaining and development capital expenditure expected to be approximately $125-135 million

§ Mara Rosa project capital expenditure expected to be approximately $100-110 million

§ 29,250 ounces of gold hedged for the remainder of 2023 at a price of $2,047 per ounce

 

$000 unless stated

Year ended

31 Dec 2022

Year ended

31 Dec 2021

% change

Attributable silver production (koz)

11,003

12,174

(10)

Attributable gold production (koz)

206

221

(7)

Revenue

735,643

811,387

(9)

Adjusted EBITDA

249,605

382,837

(35)

Profit from continuing operations (pre-exceptional)

6,745

67,450

(90)

Profit from continuing operations (post-exceptional)

4,832

71,106

(93)

Basic earnings per share (pre-exceptional) $

0.01

0.14

(93)

Basic earnings per share (post-exceptional) $

0.01

0.15

(93)

________________________________________________________________________________________

 

A presentation will be held for analysts and investors at 9.30am (UK time) on Thursday 20 April 2023 at the offices of Hudson Sandler,

25 Charterhouse Square, London, EC1M 6AE

 

The presentation and a link to the live audio   webcast   of the presentation can be found at the Hochschild website:  

www.hochschildmining.com

or:

https://stream.brrmedia.co.uk/broadcast/63c585b88b28b235f03655a4

 

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

UK Toll-Free Number: 0808 109 0700

International Dial in: +44 (0)330 551 0200

US/Canada Toll-Free Number: 866-580-3963

Password: Hochschild Full Year Results

________________________________________________________________________________________

 

Enquiries:

 

Hochschild Mining PLC

Charles Gordon                                                                                                                                                                                                                               +44 (0)20 3709 3264

Head of Investor Relations

 

Hudson Sandler

Charlie Jack                                                                                                                                                                                                                                    +44 (0)20 7796 4133

Public Relations

________________________________________________________________________________________

Non-IFRS Financial Performance Measures

The Company has included certain non-IFRS measures in this news release. The Company believes that these measures, in addition to conventional measures prepared in accordance with IFRS, provide investors an improved ability to evaluate the underlying performance of the Company. The non-IFRS measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures do not have any standardised meaning prescribed under IFRS, and therefore may not be comparable to other issuers.

 

About Hochschild Mining PLC

Hochschild Mining PLC is a leading precious metals company listed on the London Stock Exchange (HOCM.L / HOC LN) and crosstrades on the OTCQX Best Market in the U.S. (HCHDF), with a primary focus on the exploration, mining, processing and sale of silver and gold. Hochschild has over fifty years' experience in the mining of precious metal epithermal vein deposits and currently operates three underground epithermal vein mines, two located in southern Peru and one in southern Argentina. Hochschild also owns the Mara Rosa Advanced Project in Brazil as well as numerous long-term projects throughout the Americas.

 

Forward looking statements

This announcement may contain forward looking statements. 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, for various reasons, be materially different from any future results, performance or achievements expressed or implied by such forward looking statements.

 

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, the Board of 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.

 

Note

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (Regulation (EU) No.596/2014). Upon the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

 

LEI: 549300JK10TVQ3CCJQ89

 

CHAIRMAN'S STATEMENT

During the past year, our Company has been directly and indirectly impacted by a range of political, social and regulatory challenges. However, the Board and I want to congratulate our management team and all our colleagues on a highly creditable operational performance and ensuring that our steadfast commitment to the environment, stakeholders and communities remains a firm and an integral part of our corporate purpose. At the time of writing, we are still waiting for the final decision from the Peruvian Government on the Modification of the Environmental Impact Assessment ("MEIA") for Inmaculada but I would particularly like to thank the teams involved in four years of hard work. It has proved to be an enormous undertaking, but I am sure that, whatever the decision, Inmaculada will remain a key part of Hochschild's strategy for decades to come.

 

We continued with our focus on safety and are delighted that, in 2022, our key performance indicators highlighted a strong performance in this area with both the accident frequency rate and accident severity indices demonstrating the successful implementation of our safety culture plan. As mentioned last year, following a trial period, we launched the Seguscore in 2022 which is being used to appraise the safety performance of each mining unit based on, not only using our traditional measures but also on the result of internal and external safety audits. 

 

Acknowledging the impact of our activities on the environment, I am proud that through the "Green Challenges" set for our operations, we were able to reduce our water consumption to the lowest level since 2015. This should not be considered a one-off achievement but a reflection of an environmentally conscious culture that has evolved since the adoption of our internal measure, the ECO Score. Work is also on track to establish later this year our 2030 interim targets in order to achieve Net Zero by 2050.

 

We have continued with our valuable community relations initiatives which, in line with the Company's approach, see resources dedicated to education, health and nutrition, and sustainable development. During the year, we facilitated the delivery of technical skills training through the establishment of three digital centres in communities in southern Peru as part of our Future Connection programme which has already benefited over 180 students. We also worked in collaboration with the Peruvian Health Ministry in our "Always Healthy" programme which ran campaigns staffed by a multi-disciplinary team of medical practitioners thereby extending the reach of healthcare services. Our Community Relations team has also continued with the various programmes we have put in place to support local farmers in marketing and selling their produce which, in certain cases, are destined for international markets.

 

2022 was another important year for strategic development. In April, we completed the acquisition of Amarillo Gold with its Mara Rosa gold project in Brazil, which is due to commence production in the first half of 2024. Since then, we have made excellent progress at the project with over 70% constructed already and we are on schedule and in line with our budget. We also delivered a Preliminary Economic Assessment on our Snip project in British Columbia, Canada which showed positive investment returns at conservative gold prices. However, in line with Hochschild's capital allocation strategy where the focus is on the Mara Rosa construction, we recently made the decision to terminate the option on the project.

 

Turning to our operations, the team had to contend with substantial disruption during the year, including a fire in the crushing area at San Jose, continued Covid-related labour restrictions in Argentina and local and national social disturbances in Peru.  However, we are proud that we were able to maintain a constructive dialogue with our communities and once again able to deliver a robust operating performance, only moderately below our annual production target and in line on costs. In addition, precious metal prices remained relatively high, so our business continued to generate strong cashflow, especially in the fourth quarter, and we therefore are in a good position to deliver on our capital commitments, including construction at Mara Rosa.

 

In 2022, the brownfield exploration team made a significant discovery close to Pallancata, within the Royropata zone. Although it is outside the permitted area and will require approximately three years to receive the necessary government approvals, the size of the resource is already over 50 million silver equivalent ounces with significant exploration upside. We are confident that this new zone will be the future of mining in the area in the medium to-long-term, despite the likely necessity to place the mine on temporary care and maintenance at some stage in 2023. At San Jose, we have also been able to replace resources once again whilst at Inmaculada, the team is planning a busy year of drilling subject to the Inmaculada MEIA approval.

 

During the year, we saw changes in the composition of the Board with the retirement of Graham Birch and Dionisio Romero, who stepped down as Non-Executive Directors at the 2022 AGM. In their place, we welcomed Mike Sylvestre and Nicolas Hochschild. 

 

At the forthcoming AGM, Nicolas and Eileen Kamerick will be stepping down from the Board. Nicolas will be taking up the role of Corporate Development Manager within the Company, reporting to the Director of Technical Services. We look forward to continuing to work with Nicolas in his new role. Eileen will be leaving the Board after a tenure of over six years. I would like to take this opportunity to express my gratitude to Eileen for chairing the Audit Committee with the utmost diligence and for her commitment to the Company. On behalf of the Directors, we wish Eileen all the very best for the future. Jill Gardiner has agreed to chair the Audit Committee on an interim basis with Mike Sylvestre also joining the committee.

 

Outlook

In 2022, precious metal prices experienced considerable volatility. Gold rose to over $2,000/ounce in the first quarter of the year as the Ukraine war started but then fell steadily by 20% to just over $1,600 by November as expectation of global interest rate rises became the theme. A rebound in December left the metal flat versus 2021 with silver rising by 3% during the year. These increases have continued in the first quarter of 2023 and consequently, we are confident that when combined with our operational track record and good cost control, we can maintain significant levels of profitability and continued good cash flow. Strong balance sheet discipline will be crucial as construction at Mara Rosa continues towards its completion in 2024 and therefore the Board feels that it would be imprudent to pay a final dividend for 2022 at this stage but will reassess the potential for capital return at the interim results in August.

 

I would like to express gratitude to all stakeholders for their ongoing support in what has been a tough period for the Company. I also want to emphasise that we are clear-eyed in viewing the task ahead of us. We will position the Company's strategy in line with the Peruvian government's decision on the Inmaculada's MEIA extension and we hope that it will provide renewed impetus. We look forward to a year of opportunity and to maintaining the very highest levels of safety, environmental stewardship, responsible business practices and community support as we work to deliver on our commitments to all stakeholders.

 

Eduardo Hochschild, Chairman

19 April 2023

 


CHIEF EXECUTIVE OFFICER'S STATEMENT

The volatile political, economic and social situation has continued to impact Peru in recent months, and this has resulted in a tough operating environment for Hochschild's two mines. However, the team's response has once again been something to be proud of. We remain confident that the permitting process for Inmaculada's MEIA will conclude during Q2 2023 and believe the outcome will be positive. We believe this world class deposit will continue to underpin our Company for many decades to come and are looking forward to reigniting the successful exploration programme and continuing to invest in the Ayacucho region and its communities.

 

However, in advance of the government's decision, the Company has been preparing for a number of scenarios and the resulting financing requirements going forward. These include planning in the event of an outright MEIA denial and the resulting requirement to resubmit the permit application as well as the potential for additional short-to-medium term delays. We have also recently taken advantage of precious metal price strength to hedge a total of 29,250 ounces of gold at a forward price of $2,047 per ounce in order to realise a degree of cashflow certainty for the remainder of the year. In addition, for 2024 we have also hedged a further 27,600 ounces of gold for the period between March and December at a forward price of $2,100 per ounce. We believe that such a strategy is appropriate whilst construction at Mara Rosa is ongoing.

 

ESG

We remain resolutely committed to our sustainability strategy, making consistent progress year-to-year in serving our communities, protecting the environment, promoting health and safety, supporting our people, and ensuring responsible business practices. In line with our decision to publish a standalone sustainability report every other year, the Annual Report includes a sustainability section that provides a detailed account of the progress made in all these critical fronts. I am proud to report that our progress in ESG has been externally recognised by several ESG rating agencies. I look forward to next year's standalone sustainability report where we will be able to further highlight our leadership in ESG-related matters. 

 

Operations

Hochschild's output in 2022 continued our good track record. Overall attributable production was 358,826 gold equivalent ounces (25.8 million silver equivalent ounces) which was, as expected lower than the 2021 figure of 390,496 gold equivalent ounces (28.1 million silver equivalent ounces) mainly due to scheduled grade reductions at Inmaculada and Pallancata. This was produced at an all-in sustaining cost of $1,364 per gold equivalent ounce ($18.9 per silver equivalent ounce) which was slightly higher than 2021 reflecting the lower grades at both the Peruvian assets but boosted by the implementation of a cost optimisation plan to contend with inflationary pressures and commodity price volatility.

