Interim Results

Hochschild Mining PLC 18 September 2007 18 September 2007 Hochschild Mining plc Interim Results for the Six Months Ended 30 June 2007 Highlights: â€¢ Completed capacity expansions at Ares, Arcata and Selene â€¢ Commenced production at San Jose (Argentina), and subsequently at Moris (Mexico) and Pallancata (Peru) â€¢ Unit operating costs contained despite continued cost pressure in the industry â€¢ Corporate structure expanded in preparation for continued aggressive growth â€¢ Attributable after tax profit up 14% to $30 million based on our three operations in Peru â€¢ Attributable stated reserves increased by 15% in the first half of 2007 â€¢ Interim dividend of 2.0c per share payable on 19 October 2007 â€¢ On track to produce 26 million silver equivalent attributable ounces in 2007 with production from the three new operations in the second half of this year Highlights for the six months ended 30 June 2007 (presented before exceptional items unless stated) Six months ended Six months ended ($ thousands, unless stated) 30 June 2007 30 June 2006 % change ------------------------------------------------------------------------------- Silver production (koz) 5,633 5,468 3% Gold production (koz) 90.70 102.88 (12)% Revenue 121,021 100,813 20% Adjusted EBITDA(1) 56,076 56,316 0% Attributable after tax profit(2) 30,040 26,398 14% Earnings per share (pro forma)(3) 0.10 0.09 14% After exceptional items: Attributable profit after tax 32,856 24,150 36% Earnings per share (statutory) 0.11 0.11 - ------------------------------------------------------------------------------- (1) Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs and income tax plus depreciation, amortization and exploration costs other than personnel and other expenses (see reconciliation on page 9) (2) Attributable after tax profit is calculated as the profit for the period attributable to the equity shareholders of the company from continuing operations before exceptional items (3) The pro forma earnings per share calculation assumes that the number of Ordinary Shares in issue immediately after Listing (being 307.35 million) had been in issue from 1 January 2006 Chairman's comments 'I am delighted to be able to report a strong set of financial results for Hochschild Mining, backed by an excellent operational performance and delivery on all the projects that we set out for 2007. With three new operating mines in our portfolio, we will begin to benefit from our significant investment in growth in the second half of this year. Our outlook for gold and silver remains positive and we are confident in our ability to achieve our target of producing 26 million silver equivalent ounces this year and 50 million by 2011.' Chairman's statement The first six months of 2007 have been a period of significant progress for the Hochschild Mining Group in which we have continued to deliver on the commitments we made at the time of the IPO, with excellence and responsibility towards our environment, employees and the surrounding communities. In the first half of this year, we operated with three mines, Ares, Arcata and Selene, and successfully completed capacity expansions at all of them. We also commenced production at the San Jose mine in Argentina at the end of the second quarter. More recently, we began production at the Moris mine in Mexico and the Pallancata mine in Peru. Thus we have expanded from three operating mines in one country to six operating mines in three countries. With these developments, we remain firmly on track to meet our production target of 26 million silver equivalent ounces in 2007. Our results Revenue from our three operations in Peru, Arcata, Ares and Selene, was up 20% in the first half of 2007 to $121 million. We continued to feel the effects of the legacy forward sale contracts; however, these have all since expired and going forward our corporate policy is to remain 100% hedge free. In the first half of this year, we successfully contained unit operating costs in an environment where most of our industry is facing substantial cost pressures. We continue to achieve low cash costs and high margins due to our relatively high-grade deposits and our rigorous system of cost controls at all our operations and projects. We have made a series of investments in our corporate structure as part of our transition from a privately owned company operating in one country to a publicly listed entity with operations in multiple countries. We believe this increase in administrative costs represents a step change, which will enable use to pursue our strategy of aggressive growth. Whilst this growth in administrative expenses has temporarily affected our overall profitability, with adjusted EBITDA of $56 million being unchanged from the same period despite a 19% increase in gross profit, we remain confident in our ability to leverage this investment to grow the business and deliver enhanced levels of profitability. Our half year results and our ability to deliver on our growth strategy drive our confidence for the business going forward and support our declaration of an interim dividend of 2.0 cents per share. Our exploration We increased our attributable reserves by 15% in the first half of this year. This has allowed us to increase our average reserve life to 4.1 years up from 3.7 at December 2006. While proving up reserves remains a costly endeavour in underground mining, we are committed to achieving a 4.0 year minimum reserve life at each of our operations. Our Growth Growth based on high-margin, cash generative, precious metals production in the Americas remains at the core of our corporate strategy. We continue to emphasize the importance of exploration as a means to increase our reserve and resource base at a low cost per ounce and have committed substantial resources to our exploration and geology program. We are active in our joint venture approach, having entered into two new joint ventures which we believe enhance the scale and diversity of our asset portfolio. We are committed to remaining the partner of choice in Latin America for junior exploration companies and believe our strategic alliance with EXMIN Resources in Mexico exemplifies the way in which we can creatively combine efforts with junior mining companies to achieve mutually beneficial results. In addition, we plan to grow through mid-sized, bolt on acquisitions that fit our niche strategy. Our objective is to strengthen our interest in specific geological regions in the Americas by making anchor investments in strategic mining districts and executing a cluster consolidation strategy. We remain steadfast in our belief that an acquisition in today's market must meet these objectives and add fundamental shareholder value in the long-term. We have worked diligently in evaluating acquisition targets and have considered several, regrettably, none of which meet our criteria for long-term value creation. We continue to actively seek out and evaluate a number of other acquisition opportunities and believe that in a short period of time one will come into fruition. Our outlook Our outlook for gold and silver remains positive on the back of sustained global demand for commodities, continued U.S. dollar weakness, growing financial instability and a rise in international political tensions. In addition, we believe that increasing investment demand coupled with positive demand-supply fundamentals support our favouring these metals. We continue to enjoy the benefits of our listing on the London Stock Exchange with increasing visibility among the investor community and within the mining industry. Since Listing, seven leading investment houses have initiated coverage of Hochschild Mining. We are delivering on our IPO commitments while building a strong project pipeline of world class assets within the region. Our existing assets together with the additional production from our three new mines during the second half of this year give us confidence in our 2007 production target of 26 million silver equivalent attributable ounces and provide a strong platform for future growth. Eduardo Hochschild Executive Chairman Enquiries: Hochschild Mining plc Wray Barber +44 (0)20 7152 6014 Head of Investor Relations Finsbury Robin Walker +44 (0)20 7251 3801 Public Relations About Hochschild Mining plc: Hochschild Mining plc (HOC.L for Reuters / HOC LN for Bloomberg) is a publicly held company listed on the London Stock Exchange. Hochschild is a leading precious metals company with a primary focus on the exploration, mining, processing and sale of silver and gold. Hochschild currently operates five underground epithermal vein mines, four located in southern Peru and one in southern Argentina and one open pit mine in northern Mexico. Hochschild also has one early stage development project in Mexico and fifteen long-term prospects throughout Latin America. Hochschild has over forty years experience in the mining of precious metal epithermal vein deposits. For further information please visit www.hochschildmining.com Operational review: Production: Ounces produced: -------------------------------------------------------------------------------- Thousand ounces Six months ended Six months ended % change 30 June 2007 30 June 2006 -------------------------------------------------------------------------------- Silver Arcata 2,631 2,094 26% Ares 1,179 1,406 (16)% Selene 1,822 1,967 (7)% -------------------------------------------------------------------------------- Total silver 5,633 5,468 3% -------------------------------------------------------------------------------- Gold Arcata 6.75 4.96 36% Ares 71.60 83.35 (14)% Selene 12.35 14.57 (15)% -------------------------------------------------------------------------------- Total gold 90.70 102.88 (12)% -------------------------------------------------------------------------------- Total production for the first half of 2007 was 5.6 million ounces of silver and 91 thousand ounces of gold or 11 million silver equivalent ounces. This production resulted from our three operating mines in Peru, Arcata, Ares and Selene, and does not include our three new mines, San Jose, Moris and Pallancata, all of which have already commenced production. Expansions We successfully completed the plant expansions at Ares, Arcata and Selene. The Ares expansion, which took the plant from 280 ktpa to 325 ktpa, was finished in the early part of this year. At Arcata, we expanded the plant from 350 ktpa to 420 ktpa in the second quarter and it is currently operating at full capacity. At Selene, we recently completed the plant expansion taking capacity from 350 ktpa to 700 ktpa to accommodate the ore from our Pallancata project. Silver production Silver production increased 3% in the first half of 2007 compared to the same period last year. This increase resulted from a 26% increase in silver production at Arcata following the successful capacity expansion and a slight increase in the head grade. Ares and Selene saw average head grades decline by 22% and 11%, respectively, resulting in lower overall silver production despite the capacity expansion at both. Gold production Gold production decreased 12% in the first half of 2007 compared to the same period in 2006. This decrease was the result of a decline in gold production from both Ares and Selene attributable to the anticipated decline in head grades, which was offset by a significant increase in gold production from Arcata resulting from the increased capacity and a 2% increase in the head grade of gold. Costs: Our relatively high-grade deposits, our corporate focus on operational efficiency and our ability to mechanise our older operations have enabled us to offset some of the global cost pressures faced by the industry. Going forward we will strive to maintain a low cost profile although we expect a temporary increase in units costs, while we ramp up our new operations