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19 August 2015

Hochschild Mining plc

Interim Results for the six months ended 30 June 2015

 

Financial Results highlights[1]

·    Net revenue of $190.3 million (H1 2014: $282.0 million)

·    Adjusted EBITDA of $39.3 million (H1 2014: $94.3 million)[2] 

·    Earnings per share of $(0.10) (H1 2014: $(0.01))

·    Cash balance of $84.3 million as at 30 June 2015

Inmaculada Project update

·    Inmaculada production to date:

o 21,100 ounces of gold

o 506,200 ounces of silver

·    Mined tonnage, grades and metallurgical recoveries in line with expectations

·    2015 production target of 6-7 million silver equivalent ounces on track[3]

Operational highlights

·    Half year production of 9.2 million attributable silver equivalent ounces

·    24.0 million silver equivalent ounce full year production target on track

·    Main operation all-in sustaining costs per silver equivalent ounce fell by 9% to $15.0 ($16.0 per ounce assuming silver-to-gold ratio of 60:1)[4]

·    $13-14 per ounce all-in sustaining cost target for 2015 on track ($15-16 per ounce assuming silver-to-gold ratio of 60:1)

H2 2015 Outlook

·    Significantly improved production expected in H2 2015

·    Inmaculada full production set to drive significant cost and margin improvement in H2 2015

 

$000, pre-exceptional unless stated	Six months to 30 June 2015	Six months to 30 June 2014
Attributable silver production (koz)	6,265	8,526
Attributable gold production (koz)	41	55
Net revenue[5]	190,259	282,012
Adjusted EBITDA	39,306	94,282
Loss from continuing operations	(37,750)	(1,546)
Loss from continuing operations (post-exceptional)	(43,885)	(11,749)
Earnings per share ($ pre-exceptional)	(0.10)	(0.01)
Earnings per share ($ post-exceptional)	(0.12)	(0.04)

 

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

"During this year, we have been completing the investment in Hochschild's new flagship low cost Inmaculada mine. I am delighted that in June we reached a milestone for our Company with the production of our first ounces from this crucial project and I am confident that, as we move through the remainder of 2015, we will start to see the fruits of our long term investment strategy."

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A live conference call & audio webcast will be held at 2pm (London time) on Wednesday 19 August 2015 for analysts and investors. Details as follows:

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

http://edge.media-server.com/m/p/h5k94yz3

 

Conference call dial in details:

UK: +44(0)20 3427 1900 (Please use the following confirmation code: 2270177).

                                                       

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

UK: (0)20 3427 0598 (Access code: 2270177)

 

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

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Enquiries:

Hochschild Mining plc

Charles Gordon                                                                                      +44 (0)20 3714 9040

Head of Investor Relations

Hudson Sandler

Charlie Jack                                                                                            +44 (0)207 796 4133

Public Relations

_______________________________________________________________________________________

 

About Hochschild Mining plc:

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

 

 

CHIEF EXECUTIVE OFFICER'S STATEMENT

2015 has already proved to be both an exciting and challenging year for Hochschild. We have achieved first production from our flagship Inmaculada project whilst managing the existing business in an ongoing deteriorating commodity price environment. The financial position of the company is expected to improve through the second half as we reach full capacity at Inmaculada and begin to benefit from the new low cost production.

 

Growth

The Company made excellent progress in the first half on the final stages of construction at Inmaculada with the result that we were able to start the commissioning of the processing plant and deliver first production in early June. The subsequent ramp-up has progressed well with mining operations running smoothly and grades and recoveries in line with or better than expectations and we are now close to being able to declare commercial production. A number of non-essential deliverables, such as the paste backfill plant, remain to be completed but we are confident that, with approximately 1.8 million silver equivalent ounces produced to date, the operation is on track to deliver its six to seven million silver equivalent ounce target for the year. We also remain excited by the geological potential in the district surrounding our Inmaculada and Pallancata land packages and expect to continue exploration work in 2016 alongside similar programmes at Arcata and San Jose.

 

H1 2015 performance

Our current operations have delivered a solid first half despite the implementation of revised mine plans at both Peruvian operations, producing 9.2 million attributable silver equivalent ounces. So far in 2015, Arcata and San Jose have exceeded our expectations whilst Pallancata's performance has reflected the long-term move to thinner veins in addition to the delay in brownfield drilling at the mine. However, I am happy to report that early results from the recent resumption of drilling are extremely encouraging for the long term future of the operation. We remain on track to meet our annual production forecast of 24 million silver equivalent ounces with production in the second half expected to be boosted by between six to seven million ounces from Inmaculada.

 

Our financial results for the first half reflected the effects of a further 18% fall in the average silver price received versus the first half of 2014, our mine plan optimisation in Peru, our ongoing efforts to reduce costs and the final phase of our Inmaculada investment programme. Main operation all-in sustaining costs per silver equivalent ounce were in line with expectations at $15.0 and we can look forward to the increasing positive impact of low cost production from Inmaculada in the second half. Pre-exceptional EBITDA was $39.3 million whilst the first half loss per share resulted partly from interest costs arising from our $350 million senior notes issued in January 2014. We fully expect those costs to begin to be absorbed as cashflows from Inmaculada start to be generated. The cash balance at the end of the half was at $84 million which is net of $63 million of scheduled project capital expenditure executed during the period.

