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Interim Results

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RNS Number : 2347H
Hochschild Mining PLC
16 August 2016
 

 

 

 

________________________________________________________________________________ 

16 August 2016

Hochschild Mining plc

Interim Results for the six months ended 30 June 2016

 

Strong financial results

  • Revenue of $339.3 million (H1 2015: $190.3 million)1
  • Adjusted EBITDA of $170.3 million (H1 2015: $39.3 million)2
  • Profit before income tax of $60.3 million (H1 2015: $43.4 million loss)
  • Adjusted earnings per share of $0.05 (H1 2015: $(0.09))3
  • Interim dividend of 1.38 US cents per share ($7 million)

H1 2016 operational delivery ahead of expectations

  • H1 2016 AISC per silver equivalent ounce from operations reduced by 27% to $10.9 exceeding guidance4
  • Inmaculada AISC per silver equivalent ounce significantly below guidance at $8.2
  • Half year production of 17.0 million attributable silver equivalent ounces exceeding guidance5
  • Balanced gold and silver production profile (51% gold/49% silver)

Improved financial position

  • Cash balance of $102.8 million as at 30 June 2016 (31 December 2015: $84.0 million)
  • $70 million of debt repaid year-to-date (as at 16 August 2016)
  • Net debt of $266.5 million as at 30 June 2016 (31 December 2015: $350.5 million)
  • Net debt/Annual adjusted EBITDA of 1.0x as at 30 June 2016 (31 December 2015: 2.5x)

H2 2016 Outlook

  • Record attributable production target increased from 32.0 million to 34.0 million silver equivalent ounces
  • AISC now expected to be $11.0-11.5 per silver equivalent ounce (previous guidance of $12.0-12.5 per ounce)

Capital Markets Event

  • Capital Markets Event to be held on 6 September 2016 in London

 

$000, pre-exceptional unless stated

Six months to 30 June 2016

Six months to 30 June 2015

% change

Attributable silver production (koz)

8,210

6,265

31

Attributable gold production (koz)

118

41

188

Revenue1

339,277

190,259

78

Adjusted EBITDA

170,285

39,306

333

Profit /(loss) from continuing operations

35,994

(37,750)

195

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

37,744

(43,885)

186

Earnings per share ($ pre-exceptional)

0.05

(0.09)

156

Earnings per share ($ post-exceptional)

0.06

(0.11)

155

 

Commenting on the results, Eduardo Hochschild, Chairman said:

"Our long term investment strategy has now started to deliver strong results with an impressive operational performance combined with more positive precious metal prices which has in turn led to our re-entry into the FTSE 250. The Company has returned to profitability, materially reduced its debt position and is investing primarily in brownfield growth. In this constructive environment, the Board has decided to pay a dividend of 1.38 US cents per share, representing approximately 25% of net earnings, which we believe is an appropriate payout at this early stage of the cycle."

________________________________________________________________________________ 

A live conference call & audio webcast will be held at 2.30pm (London time) on Tuesday 16 August 2016 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/b8f2u9fv

 

Conference call dial in details:

UK: +44(0)20 3427 1900 (Please use the following confirmation code: 6331446).

                                                                         

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: 6331446)

 

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

________________________________________________________________________________ 

Enquiries:

Hochschild Mining plc

Charles Gordon                                                                                                                                                   +44 (0)20 3714 9044

Head of Investor Relations

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

A year ago, as Inmaculada began its ramp-up process, we envisioned a more positive future for the Company with the prospect of a steady state contribution from this new low cost flagship mine. Today we can report that the Company has delivered better than expected operational results and Hochschild is now successfully delivering on the organic investment strategy that has been implemented over the last few years. The combination of a strong production performance, an intense focus on cost control and an encouraging precious metal price environment has been a powerful driver for the Company's return to profitability. We are confident that the foundations are in place to continue delivering robust results and that this momentum can be maintained.

 

H1 operational performance

Hochschild's mines delivered a very good first half with both Inmaculada and Arcata performing above expectations. The Company, as a whole, produced 118 thousand ounces of gold and 8.2 million ounces of silver which, when converted to the silver equivalent number of 17 million ounces, confirms that the run rate is ahead of the original full year target of 32 million ounces. Inmaculada was the key driver with grade and recoveries running ahead of plan and the plant consistently outperforming its design capacity. This led to production of 111 thousand gold equivalent ounces at an all-in sustaining cost of around $600 per ounce which places the mine in the bottom decile of the industry cost curve. In addition, Arcata enjoyed its finest half for over five years with production improving by 15% versus the same period of 2015. San Jose in Argentina has continued to deliver remarkably consistent output in an improved domestic economic environment. With the Company's overall cost position substantially lowered, all operations generated strong cashflow and we can look forward to a further boost at Pallancata when the transition to feed from the new Pablo vein is completed.

 

Financial position

The Company's strategy of de-risking the balance sheet has continued in 2016 with a further $70 million of medium and short term debt repaid to date following on from the $105 million executed in 2015. These ongoing measures have been facilitated by the Company's strong free cashflow generation resulting from the operational performance mentioned above. The cash balance at the half year remained above $100 million despite the debt repayments whilst capital expenditure was in line across all operations. Our net debt position has now been reduced by almost 40% in the last twelve months and we are confident that the maturity of our remaining long term debt is adequately profiled. The ratio of net debt to annual adjusted EBITDA currently stands at approximately 1.0x. The precious metal hedge positions carried out to protect the balance sheet and ensure ongoing debt repayment have amounted to a $3.1 million negative impact in the first half and there are currently no plans to hedge 2017 production.

 

Growth

A key aspect of Hochschild's growth strategy going forward is our brownfield exploration programme with our team of in-house geologists firmly believing in the potential for resource gains both in terms of quality and quantity at all our deposits.  The obvious example has been the discovery and incorporation of the Pablo vein into the long term mine plan at Pallancata. In this regard, good developmental progress was made in the first half and remaining work is on schedule whilst initial underground geological assessment of the Pablo structure indicates the potential for further upside from surrounding veins. Furthermore, the overall improved financial position of the Company has facilitated a new five year brownfield exploration programme in both Peru and Argentina. The Company also currently has over 3,000 tonnes per day of spare plant capacity at our Selene, Arcata and Ares plants in Peru so there is an exciting opportunity to generate significant value for the Company even before the longer term expansion options at Inmaculada, for example, are assessed.

 

H1 financial performance

The 63% half-on-half increase in total production led to revenue rising by 78% versus the first half of 2015. Adjusted EBITDA rose by 333% to $170 million principally driven by the addition of substantially higher margin production from Inmaculada as well as an increased contribution from our other operations.  As we have predicted, the strong cashflows from Inmaculada have offset the finance costs arising from our bond issue in January 2014 to fund its construction and this has helped the Company to record a very healthy pre-exceptional earnings per share of $0.05 which is a material improvement on the loss of $0.09 recorded in the first half of 2015.

 

Outlook

The Company's production target for the year has increased by over 6% to 34.0 million silver equivalent ounces following the good performances at Inmaculada and Arcata in the first half. All-in sustaining cost expectations for the Company have also been revised following a strong first half and are now expected to be between $11.0 and $11.5 per silver equivalent ounce which compares very favourably to our original guidance of between $12.0 and $12.5.

 

The recent market environment for precious metals has been far more positive than any time in the last three years but the Company remains fully prepared for any further volatility arising from macroeconomic or political events. We are confident that our strategy of ongoing cost reduction, investment in our brownfield exploration programme and strict balance sheet management will continue to deliver shareholder value throughout the remainder of the year and for the foreseeable future.

 

Ignacio Bustamante, Chief Executive Officer

15 August 2016

 

 

OPERATING REVIEW

OPERATIONS

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

 

Production

In the first half of 2016, the Company delivered attributable production of 229.1 thousand gold equivalent ounces or 17.0 million silver equivalent ounces, including 8.2 million ounces of silver and 118.1 thousand ounces of gold. The overall attributable production target for 2016 has been revised from 32.0 million silver equivalent ounces to 34.0 million ounces. This is expected to consist of approximately 16 million ounces from Inmaculada, approximately 7 million attributable ounces from the 51% owned San Jose and the balance from the remaining two Peruvian operations.

