Hochschild Mining Interim Results

RNS Number : 5678P
Hochschild Mining PLC
20 August 2014
 



 

 

 

20 August 2014

 

 

 

 

Hochschild Mining plc

 

Interim Results for the six months ended 30 June 2014

 

 

Financial highlights[1]

· Revenue of $282.0 million (H1 2013: $308.6 million)

· Adjusted EBITDA of $94.3 million (H1 2013: $90.4 million)[2]

· Profit before net finance income, FX and tax of $25.7 million (H1 2013: $1.2 million)

· Profit before tax of $9.1 million (H1 2013: $(10.3 million))

· EPS of $(0.01) (H1 2013: $(0.10))

· Cashflow optimisation programme exceeding expectations - approx. $270 million of savings achieved[3]:

o Production costs reduced by $94 million versus initial 2013 guidance

o Administration costs reduced by $34 million versus 2012

o Sustaining capital expenditure reduced by $67 million versus initial 2013 guidance

o Exploration costs reduced by $53 million versus initial 2013 guidance

· Main operation all-in sustaining costs lowered by 16% to $16.8 per ounce (H1 2013: $19.9)[4]

· Cash balance of $225.6 million as at 30 June 2014

· Term sheet signed for $100 million medium term credit facility[5]

 

Operational highlights

· H1 2014 attributable production of 11.9 million silver equivalent ounces

· Progress continues at flagship Inmaculada project:

o 68% overall project completion; plant at 33%

o Mine development, infrastructure, energy and engineering targets almost complete

 

Outlook

· Inmaculada plant set to commence commissioning at end of 2014

· 2014 production target of 21.0 million attributable silver equivalent ounces on track

· 0-5% reduction in all-in sustaining costs expected for 2014 vs. 2013

 

$000, pre-exceptional unless stated

Six months to

30 June 2014

Six months to

30 June 2013

% change

Attributable silver production (koz)

8,526

7,665

11

Attributable gold production (koz)

55

64

(14)

Net Revenue[6]

282,012

308,577

(9)

Adjusted EBITDA

94,282

90,410

4

Profit from continuing operations before income tax

9,129

(10,277)

189

(Loss)/profit from continuing operations

(1,546)

(25,215)

94

(Loss)/profit from continuing operations (post-exceptional)

(11,749)

(38,427)

69

Earnings per share ($ pre-exceptional)

(0.01)

(0.10)

90

Earnings per share ($ post-exceptional)

(0.04)

(0.10)

60

 

Commenting on the results, Eduardo Hochschild, Executive Chairman, said:

"Hochschild has continued to operate in an uncertain precious metal pricing environment but the Board is encouraged that over the last year, the organisation as a whole, has responded with a programme of measures that has substantially exceeded our initial projections and places the Company in a far firmer financial position. We are now looking forward to the commissioning of our latest mine and a return to value accretive growth.

 

The Board recognises that whilst there has been a marked improvement in the Company's financial results, the current level of capital expenditure required by the Inmaculada project restricts the potential to pay an interim dividend. We remain committed to the long term principle of delivering shareholder returns and the Board intends to once again reassess the position subject to the overall full year financial results."

_______________________________________________________________________________________

A live conference call & audio webcast will be held at 2pm (London time) on Wednesday 20 August 2014 for analysts and investors. Details as follows:

For a live webcast of the presentation please click on the link below:

http://www.media-server.com/m/p/6w42kwyd

 

Conference call dial in details:

UK: +44(0)20 3427 1914 (Please use the following confirmation code: 2818807).

                                                       

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

UK: +44 (0)20 3427 0598(Access code: 2818807)

 

The On Demand version of the webcast will be available within two hours after the end of the presentation and is accessible using the same webcast link.

_______________________________________________________________________________________

Enquiries:

Hochschild Mining plc

Charles Gordon                                                                          +44 (0)20 3714 9044

Head of Investor Relations

RLM Finsbury

Charles Chichester                                                                    +44 (0)20 7251 3801

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 almost fifty years' experience in the mining of precious metal epithermal vein deposits and currently operates three underground epithermal vein mines, two located in southern Peru and one in southern Argentina. Hochschild also has numerous long-term projects throughout the Americas.

CHIEF EXECUTIVE OFFICER'S STATEMENT

I am pleased to report that the cash optimisation programme carried out over the last year has exceeded expectations and Hochschild is now in a much better position in today's lower precious metal price environment. As the interim results demonstrate, the Company has shown its resilience and discipline with improved profitability despite lower price levels. We have also continued to invest for the future, and I can report that progress has continued to be made with the construction of our key Inmaculada project. When this mine reaches full capacity next year it will herald a new phase of low cost growth for the Company.  

 

Hochschild's operational teams delivered a robust half, producing 11.9 million silver equivalent ounces at a much lower overall cost. Despite the average price of silver achieved falling by a further 11% year-on year, we have produced a 4% rise in first half EBITDA to just over $94 million, an impressive result reflecting the ongoing success of our cost reduction initiatives. The increase in finance costs is related to the bond issued in January to fund the construction of Inmaculada and the soon-to-be-repaid convertible bond due in October. However, once the new mine commences production and the convertible repaid, the significance of this charge will be less important. We were still able to deliver a turnaround in profit before tax from a significant loss last year to $9.1 million for this half. From an income tax standpoint, we were also impacted by a charge resulting from the Argentine peso devaluation and the consequent decrease in the value of our peso-denominated tax base. On a net basis, I am pleased that we have seen a strong improvement from last year's pre-exceptional loss of $25 million.

 

On the financing side, our balance sheet has sufficient capacity to complete the construction of Inmaculada and fund the convertible loan repayment due in October of this year. I am also pleased that we have recently demonstrated our financial flexibility with the signing of a term sheet for a $100 million medium term credit facility at advantageous rates which, subject to closing, will provide more financial short term support if required as we enter a key stage of development with capital expenditure at its peak. Local short term credit lines remain mostly undrawn. We have also taken advantage of short periods of commodity price improvement to hedge almost 30% of our production for 2014 in order to realise a degree of cashflow certainty whilst project construction is in progress.

 

The Inmaculada project itself has made good progress in the first half as it moves towards completion at the end of the year. The EPC contractor commenced construction of the plant early in the second quarter and achieved almost 33% completion by the end of July although progress has been impacted by poor weather earlier in the year and slower than expected on-site recruitment. We have also had a busy period in terms of the other deliverables with procurement of all main equipment complete and another three kilometres of tunneling and raise boring also carried out bringing the total achieved for the entire project to over 13 kilometres. In addition, work on the transmission lines is complete and connection to the national grid was achieved at the end of May.

 

We implemented the cashflow optimisation programme a year ago with a target of approximately $200 million of efficiencies spread over H2 2013 and the first half of 2014 and I can now report that we have exceeded expectations with approximately $270 million of savings from across the organisation. At the operational level, where we have realised over $90 million of efficiencies, we have improved our supply chain negotiations, optimised a wide array of workforce practices and implemented several initiatives to lower ongoing costs at both the mining and processing operations. Sustaining capital expenditure has also been significantly reduced with only $56 million spent year-to-date versus an original 2013 full year budget of $180 million. In administration, we have continued to achieve significant savings in professional fees, further headcount reductions and the minimisation of compensatory schemes and travel expenses. In addition, the exploration and Advanced Project teams have undergone a substantial reorganisation which has now delivered over $50 million of savings versus our original 2013 budget. We remain focused on the delivery of further efficiencies and are targeting opportunities from operational areas such as mine planning, metallurgy, dilution control and procurement.

 

In line with the achievements from the above programme, the operations have enjoyed another solid half in terms of production and costs. The three main operations, Arcata and Pallancata in Peru and San Jose in Argentina, improved their collective ounce contribution versus the same period of last year and we were also able to deliver a better than expected final production result from the now closed Ares mine. On the operational cost side, all-in sustaining costs (AISC) at our main operations were reduced by 16% to $16.8 per silver equivalent ounce versus the first half of last year although we do expect that a number of annual cost items to be processed in the second half will limit the overall 2014 reduction to our current forecast of 0-5%.

 

The short term outlook for our underlying markets remains uncertain but with the beginning of Inmaculada's operation imminent, the cash optimisation programme generating better than expected results and the financial position of the Company secure, I am confident that we can look forward to an exciting twelve months as our latest capital project delivers new growth for the Company and our shareholders.

 

Ignacio Bustamante

Chief Executive Officer

19 August 2014

 

OPERATING REVIEW

 

CURRENT OPERATIONS

Production

In the first half of 2014, the Company delivered attributable production of 11.9 million silver equivalent ounces, including 8.5 million ounces of silver and 55.5 thousand ounces of gold and is on track to meet its full year production target of 21.0 million attributable silver equivalent ounces.

 

Costs

The Company's all-in sustaining costs (AISC) at its main operations were reduced by 16% in H1 2014 to $16.8 per ounce driven by operational initiatives resulting from the cashflow optimisation programme, an ongoing decrease in industry cost inflation and grade improvements particularly in Peru.7 Unit cost per tonne at its main Peruvian operations was reduced to $74.0 (H1 2013: $75.5). In Argentina, unit cost per tonne was reduced by 13% to $200.0 (H1 2013: $229.9). Please see page 14 of the Financial Review for further details on costs. 


 

 

Main operations

Arcata: Peru

The 100% owned Arcata underground operation is located in the Department of Arequipa in southern Peru. It commenced production in 1964.

 

Arcata summary 

Six months to

30 June 2014

Six months to 30 June 2013

% change

Ore production (tonnes)

365,573

427,274

(14)

Average silver grade (g/t)

262

195

34

Average gold grade (g/t)

0.81

0.69

17

Silver produced (koz)

2,895

2,292

26

Gold produced (koz)

8.76

7.88

11

Silver equivalent produced (koz)

3,420

2,764

24

Silver sold (koz)

2,947

2,332

26

Gold sold (koz)

8.58

7.83

10

Unit cost ($/t)

82.2

83.4

(1)

Total cash cost ($/oz Ag co-product)[8]

12.5

13.8

(9)

All-in sustaining cost ($/oz)

17.9

22.3

(20)

 

Production and sales

At Arcata, total silver equivalent production in the first half of 2014 increased by 24% to 3.4 million ounces (H1 2013: 2.8 million ounces) driven by higher grades and recoveries resulting from a greater proportion of material from stopes and developments, partially replacing, as expected, volumes processed from the low-grade Macarena Waste Dam Deposit which was almost entirely depleted by the end of the half. Arcata also benefited (in the first quarter) from the processing of stock mined in 2013. Due to better commercial terms for concentrate versus dore in 2014, the Company has decided to produce only concentrate this year.

 

On the 8th August 2014, the Arcata operation stopped production following strike action over 2014 remuneration arrangements. The dispute, initiated by one of the Peruvian labour unions, is expected to be declared illegal by the Ministry of Labour. A significant percentage of the workforce has now returned to work and the Company does not currently expect the dispute to impact the mine's full year production forecast.

 

 

Table Showing Contribution from Macarena Waste Dam Deposit

 

 

H1 2014

H1 2013

Total



Tonnage

365,573

427,274

Average head grade gold (g/t)

0.81

0.69

Average head grade silver (g/t)

261.93

194.67

Macarena



Tonnage

38,366

144,350

Average head grade gold (g/t)

0.25

0.29

Average head grade silver (g/t)

63.35

93.25

Stopes and Developments



Tonnage

327,207

282,924

Average head grade gold (g/t)

0.88

0.90

Average head grade silver (g/t)

285.21

246.42

 

In H1 2014, the dore produced at Arcata was sold to INTL Commodities, Johnson Matthey, Auramet and HSBC whilst the concentrate produced at the operation was sold to Consorcio Minero, Trafigura and Glencore.

