Q4 2018 Production Report

RNS Number : 1921N

Hochschild Mining PLC

16 January 2019

 

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16 January 2019

Production Report for the 12 months ended 31 December 2018

Ignacio Bustamante, Chief Executive Officer said:

"Hochschild has delivered a production increase in 2018 with output growing for the sixth consecutive year, again driven by a record performance from our Inmaculada mine and increased output from Pallancata. Our costs for 2018 are expected to be in line with positively revised expectations and we maintain a robust financial position with a further $50 million of medium-term debt repaid in December.

We have had a very successful year of brownfield exploration at Inmaculada with over 1.3 million gold equivalent ounces of inferred resources added from structures close to the current mining infrastructure. Geological prospects at Pallancata and San Jose remain strong and we can look forward to an exciting 2019 programme which has good potential to add significant low cost ounces to our resource base."

Operational highlights

§    Record full year attributable production in 2018^[1]

o  260,436 ounces of gold

o  19.7 million ounces of silver

o  526,650 gold equivalent ounces

o  39.0 million silver equivalent ounces (versus revised target of 38.5 million silver equivalent ounces)

§ Record production at Inmaculada: 251,090 gold equivalent ounces (2017: 239,479 ounces)

§ Production at Pallancata up 22% to 9.4 million silver equivalent ounces (2017: 7.7 million ounces)

§ 2018 all-in sustaining costs on track to meet positively revised guidance of $940-$970 per gold equivalent ounce ($12.7-13.1 per silver equivalent ounce)

Exploration highlights

§ Inmaculada brownfield drilling programme added 95 million silver or 1.3 million gold equivalent ounces of inferred resources in 2018

§ Brownfield programmes set to continue at Inmaculada and San Jose in Q1 2019 and at Pallancata in Q2/Q3 2019 following receipt of permits

Strong financial position

§ Total cash of approximately $80 million as at 31 December 2018 ($257 million as at 31 December 2017) after $50 million debt repayment in Q4 and temporary increase in working capital of $10 million

§ $198 million of debt repaid in 2018

§ Net debt of approximately $76 million as at 31 December 2018 ($103 million as at 31 December 2017)

§ Current Net Debt/ LTM EBITDA of approximately 0.30x as of 31 December 2018

2019 guidance¹

§ Production target of 457,000 gold equivalent ounces (37.0 million silver equivalent ounces) excluding Arcata

§ Final decision on Arcata future expected before Full Year results in February

§ All-in sustaining costs expected to be $960-$1,000 per gold equivalent ounce ($11.8-12.3 per silver equivalent ounce)[2]

§ Total sustaining and development capital expenditure expected to be approximately $130-140 million including $15 million of mine development at Inmaculada to access newly discovered veins

§ 2019 brownfield exploration budget expected to be $27 million with greenfield budget set at $10 million

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A conference call will be held at 2.00pm (London time) on Wednesday 16 January 2019 for analysts and investors. 

Dial in details as follows:

International Dial in: [phone]

UK Toll-Free Number: 0800 358 9473

Pin: 44129365#

A recording of the conference call will be available for one week following its conclusion, accessible from the following telephone number:

International: [phone]

UK Toll Free: 0800 358 2049

Pin: 301275703#

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Note: 2018 equivalent figures calculated using the previous Company gold/silver ratio of 74x. All 2019 forecasts assume the average gold/silver ratio for 2018 of 81x.

Overview

Hochschild delivered another strong quarter of attributable production with 127,728 gold equivalent ounces or 9.5 million silver equivalent ounces primarily driven by the continuing ramp-up of production from the Pablo vein at Pallancata and a robust period at San Jose partially offsetting a scheduled quarter of lower output at Inmaculada. Overall 2018 attributable production was a record 39.0 million silver equivalent ounces (526,650 gold equivalent ounces) which was due to a record year at Inmaculada as well as a much higher production from Pallancata.

The Company reiterates that its all-in sustaining cost per silver equivalent ounce for 2018 is expected to be in line with the positively revised guidance of $940-$970 per gold equivalent ounce ($12.7-13.1 per silver equivalent ounce).