 

Financing

During the first half, Hochschild continued to allocate capital expenditure to complete Inmaculada. Early in the year, we further enhanced our liquidity with the drawdown of $75 million of short term lines of credit in Peru and towards the end of the half we were able to extend the maturity of these facilities as well as improve the interest rate to an average annual rate of approximately 0.9%. Furthermore, we took advantage of short periods of price improvement at the start of the year to hedge six million silver ounces for 2015 at $17.75 per ounce on top of the 38,000 gold ounces hedged at $1,300 per ounce, thereby continuing our policy of protecting cashflows during the Inmaculada construction.

 

Outlook

Production for the second half of 2015 is scheduled to include the first material contribution from Inmaculada and a stronger contribution from San Jose, with all-in sustaining cost expected to meet guidance of between $13 to $14 per silver equivalent ounce (or between $15 to $16 using the 60:1 gold to silver ratio).

 

The current market environment for precious metals remains uncertain but I am confident in a more positive outlook for Hochschild in the second half of this year and into 2016. We can look forward to the establishment of Inmaculada as a significant cash generating asset for the Company and thus becoming our new flagship operation.

 

Ignacio Bustamante

Chief Executive Officer

18 August 2015

OPERATING REVIEW

 

CURRENT OPERATIONS

 

Production

In the first half of 2015, the Company delivered attributable production of 9.2 million silver equivalent ounces, including 6.3 million ounces of silver and 40.6 thousand ounces of gold. With production from the newly commissioned Inmaculada mine ramping up, the Company is on track to meet its full year production target of 24.0 million attributable silver equivalent ounces.[6]

 

Costs

The Company's all-in sustaining costs at its main operations were reduced by 9% in H1 2015 to $15.0 per ounce driven by operational initiatives resulting from the cashflow optimisation programme, the ongoing local currency devaluation and better than expected grades particularly at Arcata.[7] Unit cost per tonne at the main Peruvian operations was at $106.5 (H1 2014: $74.0) with the key reason for the increase being the significant reduction in capacities at both mines as part of the Company's mine plan optimization announced in November 2014. In Argentina, unit cost per tonne increased by 10% to $219.5 (H1 2014: $200.0).

 

Main operations: Arcata (Peru)

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

 

Arcata summary	Six months to 30 June 2015	Six months to 30 June 2014	% change
Ore production (tonnes)	300,924	365,573	(18)
Average silver grade (g/t)	340	262	30
Average gold grade (g/t)	0.97	0.81	20
Silver produced (koz)	2,726	2,895	(6)
Gold produced (koz)	7.17	8.76	(18)
Silver equivalent produced (koz)	3,248	3,459	(6)
Silver sold (koz)	2,683	2,947	(9)
Gold sold (koz)	6.92	8.58	(19)
Unit cost ($/t)	113.2	82.2	38
Total cash cost ($/oz Ag co-product)[8]	11.5	12.5	(8)
All-in sustaining cost ($/oz)	13.6	17.7	(23)

 

Production

At Arcata, total silver equivalent production in H1 2015 was 3.2 million ounces (H1 2014: 3.5 million ounces). Despite the announced adjusted mine plans for 2015 to ensure the extraction of profitable ounces, Arcata delivered a stronger than expected first half production with higher than expected tonnage and silver grades.

 

Costs

In the first half, the unit cost at Arcata of $113.2 per tonne (H1 2014: $82.2 per tonne) reflected the reduction in capacity as part of the above-mentioned mine plan adjustment.  However, with corresponding grade increases and ongoing reductions in sustaining and development capital expenditure, all-in sustaining costs fell by 23% to $13.6 per silver equivalent ounce (H1 2014: $17.7 per ounce).

 

Brownfield exploration

In the first half, the Arcata exploration programme has focused on the incorporation of resources from the Stephani, Cristina, Soledad, Macarena and Nicolle as well as further exploration of the Tunel 4 vein system. 5,026 metres of drilling were executed. Significant intercepts included:

 

Vein	Results
North-South	DDH027-LM11: 2.12m at 0.43 g/t Au & 719 g/t Ag DDH768-LM14: 1.27m at 2.46 g/t Au & 549 g/t Ag DDH802-GE15: 1.58m at 0.56 g/t Au & 659 g/t Ag DDH990-GE11: 0.82m at 0.15 g/t Au & 1,667 g/t Ag
Lucero	DDH777-LM15: 1.35m at 1.35 g/t Au & 593 g/t Ag DDH792-GE15: 1.01m at 1.85 g/t Au & 395 g/t Ag DDH800-LM15: 0.97m at 1.49 g/t Au & 533 g/t Ag
Soledad	DDH800-LM15: 1.00m at 4.05 g/t Au & 1,015 g/t Ag

 

Pallancata: Peru

The 100% owned Pallancata silver/gold property is located in the Department of Ayacucho in southern Peru, approximately 160 kilometres from the Arcata operation. Pallancata commenced production in 2007. Ore from Pallancata is transported 22 kilometres to the Selene plant for processing.

 

Pallancata summary	Six months to 30 June 2015	Six months to 30 June 2014	% change
Ore production (tonnes)	289,551	523,695	(45)
Average silver grade (g/t)	248	264	(6)
Average gold grade (g/t)	1.19	1.12	6
Silver produced (koz)	1,948	3,588	(46)
Gold produced (koz)	8.44	12.84	(34)
Silver equivalent produced (koz)	2,563	4,415	(42)
Silver sold (koz)	1,986	3,615	(45)
Gold sold (koz)	8.33	13.11	(36)
Unit cost ($/t)	99.5	68.1	46
Total cash cost ($/oz Ag co-product)	12.3	10.1	22
All-in sustaining cost ($/oz)	15.6	15.1	3

 

Production

At Pallancata, total production for the first half was 2.6 million silver equivalent ounces. (H1 2014: 4.4 million ounces) with tonnage significantly lower than the equivalent period in 2014 due to the adjusted mine plan resulting in an approximate halving of capacity although silver and gold grades have risen to compensate and are expected to remain at current levels for the remainder of the year.

