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RNS
Hochschild Mining PLC   -  HOC   

Preliminary Results 2019

Released 07:00 19-Feb-2020

RNS Number : 4096D
Hochschild Mining PLC
19 February 2020
 

             

 

 

 

 

_____________________________________________________________________________________

Click on, or paste the following link into your web browser, to view the associated PDF document.

http://www.rns-pdf.londonstockexchange.com/rns/4096D_1-2020-2-19.pdf

 

19 February 2020

 

 

Preliminary Results for the year ended 31 December 2019

 

 

 

Robust 2019 financial performance

§ Revenue up 7% at $755.7 million (2018: $704.3 million)[1]

§ Adjusted EBITDA up 28% at $343.3 million (2018: $268.0 million)[2]

§ Profit before income tax (pre-exceptional) up 89% at $103.4 million (2018: $54.7 million)

§ Profit before income tax (post-exceptional) up 100% at $76.8 million (2018: $38.4 million)

§ Basic earnings per share (pre-exceptional) up 80% at $0.09 (2018: $0.05)

§ Basic earnings per share (post-exceptional) up 100% to $0.06 (2018: $0.03)

§ Cash and cash equivalent balance of $166.4 million as at 31 December 2019 (2018: $79.7 million)

§ Net debt reduced by 57% to $33.2 million as at 31 December 2019 (2018 $77.4 million)

§ Final proposed dividend up 19% at 2.335 cents per share ($12.0 million) bringing the full-year total dividend to $22.2 million (2018: $20.0 million)

Strong 2019 operational delivery[3]  

§ All-in sustaining costs (AISC) from operations down to $965 per gold equivalent ounce (2018: $973) or $11.9 per silver equivalent ounce (2018: $12.0) comfortably in line with full year cost guidance of $960-$1,000 per gold equivalent ounce or $11.8-12.3 per silver equivalent ounce[4]

§ Full year attributable production of 477,400 gold equivalent ounces (38.7 million silver equivalent ounces) exceeding full year attributable production guidance of 457,000 gold equivalent ounces (37.0 million silver equivalent ounces)

§ Record production at Inmaculada up 6% to 260,126 gold equivalent ounces (2018: 244,445 ounces)

§ Record production at San Jose up 10% to 15.4 million silver equivalent ounces (2018: 14.0 million ounces)

§ Inmaculada brownfield drilling programme added further 46 million silver or 0.5 million gold equivalent ounces of inferred resources in 2019 (calculated using a gold/silver ratio of 86:1) at a grade of 475 grams per tonne silver equivalent 

§ Permits received for key Pablo Sur and Cochaloma exploration targets close to Pallancata with drilling campaign already started at Pablo Sur

2020 outlook[5]

§ Attributable production target of 422,000 gold equivalent ounces (36.0 million silver equivalent ounces)

§ Total sustaining and development capital expenditure expected to be approximately $115-130 million including $22 million expansion of tailings storage facility (TSF) at Inmaculada

§ AISC from operations expected to be $1,040-$1,080 per gold equivalent ounce ($12.1-12.5 per silver equivalent ounce)

§ AISC from operations excluding Inmaculada TSF expansion expected to be $1,000-$1,040 per gold equivalent ounce ($11.6-12.0 per silver equivalent ounce)

§ 2020 brownfield exploration budget expected to be $36 million with greenfield and advanced project budget set at an additional $8 million

 

 

$000 unless stated

Year ended

 31 Dec 2019

Year ended

31 Dec 2018

% change

Attributable silver production (koz)

16,808

19,700

(15)

Attributable gold production (koz)

270

260

4

Revenue

755,676

704,290

7

Adjusted EBITDA

343,332

268,010

28

Profit from continuing operations (pre-exceptional)

60,083

18,225

230

Profit from continuing operations (post-exceptional)

41,439

6,701

518

Basic earnings per share (pre-exceptional) $

0.09

0.05

80

Basic earnings per share (post-exceptional) $

0.06

0.03

100

________________________________________________________________________________________

 

Ignacio Bustamante, Chief Executive Officer said:

"In 2019, we have delivered some strong financial results which reflect another robust year of production including records at two of our operations and good cost control. Improved precious metals prices in the second half of the year combined with strong free cashflow generation saw us reduce leverage further and finish the year with net debt at $33 million. We have again discovered a significant amount of resource additions at Inmaculada and anticipate another year of ambitious exploration with exciting drill targets at all our current operations and projects throughout our entire southern Peru cluster. In addition, we can look forward to progressing our portfolio of greenfield opportunities and strategic alliances."

________________________________________________________________________________________

 

A presentation will be held for analysts and investors at 9.30am (UK time) on Wednesday 19 February 2020 at the offices of Hudson Sandler,

25 Charterhouse Square, London, EC1M 6AE

 

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 9411 (Please quote confirmation code 1877935)

________________________________________________________________________________________

 

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 three underground epithermal vein mines, two located in southern Peru and one in southern Argentina. Hochschild also has numerous long-term projects throughout the Americas.

 

 

 

 

 

 

 

 

CHAIRMAN'S STATEMENT

 

2019 was another busy year for Hochschild Mining and I believe we have delivered further strong progress. Our team continued to drive a responsible and innovative mining strategy that aims to combine world class operational performance with exploration-led growth in a safe and environmentally friendly manner. In this regard, I am pleased to report that our delivery in these key areas has been very encouraging. Upholding the Company's high standards is not only critical to our operational success, but to our reputation with our communities, host governments and investors. I also believe that we are continuing to create a stimulating, inclusive and forward-thinking workplace environment where our people can grow their careers and develop new skills and expertise.

 

2019 was a year in which the efforts of the management team in the design and implementation of our Safety Culture Transformation Plan bore fruit. I am delighted to report that we had our safest year on record. Our key indicators, the accident frequency index and accident severity index were at their lowest and saw year-on year reductions of 40% and 94% respectively. The wide-ranging transformation plan which, in addition to incorporating the traditional elements of training and internal communications, also saw technology play a key role in monitoring day-to-day activities and the safe transportation of our personnel.

 

The Group has performed well with regards to environmental management, exceeding our target ECO Score for the year. It is also a matter of pride that I can report that the ECO Score itself has won an international award for its innovative approach to sustainability, raising environmental awareness across the entire organisation and its potential application to other industries.  Moreover, following on from the successful Safety Culture Transformation Plan, we intend to launch a similar initiative recognising our responsibilities with regards to the environment.

 

Our people are crucial to our success and therefore it is incumbent on the Board and management to attract and retain a diverse pipeline of talent. An internal study revealed that although Hochschild's gender diversity is better than the average among our peers in Peru, it is a stark fact that women remain significantly under-represented. In order to tackle this imbalance, a working group has been established and an action plan has been developed to achieve the Group's target of increasing workforce diversity. Further details on this and all of the activities mentioned above can be found in the Sustainability section of the 2019 Annual Report. 

 

Turning to our operations, we delivered a strong year of production despite the decision to place our Arcata mine on temporary care and maintenance in the first quarter. We saw record performances at Inmaculada and San Jose and we were able to once again meet our cost targets. Furthermore, with precious metal prices recovering significantly in the second half of the year, our business generated strong free cashflow allowing us to strengthen our balance sheet, further invest in our exploration initiatives and add value accretive projects to our portfolio. Towards the end of the year, we also augmented our strong financial position by refinancing our existing $150 million of short-term debt with a new $200 million five year loan at a highly competitive rate.

 

Brownfield exploration remains the focus for our Company and we made good progress in the year with substantial resource additions at Inmaculada and encouraging results at the Palca and Corina zones close to our Pallancata mine. In addition, although there were some delays in the permitting process in Peru for our exciting Cochaloma and Pablo Sur targets, we did receive the requisite approvals in January 2020 and can now look forward to an early start to this year's programme at these two sites. We are confident that there remains a wide array of promising targets, not only surrounding all our operations but also at our early stage projects and at former operations such as Arcata, Ares and Selene. Many of these are expected to be drilled during 2020 and 2021.

 

Technology is all pervasive and can help drive efficiencies, improve performance and provide insights on a wide range of activities at Hochschild. In the last few years, we have implemented a plan to build a more progressive organisation which drives innovation and also looks to capitalise on our existing skillsets. For example, we have made substantial progress in 2019 with the implementation of our mine digitalisation programme as well as the introduction of our Innova platform across the Group to facilitate efficiency ideas. But in the last few years, we have also aimed to leverage off the talent and experience within the Company and explore the potential for investment in other minerals where we believe we can create shareholder value and where the future demand characteristics are strong. I believe that the acquisition of the unique Biolantanidos rare earth deposit in Chile in October is a key example of this. It brings the Company optionality in an exciting market that benefits from a more technological and environmentally friendly world.

 

Outlook

2019 was a strong year for precious metals, particularly gold, which was driven by declining U.S. interest rates and heightening geopolitical and global trade risk and represented the largest annual year-end gain since 2010. This was almost matched by silver which rose by around 15%. Such a supportive environment has reinforced our belief in our long-term strategy: a central focus on low cost brownfield exploration; selective greenfield initiatives across the Americas; further development of our numerous early stage projects; and a targeted approach to acquisitions. Consequently, in light of such a solid strategic and financial position the Board is pleased to recommend a final dividend of 2.335 cents per share ($12 million).

 

The Company will continue to be governed by a financially disciplined approach, emphasising a high quality portfolio and managing risk in a way that protects value, while our assets will be supported by operational practices that meet the highest safety and environmental standards. Finally, I would like to thank all of Hochschild's people, who work with such determination and give their very best to contribute to making Hochschild a success.

 

Eduardo Hochschild, Chairman

18 February 2020

 

 

 

 

CHIEF EXECUTIVE OFFICER'S STATEMENT

 

I am pleased to report that 2019 was another year of achievement for Hochschild. Our safety performance was considerably improved and our environmental performance delivered another robust year, which helped create strong operational reliability leading to solid production, precise cost control and impressive cashflow generation. Our exploration programme was again a key focus and we made encouraging steps in our aim to add low cost resources and to deliver long-term growth opportunities. We believe that our portfolio is well positioned to further transform our business and deliver value and returns for our shareholders.

 

Operations

Hochschild's operational results were once again able to surpass forecasts, producing 477,400 gold equivalent ounces (38.7 million silver equivalent ounces) which improved on our 2019 target of 457,000 ounces (37.0 million silver equivalent ounces). This represented only a 5% reduction versus 2018 (2018: 503,640 gold equivalent ounces or 40.8 silver equivalent ounces) despite the decision to place our Arcata mine on temporary care-and-maintenance in the first quarter and included record production results from both Inmaculada and San Jose. All-in sustaining costs were in line with expectations at $11.9 per silver equivalent ounce ($965 per gold equivalent ounce). Inmaculada was again the cornerstone with production of 260,126 gold equivalent ounces at $798 per gold equivalent ounce whilst San Jose delivered another strong year with production of 15.4 million silver equivalent ounces at $13.8 per silver equivalent ounce. This was achieved despite a complex economic environment in Argentina. At Pallancata, production was broadly similar to 2018 at 9.4 million silver equivalent ounces (2018: 9.6 million ounces) at a cost of $13.5 per silver equivalent ounce.

 

Exploration

Our ambitious brownfield exploration programme continued in 2019 with the key highlight being the 46 million silver equivalent ounces of additional resources discovered at Inmaculada close to the Angela vein and at approximately 456 grams per tonne silver equivalent. Furthermore, we also carried out a comprehensive infill drilling programme on the veins discovered in 2018.  At San Jose, we have continued to evaluate the Aguas Vivas polymetallic deposit to the north west of existing operations as well as preparing to drill the Telken zone which we believe could form the extension to veins from Newmont's Cerro Negro mine in the south. Long hole drilling also started towards the end of the year close to the mine as well as our first use of Titan geophysics in the area. At Pallancata, drilling campaigns commenced at Palca to the south east and Corina to the north. Encouraging mineralisation was found in both zones with further campaigns scheduled in 2020. We experienced delays in receiving exploration permits for two other key targets close to the operation, Pablo Sur and Cochaloma, and have finally received them in early 2020. As a result, we have reduced production at Pallancata for 2020 in order to extend its life of mine and recalibrate our exploration to production cycle as well as recognising an impairment of $14.7 million.

 

Business Development

Our team worked on a number of business development initiatives which balanced early stage opportunities including greenfield drilling and project options with the focus on stable jurisdictions in the Americas. In this regard, we carried out selective drilling campaigns in Chile, Canada and the United States. Results from the Corina deposit in Peru were encouraging, and, towards the end of the year, we saw some notable drill holes at the Snip mine in Canada from our partner, Skeena Resources. Further preparatory work has also been carried out at our existing near term projects including Arcata, Ares, Azuca, Crespo and Condor and an exciting drill campaign is scheduled for 2020 and 2021 at a number of these sites across southern Peru subject to the receipt of the relevant exploration permits.

 

In October, we announced the acquisition of the remaining 94% of the Biolantanidos rare earth deposit in Chile for $56 million. We believe that this acquisition in an attractive mining jurisdiction provides unique optionality for our shareholders and was the direct result of an extensive long-term effort to identify commodities with very strong growth characteristics. The project consists of ionic clay resources, similar to those found in China, but very different from most other rock-based rare earth projects worldwide. The process is environmentally friendly with no requirements for the use of explosives, no tailings dams and no potentially harmful chemicals. Capital and operational expenditure is projected to be low and we are also excited by the strong geological upside potential. Although Hochschild remains focused on precious metals, this diversification gives us a unique deposit in a key industry with expected exponential growth. We intend to deliver a revised feasibility study in 2021 and will thereafter decide on the appropriate path to development to maximise value for shareholders.

 

Financial position

We have continued to strengthen our balance sheet through the year with strong free cashflow especially in the second half and in December with the refinancing of our $150 million short term debt with a new $200 million five year loan at Libor + 1.15%. We ended the year with a strong cash balance of $166 million (2018: $80 million) and net debt therefore fell to $33.2 million (2018: $77.4 million).

 

Financial results

The average gold price received in 2019 was 12% higher than the previous year with the silver price rising 8% and therefore, combined with a rise in gold sales, revenue increased by 7% to $756 million (2018: $704 million). The operational all-in sustaining cost of $11.9 per silver equivalent ounce (2018: $12.0 per ounce) was at the better end of forecasts and reflected ongoing cost efficiencies offset by a budgeted increase in exploration expenses investment as well as selling expenses due to the export taxes in Argentina. The combination of the revenue increase and tight cost control led to Adjusted EBITDA rising strongly by 28% to $343 million (2018: $268 million) with Profit from continuing operations before income tax increasing by 79% to $103.4 million (2018: $54.7 million). Adjusted earnings per share was higher at $0.09 per share (2018: $0.05 per share) resulting from the higher profitability and lower interest costs and partially offset by the above-mentioned increase in selling expenses and a rise in mine closure provisions for our former operations at Ares and Sipan ($13.6 million).

 

Outlook

We expect attributable production in 2020 of 422,000 gold equivalent ounces (36 million silver equivalent ounces) assuming the silver to gold ratio of 86:1 (the average ratio for 2019). This will be driven by: 252,000 gold equivalent ounces from Inmaculada; a contribution of 14.5 million silver equivalent ounces from San Jose; and 7.2 million ounces from Pallancata. All-in sustaining costs for operations are expected at between $1,040 to $1,080 per gold equivalent ounce ($12.1 to $12.5 per silver equivalent ounce). This forecast includes a $22 million investment to expand the tailings storage facility at Inmaculada. Excluding this project, all-in sustaining costs for operations are expected at between $1,000 to $1,040 per gold equivalent ounce ($11.6 to $12.0 per silver equivalent ounce).

 

The budget for brownfield exploration has increased to approximately $36 million with the greenfield and advanced project budget set at approximately $8 million plus approximately $7 million for advancing the Biolantanidos project. We are also furthering our innovation drive to aid in the delivery of upside in our operations and projects. Finally, we recognise that the management of environmental, social and governance ("ESG") issues is of increasing significance to investors and stakeholders in general, particularly for those operating in the resources sector. This year, we will embark on a process of enhancing our level of ESG reporting and, in particular, in relation to the Company's environmental and social performance.

 

Although the year has started with relatively high precious metal prices, cost control continues to be a top priority. Our 2020 brownfield programme has already begun at Pablo Sur and we look forward to further results from another ambitious year of exploration both around our existing operations and further afield. I firmly believe that we have set a good course for the future with a focus on low cost growth and a determination to further increase the life-of mine across the Group. All the elements of our strategy will be targeted on delivering sustainable long-term value to those most closely interested in our Company: our shareholders, our communities and our people.

 

Ignacio Bustamante, Chief Executive Officer

18 February 2020

 

 

 

OPERATING REVIEW

OPERATIONS

Note: 2019 and 2018 (restated) equivalent figures calculated using the previous Company gold/silver ratio of 81x. All 2020 forecasts assume the average gold/silver ratio for 2019 of 86x.

 

Production

In 2019, Hochschild's attributable production was 38.7 million silver equivalent ounces (477,400 gold equivalent ounces) exceeding its full year guidance of 37.0 million attributable silver equivalent ounces (457,000 gold equivalent ounces).  This comprised 269,892 ounces of gold and 16.8 million ounces of silver. This was mostly due to record years at Inmaculada and San Jose offsetting the decision to place the Arcata mine on care and maintenance in early 2019. The overall attributable production target for 2020 is 422,000 gold equivalent ounces or 36.0 million silver equivalent ounces.

 

Total 2019 group production

 

Year ended

31 Dec 2019

Year ended

31 Dec 2018

Silver production (koz)

20,163

22,720

Gold production (koz)

321.58

307.77

Total silver equivalent (koz)

46,210

47,650

Total gold equivalent (koz)

570.50

588.27

Silver sold (koz)

20,062

22,687

Gold sold (koz)

317.52

304.51

Total production includes 100% of all production, including production attributable to Hochschild's minority shareholder at San Jose.

