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RNS
Hochschild Mining PLC  -  HOC   

Preliminary Results 2017

Released 07:00 21-Feb-2018

RNS Number : 4606F
Hochschild Mining PLC
21 February 2018
 

 

 

 

________________________________________________________________________________ 

21 February 2018

 

Hochschild Mining plc

Preliminary Results for the year ended 31 December 2017

 

Financial highlights

§ Revenue of $722.6 million (2016: $688.2 million)[1]

§ Adjusted EBITDA of $300.8 million (2016: $329.0 million)[2]

§ Profit before income tax of $64.1 million (2016: $108.3 million)

§ Basic earnings per share of $0.08 (2016: $0.09)

§ Adjusted basic earnings per share of $0.08 (2016: $0.11)[3]

§ Cash and cash equivalent balance of $257.0 million as at 31 December 2017 (2016: $140.0 million)

§ Net debt of $102.8 million as at 31 December 2016 (2016: $187.4 million)

§ Final proposed dividend of 1.965 cents per share ($10 million) up 42% versus 2016 final dividend (1.38 cents per share)

2017 operational delivery exceeding guidance

§ 2017 AISC per silver equivalent ounce from operations of $12.3 (2016: $11.2) in line with guidance of $12.2-12.7[4]

§ Inmaculada AISC per gold equivalent ounce of $721 (2016: $646)

§ Full year attributable production of 513,598 gold equivalent ounces (38.0 million silver equivalent ounces) exceeding guidance[5]

§ Record production of 239,479 gold equivalent ounces at Inmaculada (2016: 229,033 ounces)

§ First results from surface drilling confirming strong geological potential at Inmaculada

2018 Outlook

§ Production target of 514,000 attributable gold equivalent ounces (38.0 million silver equivalent ounces)

§ AISC expected to be $960-$990 per gold equivalent ounce ($13.0-13.4 per silver equivalent ounce)[6] 

Inmaculada costs expected to be $700-750 per gold equivalent ounce

§ Total sustaining and development capital expenditure expected to be approximately $125-135 million including $14 million for hydraulic backfill project at San Jose

§ $10million budget approved for greenfield exploration programme in 2018

4-6 projects across three countries to be drilled in 2018

§ 7.75% Senior Notes repaid on 23 January 2018 financed by cash resources and significantly lower rate short-to-medium term debt

§ Reduction in Argentina corporate tax rates expected to be a significant positive impact on cash generation

 

$000 unless stated

Year ended 31 Dec 2017

Year ended 31 Dec 2016

% change

Attributable silver production (koz)

19,141

17,284

11

Attributable gold production (koz)

255

246

4

Revenue

722,572

688,242

5

Adjusted EBITDA

300,750

329,014

(9)

Profit from continuing operations (pre-exceptional)

53,355

69,306

(23)

Profit from continuing operations (post-exceptional)

53,881

62,862

(14)

Basic earnings per share (pre-exceptional) $

0.08

0.11

(27)

Basic earnings per share (post-exceptional) $

0.08

0.09

(11)

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

"We have delivered another set of solid results driven by record production and costs in line with expectations. We have completed a very successful refinancing and along with strong operational cashflow, we have consequently been able to reward shareholders for their support with a proposed increase in the final dividend for 2017. In 2018, we can look forward to the ramp up of production from the Pablo vein and continued investment in our brownfield exploration programme."          

 

________________________________________________________________________________ 

A presentation will be held for analysts and investors at 9.30am (UK time) on Wednesday 21 February 2018 at the offices of JP Morgan, 60 Victoria Embankment, London, EC4Y 0JP (Entrance at 1 John Carpenter Street)

The presentation and a link to the live audio webcast of the presentation can be found at the Hochschild website: 

www.hochschildmining.com 

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

UK: +44(0)330 336 9105 (Please quote confirmation code 7595580)

 ________________________________________________________________________________ 

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

I am delighted with the progress made operationally and geologically in 2017 as well as with our long term goal of balance sheet optimisation. This has been demonstrated with our enviable track record of meeting our production and cost forecasts, as well as the delivery of our ambitious brownfield exploration programme which we believe is now starting to bear fruit. Whilst a complex permitting situation in Peru and unpredictable precious metal prices have at times impacted both the management of our core assets and our ability to execute our drilling campaigns, Hochschild Mining has maintained a consistent strategy over the last few years which places geological expertise at the heart of how we manage our deposits and how we generate further low cost organic growth in the long term. The Board is pleased, therefore, to be able to recommend an increased final dividend of $1.965 cents per share.

 

Operationally we were able to continue to grow our output reaching another Company record in 2017 with key contributions from Inmaculada and San Jose (both production records) and a vastly improved performance at Pallancata. With a positive gold price performance, we were still able to generate solid cashflow throughout the year despite a fall in profitability due to a rise in overall costs. With regards to our balance sheet, we took a decisive step in January 2018 with the early redemption of the high yield bonds, issued in 2014 to finance the construction of Inmaculada, using existing cash and lower cost local Peruvian debt. We are now in an advantageous financial position with a manageable debt profile and the firepower to meet the requirements of our brownfield and greenfield programmes, consider acquisitions and continue to return capital to shareholders.

 

Towards the end of the year we started to receive some positive results from our brownfield drilling campaigns. In particular, I would like to mention that geological developments at Inmaculada which have confirmed our long-held confidence in the prospectivity of the district and I look forward to the team continuing to add high quality resources in 2018 and beyond. The majority of our assets are still underexplored and following positive changes to the permitting process in Peru, I believe that our organic growth programme is beginning to gain real momentum. Furthermore, it is pleasing to see an increasing number of greenfield targets come through the pipeline as well as some earn-in joint venture opportunities being evaluated.

 

Safety and Environment

As mentioned in my statement last year, an accident at the Inmaculada mine early in 2017 resulted in two fatalities. With great regret, we disclosed that a second accident occurred at the Arcata mine in July 2017 which also claimed the lives of two colleagues. On behalf of the Board, I would like to again convey our deepest condolences to the families of the victims involved. Our resolve to make Hochschild Mining a safe place to work is as strong as ever and management has responded by instigating a wide-ranging programme to reinforce our safety culture which: includes senior management reviewing all high-risk activities; involves even more frequent training; focuses on initiatives to motivate and incentivise safe working; and implements the most up-to-date safety risk management information systems. Over the course of a mine's life, geological conditions and mining methods may change but our commitment to safety remains constant and is one of our values which we are not willing to compromise.

 

Our focus on environmental performance continues to be one of our key priorities. During 2017, we introduced a new environmental corporate objective as part of the Company's overall Performance Objectives Plan (the base for calculating employee bonuses), which has historically been only based on production, safety and financial indicators. We believe that this new objective will help us in further promoting a strong environmental culture, achieve our goal of operating with the least environmental footprint possible and generate long-term value for our stakeholders.

 

Our People

Our employees are pivotal to the Company's performance and, to them, I wish to express my gratitude for their contribution in making 2017 a record year of profitable production. I also wish to thank my fellow Board colleagues for their support over the year. I am delighted that Dionisio Romero Paoletti joined the Board at the start of the year as a Non-Executive Director, bringing a wealth of business experience in Peru and internationally. Finally, I wish to express the Board's utmost gratitude to Enrico Bombieri who, having served as a Non-Executive Director since 2012 and as Senior Independent Director for four years, retired at the end of 2017.

 

Outlook

After an encouraging year for metal prices in 2017, particularly for gold, the prospects for precious metals in 2018 remain strong with robust global equity markets and inflation on the rise. We are aiming to continue our long-term growth strategy based around low cost brownfield investment, selective greenfield exploration and a targeted approach to acquisitions. Safety, operational excellence and cost control will remain of paramount importance and we will also continue repaying debt as and when the opportunity arises.

Eduardo Hochschild, Chairman

20 February 2018



 

CHIEF EXECUTIVE OFFICER'S STATEMENT

Hochschild delivered another record year of production whilst maintaining cost increases within expectations, excellent environmental performance, advancing our brownfield programme and continuing our drive to repay debt and optimise our balance sheet. We have also begun to widen our exploration focus to include selected greenfield projects across the Americas as well as assessing a wide variety of joint ventures and acquisitions that could supplement our long-term growth profile at a low cost.

 

No less important and in response to the fatalities that occurred during the year, I would like to highlight that the management team has designed and is implementing the "Hochschild Safety Transformation" plan which will reinforce the entire Company's commitment to a safe working environment.

 

Operations

Our core operations produced over half a million attributable gold equivalent ounces (38.0 million silver equivalent ounces) for the first time since the IPO - achieving a fifth year of output increases and improving on our original 37.0 million ounce silver equivalent target. This, yet again, demonstrates the value of our long-term organic growth strategy. Inmaculada was a key driver, delivering another record year of almost 240,000 gold equivalent ounces at a competitive all-in sustaining cost of $721 per gold equivalent ounce ($9.7 per silver equivalent ounce). San Jose also achieved a record (7.1 million attributable silver equivalent ounces) and Pallancata moved strongly into a new phase with 7.7 million silver equivalent ounces at a cost of $10.7 per silver equivalent ounce. At our Arcata mine, the effects of a lengthy permit delay to brownfield exploration in 2016 began to be fully felt with the accessing of increasingly narrower veins and a reduced number of stopes lowering production to 5.5 million silver equivalent ounces. We remain optimistic that, despite the impairment recognised in 2017, there is still geological potential in the Arcata deposit area and expect that our current drilling programme will enable an improvement in resource quality and quantity in the future. Finally, I am pleased to report that, during 2017, we achieved an excellent score in our newly implemented environmental corporate objective at all our operations. We will continue to work to maintain and improve our environmental culture and performance based on a strong belief that responsible mining is fully compatible with respect for the environment.

 

Exploration

Our ambitious brownfield exploration programme in Peru started to gain momentum in the second half of 2017 when, with all requisite permits in place, we were able to commence our surface drilling programmes at Inmaculada and Arcata. Early results from the first campaign in six years at Inmaculada are very encouraging and confirmed the presence of the Millet vein as well as eight other structures close to our mining infrastructure at the Angela vein. In Argentina, we had some success in discovering new structures close to the San Jose mine and we also continued to drill in the Aguas Vivas area to the north-west where we are currently assessing the nature of this polymetallic orebody which has significant quantities of zinc and lead as well as precious metals. At Pallancata, the focus was on developing the Pablo vein in preparation for mining in 2018 whilst the discovery of the Marco vein nearby has added further resources and prompted a new regional geological hypothesis which we will be testing in 2018. Finally, at Arcata we were able to discover additional inferred resources and throughout 2018, an intensive campaign will continue to explore for resources with the goal of utilising the plant's significant spare capacity.

 

Financial position

Strong cashflow from our operations combined with some balance sheet management opportunities has left us in a healthy financial position. On 23 January 2018, we were able to redeem the remaining $295 million of our 7.75% Senior Notes.  We replaced a portion of these bonds with short to medium term debt from local banks in Peru with an average rate of 2.2% and approximately $100 million was repaid from existing cash resources. Consequently, our cash balance after this transaction remains a healthy $85m and we expect our interest costs to fall by approximately $20 million per year from 2019 onwards.

 

Financial results

Whilst an increased average gold price received was offset by a moderate fall in the silver price received, record production once again ensured a rise in revenue of 5% to $723 million (2016: $688 million). The operational all-in sustaining cost of $12.3 per silver equivalent ounce (2016: $11.2 per ounce) was in line with forecasts although the increase reflected an increased investment in brownfield exploration as well as one-off project costs at Inmaculada and consequently this resulted in Adjusted EBITDA of $300 million (2016: $329 million). Finally, with finance costs reduced despite the high yield bonds (now repaid), basic earnings per share and adjusted earnings per share was $0.08 per share (2016: $0.11 and $0.09 per share respectively).

 

Outlook

We expect attributable production in 2018 to be 514,000 gold equivalent ounces (38 million silver equivalent ounces driven by another 240,000 gold equivalent ounces from Inmaculada, an increased contribution of 9.5 million silver equivalent ounces from the revitalised Pallancata mine and another 7.1 million silver equivalent ounces from the dependable San Jose mine. At Arcata, where we expect production of 4 million silver equivalent ounces, management will continue to closely monitor performance to ensure production is optimised whilst maintaining the asset´s optionality with regards to prices, exploration results and cost efficiencies. All in sustaining costs for operations are expected at between $960 to $990 per gold equivalent ounce ($13.0 to $13.4 per silver equivalent ounce) with the slight increase versus the $12.3 per ounce in 2017 resulting from further development costs of the Pablo vein and a one-off highly profitable investment in a hydraulic backfill project at San Jose. We are also pleased to note that the corporate tax rate in Argentina has been reduced from 35% to 30% from 2018 (and to 25% from 2020) and, hence we can look forward to a significant positive impact on San Jose's net profitability although taxes on dividends have also been reinstated to 7% through to 2020 and then to 13% thereafter.

 

A further $17 million is expected to be invested in our brownfield exploration in 2018 as we look to maintain the current momentum and an additional budget of $10 million is assigned to greenfield projects with some exciting prospects to be drilled in Peru, Chile, Canada and the United States. Low cost, early stage acquisition opportunities will continue to be pursued across the Americas and, in particular, earn-in joint ventures where operations can benefit from Hochschild's technical expertise. We are confident that our exploration-led growth strategy will continue to add high quality ounces to our existing assets, generate new early-stage projects and deliver long-term shareholder value.

 

Ignacio Bustamante, Chief Executive Officer

20 February 2018



 

OPERATING REVIEW

 

OPERATIONS

Note: silver/gold equivalent production and cost figures assume a gold/silver ratio of 74:1. Hochschild has increased the use of gold equivalent figures throughout the release to provide comparability to the gold industry peer group and due to the Company's Inmaculada mine being a majority gold producer.

 

Production

In 2017, Hochschild once again exceeded its full year production target, a record 513,598 gold equivalent ounces or 38.0 million silver equivalent ounces, comprising 254,932 ounces of gold and 19.1 million ounces of silver. The overall production target for 2018 is 514,000 gold equivalent ounces (38.0 million silver equivalent ounces).  