 

Despite substantial community disruption in the final quarter, the team at Inmaculada had another commendable year producing 237,289 gold equivalent ounces (2021: 252,337 ounces) at $1,058 per gold equivalent ounce. At Pallancata, production in 2022 reflected a mining area that is almost depleted with delivery of 3.2 million silver equivalent ounces (2021: 4.2 million ounces) at a cost of $32.4 per silver equivalent ounce. In Argentina, there was more disruption at San Jose from Covid as well as a fire in the mine's crushing area which temporarily affected operations but, nevertheless, production was only marginally below the 2021 figure at 11.0 million silver equivalent ounces (2021: 11.3 million ounces), with costs at $21.7 per silver equivalent ounce.

 

Projects

We completed the purchase of Amarillo Gold in Brazil on 1 April 2022 and have made strong progress at the Mara Rosa project since taking control. We are now over 70% of the way through the build, with many long lead-time items purchased and construction of the plant and other site infrastructure well advanced. We remain on track for first production at this low-cost project in the first half of 2024 and have also been drilling several prospective exploration targets in the surrounding area which, in time, may provide the long-term upside for the project.

 

Work at the Snip project in Canada progressed well during the year and included metallurgy, processing plant designs and resource model updates as well as an additional drill campaign. This culminated in the completion of a Preliminary Economic Assessment at the end of the year which provided the basis for potential next steps on the project. However, early in April 2023, we decided to terminate the option on the project due to the need to concentrate on other capital allocation priorities, including expenditure in Brazil and brownfield exploration at the mines.

 

Exploration

The brownfield programme for 2022 was focused on Pallancata and San Jose and I am pleased to report that our team have had another highly successful campaign, replacing resources at San Jose, and delivering a major discovery close to Pallancata. The initial discovered resource from the new Royropata zone to the west of existing operations was over 50 million silver equivalent ounces. We have already commenced the permitting process and are excited that, with strong exploration upside potential and high-grade structures (848 grammes per tonne silver equivalent) and widths averaging five metres, the new zone can be the driver of Pallancata's medium-to-long-term future.

 

Financial position

Production has remained reliable and with the existing strong price environment, the Company is generating healthy cashflow. Cash and cash equivalents of $143.8 million at the end of December (2021: $386.8 million) reflected the net payment of approximately C$135 million for Amarillo Gold and expenditure of just over $21 million at the Snip project. This has led to a net debt position of $175.1 million (31 December 2021: $86.3 million net cash). In addition, the Company closed a $200 million committed medium-term debt facility with BBVA and Scotiabank in December 2022. The loan has a maturity of five years and two year of grace period, at a cost SOFR + 2.05%. The facility will be become available on receipt of the Inmaculada MEIA approval.

 

Financial results

Total Group production was lower versus 2021 and, combined with a 6% fall in the silver price received and a flat year-on-year gold price, revenue decreased by 9% to $735.6 million (2021: $811.4 million). All-in sustaining costs were in line with guidance at $1,364 per gold equivalent ounce or $18.9 per silver equivalent ounce (2021: $1,153 per ounce/$16.0 per ounce). Adjusted EBITDA of $249.6 million (2021: $382.8 million) mostly reflects reduced production levels and increased cost of sales. Pre-exceptional earnings per share of $0.01 (2021: $0.14 per share) includes the impact of an increase in exploration expenses due to project expenditure at Snip in Canada and a reduction in income tax mainly due to the lower profitability. Post-exceptional earnings per share was lower at $0.01 (2021: $0.15 earnings per share) and includes an impairment of the investment in Aclara Resources Inc. of $9.9 million, the reversal of impairment loss in Pallancata of $15.5 million resulting from the new resources discovered in Royropata, and the impairment of the Azuca project's evaluation and exploration costs of $4.2 million. The net after-tax effect of exceptional items is a loss of $1.9 million.

 

Outlook

We expect attributable production in 2023 of between 301,000-314,000 gold equivalent ounces (25.0 to 26.0 million silver equivalent ounces) assuming the silver to gold ratio of 83:1 (the average ratio for 2022). This will be driven by: 204,000-211,000 gold equivalent ounces from Inmaculada; an attributable contribution of 6.1 to 6.3 million silver equivalent ounces from San Jose; and 2.0-2.9 million ounces from Pallancata. All-in sustaining costs for operations are expected at between $1,370 and $1,450 per gold equivalent ounce ($16.5 to $17.5 per silver equivalent ounce). This forecast reflects slightly lower output and a rise in mine development costs at Inmaculada in addition to a further reduced contribution at Pallancata before its anticipated move to care and maintenance later in 2023.

 

The achievement of the Inmaculada MEIA will be a key milestone for our Company and we are looking forward to the next twenty years and more from this world class mine. Although 2023 has started with more political and social volatility in Peru, we believe that Hochschild's longstanding focus on our ESG initiatives will stand us in good stead to withstand any future challenges. We remain excited by the year ahead with our Brazil construction moving ahead quickly and strong exploration potential at all our existing deposits.

 

Ignacio Bustamante, Chief Executive Officer

19 April 2023

 

 

OPERATING REVIEW

 

OPERATIONS

Note: 2022 and 2021 equivalent figures calculated using the previous Company gold/silver ratio of 72x. All 2023 forecasts assume the average gold/silver ratio for 2022 of 83x.

 

Production

In 2022, Hochschild delivered attributable production of 358,826 gold equivalent ounces or 25.8 million silver equivalent ounces, moderately below the Company's 2022 guidance due to the reduced contribution at Pallancata resulting from lower grades which could not be fully offset by higher output at Inmaculada. This was due to local community disturbances in Q4 along with the wider political and subsequent civil unrest in Peru since December.

 

The overall attributable production target for 2023 is 301,000-314,000 gold equivalent ounces or 25.0-26.0 million silver equivalent ounces.

 

Total 2022 group production

 

Year ended

31 Dec 2022

Year ended

31 Dec 2021

Silver production (koz)

13,596

14,746

Gold production (koz)

244.63

262.39

Total silver equivalent (koz)

31,209

33,638

Total gold equivalent (koz)

433.46

467.19

Silver sold (koz)

13,536

14,712

Gold sold (koz)

242.89

260.71

Total production includes 100% of all production, including production attributable to Hochschild's minority shareholder at San Jose.

 

Attributable 2022 group production

 

Year ended

31 Dec 2022

Year ended

31 Dec 2021

Silver production (koz)

11,003

12,174

Gold production (koz)

206.01

221.42

Silver equivalent (koz)

25,835

28,116

Gold equivalent (koz)

358.83

390.50

Attributable production includes 100% of all production from Inmaculada, Pallancata and 51% from San Jose.

 

Attributable 2023 Production forecast split

Operation

Oz Au Eq

Moz Ag Eq

Inmaculada

204,000-211,000

16.9-17.5

Pallancata

24,000-27,000

2.0-2.2

San Jose

73,000-76,000

6.1-6.3

Total

301,000-314,000

25.0-26.0

 

Costs

All-in sustaining cost from operations in 2022 was $1,364 per gold equivalent ounce or $18.9 per silver equivalent ounce (2021: $1,153 per gold equivalent ounce or $16.0 per silver equivalent ounce), higher than 2021 mainly as a result of: expected lower average grades at Inmaculada and Pallancata; higher costs at Inmaculada and Pallancata resulting from using a higher proportion of conventional mining methods as well from local inflation; and higher costs in San Jose mainly due to local inflation and expenditure related to the accessing incremental resources. These was partially offset by local currency devaluation in Argentina.

 

The all-in sustaining cost from operations in 2023 is expected to be between $1,370 and $1,450 per gold equivalent ounce (or $16.5 and $17.5 per silver equivalent ounce).

 

 

2023 AISC forecast split

Operation

$/oz Au Eq

$/oz Ag Eq

Inmaculada

1,260-1,320

15.2-15.9

Pallancata

2,050-2,310

24.7-27.8

San Jose

1,400-1,470

17.0-17.7

Total from operations

1,370-1,450

16.5-17.5

 

Inmaculada

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

 

Inmaculada summary 

Year ended

31 Dec 2022

Year ended

31 Dec 2021

% change

Ore production (tonnes)

1,329,177

1,349,892

(2)

Average silver grade (g/t)

156

174

(10)

Average gold grade (g/t)

3.81

4.05

(6)

Silver produced (koz)

5,936

6,236

(5)

Gold produced (koz)

154.85

165.73

(7)

Silver equivalent produced (koz)

17,085

18,168

(6)

Gold equivalent produced (koz)

237.29

252.34

(6)

Silver sold (koz)

5,918

6,216

(5)

Gold sold (koz)

154.93

165.86

(7)

Unit cost ($/t)

118.7

99.2

18

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

693

557

24

All-in sustaining cost ($/oz Au Eq)

1,058

917

15

 

Production

The Inmaculada mine delivered Inmaculada has delivered gold equivalent production of 237,289 ounces (2021: 252,337 ounces), in line with the upwards revised forecast published in August 2022 and slightly reduced versus 2021 owing to budgeted lower grades.

 

Costs

All-in sustaining costs were $1,058 per gold equivalent ounce (2021: $917 per ounce) with the increase versus 2021 due to scheduled lower grades and higher production costs resulting from the use of more semi-mechanised mining methods with a higher extraction cost and from inflation affecting mainly fuel, reagents, and supplies .

 

Pallancata

The 100% owned Pallancata silver/gold property is located in the Department of Ayacucho in southern Peru. Pallancata commenced production in 2007. Ore from Pallancata is transported 22 kilometres to the Selene plant for processing.

 

Pallancata summary 

Year ended

31 Dec 2022

Year ended

31 Dec 2021

% change

Ore production (tonnes)

559,799

530,681

5

Average silver grade (g/t)

151

212

(29)

Average gold grade (g/t)

0.69

0.84

(18)

Silver produced (koz)

2,368

3,261

(27)

Gold produced (koz)

10.98

13.05

(16)

Silver equivalent produced (koz)

3,158

4,200

(25)

Gold equivalent produced (koz)

43.86

58.33

(25)

Silver sold (koz)

2,315

3,263

(29)

Gold sold (koz)

10.76

13.03

(17)

Unit cost ($/t)

131.9

124.8

6

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

26.6

19.2

39

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

32.4

23.8

36

 

Production

In 2022, Pallancata produced 3.2 million silver equivalent ounces (2021: 4.2 million ounces) with the reduction versus 2021 and versus the revised forecast (3.4 -3.6 million ounces) due to the effects of lower-than-expected grades in line with the current declining production profile.

 

Costs

All-in sustaining costs were at $32.5 per silver equivalent ounce (2021: $23.8 per ounce) with the significant increase year-on-year due to lower grades, a higher proportion of conventional mining resulting in higher production costs and local inflation.

 

San Jose

The San Jose silver/gold mine is located in Argentina, in the province of Santa Cruz, 1,750 kilometres south west of Buenos Aires. San Jose commenced production in 2007. Hochschild holds a controlling interest of 51% and is the mine operator. The remaining 49% is owned by McEwen Mining Inc.