and move into additional countries. Cash costs ($ per ounce) -------------------------------------------------------------------------------- Six months ended Six months ended % change 30 June 2007 30 June 2006 -------------------------------------------------------------------------------- Co-product cash costs Silver ($/oz) 3.92 3.27 20% Gold ($/oz) 159 149 7% -------------------------------------------------------------------------------- Our cash costs on a co-product basis, which are calculated by pro-rating the total cash costs between the commodities based on sales revenue, increased 20% and 7% for silver and gold, respectively. This increase was the result of lower grades mined at both Ares and Selene and relatively flat consistent grades mined at Arcata. The cash cost for silver was up more than that for gold as a result of a greater percentage of revenue coming from silver sales. Unit costs ($ per tonne) In the first six months of 2007, our unit cost from our three mines, Arcata, Ares and Selene, was $61.2 per tonne, which was up marginally compared to the same period in 2006 (H1 2006: $58.5/tonne). The unit cost at Arcata decreased 4% primarily due to lower mine costs and to a lesser degree by lower plant and administration costs. The mine costs decreased as a result of additional mechanisation of the operation, which enables us to have fewer stoppes. Plant and administration unit costs decreased because of the plant expansion. The unit cost at Ares increased 7% due to increased plant costs associated with the processing of dore. The cost of processing dore increased mainly because of higher cost for reagents and greater cyanide consumption. At Selene the unit costs increased 10% due to higher plant costs associated with converting the Selene concentrate into dore at the Ares facility. Selling our product as dore, as opposed to concentrate, generates benefits from both a cash management standpoint and because of lower commercial deductions and selling costs associated with selling dore. These benefits are already being appreciated by the Group. Exploration: In the first six months of 2007 we increased our total exploration expenditure 118% to $10.8 million (H1 2006: $5.0 million). Total exploration expenditure includes the costs in exploration expense as well as the exploration costs which are capitalized on the balance sheet. Exploration underpins our growth strategy and our significant budget confirms our commitment to this area. Our exploration philosophy continues to focus on maintaining a highly motivated, technically proficient, and well funded exploration team while continuing to position ourselves as the partner of choice for many junior mining companies throughout the region. Our strategic alliance with EXMIN further exemplifies our commitment to expanding our exploration efforts in the region. We believe this alliance favourably positions us in Mexico and allows us to leverage EXMIN's expertise in the Sierra Madre gold belt of north western Mexico. Total exploration expenditure -------------------------------------------------------------------------------- Six months ended Six months ended % change ($ thousands) 30 June 2007 30 June 2006 -------------------------------------------------------------------------------- Mine site exploration Arcata 1,627 1,100 48% Ares 223 1,118 (80)% Selene 943 77 1125% San Jose 745 - - -------------------------------------------------------------------------------- Total mine site exploration 3,538 2,295 54% -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Six months ended Six months ended % change ($ thousands) 30 June 2007 30 June 2006 -------------------------------------------------------------------------------- Prospective exploration Peru 752 566 33% Argentina 1,607 833 93% Mexico 4,221 930 354% Chile 638 341 87% USA 25 - - Other 18 - - -------------------------------------------------------------------------------- Total prospective exploration 7,261 2,670 172% -------------------------------------------------------------------------------- Total exploration expenditure 10,799 4,965 118% -------------------------------------------------------------------------------- Mine site exploration: In the first half of 2007, total mine site exploration expenditure amounted to $3.5 million, which was a 54% increase over the same period of 2006 (H1 2006: $2.3 million). At Arcata, we successfully increased the reserves and resources by 56% and 17%, respectively through continued exploration around the Mariana Vein system. This vein system, which is located at the northern margin of the mineralized area, includes the majority of reserves and supports the greater part of production. The current reserve life at Arcata is 4.3 years based on production of 400 ktpa. At Ares, we were able to replace the tonnes processed although at a slightly lower grade. For this reason, the number of reserve and resource silver equivalent ounces decreased by 13% and 12%, respectively in the first half of 2007. We believe we will continue to replace tonnes processed at Ares albeit at varying grades for the foreseeable future. The current reserve life at Ares is 2.8 years based on 325 ktpa. At Selene, our exploration expenditure was used to develop a 500 metre cross-cut to the new Tumiri vein. The current reserve life at Selene is temporarily understated at 2.0 years because it is based on current throughput of 440 ktpa, which is the capacity designed to process the ore from both Selene and Pallancata. Once Pallancata is producing at 350 ktpa, it will occupy additional capacity at the Selene plant and, as a result, the reserve life will increase at Selene. At San Jose, we increased the reserves and resources by 29% and 16%, respectively, which equates to a 9.5 year reserve life based on 286 ktpa. The current exploration program is focused on expanding resources in the Frea, Kospi and Odin veins, as well as testing mineralization of other targets. This level of reserves and resources at San Jose provides a sufficient platform, which will enable us to double capacity at the plant in the latter part of 2008. Prospective exploration: We increased the total expenditure on prospective exploration by 172% in the first half of 2007 to $7.3 million (H1 2006: $2.7 million). Prospective exploration is exploration on non-operational properties. This increase, we believe, demonstrates our commitment to organic growth, which remains at the core of our strategy. At Pallancata, we modestly increased attributable reserves and resources 1% and 6%, respectively. The significant increase of reserves and resources at Pallancata during the second half of 2006 (up 111% and 36% respectively) allowed us to concentrate on other prospects and generative projects within Peru during the first half of 2007. At Moris, we have confirmed and validated the data obtained from the vendor when we purchased the property last year. In addition, we have drilled 15 holes to date in the old leach pads 8 of which have revealed positive results of approximately 1.5 g/t gold. Metallurgical testing of the old leach pad material is in process. The current reserve life at Moris based on a capacity of 1,060 ktpa is 2.8 years. At San Felipe (70%), a joint venture with Grupo Serrana, we have undertaken an accelerated exploration campaign in order to generate sufficient resources to take the project into feasibility stage later this year. Also in Mexico, we continue to explore the El Gachi property package (70%), which is part of the San Felipe joint venture contract. El Gachi, which is only 60 kilometres from San Felipe, was explored by Anaconda and Penoles in the 1960s and 1970s and unverified historic resources indicate resources of approximately 100 thousand tonnes at 400 to 500 grams silver and 15% to 20% lead and zinc. During the first half of 2007, we advanced surface exploration in preparation for drilling with initial samples returning expected results. In Argentina, we signed a joint venture agreement with Mirasol Resources Ltd which provides us the option to earn a 51% interest in the Santa Rita and Claudia properties in the southern Patagonia. We have received all assays for the Santa Rita project following our initial sampling. Following the receipt of the drilling results, on 30 August 2007, we gave our formal notice of termination and withdrawal from the joint venture agreement in respect of Santa Rita. The Claudia property is adjacent to the Cerro Vanguardia mine and is hosted in a similar regional setting (see our 2006 Annual Report for more information). Geophysical data processing at Claudia is underway and we have several drill ready targets which will be tested as soon as weather permits. Also in Argentina, we signed a letter of intent with Cardero Resources and subsequently exercised the option to earn up to a 70% interest in the Los Manantiales gold property in Argentina. Mineralization at Los Manantiales consists of low sulphidation epithermal vein systems hosted by Jurassic andesitic volcanics. We are proceeding with mapping and permitting in our Los Manantiales project where we have assembled an 119,873 hectare land package around the past producing Angela mine. We expect to drill test this exciting project early next year. Financial review: Key financial performance indicators: (presented before exceptional items unless stated) -------------------------------------------------------------------------------- ($ thousands, unless stated) Six months ended Six months ended % change 30 June 2007 30 June 2006 -------------------------------------------------------------------------------- Revenue 121,021 100,813 20% Adjusted EBITDA(1) 56,076 56,316 0% Attributable after tax profit(2) 30,040 26,398 14% Earnings per share (pro forma)(3) 0.10 0.09 14% Net cash generated from operating 21,421 34,358 (38)% activities Net debt / (net cash) (300,472) (405,541) Working capital 24,864 (24,775) After exceptional items: Attributable profit after tax 32,856 24,150 36% Earnings per share (statutory) 0.11 0.11 - -------------------------------------------------------------------------------- (1) Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs and income tax plus depreciation, amortization and exploration costs other than personnel and other expenses (see reconciliation on page 9) (2) Attributable after tax profit is calculated as the profit for the period attributable to the equity shareholders of the company from continuing operations before exceptional items (3) The pro forma earnings per share calculation assumes that the number of Ordinary Shares in issue immediately after Listing (being 307.35 million) had been in issue from 1 January 2006 Summary of financial performance Financial information is presented in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union. The reporting currency of Hochschild Mining plc is US dollars. In our discussion of financial performance we remove the effect of exceptional items, unless stated, and in our income statement we show the results 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 facilitate comparison with prior years. For the six months ended 30 June 2007, revenue, which was attributable to the same three operations as in 2006, amounted to $121.0 million, a 20% increase over the same period in 2006 (H1 2006: $100.8 million). Revenue -------------------------------------------------------------------------------- ($ thousands) Six months ended Six months ended % change 30 June 2007 30 June 2006 -------------------------------------------------------------------------------- Silver revenue Arcata 31,557 16,059 97% Ares 16,550 11,887 39% Selene 23,726 21,587 10% -------------------------------------------------------------------------------- Total silver revenue 71,833 49,533 45% -------------------------------------------------------------------------------- Gold revenue Arcata 3,974 2,012 98% Ares 