 

Costs

Cost per tonne at Pallancata was $99.5 per tonne in the first half (H1 2014: $68.1 per tonne). As at Arcata, unit costs increased in line with the scheduled capacity reductions and although grade increases and sustaining capital expenditure cuts partially compensated, all-in sustaining cost per silver equivalent ounce increased slightly to $15.6 (H1 2014: $15.1) mostly due to the mine's ongoing transfer to thinner veins in the mix. The Company continues to target further cost reduction programmes at the operation.

 

Brownfield exploration

The exploration team at Pallancata received permits in May to begin a 19,100 metre exploration and drilling programme with the aim of focusing on inferred resource exploration at surface and also geological mapping of the west and south side of the district for new target definition. Results are expected in the second half of the year.

 

 

 

San Jose: Argentina

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

 

San Jose summary*	Six months to 30 June 2015	Six months to 30 June 2014	% change
Ore production (tonnes)	232,995	276,663	(16)
Average silver grade (g/t)	448	385	16
Average gold grade (g/t)	6.34	5.60	13
Silver produced (koz)	2,932	2,975	(1)
Gold produced (koz)	42.30	43.91	(4)
Silver equivalent produced (koz)	6,012	5,803	(4)
Silver sold (koz)	3,115	3,004	4
Gold sold (koz)	42.75	43.25	(1)
Unit cost ($/t)	219.5	200.0	10
Total cash cost ($/oz Ag co-product)	11.5	12.9	(11)
All-in sustaining cost ($/oz)	15.6	16.7	(7)

^*The Company has a 51% interest in San Jose

 

Production

The San Jose operation improved, as expected, from its seasonally shorter first quarter to deliver 6.0 million silver equivalent ounces (H1 2014: 5.8 million ounces) with both grades and recoveries particularly strong versus the same period of 2014, offsetting the slightly reduced tonnage in the half. San Jose is expected to deliver a stronger second half with tonnage expected to peak in the fourth quarter.

 

Costs

At San Jose, unit cost per tonne was $219.5 in the first half (H1 2014:$200.0). Tonnage decreased versus the same period of 2014 and this was only partially offset by the effect of the Company's ongoing optimisation plan and the moderate devaluation of the Argentinian peso. All-in sustaining costs were reduced by 7% versus the same period of 2014 with cash optimisation initiatives helping to reduce sustaining capital expenditure in addition to better grades. The Company continues to target further cost reduction programmes at San Jose.

 

 

 

 

PROJECT REVIEW

 

Inmaculada (Peru)

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

 

Inmaculada summary	Six months to 30 June 2015	Six months to 30 June 2014	% change
Ore production (tonnes)	52,325	-	-
Average silver grade (g/t)	89	-	-
Average gold grade (g/t)	2.92	-	-
Silver produced (koz)	95.45	-	-
Gold produced (koz)	3.42	-	-
Silver equivalent produced (koz)	344	-	-
Silver sold (koz)	-	-	-
Gold sold (koz)	-	-	-
Unit cost ($/t)	-	-	-
Total cash cost ($/oz Ag co-product)[9]	-	-	-
All-in sustaining cost ($/oz)	-	-	-

 

During the first half, plant construction continued with first dore production achieved on 3 June 2015. By the end of June, as part of the ramp-up phase to achieve full commercial design capacity, 52,325 tonnes of low grade development material had been treated at the plant producing approximately 3,420 ounces of gold and 95,450 ounces of silver.

 

Ramp-up in mill throughput has continued throughout July and August with tonnes per day reaching an average of 3,000 tonnes per day and expected to hit the forecast capacity of 3,500 tonnes per day at the end of August whilst gold and silver recoveries have now slightly exceeded expectations with the target of reaching 95% in gold and 90% in silver by the end of the year.

 

The Hochschild team has continued underground mine development and currently a stockpile of approximately 270,000 tonnes is available for processing whilst stope mining activities have commenced utilising long hole and breasting methods. The Company reiterates that the overall production forecast of 6-7 million silver equivalent ounces for 2015 remains in place and that it is on course to receive its plant operating permit which will allow the Company to begin commercial sales.

 

Construction of the paste backfill plant has reached 65%, with work on the laboratories, warehouses and workshops now complete.

 

The Company and the contractor are currently in discussions over a number of contract change orders presented by the contractor relating to the completion of the EPC contract for Inmaculada. Based on Hochschild's own evaluation work and advice received from external advisers, the Company believes that the majority of the change orders are without any merit or will be subject to significant downward adjustment. In addition, the Company believes that GyM has breached a number of terms of the EPC Contract, including failing to meet the Completion Date. Hochschild continues to assess the change orders and discussions with the contractor are ongoing.

 

The exploration focus near the Inmaculada mine remains on the Palca area to the North East and following a mapping programme in 2014 at the Palca 1 zone, six promising vein structures have been selected amongst others in a corridor of almost five kilometres with work at Palca 2 zone starting later on in the year.