 

San Jose summary 

Year ended

31 Dec 2022

Year ended

31 Dec 2021

% change

Ore production (tonnes)

507,189

539,229

(6)

Average silver grade (g/t)

369

344

7

Average gold grade (g/t)

5.55

5.47

1

Silver produced (koz)

5,292

5,250

1

Gold produced (koz)

78.80

83.62

(6)

Silver equivalent produced (koz)

10,966

11,270

(3)

Gold equivalent produced (koz)

152.31

156.53

(3)

Silver sold (koz)

5,303

5,233

1

Gold sold (koz)

77.20

81.83

(6)

Unit cost ($/t)

285.0

229.0

24

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

14.4

13.3

8

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

21.7

18.4

18

 

Production

San Jose's production in 2022 totalled 11.0 million silver equivalent ounces (2021: 11.3 million ounces) with the decrease versus 2021 reflecting first quarter Covid-related employee absences and a fire in the crushing area, both of which temporarily affected operations and explain the reduction in tonnage. This was partially offset by better-than-budgeted grades.

 

Costs

All-in sustaining costs were at $21.7 per silver equivalent ounce (2021: $18.4 per ounce) with the rise versus 2021 due to local inflation affecting production costs, higher mine development capital expenditure to access new areas and lower production. This was partially offset by local currency devaluation.

 


ADVANCED PROJECT: MARA ROSA

On 22 March 2022, the Company announced that it had received shareholder approval for the acquisition of Amarillo Gold Inc. in Brazil with completion occurring on 1 April 2022.

 

On 10 August, the Company announced that the Goiás state's environmental authority, the State Secretariat for the Environment and Sustainable Development (SEMAD), had granted the key permit to enable the Company to start construction of the processing plant. It also allowed all the required site infrastructure for progressing the project's critical paths.

 

The progressed subsequently progressed according to schedule and budget with total project progress now standing at over 70% and detailed engineering almost complete. The Company continues to expect first production in H1 2024.

 

Earthworks

Site clearance for the processing plant and earthworks are at an advanced stage (92% and 96% respectively) whilst the reservoir is fully operational and already receiving pumped water from the pit. All sites being prepared for the processing plant have been finished on time therefore allowing civil works to start according to schedule.

 

Procurement

Currently purchase orders have been issued for 93% of the project equipment. Deliveries are on schedule with key equipment such as the crusher, conveyor belts, HDPE pipes, aluminium cabling for transmission lines, hydrocyclones, agitators and equipment for the wastewater treatment station already received. Key material packages that are pending include pipes and valves which are expected to be closed in the first quarter.

 

Processing plant

The civil works contractor is fully mobilised and work on the plant site area is at 32% completion rate. The concrete base for the grinding area is complete with walls and equipment columns currently progressing and expected to be finished by the end of February whilst deliveries for the tanks are due the same month.

 

Infrastructure

Construction of infrastructure for the main access route is ongoing to allow delivery of materials and heavy equipment. A preliminary drainage system that will guarantee access to critical path areas was completed in Q4 whilst the main project drainage system is 60% complete.

 

The power supply for the mine will be provided by the building of a 67km, 138kv transmission line from the Porangatu substation with work currently 45% advanced and expected to be completed by June 2023.

 

Sustainability

Environmental controls to monitor construction work have been implemented to ensure compliance with applicable permits. In September, the "Knowledge Trail" was inaugurated with the presence of local authorities and the Hochschild COO. The trail consists of an open ecological area with 13 stations highlighting local history, culture, archaeological and environmental information, and project history. The trail will be used as a learning tool by local schools among other local stakeholders and to date almost 500 people have visited. Local supplier and labour training programmes are continuing with over 80 local suppliers already on standby.

 

Health and Safety

Hochschild's health and safety corporate standards are currently being implemented at the project, including the introduction of the Company's Seguscore safety indicator. The project has recently surpassed one million injury-free working hours and year-to-date Frequency and Severity Indexes are currently at zero. Finally, Covid-19 prevention protocols are in place with no positive cases recorded to date.

 

DEVELOPMENT PROJECT: SNIP

At the Snip project in British Columbia, Canada, exploration recommenced during the first quarter of 2022, with approximately 2,500m drilled from underground. Work also began on the Preliminary Economic Assessment (PEA), which was awarded to Ausenco Engineering Canada. This included metallurgical test work, an evaluation of ARD potential in waste samples, and a flowsheet trade-off study. In addition, a new 2-year Environmental Baseline program was approved and data collection began.

 

On 1 March 2022, Hochschild issued an updated mineral resource estimate. Indicated mineral resources more than tripled to 840,000 ounces and inferred resources almost doubled to 723,000 ounces (compared to the previous 2020 estimate) as a result of approximately 28,000m of drilling and the application of Hochschild's standard approach to resource evaluation. Following on from that, approximately 10,300m was drilled from underground in the second and third quarters. Results received during Q3 had the following highlights:

 

Vein

Results (Twin hole)

208

UG22-279: 4.3m @ 125.7g/t Au & 13g/t Ag

212

UG22-290: 2.1m @ 8.4g/t Au & 2g/t Ag

213

UG22-278: 2.3m @ 11.5g/t Au & 19g/t Ag

214

UG22-284: 4.5m @ 48.4g/t Au & 18g/t Ag

219

UG22-290: 3.8m @ 9.5g/t Au & 2g/t Ag

228

UG22-290: 2.5m @ 6.5g/t Au & 4g/t Ag

230

UG22-284: 4.1m @ 11.0g/t Au & 3g/t Ag

 

Vein

Results (Infill hole)

215

UG22-317: 3.9m @ 33.4g/t Au & 3g/t Ag

219

UG22-330: 4.8m @ 45.1g/t Au & 14g/t Ag

219

UG22-332: 4.0m @ 12.8g/t Au & 2g/t Ag

231

UG22-300: 3.7m @ 9.2g/t Au & 8g/t Ag

240

UG22-334: 4.3m @ 31.7g/t Au & 9g/t Ag

 

A Communications and Engagement Agreement with the Tahltan Central Government was signed at the beginning of 2022 with constructive discussions between the two parties continuing throughout the remainder of the year which included a project site visit by a leadership delegation site in August.

 

At the end of the year, the PEA was completed by Ausenco. Highlights are given below.

 

Mineral Resource Estimate (effective as of 20 June 2022)

Category

Domain

Tonnes  (000)

Au Grade  (g/t)

Total Au Metal

Content

(000 oz)

Indicated

Twin Main

3,847

9.8

1,217

Twin West

293

8.1

76

Total Indicated


4,140

9.7

1,293

Inferred

Twin Main

829

12.3

329

Twin West

207

11.0

73

Total Inferred

 

1,036

12.1

402

Notes

1  These mineral resources are not mineral reserves and do not have demonstrated economic viability.

2  The independent qualified person MRE, as defined by National Instrument ("NI") 43-101 guidelines, is Marc Jutras P.Eng., M.A.Sc., Principal, Mineral Resources at Ginto Consulting Inc.

3  Follows CIM definitions (2014) for mineral resources.

4  Results are presented in-situ and undiluted and considered to have reasonable prospects for economic extraction.

5  Reported for an underground scenario at a cut-off grade of 3.0 g/t

6  The number of tonnes and ounces were rounded to the nearest thousand.

7  Estimates are in total for the property and have not been adjusted to reflect the proportion attributable to Hochschild on the basis of its joint venture participation.

 

The update of the mineral resources of the project follows a drilling campaign of 83 surface and underground holes carried out in 2021 and 2022. The drill hole database is comprised of 3,507 historical drill holes and 415 holes drilled by Skeena from 2016 to 2021 and 69 holes drilled by Hochschild in 2022. The historical holes were validated from a set of twin holes drilled by Skeena in 2021 and Hochschild in 2022.

 

Mining

The Snip Project contemplates the underground exploitation of the Mineral Resources of both Twin Main and Twin West deposit at a planned rate of 1,350 to 1,500 tpd over an eight-year period. Total mineralised material in the Life of Mine (LOM) is 3.7mt @ 7.1 g/t Au, with an average gold production of 100 koz per year. A pre-production period of two years, including rehabilitation and dewatering of existing tunnels and the ramp-up period in year two, will allow for the start of full production beginning in year three.

 

Processing

The process plant design is based on composite samples that represent the underground mining plan. The circuit selected is a gravity and whole ore leach process to produce gold doré bars. The plant is designed for a through put of 1,350 tpd based on availability of 92%. The metallurgical recovery is estimated at 96%. The process flowsheet consisted of: three-stage crushing and ball mill grinding circuits; gravity and leach + carbon-in-leach (L/CIL) circuits; desorption and carbon regeneration; electrowinning and smelting; and cyanide destruction of tailings using SO ₂ /air process.

 

Capital Costs

The total initial capital cost is C$346.5m and the life-of-mine sustaining cost is C$239.9m. The initial capital costs are summarised below:

 

Initial capital costs

Description

C$m

Underground Mine

113.7

Process Plant

52.5

Tailings Storage Facility

35.4

Infrastructure

47.1

Total Direct Costs

248.7

Indirect costs

39.5

Contingency

58.3

Total

346.5

 

Project economics

The overall economics of the Project have been evaluated using a gold price of US$1,700/oz, CAD/USD rate of 0.75 and a discount rate of 5%. Snip's valuation has been estimated at C$183m post-tax NPV, with an IRR of 17%. The payback period is expected to be 4 years from the start of production.

 

Key project economics

Description

Units

Value

Au Payable

000oz

797

Processed Tonnes

Mt

3.65

Au Grade

g/t

7.08

After-tax valuation indicators



Undiscounted cash flow

C$m

373

NPV@5%

C$m

183

Payback period

years

4

IRR

%

17

Project Capital (initial)

C$m

347

AISC

C$/oz Au

1,081

 

Termination

Due to the need to focus capital elsewhere in Hochschild's portfolio, on 5 April 2023, the Company announced that it had given notice to Skeena Resources Limited ("Skeena") to terminate the option to earn-in a 60% interest in Snip. Termination of the option became effective immediately and, as a result, Hochschild has no liability to complete the Aggregate Expenditure Requirement.

 

In addition, Hochschild provided confirmation to Skeena that it had satisfied the Minimum Annual Expenditure Requirement in respect of the 12-month period that commenced on 14 October 2022. Accordingly, no cash payment is due from Hochschild to Skeena under the terms of the option agreement.

 

DEVELOPMENT PROJECT: VOLCAN

In early 2022, the Company restructured its 100% ownership of the Volcan project in Chile under a newly-established Canadian company, Tiernan Gold Corp.

 

During the year, work continued to advance the project. This included updating the Mineral Resource Estimate as well as developing an optimised mine and project development plan. During the third quarter, the Company advanced several trade-off studies aimed at creating additional project value. The results of the engineering work were outlined in a new PEA completed by Ausenco with highlights, as follows:

 

§ Open pit mining with 293 Mt of mineralised material mined over a 14 year mine life;

§ 451 Mt of waste mined during the life of mine (1.5:1 strip ratio);

§ Processing of mineralised material by three-stages of crushing followed by heap leaching and gold dore production;

§ Annual processing rate of 22 Mtpa producing an average of 350,000 oz per year of gold for the first five years and a life of mine total of 3.82 million ounces of gold recovered;

§ Initial capital cost of $900 million and average All-in-Sustaining Costs of $1,002/oz;

§ After tax net present value (5% @ $1,800/oz gold) of $826 million with IRR of 20.5%.