 

Costs

In H1 2014, the unit cost per tonne at Arcata at $82.2 per tonne was flat versus the same period last year with the overall effects of the ongoing cost savings initiatives partially offset by the planned fall in the processing of the low cost Macarena material. However, all-in sustaining costs fell by 20% to $17.9 per ounce (H1 2013: $22.3 per ounce) due to a decline in production costs and sustaining capex resulting from cashflow optimisation programme initiatives as well as better grades.

 

Exploration

In H1 2014, 4,331 metres of drilling were carried out at Arcata. A detailed surface mapping and sampling campaign has been completed covering the Tunel 4, Marciano, Veta D and Looby areas covering a total of 1,330 ha. A drilling campaign with the aim of adding new resources began in early May with five drill holes carried out at the Irma, Pamela and Paralelas veins. Significant intercepts during the half included:

 

Vein

Results

Pamela

DDH616-LM14 :1.36m at 1.16 g/t Au & 663.95 g/t Ag

Pamela Norte

DDH626-GE14: 1.47m at 1.66 g/t Au & 953.96 g/t Ag

Paralela 1

DDH587-LM14: 1.43m at 6.75 g/t Au & 985 g/t Ag

Paralela 2

DDH587-LM14: 1.02m at 2.93 g/t Au & 465 g/t Ag

DDH617-LM14: 1.35m at 1.35 g/t Au & 242.53 g/t Ag

Paralela 3

DDH587-LM14: 1.00m at 4.02 g/t Au & 374 g/t Ag

Irma

DDH599-LM14: 1.74m at 0.23 g/t Au & 1,025 g/t Ag

 

Pallancata: Peru

The 100% owned Pallancata silver/gold property is located in the Department of Ayacucho in southern Peru, approximately 160 kilometres from the Arcata operation. Pallancata commenced production in 2007 and up until December 2013, Hochschild held a controlling interest of 60%, with International Minerals Corporation ("IMZ") as minority shareholder. Following the purchase of IMZ, Hochschild now owns 100% of the operation. Ore from Pallancata is transported 22 kilometres to the Selene plant for processing.

 

Pallancata summary

Six months to

30 June 2014

Six months to

30June 2013

% change

Ore production (tonnes)

523,695

523,824

-

Average silver grade (g/t)

264

253

4

Average gold grade (g/t)

1.12

1.13

(1)

Silver produced (koz)

3,588

3,534

2

Gold produced (koz)

12.84

14.11

(9)

Silver equivalent produced (koz)

4,358

4,380

(1)

Silver sold (koz)

3,615

3,590

1

Gold sold (koz)

13.11

13.67

(4)

Unit cost ($/t)

68.1

69.0

(1)

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

10.1

10.6

(5)

All-in sustaining cost ($/oz)

15.3

17.9

(15)

 

Production and sales

At the 100% owned Pallancata operation, consistent tonnage and silver and gold grades led to similar production versus the first half of 2013. Total silver equivalent production was 4.4 million silver equivalent ounces (H1 2013: 4.4 million ounces).

 

In H1 2014, the silver/gold concentrate from Pallancata was sold to Teck Metals Ltd., LS-Nikko Copper Inc and Glencore. 

 

Costs

Cost per tonne at Pallancata decreased to $68.1 in H1 2014 versus the same period last year ($69.0 per tonne). As at Arcata, costs were positively impacted by the cashflow optimisation programme although the impact was partially offset by a higher proportion of mineral extracted using conventional methods due to narrower veins. All-in sustaining costs fell by 15% versus the same period of 2013 with the positive effects of the cash optimisation programme reducing sustaining and development capital expenditure as well as administrative expenses.

 

Exploration

In H1 2014, 3,939 metres of drilling were carried out at Pallancata. The first half programme, which focused on mapping and sampling a total of 1,200 ha, was concentrated on the Yurika, Jakeline, Pilar, Jessica, Emilia, Tatiana, Vianka, Isis and Huararani vein systems. New surface structures Tatiana, Vianca and Larisa have also been recognised. In addition, drilling has been ongoing at two holes in the Vianca-Claudia and Yurika vein systems. 

 

San Jose: Argentina

The San Jose silver/gold mine is located in Argentina, in the province of Santa Cruz, 1,750 kilometres south-southwest of Buenos Aires and commenced production in 2007. Hochschild holds a controlling interest of 51% and is the mine operator with McEwen Mining Inc (formerly Minera Andes Inc.) holding the remaining 49%.

 

San Jose summary*

Six months to

30 June 2014

Six months to

30 June 2013

% change

Ore production (tonnes)

276,663

249,195

11

Average silver grade (g/t)

385

430

(10)

Average gold grade (g/t)

5.60

6.57

(15)

Silver produced (koz)

2,975

2,926

2

Gold produced (koz)

43.91

46.69

(6)

Silver equivalent produced (koz)

5,610

5,728

(2)

Silver sold (koz)

3,004

2,880

4

Gold sold (koz)

43.25

44.79

(3)

Unit cost ($/t)

200.0

229.9

(13)

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

12.9

14.9

(13)

All-in sustaining cost ($/oz)

17.3

20.4

(15)

*The Company has a 51% interest in San Jose

 

Production and sales

At the San Jose operation, total silver equivalent production for the first half was 5.6 million ounces (H1 2013: 5.7 million ounces) with lower silver and gold grades offset by increased tonnage versus the first half of 2013.

 

In H1 2014, the dore produced at San Jose was sold to Argor Heraeus and Republic Metals whilst the concentrate produced at the operation was sold to Aurubis AG, LS-Nikko Copper Inc, Consorcio Minero and Trafigura.

 

Costs

At San Jose, unit cost per tonne decreased by 13% versus H1 2013 to $200.0. This was due to the impact of the cash optimisation initiatives and a stronger than expected devaluation of the Argentine peso offsetting the effects of continuing high local inflation and a number of brief stoppages at the mine during the first half. All-in sustaining costs were reduced by 15% versus the same period of 2013 with cash optimisation initiatives helping to reduce sustaining and development capital expenditure by some 23% year-on-year.

 

Exploration

In 2014, the 2,000 metre potential drilling campaign has been focused on the definition of the new Ayelen, Nuevo 1 and Karina veins as well as drilling in the Los Pinos area. The team has already completed detailed surface mapping and sampling over the Los Pinos vein and identified another structure, Los Pinitos In addition, mapping of the Coyi and Nueva Ramona Rubia veins has identified additional corridors for the next drilling campaigns to focus on whilst further structures have been identified in the Sigmoide sector (located to the north east side) and to the west in the El Retiro Zone 4.

 

Other operations

Ares: Peru

The Ares mine, which commenced production in 1998, is a 100% owned operation located approximately 25 kilometres from Hochschild's Arcata mine in southern Peru.

 

Ares summary

Six months to

30 June 2014

Six months to

30 June 2013

% change

Ore production (tonnes)

167,331

149,828

12

Average silver grade (g/t)

110

71

55

Average gold grade (g/t)

2.34

2.52

(7)

Silver produced (koz)

525

328

60

Gold produced (koz)

11.46

11.84

(3)

Silver equivalent produced (koz)

1,213

1,038

17

Silver sold (koz)

518

334

 55

Gold sold (koz)

11.00

11.97

 (8)

 

Production and sales

The Company's Ares mine in Peru was closed in the second quarter with remaining production in the period delivering a better-than-expected total silver equivalent production of 626 thousand ounces (Q2 2013: 511 thousand ounces) driven by consistent grades. Total production for the first half was 1.2 million silver equivalent ounces (H1 2013: 1.0 million ounces)

 

100% of Ares' production is processed into dore, which was sold to Johnson Matthey and INTL Commodities in H1 2014.

 

Exploration

In 2014, exploration work has been focused on generating targets within the Ares-Arcata corridor and a 2,000 metre drilling campaign is taking place. A detailed surface mapping and sampling campaign has also been conducted at Ares North West covering an area of 55 ha which brings the total mapped area at the deposit to date to 3,731 ha.

 

Geological mapping to the south west of Ares is currently being carried out to identify drill targets for the next campaign with the required environmental permits in the process of being obtained.

 

PROJECT REVIEW

 

Inmaculada

At the Inmaculada project, the EPC contractor Graña y Montero started construction of the plant in late March and by the end of July, progress has reached almost 33%. Procurement of all main equipment has been completed and delivery to site is expected to be concluded by the end of August.

 

During the period, a further 2,226 metres of tunneling and 637 metres of raise boring were carried out with the total achieved for the entire project at 13,296 metres. Detailed engineering for the paste backfill is complete with filters, pumps and thickeners on order whilst work on the transmission lines has also finished with connection to the Peruvian national grid system carried out on 31 May 2014.

 

As of the end of June, mapping is being carried out at the Puquiopata and Huarmapata veins with a drilling campaign expected to follow. In addition, re-logging of the Angela vein system continues in order to optimise the geological model. The 2014 plan also includes a 5,000 metres drilling campaign in the Mayte vein corridor as well as near mine exploration at selected targets, in order to expand the current resources. A sampling and mapping campaign is also planned.

 

EXPLORATION REVIEW

 

The Company has an exploration budget of almost $30 million for 2014, representing 63,500 metres. This is being split between exploration work at the Company's existing operations, the Inmaculada Advanced Project and greenfield opportunities in Peru and Mexico. The main focus will continue to be on brownfield exploration.

 

In 2014, exploration work at the core operations is principally focused on identifying new potential and near-mine high grade areas to further improve the resource quality whilst at the Inmaculada Advanced Project, efforts are focused on identifying new potential high grade areas.

 

Hochschild's greenfield strategy for 2014 remains focused, as previously announced, on only the most promising prospects, specifically in Peru and Mexico.

 

Mexico

Pachuca

At the Pachuca Company Maker project in Mexico, the JV with Solitario Exploration & Royalty Corp has been focusing on the northwestern extension of the historical vein mining district. The 2014 plan includes testing the actual extensions of prior intercepts tested by the previous operator. A total 2,454 metres were drilled on 13 holes during the 2013 and 2014 campaigns. However, despite some drill holes showing economic gold and silver grades, continuous mineralisation could not be identified and therefore the project has been transferred back to Solitario.

 

Riverside Joint Venture

The exploration team has accepted two targets generated by Riverside, the JV partners in the western Sonora in Mexico. The projects are called Bohemia and Cajon and whereas Bohemia exhibits mineralised veins, orogenic type mineralisation has been observed at Cajon with highly frequent small mineralised veins off a detachment fault. Target definition is ongoing. Positive sampling campaigns have shown similar characteristics to the San Francisco mine, also in the Sonora district.

 

Peru

During the first half, the Company's exploration efforts in Peru focused on optimising the existing portfolio and reviewing any industry opportunities. One of these is the Corina project, located 15-20 km from the Selene plant and owned by Lara Exploration Ltd. The agreement drawn up includes an option giving Hochschild full ownership of the project over four years.

In addition, promising geochemical results have been obtained from the Ibel prospect in Peru.