37,695 40,996 (8)% Selene 6,939 8,109 (14)% Sipan - 4 - -------------------------------------------------------------------------------- Total gold revenue 48,608 51,121 (5)% -------------------------------------------------------------------------------- Other(1) 580 159 265% -------------------------------------------------------------------------------- Total revenue 121,021 100,813 20% -------------------------------------------------------------------------------- (1) Other revenue includes revenue from a base metal component in the concentrate sold from the Arcata mine and services Ounces sold -------------------------------------------------------------------------------- Thousand ounces Six months ended Six months ended % change 30 June 2007 30 June 2006 -------------------------------------------------------------------------------- Silver ounces sold Arcata 2,487 1,395 78% Ares 1,317 1,473 (11)% Selene 1,897 1,675 13% -------------------------------------------------------------------------------- Total silver ounces sold 5,701 4,543 25% -------------------------------------------------------------------------------- Gold ounces sold Arcata 6.19 3.19 94% Ares 77.02 88.23 (13)% Selene 11.66 11.95 (2)% -------------------------------------------------------------------------------- Total gold ounces sold 94.87 103.36 (8)% -------------------------------------------------------------------------------- We had legacy forward sale contracts in place during the first half of 2007; however, these have all since expired and going forward our corporate policy is to remain one hundred percent hedge free. Forward sale fixed price contracts -------------------------------------------------------------------------------- Six months to Six months to 30 June 2007 30 June 2006 -------------------------------------------------------------------------------- Silver ounces delivered into fixed price contracts (koz) 772 1,279 Gold ounces delivered into fixed price contracts (koz) 56.7 48.8 Silver average sale price ($/oz) 12.6 10.9 Gold average sale price ($/oz) 512 495 Silver average spot price ($/oz) 13.3 11.0 Gold average spot price ($/oz) 659 591 -------------------------------------------------------------------------------- Our three operations, Arcata, Ares and Selene, were the only operations which contributed to gross profit in the first half of 2006 and 2007. Gross profit increased 19% to $79.0 million in the first half of 2007 (H1 2006: $66.2 million) driven by higher revenue and stable operating costs at these operations. In the first six months of 2007, our weighted average cost per tonne from our three mines was $61.2 per tonne, which was up marginally compared to the same period in 2006 (H1 2006: $58.5/tonne). Administrative expenses totalled $30.1 million, up 91%, in the first six months of 2007 compared to the same period of 2006 (H1 2006: $15.8 million). During the first half of 2007, we incurred incremental expenses associated with the London office which we did not have during the first half of last year and since the Listing, we have made a series of investments related to hiring additional personnel at all levels to build a strong platform from which to execute our corporate strategy. We believe this increase represents a step change in overhead expenses and is a reflection of the incremental costs associated with being a public company with an aggressive growth strategy. Profit from continuing operations before exceptional items, net finance costs and income tax decreased 11% during the first six months of 2007 to $38.0 million (H1 2006: $42.7 million) impacted by the increase in administrative expenses mentioned above. In the first six months of 2007, adjusted EBITDA, which is calculated as profit from continuing operations before exceptional items, net finance costs and income tax plus depreciation, amortization and exploration costs other than personnel and other expenses, was similar to last year at $56.1 million (H1 2006: $56.3 million). Adjusted EBITDA reconciliation -------------------------------------------------------------------------------- $ thousands Six months ended Six months ended 30 June 2006 30 June 2007 (restated) % change -------------------------------------------------------------------------------- Profit from continuing operations before exceptional items, net finance costs and income tax 38,133 42,712 (11)% Operating margin 32% 42% Plus: Depreciation in Cost of Goods Sold 8,983 7,462 20% Depreciation in Administrative Expenses 233 1,190 (80)% Exploration Expense 11,005 6,857 60% Minus: Personnel and other in Exploration Expense (2,278) (1,905) 20% -------------------------------------------------------------------------------- Adjusted EBITDA 56,076 56,316 - -------------------------------------------------------------------------------- Adjusted EBITDA margin 46% 56% -------------------------------------------------------------------------------- Finance income increased significantly in the first half of 2007 to $10.4 million (H1 2006: $1.9 million) principally due to additional interest earned on the net proceeds from the Listing. We currently earn an average return of 5.2% on cash and cash equivalents. The weighted average statutory income tax rate was 30.2% and 29.4% for the first half of 2007 and 2006, respectively. This change is due to a change in the weighting of profit and loss before tax in the various jurisdictions in which the Group operates. The effective tax rate for the first half of 2007 was 38% (H1 2006: 37%). The effective tax rate was higher than the weighted average statutory tax rate as a result of certain expenses which are not deductible for tax purposes and deferred tax assets generated in the period but not recognized. The significant exceptional item in the first half of 2007 of $4.2 million (before a related tax charge of $1.2 million) corresponds to the change in fair value of 2,475,355 warrants in Fortuna Silver Mine Inc. In the prior period the exceptional items reduced reported profits by $2.2 million. Attributable after tax profit from continuing operations of $32.9 million increased by 36% in the first half of 2007 compared to the same period of 2006 (H1 2006: $24.2 million). This increase is the result of a combination of an increase in gross profit offset by higher administrative costs, coupled with an increase in finance income earned on the proceeds raised from the IPO, and the gain on the Fortuna Silver Mine warrants. For the purpose of the calculation of pro forma earnings per share for the period ended 30 June 2006 it has been assumed that the number of Ordinary Shares in issue immediately after the listing had been in issue from 1 January 2006. The Directors believe that this pro forma EPS provides a more meaningful comparison of the Group's ongoing business than using the statutory EPS which would only reflect shares issued at the date of the Listing. Dividends The Directors recommend an interim dividend of US$0.02 per share amounting to $7.3 million which will be paid on 19 October 2007. The final 2006 dividend of US$0.0074 per share was paid on 6 July 2007. ------------------------------------------------------------------------------ Dividend dates 2007 ------------------------------------------------------------------------------ Ex-dividend date 26 September Deadline for return of currency election forms 5 October Record date 28 September Payment date 19 October ------------------------------------------------------------------------------ As stated at the time of the Listing, the Company's dividend policy takes into account the profitability of the business and underlying growth in earnings of the Company, as well as its capital requirements and cash flows, while maintaining an appropriate level of dividend cover. Interim and final dividends will be paid in the approximate proportions of one-third and two-thirds of the total annual dividend, respectively. Dividends will be declared in US dollars. Unless a shareholder elects to receive dividends in US dollars, they will be paid in pounds sterling with the US dollar dividend being converted into pound sterling at exchange rates prevailing at the time of payment. Cash flow & balance sheet review Working capital $ thousands As at 30 June 2007 As at 31 December 2006 ------------------------------------------------------------------------------ Current assets Inventories 20,148 16,533 Trade and other receivables 67,303 49,726 Current liabilities Trade and other payables (46,487) (64,140) Pre-shipment loans (16,100) (26,894) ------------------------------------------------------------------------------ Working capital 24,864 (24,775) ------------------------------------------------------------------------------ Our working capital position went from negative $25 million at 31 December 2006 to positive $25 million at 30 June 2007 primarily because of a decrease in cash from trade and other receivables and from trade and other payables. Trade and other receivables increased due to a higher tax credit at the San Jose operation and an increase in the current portion of the project finance loan to Minera Andes, our partner at San Jose. The decrease in trade and other payables occurred as a result of repayment of payables used to finance the San Jose project in Argentina. In addition, there was a decrease in pre-shipment loans, which we use as a source of working capital. This decrease arose as we did not require incremental working capital resource. Net debt ------------------------------------------------------------------------------ $ thousands As at 30 June 2007 As at 31 December 2006 ------------------------------------------------------------------------------ Cash and cash equivalents 355,760 435,543 Long term borrowings 54,981 27,114 Short term borrowings less 307 2,888 pre-shipment loans ------------------------------------------------------------------------------ Net debt / (net cash) (300,472) (405,541) ------------------------------------------------------------------------------ We continue to maintain a net cash position, although we believe our ability to raise debt at the corporate level remains strong particularly following our successful listing on the London Stock Exchange. The San Jose project is financed by loans made by the joint venture partners based on their pro-rata ownership. The loan made to Minera Santa Cruz by Minera Andes, our joint venture partner, is not eliminated upon consolidation, thereby increasing our long term borrowings. Cash flow ------------------------------------------------------------------------------ $ thousands Six months ended Six months ended 30 June 2007 30 June 2006 ------------------------------------------------------------------------------ Net cash generated from operating activities 21,421 34,358 Net cash used in investing activities 88,125 13,441 Cash flows used in financing activities 13,055 17,313 ------------------------------------------------------------------------------ Net cash generated from operating activities decreased during the first half of 2007 primarily as a result of an increase in trade and other receivables. During the same period, net cash used in investing activities increased due to incremental capital expenditure and a loan to Minera Andes. Cash flows used in financing activities decreased in the first half of 2007 because of an increase in proceeds from borrowings although offset by in increase in dividends paid and transaction costs associated with the IPO. Interim Consolidated Income Statement (Unaudited) (Unaudited - Restated)1 (Restated)(1) 6 months to 30 June 6 months to 30 June Year ended 31 December 2007 2006 2006 ---------------------------------------------------------------------------------------------------------------------- Notes Before Excep- Total Before Excep- Total Before Excep- Total excep- tional excep- tional