 

The Company is currently evaluating strategic alternatives for Tiernan.

 


BROWNFIELD EXPLORATION: PALLANCATA ROYROPATA RESOURCE

In the third quarter of the year, Hochschild announce a major discovery west of current operations at Pallancata. The new area, named Royropata is part of the extended Royropata system.

 

An initial Inferred Mineral Resource Estimate for the Royropata Zone to the west of the existing Pallancata mine was completed in Q4. The Company estimates that the zone contains an Inferred Mineral Resource of 1.88 million tonnes at an average grade of 667 g/t Ag and 2.42 g/t Au containing 51.2 million silver equivalent ("Ag Eq") ounces at a combined Ag Eq grade of 848 g/t (see table below).

 

The programme started in 2019 with two long drill holes, with the second drill hole intercepting 37.6m of quartz vein without economic values. In 2022, after a period of geologic interpretation and 9,800m of drilling, a new vein system, including the Marco West, (the main structure) Laura, Demian, Royropata 1, and Royropata 2 veins was discovered (see maps below). The Royropata system is a tabular sinistral strike-slip fault filled by hydrothermal quartz with crustiform, coloform, banded, and breccia textures. The vein strikes 80-90° and dips 60° to 75° to the southeast, reaching 750m in length and 200m in depth. The host rocks are dacitic tuffs, andesitic tuffs, and andesitic flow. The contained minerals are mainly: pyrargyrite, proustite, argentite, electrum, and pearceite-polybasite at the precious metal level. The principal gangue mineral is quartz and carbonates and silicified tuff fragments with an argillic alteration. The Marco vein remains open to the southwest for another 900m according to the current geological interpretation.

 

Audited Royropata Inferred Mineral Resource Estimate

Vein

Tonnes (k)

Ag (g/t)

Au (g/t)

Ag Eq (g/t)

Ag Eq (moz)

Marco West

1,497

763

2.81

973

46.8

Laura

247

203

0.62

250

2.0

Royropata 2

80

495

1.48

606

1.6

Demian

27

444

1.55

560

0.5

Royropata 1

26

285

0.81

346

0.3

Total/Average

1,876

667

2.42

848

51.2

Notes

1  Mineral Resources are 100% attributable to Hochschild.

2  Metal prices used for the Mineral Resources calculations: Au: US$1,800/oz, Ag: US$24/oz.

3  AgEq = (Au x 75) + Ag.

4  AgEq Cut-off: 99 g/t AgEq.

5  Totals have been rounded to the appropriate number of significant figures.

 

2023 next steps

In 2023, the Company will develop the Mineral Resource including infill drilling to convert the Inferred Minerals Resources to Indicated and will also proceed with basic engineering as well as the environmental permitting process, including baseline studies.  In addition, over the next few quarters, the brownfield team will also target the upside potential in the Royropata zone, including the extension of the Marco vein, the Royropata veins and the Yanacochita and Bolsa structures according to ongoing permitting progress. These veins are expected to add significant additional resources.

 


EXPLORATION

Inmaculada

In the first half of the year, most of the drilling at Inmaculada was potential drilling at the Huarmapata area and resource drilling in the Josefa vein with the best results from Josefa which them merited further drilling in the second half. In addition, there was 2,900m of infill drilling in the Juliana, Susana-Beatriz, Bety, Barbara and Noelia structures. Much of the planned brownfield exploration work including surface drilling work was curtailed in 2022 by a lack of permits.

 

  Vein

Results (resource drilling)

Josefa

IMM22-139: 2.8m @ 1.9g/t Au & 43g/t Ag

IMM-22-172: 1.5m @ 6.1g/t Au & 186g/t Ag

Josefa Piso

IMM-22-171A: 1.6m @ 8.5g/t Au & 104g/t Ag

IMM-22-172: 0.8m @ 6.9g/t Au & 13g/t Ag

Cloty

IMM-22-172: 0.8m @ 3.9g/t Au & 90g/t Ag

 

San Jose

During the year, 18,150 of potential drilling was executed around the mine area and in the Saavedra area in the Ayelen, Ayelen SE, Maura and Maura East veins, among others, in addition to 2,800m of infill drilling in the Julia, Isabel, Odion, Molle and Perla veins. The Company also started to explore the Ciclon project (700m of drilling) further away in the Santa Cruz province.

 

Vein

Results (potential/resource drilling)

Celina

SJD-2451: 1.5m @ 6.0g/t Au & 236g/t Ag

SJD-2453: 1.2m @ 8.3g/t Au & 561g/t Ag

Celina Piso

SJD-2453: 1.1m @ 2.8g/t Au & 546g/t Ag

Jimena

SJD-2463: 5.2m @ 1.6g/t Au & 47g/t Ag

SJD-2465: 2.4m @ 2.8g/t Au & 48g/t Ag

Agostina

SJD-2468: 4.1m @ 7.5g/t Au & 84g/t Ag

SJD-2469: 5.4m @ 3.3g/t Au & 29g/t Ag

SJD-2471: 1.9m @ 1.6g/t Au & 68g/t Ag

Ayelen SE

SJM-594: 1.5m @ 6.9g/t Au & 648g/t Ag

SJD-2529: 2.4m @ 3.9g/t Au & 363g/t Ag

SJD-2531: 2.6m @ 10.0g/t Au & 1,321g/t Ag

Maura

SJD-2554: 1.1m @ 4.7g/t Au & 102g/t Ag

SJD-2556: 0.8m @ 5.5/t Au & 103g/t Ag

SJD-2563: 1.3m @ 6.3g/t Au & 109g/t Ag

SJD-2570: 1.0m @ 15.1g/t Au & 123g/t Ag

SJD-2572: 2.5m @ 4.0g/t Au & 216g/t Ag

Ciclon

DCE22-02: 2.9m @ 1.0g/t Au & 615g/t Ag

Olivia

SJM-609: 1.1m @ 3.0g/t Au & 357g/t Ag

 

In 2022 as a whole 19.3 million silver equivalent ounces have been added to the San Jose resource base at a silver equivalent grade of 983 grams per tonne.

 

 

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 [8]

Gross revenue from continuing operations decreased by 10% to $751.3 million in 2022 (2021: $831.0 million) mainly due to the lower production and average realised silver price. Output was mainly impacted by: lower expected grades in Pallancata and Inmaculada; lower treated tonnage in San Jose due to Covid-related employee absences in Q1 and a fire in the crushing area which temporarily affected operations ; and lower treated tonnage in Inmaculada resulting from the local and national disruption in Peru in Q4.   These were partially offset by a slightly higher average realised gold price.

 

Gold

Gross revenue from gold in 2022 decreased to $435.1 million (2021: $464.3 million) due to the 7% decrease in gold sales resulting from lower gold produced at all operations. This was partially offset by a 1% increase in the average realised gold price.

 

Silver

Gross revenue from silver decreased in 2022 to $315.5 million (2021: $366.2 million) mainly due to a 6% decrease in the average realised silver price and lower silver production at Pallancata and Inmaculada due to lower tonnage treated and grades.

 

Gross average realised sales prices

The following table provides figures for average realised prices ( before the deduction of commercial discounts) and ounces sold for 2022 and 2021:

 

Average realised prices

Year ended
31 Dec 2022

Year ended
31 Dec 2021 

 

Silver ounces sold (koz)

13,536

14,712

 

Avg. realised silver price ($/oz)

23.3

24.9

 

Gold ounces sold (koz)

242.89

260.71

 

Avg. realised gold price ($/oz)

1,791

1,781


 

4.0 million silver ounces of 2022 production were hedged at $26.86 per ounce, boosting the realised price. On 10 November 2021, the Company hedged 3.3 million ounces of 2023 silver production at $25.00 per ounce.

 

Commercial discounts

Commercial discounts refer to refinery treatment charges, refining fees and payable deductions for processing concentrate, 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 2022, the Group recorded commercial discounts of $15.7 million (2021: $19.6 million) with the fall explained by the decrease in production. The ratio of commercial discounts to gross revenue in 2022 was 2%, in line with 2021.

 

Net revenue

Net revenue was $735.6 million (2021: $811.4 million), comprising net gold revenue of $429.8 million (2021: $457.8 million) and net silver revenue of $305.2 million (2021: $353.1 million). In 2022, gold accounted for 58% and silver 42% of the Company's consolidated net revenue (2021: gold 56% and silver 44%).

 

Reconciliation of gross revenue by mine to Group net revenue

$000

Year ended
31 Dec 2022

Year ended
31 Dec 2021 

% change

Silver revenue

 



Inmaculada

137,033

156,675

(13)

Pallancata

62,986

82,727

(24)

San Jose

115,477

126,790

(9)

Commercial discounts

(10,334)

(13,088)

(21)

Net silver revenue

305,162

353,104

(14)

Gold revenue

 



Inmaculada

276,895

296,160

(7)

Pallancata

19,459

22,989

(15)

San Jose

138,782

145,187

(4)

Commercial discounts

(5,335)

(6,517)

(18)

Net gold revenue

429,801

457,819

(6)

Other revenue

680

464

47

Net revenue

735,643

811,387

(9)

 

Cost of sales

Total cost of sales before exceptional items was $527.6 million in 2022 (2021: $487.8 million). The direct production cost excluding depreciation was higher at $384.2 million (2021: $323.4 million) mainly due to inflation impacting fuel, reagents and supplies and the use of a higher proportion of conventional mining methods . Depreciation in production cost decreased to $137.7 million (2021: $148.8 million) due to lower extracted volumes across all operations. Fixed costs incurred during total or partial production stoppages in Argentina and Peru were $8.0 million in 2022 (2021: $8.7 million).

 

$000

Year ended
31 Dec 2022

Year ended
31 Dec 2021 

% change

Direct production cost excluding depreciation

384,183

323,418

19

Depreciation in production cost

137,747

148,842

(7)

Other items and workers profit sharing

3,321

6,512

(49)

Fixed costs during operational stoppages and reduced capacity

8,023

8,680

(8)

Change in inventories

(5,631)

320

(1,860)

Cost of sales

527,643

487,772

8

 

Fixed costs during operational stoppages and reduced capacity

$000

Year ended
31 Dec 2022

Year ended
31 Dec 2021 

% Change

Personnel

4,498

7,607

(41)

Third party services

3,090

995

211

Supplies

146

-

-

Depreciation and amortisation

2

-

-

Others

287

78

268

Cost of sales

8,023

8,680

(8)

 

Unit cost per tonne

The Company reported unit cost per tonne at its operations of $158.7 per tonne in 2022, a 19% increase versus 2021 ($133.5 per tonne) This was due to: higher costs at Inmaculada resulting from using more semi-mechanised mining methods with a higher extraction cost; higher costs at Pallancata due to the use of more conventional mining methods; and higher costs in San Jose mainly due to inflation and from expenditure related to the accessing and mining of incremental resources.

