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RNS
Hochschild Mining PLC  -  HOC   

Preliminary Results 2016

Released 07:00 08-Mar-2017

RNS Number : 8048Y
Hochschild Mining PLC
08 March 2017
 

 

 

 

________________________________________________________________________________ 

8 March 2017

 

Hochschild Mining plc

Preliminary Results for the twelve months ended 31 December 2016

 

 

Strong financial performance and cash generation

§ Revenue of $688.2 million (2015: $469.1 million)1

§ Adjusted EBITDA of $329.0 million (2015: $138.8 million)2

§ Profit before income tax of $108.3 million (2015: $256.2 million loss)

§ Adjusted basic earnings per share of $0.11 (2015: $0.14 loss)

§ Cash and cash equivalent balance of $140.0 million as at 31 December 2016 (2015: $84.0 million)

§ Net debt of $187.4 million as at 31 December 2016 (2015: $350.5 million)

§ $127.4 million of debt repaid in 20163

§ Net debt/Adjusted EBITDA of 0.57x as at 31 December 2016 (2015: 2.5x)

§ Further $25 million of short term debt repaid in February 2017

§ Final proposed dividend of 1.38 cents per share ($7.0 million)

2016 operational delivery exceeding guidance

§ 2016 AISC per silver equivalent ounce from operations reduced by 13% to $11.2 (2015: $12.9) beating original guidance of $12.0-13.04

§ Inmaculada AISC per silver equivalent ounce at $8.7

§ Full year production of 35.5 million attributable silver equivalent ounces, exceeding guidance5

§ Inmaculada mine produced 16.9 million silver equivalent ounces

§ Brownfield exploration plan ongoing - potential to extend life of mine ("LOM") and deliver additional low cost growth

§ Pablo resources at Pallancata now increased to 40.4 million silver equivalent ounces (2015: 22.7 million)

Resource grade up 44% to 529 silver equivalent grams per tonne (2015: 368 grams per tonne)

§ Promising drill targets identified at all operations

2017 Outlook

§ Record attributable production target of 37.0 million silver equivalent ounces

§ AISC expected to be $12.2-12.7 per silver equivalent ounce

§ Inmaculada AISC expected to be $9.0-9.5 per silver equivalent ounce

§ Total sustaining and development capital expenditure expected to be approximately $120-130 million including $20 million to develop the Pablo vein and its surrounding infrastructure

 

$000 unless stated

Year ended 31 Dec 2016

Year ended 31 Dec 2015

% change

Attributable silver production (koz)

17,284

14,752

17

Attributable gold production (koz)

246

166

48

Revenue

688,242

469,146

47

Adjusted EBITDA

329,014

138,837

137

Profit/(loss) from continuing operations (pre-exceptional)

69,306

(66,399)

204

Profit/(loss) from continuing operations (post-exceptional)

62,862

(239,657)

126

Basic earnings per share (pre-exceptional) $

0.11

(0.14)

179

Basic earnings per share (post-exceptional) $

0.09

(0.52)

117

 

Commenting on the results, Ignacio Bustamante, CEO, said:

"We have delivered an impressive improvement in our annual results driven by a first full year from our flagship Inmaculada mine, a strong overall cost performance and a more favourable pricing environment. Our financial performance has allowed us to significantly reduce leverage and at the same time reward shareholders for their support with a return to dividends during the year. In 2017, a further increase in output is expected with the new Pablo vein starting production and continued investment in our brownfield exploration strategy."

 

________________________________________________________________________________ 

A presentation will be held for analysts and investors at 9.30am (UK time) on Wednesday 8 March 2017 at the offices of Hudson Sandler, 29 Cloth Fair, London, EC1A 7NN  

For a live webcast of the presentation please visit our website:

www.hochschildmining.com

To join the event via conference call, please see dial in details below:

+44(0)20 3427 1908 (Please quote confirmation code 1901017)

________________________________________________________________________________ 

Enquiries:

Hochschild Mining plc

Charles Gordon                  +44 (0)20 3709 3264

Head of Investor Relations

Hudson Sandler

Charlie Jack                        +44 (0)207 796 4133

Public Relations

________________________________________________________________________________ 

Non-IFRS Financial Performance Measures

The Company has included certain non-IFRS measures in this news release. The Company believes that these measures, in addition to conventional measures prepared in accordance with IFRS, provide investors an improved ability to evaluate the underlying performance of the Company. The non-IFRS measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures do not have any standardised meaning prescribed under IFRS, and therefore may not be comparable to other issuers.

 

About Hochschild Mining plc:

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

 

 

CHAIRMAN'S STATEMENT

Hochschild Mining has come a long way in the decade since our listing on the London Stock Exchange. We have successfully navigated a volatile industry environment with several phases of international expansion, internal restructuring, mine construction and delivered consistently on annual production targets and low cost organic growth while maintaining a constant focus on our duties as a responsible operator. This has placed the Company in an ideal position to continue to generate long term value for all stakeholders. Over the last few years we have maintained a consistent strategy and in 2016 I was pleased that, as a signal of its ongoing success, the Board was able to reinstate the interim dividend in August and now can also announce a proposed final dividend payout of $7 million.

 

Operationally, 2016 was characterised by a strong first full year from our top-tier Inmaculada operation in Peru. There were also improved contributions from Arcata - its best since 2010 - and from our Argentinian mine, San Jose, reflecting a much more promising economic environment in the country. In line with the production growth, cost reduction continued for a fourth straight year and together with a supportive precious metal price environment, the Company generated strong cashflow throughout the year. Consequently, the Company has been able to follow through decisively on our promise to reduce leverage by repaying $127 million of debt during the year and building up a healthy cash balance. We are now in an increasingly solid financial position to manage our remaining debt profile whilst giving management the flexibility to invest in further organic growth options and continue to return capital to shareholders.

 

Hochschild has always aimed to invest in mineralised districts with the possibility to grow over time and in this regard we are excited by the potential of our portfolio. The discovery and subsequent resource growth of our new Pablo vein district at Pallancata demonstrates our ability to reinvigorate existing operations, at a low cost through local exploration. We believe that there are significant further opportunities to capitalise on latent processing capacity at our plants as well as to extend the lives of our mines and expand their capacity. The Board is confident that the ambitious exploration programme announced in the third quarter will deliver substantial low cost resources and provide the Company with further growth optionality in the years to come.

 

Precious metal prices once again experienced periods of volatility in 2016 although both silver and gold did rise to levels not seen since 2013 thereby providing the Company with an unanticipated boost to already strong cashflow generation. However, the subsequent sharp decline in prices at the end of the year illustrated the ongoing unpredictability of our markets and consequently I am encouraged by the Company's continuing emphasis on cost control and debt repayment.

 

Sustainability

Despite the progress made in 2016 as the third consecutive year without any fatalities, it is with huge regret that an accident at the Inmaculada mine early in 2017 resulted in two deaths. On behalf of the Board, I would like to convey our deepest condolences to the families of the victims involved. The accident serves as a reminder of the high level of risks emanating from mining operations in general.  I would like to thank those across the Group whose efforts are focused on making our operations a safe place to work and to whom I pledge the Board's unequivocal support in the belief that every accident is avoidable.

 

With regards to our environmental efforts, I am pleased to report that the Group continued to improve its environmental performance and maintained its corporate ISO 14001 certification. Furthermore, as part of our ongoing focus on aligning remuneration with our strategic goals, a new environmental scorecard has been adopted, performance against which bonus entitlements will be calculated for senior management over and above the usual operational and financial metrics.

 

Our relations with local communities are of the utmost importance and we dedicate significant resources in recognition of the social licence granted to us. Details on the varied programmes that the Group has run focusing on our core themes of education, health and socio-economic development can be found in our Sustainability Report and online.

 

Board

I wish to thank the employees across the business and my fellow Board members for their dedication and support over the year. At the Board level, the stabilised operating environment during the year led to the resumption of our Non-Executive succession plan and I was delighted that we were able to announce the appointment, in November, of Eileen Kamerick and, from the start of this year, Sanjay Sarma. Each brings a varied skill set to the board table and we look forward to our future board discussions. It leaves me to pay special thanks, on behalf of the Board, to Roberto Dañino and Nigel Moore who have served as Directors since the IPO in 2006 and will be retiring at the forthcoming AGM. Their contribution over the past decade has been invaluable and we wish them the very best for the future.

 

Outlook

The Company is determined to retain emphasis on our low cost organic growth strategy and the ongoing repayment of debt particularly given the already unpredictable nature of 2017 so far. We are confident in the sizeable potential shown in the areas surrounding our operations as well as our team's ability to bring early stage projects through the pipeline and combined with an embedded cost control culture, the prospects for further shareholder return are very strong.

Eduardo Hochschild, Chairman

7 March 2017

 

 

CHIEF EXECUTIVE OFFICER'S STATEMENT

2016 has proved to be a watershed year for the Company. We are now fully benefitting from the results of our growth and cost focused strategy with a consistent record of operational excellence driving significantly improved cashflows, reduced leverage and increased shareholder returns. Furthermore, our exploration team is working on a variety of opportunities for securing additional low cost growth in the areas surrounding our mines which we believe will allow for capacity improvements and life-of-mine extensions at our operations.

 

Operations

A consistent delivery of annual production targets has become a trademark for our Company and 2016 was no exception. We produced a record 35.5 million attributable silver equivalent ounces, an 11% improvement on our original 32 million ounce target with Inmaculada's output at almost 17 million ounces (229 million gold equivalent ounces). In its first full year, the all-in sustaining cost at this world class operation was a highly competitive $8.7 per silver equivalent ounce ($644 per gold equivalent ounce) which resulted from robust operational delivery. We also saw a successful year at Arcata, which produced just over 8 million ounces at a cost of $13.7 per silver equivalent ounce. At San Jose, continuing operational consistency combined with a vastly improved fiscal environment in Argentina led to an 18% reduction in AISC and strongly improved cashflow generation. The renewed Pallancata mine experienced a transitional year as we prepare to move production to low cost feed from the new Pablo vein district during 2017. We have maintained our focus on cost control at all operations and the resulting 13% reduction in overall all-in sustaining costs to $11.2 per silver equivalent ounce demonstrates the effectiveness of our policies. As a management team, we are committed to ensuring a safe working environment and we will redouble our efforts in the area of safety in light of the tragic accident at Inmaculada earlier this year.

 

Exploration

In September, following a number of years of prospective work by our brownfield team, we announced the launch of a new long-term exploration programme with the expectation of not only replacing our production but materially improving our reserves and resources by 2020. We are confident that this key organic growth strategy can deliver further low cost growth through the potential to fill our existing spare plant capacity as well as increase our visible resource life-of-mine. Part of the programme focuses on the Pablo vein at Pallancata and, in 2016, we successfully increased the quality and quantity of resources with the discovery of the high grade Pablo Piso structures. Total resources from this new vein system have now increased to 40 million silver equivalent ounces from 23 million a year ago. In addition, in order to ensure a high future conversion of our resources to reserves, we have made the prudent decision to exclude material in our deposits that has a low probability of being mined. This has reduced our overall operational resources by almost 15% but represents a more robust approach to classification.

 

Financial position

The proactive management of our balance sheet in order to de-risk the Company has been a clear aim during the construction and subsequent first 18 months of operation at Inmaculada from its commissioning. The strong cashflow from the operations has ensured that in 2016 we made considerable further progress in reducing our debt position. $127 million of short to medium term lines were repaid and we still ended the year with a healthy cash and cash equivalents position of $140 million. In 2017, our aim is to continue to strengthen the financial position in anticipation of the Company's option to redeem some or all of the remaining Senior Notes from January 2018 and thereby reduce our financing costs. It is worth adding that currently, we no longer have any hedging agreements in place.

 

Financial results

As mentioned above, our average price achieved improved in 2016, by 5% for gold and by 6% for silver and consequently when combined with the 25% production increase, revenue rose strongly, by 47% in 2016 to $688 million (2015: $469 million). The improved cost performance led to Adjusted EBITDA of $329 million (2015: $139 million), an increase of 137% versus 2015, reflecting a year of higher margin contribution from Inmaculada. This strong cashflow generation has finally offset the finance costs arising from our 2014 bond issue and adjusted earnings per share therefore rose to $0.11 per share from a loss of $(0.14) per share. We ended the year with net debt of $187 million (2015: $351 million) which translates to a leverage ratio of 0.57x (2015: 2.5x), significantly below guidance for the year.

 

Outlook

Overall, 2017 is expected to be another record year for the Company with attributable production set to rise to 37 million silver equivalent ounces (or 500,000 gold equivalent ounces) driven by another 17 million ounces from Inmaculada and a first contribution from our highly prospective new Pablo vein at Pallancata with production there expected to be second-half weighted. The all-in sustaining cost per silver equivalent ounce is forecast to be between $12.2 to $12.7 which reflects a stable underlying unit cost and includes an increased investment in brownfield growth as well as a tailings dam expansion at Inmaculada and the initial infrastructure for the development of Pablo.

 

2016 has represented the consolidation of our organic growth strategy and it is thanks to the efforts of not only our management team but all our employees that we have been able to execute so efficiently. We can look forward to a fifth year of increased production in 2017, further strengthening of our balance sheet and the potential for additional upside from our enhanced brownfield exploration plan.

 

Ignacio Bustamante, Chief Executive Officer

7 March 2017

 

 

OPERATING REVIEW

 

OPERATIONS

Note: silver/gold equivalent production figures assume a gold/silver ratio of 74:1.

 

Production

In 2016 Hochschild once again exceeded its full year production target, delivering attributable production of 35.5 million silver equivalent ounces, including 17.3 million ounces of silver and 246.1 thousand ounces of gold. The overall production target for 2017 is 37.0 million silver equivalent ounces, which consists of 17 million ounces from Inmaculada, approximately 7 million attributable ounces from the 51% owned San Jose operation and also from Arcata with the balance of 6 million ounces from Pallancata.  

 

Total group production

 

Year ended 31 Dec 2016

Year ended 31 Dec 2015

Silver production (koz)

20,562

18,037

Gold production (koz)

292.63

213.37

Total silver equivalent (koz)

42,217

33,827

Total gold equivalent (koz)

570.50

457.12

Silver sold (koz)

21,091

17,263

Gold sold (koz)

298.96

187.39

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

 

Attributable group production

 

Year ended 31 Dec 2016

Year ended 31 Dec 2015

Silver production (koz)

17,284

14,752

Gold production (koz)

246.08

166.02

Silver equivalent (koz)

35,493

27,037

Gold equivalent (koz)

479.64

365.37

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

 

Costs

The Company's all-in sustaining cost was reduced by 13% in 2016 to $11.2 per silver equivalent ounce driven by Inmaculada's very competitive $8.7 per silver equivalent ounce ($644 per gold equivalent ounce). A full year of production at Inmaculada, better than expected grades and operational initiatives contributed to the reduction. Please see page 11 of the Financial Review for further details on costs.

 

The all-in sustaining cost per silver equivalent ounce in 2017 is expected to be between $12.2 and $12.7 which includes the previously announced increased budget for brownfield exploration as well as further expenditure on the development of the Pablo vein. Excluding the increased investment in resource growth as well as the one-off investment in Pablo infrastructure, the all-in sustaining cost forecast is between $11.5 and $12.0 per silver equivalent ounce.

 

2017 AISC forecast split

Operation

2017 AISC ($/oz silver equivalent)

2017 AISC ($/oz silver equivalent)

Excluding growth investment

Inmaculada

9.5-10.0

9.0-9.5

Arcata

15.3-15.8

14.5-15.0

Pallancata

14.2-14.7

12.5-13.0

San Jose

12.8-13.3

12.5-13.0

 

 

Inmaculada (Peru)

The 100% owned Inmaculada gold/silver underground operation is located in the Department of Ayacucho in southern Peru. It commenced commissioning in June 2015.

 

Inmaculada summary 

Year ended 31 Dec 2016

Year ended 31 Dec 2015

% change

Ore production (tonnes)

1,306,606

659,737

98

Average silver grade (g/t)

133

115

16

Average gold grade (g/t)

4.21

4.36

(3)

Silver produced (koz)

4,908

2,055

139

Gold produced (koz)

162.71

84.64

92

Silver equivalent produced (koz)

16,948

8,318

104

Gold equivalent produced (koz)

229.03

112.41

104

Silver sold (koz)

5,004

1,638

205

Gold sold (koz)

164.75

67.51

144

Unit cost ($/t)

64.4

63.3

2

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

5.2

4.6

13

All-in sustaining cost ($/oz)

8.7

7.3

19

 

Production

Inmaculada has delivered a very successful first full year with production reaching a better than expected 229 thousand gold equivalent ounces (16.9 million silver equivalent ounces) consisting of 162.7 thousand ounces of gold and 4.9 million ounces of silver. Throughout the year, grades and silver recoveries achieved were better than expected in the original mine plan in addition to higher tonnage per day being processed through the plant (3,850 tonnes versus 3,500 tonnes per day).

 

Costs

The all-in sustaining costs were better than expected in the original plan at $8.7 per silver equivalent ounce. This was driven by higher production resulting from stronger gold grades as well as operational efficiencies versus plan. AISC in 2017 is expected to be between $9.5 and $10.0 per silver equivalent ounce reflecting lower gold grades and a $15 million investment in the expansion of the tailings dam.

 

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 

Year ended 31 Dec 2016

Year ended 31 Dec 2015

% change

Ore production (tonnes)

677,309

648,051

5

Average silver grade (g/t)

337

323

4

Average gold grade (g/t)

1.24

0.99

25

Silver produced (koz)

6,343

5,613

13

Gold produced (koz)

22.54

15.67

44

Silver equivalent produced (koz)

8,011

6,772

18

Gold equivalent produced (koz)

108.26

91.52

18

Silver sold (koz)

6,346

5,653

12

Gold sold (koz)

22.04

15.29

44

Unit cost ($/t)

101.1

109.1

(7)

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

11.0

11.7

(6)

All-in sustaining cost ($/oz)

13.7

14.3

(4)

 

Production

In 2016, Arcata delivered its best year since 2010 with 8.0 million silver equivalent ounces produced consisting of 6.3 million ounces of silver and 22.5 thousand ounces of gold. This represents an 18% improvement on 2015 (2015: 6.8 million ounces) with tonnage and grades strong throughout the year as well as better than expected silver recoveries.

 

Costs

In 2016, all-in sustaining costs fell by 4% to $13.7 per silver equivalent ounce (2015: $14.3 per ounce) substantially below the original 2016 forecast of $14.5 due to better than expected tonnage and grades resulting from the success of the Company's brownfield exploration programme.

 

 

 

Pallancata (Peru)

The 100% owned Pallancata silver/gold property is located in the Department of Ayacucho in southern Peru. Pallancata commenced production in 2007. Ore from Pallancata is transported 22 kilometres to the Selene plant for processing.

 

Pallancata summary

Year ended 31 Dec 2016

Year ended 31 Dec 2015

% change

Ore production (tonnes)

244,765

522,431

(53)

Average silver grade (g/t)

381

259

47

Average gold grade (g/t)

1.86

1.28

45

Silver produced (koz)

2,620

3,664

(28)

Gold produced (koz)

12.37

16.42

(25)

Silver equivalent produced (koz)

3,536

4,879

(28)

Gold equivalent produced (koz)

47.78

65.93

(28)

Silver sold (koz)

2,660

3,632

(27)

Gold sold (koz)

12.41

15.80

(21)

Unit cost ($/t)

131.0

98.9

32

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

12.4

12.5

(1)

All-in sustaining cost ($/oz)

16.3

15.7

4

 

Production

The Pallancata mine produced 3.5 million silver equivalent ounces in 2016 (2015: 4.9 million ounces) comprising 2.6 million ounces of silver and 12.4 thousand ounces of gold. This result reflected a transitional year before the introduction of commercial production from the new Pablo vein in 2017.