FINANCIAL REVIEW

 

Key performance indicators   

(before exceptional items, unless otherwise indicated)

 

 $000 unless otherwise indicated

Six months to 30 June 2014

Six months to 30 June 2013[9]

% change

Net Revenue[10]

282,012

308,577

(9)

Attributable silver production (koz)

8,526

7,665

11

Attributable gold production (koz)

55

64

(14)

Cash costs ($/oz Ag co-product)[11]

11.83

13.35

(11)

Cash costs ($/oz Au co-product)11

803

785

2

Total all-in sustaining costs ($/oz)

17.5

21.2

(17)

Main operation all-in sustaining costs ($/oz)

16.8

19.9

(16)

Adjusted EBITDA[12]

94,282

90,410

4

(Loss)/profit from continuing operations

(1,546)

(25,215)

94

(Loss)/profit from continuing operations (post exceptional)

(11,749)

(38,427)

69

Earnings per share (pre exceptional)

(0.01)

(0.10)

90

Earnings per share (post exceptional)

(0.04)

(0.10)

60

Cash flow from operating activities[13]

44,159

4,279

932

 

The reporting currency of Hochschild Mining plc is U.S. dollars. In discussions of financial performance the Group removes the effect of exceptional items, unless otherwise indicated, and in the income statement results are shown both pre and post such exceptional items. Exceptional items are those items, which due to their nature or the expected infrequency of the events giving rise to them, need to be disclosed separately on the face of the income statement to enable a better understanding of the financial performance of the Group and to facilitate comparison with prior years. 

 

Revenue

Gross revenue

Gross revenue from continuing operations decreased 5% to $308.1 million in H1 2014 (H1 2013: $325.2 million) driven by the significant fall in precious metal prices.

 

Silver

Gross revenue from silver was broadly flat in H1 2014 versus the same period of 2013 at $206.8 million (H1 2013: $210.9 million) with lower metal prices offsetting the increase in the total amount of silver ounces sold which rose by 10% to 10,086 koz (H1 2013: 9,153 koz).

 

Gold

Gross revenue from gold decreased 11% in H1 2014 to $101.3 million (H1 2013: $114.3 million) also as a result of lower prices and also to some extent by a 9% decrease in gold sales with gold ounces sold in H1 2014 at 76.3 koz (H1 2013: 83.6 koz).

 

 

Gross average realised sales prices

The following table provides figures for average realised prices and ounces sold for H1 2014 and H1 2013:

 

Average realised prices

Six months to

30 June 2014

Six months to

30 June 2013

Silver ounces sold (koz)

10,086

9,153

Avg. realised silver price ($/oz)

20.5

23.0

Gold ounces sold (koz)

76.29

83.56

Avg. realised gold price ($/oz)

1,328

1,367

 

In March 2014, the Company signed agreements to hedge the sale of 2,000,000 ounces of silver at $22/ounce and 33,000 ounces of gold at $1,338/ounce, during the period from March to December 2014. Subsequently in June, the Company signed additional agreements to hedge the sale of a further 2,000,000 ounces of silver at $21/ounce, during the period from July to December 2014.

 

Commercial discounts

Commercial discounts refer to refinery treatment charges, refining fees and payable deductions for processing concentrates, and are discounted from gross revenue on a per tonne basis (treatment charge), per ounce basis (refining fees) or as a percentage of gross revenue (payable deductions). In H1 2014, the Group recorded commercial discounts of $26.2 million (H1 2013: $16.6 million). This increase is explained the decision to sell 100% of production from Arcata as concentrate due to improved commercial terms. The ratio of commercial discounts to gross revenue in H1 2014 increased to 9% (H1 2013: 5%).

 

Net revenue

Net revenue decreased by 9% to $282.0 million (H1 2013: $308.6 million), comprising silver revenue of $186.2 million and gold revenue of $95.8 million. In H1 2014, silver accounted for 66% and gold 34% of the Company's consolidated net revenue compared to 64% and 36% respectively in H1 2013.

 

Revenue by mine

$000 unless otherwise indicated

Six months to

30 June 2014

Six months to

30 June 2013

% change

Silver revenue




Arcata

60,273

60,334

-

Ares

10,420

8,604

21

Pallancata

75,154

79,056

(5)

San Jose

60,930

62,431

(2)

Moris

30

475

(94)

Commercial discounts

(20,634)

(12,323)

67

Net silver revenue

186,173

198,577

(6)

Gold revenue




Arcata

11,308

11,686

(3)

Ares

14,391

17,825

(19)

Pallancata

17,555

18,166

(3)

San Jose

57,629

58,367

(1)

Moris

441

8,209

(95)

Commercial discounts

(5,517)

(4,285)

29

Net gold revenue

95,807

109,968

(13)

Other revenue[14]

32

32

-

Net revenue

282,012

308,577

(9)

 

Costs

Total pre-exceptional cost of sales decreased by 10% to $209.4 million in H1 2014 (H1 2013: $233.4 million). Direct production costs decreased by 14% in H1 2014, to $131.3 million (H1 2013: $153.0 million) principally due to the positive effects of the Company's ongoing cash optimisation programme. Depreciation in H1 2014 was $58.9 million (H1 2013: $65.0 million) with the decrease mainly due to lower future capex depreciation resulting from a lower level of metres expected to be developed in 2014. Other items, which principally includes workers' profit sharing, was $3.0 million in H1 2014 (H1 2013: $3.7 million) with change in inventories at $16.3 million in H1 2014 (H1 2013: $11.6 million).

 

$000

Six months to

30 June 2014

Six months to

30 June 2013

% Change

Direct production cost excluding depreciation

131,276

153,047

(14)

Depreciation in production cost

58,856

64,961

(9)

Other items

2,978

3,724

(20)

Change in inventories

16,311

11,639

40

Pre-exceptional Cost of Sales

209,421

233,371

(10)

 

Unit cost per tonne

The Company reported unit cost per tonne at its main operations of $102.8 in H1 2014, a reduction of 5% compared to H1 2013 (H1 2014: $107.7). For further explanation on the increase in unit cost per tonne please refer to page 6 of the Operating Review. 

 

Unit cost per tonne by operation[15]:

Operating unit ($/tonne)

Six months to

30 June 2014

Six months to

30 June 2013

% change

Main operations

102.8

107.7

(5)

Peru

74.0

75.5

(2)

Arcata

82.2

83.4

(1)

Pallancata

68.1

69.0

(1)

Argentina




San Jose

200.0

229.9

(13)

Others




Ares

117.8

145.9

(19)

Total

104.6

111.8

(6)

 

 

Cash costs

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

 

Cash cost reconciliation[16]:

$000 unless otherwise indicated

Six months to

30 June 2014

Six months to

30 June 2013

% change

Group Cash Cost

187,672

199,474

(6)

(+) Cost of sales

209,421

233,371

                      (10)

(-) Depreciation in Cost of Sales

(62,761)

(67,462)

                        (7)

(+) Selling expenses

14,536

16,408

                      (11)

(+) Commercial deductions

26,476

17,157

              54 

Gold

5,529

4,301

                      29

Silver

20,947

12,856

              63

Revenue

282,012

308,577

                      (9)

Gold

95,807

109,968

                      (13)

Silver

186,173

198,577

(6)

Others

32

32

                      -

Ounces Sold




Gold

76.3

83.6

                      (9)

Silver

10,086

9,153

                      10

Group Cash Cost ($/oz)




Co product Au

836

851

(2)

Co product Ag

12.3

14.0

(12)

By product Au

(255)

(143)

  78

By product Ag

8.6

9.3

(8)

 

Cash costs are calculated based on pre-exceptional figures. Co-product cash cost per ounce is the cash cost allocated to the primary metal (allocation based on proportion of revenue), divided by the ounces sold of the primary metal. By-product cash cost per ounce is the total cash cost minus revenue and commercial discounts of the by-product divided by the ounces sold of the primary metal.

 

 

All-in sustaining cost reconciliation

All-in sustaining cash costs per silver equivalent ounce[17]

 

Six months to 30 June 2014

$000 unless otherwise indicated

Arcata

Pallancata

San José

Main Operations

Other Operations

Corporate & Others

Total

(+) Production Cost excluding depreciation

29,059

34,779

49,838

113,676

17,600

-

131,276

(+) Other items in Cost of Sales

992

647

656

2,295

683

-

2,978

(+) Operating & Exploration capex for units

18,164

17,859

20,926

56,949

(5)

431

57,375

(+) Brownfield exploration expenses

214

629

91

934

(61)

688

1,561

(+) Administrative expenses (w/o depreciation)

2,144

2,947

4,063

9,154

166

10,709

20,029

(+) Royalties

-

897

-

897

262

-

1,159

Sub-Total

50,573

57,758

75,574

183,905

18,645

11,828

214,378

Ounces Produced (Ag Eq oz)

3,420

4,358

5,610

13,388

1,213

-

14,602

Sub-total  ($/oz)

14.8

13.3

13.5

13.7

15.4

-

14.7

(+) Commercial deductions

9,846

7,872

8,758

26,476

-

-

26,476

(+) Selling expenses

1,054

977

12,461

14,492

44

-

14,536

Sub-total

10,900

8,849

21,219

40,968

44

-

41,012

Ounces Sold (Ag Eq oz)

3,461

4,402

5,599

13,462

1,201

-

14,663

Sub-total  ($/oz)

3.1

2.0

3.8

3.0

0.04

-

2.8

Total cash cost ($/oz Ag Eq)

11.9

10.1

12.8

11.7

15.1

-

12.0

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

17.9

15.3

17.3

16.8

15.4

-

17.5

 

 

Six months to 30 June 2013

$000 unless otherwise indicated

Arcata

Pallancata

San José

Main Operations

Other Operations

Corporate & Others

Total

(+) Production Cost excluding depreciation

34,780

37,134

55,536

127,450

25,397

-

152,847

(+) Other items in Cost of Sales

(638)

18

4,547

3,927

(3)

-

3,924

(+) Operating & Exploration capex for units

22,816

25,580

27,156

75,552

3,715

1,316

80,583

(+) Brownfield exploration expenses

826

760

861

2,447

158

1,303

3,908

(+) Administrative expenses (w/o depreciation)

3,540

4,639

4,252

12,430

1,184

13,455

27,069

(+) Royalties

-

943

-

943

268

-

1,211

Sub-Total

61,324

69,074

92,352

222,749

30,719

16,074

269,542

Ounces Produced (Ag Eq oz)

2,764

4,380

5,728

12,872

1,411

-

14,283

Sub-total  ($/oz)

22.2

15.8

16.1

17.3

21.8

-

18.9

(+) Commercial deductions

133

8,121

8,891

17,145

12

-

17,157

(+) Selling expenses

134

1,368

14,809

16,311

97

-

16,408

Sub-total

267

9,489

23,700

33,456

109

-

33,565

Ounces Sold (Ag Eq oz)

2,802

4,410

5,568

12,779

1,388

-

14,167

Sub-total  ($/oz)

0.1

2.2

4.3

2.6

0.1

-

2.4

Total cash cost ($/oz Ag Eq)

12.4

10.6

14.7

12.8

18.1

-

13.3

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

22.3

17.9

20.4

19.9

21.9

-

21.2

 

Administrative expenses

Administrative expenses before exceptional items were reduced by 26% to $21.4 million (H1 2013: $29.0 million) primarily due to the ongoing impact of the cashflow optimisation programme. Post-exceptional administrative expenses in H1 2014 totalled $22.2 million.

 

Exploration expenses

In H1 2014, pre-exceptional exploration expenses, decreased by 71% to $8.2 million (H1 2013: $27.8 million) again due to the effects of the cashflow optimisation programme. Post-exceptional exploration expenses in H1 2014 totalled $8.7 million.