 

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

Operating unit ($/tonne)

Year ended
31 Dec 2022

Year ended
31 Dec 2021

% change

Peru

122.9

106.5

15

Inmaculada

118.7

99.2

20

Pallancata

131.9

124.8

6

Argentina

 



San Jose

285.0

229.0

24

Total

158.7

133.5

19

 

Cash costs

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

 

Cash cost reconciliation [10]

Year ended 31 Dec 2022

$000 unless otherwise indicated

Inmaculada

Pallancata

San Jose

Total

Group cash cost

162,397

80,756

170,585

413,738

(+) Cost of sales [11]

239,277

83,926

193,840

517,043

(-) Depreciation and amortisation in cost of sales

(80,633)

(8,671)

(47,123)

(136,427)

(+) Selling expenses

796

622

12,614

14,032

(+) Commercial deductions [12]

2,957

4,879

11,254

19,090

Gold

2,131

969

4,630

7,730

Silver

826

3,910

6,624

11,360

Revenue

413,928

77,566

243,469

734,963

Gold

276,895

18,490

134,416

429,801

Silver

137,033

59,076

109,053

305,162

Ounces sold

 

 

 


Gold

154.9

10.8

77.2

242.9

Silver

5,918

2,315

5,303

13,536

Group cash cost ($/oz)





Co product Au

701

1,789

1,220

996

Co product Ag

9.1

26.6

14.4

12.7

By product Au

158

1,652

711

400

By product Ag

(19.7)

26.5

6.0

(1.8)

 

Year ended 31 Dec 2021

$000 unless otherwise indicated

Inmaculada

Pallancata

San Jose

Total

Group cash cost

141,316

80,354

150,663

372,333

(+) Cost of sales [13]

213,812

93,049

172,231

479,092

(-) Depreciation and amortisation in cost of sales

(76,372)

(19,915)

(49,195)

(145,482)

(+) Selling expenses

616

620

14,195

15,431

(+) Commercial deductions [14]

3,260

6,600

13,432

23,292

Gold

2,164

1,034

5,717

8,915

Silver

1,096

5,566

7,715

14,377

Revenue

452,835

99,116

258,972

810,923

Gold

296,160

21,955

139,704

457,819

Silver

156,675

77,161

119,268

353,104

Ounces sold

 

 

 


Gold

165.9

13.0

81.8

260.7

Silver

6,216

3,263

5,233

14,712

Group cash cost ($/oz)





Co product Au

557

1,366

993

806

Co product Ag

7.9

19.2

13.3

11.0

By product Au

(99)

(182)

289

19

By product Ag

(25.3)

17.6

1.0

(6.4)

 

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 [15]

All-in sustaining cash costs per silver equivalent ounce

 

Year ended 31 Dec 2022

$000 unless otherwise indicated

Inmaculada

Pallancata

San Jose

Main

Operations

Corporate &

others

Total

(+) Direct production cost excluding depreciation

156,551

75,472

152,160

384,183

-

384,183

(+) Other items and workers profit sharing in cost of sales

1,777

1,544

-

3,321

-

3,321

(+) Operating and exploration capex for units [16]

78,176

12,340

47,604

138,120

584

138,704

(+) Brownfield exploration expenses

2,946

6,000

7,700

16,646

2,537

19,183

(+) Administrative expenses (excl depreciation)

3,894

729

6,242

10,865

41,266

52,131

(+) Royalties and special mining tax [17]

4,032

756

-

4,788

2,658

7,446

Sub-total

247,376

96,841

213,706

557,923

47,045

604,968

Au ounces produced

154,846

10,977

78,803

244,626

-

244,626

Ag ounces produced (000s)

5,936

2,368

5,292

13,596


13,596

Ounces produced (Ag Eq 000s oz)

17,085

3,158

10,966

31,209

-

31,209

Sub-total ($/oz Ag Eq)

14.5

30.7

19.5

17.9

1.5

19.4

(+) Commercial deductions

2,957

4,879

11,254

19,090

-

19,090

(+) Selling expenses

796

622

12,614

14,032

-

14,032

Sub-total

3,753

5,501

23,868

33,122

-

33,122

Au ounces sold

154,930

10,759

77,204

242,893

-

242,893

Ag ounces sold (000s)

5,918

2,315

5,303

13,536

-  

13,536

Ounces sold (Ag Eq 000s oz)

17,073

3,090

10,862

31,025

- 

31,025

Sub-total ($/oz Ag Eq)

0.2

1.8

2.2

1.1

- 

1.1

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

14.7

32.4

21.7

18.9

1.5

20.4

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

1,058

2,336

1,561

1,364

109

1,473

 

 

Year ended 31 Dec 2021

$000 unless otherwise indicated

Inmaculada

Pallancata

San Jose

Main

operations

Corporate &

others

Total

(+) Direct production cost excluding depreciation

134,110

66,859

122,449

323,418

-

323,418

(+) Other items and workers profit sharing in cost of sales

3,489

3,023

-

6,512

-

6,512

(+) Operating and exploration capex for units [18]

76,512

14,526

41,325

132,363

1,735

134,098

(+) Brownfield exploration expenses

3,276

5,993

9,654

18,923

3,658

22,581

(+) Administrative expenses (excl depreciation)

4,909

1,075

6,104

12,088

38,783

50,871

(+) Royalties and special mining tax [19]

5,190

1,136

-

6,326

5,916

12,242

Sub-total

227,486

92,612

179,532

499,630

50,092

549,722

Au ounces produced

165,730

13,045

83,615

262,390

-

262,390

Ag ounces produced (000s)

6,236

3,261

5,250

14,746


14,746

Ounces produced (Ag Eq 000s oz)

18,168

4,200

11,270

33,638

-

33,638

Sub-total ($/oz Ag Eq)

12.5

22.1

15.9

14.9

1.4  

16.3

(+) Commercial deductions

3,260

6,600

13,432

23,292

-

23,292

(+) Selling expenses

616

620

14,195

15,431

-

15,431

Sub-total

3,876

7,220

27,627

38,723

-

38,723

Au ounces sold

165,857

13,027

81,831

260,715

-

260,714

Ag ounces sold (000s)

6,216

3,263

5,233

14,712

-  

14,712

Ounces sold (Ag Eq 000s oz)

18,158

4,201

11,124

33,483

- 

33,483

Sub-total ($/oz Ag Eq)

0.2

1.7

2.5

1.2

- 

1.2

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

12.7

23.8

18.4

16.0

1.5

17.5

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

917

1,711

1,325

1,153

105

1,258

 

 

Administrative expenses

Administrative expenses were higher at $54.2 million (2021: $51.9 million) mainly due to higher personnel expenses and travel expenses, and administrative expenses related to the Mara Rosa project.

 

Exploration expenses

In 2022, exploration expenses increased to $56.8 million (2021: $39.9 million) mainly due to the Snip project's exploration expenses of $20.8 million (2021: Nil), partially offset by lower exploration expenses across all mines of $3.9 million.

 

In addition, the Group capitalises part of its brownfield exploration, which mostly relates to costs incurred converting potential resources to the Inferred or Measured and Indicated categories.   In 2022, the Company capitalised $0.7 million relating to brownfield exploration compared to $6.1 million in 2021, bringing the total investment in exploration for 2022 to $57.6 million (2021: $46.0 million).  

 

Selling expenses

Selling expenses decreased to $14.0 million (2021: $15.4 million) mainly due to lower volumes sold in Argentina.

 

Other income/expenses

Other income before exceptional items was lower at $3.3 million (2021: $8.4 million) mainly due to decreased gains on the sale of equipment of $3.0 million and $2.0 million of higher income on the recovery of provisions in 2021.

 

Other expenses before exceptional items were lower at $39.3 million (2021: $44.6 million) with the reduction mainly due to lower increases in provision for mine closure of $17.8 million (2021: $22.1 million), lower expenses from a voluntary redundancy programme in Argentina of $1.3 million (2021: $8.3 million). These were partially offset by: an increase in care and maintenance costs to $7.4 million (H1 2021: $5.7 million); higher labour contingencies in Argentina of $3.1 million (2021: $0.8 million); increased provision for administrative fines of $1.6 million (2021: $0.1 million), and the insurance deductible plus expenses not covered by insurance relating to the fire in San Jose of $0.9 million.

 

Adjusted EBITDA

Adjusted EBITDA decreased by 35% to $249.6 million (2021: $382.8 million) mainly due to the decrease in revenue resulting from lower gold and silver production, and the lower average realised silver price. In addition, there was an increase in production costs mainly due to inflation, higher mine development capex and the use of a higher proportion of conventional mining methods.

 

Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs, foreign exchange losses and income tax plus non-cash items (depreciation and amortisation 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 2022

Year ended
31 Dec 2021 

% change

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

45,190

179,438

(75)

Depreciation and amortisation in cost of sales

136,427

145,482

(6)

Depreciation and amortisation in administrative expenses and other expenses

2,135

2,184

(2)

Exploration expenses

56,826

39,848

43

Personnel and other exploration related fixed expenses

(10,602)

(7,099)

49

Other non-cash income, net [20]

19,629

22,958

(15)

Adjusted EBITDA

249,605

382,811

(35)

Adjusted EBITDA margin

34%

47%

(28)

 

Finance income

Finance income before exceptional items of $5.2 million increased from 2021 ($3.9 million) mainly due to higher interest on deposits of $2.4 million (2021: $1.6 million).

 

Finance costs

Finance costs before exceptional items decreased from $32.1 million in 2021 to $21.8 million in 2022 principally due to: lower foreign exchange transaction costs to acquire $5.2 million dollars in Argentina of $5.0 million (2021: $15.3 million); the capitalisation of $4.9 million interest expenses that are directly attributable to the construction of Mara Rosa; and the cancelation of the Libor rate swap of the refinanced $200 million medium-term loan of $3.8 million in 2021. These effects were partially offset by higher interest paid of $12.9 million in 2022 (2021: $5.7 million) mainly due to an additional $100 million medium-term loan drawn down in December 2021 and higher interest rates, and the fair value loss on financial investments of $2.1 million (2021: $0.8 million).

 

Foreign exchange (losses)/gains

The Group recognised a foreign exchange loss of $2.6 million (2021: $2.4 million loss) as a result of exposures in currencies other than the functional currency.

 

Income tax

The Company's pre-exceptional income tax charge was $17.6 million (2021: $81.3 million). The significant decrease in the charge is mainly explained by lower profitability versus 2021.

 

The effective tax rate (pre-exceptional) for the period was 72.3% (2021: 54.7%), compared to the weighted average statutory income tax rate of 35.6% (2021: 30.9%). The high effective tax rate in 2022 versus the average statutory rate is mainly explained by: the impact of non-recognised tax losses in non-operating companies increasing the rate by 36.5%, Royalties and the Special Mining Tax which increased the effective rate by 21.8%; partially offset by the effect of foreign exchange in Peru and Argentina decreasing the rate by 19.2%.

 

Exceptional items

Exceptional items in 2022 totalled a $1.9 million loss after tax (2021: $3.7 million loss after tax) related to: the impairment of the investment in Aclara Resources Inc. of $9.9 million; the reversal of impairment loss in Pallancata of $15.5 million resulting from the new resources discovered in the Royropata zone; and the impairment of the Azuca project's evaluation and exploration costs of $4.2 million.