 

During the fourth quarter, there was a reduction in the mine's output due to a road blockade by members of a local community which halted production from early November 2016. The dispute was subsequently resolved with production re-commencing on 25 January 2017.

 

Costs

All-in sustaining costs at Pallancata were $16.3 per silver equivalent ounce (2015: $15.7 per ounce). The moderate increase versus 2015 was due to capital invested in developing the access and infrastructure for Pablo as well as the effects of stoppage causing a significant fall in tonnage affecting unit costs. This was partially offset by increased grades and operational efficiencies. Costs are expected to fall substantially in 2017 when the Pablo vein begins production.

 

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. San Jose commenced production in 2007 and is a joint venture with McEwen Mining Inc. Hochschild holds a controlling interest of 51% in the mine and is the mine operator.

 

San Jose summary*

Year ended 31 Dec 2016

Year ended 31 Dec 2015

% change

Ore production (tonnes)

536,024

532,488

1

Average silver grade (g/t)

444

448

(1)

Average gold grade (g/t)

6.28

6.36

(1)

Silver produced (koz)

6,691

6,706

-

Gold produced (koz)

95.01

96.64

(2)

Silver equivalent produced (koz)

13,721

13,857

(1)

Gold equivalent produced (koz)

185.42

187.26

(1)

Silver sold (koz)

7,081

6,340

12

Gold sold (koz)

99.76

88.79

12

Unit cost ($/t)

202.4

210.4

(4)

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

9.7

10.8

(10)

All-in sustaining cost ($/oz)

11.5

14.1

(18)

*The Company has a 51% interest in San Jose

 

Production

San Jose has again proved to be a solid performer with production of 13.7 million silver equivalent ounces consisting of 6.7 million ounces of silver and 95 thousand ounces of gold. This was in line with the 2015 result (13.9 million ounces) with a moderate increase in tonnage offsetting slightly lower grades.

 

Costs

At San Jose, all-in sustaining costs were reduced by 18% to $11.5 per silver equivalent ounce (2015: $14.1 per ounce) mainly driven by the significant fiscal changes in Argentina in the first half of the year. These included the elimination of export taxes and the restoration of the Patagonian port rebate (see below).

 

In November 2015, the Argentinean government restored the right to receive a rebate from goods exported through Patagonian ports (previously cancelled in 2009) and was applicable to Hochschild at a rate of approximately 9% of the FOB value of its exports. However, in the fourth quarter of 2016, the benefit was once again cancelled.

 

RESERVES AND RESOURCES

Total reserves and resources for core operations remained strong, reducing slightly to 183 million and 476 million silver equivalent ounces respectively driven by:

 

The reduction in the silver price assumption used for cutting both reserves and resources from $20.0 per ounce as at 31 December 2015 to $16.5 per ounce as at 31 December 2016 while maintaining the gold price assumption at $1,200 per ounce. The resulting impact in reserves and resources has been a small decrease, as previously anticipated in the sensitivity table published in the 2015 Preliminary Results statement.

 

In addition, the Group chose to eliminate resources with a low probability of conversion into reserves at Arcata, San Jose and the existing Pallancata veins. The reduction was mostly from inferred resources with low grades and resources located far from existing mine infrastructure. At Pallancata, the adjustment affects mineral from bridges and pillars in the original Pallancata vein where extraction would impact the stability of the mine structure. Resources at Inmaculada and at the Pablo vein have not been affected. 

 

The decrease was partially offset by the addition of resources from the Pablo vein at Pallancata which is now over 40 million ounces with silver equivalent grade improving significantly to 529 silver equivalent grams per tonne. 

 

These adjustments do not affect the Group's mine plans, future production or cost guidance. The Group believes that it will improve conversion ratios from resources into reserves and ensure a high quality resource base.

 

EXPLORATION

In September 2016, the Company announced details of a new five-year brownfield exploration plan. Significant brownfield potential has been identified which is expected to extend LOM at all operations and deliver additional low cost growth.

 

Inmaculada

In 2016, historical drill results were reviewed by the brownfield team and targets for 2017 were defined. The 2017 programme includes approximately 50,000 metres of resource drilling in the east of the deposit at the Millet and Olinda structures which is expected to start towards the end of the second quarter, subject to obtaining the requisite permits. In addition, 7,200 metres of potential drilling is planned to start in March 2017 in the east and also at the Puquiopata area.

 

Arcata

At Arcata, 8,166 metres were drilled during the year to test North-South structures in the central area of the mine as well as in the Tunel 4 zone, Roxana and Macarena veins in order to extend existing structures and identify new ones. Some highlights are presented below:

 

Vein

Results

Ramal Marion Sur

DDH-941-GE16:1.2m @ 1.8 g/t Au & 576 g/t Ag

DDH-943-GE16:1.2m @ 4.1 g/t Au & 2,157 g/t Ag

Tunel 4

DDH-912-GE16:1.8m @ 1.1 g/t Au & 205 g/t Ag

DDH-939-LM16:1.3m @ 3.6 g/t Au & 2,655 g/t Ag

 

In 2017, almost 45,000 metres of resource drilling is planned mostly in the first half of the year with the focus on the Paralelas, Tunels 2,3 and 4 and Ramal Mario Sur veins whilst 13,000 metres of potential drilling is planned in the second half of 2017 at the Alexia, Macarena East, Tunel 2,3 and 4, Tres Reyes, Luisa and Marciano structures.

 

Pallancata

During 2016, drilling was carried out at the new Pablo vein in Pallancata. The results confirmed the presence of several extensional vein sets adjacent to the main Pablo structure - Pablo Pisos (now renamed). In addition, the Company has identified an area in Pablo Piso that hosts higher grade mineralisation. Total inferred resources from the Pablo and associated structures have now reached 40.4 million silver equivalent ounces which is a 78% increase on the December 2015 figure and demonstrates the significant potential already discovered in the Pablo vein system.

 

Drill results in the Pablo Area

Vein

Results

Pablo Piso

DLYU-A109: 0.9m @ 0.3g/t Au & 183g/t Ag

DLPP-A07: 4.1m @ 1.4g/t Au & 483g/t Ag

DLPP-A11: 1.2m @ 0.1g/t Au & 52g/t Ag

DLPP-A09: 1.0m @ 0.1g/t Au & 32g/t Ag

DLPP-A05: 6.4m @ 1.1g/t Au & 322g/t Ag

DLPP-A10: 0.9m @ 0.3g/t Au & 125g/t Ag

DLPP-A06: 3.7m @ 2.6g/t Au & 813g/t Ag

DLPP-A08: 0.9m @ 1.3g/t Au & 246g/t Ag

DLPP-A12: 1.2m @ 7.4g/t Au & 2,282g/t Ag

DLPP-A16: 2.7m @ 1.0g/t Au & 356g/t Ag

Andres

(Pablo Piso 1)

DLPP-A07: 0.7m @ 0.7g/t Au & 211g/t Ag

DLPP-A05: 0.9m @ 0.2g/t Au & 79g/t Ag

DLPP-A06: 0.8m @ 0.4g/t Au & 126g/t Ag

DLPP-A04: 0.7m @ 0.1g/t Au & 44g/t Ag

DLPP-A12: 0.9m @ 1.2g/t Au & 547g/t Ag

DLPP-A01: 0.9m @ 1.0g/t Au & 177g/t Ag

DLPP-A18: 1.0m @ 5.3g/t Au & 1,652g/t Ag

DLPP-A16: 5.1m @ 1.2g/t Au & 408g/t Ag

Tomas

(Pablo Piso 2)

DLEP-A04: 0.8m @ 0.3g/t Au & 71g/t Ag

DLEP-A12: 0.8m @ 2.6g/t Au & 652g/t Ag

DLEP-A01: 0.6m @ 0.2g/t Au & 51g/t Ag

DLEP-A16: 0.7m @ 0.5g/t Au & 184g/t Ag

DLPP-A15: 1.0m @ 0.4g/t Au & 111g/t Ag

DLPP-A18: 0.6m @ 1.9g/t Au & 600g/t Ag

DLPP-A14: 1.3m @ 0.7g/t Au & 179g/t Ag

DLPP-A13: 0.8m @ 0.3g/t Au & 156g/t Ag

Simon

(Pablo Piso 3)

DLNE-A04: 0.9m @ 1.7g/t Au & 569g/t Ag

DLPP-A04: 0.9m @ 11.7g/t Au & 2,253g/t Ag

DLPP-A12: 0.6m @ 1.8g/t Au & 491g/t Ag

DLPP-A01: 0.8m @ 2.4g/t Au & 721g/t Ag

DLPP-A15: 0.8m @ 0.7g/t Au & 172g/t Ag

DLPP-A18: 0.6m @ 3.6g/t Au & 481g/t Ag

DLPP-A14: 2.7m @ 0.9g/t Au & 220g/t Ag

Pedro

(Pablo Piso 4)

DLPP-A01: 1.0m @ 0.6g/t Au & 207g/t Ag

DLPP-A14: 0.7m @ 0.5g/t Au & 149g/t Ag

Juan

(Pablo Piso 5)

DLPP-A01: 0.6m @ 0.2g/t Au & 65g/t Ag

DLPP-A17: 0.7m @ 0.0g/t Au & 13g/t Ag

DLPP-A14: 0.8m @ 0.3g/t Au & 101g/t Ag

 

In 2017, potential drilling will focus on the Pablo and Yanacochita-Farallon areas.

 

San Jose

At San Jose 1,240m was drilled in the fourth quarter mainly in the Aguas Vivas area with the programme continuing into 2017. In addition in 2017, 20,800 metres of drilling is also planned in the Platifero, Clara and Saavedra Norte structures.

 

 

FINANCIAL REVIEW

 

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 increased by 47% to $722.0 million in 2016 (2015: $492.5 million) driven by a significant increase in sales resulting from the first full year of production from the Company's Inmaculada mine as well as  a rise in precious metal prices. 6

 

Silver

Gross revenue from silver increased by 30% in 2016 to $358.7 million (2015: $275.3 million) as a result of a 22% increase in the total amount of silver ounces sold to 21,091 koz  (2015:17,263 koz) driven by the first full year contribution from Inmaculada as well as increased sales from Arcata and San Jose. In addition, silver revenue also benefited from a 6% increase in the average silver price received.

 

Gold

Gross revenue from gold increased 67% in 2016 to $363.4 million (2015: $217.2 million) as a result of a 60% rise in the total amount of gold ounces sold in 2016 (299.0 koz) as well as a 5% increase in the average gold price received. The increase in gold sales came from the first full year of output from the predominantly gold-producing Inmaculada operation.

 

Gross average realised sales prices

The following table provides figures for average realised prices (which are reported before the deduction of commercial discounts and include the effects of the hedging agreements in place during the year) and ounces sold for 2016 and 2015:

 

Average realised prices

Year ended
31 Dec 2016

Year ended
31 Dec 2015

 

Silver ounces sold (koz)

21,091

17,263

 

Avg. realised silver price ($/oz)

17.0

16.0

 

Gold ounces sold (koz)

298.96

187.39

 

Avg. realised gold price ($/oz)

1,215

1,159

 

 

Commercial discounts

Commercial discounts refer to refinery treatment charges, refining fees and payable deductions for processing concentrates, and are deducted 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 2016, the Group recorded commercial discounts of $34.1 million (2015: $23.6 million). The increase is explained by the higher production and the decision to switch the production of Arcata back to concentrate as opposed to the previous year when most was sold as dore. The ratio of commercial discounts to gross revenue in 2016 was 5% (2015: 5%).

 

Net revenue

Net revenue increased by 47% to $688.2 million (2015 $469.1 million), comprising net gold revenue of $354.4 million and net silver revenue of $333.5 million. In 2016, gold accounted for 51% and silver 49% of the Company's consolidated net revenue (2015: gold 45% and silver 55%) with the increase in the gold contribution due to a full year of sales from the predominantly-gold Inmaculada mine.

 

Revenue by mine7

$000

Year ended 31 Dec 2016

Year ended 31 Dec 2015

% change

Silver revenue

 

 

 

Arcata

106,206

93,445

14

Inmaculada

83,642

25,223

232

Pallancata

44,500

59,803

(26)

San Jose

124,316

96,837

28

Commercial discounts

(25,139)

(16,929)

48

Net silver revenue

333,525

258,379

29

Gold revenue

 

 

 

Arcata

25,717

19,124

34

Inmaculada

196,466

77,080

155

Pallancata

14,994

19,929

(25)

San Jose

126,174

101,046

25

Commercial discounts

(8,993)

(6,688)

34

Net gold revenue

354,358

210,491

68

Other revenue

359

276

30

Net revenue

688,242

469,146

47

 

Costs

Total cost of sales was $487.7 million in 2016 (2015: $403.7 million). The direct production cost excluding depreciation was higher at $293.8 million (2015: $265.1 million) due to the first full year of Inmaculada. Depreciation in 2016 was $185.7 million (2015: $139.5 million) with the increase due to Inmaculada's depreciation of assets. Other items, which principally includes personnel related provisions, was $1.8 million in 2016 (2015: $9.3 million). Change in inventories was $6.5 million in 2016 (2015: ($10.3 million)).

 

$000

Year ended
31 Dec 2016

Year ended
31 Dec 2015

% Change

Direct production cost excluding depreciation

293,810

265,107

11

Depreciation in production cost

185,655

139,533

33

Other items

1,750

9,272

(81)

Change in inventories

6,487

(10,255)

163

Pre-exceptional cost of sales

487,702

403,657

21

 

Unit cost per tonne

The Company reported unit cost per tonne at its operations of $106.2 per tonne in 2016, a 10% decrease versus 2015 ($118.4 per tonne).

 

Unit cost per tonne by operation (including royalties)8:

Operating unit ($/tonne)

Year ended 31 Dec 2016

Year ended 31 Dec 2015

% change

Peru

83.2

90.7

(8)

Arcata

101.1

109.1

(7)

Inmaculada

64.4

63.3

2

Pallancata

131.0

98.9

32

Argentina

 

 

 

San Jose

202.4

210.4

(4)

Total

106.2

118.4

(10)

 

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 reconciliation9

$000 unless otherwise indicated

Year ended Dec 2016

Year ended

 31 Dec 2015

% change

Group cash cost

358,800

313,939

14

(+) Cost of sales

487,702

403,657

21

(-) Depreciation and amortisation in cost of sales

(180,317)

(135,645)

33

(+) Selling expenses

14,175

21,729

(35)

(+) Commercial deductions10

37,240

24,198

54

Gold

11,486

6,714

71

Silver

25,754

17,484

47

Revenue

688,242

469,146

47

Gold

354,358

210,491

68

Silver

333,525

258,379

29

Others

359

276

30

Ounces sold

 

 

 

Gold

298.9

187.4

59

Silver

21,091

17,263

22

Group cash cost ($/oz)

 

 

 

Co product Au

618

752

(18)

Co product Ag

8.2

10.0

(18)

By product Au

(2)

203

(101)

By product Ag

(0.3)

5.6

(105)

 

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

 

Year ended 31 Dec 2016

$000 unless otherwise indicated

Arcata

Inmaculada

Pallancata

San José

Main operations

Corporate & others

Total

(+) Production cost excluding depreciation

68,155

83,796

33,650

108,209

293,810

-

293,810

(+) Other items in cost of sales

462

506

241

541

1,750

-

1,750

(+) Operating and exploration capex for units

20,819

54,199

16,130

32,670

123,818

255

124,073

(+) Brownfield exploration expenses

1,305

1

733

1691

3,730

2,806

6,536

(+) Administrative expenses (excl depreciation and before exceptional items)

 1,441

 3,420

 674

8,180

 13,715

32,932

46,647

(+) Royalties and special mining tax11

 

 3,243

 639

 

 3,882

3,869

7,751

Sub-total

92,182

145,165

52,067

151,291

440,705

39,862

480,567

Au ounces produced

22,541

162,710

12,374

95,006

292,631

-

292,631

Ag ounces produced (000s)

6,343

4,908

2,620

6,691

20,562

-

20,562

Ounces produced (Ag Eq 000s oz)

8,011

16,948

3,536

13,721

42,216

-

42,216

Sub-total ($/oz Ag Eq)

11.5

8.6

14.7

11.0

10.4

-

11.4

(+) Commercial deductions

15,383

1,650

5,038

15,169

37,240

-

37,240

(+) Selling expenses

1,973

1,130

721

10,351

14,175

-

14,175

(-) Export credits

-

-

-

(19,029)

(19,029)

 

(19,029)

Sub-total

17,356

2,780

5,759

6,491

32,386

-

32,386

Au ounces sold

22,043

164,754

12,407

99,761

298,965

-

298,965

Ag ounces sold (000s)

 6,346

 5,004

 2,660

 7,081

21,091

-

21,091

Ounces sold (Ag Eq 000s oz)

 7,977

 17,196

 3,578

14,463

 43,214

-

43,214

Sub-total ($/oz Ag Eq)

2.2

0.2

1.6

0.4

0.7

-

0.7

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

13.7

8.7

16.3

11.5

11.2

-

12.1

 

Year ended 31 Dec 2015

$000 unless otherwise indicated

Arcata

Inmaculada

Pallancata

San José

Main operations

Corporate & others

Total

(+) Production cost excluding depreciation

71,128

32,765

51,599

108,101

263,593

-

263,593

(+) Other items in cost of sales

2,133

1,544

1,610

5,499

10,786

-

10,786

(+) Operating and exploration capex for units

14,600

13,704

10,683

38,451

77,438

1,193

78,631

(+) Brownfield exploration expenses

62

6

2,457

1,463

3,988

 1,990

5,978

(+) Administrative expenses (excl depreciation and before exceptional items)

 2,641

 2,515

 1,796

7,095

 14,047

 22,569

36,616

(+) Royalties and special mining tax11

-

 1,037

 741

-

 1,778

-

1,778

Sub-total

90,564

51,571

68,886

160,609

371,630

25,752

397,382

Au ounces produced

15,670

72,226

16,419

96,638

200,953

 

200,953

Ag ounces produced (000s)

 5,613

 1,746

 3,664

 6,706

17,729

-

17,729

Ounces produced (Ag Eq 000s oz)

6,772

7,090

4,879

13,857

32,598

-

32,598

Sub-total ($/oz Ag Eq)

 13.4

 7.3

 14.1

 11.6

 11.4

 -  

 12.2

(+) Commercial deductions

5,144

4

6,687

12,363

24,198

-

24,198

(+) Selling expenses

962

12

1,048

19,707

21,729

-

21,729

Sub-total

6,106

16

7,735

32,070

45,927

-

45,927

Au ounces sold

15,289

67,513

15,795

88,793

187,390

-

187,390

Ag ounces sold (000s)

 5,653

 1,638

 3,632

 6,340

17,263

-

17,263

Ounces sold (Ag Eq 000s oz)

 6,784

 6,634

 4,801

12,910

 31,129

-

31,129

Sub-total ($/oz Ag Eq)

 0.9

0.0

 1.6

2.5

1.5

 -  

1.5

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

14.3

7.3

15.7

14.1

12.9

 -  

13.7

 

Administrative expenses

Administrative expenses before exceptional items increased by 26% to $48.0 million (2015: $38.1 million) primarily due to increased personnel expenses.

 

Exploration expenses

In 2016, exploration expenses were flat at $9.2 million (2015: $9.3 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 2016, the Company capitalised $1.3 million relating to brownfield exploration compared to $2.6 million in 2015, bringing the total investment in exploration for 2016 to $10.5 million (2015: $11.8 million). 

 

Selling expenses

Selling expenses decreased by 35% versus 2015 to $14.2 million (2015: $21.7 million) mainly due to the elimination of export duties at San Jose. Selling expenses in 2016 consisted mainly of logistic costs for the sale of concentrate in addition to approximately 1.5 months of export duties on concentrate until its elimination on 12 February 2016. Previously, export duties in Argentina were levied at 10% of revenue for concentrate and 5% of revenue for dore.