excep- tional tional items tional items tional items items items items ---------------------------------------------------------------------------------------------------------------------- (in thousand of US dollars) (in thousand of US dollars) (in thousand of US dollars) Continuing operations Revenue 4 121,021 - 121,021 100,813 - 100,813 211,246 - 211,246 Cost of sales (42,042) - (42,042) (34,571) - (34,571) (77,129) - (77,129) ---------------------------------------------------------------------------------------------------------------------- Gross profit 78,979 - 78,97 66,242 - 66,242 134,117 - 134,117 Administrative (30,127) - (30,127) (15,814) - (15,814) (38,738) - (38,738) expenses Exploration (11,005) - (11,005) (6,857) - (6,857) (17,621) - (17,621) expenses Selling (1,107) - (1,107) (1,366) - (1,366) (3,187) - (3,187) expenses Other income 5 2,322 - 2,322 1,796 172 1,968 5,022 346 5,368 Other expenses 5 (929) (174) (1,103) (1,289) (3,347) (4,636) (3,870) (6,495) (10,365) ---------------------------------------------------------------------------------------------------------------------- Profit from continuing 38,133 (174) 37,959 42,712 (3,175) 39,537 75,723 (6,149) 69,574 operations before net finance costs and income tax Finance income 6 10,398 4,198 14,596 1,864 979 2,843 5,988 918 6,906 Finance costs 6 (3,663) - (3,663) (5,121) - (5,121) (12,037) - (12,037) Foreign (729) - (729) (27) - (27) 353 - 353 exchange gain/(loss) ---------------------------------------------------------------------------------------------------------------------- Profit from continuing 44,139 4,024 48,163 39,428 (2,196) 37,232 70,027 (5,231) 64,796 operations before income tax Income tax 7 (16,736) (1,208) (17,944) (14,660) (52) (14,712) (29,440) 547 (28,893) expense ---------------------------------------------------------------------------------------------------------------------- Profit for the 27,403 2,816 30,219 24,768 (2,248) 22,520 40,587 (4,684) 35,903 period ---------------------------------------------------------------------------------------------------------------------- Attributable to: Equity shareholders 30,040 2,816 32,856 26,398 (2,248) 24,150 46,396 (4,684) 41,712 of the Company Minority (2,637) - (2,637) (1,630) - (1,630) (5,809) - (5,809) shareholders ---------------------------------------------------------------------------------------------------------------------- 27,403 2,816 30,219 24,768 (2,248) 22,520 40,587 (4,684) 35,903 ---------------------------------------------------------------------------------------------------------------------- Basic and 8 0.10 0.01 0.11 0.12 (0.01) 0.11 0.19 (0.02) 0.17 diluted earnings per ordinary share from continuing operations (expressed in U.S. dollars per share) ---------------------------------------------------------------------------------------------------------------------- (1) For restatement of comparative figures, refer to note 2(c) Interim Consolidated Balance Sheet Notes (Unaudited) (Restated)(1) As of 30 As of 31 June December 2007 2006 -------------------------------------------------------------------------------- (in thousand of US dollars) ASSETS Non-current assets Property, plant and equipment 9 207,580 141,387 Goodwill 2,091 2,091 Available-for-sale financial assets 9,785 6,285 Trade and other receivables 30,486 17,427 Deferred income tax assets 12,069 7,920 -------------------------------------------------------------------------------- 262,011 175,110 -------------------------------------------------------------------------------- Current assets Inventories 20,148 16,533 Trade and other receivables 67,303 49,726 Derivative financial instruments 6,858 6,022 Cash and cash equivalents 10 355,760 435,543 -------------------------------------------------------------------------------- 450,069 507,824 -------------------------------------------------------------------------------- Assets classified as held for sale - 345 -------------------------------------------------------------------------------- Total assets 712,080 683,279 -------------------------------------------------------------------------------- EQUITY AND LIABILITIES Capital and reserves attributable to shareholders of the Parent Equity share capital (including 146,466 146,466 additional capital) Share premium 395,928 396,156 Other reserves (202,548) (205,039) Retained earnings 185,433 152,577 -------------------------------------------------------------------------------- 525,279 490,160 -------------------------------------------------------------------------------- Minority interest 15,865 14,489 -------------------------------------------------------------------------------- Total equity 541,144 504,649 -------------------------------------------------------------------------------- Non-current liabilities Trade and other payables 924 1,064 Borrowings 54,981 27,114 Provisions 29,738 28,690 Deferred income tax liabilities 6,394 4,026 -------------------------------------------------------------------------------- 92,037 60,894 -------------------------------------------------------------------------------- Current liabilities Trade and other payables 46,487 64,140 Derivative financial instruments 136 - Borrowings 16,407 29,782 Provisions 7,005 11,385 Income tax payable 8,864 12,429 -------------------------------------------------------------------------------- 78,899 117,736 -------------------------------------------------------------------------------- Total liabilities 170,936 178,630 -------------------------------------------------------------------------------- Total equity and liabilities 712,080 683,279 -------------------------------------------------------------------------------- (1) For restatement of comparative figures, refer to note 2(c) Interim Consolidated Cash Flow Statement Notes (Unaudited) (Unaudited - Restated) (Restated) 6 months to 6 months to Year ended 30 June 30 June 31 December 2007 2006 2006 -------------------------------------------------------------------------------- (in thousands of US dollars) Cash flows from operating activities Cash generated from 12 26,347 51,195 128,071 operations Interest received 9,982 4,067 2,576 Interest paid (974) (3,210) (9,163) Payments of mine (1,071) (2,518) (5,426) closure costs Tax paid (12,863) (15,176) (26,010) -------------------------------------------------------------------------------- Net cash generated 21,421 34,358 90,048 from operating activities -------------------------------------------------------------------------------- Cash flows from investing activities Purchase of (66,862) (17,077) (65,704) property, plant and equipment Purchase of (486) (1,300) (2,770) available-for-sale financial assets Purchase of shares - (14) (240) of Minera Colorada S.A.C Purchase of other - (5,867) (5,867) financial assets at fair value through profit or loss Purchase of assets - - (4,983) and liabilities of Mina Moris Loan to Exmin S.A. (746) - (754) de C.V. Loan to Minera (20,076) - (9,800) Andes Inc Proceeds from other - 6,081 5,591 financial assets at fair value through profit or loss Proceeds from sale - - 6,550 of available-for-sale financial assets Proceeds from sale - - 3,801 of Mauricio Hochschild & Cia. Ltda. S.A.C. (subsidiary) Proceeds from sale - 4,500 4,500 of Caylloma mining unit Proceeds from sale 18 236 991 of property, plant and equipment and assets classified as held for sale Proceeds from sale - - 3,975 of supplies Dividends received - - 147 -------------------------------------------------------------------------------- Net cash used in (88,152) (13,441) (64,563) investing activities -------------------------------------------------------------------------------- Cash flows from financing activities Proceeds of 86,156 61,997 77,014 borrowings Repayment of (73,590) (77,266) (95,977) borrowings Dividends paid (16,281) (1,353) (58,375) Capital - - 93 contribution Proceeds from issue - - 515,245 of ordinary share under Global offer Transaction costs (11,722) - (33,989) associated with issue of shares Purchase of shares - (20) (2) from minority shareholders Capital 2,382 - 4,215 contribution from minority shareholders Repayment of - (671) (671) capital to minority shareholders -------------------------------------------------------------------------------- Cash flows (used (13,055) (17,313) 407,553 in) generated from financing activities -------------------------------------------------------------------------------- Net (decrease)/ (79,786) 3,604 433,038 increase in cash and cash equivalents during the period Exchange difference 3 (28) 38 Cash and cash 435,543 2,467 2,467 equivalents at beginning of period -------------------------------------------------------------------------------- Cash and cash 10 355,760 6,043 435,543 equivalents at end of period -------------------------------------------------------------------------------- Interim Consolidated Statement of Changes in Equity Other Reserves -------------------- Equity Unrealised share gain/(loss)on Capital and capital available-for- reserves (including sale Cumulative Total attributable to additional Share financial translation Merger other Retained shareholders Minority Total Notes capital) premium assets adjustment reserve reserves earnings of the Parent interest Equity ---------------------------------------------------------------------------------------------------------------------- (in thousands of US dollars) Balance at 31 219,233 - 11,265 726 (210,046) (198,055) 28,198 49,376 (2,533) 46,843 December 2005 as reported Adjustments due to change in accounting policy 2 - - - 73 - 73 9,343 9,416 5,440 14,856 ---------------------------------------------------------------------------------------------------------------------- Balance at 31 December 2005, restated 219,233 - 11,265 799 (210,046) (197,982) 37,541 58,792 2,907 61,699 December 2005, restated Fair value gains on available- for-sale financial assets - - 13,351 - - 13,351 - 13,351 20 13,371 Deferred income tax on available- for-sale financial assets - - (398) - - (398) - (398) - (398) Fair value changes transferred to income statement on disposal - - (22,844) - - (22,844) - (22,844) -(22,844) Translation adjustment for the year - - - 2,834 - 2,834 - 2,834 142 2,976 ---------------------------------------------------------------------------------------------------------------------- Net income recognised directly in equity - - (9,891) 2,834 - (7,057) - (7,057) 162 (6,895) Profit for the year - - - - - - 41,712 41,712 (5,809) 35,903 ---------------------------------------------------------------------------------------------------------------------- Total recognised income for 2006 - - (9,891) 2,834 - (7,057) 41,712 34,655 (5,647) 29,008 Shares issued 93 - - - - - - 93 - 93 Shares issued under Global offer 73,606 441,639 - - - - - 515,245 - 515,245 Transaction costs associated with issue of shares - (45,483) - - - - - (45,483) -(45,483) Capital reduction (146,466) - - - - - 146,466 - - - Dividends 11 - - - - - - (73,142) (73,142) (298)(73,440) Capital contribution from minority shareholders - - - - - - - - 18,200 18,200 Purchase of shares from minority shareholders - - - - - - - - (2) (2) Repayment of capital to minority shareholders - - - - - - - - (671) (671) ---------------------------------------------------------------------------------------------------------------------- Balance at 31 December 2006, restated 146,466 396,156 1,374 3,633 (210,046) (205,039) 152,577 490,160 14,489 504,649 ---------------------------------------------------------------------------------------------------------------------- Fair value gains on available- for-sale financial assets - - 2,935 - - 2,935 - 2,935 79 3,014 Deferred income tax on available- for-sale financial assets - - (1,032) - - (1,032) - (1,032) - (1,032) Translation adjustment for the period - - - 588 - 588 - 588 359 947 ---------------------------------------------------------------------------------------------------------------------- Net income recognised directly in equity - - 1,903 588 - 2,491 - 2,491 438 2,929 Profit for the period - - - - - - 32,856 32,856 (2,637) 30,219 ---------------------------------------------------------------------------------------------------------------------- Total recognised income for June 2007 - - 1,903 588 - 2,491 32,856 35,347 (2,199) 33,148 Transaction costs associated with issue of shares - (228) - - - - - (228) - (228) Capital contribution from minority shareholders - - - - - - - - 3,575 3,575 ---------------------------------------------------------------------------------------------------------------------- Balance at 30 June 2007 146,466 395,928 3,277 4,221 (210,046) (202,548) 185,433 525,279 15,865 541,144 ---------------------------------------------------------------------------------------------------------------------- Balance at 31 December 2005 as reported 219,233 - 11,265 726 (210,046) (198,055) 28,198 49,376 (2,533) 46,843 Adjustments due to change in accounting policy 2 - - - 73 - 73 9,343 9,416 5,440 14,856 ---------------------------------------------------------------------------------------------------------------------- Balance at 31 December 2005, restated 219,233 - 11,265 799 (210,046) (197,982) 37,541 58,792 2,907 61,699 ---------------------------------------------------------------------------------------------------------------------- Fair value gains on available- for-sale financial assets - - 13,023 - - 13,023 - 13,023 - 13,023 Sale of available- for-sale financial assets - - (22,844) - - (22,844) - (22,844) -(22,844) Translation adjustment for the period - - - (289) - (289) - (289) 376 87 ---------------------------------------------------------------------------------------------------------------------- Net income recognised directly in equity - - (9,821) (289) - (10,110) - (10,110) 376 (9,734) Profit for the period - - - - - - 24,150 24,150 (1,630) 22,520 ---------------------------------------------------------------------------------------------------------------------- Total recognised income for June 2006 - - (9,821) (289) - (10,110) 24,150 14,040 (1,254) 12,786 Dividends paid - - - - - - (53,142) (53,142) (298)(53,440) Capital contribution from minority shareholders - - - - - - - - 915 915 Repayment of capital to minority shareholders - - - - - - - - (671) (671) ---------------------------------------------------------------------------------------------------------------------- Balance at 30 June 2006, restated 219,233 - 1,444 510 (210,046) (208,092) 8,549 19,690 1,599 21,289 ---------------------------------------------------------------------------------------------------------------------- Notes to the Interim Consolidated Financial Statements 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 address is 18 Hanover Square, London, W1S 1HX, United Kingdom. Its ordinary shares are traded on the London Stock Exchange. The Group's principal business is the mining, processing and sale of silver and gold. The Group has three fully developed operating mines (Ares, Arcata and Selene) located in Southern Peru. The Group also has a portfolio of projects located across Peru, Mexico, Chile and Argentina at various stages of development. These group interim consolidated financial statements were approved for issue by the Board of Directors on 5 September 2007. 2 Significant Accounting Policies (a) Basis of preparation The interim consolidated financial statements of the Group for the six months ended 30 June 2007 have been prepared in accordance with IAS 34 Interim Financial Reporting. Accordingly, the interim consolidated financial statements do not include all the information required for full annual financial statements and therefore, should be read in conjunction with the Group's annual consolidated financial statements for the year 2006 as published in the 2006 Report to Shareholders. The interim consolidated financial statements do not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the full year is based on the statutory accounts for the financial year ended 31 December 2006. A copy of the statutory accounts for that year, which were prepared in accordance with International Financial Reporting Standards ('IFRS') issued by the International Accounting Standards Board ('IASB'), as adopted by the European Union up to 31 December 2006, has been delivered to the Registrar of Companies. The auditors' report under section 235 of the Companies Act 1985 in relation to those accounts was unqualified. The impact of the seasonality or cyclicality on operations is not regarded as significant on the interim consolidated financial statements. (b) Changes in accounting policies and presentation rules The accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those applied in the preparation of the consolidated financial statement for the year ended 31 December 2006, except for the effects of the change in the policy for accounting of exploration expenses (see note 2(c) below). The interim consolidated financial statements have been prepared on a historical cost basis, except for certain classes of property, plant and equipment which have been re-valued at 1 January 2003 to determine deemed cost, derivatives, available-for-sale financial instruments and other financial assets at fair value through profit and loss which have been measured at fair value. The financial statements are presented in US dollars ($) and all monetary amounts are rounded to the nearest thousand ($000) except when otherwise indicated. (c) Change in accounting policy of capitalisation of exploration expense During the period, management changed its accounting policy relating to exploration and evaluation expenditure as outlined below: â€¢ Projects in the development phase - Exploration and evaluation costs are capitalised as tangible assets from the date that the Board authorises the management to conduct a feasibility study. Previously, the Group would commence capitalisation of these costs only from the date, the project's feasibility study is approved and completed. â€¢ Identification of resources - Costs incurred in converting inferred resources to indicated and measured resources (of which reserves are a component) are capitalised as incurred. Previously, these costs were expensed. Costs incurred in identifying inferred resources continue to be expensed as incurred. Management believes that this change in accounting policy will enable improved matching of revenues and costs in the relevant period and thereby better reflect the Group's economic performance. In addition, management believes that this change will ensure consistency with its main peers, thereby enabling more relevant comparisons to be made. The Group has retrospectively applied this new policy from 1 January 2002, the earliest date at which objective and reliable information existed in relation to the nature of the exploration expenditure incurred, to enable them calculate this adjustment. The comparative amounts presented in this report have been restated in accordance with the new accounting policy as follows: (Unaudited - (Restated) (Unaudited) Restated) Year ended 6 months to 6 months to Year ended 31 31 December Income Statement 30 June 2006 30 June 2006 December 2006 2006 ------------------------------------------------------------------------------ (in thousands of US dollars) Continuing operations Cost of sales (34,077) (34,571) (75,949) (77,129) Gross profit 66,736 66,242 135,297 134,117 Exploration expenses (7,282) (6,857) (19,461) (17,621) Profit from continuing 39,606 39,537 68,914 69,574 operations before net finance costs and income tax Profit from continuing 37,301 37,232 64,136 64,796 operations before income tax Income tax expense (14,733) (14,712) (28,695) (28,893) Profit for the period 22,568 22,520 35,441 35,903 from continuing operations Profit for the period 22,568 22,520 35,441 35,903 Attributable to: Equity shareholders of 24,198 24,150 41,288 41,712 the Company Minority shareholders (1,630) (1,630) (5,847) (5,809) Basic and diluted 0.11 0.11 0.17 0.17 earnings per ordinary share from continuing operations (expressed in US dollars per share) ------------------------------------------------------------------------------ (Restated) As of As of 31 December 31 December 2006 2006 --------------------------------------------------------------------------- (in thousand of US dollars) ASSETS Non-current assets Property, plant and equipment 118,413 141,387 Deferred income tax assets 15,704 7,920 Total non-current assets 159,920 175,110 Current assets Inventories 16,405 16,533 Total current assets 507,696 507,824 Total assets 667,961 683,279 EQUITY AND LIABILITIES Capital and reserves attributable to shareholders of the Parent Other reserves (205,112) (205,039) Retained earnings 142,810 152,577 Minority interest 9,011 14,489 Total equity 489,331 504,649 Total equity and liabilities 667,961 683,279 --------------------------------------------------------------------------- (d) Basis of consolidation The consolidated financial statements set out the Group's financial position as of 30 June 2007 and 31 December 2006 and its financial operations and cash flow for the periods ended 30 June 2007, 31 December 2006 and 30 June 2006. Consolidation rules adopted in the preparation of the interim consolidated financial statements are consistent with those applied in the preparation of the consolidated financial statements for the year ended 31 December 2006. (e) 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 facilitate comparison with prior years. Exceptional items include goodwill impairments, assets held for sale impairments, gain/(loss) from sale of property, plant and equipment, gain/(loss) from sale of investments, gain/(loss) from sale of subsidiaries, gain/(loss) from changes in the fair value of financial instruments, and the related tax impact of these items. (f) Comparatives Where applicable, comparatives have been adjusted on the same basis as current period figures. For the restatement of comparative figures in relation to the change in accounting policy for exploration expenditure refer to note 2 (c). 3 Segment Reporting The Group's activities are principally related to mining operations which involve exploration, production and sale of gold and silver. Products are subject to the same risks and returns and are sold through the same distribution channels. The Group has a number of activities that exist solely to support mining operations including power generation and services. As such, the Group has only one business segment as its primary reporting segment. 