2022 Annual Report and Notice of 2023 AGM

Hochschild Mining PLC

28 April 2023

 

             

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28 April 2023

2022 Annual Financial Report &

2023 Annual General Meeting ("AGM")

Following the release of the 2022 full year results announcement on 20 April 2023 (the "Preliminary Announcement"), Hochschild Mining PLC (the "Company") announces the publication of its Annual Report and Accounts for the year ended 31 December 2022 (the "2022 Annual Report").

In accordance with LR 9.6.1 R, the Company also announces that the following documents have been submitted to the National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism

·       2022 Annual Report

·       2023 AGM circular (incorporating the Notice of AGM)

·       Notice of Availability of the 2022 Annual Report and 2023 AGM circular

The above documents will be posted shortly or otherwise made available to shareholders and, in accordance with the Disclosure Guidance and Transparency Rules ("DTR"), the 2022 Annual Report and the AGM circular have been published on the Company's website at www.hochschildmining.com.

AGM ARRANGEMENTS

The AGM will be held on Friday, 9^th June 2023 at the offices of Linklaters LLP, One Silk Street, London EC2Y 8HQ at 9.00 a.m.

Shareholders who wish to attend the AGM in person are requested to register their intention to attend by emailing [e-mail] by 9.00 a.m. on Wednesday, 7^th June 2023.

We are pleased this year that shareholders will be able to physically attend the AGM. In the event circumstances change before the appointed time of the AGM, we will notify shareholders of any change to the arrangements through announcements via the London Stock Exchange and by publishing details on the Company's website at www.hochschildmining.com as early as is possible before the meeting. For the safety of others, shareholders or proxies experiencing any of the symptoms connected with COVID-19 are requested not to attend. To mitigate the risk that shareholders or proxies cannot attend because of COVID-19 or for whatever other reason, we would encourage all shareholders to appoint the chairman as their proxy to exercise their votes in accordance with their instructions.

- Proxy Voting

Full details on how to submit proxy votes and the deadlines to do so can be found in the AGM circular.

Appendices 1 to 3 to this announcement contain the information required to be disclosed under DTR 6.3.5 which has been reproduced from the 2022 Annual Report and should be read in conjunction with the Preliminary Announcement.  All page references and cross-references in Appendices 1 to 3 are to the 2022 Annual Report.

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Enquiries:

Hochschild Mining PLC

Raj Bhasin                                                                                                                                                                                               [phone]

Company Secretary

Hudson Sandler

Charlie Jack                                                                                                                                                                                             [phone]

Public Relations

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About Hochschild Mining PLC

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

LEI: 549300JK10TVQ3CCJQ89

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APPENDICES

Appendix 1

Risk Management

(reproduced from pages 76 to 83 of the 2022 Annual Report)

Management of the Group's operations and execution of its growth strategies are subject to a number of risks, the occurrence of which could adversely affect the performance of the Group. The Group's risk management framework is premised on the continued monitoring of the prevailing environment, the risks posed by it, and the evaluation of potential actions to mitigate those risks.

The Risk Committee is a management committee tasked with implementing the Group's policy on risk management and monitoring the effectiveness of controls in support of the Group's business objectives. It meets four times a year and more frequently if required. The Risk Committee comprises the CEO, the Vice Presidents, Country General Managers and the head of the Internal Audit function. A 'live' risk matrix is reviewed which maps the significant risks faced by the business as well as those considered to be emerging risks. The matrix is updated at each Risk Committee meeting, and the most significant current and emerging risks, as well as actions to mitigate them, are reported to the Group's Audit Committee, and if considered appropriate, also to the Board. In light of their strategic importance, sustainability risks, if any, and their mitigation plans are monitored by the Sustainability Committee

Risk appetite
Defining risk appetite is crucial in ensuring that a risk management system is embedded into Hochschild's organisational culture. Our risk appetite approach is to minimise our exposure to reputational, compliance and excessive financial risk, whilst accepting a certain level of risk to achieve our strategic goals. As part of setting risk appetite, the Board will consider and monitor the level of acceptable risk it is willing to take in each of the principal risk areas.

Appetite for risk will vary according to the activity undertaken, and is predicated on the fact that a risk will only be tolerated after a full understanding of the potential benefits and its implications before proceeding with a course of action, and that sensible mitigation measures are identified and implemented.