 

The tax effect of these exceptional items was a $3.3 million tax loss (2021: $15.1 million tax gain). The net attributable loss of exceptional items was $1.9 million.

 

Cash flow and balance sheet review  

Cash flow:

$000

Year ended
31 Dec 2022

Year ended
31 Dec 2021 

Change

Net cash generated from operating activities

102,918

282,520

(179,602)

Net cash used in investing activities

(337,580)

(183,434)

(154,146)

Cash flows generated generated/(used in) from financing activities

(6,588)

59,307

(65,895)

Foreign exchange adjustment

(1,695)

(3,487)

1,792

Net increase in cash and cash equivalents during the year

(242,945)

154,906

(397,851)

 

Net cash generated from operating activities decreased from $282.5 million in 2021 to $102.9 million in 2022 mainly due to lower Adjusted EBITDA of $249.6 million (2021: $382.8 million), and an increased working capital position.

 

Net cash used in investing activities increased from $183.4 million in 2021 to $337.6 million in 2022 mainly due to the acquisition cost of Mara Rosa and subsequent capex of $193.2 million. This effect was partially offset by the purchase of Aclara shares for $20.0 million in 2021, and lower foreign exchange transaction costs to acquire dollars in Argentina of $5.0 million (2021: $15.3 million).

 

Cash from financing activities decreased to an outflow of $6.6 million from an inflow of $59.3 million in 2021, primarily due to the additional medium-term loan of $100.0 million drawn down in December 2021, partially offset by proceeds from Minera Santa Cruz stock market promissory notes of $14.5 million, and lower dividends to non-controlling interest of $0.3 million (2021: $9.8 million).

 

Working capital

$000

As at

31 December 2022

As at

31 December 2021

Trade and other receivables

85,408

69,749

Inventories

61,440

49,184

Derivative financial assets/(liabilities)

2,186

14,073

Income tax payable, net

7,100

(22,322)

Trade and other payables

(144,102)

(133,482)

Provisions

(24,177)

(32,058)

Working capital

(12,145)

(54,856)

 

The Group's working capital position increased by $42.7 million from $(54.9) million to $(12.1) million. The key drivers of the increase were: higher income tax payable of $29.4 million; higher trade and other receivables of $15.7 million; and lower derivative financial assets of $11.9 million.  

 

Net (debt)/cash

$000 unless otherwise indicated

As at

31 December 2022

As at

31 December 2021

Cash and cash equivalents

143,844

386,789

Non-current borrowings

(275,000)

(300,000)

Current borrowings [21]

(43,989)

(499)

Net cash / (net debt)

(175,145)

86,290

 

The Group's reported net debt position was $175.1 million as at 31 December 2022 (31 December 2021: net cash of $86.3 million). The decrease is mainly explained by: the acquisition cost of Mara Rosa and subsequent construction capex of $193.2 million; the Snip project's exploration expenses of $19.6 million; and temporary changes in working capital.

 

$000

Year ended
31 Dec 2022

Year ended
31 Dec 2021

Inmaculada

78,176

76,512

Pallancata

13,518

14,250

San Jose

50,112

43,666

Operations

141,806

134,428

Mara Rosa

193,218

-

Aclara

-

11,476

Other

4,842

7,957

Total

339,866

153,861

 

2022 capital expenditure of $339.9 million (2021: $153.9 million) mainly comprised the acquisition cost of Mara Rosa and subsequent capex of $193.2 million and operational capex of $141.8 million (2021: $134.4 million). Operational capex was higher mainly due to higher capex for development work at Pallancata to access newly economic resources which have further extended the mine life, and higher mine development capital expenditure in San Jose.

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors confirm that to the best of their knowledge:

o  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

o  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 2022

 





Year ended 31 December 2022

 

Year ended 31 December 2021



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
















Revenue


5


735,643


-


735,643


811,387


-


811,387

Cost of sales


6


(527,643)


-


(527,643)


(487,772)


(22,511)


(510,283)

Gross profit




208,000


-


208,000


323,615


(22,511)


301,104

Administrative expenses


7


(54,158)


-


(54,158)


(51,905)


-


(51,905)

Exploration expenses


8


(56,826)


-


(56,826)


(39,848)


-


(39,848)

Selling expenses


9


(14,032)


-


(14,032)


(15,431)


-


(15,431)

Other income


12


3,340


-


3,340


8,435


37,461


45,896

Other expenses


12


(39,302)


-


(39,302)


(44,565)


(1,503)


(46,068)

(Impairment)/reversal of impairment and write-off of non-current assets, net




(1,832)


11,363


9,531


(863)


(24,846)


(25,709)

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




45,190


11,363


56,553


179,438


(11,399)


168,039

Share of loss of an associate


19


(1,677)


(9,923)


(11,600)


(169)


-


(169)

Finance income


13


5,211


-


5,211


3,946


-


3,946

Finance costs


13


(21,776)


-


(21,776)


(32,061)


-


(32,061)

Foreign exchange loss, net




(2,622)


-


(2,622)


(2,424)


-


(2,424)

Profit/(loss) from before income tax




24,326


1,440


25,766


148,730


(11,399)


137,331

Income tax (expense)/benefit


14


(17,581)


(3,353)


(20,934)


(81,280)


15,055


(66,225)

Profit/(loss) for the year




6,745


(1,913)


4,832


67,450


3,656


71,106

Attributable to:















Equity shareholders of the Parent




4,874


(1,913)


2,961


69,567


7,367


76,934

Non-controlling interests




1,871


-


1,871


(2,117)


(3,711)


(5,828)





6,745


(1,913)


4,832


67,450


3,656


71,106

Basic earnings/(loss) per ordinary share for the year (expressed in US dollars per share)


15


0.01


-  


0.01


0.14


0.01


0.15

Diluted earnings/(loss) per ordinary share for the year (expressed in US dollars per share)


15


0.01


-  


0.01


0.13


0.01


0.14

 


Consolidated statement of comprehensive income

For the year ended 31 December 2022

 

 





Year ended 31 December



Notes


2022
US$000


2021
US$000

Profit for the year




4,832


71,106

Other comprehensive income that might be reclassified to profit or loss in subsequent periods, net of tax:







Net (loss)/gain on cash flow hedges


38(a), 38(g)


(16,929)


25,028

Deferred tax benefit/(charge) on cash flow hedges


30


4,994


(7,383)

Exchange differences on translating foreign operations




(12,739)


(21,282)

Cumulative exchange differences gain transferred to the income statement on disposal of foreign operations


4


-


9,995

Share of other comprehensive income/(loss) of an associate


19


1,283


(9)





(23,391

)

6,349

Other comprehensive income that will not be reclassified to profit or loss in subsequent periods, net of tax:







Net (loss)/gain on equity instruments at fair value through other comprehensive income ('OCI')


20


(152)


261





(152)


261

Other comprehensive (loss)/income for the year, net of tax




(23,543)


6,610

Total comprehensive (loss)/income for the year




(18,711)


77,716

Total comprehensive (loss)/income attributable to :







Equity shareholders of the Parent




(20,582)


83,544

Non-controlling interests




1,871


(5,828)





(18,711)


77,716

 

 


Consolidated statement of financial position

As at 31 December 2022



Notes


As at
31 December 2022
US$000


As at
31 December 2021
US$000

ASSETS







Non-current assets







Property, plant and equipment


16


926,913


738,119

Evaluation and exploration assets


17


123,462


123,304

Intangible assets


18


19,328


18,094

Investment in an associate


19


33,242


43,559

Financial assets at fair value through OCI


20


509


661

Financial assets at fair value through profit and loss


21


1,015


3,155

Trade and other receivables


22


6,498


2,470

Derivative financial assets


38(a)


-


5,042

Deferred income tax assets


30


4,213


484





1,115,180


934,888

Current assets







Inventories


23


61,440


49,184

Trade and other receivables


22


85,408


69,749

Derivative financial assets


38(a)


2,186


14,073

Income tax receivable


14


9,226


32

Cash and cash equivalents


24


143,844


386,789





302,104


519,827

Total assets




1,417,284


1,454,715

EQUITY AND LIABILITIES







Capital and reserves attributable to shareholders of the Parent







Equity share capital


29


9,061


226,506

Share premium


29


-


438,041

Other reserves




(238,800)

 

(217,657)

Retained earnings




886,980


248,664





657,241


695,554

Non-controlling interests




65,475


63,890

Total equity




722,716


759,444

Non-current liabilities







Trade and other payables


25


1,623


2,815

Borrowings


27


275,000


300,000

Provisions


28


123,506


116,835

Deferred income tax liabilities


30


80,045


87,228





480,174


506,878

Current liabilities







Trade and other payables


25


144,102


133,482

Borrowings


27


43,989


499

Provisions


28


24,177


32,058

Income tax payable


14


2,126


22,354





214,394


188,393

Total liabilities




694,568


695,271

Total equity and liabilities




1,417,284


1,454,715

 

These financial statements were approved by the Board of Directors on 19 April 2023 and signed on its behalf by:

Ignacio Bustamante

Chief Executive Officer

19 April 2023

 

 

Consolidated statement of cash flows

For the year ended 31 December 2022





Year ended 31 December



Notes


2022
US$000


2021
US$000

Cash flows from operating activities







Cash generated from operations


34


144,271


319,588

Interest received




2,409


1,938

Interest paid


27


(12,962)


(5,720)

Payment of mine closure costs


28


(10,409)


(9,083)

Income tax, special mining tax and mining royalty paid 1




(20,391)


(22,021)

Net cash generated from operating activities




102,918


284,702

Cash flows from investing activities







Purchase of property, plant and equipment




(210,372)


(130,965)

Purchase of evaluation and exploration assets


17


(122,988)


(21,398)

Purchase of intangibles




(353)



Purchase of financial assets at fair value through OCI


20


-


(7)

Purchase of investment in associate




-


(19,995)

Purchase of financial assets at fair value through profit and loss


21


-


(3,308)

Purchase of Argentinian bonds


13


(10,204)


(33,469)

Proceeds from sale of Argentinian bonds


13


5,248


18,133

Proceeds from sale of financial assets at fair value through OCI


20


-


9

Proceeds from sale of financial assets at fair value though profit and loss


21


-


4,726

Proceeds from sale of property, plant and equipment




1,089


3,393

Cash and cash equivalent of demerged entity


4


-


(553)

Net cash used in investing activities




(337,580)


(183,434)

Cash flows from financing activities







Proceeds from borrowings


27


28,911


105,954

Repayment of borrowings


27


(11,557)


(14,793)

Payment of lease liabilities


26


(1,639)


(2,182)

Dividends paid to non-controlling interests


31


(286)


(9,832)

Dividends paid


31


(22,017)


(22,022)

Cash flows (used in)/generated from financing activities




(6,588)


57,125

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




(241,250)


158,393

Exchange difference




(1,695)


(3,487)

Cash and cash equivalents at beginning of year




386,789


231,883

Cash and cash equivalents at end of year


24


143,844


386,789

1  Taxes paid have been offset with value added tax (VAT) credits of US$nil (2021:US$3,478,000).


Consolidated statement of changes in equity

For the year 31 December 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other reserves