 

Total group production


Year ended 31 Dec 2017

Year ended 31 Dec 2016

Silver production (koz)

22,301

20,562

Gold production (koz)

304.16

292.63

Total silver equivalent (koz)

44,809

42,217

Total gold equivalent (koz)

605.52

570.50

Silver sold (koz)

22,295

21,088

Gold sold (koz)

300.21

298.96

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 2017

Year ended 31 Dec 2016

Silver production (koz)

19,141

17,284

Gold production (koz)

254.93

246.08

Silver equivalent (koz)

38,006

35,493

Gold equivalent (koz)

513.60

479.64

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

 

2018 Production forecast split

Operation

Gold production (oz approx)

Silver production (m oz approx)

Inmaculada

160,000

5.6

Arcata

10,000

3.3

Pallancata

27,000

7.5

San Jose (100%)

100,000

6.5

Total

297,000

22.9

 

Costs

All-in sustaining costs from operations in 2017 was $910 per gold equivalent ounce or $12.3 per silver equivalent ounce (2016: $829 per gold equivalent ounce or $11.2 per silver equivalent ounce) driven by Inmaculada's very competitive $721 per gold equivalent ounce (2016: $644 per ounce) and Pallancata's low costs ($10.7 per silver equivalent ounce) driven by better than forecast tonnage and silver grades. Please see page 13 of the Financial Review for further details on costs.

 

The all-in sustaining cost from operations in 2018 is expected to be between $960 and $990 per gold equivalent ounce (or $13.0 and $13.4 per silver equivalent ounce) which includes a full year of the new detoxification process at Inmaculada, further development costs at the Pablo vein and an investment of $14 million in a highly value accretive hydraulic backfill project at San Jose. Arcata´s costs are expected to be higher in line with its resource base and despite the implementation of significant cost control measures. An intense drilling campaign is expected to add higher quality resources during the year in order to provide continuity to the operation

 

2018 AISC forecast split

Operation

AISC ($/oz)

Inmaculada

700-750 Au Eq[7]

Arcata

18.0-18.5 Ag Eq

Pallancata

13.0-13.5 Ag Eq

San Jose

14.5-15.0 Ag Eq

 

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 2017

Year ended 31 Dec 2016

% change

Ore production (tonnes)

1,295,701

1,306,606

(1)

Average silver grade (g/t)

145

133

9

Average gold grade (g/t)

4.15

4.21

(1)

Silver produced (koz)

5,506

4,908

12

Gold produced (koz)

165.07

162.71

1

Silver equivalent produced (koz)

17,721

16,948

5

Gold equivalent produced (koz)

239.48

229.03

5

Silver sold (koz)

5,498

5,004

10

Gold sold (koz)

162.32

164.75

(1)

Unit cost ($/t)

85.4

64.4

33

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

486

370

31

All-in sustaining cost ($/oz Au Eq)

721

646

12

 

Production

In 2017, Inmaculada delivered record gold equivalent production of 239,479 ounces, a 5% improvement on 2016 (2016: 229,033 ounces) and represents a very successful result following the unexpected stoppage at the operation in the first quarter of the year.

 

Costs

All-in sustaining costs were in line with expectations at $721 per gold equivalent ounce or $9.7 per silver equivalent ounce (2016: $646 per ounce). Costs rose versus 2016 due to the previously-disclosed investment in the expansion of the tailings dam and other infrastructure as well as reduced mined tonnage resulting from the stoppage in the first quarter and budgeted lower mined gold grades. These effects were partially offset by the processing of a high grade stockpile as well as operational efficiencies versus plan.

 

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 2017

Year ended 31 Dec 2016

% change

Ore production (tonnes)

499,385

677,309

(26)

Average silver grade (g/t)

308

337

(9)

Average gold grade (g/t)

1.07

1.24

(14)

Silver produced (koz)

4,391

6,343

(31)

Gold produced (koz)

15.15

22.54

(33)

Silver equivalent produced (koz)

5,512

8,011

(31)

Gold equivalent produced (koz)

74.49

108.26

(31)

Silver sold (koz)

4,357

6,346

(31)

Gold sold (koz)

14.96

22.03

(32)

Unit cost ($/t)

124.8

101.1

23

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

14.5

11.0

32

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

18.4

13.7

34

 

Production

Production for the year was 5.5 million silver equivalent ounces (2016: 8.0 million ounces) a result which reflected significantly reduced tonnage and lower grades following a revision of the mine plan to accommodate a lower number of available stopes and narrower veins.

 

Costs

In 2017, as expected, Arcata's all-in sustaining cost rose substantially versus 2016 to $18.4 per silver equivalent ounce (2016: $13.7 per ounce) reflecting the significantly reduced tonnage (affecting unit costs) and grades resulting from the above mentioned revised mine plan as well as the increased investment in the mine'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 2017

Year ended 31 Dec 2016

% change

Ore production (tonnes)

470,903

244,765

92

Average silver grade (g/t)

442

381

16

Average gold grade (g/t)

1.78

1.86

(4)

Silver produced (koz)

5,956

2,620

127

Gold produced (koz)

23.47

12.37

90

Silver equivalent produced (koz)

7,693

3,536

118

Gold equivalent produced (koz)

103.95

47.78

118

Silver sold (koz)

5,940

2,660

123

Gold sold (koz)

23.29

12.41

88

Unit cost ($/t)

101.5

131.0

(23)

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

7.8

12.4

(37)

All-in sustaining cost ($/oz)

10.7

16.3

(34)

 

Production

The full year result was 7.7 million silver equivalent ounces, a 118% improvement on 2016 (2016: 3.5 million ounces) driven by better than forecast tonnage and silver grades.

 

Costs

All-in sustaining costs at Pallancata in 2017 fell by 34% versus the same period of 2016 to $10.7 per silver equivalent ounce (2016: $16.3 per ounce). The reduction was due to higher than expected tonnage and silver grades resulting from the accessing of high grade ancillary veins with the wider but lower grade Pablo vein forecast to provide the majority of the ore in 2018. Cost were also reduced due Pablo development capex being delayed into 2018 which is expected to increase all-in sustaining costs to be between $13.0 to $13.5 per silver equivalent ounce.

 

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 2017

Year ended 31

Dec 2016

% change

Ore production (tonnes)

532,676

536,024

(1)

Average silver grade (g/t)

436

444

(2)

Average gold grade (g/t)

6.71

6.28

7

Silver produced (koz)

6,448

6,691

(4)

Gold produced (koz)

100.47

95.01

6

Silver equivalent produced (koz)

13,883

13,721

1

Gold equivalent produced (koz)

187.60

185.42

1

Silver sold (koz)

6,501

7,081

(8)

Gold sold (koz)

99.63

99.76

-

Unit cost ($/t)

240.1

202.4

19

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

10.5

9.7

8

All-in sustaining cost ($/oz)

14.0

11.5

22

*The Company has a 51% interest in San Jose

 

Production

The overall production results for 2017 were 6.4 million ounces of silver and 100,474 ounces of gold which is 13.9 million silver equivalent ounces, a slight improvement on 2016.

 

Costs

At San Jose, all-in sustaining costs increased to $14.0 per silver equivalent ounce (2016: $11.5 per ounce) mainly due to the Q4 2016 elimination of the Patagonian port rebate which had lowered costs significantly. In addition, lower than expected currency devaluation in Argentina in 2017 only partially offset ongoing high local inflation.

 

In December 2017, the Argentine government sanctioned a series of fiscal measures that include a reduction in the 35% rate of corporate income tax, taking it to 30% for the years 2018 and 2019, and then to 25% for 2020 onwards. In addition, a withholding tax was imposed on dividends at a rate of 7% for 2018 and 2019, increasing to 13% from 2020. It is expected that the overall net effect on profitability will be positive.

 

 

EXPLORATION

Brownfield exploration

 

Arcata

27,662m of resource drilling and 11,200m of potential drilling was carried out at Arcata in 2017 and centred on the Tunel 3, Tunel 4, Paralela 3, Paralela Sur, Ramal Marion, Michele, Soledad, Baja, Ramal 4, Ruby 2 and Ruby 3 veins. In addition, long horizontal drilling for potential resources was also executed in the Pamela and Paralelas vein systems.

 

Selected results are provided in the table below:

 

Vein

Results

Ramal Marion

DDH-018-GE-17: 1.0m @ 1.0g/t Au & 326g/t Ag

DDH-023-GE-17: 0.8m @ 0.6g/t Au & 154g/t Ag

DDH-049-EX-17: 0.8m @ 0.6g/t Au & 146g/t Ag

DDH-054-EX-17: 0.8m @ 0.4g/t Au & 201g/t Ag

DDH-023-GE-17: 0.8m @ 0.9g/t Au & 246g/t Ag

DDH-043-EX-17: 1.2m @ 0.3g/t Au & 159g/t Ag

DDH-058-EX-17: 1.0m @ 2.1g/t Au & 712g/t Ag

DDH-066-EX-17: 1.3m @ 0.4g/t Au & 167g/t Ag

DDH-018-GE-17: 1.2m @ 2.6g/t Au & 1,229g/t Ag

DDH-023-GE-17: 0.8m @ 1.0g/t Au & 227g/t Ag

DDH-043-EX-17: 0.8m @ 0.2g/t Au & 477g/t Ag

DDH-058-EX-17: 0.9m @ 0.5g/t Au & 309/t Ag

DDH-043-EX-17: 0.8m @ 0.2g/t Au & 132g/t Ag

DDH-052-EX-17: 0.8m @ 0.4g/t Au & 106g/t Ag

DDH-066-EX-17: 1.2m @ 1.1g/t Au & 408g/t Ag

DDH-018-GE-17: 0.8m @ 0.9g/t Au & 303g/t Ag

DDH-023-GE-17: 1.1m @ 3.8g/t Au & 1,025g/t Ag

Paralela

DDH-036-GE-17: 0.8m @ 4.9g/t Au & 605g/t Ag

DDH-038-GE-17: 0.8m @ 1.5g/t Au & 198g/t Ag

DDH-048-DI-17: 0.4m @ 3.9g/t Au & 389g/t Ag

DDH-074-DI-17: 1.2m @ 1.8g/t Au & 176g/t Ag

DDH-056-DI-17: 0.8m @ 1.5g/t Au & 177g/t Ag

Paralela 1

DDH-036-GE-17: 0.8m @ 5.2g/t Au & 692g/t Ag

DDH-038-GE-17: 0.8m @ 1.4g/t Au & 240g/t Ag

DDH-048-DI-17: 0.8m @ 6.6g/t Au & 765g/t Ag

Paralela 2

DDH-057-DI-17: 1.1m @ 3.0g/t Au & 244g/t Ag

DDH-028-GE-17: 0.9m @ 2.6g/t Au & 226g/t Ag

Paralela 3

DDH-056-DI-17: 1.1m @ 2.1g/t Au & 331g/t Ag

DDH-074-DI-17: 1.8m @ 12.2g/t Au & 1,339g/t Ag

DDH-041-DI-17: 1.3m @ 1.4g/t Au & 173g/t Ag

DDH-038-GE-17: 0.8m @ 1.7g/t Au & 117g/t Ag

DDH-107-DI-17: 1.3m @ 1.9g/t Au & 192g/t Ag

Socorro+800

DDH-074-DI-17: 2.5m @ 12.2g/t Au & 399g/t Ag

Tunel 4

DDH-087-GE-17: 0.8m @ 1.6g/t Au & 850g/t Ag

DDH-097-DI-17: 1.8m @ 0.9g/t Au & 397g/t Ag

DDH-103-DI-17: 0.8m @ 0.8g/t Au & 126g/t Ag

DDH-109-DI-17: 1.3m @ 4.2g/t Au & 636g/t Ag

DDH-555-S-17: 0.4m @ 1.6g/t Au & 516g/t Ag

DDH-557-S-17: 1.9m @ 1.5g/t Au & 205g/t Ag

DDH-576-S-17: 0.6m @ 1.0g/t Au & 268g/t Ag

DDH-579-S-17: 2.8m @ 1.1g/t Au & 276g/t Ag

Alexia Techo 2

DDH-094-ST-17: 1.0m @ 1.4g/t Au & 454g/t Ag

Ruby 2

DDH-155-DI-17: 1.0m @ 0.4g/t Au & 241g/t Ag

DDH-190-EX-17: 1.3m @ 1.2g/t Au & 551g/t Ag

Ruby 3

DDH-155-DI-17: 2.0m @ 0.7g/t Au & 250g/t Ag

DDH-184-DI-17: 1.3m @ 0.3g/t Au & 207g/t Ag

DDH-198-EX-17: 1.1m @ 0.5g/t Au & 407g/t Ag

DDH-197-DI-17: 1.7m @ 1.3g/t Au & 735g/t Ag

 

In 2018, an intensive 32,000m resource drilling campaign is scheduled for all areas surrounding the main mining area.

 

Pallancata

At Pallancata, 1,000m of resource drilling was carried out in the Marco vein, a structure identified close to the Pablo vein with just over 1 million ounces of silver equivalent resources identified. Selected results are below:

 

Vein

Results

Marco

DLYU-A92A: 1.4m @ 0.7g/t Au & 235g/t Ag

DLYU-A88: 1.1m @ 2.2g/t Au & 1,108g/t Ag

DLNE-A05: 0.6m @ 1.1g/t Au & 470g/t Ag

DLYU-A92A: 2.0m @ 0.7g/t Au & 169g/t Ag

DLNE-A07: 0.6m @ 1.1g/t Au & 152g/t Ag

 

During 2018, mapping and geophysics will be carried out at the Pablo South area whilst an 8,400m potential drilling programme will be carried out to test continuity between the Marco and the Farallon veins to the North West of Pablo.

 

Inmaculada

At Inmaculada, following receipt of the requisite permits from the government in the fourth quarter, a 56,000 metre surface drilling programme began in early November with four drill rigs onsite. Results in the area to the south west of the Angela vein have so far confirmed the presence of nine new veins close to the existing mine infrastructure. The first results from almost 5,000 metres of drilling are detailed below and show, in particular, the potential of the Millet vein. The current campaign will continue throughout 2018 and will include further potential drilling as well as infill drilling and resource conversion. The Company expects to provide further updates on drill results throughout the year.

 

In addition, mine development during the third quarter allowed a reinterpretation of the geological model at the deposit and identified a further 9.7 million silver equivalent ounces of resources.