4 Revenue (Unaudited) (Unaudited) 6 months to 6 months to Year ended 30 June 30 June 31 December 2007 2006 2006 --------------------------------------------------------------------------- (in thousands of US dollars) Gold (from dore bars) 40,591 41,000 70,498 Silver (from dore bars) 26,951 11,887 23,929 Concentrate 53,423 47,885 116,751 Services 56 41 68 --------------------------------------------------------------------------- 121,021 100,813 211,246 --------------------------------------------------------------------------- Concentrate is made up of: (Unaudited) (Unaudited) 6 months to 6 months to Year ended 30 June 30 June 31 December 2007 2006 2006 --------------------------------------------------------------------------- (in thousands of US dollars) Gold 8,017 10,121 21,953 Silver 44,882 37,646 94,208 Other minerals 524 118 590 --------------------------------------------------------------------------- Total concentrate 53,423 47,885 116,751 --------------------------------------------------------------------------- The total volumes of gold and silver sold are as follows: (Unaudited) (Unaudited) 6 months to 6 months to Year ended 30 June 30 June 31 December 2007 2006 2006 --------------------------------------------------------------------------- (in thousands of ounces) Gold 95 103 190 Silver 5,701 4,543 10,403 --------------------------------------------------------------------------- 5 Other Income and Other Expenses (Unaudited) (Unaudited) Year ended 31 6 months to 6 months to December 30 June 30 June 2006 2007 2006 -------------------------------------------------------------------- (in thousands of US dollars) Other income before exceptional items: Decrease in provision for mine closure(1) 740 1,024 2,812 Recovery of expenses 226 - 791 Income from mine concession 30 - 151 Lease rentals 73 36 90 Reversal of impairment of supplies 350 - - Other 903 778 1,178 -------------------------------------------------------------------- 2,322 1,796 5,022 -------------------------------------------------------------------- Exceptional items: Gain on sale of supplies - - 252 Gain on sale of property, plant - 172 94 and equipment -------------------------------------------------------------------- - 172 346 -------------------------------------------------------------------- 2,322 1,968 5,368 -------------------------------------------------------------------- Other expenses before exceptional: Penalty on cancellation of contract (13) - (971) Loss on maintenance of equipment (274) (14) (369) Provision for obsolescence of - - (377) supplies Impairment of Colorada assets - - (113) Provision for claims (27) - (292) Allowance SEAL/Electroperu - (58) (113) Other (615) (1,217) (1,635) -------------------------------------------------------------------- (929) (1,289) (3,870) -------------------------------------------------------------------- Exceptional items: Loss on sale of property, plant (47) - - and equipment Loss on sale of investments - (2,249) (2,249) Loss on sale of MHC (subsidiary) - (991) (991) Impairment of Sipan assets held - - (2,983) for sale Impairment of Colorada assets - - (230) Loss on sale of Inmobiliaria CNP - (42) (42) Loss on sale of supplies (127) (65) - -------------------------------------------------------------------- (174) (3,347) (6,495) -------------------------------------------------------------------- (1,103) (4,636) (10,365) -------------------------------------------------------------------- (1) Decreases in provision for mine closure costs are recorded in 'Other income' where the mine to which it relates has fully depreciated the mine rehabilitation asset but the closure and rehabilitation costs are yet to be incurred, and there is a reduction in the estimate of the total mine closure cost. 6 Finance Income and Finance Cost (Unaudited) (Unaudited) Year ended 6 months to 6 months to 31 30 June 30 June December 2007 2006 2006 --------------------------------------------------------------------- (in thousands of US dollars) Finance income before exceptional: Interest on time deposits(1) 9,241 125 4,053 Interest on loans to related - 1,250 1,226 parties Interest on loans to minority 1,006 - - shareholders(2) Interest on loans to third parties 65 117 205 Interest received on bonds and - 217 217 equity securities Dividends received - 147 147 --------------------------------------------------------------------- Other 86 8 140 --------------------------------------------------------------------- 10,398 1,864 5,988 --------------------------------------------------------------------- Exceptional items: Gain from changes in the fair value of financial instruments(3) 4,198 979 918 --------------------------------------------------------------------- 4,198 979 918 --------------------------------------------------------------------- 14,596 2,843 6,906 --------------------------------------------------------------------- Finance costs: Interest on bank loans and (2,557) (3,867) (8,832) long-term debt Unwind of discount rate (565) (499) (1,441) Bank commissions (18) - (854) Loss from changes in the fair value - (297) (345) of financial instruments Interest on loans from related - (9) (5) parties Other (523) (449) (560) --------------------------------------------------------------------- (3,663) (5,121) (12,037) --------------------------------------------------------------------- (1) Mainly generated for interest on liquidity funds, refer to note 10 (2) Corresponds to the interests related to the loans given by Hochschild Mining Holdings Limited to Minera Andes Inc. for US$9,800,000 and US$20,090,000 with an effective annual interest rate of LIBOR + 2.5 percent and LIBOR + 2.85 per cent, respectively (3) Mainly corresponds to the change in fair value of 2,475,355 warrants over the same number of shares in Fortuna Silver Mine Inc. At 31 December 2006, expiry dates of the warrants were 27 June 2007 and 17 November 2007 (for 862,117 and 1,613,238 warrants, respectively). In January 2007, the expiry dates were changed to 27 June 2010 and 17 November 2010, respectively. 7 Income Tax Expense -------------------------------------------------------------------- (Unaudited) (Unaudited) (Restated) 6 months to 6 months to Year ended 30 June 30 June 31 December 2007(1) 2006(1) 2006(1) -------------------------------------------------------------------- (in thousands of US dollars) Current tax from continuing 20,643 17,976 31,940 operations Deferred income tax relating to (2,813) (5,210) (5,022) origination and reversal of timing differences from continuing operations Withholding taxes 114 1,946 1,975 -------------------------------------------------------------------- 17,944 14,712 28,893 -------------------------------------------------------------------- (1) Amounts relating to items classified as exceptional items for the six-month ending 30 June 2007, 30 June 2006 and for the year ended 31 December 2006 were an expense of US$1,208,000, an expense of US$52,000 and an income of US$547,000, respectively. The weighted average statutory income is calculated as the average of the statutory tax rates applicable in the countries in which the Group operates, weighted by the profit/(loss) before tax of the subsidiaries in the respective countries as included in the consolidated financial statements. The changes in the weighted average statutory income tax rate is due to a change in the weighting of profit/(loss) before tax in the various jurisdictions in which the Group operates. The tax on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated companies as follows: (Unaudited- (Unaudited) Restated) (Restated) 6 months to 6 months to Year ended 30 June 30 June 31 December 2007 2006 2006 --------------------------------------------------------------------------- (in thousands of US dollars) Income before tax from continuing 48,163 37,232 64,796 operations At average statutory income tax 14,521 10,937 19,553 rate of 30.15% (29.38% and 30.18% as of 30 June and 31 December 2006, respectively) Expenses not deductible for tax 1,559 1,726 4,124 purposes Non-taxable income (319) (75) (170) Recognition of previously - (312) - unrecognised deferred tax assets Deferred tax assets generated in 1,638 804 2,552 the period not recognised Deferred tax on unremitted earnings 1,377 (508) 397 Withholding tax 114 1,946 1,975 Other (946) 194 462 --------------------------------------------------------------------------- Tax charge 17,944 14,712 28,893 --------------------------------------------------------------------------- 8 Basic and diluted earnings per share Earnings per share ('EPS') is calculated dividing profit for the year attributable to equity shareholders of the Company by the weighted average number of ordinary shares in issue during the period. The Company has no dilutive potential ordinary shares. As of 30 June 2007, 30 June 2006 and 31 December 2006, earnings per share have been calculated as follows: (Unaudited- (Unaudited) Restated) (Restated) 6 months to 6 months to Year ended 30 June 30 June 31 December 2007 2006 2006 ----------------------------------------------------------------------------- Profit from continuing operations 32,856 24,150 41,712 attributable to equity holders of the Company (US$000) Weighted average number of ordinary 307,350 229,950 242,867 shares in issue ('000) Basic and diluted earnings/(loss) per share from: Before exceptional items (US$) 0.10 0.12 0.19 Exceptional items (US$) 0.01 (0.01) (0.02) Continuing operations (US$) 0.11 0.11 0.17 ----------------------------------------------------------------------------- 9 Property, Plant and Equipment During the six months ended 30 June 2007, the Group acquired assets with a cost of US$76,384,000 (31 December 2006: US$78,779,000) In addition, during the six months ended 30 June 2007 property, plant and equipment has: â€¢ increased by US$1,056,000 as a result of additions in mine closure assets; â€¢ increased by US$119,000 as a result of foreign exchange movements on translation; â€¢ decreased by US$1,212,000 as a result of the adjustment to the deferred consideration in Suyamarca; â€¢ decreased by US$304,000 as a result of change in mine closure estimate; â€¢ decreased by US$65,000 as a result of net disposal of assets; â€¢ decreased by US$9,785,000 as a result of depreciation expense. 10 Cash and Cash Equivalents (Unaudited) Year ended As of 30 June 2007 31 December 2006 ------------------------------------------------------------------------- (in thousands of US dollars) Cash in hand 214 997 Liquidity funds(1) 342,777 414,527 Current demand deposit 10,391 16,477 accounts(2) Time deposits(3) 2,378 3,542 ------------------------------------------------------------------------- Cash and cash equivalents 355,760 435,543 considered for the cash flow statement ------------------------------------------------------------------------- (1) The liquidity funds are mainly invested in certificate of deposits, commercial papers and floating rate notes with weighted average annual effective interest rate of 5.16 percent and a weighted average maturity of 44 days as of 30 June 2007 (5.16 percent and 43 days as of December 31, 2006, respectively) (2) Relates to bank accounts which are freely available and do not bear interest (3) The effective interest rates as of 30 June 2007 and 31 December 2006 were 5.00 and 4.45 percent, respectively. These deposits have an average maturity of five and three days, respectively 11 Dividends Paid and Proposed Amount -------------------------------------------------------------------------------- (in thousands of US dollars) Year ended 31 December 2006 Total dividends paid or provided for during the year 73,440(1) Total dividends declared after year-end and not provided for 2,275(2) Six months ended 30 June 2007 Total dividends paid or provided for during the period - Total dividends declared after period-end and not provided for 7,333 -------------------------------------------------------------------------------- (1) Corresponds to dividends paid or provided to former shareholder Dona Limited (2) Corresponds to dividends declared after year-end and not provided to Pelham Investment Corporation, Navajo Overseas Corporation and public shareholders Dividends per share The dividends declared in 2006 were US$73,142,000 (US$0.32 per share). A dividend in respect of year ended 31 December 2006 of US$0.0074 per share, amounting to a total dividend of US$2,274,821 was approved at the Company's Annual General Meeting on 4 July 2007. These financial statements do not reflect the dividend payable. 