 

Total group production

 

Six months to 30 June 2016

 Six months to 30 June 2015

% change

Silver production (koz)

9,744

7,701

27

Gold production (koz)

139.43

61.33

127

Total silver equivalent (koz)

20,062

12,240

64

Total gold equivalent (koz)

271.11

165.40

64

Silver sold (koz)

10,085

7,785

30

Gold sold (koz)

146.10

58.01

152

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

Attributable group production

 

Six months to 30 June 2016

 Six months to 30 June 2015

% change

Silver production (koz)

8,210

6,265

31

Gold production (koz)

118.12

40.60

191

Silver equivalent (koz)

16,951

9,269

83

Gold equivalent (koz)

229.06

125.26

83

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

 

Costs

The Company's all-in sustaining cost from operations in H1 2016 was reduced by 27% to $10.9 per silver equivalent ounce mainly driven by the impact of Inmaculada with a very competitive $8.2 per silver equivalent ounce.6 The reduction versus H1 2015 is due to better than expected grades, higher silver recoveries and operational efficiency initiatives. Please see pages 8-10 of the Financial Review for further details on costs.

 

The all-in sustaining cost per silver equivalent ounce forecast for 2016 has been revised downwards to be between $11.0 and $11.5 with Inmaculada costs expected to be between $8 and $9 per ounce.

 

Inmaculada (Peru)

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

 

Inmaculada summary

Six months to 30 June 2016

 Six months to 30 June 2015

% change

Ore production (tonnes)

619,161

52,325

1,083

Average silver grade (g/t)

132

89

48

Average gold grade (g/t)

4.25

2.92

46

Silver produced (koz)

2,370

95.45

2,383

Gold produced (koz)

9.20

3.42

2,216

Silver equivalent produced (koz)

8,231

349

2,258

Gold equivalent produced (koz)

111.23

4.71

2,262

Silver sold (koz)

2,468

-

-

Gold sold (koz)

82.17

-

-

Unit cost ($/t)

64.6

-

-

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

4.9

-

-

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

355

-

-

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

8.2

-

-

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

609

-

-

 

Production

Inmaculada delivered a strong half with grades and silver recoveries better than expected in the original mine plan and, combined with higher tonnage per day being processed through the plant, H1 2016 production was able to reach 111 thousand gold equivalent ounces (8.2 million silver equivalent ounces).

 

Costs

The all-in sustaining costs were lower than forecast at $8.2 per silver equivalent ounce. This was driven by higher than expected production as well as operational efficiencies versus the original plan. Overall all-in sustaining costs for 2016 are expected to be between $8 and $9 in 2016.

 

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 2016

 Six months to 30 June 2015

% change

Ore production (tonnes)

333,397

300,924

11

Average silver grade (g/t)

327

340

(4)

Average gold grade (g/t)

1.22

0.97

26

Silver produced (koz)

2,970

2,726

9

Gold produced (koz)

10.36

7.17

44

Silver equivalent produced (koz)

3,736

3,256

15

Gold equivalent produced (koz)

50.49

44.00

15

Silver sold (koz)

2,922

2,683

9

Gold sold (koz)

10.14

6.92

47

Unit cost ($/t)

106.0

113.2

(6)

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

11.1

11.5

(4)

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

773

889

(13)

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

13.0

13.5

(4)

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

965

1,003

(4)

 

Production

At Arcata, production was a very solid 3.7 million silver equivalent ounces, a 15% improvement on the same period of 2015 (H1 2015: 3.3 million ounces). This was driven by better than expected mined tonnage resulting from the success of the Company's 2015 brownfield exploration programme in addition to higher silver recoveries.

 

Costs

In H1 2016, all-in sustaining costs fell by 4% to $13.0 per silver equivalent ounce (H1 2015: $13.5 per ounce) - substantially below the forecast of $14.5 per ounce (as well as the overall 2015 result of $14.3 per ounce) due to the increased tonnage mentioned above as well rising gold grades and operational efficiencies.

 

Brownfield exploration

At Arcata, 2,135 metres were drilled in the first half to test North-South structures in the central area of the mine. The plan for the remainder of the year is to drill in the Tunel 4 zone to extend existing structures and identify new ones. Some highlights are presented below:

 

Vein

Results

Ramal Marion Sur

DDH-941-GE16:1.3m @ 1.8 g/t Au & 576 g/t Ag

DDH-943-GE16:1.3m @ 4.1 g/t Au & 2,157 g/t Ag

Tunel 4

DDH-912-GE16:7.8m @ 1.1 g/t Au & 205 g/t Ag

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

 

 

 

Pallancata (Peru)

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

 

Pallancata summary 

Six months to 30 June 2016

 Six months to 30 June 2015

% change

Ore production (tonnes)

135,736

289,551

(53)

Average silver grade (g/t)

341

248

38

Average gold grade (g/t)

1.77

1.19

49

Silver produced (koz)

1,273

1,948

(35)

Gold produced (koz)

6.37

8.44

(25)

Silver equivalent produced (koz)

1,745

2,573

(32)

Gold equivalent produced (koz)

23.58

34.77

(32)

Silver sold (koz)

1,315

1,986

(34)

Gold sold (koz)

6.50

8.33

(22)

Unit cost ($/t)

141.2

99.5

42

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

12.3

12.3

-

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

925

980

(6)

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

15.9

15.5

3

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

1,176

1,146

3

 

Production

At Pallancata, as expected, tonnage through the plant in the first half was lower than the average 2015 rate with operations in a transitionary period before the introduction of feed from the new Pablo vein. Production in H1 2016 was 1.3 million ounces of silver and 6,370 ounces of gold bringing the silver equivalent total to 1.7 million ounces (H1 2015: 2.6 million).

 

Costs

All-in sustaining costs at Pallancata in the first half were at $15.9 per silver equivalent ounce (H1 2015: $15.5 per ounce) with the moderate increase versus the same period of 2015 due to the aforementioned significant fall in tonnage affecting cost per tonne. This was partially offset by increased grades and operational efficiencies. The all-in sustaining cost at the operation excluding capital expenditure on the Pablo development was $13.5 per silver equivalent ounce. Costs are expected to fall substantially when the Pablo vein begins production.

 

Brownfield exploration

At Pallancata, a drilling campaign has begun to the north and south of the Pablo structure to test anomalies and add potential resources (parallel to Pablo). So far, 698 metres have been drilled.

 

San Jose (Argentina)

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

 

San Jose summary*

Six months to 30 June 2016

 Six months to 30 June 2015

% change

Ore production (tonnes)

248,766

232,995

7

Average silver grade (g/t)

446

448

-

Average gold grade (g/t)

6.16

6.34

(3)

Silver produced (koz)

3,132

2,932

7

Gold produced (koz)

43.49

42.30

3

Silver equivalent produced (koz)

6,350

6,062

5

Gold equivalent produced (koz)

85.81

81.92

5

Silver sold (koz)

3,380

3,115

9

Gold sold (koz)

47.29

42.75

11

Unit cost ($/t)

201.7

219.5

(8)

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

9.1

11.5

(21)

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

713

859

(17)

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

11.7

15.4

(24)

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

863

1,144

(25)

*The Company has a 51% interest in San Jose

 

 

 

Production

The San Jose operation delivered yet another solid half with production of 3.1 million ounces of silver and 43,490 ounces of gold resulting in silver equivalent production of 6.4 million ounces, a 5% improvement on H1 2015 (6.1 million ounces) mostly due to better than planned grades and higher than expected tonnage.

 

Costs

At San Jose, all-in sustaining costs were reduced by 24% versus H1 2015 to $11.7 per silver equivalent ounce mainly driven by the significant fiscal changes in Argentina in the first half. These included the elimination of export taxes and the restoration of the Patagonian port rebate.

 

Brownfield exploration

At San Jose 1,240 metres has been drilled mainly in the Aguas Vivas area with the programme ongoing.

 

 

 

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 rose by 74% to $353.3 million in H1 2016 (H1 2015: $202.5 million) primarily driven by the substantial increase in production at Inmaculada.

 

Silver

Gross revenue from silver increased 32% in H1 2016 to $172.7 million (H1 2015: $131.3 million) as a result of a 30% increase in the total amount of silver ounces sold to 10,085 koz  (H1 2015: 7,785 koz) driven by the increase from new production at Inmaculada as well as half-on-half increases at Arcata and San Jose.

 

Gold

Gross revenue from gold increased by 154% in H1 2016 to $180.5 million (H1 2015: $71.2 million) as a result of a 152% rise in the total amount of gold ounces sold in H1 2016 (146.1 koz). The increase in gold sales came from sales from the new Inmaculada operation as well as increases at Arcata and San Jose.