 

 

 

 

 

 

 

 

 

 

Notes

 

Equity share capital US$000

 

Share premium US$000

 

 

Fair value reserve of financial assets at fair value through OCI
US$000

 

Share of other comprehensive loss of an associate US$000

Dividends expired US$000

 

 

Cumulative translation adjustment US$000

 

Unrealised gain/

(loss) on hedges

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 2021

 

 

 

226,506

 

438,041

 

 

(205)

 

-

99

 

 

(13,876)

 

(4,169)

 

(210,046)

 

2,533

 

(225,664)

 

287,652

 

726,535

 

79,550

 

806,085

Other comprehensive income/(expense)




-


-



261


(9)

-



(11,287)


17,645


-


-


6,610


-


6,610


-


6,610

Profit for the year




-


-



-


-

-



-


-


-


-


-


76,934


76,934


(5,828)


71,106

Total comprehensive income/
(expense) for the year




-

 

-

 

 

261

 

 

(9)

-

 

 

(11,287)

 

17,645

 

-

 

-

 

6,610

 

76,934

 

83,544

 

(5,828)

 

77,716

Sale of financial assets at fair value through OCI


20


-


-



18


-

-



-


-


-


-


18


(18)


-


-


-

Dividends


31


-


-



-


-

-



-


-


-


-


-


(22,022)


(22,022)


-


(22,022)

In specie dividends




-


-



-


-

-



-


-


-


-


-


(94,945)


(94,945)


-


(94,945)

Dividends to non -
controlling interests


31


-


-



-



-



-


-


-


-


-


-


-


(9,832)


(9,832)

Share-based payments


29(c)


-


-



-


-

-



-


-


-


2,442


2,442


-


2,442


-


2,442

Forfeiture of share options


29(c)


-


-



-


-

-



-


-


-


(1,063)


(1,063)


1,063


-


-


-

Balance at  31 December 2021




226,506

 

438,041

 

 

74

 

(9)

99

 

 

(25,163)

 

13,476

 

(210,046)

 

3,912

 

(217,657)

 

248,664

 

695,554

 

63,890

 

759,444

Other comprehensive income/(expense)




-


-



(152)


1,283

-



(12,739)


(11,935)


-


-


(23,543)


-


(23,543)


-


(23,543)

Profit for the year




-


-



-


-

-


-

-


-


-


-


-


2,961


2,961


1,871


4,832

Total comprehensive income/
(expense) for the year




-

 

-

 

 

(152)

 

 

1,283

-

 

-

(12,739)

 

(11,935)

 

-

 

-

 

(23,543)

 

2,961

 

(20,582)

 

1,871

 

(18,711)

Dividends


31


-


-



-


-

-


-

-


-


-


-


-


(22,017)


(22,017)


-


(22,017)

Dividends paid to non -
controlling interests


31


-


-



-


-

-


-

-


-


-


-


-


-


-


(286)


(286)

Issuance of deferred bonus shares


29


303,268


-



-


-

-



-


-


-


-


-


(303,268)


-


-


-

Cancelation of deferred bonus shares


29


(303,268)


-



-


-

-



-


-


-


-


-


303,268


-


-


-

Cancelation of share premium account


29


-


(438,041)



-


-

-



-


-


-


-


-


438,041


-


-


-

Nominal value reduction


29


(217,445)


-



-


-

-



-


-


-


-


-


217,445


-


-


-

Share-based payments


29(c)


-


-



-


-

-



-


-


-


4,286


4,286


-


4,286


-


4,286

Forfeiture of share options


29(c)


-


-



-


-

-



-


-


-


(1,886)


(1,886)


1,886


-


-


-

Balance at  31 December 2022




9,061

 

-

 

 

(78)

 

1,274

99

 

 

(37,902)

 

1,541

 

(210,046)

 

6,312

 

(238,800)

 

886,980

 

657,241

 

65,475

 

722,716
















































NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2022

 

1 Corporate information

Hochschild Mining PLC (hereinafter "the Company") is a public limited company incorporated on 11 April 2006 under the Companies Act 1985 as a Limited Company and registered in England and Wales with registered number 05777693. The Company's registered office is located at  17 Cavendish Square, London W1G 0PH, United Kingdom.

 

The ultimate controlling party of the Company is Mr Eduardo Hochschild whose beneficial interest in the Company and its subsidiaries (together 'the Group' or 'Hochschild Mining Group') is 38.32% and it is held through Pelham Investment Corporation ("Pelham"), a Cayman Islands company.

 

On 8 November 2006, the Company's shares were admitted to the Official List of the UKLA (United Kingdom Listing Authority) and to trading on the London Stock Exchange.

 

The Group's principal business is the mining, processing and sale of silver and gold. The Group has two operating mines (Pallancata and Inmaculada) located in southern Peru and one operating mine (San Jose) located in Argentina. The Group also has a portfolio of projects located across Peru, Argentina, Mexico, United States, Canada, Brazil and Chile at various stages of development.

 

These consolidated financial statements were approved for issue by the Board of Directors on 19 April 2023.

 

The Group´s subsidiaries are as follows:







Equity interest at
31 December

Company


Principal activity


Country of
 incorporation


2022
%


2021
%

Hochschild Mining (Argentina) Corporation S.A. 1


Holding company


Argentina


100


100

MH Argentina S.A.2


Exploration office


Argentina


100


100

Minera Santa Cruz S.A.1 and 10


Production of gold and silver


Argentina


51


51

Minera Hochschild Chile S.C.M. 3


Exploration


Chile


100


100

Andina Minerals Chile SpA (formerly Andina Minerals Chile Ltd.) 3


Exploration


Chile


100


100

Southwest Minerals (Yunnan) Inc. 4


Exploration


China


100


100

Hochschild Mining Holdings Limited 5


Holding company


England and Wales


100


100

Hochschild Mining Ares (UK) Limited 5


Administrative office


England and Wales


100


100

Southwest Mining Inc. 4


Exploration


Mauritius


100


100

Southwest Minerals Inc. 4


Exploration


Mauritius


100


100

Minera Hochschild Mexico, S.A. de C.V. 6


Exploration


Mexico


100


100

Hochschild Mining (Peru) S.A. 4


Holding company


Peru


100


100

Compaña Minera Ares S.A.C. 4


Production of gold and silver


Peru


100


100

Compaña Minera Arcata S.A. 4


Production of gold and silver


Peru


99.1


99.1

Empresa de Transmisión Aymaraes S.A.C. 4


Power transmission


Peru


100


100

Minera Antay S.A.C. 4


Exploration


Peru


100


100

Hochschild Mining (US) Inc. 7


Holding company


USA


100


100

Hochschild Mining Canada Corp 8


Exploration


Canada


100


100

Hochschild Mining Brazil Holdings Corp. (formerly 1334940 BC) 8


Holding company


Canada


100


100

Tiernan Gold Corp. 8


Holding company


Canada


100


0

Amarillo Mineracao do Brasil Ltda. 9


Exploration


Brazil


100


0

1  Registered address: Av. Santa Fe 2755, floor 9, Buenos Aires, Argentina.

2  Registered address: Sargento Cabral 124, Comodoro Rivadavia, Provincia de Chubut, Argentina.

3  Registered address: Av. Apoquindo 4775 of 1002, Comuna Las Condes, Santiago de Chile, Chile.

4  Registered address: La Colonia 180, Santiago de Surco, Lima, Peru.

5  Registered address: 17 Cavendish Square, London, W1G0PH, United Kingdom.

6  Registered address: Calle Aguila Real No 122, Colonia Carolco, Monterrey, Nuevo Leon, CP 64996, Mexico.

7  Registered address: 1025 Ridgeview Dr. 300, Reno, Nevada 89519, USA.

8      Registered address:  Suite 1700, Park Place, 666 Burrard Street, Vancouver BC, V6C 2X8.

9         Registered address: Fazenda Invernada s/n, Zona Rural, Mara Rosa - Goiás - Brazil, CEP: 76.490-000.

10      The Group has a 51% interest in Minera Santa Cruz S.A. (Minera Santa Cruz), while the remaining 49% is held by a non-controlling interest. The significant financial information in respect of this subsidiary before intercompany eliminations as at and for the years ended 31 December 2022 and 2021 is as follows:


 


As at 31 December


2022

US$000


2021

US$000

Non-current assets


159,703


157,629

Current assets


99,997


89,923

Non-current liabilities


(67,710)


(68,667)

Current liabilities


(61,230)


(51,354)

Equity


(130,760)


(127,531)

Cash and cash equivalents


15,473


25,942

Revenue


243,469


258,972

Depreciation and amortisation


(50,967)


(52,069)

Interest income


652


1,558

Interest expense


(4,364)


(3,196)

Income tax


7,761


(13,550)

Profit for the year and total comprehensive income


3,811


(11,891)

Net cash generated from operating activities


18,085


62,614

Net cash used in investing activities


(47,197)


(43,667)

Net cash (used in)/generated from financing activities


18,643


(30,900)

(Loss)/profit attributable to non-controlling interests in the consolidated income statement, non-controlling interest in the consolidated statement of financial position, and dividends declared to non-controlling interests in the consolidated statement of changes in equity are solely related to Minera Santa Cruz.

 

2 Significant accounting policies

 

(a)  Basis of preparation

The consolidated financial statements of the Group have been prepared in accordance with UK adopted International Accounting Standards.

 

The basis of preparation and accounting policies used in preparing the consolidated financial statements for the years ended 31 December 2022 and 2021 are set out below. The consolidated financial statements have been prepared on a historical cost basis except for the revaluation of certain financial instruments that are measured at fair value at the end of each reporting period, as explained below. These accounting policies have been consistently applied, except for the effects of the adoption of new and amended accounting standard.

 

The financial statements are presented in US dollars (US$) and all monetary amounts are rounded to the nearest thousand ($000) except when otherwise indicated.

 

Changes in accounting policy and disclosures

The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2021. Other amendments and interpretations apply for the first time in 2022, but do not have an impact on the consolidated financial statements of the Group. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

 

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 2023 or later periods but which the Group has not previously adopted.  These have not been listed as they are not expected to impact the Group.

 

(b)  Judgements in applying accounting policies and key sources of estimation uncertainty

Many of the amounts included in the financial statements involve the use of judgement and/or estimation. These judgements and estimates are based on management's best knowledge of the relevant facts and circumstances, having regard to prior experience, but actual results may differ from the amounts included in the financial statements. Information about such judgements and estimates is contained in the accounting policies and/or the notes to the financial statements.

 

Significant areas of estimation uncertainty and critical judgements made by management in preparing the consolidated financial statements include:

 

Significant estimates:

• Useful lives of assets for depreciation and amortisation purposes - note 2(f).

Estimates are required to be made by management as to the useful lives of assets. For depreciation calculated under the unit of-production method, estimated recoverable reserves and resources are used in determining the depreciation and/or amortisation of mine-specific assets. This results in a depreciation/amortisation charge proportional to the depletion of the anticipated remaining life-of-mine production. Each item's life, which is assessed annually, has regard to both its physical life limitations and to present assessments of economically recoverable reserves and resources of the mine property at which the asset is located. These calculations require the use of estimates and assumptions, including the amount of recoverable reserves and resources. Changes are accounted for prospectively.