2022 Risks
Details of the principal and emerging risks affecting the Group and the associated mitigating actions are provided on the following pages. The risks presented differ from those reported in the 2021 Annual Report in the following respects:

(i)    the additions of:

a) Liquidity Risk given the potential financial ramifications of a denial of, or extended delays in obtaining, the Inmaculada Modified Environmental Impact Assessment

b) Project Development which, as described later, reflects the importance to the Group of the mitigation of risks associated with the construction of the Mara Rosa mine in Brazil; and

(ii)   the removal of Covid-19 as a significant risk in light of the full vaccination status of the Company's employees in Peru and Argentina, and the overall reducing trend in both the number of cases and the likelihood of severe illness. This notwithstanding, the Company maintains close oversight of the health of its employees and is ready to re-implement enhanced health protocols whenever necessary.

Reasons for the year-on-year change in the profile of a specific risk can be found in the commentary section of the relevant risk, which also provides an outlook on the risk for the current financial year.

Outlook

At the time of approval of this Annual Report, Peru continues to suffer from significant social unrest following the detention of former President Castillo and the appointment of President Dina Boluarte. As discussed further below, this has resulted in heightened levels of risks related to:

-  operational performance;

-  business interruption/supply chain;

-  exploration;

-  political, legal and regulatory;

-  labour relations; and

-  community relations.

1. FINANCIAL RISKS

a) Commodity Price

Change in risk profile vs 2021: UNCHANGED

Impact

Adverse movements in precious metal prices could materially impact the Group in various ways beyond a reduction in the financial results of operations. These include impacts on the feasibility of projects, the economics of mineral resources, heightened personnel retention and sustainability related risks.

Mitigation

-  Constant focus on maintaining a low all-in sustaining cost of production and an efficient level of administrative expense.

-  Policy to maintain reasonable levels of financial leverage to ensure flexibility through price cycles.

-  Flexible hedging policy that allows the Company to contract hedges to mitigate the effect of price movements taking into account the Group's asset mix and forecast production.

Commentary

The Group's principal strategy to mitigate against commodity price volatility is focused on conserving capital and optimising cash flow through:

-  controlling operating and administrative costs;

-  optimising sustaining capital expenditure; and

-  maintaining low working capital.

As previously reported, the Group hedged 4 million ounces of silver for 2022 at an average price of c.$27 per ounce to protect cash flows in Peru. In addition, the Group has hedged 3.3 million ounces of silver for 2023 at $25 per ounce. These hedges will ensure profitable production from existing resources mainly at Pallancata.

See the Market Review on pages 10 to 13 for further details on how commodity prices performed in 2022.

b) Commercial Counterparty

Change in risk profile vs 2021: UNCHANGED

Impact

Insolvency of a customer or other business counterparty (bank, insurance company, contractor, etc) could result in the Group's inability to collect accounts receivable or to access funds or to receive services which could adversely impact the Group's profitability.

Mitigation

-  Active assessment of customers and business counterparties.

-  Risk mitigation practices seeking to diversify the Group's customer base and/or to limit the size of shipments.

-  Ongoing assessment of methods to mitigate collection risk

Commentary

During the year, the Group undertook the following:

-  Annual counterparty analysis: The Company's annual review of existing customers entails analysis of corporate governance, balance sheet strength and other aspects of credit quality. Counterparty risk is also mitigated through the requirement for advance payment of 90-98% of the value of the end-product sold. Where considered necessary, parent guarantees are obtained.

-  The Company implemented a banking solution that allowed us to accelerate the receipt of revenue from concentrate sales while transferring the risk to financing partners.

-  Review of financial counterparties: The Group has implemented policies to identifying suitable financial counterparties to support the Group's treasury and insurance needs. On an ongoing basis, the Group has adopted a number of practices such as the placing of limits on cash balances invested with financial institutions and monitoring credit ratings.

c) Liquidity

Change in risk profile vs 2021: NEW

Impact

The availability of financing, including a new US$200 Medium Term Loan Committed Facility signed in Q4 2022, is conditional on the approval of the Inmaculada MEIA which, once secured, will see the Inmaculada mine continue in operation until 2043.

Denial of, or significant delays in securing, the Inmaculada MEIA, could therefore have a material adverse effect on the Group's business, financial condition and results of operations.