 

Gross average realised sales prices

The following table provides figures for average realised prices (which are reported before the deduction of commercial discounts and include the effects of the existing hedging agreements) and ounces sold for H1 2016 and H1 2015:

 

Average realised prices

Six months to 30 June 2016

Six months to 30 June 2015

Silver ounces sold (koz)

10,085

7,785

Avg. realised silver price ($/oz)

17.1

16.9

Gold ounces sold (koz)

146.10

58.01

Avg. realised gold price ($/oz)

1,236

1,227

 

Commercial discounts7

Commercial discounts refer to refinery treatment charges, refining fees and payable deductions for processing concentrates, and are deducted from gross revenue on a per tonne basis (treatment charge), per ounce basis (refining fees) or as a percentage of gross revenue (payable deductions). In H1 2016, the Group recorded commercial discounts of $14.1 million (H1 2015: $12.3 million). The increase is explained by an increase in concentrate sold from Arcata. The ratio of commercial discounts to gross revenue in H1 2016 decreased to 4% (H1 2015: 6%).

 

Net revenue

Net revenue increased by 78% to $339.3 million (H1 2015: $190.3 million), comprising silver revenue of $163.1 million and gold revenue of $176.0 million. In H1 2016, silver accounted for 48% and gold 52% of the Company's consolidated net revenue with the strong increase in the gold percentage versus H1 2015 being due to a full contribution from the primarily gold producing Inmaculada mine.

 

Revenue by mine

$000 unless otherwise indicated

Six months to 30 June 2016

Six months to 30 June 2015

% change

Silver revenue

 

 

 

Arcata

51,204

45,901

12

Inmaculada

40,813

-

-

Pallancata

23,123

34,200

(32)

San Jose

57,594

51,186

13

Commercial discounts7

(9,650)

(8,829)

9

Net silver revenue

163,084

122,458

33

Gold revenue

 

 

 

Arcata

12,283

9,018

36

Inmaculada

98,724

-

-

Pallancata

8,362

10,990

(24)

San Jose

61,156

51,177

19

Commercial discounts7

(4,497)

(3,509)

28

Net gold revenue

176,028

67,676

160

Other revenue

165

125

32

Net revenue

339,277

190,259

78

 

 

Costs

Total pre-exceptional cost of sales increased to $238.7 million in H1 2016 (H1 2015: $174.5 million). The direct production cost was $139.0 million (H1 2015: $111.7 million) with the increase due to the addition of the new Inmaculada mine since H1 2015. Depreciation in H1 2016 was $88.5 million (H1 2015: $57.0 million) with the increase mainly due to the addition of Inmaculada depreciation. Other items, which in H1 2015 principally included the costs associated with stoppages in Argentina, decreased to $(0.08) million in H1 2016 (H1 2015: $4.9 million), as there have been no stoppages at the mine. Change in inventories was $11.3 million in H1 2016 (H1 2015: $1.0 million) with the difference explained by finished goods from December 2015 being sold in January 2016.

 

$000

Six months to 30 June 2016

Six months to 30 June 2015

% Change

Direct production cost excluding depreciation

139,037

111,651

25

Depreciation and amortisation in production cost

88,516

56,962

55

Other items

(78)

4,928

(102)

Change in inventories

11,273

953

(1,083)

Pre-exceptional cost of sales

238,748

174,493

37

 

Unit cost per tonne

The Company reported unit cost per tonne at its main operations of $108.7 in H1 2016, a significant fall versus the same period of last year (H1 2015: $138.3). For further explanation on the increase in unit cost per tonne please refer to page 6 of the Operating Review.

 

Unit cost per tonne by operation (including royalties)8

Operating unit ($/tonne)

Six months to 30 June 2016

Six months to 30 June 2015

% change

Peru

87.2

106.5

(18)

Arcata

106.0

113.2

(6)

Inmaculada

64.6

-

-

Pallancata

141.2

99.5

42

Argentina

 

 

 

San Jose

201.7

219.5

(8)

Total

108.7

138.3

(21)

 

Cash costs

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

 

Cash cost reconciliation9

$000 unless otherwise indicated

Six months to 30 June 2016

Six months to 30 June 2015

% change

Group cash cost

168,128

142,157

18

(+) Cost of sales

238,748

174,493

37

(-) Depreciation and amortisation in cost of sales

(93,527)

(56,536)

65

(+) Selling expenses

7,077

11,600

(39)

(+) Commercial deductions

15,830

12,600

26

Gold

5,934

3,519

69

Silver

9,896

9,081

9

Revenue

339,277

190,259

78

Gold

176,028

122,458

44

Silver

163,084

67,676

141

Others

165

125

32

Ounces sold

 

 

 

Gold

146.1

58.0

152

Silver

10,085

7,785

30

Group cash cost ($/oz)

 

 

 

Co product Au

597

872

(32)

Co product Ag

8.0

11.8

(32)

By product Au

(33)

183

(118)

By product Ag

(1.4)

9.1

(115)

 

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 ounce10

 

Six months to 30 June 2016

$000 unless otherwise indicated

Arcata

Inmaculada

Pallancata11

San José

Main operations

Corporate & others

Total

(+) Production cost excluding depreciation

34,119

37,580

18,790

48,548

139,037

-

139,037

(+) Other items in cost of sales

(151)

44

(150)

179

(78)

-

(78)

(+) Operating and exploration capex for units

8,851

25,693

5,049

15,712

55,305

24

55,329

(+) Brownfield exploration expenses

313

1

531

619

1,464

1,294

2,758

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

750

1,743

361

3,880

6,734

14,749

21,483

(+) Royalties and special mining tax12

-

1,373

284

-

1,657

1,369

3,026

Sub-Total

43,882

66,434

24,866

68,938

204,119

17,436

221,555

Au ounces produced

10,362

79,204

6,372

43,493

139,430

-

139,430

Ag ounces produced (000s)

2,970

2,370

1,273

3,132

9,744

-

9,744

Ounces produced (Ag Eq 000s oz)

3,736

8,231

1,745

6,350

20,062

-

20,062

Sub-total  ($/oz Ag Eq)

11.7

8.1

14.3

10.9

10.2

-

11.0

(+) Commercial deductions

4,077

828

2,570

8,355

15,830

-

15,830

(+) Selling expenses

693

510

365

5,509

7,077

-

7,077

(-) Patagonian port benefit

-

-

-

(8,360)

(8,360)

 

(8,360)

Sub-total

4,770

1,338

2,935

5,504

14,547

-

14,547

Au ounces sold

10,136

82,167

6,499

47,294

146,096

-

146,096

Ag ounces sold (000s)

2,922

2,468

1,315

3,380

10,085

-

10,085

Ounces sold (Ag Eq 000s oz)

3,672

8,548

1,796

6,880

20,896

-

20,896

Sub-total  ($/oz Ag Eq)

1.3

0.2

1.6

0.8

0.7

-

0.7

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

13.0

8.2

15.9

11.7

10.9

-

11.7

 

Six months to 30 June 2015

$000 unless otherwise indicated

Arcata

Inmaculada

Pallancata

San José

Main operations

Corporate & others

Total

(+) Production cost excluding depreciation

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 and special mining tax12

-

-

 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 (000s)

2,726

-

1,948

2,932

7,606

-

7,606

Ounces produced (Ag Eq 000s oz)

3,256

-

2,573

6,062

11,891

-

11,891

Sub-total  ($/oz Ag Eq)

12.8

-

13.8

12.7

13.0

-

14.1

(+) 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 (000s)

2,683

-

1,986

3,115

7,785

-

7,785

Ounces sold (Ag Eq 000s oz)

3,196

-

2,602

6,279

12,077

-

12,077

Sub-total  ($/oz Ag Eq)

0.8

-

1.7

2.8

2.0

-

2.0

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

13.5

-

15.5

15.4

15.0

-

16.1

 

Administrative expenses

Administrative expenses before exceptional items increased to $22.2 million (H1 2015: $18.8 million) primarily due to increased personnel expenses.

 

Exploration expenses

In H1 2016, pre-exceptional exploration expenses were broadly flat at $4.0 million (H1 2015: $4.1 million). In addition, the Group capitalises part of its brownfield exploration, which mostly relates to costs incurred converting potential resource to the Inferred or Measured and Indicated category. In H1 2016, the Company capitalised $0.3 million relating to brownfield exploration compared to $0.7 million in H1 2015, bringing the total investment in exploration for H1 2016 to $4.3 million (H1 2015: $4.8 million). 

 

Selling expenses

Selling expenses decreased by 39% versus H1 2015 to $7.1 million (H1 2015: $11.6 million) mainly due to the elimination of export duties at San Jose. Selling expenses in H1 2016 consisted mainly of logistic costs for the sale of concentrate in addition to approximately 1.5 months of final export duties on concentrate. Previously, export duties in Argentina were levied at 10% of revenue for concentrate and 5% of revenue for dore.

 

Other income/expenses

Other income before exceptional items was $12.9 million (H1 2015: $2.6 million). The increase is mainly due to the impact of the Patagonian port benefit ($8.4 million) reintroduced towards the end of 2015 and incremental revenue from logistic services provided to third parties. Other expenses before exceptional items was $6.2 million (H1 2015: $4.6 million) with the rise due to costs associated with energy contract renegotiation and costs to reorganise land concessions.