 

Vein

Results

Millet

MIL-17-002: 36.5m @ 3.3g/t Au & 73g/t Ag

MIL-17-003: 3.8m @ 3.8g/t Au & 109g/t Ag

MIL-17-004A: 3.0m @ 1.4g/t Au & 80g/t Ag

MIL-17-005: 38.5m @ 4.4g/t Au & 96g/t Ag

MIL-17-006: 1.2m @ 1.8g/t Au & 88g/t Ag

MIL-17-007: 2.5m @ 2.0g/t Au & 19g/t Ag

MIL-17-009: 13.0m @ 6.8g/t Au & 68g/t Ag

Thalia

MIL-17-001: 1.1m @ 3.0g/t Au & 125g/t Ag

BAR17-017: 1.5m @ 11.0g/t Au & 67g/t Ag

LIA17-001: 0.7m @ 2.3g/t Au & 174g/t Ag

LIA17-002: 3.0m @ 5.1g/t Au & 60g/t Ag

Alessandra

MIL-17-001: 1.2m @ 2.9g/t Au & 227g/t Ag

MIL-17-001: 1.5m @ 1.5g/t Au & 82g/t Ag

MIL-17-002: 2.5m @ 2.2g/t Au & 122g/t Ag

Barbara

BAR17-001: 3.9m @ 1.6g/t Au & 119g/t Ag

BAR17-003: 1.3m @ 2.4g/t Au & 419g/t Ag

BAR17-004: 3.0m @ 2.6g/t Au & 175g/t Ag

BAR17-008: 4.3m @ 10.0g/t Au & 751g/t Ag

BAR17-009: 3.6m @ 1.9g/t Au & 348g/t Ag

BAR17-010: 6.0m @ 15.2g/t Au & 3,042g/t Ag

BAR17-011: 2.7m @ 6.6g/t Au & 780g/t Ag

BAR17-012: 3.8m @ 6.5g/t Au & 692g/t Ag

BAR17-013: 4.1m @ 11.1g/t Au & 1,449g/t Ag

BAR17-014: 3.5m @ 16.2g/t Au & 1,227g/t Ag

BAR17-017: 2.05m @ 1.38g/t Au & 82g/t  Ag

BAR17-018: 3.6m @ 3.5g/t Au & 132g/t Ag

BAR17-019: 2.25m @ 3.55g/t Au & 242g/t Ag

BAR17-020: 1.2m @ 7.9g/t Au & 665g/t Ag

BAR17-021: 0.8m @ 1.1g/t Au & 92g/t Ag

BAR17-022: 1.2m @ 1.7g/t Au & 720g/t Ag

Ramal Barbara

BAR 17-019: 1.0m @ 1.7g/t Au & 314g/t Ag

Xiomara

BAR17-017: 1.0m @ 1.0g/t Au & 45g/t Ag

BAR17-018: 1.5m @ 2.1g/t Au & 76g/t Ag

BAR17-019: 1.8m @ 3.6g/t Au & 242g/t Ag

BAR17-020: 2.1m @ 2.5g/t Au & 123g/t Ag

BAR17-021: 0.7m @ 0.6g/t Au & 16g/t Ag

BAR17-022: 1.0m @ 5.7g/t Au & 122g/t Ag

 

During 2018, mapping and geophysics is planned for the Inmaculada East zone whilst a programme of 4,500 metres of drilling for potential as well as 53,000 metres of resource drilling is scheduled in the same area.

 

San Jose

At San Jose, 8,624 m of drilling for potential resources was carried out during the year at the Aguas Vivas zone with results indicating an intermediate sulphide deposit with associated zinc and lead mineralisation. A further 3,000 metres of drilling at Aguas Vivas is scheduled for Q1 2018. In addition, 5,000 metres of further resource and potential drilling was carried out during the year in the Molle, Odin, Ramal Ayelen and Frea E-W veins with selected results of both campaigns shown below.

 

Vein

Results

Aguas Vivas NW

SJD-1627: 2.6m @ 0.1g/t Au, 43g/t Ag, 8.2% Pb & 5.5% Zn

SJD-1616: 2.8m @ 0.3g/t Au, 40g/t Ag, 7.0% Pb & 6.0% Zn

SJD-1686: 1.1m @ 3.6g/t Au, 86g/t Ag, 19.0% Pb & 10.3% Zn

SJD-1686: 1.5m @ 1.0g/t Au, 29g/t Ag, 1.1% Pb & 2.9% Zn

SJD-1687: 0.4m @ 0.2g/t Au, 65g/t Ag, 3.1% Pb & 7.2% Zn

SJD-1687: 1.0m @ 6.5g/t Au, 14g/t Ag

Molle

SJD-1651: 0.8m @ 8.4g/t Au & 141g/t Ag

SJM-320: 2.5m @ 5.2g/t Au & 427g/t Ag

SJM-321: 1.2m @ 46.7g/t Au & 2,256g/t Ag

SJD-1696: 2.9m @ 3.8g/t Au & 913g/t Ag

SJD-1697: 1.3m @ 92.3g/t Au & 2,429g/t Ag

SJM-340: 0.6m @ 5.5g/t Au & 316g/t Ag

SJM-341: 0.6m @ 0.6g/t Au & 31g/t Ag

SJM-342: 1.1m @ 9.9g/t Au & 496g/t Ag

Odin

SJM-338: 1.4m @ 1.0g/t Au & 472g/t Ag

Ramal Ayelen

SJM-339: 0.6m @ 0.7g/t Au & 329g/t Ag

SJM-339: 1.0m @ 0.8g/t Au & 461g/t Ag

Ramal Ayelen SE

SJD-1689: 0.6m @ 1.2g/t Au & 49g/t Ag

SJD-1690: 0.5m @ 0.8g/t Au & 225g/t Ag

Frea (E-W)

SJM-331: 0.6m @ 15.9g/t Au & 405g/t Ag

SJM-333: 1.2m @ 3.3g/t Au & 262g/t Ag

SJD-1693: 1.6m @ 13.8g/t Au & 184g/t Ag

 

In 2018, mapping and geophysics will continue on the Aguas Vivas zone as well as approximately 3,000m of both potential and resource drilling.

 

 



 

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 when indicated. 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 5% to $759.1 million in 2017 (2016: $722.0 million) driven by an increase in sales resulting from increases in production from the Company's Inmaculada and Pallancata mines as well as  a rise in gold prices.[8]

 

Gold

Gross revenue from gold increased 5% in 2017 to $381.3 million (2016: $363.4 million) mainly as a result of a 4% rise in the average gold price as well as a small increase in the total amount of gold ounces sold in 2017. The increase in gold sales came from the recovery in the Pallancata mine offsetting a fall in gold sales from the Arcata mine.

 

Silver

Gross revenue from silver increased by 5% in 2017 to $377.8 million (2016: $358.7 million) as a result of a 6% increase in the total amount of silver ounces sold to 22,295 koz (2016: 21,088 koz) driven by a recovery at the primarily silver mine of Pallancata as well as increased sales from Inmaculada . This was partially offset by a 31% decrease in the silver sales from the Arcata 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 prior year) and ounces sold for 2017 and 2016:

 

Average realised prices

Year ended
31 Dec 2017

Year ended
31 Dec 2016 


Silver ounces sold (koz)

22,295

21,088


Avg. realised silver price ($/oz)

16.9

17.0


Gold ounces sold (koz)

300.21

298.95


Avg. realised gold price ($/oz)

1,270

1,215


 

Commercial discounts

Commercial discounts refer to refinery treatment charges, refining fees and payable deductions for processing concentrate, 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 2017, the Group recorded commercial discounts of $36.9 million (2016: $34.1 million). The increase is explained by the higher production of concentrate mainly from the Pallancata mine. The ratio of commercial discounts to gross revenue in 2017 was 5% (2016: 5%).

 

Net revenue

Net revenue increased by 5% to $722.6 million (2016: $688.2 million), comprising net gold revenue of $372.3 million and net silver revenue of $349.8 million. In 2017, gold accounted for 52% and silver 48% of the Company's consolidated net revenue (2016: gold 51% and silver 49%) with the increase in the gold contribution mainly due to the increase in the gold price received.

 

Revenue by mine[9]

$000

Year ended 31 Dec 2017

Year ended 31 Dec 2016

% change

Silver revenue




Arcata

74,452

106,206

(30)

Inmaculada

91,943

83,642

10

Pallancata

100,285

44,500

125

San Jose

111,088

124,316

(11)

Commercial discounts

(27,926)

(25,139)

11

Net silver revenue

349,842

333,525

5

Gold revenue




Arcata

19,183

25,717

(25)

Inmaculada

204,651

196,466

4

Pallancata

29,877

14,994

99

San Jose

127,602

126,174

1

Commercial discounts

(8,998)

(8,993)

-

Net gold revenue

372,315

354,358

5

Other revenue

415

359

16

Net revenue

722,572

688,242

5

 

Costs

Total cost of sales was $549.0 million in 2017 (2016: $487.7 million). The direct production cost excluding depreciation was higher at $345.4 million (2016: $293.8 million) explained by higher backfill and detoxification costs at Inmaculada and the impact of the net inflation in Argentina. Depreciation in 2017 was $195.7 million (2016: $185.7 million) with the increase due to Pallancata's higher tonnage extraction. Other items was higher at $3.2 million in 2017 (2016: $1.8 million) due to costs related to the community stoppage at Pallancata in January. Change in inventories was $4.7 million in 2017 (2016: $6.5 million).

 

$000

Year ended
31 Dec 2017

Year ended
31 Dec 2016 

% Change

Direct production cost excluding depreciation

345,436

293,810

18

Depreciation in production cost

195,699

185,655

5

Other items

3,241

1,750

85

Change in inventories

4,673

6,487

(28)

Cost of sales

549,049

487,702

13

 

Unit cost per tonne

The Group reported unit cost per tonne at its operations of $125.0 per tonne in 2017, an 18% increase versus 2016 ($106.2 per tonne) mainly as a result of new detoxification and backfill processes at Inmaculada, stoppages at Pallancata and Inmaculada, local inflation in Argentina and higher costs at Arcata, partially offset by reduced costs at Pallancata.

 

Unit cost per tonne by operation (including royalties)[10]:

Operating unit ($/tonne)

Year ended 31 Dec 2017

Year ended 31 Dec 2016

% change

Peru

97.7

83.2

17

Arcata

124.8

101.1

23

Inmaculada

85.4

64.4

33

Pallancata

101.5

131.0

(23)

Argentina




San Jose

240.1

202.4

19

Total

125.0

106.2

18

 

Cash costs

 

Cash cost reconciliation[11]:

$000 unless otherwise indicated

Year ended

31 Dec 2017

Year ended

31 Dec 2016

% change

Group cash cost

403,552

358,800

12

(+) Cost of sales

549,049

487,702

13

(-) Depreciation and amortisation in cost of sales

(196,150)

(180,317)

9

(+) Selling expenses

11,024

14,175

(22)

(+) Commercial deductions[12]

39,629

37,240

6

Gold

9,256

11,486

(19)

Silver

30,373

25,754

18

Revenue

722,572

688,242

5

Gold

372,315

354,358

5

Silver

349,842

333,525

5

Others

415

359

16

Ounces sold




Gold

300.2

298.9

-

Silver

22,295

21,088

6

Group cash cost ($/oz)




Co product Au

693

618

12

Co product Ag

8.8

8.2

7

By product Au

78

(2)

(4,000)

By product Ag

1.0

(0.3)

(430)

 

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

 

Year ended 31 Dec 2017

$000 unless otherwise indicated

Arcata

Inmaculada

Pallancata

San José

Main operations

Corporate & others

Total

(+) Production cost excluding depreciation

62,340

109,005

46,874

127,217

345,436

-

345,436

(+) Other items in cost of sales

-

-

1,461

1,780

3,241

-

3,241

(+) Operating and exploration capex for units

17,557

52,903

19,186

33,998

123,644

453

124,097

(+) Brownfield exploration expenses

3,029

1,127

1,279

3,407

8,842

4,041

12,883

(+) Administrative expenses (excl depreciation)

880

3,351

1,362

8,701

14,294

35,425

49,719

(+) Royalties and special mining tax14

-

2,987

1,214

-

4,201

2,229

6,430

Sub-total

83,806

169,373

71,376

175,103

499,658

42,148

541,806

Au ounces produced

15,146

165,074

23,471

100,474

304,165

-

304,165

Ag ounces produced (000s)

4,391

5,506

5,956

6,448

22,301

-

22,301

Ounces produced (Ag Eq 000s oz)

5,512

17,721

7,693

13,883

44,809

-

44,809

Sub-total ($/oz Ag Eq)

15.2

9.6

9.3

12.6

11.2

-

12.1

(+) Commercial deductions

15,695

2,134

9,633

12,167

39,629

-

39,629

(+) Selling expenses

1,931

1,118

1,298

6,677

11,024

-

11,024

Sub-total

17,626

3,252

10,931

18,844

50,653

-

50,653

Au ounces sold

14,963

162,323

23,287

99,634

300,207

-

300,207

Ag ounces sold (000s)

4,357

5,498

5,940

6,501

22,296

-

22,296

Ounces sold (Ag Eq 000s oz)

5,464

17,510

7,663

13,874

44,511

-

44,511

Sub-total ($/oz Ag Eq)

3.2

0.2

1.4

1.4

1.1


1.1

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

18.4

9.7

10.7

14.0

12.3


13.2

All-in sustaining costs ($/oz Au Eq)[13]

1,362

721

792

1,036

910

-

977

 

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 )

1,441

3,420

674

8,180

13,715

32,932

46,647

(+) Royalties and special mining tax[14]

-

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)

6,343

5,004

2,660

7,081

21,088

-

21,088

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

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

1,014

644

1,206

851

829

-

895

 

Administrative expenses

Administrative expenses increased by 7% to $51.3 million (2016: $48.0 million) primarily due to increased share-based compensation affecting personnel expenses.

 

Exploration expenses

In 2017, exploration expenses increased to $17.2 million (2016: $9.2 million) in line with the overall rise in the Company's investment in brownfield exploration. 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 2017, the Group capitalised $2.3 million relating to brownfield exploration compared to $1.3 million in 2016, bringing the total investment in exploration for 2017 to $19.5 million (2016: $10.5 million). 