Mitigation

-  A cross-disciplinary team, led by the Vice-President of Legal and Corporate Affairs and the Corporate Director of Sustainability comprising specialist consultants and advisers engage on a regular basis with the relevant governmental authorities to support the official review process of the Inmaculada MEIA

Commentary

As at the date of this report, the permitting process for Inmaculada's Second Modified Environment Impact Assessment ("MEIA") continues and the Company's revised expectation is a decision by the Peruvian government during Q2 2023. The Company believes that the outcome of the permitting process will be positive.

In light of the continued delays in securing the Inmaculada MEIA, management has implemented a number of cash optimisation measures including:

-  Reductions in administrative and other operating costs;

-  Deferral of capital expenditure; and

-  Hedging a proportion of 2023 production from Inmaculada.

A plan of contingency measures has also been prepared in collaboration with the Company's financial advisers in the event that a denial of the Inmaculada MEIA or additional significant delays in its approval were to occur. The principal lenders are informed of the contingency measures and are supportive.

2. OPERATIONAL RISKS

a) Operational Performance

Change in risk profile vs 2021: UNCHANGED

Impact

Failure to meet production targets and manage the cost base could adversely impact the Group's profitability.

Mitigation

-  Close monitoring of operational performance, costs and capital expenditure as well as the overall profitability at all stages of the mining value chain.

-  Monitoring the adequacy and safety of key mining components such as tailing dams, waste rock deposits and pipelines in close liaison with relevant departments ensuring that procurement, construction and permitting are undertaken appropriately.

Commentary

In 2022 the Group's production was 25.8m silver equivalent ounces.

In setting budgets for the year, the Group continued to focus on maintaining controlled levels of costs, capital expenditure and expenses.

As reported in the Financial Review from page 36, the all-in sustaining cost from operations was in line with guidance for the year, at $18.9 per silver equivalent ounce (excluding exceptional items).

Outlook

Inmaculada MEIA

Failure to secure approval of the Inmaculada MEIA (see Liquidity risk commentary above) would result in a suspension of operations at Inmaculada during H2 2023 until a new MEIA is approved. The specific date of suspension will depend on operational factors that are being evaluated.

b) Business Interruption/Supply chain

Change in risk profile vs 2021: UNCHANGED

Impact

Assets used in the Group's operations may cease to function or the provision of supplies or of electricity may be disrupted (e.g. as a result of technical malfunction or earthquake damage) thereby causing production stoppages with material effects.

Mitigation

-  Insurance coverage to protect against major risks.

-  Management reporting systems to support appropriate levels of inventory.

-  Inspections every 18 months by insurance brokers and insurers (to coincide with policy renewals) assist management's efforts to understand and mitigate operational risks.

-  Negotiation of long-term power supply contracts and the procurement of contingent generators and transformers.

Commentary

In addition to maintaining insurance policies covering machinery breakdown, mitigating actions include the following:

-  the use of a Maintenance Module of SAP HANA to monitor critical supplies and inventory;

-  maintaining back-up equipment to ensure power supply in Peru and Argentina; and

-  a Crisis Response Plan (CRP) on how to mount a co-ordinated response to unforeseen disruption.

Specifically with regards to supply chain risks, the Company:

-  has identified alternative suppliers for numerous critical consumables;

-  has restored stocks of critical consumables and strategic spare parts to pre-pandemic levels;

-  requires, of certain suppliers, the maintenance of minimum stock levels; and

-  monitors the financial position of key suppliers.

c) Information security and cybersecurity

Change in risk profile vs 2021: UNCHANGED

Impact

Failure of any of the Group's business critical information systems as a result of unauthorised access by third parties may affect the Group's ability to operate.

Mitigation

-  Compliance with ISO 27001, an internationally recognised certification to evaluate information security management systems.

-  Dedicated team within the IT department focused on preventing cyber-attacks.

-  Audits performed by the internal audit department and third parties to test systems and issue recommendations.

-  Primary information processing supported by SAP Hana which has best-in-class security features.

Commentary

Security of the Group's information and networks are guaranteed through the following means:

-  we have world class cybersecurity tools supported by artificial intelligence that secure and protect our network as well as our computer assets and the information that resides in them. Additionally, we have a CiberSOC (Cyber Security Operation Center) that works 24x7 to monitor the different events and possible attacks that may arise;

-  every year we perform ethical hacking evaluations to identify possible vulnerabilities at the level of our technological infrastructure as well as the different applications that we use to operate;

-  we train colleagues and keep them informed about the risks that exist relating to cybercrime and information theft, as well as good practices associated with cybersecurity; and

-  our Information Security Management System (ISMS) is BSI certified.