 

Adjusted EBITDA

Adjusted EBITDA increased by 333% over the period to $170.3 million (H1 2015: $39.3 million) driven by the substantial positive effects of the new low-cost Inmaculada contribution.

 

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

 

$000 unless otherwise indicated

Six months to 30 June 2016

Six months to 30 June 2015

% change

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

73,923

(20,707)

457

Depreciation and amortisation in cost of sales

93,527

56,536

65

Depreciation and amortisation in administrative expenses

689

817

(16)

Exploration expenses

4,043

4,092

(1)

Personnel and other exploration related fixed expenses

(1,897)

(1,432)

(32)

Adjusted EBITDA

170,285

39,306

333

Adjusted EBITDA margin

50%

21%

 

 

Finance income

Finance income before exceptional items of $0.5 million was similar to H1 2015 ($0.6 million) and mainly includes interest received on deposits.

 

Finance costs

Finance costs before exceptional items increased from $14.6 million in H1 2015 to $17.4 million in H1 2016 principally due to the expensing of interest on the Senior Notes that was previously capitalised during the construction of Inmaculada in line with the IFRS standards and costs related to the Company's precious metal hedge agreements. These effects offset the fall in interest due to the repayment of debt since H1 2015.

 

Foreign exchange losses

The Group recognised a foreign exchange gain of $0.4 million (H1 2015: $1.2 million loss) as a result of exposures to currencies other than the functional currency, specifically the Peruvian Nuevo Sol and Argentinean Peso.

 

Income tax

The Group's pre-exceptional income tax charge was $21.4 million (H1 2015: $1.8 million). The substantial increase in the charge is explained by the Company's significant increase in profitability in the period for reasons explained above. 

 

Exceptional items

Exceptional items in H1 2016 totalled $1.8 million profit after tax (H1 2015: $(6.1) million). Exceptional items principally included: a $2.7 million gain on the reversal of the mining reserve tax in Argentina in addition to the reversal of the associated interest on the reserve tax ($1.0 million); the effect of a donation to Universidad de Ingenieria y Tecnología financed with a gain on sale of Asociación Sumac Tarpuy of ($0.2 million) net; and a property, plant and equipment write-off of $0.5 million. These items excluded the exceptional tax effect that amounted to a $1.1 million tax charge (H1 2015: $1.3 million tax credit).  

 

 

 

Cash flow and balance sheet review           

Cash flow:

$000 unless otherwise indicated

Six months to
30 June 2016

Six months to
30 June 2015

Change

Net cash generated from operating activities

144,596

18,320

126,276

Net cash used in investing activities

(54,840)

(119,212)

64,372

Cash flows generated in financing activities

(70,775)

70,215

(140,990)

Net increase in cash and cash equivalents during the period

18,981

(30,677)

49,658

 

Operating cash flow increased from $18.3 million in H1 2015 to $144.6 million in H1 2016, mainly due to the cash contribution from the Inmaculada mine. Net cash used in investing activities decreased to $(54.8) million in H1 2016 from $(119.2) million in H1 2015 mainly due to the completion of the Inmaculada mine since H1 2015. Finally, cash generated from financing activities decreased to $(70.8) million from an inflow of $70.2 million in H1 2015 primarily due to the repayment of $65 million of debt in H1 2016 versus the raising of $75 million of short term debt in Peru in H1 2015. As a result, total cash inflow increased from a $(30.7) million outflow in H1 2015 to $19.0 million in H1 2016 ($49.7 million difference).

 

Working capital

$000 unless otherwise indicated

Six months to
30 June 2016

Six months to
30 June 2015

Trade and other receivables

128,344

161,903

Inventories

59,174

59,570

Net other financial assets

(13,689)

7,511

Net income tax receivable

2,660

21,921

Trade and other payables and provisions

(236,454)

(217,466)

Working capital

(59,965)

33,349

 

The Group's working capital position improved by $93.4 million to $(60.0) million in H1 2016 from $33.3 million in H1 2015. This was primarily explained by: lower trade and other receivables ($(33.6) million) due to VAT recoveries of $20 million in H2 2015 and $12 million in H1 2016; lower net financial assets ($21.2 million) primarily due to the hedge liability position in H1 2016 versus an asset position in H1 2015; and higher trade and other payables and provisions ($(18.9) million). 

 

Net debt

$000 unless otherwise indicated

As at 30 June 2016

As at 30 June 2015

Cash and cash equivalents

102,846

84,316

Long term borrowings

(290,557)

(442,898)

Short term borrowings13

(78,803)

(97,053)

Net debt

(266,514)

(455,635)

 

The Group's reported net debt position was $266.5 million as at 30 June 2016 (H1 2015: $455.6 million). The reduction includes the net effect of: the equity rights issue ($95 million) in H2 2015; the prepayment of the Scotiabank medium term loan (($100) million); the repurchase of Senior Notes (($55) million); the repayment of pre-shipment loans ($15m) in H1 2016; the cash generated mainly in Inmaculada and the other units; and the final cash outflow required to complete the construction of Inmaculada.

 

Capital expenditure14

$000 unless otherwise indicated

Six months to 
30 June 2016

Six months to 
30 June 2015

Arcata

8,851

5,283

Ares

10

-

Selene

13

130

Pallancata

5,036

4,880

San Jose

15,712

19,968

Inmaculada15

25,693

98,978

Operations

55,315

30,261

Crespo

2,260

1,012

Volcan

410

565

Azuca

1,175

137

Other

33

1,199

Total

59,193

132,152

 

H1 2016 capital expenditure of $59.2 million (H1 2015: $132.2 million) mainly comprised operational capex of $55.3 million (H1 2015: $30.3 million), an increase versus H1 2015 due the commissioning of Inmaculada in H2 2015.

 

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
 

RISKS
The principal risks and uncertainties facing the Company in respect of the year ended 31 December 2015 are set out in detail in the Risk Management & Viability section of the 2015 Annual Report and in Note 36 to the 2015 Consolidated Financial Statements.

 

The key risks disclosed in the 2015 Annual Report (available at www.hochschildmining.com) are categorised as:

Financial risks which include commodity price risk and refinancing risk;

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

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

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. 

 

RELATED PARTIES TRANSACTION

Related parties transactions are disclosed in note 18 to the condensed set of financial statements.

 

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 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 to12.

 

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

15 August 2016

 

 

 

 

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 2016 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 21. 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 2016 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
15 August 2016

 

 

 

Interim condensed consolidated income statement

 

 

 

Notes

 

Six-months ended

30 June  2016 (Unaudited)

 

Six-months ended

30 June 2015 (Unaudited)

 

 

 

 

 

Before exceptional items US$000

 

Exceptional items

Note 7

US$000

 

Total US$000

 

Before exceptional items US$000

 

Exceptional items

 Note 7

US$000

 

Total US$000

 

Continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

4

 

339,277

 

-

 

339,277

 

190,259

 

-

 

190,259

 

Cost of sales

 

5

 

(238,748)

 

-

 

(238,748)

 

(174,493)

 

-

 

(174,493)

 

Gross profit

 

 

 

100,529

 

-

 

100,529

 

15,766

 

-

 

15,766

 

Administrative expenses

 

 

 

(22,172)

 

-

 

(22,172)

 

(18,779)

 

-

 

(18,779)

 

Exploration expenses

 

 

 

(4,043)

 

-

 

(4,043)

 

(4,092)

 

-

 

(4,092)

 

Selling expenses

 

 

 

(7,077)

 

-

 

(7,077)

 

(11,600)

 

-

 

(11,600)

 

Other income

 

6

 

12,900

 

3,418

 

16,318

 

2,602

 

-

 

2,602

 

Other expenses

 

 

 

(6,214)

 

(1,000)

 

(7,214)

 

(4,604)

 

-

 

(4,604)

 

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

 

 

 

-

 

(498)

 

(498)

 

-

 

(5,917)

 

(5,917)

 

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

 

 

 

73,923

 

1,920

 

75,843

 

(20,707)

 

(5,917)

 

(26,624)

 

Finance income

 

8

 

483

 

959

 

1,442

 

581

 

-

 

581

 

Finance costs

 

8

 

(17,430)

 

-

 

(17,430)

 

(14,636)

 

(1,486)

 

(16,122)

 

Foreign exchange gain/(loss)

 

 

 

442

 

-

 

442

 

(1,211)

 

-

 

(1,211)

 

Profit/(loss) from continuing operations before income tax

 

 

 

57,418

 

2,879

 