 

Other income/expenses

Other income before exceptional items was $33.1 million (2015: $8.0 million). This mainly consisted of income from the Patagonian port benefit ($16.9 million) reintroduced towards the end of 2015, incremental revenue from logistic services provided to third parties and a reduction in mine closure provisions ($6.3 million). 

 

Other expenses before exceptional items were reduced to $13.9 million (2015: $15.3 million).

 

Adjusted EBITDA

Adjusted EBITDA increased by 137% over the period to $329.0 million (2015: $138.8 million) driven primarily by the significant effect of a full year's contribution from the low cost Inmaculada mine as well as higher metal prices.

 

Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs and income tax plus non-cash items (depreciation and changes in mine closure provisions) and exploration expenses other than personnel and other exploration related fixed expenses.

 

$000 unless otherwise indicated

Year ended 31 Dec 2016

Year ended 31 Dec 2015

% change

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

148,188

(10,886)

1,461

Depreciation and amortisation in cost of sales

180,317

135,645

33

Depreciation and amortisation in administrative expenses

1,331

1,534

(13)

Exploration expenses

9,193

9,255

(1)

Personnel and other exploration related fixed expenses

(3,947)

(4,301)

8

Other non cash (income)/ expenses12

(6,068)

7,590

(180)

Adjusted EBITDA

329,014

138,837

137

Adjusted EBITDA margin

48%

30%

 

 

Finance income

Finance income before exceptional items of $1.1 million reduced slightly from 2015 ($1.9 million) and mainly includes interest received on deposits.

 

Finance costs

Finance costs before exceptional items decreased from $31.4 million in 2015 to $30.5 million in 2016, principally due to the reduction of interest resulting from the repayment of $50.0 million of the medium term loan, $57.5 million of short-term loans and $20.0 million of the amounts owed to Graña y Montero. In 2015, interest expenses were net of amounts capitalised during the construction of Inmaculada in line with IFRS.

 

Foreign exchange losses

The Group recognised a foreign exchange loss of $1.8 million (2015: $5.6 million loss) as a result of exposures in currencies other than the functional currency specifically the Peruvian Nuevo Sol and Argentinean Peso.

 

Income tax

The Company's pre-exceptional income tax charge was $47.6 million (2015: $20.4 million). The substantial increase in the charge is explained by the Company's significant increase in profitability in the period, as well as an increase in the mining royalties paid in Peru, the level of which is based on the operating margin achieved by the Company´s Peruvian operations.

 

Exceptional items

Exceptional items in 2016 totalled a $6.4 million loss after tax (2015: $173.3 million loss).  Exceptional items principally included:  a penalty payment for changing the energy supplier at Arcata ($4.3 million) which will result in energy cost savings; a $2.7 million gain on the reversal of the mining reserve tax in Argentina (eliminated by the Argentine Government) in addition to the reversal of the associated interest on the reserve tax ($1.0 million); costs related to the stoppage at Pallancata ($2.5 million); costs related to improvements to the Ares tailings dam ($2.2 million); write-off of a now uncontested fee payable to a local authority of $1.8 million; and a property, plant and equipment ("PP&E" )write-off of $1.6 million.

 

These items excluded the exceptional tax effect that amounted to a $2.2 million tax charge (2015: $36.9 million tax credit).  

 

 

 

Cash flow and balance sheet review

Cash flow:

$000

Year ended 31 Dec 2016

Year ended 31 Dec 2015

Change

Net cash generated from operating activities

316,073

133,256

182,817

Net cash used in investing activities

(127,364)

(223,319)

95,955

Cash flows (used in)/generated in financing activities

(132,165)

61,027

(193,192)

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

56,544

(29,036)

85,580

 

Operating cash flow increased from $133.3 million in 2015 to $316.1 million in 2016, mainly due to the maiden full year cash contribution from the Inmaculada mine in addition to higher prices. Net cash used in investing activities decreased to $127.4 million in 2016 from $223.3 million in 2015 mainly due to the completion of the Inmaculada mine in the middle of 2015. Finally, cash from financing activities changed to $132.2 million used in the year from $61.0 million generated in 2015, primarily due to the $107.4 million of debt repayment in 2016 versus the raising of short term debt in Peru in 2015 ($75.0 million). As a result, total cash flows resulted in a net increase of $56.5 million from a net decrease of $29.0 million in 2015 ($85.5 million difference).

 

Working capital

$000

Year ended 31 Dec 2016

Year  ended 31 Dec 2015

Trade and other receivables

93,837

135,014

Inventories

57,056

70,286

Other financial (liability)/assets

(1,726)

20,126

Income tax (payable)/receivable

(9,025)

17,628

Trade and other payables and provisions

(211,277)

(249,788)

Working capital

(71,135)

(6,734)

 

The Group's movement in the working capital position improved by $64.4 million to a $71.1 million reduction in 2016 from a $6.7 million reduction in 2015. This was primarily explained by: lower trade and other receivables ($41.2 million) mainly due to VAT recoveries of $22.0 million and a reduction in trade receivables of $25.0 million; positive movement in other financial (liability)/assets of $21.9 million from an asset position in 2015 (explained by hedging contracts), to a liability position in 2016 resulting from the embedded derivative associated with provisional pricing; and lower inventories ($13.2 million). These effects were partially offset by lower trade and other payables and provisions ($38.5 million) mainly resulting from the payment of amounts owed to Graña y Montero.

 

Net debt

$000 unless otherwise indicated

Year ended
31 Dec 2016

Year ended
31 Dec 2015

Cash and cash equivalents

139,979

84,017

Long term borrowings

(291,073)

(339,778)

Short term borrowings13

(36,312)

(94,760)

Net debt

(187,406)

(350,521)

 

The Group reported net debt position was $187.4 million as at 31 December 2016 (2015: $350.5 million). The reduction in 2016 includes the net effect of: the prepayment of the Scotiabank medium term loan ($50 million); the repayment of short-term loans ($57.4 million) and; the operating cash generated mainly in Inmaculada.

 

Capital expenditure14

$000

Year ended
31 Dec 2016

Year ended
31 Dec 2015

Arcata

20,819

14,600

Ares

16

25

Selene

25

139

Pallancata

16,105

10,683

San Jose

35,311

38,451

Inmaculada15

54,199

166,336

Operations

126,475

230,234

Crespo

2,982

2,842

Volcan

691

958

Azuca

1,237

211

Other

260

3,914

Total

131,645

238,159

 

2016 capital expenditure of $131.6 million (2015: $238.2 million) mainly comprised of operational capex of $126.5 million (2015: $230.2 million) with the reduction due to the inclusion in 2015 of a portion of Inmaculada project capital expenditure.

 

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.

 

Statement of Directors' responsibilities

The Directors confirm that to the best of their knowledge:

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

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

 

 

 

 

 

 

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2016

 

 

 

 

Year ended 31 December 2016

 

Year ended 31 December 2015

 

 

Notes

 

Before exceptional items US$000

 

Exceptional items

(note 11)

US$000

 

Total
 US$000

 

Before exceptional items US$000

 

Exceptional items

 (note 11)

US$000

 

Total
 US$000

Continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

3,5

 

688,242

 

-

 

688,242

 

469,146

 

-

 

469,146

Cost of sales

 

6

 

(487,702)

 

-

 

(487,702)

 

(403,657)

 

(1,514)

 

(405,171)

Gross profit

 

 

 

200,540

 

-

 

200,540

 

65,489

 

(1,514)

 

63,975

Administrative expenses

 

7

 

(47,979)

 

-

 

(47,979)

 

(38,148)

 

-

 

(38,148)

Exploration expenses

 

8

 

(9,193)

 

-

 

(9,193)

 

(9,255)

 

-

 

(9,255)

Selling expenses

 

9

 

(14,175)

 

-

 

(14,175)

 

(21,729)

 

-

 

(21,729)

Other income

 

12

 

33,131

 

2,667

 

35,798

 

8,021

 

-

 

8,021

Other expenses

 

12

 

(13,858)

 

(10,675)

 

(24,533)

 

(15,264)

 

-

 

(15,264)

Impairment and write-off of non-current assets

 

11

 

(278)

 

(1,634)

 

(1,912)

 

-

 

(207,146)

 

(207,146)

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

 

 

 

148,188

 

(9,642)

 

138,546

 

(10,886)

 

(208,660)

 

(219,546)

Finance income

 

13

 

1,100

 

974

 

2,074

 

1,898

 

-

 

1,898

Finance costs

 

13

 

(30,541)

 

-

 

(30,541)

 

(31,414)

 

(1,486)

 

(32,900)

Foreign exchange loss

 

 

 

(1,800)

 

-

 

(1,800)

 

(5,627)

 

-

 

(5,627)

Profit/(loss) from continuing
operations before income tax

 

 

 

116,947

 

(8,668)

 

108,279

 

(46,029)

 

(210,146)

 

(256,175)

Income tax (expense)/benefit

 

14

 

(47,641)

 

2,224

 

(45,417)

 

(20,370)

 

36,888

 

16,518

Profit/(loss) for the year from continuing operations

 

 

 

69,306

 

(6,444)

 

62,862

 

(66,399)

 

(173,258)

 

(239,657)

Attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity shareholders of the Company

 

 

 

53,154

 

(7,604)

 

45,550

 

(61,852)

 

(172,758)

 

(234,610)

Non-controlling interests

 

 

 

16,152

 

1,160

 

17,312

 

(4,547)

 

(500)

 

(5,047)

 

 

 

 

69,306

 

(6,444)

 

62,862

 

(66,399)

 

(173,258)

 

(239,657)

Basic earnings/(loss) per ordinary share from continuing operations for the year (expressed
in US dollars per share)

 

15

 

0.11

 

(0.02)

 

0.09

 

(0.14)

 

(0.38)

 

(0.52)

Diluted earnings/(loss) per ordinary share from continuing operations for the year (expressed
in US dollars per share)

 

15

 

0.10

 

(0.01)

 

0.09

 

(0.14)

 

(0.38)

 

(0.52)

 

 

 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

For the year ended 31 December 2016

 

 

 

 

Year ended 31 December

 

 

Notes

 

2016
US$000

 

2015
US$000

Profit/(loss) for the year

 

 

 

62,862

 

(239,657)

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

 

 

 

 

 

 

Exchange differences on translating foreign operations

 

 

 

(249)

 

(597)

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

 

19

 

774

 

(86)

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

 

 

 

(66)

 

104

Change in fair value of cash flow hedges

 

 

 

(39,989)

 

35,887

Recycling of the loss/(gain) on cash flow hedges

 

 

 

18,722

 

(18,962)

Deferred income tax relating to components of other comprehensive income

 

14

 

5,955

 

(4,739)

Other comprehensive (loss)/gain for the year, net of tax

 

 

 

(14,853)

 

11,607

Total comprehensive income/(expense) for the year

 

 

 

48,009

 

(228,050)

Total comprehensive income/(expense) attributable to:

 

 

 

 

 

 

Equity shareholders of the Company

 

 

 

30,697

 

(223,003)

Non-controlling interests

 

 

 

17,312

 

(5,047)

 

 

 

 

48,009

 

(228,050)

 

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2016

 

 

Notes

 

As at
31 December 2016
US$000

 

As at
31 December 2015
 US$000

ASSETS

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

Property, plant and equipment

 

16

 

975,483

 

1,045,516

Evaluation and exploration assets

 

17

 

138,985

 

138,171

Intangible assets

 

18

 

26,379

 

27,981

Available-for-sale financial assets

 

19

 

991

 

366

Trade and other receivables

 

20

 

25,717

 

10,187

Income tax receivable

 

 

 

-

 

47

Deferred income tax assets

 

27

 

1,027

 

-

 

 

 

 

1,168,582

 

1,222,268

Current assets

 

 

 

 

 

 

Inventories

 

21

 

57,056

 

70,286

Trade and other receivables

 

20

 

68,120

 

124,827

Income tax receivable

 

 

 

20,988

 

20,384

Other financial assets

 

 

 

-

 

21,267

Cash and cash equivalents

 

22

 

139,979

 

84,017

 

 

 

 

286,143

 

320,781

Total assets

 

 

 

1,454,725

 

1,543,049

EQUITY AND LIABILITIES

 

 

 

 

 

 

Capital and reserves attributable to shareholders of the Parent

 

 

 

 

 

 

Equity share capital

 

 

 

224,315

 

223,805

Share premium

 

 

 

438,041

 

438,041

Treasury shares

 

 

 

(426)

 

(898)

Other reserves

 

 

 

(217,288)

 

(203,649)

Retained earnings

 

 

 

258,269

 

218,093

 

 

 

 

702,911

 

675,392

Non-controlling interests

 

 

 

90,442

 

90,113

Total equity

 

 

 

793,353

 

765,505

Non-current liabilities

 

 

 

 

 

 

Trade and other payables

 

24

 

1,266

 

20,379

Borrowings

 

25

 

291,073

 

339,778

Provisions

 

26

 

106,121

 

121,402

Deferred income

 

23

 

25,000

 

25,000

Deferred income tax liabilities

 

27

 

65,971

 

64,274

 

 

 

 

489,431

 

570,833

Current liabilities

 

 

 

 

 

 

Trade and other payables

 

24

 

98,484

 

101,892

Other financial liabilities

 

 

 

1,726

 

1,141

Borrowings

 

25

 

36,312

 

94,760

Provisions

 

26

 

5,406

 

6,115

Income tax payable

 

 

 

30,013

 

2,803

 

 

 

 

171,941

 

206,711

Total liabilities

 

 

 

661,372

 

777,544

Total equity and liabilities

 

 

 

1,454,725

 

1,543,049

These financial statements were approved by the Board of Directors on 7 March 2017 and signed on its behalf by:

Ignacio Bustamante, Chief Executive Officer

7 March 2017

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2016

 

 

 

 

Year ended 31 December

 

 

Notes

 

2016
US$000

 

2015
US$000

Cash flows from operating activities

 

 

 

 

 

 

Cash generated from operations

 

 

 

345,856

 

166,234

Interest received

 

 

 

860

 

726

Interest paid

 

 

 

(27,074)

 

(36,445)

Payment of mine closure costs

 

26

 

(3,355)

 

(2,538)

Income tax (paid)/received, net

 

 

 

(214)

 

5,279

Net cash generated from operating activities

 

 

 

316,073

 

133,256

Cash flows from investing activities

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

 

(126,495)

 

(216,188)

Purchase of evaluation and exploration assets

 

17

 

(3,478)

 

(6,861)

Purchase of intangibles

 

18

 

(14)

 

(612)

Net proceeds from sale of subsidiary

 

4

 

807

 

-

Proceeds from sale of available-for-sale financial assets

 

19

 

149

 

3

Proceeds from sale of other assets

 

12

 

1,550

 

-

Proceeds from sale of property, plant and equipment

 

 

 

117

 

339

Net cash used in investing activities

 

 

 

(127,364)

 

(223,319)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds of borrowings

 

 

 

70,000

 

175,948

Repayment of borrowings

 

 

 

(177,431)

 

(209,173)

Dividends paid to non-controlling interests

 

28

 

(17,736)

 

(964)

Dividends paid

 

28

 

(6,998)

 

-

Proceeds from issue of ordinary shares

 

 

 

-

 

95,216

Cash flows (used in)/generated from financing activities

 

 

 

(132,165)

 

61,027

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

 

 

 

56,544

 

(29,036)

Exchange difference

 

 

 

(582)

 

(2,946)

Cash and cash equivalents at beginning of year

 

 

 

84,017

 

115,999

Cash and cash equivalents at end of year

 

22

 

139,979

 

84,017

 

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year 31 December 2016

 

 

 

 

 

 

 

 

 

 

Other reserves

 

 

 

 

 

 

 

 

 

 

 

Notes

 

Equity share capital US$000

 

Share premium US$000

 

Treasury shares US$000

 

Unrealised gain on available-for-sale financial assets
US$000

 

Unrealised gain/
(loss) on hedges
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 2015

 

 

 

170,389

 

396,021

 

(898)

 

14

 

3,126

 

(13,005)

 

(210,046)

 

2,576

 

(217,335)

 

451,047

 

799,224

 

95,160

 

894,384

 

Other comprehensive income/(expense)

 

 

 

-

 

-

 

-

 

18

 

12,186

 

(597)

 

-

 

-

 

11,607

 

-

 

11,607

 

-

 

11,607

 

Loss for the year

 

 

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(234,610)

 

(234,610)

 

(5,047)

 

(239,657)

 

Total comprehensive income/(expense)
for the year

 

 

 

-

 

-

 

-

 

18

 

12,186

 

(597)

 

-

 

-

 

11,607

 

(234,610)

 

(223,003)

 

(5,047)

 

(228,050)

 

Exercise of share options

 

 

 

220

 

-

 

-

 

-

 

-

 

-

 

-

 

(1,560)

 

(1,560)

 

1,340

 

-

 

-

 

-

 

Issuance of shares

 

 

 

53,196

 

46,812

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

100,008

 

-

 

100,008

 

Transaction costs related to issuance of shares

 

 

 

-

 

(4,792)

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(4,792)

 

-

 

(4,792)

 

Share -based payments

 

 

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

3,639

 

3,639

 

316

 

3,955

 

-

 

3,955

 

Balance at
31 December 2015

 

 

 

223,805

 

438,041

 

(898)

 

32

 

15,312

 

(13,602)

 

(210,046)

 

4,655

 

(203,649)

 

218,093

 

675,392

 

90,113

 

765,505

 

Other comprehensive income/(expense)

 

 

 

-

 

-

 

-

 

708

 

(15,312)

 

(249)

 

-

 

-

 

(14,853)

 

-

 

(14,853)

 

-

 

(14,853)

 

Profit for the year

 

 

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

45,550

 

45,550

 

17,312

 

62,862

 

Total comprehensive income/(expense)
for the year

 

 

 

-

 

-

 

-

 

708

 

(15,312)

 

(249)

 

-

 

-

 

(14,853)

 

45,550

 

30,697

 

17,312

 

48,009

 

Exercise of share options

 

 

 

510

 

-

 

472

 

-

 

-

 

-

 

-

 

(2,223)

 

(2,223)

 

1,241

 

-

 

-

 

-

 

Dividends

 

28

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(6,998)

 

(6,998)

 

-

 

(6,998)

 

Dividends to non - controlling interests

 

28

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(16,983)

 

(16,983)

 

Share-based payments

 

 

 

 

-

 

-

 

 

 

-

 

-

 

-

 

-

 

3,437

 

3,437

 

383

 

3,820

 

-

 

3,820

 

Balance at
31 December 2016

 

 

 

224,315

 

438,041

 

(426)

 

740

 

-

 

(13,851)

 

(210,046)

 

5,869

 

(217,288)

 

258,269

 

702,911

 

90,442

 

793,353

 

                                                                       

 

 

 

 

1 Notes to the consolidated financial statements

For the year ended 31 December 2016

 

The financial information for the year ended 31 December 2016 and 2015 contained in this document does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the years ended 31 December 2016 and 2015 have been extracted from the consolidated financial statements of Hochschild Mining plc for the year ended 31 December 2016 which have been approved by the directors on 7 March 2017 and will be delivered to the Registrar of Companies in due course. The auditor's report on those financial statements was unqualified and did not contain a statement under section 498 of the Companies Act 2006.

 

2 Significant accounting policies

Basis of preparation

Having considered financial forecasts and projections which take into account (i) possible changes in commodity price scenarios; and (ii) the contingency measures that could be taken to alleviate pressure on the balance sheet in the event of a fall in prices, the Directors have a reasonable expectation that the Group have adequate resources, including access to contingent resources, that would see it continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting.