 

 

FINANCIAL REVIEW

 

Key performance indicators   

(before exceptional items, unless otherwise indicated)

 

$000 unless otherwise indicated	Six months to 30 June 2015	Six months 30 June 2014	% change
Net Revenue[10]	190,259	282,012	(33)
Attributable silver production (koz)	6,265	8,526	(27)
Attributable gold production (koz)	41	55	(25)
Main operation cash costs ($/oz Ag co-product)[11]	11.8	11.8	-
Main operation cash costs ($/oz Au co-product)	872	803	9
Total all-in sustaining costs ($/oz)[12]	16.2	17.1	(5)
Main operation all-in sustaining costs ($/oz)	15.0	16.4	(9)
Adjusted EBITDA[13]	39,306	94,282	(58)
(Loss)/profit from continuing operations (pre-exceptional)	(37,750)	(1,546)	(2,342)
(Loss)/profit from continuing operations (post exceptional)	(43,885)	(11,749)	(274)
Earnings per share (pre exceptional)	(0.10)	(0.01)	(900)
Earnings per share (post exceptional)	(0.12)	(0.04)	(200)
Cash flow from operating activities[14]	18,320	44,159	(59)

 

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 periods. 

 

Revenue

Gross revenue

Gross revenue from continuing operations decreased 34% to $202.5 million in H1 2015 (H1 2014: $308.1 million) driven by lower production arising from the Company's optimised mine plans at its Peruvian operations  and another substantial fall in precious metal prices.

 

Silver

Gross revenue from silver decreased 37% in H1 2015 to $131.3 million (H1 2014: $206.8 million) as a result of a 18% fall in the average price received as well as a 23% decrease in the total amount of silver ounces sold to 7,785 koz  (H1 2014:10,086 koz).

 

Gold

Gross revenue from gold decreased 30% in H1 2015 to $71.2 million (H1 2014: $101.3 million) as a result of a 8% fall in the average price received although mostly due to a 24% decline in gold sales - the total amount of gold ounces sold in H1 2015 was 58.0 koz (H1 2014: 76.3 koz).

 

 

Gross average realised sales prices

The following table provides figures for average realised prices and ounces sold for H1 2015 and H1 2014:

 

Average realised prices	Six months to 30 June 2015	Six months to 30 June 2014
Silver ounces sold (koz)	7,785	10,086
Avg. realised silver price ($/oz)	16.9	20.5
Gold ounces sold (koz)	58.01	76.29
Avg. realised gold price ($/oz)	1,227	1,328

 

Commercial discounts

Commercial discounts refer to refinery treatment charges, refining fees and payable deductions for processing concentrates, and are discounted from gross revenue on a per tonne basis (treatment charge), per ounce basis (refining fees) or as a percentage of gross revenue (payable deductions). In H1 2015, the Group recorded commercial discounts of $12.3 million (H1 2014: $26.2 million). This decrease is explained by the reduction in sales of concentrate versus the same period of last year due to lower production and the higher proportion of dore produced at Arcata versus concentrate. The ratio of commercial discounts to gross revenue in 2014 decreased to 6% (H1 2014: 9%).

 

Net revenue

Net revenue decreased by 33% to $190.3 million (H1 2014: $282.0 million), comprising silver revenue of $122.5 million and gold revenue of $67.7 million. In H1 2015 silver accounted for 64% and gold 36% of the Company's consolidated net revenue compared to 66% and 34% respectively in H1 2014.

 

Revenue by mine

$000 unless otherwise indicated	Six months to 30 June 2015	Six months to 30 June 2014	% change
Silver revenue
Arcata	45,901	60,273	(24)
Ares	-	10,420	-
Pallancata	34,200	75,154	(54)
San Jose	51,186	60,930	(16)
Moris	-	30	-
Commercial discounts	(8,829)	(20,634)	(57)
Net silver revenue	122,458	186,173	(34)
Gold revenue
Arcata	9,018	11,308	(20)
Ares	-	14,391	-
Pallancata	10,990	17,555	(37)
San Jose	51,177	57,629	(11)
Moris	-	441	-
Commercial discounts	(3,509)	(5,517)	36
Net gold revenue	67,676	95,807	(29)
Other revenue[15]	125	32	291
Net revenue	190,259	282,012	(33)

 

 

 

Costs

Total pre-exceptional cost of sales decreased 17% to $174.5 million in H1 2015 (H1 2014: $209.4 million). The direct production cost decreased by 13% to $114.2 million (H1 2014: $131.3 million) mainly due to lower tonnage treated and the impact of the mine plan revisions. Depreciation was $55.5 million (H1 2014: $58.9 million) with the decrease mainly due to lower tonnage and the lower cost of the conversion of resources into reserves. Other items, which principally includes the costs associated with a ten day work stoppage in Argentina, was $4.9 million (H1 2014: $3.0 million).

 

$000	Six months to 30 June 2015	Six months to 30 June 2014	% Change
Direct production cost excluding depreciation	114,236	131,276	(13)
Depreciation in production cost	55,486	58,856	(6)
Other items	4,928	2,978	65
Change in inventories	(157)	16,311	(101)
Pre-exceptional cost of sales	174,493	209,421	(17)

 

Unit cost per tonne

The Company reported unit cost per tonne at its main operations of $138.3 in H1 2015 versus $102.8 in H1 2014. For further explanation on the increase in unit cost per tonne please refer to the Operating Review. 