60,297

 

(35,973)

 

(7,403)

 

(43,376)

 

Income tax (expense)/benefit

 

9

 

(21,424)

 

(1,129)

 

(22,553)

 

(1,777)

 

1,268

 

(509)

 

Profit/(loss) for the period from continuing operations

 

 

 

35,994

 

1,750

 

37,744

 

(37,750)

 

(6,135)

 

(43,885)

 

Attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity shareholders of the Company

 

 

 

27,220

 

596

 

27,816

 

(38,341)

 

(6,135)

 

(44,476)

 

Non-controlling interests

 

 

 

8,774

 

1,154

 

9,928

 

591

 

-

 

591

 

 

 

 

 

35,994

 

1,750

 

37,744

 

(37,750)

 

(6,135)

 

(43,885)

 

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

 

 

 

0.05

 

0.01

 

0.06

 

(0.09)

 

(0.02)

 

(0.11)

 

                                 
 

 

 

Interim condensed consolidated statement of comprehensive income

 

 

 

 

Notes

 

Six-months ended 30 June

 

 

 

 

 

2016 (Unaudited) US$000

 

2015 (Unaudited) US$000

 

 

 

 

 

 

 

 

 

Profit/(loss) for the period

 

 

 

37,744

 

(43,885)

 

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

 

 

 

 

 

 

 

Exchange differences on translating foreign operations

 

 

 

2

 

(309)

 

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

 

 

 

502

 

201

 

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

 

 

 

(38)

 

(1)

 

Change in fair value of cash flow hedges

 

 

 

(43,382)

 

9,509

 

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

 

 

 

3,116

 

(4,991)

 

Deferred income tax relating to components of other comprehensive income

 

9

 

11,274

 

(1,266)

 

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

 

 

 

(28,526)

 

3,143

 

Total comprehensive income/(expense) for the period

 

 

 

9,218

 

(40,742)

 

Total comprehensive income/(expense) attributable to:

 

 

 

 

 

 

 

Equity shareholders of the Company

 

 

 

(710)

 

(41,333)

 

Non-controlling interests

 

 

 

9,928

 

591

 

 

 

 

 

9,218

 

(40,742)

 

 

 

Interim condensed consolidated statement of financial position

 

 

 

Notes

 

As at 30
June
2016

 (Unaudited) US$000

 

As at 31
December
2015

 US$000

 

ASSETS

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

Property, plant and equipment

 

10

 

1,012,495

 

1,045,516

 

Evaluation and exploration assets

 

11

 

140,221

 

138,171

 

Intangible assets

 

 

 

27,240

 

27,981

 

Available-for-sale financial assets

 

 

 

814

 

366

 

Trade and other receivables

 

 

 

16,852

 

10,187

 

Income tax receivable

 

 

 

-

 

47

 

Deferred income tax assets

 

 

 

1,199

 

-

 

 

 

 

 

1,198,821

 

1,222,268

 

Current assets

 

 

 

 

 

 

 

Inventories

 

 

 

59,174

 

70,286

 

Trade and other receivables

 

 

 

111,492

 

124,827

 

Income tax receivable

 

 

 

18,608

 

20,384

 

Other financial assets

 

12

 

6,139

 

21,267

 

Cash and cash equivalents

 

14

 

102,846

 

84,017

 

 

 

 

 

298,259

 

320,781

 

Total assets

 

 

 

1,497,080

 

1,543,049

 

 

 

 

 

 

 

 

 

EQUITY AND LIABILITIES

 

 

 

 

 

 

 

Capital and reserves attributable to shareholders of the Parent

 

 

 

 

 

 

 

Equity share capital

 

16

 

223,805

 

223,805

 

Share premium

 

16

 

438,041

 

438,041

 

Treasury shares

 

 

 

(426)

 

(898)

 

Other reserves

 

 

 

(230,803)

 

(203,649)

 

Retained earnings

 

 

 

245,977

 

218,093

 

 

 

 

 

676,594

 

675,392

 

Non-controlling interests

 

 

 

94,797

 

90,113

 

Total equity

 

 

 

771,391

 

765,505

 

 

Non-current liabilities

 

 

 

 

 

 

 

Trade and other payables

 

 

 

20,873

 

20,379

 

Borrowings

 

15

 

290,557

 

339,778

 

Provisions

 

 

 

123,489

 

121,402

 

Deferred income

 

 

 

25,000

 

25,000

 

Deferred income tax liabilities

 

 

 

59,099

 

64,274

 

 

 

 

 

519,018

 

570,833

 

Current liabilities

 

 

 

 

 

 

 

Trade and other payables

 

 

 

84,866

 

101,892

 

Other financial liabilities

 

12

 

19,828

 

1,141

 

Borrowings

 

15

 

78,803

 

94,760

 

Provisions

 

 

 

7,226

 

6,115

 

Income tax payable

 

 

 

15,948

 

2,803

 

 

 

 

 

206,671

 

206,711

 

Total liabilities

 

 

 

725,689

 

777,544

 

Total equity and liabilities

 

 

 

1,497,080

 

1,543,049

 

 

Interim condensed consolidated statement of cash flows

 

 

 

 

 

Six-months ended 30 June

 

 

 

Notes

 

2016 (Unaudited) US$000

 

2015 (Unaudited) US$000

 

Cash flows from operating activities

 

 

 

 

 

 

 

Cash generated from operations

 

 

 

158,827

 

44,503

 

Interest received

 

 

 

431

 

346

 

Interest paid

 

15

 

(14,341)

 

(18,554)

 

Payment of mine closure costs

 

 

 

(1,427)

 

(969)

 

Income tax received/(paid)

 

 

 

1,106

 

(7,006)

 

Net cash generated from operating activities

 

19

 

144,596

 

18,320

 

Cash flows from investing activities

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

 

(53,982)

 

(116,012)

 

Purchase of evaluation and exploration assets

 

 

 

(2,050)

 

(2,732)

 

Purchase of intangibles

 

 

 

-

 

(592)

 

Proceeds from sale of subsidiary

 

 

 

1,100

 

-

 

Proceeds from sale of available-for-sale financial assets

 

 

 

54

 

3

 

Proceeds from sale of property, plant and equipment

 

10

 

38

 

121

 

Net cash used in investing activities

 

 

 

(54,840)

 

(119,212)

 

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from borrowings

 

15

 

12,497

 

100,784

 

Repayment of borrowings

 

15

 

(77,928)

 

(29,924)

 

Dividends paid to non-controlling interests

 

17

 

(5,344)

 

(645)

 

Cash flows (used in)/generated from financing activities

 

 

 

(70,775)

 

70,215

 

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

 

 

 

18,981

 

(30,677)

 

Impact of foreign exchange

 

 

 

(152)

 

(1,006)

 

Cash and cash equivalents at beginning of period

 

 

 

84,017

 

115,999

 

Cash and cash equivalents at end of period

 

14

 

102,846

 

84,316

 

 

 

 

Interim condensed consolidated statement of changes in equity

 

 

 

 

 

 

 

 

 

 

 

 

Other reserves

 

 

 

 

 

 

 

 

 

Note

 

Equity

share

capital US$000

 

Share premium US$000

 

 

 

 

 

Treasury Shares US$000

 

 

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

 

 

Unrealised gain on hedges US$000

 

Cumulative translation adjustment US$000

 

Merger  reserve US$000

 

Share-based payment reserve US$000

 

Total
other
reserves US$000

 

Retained earnings US$000

 

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

 

Non-controlling interests US$000

 

Total Equity US$000

 

 

 

 

 

 

 

 

 

 

 

 

                                                                                               

Balance at 1 January 2016

 

 

 

223,805

 

438,041

 

 

(898)

 

 

32

 

 

15,312

 

(13,602)

 

(210,046)

 

4,655

 

(203,649)

 

218,093

 

675,392

 

90,113

 

765,505

 

Other comprehensive gain/(loss)

 

 

 

-

 

-

 

 

-

 

 

464

 

 

(28,992)

 

2

 

-

 

-

 

(28,526)

 

-

 

(28,526)

 

-

 

(28,526)

 

Profit for the period

 

 

 

-

 

-

 

 

-

 

 

-

 

 

-

 

-

 

-

 

-

 

-

 

27,816

 

27,816

 

9,928

 

37,744

 

Total comprehensive (loss)/income for the period

 

 

 

-

 

-

 

 

-

 

 

464

 

 

(28,992)

 

2

 

-

 

-

 

(28,526)

 

27,816

 

(710)

 

9,928

 

9,218

 

Dividends declared to non-controlling interests

 

17

 

-

 

-

 

 

-

 

 

-

 

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(5,244)

 

(5,244)

 