We are currently in the process of transferring server backups to the cloud.

d) Exploration & Reserve and Resource Replacement

Change in risk profile vs 2021: UNCHANGED

(d)(i) Impact

The Group's future operating margins and profitability depend upon its ability to find mineral resources and to replenish reserves.

Mitigation

-  Implementing and maintaining an annual exploration drilling plan.

-  Ongoing evaluation of acquisition and joint venture opportunities to acquire additional ounces.

-  Implementation of a comprehensive permitting strategy led by a Permitting Committee.

-  Comprehensive engagement activities with communities and governmental authorities (see later sections on Macroeconomic and Sustainability risks).

Commentary

General
The Group has an internal Permitting Committee led by two Vice Presidents to co-ordinate efforts with a view to streamlining the permitting process for exploration and operational requirements. Senior executives actively participate in industry initiatives to simplify the permitting process.

The Group undertakes greenfield exploration primarily through the negotiation of earn-in/joint venture opportunities. The aim is for this to provide the Group with a balanced portfolio of advanced and early-stage opportunities in stable jurisdictions in the Americas.

Developments during the year
As described elsewhere in the Annual Report, social conditions in Peru have continued to be tense with higher demands and social conflicts involving mining projects. From an exploration perspective, this has led to continued delays in securing permits from the communities, impacting the Group's exploration programme. The year therefore saw a suspension of greenfield exploration in Peru which was subsequently followed by a reduced programme of activity in light of the focus to reduce costs.

Despite the above conditions, the Company increased its attributable Reserve and Resource additions by 35% and 18% respectively. Furthermore, 51.2 moz Ag Eq of inferred mineral resources were identified in the Royropata Zone at Pallancata.

Further details on brownfield exploration are provided on page 35.

(d)(ii) Impact

Reserves stated in this Annual Report are estimates.

Mitigation

-  Engagement of independent experts to undertake annual audit of mineral reserve and resource estimates.

-  Adherence to the JORC Code and guidelines therein.

Commentary

The Group has engaged P&E Consultants to undertake the annual audit of mineral reserve and resource estimates.

See page 207 for further details.

(e) Personnel: Recruitment and Retention
Change in risk profile vs 2021: UNCHANGED

Impact

Inability to attract or retain personnel through a shortage of skilled personnel.

Mitigation

-  The Group's approach to recruitment and retention provides for the payment of competitive compensation packages, well defined career plans, training and development opportunities and the overall employee value proposition.

Commentary

General

The Group has undertaken a number of initiatives to improve the retention of employees. These include the use of financial benefits such as the LTIP and non-financial benefits (e.g. flexible working arrangements for office-based staff) and personal development through tailored personal plans, training on leadership and cultural transformation in the areas of safety and environmental. In addition, initiatives have been launched on causes valued by employees; providing employees with the opportunity to contribute to the relaunched purpose of the Company which includes innovation, community relations and environmental performance.

For further details see the Directors' Remuneration Report on page 112.

(f) Personnel: Labour Relations

Change in risk profile vs 2021: UNCHANGED

Impact

Failure to maintain good labour relations with workers and/or unions may result in work slowdown, stoppage or strike.

Mitigation

-  Development of a tailored labour relations strategy focusing on profit sharing, working conditions, management style, development opportunities, motivation and communication.

-  Monthly meetings with mineworkers and unions to ensure a complete understanding of expectations and to keep all parties updated on the Group's financial performance.

Commentary

Peru
The Group's Peruvian operation generated sufficient taxable income to give rise to an entitlement to statutory profit sharing for Peruvian mineworkers.

In keeping with recent practice, as part of the salary increases agreed with the Peruvian labour unions, the Company has approved an additional bonus plan incorporating safety and productivity goals.

Enactment of new laws by Castillo's Government empowers labour unions and will result in higher wage expectations and potential labour conflicts. We monitor, on an ongoing basis, the social risk and work with all stakeholders to prevent disruption arising from these risks.