 

Changes in accounting policy and disclosures

The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those applied in the preparation of the consolidated financial statement for the year ended 31 December 2015. Amendments to standards and interpretations which came into force during the year did not have a significant impact on the Group's financial statements.

 

Standards, interpretations and amendments to existing standards that are not yet effective and have not been previously adopted by the Group

Certain new standards, amendments and interpretations to existing standards have been published and are mandatory for the Group's accounting periods beginning on or after 1 January 2017 or later periods but which the Group has not previously adopted. Those that are applicable to the Group are as follows:

·     IFRS 15 Revenue from Contracts with Customers, applicable for annual periods beginning on or after 1 January 2018.

·     This standard outlines the principles an entity must apply to measure and recognise revenue. The Group is planning to apply the standard when it became mandatory, analysing all the variables during the first quarter of 2017, including the method of implementation and the restatement of the previous year financial information. IFRS 15 is not expected to have a significant effect on the financial statements.

·     IFRS 9 Financial Instruments, applicable for annual periods beginning on or after 1 January 2018. IFRS 9 is the replacement of IAS 39 Financial Instruments: Recognition and Measurement. The standard includes requirements for recognition and measurement, impairment, derecognition and general hedge accounting. IFRS 9 should be applied retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, subject to certain exemptions and exceptions. The Group do not anticipate a significant effect over the financial statements.

·     IFRS 16 Leases, applicable for annual periods beginning on or after 1 January 2019. IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16's approach to lessor accounting substantially unchanged from its predecessor, IAS 17.The Group is analysing the adoption of this new standard and expected not to have a significant impact on the Group´s financial position or performance.

·     IAS 7 Statement of cash flows, applicable for annual periods beginning on or after 1 January 2017. The amendments require entities to provide disclosures about changes in their liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. The adoption of these amendments would not have impact on the Group´s financial position or performance.

·     IAS 12 Income Taxes, applicable for annual periods beginning on or after 1 January 2017. The amendments clarify the accounting for deferred tax assets for unrealised losses on debt instruments measured at fair value. Entities are required to apply the amendments retrospectively. The adoption of these rules would not have impact on the Group´s financial position or performance.

·     IFRS 2 Classification and Measurement of Share-based Payment Transactions - Amendments to IFRS 2, applicable for annual periods beginning on or after 1 January 2018.

 

The amendments are related to the classification and measurement of share-based payment transactions and it does not require to restate prior periods. The adoption of these amendments would not have impact on the Group´s financial position or performance.

 

The Group is analysing the effect of the standards and plans to adopt the new standard on the required effective date.

 

3 Segment reporting

The Group's activities are principally related to mining operations which involve the exploration, production and sale of gold and silver. Products are subject to the same risks and returns and are sold through similar distribution channels. The Group undertakes a number of activities solely to support mining operations including power generation and services. Transfer prices between segments are set on an arm's length basis in a manner similar to that used for third parties. Segment revenue, segment expense and segment results include transfers between segments at market prices. Those transfers are eliminated on consolidation.

 

For internal reporting purposes, management takes decisions and assesses the performance of the Group through consideration of the following reporting segments:

 

·     Operating units - Arcata and San Jose, which generate revenue from the sale of gold, silver, dore and concentrate.

·     Operating unit - Pallancata, which generates revenue from the sale of concentrate.

·     Operating unit - Inmaculada, which generates revenue from the sale of gold, silver and dore.

·     Exploration, which explores and evaluates areas of interest in brownfield and greenfield sites with the aim of extending the life of mine  of existing operations and to assess the feasibility of new mines. The exploration segment includes costs charged to the profit and loss  and capitalised as assets.

·     Other - includes the profit or loss generated by Empresa de Transmisión Callalli S.A.C. (a power transmission company, absorbed by Empresa de Transmisión Aymaraes S.A.C.on 1 June 2016), Empresa de Transmisión Aymaraes S.A.C. (a power transmission company), Ares unit, and the Selene plant (used to process some of the Group's production).

The Group's administration, financing, other activities (including other income and expense), and income taxes are managed at a corporate level and are not allocated to operating segments.

 

Segment information is consistent with the accounting policies adopted by the Group. Management evaluates the financial information based on International Financial Reporting Standards (IFRS) as adopted for use in the European Union.

 

The Group measures the performance of its operating units by the segment profit or loss that comprises gross profit, selling expenses and exploration expenses.

 

Segment assets include items that could be allocated directly to the segment.

 

(a) Reportable segment information

 

 

Arcata US$000

 

Pallancata US$000

 

San Jose US$000

 

Inmaculada US$000

 

Exploration
US$000 

 

Other1
US$000 

 

Adjustment
and
eliminations
US$000

 

Total
US$000

Year ended
31 December 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from
external customers

 

117,358

 

54,456

 

235,961

 

280,108

 

-

 

359

 

-

 

688,242

Inter segment revenue

 

-

 

-

 

-

 

-

 

-

 

2,062

 

(2,062)

 

-

Total revenue

 

117,358

 

54,456

 

235,961

 

280,108

 

-

 

2,421

 

(2,062)

 

688,242

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment profit/(loss)

 

22,924

 

11,284

 

57,259

 

97,595

 

(9,155)

 

(2,273)

 

(462)

 

177,172

Others2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(68,893)

Profit from continuing operations before
income tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

108,279

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other segment information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation3

 

(22,196)

 

(10,606)

 

(53,012)

 

(98,243)

 

(1,834)

 

(4,877)

 

-

 

(190,768)

Amortisation

 

-

 

-

 

(1,060)

 

-

 

(462)

 

(138)

 

-

 

(1,660)

Impairment and write-off of assets

 

(87)

 

(885)

 

(278)

 

(414)

 

(2)

 

(246)

 

-

 

(1,912)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditure

 

20,819

 

16,105

 

35,311

 

54,199

 

4,910

 

301

 

-

 

131,645

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

6,721

 

7,017

 

53,299

 

22,899

 

30

 

3,911

 

-

 

93,877

Other non-current assets

 

48,843

 

55,380

 

196,056

 

589,666

 

185,825

 

65,077

 

-

 

1,140,847

Total segment assets

 

55,564

 

62,397

 

249,355

 

612,565

 

185,855

 

68,988

 

-

 

1,234,724

Not reportable assets4

 

-

 

-

 

-

 

-

 

-

 

220,001

 

-

 

220,001

Total assets

 

55,564

 

62,397

 

249,355

 

612,565

 

185,855

 

288,989

 

-

 

1,454,725

 

1  Other revenue relates to revenues earned by Empresa de Transmisión Callalli S.A.C.and Empresa de Transmisión Aymaraes S.A.C.

2  Comprised of administrative expenses of US$47,979,000, other income of US$35,798,000, other expenses of US$24,533,000, impairment and write-off of assets of US$1,912,000, finance income of US$2,074,000, finance expense of US$30,541,000, and foreign exchange loss of US$1,800,000.

3  Includes depreciation capitalised in the Crespo project (US$2,215,000), San Jose unit (US$2,640,000), Arcata unit (US$117,000) and the Pallancata unit (US$3,000).

4  Not reportable assets are comprised of available-for-sale financial assets of US$991,000, other receivables of US$57,016,000, income tax receivable of US$20,988,000, deferred income tax asset of US$1,027,000 and cash and cash equivalents of US$139,979,000.

 

 

 

Arcata US$000

 

Pallancata US$000

 

San Jose US$000

 

Inmaculada US$000

 

Exploration
US$000 

 

Other1
US$000 

 

Adjustment
and
eliminations
US$000

 

Total
US$000

Year ended
31 December 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from
external customers

 

107,425

 

73,045

 

186,097

 

102,303

 

-

 

276

 

-

 

469,146

Inter segment revenue

 

-

 

-

 

-

 

-

 

-

 

2,437

 

(2,437)

 

-

Total revenue

 

107,425

 

73,045

 

186,097

 

102,303

 

-

 

2,713

 

(2,437)

 

469,146

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment profit/(loss)

 

(1,340)

 

(17,002)

 

13,297

 

49,759

 

(10,710)

 

384

 

(1,397)

 

32,991

Others2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(289,166)

Loss from continuing operations before
income tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(256,175)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other segment information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation3

 

(33,506)

 

(35,415)

 

(45,286)

 

(32,093)

 

(1,496)

 

(2,816)

 

-

 

(150,612)

Amortisation

 

-

 

-

 

(1,013)

 

-

 

(457)

 

(34)

 

-

 

(1,504)

Impairment and write-off of assets, net

 

(72,718)

 

(39,245)

 

(57)

 

-

 

(95,113)

 

(13)

 

-

 

(207,146)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditure

 

14,600

 

10,683

 

38,451

 

166,336

 

4,011

 

4,078

 

-

 

238,159

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

17,456

 

13,818

 

63,941

 

31,958

 

30

 

5,435

 

-

 

132,638

Other non-current assets

 

53,458

 

50,591

 

220,307

 

633,169

 

181,662

 

72,481

 

-

 

1,211,668

Total segment assets

 

70,914

 

64,409

 

284,248

 

665,127

 

181,692

 

77,916

 

-

 

1,344,306

Not reportable assets4

 

-

 

-

 

-

 

-

 

-

 

198,743

 

-

 

198,743

Total assets

 

70,914

 

64,409

 

284,248

 

665,127

 

181,692

 

276,659

 

-

 

1,543,049

 

1  'Other' revenue relates to revenues earned by Empresa de Transmisión Callalli S.A.C.and Empresa de Transmisión Aymaraes S.A.C.

2  Comprised of administrative expenses of US$38,148,000, other income of US$8,021,000, other expenses of US$15,264,000, impairment and write-off of assets of US$207,146,000, finance income of US$1,898,000, finance expense of US$32,900,000, and foreign exchange loss of US$5,627,000.

3  Includes US$1,793,000 and US$6,077,000 of depreciation capitalised in the Crespo and the Inmaculada projects respectively.

4  Not reportable assets are comprised of available-for-sale financial assets of US$366,000, other receivables of US$72,662,000, income tax receivable of US$20,431,000, other financial assets of US$21,267,000 and cash and cash equivalents of US$84,017,000.

 

(b) Geographical information

The revenue for the period based on the country in which the customer is located is as follows:

 

 

Year ended 31 December

 

 

2016
US$000

 

2015
US$000

External customer

 

 

 

 

USA

 

225,073

 

229,229

Peru

 

78,248

 

63,328

Canada

 

181,569

 

58,154

Germany

 

4,506

 

7,428

Switzerland

 

89,838

 

12,174

United Kingdom 1

 

(1,689)

 

17,273

Korea

 

92,769

 

81,580

Bulgaria

 

16,334

 

-

Japan

 

1,594

 

(20)

Total

 

688,242

 

469,146

Inter-segment

 

 

 

 

Peru

 

2,062

 

2,437

Total

 

690,304

 

471,583

1  Corresponds to the realised loss on the silver zero cost collar contract with JP Morgan Chase Bank, National Association, London Branch, settled on 30 December 2016 (2015: Corresponds to the realised gain on the gold and silver swap contracts with JP Morgan Chase Bank, National Association, London Brach, settled on 30 and 31 December 2015 respectively) (refer to note 5).

 

In the periods set out below, certain customers accounted for greater than 10% of the Group's total revenues as detailed
in the following table:

 

 

 

Year ended 31 December 2016

 

Year ended 31 December 2015

 

 

US$000

 

% Revenue

 

Segment

 

US$000

 

% Revenue

 

Segment

Asahi Refining Canada Ltd.

 

160,312

 

23%

 

Arcata and Inmaculada

 

34,362

 

7%

 

Arcata and Inmaculada

Republic Metals Corporation

 

103,405

 

15%

 

Arcata, Inmaculada and San Jose

 

106,339

 

23%

 

Arcata, Inmaculada and San Jose

Auramet Trading Llc.

 

97,616

 

14%

 

Arcata and Inmaculada

 

14,781

 

3%

 

Arcata and Inmaculada

LS Nikko

 

92,769

 

14%

 

Pallancata and San Jose

 

81,580

 

17%

 

Pallancata and San Jose

 

Non-current assets, excluding financial instruments and deferred income tax assets, were allocated to the geographical areas in which the assets are located as follows:

 

 

 

 

 

As at 31 December

 

 

2016
US$000

 

2015
US$000

Peru

 

850,605

 

897,824

Argentina

 

196,056

 

220,307

Mexico

 

30,990

 

31,005

Chile

 

63,196

 

62,532

Total non-current segment assets

 

1,140,847

 

1,211,668

Available-for-sale financial assets

 

991

 

366

Trade and other receivables

 

25,717

 

10,187

Income tax receivable

 

-

 

47

Deferred income tax assets

 

1,027

 

-

Total non-current assets

 

1,168,582

 

1,222,268

 

 

4 Disposals of subsidiaries

HMX S.A. de C.V.

On 22 February 2016 the Group sold its Mexican subsidiary HMX S.A. de C.V. to Sergio Salinas and Servicios de Integración Fiscal S.A. de C.V., for nil consideration. The carrying value of the net assets disposed was US$60,000 and the transaction resulted in a loss of US$60,000.

 

Asociación Sumac Tarpuy

On 17 May 2016 the Group transferred all its rights over its non-for-profit subsidiary Asociación Sumac Tarpuy to Inversiones ASPI S.A.  ("ASPI"), recognising a gain on disposal of US$811,000. The gain on disposal was determined as follows:

 

 

US$000

Cash consideration

 

1,100

Assets and liabilities disposed:

 

 

Cash and cash equivalents

 

293

Other payables

 

(4)

Net assets disposed

 

289

Gain on disposal

 

811

 

 

 

 

 
US$000

Net cash inflow arising on disposal

 

 

Consideration received in cash and cash equivalents

 

1,100

Less: cash and cash equivalents disposed of:

 

(293)

 

 

807

 

 

 

 

5 Revenue

 

 

Year ended 31 December

 

 

2016
US$000

 

2015
US$000

Gold (from dore bars)

 

263,010

 

142,077

Silver (from dore bars)

 

177,450

 

142,397

Gold (from concentrate)

 

91,348

 

68,414

Silver (from concentrate)

 

156,075

 

115,982

Services

 

359

 

276

Total

 

688,242

 

469,146

Included within revenue is a loss of US$6,667,000 relating to provisional pricing adjustments representing the change in the fair value of embedded derivatives (2015: loss of US$7,275,000) arising on sales of concentrates and dore.

 

Revenue is disclosed net of commercial deductions of $37,240,000 (2015: $24,198,000) split between gold $11,486,000 (2015: $6,714,000) and silver $25,754,000 (2015: 17,484,000).

 

The realised loss on gold and silver swaps and zero cost collar contracts in the period recognised within revenue was US$18,722,000 (gold: US$10,030,000, silver: US$8,692,000) (2015: gain of US$18,962,000, gold: US$7,012,000, silver: US$11,950,000).

6 Cost of sales

 

Included in cost of sales are:

 

 

Year ended 31 December

 

 

2016
US$000

 

2015
US$000

Depreciation and amortisation in production costs1

 

185,655

 

139,533

Personnel expenses (notes 10 and 11)

 

103,130

 

107,823

Mining royalty (note 30)

 

7,506

 

5,968

Change in products in process and finished goods

 

6,487

 

(10,255)

1 The depreciation and amortisation in cost of sales and inventory is US$180,317,000 (2015: US$135,645,000) and US$5,338,000 (2015: US$3,888,000) respectively.

 

 

 

 

7 Administrative expenses

 

 

Year ended 31 December

 

 

2016
US$000

 

2015
US$000

Personnel expenses (note 10)

 

33,028

 

22,427

Professional fees

 

3,075

 

3,095

Social and community welfare expenses1

 

384

 

597

Lease rentals

 

1,455

 

1,415

Travel expenses

 

598

 

576

Communications

 

438

 

560

Indirect taxes

 

2,057

 

2,147

Depreciation and amortisation

 

1,798

 

1,534

Technology and systems

 

678

 

745

Security

 

656

 

790

Supplies

 

109

 

134

Other 2

 

3,703

 

4,128

Total

 

47,979

 

38,148

1    Represents amounts expended by the Group on social and community welfare activities surrounding its mining units.

2    Predominatly related to third party services of US$972,000 (2015: US$962,000), technical services of US$533,000 (2015: US$423,000), repair and maintenance of US$492,000 (2015: US$527,000 and impairment of receivables of US$312,000 (2015: US$209,000).

 

 

 

8 Exploration expenses

 

 

Year ended 31 December

 

 

2016
US$000

 

2015
US$000

Mine site exploration1

 

 

 

 

Arcata

 

1,305

 

62

Ares

 

297

 

50

Inmaculada

 

1

 

6

Pallancata

 

733

 

2,457

San Jose

 

1,691

 

1,463

 

 

4,027

 

4,038

Prospects2

 

 

 

 

Peru

 

316

 

303

Argentina

 

11

 

43

Chile

 

26

 

71

 

 

353

 

417

Generative3

 

 

 

 

Peru

 

866

 

499

 

 

866

 

499

Personnel (notes 10)

 

3,476

 

2,967

Others

 

471

 

1,334

Total

 

9,193

 

9,255

1    Mine-site exploration is performed with the purpose of identifying potential minerals within an existing mine-site, with the goal of maintaining or extending the mine's life.

2    Prospects expenditure relates to detailed geological evaluations in order to determine zones which have mineralisation potential that is economically viable for exploration. Exploration expenses are generally incurred in the following areas: mapping, sampling, geophysics, identification of local targets and reconnaissance drilling.

3    Generative expenditure is early stage exploration expenditure related to the basic evaluation of the region to identify prospects areas that have the geological conditions necessary to contain mineral deposits. Related activities include regional and field reconnaissance, satellite images, compilation of public information and identification of exploration targets.

 

The Group determines the cash flows which relate to the exploration activities of the companies engaged only in exploration. Exploration activities incurred by Group operating companies are not included since it is not practicable to separate the liabilities related to the exploration activities of these companies from their operating liabilities.

 

Cash outflows on exploration activities were US$1,168,000 in 2016 (2015: US$1,190,000).

 

9 Selling expenses

 

 

Year ended 31 December

 

 

2016
US$000

 

2015
US$000

Transportation of dore, concentrate and maritime freight

 

5,410

 

3,548

Sales commissions

 

84

 

200

Personnel expenses (note 10)

 

254

 

254

Warehouse services

 

1,861

 

1,610

Taxes1

 

1,495

 

12,994

Other

 

5,071

 

3,123

Total

 

14,175

 

21,729

1    The export taxes over dore and concentrates in Argentina were reduced to zero percent on 18 December 2015 and 12 February 2016 respectively.

10 Personnel expenses1

 

 

Year ended 31 December

 

 

2016
US$000

 

2015
US$000

Salaries and wages

 

98,741

 

103,433

Workers' profit sharing2

 

-

 

-

Other legal contributions

 

20,552

 

20,735

Statutory holiday payments

 

6,361

 

6,534

Long Term Incentive Plan

 

10,528

 

1,013

Restricted share plan

 

3,181

 

2,843

Termination benefits

 

2,577

 

3,623

Other

 

1,951

 

1,584

Total

 

143,891

 

139,765

1    Personnel expenses are distributed in cost of sales, administrative expenses, exploration expenses, selling expenses, other expenses and capitalised as property plant and equipment amounting to US$103,130,000 (2015: US$107,823,000), US$33,028,000 (2015: US$22,427,000), US$3,476,000 (2015: US$2,967,000), US$254,000 (2015: US$254,000), US$2,406,000 (2015: US$1,218,000) and US$1,597,000 (2015: US$5,076,000) respectively.

2    As there is a taxable loss in Compañía Minera Ares S.A.C., and worker´s profit sharing is calculated over the taxable income of each year of companies in Peru, there is no provision during 2016 and 2015 periods.