Share-based payments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,529

 

1,529

 

383

 

1,912

 

-

 

1,912

 

Exercise of share options

 

 

 

-

 

-

 

 

472

 

 

-

 

 

-

 

-

 

-

 

(157)

 

(157)

 

(315)

 

-

 

-

 

-

 

Balance at 30 June 2016 (unaudited)

 

 

 

223,805

 

438,041

 

 

(426)

 

 

496

 

 

(13,680)

 

(13,600)

 

(210,046)

 

6,027

 

(230,803)

 

245,977

 

676,594

 

94,797

 

771,391

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2015

 

 

 

170,389

 

396,021

 

 

(898)

 

 

14

 

 

3,126

 

(13,005)

 

(210,046)

 

2,576

 

(217,335)

 

451,047

 

799,224

 

95,160

 

894,384

 

Other comprehensive gain/(loss)

 

 

 

-

 

-

 

 

-

 

 

200

 

 

3,252

 

(309)

 

-

 

-

 

3,143

 

-

 

3,143

 

-

 

3,143

 

(Loss)/profit for the period

 

 

 

-

 

-

 

 

-

 

 

-

 

 

-

 

-

 

-

 

-

 

-

 

(44,476)

 

(44,476)

 

591

 

(43,885)

 

Total comprehensive (loss)/income for the period

 

 

 

-

 

-

 

 

-

 

 

200

 

 

3,252

 

(309)

 

-

 

-

 

3,143

 

(44,476)

 

(41,333)

 

591

 

(40,742)

 

Exercise of share options

 

16

 

220

 

-

 

 

-

 

 

-

 

 

-

 

-

 

-

 

(1,560)

 

(1,560)

 

1,340

 

-

 

-

 

-

 

Share-based payments

 

 

 

-

 

-

 

 

-

 

 

-

 

 

-

 

-

 

-

 

1,679

 

1,679

 

316

 

1,995

 

-

 

1,995

 

Balance at 30 June 2015 (unaudited)

 

 

 

170,609

 

396,021

 

 

(898)

 

 

214

 

 

6,378

 

(13,314)

 

(210,046)

 

2,695

 

(214,073)

 

408,227

 

759,886

 

95,751

 

855,637

 

 

 

Notes to the interim condensed consolidated financial statement

1      Corporate Information

Hochschild Mining plc (hereinafter the "Company" and together with its subsidiaries, the "Group") is a public limited company incorporated on 11 April 2006 under the Companies Act 1985 as a limited company and registered in England and Wales with registered number 05777693. The Company's registered office is located at 23 Hanover Square, London W1S 1JB, United Kingdom. Its ordinary shares are traded on the London Stock Exchange.

 

The Group's principal business is the mining, processing and sale of silver and gold. The Group has three operating mines (Arcata, Pallancata and Inmaculada) located in Southern Peru, and one operating mine (San Jose) located in Argentina. The Group also has a portfolio of projects located across Peru, Argentina, Mexico and Chile at various stages of development.

 

These interim condensed consolidated financial statements were approved for issue on behalf of the Board of Directors on 15 August 2016.

 

2      Significant Accounting Policies

(a)      Basis of preparation

These interim condensed consolidated financial statements set out the Group's financial position as at 30 June 2016 and 31 December 2015 and its financial performance and cash flows for the six months ended 30 June 2016 and 30 June 2015.

 

They have been prepared in accordance with IAS 34 Interim Financial Reporting in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union. Accordingly, the interim condensed consolidated financial statements do not include all the information required for full annual financial statements and therefore, should be read in conjunction with the Group's 2015 annual consolidated financial statements as published in the 2015 Annual Report.

 

The interim condensed consolidated financial statements do not constitute statutory accounts as defined in the Companies Act 2006.  The financial information for the full year is based on the statutory accounts for the financial year ended 31 December 2015.  A copy of the statutory accounts for that year, which were prepared in accordance with IFRS as adopted by the European Union has been delivered to the Registrar of Companies. The auditor's report under section 495 of the Companies Act 2006 in relation to those accounts was unmodified and did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain a statement under s498(2) or s498(3) of the Companies Act 2006.

 

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

 

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

(b)      Changes in accounting policies and disclosures

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2015, except for the adoption of new standards and interpretations effective for the Group from 1 January 2016, which has not had a material impact on the annual consolidated financial statements or the interim condensed consolidated financial statements of the Group. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

(c)      Going concern

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the condensed set of financial statements. For further detail refer to the detailed discussion of the assumptions outlined in the Going Concern section of the announcement.
 

3      Segment reporting

The following tables present revenue and profit/(loss) information for the Group's operating segments for the six months ended 30 June 2016 and 2015 and asset information as at 30 June 2016 and 31 December 2015 respectively:

                                                        

Six months ended 30 June 2016 (unaudited)

 

Arcata US$000

 

Pallancata US$000

 

San Jose US$000

 

Inmaculada US$000

 

Exploration and advanced projects US$000

 

Other US$000

 

Adjustments and eliminations US$000

 

Total US$000

 

Revenue from external customers

 

60,009

 

28,915

 

110,651

 

139,537

 

-

 

165

 

-

 

339,277

 

Inter segment revenue

 

-

 

-

 

-

 

-

 

-

 

1,363

 

(1,363)

 

-

 

Total revenue

 

60,009

 

28,915

 

110,651

 

139,537

 

-

 

1,528

 

(1,363)

 

339,277

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment profit/(loss)

 

12,810

 

99

 

30,681

 

50,135

 

(3,855)

 

(320)

 

(141)

 

89,409

 

Others(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29,112)

 

Profit from continuing operations before income tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

60,297

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at 30 June 2016 (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditure

 

8,851

 

5,036

 

15,712

 

25,693

 

3,845

 

56

 

-

 

59,193

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

16,721

 

13,103

 

62,149

 

25,395

 

30

 

4,074

 

-

 

121,472

 

Other non-current assets

 

51,819

 

46,529

 

212,800

 

614,128

 

183,816

 

70,864

 

-

 

1,179,956

 

Total segment assets

 

68,540

 

59,632

 

274,949

 

639,523

 

183,846

 

74,938

 

-

 

1,301,428

 

Not reportable assets(2)

 

-

 

-

 

-

 

-

 

-

 

195,652

 

-

 

195,652

 

Total assets

 

68,540

 

59,632

 

274,949

 

639,523

 

183,846

 

270,590

 

-

 

1,497,080

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                                                                                 

 

(1)   Comprised of administrative expenses of US$22,172,000, other income of US$16,318,000, other expenses of US$7,214,000, write off of assets of US$498,000, finance income of US$1,442,000, finance costs of US$17,430,000 and foreign exchange gain of US$442,000.

(2)   Not reportable assets are comprised of available-for-sale financial assets of US$814,000, other receivables of US$66,046,000, income tax receivable of US$18,608,000, deferred income tax assets of US$1,199,000, other financial assets of US$6,139,000 and cash and cash equivalents of US$102,846,000.

 

 

 

Six months ended 30 June 2015 (unaudited)

 

Arcata US$000

 

Pallancata US$000

 

San Jose US$000

 

Inmaculada US$000

 

Exploration and advanced projects US$000

 

Other

US$000

 

Adjustments and eliminations US$000

 

Total US$000

Revenue from external customers

 

52,945

 

41,440

 

95,749

 

-

 

-

 

125

 

-

 

190,259

Inter segment revenue

 

-

 

-

 

-

 

-

 

-

 

900

 

(900)

 

-

Total revenue

 

52,945

 

41,440

 

95,749

 

-

 

-

 

1,025

 

(900)

 

190,259

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment profit/(loss)

 

2,007

 

(8,332)

 

10,245

 

-

 

(6,297)

 

336

 

2,115

 

74

Others(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(43,450)

Profit from continuing operations before income tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(43,376)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at 31 December 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditure

 

14,600

 

10,683

 

38,451

 

166,336

 

4,011

 

4,078

 

-

 

238,159

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

17,456

 

13,818

 

63,941

 

31,958

 

30

 

5,435

 

-

 

132,638

Other non-current assets

 

53,458

 

50,591

 

220,307

 

633,169

 

181,662

 

72,481

 

-

 

1,211,668

Total segment assets

 

70,914

 

64,409

 

284,248

 

665,127

 

181,692

 

77,916

 

-

 

1,344,306

Not reportable assets(2)

 

-

 

-

 

-

 

-

 

-

 

198,743

 

-

 

198,743

Total assets

 

70,914

 

64,409

 

284,248

 

665,127

 

181,692

 

276,659

 

-

 

1,543,049

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                                         

 

(1)   Comprised of administrative expenses of US$18,779,000, other income of US$2,602,000, other expenses of US$4,604,000, impairment of the Crespo unit of US$5,917,000, finance income of US$581,000, finance costs of US$16,122,000 and foreign exchange loss of US$1,211,000.