TOTAL GROUP PRODUCTION

	Q4 2018	Q3 2018	Q4 2017	12 mths 2018	12 mths 2017
Silver production (koz)	5,791	5,794	5,784	22,720	22,301
Gold production (koz)	73.10	74.20	80.80	307.77	304.16
Total silver equivalent (koz)	11,201	11,285	11,763	45,495	44,809
Total gold equivalent (koz)	151.36	152.49	158.96	614.80	605.52
Silver sold (koz)	5,775	5,845	6,061	22,687	22,295
Gold sold (koz)	72.22	74.27	82.79	304.51	300.21

Total production includes 100% of all production, including production attributable to Hochschild's joint venture partner at San Jose.

ATTRIBUTABLE GROUP PRODUCTION

	Q4 2018	Q3 2018	Q4 2017	12 mths 2018	12 mths 2017
Silver production (koz)	4,975	5,051	4,864	19,700	19,141
Gold production (koz)	60.50	62.43	66.27	260.44	254.93
Silver equivalent (koz)	9,452	9,671	9,768	38,972	38,006
Gold equivalent (koz)	127.73	130.68	132.00	526.65	513.60

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

Production

Inmaculada

Product	Q4 2018	Q3 2018	Q4 2017	12 mths 2018	12 mths 2017
Ore production (tonnes treated)	320,400	332,411	337,358	1,323,525	1,295,701
Average grade silver (g/t)	157	138	146	150	145
Average grade gold (g/t)	4.32	3.96	4.29	4.36	4.15
Silver produced (koz)	1,255	1,320	1,363	5,690	5,506
Gold produced (koz)	37.74	40.13	41.53	174.20	165.07
Silver equivalent (koz)	4,048	4,289	4,436	18,581	17,721
Gold equivalent (koz)	54.71	57.96	59.95	251.09	239.48
Silver sold (koz)	1,251	1,317	1,445	5,676	5,498
Gold sold (koz)	37.27	39.77	43.48	172.40	162.32

Inmaculada's fourth quarter production was 37,743 ounces of gold and 1.3 million ounces of silver which amounts to gold equivalent production of 54,705 ounces with extracted grades being better than expected. Overall in 2018, Inmaculada has delivered record gold equivalent production of 251,090 ounces, a 5% improvement on 2017 (2017: 239,479 ounces).

Pallancata

Product	Q4 2018	Q3 2018	Q4 2017	12 mths 2018	12 mths 2017
Ore production (tonnes treated)	231,075	201,009	125,872	717,652	470,903
Average grade silver (g/t)	317	362	408	362	442
Average grade gold (g/t)	1.10	1.29	1.70	1.30	1.78
Silver produced (koz)	2,086	2,086	1,459	7,449	5,956
Gold produced (koz)	7.20	7.34	6.03	26.40	23.47
Silver equivalent (koz)	2,619	2,629	1,905	9,403	7,693
Gold equivalent (koz)	35.39	35.53	25.74	127.07	103.95
Silver sold (koz)	2.093	2,090	1,665	7,439	5,940
Gold sold (koz)	7.35	7.30	6.72	26.23	23.29

Pallancata produced 2.1 million ounces of silver and 7,200 ounces of gold bringing the silver equivalent total to 2.6 million ounces in Q4. The ramping up process for the Pablo vein was completed in the period with tonnage increasing and grades reducing in line with expectations. The full year result was 9.4 million silver equivalent ounces, a 22% improvement on 2017 (2017: 7.7 million ounces). The overall increase was driven by the above-mentioned new Pablo material in addition to average grades from the mix of material from Pablo, mine developments and ancillary veins being better than planned in the first half of the year.

San Jose (the Company has a 51% interest in San Jose)

Product	Q4 2018	Q3 2018	Q4 2017	12 mths 2018	12 mths 2017
Ore production (tonnes treated)	146,992	144,852	144,732	556,185	532,676
Average grade silver (g/t)	401	376	465	397	436
Average grade gold (g/t)	6.19	5.93	7.26	6.20	6.71
Silver produced (koz)	1,666	1,517	1,877	6,165	6,448
Gold produced (koz)	25.72	24.02	29.65	96.59	100.47
Silver equivalent (koz)	3,569	3,294	4,071	13,313	13,883
Gold equivalent (koz)	48.23	44.51	55.02	179.90	187.60
Silver sold (koz)	1,647	1,573	1,845	6,175	6,501
Gold sold (koz)	25.29	24.66	28.98	95.95	99.63

The San Jose operation in Argentina delivered a strong final quarter with planned increases in grade resulting in production of 1.7 million ounces of silver and 25,719 ounces of gold (3.6 million silver equivalent ounces). The overall production results for 2018 was 13.3 million silver equivalent ounces, a 4% reduction versus 2017 due to lower grades partially offset by a small increase in tonnage.