12 Notes to the Cash Flow Statement (Unaudited- (Unaudited) Restated) (Restated) 6 months to 6 months to Year ended 30 June 30 June 31 December 2007 2006 2006 ----------------------------------------------------------------------------- (in thousands of US dollars) Reconciliation of profit for the period to net cash generated from operating activities Profit for the period 30,219 22,520 35,903 Adjustments to reconcile group operating profit to net cash inflows from operating activities: Depreciation 9,216 8,652 18,690 Loss / (gain) on disposal of property, plant and equipment and assets classified as held for sale 47 (172) (94) Impairment of Sipan assets held for sale - - 2,983 Impairment of Colorada assets - - 343 Loss on sale of available-for-sale financial assets - 2,291 2,291 Loss (gain) on sale of supplies 127 - (252) Loss on sale of MHC (subsidiary) - 991 991 Decrease in provision for mine closure (740) (1,024) (2,812) Finance income (14,596) 2,843 (6,906) Finance costs 3,663 5,121 12,037 Income tax expense 17,944 14,712 28,893 Provision for contingencies - - 292 Other 947 391 2,938 Increase (decrease) of cash flows from operations due to changes in assets and liabilities: Trade and other receivables (20,497) (3,192) 24,615 Derivative financial instruments 3,498 (2,575) 3,845 Inventories (3,615) (3,596) (5,629) Trade and other payables 2,972 3,377 5,135 Provisions (2,838) 856 4,808 ----------------------------------------------------------------------------- Cash generated from operations 26,347 51,195 128,071 ----------------------------------------------------------------------------- 13 Commitments (a) Gold and silver future contracts Type of Organisation Quantity contract Quotation Period As of 30 As of 31 June December 2007 (ounces) 2006 (ounces) (US$/oz) From to ------------------------------------------------------------------------------------------------------------------ Gold Citibank - 23,450 Flat Forward 415.93 August 2006 June 2007 Citibank - 36,600 Flat Forward 419.20 January 2007 June 2007 --------------------------------------------------------------- - 60,050 --------------------------------------------------------------- Silver Standard Bank - 772,000 Min/Max 8.40/10.65 October 2006 March 2007 --------------------------------------------------------------- Total - 832,050 --------------------------------------------------------------- The contracts and commitments mentioned above are not fair valued in the books as they were entered into for the purpose of the delivery of a non-financial item in accordance with the Group's expected sales requirements. Management had previously entered into fixed price sale contracts in accordance with the terms and conditions of the loan agreements with the banks. Management has now decided that the Group will not enter into any further commitments to optimise and align average realisations with market prices in future. (b) Mining rights purchase options During the ordinary course of business, the Group enters into agreements to carry out exploration under concessions held by third parties. Under the terms of some of the agreements, the Group has the option to acquire the concession or invest in the entity holding the concession. In order to exercise the option the Group must satisfy certain financial and other obligations over the agreement term. The options lapse in the event the Group does not meet the financial requirements. At any point in time, the Group may cancel the agreements without penalty. The Group continually reviews its requirements under the agreements and determines on an annual basis whether to proceed with the financial commitment. The commitments at the balance sheet date are as follows: As of As of 30 June 31 December 2007 2006 -------------------------------------------------------------------------- (in thousands of US dollars) Commitment for the subsequent twelve months 1,849 1,210 Later than one year 30,153 22,539 -------------------------------------------------------------------------- (c) Ventura Gold Corp. On 8 January 2007, the Group entered into a letter of intent with Ventura Gold Corp ('Ventura') for Ventura to acquire an interest in the Inmaculada property, located in Peru. Under the agreement, in order for Ventura to acquire an initial 51% controlling interest, Ventura shall complete a total of 15,000 metres of drilling on the property and issue a total of one million of its common shares to the Group within a three-year period. Once Ventura acquires its 51% controlling interest, Ventura shall issue an additional two million of its common shares to the Group within the next five years. Additionally, the Group has the option to become the operator of the project and buy back an 11% controlling interest in consideration for a payment to Ventura of three times the total investment made in drilling and related exploration work completed. If the Group does not exercise the aforementioned option, Ventura may elect to increase its controlling interest by 19% upon the completion of a feasibility study on the project. As at 30 June 2007, the option joint venture agreement had not been signed but the Group has already received 100,000 shares included in the 'Available-for-sale financial assets' caption. The option joint venture agreement was subsequently signed on 13 August 2007. (d) Mirasol Resources Ltd. On 21 February 2007, the Group signed the option and joint venture agreement with Mirasol Resources Ltd. ('Mirasol') under the arrangements set forth in the letter of intent signed on 18 September 2006. The Group will have the right to acquire 51 percent interest in Santa Rita and Claudia projects by investing over four years at least US$3.5 million, and US$6 million, respectively. Additionally, the Group paid US$150,000 on the signing of the letter of intent and has to make four annual payments of US$200,000 to Mirasol. On 13 March 2007, Mirasol constituted, under the laws of Argentina, two companies named 'Cabo Sur' and 'Punta Verde', which will hold the rights of Claudia and Santa Rita properties, respectively. Until the exercise of Claudia and Santa Rita options, Mirasol and the Group will own 99% and 1% of each of the new companies, respectively. (e) Cardero Resource Corp. On 12 March 2007, the Group entered into a letter of intent with Cardero Resource Corp. ('Cardero') in respect of an option and joint venture agreement to explore and develop minerals at Los Manantiales property in Argentina. Under the arrangements, the Group will have the right to acquire 60 percent interest by incurring expenditures on exploration activities of US$3,500,000 in four years. At 30 June 2007, the Group has paid US$294,000 in order to permit Cardero to acquire the properties from its former owner. This payment will be considered as part of the required commitment. The option and joint venture agreement has not been signed as of 30 June 2007. (f) Geologix Explorations Inc. On 26 April 2007, the Group entered into a letter of intent with Geologix Exploration Inc. in respect of a joint venture for the exploration and development of Silver Cloud property located in north-central Nevada, USA. The Group has the option to acquire 70 percent interest in the venture by investing in exploration and development an amount of US$4,100,000 during five years, and making a mandatory payment of US$50,000 upon signing of the final joint venture agreement. As of 30 June 2007, the option and joint venture agreement has not been signed. (g) Silver Standard Resources Inc. On 31 May 2007, the Group entered into a letter of intent with Silver Standard Resources Inc. in respect of an option and joint venture agreement to explore and develop minerals in properties located in Chubut province, Argentina. Under the arrangements, the Group will have the right to acquire 51 percent interest by investing in exploration activities an amount of US$1,000,000 in three years. At 30 June 2006, the option and joint venture agreement has not been signed. 14 Subsequent events (a) On 6 July 2007, the Group signed an Agreement with EXMIN Resources Inc. ('EXMIN'), pursuant to which the Group will provide certain funding arrangements to EXMIN to allow it to comply with its obligations under the joint venture agreement with the Group. In compliance with the agreement, on 9 July 2007, the Group acquired 7,875,000 common shares of EXMIN for a total amount of US$3 million. In addition, on the same date the Group converted an outstanding loan receivable from EXMIN of US$1.5 million into 4,127,231 common shares. (b) On 3 July 2007, the Group approved the executive long-term incentive plan to recognise the performance of key employees and to ensure that the long-term interest of these employees are aligned with the interest of shareholders. The plan comprises an amount to be paid to participants depending on the achievement of the three-year performance measures being: 'expected', 'improved' or 'excellent'. Half of the award will be paid on 31 December 2010, with the remaining half paid on 31 December 2011. The independent performance measures included in the plan are â€¢ Cumulative earnings per share â€¢ Volume of production at the end of 2009 â€¢ Co-production cash cost â€¢ Life of mine as of 31 December 2009 â€¢ Resources and reserves grade â€¢ Share price (c) As described in Note13 (c) on 13 August 2007, the Group signed the option and joint venture agreement with Ventura. (d) On 30 August 2007, the Group gave its formal notice of termination and withdrawal from option and joint venture agreement with Mirasol in respect of Santa Rita. Reserves & Resources Attributable metal reserves As at 30 June 2007 Reserve category Proved Probable Proved And Probable Ag Au Ag Au Ag Eq. --------------------------------------------------------------------------------------------------- (t) (t) (t) (g/t) (g/t) (moz) (koz) (moz) Arcata Proved 1,207,398 478 1.29 18.6 50.0 21.6 Probable 498,740 559 1.29 9.0 20.6 10.2 Total 1,706,138 502 1.29 27.5 70.7 31.8 --------------------------------------------------------------------------------------------------- Ares Proved 627,708 230 8.58 4.6 173.2 15.0 Probable 269,744 168 5.54 1.5 48.0 4.3 Total 897,452 211 7.67 6.1 221.2 19.4 --------------------------------------------------------------------------------------------------- Selene Proved 780,495 289 2.00 7.3 50.1 10.3 Probable 89,865 233 1.03 0.7 3.0 0.9 Total 870,360 284 1.90 7.9 53.1 11.1 --------------------------------------------------------------------------------------------------- Pallancata Proved 641,002 263 1.06 5.4 21.9 6.7 Probable 688,455 280 1.10 6.2 24.3 7.7 Total 1,329,457 272 1.08 11.6 46.2 14.4 --------------------------------------------------------------------------------------------------- San Jose Proved 339,391 451 6.20 4.9 67.7 9.0 Probable 1,052,155 405 6.80 13.7 229.9 27.5 Total 1,391,546 416 6.65 18.6 297.6 36.5 --------------------------------------------------------------------------------------------------- Moris Proved 1,273,582 4.5 1.72 0.2 70.3 4.4 Probable 767,974 4.3 1.16 0.1 28.7 1.8 Total 2,041,556 4.4 1.51 0.3 99.0 6.2 --------------------------------------------------------------------------------------------------- Total Proved 4,869,576 262 2.77 41.0 433.3 67.0 Probable 3,366,933 287 3.28 31.1 354.6 52.4 Total 8,236,510 272 2.98 72.1 787.8 119.3 --------------------------------------------------------------------------------------------------- Attributable metal resources As at 30 June 2007 Resource Measured category Measured Indicated & Indicated Inferred Ag Au Zn Pb Cu Ag Eq Ag Au Zn Pb Cu -------------------------------------------------------------------------------------------------------------------- (t) (t) (t) (t) (g/t) (g/t) (%) (%) (%) (g/t) (moz) (koz) (kt) (kt) (kt) Arcata Measured 1,151,358 545 1.48 -.- -.- -.- 633 20.2 54.8 -.- -.- -.- Indicated 464,648 647 1.49 -.- -.- -.- 737 9.7 22.3 -.- -.- -.- Total 1,616,005 574 1.48 -.- -.- -.- 663 29.8 77.1 -.- -.- -.- Inferred 1,655,637 598 1.52 -.- -.- -.- 689 31.8 81.2 -.- -.- -.- ---------------------------------------------------------------------------------------------------------------------- Ares Measured 614,694 249 9.31 -.- -.- -.- 808 4.9 184.1 -.- -.- -.- Indicated 277,410 177 5.82 -.- -.- -.- 526 1.6 51.9 -.- -.- -.- Total 892,104 227 8.23 -.- -.- -.- 720 6.5 236.0 -.- -.- -.- Inferred 86,251 198 4.11 -.- -.- -.- 445 0.5 11.4 -.- -.- -.- ---------------------------------------------------------------------------------------------------------------------- Selene Measured 770,576 312 2.15 -.