 

In addition, the Group capitalises part of its brownfield exploration, which mostly relates to costs incurred converting potential resource to the Inferred or Measured and Indicated category. In H1 2014, the Company capitalised $1.2 million relating to brownfield exploration compared to $0.3 million in H1 2013, bringing the total investment in exploration for 2013 to $9.4 million (H1 2013: $28.1 million). $79.6 million was also invested in the Company's Advanced and Growth Projects.

 

Selling expenses

Selling expenses were lower than H1 2013at $14.5 million (H1 2013: $16.4 million) as a result of lower prices. Selling expenses mainly consist of export duties at San Jose with export duties in Argentina levied at 10% of revenue for concentrate and 5% of revenue for dore.

 

Other income/expenses

Other income before exceptional items was $2.0 million (H1 2013: $3.5 million), whilst other expenses before exceptional items reached $4.8 million (H1 2013: $4.3 million) mainly due the new reserves tax in Argentina.

 

Profit from continuing operations before exceptional items, net finance costs, foreign exchange loss and income tax

Profit from continuing operations before exceptional items, net finance costs and income tax increased to $25.7 million (H1 2013: $1.2 million) as a result of the factors detailed above.

 

Adjusted EBITDA

Adjusted EBITDA increased by 4% despite lower silver and gold prices over the period to $94.3 million (H1 2013: $90.4 million) principally due to lower cost of sales and administrative expenses.

 

Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs and income tax plus depreciation and exploration expenses other than personnel and other exploration related fixed expenses.

 

$000 unless otherwise indicated

Six months to

30 June 2014

Six months to

30 June 2013

% change

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

25,738

1,195

(2,054)

Operating margin

9%

0%


Depreciation and amortisation in cost of sales

62,761

67,462

(7)

Depreciation and amortisation in administrative expenses

1,324

1,969

(33)

Exploration expenses

8,175

27,770

(71)

Personnel and other exploration related fixed expenses

(3,716)

(7,986)

53

Adjusted EBITDA

94,282

90,410

(4)

Adjusted EBITDA margin

33%

29%


 

Finance income

Finance income before exceptional items of $1.8 million was reduced from H1 2013 ($5.3 million) mainly due to lower interest received on deposits and liquidity funds ($2.6 million) as well as lower dividends received from Gold Resource Corporation ($1.2 million).

 

Finance costs

Finance costs before exceptional items increased to $18.1 million in H1 2014 (H1 2013: $7.3 million) principally due to the interest due on $350 million of Senior Notes (issued in January 2014 via the Company's wholly owned subsidiary, Compañía Minera Ares S.A.C) with a coupon rate of 7.75% due for repayment in 2021.

 

Foreign exchange losses

The Group recognised a foreign exchange loss of $0.3 million (H1 2013: $15.4 million loss) as a result of exposures in currencies other than the functional currency.

 

Income tax

The Company's pre-exceptional income tax was $10.7 million (H1 2013: $14.9 million). H1 2014 income tax was negatively affected by the reduction of the local currency tax base in Argentina resulting from the devaluation of the Argentinean Peso (US$ 5.9 million).

 

Exceptional items

Exceptional items in H1 2014 totalled $(10.2) million after tax (H1 2013: $(13.2) million). The tables below detail the exceptional items excluding the exceptional tax effect that amounted to $2.3 million. 

 

Exceptional items in H1 2014 totalled ($12.5) million before tax (H1 2013: $38.4 million). This mainly comprises the following items: 

 

 

Negative exceptional items:

Main items

$000

Description of main items

Termination benefits

(4,916)

 

 

Termination benefits paid to the workers following the Ares mine unit closure ($3.5 million) and the ongoing cashflow optimisation programme restructuring (Administrative expenses: $0.9 million and Exploration expenses: $0.5 million)

Other expenses

 

(2,963)

 

Loss generated by the sale of the Group´s interest in Minas Santa María de Moris, S.A. de C.V. ("Moris") to Exploraciones y Desarrollos Regiomontanos, S.A. de C.V. and Arturo Préstamo Elizondo.

 

Impairment and write-off of non-financial assets (net)

 

(476)

 

Write off of assets in Compañía Minera Ares S.A.C. of $345,000 and Minera Santa Cruz S.A. of $131,000

 

Finance cost

(4,189)

Includes $3.3 million of transaction costs related to the Bridge Loan Facility and $1.7 million loss on disposal of GRC shares, partially offset by a net gain on the sale of part of the Group´s holding in Chaparral Gold Corp and Mirasol Resources Ltd of $547,000 and $201,000 respectively.

 

Cash flow & balance sheet review     

Cash flow:

$000 unless otherwise indicated

Six months to

30 June 2014

Six months to

30 June 2013

change

Net cash generated from operating activities

44,159

4,279

39,880

Net cash used in investing activities

(127,049)

(130,463)

3,414

Cash flows generated/(used) in financing activities

27,374

20,764

6,610

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

(55,516)

(105,420)

49,904

 

Operating cash flow increased from $4.3 million in H1 2013 to $44.2 million in H1 2014, mainly due to cost reductions. Net cash used in investing activities remained flat at $(127.0) million in H1 2014 from $(130.5) million in H1 2013 due to lower operational expenditures in line with the implementation of the cashflow optimisation programme during H1 2014 ($(56.9) million vs. $(79.3) million in H1 2013), offset by higher project capex at Inmaculada during H1 2014 ($(75.6) million vs. $(40.0) million in H1 2013. Finally, cash used in financing activities increased to $27.4 million from $20.8 million in H1 2013, primarily as a result of the proceeds from the $350 million Senior Notes, partially offset by repayment of the bridge loan facility ($270.0 million) and short term debt in Peru ($30.0 million) and Argentina. As a result, total cash generated increased from $(105.4) million in H1 2013 to $(55.5) million in H1 2014 ($49.9 million difference).

 

Working capital

$000 unless otherwise indicated

Six months to

30 June 2014

Six months to

30 June 2013

Trade and other receivables

194,265

155,682

Inventories

54,135

68,905

Net other financial assets / (liabilities)

5,207

(16,123)

Net Income tax receivable / (payable)

21,514

23,137

Trade and other payables and provisions

(181,641)

(173,740)

Working Capital

93,480

57,861

 

The Company's working capital position increased to $93.5 million in H1 2014 from $57.9 million in H1 2013. This was primarily explained by higher trade and other receivables ($38.6 million) due to longer concentrate sales collection periods at Arcata. Also, net other financial assets increased to $5.2 million in H1 2014 from $(16.1) million in H1 2013 due to recognised gain from hedge agreements.

 

Net cash

$000 unless otherwise indicated

Six months to

30 June 2014

Six months to

30 June 2013

Cash and cash equivalents

225,550

239,274

Long term borrowings

(354,512)

(107,944)

Short term borrowings[18]

(126,340)

(39,775)

Net cash/(debt)

(255,302)

91,555

  

The Group reported net cash of $(255.3) million as at 30 June 2014 (H1 2013: $91.6 million). Changes were driven by: i) lower cash and cash equivalents of $13.7 million due to the acquisition of International Minerals Corporation in 2013 ($271 million) and capex at Inmaculada ($134 million), partially offset by proceeds from the $350 million Senior Notes issued in January 2014 and the equity placing in October 2013 ($71.3 million); ii) higher long term borrowings resulting from the Senior Notes issue.

 

The Company's short-term borrowings are its $115 million convertible bond that has a current conversion price of £3.80 due in October 2014and short term debt raised in Argentina. 

 

Capital expenditure[19] 

$000 unless otherwise indicated

Six months to

30 June 2014

Six months to

30 June 2013

Arcata

18,164

22,816

Ares

(5)

2,798

Selene

156

672

Pallancata

17,703

24,908

San Jose

20,926

27,156

Moris

-

917

Operations

56,949

79,267

Inmaculada

75,595

39,970

Crespo

2,467

11,177

Volcan

972

3,253

Azuca

578

3,194

Other

431

1,347

Total

136,987

138,208

 

H1 2014 capital expenditure of $137.0 million (H1 2013: $138.2 million) includes operating capex of $55.7 million, capitalised exploration costs of $1.2 million in respect of the Group's operating mines, $75.6 million capitalised in Inmaculada, $2.5 million capitalised in Crespo, $1.6 million in Azuca and Volcan, and administrative capital expenditure of $0.4 million.

 

RISKS


The principal risks and uncertainties facing the Company in respect of the year ended 31 December 2013 are set out in detail in the Risk Management section of the 2013 Annual Report and in Note 36 to the 2013 Consolidated Financial Statements.

 

The key risks disclosed in the 2013 Annual Report (available at www.hochschildmining.com) are categorised as:

 

o Financial risks which include commodity price risk and counterparty credit risk;

o Operational risks including the risks associated with operational performance, delivery of projects, business  interruption, exploration & reserve and resource replacement and personnel;

o Macro-economic risks which include political, legal and regulatory risks; and

o Sustainability risks including risks associated with health and safety, environmental and community relations.

 

These risks continue to apply to the Company in respect of the remaining six months of the financial year. 

 

In terms of the changes in the profile of these risks, the Board recognises the heightened level of financial risk that results from the combination of (i) a volatile precious metals pricing environment and (ii) the Company's forthcoming commitments which include the maturity of the convertible bond in October and the capital demands of the Inmaculada project as it enters its final stages before production commences. 

 

The Company's risk management strategy overseen by the Board has prompted a number of actions taken by management to mitigate this risk which primarily include:

 

o implementation of the Cash Optimisation Plan which has led to material savings that are sustainable going forward; and

o the successful negotiation, subsequent to 30 June 2014, of a term sheet for the arrangement of a $100m medium term loan facility which, on closing, together with undrawn short-term credit lines, will provide the Company with further financial flexibility.

 

The Board expects that the Group's financial position will improve significantly after the commencement of production at Inmaculada which in addition to increasing the Group's total production, will increase margins given its lower costs of production relative to the Group's other mines. 

 

GOING CONCERN

 

Having considered cash flow projections under a number of gold and silver pricing scenarios which take into account, among other things, the convertible bond maturity and the expenditure required at Inmaculada on the one hand and the mitigating actions taken by management described above on the other hand, the Directors are satisfied that the Company has sufficient resources to continue in operation for the foreseeable future. Accordingly, adoption of the going concern basis in the preparation of the financial statements contained herein is considered to be appropriate. 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

 

The Directors confirm that, to the best of their knowledge, the interim condensed consolidated financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union and that the interim management report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.7 and 4.2.8.

A list of current Directors and their functions is maintained on the Company's website.