Arcata

Product	Q4 2018	Q3 2018	Q4 2017	12 mths 2018	12 mths 2017
Ore production (tonnes treated)	91,203	93,381	120,384	373,106	499,385
Average grade silver (g/t)	304	327	311.74	321	308
Average grade gold (g/t)	0.95	1.01	1.04	0.99	1.07
Silver produced (koz)	784	872	1,085	3,416	4,391
Gold produced (koz)	2.44	2.72	3.59	10.57	15.15
Silver equivalent (koz)	965	1,073	1,350	4,199	5,512
Gold equivalent (koz)	13.04	14.50	18.25	56.74	74.49
Silver sold (koz)	783	866	1,106	3,397	4,357
Gold sold (koz)	2.30	2.55	3.61	9.93	14.96

At Arcata, silver production in the fourth quarter was 784,464 ounces with gold production of 2,437 ounces, which resulted in silver equivalent production of 1.0 million ounces. Production for the year was 4.2 million silver equivalent ounces (2017: 5.5 million ounces), a result which reflected significantly reduced tonnage.

A decision on the future of the Arcata operation is expected to be made before the Full Year results on 20 February 2019.

Average realisable prices and sales

Average realisable precious metal prices in Q4 2018 (which are reported before the deduction of commercial discounts) were $1,263/ounce for gold and $15.2/ounce for silver (Q4 2017: $1,283/ounce for gold and $16.7/ounce for silver).

For 2018 as a whole, average realisable precious metal prices were $1,268/ounce for gold and $15.3/ounce for silver (2017: $1,270/ounce for gold and $16.9/ounce for silver).

Brownfield exploration

Inmaculada

On 7 November 2018, the Company disclosed a further update on resource drilling at Inmaculada.  The 2018 programme has added at least 95.1 million silver or 1.3 million gold equivalent ounces of inferred resources so far and the final figure for the year will be disclosed when the Company releases its annual Mineral Reserve and Resource Statement with the 2018 Annual Results.

During Q4, 8,341 metres of potential drilling and 10,591 metres of resource drilling was executed in the Millet, Divina, Lola, Lizina, Thalía and Barbara veins. Selected intercepts are detailed below:

Vein	Results (resource drilling)
Gera	LAD-18-012: 0.9m @ 1.3g/t Au & 32g/t Ag LAD-18-013: 1.0m @ 1.1g/t Au & 241g/t Ag LAD-18-016: 0.9m @ 7.4g/t Au & 26g/t Ag
Thalia	LIA-18-008: 1.0m @ 24.8g/t Au & 150g/t Ag LIA-18-009: 0.9m @ 5.8g/t Au & 7g/t Ag LIA-18-010: 0.8m @ 2.8g/t Au & 96g/t Ag LIA-18-013: 0.9m @ 3.9g/t Au & 67g/t Ag BEL-18-017: 0.8m @ 5.8g/t Au & 17g/t Ag
Millet	MIS-18-008: 0.9m @ 4.8g/t Au & 8g/t Ag MIS-18-009: 1.2m @ 2.7g/t Au & 45g/t Ag LIA-18-006: 1.1m @ 2.3g/t Au & 404g/t Ag LIA-18-009: 1.0m @ 5.0g/t Au & 91g/t Ag LIA-18-012: 1.0m @ 1.1g/t Au & 282g/t Ag
Lourdes tensional	MIS-18-008: 4.2m @ 2.8g/t Au & 66g/t Ag MIS-18-010: 1.5m @ 2.2g/t Au & 218g/t Ag
Divina	LOL-18-034: 0.9m @ 3.6g/t Au & 26g/t Ag
Rosa	LOL-18-036: 1.3m @ 2.1g/t Au & 59g/t Ag LOL-18-038: 0.8m @ 1.2g/t Au & 135g/t Ag LOL-18-039: 4.0m @ 1.8g/t Au & 271g/t Ag OLI-18-006: 0.8m @ 26.2g/t Au & 93g/t Ag
Rosy	LOL-18-033: 0.9m @ 9.0g/t Au & 1,134g/t Ag LOL-18-036: 0.8m @ 4.2g/t Au & 188g/t Ag LOL-18-038: 1.4m @ 1.5g/t Au & 142g/t Ag LOL-18-040: 0.9m @ 1.5g/t Au & 104g/t Ag OLI-18-006: 0.8m @ 3.4g/t Au & 224g/t Ag
Keyla	BEL-18-003: 1.9m @ 5.6g/t Au & 286g/t Ag BEL-18-007: 2.9m @ 2.8g/t Au & 183g/t Ag BEL-18-008: 1.0m @ 2.5g/t Au & 235g/t Ag BEL-18-014: 1.0m @ 2.0g/t Au & 177g/t Ag BEL-18-015: 3.2m @ 4.6g/t Au & 239g/t Ag
Bety	BEL-18-001: 2.8m @ 14.5g/t Au & 1,453g/t Ag BEL-18-004: 2.9m @ 15.2g/t Au & 1,381g/t Ag BEL-18-006: 0.8m @ 10.1g/t Au & 52g/t Ag BEL-18-012: 6.4m @ 2.1g/t Au & 107g/t Ag BEL-18-013: 2.6m @ 1.9g/t Au & 82g/t Ag