 

Attributable 2019 group production

 

Year ended

31 Dec 2019

Year ended

31 Dec 2018

Silver production (koz)

16,808

19,700

Gold production (koz)

269.89

260.44

Silver equivalent (koz)

38,669

40,795

Gold equivalent (koz)

477.40

503.64

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

 

2020 Production forecast split

Operation

Gold production (oz approximate)

Silver production (m oz approximate)

Inmaculada

181,400

6.1

Pallancata

19,300

5.5

San Jose (100%)

93,300

6.5

Total

294,000

18.1

 

Costs

All-in sustaining cost from operations in 2019 was $965 per gold equivalent ounce or $11.9 per silver equivalent ounce (2018: $973 per gold equivalent ounce or $12.0 per silver equivalent ounce), in line with guidance of between $960 and $1,000 per gold equivalent ounce or $11.8 and 12.3 per silver equivalent ounce. This was driven by Inmaculada's competitive $798 per gold equivalent ounce (2018: $751 per ounce) in addition to a solid result from Pallancata ($13.5 per silver equivalent ounce). Please see page 13 of the Financial Review for further details on costs.

                                      

The all-in sustaining cost from operations in 2020 is expected to be between $1,040 and $1,080 per gold equivalent ounce (or $12.1 and $12.5 per silver equivalent ounce), which includes a $22 million project to expand the tailings storage facility at Inmaculada.

 

2020 AISC forecast split

Operation

AISC

($/oz)

Inmaculada

930-960 Au Eq

Pallancata

13.5-13.9 Ag Eq

San Jose

13.4-13.8 Ag Eq

 

 

 

 

Inmaculada

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

 

Inmaculada summary 

Year ended

31 Dec 2019

Year ended

31 Dec 2018

% change

Ore production (tonnes)

1,338,569

1,323,525

1

Average silver grade (g/t)

163

150

9

Average gold grade (g/t)

4.71

4.36

8

Silver produced (koz)

5,747

5,690

1

Gold produced (koz)

189.18

174.20

9

Silver equivalent produced (koz)

21,070

19,800

6

Gold equivalent produced (koz)

260.13

244.45

6

Silver sold (koz)

5,732

5,676

1

Gold sold (koz)

188.59

172.40

9

Unit cost ($/t)

93.3

84.7

10

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

504

481

5

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

798

751

6

 

Production

Inmaculada has delivered record gold equivalent production of 260,126 ounces in 2019, a 6% improvement on 2018 (2018: 244,445 ounces) with the key factors being better than forecast extracted grades and steady tonnage.

 

Costs

All-in sustaining costs were $798 per gold equivalent ounce (2018: $751 per ounce), at the better end of guidance of between $790 and $830 per gold equivalent ounce. The impact of higher than expected grades and cost efficiencies was more than offset by increased mine development and infill drilling capex to access the vein discoveries from 2018.

 

Pallancata

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 2019

Year ended

31 Dec 2018

% change

Ore production (tonnes)

915,877

717,652

28

Average silver grade (g/t)

278

362

(23)

Average gold grade (g/t)

1.01

1.30

(22)

Silver produced (koz)

7,259

7,449

(3)

Gold produced (koz)

25.95

26.40

(2)

Silver equivalent produced (koz)

9,361

9,588

(2)

Gold equivalent produced (koz)

115.57

118.37

(2)

Silver sold (koz)

7,161

7,439

(4)

Gold sold (koz)

25.45

26.23

(3)

Unit cost ($/t)

83.8

93.6

(10)

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

9.6

8.1

19

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

13.5

11.9

13

 

Production

Pallancata's production for the year was 9.4 million silver equivalent ounces, broadly in line with the 2018 result (2018: 9.6 million ounces) and reflecting a full year of production from wider (and therefore higher tonnage) but lower grade veins.

 

Costs

All-in sustaining costs were $13.5 per silver equivalent ounce (2018: $11.9per ounce), at the better end of guidance of between $13.5 and $14.0 per silver equivalent ounce. The increase versus 2018 reflected a full year of production from the above-mentioned wider, but lower-grade veins.

 

 

 

San Jose

The San Jose silver/gold mine is located in Argentina, in the province of Santa Cruz, 1,750 kilometres south west of Buenos Aires. San Jose commenced production in 2007. Hochschild holds a controlling interest of 51% and is the mine operator. The remaining 49% is owned by McEwen Mining Inc.

 

San Jose summary 

Year ended

31 Dec 2019

Year ended

31 Dec 2018

% change

Ore production (tonnes)

544,165

556,185

(2)

Average silver grade (g/t)

443

397

12

Average gold grade (g/t)

6.81

6.20

10

Silver produced (koz)

6,846

6,165

11

Gold produced (koz)

105.48

96.60

9

Silver equivalent produced (koz)

15,390

13,989

10

Gold equivalent produced (koz)

190.00

172.70

10

Silver sold (koz)

6,846

6,175

11

Gold sold (koz)

102.82

96.60

7

Unit cost ($/t)

219.2

218.6

-

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

9.6

10.1

(5)

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

13.8

13.8

-

 

Production

San Jose's overall total for 2019 was a record 15.4 million silver equivalent ounces (2018: 14.0 million ounces), an impressive 10% increase versus 2018 mostly due to better than expected grades.

 

Costs

All-in sustaining costs were $13.8 per silver equivalent ounce (2018: $13.8 per ounce) in line with 2018 with the devaluation of the Argentinian peso and higher gold and silver grades being offset by the reintroduction of export taxes and local inflation.

 

Arcata

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 2019

Year ended

31 Dec 2018

% change

Ore production (tonnes)

37,049

373,106

(90)

Average silver grade (g/t)

298

321

(7)

Average gold grade (g/t)

0.94

0.99

(5)

Silver produced (koz)

311

3,416

(91)

Gold produced (koz)

0.97

10.57

(91)

Silver equivalent produced (koz)

390

4,273

(91)

Gold equivalent produced (koz)

4.81

52.75

(91)

Silver sold (koz)

323

3,397

(90)

Gold sold (koz)

0.66

9.93

(93)

Unit cost ($/t)

182.2

167.7

9

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

20.2

16.9

20

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

22.8

19.2

19

 

Production

On 13 February 2019, Hochschild announced the suspension of operations at Arcata with the mine subsequently placed on temporary care and maintenance. Production for the full year equalled Q1 2019 at 0.4 million silver equivalent ounces.

 

 

 

EXPLORATION

Inmaculada

During 2019, almost 8,500m of potential resource drilling was carried out at the newly-discovered Susana Beatriz, Juliana and Salvador structures to the west of the Angela vein. Thereafter resource drilling commenced in the area and also included work at other structures including Angela, Pilar, Noelia, Dora, Jose and the Sandra veins. Over 35,000m of drilling was executed with the result that approximately 535,000 gold equivalent ounces (46 million silver equivalent ounces) of inferred resources were added to Inmaculada's resource base in 2019 at a grade of approximately 475 grams per tonne silver equivalent. Selected intercepts are detailed below:

 

  Vein

Results (potential resource drilling)

Salvador

ANG-19-012: 2.1m @ 41.0g/t Au & 480g/t Ag

Susana Beatriz

ANE-19-010: 4.2m @ 2.9g/t Au & 280g/t Ag

IMM-19-001: 1.5m @ 8.1g/t Au & 114g/t Ag

IMM-19-002: 2.5m @ 2.5g/t Au & 105g/t Ag

Lady

IMS-19-003: 1.1m @ 6.3g/t Au & 58g/t Ag

Juliana

HUA-19-001: 3.1m @ 6.0g/t Au & 136g/t Ag

M.Mamani

MM-19-001: 1.0m @ 2.2g/t Au & 155g/t Ag

 

Vein

Results (resource drilling)

Salvador

ANE-19-010: 0.8m @ 16.7g/t Au & 349g/t Ag

ANE-19-011: 0.8m @ 20.7g/t Au & 667g/t Ag

ANE-19-013: 0.8m @ 5.9g/t Au & 399g/t Ag

ANE-19-020: 1.6m @ 3.0g/t Au & 370g/t Ag

ANE-19-021: 1.4m @ 7.1g/t Au & 318g/t Ag

ANE-19-022: 3.0m @ 2.0g/t Au & 165g/t Ag

ANE-19-025: 1.2m @ 2.8g/t Au & 133g/t Ag

ANE-19-027: 0.8m @ 3.6g/t Au & 192g/t Ag

ANE-19-028: 0.9m @ 7.8g/t Au & 357g/t Ag

ANE-19-029: 0.9m @ 267g/t Au & 1,783g/t Ag

ANE-19-031: 0.8m @ 5.5g/t Au & 700g/t Ag

ANE-19-032: 1.6m @ 8.4g/t Au & 509g/t Ag

ANE-19-035: 0.8m @ 29.6g/t Au & 794g/t Ag

ANE-19-037: 1.5m @ 2.7g/t Au & 120g/t Ag

IMM-19-001: 1.1m @ 31.9g/t Au & 5,053g/t Ag

IMM-19-007: 0.6m @ 3.6g/t Au & 98g/t Ag

IMM-19-025: 1.4m @ 5.0g/t Au & 261g/t Ag

IMM-19-032: 1.0m @ 2.2g/t Au & 168g/t Ag

HUA-19-005: 2.2m @ 7.7g/t Au & 335g/t Ag

HUA-19-006: 1.0m @ 8.4g/t Au & 534g/t Ag

Pilar

ANG-18-023: 0.5m @ 5.0g/t Au & 236g/t Ag

ANG-19-011A: 2.3m @ 7.4g/t Au & 250g/t Ag

ANG-19-012: 2.2m @ 41.0g/t Au & 480g/t Ag

IMM-19-001: 1.1m @ 31.9g/t Au & 5,053g/t Ag

IMM-19-003: 1.9m @ 1.4g/t Au & 110g/t Ag

IMM-19-008: 1.5m @ 3.7g/t Au & 203g/t Ag

IMM-19-011: 3.1m @ 4.1g/t Au & 176g/t Ag

IMM-19-014: 5.8m @ 17.7g/t Au & 751g/t Ag

IMM-19-015: 1.4m @ 5.4g/t Au & 254g/t Ag

IMM-19-016: 1.0m @ 4.9g/t Au & 52g/t Ag

IMM-19-017: 2.1m @ 4.2g/t Au & 253g/t Ag

IMM-19-020: 1.1m @ 23.1g/t Au & 268g/t Ag

IMM-19-025: 2.1m @ 6.2g/t Au & 271g/t Ag

IMM-19-026: 1.8m @ 7.2g/t Au & 279g/t Ag

IMM-19-028: 1.1m @ 1.9g/t Au & 69g/t Ag

IMM-19-029: 1.0m @ 1.8g/t Au & 87g/t Ag

IMM-19-032: 1.5m @ 2.5g/t Au & 250g/t Ag

HUA-19-003: 1.4m @ 19.4g/t Au & 438g/t Ag

HUA-19-005: 1.3m @ 4.2g/t Au & 169g/t Ag

HUA-19-007: 1.7m @ 3.1g/t Au & 180g/t Ag

HUA-19-008: 0.8m @ 3.6g/t Au & 150g/t Ag

Juliana

HUA-19-002: 1.1m @ 3.7g/t Au & 78g/t Ag

HUA-19-002: 5.2m @ 5.1g/t Au & 88g/t Ag

Noelia

HUA-19-005: 1.3m @ 2.7g/t Au & 109g/t Ag

ANE-19-020: 1.5m @ 16.8g/t Au & 1,843g/t Ag

ANE-19-021: 1.1m @ 3.3g/t Au & 101g/t Ag

IMM-19-017: 1.0m @ 1.1g/t Au & 73g/t Ag

IMM-19-025: 1.9m @ 13.6g/t Au & 682g/t Ag

HUA-19-005: 1.1m @ 12.2g/t Au & 300g/t Ag

Rosa

ROS-19-001: 3.2m @ 3.5g/t Au & 43g/t Ag

ROS-19-002: 1.0m @ 2.5g/t Au & 122g/t Ag

Susana Beatriz

ANE-19-020: 3.8m @ 4.3g/t Au & 340g/t Ag

ANE-19-021: 3.6m @ 3.1g/t Au & 142g/t Ag

ANE-19-022: 8.5m @ 3.6g/t Au & 188g/t Ag

ANE-19-023: 1.2m @ 3.3g/t Au & 372g/t Ag

ANE-19-025: 3.0m @ 5.6g/t Au & 386g/t Ag

ANE-19-029: 1.8m @ 2.7g/t Au & 219g/t Ag

ANE-19-030: 2.3m @ 3.1g/t Au & 253g/t Ag

ANE-19-037: 2.2m @ 1.7g/t Au & 136g/t Ag

HUA-19-005: 3.1m @ 8.6g/t Au & 333g/t Ag

HUA-19-006: 1.3m @ 3.3g/t Au & 272g/t Ag

HUA-19-007: 1.5m @ 3.7g/t Au & 102g/t Ag

HUA-19-008: 1.6m @ 3.3g/t Au & 122g/t Ag

IMM-19-011: 1.0m @ 13.0g/t Au & 553g/t Ag

IMM-19-017: 0.9m @ 4.0g/t Au & 263g/t Ag

IMM-19-024: 1.0m @ 1.3g/t Au & 31g/t Ag

Angela Sur

IMS-19-008: 1.2m @ 1.5g/t Au & 121g/t Ag

IMS-19-010: 1.5m @ 1.6g/t Au & 191g/t Ag

Angela extension

ANE-19-029: 1.3m @ 266.5g/t Au & 1,783g/t Ag

Dora

IMM-19-025: 1.5m @ 13.6g/t Au & 682g/t Ag

IMM-19-026: 3.0m @ 7.2g/t Au & 279g/t Ag

IMM-19-030: 0.9m @ 6.9g/t Au & 231g/t Ag

SP-19-0223: 1.5m @ 9.6g/t Au & 351g/t Ag

SP-19-0238: 0.9m @ 6.0g/t Au & 235g/t Ag

Jose

MIL-19-033: 3.5m @ 2.6g/t Au & 12g/t Ag

MIL-19-040: 1.6m @ 10.7g/t Au & 135g/t Ag

MIL-19-047: 5.7m @ 3.8g/t Au & 119g/t Ag

MIL-19-050: 1.6m @ 4.2g/t Au & 7g/t Ag

MIL-19-052: 1.5m @ 2.3g/t Au & 40g/t Ag

MIL-19-053: 0.9m @ 3.0g/t Au & 259g/t Ag

MIL-19-058: 2.0m @ 4.3g/t Au & 146g/t Ag

MIL-19-062: 0.6m @ 6.2g/t Au & 781g/t Ag

MIL-19-063: 1.8m @ 3.8g/t Au & 191g/t Ag

MIL-19-071: 0.9m @ 3.3g/t Au & 115g/t Ag

MIL-19-083: 1.4m @ 3.8g/t Au & 97g/t Ag

MIL-19-086: 3.7m @ 2.4g/t Au & 55g/t Ag

Sandra

MIL-19-042: 0.8m @ 3.9g/t Au & 151g/t Ag

MIL-19-059: 3.6m @ 1.3g/t Au & 62g/t Ag

MIL-19-060: 13.2m @ 3.0g/t Au & 148g/t Ag

MIL-19-068: 1.5m @ 5.5g/t Au & 235g/t Ag

MIL-19-074: 1.2m @ 8.0g/t Au & 155g/t Ag

MIL-19-077: 1.8m @ 2.2g/t Au & 81g/t Ag

MIL-19-079: 1.3m @ 8.0g/t Au & 349g/t Ag

MIL-19-084: 1.6m @ 3.1g/t Au & 54g/t Ag

MIL-19-088: 3.1m @ 5.7g/t Au & 323g/t Ag

MIL-19-090: 1.4m @ 2.5g/t Au & 178g/t Ag

 

Map of current Inmaculada veins

 

Infill drilling commenced in the first half of the year targeting the key Millet vein, which was discovered in 2018 with further campaigns also targeting the Divina, Keyla, Angela and Susana Beatriz veins. Infill drilling across the entire known Millet vein has now increased the resource grade by 15% from the December 2018 figure of 367 silver equivalent grams per tonne to 424 grams per tonne. Total contained ounces have also risen from 57.0 to 60.6 million silver equivalent ounces whilst tonnage has reduced.