Argentina
In Argentina the Company maintains constructive relations with the labour unions through ongoing and regular dialogue. In addition to AOMA (Mining National Union for hourly workers), ASIJEMIN (National Union for mining employees) has been confirmed by national authorities and the Company maintains open and regular dialogue with them.

(g) Project development

Change in risk profile vs 2021: NEW

Impact

Failure to manage the timely construction/development of projects within budget could adversely impact the Group's financial position, production profile and reputation.

Mitigation

-  Cross-disciplinary project teams, which report to the relevant Vice-President, monitor execution against agreed timelines and budget.

-  Support by corporate departments, such as HR, Internal Audit and Procurement, to ensure compliance with Group procedures and standards.

Commentary

Mara Rosa (Brazil)

During the year, the Mara Rosa project team, supported by relevant Group functions, has successfully:

-  obtained all environmental permits;

-  commenced construction of a 138 kv powerline for completion in June 2023;

-  ordered all construction equipment identified as having extended leadtimes; and

-  commenced ESG-related programmes under the oversight of the recently recruited ESG Manager.

Snip (Canada)

Key developments in 2022 comprise the following:

-  established dialogue with Tahltan First Nation on the Group's plans at the project;

-  completion of a Preliminary Economic Assessment; and

-  completed implementation of mitigating actions following risk assessment taking into account physical risks and those associated with the project's remote location.

Further details on Mara Rosa are provided on pages 8, 9 and 33.

3. MACRO-ECONOMIC RISKS

Political, Legal and Regulatory

Change in risk profile vs 2021: HIGHER

Impact

Changes in the government, political, legal, tax and regulatory landscape could result in significant additional expense, restrictions on or suspensions of operations and may lead to delays in the development of current operations and projects.

Delays in granting/securing the necessary environmental permits for exploration or operations, including specifically Inmaculada's Second Modified Environmental Impact Assessment (MEIA) could affect future production and financial results of the Group.

Mitigation

-  Local specialist personnel continually monitor and react, as necessary, to policy changes. In addition, political, social and communications advisers have been engaged to support the Group in responding to developments.

-  Participation in local industry organisations.

Commentary

Peru

The impeachment of former president Castillo, following his failed coup in which he attempted to dissolve Congress and control the judiciary, triggered violent protests across the country. Protesters blocked key highways and roads, and invaded airports and destroyed public and private property, demanding the resignation of his successor Dina Boluarte, the dissolution of Congress, and the approval of a constituent assembly to draft and approve a new constitution. With the exception of the region of Puno, Boluarte's government has been able to contain the social unrest for now, but the risk of further social unrest remains high given the government's high disapproval and the fact that a very high percentage of the population favours new general elections. However, to date, there is no consensus in Congress to approve the constitutional amendment required to hold general elections early.

General

Environmental Permits

With regards to environmental permits for operating activities, the permitting process for the Inmaculada MEIA continues and the Company's revised expectation is a decision by the Peruvian government during Q2 2023.

The Company believes that the outcome of the permitting process will be positive. However, failure to secure approval of the MEIA would result in a suspension of operations at Inmaculada during H2 2023 until a new MEIA is approved. The specific date of suspension will depend on operational factors that are being evaluated. The Company has commenced the environmental permitting process, including baseline studies, to enable production from the Royropata zone at Pallancata and to support the ongoing associated brownfield activities.

Easement and other permits

Among the approvals and permits required to be obtained by the Company in the ordinary course of business, the Company has been granted an easement by the State over the land on which the key mining components of the Inmaculada mine are located. The Company is in the process of renewing this easement for an additional 10-year period which is expected to be secured in H1 2023.

Argentina

President Fernandez's administration has been very cautious active in supporting and promoting the mining industry. Covid-19 as they see it as one of the pillars for the future Argentine economy; however, two of the main problems that affect the industry (the peso-dollar exchange rate and certain populist measures the restrictions on imports) remain unresolved.

Very high levels of inflation and poverty, and the low level of international reserves are three of the principal challenges faced by Argentina over the past decade. These factors together with the continuous disputes within the government coalition have negatively adversely impacted the overall investment climate in Argentina including in the extractive industry sector. President's reputation as well as his chances of re-election.

Brazil

Presidential elections were held in October 2022 and Lula da Silva was elected President by a narrow majority. Lula is expected to govern based on a centre-left political and economic platform. The Governor of the State of Goias, where Mara Rosa is located, was re-elected for another term.