 

Average number of employees for 2016 and 2015 were as follows:

 

 

Year ended 31 December

 

 

2016

 

2015

Peru

 

2,825

 

2,575

Argentina

 

1,125

 

1,129

Chile

 

3

 

3

United Kingdom

 

11

 

10

Total

 

3,964

 

3,717

 

 

11 Exceptional items

 

Exceptional items are those significant items which, due to their nature or the expected infrequency of the events giving rise to them, need to be disclosed separately on the face of the income statement to enable a better understanding of the financial performance of the Group and facilitate comparison with prior years. Unless stated, exceptional items do not correspond to a reporting segment of the Group.

 

 

 

 

Year ended
31 December
2016
US$000

 

Year ended
31 December
2015
US$000

Cost of sales

 

 

 

 

Termination benefits1

 

-

 

(1,514)

Total

 

-

 

(1,514)

Other income

 

 

 

 

Reversal of reserves tax2

 

2,667

 

-

Total

 

2,667

 

-

Other expenses

 

 

 

-

Work stoppage at Pallancata mine unit3

 

(2,474)

 

-

Penalty for termination of agreement4

 

(4,254)

 

-

Damage of tailing dump in Ares mine unit5

 

(2,150)

 

-

Provision for impairment of other receivables6

 

(1,797)

 

-

Total

 

(10,675)

 

-

Impairment and write-off of non-current assets

 

 

 

 

Impairment and write-off of non-current assets7

 

(1,634)

 

(207,146)

Total

 

(1,634)

 

(207,146)

Finance income

 

 

 

 

Reversal of interests on reserves tax2

 

974

 

-

Total

 

974

 

-

Finance costs

 

 

 

 

Interest on disputed tax charges8

 

-

 

(1,486)

Total

 

-

 

(1,486)

Income tax benefit9

 

2,224

 

36,888

Total

 

2,224

 

36,888

1    Termination benefits in 2015 paid to workers following the cashflow optimisation programme approved by management, amounting to US$1,514,000, corresponding to the San José reporting segment.

2    Corresponds to the reversal of the reserves tax liability recorded in previous periods and their associated interests as a result of the settlement agreed between Minera Santa Cruz S.A.C. and the Fiscal Authority in Argentina.

3    From 16 November 2016 until the end of the year, due to actions by the communities surrounding the Pallancata mine unit, the extracting and treatment operations were temporarily suspended. At 31 December 2016 the fixed indirect costs related to abnormal decrease in production from the work stoppage amounted to US$2,474,000, corresponding to the Pallancata reporting segment.

4    Penalty for early termination of the energy supply contract between Compañia Minera Ares S.A.C. and SDF Energia.

5    A section of the Ares tailings dam lateral walls showed unusual decay. A comprehensive study was conducted to determine long-term stability and the conclusion was that certain areas needed to be repaired. This failure was not anticipated and required works aimed at repairing and reinforcing the walls and ensure the long term sustainability of the dam had to be conducted. The expenditure incurred was not part of our mine closure provision and reflects an unexpected, one-off event.

6     Provision for impairment of the account receivable with a third party due to the uncertainty surrounding the outcome of the legal dispute and hence its recoverability.

7    As at 31 December 2016 corresponds to the write-off of non-current assets of Compañia Minera Ares S.A.C. of US$1,634,000 arising from events falling outside the entity's ordinary activities. The charge was generated by the change of the exploitation method in the Pallancata mine unit, from mechanised to conventional. As at 31 December 2015 corresponds to the impairment of the Pallancata mine unit of US$39,026,000, the Arcata mine unit of US$72,424,000, the Crespo project of US$14,350,000, the Azuca project of US$12,766,000, the Volcan project of US$57,070,000 and the San Felipe project of US$10,927,000, and to the write-off of non-current assets of US$583,000.

8    Interest on overdue tax charges owed by the Group following a change in circumstances surrounding a tax dispute with the Peruvian tax authority, resulting in the exposure now being assessed as 'probable', rather than 'possible'.

9    Mainly corresponds to the current tax credit arising from the costs of the work stoppage at Pallancata mine unit, the penalty for early termination of agreement in Compañia Minera Ares S.A.C., the costs incurred due to the damage of tailing dump in Ares mine unit and the reversal of reserves tax in Argentina (US$1,212,000) and the deferred tax credit arising from the write-off of non-current assets and the account receivable (US$1,012,000). For the period ended December 2015, primarily related to the deferred tax benefit arising from the impairment recorded.

 

 

12 Other income and other expenses before exceptional items

 

 

Year ended
31 December 2016

 

Year ended
31 December 2015

 

 

Before
exceptional
items
US$000

 

Before
exceptional
items
US$000

Other Income

 

 

 

 

Decrease in provision for mine closure (note 26(3))

 

6,346

 

-

Export credits

 

19,029

 

2,743

Lease rentals

 

391

 

443

Gain on sale of other assets1

 

1,550

 

-

Gain on sale of subsidiaries (refer to note 4)

 

751

 

-

Logistic services

 

4,288

 

3,699

Other

 

776

 

1,136

Total

 

33,131

 

8,021

Other expenses

 

 

 

 

Increase in provision for mine closure (note 26(3))

 

-

 

(7,590)

Tax on mining reserves in Argentina (note 30)

 

-

 

(441)

Provision of obsolescence of supplies

 

(2,162)

 

(1,046)

Contingencies

 

(570)

 

(108)

Donations (refer to note 29)

 

(1,000)

 

-

Write off of value added tax

 

(1,208)

 

(795)

Corporate social responsibility contribution in Argentina2

 

(3,146)

 

-

Other 3

 

(5,772)

 

(5,284)

Total

 

(13,858)

 

(15,264)

1    Corresponds to a gain in Compañía Minera Arcata S.A. generated by the sale of a royalty purchase agreement signed with Minera Bateas S.A.C. to Lemuria Royalties Corp.

2    Relates to a new contribution in Argentina to the Santa Cruz province, effective since January 2016 and calculated as a proportion of sales.

3    Mainly corresponds to the expenses in Ares mine unit of US$1,910,000 (2015: US$2,308,000), concessions of US$1,210,000 (2015: US$447,000) and rentals of US$440,000 (2015: US$333,000)

 

13 Finance income and finance costs before exceptional items

 

 

Year ended
31 December 2016

 

Year ended
31 December 2015

 

 

Before
exceptional
items
US$000

 

Before
exceptional
items
US$000

Finance income

 

 

 

 

Interest on deposits and liquidity funds

 

1,011

 

648

Interest income

 

1,011

 

648

Gain on repurchase of bonds

 

-

 

856

Other

 

89

 

394

Total

 

1,100

 

1,898

Finance costs

 

 

 

 

Interest on secured bank loans (note 25)

 

(2,602)

 

(5,842)

Other interest

 

(1,106)

 

(1,657)

Interest on bond (note 25)

 

(23,925)

 

(22,096)

Interest expense

 

(27,633)

 

(29,595)

Unwind of discount on mine rehabilitation

 

(46)

 

(69)

Loss on discount of other receivables

 

(2,257)

 

(436)

Loss from changes in the fair value of financial instruments

 

-

 

(116)

Other

 

(605)

 

(1,198)

Total

 

(30,541)

 

(31,414)

14 Income tax expense

 

 

Year ended 31 December 2016

 

Year ended 31 December 2015

 

 

Before
exceptional
items
US$000

 

Exceptional items
US$000

 

Total
US$000

 

Before
exceptional
items
US$000

 

Exceptional
items
US$000

 

Total
US$000

Current corporate income tax from
continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

Current corporate income tax charge

 

31,701

 

(1,212)

 

30,489

 

5,200

 

(259)

 

4,941

Current mining royalty charge (note 30)

 

3,882

 

-

 

3,882

 

1,778

 

-

 

1,778

Current special mining tax charge (note 30)

 

3,869

 

-

 

3,869

 

755

 

-

 

755

Withholding taxes

 

552

 

-

 

552

 

(142)

 

-

 

(142)

 

 

40,004

 

(1,212)

 

38,792

 

7,591

 

(259)

 

7,332

Deferred taxation

 

 

 

 

 

 

 

 

 

 

 

 

Origination and reversal of temporary differences from continuing operations (note 27)

 

6,364

 

(961)

 

5,403

 

12,637

 

(36,629)

 

(23,992)

Effect of change in tax rate1

 

1,273

 

(51)

 

1,222

 

142

 

-

 

142

 

 

7,637

 

(1,012)

 

6,625

 

12,779

 

(36,629)

 

(23,850)

Total taxation charge/(credit) in the income statement

 

47,641

 

(2,224)

 

45,417

 

20,370

 

(36,888)

 

(16,518)

1  In December 2016, the Peruvian government approved an increase of the statutory income tax rate, from its current level of 28% to 29.5% with effect from the 1 January 2017

 

The weighted average statutory income tax rate was 30.1% for 2016 and 25.4% for 2015. This is calculated as the average of the statutory tax rates applicable in the countries in which the Group operates, weighted by the profit/(loss) before tax of the Group companies in their respective countries as included in the consolidated financial statements.

 

The change in the weighted average statutory income tax rate is due to a change in the weighting of profit/(loss) before tax in the various jurisdictions in which the Group operates.

 

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

 

 

 

As at 31 December

 

 

2016
US$000

 

2015
US$000

Deferred taxation:

 

 

 

 

Deferred income tax relating to fair value (losses)/ gains on cash flow hedges

 

(5,955)

 

4,739

Total tax (credit)/charge in the statement of other comprehensive income

 

(5,955)

 

4,739

 

The total taxation charge on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to the consolidated profits of the Group companies as follows:

 

 

As at 31 December

 

 

2016
US$000

 

2015
US$000

Profit/(loss) from continuing operations before income tax

 

108,279

 

(256,175)

At average statutory income tax rate of 30.1% (2015: 25.4%)

 

32,570

 

(65,017)

Expenses not deductible for tax purposes

 

1,051

 

1,040

Deferred tax recognised on special investment regime

 

(1,715)

 

(691)

Movement in unrecognised deferred tax1

 

2,705

 

16,565

Change in statutory income tax rate2

 

1,222

 

142

Withholding tax

 

552

 

(142)

Special mining tax and mining royalty3

 

7,751

 

2,533

Derecognition of deferred tax asset

 

316

 

1,251

Foreign exchange rate effect4

 

2,383

 

24,964

Other

 

(1,418)

 

2,837

At average effective income tax rate of 41.9% (2015: 6.4%)

 

45,417

 

(16,518)

Taxation charge/(credit) attributable to continuing operations

 

45,417

 

(16,518)

Total taxation charge/(credit) in the income statement

 

45,417

 

(16,518)

1    Includes the income tax credit on mine closure provision of US$1,925,000 (2015: includes the effect of the impairment of Volcan and San Felipe projects of US$11,414,000 and US$3,278,000 respectively).

2    In December 2016, the Peruvian government approved an increase of the statutory income tax rate, from its current level of 28% to 29.5% with effect from the 1 January 2017.

3    Corresponds to the impact of a mining royalty and special mining tax in Peru (note 30).

4    Mainly corresponds to the foreign exchange effect of converting tax bases and monetary items from local currency to the functional currency.

 

15 Basic and diluted earnings per share

Earnings per share ('EPS') is calculated by dividing profit/(loss) for the year attributable to equity shareholders of the Company by the weighted average number of ordinary shares issued during the year.

 

The Company has dilutive potential ordinary shares.

 

As a result of the rights issue being at a discounted price, the number of ordinary shares outstanding has increased due to the bonus element resulting in the calculation of basic and diluted earnings per share for all periods presented having been adjusted retrospectively.

 

As at 31 December 2016 and 2015, EPS has been calculated as follows:

 

 

As at 31 December

 

 

2016

 

2015

Basic earnings/(loss) per share from continuing operations

 

 

 

 

Before exceptional items (US$)

 

0.11

 

(0.14)

Exceptional items (US$)

 

(0.02)

 

(0.38)

Total for the year and from continuing operations (US$)

 

0.09

 

(0.52)

Diluted earnings/(loss) per share from continuing operations

 

 

 

 

Before exceptional items (US$)

 

0.10

 

(0.14)

Exceptional items (US$)

 

(0.01)

 

(0.38)

Total for the year and from continuing operations (US$)

 

0.09

 

(0.52)

 

 

Profit/(loss) from continuing operations before exceptional items and attributable to equity holders of the parent is derived as follows:

 

 

As at 31 December

 

 

2016

 

2015

Profit/(loss) attributable to equity holders of the parent - continuing operations (US$000)

 

45,550

 

(234,610)

Exceptional items after tax - attributable to equity holders of the parent (US$000)

 

7,604

 

172,758

Profit/(loss) from continuing operations before exceptional items attributable to equity holders
of the parent (US$000)

 

53,154

 

(61,852)

Profit/(loss) from continuing operations before exceptional items attributable to equity
holders of the parent for the purpose of diluted earnings per share (US$000)

 

53,154

 

(61,852)

 

The following reflects the share data used in the basic and diluted earnings/(loss) per share computations:

 

 

 

As at 31 December

 

 

2016

 

2015

Basic weighted average number of ordinary shares in issue (thousands)

 

505,521

 

449,511

Effect of dilutive potential ordinary shares related to contingently issuable shares (thousands)1

 

9,435

 

-

Weighted average number of ordinary shares in issue for the purpose of diluted earnings per share (thousands)

 

514,956

 

449,511

1 The potential ordinary shares related to the contingently issuable shares under the Enhanced Long Term Incentive Plan and Restricted Share Plan have not been included in the calculation of diluted EPS for 2015 as they had an antidilutive effect.

 

16 Property, plant and equipment

 

 

Mining properties and development
costs1
 US$000

 

Land and buildings US$000

 

Plant and equipment
US$000

 

Vehicles US$000

 

Mine
 closure
 asset
US$000

 

Construction in progress and capital advances US$000

 

Total
US$000

Year ended 31 December 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2016

 

1,097,107

 

472,093

 

480,747

 

6,151

 

103,386

 

62,392

 

2,221,876

Additions

 

80,565

 

6,695

 

15,379

 

-

 

-

 

25,514

 

128,153

Change in discount rate

 

-

 

-

 

-

 

-

 

(2,367)

 

-

 

(2,367)

Change in mine closure estimate

 

-

 

-

 

-

 

-

 

(5,629)

 

-

 

(5,629)

Disposals

 

-

 

-

 

(3,420)

 

(298)

 

-

 

(56)

 

(3,774)

Write-offs

 

-

 

-

 

(8,500)

 

(85)

 

-

 

-

 

(8,585)

Transfer to intangibles

 

-

 

-

 

-

 

-

 

-

 

(44)

 

(44)

Transfers and other movements2

 

3,232

 

9,698

 

52,723

 

442

 

-

 

(62,863)

 

3,232

At 31 December 2016

 

1,180,904

 

488,486

 

536,929

 

6,210

 

95,390

 

24,943

 

2,332,862

Accumulated depreciation
and impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2016

 

678,547

 

179,036

 

253,388

 

4,447

 

59,790

 

1,152

 

1,176,360

Depreciation for the year

 

112,526

 

39,243

 

33,921

 

462

 

4,616

 

-

 

190,768

Disposals

 

-

 

-

 

(3,361)

 

(283)

 

-

 

-

 

(3,644)

Write-offs

 

-

 

-

 

(6,591)

 

(82)

 

-

 

-

 

(6,673)

Transfers and other movements2

 

568

 

(156)

 

335

 

10

 

74

 

(263)

 

568

At 31 December 2016

 

791,641

 

218,123

 

277,692

 

4,554

 

64,480

 

889

 

1,357,379

Net book amount at 31 December 2016

 

389,263

 

270,363

 

259,237

 

1,656

 

30,910

 

24,054

 

975,483

There were borrowing costs capitalised in property, plant and equipment amounting to US$825,000 (2015: US$8,252,000). The capitalisation rate used was 7.23% (2015: 6.79%).

 

1 Mining properties and development costs related to Crespo projects (2016: US$27,321,000, 2015: US$24,797,000) are not currently being depreciated.

2 Net of transfers and other movements of US$2,664,000 were transferred from evaluation and exploration assets (note 17).

 

At the end of 2015, given the continued challenging environment for the mining sector, the Group carried out an impairment review of all of its operating mines (Arcata, Pallancata, Inmaculada and San Jose), and its growth projects (Crespo, Azuca, San Felipe and Volcan). As a result of this review the Group recognised an impairment charge in the Pallancata mine unit of US$39,026,000, the Arcata mine unit of US$72,424,000, the Crespo project of US$14,350,000, the Azuca project of US$12,766,000, San Felipe project of US$10,927,000 and the Vocan project of US$57,070,000. The impairment recognised in property plant and equipment was US$118,653,000, in evaluation and exploration assets was US$74,550,000 and in intangibles was US$13,360,000 (refer to note 17 and 18).

 

The recoverable values of these CGUs were determined using a fair value less costs of disposal (FVLCD) methodology. FVLCD was determined using a combination of level 2 and level 3 inputs to construct a discounted cash flow model to estimate the amount that would be paid by a willing third party in an arm's length transaction. The key assumptions on which management has based its determination of FVLCD, and the associated recoverable values calculated are presented below.

 

Gold and silver prices

US$ per oz.

 

2016

 

2017

 

2018

 

2019

 

Long-term

Gold

 

1,175

 

1,200

 

1,213

 

1,240

 

1,224

Silver

 

16

 

17

 

18

 

19

 

18

 

Other key assumptions

 

 

Arcata

 

Pallancata

 

San Jose

 

Inmaculada

 

Crespo

 

Azuca

 

San Felipe

 

Volcan

Discount rate (post tax)

 

6.3%

 

6.3%

 

9.7%

 

6.3%

 

7.8%

 

n/a

 

n/a

 

n/a

Value per in-situ ounce (per tonne in the case
of San Felipe) (US$)

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

0.25

 

16.21

 

6.55

1    With respect to the Azuca, Volcan and San Felipe growth projects, given their early stage, the Group applied a value in-situ methodology, which applies a realisable 'enterprise value' to unprocessed mineral resources. The methodology is used to determine the fair value less costs of disposal of the Azuca, Volcan which includes the water permits held by the Group, and San Felipe CGUs. The enterprise value used in the calculation performed at 31 December 2015 was US$6.55 per gold equivalent ounce of resources (Volcan), US$0.25 per silver equivalent ounce of resources (Azuca) and US$16.21 per zinc equivalent tonne of resources (San Felipe).


The enterprise value figures are based on observable external market information.

 

Current carrying value of CGU, net of deferred tax (US$000)

 

Arcata

 

Pallancata

 

San Jose

 

Inmaculada

 

Crespo

 

Azuca

 

San Felipe

 

Volcan

31 December 2015

 

42,956

 

49,331

 

160,055

 

587,208

 

46,275

 

26,102

 

4,218

 

62,512

 

Crespo, Azuca and San Felipe projects correspond to the exploration segment.

 

Sensitivity analysis

Other than as disclosed below, management believes that no reasonably possible change in any of the key assumptions above would cause the carrying value of any of its cash generating units to exceed its recoverable amount.