 

Vein

Results (infill drilling)

Millet

MIL-19-001: 0.9m @ 1.7g/t Au & 80g/t Ag

MIL-19-002: 4.5m @ 2.6g/t Au & 204g/t Ag

MIL-19-003: 2.8m @ 3.6g/t Au & 153g/t Ag

MIL-19-004: 1.3m @ 0.9g/t Au & 42g/t Ag

MIL-19-005: 0.9m @ 3.2g/t Au & 25g/t Ag

MIL-19-006: 4.2m @ 0.8g/t Au & 67g/t Ag

MIL-19-007: 2.7m @ 7.0g/t Au & 129g/t Ag

MIL-19-008: 1.5m @ 2.5g/t Au & 139g/t Ag

MIL-19-009: 2.0m @ 4.8g/t Au & 557g/t Ag

MIL-19-010: 5.0m @ 3.3g/t Au & 104g/t Ag

MIL-19-011: 0.9m @ 2.0g/t Au & 37g/t Ag

MIL-19-012: 6.8m @ 2.4g/t Au & 81g/t Ag

MIL-19-013: 1.2m @ 1.3g/t Au & 8g/t Ag

MIL-19-014: 2.0m @ 3.8g/t Au & 342g/t Ag

MIL-19-015: 1.2m @ 0.9g/t Au & 97g/t Ag

MIL-19-016: 5.9m @ 1.9g/t Au & 88g/t Ag

MIL-19-017: 1.4m @ 2.0g/t Au & 344g/t Ag

MIL-19-018: 1.2m @ 1.4g/t Au & 30g/t Ag

MIL-19-019: 4.6m @ 1.3g/t Au & 67g/t Ag

MIL-19-020: 1.2m @ 0.2g/t Au & 52g/t Ag

MIL-19-021: 2.6m @ 9.4g/t Au & 184g/t Ag

MIL-19-022: 4.0m @ 1.2g/t Au & 61g/t Ag

MIL-19-023: 3.5m @ 3.1g/t Au & 208g/t Ag

MIL-19-024: 1.0m @ 2.8g/t Au & 213g/t Ag

MIL-19-025: 5.8m @ 2.9g/t Au & 174g/t Ag

MIL-19-026: 6.2m @ 2.1g/t Au & 167g/t Ag

MIL-19-027: 5.1m @ 2.7g/t Au & 264g/t Ag

MIL-19-028: 3.0m @ 2.7g/t Au & 162g/t Ag

MIL-19-029: 4.0m @ 2.9g/t Au & 470g/t Ag

MIL-19-030: 0.7m @ 1.4g/t Au & 67g/t Ag

MIL-19-031: 2.3m @ 1.6g/t Au & 113g/t Ag

MIL-19-032: 2.5m @ 1.7g/t Au & 133g/t Ag

MIL-19-033: 3.3m @ 3.0g/t Au & 14g/t Ag

MIL-19-034: 1.4m @ 0.7g/t Au & 41g/t Ag

MIL-19-035: 3.0m @ 2.7g/t Au & 77g/t Ag

MIL-19-036: 2.3m @ 2.1g/t Au & 71g/t Ag

MIL-19-037: 2.8m @ 4.5g/t Au & 509g/t Ag

MIL-19-038: 1.0m @ 1.0g/t Au & 93g/t Ag

MIL-19-039: 0.8m @ 0.9g/t Au & 68g/t Ag

MIL-19-040: 3.5m @ 3.0g/t Au & 111g/t Ag

MIL-19-041: 0.6m @ 0.2g/t Au & 347g/t Ag

MIL-19-043: 12.5m @ 3.8g/t Au & 394g/t Ag

MIL-19-044: 2.4m @ 6.5g/t Au & 720g/t Ag

MIL-19-045: 10.5m @ 7.8g/t Au & 622g/t Ag

MIL-19-046: 14.0m @ 3.8g/t Au & 44g/t Ag

MIL-19-047: 12.5m @ 4.9g/t Au & 311g/t Ag

MIL-19-048: 3.2m @ 9.8g/t Au & 374g/t Ag

MIL-19-049: 1.4m @ 4.0g/t Au & 188g/t Ag

MIL-19-051: 5.8m @ 3.8g/t Au & 138g/t Ag

MIL-19-053: 9.2m @ 4.1g/t Au & 88g/t Ag

MIL-19-056: 1.2m @ 8.2g/t Au & 804g/t Ag

MIL-19-059: 10.5m @ 3.4g/t Au & 127g/t Ag

MIL-19-060: 4.4m @ 11.0g/t Au & 432g/t Ag

MIL-19-062: 1.6m @ 3.9g/t Au & 199g/t Ag

MIL-19-072: 12.5m @ 4.5g/t Au & 51g/t Ag

MIL-19-075: 2.5m @ 4.4g/t Au & 122g/t Ag

MIL-19-080: 1.3m @ 3.5g/t Au & 263g/t Ag

MIL-19-082: 3.3m @ 66.0g/t Au & 835g/t Ag

MIL-19-088: 6.6m @ 4.7g/t Au & 184g/t Ag

MIL-19-093: 3.1m @ 4.3g/t Au & 108g/t Ag

MIL-19-096: 2.0m @ 5.9g/t Au & 79g/t Ag

MIL-19-098: 9.9m @ 7.1g/t Au & 106g/t Ag

Divina

DIV-19-027: 6.8m @ 6.3g/t Au & 347g/t Ag

DIV-19-029: 0.8m @ 5.0g/t Au & 406g/t Ag

DIV-19-030: 8.4m @ 1.4g/t Au & 72g/t Ag

DIV-19-031: 3.4m @ 1.7g/t Au & 72g/t Ag

DIV-19-032: 4.2m @ 3.6g/t Au & 104g/t Ag

DIV-19-033: 1.0m @ 7.5g/t Au & 153g/t Ag

DIV-19-034: 7.4m @ 4.1g/t Au & 96g/t Ag

Alesandra

MIL-19-074: 7.3m @ 4.5g/t Au & 166g/t Ag

MIL-19-077: 8.2m @ 3.4g/t Au & 189g/t Ag

MIL-19-088: 0.8m @ 7.0g/t Au & 261g/t Ag

SP-19-0284: 0.8m @ 12.8g/t Au & 25g/t Ag

Veronica

MIL-19-042: 1.8m @ 4.7g/t Au & 350g/t Ag

MIL-19-045: 2.0m @ 21.3g/t Au & 2,373g/t Ag

MIL-19-049: 1.3m @ 4.0g/t Au & 188g/t Ag

MIL-19-053: 0.8m @ 8.6g/t Au & 55g/t Ag

MIL-19-066: 0.8m @ 3.9g/t Au & 222g/t Ag

MIL-19-082: 1.0m @ 5.4g/t Au & 10g/t Ag

MIL-19-090: 2.2m @ 2.1g/t Au & 233g/t Ag

MIL-19-096: 1.7m @ 3.8g/t Au & 113g/t Ag

MIL-19-102: 0.9m @ 5.1g/t Au & 15g/t Ag

 

Current plans for infill drilling are for a 110,000m programme from January to July in the Millet west, Divina, Susana Beatriz, Salvador, Dora, Pilar, Barbara, Veronica, Lola, Lizina and Keyla veins.

 

Pallancata

At Pallancata, almost 10,000m of potential and resource drilling was executed in the year using conventional surface and underground horizontal drilling towards the Pablo, Marco, Mariel, Alizze, Royropata, Mercedes and additional as-yet-unnamed veins, all close to current operations. Results towards the end of the year indicated the continuation of the Rina 4 vein to the north-east. Also, in the Marco and Pablo vein zones, a further 2,400m of resource drilling was executed in the Juan, Simon and Andres structures with economic intercepts indicating new resources in this area. A Titan geophysical programme was also completed in Q4 to define targets for the 2020 programme.

 

 

Vein

Results (potential resource drilling)

Pablo

DLEP-A49: 3.4m @ 1.4g/t Au & 553g/t Ag

Ramal Mariana

DLMA-A27: 0.7m @ 1.0g/t Au & 172g/t Ag

Marco

DLMARC-A03: 0.8m @ 0.7g/t Au & 297g/t Ag

DLMARC-A05: 1.0m @ 0.7g/t Au & 245g/t Ag

DLMARC-A06: 1.2m @ 1.0g/t Au & 331g/t Ag

DLMARC-A07: 1.7m @ 1.0g/t Au & 381g/t Ag

DLMARC-A10: 1.1m @ 0.5g/t Au & 161g/t Ag

Pedro

DLEP-A43: 0.7m @ 1.4g/t Au & 283g/t Ag

DLEP-A44: 1.2m @ 1.7g/t Au & 485g/t Ag

Ramal Pablo

DLEP-A43: 3.7m @ 1.9g/t Au & 111g/t Ag

Rina

DLVC-A61: 0.8m @ 1.0g/t Au & 425g/t Ag

Simon

DLMARC-A17: 2.4m @ 1.2/t Au & 366g/t Ag

 

Following a delay, in January 2020, the Peruvian government granted the requisite permits for surface drilling to begin at the Pablo Sur and Cochaloma zones close to Pallancata. Later in January 2020, a 4,500m potential drilling programme started at Pablo Sur whilst a 2,000m programme is also set for Cochaloma.

 

Palca

The Palca drilling programme started late in the first half of the year with potential resource drilling in the Roxana, Santa Beatriz and Prometida structures and continued with 6,874m of drilling in the third quarter in the Roxana, Santa Beatriz, Prometida, Alejandra, Escondida and Kimberly structures testing continuity to a depth of 300m. Results confirmed mineralisation with 200m of depth. The brownfield team is continuing with efforts to interpret the geology of the Palca zone including the optimum levels of mineralisation and the orientation of the vein structures. The next drilling campaign is scheduled for the second quarter of 2020.

 

Vein

Results (potential resource drilling)

Roxana

PLC-195-001: 1.8m @ 1.0g/t Au & 27g/t Ag

PLC-195-004: 0.8m @ 1.0g/t Au & 33g/t Ag

Santa Beatriz

PLC-195-001: 1.2m @ 0.7g/t Au & 13g/t Ag

PLC-195-009: 3.5m @ 0.4g/t Au & 13g/t Ag

Prometida

PLC-195-006: 2.9m @ 5.0g/t Au & 35g/t Ag

Escondida

PLC-195-025: 1.9m @ 4.7g/t Au & 33g/t Ag

PLC-195-027: 2.8m @ 7.7g/t Au & 72g/t Ag

PLC-195-031: 0.7m @ 3.9g/t Au & 50g/t Ag

PLC-195-033 1.7m @ 2.5g/t Au & 202g/t Ag

Prometida North

PLC-195-030: 1.0m @ 1.2g/t Au & 15g/t Ag

PLC-195-031: 0.4m @ 2.6g/t Au & 24g/t Ag

Prometida South

PLC-195-006: 4.1m @ 3.7g/t Au & 26g/t Ag

PLC-195-031: 3.7m @ 1.3g/t Au & 13g/t Ag

PLC-195-039: 1.0m @ 3.7g/t Au & 37g/t Ag

North east vein

PLC-195-009: 0.4m @ 12.8g/t Au & 19g/t Ag

 

San Jose

At San Jose, potential drilling was executed at the Aguas Vivas system in the first half with structures corresponding to an intermediate sulphidation system with associated grades of zinc and lead.

 

Potential drilling was also executed earlier in the year at the Pluma 19 structure, the south-east Kospi projection and East and West Antonella. In Q3 2019, just over 5,000m of potential and inferred resource drilling was carried out with the majority concentrating on an area including the Kospi, Kospi South East, Ramal Huevos Verdes and the new Milagro structures. The team has also executed a 1,800m long drill hole to the west of Huevos Verdes. Towards the end of the year, further potential drilling was carried out at the Micaela, Ayelen extension, Kospi Norte and Tonio veins. Finally, almost 4,000m of resource drilling was executed around the current operations.

 

A magnetometry study was performed on the potential extension of Cerro Negro structures (Telken) covering a total area of 14.3km2.

 

Vein

Results (potential resource drilling)

Aguas Vivas

SJD-1627: 3.0m @ 0.1g/t Au, 43/t Ag, 0.2% Cu, 8.2% Pb & 5.5% Zn

SJD-1686: 1.1m @ 3.6g/t Au, 85g/t Ag, 0.1% Cu, 19.0% Pb & 10.3% Zn

SJD-1703: 1.4m @ 0.2g/t Au, 55g/t Ag, 0.6% Pb & 1.9% Zn

SJD-1720: 0.8m @ 2.4g/t Au, 9g/t Ag

SJD-1851: 3.4m @ 0.3g/t Au, 44g/t Ag, 1.2% Cu, 4.6% Pb & 6.4% Zn

SJD-1853: 1.1m @ 0.4g/t Au, 98g/t Ag, 1.6% Cu, 5.3% Pb & 4.2% Zn

SJD-1855: 2.8m @ 0.9g/t Au, 9g/t Ag, 0.2% Cu, 0.7% Pb & 1.4% Zn

SJD-1857: 0.9m @ 1.6g/t Au, 18g/t Ag, 0.1% Cu, 2.7% Pb & 2.2% Zn

SJD-1865: 1.3m @ 0.4g/t Au, 12g/t Ag, 0.2% Cu, 2.1% Pb & 3.9% Zn

SJD-1870: 1.1m @ 5.0g/t Au, 64g/t Ag, 0.4% Cu, 2.3% Pb & 3.9% Zn

Antonella

SJM-429: 3.9m @ 8.1g/t Au & 239/t Ag

Roma

SJD-1963: 1.0m @ 2.0g/t Au & 228g/t Ag

Kospi SE

SJD-1980: 0.9m @ 7.1g/t Au & 467g/t Ag

Kospi SE 02

SJD-1980: 0.5m @ 46g/t Au & 11,416g/t Ag

Kospi

SJM-432: 2.5m @ 4.8g/t Au & 502g/t Ag

RHVN K

SJM-433: 2.0m @ 3.3g/t Au & 155g/t Ag

RHVN D

SJM-433: 1.1m @ 30.4g/t Au & 1,991g/t Ag

RMLHVND

SJM-434: 1.0m @ 2.7g/t Au & 266g/t Ag

Milagro

SJD-2001: 1.0m @ 6.3g/t Au & 355g/t Ag

Sigmoide Luli

SJD-2013: 0.9m @ 1.0g/t Au & 142g/t Ag

SJD-2014: 4.1m @ 1.5g/t Au & 45g/t Ag

Luli Sur

SJD-2013: 3.1m @ 7.0g/t Au & 727g/t Ag

SJD-2014: 0.8m @ 4.2g/t Au & 753g/t Ag

Shala

SJD-2013: 0.9m @ 1.2g/t Au & 90g/t Ag

Mara

SJD-2013: 1.0m @ 13.3g/t Au & 1,259g/t Ag

Ramal Luli

SJD-2014: 1.9m @ 2.7g/t Au & 43g/t Ag

Ramal Ayelen

SJD-2018: 1.6m @ 24.3g/t Au & 1,302g/t Ag

New vein

SJM-446: 2.0m @ 1.7g/t Au & 78g/t Ag

 

In 2020, the programme at San Jose involves further long hole drilling, a Titan geophysics programme to the south, 5,000m of drilling at the Telken structures close to Cerro Negro and an assessment of the regional opportunities also to the south of the land package.

 

Ares

In the fourth quarter of 2020, 1,711m of potential drilling was carried at Ares following previous results from long drill holes. New structures were identified with grades but were generally narrow. New surveys east of the Victoria target are scheduled for 2020.

 

Vein

Results

Lula

DDHVIC-1901: 0.3m @ 0.4g/t Au & 124g/t Ag

New structure

DDHVIC-1901: 0.3m @ 3.7g/t Au & 737g/t Ag

DDHVIC-1901: 0.3m @ 2.8g/t Au & 262g/t Ag

DDHVIC-1902: 0.3m @ 1.8g/t Au & 56g/t Ag

DDHVIC-1902: 0.9m @ 4.2g/t Au & 49g/t Ag

DDHVIC-1902: 0.6m @ 1.9g/t Au & 31g/t Ag

DDHVIC-1902: 0.3m @ 1.2g/t Au & 3g/t Ag

DDHVIC-1902: 0.3m @ 1.4g/t Au & 146g/t Ag

DDHVIC-1902: 0.4m @ 9.7g/t Au & 61g/t Ag

DDHVIC-1902: 1.5m @ 4.8g/t Au & 13g/t Ag

 

Other brownfield projects

During 2019, a considerable range of preparatory geological work and permit applications was carried out on a number of Hochschild's former mines and near-term projects with the result that in 2020, the brownfield team intends to drill a number of targets across the Company's southern Peru cluster subject to the receipt of final exploration permits. In addition to work mentioned above at the Corina and Ares deposits, this includes: Titan geophysics and drilling at the former Selene mine; geophysics and a drilling programme at Arcata; drilling at the Crespo project; and drilling at the Huacullo area, which is adjacent to Azuca.

 

GREENFIELD AND BUSINESS DEVELOPMENT

Hochschild's strategy with regards to its greenfield exploration programme is to maintain and drill a balanced portfolio of early-stage to advanced opportunities using a combination of earn-in joint ventures, private placements with junior exploration companies and the staking of properties.

 

Corina

At Corina, drilling in the third quarter of the year confirmed promising mineralisation within two sub-parallel structures, Corina and Micky. Drill results are included below and do not necessarily represent true widths.

 

Drillhole

From (m)

To (m)

Width (m)

g/t Au

g/t Ag

COR19001

201.55

204.75

3.20

1.13

24.00

including

203.40

204.75

1.35

1.80

31.00

COR19001

218.80

228.20

9.40

0.43

7.11

COR19002

253.15

254.45

1.30

0.43

4.40

COR19002

330.20

348.50

18.30

0.26

1.35

COR19003

142.85

146.85

4.00

0.28

1.57

219.80

221.00

1.20

0.46

67.40

COR19004

152.00

156.85

4.85

0.07

0.78

265.00

266.35

1.35

0.61

9.00

COR19005

91.10

94.60

3.50

8.97

32.00

including

92.10

93.65

1.55

15.90

47.00

COR19005

117.90

122.90

5.00

0.60

4.99

COR19005

160.80

162.80

2.00

1.18

2.90

COR19006

209.60

211.10

1.50

1.71

7.65

including

210.70

211.10

0.40

2.89

7.90

COR19006

284.85

287.10

2.25

0.27

0.87

COR19007

126.40

142.10

15.70

4.56

53.69

including

132.30

135.00

2.70

15.94

207.20

and

132.30

133.70

1.40

19.55

290.00

COR19007

184.60

189.20

4.60

1.10

27.64

COR19007

200.75

201.75

1.00

1.32

14.50

COR19008

209.40

211.00

1.60

0.52

2.05

COR19008

220.80

223.00

2.20

3.20

25.66

including

220.80

221.80

1.00

5.73

51.00

COR19009

144.80

149.00

4.20

0.82

6.71

COR19009

152.50

157.60

5.10

1.05

14.19

including

156.50

157.00

0.50

2.63

53.70

COR19009

160.40

165.40

5.00

1.08

6.98

including

164.50

165.40

0.90

1.86

2.40

COR19010

189.10

202.60

13.50

6.15

31.10

including

195.10

198.10

3.00

16.08

82.60

COR19010

206.90

210.60

3.70

7.66

17.66

including

207.90

208.90

1.00

17.35

126.00

COR19010

222.65

230.30

7.65

4.08

37.39

including

222.65

228.40

5.75

4.95

45.85

including

224.45

224.95

0.50

8.14

77.60

 

Hochschild has the option to purchase the Corina Project from Lara Resources by making staged cash payments totalling $4 million of which $0.3 million has been paid to date, with the next instalment of $0.4 million due by July 2020. The Company must also carry out $2.0 million in exploration expenditures, which has been almost fulfilled by the most recent programme, and pay a 2% net smelter return royalty on any future production. The project has now been transferred to Hochschild's brownfield exploration team and a new drilling campaign will begin in 2020 to define inferred resources.

 

Snip

Hochschild has the right to enter into an option to earn a 60% undivided interest in Skeena Resources' Snip gold project located in the Golden Triangle of British Columbia by spending twice the amount Skeena has spent since it originally optioned Snip from Barrick.