 

• Ore reserves and resources - note 2(h).

There are numerous uncertainties inherent in estimating ore reserves and resources. Assumptions that are valid at the time of estimation may change significantly when new information becomes available. Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of reserves and resources and may, ultimately, result in the reserves and resources being updated.

 

• Recoverable values of mining assets - notes 2(k), 16, 17 and 18.

The values of the Group's mining assets are sensitive to a range of characteristics unique to each mine unit. Key sources of estimation for all assets include uncertainty around ore reserve estimates and cash flow projections. In performing impairment reviews, the Group assesses the recoverable amount of its operating assets principally with reference to fair value less costs of disposal, assessed using discounted cash flow models. The Group uses two approaches to estimate the fair value less costs of disposal, depending on the circumstances: (i) the traditional approach, which uses a single cash flow projection, and (ii) the expected cash flow approach, which uses multiple, probability-weighted cash flow projections. As at 31 December 2022, the impairment reviews for the Group´s operating assets were performed using a traditional approach, with the exception of Inmaculada where the Group used an expected cash flow approach. To determine the fair value less costs of disposal of exploration assets the Group uses the value-in-situ methodology.  This methodology applies a realisable 'enterprise value' to unprocessed mineral resources per ounce of resources.

 

 

 

There is judgement involved in determining the assumptions that are considered to be reasonable and consistent with those that would be applied by market participants. Significant estimates used include future gold and silver prices, future capital requirements, reserves and resources volumes, production costs and the application of discount rates which reflect the macro-economic risk in Peru and Argentina, as applicable.  Judgement is also required in determining the risk factor that will be applied by market participants to take into account the water restrictions imposed by the Chilean government over the Volcan cash-generating unit.  Changes in these assumptions will affect the recoverable amount of the property, plant and equipment, evaluation and exploration assets, and intangibles.

 

• Mine closure costs - notes 2(o) and 28(1).

The Group assesses its mine closure cost provision annually. Significant estimates and assumptions are made in determining the provision for mine closure cost as there are numerous factors that will affect the ultimate liability. These factors include estimates of the extent and costs of rehabilitation activities, technological changes, regulatory changes, cost increases, mine life and changes in discount rates. Those uncertainties may result in future actual expenditure differing from the amounts currently provided. The provision at the balance sheet date represents management's best estimate of the present value of the future closure costs required. In July 2021, the mine closure law for the province of Santa Cruz in Argentina was published, establishing a period of 180 business days to present the Mine Closure Plan. The regulation has not been published as of the date of the financial statements. The Group considers the mine closure provision in San Jose to be largely aligned with  Argentinean´s new law, subject to further review once regulation is published.

 

• Valuation of financial instruments - note 38

The valuation of certain Group assets and liabilities reflects the changes to certain assumptions used in the determination of their value, such as future gold and silver prices(note 38).

 

• Non market performance conditions on LTIP 2021 and LTIP 2022- note 29(c)

There are two parts to the performance conditions attached to LTIP awards: 50% is subject to the Company's TSR ranking relative to a tailored peer group of mining companies, 50% is subject to internal KPIs split equally between: (i) 3-year growth of the Company´s Measured and Indicated  Resources (MIR) per share (calculated on an enterprise value basis), and (ii) average outcome of the annual bonus scorecard in respect of 2021, 2022 and 2023, regarding LTIP 2021, and 2022, 2023 and 2024, regarding LTIP 2022, calculated as the simple mean of the three scorecard outcomes.

 

Critical judgements:

• Income tax - notes 2(t), 2(u), 14, 30 and 36(a).

Judgement is required in determining whether deferred tax assets are recognised on the statement of financial position. Deferred tax assets, including those arising from un-utilised tax losses require management to assess the likelihood that the Group will generate taxable earnings in future periods, in order to utilise recognised deferred tax assets. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Group to realise the net deferred tax assets recorded at the balance sheet date could be impacted. The Group analyses the possibility of generating profit in all the companies and determines the recognition of deferred tax.  No deferred tax asset is recognised in the holding and exploration entities as they are not expected to generate any profit to settle the temporary difference (refer to note 30).

 

Judgement is also required when determining the recognition of tax liabilities as the tax treatment of some transactions cannot be finally determined until a formal resolution has been reached by the tax authorities. Tax liabilities are also recorded for uncertain exposures which can have an impact on both deferred and current tax. Tax benefits are not recognised unless it is probable that the benefit will be obtained and tax liabilities are recognised if it is probable that a liability will arise (refer to note 36(a)). The final resolution of these transactions may give rise to material adjustments to the income statement and/or cashflow in future periods. The Group reviews each significant tax liability or benefit each period to assess the appropriate accounting treatment.

 

• Life of mine ("LOM").

There are several aspects which are determined by the life of mine, such as ore reserves and resources, recoverable values of mining assets, mine rehabilitation provision  and depreciation.  The life of mine for an operation is specified in the relevant Environmental Impact Assessment ("EIA") which is amended from time to time as more resources at the mine are identified.  EIAs are permits which are granted in the ordinary course of business to the mining industry.  While the processing of such permits may be subject to delays, the Group has never had an EIA denied.  A crucial element of Peru's legal framework is the principle of predictability which, in essence, means that if the legal requirements for any given permit have been satisfied, the State cannot l awfully deny the granting of the permit.  Taking this into consideration, as well as the Group's operational experience, the Group believes that permits will be secured such that operations can continue without interruption. In the unlikely scenario that this does not occur, there could be material changes to those items in the financial statements that are determined by the life of mine.

 

• Determination of functional currencies - note 2(e).

The determination of functional currency requires management judgement, particularly where there may be  several currencies in which transactions are undertaken and which impact the economic environment in which the entity operates.  In Argentina, the exchange control restrictions limit the companies to hold US$ dollars but do not restrict carrying out transactions in US dollar.

 

• Recognition of evaluation and exploration assets and transfer to development costs - notes 2(g), 16 and 17.

Judgement is required in determining when the future economic benefit of a project can reasonably be regarded as assured, at which point evaluation and exploration expenses are capitalised. This includes the assessment of whether there is sufficient evidence of the probability of the existence of economically recoverable minerals to justify the commencement of capitalisation of costs; the timing of the end of the exploration phase, the start of the development phase; and the commencement of the production phase. For this purpose, the future economic benefit of the project can reasonably be regarded as assured when the Board authorises management to conduct a feasibility study, mine-site exploration is being conducted to convert resources to reserves, or mine-site exploration is being conducted to confirm resources, all of which are based on supporting geological information.

 

• Pandemic expenses

The Group analyses the effect of pandemics in its operations and accounting treatment, because they generate stoppages, low capacity production and incremental costs. In the case of COVID -19, the fixed "normal" production costs during stoppages are recognised as expenses and are not considered as costs of the inventories produced. In the Income Statement these fixed costs are classified as "Pre-Exceptional.

 

To determine whether the incremental Covid-related costs should berecognised as exceptional expenses, consideration has been made as to whether they meet the criteria as set out in the Group´s accounting policy (note 2(z)), in particular regarding the expected infrequency of the events that have given rise to them.

 

The pandemic can be considered a single protracted globally pervasive event with a financial impact over a number of reporting periods. Management initial expectation was that these cost would ceased to be incurred at the end of 2020 or early 2021, and whilst the majority of the costs have reduced over time as a result of the efficiencies made to the health protocols and logistics required to operate throughout the pandemic, some residual costs continue to be incurred to date. In order to provide the users of the financial statements with a better understanding of the financial performance of the Group in the year, and to facilitate comparison with the prior period, we have considered it appropriate to continue to disclose separately as exceptional these incremental Covid-related cost up to December 2021.

 

Following the outbreak of the Omicron variant, the virus appears to have shifted into an endemic phase. Consequently, these costs will no longer be presented as exceptional items from 2022 and will form part of the underlying profits.

 

• Climate change

-  General

The Group is in the process of completing a climate change risk assessment and strategy and developing an action plan to continually reduce operational energy, GHG emissions and water consumption, with the ultimate aim of reaching net zero GHG emissions.  As a result, the Group is currently unable to determine the full future economic impact of this strategy on their business model and operational plans and therefore the potential impacts are not fully incorporated in these financial statements. 

 

In addition, societal expectations are driving government action that may impose further requirements and cost on companies in the future. Therefore risks associated with climate change could, over time impose changes that may  potentially impact (among other things) capital expenditure, mine closure provisions and production costs. However, currently the financial statements cannot capture such possible future outcomes as these are not yet known.  With regards to the calculation of those items in the financial statements that rely on life of mine calculations (such as impairments, deferred tax and depreciation), it should be highlighted that as an underground mining company, Hochschild Mining's operating assets have much lower lives than conventional open-pit mining companies.  As such, by virtue of the longer-term time horizon of the physical risks of climate change, the financial impact on such items will be less pronounced than may otherwise be expected.

 

The adoption of the Group's climate change strategy and the implementation of climate-change regulations in the countries where the Group operates may impact the Group's significant judgements and key estimates and could result in material changes to financial results and the carrying values of certain assets and liabilities in future reporting periods.

 

-  Physical risks

As previously stated, the Group is progressing work to assess the potential impact of physical risks of climate change. Given the ongoing nature of the Group's physical risk assessment process, reflecting adaptation risk in the Group's operating plans, and associated asset valuations, is currently limited. As the Group progresses its adaptation strategy, the identification of additional risks or the detailed development of the Group's response may result in material changes to financial results and the carrying values of assets and liabilities in future reporting periods.

 

• Acquiring a subsidiary or a group of assets - note 4(b).

In identifying a business combination (note 2(c)) or acquisition of assets the Group considers the underlying inputs, processes and outputs acquired as a part of the transaction. For an acquired set of activities and assets to be considered a business there must be at least some inputs and processes that have the capability to achieve the purposes of the Group. Where significant inputs and processes have not been acquired, a transaction is considered to be the purchase of assets. For the assets and assumed liabilities acquired the Group allocates the total consideration paid (including directly attributable transaction costs) based on the relative fair values of the underlying items. On 1 April 2022 the Group acquired the control of the Amarillo Gold Group (note 4(b)). The transaction was accounted as a purchase of assets as no systems, processes or outputs were acquired, with the main asset acquired being the Mara Rosa project which is in a development stage.

 

(c)  Basis of consolidation

The consolidated financial statements set out the Group's financial position, performance and cash flows as at 31 December 2022 and 31 December 2021 and for the years then ended, respectively.

 

Subsidiaries are those entities controlled by the Group regardless of the amount of shares owned by the Group. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Non-controlling interests' rights to safeguard their interest are fully considered in assessing whether the Group controls a subsidiary. Specifically, the Group controls an investee if, and only if, the Group has:

• power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);

• exposure, or rights, to variable returns from its involvement with the investee; and

• the ability to use its power over the investee to affect its returns.

 

Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

• the contractual arrangement with the other vote holders of the investee;

• rights arising from other contractual arrangements; and

• the Group's voting rights and potential voting rights.

 

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control.

 

Basis of consolidation

Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.

 

Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the c