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

 

 

4        Revenue

 

 

Six-months ended 30 June

 

 

 

2016 (Unaudited) US$000

 

2015 (Unaudited) US$000

 

Gold (from dore bars)

 

128,144

 

30,664

 

Silver (from dore bars)

 

94,373

 

58,796

 

Gold (from concentrate)

 

47,884

 

37,012

 

Silver (from concentrate)

 

68,711

 

63,662

 

Services

 

165

 

125

 

 

 

339,277

 

190,259

 

 

The realised loss on gold and silver forward sales contracts in the period recognised within revenue was US$3,116,000 (loss on gold: US$3,501,000, gain on silver: US$385,000) (2015: gain of US$4,991,000 (gain on gold: US$1,793,000 and silver: US$3,198,000)).

 

5      Cost of sales before exceptional items

Included in cost of sales are:

 

 

Six-months ended 30 June

 

 

 

2016 (Unaudited) US$000

 

2015 (Unaudited) US$000

 

Depreciation and amortisation in production cost

 

88,516

 

56,962

 

Personnel expenses

 

49,241

 

52,977

 

Mining royalty

 

3,024

 

2,613

 

Change in products in process and finished goods

 

11,273

 

953

 

 

6      Other income before exceptional items

Included in other income are:

 

 

Six-months ended 30 June

 

 

 

2016 (Unaudited) US$000

 

2015 (Unaudited) US$000

 

Export credits

 

8,360

 

840

 

Logistic services

 

2,566

 

1,325

 

Gain on sale of other assets

 

1,550

 

-

 

Others

 

424

 

437

 

 

 

12,900

 

2,602

 

 

 

 

 

 

 

 

 

 

 

7      Exceptional items

 

   

Six-months ended 30 June

 

 

 

2016  (Unaudited) US$000

 

2015 (Unaudited) US$000

 

Other income

 

 

 

 

 

Gain on sale of subsidiaries1

 

751

 

-

 

Reversal of reserves tax2

 

2,667

 

-

 

Total

 

3,418

 

-

 

Other expenses

 

 

 

 

 

Donations (note 18)

 

(1,000)

 

-

 

Total

 

(1,000)

 

-

 

Impairment and write-off of assets (net)

 

 

 

 

 

Impairment of assets3

 

-

 

(5,917)

 

Write-off of non-current assets4

 

(498)

 

-

 

Total

 

(498)

 

(5,917)

 

Finance income

 

 

 

 

 

Reversal of interests on reserves tax2

 

959

 

-

 

Total

 

959

 

-

 

Finance costs

 

 

 

 

 

Interest on disputed tax charges5

 

-

 

(1,486)

 

Total

 

-

 

(1,486)

 

Income tax (expense)/benefit

 

 

 

 

 

Income tax (charge)/credit6

 

(1,129)

 

1,268

 

Total

 

(1,129)

 

1,268

 

 

 

 

 

 

 

               

 

1.     Gain generated by the sale of the Group´s subsidiary Asociación Sumac Tarpuy to Inversiones ASPI S.A. of US$811,000 net of the loss generated by the sale of HMX S.A. de C.V. to Sergio Salinas Salinas and Servicios de Integración Fiscal S.A. de C.V. of US$60,000.

2.     Corresponds to the reversal of the reserves tax liability and their associated interests due to an agreement reached with the Fiscal Authority in Argentina.

3.     Corresponds to the impairment of the Crespo project of US$5,917,000 (note 10).

4.     Write-off of non-current assets in Compañía Minera Ares S.A.C. ("CMA") of US$495,000 and Minera Santa Cruz S.A. ("MSC") of US$3,000.

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

6.     Corresponds to the current tax charge generated by the reversal of the tax over reserves and its interests (US$1,269,000) net of the deferred tax credit generated by the write-off of non-current assets (US$140,000). For the six months period ended June 2015, primarily related to the deferred tax benefit arising from the impairment of the Crespo project of US$1,539,000, net of the associated underlying tax charge of item 5 above, disclosed as exceptional current income tax of US$271,000.

 

 

 

8    Finance income and finance cost before exceptional items

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

 

 

Six-months ended 30 June

 

 

 

2016  (Unaudited) US$000

 

2015 (Unaudited) US$000

 

Finance income:

 

 

 

 

 

Interest on deposits and liquidity funds

 

328

 

262

 

Interest on loans

 

103

 

31

 

Unwind of discount rate

 

-

 

274

 

Others

 

52

 

14

 

Total

 

483

 

581

 

Finance cost:

 

 

 

 

 

Interest on bank loans

 

(2,258)

 

(4,125)

 

Interest on bond

 

(11,662)

 

(9,188)

 

Other interest

 

(700)

 

(781)

 

Total interest expense

 

(14,620)

 

(14,094)

 

Unwind of discount rate

 

(1,722)

 

(11)

 

Loss from changes in the fair value of financial instruments

 

(829)

 

-

 

Others

 

(259)

 

(531)

 

Total

 

(17,430)

 

(14,636)

 

               

 

Finance costs above are presented net of borrowing costs capitalised in property, plant and equipment amounting to US$674,000 (2015: US$6,165,000).

 

9      Income tax expense

 

 

Six-months ended 30 June

 

 

 

2016 (Unaudited) US$000

 

2015 (Unaudited) US$000

 

Current tax

 

 

 

 

 

Current income tax expense

 

14,072

 

280

 

Current mining royalty charge

 

1,657

 

373

 

Current special mining tax charge

 

1,369

 

-

 

Withholding taxes

 

552

 

-

 

Total

 

17,650

 

653

 

Deferred tax

 

 

 

 

 

Origination and reversal of temporary differences1

 

4,903

 

(144)

 

Total

 

4,903

 

(144)

 

Total taxation charge in the income statement

 

22,553

 

509

 

 

The pre-exceptional tax charge for the period was US$21,424,000 (2015: US$1,777,000).  

 

1.     In 2016 mainly due to the decrease on capitalisation of tax losses in Peru. In 2015, the charge primarily originated as result of a decrease in the US dollar value of the Group's Peruvian Nuevo Sol and Argentine Peso-denominated tax bases, due to the devaluation of these currencies relative to the US dollar in the period.

 

 

 

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

 

 

Six-months ended 30 June

 

 

 

2016 (Unaudited) US$000

 

2015 (Unaudited) US$000

 

 

 

 

 

 

 

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

 

(11,274

)

1,266

 

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

 

(11,274

)

1,266

 

 

10   Property, plant and equipment

During the six months ended 30 June 2016, the Group acquired and developed assets with a cost of US$57,143,000 (30 June 2015: US$128,827,000). The additions for the six months ended 30 June 2016 relate to:

 

 

 

Mining properties and development US$000

 

Other property plant and equipment US$000

 

San Jose

 

11,037

 

4,494

 

Pallancata

 

4,256

 

763

 

Inmaculada

 

12,300

 

13,280

 

Arcata

 

6,115

 

2,718

 

Crespo

 

1,302

 

822

 

Others

 

-

 

56

 

 

 

35,010

 

22,133

 

 

Assets with a net book value of US$5,000 were disposed of by the Group during the six month period ended 30 June 2016 (30 June 2015: US$53,000) resulting in a net gain on disposal of US$33,000 (30 June 2015: US$68,000).

 

For the six months ended 30 June 2016, the depreciation charge on property, plant and equipment was US$90,605,000 (30 June 2015: US$63,056,000).

 

At 30 June 2016, the Group has not recorded any impairment charge with respect to property, plant and equipment (30 June 2015: Crespo project of US$3,899,000).

 

 

11   Evaluation, exploration and intangible assets

During the six months ended 30 June 2016, the Group capitalised evaluation and exploration costs of US$2,050,000 (30 June 2015: US$2,732,000). The additions correspond to the following properties:

 

 

 

US$000

 

Azuca

 

 

1,175

 

San Jose

 

 

181

 

Pallancata

 

 

17

 

Inmaculada

 

 

113

 

Arcata

 

 

18

 

Crespo

 

 

136

 

El Dorado

 

 

410

 

 

 

 

2,050

 

 

There were no transfers from evaluation and exploration assets to property, plant and equipment during the period (2015: US$nil).

 

At 30 June 2016, the Group has not recorded any impairment charge with respect to evaluation and exploration assets (30 June 2015: Crespo project of US$1,736,000).