 

Unit cost per tonne by operation (including royalties)[16]:

Operating unit ($/tonne)	Six months to 30 June 2015	Six months to 30 June 2014	% change
Main operations	138.3	102.8	35
Peru	106.5	74.0	44
Arcata	113.2	82.2	38
Pallancata	99.5	68.1	46
Argentina
San Jose	219.5	200.0	10
Others
Ares	-	117.8	-
Total	138.3	104.6	32

 

 

 

Cash costs

 

Cash cost reconciliation[17]:

$000 unless otherwise indicated	Six months to 30 June 2015	Six months to 30 June 2014	% change
Group cash cost	142,157	187,672	(24)
(+) Cost of sales	174,493	209,421	(17)
(-) Depreciation and amortisation in cost of sales	(56,536)	(62,761)	(10)
(+) Selling expenses	11,600	14,536	(20)
(+) Commercial deductions	12,600	26,476	(52)
Gold	3,519	5,529	(36)
Silver	9,081	20,947	(57)
Revenue	190,259	282,012	(33)
Gold	122,458	95,807	28
Silver	67,676	186,173	(64)
Others	125	32	291
Ounces sold
Gold	58.0	76.3	(24)
Silver	7,785	10,086	(23)
Group cash cost ($/oz)
Co product Au	872	836	8
Co product Ag	11.8	12.3	(4)
By product Au	181	(255)	171
By product Ag	9.1	8.6	6

 

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

 

 

 

All-in sustaining cost reconciliation

All-in sustaining cash costs per silver equivalent ounce^[18]

 

Six months to 30 June 2015

$000 unless otherwise indicated	Arcata	Pallancata	San José	Main Operations	Other Operations	Corporate & Others	Total
(+) Production cost excluding depreciation[19]	33,629	27,186	49,559	110,374	-	-	110,374
(+) Other items in cost of sales	1,058	595	3,275	4,928	-	-	4,928
(+) Operating and exploration capex for units	5,283	5,010	19,968	30,261	-	1,199	31,460
(+) Brownfield exploration expenses	37	1,183	555	1,775	-	1,180	2,955
(+) Administrative expenses (excl depreciation and before exceptional items)	1,616	1,265	3,439	6,320	-	11,642	17,962
(+) Royalties		373		373	-		373
Sub-Total	41,623	35,612	76,796	154,031	-	14,021	168,052
Au Ounces produced	7,168	8,443	42,300	57,911			57,911
Ag Ounces produced (000's)	2,726	1,948	2,932	7,606	-	-	7,606
Ounces produced (Ag Eq 000's)	3,248	2,563	6,012	11,823	-	-	11,823
Sub-total  ($/oz)	12.8	13.9	12.8	13.0	-	-	14.2
(+) Commercial deductions	1,974	3,750	6,876	12,600	-	-	12,600
(+) Selling expenses	475	544	10,581	11,600	-	-	11,600
Sub-total	2,449	4,294	17,457	24,200	-	-	24,200
Au Ounces sold	6,921	8,333	42,754	58,008	-	-	58,008
Ag Ounces sold (000's)	2,683	1,986	3,115	7,785	-	-	7,785
Ounces sold (Ag Eq 000's)	3,187	2,592	6,228	12,008	-	-	12,008
Sub-total  ($/oz)	0.8	1.7	2.8	2.0	-	-	2.0
All-in sustaining costs ($/oz Ag Eq)	13.6	15.6	15.6	15.0	-	-	16.2

 

All-in sustaining costs using the gold to silver ratio of 60:1 gives a total cost of $17.3 per ounce and main operations cost of $16.0 per ounce (Arcata at $14.0 per once, Pallancata at $16.2 per ounce and San Jose at $17.1 per ounce).

 

 

 

Six months to 30 June 2014

$000 unless otherwise indicated	Arcata	Pallancata	San José	Main Operations	Other Operations	Corporate & Others	Total
(+) Production cost excluding depreciation	29,059	34,779	49,838	113,676	17,600	-	131,276
(+) Other items in cost of sales	992	647	656	2,295	683	-	2,978
(+) Operating and exploration capex for units	18,164	17,859	20,926	56,949	(5)	431	57,375
(+) Brownfield exploration expenses	214	629	91	934	(61)	688	1,561
(+) Administrative expenses (excl depreciation and before exceptional items)	2,144	2,947	4,063	9,154	166	10,709	20,029
(+) Royalties		897		897	262	-	1,159
Sub-Total	50,573	57,758	75,574	183,905	18,645	11,828	214,379
Au Ounces produced	8,755	12,840	43,912	65,507	11,465	-	76,972
Ag Ounces produced (000's)	2,895	3,588	2,975	9,458	525	-	9,983
Ounces produced (Ag Eq 000's)	3,459	4,415	5,803	13,676	1,264	-	14,940
Sub-total  ($/oz)	14.6	13.1	13.0	13.4	14.8	-	14.3
(+) Commercial deductions	9,846	7,872	8,758	26,476	-	-	26,476
(+) Selling expenses	1,054	977	12,461	14,492	44	-	14,536
Sub-total	10,900	8,849	21,219	40,968	44	-	41,012
Au Ounces sold	8,576	13,112	43,252	64,940	11,354	-	76,294
Ag Ounces sold (000's)	2,947	3,615	3,004	9,566	519	-	10,086
Ounces sold (Ag Eq 000's)	3,499	4,460	5,789	13,748	1,251	-	14,998
Sub-total  ($/oz)	3.1	2.0	3.7	3.0	0.0	-	2.7
All-in sustaining costs ($/oz Ag Eq)	17.7	15.1	16.7	16.4	14.8	-	17.1

 

Administrative expenses

Administrative expenses before exceptional items decreased by 12% to $18.8 million (H1 2014: $21.4 million) primarily due to the continuing impact of the cashflow optimisation programme.