Vein	Results (potential drilling)
Thalia tensional	BEL-18-018: 3.5m @ 6.8g/t Au & 146g/t Ag
Keyla	BEL-18-019: 1.0m @ 4.1g/t Au & 49g/t Ag

 

Pallancata

Although the focus at Pallancata is on the 2019 drilling programme at Pablo Sur, Palca and Cochaloma, ore control drilling at the Cinthia vein in Ranichico and in Pablo Piso in Q4 has added additional resources.

Vein	Results
Pablo	DLEP-A38: 8.7m @ 3.6g/t Au & 1,105g/t Ag DLEP-A39: 8.4m @ 1.0g/t Au & 327g/t Ag
Cinthia	DLCN-A01: 0.9m @ 2.7/t Au & 412g/t Ag DLCN-A02: 1.0m @ 2.6/t Au & 355g/t Ag

San Jose

At San Jose, 2,575 metres were drilled in Q4 for potential resources in Aguas Vivas to test the polymetallic structure with further drilling continuing into the first quarter of 2019.

Vein	Results
Aguas Vivas	SJD-1851: 2.7m @ 0.3g/t Au, 44g/t Ag, 1.2% Cu, 4.6% Pb & 6.4% Zn SJD-1853: 0.7m @ 0.1g/t Au, 149g/t Ag, 2.6% Cu, 8.2% Pb & 6.4% Zn SJD-1854: 0.8m @ 0.2g/t Au, 64g/t Ag, 1.2% Cu, 1.0% Pb & 0.3% Zn SJD-1855: 0.5m @ 4.0g/t Au, 5g/t Ag, 0.7% Pb & 2.4% Zn SJD-1857: 0.6m @ 1.6g/t Au, 18g/t Ag, 0.1% Cu, 2.7% Pb & 2.2% Zn SJD-1858: 0.6m @ 0.4g/t Au, 48g/t Ag, 1.0% Cu, 0.2% Pb & 0.1% Zn

Arcata

In Q4, 4,859 metres potential resource drilling was carried out focusing on the Yoselin, Pamela New, Pamela and Soledad structures. The current programme continues into 2019 with the focus on the Pamela New, Soledad, W and Pamela New structures. Selected results are provided in the table below:

Vein	Results
Yoselin	DDH-353-JK-18: 1.3m @ 4.6g/t Au & 2,109g/t Ag DDH-355-JK-18: 0.8m @ 0.8g/t Au & 312g/t Ag
Yoselin tensional	DDH-353-JK-18: 0.8m @ 3.2g/t Au & 512g/t Ag
NW System 1	DDH-355-JK-18: 2.0m @ 2.0g/t Au & 778g/t Ag
NW System 2	DDH-353-JK-18: 0.8m @ 0.7g/t Au & 482g/t Ag DDH-355-JK-18: 1.0m @ 1.9g/t Au & 534g/t Ag
Soledad NW	DDH-354-ST-18: 0.8m @ 6.8g/t Au & 1,204g/t Ag DDH-595-S-18: 0.8m @ 1.1g/t Au & 288g/t Ag
Pamela New	DDH-355-JK-18: 0.8m @ 0.8g/t Au & 678g/t Ag DDH-595-S-18: 0.8m @ 1.4g/t Au & 465g/t Ag

Financial position

Total cash was approximately $80 million as at 31 December 2018 resulting in net debt of approximately $76 million. This cash balance reflects: substantially lower precious metal prices in the quarter; a temporary increase in working capital of approximately $10 million; the execution of a number of strategic investments; and increased investment in the Company's brownfield exploration programme.