For and on behalf of the Board

Ignacio Bustamante
Chief Executive Officer

19 August 2014

 

INDEPENDENT REVIEW REPORT TO HOCHSCHILD MINING PLC

 

Introduction

We have been engaged by Hochschild Mining plc (the 'Company') to review the condensed set of financial statements in the half-yearly financial report for the six months ended  30 June 2014 which comprises the Interim condensed consolidated income statement, the Interim condensed consolidated statement of comprehensive income, the Interim condensed consolidated statement of financial position, the Interim condensed consolidated statement of cash flows, the Interim condensed consolidated statement of changes in equity and the related notes 1 to 19. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

 

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

 

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

Ernst & Young LLP
London
19 August 2014

 

Interim condensed consolidated income statement

 


Notes


Six-months ended 30 June 2014 (Unaudited)


Six-months ended 30 June 2013 (Unaudited)






Before exceptional items US$000


Exceptional items Note 6

US$000


Total US$000


Before exceptional items US$000


Exceptional items Note 6

US$000


Total US$000


Continuing operations
















Revenue


4


282,012


-


282,012


308,577


-


308,577


Cost of sales


5


(209,421)


(3,511)


(212,932)


(233,371)


(200)


(233,571)


Gross profit




72,591


(3,511)


69,080


75,206


(200)


75,006


Administrative expenses




(21,355)


(868)


(22,223)


(29,039)


(1,006)


(30,045)


Exploration expenses




(8,175)


(537)


(8,712)


(27,770)


(1,911)


(29,681)


Selling expenses




(14,536)


-


(14,536)


(16,408)


-


(16,408)


Other income




2,030


-


2,030


3,501


-


3,501


Other expenses




(4,817)


(2,963)


(7,780)


(4,295)


-


(4,295)


Impairment and write-off of non-financial assets (net)




-


(476)


(476)


-


(61,930)


(61,930)


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




25,738


(8,355)


17,383


1,195


(65,047)


(63,852)


Share of post tax profit of associates and joint ventures accounted under the equity method




-


-


-


5,921


-


5,921


Finance income


7


1,813


-


1,813


5,311


-


5,311


Gain on transfer from investment accounted under the equity method to available-for-sale financial assets




-


-


-


-


107,942


107,942


Finance costs


7


(18,087)


(4,189)


(22,276)


(7,331)


(81,320)


(88,651)


Foreign exchange loss




(335)


-


(335)


(15,373)


-


(15,373)


(Loss)/profit from continuing operations before income tax




9,129


(12,544)


(3,415)


(10,277)


(38,425)


(48,702)


Income tax (expense)/benefit


8


(10,675)


2,341


(8,334)


(14,938)


25,213


10,275


(Loss)/profit for the period from continuing operations




(1,546)


(10,203)


(11,749)


(25,215)


(13,212)


(38,427)


Attributable to:
















Equity shareholders of the Company




(2,469)


(10,161)


(12,630)


(34,406)


(49)


(34,455)


Non-controlling interests




923


(42)


881


9,191


(13,163)


(3,972)






(1,546)


(10,203)


(11,749)


(25,215)


(13,212)


(38,427)


Basic and diluted earnings per ordinary share from continuing operations and for the period (expressed in U.S. dollars per share)




(0.01)


(0.03)


(0.04)


(0.10)


-


(0.10)

 

 

Interim condensed consolidated statement of comprehensive income

 

 


Notes


Six-months ended 30 June






2014 (Unaudited) US$000


2013 (Unaudited) US$000  










Loss for the period




(11,749)


(38,427)


Other comprehensive income to be reclassified to profit or loss in subsequent periods:








Exchange differences on translating foreign operations




(79)


(910)


Change in fair value of available-for-sale financial assets




2,538


(77,289)


Recycling of the loss on available-for-sale financial assets




934


81,191


Change in fair value of cash flow hedges




4,294


-


Recycling of the gain on cash flow hedges




(2,189)


-


Deferred income tax relating to components of other comprehensive income




(631)


-


Other comprehensive gain for the period, net of tax




4,867


2,992


Total comprehensive (expense)/income for the period




(6,882)


(35,435)


Total comprehensive (expense)/income attributable to:








Equity shareholders of the Company




(7,763)


(31,463)


Non-controlling interests




881


(3,972)






(6,882)


(35,435)


 

 

Interim condensed consolidated statement of financial position

 


Notes


As at 30
June
2014

 (Unaudited) US$000


As at 31
December
2013

 US$000     


ASSETS








Non-current assets








Property, plant and equipment


9


942,363


873,477


Evaluation and exploration assets


10


210,701


204,643


Intangible assets


10


43,713


43,683


Available-for-sale financial assets


11


40,075


51,658


Trade and other receivables




11,565


12,128


Deferred income tax assets




1,960


2,416






1,250,377


1,188,005


Current assets








Inventories




54,135


69,556


Trade and other receivables




182,700


167,740


Income tax receivable




25,720


22,156


Other financial assets


12


5,207


-


Cash and cash equivalents


14


225,550


286,435






493,312


545,887


Total assets




1,743,689


1,733,892










EQUITY AND LIABILITIES








Capital and reserves attributable to shareholders of the Parent








Equity share capital




170,389


170,389


Share premium




396,021


396,021


Treasury shares




(898)


(898)


Other reserves




(205,910)


(211,143)


Retained earnings




498,862


511,492






858,464


865,861


Non-controlling interests




99,745


104,375


Total equity




958,209


970,236


 

Non-current liabilities








Trade and other payables




118


174


Borrowings


15


343,174


-


Provisions




83,558


79,649


Deferred income




23,000


22,000


Deferred income tax liabilities




95,781


93,505






545,631


195,328


Current liabilities








Trade and other payables




90,730


119,222


Other financial liabilities


12


-


2,294


Borrowings


15


137,678


435,925


Provisions




7,235


9,573


Income tax payable




4,206


1,314






239,849


568,328


Total liabilities




785,480


763,656


Total equity and liabilities




1,743,689


1,733,892


 

 

Interim condensed consolidated statement of cash flows

 


Notes


Six-months ended 30 June






2014 (Unaudited) US$000


2013 (Unaudited) US$000


Cash flows from operating activities








Cash generated from operations




56,477


19,695


Interest received




1,533


1,614


Interest paid




(6,021)


(3,303)


Payments of mine closure costs




(2,485)


(1,176)


Income tax paid




(5,345)


(12,551)


Net cash generated from operating activities




44,159


4,279


Cash flows from investing activities








Purchase of property, plant and equipment




(140,456)


(123,864)


Purchase of evaluation and exploration assets




(2,188)


(11,707)


Purchase of intangibles




(281)


(678)


Dividends received




414


4,098


Acquisition of subsidiary




-


(14,615)


Deferred income received related to San Felipe property




1,223


16,000


Proceeds from sale of available-for-sale financial assets




14,121


-


Proceeds from sale of property, plant and equipment




118


303


Net cash used in investing activities




(127,049)


(130,463)


Cash flows from financing activities








Proceeds of borrowings


15


357,812


33,114


Repayment of borrowings


15


(322,828)


(412)


Dividends paid


16


(7,610)


(16,318)


Capital contribution from non-controlling interest




-


4,380


Cash flows generated from financing activities




27,374


20,764


Net decrease in cash and cash equivalents during the period




(55,516)


(105,420)


Exchange difference




(5,369)


(14,250)


Cash and cash equivalents at beginning of period




286,435


358,944


Cash and cash equivalents at end of period


14


225,550


239,274



Interim condensed consolidated statement of changes in equity

 


















Other reserves











Notes


Equity

share

capital US$000


Share premium US$000



 

 

 

Treasury Shares US$000



Unrealised gain/(loss) on available-for-sale financial assets US$000



Unrealised gain/(loss) on hedges US$000


Bond equity component US$000



Cumulative translation adjustment US$000


Merger  reserve US$000


Share-based payment reserve US$000


Total
other
reserves US$000


Retained earnings US$000


Capital and reserves attributable to shareholders
of the Parent US$000


Non-controlling interests US$000


Total Equity US$000


 










 

Balance at 1 January 2014




170,389


396,021



(898)



1,024



-


8,432



(11,289)


(210,046)


736


(211,143)


511,492


865,861


104,375


970,236


Other comprehensive gain/ (loss)




-


-



-



3,472



1,474


-



(79)


-


-


4,867


-


4,867


-


4,867


Loss for the period




-


-



-



-



-


-



-


-


-


-


(12,630)


(12,630)


881


(11,749)


Total comprehensive (loss)/income for the period




-


-



-



3,472



1,474


-



(79)


-


-


4,867


(12,630)


(7,763)


881


(6,882)


Deferred bonus plan




-


-



-



-



-


-



-


-


106


106


-


106


-


106


CEO LTIP




-


-



-



-



-


-



-


-


260


260


-


260


-


260


Dividends declared to non-controlling interests


16


-


-



-



-



-


-



-


-


-


-


-


-


(5,511)


(5,511)


Balance at 30 June 2014




170,389


396,021



(898)



4,496



1,474


8,432



(11,368)


(210,046)


1,102


(205,910)


498,862


858,464


99,745


958,209






































Balance at 1 January 2013




158,637


395,928



(898)



(3,330)



-


8,432



(10,447)


(210,046)


445


(214,946)


720,011


1,058,732


264,518


1,323,250


Other comprehensive (loss)




-


-



-



3,902



-


-



(910)


-


-


2,992


-


2,992


-


2,992


Loss for the period




-


-



-



-



-


-



-


-


-


-


(34,455)


(34,455)


(3,972)


(38,427)


Total comprehensive (loss)/income for the period




-


-



-



3,902



-


-



(910)


-


-


2,992


(34,455)


(31,463)


(3,972)


(35,435)


Issuance of shares




7


93



-



-



-


-



-


-


-


-


-


100


-


100


Expiration of dividends




-


-



-



-



-


-



-


-


-


-


-


-


(38)


(38)


Capital contribution from non-controlling interest




-


-



-



-



-


-



-


-


-


-


-


-


4,381


4,381


CEO LTIP




-


-



-



-



-


-



-


-


145


145


-


145


-


145


Dividends declared to non-controlling interests


16


-


-



-



-



-


-



-


-


-


-


-


-


(6,000)


(6,000)


Dividends


16


-


-



-



-



-


-



-


-


-


-


(10,139)


(10,139)


-


(10,139)


Balance at 30 June 2013




158,644


396,021



(898)



572



-


8,432



(11,357)


(210,046)


590


(211,809)


675,417


1,017,375


258,889


1,276,264



Notes to the interim condensed 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 office is located at 23 Hanover Square, London W1S 1JB, 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 two operating mines (Arcata and Pallancata) and two plants (Selene used to treat ore from the Pallancata mine and Ares) located in Southern Peru, and one operating mine (San Jose) located in Argentina. The Group also has a portfolio of projects located across Peru, Argentina, Mexico and Chile at various stages of development.

 

The Group sold the Moris plant, located in Mexico, and closed the Ares mine unit, located in Peru, during the six month period ended 30 June 2014.

 

These interim condensed consolidated financial statements were approved for issue on behalf of the Board of Directors on 19 August 2014.

 

2    Significant Accounting Policies

(a)    Basis of preparation

These interim condensed consolidated financial statements set out the Group's financial position as at 30 June 2014 and 31 December 2013 and its financial performance and cash flows for the periods ended 30 June 2014 and 30 June 2013.

 

They have been prepared in accordance with IAS 34 Interim Financial Reporting in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union. Accordingly, the interim condensed 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 2013 annual consolidated financial statements as published in the 2013 Annual Report.

 

The interim condensed consolidated financial statements do not constitute statutory accounts as defined in the Companies Act 2006.  The financial information for the full year is based on the statutory accounts for the financial year ended 31 December 2013.  A copy of the statutory accounts for that year, which were prepared in accordance with IFRS as adopted by the European Union has been delivered to the Registrar of Companies. The auditors' report under section 495 of the Companies Act 2006 in relation to those accounts was unmodified and did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain a statement under s498(2) or s498(3) of the Companies Act 2006.

 

The impact of the seasonality or cyclicality of operations is not regarded as significant on the interim condensed consolidated financial statements.