 

The 2019 Phase I drilling programme was designed to validate an isolated, historical and incompletely sampled high-grade intersection in the 200 Footwall Corridor. The original target in the 200 Footwall was identified by 1997 underground drill hole UG-2610 which intersected 26.8 g/t Au over 3.4m in an incompletely sampled zone. The recent intercept in drill hole S19-044 has discovered a new occurrence of very high-grade mineralisation averaging 1,132 g/t Au over 1.5m, including a significant subinterval containing abundant visible gold grading 3,390 g/t Au over 0.5m. Additional intercepts reported include:

 

Target

Results

Snip

S19-035: 5.1m @ 16.6g/t Au

Including 0.5m@ 96.2g/t Au and 0.9m @ 39.8g/t Au

S19-041: 0.7m @ 57.9g/t Au

S19-041: 0.5m @ 57.0g/t Au

S19-043: 1.4m @ 12.0g/t Au

 

Phase I drill hole S19-043 was completed prior to the newly discovered mineralisation in drill hole S19-044 and intersected anomalous gold grades associated with sheared veining including 12.0 g/t Au over 1.4m. Recently completed modelling of the 200 Footwall mineralisation indicates that this drill hole did not extend deep enough to adequately test the 200 Footwall and will be deepened during the next phase of drilling.

 

Other projects

In 2020, the team and its joint venture/strategic alliance partners are planning to drill properties across the Americas in Peru and the United States. This includes: the Cooke Mountain gold project owned by Adamera Minerals Corp in Washington State, United States; the Horsethief project owned by Allianza Minerals Ltd, also in Nevada; and the Condor project in Peru.

 

Biolantanidos

On 2 October 2019, Hochschild announced the acquisition 93.8% of the Biolantanidos rare earths deposit in Chile that it did not already own for a consideration of $56.4 million and therefore consolidated 100% of the project. Biolantanidos was previously controlled by the private fund FIP Lantanidos, managed by private equity firm Mineria Activa SpA. Hochschild initially invested $2.5 million in the project during 2018 and early 2019 in exchange for a 6.2% equity stake with an option to increase ownership.

 

The deposit has a high concentration of key rare earth minerals and in particular those with permanent magnetic properties such as Terbium, Dysprosium, Praseodymium and Neodymium. These metals offer highly attractive enhancement properties for a wide range of end-use applications and play a pivotal role in driving the efficiency of motors, particularly in electric vehicles and wind turbines.

 

The project consists of ionic clay resources, similar to those found in China, but very different from most other hard rock-based rare earth projects worldwide. Mineralisation occurs from the surface to 20-30 metres deep and mining will not require explosives. The clay undergoes a simple washing process in which rare earths will be desorbed into a solution, concentrated and calcined to obtain a rare earth oxide. Furthermore, there is no requirement for a tailings dam as the washed clay is expected to be returned to the open pits. The process is environmentally friendly as it does not require potentially harmful chemicals whilst capital and operational expenditure is projected to be low with the result that the project is expected to be one of the lowest cost rare earth producers.

 

An initial modular project has been developed in the Penco area in an area of 500 hectares, approximately 15km from Concepción in Chile and with excellent access to infrastructure and energy. Other modules are expected to be evaluated in the future, providing significant low capital expenditure growth potential.

 

Prior to the acquisition, Biolantanidos constructed an on-site pilot plant that has demonstrated both technical and commercial viability, and the opportunity to scale up into industrial operations. Although the company prepared a feasibility study, it is Hochschild's intention to revise the study over the next 14 months and has recently appointed a dedicated management team to oversee development of the project.

 

 

 

 

FINANCIAL REVIEW

 

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

 

Revenue

Gross revenue

Gross revenue from continuing operations increased by 6% to $780.4 million in 2019 (2018: $733.6 million) due to an increase in the average precious metals prices received as well as a rise in gold sales offsetting a fall in ounces sold of silver in line with decreased silver production.[6]

 

Gold

Gross revenue from gold in 2019 increased to $449.0 million (2018: $386.2 million) due to a 5% increase in the total amount of gold ounces sold in 2019. This resulted from increases at the Inmaculada and the San Jose mines.

 

Silver

Gross revenue fell in 2019 to $331.2 million (2018: $347.0 million) mainly due to a fall in silver sales resulting from the decision to place the predominantly silver producing Arcata mine on care and maintenance in the first quarter of 2019.

 

Gross average realised sales prices

The following table provides figures for average realised prices (before the deduction of commercial discounts) and ounces sold for 2019 and 2018:

 

Average realised prices

Year ended
31 Dec 2019

Year ended
31 Dec 2018 

 

Silver ounces sold (koz)

20,062

22,687

 

Avg. realised silver price ($/oz)

16.5

15.3

 

Gold ounces sold (koz)

317.52

304.51

 

Avg. realised gold price ($/oz)

1,414

1,268

 

 

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 2019, the Group recorded commercial discounts of $24.7 million (2018: $29.4 million) with the decrease explained by the significant decrease in production from the concentrate-only Arcata mine. The ratio of commercial discounts to gross revenue in 2019 was 3% (2018: 4%).

 

Net revenue

Net revenue was $755.7 million (2018: $704.3 million), comprising net gold revenue of $441.6 million (2018: $378.8 million) and net silver revenue of $314.0million (2018: $325.1 million). In 2019, gold accounted for 58% and silver 42% of the Company's consolidated net revenue (2018: gold 54% and silver 46%).

 

Reconciliation of gross revenue by mine to Group net revenue

$000

Year ended
31 Dec 2019

Year ended
31 Dec 2018 

% change

Silver revenue

 

 

 

Arcata

4,984

52,292

(90)

Inmaculada

90,110

86,810

4

Pallancata

121,494

113,108

7

San Jose

114,623

94,804

21

Commercial discounts

(17,258)

(21,958)

(21)

Net silver revenue

313,953

325,056

(3)

Gold revenue

 

 

 

Arcata

873

12,573

(93)

Inmaculada

262,033

219,293

19

Pallancata

37,237

33,176

12

San Jose

148,901

121,202

23

Commercial discounts

(7,460)

(7,395)

1

Net gold revenue

441,584

378,849

17

Other revenue

139

340

(59)

Net revenue

755,676

704,290

7

 

Costs

Total cost of sales was $512.7 million in 2019 (2018: $531.8 million). The direct production cost excluding depreciation was lower at $327.7 million (2018: $363.9 million) mainly due to lower production and lower cost per tonne both resulting from the decision to place Arcata on temporary care and maintenance in early 2019. This was partially offset by higher production cost at Inmaculada and Pallancata, in line with higher production tonnage, higher mine backfill, detoxification costs and personnel expenses at Inmaculada, as well as higher costs at San Jose mainly due to the start of the new backfill and water recovery plants. Depreciation in production cost increased to $184.4 million (2018: $164.2 million) due to higher estimated unit cost to put resources into production, therefore affecting future capex. Other items, which principally includes personnel-related provisions, increased to $4.4 million in 2019 (2018: $1.1 million) mainly due to the return of the workers profit sharing provision ($3.9 million). Change in inventories was $3.8 million in 2019 (2018: $2.5 million) due to a slight rise in products in process.

 

$000

Year ended
31 Dec 2019

Year ended
31 Dec 2018 

% Change

Direct production cost excluding depreciation

327,660

363,922

(10)

Depreciation in production cost

184,388

164,244

12

Other items[7]

4,445

1,141

290

Change in inventories

(3,782)

2,481

(252)

Cost of sales

512,711

531,788

(4)

 

Unit cost per tonne

The Company reported unit cost per tonne at its operations of $115.8 per tonne in 2019, a 4% decrease versus 2018 ($121.1 per tonne) mainly due to the decision to place Arcata on temporary care-and-maintenance, good cost control and increased mined tonnage at Inmaculada and Pallancata. These effects were partially offset by higher mine backfill, detoxification costs, personnel expenses and permitting costs at Inmaculada. There were also higher costs at San Jose related to the operation of the new backfill and water recovery plants.

 

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

Operating unit ($/tonne)

Year ended
31 Dec 2019

Year ended
31 Dec 2018

% change

Peru[9]

89.4

99.7

(10)

Inmaculada

93.3

84.7

10

Pallancata

83.8

93.6

(10)

Arcata

182.2

167.7

9

Argentina

 

 

 

San Jose

219.2

218.6

-

Total

115.8

121.1

(4)

 

Cash costs

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

 

Cash cost reconciliation[10]:

$000 unless otherwise indicated

Year ended
31 Dec 2019

Year ended
31 Dec 2018

% change

Group cash cost

378,931

409,719

(8)

(+) Cost of sales

512,711

531,788

(4)

(-) Depreciation and amortisation in cost of sales

(182,676)

(164,819)

11

(+) Selling expenses

21,071

10,068

109

(+) Commercial deductions[11]

27,825

32,682

(15)

Gold

7,674

7,558

2

Silver

20,151

25,124

(20)

Revenue

755,676

704,290

7

Gold

441,584

378,849

17

Silver

313,953

325,056

(3)

Others

139

340

(59)

Ounces sold

 

 

 

Gold

317.5

304.5

4

Silver

20,062

22,687

(12)

Group cash cost ($/oz)

 

 

 

Co product Au

698

724

(4)

Co product Ag

7.8

8.3

(6)

By product Au

141

195

(28)

By product Ag

(3.5)

1.0

(450)

 

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

 

All-in sustaining cost reconciliation

All-in sustaining cash costs per silver equivalent ounce

 

Year ended 31 Dec 2019

$000 unless otherwise indicated

Inmaculada

Pallancata

San Jose

Main

operations

Arcata

Corporate &

others

Total

(+) Production cost excluding depreciation

124,814

75,590

120,529

320,933

6,727

-

327,660

(+) Other items and workers profit sharing in cost of sales

1,902

1,976

567

4,445

-

-

4,445

(+) Operating and exploration capex for units[12]

66,435

26,605

41,406

134,446

42

2,470

136,958

(+) Brownfield exploration expenses

3,976

7,116

9,753

20,845

1,065

3,954

25,864

(+) Administrative expenses (excl depreciation)[13]

3,917

1,642

6,215

11,774

44

31,669

43,487

(+) Royalties and special mining tax[14]

3,510

1,471

-

4,981

47

3,429

8,457

Sub-total

204,554

114,400

178,470

497,424

7,925

41,522

546,871

Au ounces produced

189,180

25,952

105,478

320,611

966

-

321,577

Ag ounces produced (000s)

5,747

7,259

6,846

19,851

311

-

20,163

Ounces produced (Ag Eq 000s oz)

21,070

9,361

15,390

45,821

390

-

46,210

Sub-total ($/oz Ag Eq)

9.7

12.2

11.6

10.9

20.3

-

11.8

(+) Commercial deductions

2,580

11,133

13,336

27,049

776

 

27,825

(+) Selling expenses

481

996

19,444

20,921

150

 

21,071

Sub-total

3,061

12,129

32,780

47,970

926

-

48,896

Au ounces sold

188,585

25,446

102,824

316,855

662

-

317,515

Ag ounces sold (000s)

5,732

7,161

6,846

19,738

323

-

20,062

Ounces sold (Ag Eq 000s oz)

21,008

9,222

15,174

45,404

377

 

45,780

Sub-total ($/oz Ag Eq)

0.1

1.3

2.2

1.1

2.5

-

1.1

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

9.9

13.5

13.8

11.9

22.8

-

12.9

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

798

1,097

1,114

965

1,847

-

1,045

 

Year ended 31 Dec 2018

$000 unless otherwise indicated

Arcata

Inmaculada

Pallancata

San Jose

Main

operations

Corporate &

others

Total

(+) Production cost excluding depreciation

62,559

114,291

68,907

118,165

363,922

-

363,922

(+) Other items in cost of sales

-

-

-

1,141

1,141

-

1,141

(+) Operating and exploration capex for units

526

57,678

28,939

42,849

129,992

634

130,626

(+) Brownfield exploration expenses

9,024

1,732

2,162

4,224

17,142

3,563

20,705

(+) Administrative expenses (excl depreciation)

651

3,516

1,560

6,952

12,679

31,618

44,297

(+) Royalties and special mining tax[15]

-

3,113

1,381

-

4,494

2,746

7,240

Sub-total

72,760

180,330

102,949

173,331

529,370

38,561

567,931

Au ounces produced

10,575

174.,199

26,399

96,595

307,768

-

307,768

Ag ounces produced (000s)

3,416

5,690

7,499

6,165

22,720

-

22,720

Ounces produced (Ag Eq 000s oz)

4,273

19,800

9,588

13,989

47,650

-

47,650

Sub-total ($/oz Ag Eq)

17.0

9.1

10.7

12.4

11.1

-

11.9

(+) Commercial deductions

8,273

2,788

10,441

11,180

32,682

-

32,682

(+) Selling expenses

999

344

728

7,997

10,068

-

10,068

Sub-total

9,272

3,132

11,169

19,177

42,750

-

42,750

Au ounces sold

9,926

172,395

26,234

96,595

304,505

-

304,505

Ag ounces sold (000s)

3,397

5,676

7,439

6,175

22,687

-

22,687

Ounces sold (Ag Eq 000s oz)

4,201

19,640

9,564

13,947

47,352

-

47,352

Sub-total ($/oz Ag Eq)

2.2

0.2

1.2

1.4

0.9

-

0.9

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

19.2

9.3

11.9

13.8

12.0

-

12.8

All-in sustaining costs ($/oz Au Eq)[16]

1,558

751

964

1,115

973

-

1,039

 

 

Administrative expenses

Administrative expenses was similar to 2018 at $45.9 million (2018: $45.8 million) primarily due to personnel expenses remaining broadly unchanged although the Company has started to again provision the workers profit sharing Peru ($1.4 million) after being in a tax loss position over the last six years. This was partially offset by lower bonuses provisions (specifically LTIP).

 

Exploration expenses

In 2019, exploration expenses increased to $38.0 million (2018: $34.4 million) in line with the overall rise in the Company's investment in brownfield and greenfield 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 categories. In 2019, the Company capitalised $6.0 million relating to brownfield exploration compared to $9.2 million in 2018, bringing the total investment in exploration for 2019 to $44.0 million (2018: $43.6 million). 

 

Selling expenses

Selling expenses increased to $21.1 million (2018: $10.1 million) principally due to the reintroduction of export taxes in Argentina in September 2018 ($16.3million).

 

Other income/expenses

Other income was slightly higher at $9.0 million (2018: $8.1 million) due to adjustments to electrical services receivables in Peru. Also, other income includes revenue from logistic services in the Matarani warehouse and net income from services provided to contractors.

 

Other expenses before exceptional items were higher at $33.9 million (2018: $17.1 million) mainly due to an increase in the provision for mine closure adjustments at Ares and Sipan ($13.6 million). This has resulted from the latest review completed by the Group's consultant on these former operations' mine closure plans. At Ares, the variation ($7.7 million) is the result of improvements to the Tailings Storage Facility water treatment plant as part of its final closure. The figure also includes the operational cost of the plant over two years. For Sipan, the review ($5.2 million) incorporates the operating cost of the two water treatment plants for an additional five years. In addition, there is an additional negative impact on mine closure provision ($0.6 million) due to a change in the discount rate. Other expenses also include care and maintenance expenses, corporate social responsibility tax in Argentina and adjustments to receivables.

 

Adjusted EBITDA

Adjusted EBITDA increased by 28% to $343.3 million (2018: $268.0 million) primarily due to the increase in the average precious metal prices received and good cost control offsetting the reintroduction of export taxes in Argentina in September 2018.

 

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 2019

Year ended
31 Dec 2018 

% change

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

112,276

72,804

54

Depreciation and amortisation in cost of sales

182,676

164,819

11

Depreciation and amortisation in administrative expenses and other expenses

2,480

1,486

67

Exploration expenses

37,965

34,381

10

Personnel and other exploration related fixed expenses

(6,316)

(5,916)

7

Other non-cash income, net [17]

14,251

436

3,169

Adjusted EBITDA

343,332

268,010

28

Adjusted EBITDA margin

45%

38%

 

 

Finance income

Finance income before exceptional items of $2.9 million increased from 2018 ($2.0 million) due to a small increase in interest on deposits.

 

Finance costs

Finance costs before exceptional items decreased from $11.2 million in 2018 to $10.0 million in 2019, principally due to the reduction in interest payments resulting from the repayment of the Company's Senior Notes in H1 2018 and lower average interest rates.

 

Foreign exchange (losses)/gains

The Group recognised a foreign exchange loss of $1.8 million (2018: $8.9 million loss) as a result of exposures in currencies other than the functional currency - mainly the Argentinean peso which again depreciated in 2019 ($1.9 million loss) and the Peruvian sol which appreciated during the year ($0.3 million loss).

 

Income tax

The Company's pre-exceptional income tax charge was $43.3 million (2018: $36.5 million). The increase in the charge is explained by the Company's increase in profitability in 2019. Income tax includes royalties ($5.0 million), Special Mining Tax ($3.4 million) and withholding tax on dividends paid from Peru to the UK ($3.3 million). Excluding these effects, the effective tax rate was 29% (2018: 27%).

 

Exceptional items

Exceptional items in 2019 totalled an $18.6 million loss after tax (2018: $11.5 million loss after tax). Exceptional items included the payment of termination benefits due to the restructuring process generated by the temporary suspension of operations at the Arcata mine unit ($12.2 million) and the impairment of the Pallancata mine unit of $14.7 million. 2018 exceptional items included the payment of the premium to redeem early the Senior Notes and the reversal of capitalised Senior Notes issuance costs.

 

The tax effect of these exceptional items was a $7.9 million tax gain (2018: $4.8 million tax gain). The total effective tax rate was 46% (2018: 83%). 

 

Cash flow and balance sheet review         

Cash flow:

$000

Year ended
31 Dec 2019

Year ended
31 Dec 2018 

Change

Net cash generated from operating activities

283,259

185,942

97,317

Net cash used in investing activities

(203,613)

(129,981)

(73,632)

Cash flows generated from/(used in) financing activities

9,211

(228,300)

237,511

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

88,857

(172,339)

261,196

 

Net cash generated from operating activities increased from $185.9 million in 2018 to $283.3 million in 2019 mainly due to higher Adjusted EBITDA of $343.3 million (2018: $268.0 million) and lower interest expense of $5.0 million (2018: $28.8 million).