2023 Outlook

Peru

Given the lack of consensus in Congress regarding the amendment required to hold general elections early, the possibility that Dina Boluarte will continue until July 2026 cannot be discarded. However, because of the political turmoil described above, the risk that violent protests will resume remains high.

Argentina

President Fernandez's administration is expected to continue cautiously supporting mining activity; however, the above economic challenges will continue to hinder the industry in the absence of significant policy changes. The chances of implementation of such a policy during 2023, an electoral year, are low.

From a political and social perspective, 2023 will be dominated by the presidential elections. Primaries will take place in August and the general election in October. The chances of the government coalition being re-elected are highly influenced by: (i) performance of the economy; (ii) the level of conflict within the government coalition and how it is handled; and (iii) the ability of the opposition to field a leader with sufficient political backing.

4. SUSTAINABILITY RISKS

(a) Health and Safety

Change in risk profile vs 2021: LOWER

Impact

Group employees working in the mines may be exposed to severe health and safety risks.

Failure to manage these risks may result in occupational illness, accidents, a work slowdown, stoppage or strike and/or may damage the reputation of the Group and hence its ability to operate.

Mitigation

-  Health and safety operational policies and procedures reflect the Group's zero tolerance approach to accidents.

-  Use of world-class DNV safety management systems.

-  Dedicated personnel to ensure the safety of employees at the operations via stringent controls, training and prevention programmes.

-  Systematic programme of training, communication campaigns and other initiatives promoting safe working practices.

-  Use of reporting and management information systems to monitor the incidence of accidents and enable preventative measures to be implemented.

Commentary

The Group is pleased to report on its strong safety performance in 2022 with accident frequency at 1.37 and accident severity at 93 and the attainment of its ongoing objective of Zero Fatalities.

Management continued with the implementation of 'Safety 2.0', an action plan to reinforce a safety-first culture. The plan, which combines technical and people-led approaches, comprises seven key attributes covering training, effective communication, recognition and aligning compensation with measurable safety performance.

In addition, during the year, a new internal safety indicator, the Seguscore, was rolled out to better measure the Group's safety performance by combining traditional indicators (including those referred to above) with leading indicators reflecting the outcome of internal and external safety audits.

For further details on the above, please refer to the safety section of the Sustainability Report on pages 61 and 62.

(b) Environmental

Change in risk profile vs 2021: UNCHANGED

Impact

The Group may suffer from reputational risk and may be liable for losses arising from environmental hazards associated with the Group's activities and production methods, ageing infrastructure, or may be required to undertake corrective actions or extensive remedial clean-up action or pay for governmental remedial clean-up actions or be subject to fines and/or penalties.

Mitigation

-  The Group has a dedicated team responsible for environmental management.

-  The Group has adopted a number of policies and procedures to manage its environmental footprint.

-  The Group has developed a tool which allows it to measure and manage environmental performance.

-  The Group continues to adopt measures to minimise natural resource use, with particular emphasis on water consumption in its operations.

-  A specific tailings management framework is in place for TSFs, including independent third-party review.

Commentary

In 2022, the Group performed strongly in its ECO Score (with a score of 5.27 out of 6 (2021: 5.29)), reflecting the following notable achievements:

-  two operations achieving a perfect score of 6 out of 6 (Arcata and Sipan);

-  the lowest water consumption since 2015 (171.2 l/person/day); and

-  the highest level of environmental culture compliance since 2015 (using an internal scoring system).

In addition, during the year:

-  our Environmental Policy was updated in February 2022 and now includes specific provisions regarding climate change and protection of biodiversity;

-  completed the development of a tailor-made Environmental Management System comprising of 15 key processes;

-  the Environmental team continued with its efforts on reporting widely on the Group's environmental performance by participating in numerous reporting initiatives; and

-  there was continued progress with the implementation of the Environmental Culture Transformation Plan (ECTP) which in 2022 saw the training of 78 Environmental Ambassadors and the launch of Company-wide courses held on climate change and mine closure.

As disclosed in the Operational risks section, the Group has published information on its website regarding its TSFs, including their construction method and risk profile. It also continues to commission independent third-party reviews of all such facilities and monitors their stability on an ongoing basis.

For further details, please refer to the environmental section of the Sustainability Report on pages 57 to 60.