 

Selling expenses

Selling expenses decreased by 22% versus 2016 to $11.0 million (2016: $14.2 million) mainly due to the elimination of export duties at San Jose. Selling expenses in 2017 consisted mainly of logistic costs for the sale of concentrate whilst 2016 expenses also included approximately 1.5 months of export duties on concentrate until their elimination on 12 February 2016. Previously, export duties in Argentina were levied at 10% of revenue for concentrate.

 

Other income/expenses

Other income before exceptional items was $10.2 million (2016: $33.1 million). The reduction is mainly due to the elimination of the Patagonian port rebate (2016: $16.7 million) in the fourth quarter of 2016.

 

Other expenses before exceptional items were reduced to $11.5 million (2015: $13.9 million).      

 

Adjusted EBITDA

Adjusted EBITDA decreased by 9% over the period to $300.8 million (2016: $329.0 million) driven primarily by production costs.

 

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 2017

Year ended 31 Dec 2016

% change

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

92,255

148,188

(38)

Depreciation and amortisation in cost of sales

196,150

180,317

9

Depreciation and amortisation in administrative expenses

1,564

1,331

18

Exploration expenses

17,199

9,193

87

Personnel and other exploration related fixed expenses

(5,395)

(3,947)

37

Other non-cash income[15]

(1,023)

(6,068)

(83)

Adjusted EBITDA

300,750

329,014

(9)

Adjusted EBITDA margin

42%

48%


 

Finance income

Finance income before exceptional items of $5.9 million increased from 2016 ($1.1 million) primarily due to the impact of a higher net present value of the Patagonian port rebate ($1.9 million) which was discounted in 2016 but collected in 2017. The remainder consists of interest received on deposits ($1.6 million) and other financial income ($2.4 million) which included a gain on sale of shares ($1.4 million) and a gain on derivative instruments ($0.6 million).

 

Finance costs

Finance costs decreased from $30.5 million in 2016 to $26.1 million in 2017, principally due to the reduction of interest resulting from the repayment of Scotiabank medium term loan in H1 2016 and from lower average short-term borrowings.

 

Foreign exchange losses

The Group recognised a foreign exchange loss of $5.3 million (2016: $1.8 million loss) as a result of exposures in currencies other than the functional currency - primarily the Argentinean Peso.

 

Income tax

The Group's pre-exceptional income tax charge was $13.5 million (2016: $47.6 million). The substantial decrease in the charge is explained by the Group's decrease in profitability in the year in addition to a deferred tax credit recognised as a result of a progressive tax rate reduction in Argentina from 35% to 30%.

 

The effective tax rate for the period was 20.2% (2016: 40.7%). The reduction in the effective tax rate is mainly due to the positive deferred tax impact of the Argentina tax rate reduction which is non-recurring.

 

Exceptional items

Exceptional items in 2017 totalled a $0.5 million gain after tax (2016: $6.4 million loss). Exceptional items principally included impairment reversals of $31.9 million for Pallancata and $8.4 million at San Felipe partially offset by a $43.0 million impairment of Arcata.

 

The tax effect of exceptional items amounted to a $3.3 million tax charge (2016: $2.2 million tax credit) although this did not include the impairment reversal at San Felipe which did not attract a deferred tax liability as no tax asset arose when the impairment was originally carried out.



 

Cash flow and balance sheet review           

Cash flow:

$000

Year ended 31 Dec 2017

Year ended 31 Dec 2016

Change

Net cash generated from operating activities

233,919

316,073

(82,154)

Net cash used in investing activities

(121,054)

(127,364)

6,310

Cash flows generated/(used in) in financing activities

4,919

(132,165)

137,084

Net increase in cash and cash equivalents during the year

117,784

56,544

61,240

 

Operating cash flow decreased from $316.1 million in 2016 to $233.9 million in 2017. Lower operating cash flow is mainly due to: (i) income tax payments in 2017 of $26 million in Argentina of which $17 million corresponded to income tax from 2016 and the rest to income tax advances for the 2017 period; (ii) the reduction of working capital achieved in 2016 (excluding the income tax effect) of $37 million and maintained during 2017; (iii) higher production costs and exploration expenses partially offset by stronger revenue.

 

Net cash used in investing activities decreased to $121.1 million in 2017 from $127.4 million in 2016 mainly due to reduced capital expenditure at Arcata, Inmaculada and care and maintenance expenditure at the Azuca and Crespo projects, partially offset by an increase in Pallancata investment.

 

Finally, cash flows generated from financing activities resulted in a net inflow of $4.9 million in 2017 from $132.2 million used in 2016. In 2016, the $132.2 million used was due to $107.4 million of debt repayment and the remainder by equity dividends of $7.0 million paid to Hochschild shareholders and also $13.0 million to McEwen Mining. The change in 2017 is primarily due to the net increase in short term credit lines of $31.5 million ($25 million repaid in January 2017 in Peru, $50 million raised in December 2017 in Peru to re-purchase the bonds and $6.5 million raised in Argentina during the year). This was partially offset by dividends paid to Hochschild's shareholders of $14.0 million and to minority shareholders in Argentina of $12.3 million. As a result, total cash flows resulted in a net increase of $117.8 million from $56.5 million in 2015 ($61.2 million improvement).

 

Working capital

$000

Year ended 31 Dec 2017

Year ended 31 Dec 2016

Trade and other receivables

88,553

93,837

Inventories

56,678

57,056

Other financial assets/(liability)

2,591

(1,726)

Income tax receivable/(payable)

15,442

(9,025)

Trade and other payables and provisions

(228,170)

(211,277)

Working capital

(64,906)

(71,135)

 

The Group's working capital position changed by $6.2 million to $64.9 million in 2017 from $71.1 million in 2016. Key drivers were: higher income tax receivable ($24.5 million) resulting from $24.2 million of tax payments in Argentina; a negative movement in other financial assets/(liability) of $4.3 million from a liability position in 2016, to an asset position in 2017 resulting from the embedded derivative associated with provisional pricing and higher trade. These were partially offset by: an increase in trade and other payables and provisions of $(16.9) million mainly due to Pallancata's trade payables in line with its higher production.

 

Net debt

$000

Year ended
31 Dec 2017

Year ended
31 Dec 2016

Cash and cash equivalents

256,988

139,979

Long term borrowings

(291,955)

(291,073)

Short term borrowings[16]

(67,863)

(36,312)

Net debt

(102,830)

(187,406)

 

The Group reported net debt position was $102.8 million as at 31 December 2017 (2016: $187.4 million). The reduction in 2017 is mainly due to the operating cash generated mainly in Inmaculada and Pallancata.



 

 

Capital expenditure[17]

$000

Year ended
31 Dec 2017

Year ended
31 Dec 2016

Arcata

17,557

20,819

Pallancata

19,186

16,130

San Jose

36,288

35,311

Inmaculada

52,903

54,199

Operations

125,934

126,459

Other

2,614

5,186

Total

128,548

131,645

 

2017 capital expenditure of $128.5 million (2016: $131.6 million) mainly comprised of operational capex of $125.9 million (2016: $126.5 million) with the small decrease versus 2016 comprising decreases at Inmaculada and Arcata partially offset by an increase in capital expenditure at Pallancata.

 



 

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 2017

 

 

 




Year ended 31 December 2017


Year ended 31 December 2016



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


722,572

 

-

 

722,572


688,242


-

 

688,242

Cost of sales


6


(549,049)

 

-

 

(549,049)


(487,702)


-


(487,702)

Gross profit




173,523

 

-

 

173,523


200,540


-


200,540

Administrative expenses


7


(51,283)

 

-

 

(51,283)


(47,979)


-


(47,979)

Exploration expenses


8


(17,199)

 

-

 

(17,199)


(9,193)


-


(9,193)

Selling expenses


9


(11,024)

 

-

 

(11,024)


(14,175)


-


(14,175)

Other income


12


10,192

 

-

 

10,192


33,131


2,667


35,798

Other expenses


12


(11,549)

 

-

 

(11,549)


(13,858)


(10,675)


(24,533)

Impairment and write-off of non-current assets, net


11


(405)


(2,753)


(3,158)


(278)


(1,634)


(1,912)

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




92,255

 

(2,753)

 

89,502


148,188


(9,642)


138,546

Finance income


13


5,927

 

-

 

5,927


1,100


974


2,074

Finance costs


13


(26,095)

 

-

 

(26,095)


(30,541)


-


(30,541)

Foreign exchange loss




(5,257)

 

-

 

(5,257)


(1,800)


-


(1,800)

Profit/(loss) from continuing
operations before income tax




66,830

 

(2,753)

 

64,077


116,947


(8,668)


108,279

Income tax (expense)/benefit


14


(13,475)


3,279


(10,196)


(47,641)


2,224


(45,417)

Profit/(loss) for the year from continuing operations




53,355

 

526

 

53,881


69,306


(6,444)


62,862

Attributable to:




 

 

 

 

 







Equity shareholders of the Company




41,035

 

526

 

41,561


53,154


(7,604)


45,550

Non-controlling interests




12,320

 

-

 

12,320


16,152


1,160


17,312





53,355

 

526

 

53,881


69,306


(6,444)


62,862

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


15


0.08

 

-

 

0.08


0.11


(0.02)


0.09

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


15


0.08

 

-

 

0.08


0.10


(0.01)


0.09

 

 

 

 

 

 

 

 

 

 

 



 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2017

 

 




Year ended 31 December



Notes


2017
US$000


2016
US$000

Profit for the year




53,881


62,862

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




 



Exchange differences on translating foreign operations




139


(249)

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


19


(323)


774

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




(1,354)


(66)

Change in fair value of cash flow hedges

 

 

 

-

 

(39,989)

Recycling of the loss on cash flow hedges

 

 

 

-

 

18,722

Deferred income tax relating to components of other comprehensive income


14


-


5,955

Other comprehensive loss for the year, net of tax




(1,538)


(14,853)

Total comprehensive income for the year




52,343


48,009

Total comprehensive income attributable to:




 



Equity shareholders of the Company




40,023


30,697

Non-controlling interests




12,320


17,312





52,343


48,009

 

 

 

 

                                                                             

 

 



 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2017

 


Notes


As at
31 December 2017
US$000


As at
31 December 2016
 US$000

ASSETS




 


 

Non-current assets




 


 

Property, plant and equipment


16


895,666


975,483

Evaluation and exploration assets


17


147,399


138,985

Intangible assets


18


24,544


26,379

Available-for-sale financial assets


19


6,264


991

Trade and other receivables


20


7,487


25,717

Other financial assets

 

 

 

1,333

 

-

Deferred income tax assets

 

27

 

2,400

 

1,027





1,085,093


1,168,582

Current assets




 



Inventories


21


56,678


57,056

Trade and other receivables


20


81,066


68,120

Income tax receivable




21,241


20,988

Other financial assets


 


1,258


-

Cash and cash equivalents


22


256,988


139,979





417,231


286,143

Total assets




1,502,324


1,454,725

EQUITY AND LIABILITIES




 



Capital and reserves attributable to shareholders of the Parent




 



Equity share capital


 


224,315


224,315

Share premium


 


438,041


438,041

Treasury shares


 


(140)


(426)

Other reserves


 


(217,061)


(217,288)

Retained earnings




286,356


258,269





731,511


702,911

Non-controlling interests




90,177


90,442

Total equity




821,688


793,353

Non-current liabilities




 



Trade and other payables


24


1,081


1,266

Borrowings


25


291,955


291,073

Provisions


26


104,107


106,121

Deferred income


23


30,409


25,000

Deferred income tax liabilities


27


56,040


65,971





483,592


489,431

Current liabilities




 



Trade and other payables


24


116,779


98,484

Other financial liabilities


 


-


1,726

Borrowings


25


67,863


36,312

Provisions


26


6,203


5,406

Deferred income


23


400


-

Income tax payable




5,799


30,013





197,044


171,941

Total liabilities




680,636


661,372

Total equity and liabilities




1,502,324


1,454,725

 

 

These financial statements were approved by the Board of Directors on 20 February 2018 and signed on its behalf by:

Ignacio Bustamante

Chief Executive Officer

 

20 February 2018

 



 

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2017

 






Year ended 31 December



 

Notes


2017
US$000


2016
US$000

Cash flows from operating activities





 


 

Cash generated from operations


 

 


287,799


345,856

Interest received





1,445


860

Interest paid





(23,942)


(27,074)

Payment of mine closure costs


 

26


(4,359)


(3,355)

Income tax paid





(27,024 )


(214)

Net cash generated from operating activities





233,919


316,073

Cash flows from investing activities





 



Purchase of property, plant and equipment





(119,630)


(126,495)

Purchase of evaluation and exploration assets


 

17


(4,878)


(3,478)

Purchase of intangibles


 

18


(16)


(14)

Purchase of available-for-sale financial assets


 

19


(4,383)


-

Net proceeds from sale of subsidiary


 

4


-


807

Proceeds from sale of available-for-sale financial assets


 

19


1,567


149

Proceeds from sale of other assets


 

 


1,570


1,550

Proceeds from deferred income


 

23


4,000


-

Proceeds from sale of property, plant and equipment





716


117

Net cash used in investing activities





(121,054)


(127,364)

Cash flows from financing activities





 



Proceeds of borrowings


 

25


69,500


70,000

Repayment of borrowings


 

25


(38,000)


(177,431)

Dividends paid to non-controlling interests


 

28


(12,585)


(17,736)

Dividends paid


 

28


(13,996)


(6,998)

Cash flows generated from/(used in) financing activities





4,919


(132,165)

Net increase in cash and cash equivalents during the year





117,784


56,544

Exchange difference





(775)


(582)

Cash and cash equivalents at beginning of year





139,979


84,017

Cash and cash equivalents at end of year


 

22


256,988


139,979

 

 

 

 

 

 



 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year 31 December 2017

 

 


 

 

 

 

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 2016


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

 

Other comprehensive income/(expense)


-

-

-

(1,677)


-

 

139


-

 

-


(1,538)


-


(1,538)


-


(1,538)

 

Profit for the year


-

-

-

-

 

-

 

-


-

 

-

 

-


41,561


41,561


12,320


53,881

 

Total comprehensive income/
(expense) for the year


-

-

-

(1,677)


-

 

139


-

 

-


(1,538)


41,561


40,023

 

12,320

 

52,343

 

Exercise of share options

 

-

-

286

-

 

-

 

-


-


(48)


(48)


(238)


-


-


-

 

Dividends

28

-

-

-

-

 

-

 

-

 

-

 

-

 

-

 

(13,996)


(13,996)


-

 

(13,996)

 

Dividends to non -
controlling interests

28

-

-

-

-

 

-

 

-

 

-

 

-

 

-


-


-


(12,585)


(12,585)

 

Share-based payments

 

 

-

-

 

-

 

-

 

-

 

-


1,813


1,813


760


2,573


-


2,573

 

Balance at 31 December 2017

 

224,315

438,041

(140)

(937)


-

 

(13,712)


(210,046)


7,634


(217,061)


286,356


731,511


90,177


821,688

 

 

 

 

 

 

 

 

 

 

 



 

1 Notes to the consolidated financial statements

For the year ended 31 December 2017

 

The financial information for the year ended 31 December 2017 and 2016 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 2017 and 2016 have been extracted from the consolidated financial statements of Hochschild Mining plc for the year ended 31 December 2017 which have been approved by the directors on 20 February 2018 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 2016. 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 2018 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. The IASB has issued a new standard for the recognition of revenue arising from contracts with customers. The new revenue standard will supersede all current revenue recognition requirements under IFRS. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. The Group has evaluated recognition and measurement of revenue based on the five-step model in IFRS 15 and has not identified significant financial impacts, hence no adjustments will be recorded derived from the adoption of IFRS 15 other than certain reclassifications as explained below. The Group will adopt the new standard from 1 January 2018 applying the simplified transition method and modified retrospective approach. Certain disclosures will change as a result of the requirements of IFRS 15. The key issues identified, and the Group's views and perspective are set below. These are based on the Group's current interpretation of IFRS 15 and may be subject to changes as interpretations evolve more generally. Furthermore, the Group is considering and will continue to monitor any further development.