 

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

 

(b)    Changes in accounting policies and disclosures

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those applied in the preparation of the consolidated financial statements for the year ended 31 December 2013, except for the adoption of the following standards and interpretations:

·      IFRS 7 'Disclosures - Offsetting Financial Assets and Financial Liabilities - Amendments to IFRS 7', applicable for annual periods beginning on or after 1 July 2013

These amendments require an entity to disclose information about rights to set-off and related arrangements. The disclosures would provide users with information that is useful in evaluating the effect of netting arrangements on an entity´s financial position. The new disclosures are required for all recognised financial instruments that are set off in accordance with IAS 32 'Financial Instruments: Presentation.' The disclosures also apply to recognised financial instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are set off in accordance with IAS 32. These amendments have no impact on the Group's financial position or performance.

·      IFRS 10 'Consolidated Financial Statements', applicable for annual periods beginning on or after 1 January 2014

IFRS 10 replaces the portion of IAS 27 'Consolidated and separate financial statements' that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC-12 'Consolidation-special purposes entities'. IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The application of this new standard has no impact on the Group´s financial position or performance.

·      IFRS 11 'Joint arrangements', applicable for annual periods beginning on or after 1 January 2014

IFRS 11 replaces IAS 31 'Interests in joint ventures' and SIC-13 'Jointly-controlled entities non-monetary contributions by venturers'. Instead, jointly-controlled entities that meet the definition of a joint venture must be accounted for using the equity method. The application of this new standard has no impact on the Group's financial position or performance.

·      IFRS 12 'Disclosure of involvement with other entities', applicable for annual periods beginning on or after 1 January 2014

IFRS 12 applies to an entity that has an interest in subsidiaries, joint arrangements, associates and/or structured entities. Many of the disclosure requirements of IFRS 12 were previously included in IAS 27, IAS 31, and IAS 28. A number of new disclosures are also required. The standard affects financial statement disclosure only and has no impact on the Group's financial position or performance.

·      IAS 28 'Investments in Associates and Joint Ventures (as revised in 2011)', applicable for annual periods beginning on or after 1 January 2014

IAS 28 'Investments in Associates', has been renamed IAS 28 'Investments in Associates and Joint Ventures', and describes the application of the equity method to investments in joint ventures in addition to associates. The amendment has no impact on the Group´s financial position or performance.

·      IAS 32 'Offsetting Financial Assets and Financial Liabilities - Amendment to IAS 32', applicable for annual periods beginning on or after 1 January 2014

These amendments clarify the meaning of 'currently has a legally enforceable right to set-off'. The amendments also clarify the application of the IAS 32 offsetting criteria to settlement systems which apply gross settlement mechanisms that are not simultaneous. The amendment has no impact on the Group´s financial position or performance.

·      IAS 36 'Impairment of Assets' - recoverable amount disclosures

The amendment to the standard was issued in May 2013 and becomes effective for financial years beginning on or after 1 January 2014. The amendment removes the requirement to disclose recoverable amounts when there has been no impairment or reversal of impairment. Further to that, the disclosure requirements have been aligned with those under US GAAP for impaired assets. The standard affects financial statement disclosure only and has no impact on the Group's financial position or performance.

·      IFRIC Interpretation 21 Levies (IFRIC 21), applicable for annual periods beginning on or after 1 January 2014

IFRIC 21 clarifies that an entity recognises a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached. The rule has no impact on the Group´s financial position or performance.

·      IAS 39 Novation of Derivatives and Continuation of Hedge Accounting - Amendments to IAS 39, applicable for annual periods beginning on or after 1 January 2014

These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. The Group has not novated its derivatives during the current period. However, these amendments would be considered for future novations.

 

The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

 

The Group has also entered into certain commodity forward contracts during the period. The Group has applied its policy for interest rate swaps qualifying as cash flow hedges, as disclosed in the consolidated financial statements for the year ended 31 December 2013, to these contracts.

 

3    Segment Reporting

The following tables present revenue, profit and asset information for the Group's operating segments for the six months ended 30 June 2014 and 2013 respectively:

                                          

Six months ended   30 June 2014


Ares US$000


Arcata US$000


Pallancata US$000


San Jose US$000


Moris US$000


Exploration and Advanced Projects US$000


Other US$000


Adjustments and eliminations US$000


Total US$000

Revenue from external customers


24,811


61,735


84,837


110,126


471


-


32


-


282,012

Inter segment revenue


-


-


-


-


-


-


1,952


(1,952)


-

Total revenue


24,811


61,735


84,837


110,126


471


-


1,984


(1,952)


282,012




















Segment profit/(loss)


(574)


10,275


22,415


22,687


(491)


(9,178)


1,146


(448)


45,832

Others(1)


















(49,247)

Profit/(loss) from continuing operations before income tax


















(3,415)







































Assets



















Capital expenditure


(5)


18,164


17,859


20,926


-


74,572


5,471


-


136,987




















Current assets


13,508


25,376


34,237


63,625


-


2,564


195


-


139,505

Other non-current assets


914


145,820


143,325


220,311


-


653,557


32,850


-


1,196,777

Total segment assets


14,422


171,196


177,562


283,936


-


656,121


33,045


-


1,336,282

Not reportable assets(2)


-


-


-


-


-


-


407,407


-


407,407

Total assets


14,422


171,196


177,562


283,936


-


656,121


440,452


-


1,743,689




















 

(1)  Comprised of administrative expenses of US$22,223,000, other income of US$2,030,000, other expenses of US$7,780,000, write off of assets of US$476,000, finance income of US$1,813,000, finance costs of US$22,276,000, and foreign exchange loss of US$335,000.

(2)  Not reportable assets are comprised of available-for-sale financial assets of US$40,075,000, other receivables of US$108,895,000, income tax receivable of US$25,720,000 deferred income tax assets of US$1,960,000, other financial assets of US$5,207,000, and cash and cash equivalents of US$225,550,000.

 

Six-months ended   30 June 2013


Ares US$000


Arcata US$000


Pallancata US$000


San Jose US$000


Moris US$000


Exploration and Advanced Projects US$000


Other

US$000


Adjustments and eliminations US$000


Total US$000

Revenue from external customers


26,429


71,962


89,101


112,369


8,684


-


32


-


308,577

Inter segment revenue


-


-


-


-


-


-


3,643


(3,643)


-

Total revenue


26,429


71,962


89,101


112,369


8,684


-


3,675


(3,643)


308,577




















Segment profit/(loss)


(1,616)


18,797


24,049


13,104


3,298


(37,628)


2,702


6,211


28,917

Others(1)


















(77,619)

Profit/(loss) from continuing operations before income tax


















(48,702)







































Year ended 31 December 2013



















Assets



















Capital expenditure


3,783


43,255


44,356


56,502


932


119,671


13,079


-


281,578




















Current assets


13,211


14,009


34,735


73,844


1,269


1,874


316


-


139,258

Other non-current assets


1,328


142,618


149,057


217,344


12


582,113


29,331


-


1,121,803

Total segment assets


14,539


156,627


183,792


291,188


1,281


583,987


29,647


-


1,261,061

Not reportable assets(2)


-


-


-


-


-


-


472,831


-


472,831

Total assets


14,539


156,627


183,792


291,188


1,281


583,987


502,478


-


1,733,892




















 

(1)  Comprised of administrative expenses of US$30,045,000, other income of US$3,501,000, other expenses of US$4,295,000, impairment of assets of US$61,930,000, share of profit of associates and joint ventures of US$5,921,000, gain on transfer from investments accounted under the equity method to available-for-sale financial assets of US$107,942,000, finance income of US$5,311,000, finance costs of US$88,651,000, and foreign exchange loss of US$15,373,000.

(2)  Not reportable assets are comprised of available-for-sale financial assets of US$51,658,000, other receivables of US$110,166,000, income tax receivable of US$22,156,000, deferred income tax assets of US$2,416,000 and cash and cash equivalents of US$286,435,000.

4    Revenue


Six-months ended 30 June




2014 (Unaudited) US$000


2013 (Unaudited) US$000


Gold (from dore bars)


36,418


63,026


Silver (from dore bars)


37,303


96,517


Gold (from concentrate)


59,389


46,942


Silver (from concentrate)


148,870


102,060


Services


32


32




282,012


308,577


 

The realised gain on gold and silver forward sales contracts in the period recognised within revenue was US$2,189,000 (Gold: US$506,000, Silver: US$1,683,000).

 

5    Cost of sales before exceptional items

Included in cost of sales are:

 


Six-months ended 30 June




2014 (Unaudited) US$000


2013 (Unaudited) US$000


Depreciation and amortisation


60,043


66,171


Personnel expenses


55,480


63,530


Mining royalty


3,029


3,931


Change in products in process and finished goods


16,311


11,639








 

6    Exceptional items

Exceptional items relate to:



Six-months ended 30 June




2014  (Unaudited) US$000


2013  (Unaudited) US$000


Cost of sales






Termination benefits Ares mine unit(1)


(3,511)


-


Termination benefits(2)


-


(200)


Total


(3,511)


(200)


Administrative expenses






Termination benefits(2)


(868)


(1,006)


Total


(868)


(1,006)


Exploration expenses






Termination benefits(2)


(537)


(1,911)


Total


(537)


(1,911)


Other expenses






Loss on sale of subsidiary3


(2,963)


-


Total


(2,963)


-


Impairment and write-off of assets (net)






Impairment and write-off of assets(4)


(476)


(74,930)


Reversal of write-off and impairment of assets(4)


-


13,000


Total


(476)


(61,930)


Gain on transfer from investment accounted under the equity method to available-for-sale financial assets5


-


107,942


Total


-


107,942


Finance costs






Loss from changes in the fair value of financial instruments(6)


(18)


(81,320)


Amortisation of transaction costs on secure bank loans(7)


(3,256)


-


Loss on sale of available-for-sale financial assets(8)


(915)


-


Total


(4,189)


(81,320)








       

(1)  Termination benefits generated in connection with the closure of the Ares mine unit.

(2)  The termination benefits paid to the workers following the restructuring plan approved by management amounting to US$1,405,000 (2013: US$3,117,000).

(3)  Loss generated by the sale of the Group´s interest in Minas Santa María de Moris, S.A. de C.V. ("Moris") to Exploraciones y Desarrollos Regiomontanos, S.A. de C.V. ("EDR") and Arturo Préstamo Elizondo ("APE"). The carrying value of the net assets disposed was:

 


US$000


Property, plant and equipment


197


Inventories


278


Trade and other receivables


3,694


Income tax receivable


241


Cash and cash equivalents


33


Trade and other payables


(214)


Provisions


(1,266)


Net assets disposed


2,963


 

(4)  Write off of assets in Compañía Minera Ares S.A.C. of US$345,000 and Minera Santa Cruz S.A. of US$131,000. As at 30 June 2013 this comprised an impairment of assets at the San José mine unit of US$40,869,000, Azuca project of US$30,290,000 and Ares unit of US$3,771,000; and reversal of the impairment of San Felipe property of US$13,000,000.

(5)  Gain on the reclassification of Gold Resource Corp ('GRC') shares from investment accounted under the equity method to available-for-sale financial assets of US$107,942,000 as a result of the Company ceasing to have the ability to exercise significant influence over GRC (refer to note 11).

(6)  Represents the impairment of Brionor Resources (US$18,000). In 2013 corresponds to the impairment of investments in Gold Resource Corp. (US$62,018,000), International Minerals (US$12,920,000), Pembrook Mining Corp. (US$5,745,000), Mariana Resources Ltd. (US$281,000), Northern Superior Resources Inc. (US$227,000), Iron Creek Capital Corp. (US$103,000), Empire Petroleum Corp. (US$22,000) and Brionor Resources (US$4,000).