 

Exploration expenses

In H1 2015, pre-exceptional exploration expenses, decreased by 50% to $4.1 million (H1 2014: $8.2 million).

 

In addition, the Group capitalises part of its brownfield exploration, which mostly relates to costs incurred converting potential resource to the Inferred or Measured and Indicated category. The Company capitalised $0.7 million relating to brownfield exploration compared to $1.2 million in H1 2014, bringing the total investment in exploration for H1 2015 to $4.8 million (H1 2014: $9.4 million).  In addition, $0.8 million was invested in the Company's Advanced and Growth Projects.

 

Selling expenses

Selling expenses fell by 20% in H1 2015 to $11.6 million (H1 2014: $14.5 million) due to lower prices impacting the export tax in Argentina. Selling expenses mainly consist of export duties at San Jose (export duties in Argentina are levied at 10% of revenue for concentrate and 5% of revenue for dore) and logistic costs for the sale of concentrate.

 

 

Other income/expenses

Other income before exceptional items was $2.6 million (H1 2014: $2.0 million). Other expenses before exceptional items reached $4.6 million (H1 2014: $4.8 million) mainly due to care and maintenance expenses at Ares.

 

Adjusted EBITDA

Adjusted EBITDA decreased by 58% over the period to $39.3 million (H1 2014: $94.3 million) driven primarily by significantly precious metal prices as well as the decision to reduce capacity at the Peruvian operations as part of the Company's optimised mine plans for 2015. These effects were partially offset by the continuing impact of the cash optimisation initiatives.

 

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	Six months to 30 June 2015	Six months to 30 June 2014	% change
Profit from continuing operations before exceptional items, net finance cost, foreign exchange loss and income tax	(20,707)	25,738	(180)
Operating margin	(11)%	9%	-
Depreciation and amortisation in cost of sales	56,536	62,761	(10)
Depreciation and amortisation in administrative expenses	817	1,324	(38)
Exploration expenses	4,092	8,175	(50)
Personnel and other exploration related fixed expenses	(1,432)	(3,716)	(61)
Other non cash expenses[20]	-	-	-
Adjusted EBITDA	39,306	94,282	(58)
Adjusted EBITDA margin	21%	33%

 

Finance income

Finance income before exceptional items of $0.6 million reduced from H1 2014 ($1.8 million) mainly due to lower interest received on deposits and liquidity funds ($0.6 million) and the absence of dividends received from the investment in Gold Resource Corporation ($0.5 million).

 

Finance costs

Finance costs before exceptional items decreased from $18.1 million in H1 2014 to $14.6 million in the first half of 2015, principally due to the repayment of the Company's convertible bond in October 2014 and the resulting reduction in interest paid.

 

Foreign exchange losses

The Group recognised a foreign exchange loss of $1.2 million (H1 2014: $0.3 million loss) as a result of exposure in currencies other than the functional currency, principally the Peruvian Nuevo Sol and Argentinean Peso, which depreciated 5% and 8% respectively in the period against the US Dollar.

 

Income tax

The Company's pre-exceptional income tax expense was $1.8 million (H1 2014: $10.7 million). The reduction in the expense is mainly explained by the higher pre-exceptional loss before income tax of $(36.0) million (H1 2014: $9.1 million).

 

 

 

 

Exceptional items

Exceptional items in H1 2015 totalled $(6.1) million after tax (H1 2014: $10.2 million). The tables below detail the exceptional items excluding the exceptional tax effect that amounted to $1.3 million (H1 2014: $2.3 million).

 

Exceptional items in H1 2015 comprise the following items: 

 

H1 2015 negative exceptional items:

Main items	$000	Description of main items
Impairment and write-off of non-financial assets (net)	(5,917)	Impairment of the Crespo unit of $5.9 million.
Finance cost	(1,486)	Interest on tax contingency

 

Cash flow & balance sheet review     

 

Cash flow:

$000 unless otherwise indicated	Six months to 30 June 2015	Six months to 30 June 2014	Change
Net cash generated from operating activities	18,320	44,159	(25,839)
Net cash used in investing activities	(119,212)	(127,049)	7,837
Cash flows generated/(used) in financing activities	70,215	27,374	42,841
Net (decrease)/increase in cash and cash equivalents during the period	(30,677)	(55,516)	24,839

 

Operating cash flow decreased from $44.2 million in H1 2014 to $18.3 million in H1 2015, mainly due to lower prices. Net cash used in investing activities decreased to $(119.2) million in H1 2015 from $(127.0) million in H1 2014 due to reduced sustaining capex at all operations, partially offset by higher construction capex at Inmacualda. Finally, cash generated from financing activities increased to $70.2 million from $27.4 million in H1 2014, primarily as a result of the proceeds from the short term debt raised in Peru ($75 million).  As a result, total cash generated improved from $(55.5) million in H1 2014 to $(30.7) million in H1 2015 ($24.8 million difference).

 

Working capital

$000 unless otherwise indicated	As at 30 June 2015	As at 30 June 2014
Trade and other receivables	161,903	194,265
Inventories	59,570	54,135
Net other financial assets / (liabilities)	7,511	5,207
Net income tax receivable / (payable)	21,921	21,514
Trade and other payables and provisions	(217,466)	(181,641)
Working Capital	33,439	93,480

 

The Group's working capital position decreased to $33.4 million in H1 2015 from $93.5 million in H1 2014. This was primarily explained by: lower trade and other receivables ($(32.4) million) due to higher dore sales at Arcata and lower prices; and by higher trade and other payables and provisions ($(35.8) million, in line with improved payment terms obtained from vendors.