 

Embedded derivatives arising from the sales: some of the Group's sales of gold and silver contain provisional pricing features which are currently considered to be embedded derivatives recorded within sales. Under IAS 18, revenue is recognised at the estimated fair value of the total consideration received or receivable when the gold and silver is delivered, which is usually when title has passed to the customer. The fair value is based on the most recent determined estimate of metal content and the estimated forward price that the entity expects to receive at the end of the quotational period stipulated in the contract. The revaluation of provisionally priced contracts is recorded as an adjustment to revenue.  IFRS 15 will not change the assessment of the provisional price adjustment, however as they are not considered within the scope of IFRS 15, the Group will account for these in accordance with IFRS 9. Therefore, subsequent changes in fair value will be recognised in the statement of profit or loss and other comprehensive income as part of "other income/other expenses".

 

Impact of shipping terms: The Group sells a portion of its production on CIF Incoterms and therefore the Group is responsible for shipping services after the date at which control of the gold and silver passes to the customer. Under IAS 18, these shipping services are currently not considered to be part of the revenue transaction and thus the Group has disclosed them as selling expenses. However, under IFRS 15 the group should reclassify the portion of those selling expenses relating to transport of gold and silver from the Group's production plants to the ports and reclassify those costs to cost of sales. The Group estimates that US$4,800,000 would be reclassified from selling expenses to cost of sales, based on 2017 figures. In addition, the Group needs to assess the amount of remaining costs related to shipping services which are considered a separate performance obligation under IFRS 15 and therefore, a portion of the revenue currently recognised when the tittle has passed to the customer will need to be deferred and recognised as the shipping services are subsequently provided. Based on the analysis performed during 2017, the Group determined that the overall impact on the timing of revenue recognition related to these shipping services will not be material and consequently such revenue will not be disclosed separately.

 

·           IFRS 9 Financial Instruments, applicable for annual periods beginning on or after 1 January 2018. IFRS 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets. Based on the assessment performed, the group expect the new guidance to have the following impacts on the classification and measurement of its financial instruments:

 

Classification and measurement of the embedded derivatives arising from sales: The financial assets and liabilities arising from the revaluation provisional priced contracts is currently disclosed separately in the balance sheet as part of "other financial assets/liabilities". Under IFRS 9, the embedded derivative will no longer be separated from the host contract and therefore the revaluation of provisionally priced contracts will be disclosed within the receivable of the host contract in "trade and other receivables".

Available-for sale financial assets: The equity instruments that are currently classified as available-for-sale financial assets satisfy the conditions for classification as at fair value through other comprehensive income (FVOCI) and therefore there is no impact in classification. However, as opposed to the current IFRSs, under IFRS 9 gains and losses accumulated in other comprehensive income are not recycled to the income statement. Furthermore, under IFRS 9 there is no exception to carry investments in entities at costs less any recognised impairment and therefore, fair value will need to be calculated. There are no other significant changes to the accounting treatment of these assets.

 

Impairment: The new impairment model requires the recognition of impairment provisions based on expected credit losses (ECL) rather than only incurred credit losses as is the case under IAS 39.  The Group will apply the simplified approach and record lifetime expected losses on all trade receivables.  However, given the short term nature of the Groups receivables, these are not expected to have a significant impact in the financial statements.

Disclosures: The new standard also introduces expanded disclosure requirements and changes in presentation. These are expected to change the nature and extent of the group's disclosures about its financial instruments particularly in the year of the adoption of the new standard.

 

The Group has also assessed other changes introduced by IFRS 9 that will have no impacts in the financial statements as explained below: The Group does not expect any impact on the accounting for financial liabilities, as the new requirements of IFRS 9 only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the group does not have any such liabilities. The Group does not currently apply hedge accounting and therefore there are no impacts in the financial statements. No impacts are expected in relation to derecognition of financial instruments as the same rules have been transferred from IAS 39 Financial Instruments: Recognition and Measurement.

 

·           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.

 

·           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.

 

·           IFRIC 23 Uncertainty over income tax treatments, applicable for annual periods beginning on or after 1 January 2019. IFRIC 23 clarifies the accounting for uncertainties in income taxes. This interpretation is to be applied to the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. The Group will adopt. The Interpretation specifically addresses the following: whether an entity considers uncertain tax treatments separately; the assumptions an entity makes about the examination of tax treatments by taxation authorities; how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; and how an entity considers changes in facts and circumstances

 

The interpretation is effective for annual reporting periods beginning on or after 1 January 2019, but certain transition reliefs are available. The Group will apply interpretation from its effective date, however we do not expect significant impacts on the financial statements on the implementation as the Group's current treatment is in line with the requirements of the interpretation.

 

The Group is analysing the effect of the standards and plans to adopt the new standards 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 Aymaraes S.A.C. (a power transmission company that absorbed Empresa de Transmisión Callalli S.A.C. on 1 June 2016).

 

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 2017


 

 

 

 

 

 

 

 

 

 

 

 

 


 

Revenue from external customers


77,940

 

120,529

 

227,094

 

296,594

 

-

 

415

 

-


722,572

Inter segment revenue


-

 

-

 

-

 

-

 

-

 

5,712

 

(5,712)


-

Total revenue


77,940

 

120,529

 

227,094

 

296,594

 

-

 

6,127

 

(5,712)


722,572



 

 

 

 

 

 

 

 

 

 

 

 

 


 

Segment profit/(loss)


(4,212)

 

48,926

 

43,162

 

73,737

 

(17,393)

 

10,832

 

(9,752)


145,300

Others2


 

 

 

 

 

 

 

 

 

 

 

 

 


(81,223)

Profit from continuing operations before income tax


 

 

 

 

 

 

 

 

 

 

 

 

 


64,077



 

 

 

 

 

 

 

 

 

 

 

 

 


 

Other segment information


 

 

 

 

 

 

 

 

 

 

 

 

 


 

Depreciation3


(17,447)

 

(19,479)

 

(49,019)

 

(107,489)

 

(413)

 

(5,228)

 

-


(199,075)

Amortisation


-

 

-

 

(1,247)

 

-

 

(462)

 

(142)

 

-


(1,851)

Impairment and write-off of assets,net

 

(43,135)

 

31,872

 

(205)

 

(31)

 

8,364

 

(23)

 

-

 

(3,158)



 

 

 

 

 

 

 

 

 

 

 

 

 


 

Assets


 

 

 

 

 

 

 

 

 

 

 

 

 


 

Capital expenditure


17,557

 

18,906

 

36,288

 

52,903

 

2,026

 

868

 

-


128,548



 

 

 

 

 

 

 

 

 

 

 

 

 


 

Current assets


5,483

 

21,699

 

47,398

 

22,707

 

30

 

2,570

 

-


99,887

Other non-current assets


5,859

 

91,065

 

182,138

 

535,840

 

194,777

 

57,930

 

-


1,067,609

Total segment assets


11,342

 

112,764

 

229,536

 

558,547

 

194,807

 

60,500

 

-


1,167,496

Not reportable assets4


-

 

-

 

-

 

-

 

-

 

334,828

 

-


334,828

Total assets


11,342

 

112,764

 

229,536

 

558,547

 

194,807

 

395,328

 

-


1,502,324

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

2  Comprised of administrative expenses of US$51,283,000, other income of US$10,192,000, other expenses of US$11,549,000, impairment and write-off of assets (net) of US$3,158,000, finance income of US$5,927,000, finance expense of US$26,095,000, and foreign exchange loss of US$5,257,000.

3  Includes depreciation capitalised in the Crespo project (US$831,000), and San Jose unit (US$2,290,000).

4  Not reportable assets are comprised of available-for-sale financial assets of US$6,264,000, other receivables of US$45,344,000, other financial assets of US$2,591,000, income tax receivable of US$21,241,000, deferred income tax asset of US$2,400,000 and cash and cash equivalents of US$256,988,000.

 

 

 



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 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.

 

(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



2017
US$000


2016
US$000

External customer


 


 

USA


370,035


225,073

Peru


45,274


78,248

Canada


60,991


181,569

Germany


34,777


4,506

Switzerland


73,186


89,838

United Kingdom1


-


(1,689)

Korea


102,596


92,769

Bulgaria


27,211


16,334

Japan


8,502


1,594

Total


722,572


688,242

Inter-segment


 



Peru


5,712


2,062

Total


728,284


690,304

 

 

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 (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 2017


Year ended 31 December 2016



US$000

 

% Revenue

 

Segment


US$000


% Revenue


Segment

Asahi Refining USA


130,024

 

18%

 

Inmaculada


30,304

 

4%

 

Arcata

Republic Metals Corporation


116,274

 

16%

 

Inmaculada and San Jose


103,405

 

15%

 

Arcata, Inmaculada and San Jose

LS Nikko


102,596

 

14%

 

Pallancata and San Jose


92,769

 

14%

 

Pallancata and San Jose

Asahi Refining Canada Ltd.


17,492

 

2%

 

 Inmaculada


160,312

 

23%

 

Arcata and Inmaculada

Auramet Trading Llc.


53,585

 

7%

 

Inmaculada


97,616

 

14%

 

Arcata and Inmaculada

 

 

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

 


2017
US$000


2016
US$000

Peru


782,659


850,605

Argentina


182,139


196,056

Mexico


38,841


30,990

Chile


63,970


63,196

Total non-current segment assets


1,067,609


1,140,847

Available-for-sale financial assets


6,264


991

Trade and other receivables


7,487


25,717

Other financial assets


1,333


-

Deferred income tax assets


2,400


1,027

Total non-current assets


1,085,093


1,168,582

 

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



2017
US$000


2016
US$000

Gold (from dore bars)


266,214


263,010

Silver (from dore bars)


144,762


177,450

Gold (from concentrate)


106,101


91,348

Silver (from concentrate)


205,080


156,075

Services


415


359

Total


722,572


688,242

 

Included within revenue is a gain of US$2,578,000 relating to provisional pricing adjustments representing the change in the fair value of embedded derivatives (2016: loss of US$6,667,000) arising on sales of concentrates and dore.

 

In 2016, revenue includes realised loss on gold and silver swaps and zero cost collar contracts of US$18,722,000 (gold: US$10,030,000, silver: US$8,692,000).

 

Other sources of revenue are disclosed at note 13.

6 Cost of sales

 

Included in cost of sales are:



Year ended 31 December



2017
US$000


2016
US$000

Depreciation and amortisation in cost of sales1


196,150


180,317

Personnel expenses (note 10)


124,507


103,130

Mining royalty (note 30)


6,677

 

7,506

Change in products in process and finished goods


4,131

 

6,487

Other items2


3,241

 

1,750

1 The depreciation and amortisation in production cost is US$196,241,000 (2016: US$185,655,000)

2 Other items includes costs related to the stoppage at Pallancata and San Jose mine units (2016: Personnel related provisions in Arcata, Pallancata, Inmaculada and San Jose mining units).

 

 

 

7 Administrative expenses

 



Year ended 31 December



2017
US$000


2016
US$000

Personnel expenses (note 10)


34,775


33,028

Professional fees


3,233


3,075

Social and community welfare expenses1


586


384

Lease rentals


1,474


1,455

Travel expenses


1,020


598

Communications


415


438

Indirect taxes


2,173


2,057

Depreciation and amortisation


1,564


1,798

Technology and systems


686


678

Security


773


656

Supplies


123


109

Other2


4,461


3,703

Total


51,283


47,979

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

2 Predominantly related to third party services of US$1,273,000 (2016: US$972,000), technical services of US$553,000 (2016: US$533,000), repair and maintenance of US$388,000 (2016: US$492,000) and impairment of receivables of US$79,000 (2016: US$312,000).

 



 

8 Exploration expenses



Year ended 31 December



2017
US$000


2016
US$000

Mine site exploration1


 


 

Arcata


3,029


1,305

Ares


69


297

Inmaculada


1,127


1

Pallancata


1,279


733

San Jose


3,407


1,691



8,911


4,027

Prospects2


 



Peru


336


316

Argentina


30


11

Chile


267


26



633


353

Generative3


 



Peru


1,862


866

USA


398


-



2,260


866

Personnel (notes 10)


4,646


3,476

Others


749


471

Total


17,199


9,193

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$2,600,000 in 2017 (2016: US$1,168,000).