In addition, on 6 December 2018, the Company repaid $50 million of its $100 million medium-term loan with Nova Scotia Bank and Citibank. The Company also refinanced $50 million of its short term debt with Scotiabank at a fixed interest rate of 3.0% for one year.

On 5 November 2018, Republic Metals Corp, a US-based dore refinery which has been a customer of the Company since 2013, filed for Chapter 11 bankruptcy protection. Invoices of approximately $2.3 million (attributable) are currently owed to Hochschild's joint venture Minera Santa Cruz in Argentina and of $0.5 million to the Company's principal operating subsidiary, Minera Ares.

 

Outlook

The overall attributable production target for 2019 is 457,000 gold equivalent ounces or 37.0 million silver equivalent ounces. The Arcata operation has been excluded from forecasts pending a final decision on the mine's future which, as mentioned above, is expected before the Full Year results in February.

2019 Production split

Operation	Gold production (oz approximate)	Silver production (m oz approximate)
Inmaculada	170,000	5.8
Pallancata	30,000	7.8
San Jose (100%)	103,000	6.4
Total	303,000	19.9

The all-in sustaining cost from operations in 2019 is expected to be between $960 and $1,000 per gold equivalent ounce (or $11.8 and $12.3 per silver equivalent ounce) which excludes Arcata and includes an investment of $15 million in development costs to incorporate the newly discovered resources at Inmaculada.

2019 AISC split

Operation	AISC ($/oz)
Inmaculada	790-830 Au Eq
Pallancata	13.5-14.0 Ag Eq
San Jose	13.5-14.0 Ag Eq

The overall capital expenditure budget for 2019 is approximately $130-140 million allocated to sustaining and development expenditure. This includes a $15 million investment in the above-mentioned new development costs at Inmaculada.

2019 Capital expenditure split

Operation	Sustaining & development capital expenditure ($m)
Inmaculada	60-64
Pallancata	30-34
San Jose	40-42

The brownfield exploration budget for 2019 is approximately $27 million with the greenfield and advanced project budget set at approximately $10 million.

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Enquiries:

Hochschild Mining plc

Charles Gordon                                                                                                                                                                                                       [phone]

Head of Investor Relations

Hudson Sandler

Charlie Jack                                                                                                                                                                                                              [phone]

Public Relations

_____________________________________________________________________________________

About Hochschild Mining plc

Hochschild Mining plc is a leading precious metals company listed on the London Stock Exchange (HOCM.L / HOC LN) with a primary focus on the exploration, mining, processing and sale of silver and gold. Hochschild has over fifty years' experience in the mining of precious metal epithermal vein deposits and currently operates four underground epithermal vein mines, three located in southern Peru and one in southern Argentina. Hochschild also has numerous long-term projects throughout the Americas.

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Forward looking statements

This announcement may contain forward looking statements. By their nature, forward looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will or may occur in the future. Actual results, performance or achievements of Hochschild Mining plc may, for various reasons, be materially different from any future results, performance or achievements expressed or implied by such forward looking statements.

The forward looking statements reflect knowledge and information available at the date of preparation of this announcement. Except as required by the Listing Rules and applicable law, the Board of Hochschild Mining plc does not undertake any obligation to update or change any forward looking statements to reflect events occurring after the date of this announcement. Nothing in this announcement should be construed as a profit forecast.

This announcement contains information which prior to its release could be considered inside information.

Note

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

LEI: 549300JK10TVQ3CCJQ89

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[1] 2018 equivalent figures calculated using the previous Company gold/silver ratio of 74x. All 2019 forecasts assume the average gold/silver ratio for 2018 of 81x.

[2] All in-sustaining cost from operations

 

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