 

Net cash used in investing activities increased to $203.6 million in 2019 from $130.0 million in 2018 mainly due to the acquisition of the Biolantanidos project and higher mine developments as well as infill drilling at Inmaculada to access veins discovered in 2018.

 

Cash from financing activities increased to an inflow of $9.2 million from an outflow of $228.3 million inflow in 2018, primarily due the new medium term loan of $200.0 million, which was used to prepay existing short term loans of $150.0 million partially offset by dividends paid. The 2018 outflow included mainly the repayment of the Company's Senior Notes ($294.8 million) the repayment of bank loans and dividends paid.

 

Working capital

$000

As at

30 December 2019

As at

31 December 2018

Trade and other receivables

73,618

78,736

Inventories

62,600

58,035

Other financial assets

-

47

Income tax (payable)/receivable

(11,005)

17,462

Trade and other payables

(120,537)

(125,475)

Provisions

(16,249)

(3,153)

Working capital

(11,573)

25,652

 

The Group's working capital position reduced from $25.7 million to $(11.6) million in 2019. The key drivers were: higher income tax payable $(28.5) million in line with 2019 profit; higher provisions of $(13.1) million principally due to the increase of mine closure estimates at Ares and Sipan; and lower trade receivables of $(5.1) million. These effects were partially offset by higher inventories of $4.6 million which were mainly precipitates and spare parts for the new backfill plant in Argentina; and lower trade payables of $4.9 million mainly explained by the suspension of Arcata.

 

Net debt

$000 unless otherwise indicated

As at

30 December 2019

As at

31 December 2018

Cash and cash equivalents

166,357

79,704

Long term borrowings

(199,308)

(50,000)

Short term borrowings[18]

(234)

(107,067)

Net debt

(33,185)

(77,363)

 

The Group's reported net debt position was $33.2 million as at 31 December 2019 (31 December 2018: $77.4 million). In December 2019, the Company repaid $150 million of short term loans using a new $200 million medium term loan with Scotiabank and BBVA ($100 million each). This refinancing helped increase the cash and cash equivalents balance to $166.4 million, which also benefited from strong cashflow generation.

Capital expenditure[19] 

$000

Year ended
31 Dec 2019

Year ended
31 Dec 2018 

Arcata

42

526

Pallancata

26,605

28,939

San Jose

43,623

44,632

Inmaculada

66,435

57,678

Operations

136,663

131,775

Biolantanidos[20]

60,726

-

Other

7,727

2,630

Total

205,116

134,405

 

2019 capital expenditure of $205.1 million (2018: $134.4 million) mainly comprised of operational capex of $136.7 million (2018: $131.8 million) with the increase versus 2018 resulting from increased capex at Inmaculada due to a rise in mine developments to access veins discovered in 2018 and the acquisition of Biolantanidos.
 

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:

o   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

o   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 2019

 

 

 

 

 

Year ended 31 December 2019

 

Year ended 31 December 2018

 

 

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

 

4,5

 

755,676

 

-

 

755,676

 

704,290

 

-

 

704,290

Cost of sales

 

6

 

(512,711)

 

-

 

(512,711)

 

(531,788)

 

-

 

(531,788)

Gross profit

 

 

 

242,965

 

-

 

242,965

 

172,502

 

-

 

172,502

Administrative expenses

 

7

 

(45,920)

 

-

 

(45,920)

 

(45,783)

 

-

 

(45,783)

Exploration expenses

 

8

 

(37,965)

 

-

 

(37,965)

 

(34,381)

 

-

 

(34,381)

Selling expenses

 

9

 

(21,071)

 

-

 

(21,071)

 

(10,068)

 

-

 

(10,068)

Other income

 

12

 

9,014

 

-

 

9,014

 

8,062

 

-

 

8,062

Other expenses

 

12

 

(33,894)

 

(12,199)

 

(46,093)

 

(17,144)

 

-

 

(17,144)

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

 

11

 

(853)

 

(14,378)

 

(15,231)

 

(384)

 

-

 

(384)

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

 

 

 

112,276

 

(26,577)

 

85,699

 

72,804

 

-

 

72,804

Finance income

 

13

 

2,938

 

-

 

2,938

 

2,048

 

-

 

2,048

Finance costs

 

13

 

(10,038)

 

-

 

(10,038)

 

(11,194)

 

(16,346)

 

(27,540)

Foreign exchange loss, net

 

 

 

(1,757)

 

-

 

(1,757)

 

(8,946)

 

-

 

(8,946)

Profit/(loss) from continuing
operations before income tax

 

 

 

103,419

 

(26,577)

 

76,842

 

54,712

 

(16,346)

 

38,366

Income tax (expense)/benefit

 

14

 

(43,336)

 

7,933

 

(35,403)

 

(36,487)

 

4,822

 

(31,665)

Profit/(loss) for the year from continuing operations

 

 

 

60,083

 

(18,644)

 

41,439

 

18,225

 

(11,524)

 

6,701

Attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity shareholders of the Parent

 

 

 

47,598

 

(18,644)

 

28,954

 

24,360

 

(11,524)

 

12,836

Non-controlling interests

 

 

 

12,485

 

-

 

12,485

 

(6,135)

 

-

 

(6,135)

 

 

 

 

60,083

 

(18,644)

 

41,439

 

18,225

 

(11,524)

 

6,701

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

 

15

 

0.09

 

(0.03)

 

0.06

 

0.05

 

(0.02)

 

0.03

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

 

15

 

0.09

 

(0.03)

 

0.06

 

0.05

 

(0.02)

 

0.03

 

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2019

 

 

 

 

 

 

Year ended 31 December

 

 

Notes

 

2019
US$000

 

2018
US$000

Profit for the year

 

 

 

41,439

 

6,701

Other comprehensive income that might be reclassified to profit or loss in subsequent periods, net of tax:

 

 

 

 

 

 

Exchange differences on translating foreign operations

 

 

 

(327)

 

4

 

 

 

 

(327)

 

4

Other comprehensive income that will not be reclassified to profit or loss in subsequent periods, net of tax:

 

 

 

 

 

 

Net gain/(loss) on equity instruments at fair value through other comprehensive income ('OCI')

 

19

 

3,628

 

(6,447)

 

 

 

 

3,628

 

(6,447)

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

 

 

 

3,301

 

(6,443)

Total comprehensive income for the year

 

 

 

44,740

 

258

Total comprehensive income attributable to:

 

 

 

 

 

 

Equity shareholders of the Company

 

 

 

32,255

 

6,393

Non-controlling interests

 

 

 

12,485

 

(6,135)

 

 

 

 

44,740

 

258

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2019

 

 

 

Notes

 

As at
31 December 2019
US$000

 

As at
31 December 2018
 US$000

ASSETS

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

Property, plant and equipment

 

16

 

795,277

 

849,172

Evaluation and exploration assets

 

17

 

181,562

 

155,241

Intangible assets

 

18

 

22,359

 

24,363

Financial assets at fair value through other comprehensive income ('OCI')

 

19

 

6,159

 

5,296

Trade and other receivables

 

20

 

5,188

 

5,451

Other financial assets

 

 

 

-

 

47

Deferred income tax assets

 

27

 

1,627

 

1,504

 

 

 

 

1,012,172

 

1,041,074

Current assets

 

 

 

 

 

 

Inventories

 

21

 

62,600

 

58,035

Trade and other receivables

 

20

 

73,618

 

78,736

Income tax receivable

 

 

 

206

 

20,733

Cash and cash equivalents

 

22

 

166,357

 

79,704

Assets held for sale

 

23

 

38,295

 

-

 

 

 

 

341,076

 

237,208

Total assets

 

 

 

1,353,248

 

1,278,282

EQUITY AND LIABILITIES

 

 

 

 

 

 

Capital and reserves attributable to shareholders of the Parent

 

 

 

 

 

 

Equity share capital

 

 

 

226,506

 

225,409

Share premium

 

 

 

438,041

 

438,041

Other reserves

 

 

 

(221,800)

 

(223,156)

Retained earnings

 

 

 

290,263

 

278,995

 

 

 

 

733,010

 

719,289

Non-controlling interests

 

 

 

74,631

 

71,003

Total equity

 

 

 

807,641

 

790,292

Non-current liabilities

 

 

 

 

 

 

Trade and other payables

 

24

 

526

 

787

Borrowings

 

25

 

199,308

 

50,000

Provisions

 

26

 

99,322

 

94,640

Deferred income

 

 

 

172

 

31,966

Deferred income tax liabilities

 

27

 

63,103

 

71,231

 

 

 

 

362,431

 

248,624

Current liabilities

 

 

 

 

 

 

Trade and other payables

 

24

 

120,537

 

125,475

Borrowings

 

25

 

234

 

107,067

Provisions

 

 

 

16,249

 

3,153

Deferred income

 

 

 

400

 

400

Income tax payable

 

 

 

11,211

 

3,271

Liabilities directly associated with asset held for sale

 

23

 

34,545

 

-

 

 

 

 

183,176

 

239,366

Total liabilities

 

 

 

545,607

 

487,990

Total equity and liabilities

 

 

 

1,353,248

 

1,278,282

These financial statements were approved by the Board of Directors on 18 February 2020 and signed on its behalf by:

Ignacio Bustamante

Chief Executive Officer

18 February 2020

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2019

 

 

 

 

 

 

 

Year ended 31 December

 

 

Notes

 

2019
US$000

 

2018
US$000

Cash flows from operating activities

 

 

 

 

 

 

Cash generated from operations

 

 

 

290,316

 

222,667

Interest received

 

 

 

2,622

 

2,337

Interest paid

 

 

 

(4,955)

 

(28,758)

Payment of mine closure costs

 

26

 

(3,488)

 

(4,494)

Income tax, special mining tax and mining royalty paid1

 

 

 

(1,236)

 

(5,810)

Net cash generated from operating activities

 

 

 

283,259

 

185,942

Cash flows from investing activities

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

 

(133,724)

 

(114,498)

Purchase of evaluation and exploration assets

 

17

 

(68,632)

 

(10,221)

Purchase of intangibles

 

18

 

(2)

 

(1,907)

Purchase of financial assets at fair value through OCI

 

19

 

(1,100)

 

(6,433)

Purchase of Argentinian bonds

 

 

 

(14,795)

 

-

Proceeds from sale of Argentinian bonds

 

 

 

11,835

 

-

Proceeds from sale of financial assets at fair value through OCI

 

 

 

421

 

954

Proceeds from sale of other assets

 

19

 

-

 

30

Proceeds from deferred income

 

23

 

2,250

 

2,000

Proceeds from sale of property, plant and equipment

 

 

 

134

 

94

Net cash used in investing activities

 

 

 

(203,613)

 

(129,981)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from borrowings

 

25

 

316,500

 

266,500

Transaction costs related to borrowings

 

 

 

(692)

 

-

Repayment of borrowings

 

25

 

(272,500)

 

(463,393)

Payment of lease liabilities

 

2(a)

 

(2,506)

 

-

Purchase of treasury shares

 

 

 

(309)

 

(579)

Dividends paid to non-controlling interests

 

 

 

(11,069)

 

(10,829)

Dividends paid

 

28

 

(20,213)

 

(19,999)

Cash flows generated from/(used in) financing activities

 

 

 

9,211

 

(228,300)

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

 

 

 

88,857

 

(172,339)

Exchange difference

 

 

 

(2,204)

 

(4,945)

Cash and cash equivalents at beginning of year

 

 

 

79,704

 

256,988

Cash and cash equivalents at end of year

 

22

 

166,357

 

79,704

1   Taxes paid have been offset with value added tax (VAT) credits of US$3,717,000 (2018:US$4,320,000).

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year 31 December 2019

 

 

 

 

 

 

 

 

 

 

 

Other reserves

 

 

 

 

 

 

 

 

 

 

Notes

 

Equity share capital US$000

 

Share premium US$000

 

Treasury shares US$000

 

Fair value

reserve of

financial

assets at

fair value through OCI
US$000

 

Dividends expired 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 2018

 

 

 

224,315

 

438,041

 

(140)

 

(937)

 

-

 

(13,712)

 

(210,046)

 

7,634

 

(217,061)

 

286,356

 

731,511

 

90,177

 

821,688

Other comprehensive income/(expense)

 

 

 

-

 

-

 

-

 

(6,447)

 

-

 

4

 

-

 

-

 

(6,443)

 

-

 

(6,443)

 

-

 

(6,443)

Profit for the year

 

 

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

12,836

 

12,836

 

(6,135)

 

6,701

Total comprehensive income/
(expense) for the year

 

 

 

-

 

-

 

-

 

(6,447)

 

-

 

4

 

-

 

-

 

(6,443)

 

12,836

 

6,393

 

(6,135)

 

258

Sale of financial assets at fair value through OCI

 

19

 

-

 

-

 

-

 

3,060

 

-

 

-

 

-

 

-

 

3,060

 

(3,060)

 

-

 

-

 

-

Issuance of shares

 

 

 

1,094

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

1,094

 

-

 

1,094

Exercise of share options

 

 

 

-

 

-

 

719

 

-

 

-

 

-

 

-

 

(4,675)

 

(4,675)

 

2,862

 

(1,094)

 

-

 

(1,094)

Expiration of dividends

 

 

 

-

 

-

 

-

 

-

 

62

 

-

 

-

 

-

 

62

 

-

 

62

 

-

 

62

Dividends

 

28

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(19,999)

 

(19,999)

 

-

 

(19,999)

Dividends to non -
controlling interests

 

28

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(13,039)

 

(13,039)

Purchase of treasury shares

 

 

 

-

 

-

 

(579)

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(579)

 

 

 

(579)

Share-based payments

 

 

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

1,901

 

1,901

 

-

 

1,901

 

-

 

1,901

Balance at 31 December 2018

 

 

 

225,409

 

438,041

 

-

 

(4,324)

 

62

 

(13,708)

 

(210,046)

 

4,860

 

(223,156)

 

278,995

 

719,289

 

71,003

 

790,292

Other comprehensive income/(expense)

 

 

 

-

 

-

 

-

 

3,628

 

-

 

(327)

 

-

 

-

 

3,301

 

-

 

3,301

 

-

 

3,301

Profit for the year

 

 

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

28,954

 

28,954

 

12,485

 

41,439

Total comprehensive income/
(expense) for the year

 

 

 

-

 

-

 

-

 

3,628

 

-

 

(327)

 

-

 

-

 

3,301

 

28,954

 

32,255

 

12,485

 

44,740

Sale of financial assets at fair value through OCI

 

19

 

-

 

-

 

-

 

1,658

 

-

 

-

 

-

 

-

 

1,658

 

(1,658)

 

-

 

-

 

-

Transfer of financial assets at fair value through OCI to subsidiary

 

3

 

-

 

-

 

-

 

(944)

 

-

 

-

 

-

 

-

 

(944)

 

944

 

-

 

-

 

-

Issuance of shares

 

 

 

1,097

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

1,097

 

-

 

1,097

Exercise of share options

 

 

 

-

 

-

 

309

 

-

 

-

 

-

 

-

 

(4,647)

 

(4,647)

 

3,241

 

(1,097)

 

-

 

(1,097)

Expiration of dividends

 

 

 

-

 

-

 

-

 

-

 

37

 

-

 

-

 

-

 

37

 

-

 

37

 

2

 

39

Dividends

 

28

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(20,213)

 

(20,213)

 

-

 

(20,213)

Dividends to non -
controlling interests

 

28

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(8,859)

 

(8,859)

Purchase of treasury shares

 

 

 

-

 

-

 

(309)

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(309)

 

 

 

(309)

Share-based payments

 

 

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

1,951

 

1,951

 

-

 

1,951

 

-

 

1,951

Balance at  31 December 2019

 

 

 

226,506

 

438,041

 

-

 

18

 

99

 

(14,035)

 

(210,046)

 

2,164

 

(221,800)

 

290,263

 

733,010

 

74,631

 

807,641

                                                                                   

 

 

 

 

 

 

1 Notes to the condensed consolidated financial statements

For the year ended 31 December 2019

 

The financial information for the year ended 31 December 2019 and 2018 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 2019 and 2018 have been extracted from the consolidated financial statements of Hochschild Mining plc for the year ended 31 December 2019 which have been approved by the directors on 18 February 2020 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

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and the Companies Act 2006.

 

The basis of preparation and accounting policies used in preparing the consolidated financial statements for the years ended 31 December 2019 and 2018 are set out below. The consolidated financial statements have been prepared on a historical cost basis except for the revaluation of certain financial instruments that are measured at fair value at the end of each reporting period, as explained below. These accounting policies have been consistently applied, except for the effects of the adoption of new and amended accounting standard.

 

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

 

The financial statements have been prepared on the going concern basis. Details of the factors which have been taken into account in assessing the Group's going concern status are set out within the Directors' report.

 

Changes in accounting policy and disclosures

The Group applied IFRS 16 Leases and IFRIC 23 Uncertainty over Income Tax Treatments for the first time from 1 January 2019. The nature and effect of these changes as a result of the adoption of this new standard and interpretation are described below. Other than the changes described below, 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 2018.

 

Several other amendments and interpretations applied for the first time in 2019 but did not have an impact on the consolidated financial statements of the Group and, hence, have not been disclosed.

 

•       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, including the exemptions to recognise assets and liabilities for all leases unless the lease term is 12 months or less or when the underlying asset has a low value. Lease costs will be recognised in the income statement over the lease term in the form of depreciation on the right of use asset and finance charges representing the unwinding of the discount on the lease liability. Lessors continue to classify leases as operating or finance, with IFRS 16's approach to lessor accounting substantially unchanged from its predecessor, IAS 17 Leases.

 

The Group has adopted IFRS 16, Leases from 1 January 2019 but has not restated comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the standard ("modified retrospective approach, alternative 2"). The adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 January 2019. 

 

On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17. These liabilities were measured at the present value of the remaining lease payments, discounted using the incremental borrowing rate as of 1 January 2019. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 4.12% for contracts denominated in US dollars. Contracts in other currencies are not material.

 

The associated right-of-use assets were measured at the amount equal to the lease liability, therefore there was no adjustment to retained earnings on adoption.