 

 

Net cash

$000 unless otherwise indicated	As at 30 June 2015	As at 30 June 2014
Cash and cash equivalents	84,316	225,550
Long term borrowings	(442,898)	(343,174)
Short term borrowings[21]	(97,053)	(137,678)
Net cash/(debt)	(455,635)	(255,302)

  

The Group reported net cash position was $(455.6) million as at 30 June 2015 (2014: $(255.3) million). The change was mainly driven by cash used to build the Inmaculada Project including construction capex and working capital allocated to the project.

 

Capital expenditure^[22] 

$000 unless otherwise indicated	Six months to 30 June 2015	Six months to 30 June 2014
Arcata	5,283	18,164
Ares	-	(5)
Selene	130	156
Pallancata	4,880	17,703
San Jose	19,968	20,926
Operations	30,261	56,944
Inmaculada	98,978	75,595
Crespo	1,012	2,467
Volcan	565	972
Azuca	137	578
Other	1,199	431
Total	132,152	136,987

 

H1 2015 capital expenditure of $132.2 million (H1 2014: $137.0 million) mainly composed of operational capex of $30.3 million and Inmaculada capital expenditure of $99.0 million.

 

 

 

RISKS
The principal risks and uncertainties facing the Company in respect of the year ended 31 December 2014 are set out in detail in the Risk Management section of the 2014 Annual Report and in Note 38 to the 2014 Consolidated Financial Statements.

 

The key risks disclosed in the 2014 Annual Report (available at www.hochschildmining.com) are categorised as:

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

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

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

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

 

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

 

In terms of the changes in the profile of these risks, the Board recognises the heightened level of financial risk that results from the combination of (i) a deteriorating precious metals pricing environment and (ii) the Company's commitments which include the financing of the Group's debt and the capital demands of the Inmaculada project as it ramps up to full capacity. In addition, such a pricing environment reduces the comfort gap between the current level of indebtedness and the limits established in the debt covenants.

 

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

o  an ongoing focus on managing costs following the implementation of the Cash Optimisation Plan; and

o  the renewal of short-term credit lines, which will provide the Company with further financial flexibility.

 

The Board expects that the Group's financial position will improve significantly as production at Inmaculada increases as it achieves full capacity which, in addition to increasing the Group's total production, will also increase margins given its lower costs of production relative to the Group's other mines. 

 

GOING CONCERN

The Company's business activities, together with the factors likely to affect future development, performance and position are set out in the Operating Review and Project Review on pages 4 to 7. The financial position of the Company, its cash flow and liquidity position are described in the Financial Review on pages 8 to16.

 

The Directors believe that the financial resources available at the date of the issue of these condensed interim financial statements are sufficient for the Company to manage its business risks successfully.

 

The Company's forecasts and projections, taking into account reasonably possible changes in operational performance and in particular the price of gold and silver, and other mitigating actions described in the Risks section above, show that there are reasonable expectations that the Company will be able to operate on funds currently held and those generated internally, for the foreseeable future.

 

After making enquiries and considering the above, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future and consider the going concern basis of accounting to be appropriate. As a result they continue to adopt the going concern basis of accounting in preparing the condensed interim financial statements.

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

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

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

For and on behalf of the Board
 

Ignacio Bustamante
Chief Executive Officer

18 August 2015

 

 

 

INDEPENDENT REVIEW REPORT TO HOCHSCHILD MINING PLC

 

Introduction

We have been engaged by Hochschild Mining plc (the 'Company') to review the condensed set of financial statements in the half-yearly financial report for the six months ended  30 June 2015 which comprises the Interim condensed consolidated income statement, the Interim condensed consolidated statement of comprehensive income, the Interim condensed consolidated statement of financial position, the Interim condensed consolidated statement of cash flows, the Interim condensed consolidated statement of changes in equity and the related notes 1 to 20. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

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

 

Directors' Responsibilities

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

 

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

 

Our Responsibility

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

 

Scope of Review

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

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2015 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

Ernst & Young LLP
London
18 August 2015

 

 

 

 

 

Interim condensed consolidated income statement

 