 

9 Selling expenses

 



Year ended 31 December



2017
US$000


2016
US$000

Transportation of dore, concentrate and maritime freight


6,477


8,250

Personnel expenses (note 10)


296


254

Warehouse services


1,742


1,861

Taxes1


16


1,495

Other


2,493


2,315

Total


11,024


14,175

1 The export tax on concentrates in Argentina was reduced to zero percent on 12 February 2016.

 

10 Personnel expenses1



Year ended 31 December

 


2017
US$000


2016
US$000

Salaries and wages


116,597


98,741

Other legal contributions


26,937


20,552

Statutory holiday payments


7,124


6,361

Long Term Incentive Plan


9,348


10,528

Restricted share plan


2,090


3,181

Termination benefits


2,228


2,577

Other


2,670


1,951

Total


166,994


143,891

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$124,507,000 (2016: US$103,130,000), US$34,775,000 (2016: US$33,028,000), US$4,646,000 (2016: US$3,476,000), US$296,000 (2016: US$254,000), US$1,621,000 (2016: US$2,406,000) and US$1,149,000 (2016: US$1,597,000) respectively.

 

Average number of employees for 2017 and 2016 were as follows:



Year ended 31 December



2017


2016

Peru


2,920


2,825

Argentina


1,175


1,125

Chile


3


3

United Kingdom


10


11

Total


4,108


3,964

 

 

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
2017
US$000


Year ended
31 December
2016
US$000

Other income


 


 

Reversal of reserves tax3

 

-

 

2,667

Total


-


2,667

Other expenses


 



Work stoppage at Pallancata mine unit4


-


(2,474)

Penalty for termination of agreement5


-


(4,254)

Damage of tailing dump in Ares mine unit6


-


(2,150)

Provision for impairment of other receivables7


-


(1,797)

Total


-


(10,675)

(Impairment)/impairment reversal and write-off of non-financial assets, net


 



Impairment of assets1


(43,009)


-

Reversal of impairment of assets1


40,256


-

Write-off of non-current assets8


-


(1,634)

Total


(2,753)


(1,634)

Finance income


 



Reversal of interests on reserves tax3


-


974

Total


-


974

Income tax benefit2, 9


3,279


2,224

Total


3,279


2,224

The exceptional items for the year ended 31 December 2017 are as follows:

1 Corresponds to the impairment of the Arcata mine unit of US$43,009,000, and the reversal of impairment related to the Pallancata mine unit of US$31,892,000 and the San Felipe project of US$8,364,000.

2 Corresponds to the deferred tax credit generated by the impairment of the Arcata mine unit, net by the reversal on impairment of the Pallancata mine unit.

 

The exceptional items for the year ended 31 December 2016 are as follows:

3 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.

4 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.

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

6 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 ensuring 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.

7 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.

8 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.

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 the tailings dam 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).

 

 

12 Other income and other expenses before exceptional items



Year ended
31 December 2017


Year ended
31 December 2016



Before
exceptional
items
US$000


Before
exceptional
items
US$000

Other Income


 


 

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


1,428


6,346

Export credits1


1,613


19,029

Lease rentals


253


391

Gain on sale of other assets2


1,495


1,550

Gain on sale of subsidiaries (note 4)


-


751

Logistic services


3,552


4,288

Other


1,851


776

Total


10,192


33,131

Other expenses


 



Provision of obsolescence of supplies


(542)


(2,162)

Contingencies


(347)


(570)

Donations (note 29)


(754)


(1,000)

Write off of value added tax


(221)


(1,208)

Corporate social responsibility contribution in Argentina3


(3,063)


(3,146)

Other4


(6,622)


(5,772)

Total


(11,549)


(13,858)

1 Corresponds to the benefit of the silver refund in Argentina. In 2016, the amount includes income recognised with respect to the Patagonian port rebate of US$16,900,000. This benefit was eliminated in December 2016.

2 Corresponds to the gain generated by the sale of mining rights of the Ricky project (2016: Corresponds to a gain generated by the sale of a royalty purchase agreement signed with Minera Bateas S.A.C. to Lemuria Royalties Corp).

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

4 Mainly corresponds to the expenses in Ares mine unit of US$4,369,000 (2016: US$1,910,000), concessions of US$491,000 (2016: US$1,210,000) and rentals of US$205,000 (2016: US$440,000)

 

13 Finance income and finance costs before exceptional items



Year ended
31 December 2017


Year ended
31 December 2016



Before
exceptional
items
US$000


Before
exceptional
items
US$000

Finance income


 


 

Interest on deposits and liquidity funds


1,696


1,011

Interest income


1,696


1,011

Gain from changes in the fair value of financial instruments


647


-

Gain on exchange of available-for-sale financial assets


1,386


-

Gain on discount of other receivables


1,946


-

Other


252


89

Total


5,927


1,100

Finance costs


 



Interest on secured bank loans (note 25)


(185)


(2,602)

Other interest

 

(813)

 

(1,106)

Interest on bond (note 25)


(24,088)


(23,925)

Interest expense


(25,086)


(27,633)

Unwind of discount on mine rehabilitation (note 26)


(280)


(46)

Loss on discount of other receivables


-


(2,257)

Loss on sale of available-for-sale financial assets


(32)



Other


(697)


(605)

Total


(26,095)


(30,541)

 

 

14 Income tax expense

 



Year ended 31 December 2017


Year ended 31 December 2016



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


15,070

 

-

 

15,070


31,701


(1,212)


30,489

Current mining royalty charge (note 30)


4,201

 

-

 

4,201


3,882


-


3,882

Current special mining tax charge (note 30)


2,229

 

-

 

2,229


3,869


-


3,869

Withholding taxes


-

 

-

 

-


552


-


552



21,500

 

-

 

21,500


40,004


(1,212)


38,792

Deferred taxation


 

 

 

 

 







Origination and reversal of temporary differences from continuing operations


2,755

 

(3,279)

 

(524)


6,364


(961)


5,403

Effect of change in tax rate1


(10,780)

 

-

 

(10,780)


1,273


(51)


1,222



(8,025)

 

(3,279)

 

(11,304)


7,637


(1,012)


6,625

Total taxation charge/(credit) in the income statement


13,475


(3,279)


10,196


47,641


(2,224)


45,417

1 On 29 December 2017, the Argentinian government enacted the tax reforms. The main change is the decrease of the statutory income tax rate, from its current level of 35% to 30% with effect from 1 January 2018 and to 25% with effect from 1 January 2020 (2016: 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 1 January 2017).

 

The weighted average statutory income tax rate was 29.0% for 2017 and 30.1% for 2016. 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



2017
US$000


2016
US$000

Deferred taxation:


 


 

Deferred income tax relating to fair value losses on cash flow hedges


-


(5,955)

Total tax credit in the statement of other comprehensive income


-


(5,955)

 

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



2017
US$000


2016
US$000

Profit from continuing operations before income tax


64,077


108,279

At average statutory income tax rate of 29.0% (2016: 30.1%)


18,562


32,570

Expenses not deductible for tax purposes


776


1,051

Deferred tax recognised on special investment regime


(1,819)


(1,715)

Movement in unrecognised deferred tax1


(1,324)


2,705

Change in statutory income tax rate2


(10,780)


1,222

Withholding tax


-


552

Special mining tax and mining royalty3


6,430


7,751

Derecognition of deferred tax asset


-


316

Foreign exchange rate effect4


(1,043)


2,383

Utilisation of losses not previously recognised


(1,618)


-

Other


1,012


(1,418)

At average effective income tax rate of 15.9% (2016: 41.9%)


10,196


45,417

Taxation charge attributable to continuing operations


10,196


45,417

Total taxation charge in the income statement


10,196


45,417

1 Includes the income tax credit on mine closure provision of US$3,010,000 (2016: US$1,925,000).

2 The Argentinian government approved a decrease of the statutory income tax rate, from its current level of 35% to 30% with effect from the 1 January 2018 and 25% with effect from 1 January 2020 (2016: 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.

 

The effective tax rate for corporate income tax for the period ended 31 December 2017 is 15.9% (2016: 41.9%), compared to the weighted average statutory tax rate of 29.0% (2016: 30.1%), and 39.0% (2016: 37.3%) taking into account the mining royalty and the special mining tax which are income taxes under IAS 12. The main factor that reduced the effective tax rate for corporate income tax is the deferred tax impact of the reduction of the Argentina tax rate and the reversal of San Felipe impairment, which does not attract a deferred tax liability, on the basis that no deferred tax asset arose when the impairment was originally recognised.

 

15 Basic and diluted earnings per share

 

Earnings per share ('EPS') is calculated by dividing profit 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 at 31 December 2017 and 2016, EPS has been calculated as follows:

 



As at 31 December



2017


2016

Basic earnings/(loss) per share from continuing operations


 


 

Before exceptional items (US$)


0.08


0.11

Exceptional items (US$)


-


(0.02)

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


0.08


0.09

Diluted earnings/(loss) per share from continuing operations


 



Before exceptional items (US$)


0.08


0.10

Exceptional items (US$)


-


(0.01)

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


0.08


0.09

 

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



As at 31 December



2017


2016

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


41,561


45,550

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


(526)


7,604

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


41,035


53,154

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


41,035


53,154

 

The following reflects the share data used in the basic and diluted earnings per share computations:

 



As at 31 December



2017

 

2016

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


507,204


505,521

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


7,768


9,435

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


514,972


514,956

 



 

 

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 2017















Cost















At 1 January 2017

 

1,180,904

 

488,486

 

536,929

 

6,210

 

95,390

 

24,943

 

2,332,862

Additions


79,054


187


16,339


29


-


28,045


123,654

Change in discount rate


-


-


-


-


575


-


575

Change in mine closure estimate


-


-


-


-


2,572


-


2,572

Disposals


-


-


(2,927)


(3)


-


-


(2,930)

Write-offs


-


(127)


(3,492)


(172)


-


(19)


(3,810)

Transfers and other movements2


(56)


8,378


10,633


547


-


(19,560)


(58)

At 31 December 2017


1,259,902

 

496,924

 

557,482

 

6,611

 

98,537

 

33,409

 

2,452,865

Accumulated depreciation
and impairment















At 1 January 2017

 

791,641

 

218,123

 

277,692

 

4,554

 

64,480

 

889

 

1,357,379

Depreciation for the year


109,642


44,431


40,356


325


4,321


-


199,075

Disposals


-


-


(2,564)


(3)


-


-


(2,567)

Write-offs


-


(98)


(3,152)


(155)


-


-


(3,405)

Impairment/(reversal of impairment), net

 

(2,369)

 

3,613

 

8,631

 

24

 

(1,646)

 

143

 

8,396

Transfers and other movements2

 

467


-

 

(2,146)

 

-


-

 

-

 

(1,679)

At 31 December 2017


899,381

 

266,069

 

318,817

 

4,745

 

67,155

 

1,032

 

1,557,199

Net book amount at 31 December 2017


360,521

 

230,855

 

238,665

 

1,866

 

31,382

 

32,377

 

895,666

 

There were borrowing costs capitalised in property, plant and equipment amounting to US$601,000 (2016: US$825,000). The capitalisation rate used was 8.27% (2016: 7.23%).

 

1 Mining properties and development costs related to Crespo project (US$26,016,000) are not currently being depreciated.

2 Net of transfers and other movements of US$1,607,000 were transferred from evaluation and exploration assets (note 17).

 

Management determined there were triggers of impairment in the Arcata mine unit as it has experienced difficulties to replace production with incremental resources and to convert resources into reserves, and there was a significant decrease in production during the year. An impairment test was carried out resulting in an impairment charge of US$43,009,000 (US$39,905,000 in property, plant and equipment and US$3,104,000 and evaluation and exploration assets).

 

In the case of the Pallancata mine unit, there was an increase in terms of tonnage, grades and resources and reserves due to the Pablo vein. The Group is currently operating the vein, converting inferred resources into reserves, and the process is showing better results than expected in terms of tonnage and grades. An impairment test was carried out resulting in an impairment reversal of US$31,892,000 (US$31,509,000 in property, plant and equipment and US$383,000 and evaluation and exploration assets).

 

In addition, management evaluated the carrying value of the San Felipe Project, recognising an impairment reversal of US$8,364,000 (all in evaluation and exploration assets) due to the proceeds received in the year (refer to note 23) and the significant increase in zinc market prices over the year resulting in an increase of the in-situ value (refer to notes 11 and 17).

 

No indicators of impairment or reversal of impairment were identified in the other CGUs, which includes other exploration projects. 

 

The recoverable values of the Arcata and Pallancata CGUs were determined using a fair value less costs of disposal (FVLCD) methodology with the exception of San Felipe, where the recoverable value was determined using a value in use (VIU). 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. 

 

In assessing the recoverable value of the San Felipe CGU, given the early stage of the project, the Group applied a value in-situ methodology which applies a realisable 'enterprise value' to unprocessed mineral resources. The enterprise value used is based on observable external market information. Together with the US$29,396,000 recognised as a deferred income (refer to note 23) that will be realised once the option is exercised or terminated; the total recoverable value of the project under a value in use approach amounts to $37,081.

 

The key assumptions on which management has based its determination of FVLCD and the associated recoverable values calculated are gold and silver prices, production costs, the discount rate and the value per in-situ regarding the San Felipe project. Gold and silver prices used, discount rate applied and value per in-situ per zinc equivalent tonne are presented below.

US$ per oz.

 

2018

 

2019

 

2020

 

Long-term

Gold


1,298


1,300


1,303


1,300

Silver


18


18


19


19

 

 

 

 

Arcata

 

Pallancata1

 

San Felipe

Discount rate (post tax)


4.3%


5.4%


n/a

Value per in-situ per zinc equivalent tonne (US$)


n/a


n/a


29.53

1 The Pallancata CGU was assessed for impairment reversal at 30 June 2017 and therefore the above reflects the relevant assumption at that date.

 

 

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

 

Arcata

 

Pallancata

 

San Felipe

31 December 2017


5,859


91,065


37,081

 

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.