 

In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:

‒       The use of a single discount rate to a portfolio of leases with reasonably similar characteristics.

‒       The accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases,

‒       The accounting for operating leases related to low value assets (below US$5,000)

 

From 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

 

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee's incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.

 

Right-of-use assets are measured at cost comprising the following:

‒       The amount of the initial measurement of lease liability

‒       Any lease payments made at or before the commencement date less any lease incentives received

‒       Any initial direct costs, and

‒       Restoration costs

 

Payments associated with short-term leases and leases of low-value assets are recognised on a straight line basis as an expense in profit or loss.

 

The resulting lease liability as of 1 January 2019 was determined as follows: 

 

 

 

US$000

Operating lease commitments as at 31 December 2018

 

2,448

Previous not disclosed operating lease commitments

 

5,579

 

 

8,027

Discounted using the lessee's incremental borrowing rate of at the date of initial application

 

7,785

Less: short-term leases recognised on a straight-line basis as expense

 

(730)

Less: low-value leases recognised on a straight-line basis as expense

 

(1,474)

Less: other adjustments

 

(244)

Lease liability recognised as at 1 January 2019

 

5,337

Less: current portion

 

(2,553)

Non-current portion

 

2,784

 

The effect of adoption IFRS 16 is as follows:

           

 

 

Right-of-use assets

 vehicles1

US$000

 

Lease

 Liabilities2

 US$000

Recognised on transition as at 1 January 2019

 

5,337

 

(5,337)

Depreciation expense

 

(2,454)

 

-

Interests expense3

 

-

 

(96)

Termination of contracts

 

(350)

 

350

Payments

 

-

 

2,506

Balance at 31 December 2019

 

2,533

 

(2,577)

 

1 Included in the consolidated statement of financial position within "Property, plant and equipment".

2 Included in the consolidated statement of financial position within "Trade and other payables" (Current: US$2,577,000, Non-current: US$nil).

3 Included in the consolidated income statement within "Finance costs".

 

•       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 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 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

 

Upon adoption of the Interpretation, the Group considered whether it has any uncertain tax positions; the taxation authorities may challenge those tax treatments. The Group determined, based on its tax compliance, that it is probable that its tax treatments (including those for its subsidiaries) will be accepted by the taxation authorities. Therefore, the Interpretation did not have a material impact on the consolidated financial statements of the Group.

 

 

 

 

3 Acquisition of assets

 

REE UNO SpA ("REE UNO")

 

On 9 November 2018 Minera Hochschild Chile SCM ("Hochschild") signed an agreement for an investment in the Biolantanidos Project with Fondo de Inversión Privado Lantanidos ("FIP"). REE UNO has the rights over the concessions called the Biolantánidos, a rare-earth metals extraction and production project, located in Penco, Biobío Region, Chile.

 

On that date, Hochschild subscribed for 591,326,947 type A shares of REE UNO, that represented 5% of the total type A shares, and 4.84% of the total share capital of REE UNO. The total consideration was 1,351,880,000 Chilean pesos equivalent to US$2,000,000. FIP was the owner of the remaining 11,235,211,986 type A shares of "REE UNO" (representing 95% of total type A shares of REE UNO) whilst multiple shareholders held 100% of the interest in the type B shares.

 

In April 2019, Hochschild signed a new agreement to increase its interest in REE UNO and subscribed for additional 147,831,737 type A shares, that represented 1.23% of the total type A shares. The total consideration was 333,065,000 Chilean pesos equivalent to US$500,000.

 

On 22 August 2019, Hochschild signed an agreement for the sale and transfer of all the type A and B shares of REE UNO, from FIP and all the other shareholders. The transfer of the remaining type A shares and type B shares was completed on 2 October 2019 with the total consideration amounting to US$57,344,974, of which US$983,142 remains pending payment as at 31 December 2019.

 

On the date of completion, the Group remeasured the fair value of the investment previously held and recognised a gain of US$998,000 in OCI. On reclassification of the investment to subsidiary, US$944,000 was reclassified from the fair value reserves of financial assets at fair value through OCI to retained earnings.

 

The transaction is considered as an asset acquisition, and REE UNO consolidates its financial information with the Group from 2 October 2019, being the date when the Group obtained control.

 

The fair value of assets acquired and liabilities assumed as at 2 October 2019 comprise the following:

 

 

US$000

Cash and cash equivalents

 

1,120

Other receivables

 

1,541

Evaluation and exploration assets

 

59,358

Property, plant and equipment

 

218

Total assets

 

62,237

Accounts payable and other liabilities

 

(1,448)

Total liabilities

 

(1,448)

Net assets acquired

 

60,789

 

 

 

Fair value of type A shares held in REE UNO (note 19)

 

3,444

Consideration for the acquisition of remaining type A shares and B shares in REE UNO

 

57,345

Total consideration

 

60,789

 

 

 

Cash paid

 

56,362

Less cash acquired with the subsidiary

 

(1,120)

Net cash flow on acquisition

 

55,242

 

 

 

4 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 unit - San Jose, which generates revenue from the sale of gold and silver (dore and concentrate).

‒       Operating unit - Arcata and Pallancata, which generate revenue from the sale of gold and silver (concentrate). The Arcata mine unit was put into care and maintenance on 13 February 2019.

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

 

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 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 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from external customers

 

5,261

 

140,784

 

242,972

 

351,936

 

-

 

139

 

-

 

741,092

Inter segment revenue

 

-

 

-

 

-

 

-

 

-

 

6,101

 

(6,101)

 

-

Total revenue from customers

 

5,261

 

140,784

 

242,972

 

351,936

 

-

 

6,240

 

(6,101)

 

741,092

Provisional pricing adjustment

 

(180)

 

6,814

 

7,743

 

207

 

-

 

-

 

-

 

14,584

Total revenue

 

5,081

 

147,598

 

250,715

 

352,143

 

-

 

6,240

 

(6,101)

 

755,676

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment profit/(loss)

 

(2,027)

 

15,187

 

61,472

 

144,199

 

(38,062)

 

9,169

 

(6,009)

 

183,929

Others2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(107,087)

Profit from continuing operations before income tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

76,842

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other segment information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation3

 

(430)

 

(50,432)

 

(51,754)

 

(79,917)

 

(397)

 

(4,327)

 

-

 

(187,257)

Amortisation

 

-

 

-

 

(1,396)

 

(144)

 

(462)

 

(67)

 

-

 

(2,069)

Impairment and write-off of assets, net

 

(30)

 

(14,892)

 

(488)

 

(135)

 

315

 

(1)

 

-

 

(15,231)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditure

 

42

 

25,357

 

43,623

 

66,435

 

62,881

 

6,778

 

-

 

205,116

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

2,133

 

20,500

 

48,286

 

26,601

 

38,301

 

2,873

 

-

 

138,694

Other non-current assets

 

5,977

 

50,438

 

163,656

 

506,779

 

220,934

 

51,414

 

-

 

999,198

Total segment assets

 

8,110

 

70,938

 

211,942

 

533,380

 

259,235

 

54,287

 

-

 

1,137,892

Not reportable assets4

 

-

 

-

 

-

 

-

 

-

 

215,356

 

-

 

215,356

Total assets

 

8,110

 

70,938

 

211,942

 

533,380

 

259,235

 

269,643

 

-

 

1,353,248

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

2   Comprised of administrative expenses of US$45,920,000, other income of US$9,014,000, other expenses of US$46,093,000, write-off of assets (net) of US$853,000, impairment of assets (net) of US$14,378,000, finance income of US$2,938,000, finance expense of US$10,038,000, and foreign exchange loss of US$1,757,000.

3   Includes depreciation capitalised in the Crespo project (US$809,000), and San Jose unit (US$2,217,000).

4   Not reportable assets are comprised of financial assets at fair value through OCI of US$6,159,000, other receivables of US$41,007,000, income tax receivable of US$206,000, deferred income tax asset of US$1,627,000, and cash and cash equivalents of US$166,357,000.

 

 

 

 

 

 

 

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 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from external customers

 

57,836

 

138,221

 

207,431

 

306,108

 

-

 

340

 

-

 

709,936

Inter segment revenue

 

-

 

-

 

-

 

-

 

-

 

6,328

 

(6,328)

 

-

Total revenue from customers

 

57,836

 

138,221

 

207,431

 

306,108

 

-

 

6,668

 

(6,328)

 

709,936

Provisional pricing adjustment

 

(1,199)

 

(2,378)

 

(2,064)

 

(5)

 

-

 

-

 

-

 

(5,646)

Total revenue

 

56,637

 

135,843

 

205,367

 

306,103

 

-

 

6,668

 

(6,328)

 

704,290

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment profit/(loss)

 

(7,314)

 

31,226

 

20,289

 

116,361

 

(34,800)

 

11,178

 

(8,887)

 

128,053

Others2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(89,687)

Profit from continuing operations before income tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38,366

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other segment information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation3

 

(178)

 

(36,377)

 

(52,006)

 

(74,878)

 

(377)

 

(4,771)

 

-

 

(168,587)

Amortisation

 

-

 

-

 

(1,324)

 

(221)

 

(462)

 

(84)

 

-

 

(2,091)

Impairment and write-off of assets, net

 

(38)

 

(31)

 

(233)

 

(56)

 

-

 

(26)

 

-

 

(384)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditure

 

526

 

27,079

 

44,632

 

57,678

 

1,856

 

2,634

 

-

 

134,405

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

5,155

 

27,076

 

40,220

 

27,479

 

7

 

3,299

 

-

 

103,236

Other non-current assets

 

6,395

 

84,449

 

172,726

 

517,321

 

195,975

 

51,910

 

-

 

1,028,776

Total segment assets

 

11,550

 

111,525

 

212,946

 

544,800

 

195,982

 

55,209

 

-

 

1,132,012

Not reportable assets4

 

-

 

-

 

-

 

-

 

-

 

146,270

 

-

 

146,270

Total assets

 

11,550

 

111,525

 

212,946

 

544,800

 

195,982

 

201,479

 

-

 

1,278,282

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

2   Comprised of administrative expenses of US$45,783,000, other income of US$8,062,000, other expenses of US$17,144,000, write-off of assets (net) of US$384,000, finance income of US$2,048,000, finance expense of US$27,540,000, and foreign exchange loss of US$8,946,000.

3   Includes depreciation capitalised in the Crespo project (US$810,000), and San Jose unit (US$1,783,000).

4   Not reportable assets are comprised of financial assets at fair value through OCI of US$5,296,000, other receivables of US$38,986,000, other financial assets of US$47,000, income tax receivable of US$20,733,000, deferred income tax asset of US$1,504,000 and cash and cash equivalents of US$79,704,000.

 

 

 

 (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

 

 

 

2019
US$000

 

2018
US$000

 

External customer

 

 

 

 

 

Canada

 

381,149

 

28,661

 

Switzerland

 

109,927

 

89,285

 

Korea

 

91,304

 

97,943

 

Germany

 

75,003

 

32,277

 

Peru

 

50,579

 

70,842

 

Japan

 

24,404

 

26,084

 

Bulgaria

 

17,864

 

2,102

 

USA

 

5,446

 

357,096

 

Total

 

755,676

 

704,290

 

Inter-segment

 

 

 

 

 

Peru

 

6,101

 

6,328

 

Total

 

761,777

 

710,618

 

 

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 2019

 

Year ended 31 December 2018

 

 

US$000

 

% Revenue

 

Segment

 

US$000

 

% Revenue

 

Segment

Asahi Refining Canada

 

352,949

 

47%

 

Inmaculada

 

12

 

0%

 

Inmaculada

Argor Heraus

 

105,436

 

14%

 

San Jose

 

74,210

 

11%

 

San Jose

LS Nikko

 

91,304

 

12%

 

Pallancata and San Jose

 

97,943

 

14%

 

Pallancata and San Jose

Republic Metals Corporation

 

66

 

0%

 

San Jose

 

86,974

 

12%

 

Inmaculada and San Jose

Bank of Nova Scotia

 

-

 

0%

 

Inmaculada

 

162,843

 

23%

 

Inmaculada

Asahi Refining USA

 

(806)

 

0%

 

Inmaculada

 

85,136

 

12%

 

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

 

 

2019
US$000

 

2018
US$000

Peru

 

709,022

 

753,016

Argentina

 

163,656

 

172,726

Mexico

 

838

 

38,835

Chile

 

125,682

 

64,199

Total non-current segment assets

 

999,198

 

1,028,776

Financial assets at fair value through OCI

 

6,159

 

5,296

Trade and other receivables

 

5,188

 

5,451

Other financial assets

 

-

 

47

Deferred income tax assets

 

1,627

 

1,504

Total non-current assets

 

1,012,172

 

1,041,074

 

 

 

 

 

 

5 Revenue

 

 

Year ended 31 December

 

 

2019
US$000

 

2018
US$000

Gold (from dore bars)

 

322,062

 

277,357

Silver (from dore bars)

 

135,583

 

131,818

Gold (from concentrate)

 

119,522

 

101,492

Silver (from concentrate)

 

178,370

 

193,238

Other minerals (from concentrate)

 

-

 

45

Services

 

139

 

340

Total

 

755,676

 

704,290

 

Included within revenue is an effect relating to provisional pricing adjustments arising on sales  resulting in total revenue from customers in the amount of US$741,092,000 (2018: US$709,936,000).

 

The provisional pricing adjustments are as follows:

 

 

Year ended 31 December

 

 

2019
US$000

 

2018
US$000

Gold (from dore bars)

 

238

 

(8)

Silver (from dore bars)

 

60

 

(43)

Gold (from concentrate)

 

5,748

 

(1,080)

Silver (from concentrate)

 

8,538

 

(4,515)

Total

 

14,584

 

(5,646)

 

Included within revenue is a transaction price related to the shipping services provided by the Group to the customers arising on sale of:

 

 

 

Year ended 31 December

 

 

2019
US$000

 

2018
US$000

Gold (from dore bars)

 

1,011

 

856

Silver (from dore bars)

 

766

 

664

Gold (from concentrate)

 

2,456

 

1,806

Silver (from concentrate)

 

2,920

 

2,159

Total

 

7,153

 

5,485

 

6 Cost of sales

 

Included in cost of sales are:

 

 

Year ended 31 December

 

 

2019
US$000

 

2018
US$000

Depreciation and amortisation in cost of sales1

 

182,676

 

164,819

Personnel expenses (note 10)

 

102,977

 

116,065

Mining royalty (note 30)

 

6,412

 

5,857

Change in products in process and finished goods

 

(3,782)

 

2,481

Other items2

 

567

 

1,141

1   The depreciation and amortisation in production cost is US$184,388,000 (2018: US$164,244,000).

2   Other items include costs related to stoppage of US$567,000 at the San José mine unit (2018: Other items include costs related to stoppage of US$202,000 and termination benefits of US$939,000 at the San José mine unit).

 

 

 

 

 

7 Administrative expenses

 

 

 

 

Year ended 31 December

 

 

 

2019
US$000

 

2018
US$000

Personnel expenses (note 10)

 

26,580

 

28,165

Professional fees

 

5,481

 

3,614

Donations

 

331

 

785

Lease rentals

 

1,343

 

1,372

Travel expenses

 

1,058

 

1,061

Third party services

 

347

 

3,434

Communications

 

502

 

430

Indirect taxes

 

1,461

 

1,041

Depreciation and amortisation

 

2,274

 

1,486

Technology and systems

 

1,400

 

537

Security

 

912

 

784

Other1

 

4,231

 

3,074

Total

 

45,920

 

45,783

           

1   Predominantly related to advertising costs of US$388,000 (2018; US$163,000), insurance fees of US$384,000 (2018: US$243,000), repair and maintenance of US$320,000 (2018: US$480,000), supplies costs of US$202,000 (2018: US$145,000) and personnel transportation of US$330,000 (2018: US$303,000).

 

 

 

8 Exploration expenses

 

 

Year ended 31 December

 

 

2019
US$000

 

2018
US$000

Mine site exploration1

 

 

 

 

Arcata

 

1,065

 

9,024

Ares

 

884

 

699

Inmaculada

 

3,976

 

1,732

Pallancata

 

7,116

 

2,162

San Jose

 

9,753

 

4,224

 

 

22,794

 

17,841

Prospects2

 

 

 

 

Peru

 

265

 

815

USA

 

3,600

 

2,928

Chile

 

1,300

 

2,213

 

 

5,165

 

5,956

Generative3

 

 

 

 

Peru

 

3,322

 

4,640

USA

 

-

 

28

 

 

3,322

 

4,668

Personnel (note 10)

 

5,748

 

5,398

Others

 

568

 

518

Depreciation of right of use assets

 

368

 

-

Total

 

37,965

 

34,381

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 increase in exploration expenses is mainly explained by the work performed at the mine units trying to identify new possible ore 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$7,503,000 in 2019 (2018: US$10,498,000).

 

 

9 Selling expenses

 

 

Year ended 31 December

 

 

2019
US$000

 

2018
US$000

Personnel expenses (note 10)

 

288

 

302

Warehouse services

 

1,627

 

2,032

Taxes1

 

16,259

 

5,148

Other

 

2,897

 

2,586

Total

 

21,071

 

10,068

1 Corresponds to the export duties in Argentina, applicable from September 2018.

 

10 Personnel expenses before exceptional items

 

 

Year ended 31 December

 

 

2019
US$000

 

2018
US$000

Salaries and wages

 

100,441

 

110,290

Workers profit sharing

 

5,965

 

-

Other legal contributions

 

21,453

 

23,268

Statutory holiday payments

 

6,380

 

7,282

Long Term Incentive Plan

 

1,294

 

4,487

Restricted share plan

 

843

 

1,374

Termination benefits

 

2,265

 

4,101

Other

 

1,600

 

2,764

Total

 

140,241

 

153,566

 

 

Personnel expenses are distributed as follows:

 

 

 

Year ended 31 December

 

 

2019
US$000

 

2018
US$000

Cost of sales

 

102,977

 

116,065

Administrative expenses

 

26,580

 

28,165

Exploration expenses

 

5,748

 

5,398

Selling expenses

 

288

 

302

Other expenses

 

4,263

 

3,225

Capitalised as property, plant and equipment

 

385

 

411

Total

 

140,241

 

153,566

 

 

Average number of employees for 2019 and 2018 were as follows:

 

 

Year ended 31 December

 

 

2019

 

2018

Peru

 

2,072

 

2,878

Argentina

 

1,394

 

1,220

Chile

 

3

 

3

United Kingdom

 

10

 

10

Total

 

3,479

 

4,111

 

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
2019
US$000

 

Year ended
31 December
2018
US$000

Other expenses

 

 

 

 

Restructuring of Arcata mine unit1

 

(12,199)

 

-

Total

 

(12,199)

 

-

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

 

 

 

 

Impairment of assets2

 

(14,693)

 

-

Reversal of impairment of assets2

 

315

 

-

Total

 

(14,378)

 

-

Finance costs

 

 

 

 

Expenses related to the repayment of the bond4

 

-

 

(16,346)

Total

 

-

 

(16,346)

Income tax benefit3 and 5

 

7,933

 

4,822

Total

 

7,933

 

4,822

 

The exceptional items for the year ended 31 December 2019 are as follows:

1   The termination benefits of 859 employees resulting from the restructuring process generated as the Arcata mine unit was placed on care and maintenance. The Arcata mine unit was impaired in December 2017.