		Notes		Six-months ended 30 June  2015 (Unaudited)							Six-months ended 30 June 2014 (Unaudited)
				Before exceptional items US$000			Exceptional items Note 6 US$000		Total US$000		Before exceptional items US$000		Exceptional items  Note 6 US$000		Total US$000
Continuing operations
Revenue		4		190,259			-		190,259		282,012		-		282,012
Cost of sales		5		(174,493)			-		(174,493)		(209,421)		(3,511)		(212,932)
Gross profit				15,766			-		15,766		72,591		(3,511)		69,080
Administrative expenses				(18,779)			-		(18,779)		(21,355)		(868)		(22,223)
Exploration expenses				(4,092)			-		(4,092)		(8,175)		(537)		(8,712)
Selling expenses				(11,600)			-		(11,600)		(14,536)		-		(14,536)
Other income				2,602			-		2,602		2,030		-		2,030
Other expenses				(4,604)			-		(4,604)		(4,817)		(2,963)		(7,780)
Impairment and write-off of non-financial assets (net)				-			(5,917)		(5,917)		-		(476)		(476)
(Loss)/profit from continuing operations before net finance income/(cost), foreign exchange loss and income tax				(20,707)			(5,917)		(26,624)		25,738		(8,355)		17,383
Finance income		7		581			-		581		1,813		-		1,813
Finance costs		7		(14,636)			(1,486)		(16,122)		(18,087)		(4,189)		(22,276)
Foreign exchange loss				(1,211)			-		(1,211)		(335)		-		(335)
(Loss)/profit from continuing operations before income tax				(35,973)			(7,403)		(43,376)		9,129		(12,544)		(3,415)
Income tax (expense)/benefit		8		(1,777)			1,268		(509)		(10,675)		2,341		(8,334)
Loss for the period from continuing operations				(37,750)			(6,135)		(43,885)		(1,546)		(10,203)		(11,749)
Attributable to:
Equity shareholders of the Company				(38,341)			(6,135)		(44,476)		(2,469)		(10,161)		(12,630)
Non-controlling interests				591			-		591		923		(42)		881
				(37,750)			(6,135)		(43,885)		(1,546)		(10,203)		(11,749)
Basic and diluted earnings per ordinary share from continuing operations and for the period (expressed in U.S. dollars per share)				(0.10)			(0.02)		(0.12)		(0.01)		(0.03)		(0.04)

 

 

Interim condensed consolidated statement of comprehensive income

 

 

				Six-months ended 30 June
				2015 (Unaudited) US$000		2014 (Unaudited) US$000
Loss for the period				(43,885)		(11,749)
Other comprehensive income to be reclassified to profit or loss in subsequent periods:
Exchange differences on translating foreign operations				(309)		(79)
Change in fair value of available-for-sale financial assets				201		2,538
Recycling of the loss on available-for-sale financial assets				(1)		934
Change in fair value of cash flow hedges				9,509		4,294
Recycling of the gain on cash flow hedges				(4,991)		(2,189)
Deferred income tax relating to components of other comprehensive income				(1,266)		(631)
Other comprehensive gain for the period, net of tax				3,143		4,867
Total comprehensive expense for the period				(40,742)		(6,882)
Total comprehensive (expense)/income attributable to:
Equity shareholders of the Company				(41,333)		(7,763)
Non-controlling interests				591		881
				(40,742)		(6,882)

 

 

 

Interim condensed consolidated statement of financial position

 

		Notes		As at 30 June 2015  (Unaudited) US$000		As at 31 December 2014  US$000
ASSETS
Non-current assets
Property, plant and equipment		9		1,136,541		1,076,310
Evaluation and exploration assets		10		208,286		207,290
Intangible assets		10		41,860		42,815
Available-for-sale financial assets				653		455
Trade and other receivables				5,897		6,488
Deferred income tax assets				896		1,574
				1,394,133		1,334,932
Current assets
Inventories				59,570		58,417
Trade and other receivables				156,006		167,038
Income tax receivable				22,155		25,584
Other financial assets		11		9,052		4,342
Cash and cash equivalents		13		84,316		115,999
				331,099		371,380
Total assets				1,725,232		1,706,312
EQUITY AND LIABILITIES
Capital and reserves attributable to shareholders of the Parent
Equity share capital		15		170,609		170,389
Share premium		15		396,021		396,021
Treasury shares				(898)		(898)
Other reserves				(214,073)		(217,335)
Retained earnings				408,227		451,047
				759,886		799,224
Non-controlling interests				95,751		95,160
Total equity				855,637		894,384
Non-current liabilities
Trade and other payables				81		92
Borrowings		14		442,898		440,834
Provisions				107,163		111,751
Deferred income				25,000		25,000
Deferred income tax liabilities				85,403		84,959
				660,545		662,636
Current liabilities
Trade and other payables				102,642		111,890
Other financial liabilities		11		1,541		1,533
Borrowings		14		97,053		27,882
Provisions				7,580		2,870
Income tax payable				234		5,117
				209,050		149,292
Total liabilities				869,595		811,928
Total equity and liabilities				1,725,232		1,706,312

 

Interim condensed consolidated statement of cash flows

 

				Six-months ended 30 June
		Notes		2015 (Unaudited) US$000		2014 (Unaudited) US$000
Cash flows from operating activities
Cash generated from operations				44,503		56,477
Interest received				346		1,533
Interest paid		14		(18,554)		(6,021)
Payment of mine closure costs				(969)		(2,485)
Income tax paid				(7,006)		(5,345)
Net cash generated from operating activities				18,320		44,159
Cash flows from investing activities
Purchase of property, plant and equipment				(116,012)		(140,456)
Purchase of evaluation and exploration assets				(2,732)		(2,188)
Purchase of intangibles				(592)		(281)
Dividends received				-		414
Deferred income received related to San Felipe property				-		1,223
Proceeds from sale of available-for-sale financial assets				3		14,121
Proceeds from sale of property, plant and equipment		9		121		118
Net cash used in investing activities				(119,212)		(127,049)
Cash flows from financing activities
Proceeds from borrowings		14		100,784		357,812
Repayment of borrowings		14		(29,924)		(322,828)
Dividends paid		16		(645)		(7,610)
Cash flows generated from financing activities				70,215		27,374
Net decrease in cash and cash equivalents during the period				(30,677)		(55,516)
Impact of foreign exchange				(1,006)		(5,369)
Cash and cash equivalents at beginning of period				115,999		286,435
Cash and cash equivalents at end of period		13		84,316		225,550