 

As the Arcata CGU was fully impaired at 31 December 2017, a negative change in any of the key assumptions would not have an impact on the impairment charge recognised. However a positive change in the following key assumptions would, in isolation, decrease the impairment charge recorded by:

 

 

 

US$000

 

 

Prices (increase by 10%)


11,696



Post tax discount rate (decrease by 3%)


30



Production costs (decrease by 10%)


9,535



 

As the impairment charge previously recognised at the Pallancata CGU was fully reversed at 30 June 2017, a positive change in any of the key assumptions would not have an impact on the impairment reversal recognised. Similarly, an adverse change in the key assumptions (10% decrease in price, 3% increase in post tax discount rate and 10% increase in production costs), in isolation, would still result in a full reversal of the impairment previously recognised.

 

With respect to the impairment assessment performed at the San Felipe CGU, a decrease of 10% in the value in-situ per tonne would result in a reversal of impairment of US$7,595,000, whilst an increase of 10% would result in a reversal of previously recognised impairment of US$9,132,000.

 


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

1 Mining properties and development costs related to Crespo project (US$27,321,000) 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).

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 2016


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

Additions


197


208


-


768


3,705


4,878

Disposals


-


-


(500)


-


-


(500)

Transfers to property plant and equipment

 

-


-


-


-

 

(2,074)

 

(2,074)

Balance at 31 December 2017


81,599

 

26,239

 

55,450


94,452

 

12,668

 

270,408

Accumulated impairment













Balance at 1 January 2016


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

Transfers to property, plant and equipment

 

-


-


-


-

 

(467)

 

(467)

Impairment/(reversal of impairment) 1

 

-


-


(8,364)


-

 

2,721

 

(5,643)

Balance at 31 December 2017


45,876

 

9,878

 

17,470

 

44,381

 

5,404

 

123,009

Net book value as at 31 December 2016


35,526

 

16,153

 

30,116


49,303

 

7,887

 

138,985

Net book value as at 31 December 2017


35,723

 

16,361

 

37,980


50,071

 

7,264

 

147,399

 

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

 

1 At 31 December 2017, the Group has recorded an impairment charge with respect to evaluation and exploration assets of the Arcata mine unit of US$3,104,000, and reversals of impairment with respect to the Pallancata mine unit of US$383,000 and the San Felipe project of US$8,364,000. The calculation of recoverable values 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 2016


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

Additions


-


-


16


-


16

Balance at 31 December 2017


22,157


26,583


1,872


6,686


57,298

Accumulated amortisation and impairment




 







Balance at 1 January 2016


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

Amortisation for the year4

 

1,089

 

-

 

158

 

604

 

1,851

Balance at 31 December 2017


14,163


12,686


1,529


4,376


32,754

Net book value as at 31 December 2016


9,083

 

13,897

 

485

 

2,914

 

26,379

Net book value as at 31 December 2017


7,994

 

13,897

 

343

 

2,310

 

24,544

1 The transmission line is amortised using the units of production method. At 31 December 2017 the remaining amortisation period is approximately 8 years (2016: 9 years).

2 Corresponds to the acquisition of water permits of Andina Minerals Group ("Andina"). They have an indefinite life according to Chilean law. 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 Group used the value-in-situ methodology. This methodology applies a realisable 'enterprise value' to unprocessed mineral resources which was US$7.10 per gold equivalent ounce of resources at 31 December 2017 (2016: US$6.90). The risk adjusted enterprise value figure has been determined using a combination of level 2 and level 3 inputs to estimate the amount that would be paid by a willing third party in an arm's length transaction, taking into account the water restrictions imposed by the Chile government.

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 2017 the remaining amortisation period is from 10 to 20 years (2016: 8 to 20 years).

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

 

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


 

2017

2016

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


7.10

6.90

 

(US$000)

 

2017

2016

 Current carrying value of Volcan CGU


63,968

63,187

 

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. A change in the value in situ assumption could cause an impairment loss or reversal of impairment to be recognised as follows:

 

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

 

2017

2016

Value per in-situ ounce (10% decrease)


(2,667)

(3,896)

Risk factor (increase by 5%)


(1,095)

(2,376)

Risk factor  (decrease by 5%)


9,384

7,760

 

 

19 Available-for-sale financial assets

 



Year ended 31 December



2017
US$000


2016
US$000

Beginning balance


991


366

Acquisitions1


7,163


-

Fair value change recorded in equity


(323)


774

Disposals2


(1,160)


(149)

Exchange of shares2


(407)


-

Ending balance


6,264


991

1 Corresponds to the purchase of 4,886,538 shares of Cobalt Power Group (Cobalt) (US$500,000), 14,545,454 shares of Red Eagle Mining Corporation (Red Eagle) (US$3,314,000), and 153,616 shares of Goldspot Discoveries Inc. (US$569,000). In addition, 13,415,000 shares of Santa Cruz Silver Mining were received in payment (US$2,780,000) of the option for the San Felipe project (refer note 23) and thus no cash consideration was received.

 

With the acquisition of the shares, the Group also acquired 14,545,454 warrants of Red Eagle and 2,443,269 warrants of Cobalt respectively, The warrants were recognised at fair value on acquisition and presented as other financial assets.

 

2 As at 31 December 2016 the Group held an investment in Mariana Resources Ltd which was acquired by Sandstorm Gold on 12 July 2017. In consideration for the exchange of shares the Group received cash proceeds of $407,000 and shares of Sandstorm Gold generating a gain of US$1,386,000. On 17 July 2017 the Group disposed its investment in Sandstorm Gold realising a loss on sale of available-for-sale-financial assets of US$32,000.

 

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

 

Investments held in Pembrook Mining Corp. (US$11,745,000), ECI Exploration and Mining Inc.(US$2,639,000) and Goldspot Discoveries Inc. (US$581,000) are unlisted and recognised at cost less any recognised impairment loss as there is no active market for these investments. The investments in Pembrook Mining Corp and ECI Exploration and Mining Inc. are fully impaired as at 31 December 2016 and 2017.

20 Trade and other receivables



As at 31 December



2017


2016



Non-current
US$000

 

Current
US$000


Non-current
US$000


Current
US$000

Trade receivables


-

 

43,209


-


36,821

Advances to suppliers


-

 

4,482


-


2,458

Duties recoverable from exports of Minera Santa Cruz 1


1,570

 

2,681


19,065


-

Receivables from related parties (note 29(a))


-

 

160


-


71

Loans to employees


877

 

353


856


230

Interest receivable


-

 

402


-


151

Receivable from Kaupthing, Singer and Friedlander Bank


-

 

208


-


198

Other2


1,810

 

9,397


2,188


10,205

Provision for impairment3


-

 

(4,594)


-


(6,342)

Assets classified as receivables


4,257

 

56,298


22,109


43,792

Prepaid expenses


91

 

3,720


44


2,590

Value Added Tax (VAT)4


3,139

 

21,048


3,564


21,738

Total


7,487

 

81,066


25,717


68,120

 

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 19 months (2016: 24 months) at a rate of 5.40% (2016: 6.39%) for dollars denominated amounts and 29.60% (2016: 23.31%) for Argentinian pesos. The gain on the unwinding of the discount is recognised within finance income (2016: loss on discount is recognised within finance costs).

2 Mainly corresponds to account receivables from contractors for the sale of supplies of US$4,773,000 (2016: US$3,968,000), and other tax claims of US3,903,000 (2016: US$5,333,000).

3 Includes the provision for impairment of trade receivable from a customer in Peru of US$1,080,000 (2016: US$1,043,000), the impairment of deposits in Kaupthing, Singer and Friedlander of US$208,000 (2016: US$198,000), the impairment of the account receivable from a third party of US$2,501,000 (2016: US$1,797,000) and other receivables of US$805,000 (2016: US$3,304,000) that mainly relates to an exploration project that would be recovered through an ownership interest if it succeeds.

4 Primarily relates to US$12,829,000 (2016: US$16,030,000) 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$6,519,000 (2016: US$4,776,000) and Empresa de Transmisión Aymaraes S.A.C. of US$4,034,000 (2016: US$3,665,000). The VAT is valued at its recoverable amount.

 

Movements in the provision for impairment of receivables:

 



Individually
impaired
US$000

At 1 January 2016


5,327

Provided for during the year


2,061

Released during the year


(1,046)

At 31 December 2016


6,342

Provided for during the year


1,065

Released during the year1


(2,813)

At 31 December 2017


4,594

1 Corresponds to the reversal of the provision of US$9,000 (2016: US$1,046,000) and write-off of US$2,804,000 (2016: US$nil)

 

As at 31 December 2017 and 2016, none of the financial assets classified as receivables (net of impairment) were past due.

 

 

21 Inventories

 



As at 31 December



2017
US$000


2016
US$000

Finished goods valued at cost


3,011


3,515

Products in process valued at cost


17,099


20,727

Raw materials


-


33

Supplies and spare parts


41,572


40,241



61,682


64,516

Provision for obsolescence of supplies


(5,004)


(7,460)

Total


56,678


57,056

 

Finished goods include ounces of gold and silver, dore and concentrate.

 

Products in process include stockpile 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. At 31 December 2017 and 2016 the Group had no dore on hand included in products in process.

 

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$104,689,000 (2016: US$86,754,000).

 

Movements in the provision for obsolescence comprise an increase in the provision of US$542,000 (2016: US$2,162,000) and the reversal of US$2,997,000 relating to the sale of supplies and spare parts, that had been provided for (2016: US$nil).

 



 

22 Cash and cash equivalents

 



As at 31 December



2017
US$000


2016
US$000

Cash at bank


335


353

Liquidity funds1


2,869


203

Current demand deposit accounts2


61,612


68,643

Time deposits3


192,172


70,780

Cash and cash equivalents considered for the statement of cash flows


256,988


139,979

 

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 29 days as at 31 December 2017 (2016: average of 16 days).

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

3  These deposits have an average maturity of 32 days (2016: Average of 3 days).

 

 

23 Deferred income



As at 31 December



2017
US$000


2016
US$000

San Felipe contract1


29,396


25,000

El Mosquito contract2


1,413


-

 


30,809


25,000

Current balance


(400)


-

Non-current


30,409


25,000

 

1. On 3 August 2011, the Group 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 US$29,396,000 as non-refundable payments at 31 December 2017 (2016: US$25,000,000).

 

These payments will reduce the total consideration that IMSC will be required to pay upon exercise of the option and constitute an advance of the final purchase price, rather than an option premium and, 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. As a result of this extension, on 9 March 2017 the Group  received in payment 13,415,000 ordinary shares of Santa Cruz Silver Mining ("SCSM") quoted in the Toronto Stock Exchange, at the unit price of CAD 0.28 amounting to CAD 3,756,000 equivalent to US$2,780,000. The amount received included valued added taxes of US$384,000 and part consideration of US$2,396,000 recognised as deferred income. 

 

On 28 February 2017, the Group signed a new option agreement with IMSC for the San Felipe properties for a total consideration of US$10,000,000. An initial payment of US$2,000,000 was received in cash on 7 March 2017.

 

In March 2017, IMSC entered into an agreement with Americas Silver Corporation ('ASC') to assign 100% of its interest in the San Felipe Project.

 

On 1 December 2017, the option to sell the San Felipe property to IMSC was extended to 31 December 2018 based on an amendment to the payment terms and an additional US$8,000,000 is payable by IMSC at 31 December 2017.

 

2. On 25 April 2017 the Group signed a five year option agreement with Minas Argentinas S.A. ("MASA") giving MASA the right ot explore and the option to purchase the Mosquito property, located in Argentina. The Group has received in cash US$2,000,000, recognising US$1,813,000 as deferred income at 31 December 2017.

 



 

24 Trade and other payables

 

 



As at 31 December



2017


2016



Non-current
US$000

 

Current
US$000


Non-current
US$000


Current
US$000

Trade payables1


-

 

63,038


-


55,381

Salaries and wages payable2


-

 

36,143


-


28,500

Dividends payable


-

 

107


-


75

Taxes and contributions


32

 

6,425


43


4,962

Guarantee deposits


-

 

6,946


-


5,073

Mining royalty (note 30)


-

 

684


-


679

Accounts payable to related parties (note 29)


-

 

149


-


94

Other


1,049

 

3,287


1,223


3,720

Total


1,081

 

116,779


1,266


98,484

 

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$nil (2016: US$2,000) and long term incentive plan payable of US$7,520,000 (2016: US$6,279,000) at 31 December 2017.

 

25 Borrowings

 

 



As at 31 December



2017


2016



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%

 

291,955

 

8,779


8.56%


291,073


8,778

Secured bank loans (b)













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


1.80% to 2.85%

 

-

 

9,043


2.70% to 3.00%


-


2,524

·    Short-term bank loans


1.75%

 

-

 

50,041


0.65%


-


25,010

Total


 

 

291,955

 

67,863




291,073


36,312

(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. The balance at 31 December 2017 comprises the carrying value, including accrued interest payable, of US$300,734,000 (2016: US$299,851,000) determined in accordance with the effective interest method.

The following options could be taken before the maturity:

·        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:

Short-term bank loans:

One credit agreement signed by Compañía Minera Ares S.A.C. with BBVA Continental (2016: two credit agreements signed by Compañía Minera Ares S.A.C. with BBVA Continental). The loan has an interest rate of 1.75% (2016: 0.65%). The carrying value including accrued interest payable at 31 December 2017 is US$50,041,000 (2016: US$25,010,000). The due date is 15 December 2018 (2016: Repaid on due date 7 February 2017).

 



 

The maturity of non-current borrowings is as follows:



As at 31 December



2017
US$000


2016
US$000

Between 1 and 2 years


-


-

Between 2 and 5 years


291,955


291,073

Over 5 years


-


-

Total


291,955


291,073

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



2017
US$000


2016
US$000


2017
US$000


2016
US$000

Secured bank loans


-


-


-


-

Bond payable


291,955


291,073


306,566


318,062

Total


291,955


291,073


306,566


318,062

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, it is Level 1 input.

