Annual Financial Report

RNS Number : 9052F

Hochschild Mining PLC

04 May 2011

 



4 May 2011

Hochschild Mining plc ("the Company")

1. Documents for Viewing in accordance with LR 9.6.1

The Company announces that the following documents have been submitted to the National Storage Mechanism and will be available for inspection at www.Hemscott.com/nsm.do

·      Annual Report & Accounts for the year ended 31 December 2010 ("2010 Annual Report")

·      AGM Circular (incorporating the Notice of AGM) 

·      Proxy Card (incorporating the Notice of Availability of 2010 Annual Report and AGM Circular on website)

The 2010 Annual Report and the AGM Circular are also available on the Company's website at www.hochschildmining.com 

2. Information required to be disclosed in accordance with DTR 6.3.5

The following information has been reproduced from the 2010 Annual Report and should be read in conjunction with the Company's announcement of results for the year ended 31 December 2010 published on 29 March 2011.

All page references and cross-references in the following extracts are to the 2010 Annual Report.

a. The following has been reproduced from pages 42 and 43 of the 2010 Annual Report:

RISK MANAGEMENT

Overview

As with all businesses, management of the Group's operations and execution of its growth strategies are subject to a number of risks. The occurrence of any of these risks may adversely affect the execution of growth strategies and hence the performance of the Group. The Group's risk management framework is premised on continued monitoring of the prevailing environment and the risks posed by it as well as the management of risks which, in light of either likelihood and/or impact on the business, are categorised as significant risks.

A Risk Committee is responsible for implementing the Group's policy on risk management and monitoring the effectiveness of controls in support of the Company's business objectives. It meets four times a year and more frequently if required. The Risk Committee comprises the CEO, the Vice Presidents, the Country General Managers and the head of the internal audit function. A 'live' risk matrix is compiled and updated at each Risk Committee meeting and the most significant risks are reported to the Group's Audit Committee which has oversight of risk management on behalf of the Board. Further details on the Audit Committee's activities are provided in the Corporate Governance Report on pages 52 to 56.

The key business risks affecting the Group are set out in the table below. The steps taken by the Group to mitigate these risks, when they are within its control, are also described.

1. FINANCIAL RISKS

- COMMODITY PRICE

Description of risk

Adverse movements in precious metals' prices could have a material impact on the Group's results of operations

Mitigating Steps

Silver and gold prices are continually monitored and a Hedging Committee has been specifically established which comprises Directors and members of senior management to recommend to the Board the appropriate course of action.

- CREDIT

Description of risk

Loss of revenue resulting from defaulting customers

Mitigating steps

The Group has incorporated a number of measures to protect against customer default including (i) the provision in sales contracts for advance payment or delaying transfer of title to goods sold, (ii) requiring the provision of parent company guarantees where possible (iii) implementing risk profiling of key and new customers. In addition, the Group benefits from a diversified customer base which further mitigates the risk of default

- LIQUIDITY

Description of risk

The Group may be unable to raise funds to meet its financial commitments as they fall due

Mitigating Steps

Whilst the impact of this risk is mitigated by the strength of the Company's year-end balance sheet, the Board and senior management continually monitor the Group's requirements for short and medium-term liquidity, and the Company maintains access to credit lines to ensure an appropriate level of financing

- FOREIGN CURRENCY

Description of Risk

The combination of US dollar denominated sales and some costs denominated in local currencies may impact the Group's results in the event of adverse currency movements against the US dollar

Mitigating Steps

Management periodically reviews the relationship between the US dollar and local currencies to ensure the Company is properly protected. The Group's operations are located in different countries which also mitigates the extent of foreign exchange risk

- INTEREST RATE

Description of Risk

Movements in interest rates could impact the Group's results from financings

Mitigating Steps

Given the low interest rate environment, during the year, management fixed the interest rate exposure of the Group stemming from its floating debt balance. The impact of this risk has been further reduced following the repayment of the entire outstanding balance of the JPM-led syndicated loan subsequent to the year-end

2. OPERATIONAL RISKS

- COSTS

Description of Risk

Increase in production costs could impact on the Group's profitability

Mitigating Steps

The Group seeks to enter into long-term supply contracts where possible. Costs are monitored by management on a monthly basis

- BUSINESS INTERRUPTION

Description of Risk

Assets used in operations may break down and insurance policies may not cover against all forms of risks due to certain exclusions and limitations

Mitigating Steps

The Group has combined property damage and business interruption insurance policies for all operations, and adequacy of coverage is regularly reviewed with advisers. With the assistance of the SAP Maintenance module, stock of critical parts are maintained and monitored for ongoing replenishment. During 2010 all operating units benefited from access to contingent power supplies

- RESERVE AND RESOURCE REPLACEMENT

Description of Risk

The Group's future profitability and operating margins depend upon its ability to replenish reserves with geological characteristics to enable mining at competitive costs. Reserves stated in this Annual Report are estimates

Mitigating Steps

The Group allocated $50m in 2010 to fund its exploration and geology activities. The Group has an annual drilling plan which is revised on a quarterly basis with exploration targets continually defined and new targets incorporated

- PERSONNEL

Description of Risk

(i) Loss of key senior management and personnel in particular, highly skilled engineers and geologists; (ii) the lack of availability of individuals with relevant mining experience in the vicinity of the Group's operations; and (iii) failure to maintain good labour relations with workers and/or unions may result in work slowdown, stoppage or strike

Mitigating Steps

In respect of (i) the Group seeks to provide competitive compensation arrangements and well-defined career plans for positions of strategic importance. In respect of (ii) and (iii) a labour relations strategy has been developed to ensure that employees' needs are identified and met, and to facilitate open dialogue between key stakeholders including workers' unions