2   Impairment of the Pallancata mine unit of US$14,693,000 and reversals of impairment related to the San Felipe mine project of US$315,000.

3   The current tax credit generated by the termination benefits arising from the restructuring process of the Arcata mine unit of US$3,599,000 and the deferred tax credit generated by the impairment of Pallancata mine unit of US$4,334,000.

 

The exceptional items for the year ended 31 December 2018 are as follows:

4   Premium and other finance expenses related to the repayment of Compañia Minera Ares S.A.C. ("Minera Ares") bond of US$350,000,000 fully repaid on 23 January 2018. The Group repaid the capital of US$294,775,000, plus interests of US$11,423,000, premium of US$11,423,000 and their corresponding withholding tax of US$946,000. The charge in profit and loss during 2018 was US$17,833,000, of which US$1,487,000 corresponded to the interests (US$1,392,000) and its corresponding withholding tax (US$95,000) generated in 2018, and the balance of US$16,346,000, recognised as an exceptional item, includes the premium of US$11,423,000, its corresponding withholding tax of US$473,000 and the recognition of the capitalised expenses related to obtaining the bond of US$4,450,000.

5   Deferred tax credit generated by the premium and other finance expenses related to the repayment of the Minera Ares bond.

 

 

12 Other income and other expenses before exceptional items

 

 

 

Year ended
31 December

2019

 

Year ended
31 December

2018

 

 

Before
exceptional
items
US$000

 

Before
exceptional
items
US$000

Other Income

 

 

 

 

Decrease in provision for mine closure (note 26(1))

 

223

 

-

Export credits1

 

6

 

1,287

Logistic services

 

4,489

 

4,128

Income related to the San Felipe agreement (note 23)

 

600

 

-

Other2

 

3,696

 

2,647

Total

 

9,014

 

8,062

Other expenses

 

 

 

 

Increase in provision for mine closure (note 26(1))

 

(13,621)

 

(52)

Provision of obsolescence of supplies (note 21)

 

(1,449)

 

(384)

Care and maintenance expenses of Ares mine unit

 

(4,593)

 

(5,688)

Contingencies

 

71

 

(140)

Donations

 

(10)

 

(9)

Write off of value added tax

 

(144)

 

(66)

Corporate social responsibility contribution in Argentina3

 

(3,636)

 

(2,382)

Termination benefits Arcata mine unit4

 

-

 

(1,324)

Care and maintenance expenses of Arcata mine unit

 

(4,888)

 

-

Provision for impairment of receivables5

 

(3,706)

 

(5,656)

Other6

 

(1,918)

 

(1,443)

Total

 

(33,894)

 

(17,144)

1   Corresponds to the benefit of silver refund in Argentina which was effective until August 2018.

2   Mainly corresponds to the recognition of a receivable from a supplier following a claim ruled in favour of the Group of US$1,061,000 (2018: US$nil), the gain on recovery of expenses of US$623,000 (2018: US$930,000), gain on sale of supplies of US$325,000 (2018: US$410,000) and the gain recognised for the Mosquito project of US$400,000 (2018: US$400,000).

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

4   Due to the redundancy of 107 employees in the Arcata mine unit, aligned with the mine plan for 2018.

5   Mainly due to write-off of a claim receivable of US$2,934,000 (2018: mainly due to the write-off of a trade receivable of US$4,946,000 from a costumer declared bankrupt under the United States bankruptcy code chapter 11).

6   Mainly corresponds to the expenses due to concessions of US$667,000 (2018: US$320,000), depreciation expense for right-of-use assets of US$206,000 (2018:US$nil) and rentals of US$33,000 (2018: US$191,000).

 

 

13 Finance income and finance costs before exceptional items

 

 

Year ended
31 December

2019

 

Year ended
31 December

2018

 

 

Before
exceptional
items
US$000

 

Before
exceptional
items
US$000

Finance income

 

 

 

 

Interest on deposits and liquidity funds

 

2,557

 

2,001

Interest income

 

2,557

 

2,001

Other

 

381

 

47

Total

 

2,938

 

2,048

Finance costs

 

 

 

 

Interest on secured bank loans (note 25)

 

(4,122)

 

(4,923)

Other interest

 

(335)

 

(726)

Interest on the US$350m bond (note 11)

 

-

 

(1,392)

Interest expense

 

(4,457)

 

(7,041)

Unwind of discount on mine rehabilitation (note 26)

 

(506)

 

(368)

Loss on discount of other receivables1

 

(902)

 

(1,625)

Loss from changes in the fair value of financial instruments2

 

(3,007)

 

(1,256)

Other 3

 

(1,166)

 

(904)

Total

 

(10,038)

 

(11,194)

1   Mainly related to the effect of the discount of tax credits in Argentina and Peru.

2   Mainly due to the effect of the sale of the bonds in Argentina (2018: related to the fair value adjustments of the warrants of Red Eagle Mining Corporation acquired in 2017).

3   Includes the effect of the discount of the lease liabilities related to IFRS 16 (refer to note 2(b)).

 

14 Income tax expense

 

 

 

Year ended 31 December 2019

 

Year ended 31 December 2018

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Corporate income tax charge

 

35,543

 

(3,599)

 

31,944

 

8,338

 

-

 

8,338

Withholding tax

 

3,253

 

-

 

3,253

 

 

 

 

 

 

 

 

38,796

 

(3,599)

 

35,197

 

8,338

 

-

 

8,338

Deferred taxation

 

 

 

 

 

 

 

 

 

 

 

 

Origination and reversal of temporary differences from continuing operations (note 28)

 

(2,687)

 

(4,334)

 

(7,021)

 

20,909

 

(4,822)

 

16,087

Effect of change in income tax rates1

 

(1,230)

 

-

 

(1,230)

 

-

 

-

 

-

 

 

(3,917)

 

(4,334)

 

(8,251)

 

20,909

 

(4,822)

 

16,087

Corporate income tax

 

34,879

 

(7,933)

 

26,946

 

29,247

 

(4,822)

 

24,425

 

 

 

 

 

 

 

 

 

 

 

 

 

Current mining royalties

 

 

 

 

 

 

 

 

 

 

 

 

Mining royalty charge (note 30)

 

5,028

 

-

 

5,028

 

4,494

 

-

 

4,494

Special mining tax charge (note 30)

 

3,429

 

-

 

3,429

 

2,746

 

-

 

2,746

Total current mining royalties

 

8,457

 

-

 

8,457

 

7,240

 

-

 

7,240

 

 

 

 

 

 

 

 

 

 

 

 

 

Total taxation charge/(credit) in the income statement

 

43,336

 

(7,933)

 

35,403

 

36,487

 

(4,822)

 

31,665

1   On 29 December 2017, the Argentinian government enacted a tax reform. The main change was the reduction in the statutory income tax rate, from 35% to 30% with effect from 1 January 2018 and to 25% with effect from 1 January 2020. On December 2019 there was a further tax reform in Argentina, stating that the income tax rate of 25% will be applied from 1 January 2021.

 

The weighted average statutory income tax rate was 30.9% for 2019 and 32.2% for 2018. 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.

 

There was no tax related to items charged or credited to equity during the year ended 31 December 2019 (2018: US$nil).

 

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

 

 

2019
US$000

 

2018
US$000

Profit from continuing operations before income tax

 

76,842

 

38,366

At average statutory income tax rate of 30.9% (2018: 32.2%)

 

23,740

 

12,352

Expenses not deductible for tax purposes

 

360

 

593

Adjustment related to Restricted Share Plan (RSP)

 

(940)

 

-

Change in statutory income tax rate

 

1,230

 

-

Deferred tax recognised on special investment regime1

 

(2,590)

 

(1,399)

Movement in unrecognised deferred tax2

 

5,223

 

2,915

Special mining tax and mining royalty deductible for corporate income tax

 

(2,495)

 

(2,136)

Other

 

(2,288)

 

(1,971)

Corporate income tax at average effective income tax rate of 28.9% (2018: 27.0%) before foreign exchange effect and withholding tax

 

22,240

 

10,354

Special mining tax and mining royalty3

 

8,457

 

7,240

Corporate income tax and mining royalties at average effective income tax rate of 39.9% (2018: 45.9%)

 

30,697

 

17,594

Foreign exchange rate effect4

 

1,453

 

14,071

Corporate income tax and mining royalties at average effective income tax rate of 41.8% (2018: 82.5%) before withholding tax

 

32,150

 

31,665

Withholding tax

 

3,253

 

-

Total taxation charge in the income statement at average effective tax rate 46.1% (2018: 82.5%) from continuing operations

 

35,403

 

31,665

1   Argentina benefits from a special investment regime that allows for a super (double) deduction in calculating its taxable profits for all costs relating to prospecting, exploration and metallurgical analysis, pilot plants and other expenses incurred in the preparation of feasibility studies for mining projects.

2  Includes the income tax charge on mine closure provision of US$836,000 (2018: income tax credit of US$412,000), the tax charge related to the Inmaculada mine unit depreciation of US$1,636,000 (2018: US$1,631,000), and the effect of not recognised tax losses of US$2,751,000 (2018: US$1,696,000).

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

4   The foreign exchange effect is composed of US$3,280,000 loss (2018: US$9,311,000 loss) from Argentina and a gain of US$1,827,000 (2017: US$4,760,000 loss) from Peru. This mainly corresponds to the foreign exchange effect of converting tax bases and monetary items from local currency to the corresponding functional currency. The main contributor of the foreign exchange effect on the tax charge in 2018 is the devaluation of the Argentinian peso.

 

 

 

 

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 Parent by the weighted average number of ordinary shares issued during the year.

 

The Company has dilutive potential ordinary shares.

 

As at 31 December 2019 and 2018, EPS has been calculated as follows:

 

 

 

As at 31 December

 

 

2019

 

2018

Basic earnings/(loss) per share from continuing operations

 

 

 

 

Before exceptional items (US$)

 

0.09

 

0.05

Exceptional items (US$)

 

(0.03)

 

(0.02)

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

 

0.06

 

0.03

Diluted earnings/(loss) per share from continuing operations

 

 

 

 

Before exceptional items (US$)

 

0.09

 

0.05

Exceptional items (US$)

 

(0.03)

 

(0.02)

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

 

0.06

 

0.03

 

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

 

 

As at 31 December

 

 

2019

 

2018

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

 

28,954

 

12,836

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

 

18,644

 

11,524

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

 

47,598

 

24,360

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

 

47,598

 

24,360

 

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

 

 

As at 31 December

 

 

2019

 

2018

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

 

510,562

 

508,878

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

 

538

 

4,018

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

 

511,100

 

512,896

 

 

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 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2018

 

1,345,516

 

519,450

 

590,447

 

6,680

 

96,397

 

14,966

 

2,573,456

Recognised on transition of  IFRS 16

 

-

 

-

 

-

 

5,337

 

-

 

-

 

5,337

At 1 January 2019,  after IFRS 16 adjustment

 

1,345,516

 

519,450

 

590,447

 

12,017

 

96,397

 

14,966

 

2,578,793

Additions

 

99,658

 

716

 

21,084

 

842

 

-

 

14,7733

 

137,073

Asset acquisition

 

-

 

-

 

218

 

-

 

-

 

-

 

218

Change in discount rate

 

-

 

-

 

-

 

-

 

3,249

 

-

 

3,249

Change in mine closure estimate

 

-

 

-

 

-

 

-

 

50

 

-

 

50

Disposals

 

-

 

-

 

(1,893)

 

(1,969)

 

-

 

-

 

(3,862)

Write-offs

 

-

 

-

 

(3,426)

 

-

 

-

 

(241)

 

(3,667)

Transfers and other movements2

 

4,200

 

8,915

 

4,525

 

858

 

-

 

(14,302)

 

4,196

At 31 December 2019

 

1,449,374

 

529,081

 

610,955

 

11,748

 

99,696

 

15,196

 

2,716,050

Accumulated depreciation
and impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2019

 

999,695

 

298,024

 

349,908

 

4,707

 

71,003

 

947

 

1,724,284

Depreciation for the year

 

108,911

 

34,177

 

37,076

 

3,262

 

3,831

 

-

 

187,257

Disposals

 

-

 

-

 

(1,744)

 

(777)

 

-

 

-

 

(2,521)

Write-offs

 

-

 

-

 

(2,814)

 

-

 

-

 

-

 

(2,814)

Impairment/(reversal of impairment), net

 

10,856

 

1,864

 

1,798

 

49

 

-

 

-

 

14,567

Transfers and other movements2

 

-

 

-

 

(69)

 

69

 

-

 

-

 

-

At 31 December 2019

 

1,119,462

 

334,065

 

384,155

 

7,310

 

74,834

 

947

 

1,920,773

Net book amount at 31 December 2019

 

329,912

 

195,016

 

226,800

 

4,438

 

24,862

 

14,249

 

795,277

1   Within mining properties and development costs there is a balance at 31 December 2019 related to Crespo project (US$27,693,000) that is not currently being depreciated as the unit is not operating.

2   Transfers and other movements include US$4,200,000 that was transferred from evaluation and exploration assets (note 17).

3   There were no borrowing costs capitalised in property, plant and equipment.

 

 

 

 

Mining

properties and

development
costs
1
 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 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2018

 

1,259,902

 

496,924

 

557,482

 

6,611

 

98,537

 

33,409

 

2,452,865

Additions

 

83,106

 

754

 

18,888

 

82

 

-

 

19,4473

 

122,277

Change in discount rate

 

-

 

-

 

-

 

-

 

(1,126)

 

-

 

(1,126)

Change in mine closure estimate

 

-

 

-

 

-

 

-

 

(1,014)

 

-

 

(1,014)

Disposals

 

-

 

-

 

(156)

 

(212)

 

-

 

-

 

(368)

Write-offs

 

-

 

(176)

 

(1,094)

 

(392)

 

-

 

(21)

 

(1,683)

Transfers and other movements2

 

2,508

 

21,948

 

15,327

 

591

 

-

 

(37,869)

 

2,505

At 31 December 2018

 

1,345,516

 

519,450

 

590,447

 

6,680

 

96,397

 

14,966

 

2,573,456

Accumulated depreciation
and impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2018

 

899,381

 

266,069

 

318,817

 

4,745

 

67,155

 

1,032

 

1,557,199

Depreciation for the year

 

100,185

 

32,095

 

31,983

 

476

 

3,848

 

-

 

168,587

Disposals

 

-

 

-

 

(141)

 

(191)

 

-

 

-

 

(332)

Write-offs

 

-

 

(141)

 

(808)

 

(350)

 

-

 

-

 

(1,299)

Impairment/(reversal of impairment), net

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Transfers and other movements2

 

129

 

1

 

57

 

27

 

-

 

(85)

 

129

At 31 December 2018

 

999,695

 

298,024

 

349,908

 

4,707

 

71,003

 

947

 

1,724,284

Net book amount at 31 December 2018

 

345,821

 

221,426

 

240,539

 

1,973

 

25,394

 

14,019

 

849,172

1   Within mining properties and development costs there is a balance at 31 December 2018 related to Crespo project (US$26,855,000) that is not currently being depreciated.

2   Transfers and other movements include US$2,379,000 that was transferred from evaluation and exploration assets (note 17).

3   Includes borrowing costs capitalised in property, plant and equipment amounting to US$239,000. The capitalisation rate used was 2.88%.

 

In 2019, management determined that there was a trigger of impairment in the San Jose mine unit due to the increase of the discount rate from 9.5% to 13.5%, mainly explained by the rise in country risk premium in Argentina. The impairment test result did not show a difference versus the carrying value given that the negative effects of the increased discount rate were offset by an increase in the silver and gold analyst consensus prices. Therefore, no impairment, nor impairment reversal was recognised.

 

As a result of the delays in obtaining exploration permits in the Pallancata mine unit, management revised its mine plan. The revised plan considers only the reserves and resources economically exploitable based on the latest model whilst spreading the remaining reserves and resources over a longer period of time to allow more time for the permitting and exploration campaigns to be completed. Management determined that this was a trigger of impairment and an impairment test was carried. The effect of the changes in the mine plan was partly offset by an increase in analyst consensus prices, and the resulting impairment charge recognised as at 31 December 2019 amounted to US$14,693,000 (US$14,567,000 in property, plant and equipment and US$126,000 in evaluation and exploration assets).

 

In 2018, management determined there were triggers of impairment in the San Jose mine unit due to the devaluation of the US$, inflation and the new export tax approved in Argentina since September 2018. The impairment test result did not show a difference versus the carrying value given that the level of devaluation offset inflation and the new export tax. Therefore, no impairment was recognised.

 

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

 

The recoverable values of the San Jose and Pallancata CGUs were determined using a fair value less costs of disposal (FVLCD) methodology. FVLCD was determined using a combination of level 2 and level 3 inputs, which result in fair value measurements categorised in its entirety as level 3 in the fair value hierarchy, to construct a discounted cash flow model to estimate the amount that would be paid by a willing third party in an arm's length transaction. 

 

The key assumptions on which management has based its determination of FVLCD and the associated recoverable values calculated are gold and silver prices, future capital requirements, production costs, reserves and resources volumes (reflected in the production volume), and the discount rate.