(7)  Corresponds to the attributable issue cost of the syndicated loan granted to Compañía Minera Ares S.A.C. (refer to note 15), disclosed as an exceptional item as a significant one-off expense and shown net of capitalised borrowing costs of US$1,184,000.

(8)  Corresponds to the loss on sale of part of the Group´s holding in Gold Resource Corp. ("GRC") of US$1,663,000, net of the gain on sale of part of the Group´s holding in Chaparral Gold Corp and Mirasol Resources Ltd of US$547,000 and US$201,000 respectively.

 

7    Finance income and finance cost before exceptional items

The Group recognised the following finance income and finance cost before exceptional items:


Six-months ended 30 June




2014  (Unaudited) US$000


2013 (Unaudited) US$000


Finance income:






Interests on deposits and liquidity funds


910


3,468


Interest on loans


73


56


Interest income


983


3,524


Dividends


504


1,658


Others


326


129


Total


1,813


5,311


Finance cost:






Interest on secured bank loans


(2,938)


(393)


Interest on convertible bond


(3,370)


(4,497)


Interest on bond


(9,143)


-


Interest expense


(15,451)


(4,890)


Unwind of discount rate


(1,837)


(1,904)


Others


(799)


(537)


Total


(18,087)


(7,331)


 

Finance costs above are presented net of capitalised borrowing costs of US$5,912,000 (note 9). Capitalised borrowing costs by borrowing consist of: i) Secured bank loans US$177,000 (2013: US$Nil); ii) convertible bond US$1,225,000 (2013: US$Nil); iii) senior notes US$3,326,000 (2013: US$Nil); and iv) syndicated loan (note 6) US$1,184,000 (2013: US$Nil). 

 

8    Income tax expense


Six-months ended 30 June




2014 (Unaudited) US$000


2013 (Unaudited) US$000








Current income tax expense


5,348


2,713


Current mining royalty charge


1,159


1,211


Current special mining tax charge


392


657


Deferred income tax relating to origination and reversal of temporary differences


2,168


(15,422)


Withholding taxes


(733)


566


Total taxation charge/(credit) in the income statement


8,334


(10,275)


 

The pre exceptional tax charge of the period was US$10,675,000 (2013: US$14,938,000). The variance is mainly originated as result of a decrease in the value of the peso-denominated tax base due to the devaluation of the Argentine peso relative to the US dollar.

 

The tax related to items charged or credited to equity is as follows:


Six-months ended 30 June




2014 (Unaudited) US$000


2013 (Unaudited) US$000








Deferred income tax relating to origination and reversal of temporary differences


631


-


Total taxation charge in the statement of comprehensive income


631


-


 

 

9    Property, plant and equipment

During the six months ended 30 June 2014, the Group acquired assets at a cost of US$134,518,000 (2013: US$125,092,000). The additions for the period ended 30 June 2014 relate to:

 


Mining properties and development US$000


Other property plant and equipment US$000


San Jose


14,013


6,829


Pallancata


15,598


2,033


Inmaculada


18,318


51,870


Arcata


15,406


2,608


Crespo


1,116


1,363


Empresa de transmision Aymaraes


-


4,763


Others


-


601




64,451


70,067


 

Assets with a net book value of US$83,000 were disposed of by the Group during the six month period ended 30 June 2014 (2013: US$559,000) resulting in a net gain on disposal of US$35,000 (2013: loss on disposal of US$256,000).

 

For the six months ended 30 June 2014, the depreciation charge on property, plant and equipment was US$63,936,000 (2013: US$67,409,000).

 

At 30 June 2013, the Group recorded an impairment of US$821,000 with respect to the Azuca project, US$34,305,000 with respect to the San José mine unit and US$3,771,000 with respect to the Ares mine unit.

 

For the six months ended 30 June 2014, additions include capitalised borrowing costs of US$5,912,000 (2013: US$Nil).

 

 

10   Evaluation, exploration and intangible assets

a)   Evaluation and exploration assets: During the six months ended 30 June 2014, the Group capitalised evaluation and explorations costs of US$2,188,000 (2013: US$13,116,000). The additions mainly correspond to:



US$000


Azuca


559


San Jose


80


Pallancata


72


Inmaculada


367


Arcata


150


Crespo


(12)


El Dorado


972




2,188


 

There were no transfers from evaluation and exploration assets to property, plant and equipment during the period (2013: US$35,853,000).

 

There were transfers from property, plant and equipment to evaluation and exploration assets during the period of US$3,870,000 (2013:US$nil)

 

At 30 June 2013, the Group recorded impairments with respect to the Azuca project (US$29,469,000) and the San José mine unit (US$2,260,000), and partially reversed the impairment of the San Felipe project by US$13,000,000.

 

b)   Intangible assets: During the six months ended 30 June 2014, the additions of intangibles amounted to US$281,000 (2013: US$678,000). The additions for the period ended 30 June 2014 relate to Empresa de transmission Ayamaraes of US$277,000 (2013: US$nil), San José mine unit of US$4,000 (2013: US$nil) and the Crespo project of US$nil (2013: US$678,000).

 

For the six months ended 30 June 2014, the amortisation charge on intangibles was US$747,000 (2013: US$737,000).

 

There were transfers from property, plant and equipment to intangibles during the period of US$496,000 (2013: US$4,794,000).

 

At 30 June 2013, the Group recorded an impairment of all of the goodwill of $2,091,000 and other intangibles of $2,213,000 related to the San Jose mine unit.

 

 

11   Available-for-sale financial assets


As at 30 June

2014

 (Unaudited) US$000


Opening balance


51,658


Fair value change recorded in equity


2,538


Disposals(1)


(14,121)


Closing balance(2)


40,075


 

(1)  Corresponds to the sale of 3,175,000 shares of GRC (May 2014), 2,182,000 shares of Chaparral Gold Corp. (May 2014), 180,500 shares of Mirasol Resources Ltd. (June 2014) and 9,000 shares of Northern Superior Resources Inc. (June 2014).

(2)  As at 30 June 2014, the amount represents the fair value of shares of Gold Resource Corp. (US$31,761,000), Pembrook Mining Corp. (US$6,000,000), Mirasol Resources Ltd. (US$361,000), Northern Superior Resources Inc. (US$330,000), Mariana Resources Ltd. (US$649,000), Iron Creek Capital Corp (US$112,000), Brionor Resources (US$62,000), Chaparral Gold Corp. (US$766,000) and Empire Petroleum Corp (US$34,000).

 

12   Other financial assets and liabilities


  As at
30 June

2014

 (Unaudited) US$000


As at
31 December 2013

 US$000


Other financial assets






Embedded derivatives(1)


3,102


-


Forward contracts(2)


2,105


-


Other financial assets


5,207


-








Other financial liabilities






Embedded derivatives(1)




2,294


Other financial liabilities


-


2,294


 

(1)  Sales of concentrate and certain gold and silver volumes are provisionally priced at the time the sale is recorded. The price is then adjusted after an agreed period of time usually linked to the length of time it takes for the smelter to refine and sell the concentrate or for the refiner to process the dore into gold and silver, with the Group either paying or receiving the difference between the provisional price and the final price. At 30 June 2014 the provisional price adjustment resulted in an asset due to the increase of forward prices of gold and silver. (At 31 December 2013 the provisional price adjustment resulted in a liability due to the decrease in forward prices of gold and silver).

(2)  Corresponds to the fair value of the following unsettled commodity forward contracts:

a.     Signed in March 2014, with Citibank N.A., Goldman Sachs International and JP Morgan to hedge the sale of 1,000,000 ounces of silver at US$22 per ounce, 1,000,000 ounces of silver at US$22 per ounce and 3,300 ounces of gold at US$1,338.45 per ounce respectively, during the period from March to December 2014; and

b.     Signed in June 2014, with Goldman Sachs International to hedge the sale of 2,000,000 ounces of silver at US$21 per ounce, during the period from July to December 2014.

13   Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

 

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.

 

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.

 

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

 

At 30 June 2014 and 31 December 2013, the Group held the following financial instruments measured at fair value:

As at
 30 June 2014 US$000


Level 1

US$000


Level 2

US$000


Level 3

US$000


Assets measured at fair value









Equity shares (note 11)

40,075


34,075


-


6,000


Forward contracts (note 12)

2,105


-


2,105


-


Embedded derivatives (note 12)

3,102


-


-


3,102



45,282


34,075


2,105


9,102


Liabilities measured at fair value









Embedded derivatives (note 12)

-


-


-


-



-


-


-


-


 

As at
31 December 2013
  US$000


Level 1

US$000


Level 2

US$000


Level 3

US$000


Assets measured at fair value









Equity shares (note 11)

51,658


45,658


-


6,000



51,658


45,658


-


6,000


Liabilities measured at fair value









Embedded derivatives (note 12)

(2,294)


-


-


(2,294)



(2,294)


-


-


(2,294)


 

 

During the periods ending 30 June 2014 and 31 December 2013, there were no transfers between these levels.

 

The reconciliation of the financial instruments categorised as level 3 is as follows:


Embedded derivatives (liabilities)/assets   US$000


Equity shares US$000


Balance at 1 January 2013


(6,891)


12,009


Gain from the period recognised in revenue


 4,597


-


Impairment through profit and loss (finance costs)


-


(5,745)


Fair value change through equity


-


(264)


Balance 31 December 2013


(2,294)


6,000


Gain from the period recognised in revenue


5,396


-


Balance 30 June 2014


3,102


6,000


 

Valuation techniques:

 

Level 2: Forwards are measured using a market valuation of commodities swap technique that makes maximum use of market inputs such as quoted market prices and discount rates.

 

Level 3: Comprises embedded derivatives and equity shares of Pembrook Mining Corp.

 

Embedded derivatives: Sales of concentrate and certain gold and silver volumes are provisionally priced at the time the sale is recorded. The price is then adjusted after an agreed period of time (usually linked to the length of time it takes for the smelter to refine and sell the concentrate or for the refiner to process the dore into gold and silver), with the Group either paying or receiving the difference between the provisional price and the final price. This price exposure is considered to be an embedded derivative in accordance with IAS 39 'Financial Instruments: Recognition and Measurement'. The gain or loss that arises on the fair value of the embedded derivative is recorded in 'Revenue' (refer to note 4). The selling price of metals can be reliably measured as these are actively traded on international exchanges but the estimated metal content is a non observable input to this valuation. At 30 June 2014 the fair value of embedded derivatives within sales contracts was US$3,102,000 (31 December 2013: US$(2,294,000)).

 

Equity shares: The unquoted shares of Pembrook Mining Corp are measured based on a combination of observable and unobservable market data. Based on available observable market data of similar peers, the Group considers there is no need to recognise any change in the value of the investment.

 

14   Cash and cash equivalents


As at 

30 June

2014

 (Unaudited) US$000


As at
31 December 2013

US$000








Cash at bank


451


454


Liquidity funds(1)


6,030


8,751


Current demand deposit accounts(2)


22,315


62,259


Time deposits(3)


196,754


214,971


Cash and cash equivalents


225,550


286,435


 

(1)  The liquidity funds are mainly invested in certificate of deposits, commercial papers and floating rate notes with a weighted average maturity of 8 days as at 30 June 2014 (as at 31 December 2013: 8 days).

(2)  Relates to bank accounts which are readily accessible to the Group and bear interest.

(3)  These deposits have an average maturity of 40 days (as at 31 December 2013: 27 days).