3. MACRO ECONOMIC RISKS

- POLITICAL, LEGAL AND REGULATORY RISKS

Description of Risk

Costs associated with ensuring compliance with all relevant laws and regulations are substantial. Future changes which may include increases in taxes and/or royalties may result in additional expense, restrictions on or suspensions of, operations and may lead to delays in the development of current operations and early stage projects

Mitigating Steps

Local teams in each country of operation monitor and react, as necessary, to policy changes impacting on the business. Regional risk assessments are performed when investments in new countries are considered. These incorporate reviews of political environments and likelihood of changes in policy that are likely to impact the Group's results from operations

4. CORPORATE SOCIAL RESPONSIBILITY RELATED RISKS

- HEALTH AND SAFETY

Description of risk

Group employees working in the mines may be exposed to health and safety risks. Failure to manage these risks may result in a work slowdown, stoppage or strike and/or may damage the reputation of the Group and hence its ability to operate

Mitigating Steps

Attainment of Level 6 of the DNV safety management information system at Arcata and Pallancata and Level 5 at San José. An action plan to achieve Level 5 at Ares during 2011 has been agreed. Numerous initiatives were adopted during 2010 further reinforcing the Group's commitment in this area. Additional details on the Group's approach to Health and Safety are provided in the Corporate Responsibility Report on page 29

- ENVIRONMENTAL

Description of risk

The Group may be liable for losses arising from environmental hazards associated with the Group's activities and production methods, or may be required to undertake extensive remedial clean-up action or pay for governmental remedial clean-up actions

Mitigating Steps

The Group has a dedicated team of professionals with an allocated budget for environmental management purposes. Monthly audits are carried out to monitor the implementation of third-party environmental recommendations and achievement of targets. Air and water quality are monitored on a quarterly and weekly basis respectively

- SOCIAL

Description of risk

Communities living in the areas close to Hochschild's operations may oppose the activities carried out by the Group at existing mines or development projects and prospects which may also impact the Group's ability to obtain concessions for current or future projects

Mitigating Steps

The Group's Community Relations department maintains ongoing dialogue with local communities. Action plans have been budgeted and are being developed and progress is monitored on a monthly basis

Further information on financial risks can be found in note 37 to the Consolidated Financial Statements."

b. The following has been reproduced from pages 119 and 120 of the 2010 Annual Report:

"30 Related-party balances and transactions

(a) Related-party accounts receivable and payable

The Group had the following related-party balances and transactions during the years ended 31 December 2010 and 2009. The related parties are companies owned or controlled by the main shareholder of the parent company, joint ventures or associates.

	Accounts receivable at 31 December		Accounts payable at 31 December
	2010	2009	2010	2009
	US$000	US$000	US$000	US$000
Other
Fosfatos del Pacífico S.A.	28	28	-	-
Cementos Pacasmayo S.A.A.	291	-	23	-
Gold Resource Corp (refer to note 18(c)	1,290	-	-	-
	1,609	28	23	-
Joint ventures
Cabo Sur	-	968	-	902
	-	968	-	902
Total	1,609	996	23	902
Current related party balances	1,609	996	23	902
Total	1,609	996	23	902

As at 31 December 2010 and 2009 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:

	As at 31 December
	2010	2009
	US$000	US$000
Income
Gain on sale of Zincore Metals Inc. shares to Inversiones Pacasmayo S.A. (refer to note 18(d))	7,533	-
Dividend recognised for Gold Resource Corp. investment (refer to note 18(a))	2,633	-
Revenue recognised for services performed to Gold Resource Corporation	29	-

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

(b) Compensation of key management personnel of the Group

Key management personnel include the members of the senior management team and Directors who receive remuneration.

	As at 31 December
	2010	2009
	US$000	US$000
Salaries and bonuses	11,121	8,679
Total compensation paid to key management personnel	11,121	8,679

This amount includes the remuneration paid to the Directors of the parent company of the Group of US$6,996,557 (2009: US$5,931,185), out of which US$239,975 (2009: US$399,117) relates to pension payments.

	As at 31 December
Compensation of key management personnel (including directors)	2010	2009
	US$000	US$000
Short term employee benefits	6,751	7,971
Termination benefits	1,170	63
Long term incentive plan	2,348	-
Workers profit sharing	205	99
Others	647	546
Total Compensation	11,121	8,679

In 2009, the Group made a loan to one of the Directors of US$200,000 with an interest rate of 7.45% until 30 April 2009, 3.50% from 1 May 2009 to 31 July 2009 and 3.00% from 1 August 2009. The balance as at 31 December 2010 was nil (2009: US$227,214, composed of principal of US$200,000 and interest of US$27,214).

(c) Participation in placing by Pelham Investment Corporation ("Pelham")

Pelham, a company controlled by Eduardo Hochschild, participated in a placing of the Company's Ordinary Shares ("Shares") in October 2009 by subscribing for 1,064,780 Shares at a price of 295p per Share.

(d) Purchase of additional interest in Inmaculada project

During the year, the Group acquired an additional interest in the Inmaculada project effectively diluting the interest of its joint-venture partners, International Minerals Corporation ("IMZ"). This acquisition qualified as a small related party transaction under the UKLA Listing Rules in light of IMZ's 40% interest in the Pallancata Joint-Venture. See note 4(b) for further details."

c. The following has been reproduced from page 51 of the 2010 Annual Report:

"Statement of Directors' Responsibilities

The Directors confirm that to the best of their knowledge:

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

consolidation taken as a whole; and

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

 

END

 

 

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