 

The estimated recoverable amounts of the following of the Group's CGUs are equal to, or not materially greater than, their carrying values; consequently, any adverse change in the following key assumptions would, in isolation, cause an impairment loss to be recognised:

 

Approximate impairment resulting from the following changes (US$000)

 

Arcata

 

Pallancata

 

San Jose

 

Inmaculada

 

Crespo

 

Azuca

 

San Felipe

 

Volcan

Prices (10% decrease)

 

(42,956)

 

(14,892)

 

(89,961)

 

(86,439)

 

(16,308)

 

n/a

 

n/a

 

n/a

Post tax discount rate (3% increase)

 

(5,354)

 

(3,525)

 

(28,570)

 

(50,812)

 

(12,348)

 

n/a

 

n/a

 

n/a

Production costs (10% increase)

 

(42,956)

 

(8,082)

 

(48,914)

 

(20,495)

 

(7,397)

 

n/a

 

n/a

 

n/a

Value per in-situ ounce (per tonne in the case of San Felipe) (10% decrease)

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

(2,610)

 

(422)

 

(6,251)

 

 

 

 

 

 

 

 

 

Mining properties and development
costs
 US$000

 

Land and buildings US$000

 

Plant and equipment
US$000

 

Vehicles US$000

 

Mine
 closure
 asset
US$000

 

Construction in progress and capital advances US$000

 

Total
US$000

Year ended 31 December 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2015

 

999,777

 

257,171

 

389,042

 

6,030

 

96,213

 

237,308

 

1,985,541

Additions

 

91,862

 

632

 

31,455

 

-

 

-

 

106,737

 

230,686

Change in discount rate

 

-

 

-

 

-

 

-

 

(755)

 

-

 

(755)

Change in mine closure estimate

 

-

 

-

 

-

 

-

 

7,928

 

-

 

7,928

Disposals

 

-

 

(195)

 

(952)

 

(196)

 

-

 

-

 

(1,343)

Write-offs

 

 

 

 

 

(2,382)

 

(118)

 

 

 

(5)

 

(2,505)

Transfer from intangibles

 

582

 

-

 

-

 

-

 

-

 

-

 

582

Transfers and other movements1

 

4,886

 

214,485

 

63,584

 

435

 

-

 

(281,648)

 

1,742

At 31 December 2015

 

1,097,107

 

472,093

 

480,747

 

6,151

 

103,386

 

62,392

 

2,221,876

Accumulated depreciation
and impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2015

 

526,824

 

134,638

 

193,210

 

3,663

 

49,486

 

1,410

 

909,231

Depreciation for the year

 

91,129

 

23,333

 

32,053

 

913

 

3,184

 

-

 

150,612

Disposals

 

-

 

(179)

 

(223)

 

(124)

 

-

 

-

 

(526)

Impairment

 

60,259

 

20,752

 

30,451

 

71

 

7,120

 

-

 

118,653

Write-offs

 

-

 

-

 

(1,839)

 

(83)

 

-

 

-

 

(1,922)

Transfers and other movements1

 

335

 

492

 

(264)

 

7

 

-

 

(258)

 

312

At 31 December 2015

 

678,547

 

179,036

 

253,388

 

4,447

 

59,790

 

1,152

 

1,176,360

Net book amount at 31 December 2015

 

418,560

 

293,057

 

227,359

 

1,704

 

43,596

 

61,240

 

1,045,516

1    Net of transfers and other movements of US$1,430,000 were transferred from evaluation and exploration assets.

17 Evaluation and exploration assets

 

 

Azuca
US$000

 

Crespo
US$000

 

San Felipe US$000

 

Volcan US$000

 

Others
US$000

 

Total
US$000

Cost

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2015

 

79,954

 

25,556

 

55,950

 

92,035

 

9,244

 

262,739

Additions

 

211

 

224

 

-

 

958

 

5,468

 

6,861

Transfers to property, plant and equipment

 

-

 

-

 

-

 

-

 

(1,742)

 

(1,742)

Balance at 31 December 2015

 

80,165

 

25,780

 

55,950

 

92,993

 

12,970

 

267,858

Additions

 

1,237

 

251

 

-

 

691

 

1,299

 

3,478

Transfers to property plant and equipment

 

-

 

-

 

-

 

-

 

(3,232)

 

(3,232)

Balance at 31 December 2016

 

81,402

 

26,031

 

55,950

 

93,684

 

11,037

 

268,104

Accumulated impairment

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2015

 

33,292

 

5,510

 

14,907

 

-

 

1,740

 

55,449

Impairment1

 

12,584

 

4,368

 

10,927

 

44,381

 

2,290

 

74,550

Transfers to property, plant and equipment

 

-

 

-

 

-

 

-

 

(312)

 

(312)

Balance at 31 December 2015

 

45,876

 

9,878

 

25,834

 

44,381

 

3,718

 

129,687

Transfers to property, plant and equipment

 

-

 

-

 

-

 

-

 

(568)

 

(568)

Balance at 31 December 2016

 

45,876

 

9,878

 

25,834

 

44,381

 

3,150

 

129,119

Net book value as at 31 December 2015

 

34,289

 

15,902

 

30,116

 

48,612

 

9,252

 

138,171

Net book value as at 31 December 2016

 

35,526

 

16,153

 

30,116

 

49,303

 

7,887

 

138,985

There were no borrowing costs capitalised in evaluation and exploration assets.

 

1 In 2015 the Group recognised an impairment charge of US$74,550,000, mainly related to the Volcan project (refer to note 16). The FVLCD calculation is detailed in note 16.

18 Intangible assets

 

 

Transmission 
line1
US$000 

 

 Water 
permits2
US$000 

 

Software
licences
US$000

 

Legal rights3 US$000 

 

Total
US$000

Cost

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2015

 

22,157

 

26,583

 

1,773

 

6,681

 

57,194

Additions

 

-

 

-

 

25

 

587

 

612

Transfer

 

-

 

-

 

-

 

(582)

 

(582)

Balance at 31 December 2015

 

22,157

 

26,583

 

1,798

 

6,686

 

57,224

Additions

 

-

 

-

 

14

 

-

 

14

Transfer

 

-

 

-

 

44

 

-

 

44

Balance at 31 December 2016

 

22,157

 

26,583

 

1,856

 

6,686

 

57,282

Accumulated amortisation and impairment

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2015

 

11,124

 

-

 

1,248

 

2,007

 

14,379

Amortisation for the year4

 

946

 

-

 

67

 

491

 

1,504

Impairment5

 

-

 

12,686

 

-

 

674

 

13,360

Balance at 31 December 2015

 

12,070

 

12,686

 

1,315

 

3,172

 

29,243

Amortisation for the year4

 

1,004

 

-

 

56

 

600

 

1,660

Balance at 31 December 2016

 

13,074

 

12,686

 

1,371

 

3,772

 

30,903

Net book value as at 31 December 2015

 

10,087

 

13,897

 

483

 

3,514

 

27,981

Net book value as at 31 December 2016

 

9,083

 

13,897

 

485

 

2,914

 

26,379

1    The transmission line is amortised using the units of production method. At 31 December 2016 the remaining amortisation period is approximately 9 years.

2    Corresponds to the acquisition of water permits of Andina Minerals Group ("Andina"). They have an indefinite life according to Chilean law. In the case of the water permits the Group applied a value in situ methodology, which applies a realisable 'enterprise value' to unprocessed mineral resources. The methodology is used to determine the fair value less costs of disposal of the Volcan cash-generating unit, which includes the water permits held by the Group. The enterprise value used in the calculation performed at 31 December 2016 was US$6.90 (2015: US$6.55) per gold equivalent ounce of resources. The enterprise value figures are based on observable external market information.

3    Legal rights correspond to expenditures required to give the Group the right to use a property for the surface exploration work, development and production. At 31 December 2016 the remaining amortisation period is from 8 to 20 years.

4    The amortisation for the period is included in cost of sales and administrative expenses in the income statement.

5    Correspond to the impairment of the Crespo and Volcan projects (refer to note 16).

 

The carrying amount of the Volcan CGU, which includes the water permits, is reviewed annually to determine whether it is in excess of its recoverable amount.

Key assumptions

 

 

2016

2015

Risk adjusted value per in-situ (gold equivalent ounce) US$

 

6.90

6.55

 

(US$000)

 

2016

2015

 Current carrying value of Volcan CGU

 

63,187

62,512

 

Sensitivity analysis

Other than as disclosed below, management believes that no reasonably possible change in any of the key assumptions above would cause the carrying value exceed its recoverable amount.

 

The estimated recoverable amount is not materially greater than its carrying value; consequently, a change in the value in situ assumption could cause an impairment loss or reversal of impairment to be recognised in 2016:

 

Approximate impairment resulting from the following changes (US$000)

 

2016

2015

Risk adjusted value per in-situ (gold equivalent) ounces (10% decrease)

 

(3,896)

(6,251)

 

 

 

19 Available-for-sale financial assets

 

 

Year ended 31 December

 

 

2016
US$000

 

2015
US$000

Beginning balance

 

366

 

455

Fair value change recorded in equity

 

774

 

(86)

Disposals

 

(149)

 

(3)

Ending balance

 

991

 

366

 

The fair value of the listed shares is determined by reference to published price quotations in an active market.

 

The carrying value of available for sale financial assets relate only to listed shares. All unlisted investments (Pembrook Mining Corp. and ECI Exploration and Mining Inc.) are recognised at cost less any recognised impairment loss as there is no active market for these investments. These investments are fully impaired as at 31 December 2015 and 2016.

 

20 Trade and other receivables

 

 

As at 31 December

 

 

2016

 

2015

 

 

Non-current
US$000

 

Current
US$000

 

Non-current
US$000

 

Current
US$000

Trade receivables

 

-

 

36,821

 

-

 

62,352

Advances to suppliers

 

-

 

2,458

 

-

 

6,567

Duties recoverable from exports of Minera Santa Cruz 1

 

19,065

 

-

 

4,698

 

-

Receivables from related parties (note 29(a))

 

-

 

71

 

-

 

11

Loans to employees

 

856

 

230

 

991

 

149

Interest receivable

 

-

 

151

 

-

 

36

Receivable from Kaupthing, Singer and Friedlander Bank

 

-

 

198

 

-

 

252

Other2

 

2,188

 

10,205

 

1,567

 

13,518

Provision for impairment3

 

-

 

(6,342)

 

-

 

(5,327)

Assets classified as receivables

 

22,109

 

43,792

 

7,256

 

77,558

Prepaid expenses

 

44

 

2,590

 

60

 

1,157

Value Added Tax (VAT)4

 

3,564

 

21,738

 

2,871

 

46,112

Total

 

25,717

 

68,120

 

10,187

 

124,827

The fair values of trade and other receivables approximate their book value.

 

1  Relates to export benefits through Port Patagonico and silver refunds in Minera Santa Cruz, discounted over 24 months (2015: 24 months) at a rate of 6.39% (2015: 5.72%) for dollar denominated accounts and 23.31% (2015: 28.90%) for Argentinian pesos. The loss on discount is recognised within finance costs.

2  Mainly corresponds to account receivables from contractors for the sale of supplies of US$3,968,000 (2015: US$4,791,000), and other tax claims of US$5,333,000 (2015: US$2,840,000).

3  Includes the provision for impairment of trade receivable from a customer in Peru of US$1,043,000 (2015: US$1,108,000), the impairment of deposits in Kaupthing, Singer and Friedlander of US$198,000 (2014: US$252,000), the impairment of the account receivable from a third party of US$1,797,000 and other receivables of US$3,304,000 (2014: US$3,967,000) that mainly relates to an exploration project that would be recovered through an ownership interest if it succeeds.

4  Primarily relates to US$16,030,000 (2015: US$13,078,000) of VAT receivable related to the San Jose project that will be recovered through future sales of gold and silver and also through the sale of these credits to third parties by Minera Santa Cruz S.A. It also includes the VAT of Compañía Minera Ares S.A.C. of US$4,776,000 (2015: US$32,086,000) and Empresa de Transmisión Aymaraes S.A.C. of US$3,665,000 (2015: US$2,909,000). The VAT is valued at its recoverable amount.

 

Movements in the provision for impairment of receivables:

 

 

Individually
impaired
US$000

At 1 January 2015

 

5,136

Provided for during the year

 

446

Released during the year

 

(255)

At 31 December 2015

 

5,327

Provided for during the year

 

2,061

Released during the year

 

(1,046)

At 31 December 2016

 

6,342

 

As at 31 December 2016 and 2015, none of the financial assets classified as receivables (net of impairment) were past due.

21 Inventories

 

 

As at 31 December

 

 

2016
US$000

 

2015
US$000

Finished goods valued at cost

 

3,515

 

14,120

Finished goods at net realisable value

 

-

 

1,856

Products in process valued at cost

 

20,727

 

13,632

Products in process at net realisable value

 

-

 

1,121

Raw materials

 

33

 

-

Supplies and spare parts

 

40,241

 

44,855

 

 

64,516

 

75,584

Provision for obsolescence of supplies

 

(7,460)

 

(5,298)

Total

 

57,056

 

70,286

 

Finished goods include ounces of gold and silver, dore and concentrate.  Products in process include stockpiles and precipitates.

 

The Group either sells dore bars as a finished product or if it is commercially advantageous to do so, delivers the bars for refining into gold
and silver ounces which are then sold. In the latter scenario, the dore bars are classified as products in process. The amount of dore on hand at 31 December 2016 included in products in process is US$nil (2015: US$3,827,000).

 

Concentrate is sold to smelters, but in addition could be used as a product in process to produce dore.

 

As part of the Group's short-term financing policies, it acquires pre-shipment loans which are guaranteed by the sales contracts.

 

The amount of expense recognised in profit and loss related to the consumption of inventory of supplies, spare parts and raw materials is US$86,754,000 (2015: US$78,525,000).

 

Movements in the provision for obsolescence comprise an increase in the provision of US$2,162,000 (2015: US$1,046,000) and the reversal
of US$nil relating to the sale of supplies and spare parts, that had been provided for (2015: US$nil).

 

22 Cash and cash equivalents

 

 

As at 31 December

 

 

2016
US$000

 

2015
US$000

Cash at bank

 

353

 

368

Liquidity funds1

 

203

 

337

Current demand deposit accounts2

 

68,643

 

47,717

Time deposits3

 

70,780

 

35,595

Cash and cash equivalents considered for the statement of cash flows4

 

139,979

 

84,017

 

The fair value of cash and cash equivalents approximates their book value. The Group does not have undrawn borrowing facilities available in the future for operating activities or capital commitments.

 

1  The liquidity funds are mainly invested in certificates of deposit, commercial papers and floating rate notes with a weighted average maturity of 16 days as at 31 December 2016 (2015: average of 14 days).

2  Relates to bank accounts which are freely available and bear interest.

3  These deposits have an average maturity of 3 days (2015: Average of 2 days).

4  As at 31 December 2015 funds deposited in Argentinean institutions were effectively restricted for transfer to other countries and were invested locally. Included within cash and cash equivalents at 31 December 2015 was US$11,696,000, which was not readily available for use in subsidiaries outside of Argentina.

 

 

23 Deferred income

 

On 3 August 2011, Hochschild entered into an agreement with Impulsora Minera Santa Cruz ("IMSC") whereby IMSC acquired the right to explore the San Felipe properties and an option to purchase the related concessions. Under the terms of this agreement the Group has received the following non-refundable payments to date:

 

 

As at 31 December

 

 

 

2016
US$000

 

2015
US$000

 

San Felipe contract

 

25,000

 

25,000

 

 

These payments reduce the total consideration IMSC will be required to pay upon exercise of the option by 1 December 2017, and constitute an advance of the final purchase price, rather than an option premium, as such, they were recorded as deferred income. On 30 November 2016, IMSC renegotiated terms of the agreement, extending the validity of the agreement to 1 December 2017.

 

 

 

24 Trade and other payables

 

 

As at 31 December

 

 

2016

 

2015

 

 

Non-current
US$000

 

Current
US$000

 

Non-current
US$000

 

Current
US$000

Trade payables1

 

-

 

55,381

 

-

 

58,655

Salaries and wages payable2

 

-

 

28,500

 

-

 

20,278

Dividends payable

 

-

 

75

 

-

 

826

Taxes and contributions

 

43

 

4,962

 

57

 

9,605

Guarantee deposits

 

-

 

5,073

 

-

 

7,163

Mining royalty (note 30)

 

-

 

679

 

-

 

796

Accounts payable to related parties (note 29)

 

-

 

94

 

-

 

40

Account payable to Graña & Montero3

 

-

 

-

 

20,322

 

-

Other

 

1,223

 

3,720

 

-

 

4,529

Total

 

1,266

 

98,484

 

20,379

 

101,892

 

The fair value of trade and other payables approximate their book values.

 

1  Trade payables relate mainly to the acquisition of materials, supplies and contractors' services. These payables do not accrue interest and no guarantees have been granted.

2  Salaries and wages payable relates to remuneration payable. There were Board members remuneration payable of US$2,000 (2015: US$nil) and long term incentive plan payable of US$6,279,000 (2015: US$nil) at 31 December 2016.

3  Related to the construction of Inmaculada mine unit. Included the principal of US$20,000,000 plus interest calculated at a 5% interest rate. The payment of the amount owing was to be made in four instalments every six months starting in September 2017. This amount, together with the related interest of US$1,080,000, was fully repaid on 29 September 2016.

 

25 Borrowings

 

 

As at 31 December

 

 

2016

 

2015

 

 

Effective
interest rate

 

Non-current
US$000

 

Current
US$000

 

Effective
interest rate

 

Non-current
US$000

 

Current
US$000

Bond payable (a)

 

8.56%

 

291,073

 

8,778

 

8.56%

 

290,230

 

8,777

Secured bank loans (b)

 

 

 

 

 

 

 

 

 

 

 

 

·    Pre-shipment loans in Minera Santa Cruz
(note 21)

 

2.70% to 3.00%

 

-

 

2,524

 

29.64%

 

-

 

10,554

·    Medium-term bank loan

 

-

 

-

 

-

 

3.82%

 

49,548

 

229

·    Short-term bank loans

 

0.65%

 

-

 

25,010

 

0.70% to 1.35%

 

-

 

75,200

Total

 

 

 

291,073

 

36,312

 

 

 

339,778

 

94,760

 

(a) Bond payable

On 23 January 2014 the Group issued US$350,000,000 7.75% Senior Unsecured Notes of Compañía Minera Ares S.A.C. guaranteed by Hochschild Mining plc and Hochschild Mining (Argentina) Corporation S.A. The interest is paid semi-annually, until maturity in 23 January 2021. During November and December 2015, the Group repurchased bonds amounting to US$55,225,000 for US$54,369,000, giving rise to a gain on repurchase of US$856,000 (see note 13). The balance at 31 December 2016 comprises the carrying value, including accrued interest payable, of US$299,851,000 (2015: US$299,007,000) determined in accordance with the effective interest method.

The following options could be taken before the maturity:

·        Optional Redemption with Make-Whole Premium: At any time prior to 23 January 2018, the issuer may redeem all or part of the notes, at a price equal to 100% of the outstanding principal amount of the notes plus accrued and unpaid interest and additional amounts, if any, to the redemption date, plus a "make-whole" premium at Treasury Rate + 50 bps.

·        Optional Redemption without Make-Whole Premium: The issuer may redeem all or part of the notes on or after 23 January 2018 at
the redemption prices specified plus accrued and unpaid interest and additional amounts, if any, to the redemption date. The Make
Whole Premium requires repayment of 103.875%, 101.938% or 100% of the outstanding principal balance if exercised in 2018, 2019
or 2020 respectively.

·        Optional Redemption Upon Tax Event: 100% of the outstanding principal amount plus accrued and unpaid interest and additional amounts, if any.

·        Change of Control Offer: 101% of principal amount plus accrued and unpaid interest.

 

(b) Secured bank loans:

Medium-term bank loan:

Credit agreement of US$100,000,000 with Scotiabank Peru S.A.A. acting as Lead Arranger and The Bank of Nova Scotia and Corpbanca as lenders. The borrower is Compañía Minera Ares S.A.C. and the loan is guaranteed by Hochschild Mining plc. The loan has an interest rate of LIBOR + 2.6% payable quarterly. On November 2015, the Group paid US$50,000,000 of principal and modified the schedule of repayments, starting on 30 March 2018 until maturity on 30 December 2019. On July 2016, the Group paid the remaining principal amount of US$50,000,000. The carrying value including accrued interest payable at 31 December 2016 of US$nil (2015: US$49,777,000) was determined in accordance with the effective interest method.