 

15   Borrowings

        The movement in borrowings during the period to 30 June 2014 is as follows:

As at
           1January 2014
US$000


Additions US$000


Repayments US$000


Reclassifications US$000


As at
30 June 2014 US$000

Current



              







Bank loans

320,052


14,669


(325,546)


-


9,175(1)

Bond payable2

-


11,338


-


-


11,338

Convertible bond payable

115,873


4,595


(3,303)


-


117,165


435,925


30,602


(328,849)


-


137,678

Non-current










Bond payable(2)

-


343,174


-


-


343,174 


-


343,174 


-


-


343,174











Accrued Interest:

(5,687)


(15,964)


6,021


-


(15,630)

Before accrued interest

430,238


357,812


(322,828)


-


465,222











 

(1)  Mainly relates to pre-shipment loans for a total amount of US$9,175,000 advanced to Minera Santa Cruz S.A. (at 31 December 2013: US$24,122,000) and US$Nil of Minera Suyamarca S.A.C. (at 31 December 2013: US$30,053,000). Pre-shipment loans are credit lines given by banks to meet payment obligations arising from the Group's exports.

(2)  Relates to the issuance of US$350,000,000 7.75%  Senior Notes on 23 January 2014 for net proceeds after discounts and transaction costs of US$342,043,000 plus interest to 30 June 2014 of US$12,469,000. These proceeds were used to repay the US$270,000,000 syndicated loan on the same date.

(3)  The carrying amount of current borrowings differ their fair value only with respect to differences arising under the effective interest rate calculations. The carrying amount and fair value of the non‑current borrowings are as follows:



Carrying amount


Fair value



As at                 30 June 2014
US$000


As at                    31 December 2013 US$000


As at                     30 June 2014
US$000


As at                     31 December 2013 US$000

Bond payable


343,174


-


376,250


-

Total


343,174


-


376,250


-

 

16   Dividends paid and declared


   

Six-months ended 30 June




2014

 US$000

2013

US$000


Declared and paid during the period:





Equity dividends on ordinary shares:





Final dividend for 2013: US$Nil (2012: US$0.03)


-

10,139


Dividends declared to non-controlling interest: US$0.03 (2012: US$0.05)


3,101

6,000


Dividends declared and paid


3,101

16,139


Dividends declared to non-controlling interest: US$0.03


2,410

-


Dividends declared and not paid


2,410

-


Total dividends declared


5,511

16,139


2014 Interim dividend: US$Nil (2013: US$Nil)


-

-


 

There was no final dividend in respect of the year ended 31 December 2013. The Directors of the Company have not declared an interim dividend in respect of the year ending 31 December 2014.

 

17    Related party transactions

There were no significant transactions with related parties during the six month period ending 30 June 2014.

 

18   Commitments

a)     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.  Generally, under the terms of these 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 option lapses in the event that the Group does not meet the financial requirements.  At any point in time, the Group may cancel the agreements without penalty, except in certain specific circumstances.

 

The Group continually reviews its requirements under the agreements and determines on an annual basis whether to proceed with the financial commitment. Based on management's current intention regarding these projects, the commitments at the balance sheet date are as follows:

 

As at
30 June 2014 US$000


As at
31 December 2013 US$000

Less than one year

1,150


1,484

Later than one year

16,140


16,250

 

b)   Capital commitments

The future capital commitments of the Group are as follows:

As at
30 June 2014 US$000


As at
31 December 2013 US$000

Peru

141,050


151,362

Argentina

10,113


6,767


151,163


158,129

 

19   Subsequent events

a)     Sale of available for sale financial assets    

Subsequent to 30 June 2014, the Group has sold 5,048,464 shares of Gold Resource Corp. for proceeds of US$25,531,000, 1,573,746 shares of Chaparral Gold Corp for proceeds of US$765,000, 652,000 shares of Northern Superior Resources Inc. for proceeds of US$22,000 and 319,500 shares of Mirasol Resources Ltd. for proceeds of US$360,000, generating a total gain on disposal of US$3,046,000.

 

The Group is continuing with the process of disposing of its available-for-sale financial assets, such that their value can be realised and optimally deployed within the Group.

 

b)     Medium term loan facility

Subsequent to 30 June 2014, the Group successfully negotiated the term sheet of a US$100,000,000 medium term loan facility, with formal credit approval. As at the date of issue of these interim condensed consolidated financial statements, the facility is subject to final documentation and closing.  

Profit by operation¹

(Segment report reconciliation) as at 30 June 2014

 

Company (US$000)

Ares

Arcata

Pallancata

San Jose

Moris

Consolidation adjustment and  others

Total/HOC

 

 

Revenue

24,811

61,735

84,837

110,126

471

32

282,012


 

Cost of sales (Pre consolidation)

(25,341)

(50,406)

(61,445)

(74,978)

(962)

200

(212,932)


 

Consolidation adjustment

2

329

(131)

-

-

(200)

-


 

Cost of sales (Post consolidation)

(25,339)

(50,077)

(61,576)

(74,978)

(962)

-

(212,932)


 

Production cost excluding

Depreciation

(17,600)

(29,059)

(34,779)

(49,838)

-

-

(131,276)


 

                Depreciation in production cost

(430)

(15,483)

(24,354)

(18,589)

-

-

(58,856)


 

                Other items

(4,194)

(992)

(647)

(656)

-

-

(6,489)


 

                Change in inventories

(3,115)

(4,543)

(1,796)

(5,895)

(962)

-

(16,311)


 

Gross profit

(530)

11,329

23,392

35,148

(491)

232

     69,080


 

Administrative expenses

-

-

-

-

-

(22,223)

(22,223)


 

Exploration expenses

-

-

-

-

-

(8,712)

(8,712)


 

Selling expenses

(44)

(1,054)

(977)

(12,461)

-

-

(14,536)


 

Other income/expenses

-

-

-

-

-

(5,750)

(5,750)


 

Operating profit before impairment

(574)

10,275

22,415

22,687

(491)

(36,453)

17,859


 

Impairment of assets

-

-

-

-

-

(476)

(476)


 

Finance income

-

-

-

-

-

1,813

1,813


 

Finance costs

-

-

-

-

-

(22,276)

(22,276)


 

FX gain/(loss)

-

-

-

-

-

(335)

(335)


 

Profit/(loss) from continuing operations before income tax

(574)

10,275

22,415

22,687

(491)

(57,727)

(3,415)


 

Income tax






(8,334)

(8,334)


 

Profit/(loss) for the year from continuing operations

(574)

10,275

22,415

22,687

(491)

(66,061)

(11,749)


 

 

1  On a post-exceptional basis.

 

 

SHAREHOLDER INFORMATION

 

Company website

Hochschild Mining plc Interim and Annual Reports and results announcements are available via the internet on our website at www.hochschildmining.com. Shareholders can also access the latest information about the Company and press announcements as they are released, together with details of future events and how to obtain further information.

 

Registrars

Enquiries concerning shareholdings, dividends and changes in personal details should be referred to the Company's registrars, Capita Asset Services as detailed below.

 

By post: Capita Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU

 

By telephone:

·    If calling from the UK: 0871 664 0300 (Calls cost 10p per minute plus network extras, lines are open 8.30am - 5.30pm Mon-Fri)

·    If calling from overseas: +44 20 8639 3399

 

By fax: +44 (0) 20 8639 2342 

 

Investor Relations

For investor enquiries please contact the London office by writing to the registered office (given below) or by telephone on 020 3714 9040 or by email to info@hocplc.com.

 

Hochschild Mining plc

23 Hanover Square

London

W1S 1JB

 

Registered in England and Wales with Company Number 5777693

 

Forward looking Statements

This announcement contains certain forward looking statements, including such statements within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In particular, such forward looking statements may relate to matters such as the business, strategy, investments, production, major projects and their contribution to expected production and other plans of Hochschild Mining plc and its current goals, assumptions and expectations relating to its future financial condition, performance and results.

Forward-looking statements include, without limitation, statements typically containing words such as "intends", "expects", "anticipates", "targets", "plans", "estimates" and words of similar import. 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 be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Factors that could cause or contribute to differences between the actual results, performance or achievements of Hochschild Mining plc and current expectations include, but are not limited to, legislative, fiscal and regulatory developments, competitive conditions, technological developments, exchange rate fluctuations and general economic conditions. Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser.

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, 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.


[1]On a pre-exceptional basis

[2]Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs and income tax plus depreciation and exploration expenses other than personnel and other exploration related fixed expenses

[3]Includes saving from suspension of 2013 dividend payments

[4]All-in sustaining cash cost per silver equivalent ounce (non-IFRS measure).Calculated before exceptional items includes cost of sales less depreciation and change in inventories, administrative expenses, brownfield exploration, operating capex and royalties divided by silver equivalent ounces produced using a ratio of 60:1 (Au/Ag). Also includes commercial discounts and selling expenses divided by silver equivalent ounces sold using a ratio of 60:1 (Au/Ag)

[5]This facility is subject to customary closing conditions

[6]Revenue presented in the financial statements is disclosed as net revenue (in the Financial Review it is calculated as gross revenue less commercial discounts)

[7]All-in sustaining cash cost per silver equivalent ounce: Calculated before exceptional items includes cost of sales less depreciation and change in inventories, administrative expenses, brownfield exploration, operating capex and royalties divided by silver equivalent ounces produced using a ratio of 60:1 (Au/Ag). Also includes commercial discounts and selling expenses divided by silver equivalent ounces sold using a ratio of 60:1 (Au/Ag). 

[8]Cash costs are calculated to include cost of sales, treatment charges, and selling expenses before exceptional items less depreciation included in cost of sales.

[9]H1 2013 attributable production for Pallancata has been restated to 100% of production and also includes production from the recently-sold Moris operation.  

[10]Revenue presented in the financial statements is disclosed as net revenue. In this Financial Review it is calculated as gross revenue less commercial discounts.   

[11]Includes Hochschild's main operations: Arcata, Pallancata and San Jose. Cash costs are calculated to include cost of sales, treatment charges, and selling expenses before exceptional items less depreciation included in cost of sales.

[12]Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs and income tax plus depreciation and exploration expenses other than personnel and other exploration related fixed expenses and includes hedge gains.

[13]Cash flow from operations is calculated as profit for the year from continuing operations after exceptional items, plus the add-back of non-cash items within profit for the year (such as depreciation and amortisation, impairments and write-off of assets, gains/losses on sale of assets, amongst others) plus/minus changes in liabilities/assets such as trade and other payables, trade and other receivables, inventories, net tax assets, net deferred income tax liabilities, amongst others.

[14]Other revenue includes revenue from (i) the sale of energy in Peru and, (ii) administrative services in Mexico.

[15]Unit cost per tonne is calculated by dividing mine and geology costs by extracted tonnage and plant and other costs by treated tonnage.

[16]Cash costs are calculated to include cost of sales, treatment charges, and selling expenses before exceptional items less depreciation included in cost of sales.  

[17]All-in sustaining cash cost per silver equivalent ounce: Calculated before exceptional items includes cost of sales less depreciation and change in inventories, administrative expenses, brownfield exploration, operating capex and royalties divided by silver equivalent ounces produced using a ratio of 60:1 (Au/Ag). Also includes commercial discounts and selling expenses divided by silver equivalent ounces sold using a ratio of 60:1 (Au/Ag).

[18]Includes pre-shipment loans which were previously reported under working capital.

[19]Includes additions in property, plant and equipment and evaluation and exploration assets (confirmation of resources) and excludes increases in the expected closure costs of mine asset


This information is provided by RNS
The company news service from the London Stock Exchange
 
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