- -.- -.- 441 7.7 53.3 -.- -.- -.- Indicated 87,354 255 1.12 -.- -.- -.- 322 0.7 3.2 -.- -.- -.- Total 857,930 306 2.05 -.- -.- -.- 429 8.4 56.5 -.- -.- -.- Inferred 1,078,996 322 1.59 -.- -.- -.- 417 11.2 55.1 -.- -.- -.- ---------------------------------------------------------------------------------------------------------------------- Pallancata Measured 583,181 318 1.26 -.- -.- -.- 394 6.0 23.7 -.- -.- -.- Indicated 730,297 325 1.38 -.- -.- -.- 408 7.6 32.3 -.- -.- -.- Total 1,313,478 322 1.33 -.- -.- -.- 401 13.6 56.0 -.- -.- -.- Inferred 749,770 488 1.84 -.- -.- -.- 598 11.8 44.4 -.- -.- -.- ---------------------------------------------------------------------------------------------------------------------- San Jose Measured 333,559 526 7.16 -.- -.- -.- 955 5.6 76.8 -.- -.- -.- Indicated 894,539 484 8.10 -.- -.- -.- 970 13.9 232.8 -.- -.- -.- Total 1,228,098 495 7.84 -.- -.- -.- 966 19.6 309.6 -.- -.- -.- Inferred 119,791 442 7.69 -.- -.- -.- 903 1.7 29.6 -.- -.- -.- ---------------------------------------------------------------------------------------------------------------------- Moris Measured 3,015,654 4.2 1.31 -.- -.- -.- 83 0.4 127.1 -.- -.- -.- Indicated 218,661 4.5 1.15 -.- -.- -.- 73 0.0 8.1 -.- -.- -.- Total 3,234,315 4.3 1.30 -.- -.- -.- 82 0.4 135.2 -.- -.- -.- Inferred 37,476 4.1 0.88 -.- -.- -.- 57 0.0 1.1 -.- -.- -.- ---------------------------------------------------------------------------------------------------------------------- San Felipe Measured 1,143,681 72 0.02 7.43 3.15 0.42 315 2.6 0.7 84.9 36.1 4.8 Indicated 482,527 68 0.02 7.15 3.34 0.42 305 1.1 0.3 34.5 16.1 2.0 Total 1,626,207 71 0.02 7.34 3.21 0.42 312 3.7 1.0 119.4 52.2 6.8 Inferred 234,259 56 0.01 7.30 3.52 0.30 289 0.4 0.1 17.1 8.2 0.7 ---------------------------------------------------------------------------------------------------------------------- TOTAL Measured 7,612,702 194 2.13 1.12 0.47 0.06 358 47.5 520.4 84.9 36.1 4.8 Indicated 3,155,435 341 3.46 1.09 0.51 0.06 585 34.6 350.9 34.5 16.1 2.0 Total 10,768,137 237 2.52 1.11 0.48 0.06 424 82.1 871.3 119.4 52.2 6.8 Inferred 3,962,179 451 1.75 0.43 0.21 0.02 569 57.4 222.9 17.1 8.2 0.7 ---------------------------------------------------------------------------------------------------------------------- Note: Resources include undiscounted reserves, where reserves are attributable to JV partner, reserve figures reflect the Company's ownership only no ore loss or dilution has been included, and stockpiled ore excluded. Change in metal reserves and resources in silver equivalent ounces Ag Equivalent Content (Million Ounces) Operation Category December 2006 Depletion(1)Addition(2)June2007 Net Difference % change ------------------------------------------------------------------------------------------------------ Peru ------------------------------------------------------------------------------------------------------ Arcata Resource 60.6 10.6 71.1 10.6 17% Reserve 20.4 (3.5) 14.9 31.8 11.4 56% ------------------------------------------------------------------------------------------------------ Ares Resource 24.9 (3.0) 21.9 (3.0) (12)% Reserve 22.3 (5.8) 2.8 19.4 (3.0) (13)% ------------------------------------------------------------------------------------------------------ Selene Resource 25.2 1.1 26.3 1.1 4% Reserve 12.3 (3.0) 1.8 11.1 (1.2) (10)% ------------------------------------------------------------------------------------------------------ Pallancata Resource 49.2 3.1 52.3 3.1 6% Reserve 23.8 0.0 0.2 24.0 0.2 1% ------------------------------------------------------------------------------------------------------ Peru Totals: Resource 159.8 11.8 171.6 11.8 7% Reserve 78.8 (12.2) 19.7 86.2 7.4 9% ------------------------------------------------------------------------------------------------------ Argentina San Jose Resource 70.4 11.2 81.6 11.2 16% Reserve 55.6 0.0 15.9 71.5 15.9 29% ------------------------------------------------------------------------------------------------------ Argentina Totals: Resource 70.4 11.2 81.6 11.2 16% Reserve 55.6 0.0 15.9 71.5 15.9 29% ------------------------------------------------------------------------------------------------------ Mexico Moris Resource 12.3 0.0 12.3 0.0 0% Reserve 8.9 0.0 0.0 8.9 0.0 0% ------------------------------------------------------------------------------------------------------ San Felipe Resource 25.0 1.4 26.4 1.4 6% Reserve 0.0 0.0 0.0 0.0 0.0 0% ------------------------------------------------------------------------------------------------------ Mexico Totals: Resource 37.3 1.4 38.7 1.4 4% Reserve 8.9 0.0 0.0 8.9 0.0 0% ------------------------------------------------------------------------------------------------------ Totals: Resource 267.5 24.4 292.0 24.4 9% Reserve 143.3 (12.2) 35.6 166.6 23.4 16% ------------------------------------------------------------------------------------------------------ (1) Depletion: reduction in reserves based on ore delivered to the mine plant (2) Increase in reserves and resources due mainly to mine site exploration but also to price increases Change in attributable metal reserves and resources in silver equivalent ounces Ag Equivalent Content (Million Ounces) Operation Category Percentage Attributable December 2006 Att.1 June2007 Att. 1 Net Difference % change --------------------------------------------------------------------------------------------------------------------- Peru --------------------------------------------------------------------------------------------------------------------- Arcata Resource 100% 60.6 71.1 10.6 17% Reserve 20.4 31.8 11.4 56% --------------------------------------------------------------------------------------------------------------------- Ares Resource 100% 24.9 21.9 (3.0) (12)% Reserve 22.3 19.4 (3.0) (13)% --------------------------------------------------------------------------------------------------------------------- Selene Resource 100% 25.2 26.3 1.1 4% Reserve 12.3 11.1 (1.2) (10)% --------------------------------------------------------------------------------------------------------------------- Pallancata Resource 60% 29.5 31.4 1.8 6% Reserve 14.3 14.4 0.1 1% --------------------------------------------------------------------------------------------------------------------- Peru Totals: Resource 140.2 150.7 10.6 8% Reserve 69.3 76.6 7.4 11% Argentina --------------------------------------------------------------------------------------------------------------------- San Jose Resource 51% 35.9 41.6 5.7 16% Reserve 28.3 36.5 8.1 29% --------------------------------------------------------------------------------------------------------------------- Argentina Totals: Resource 35.9 41.6 5.7 16% Reserve 28.3 36.5 8.1 29% Mexico --------------------------------------------------------------------------------------------------------------------- Moris Resource 70% 8.6 8.6 0.0 0% Reserve 6.2 6.2 0.0 0% --------------------------------------------------------------------------------------------------------------------- San Felipe Resource 70% 17.5 18.5 1.0 6% Reserve 0.0 0.0 0.0 0% --------------------------------------------------------------------------------------------------------------------- Mexico Totals: Resource 26.1 27.1 1.0 4% Reserve 6.2 6.2 0.0 0.0 --------------------------------------------------------------------------------------------------------------------- Totals: Resource 202.2 219.4 17 9% Reserve 103.9 119.3 15 15% --------------------------------------------------------------------------------------------------------------------- (1) Attributable reserves and resources based on the Group's percentage ownership of its joint venture projects Production Information Arcata Six months ended Six months ended 30 June 2007 30 June 2006 % change ----------------------------------------------------------------------------------- Ore production (tonnes) 176,513 135,526 30% Average head grade silver (g/t) 532.86 542.02 (2)% Average head grade gold (g/t) 1.38 1.35 2% Concentrate produced (tonnes) 7,447 5,214 43% Silver grade in concentrate (kg/t) 10.99 12.49 (12)% Silver produced (koz) 2,631 2,094 26% Gold produced (koz) 6.75 4.96 36% Net silver sold (koz) 2,487 1,395 78% Net gold sold (koz) 6.19 3.19 94% ----------------------------------------------------------------------------------- Ares Six months ended Six months ended 30 June 2007 30 June 2006 % change ----------------------------------------------------------------------------------- Ore production(tonnes) 156,404 141,529 11% Average head grade silver (g/t) 257.64 332.14 (22)% Average head grade gold (g/t) 14.84 19.01 (22)% Dore total (koz) 1,254.24 1,493.19 (16)% Silver produced (koz) 1,179 1,406 (16)% Gold produced (koz) 71.60 83.35 (14)% Net silver sold (koz) 1,317 1,473 (11)% Net gold sold (koz) 77.02 88.23 (13)% ----------------------------------------------------------------------------------- Selene Six months ended Six months ended 30 June 2007 30 June 2006 % change ----------------------------------------------------------------------------------- Ore production (tonnes) 190,581 178,044 7% Average head grade silver (g/t) 338.37 378.68 (11)% Average head grade gold (g/t) 2.43 2.93 (17)% Concentrate produced (tonnes) 1,808 1,977 (9)% Silver grade in concentrate (kg/t) 31.75 30.95 3% Silver produced (koz) 1,822 1,967 (7)% Gold produced (koz) 12.35 14.57 (15)% Net silver sold (koz) 1,897 1,675 13% Net gold sold (koz) 11.66 11.95 (2)% Glossary Ag Silver Adjusted EBITDA Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs and income tax plus depreciation, amortization and exploration costs other than personnel and other expenses Au Gold Attributable after tax profit Profit for the year before dividends attributable to the equity shareholders of Hochschild Mining plc from continuing operations before exceptional items and after minority interest Average head grade Average ore grade fed into the mill Board The board of directors of the Company Company, Group or Hochschild Hochschild Mining plc and its subsidiary undertakings CSR Committee or Corporate Social Responsibility Committee The corporate social responsibility committee of the Board CSR Corporate social responsibility Cu Copper Directors The directors of the Company Dore Dore bullion is an impure alloy of gold and silver and is generally the final product of mining and processing; the dore bullion will be transported to be refined to high purity metal Dollar or $ United States dollars Effective Tax Rate Income tax expense as a percentage of profit from continuing operations before income tax EPS The per-share (using the weighted average number of shares outstanding for the period) profit available to equity shareholders of the Group from continuing operations before exceptional items and after minority interest eq equivalent Exceptional item Events that are significant and which, due to their nature or the expected infrequency of the events giving rise to them, need to be disclosed separately GAAP Generally Accepted Accounting Principles g/t Grams per metric tonne IAS International Accounting Standards IASB International Accounting Standards Board IFRS International Financial Reporting Standards koz Thousand ounces kt Thousand metric tonnes ktpa Thousand metric tonnes per annum Listing or IPO (Initial Public Offering) or Global Offer The listing of the Company's ordinary shares on the London Stock Exchange on 8 November 2006 LSE London Stock Exchange moz Million ounces Ordinary Shares Ordinary shares of Â£0.25 each in the Company Pb Lead Spot or spot price The purchase price of a commodity at the current price, normally this is at a discount to the long term contract price t tonne Zn Zinc - ends - This information is provided by RNS The company news service from the London Stock Exchange

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