 

Short-term bank loans:

Two credit agreements signed by Compañía Minera Ares S.A.C. with BBVA Continental. The loans have an interest rate of 0.65% (2015: from 0.70% to 1.35%). The carrying value including accrued interest payable at 31 December 2016 is US$25,010,000 (2015: US$75,200,000). The due date of both loans is 7 February 2017.

 

The movement of short-term bank loans during the 2016 period is as follows:

 

 

As at 1 January 2016

US$000

 

Additions

 US$000

 

Repayments

 US$000

 

As at 31 December 2016

US$000

Short term bank loans

 

75,000

 

55,000

 

(105,000)

 

25,000

Accrued interests

 

200

 

608

 

(798)

 

10

Total

 

75,200

 

55,608

 

(105,798)

 

25,010

 

 

 

 

 

 

 

 

 

The maturity of non-current borrowings is as follows:

 

 

As at 31 December

 

 

2016
US$000

 

2015
US$000

Between 1 and 2 years

 

-

 

-

Between 2 and 5 years

 

291,073

 

49,548

Over 5 years

 

-

 

290,230

Total

 

291,073

 

339,778

 

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

 

 

Carrying amount
as at 31 December

 

Fair value
as at 31 December

 

 

2016
US$000

 

2015
US$000

 

2016
US$000

 

2015
US$000

Secured bank loans

 

-

 

49,548

 

-

 

48,223

Bond payable

 

291,073

 

290,230

 

318,062

 

274,878

Total

 

291,073

 

339,778

 

318,062

 

323,101

 

The fair value of secured bank loans as at 31 December 2015 was determined by discounting the remaining principal and interest payments at the three month U.S. LIBOR rate plus 2.6%. The U.S. LIBOR rate is a Level 1 input.

 

In the case of the bond payable, the fair value was determined with reference to the quoted price of these bonds in an active market, another Level 1 input.

26 Provisions

 

 

Provision

for mine closure1

US$000

 

Long Term Incentive

Plan2

US$000

 

Other
US$000

 

Total
US$000

At 1 January 2015

 

107,787

 

594

 

6,240

 

114,621

Additions

 

-

 

544

 

108

 

652

Accretion

 

69

 

-

 

-

 

69

Change in discount rate

 

(755)

 

-

 

-

 

(755)

Change in estimates

 

15,5173

 

(175)

 

-

 

15,342

Foreign exchange effect

 

-

 

-

 

126

 

126

Payments

 

(2,538)

 

-

 

-

 

(2,538)

At 31 December 2015

 

120,080

 

963

 

6,474

 

127,517

Less current portion

 

2,000

 

-

 

4,115

 

6,115

Non-current portion

 

118,080

 

963

 

2,359

 

121,402

At 1 January 2016

 

120,080

 

963

 

6,474

 

127,517

Additions

 

-

 

9,965

 

570

 

10,535

Accretion

 

46

 

-

 

-

 

46

Change in discount rate

 

(2,367)

 

-

 

-

 

(2,367)

Change in estimates

 

(11,975)3

 

-

 

-

 

(11,975)

Foreign exchange effect

 

-

 

-

 

(547)

 

(547)

Transfer to trade and other payables

 

-

 

(6,279)

 

(2,048)

 

(8,327)

Payments

 

(3,355)

 

-

 

-

 

(3,355)

At 31 December 2016

 

102,429

 

4,649

 

4,449

 

111,527

Less: current portion

 

3,580

 

-

 

1,826

 

5,406

Non-current portion

 

98,849

 

4,649

 

2,623

 

106,121

1  The provision represents the discounted values of the estimated cost to decommission and rehabilitate the mines at the expected date of closure of each of the mines. The present value of the provision has been calculated using a real pre-tax annual discount rate, based on a US Treasury bond of an appropriate tenure adjusted for the impact of quantitative easing as at 31 December 2016 and 2015 respectively, and the cash flows have been adjusted to reflect the risk attached to these cash flows. Uncertainties on the timing for use of this provision include changes in the future that could impact the time of closing the mines, as new resources and reserves are discovered. The discount rate used was 0.25% (2015: 0.07%). Expected cash flows will be over a period from two to nine years.

2  Corresponds to the provision related to awards granted under the Long Term Incentive Plan ('LTIP') to designated personnel of the Group. Includes the following benefits: (i) 2016 awards, granted in March 2016, payable in March 2019 (ii) 2015 awards, granted in March 2015, payable in March 2018. Only employees who remain in the Group's employment on the vesting date will be entitled to a cash payment, subject to exceptions approved by the Remuneration Committee of the Board. The percentage of the award granted is determined 70% by the Company's TSR ranking relative to a tailored peer group of mining companies, and 30% by the Company's TSR ranking relative to a peer group of FTSE 350 companies. The liability for the LTIP is measured, initially and at the end of each reporting period until settled, at the fair value of the awards, by applying the Monte Carlo pricing model, taking into account the terms and conditions on which the awards were granted, and the extent to which the employees have rendered services to date. Changes to the provision of US$9,965,000 (2015: US$369,000) have been recorded as administrative expenses US$9,298,000 (2015: US$372,000) and exploration expenses US$667,000 (2015: US$-3,000 credit).

 

The following tables list the inputs to the Monte Carlo model used for the LTIPs as at 31 December 2015 and 2016, respectively:

 

 

 

 

 

 

 

 

 

LTIP 2014

 

 

 

LTIP 2015

LTIP 2016

 

For the period ended

 

31 December 2016
US$000

 

31 December 2015
US$000

 

  31 December 2016
US$000

 

  31 December 2015
US$000

  31 December 2016
US$000

 

  31 December   2015
US$000

Dividend yield (%)

 

-

 

0.00

 

0.49

 

0.00

0.49

 

-

Expected volatility (%)

 

-

 

3.47

 

3.89

 

3.47

3.89

 

-

Risk-free interest rate (%)

 

-

 

0.38

 

0.12

 

0.74

0.12

 

-

Expected life (years)

 

-

 

1

 

1

 

2

2

 

-

Weighted average share price (pence £)

 

-

 

146.03

 

100.68

 

100.68

63.49

 

-

                           

The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the awards and is indicative of future trends, which may not necessarily be the actual outcome.

 

3  Based on the 2016 internal and external review of mine rehabilitation estimates, the provision for mine closure decreased by US$11,975,000. The net decrease mainly corresponds to the Arcata mine unit of US$6,648,000, the Ares mine unit of US$1,622,000, the Selene mine unit of US$698,000, the Pallancata mine unit of US$447,000 and the San José mine unit of US$4,166,000, net of the increase in Inmaculada mine unit of US$1,651,000.  US$2,320,000 related to mines already closed and US$4,026,000 related to the Arcata mine unit which reduction of the estimated costs exceeded the carrying value of the mine asset. Therefore, both effects have been recognised as a credit directly in the income statement.  In 2015, the internal review of mine rehabilitation budgets determined a recognition of an increase of US$15,517,000. The net increase mainly corresponds to the Arcata mine unit of US$1,746,000, the Inmaculada mine unit of US$1,133,000, the Selene mine unit of US$922,000, the Crespo project of US$116,000, the San José mine unit of US$5,071,000 and the Sipan mine unit of US$6,750,000 net of the decrease in Pallancata mine unit of US$171,000 of which US$7,590,000 related to mines already closed has been recognised directly in the income statement.

 

27 Deferred income tax

 

The changes in the net deferred income tax assets/(liabilities) are as follows:

 

 

As at 31 December

 

 

2016
US$000

 

2015
US$000

Beginning of the year

 

(64,274)

 

(83,385)

Income statement (credit)/charge (note 14)

 

(6,625)

 

23,850

Deferred income tax arising on net unrealised gains on cash flow hedges recognised in equity (note 14)

 

5,955

 

(4,739)

End of the year

 

(64,944)

 

(64,274)

 

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets and liabilities relate to the same fiscal authority.

 

The movement in deferred income tax assets and liabilities before offset during the year is as follows:

 

 

Differences
in cost
of PP&E
US$000

 

Mine development US$000

 

Financial instruments US$000

 

Others
US$000

 

Total
US$000

Deferred income tax liabilities

 

 

 

 

 

 

 

 

 

 

At 1 January 2015

 

41,917

 

79,981

 

3,325

 

2,174

 

127,397

Income statement (credit)/charge

 

6,050

 

(19,874)

 

-

 

2,588

 

(11,236)

Deferred income tax arising on net unrealised gains on cash flow hedges recognised in equity

 

-

 

-

 

4,739

 

-

 

4,739

At 31 December 2015

 

47,967

 

60,107

 

8,064

 

4,762

 

120,900

Income statement (credit)/charge

 

(6,319)

 

8,235

 

-

 

(1,938)

 

(22)

Deferred income tax arising on net unrealised gains on cash flow hedges recognised in equity

 

-

 

-

 

(5,955)

 

-

 

(5,955)

Transfer

 

-

 

-

 

(2,109)

 

-

 

(2,109)

At 31 December 2016

 

41,648

 

68,342

 

-

 

2,824

 

112,814

 

 

 

 

Differences
in cost
of PP&E
 US$000

 

Provision
for mine
closure
US$000

 

Tax
losses
US$000

 

Mine developmentUS$000

 

Financial instruments US$000

 

Others
US$000

 

Total
US$000

Deferred income tax assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2015

 

9,547

 

14,535

 

8,551

 

697

 

2,262

 

8,420

 

44,012

Income statement credit/(charge)

 

(1,685)

 

8,318

 

8,263

 

257

 

(9)

 

(2,530)

 

12,614

At 31 December 2015

 

7,862

 

22,853

 

16,814

 

954

 

2,253

 

5,890

 

56,626

Income statement credit/(charge)

 

8,463

 

(3,319)

 

(15,868)

 

(42)

 

160

 

3,959

 

(6,647)

Transfer

 

-

 

-

 

-

 

-

 

(2,109)

 

-

 

(2,109)

At 31 December 2016

 

16,325

 

19,534

 

946

 

912

 

304

 

9,849

 

47,870

 

The amounts after offset, as presented on the face of the Statement of Financial Position, are as follows:

 

 

As at 31 December

 

 

2016
US$000

 

2015
US$000

Deferred income tax assets

 

1,027

 

-

Deferred income tax liabilities

 

(65,971)

 

(64,274)

 

Tax losses expire in the following years:

 

 

As at 31 December

 

 

2016
US$000

 

2015
US$000

Unrecognised

 

 

 

 

Expire in one year

 

2,268

 

1,075

Expire in two years

 

3,231

 

2,733

Expire in three years

 

4,594

 

3,903

Expire in four years

 

2,295

 

3,978

Expire after four years

 

111,630

 

109,315

 

 

124,018

 

121,004

 

Other unrecognised deferred income tax assets comprise (gross amounts):

 

 

As at 31 December

 

 

2016
US$000

 

2015
US$000

Provision for mine closure1

 

54,197

 

66,577

Impairments of assets2

 

14,692

 

14,692

1  This relates to provision for mine closure expenditure which is expected to be incurred in periods in which taxable profits are not expected against which the expenditure can be offset.

2  Related to the impairment of San Felipe and Volcan project (note 17).

 

Unrecognised deferred tax liability on retained earnings

At 31 December 2016, there was no recognised deferred tax liability (2015: nil) for taxes that would be payable on the unremitted earnings of certain of the Group's subsidiaries as the intention is that these amounts are permanently reinvested.

 

28 Dividends

 

 

2016
US$000

 

2015
US$000

Dividends paid and proposed during the year

 

 

 

 

Equity dividends on ordinary shares:

 

 

 

 

Final dividend for 2015: nil US cents per share (2014: nil US cents per share)

 

-

 

-

Interim dividend for 2016: 1.38 US cents per share (2015: nil US cents per share)

 

6,998

 

-

Total dividends paid on ordinary shares

 

6,998

 

-

Proposed dividends on ordinary shares:

 

 

 

 

Final dividend for 2016: 1.38 US cents per share (2015: nil US cents per share)

 

7,000

 

-

 

 

 

 

 

Dividends paid to non-controlling interests: US$0.10 per share (2015: US$nil per share)

 

16,983

 

-

Dividends paid to non-controlling interest related to 2014 and previous periods

 

753

 

964

Total dividends paid to non-controlling interests

 

17,736

 

964

 

 

 

Dividends per share

The interim dividends paid in September 2016 were US$6,998,398 (1.38 US cents per share). A proposed dividend in respect of the year ending 31 December 2016 of 1.38 US cents per share, amounting to a total dividend of US$7,000,000, is subject to approval at the Annual General Meeting on 11 May 2017 and are not recognised as a liability as at 31 December 2016.

 

29 Related-party balances and transactions

 

(a) Related-party accounts receivable and payable

The Group had the following related-party balances and transactions during the years ended 31 December 2016 and 2015. The related parties are companies owned or controlled by the main shareholder of the parent company or associates.

 

 

Accounts receivable
as at 31 December

 

Accounts payable
as at 31 December

 

 

2016
US$000

 

2015
US$000

 

2016
US$000

 

2015
US$000

Current related party balances

 

 

 

 

 

 

 

 

Cementos Pacasmayo S.A.A.1

 

71

 

11

 

94

 

40

Total

 

71

 

11

 

94

 

40

1 The account receivable relates to reimbursement of expenses paid by the Group on behalf of Cementos Pacasmayo S.A.A. The account payable relates to the payment of rentals.

 

As at 31 December 2016 and 2015, all accounts are, or were, non-interest bearing.

 

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

 

Principal transactions between affiliates are as follows:

 

 

Year ended

 

 

2016
US$000

 

2015
US$000

Income

 

 

 

 

Gain on sale of Asociacion Sumac Tarpuy to Inversiones ASPI S.A.

 

811

 

-

Expenses

 

 

 

 

Donation to the Universidad de Ingenieria y Tecnologia "UTEC"

 

(1,000)

 

-

Expense recognised for the rental paid to Cementos Pacasmayo S.A.A.

 

(200)

 

(285)

 

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

(b) Compensation of key management personnel of the Group

 

 

As at 31 December

Compensation of key management personnel (including Directors)

 

2016
US$000

 

2015
US$000

Short-term employee benefits

 

5,459

 

5,613

Long Term Incentive Plan, Deferred Bonus Plan and Restricted Share Plan

 

6,622

 

2,641

Total compensation paid to key management personnel

 

12,081

 

8,254

 

This amount includes the remuneration paid to the Directors of the Parent Company of the Group of US$5,487,769 (2015: US$4,155,759).

 

(c) Participation in rights issue by Pelham Investment Corporation ("Pelham") and Inversiones ASPI SA ("ASPI")

As at the record date of the rights issue, Eduardo Hochschild held his investment in the Company through Pelham.  Following receipt of its entitlement under the rights issue, Pelham transferred, for nil consideration, its nil paid rights in respect of 74,745,101 new ordinary shares to ASPI an entity that is also under the control of Eduardo Hochschild. Under the terms of an irrevocable undertaking signed between Pelham, ASPI and the Company, it was agreed that:

 

(i) ASPI would, among other things, subscribe for at least 68,887,508 new ordinary shares at an issue price of 47 pence per new ordinary share (the "Subscription Commitment"); and

(ii) the Company would, among other things, pay ASPI a fee of 1% of the Subscription Commitment of approximately US$500,000.

 

30 Mining royalties

 

Peru

In accordance with Peruvian legislation, owners of mining concessions must pay a mining royalty for the exploitation of metallic and non‑metallic resources. Mining royalties have been calculated with rates ranging from 1% to 3% of the value of mineral concentrate
or equivalent sold, based on quoted market prices.

 

In October 2011 changes came into effect for mining companies, with the following features:

 

a) Introduction of a Special Mining Tax ('SMT'), levied on mining companies at the stage of exploiting mineral resources. The
additional tax is calculated by applying a progressive scale of rates ranging from 2% to 8.4%, of the quarterly operating profit.

b) Modification of the mining royalty calculation, which consists of applying a progressive scale of rates ranging from 1% to 12%,
of the quarterly operating profit. The former royalty was calculated on the basis of monthly sales value of mineral concentrates.

 

The SMT and modified mining royalty are accounted for as an income tax in accordance with IAS 12 "Income Taxes".

 

c) For companies that have mining projects benefiting from tax stability regimes, mining royalties are calculated and recorded as they were previously, applying an additional new special charge on mining that is calculated using progressive scale rates, ranging from 4% to 13.12% of quarterly operating profit.

d) In the case of the Arcata mine unit, the company left the tax stability agreement, but has maintained the agreement for the mining royalties, such that the Arcata unit, is liable for the new SMT but the mining royalties remain payable at the same rate as they were, before the modification in 2011.

 

As at 31 December 2016, the amount payable as under the former mining royalty (for the Arcata mining unit), the new mining royalty (for the Ares, Pallancata and Inmaculada mining units), and the SMT amounted to US$170,000 (2015: US$272,000), US$769,000 (2015: US$1,080,000), and US$737,000 (2015: US$745,000) respectively. The former mining royalty is recorded as 'Trade and other payables', and the new mining royalty and SMT as 'Income tax payable' in the Statement of Financial Position. The amount recorded in the income statement was US$1,759,000 (2015: US$1,205,000) representing the former mining royalty, classified as cost of sales, US$3,882,000 (2015: US$1,778,000) of new mining royalty and US$3,869,000 (2015: US$755,000) of SMT, both classified as income tax.

 

Argentina

In accordance with Argentinian legislation, Provinces (being the legal owners of the mineral resources) are entitled to collect royalties from mine operators. For San Jose, the mining royalty was originally fixed at 1.85% of the pit-head value of the production where the final product is dore and 2.55% where the final product is mineral concentrate or precipitates. In October 2012 a new provincial law was passed, which increased the mining royalty applicable to dore and concentrate to 3% of the pit-head value. Since November 2012 Minera Santa Cruz S.A. has been paying and expensing the increased 3% royalty. As at 31 December 2016, the amount payable as mining royalties amounted to US$509,000 (2015: US$524,000). The amount recorded in the income statement as cost of sales was US$5,747,000 (2015: US$4,763,000).

 

On 13 June 2013, the congress of the Province of Santa Cruz passed Law No. 3318, which created a tax on mining reserves. Accordingly, the owners of mining concessions located in the Province of Santa Cruz were requires to pay a tax on mining reserves at a rate of 1%, calculated at the end of each year and determined according to the international price of metals at that date. According to these applicable regulations, the tax applied only on "proved reserves" and certain deductions (related to the production cost) applied Minera Santa Cruz S.A. (a subsidiary of Hochschild Mining plc) was affected by this tax. On 20 December 2013, Minera Santa Cruz S.A. filed before the Argentine Supreme Court a legal claim against the tax on mining reserves. Such legal claim challenged the legality of the tax on mining reserves arguing its unconstitutionality on the grounds that it violated the Federal Mining Policy created by national law No. 24.196. Additionally, on 2 November 2015, Minera Santa Cruz S.A. filed a precautionary measure under which it requested the Argentine Supreme Court to order the Province of Santa Cruz not to claim to Minera Santa Cruz S.A. the payment of any amount related to the tax on mining reserves until a final decision on the constitutionality of the tax is rendered. The precautionary measure was granted on 9 December 2015, furthermore no tax was paid during 2015. The tax on mining reserves was eliminated on 30 December 2015. On 1 March 2016 Minera Santa Cruz S.A. and the Province of Santa Cruz entered into an agreement under which each party agreed not to make to the other party any claim related to the tax on mining reserves. Consequently, the amount payable as at 31 December 2015 as tax on mining reserves of US$4,054,000, which was presented as 'Trade and other payables', have been written back and credited to the income statement within other income (US$2,667,000) and financial income (US$974,000) (see footnote 3 of note 11). The expense recognised as other expenses in the year ended 31 December 2015 with respect to this tax amounted to US$441,000 (note 12).