The movement in borrowings during the year is as follows:



 





 



As at 1 January 2017 US$000


Additions US$000


Repayments US$000

 

Reclassifications US$000

 

As at 31 December 2017 US$000


Current







 





Bank loans


27,534

 

69,686


(38,136)


-


59,084

 

Bond payable


8,778


24,688


(23,805)


(882)


8,779




36,312


94,374


(61,941)


(882)


67,863


Non-current







 





Bond payable


291,073


-


-

 

882


291,955




291,073


-


-


882


291,955


Accrued interest


(8,812)


(24,874)


23,941


-


(9,745)


Before accrued interest


318,573


69,500


(38,000)

 

-


350,073




 

26 Provisions

 

 



Provision

for mine closure1

US$000


Long Term Incentive

Plan2

US$000


Other
US$000


Total
US$000

At 1 January 2016


120,080

 

963

 

6,474

 

127,517

Additions


-


9,965


570


10,535

Accretion


46


-


-


46

Change in discount rate4


(2,367)


-


-


(2,367)

Change in estimates4


(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

At 1 January 2017


102,429

 

4,649

 

4,449

 

111,527

Additions


-


8,702


347


9,049

Accretion


280


-


-


280

Change in discount rate4


863


-


-


863

Change in estimates4


8563 


-


-


856

Foreign exchange effect


-


-


(352)


(352)

Transfer to trade and other payables


-


(7,520)


-


(7,520)

Payments


(4,359)


-


(34)


(4,393)

At 31 December 2017


100,069

 

5,831

 

4,410

 

110,310

Less: current portion


4,562


-


1,641


6,203

Non-current portion


95,507


5,831


2,769


104,107

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 2017 and 2016 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 0.14% (2016: 0.25%). Expected cash flows will be over a period from one to sixteen 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) 2017 awards, granted in March 2017, payable in March 2020 (ii) 2016 awards, granted in March 2016, payable in March 2019. 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$8,702,000 (2016: US$9,965,000) have been recorded as administrative expenses US$8,215,000 (2016: US$9,298,000) and exploration expenses US$487,000 (2016: US$667,000).

 

The following tables list the inputs to the Monte Carlo model used for the LTIPs as at 31 December 2016 and 2017, respectively:

 

 



LTIP 2015

 

LTIP 2016

 

LTIP 2017

For the period ended


 31 December 2017
US$000

 

 31 December 2016
US$000


 31 December 2017
US$000

 

 31 December 2016
US$000

 

 31 December 2017
US$000

 

 31 December 2016
US$000

Dividend yield (%)


-


0.49


0.81


0.49


0.81


-

Expected volatility (%)


-


3.89


4.02


3.89


4.02


-

Risk-free interest rate (%)


-


0.12


0.25


0.12


0.25


-

Expected life (years)


-


1


1


2


2


-

Weighted average share price (pence £)


-


100.68


63.07


63.49


239.22


-

 

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 2017 internal and external review of mine rehabilitation estimates, the provision for mine closure increased by US$856,000 (2016: US$11,975,000 decrease). The net increase (2016: net decrease) mainly corresponds to the Pallancata mine unit of US$1,385,000 (2016: US$447,000 decrease), the Inmaculada  mine unit of US$1,191,000 (2016: US$1,651,000 increase), the Crespo project of US$43,000 (2016: US$37,000 decrease), the Ares mine unit of US$22,000 (2016: US$1,622,000 decrease) and the Azuca project of US$7,000 (2016: US$8,000 decrease), net of the decrease in Arcata mine unit of US$1,131,000 (2016: US$6,648,000 decrease), the Selene mine unit of US$607,000 (2016: US$698,000 decrease) and San José mine unit of US$54,000 (US$4,166,000 decrease).

4 US$1,428,000 (2016: US$6,346,000) related to changes in estimate and discount rates for mines already closed  and the Arcata mine unit which reduction of the estimated costs exceeded the carrying value of the mine asset, , therefore the effect 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

 


2017
US$000


2016
US$000

Beginning of the year


(64,944)


(64,274)

Income statement (credit)/charge (note 14)


11,304


(6,625)

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


-


5,955

End of the year


(53,640)


(64,944)

 

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 2016


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

Income statement (credit)/charge


2,474


991


201


(1,197)


2,469

At 31 December 2017


44,122

 

69,333

 

201

 

1,627

 

115,283

 

 

 

 


Differences
in cost
of PP&E
 US$000


Provision
for mine
closure
US$000


Tax
losses
US$000


Mine development
US$000


Financial instruments US$000


Others
US$000


Total
US$000

Deferred income tax assets















At 1 January 2016


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

Income statement credit/(charge)


14,347


(51)


893


(110)


(304)


(1,002)


13,773

At 31 December 2017


30,672

 

19,483

 

1,839

 

802

 

-

 

8,847

 

61,643

 

The amounts after offset, as presented on the face of the Statement of financial position, are as follows:



As at 31 December



2017
US$000


2016
US$000

Deferred income tax assets


2400


1,027

Deferred income tax liabilities


(56,040)


(65,971)

 

Tax losses expire in the following years:



As at 31 December

 


2017
US$000


2016
US$000

Unrecognised


 


 

Expire in one year


3,517


2,268

Expire in two years


493


3,231

Expire in three years


42


4,594

Expire in four years


4,320


2,295

Expire after four years


119,461


111,630



127,833


124,018

 

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



As at 31 December



2017
US$000


2016
US$000

Provision for mine closure1

 


7,287


9,971

Impairments of assets2


2,509


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 reversal of impairment of San Felipe project (2016: Related to the impairment of San Felipe and Volcan project) (note 17).

 

Unrecognised deferred tax liability on retained earnings

At 31 December 2017 and 2016, there was no recognised deferred tax liability 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



2017
US$000


2016
US$000

Dividends paid and proposed during the year


 


 

Equity dividends on ordinary shares:


 


 

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


6,997


-

Interim dividend for 2017: 1.38 US cent per share (2016: 1.38 US cent per share)


6,999


6,998

Total dividends paid on ordinary shares

 

13,996

 

6,998

Proposed dividends on ordinary shares:


 


 

Final dividend for 2017: 1.965 US cent per share (2016: 1.38 US cent per share)


9,967


6,997

 


 


 

Dividends paid to non-controlling interests: 1.80 US$  per share (2016: 10.05 US cent per share)


12,585


16,983

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


-


753

Total dividends paid to non-controlling interests

 

12,585

 

17,736

 

Dividends per share

The interim dividend paid in September 2017 was US$6,999,000 (1.38 US cents per share). A proposed dividend in respect of the year ending 31 December 2017 of 1.965 US cent per share, amounting to a total dividend of US$9,967,000, is subject to approval at the Annual General Meeting on 25 May 2018 and is not recognised as a liability as at 31 December 2017.

 

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 2017 and 2016. 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



2017
US$000


2016
US$000


2017
US$000


2016
US$000

Current related party balances


 


 


 


 

Cementos Pacasmayo S.A.A.1


160


71


149


94

Total


160


71


149


94

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 2017 and 2016, 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

 

 

2017
US$000

 

2016
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)


(200)

 

 

 

 

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)


2017
US$000


2016
US$000

Short-term employee benefits


6,086


5,459

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


5,446


6,622

Total compensation paid to key management personnel


11,532


12,081

 

This amount includes the remuneration paid to the Directors of the Parent Company of the Group of US$5,438,873 (2016: US$5,487,769).

 

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 2017, 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$108,000 (2016: US$170,000), US$1,133,000 (2016: US$769,000), and US$492,000 (2016: US$737,000) 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$885,000 (2016: US$1,759,000) representing the former mining royalty, classified as cost of sales, US$4,201,000 (2016: US$3,882,000) of new mining royalty and US$2,229,000 (2016: US$3,869,000) 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 applicable to dore and concentrate is 3% of the pit-head value. As at 31 December 2017, the amount payable as mining royalties amounted to US$576,000 (2016: US$509,000). The amount recorded in the income statement as cost of sales was US$5,792,000 (2016: US$5,747,000).

 

31 Subsequent events

 

a)     A restructuring plan has been established for the Arcata mining unit that includes the dismissal of approximately 165 employees. This reduction is aligned with the exploitation plan 2018, which is lower than budgeted in 2017, and is scheduled to take place between the months of January and February 2018.The process has been coordinated and communicated during January 2018 to the employees and the union. The approximate cost associated with the indemnities is estimated to be around US$1,388,000.

 

b)     On 23 January 2018, the Group redeemed in full all of the US$294,775,000 outstanding principal amount of the Senior Unsecured Notes of Compañía Minera Ares S.A.C. (refer to note 25 (a)). The redemption price was US317,620,062, that includes the principal amount of US$294,775,000, the total amount of unpaid interests of US$11,422,531 and a premium of US$11,422,531.

 

c)     On 10 January 2018 the Group signed a short term loan with Nova Scotia Bank of US$50,000,000 (3 months LIBOR plus 0.32%)  and on 17 January 2018 signed a medium term loan with Nova Scotia Bank of US$100,000,000 (3 months LIBOR plus 0.70%). The proceeds were employed to redeem the Senior Unsecured Notes of Compañia Minera Ares S.A.C.

 

d)     On 2 January 2018 the Group issued 1,660,805 ordinary shares under the Restricted Share Plan, to certain employees of the Group.



 

Profit by operation¹

(Segment report reconciliation) as at 31 December 2017


Company (US$000)

Arcata

Pallancata

Inmaculada

San Jose

Consolidation adjustment and others

Total/HOC



Revenue

77,940

120,529

296,594

227,094

415

722,572



Cost of sales (pre-consolidation)

(80,221)

(70,305)

(221,739)

(177,255)

471

(549,049)



Consolidation adjustment

(159)

(175)

(277)

140

471

-



Cost of sales (post-consolidation)

(80,062)

(70,130)

(221,462)

(177,395)

-

(549,049)



Production cost
excluding depreciation

(62,340)

(46,874)

(109,005)

(127,217)

-

(345,436)



Depreciation in production cost

(17,446)

(20,256)

(110,632)

(47,907)

-

(196,241)



Other items

-

(1,461)

-

(1,780)

-

(3,241)



Change in inventories

(276)

(1,539)

(1,825)

(491)

-



Gross (loss)/profit

(2,281)

50,224

74,855

49,839

886

173,523



Administrative expenses

-

-

-

-

(51,283)

(51,283)



Exploration expenses

-

-

-

-

(17,199)

(17,199)



Selling expenses

(1,931)

(1,298)

(1,118)

(6,677)

-

(11,024)



Other income/(expenses), net

-

-

-

-

(1,357)

(1,357)



Operating (loss)/profit before net impairments

(4,212)

48,926

73,737

43,162

(68,953)

92,660



Impairment, net of impairment reversals, and write-off of non-current assets

-

-

-

-

(3,158)

(3,158)



Finance income

-

-

-

-

5,927

5,927



Finance costs

-

-

-

-

(26,095)

(26,095)



Foreign exchange loss

-

-

-

-

(5,257)

(5,257)



Profit/(loss) from continuing operations before income tax

(4,212)

48,926

73,737

43,162

(97,536)

64,077



Income tax

-

-

-

-

(10,196)

(10,196)



Profit/(loss) for the year from continuing operations

(4,212)

48,926

73,737

43,162

(107,732)

53,881


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 2017, 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 2017

Reserve category

 

Proved and probable
(t)

 

 Ag
(g/t)

 

Au
(g/t)

 

Ag
(moz)

 

Au
(koz)

 

Ag Eq
(moz)

OPERATIONS¹

 

 

 

 

 

 

 

 

 

 

 

 

Arcata













Proved


318,092


395


1.2


4.0


11.8


4.9

Probable


539,625


335


1.1


5.8


18.4


7.2

Total


857,717


357


1.1


9.8


30.2


12.1

Inmaculada













Proved


3,124,529


147


4.1


14.8


412.0


45.3

Probable


1,564,684


214


5.0


10.8


249.5


29.2

Total


4,689,213


169


4.4


25.6


661.5


74.5

Pallancata













Proved


934,208

 

360

 

1.4


10.8

 

41.8

 

13.9

Probable


368,996

 

289

 

1.2


3.4

 

14.4

 

4.5

Total


1,303,204

 

340

 

1.3


14.3

 

56.3

 

18.4

San Jose













Proved


495,980

 

490

 

7.0


7.8

 

111.5

 

16.1

Probable


221,327

 

384

 

6.7


2.7

 

48.0

 

6.3

Total


717,307

 

457

 

6.9


10.5

 

159.5

 

22.4

GRAND TOTAL













Proved


4,872,809

 

239

 

3.7

 

37.5

 

577.2

 

80.2

Probable


2,694,631

 

262

 

3.8

 

22.7

 

330.3

 

47.2

TOTAL


7,567,440

 

247

 

3.7

 

60.2

 

907.5

 

127.4

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 20171

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

 

1,168,941


416


1.26


-


-


-


509


15.6


47.3


19.1


-


-


-

Indicated

 

1,933,181


381


1.25


-


-


-


473


23.7


77.5


29.4


-


-


-

Total

 

3,102,122


394


1.25


-


-


-


487


39.3


124.8


48.6


-


-


-

Inferred

 

4,129,459


334


1.24


-


-


-


426


44.3


164.7


56.5


-


-


-

Inmaculada

 


























Measured

 

3,023,358


178


4.93


-


-


-


542


17.3


479.1


52.7


-


-


-

Indicated

 

1,797,660


253


5.55


-


-


-


664


14.6


321.0


38.4


-


-


-

Total

 

4,821,018


206


5.16


-


-


-


588


31.9


800.2


91.1


-


-


-

Inferred


2,964,567


128


3.28


-


-


-


370


12.2


312.5


35.3


-


-


-

Pallancata

 


























Measured

 

1,331,079


426


1.73


-


-


-


554


18.2


74.0


23.7


-


-


-

Indicated

 

693,617


311


1.37


-


-


-


412


6.9


30.6


9.2


-


-


-

Total

 

2,024,696


387


1.61


-


-


-


506


25.2


104.7


32.9


-


-


-

Inferred

 

3,095,641


327


1.31


-


-


-


424


32.5


130.3


42.2


-


-


-

San Jose

 


























Measured

 

805,579


583


8.37


-


-


-


1,202


15.1


216.7


31.1


-


-


-

Indicated

 

844,078


427


6.76


-


-


-


927


11.6


183.5


25.2


-


-


-

Total

 

1,649,657


503


7.55


-


-


-


1,061


26.7


400.2


56.3


-


-


-

Inferred

 

446,885


360


6.68


-


-


-


854


5.2


96.0


12.3


-


-


-

GROWTH PROJECTS

 


























Crespo



























Measured


5,211,058