(c) Climate Change

Change in risk profile vs 2021: UNCHANGED

Impact

Changes in climate and weather patterns, including the occurrence of extreme weather events such as higher rainfall, droughts and storm conditions, may cause operational disruption and, at worse, could result in a suspension of operations.

Failure to comply with climate-related laws and regulations could result in reputational risks for the Group, increased costs and longer permitting delays.

Lack of climate change actions could result in restricted access to capital.

Mitigation

- Enhanced management oversight and operating protocols to:

-  quantify and verify carbon footprint, including Scope 3;

-  maximise the use of natural resources and minimise energy consumption;

-  maximise the use of renewable energy; and

-  promoting transparency with regards to the Group's performance through participation in investor-led reporting initiatives.

Commentary

Actions taken in 2022 include:

-  Ares and Arcata switched entirely to renewable energy consumption;

-  the completion of a climate change physical risk assessment;

-  a commitment to achieve Net Zero by 2050;

-  updated the Corporate Environmental Policy to identify and mitigate climate change-related risks; and

-  ongoing reporting to the Board and Sustainability Committee on status of climate change-related risks.

Reporting of the Group's performance has been enhanced through:

-  continued external assurance of the calculation of the Group's carbon footprint at operations; and

-  participation in CDP information request (improved score from C in 2021 to B in 2022).

The 2023 Action Plan includes, most notably setting interim Carbon Neutral targets for 2030 to achieve Net Zero by 2050.

(d) Community Relations

Change in risk profile vs 2021: HIGHER

Impact

Communities living in the areas surrounding the Group's operations may oppose the activities carried out at existing mines or, with respect to development projects and prospects, may invoke their rights to be consulted under new laws.

These actions may result in loss of production, increased costs and decreased revenues, longer lead times, additional costs for exploration and have an adverse impact on the Group's ability to obtain the relevant permits.

Mitigation

-  The Group has a dedicated team responsible for Community Relations.

-  Constructive engagement with local communities based on several years of positive relations.

-  Community Relations strategy focuses on promoting education, health and nutrition, and sustainable development.

-  Policy to actively recruit workers from local communities.

-  Policy of hiring service providers from local communities.

-  The Group has also engaged with local governments to support public investment initiatives through technical assistance and direct investment.

Commentary

- Overall

The polarised political climate in Peru has led to an increase in social conflicts by some local communities which are trying to take advantage of the situation to increase their economic demands. As a result, social conflicts (e.g. invasion or attacks of mining units and workers) has increased, with numerous sites suffering from blockades. Conflicts in other sectors could affect our supply of materials (e.g. transportation services) and disrupt the change of shift of our workers.

The Inmaculada mine was attacked by members of a local community at the end of October 2022 and severely damaged certain non-critical installations. Members of another community also attempted to violently invade the industrial area of the Inmaculada mine in order to disrupt operations. Despite the presence of a pre-existing agreement with both communities, numerous rounds of discussions have been held and will continue.

As reported elsewhere in this report, the invasion of Inmaculada was partially responsible for a short period of disruption to production.

Governmental authorities remain very sensitive to conflicts between communities and mining companies and typically take a cautious approach by prioritising dialogue between parties and supporting social demands regardless of their merit.

As described earlier (in relation to political, legal and regulatory risks), given the impeachment of President Castillo in December 2022, political and social risks have increased substantially as widespread protests have seen supporters challenging the legitimacy of Dina Boluarte's appointment and her cabinet and demanding the reinstatement of Castillo.

-  Hochschild developments

The Group continues to implement its social engagement strategy in recognition of its responsibilities to host communities. The Group invested significant resources to understand the needs and expectations of local communities and governments.

During the year:

-  the Group spent or donated $7.0million to benefit local communities and supported local community-run businesses;

-  we continued to support the communities with a wide range of programmes covering our areas of focus: education, health and nutrition, and sustainable development; and

-  the Community Relations team continued to support the business, for example, in relation to permitting and environmental studies.

Further details can be found in the Sustainability Report from page 54.

Appendix 2

Related-Party Balances and Transactions, and

Compensation of key management personnel of the Group

(reproduced from page 184 of the 2022 Annual Report)

 (a) Related-party accounts receivable and payable

The Group had the following related-party balances and transactions during the years ended 31 December 2022 and 2021.  The related parties are companies owned or controlled by the main shareholder of the Parent company or associates.