31 Subsequent events

 

a) On 7 February 2017, US$25,000,000 of short term debt was repaid.

 

b) The Group received a letter of intent dated 26 January 2017 outlining a proposed transaction between Americas Silver Corporation and Santacruz Mining Ltd (IMSC). Following this letter, the Group signed the following agreements which supersede all previous contracts:

 

On 20 February 2017, the Group and IMSC signed a new agreement pursuant to which IMSC will acquire properties comprising the El Gachi project (part of San Felipe) for a total consideration of US$500,000 which is due on 31 March 2017.

 

On 28 February 2017, the Group signed a new option agreement with IMSC for the remaining San Felipe properties amounting to US$10,000,000. An initial payment of US$2,000,000 was due to the Group on 7 March 2017. The IMSC option expires on 1 December 2017.

 

On 2 March 2017 it was announced that IMSC had entered into an agreement with Americas Silver Corporation to assign 100% of its interest in the San Felipe Project. 
 

Profit by operation¹

(Segment report reconciliation) as at 31 December 2016

 

Company (US$000)

Arcata

Pallancata

Inmaculada

San Jose

Consolidation adjustment and others

Total/HOC

 

 

Revenue

117,358

54,456

280,108

235,961

359

688,242

 

 

Cost of sales (Pre consolidation)

(92,461)

(42,451)

(181,383)

(168,351)

(3,056)

(487,702)

 

 

Consolidation adjustment

(132)

600

2,499

89

(3,056)

-

 

 

Cost of sales (Post consolidation)

(92,329)

(43,051)

(183,882)

(168,440)

-

(487,702)

 

 

Production cost
excluding depreciation

(68,155)

(33,650)

(83,796)

(108,209)

-

(293,810)

 

 

Depreciation in production cost

(22,083)

(10,989)

(101,207)

(51,376)

-

(186,655)

 

 

Other items

(462)

(241)

(506)

(541)

-

(1,750)

 

 

Change in inventories

(1,629)

1, 829

1,627

(8,314)

-

(6,487)

 

 

Gross profit

24,897

12,005

98,725

67,610

(2,697)

200,540

 

 

Administrative expenses

-

-

-

-

(47,979)

(47,979)

 

 

Exploration expenses

-

-

-

-

(9,193)

(9,193)

 

 

Selling expenses

(1,973)

(721)

(1,130)

(10,351)

-

(14,175)

 

 

Other income/expenses

-

-

-

-

11,265

11,265

 

 

Operating profit before impairment

22,924

11,284

97,595

57,259

(48,604)

140,458

 

 

Impairment of assets

-

-

-

-

(1,912)

(1,912)

 

 

Finance income

-

-

-

-

2,074

2,074

 

 

Finance costs

-

-

-

-

(30,541)

(30,541)

 

 

FX loss

-

-

-

-

(1,800)

(1,800)

 

 

Profit/(loss) from continuing operations before income tax

22,924

11,284

97,595

57,259

(80,783)

108,279

 

 

Income tax

-

-

-

-

(45,417)

(45,417)

 

 

Profit/(loss) for the year from continuing operations

22,924

11,284

97,595

57,259

(126,200)

62,862

 

1  On a post exceptional basis.

 

 

RESERVES AND RESOURCES

Ore reserves and mineral resources estimates

Hochschild Mining plc reports its mineral resources and reserves estimates in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves 2004 edition ("the JORC Code"). This establishes minimum standards, recommendations and guidelines for the public reporting of exploration results and mineral resources and reserves estimates. In doing so it emphasises the importance of principles of transparency, materiality and confidence. The information on ore reserves and mineral resources on pages 43 to 45 were prepared by or under the supervision of Competent Persons (as defined in the JORC Code). Competent Persons are required to have sufficient relevant experience and understanding of the style of mineralisation, types of deposits and mining methods in the area of activity for which they are qualified as a Competent Person under the JORC Code. The Competent Person must sign off their respective estimates of the original mineral resource and ore reserve statements for the various operations and consent to the inclusion of that information in this report, as well as the form and context in which it appears.

 

Hochschild Mining plc employs its own Competent Person who has audited all the estimates set out in this report. Hochschild Mining Group companies are subject to a comprehensive programme of audits which aim to provide assurance in respect of ore reserve and mineral resource estimates. These audits are conducted by Competent Persons provided by independent consultants. The frequency and depth of an audit depends on the risks and/or uncertainties associated with that particular ore reserve and mineral resource, the overall value thereof and the time that has lapsed since the previous independent third-party audit.

 

The JORC Code requires the use of reasonable economic assumptions. These include long-term commodity price forecasts (which, in the Group's case, are prepared by ex-house specialists largely using estimates of future supply and demand and long-term economic outlooks).

 

Ore reserve estimates are dynamic and are influenced by changing economic conditions, technical issues, environmental regulations and any other relevant new information and therefore these can vary from year-to-year. Mineral resource estimates can also change and tend to be influenced mostly by new information pertaining to the understanding of the deposit and secondly the conversion to ore reserves.

 

The estimates of ore reserves and mineral resources are shown as at 31 December 2016, unless otherwise stated. Mineral resources that are reported include those mineral resources that have been modified to produce ore reserves. All tonnage and grade information has been rounded to reflect the relative uncertainty in the estimates; there may therefore be small differences. The prices used for the reserves calculation were: Au Price: US$1,200 per ounce and Ag Price: US$16.5 per ounce.

 

 

ATTRIBUTABLE METAL RESERVES AS AT 31 DECEMBER 2016

Reserve category

 

Proved and probable
(t)

 

 Ag
(g/t)

 

Au
(g/t)

 

Ag
(moz)

 

Au
(koz)

 

Ag Eq
(moz)

OPERATIONS¹

 

 

 

 

 

 

 

 

 

 

 

 

Arcata

 

 

 

 

 

 

 

 

 

 

 

 

Proved

 

479,515

 

371

 

1.1

 

5.7

 

17.3

 

7.0

Probable

 

811,996

 

327

 

1.1

 

8.5

 

29.7

 

10.7

Total

 

1,291,511

 

343

 

1.1

 

14.3

 

47.0

 

17.7

Inmaculada

 

 

 

 

 

 

 

 

 

 

 

 

Proved

 

3,254,366

 

144

 

3.9

 

15.1

 

412.7

 

45.7

Probable

 

2,568,907

 

182

 

4.7

 

15.0

 

388.9

 

43.8

Total

 

5,823,274

 

161

 

4.3

 

30.1

 

801.6

 

89.4

Pallancata

 

 

 

 

 

 

 

 

 

 

 

 

Proved

 

632,793

 

477

 

2.0

 

9.7

 

40.8

 

12.7

Probable

 

371,752

 

331

 

1.4

 

4.0

 

17.2

 

5.2

Total

 

1,004,545

 

423

 

1.8

 

13.7

 

58.0

 

18.0

San Jose

 

 

 

 

 

 

 

 

 

 

 

 

Proved

 

593,089

 

502

 

7.3

 

9.6

 

139.9

 

19.9

Probable

 

333,455

 

401

 

6.6

 

4.3

 

70.4

 

9.5

Total

 

926,544

 

465

 

7.1

 

13.9

 

210.4

 

29.4

Proved

 

4,959,763

 

252

 

3.8

 

40.1

 

610.7

 

85.3

Probable

 

4,086,111

 

242

 

3.9

 

31.8

 

506.2

 

69.2

TOTAL

 

9,045,874

 

247

 

3.8

 

71.9

 

1,116.9

 

154.5

Note: Where reserves are attributable to a joint venture partner, reserve figures reflect the Company's ownership only. Includes discounts for ore loss and dilution.

1 Operations were audited by P&E Consulting. 

.

 

 

 

 

 

ATTRIBUTABLE METAL RESOURCES AS AT 31 DECEMBER 20161

Resource category

 

Tonnes (t)

 

Ag (g/t)

 

Au (g/t)

 

Zn (%)

 

Pb (%)

 

Cu (%)

 

Ag Eq (g/t)

 

Ag (moz)

 

Au     (koz)

 

Ag Eq (moz)

 

Zn (kt)

 

Pb (kt)

 

Cu (kt)

OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Arcata

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

1,109,214

 

414

 

1.25

 

-

 

-

 

-

 

506

 

14.8

 

44.7

 

18.1

 

-

 

-

 

-

Indicated

 

1,942,187

 

385

 

1.29

 

-

 

-

 

-

 

481

 

24.0

 

80.7

 

30.0

 

-

 

-

 

-

Total

 

3,051,401

 

395

 

1.28

 

-

 

-

 

-

 

490

 

38.8

 

125.4

 

48.1

 

-

 

-

 

-

Inferred

 

4,030,857

 

341

 

1.25

 

-

 

-

 

-

 

433

 

44.1

 

162.1

 

56.1

 

-

 

-

 

-

Inmaculada

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

2,977,597

 

178

 

4.83

 

-

 

-

 

-

 

535

 

17.0

 

462.7

 

51.2

 

-

 

-

 

-

Indicated

 

2,635,187

 

219

 

5.58

 

-

 

-

 

-

 

632

 

18.6

 

473.0

 

53.6

 

-

 

-

 

-

Total

 

5,612,784

 

197

 

5.19

 

-

 

-

 

-

 

581

 

35.6

 

935.7

 

104.8

 

-

 

-

 

-

Inferred

 

3,165,478

 

133

 

3.37

 

-

 

-

 

-

 

383

 

13.6

 

343.3

 

39.0

 

-

 

-

 

-

Pallancata

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

1,052,621

 

453

 

1.92

 

-

 

-

 

-

 

596

 

15.3

 

65.1

 

20.2

 

-

 

-

 

-

Indicated

 

693,465

 

332

 

1.45

 

-

 

-

 

-

 

439

 

7.4

 

32.4

 

9.8

 

-

 

-

 

-

Total

 

1,746,086

 

405

 

1.74

 

-

 

-

 

-

 

534

 

22.7

 

97.5

 

30.0

 

-

 

-

 

-

Inferred

 

3,637,800

 

357

 

1.37

 

-

 

-

 

-

 

459

 

41.8

 

160.7

 

53.7

 

-

 

-

 

-

San Jose

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

840,329

 

564

 

8.20

 

-

 

-

 

-

 

1,171

 

15.2

 

221.6

 

31.6

 

-

 

-

 

-

Indicated

 

964,641

 

404

 

6.26

 

-

 

-

 

-

 

867

 

12.5

 

194.1

 

26.9

 

-

 

-

 

-

Total

 

1,804,970

 

479

 

7.16

 

-

 

-

 

-

 

1,009

 

27.8

 

415.7

 

58.5

 

-

 

-

 

-

Inferred

 

529,566

 

404

 

6.40

 

-

 

-

 

-

 

878

 

6.9

 

109.0

 

14.9

 

-

 

-

 

-

GROWTH PROJECTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crespo

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

5,211,058

 

47

 

0.47

 

-

 

-

 

-

 

82

 

7.9

 

78.6

 

13.7

 

-

 

-

 

-

Indicated

 

17,298,228

 

38

 

0.40

 

-

 

-

 

-

 

67

 

21.0

 

222.5

 

37.4

 

-

 

-

 

-

Total

 

22,509,286

 

40

 

0.42

 

-

 

-

 

-

 

71

 

28.8

 

301.0

 

51.1

 

-

 

-

 

-

Inferred

 

775,429

 

46

 

0.57

 

-

 

-

 

-

 

88

 

1.1

 

14.2

 

2.2

 

-

 

-

 

-

Azuca

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

190,602

 

244

 

0.77

 

-

 

-

 

-

 

301

 

1.5

 

4.7

 

1.8

 

-

 

-

 

-

Indicated

 

6,858,594

 

187

 

0.77

 

-

 

-

 

-

 

243

 

41.2

 

168.8

 

53.7

 

-

 

-

 

-

Total

 

7,049,197

 

188

 

0.77

 

-

 

-

 

-

 

245

 

42.7

 

173.5

 

55.5

 

-

 

-

 

-

Inferred

 

6,946,341

 

170

 

0.89

 

-

 

-

 

-

 

236

 

37.9

 

199.5

 

52.7

 

-

 

-

 

-

Volcan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

105,918,000

 

-

 

0.738

 

-

 

-

 

-

 

55

 

-

 

2,513.1

 

186.0

 

-

 

-

 

-

Indicated

 

283,763,000

 

-

 

0.698

 

-

 

-

 

-

 

52

 

-

 

6,368.0

 

471.2

 

-

 

-

 

-

Total

 

389,681,000

 

-

 

0.709

 

-

 

-

 

-

 

52

 

-

 

8,882.7

 

657.3

 

-

 

-

 

-

Inferred

 

41,553,000

 

-

 

0.502

 

-

 

-

 

-

 

37

 

-

 

670.7

 

49.6

 

-

 

-

 

-

OTHER PROJECTS2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

1,393,716

 

69

 

0.02

 

7.12

 

3.10

 

0.39

 

315

 

3.1

 

0.9

 

14.1

 

99.3

 

43.1

 

5.5

Indicated

 

1,354,261

 

82

 

0.06

 

6.14

 

2.73

 

0.31

 

295

 

3.6

 

2.4

 

12.9

 

83.2

 

37.0

 

4.2

Total

 

2,747,977

 

76

 

0.04

 

6.64

 

2.92

 

0.35

 

305

 

6.7

 

3.3

 

27.0

 

182.4

 

80.1

 

9.7

Inferred

 

13,445,001

 

8

 

0.30

 

0.58

 

0.21

 

1.22

 

160

 

3.4

 

128.6

 

69.0

 

77.8

 

28.5

 

163.6

GRAND TOTAL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured

 

118,693,138

 

20

 

0.89

 

0.08

 

0.04

 

0.00

 

88

 

74.8

 

3,391.5

 

336.8

 

99.3

 

43.1

 

5.5

Indicated

 

315,509,563

 

13

 

0.74

 

0.03

 

0.01

 

0.00

 

69

 

128.3

 

7,541.9

 

695.5

 

83.2

 

37.0

 

4.2

Total

 

434,202,700

 

15

 

0.78

 

0.04

 

0.02

 

0.00

 

74

 

203.1

 

10,934.9

 

1,032.3

 

182.4

 

80.1

 

9.7

Inferred

 

74,083,472

 

62

 

0.75

 

0.10

 

0.04

 

0.22

 

142

 

148.9

 

1,788.0

 

337.3

 

77.8

 

28.5

 

163.6

1 Prices used for resources calculation: Au: $1,200/oz and Ag: $16.5/oz.

2 Includes the Jasperoide copper project and the San Felipe zinc/silver project. The silver equivalent grade (147 g/t Ag Eq) has being calculated applying the following ratios, Cu/Ag=96.38 and Au/Ag=60

 

CHANGE IN ATTRIBUTABLE RESERVES AND RESOURCES

Ag equivalent content (million ounces)

 

Category

 

Percentage attributable
December
2016

 

December
2015

Att.¹

 

December  2016 
Att

 

Net difference

 

% change

Arcata

 

Resource

 

100%

 

122.3

 

104.2

 

(18.1)

 

(14.8%)

 

 

Reserve

 

 

 

20.1

 

17.7

 

(2.3)

 

(11.5%)

Inmaculada

 

Resource

 

100%

 

159.1

 

143.8

 

(15.3)

 

(9.6%)

 

 

Reserve

 

 

 

104.2

 

89.4

 

(14.8)

 

(14.2%)

Pallancata

 

Resource

 

100%

 

102.3

 

83.6

 

(18.7)

 

(18.3%)

 

 

Reserve

 

 

 

14.9

 

18.0

 

3.1

 

20.9%

San Jose

 

Resource

 

51%

 

92.8

 

73.5

 

(19.4)

 

(20.9%)

 

 

Reserve

 

 

 

31.2

 

29.4

 

(1.8)

 

(5.7%)

Crespo

 

Resource

 

100%

 

53.3

 

53.3

 

-

 

-

 

 

Reserve

 

 

 

-

 

-

 

 -

 

 -

Azuca

 

Resource

 

100%

 

108.2

 

108.2

 

-

 

-

 

 

Reserve

 

 

 

-

 

-

 

 -

 

 -

Volcan

 

Resource

 

100%

 

706.9

 

706.9

 

-

 

-

 

 

Reserve

 

 

 

 -

 

 -

 

 -

 

 -

 

 

Reserve

 

 

 

 -

 

 -

 

 -

 

 -

Other projects total

 

Resource

 

100% 

 

96.0

 

96.0

 

 -

 

 -

 

 

Reserve

 

 

 

 -

 

 -

 

-

 

 -

Total

 

Resource

 

 

 

1,441.1

 

1,369.6

 

(71.5)

 

(5.0%)

 

 

Reserve

 

 

 

170.4

 

154.5

 

(15.8)

 

(9.3%)

1 Attributable reserves and resources based on the Group's percentage ownership of its joint venture projects.

 

 

 

 

 

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

The Registrars can be contacted as follows for information about the AGM, shareholdings, and dividends and to report changes in personal details:

 

BY POST

Capita Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU.

 

BY TELEPHONE

If calling from the UK: 0371 664 0300 (Calls charged at the standard geographic rate and will vary by provider. Lines are open 8.30am-5.30pm Mon to Fri).

 

If calling from overseas: +44 371 664 0300 (Calls charged at the applicable international rate).

 

Currency option and dividend mandate

Shareholders wishing to receive their dividend in US dollars should contact the Company's registrars to request a currency election form. This form should be completed and returned to the registrars by 28 April 2017 in respect of the 2016 final dividend. 

 

The Company's registrars can also arrange for the dividend to be paid directly into a shareholder's UK bank account. To take advantage of this facility in respect of the 2016 final dividend, a dividend mandate form, also available from the Company's registrars, should be completed and returned to the registrars by 28 April 2017. This arrangement is only available in respect of dividends paid in UK pounds sterling.  Shareholders who have already completed one or both of these forms need take no further action.

 

Financial Calendar

Dividend dates

2017

Ex-dividend date

20 April

Record date

21 April

Deadline for return of currency election forms

28 April

Payment date

17 May

 

17 Cavendish Square

London

W1G 0PH

United Kingdom

 

 

 

1Revenue presented in the financial statements is disclosed as net revenue and is calculated as gross revenue less commercial discounts plus services revenue

2Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs, foreign exchange loss and income tax plus depreciation, and exploration expenses other than personnel and other exploration related fixed expenses and other non-cash (income)/expenses

3 Includes gross debt repayments of $177.4 million and $20 million paid to Graña y Montero (Inmaculada EPC contractor) offset by $70 million of refinanced short-term borrowings

4All-in sustaining cost per (AISC) silver equivalent ounce: Calculated before exceptional items and 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 gold/silver ratio of 74:1  

All equivalent figures assume the average gold/silver ratio of 74:1

6 Includes revenue from services

7 Reconciliation of gross revenue by mine to Group net revenue

8 Unit cost per tonne is calculated by dividing mine and treatment production costs (excluding depreciation) by extracted and treated tonnage respectively

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

10 Includes commercial discounts (from the sales of concentrate) and commercial discounts from the sale of dore

11 Royalties arising from revised royalty tax schemes introduced in 2011 and included in income tax line

12 Adjusted EBITDA has been presented before the effect of significant non-cash (income)/expenses related to changes in mine closure provisions and the write-off of property, plant and equipment

13 Includes pre-shipment loans and short term interest payables

14 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

15 Inmaculada was accounted for as a project in H1 2015 and therefore the 2015 capital expenditure figure includes project expenditure


This information is provided by RNS
The company news service from the London Stock Exchange
 
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Preliminary Results 2016 - RNS