 

2019

US$ per oz.

 

2020

 

2021

 

2022

 

2023

 

2024

 

Long-term

Gold

 

1,506

 

1,492

 

1,469

 

1,377

 

1,340

 

1,369

Silver

 

18.3

 

17.5

 

17.7

 

17.7

 

18.5

 

17.7

 

 

 

San Jose

 

Pallancata

Discount rate (post tax)

 

13.5%

 

6.5%

 

The Period of six and two years were used to prepare the cash flow projections of the San Jose mine unit and the Pallancata mine unit respectively which is in line with their life of mine.

 

31 December 2019 (US$000)

 

San Jose

 

Pallancata

Current carrying value of CGU, net of deferred tax

 

132,278

 

59,147

 

2018

US$ per oz.

 

2019

 

2020

 

2021

 

2022

 

2023

 

Long-term

Gold

 

1,251

 

1,258

 

1,237

 

1,218

 

1,300

 

1,300

Silver

 

15.70

 

16.9

 

17.1

 

16.6

 

18.0

 

18.0

 

 

 

San Jose

Discount rate (post tax)

 

9.5%

 

The Period of 6 years was used to make the cash flow projections of San Jose mine unit which reflects its life of mine.

 

 

 

31 December 2018 (US$000)

 

San Jose

Current carrying value of CGU, net of deferred tax

 

138,877

 

The estimated recoverable values of the Group's CGUs are equal to, or not materially different than, their carrying values.

 

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.

 

A change in any of the key assumptions would have the following impact:

 

 

 

 

US$000

 

 

 

San Jose

 

Pallancata

Gold and silver prices (decrease by 10%)

 

 

(62,700)

 

(19,900)

Gold and silver prices (increase by 5%)1

 

 

17,839

 

8,500

Production costs (increase by 10%)

 

 

(38,000)

 

(11,300)

Production costs (decrease by 10%)1

 

 

17,839

 

10,600

Production volume (decrease by 10%)

 

 

(28,700)

 

(6,000)

Production volume (increase by 10%)1

 

 

17,839

 

4,900

Post tax discount rate (increase by 3%)2

 

 

(11,200)

 

-

Post tax discount rate (decrease by 3%)2

 

 

12,900

 

 

Capital expenditure (increase by 10%)

 

 

(11,700)

 

-

Capital expenditure (decrease by 10%)

 

 

11,700

 

-

1   This represents the maximum impairment loss that could be reversed, as it represents the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

 

2   Management believes that a 3% change is a reasonably possible change in the post-tax discount rate in Argentina. However, changes in the perception of Argentina arising from political, social and financial disruption may give rise to significant movement in the discount rate used in the assessment of the San Jose CGU.

 

Lease contracts

The Group has lease contracts for vehicles used in its operations and administrative offices. Leases of motor vehicles generally have lease terms of three years. The Group's obligations under its leases are secured by the lessor's title to the leased assets.

 

The Group also has certain leases of assets with lease terms of twelve months or less and leases of office equipment with low value. The Group applies the short-term lease and lease of low-value assets recognition exemptions for these leases.

 

The following are the amounts recognised in profit or loss:

 

 

 

 

 

US$000

Depreciation expense for right-of-use assets

 

 

(2,454)

Interest expense on lease liabilities

 

 

(96)

Expense relating to short-term leases (included in cost of sales, administrative, exploration and other expenses)

 

 

(4,985)

Expense relating to leases of low-value assets (included in cost of sales, administrative, exploration and other expenses)

 

 

(1,233)

Variable lease payments (included in cost of sales)

 

 

(3,470)

Total amount recognised in profit or loss

 

 

(12,238)

 

The Group had total cash outflows for leases of US$12,194,000 in 2019 (US$14,133,000 in 2018). There were no non-cash additions to right-of-use assets and lease liabilities during the year. The future cash outflows relating to leases that have not yet commenced are US$5,527,000.

 

17 Evaluation and exploration assets

 

 

 

Azuca
US$000

 

Crespo
US$000

 

San Felipe US$000

 

Biolantanidos US000$

 

Volcan

US$000

 

Others
US$000

 

Total
US$000

Cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2018

 

81,599

 

26,239

 

55,450

 

-

 

94,452

 

12,668

 

270,408

Additions

 

427

 

360

 

-

 

-

 

230

 

9,204

 

10,221

Transfers to property plant and equipment

 

-

 

-

 

-

 

-

 

-

 

(2,508)

 

(2,508)

Balance at 31 December 2018

 

82,026

 

26,599

 

55,450

 

-

 

94,682

 

19,364

 

278,121

Asset acquisition (note 3)

 

-

 

-

 

-

 

59,358

 

-

 

-

 

59,358

Additions

 

687

 

643

 

-

 

1,149

 

770

 

6,025

 

9,274

Transfers to assets held for sale (note 23)

 

-

 

-

 

(55,450)

 

-

 

-

 

-

 

(55,450)

Transfers to property plant and equipment

 

-

 

-

 

-

 

-

 

-

 

(4,236)

 

(4,236)

Balance at 31 December 2019

 

82,713

 

27,242

 

-

 

60,507

 

95,452

 

21,153

 

287,067

Accumulated impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2018

 

45,876

 

9,878

 

17,470

 

-

 

44,381

 

5,404

 

123,009

Transfers to property, plant and equipment

 

-

 

-

 

-

 

-

 

-

 

(129)

 

(129)

Balance at 31 December 2018

 

45,876

 

9,878

 

17,470

 

-

 

44,381

 

5,275

 

122,880

(Impairment reversal)/impairment

 

-

 

-

 

(315)

 

-

 

-

 

126

 

(189)

Transfers to assets held for sale (note 23)

 

-

 

-

 

(17,155)

 

-

 

-

 

-

 

(17,155)

Transfers to property, plant and equipment

 

-

 

-

 

-

 

-

 

-

 

(31)

 

(31)

Balance at 31 December 2019

 

45,876

 

9,878

 

-

 

-

 

44,381

 

5,370

 

105,505

Net book value as at 31 December 2018

 

36,150

 

16,721

 

37,980

 

-

 

50,301

 

14,089

 

155,241

Net book value as at 31 December 2019

 

36,837

 

17,364

 

-

 

60,507

 

51,071

 

15,783

 

181,562

 

At 31 December 2019, the Group has recorded an impairment charge with respect to evaluation and exploration assets of the Pallancata mine unit of US$126,000 (the calculation of the recoverable values is detailed in note 16).

 

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

 

As at 31 December 2019, the San Felipe project, which is part of the exploration segment, was reclassified to assets held for sale. Consequently, management recognised a reversal of impairment of US$315,000 in the period to adjust the carrying value to the amount pending of collection from the option payment at 31 December 2019 (refer to note 23).

 

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 2018

 

22,157

 

26,583

 

1,872

 

6,686

 

57,298

Additions

 

-

 

-

 

13

 

1,894

 

1,907

Transfer

 

-

 

-

 

3

 

-

 

3

Balance at 31 December 2018

 

22,157

 

26,583

 

1,888

 

8,580

 

59,208

Additions

 

-

 

-

 

2

 

-

 

2

Transfer

 

-

 

-

 

9

 

-

 

9

Balance at 31 December 2019

 

22,157

 

26,583

 

1,899

 

8,580

 

59,219

Accumulated amortisation and impairment

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2018

 

14,163

 

12,686

 

1,529

 

4,376

 

32,754

Amortisation for the year4

 

1,113

 

-

 

212

 

766

 

2,091

Balance at 31 December 2018

 

15,276

 

12,686

 

1,741

 

5,142

 

34,845

Amortisation for the year4

 

1,210

 

-

 

186

 

673

 

2,069

Transfer

 

-

 

-

 

(54)

 

-

 

(54)

Balance at 31 December 2019

 

16,486

 

12,686

 

1,873

 

5,815

 

36,860

Net book value as at 31 December 2018

 

6,881

 

13,897

 

147

 

3,438

 

24,363

Net book value as at 31 December 2019

 

5,671

 

13,897

 

26

 

2,765

 

22,359

1   The transmission line is amortised using the units of production method. At 31 December 2019 the remaining amortisation period is approximately 6 years (2018: 7 years).

2   Corresponds to the acquisition of water permits of Andina Minerals Group ("Andina"). These permits 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$6.60 per gold equivalent ounce of resources at 31 December 2019 (2018: US$6.70). The risk adjusted enterprise value figure has been determined using a combination of level 2 and level 3 inputs, which result in a fair value measurement categorised in its entirety as level 3 in the fair value hierarchy, 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 Chilean 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 2019 the remaining amortisation period is from 4 to 14 years (2018: 5 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. No impairments were recognised in 2019 and 2018. The estimated recoverable amount is not materially different than its carrying value.

 

Key assumptions

 

 

2019

 

2018

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

 

6.60

 

6.70

 

US$000

 

2019

 

2018

Current carrying value Volcan CGU

 

64,968

 

64,198

 

The estimated recoverable amount is not materially greater than its carrying value.

 

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.

 

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)

 

2019

 

2018

Value per in-situ ounce (10% decrease)

 

(6,297)

 

(6,407)

Value per in-situ ounce (10% increase)

 

6,297

 

6,407

Risk factor (increase by 5%)

 

(4,844)

 

(1,725)

Risk factor (decrease by 5%)

 

4,844

 

1,725

 

 

19 Financial assets at fair value through OCI

 

 

 

Year ended 31 December

 

 

2019
US$000

 

2018
US$000

Beginning balance

 

5,296

 

6,264

Acquisitions1

 

1,100

 

6,433

Fair value change recorded in OCI

 

3,628

 

(6,447)

Disposals2

 

(421)

 

(954)

Transfer of shares (note 3)

 

(3,444)

 

-

Ending balance

 

6,159

 

5,296

1 Corresponds to the purchase of 147,831,737 shares of REE UNO (US$500,000), and 452,200 shares of  Americas Silver Corporation (ASC) (US$600,000) (note 23) (2018: Purchase of 591,326,947 shares of REE UNO (US$2,000,000), 7,519,331 shares of Skeena Resources Limited (Skeena) (US$4,313,000) and 15,600 shares of Cobalt Power Group (US$120,000)).

2 As the investments were not considered to be strategic, the Group sold 10,032,000 shares of Santa Cruz Silver Mining (SCSM) with a fair value at the date of sale of US$421,000 generating a loss on disposal of US$1,658,000 (2018: Sale of 14,545,454 shares of Red Eagle and 3,383,000 shares of SCSM with a fair value at the date of sale of US$799,000 and US$155,000, generating a loss on disposal of US$2,514,000 and US$546,000 respectively). 

 

The Group made the election at initial recognition to measure the equity investments at fair value through OCI as they are not held for trading.

 

The fair value at 31 December 2019 and 31 December 2018 is as follows:

 

 

 


US$000

 

 

 

 

 

2019

 

2018

 

Listed equity investments:

 

 

 

 

 

Power Group Projects Corp (formerly Cobalt Power Group)

 

28

 

53

 

Santa Cruz Silver Mining

 

-

 

435

 

Revelo Resources Corp.

 

4

 

4

 

Skeena Resources Limited

 

3,937

 

1,599

 

Goldspot Discoveries Inc.

 

755

 

-

 

Americas Silver Corporation

 

1,417

 

-

 

Empire Petroleum Corp.

 

18

 

19

 

Total listed equity investments

 

6,159

 

2,110

 

Non-listed  equity investments:

 

 

 

 

 

Pembrook Mining Corp.

 

-

 

-

 

ECI Exploration and Mining Inc.

 

-

 

 

-

 

Goldspot Discoveries Inc.

 

-

 

1,240

 

REE UNO SpA

 

-

 

1,946

 

Total non-listed equity investments

 

-

 

3,186

 

Total

 

6,159

 

5,296

 

 

Fair value of the listed shares is determined by reference to published price quotations in an active market and they are categorised as level 1.

 

The fair value of non-listed equity investments is determined based on financial information available of the companies and they are categorised as level 3.

 

 

 

20 Trade and other receivables

 

 

 

As at 31 December

 

 

2019

 

2018

 

 

Non-current
US$000

 

Current
US$000

 

Non-current
US$000

 

Current
US$000

Trade receivables

 

-

 

37,799

 

-

 

45,201

Advances to suppliers

 

-

 

3,810

 

-

 

2,950

Duties recoverable from exports of Minera Santa Cruz 1

 

664

 

-

 

1,546

 

1,788

Receivables from related parties (note 29(a))

 

-

 

569

 

-

 

76

Loans to employees

 

726

 

177

 

744

 

206

Interest receivable

 

-

 

178

 

-

 

66

Receivable from Kaupthing, Singer and Friedlander Bank

 

-

 

197

 

-

 

195

Other2

 

1,671

 

11,496

 

723

 

12,591

Provision for impairment3

 

-

 

(6,766)

 

-

 

(5,997)

Assets classified as receivables

 

3,061

 

47,460

 

3,013

 

57,076

Prepaid expenses

 

800

 

2,281

 

8

 

2,028

Value Added Tax (VAT)4

 

1,327

 

23,877

 

2,430

 

19,632

Total

 

5,188

 

73,618

 

5,451

 

78,736

 

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

 

1   Relates to export benefits through the Patagonian Port and silver refunds in Minera Santa Cruz, discounted over 18 and 24 months (2018: 24 months) at a rate of 22.24% (2018: 9.98%) for dollars denominated amounts and 48.93% (2018: 57.00%) for Argentinian pesos. The loss on the unwinding of the discount is recognised within finance costs.

2   Mainly corresponds to account receivables from contractors for the sale of supplies of US$6,235,000 (2018: US$6,111,000), and other tax claims of US663,000 (2018: US$3,227,000).

3   Includes the provision for impairment of trade receivable from customers in Peru of US$1,533,000 (2018: US$1,554,000), the impairment of deposits in Kaupthing, Singer and Friedlander of US$197,000 (2018: US$195,000), the impairment of the account receivable from a third party of US$4,626,000 (2018: US$3,233,000) and other receivables of US$410,000 (2018: US$1,015,000). 

4   Primarily relates to US$12,832,000 (2018: US$11,462,000) 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. . It also includes the VAT ofMinera Ares. of US$7,724,000 (2018: US$6,248,000) and Empresa de Transmisión Aymaraes S.A.C. of US$2,435,000 (2018: US$3,569,000). The VAT is valued at its recoverable amount.

 

 

Movements in the provision for impairment of receivables:

 

 

 

Individually
impaired
US$000

At 1 January 2018

 

4,594

Provided for during the year (note 12)

 

5,884

Released during the year1

 

(4,481)

At 31 December 2018

 

5,997

Provided for during the year (note 12)

 

3,706

Released during the year1

 

(2,937)

At 31 December 2019

 

6,766

1   Corresponds to the release of the provision of US$5,000 (2018: increase of US$2,000) and write off of US$2,932,000 (2018: US$4,479,000).

 

As at 31 December 2019 and 2018, none of the financial assets classified as receivables (net of impairment) were past due.

 

 

 

21 Inventories

 

 

 

As at 31 December

 

 

2019
US$000

 

2018
US$000

Finished goods valued at cost

 

1,950

 

1,543

Products in process valued at cost

 

19,460

 

16,085

Products in process accrual

 

6,445

 

8,030

Supplies and spare parts

 

41,582

 

37,765

 

 

69,437

 

63,423

Provision for obsolescence of supplies

 

(6,837)

 

(5,388)

Total

 

62,600

 

58,035

 

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 2019 and 2018 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 Group has no such contracts as at 31 December 2019 (2018: $6,047,000) (refer to note 25).

 

The amount of expense recognised in profit and loss related to the consumption of inventory of supplies, spare parts and raw materials is US$112,383,000 (2018: US$111,485,000).

 

Movements in the provision for obsolescence comprise an increase in the provision of US$1,449,000 (2018: US$384,000) and the reversal of US$nil relating to the sale of supplies and spare parts, that had been provided for (2018: US$nil).

 

 

22 Cash and cash equivalents

 

 

As at 31 December

 

 

2019
US$000

 

2018
US$000

Cash at bank

 

331

 

366

Liquidity funds1

 

16

 

-

Current demand deposit accounts2

 

37,900

 

43,095

Time deposits3

 

128,110

 

36,243

Cash and cash equivalents considered for the statement of cash flows

 

166,357

 

79,704

 

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 nil days as at
31 December 2019 (2018: nil days).

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

3   These deposits have an average maturity of 7 days (2018: Average of 14 days).

 

23 Assets held for sale

 

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$33,646,000 as non-refundable payments at 31 December 2019 (2018: US$31,396,000). 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.

 

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 15 December 2018, the option to sell the San Felipe property to ASC was extended to 15 December 2020 with the outstanding option payment of US$6,000,000 payable in quarterly equal instalments over the 2 years period. In consideration for the extension, the Group received 452,200 ASC's common shares on 18 January 2019 at an issue price equal to US$600,000 that was recognised as other income.                      

    

During 2019 the Group collected US$2,250,000 (2018: US$2,000,000).

 

ASC has demonstrated its intention to pay the outstanding balance of US$3,750,000 during the first semester of 2020, and in consequence, as the sale is highly probable to be completed within the twelve months of the year-end, the assets and liabilities were transfer to assets and liabilities related to asset held for sale, respectively.

 

The major classes of assets and liabilities classified as assets held for sale as at 31 December 2019 are as follows:

 

 

 

US$000

Assets

 

 

Evaluation and exploration assets, net of impairment (note 17)

 

38,295

Total non-current assets

 

38,295

Liabilities

 

 

Provision for mine closure (note 26)

 

(899)

Deferred income

 

(33,646)

Total liabilities directly associated with assets held for sale

 

(34,545)

Net assets directly associated with assets held for sale

 

3,750

 

 

 

 

 

24 Trade and other payables

 

 

As at 31 December

 

 

2019

 

2018

 

 

Non-current
US$000

 

Current
US$000

 

Non-current
US$000

 

Current
US$000

Trade payables1

 

-

 

75,252

 

-

 

69,568

Salaries and wages payable2

 

-

 

26,956

 

-

 

36,272

Dividends payable

 

-

 

37

 

-

 

2,247