	Accounts receivable as at 31 December				Accounts payable as at        31 December
	2022		2021		2022		2021
	US$000		US$000		US$000		US$000
Current related party balances
Cementos Pacasmayo S.A.A.1	733		217		249		152
Tecsup2	-		1		352		115
Universidad UTEC2	-		-		5		5
REE UNO SpA3	30		6		-		-
Aclara Resources Inc3	9		-		-		12
Aclara Resources Peru S.A.C.3	2		-		16		-
Total	774		224		622		284

¹ The account receivable relates to reimbursement of expenses paid by the Group on behalf of Cementos Pacasmayo S.A.A., an entity controlled by Eduardo Hochschild. The account payable relates to the payment of rentals.

² Peruvian not-for-profit educational institutions controlled by Eduardo Hochschild.

³ Associated companies of the Aclara Group (refer to notes 4(a) and 19).

As at 31 December 2022 and 2021, all other accounts are, or were, non-interest bearing.

No security has been granted or guarantees given by the Group in respect of these related party balances.

Principal transactions between affiliates are as follows:

	Year ended 31 December
	2022		2021
	US$000		US$000
Expenses Expense recognised for the rental paid to Cementos Pacasmayo S.A.A.	(376)		(403)
Expense donations to Tecsup	(418)		(292)
Income from reimbursement of expenses of Cementos Pacasmayo S.A.A.	494		729
Income from administrative services to REE UNO SpA	248		-

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

(b) Compensation of key management personnel of the Group

	Year ended 31 December
Compensation of key management personnel (including Directors)	2022 US$000		2021 US$000
Long Term Incentive Plans	7,121		7,509
Total compensation paid to key management personnel	1,174		776
Total compensation paid to key management personnel	8,295		8,285

This amount includes the remuneration paid to the Directors of the Parent Company of the Group of US$4,228,000 (2021: US$3,967,000).

(c) Related party transaction

Participation of Pelham Investment Corporation in the IPO of Aclara

As announced by the Company on 3rd December 2021, Pelham Investment Corporation ("Pelham"), a company controlled by the Chairman, Eduardo Hochschild, entered into a subscription agreement with Aclara on 2 December 2021 pursuant to which Pelham agreed to purchase, on a prospectus exempt basis in Canada, 22,791,399 Aclara shares at a price of C$1.70 per share (the "Offering Price"). In addition, Pelham subscribed for 9,855,660 Aclara shares at the Offering Price as part of the IPO. These share acquisitions, which are in addition to the Aclara shares acquired by Pelham as part of the demerger dividend, constitute a smaller related party transaction for the purposes of the UK Listing Rules. Accordingly, as also announced, the Company obtained a written confirmation from a sponsor that the terms of the smaller related party transaction were fair and reasonable as far as the shareholders of the Company are concerned.

Appendix 3

Statements of Directors' Responsibilities

A) Reproduced from page 90 of the 2022 Annual Report

The Directors confirm that to the best of their knowledge:

-  that the consolidated financial statements, prepared in accordance with UK-adopted international accounting standards give a true and fair view of the assets, liabilities, financial position and profit of the  parent company and undertakings included in the consolidation taken as a whole; the Annual Report, including the Strategic Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

-  that they consider the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position, performance, business model and strategy.

B) Reproduced from page 132 of the 2022 Annual Report

The Directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements in accordance with applicable United Kingdom law and regulations.

Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law the Directors have elected to prepare the Group and Parent Company financial statements in accordance with UK-adopted international accounting standards ('IFRS'). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Parent Company and of their profit or loss for that period.

Under the Financial Conduct Authority's Disclosure Guidance and Transparency Rules, group financial statements are required to be prepared in accordance with UK-adopted international accounting standards.

In preparing those financial statements, the Directors are required to:

-  select suitable accounting policies in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;

-  make judgements and accounting estimates that are reasonable and prudent;

-  present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

-  provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group and Parent Company financial position and financial performance;

-  in respect of the Group financial statements, state whether UK-adopted international accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;

-  in respect of the Parent Company financial statements, state whether UK-adopted international accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

-  prepare the financial statements on the going concern basis unless it is appropriate to presume that the Parent Company and/ or the Group will not continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company's and Group's transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and the Group and enable them to ensure that the Parent Company and the Group financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Parent Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

END