 

12   Other financial assets and liabilities

 

 

As at 30 June 2016 (unaudited) US$000

 

As at 31 December 2015

 US$000

 

Other financial assets

 

 

 

 

 

Embedded derivatives1

 

6,139

 

-

 

Commodity swaps2

 

-

 

21,267

 

Other financial assets

 

6,139

 

21,267

 

 

 

 

 

 

 

Other financial liabilities

 

 

 

 

 

Commodity swaps2

 

17,301

 

-

 

Zero cost collars3

 

2,527

 

-

 

Embedded derivatives2

 

-

 

1,141

 

Other financial liabilities

 

19,828

 

1,141

 

 

1      Sales of concentrate and certain gold and silver volumes are provisionally priced at the time the sale is recorded (note 13).

2      Corresponds to the fair value of the following unsettled commodity swap contracts:

a.     signed in August 2015 with Citibank N.A. to hedge the sale of 71,000 ounces of gold at US$1,153.65 per ounce, during the period from January to December 2016;

b.     signed in October 2015 with Bank of America Merrill Lynch to hedge the sale of 6,000,000 ounces of silver at US$15.9352 per ounce, during the period from January to December 2016;

c.     signed in October 2015 with Bank of America Merrill Lynch to hedge the sale of 29,000 ounces of gold at US$1,144.50 per ounce, during the period from January to December 2016; and

d.     signed in February 2016 with Citibank N.A. to hedge the sale of 15,000 ounces of gold at US$1,244.25 per ounce, during the period from February to December 2016.

3      Corresponds to the fair value of the zero cost collar contract signed in February 2016 with JPMorgan Chase Bank to hedge the sale of 2,999,997 ounces of silver at a call/put price of US$17.6 and US$14.0 per ounce respectively, during the period February to December 2016.

 

13   Financial instruments

Fair value hierarchy

 

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

 

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

 

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

 

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

 

At 30 June 2016 and 31 December 2015, the Group held the following financial instruments measured at fair value:

 

As at 30 June 2016 (unaudited)

US$000

 

 

Level 1

US$000

 

Level 2

US$000

 

Level 3

US$000

Assets measured at fair value

 

 

 

 

 

 

 

 

Equity shares

814

 

 

814

 

-

 

-

Embedded derivatives (note 12)

6,139

 

 

-

 

-

 

6,139

 

6,953

 

 

814

 

-

 

6,139

 

Liabilities measured at fair value

 

 

 

 

 

 

 

 

Zero cost collars (note 12)

(2,527)

 

 

-

 

(2,527)

 

-

Commodity swaps (note 12)

(17,301)

 

 

-

 

(17,301)

 

-

 

(19,828)

 

 

-

 

(19,828)

 

-

 

 

As at 31 December 2015 US$000

 

 

Level 1 US$000

 

Level 2 

US$000

 

Level 3 US$000

Assets measured at fair value

 

 

 

 

 

 

 

 

Equity shares

366

 

 

366

 

-

 

-

Commodity swaps (note 12)

21,267

 

 

-

 

21,267

 

-

 

21,633

 

 

366

 

21,267

 

-

Liabilities measured at fair value

 

 

 

 

 

 

 

 

Embedded derivatives (note 12)

(1,141)

 

 

-

 

-

 

(1,141)

 

(1,141)

 

 

-

 

-

 

(1,141)

 

 

During the six months ended 30 June 2016 and the year ended 31 December 2015, there were no transfers between these levels.

 

 

 

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

 

 

 

Embedded derivatives (liabilities)/assets US$000

 

Balance at 1 January 2015

(1,533)

 

Gain from the period recognised in revenue

392

 

Balance 31 December 2015

(1,141)

 

Gain from the period recognised in revenue

7,280

 

Balance 30 June 2016 (unaudited)

6,139

 

 

Valuation techniques:

 

Level 2: Commodity swap and zero cost collars contracts

 

Commodity swap and zero cost collars contracts: Contracts entered into to hedge against the risk of commodity price fluctuations. These contracts are valued using a commonly accepted methodology which makes maximum use of market inputs such as quoted market prices and discount rates.

 

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

 

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

 

Equity shares: The investments in unlisted shares (Pembrook Mining Corp. and ECI Exploration and Mining Inc.) were recognised at cost less any recognised impairment losses given that there is not an active market for these investments. The investments in ECI Exploration and Mining Inc. and Pembrook Mining Corp. are fully impaired as at 30 June 2016 and 31 December 2015, based on available observable market data of similar peers.

 

14   Cash and cash equivalents

 

 

As at 30 June

2016

 (unaudited) US$000

 

As at 31 December 2015

US$000

 

 

 

 

 

 

 

Cash at bank

 

335

 

368

 

Liquidity funds1

 

17

 

337

 

Current demand deposit accounts2

 

49,222

 

47,717

 

Time deposits3

 

53,272

 

35,595

 

Cash and cash equivalents

 

102,846

 

84,017

 

 

1      The liquidity funds are mainly invested in certificate of deposits, commercial papers and floating rate notes with a weighted average maturity of 12 days as at 30 June 2016 (as at 31 December 2015: 14 days).

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

3      These deposits have an average maturity of 3 days (as at 31 December 2015: 2 days).

 

15   Borrowings

        The movement in borrowings during the six month period to 30 June 2016 is as follows:

 

As at 1 January 2016 US$000

 

Additions US$000

 

Repayments US$000

 

Reclassifications US$000

 

As at 30 June 2016 (Unaudited) US$000

Current

 

 

 

 

 

 

 

 

 

Bank loans1

85,983

 

14,835

 

(30,341)

 

(452)

 

70,025

Bond payable2

8,777

 

12,256

 

(11,928)

 

(327)

 

8,778

 

94,760

 

27,091

 

(42,269)

 

(779)

 

78,803

Non-current

 

 

 

 

 

 

 

 

 

Bank loan3

49,548

 

-

 

(50,000)

 

452

 

-

Bond payable2

290,230

 

-

 

-

 

327

 

290,557

 

339,778

 

-

 

(50,000)

 

779

 

290,557

 

 

 

 

 

 

 

 

 

 

Accrued interest:

(9,829)

 

(14,594)

 

14,341

 

779

 

(9,303)

Before accrued interest

424,709

 

12,497

 

(77,928)

 

779

 

360,057

 

 

 

 

 

 

 

 

 

 

 

1      Relates to the US$60,447,000 short-term credit lines with the BBVA Bank (2015: US$75,200,000), pre-shipment loans for a total amount of US$9,578,000 (2015: US$10,554,000) which are credit lines given by banks to meet payment obligations arising from the exports of the Group, and the current portion of the medium-term loan totalling US$nil, as the loan was repaid on 7 June 2016 (2015: US$229,000).

2      Relates to the issuance of US$350,000,000 7.75% Senior Unsecured Notes on 23 January 2014.The carrying value at 30 June 2016 of US$299,335,000 (2015: US$299,007,000) was determined in accordance with the effective interest method.

 

 

3      Medium-term loan of US$100,000,000 with Scotiabank Peru S.A.A. acting as Lead Arranger and The Bank of Nova Scotia and Corpbanca as lenders. The loan was fully repaid on 7 June 2016 (non-current and current balance at 31 December 2015: US$49,777,000). 

The carrying amount of current borrowings approximates their fair value. The carrying amount and fair value of the non‑current borrowings are as follows:

 

 

Carrying amount
 

 

Fair value
 

 

 

As at 30 June 2016 (Unaudited)
US$000

 

As at 31 December 2015 US$000

 

As at 30 June 2016

(Unaudited)
US$000

 

As at 31 December 2015 US$000

Bank loan

 

-

 

49,548

 

-

 

48,223

Bond payable

 

290,557

 

290,230

 

306,198

 

274,878

Total

 

290,557

 

339,778

 

306,198

 

323,101

 

 

16   Equity

Share capital and share premium

 

The movement in share capital of the Company from 31 December 2015 to 30 June 2016 is as follows:

 

 

Number of ordinary shares

 

Share capital US$000

 

Share premium US$000

Shares issued as at 1 January 2016

 

505,571,505

 

223,805

 

438,041

Shares issued as at 30 June 2016

 

505,571,505

 

223,805

 

438,041

 

At 30 June 2016 and 31 December 2015 all issued shares with a par value of 25 pence each were fully paid (30 June 2016:  weighted average of US$0.443 per share, 31 December 2015: weighted average of US$0.443 per share).

 

On 20 March 2015, the Group issued 587,015 ordinary shares under the Deferred Bonus Plan, to certain employees of the Group.

 

17   Dividends paid and declared

Dividends declared and paid to non-controlling interests in the six months ended 30 June 2016 were US$5,244,000 (30 June 2015: US$nil) and US$5,344,000 (30 June 2015: US$645,000) respectively. 

 

There were no dividends declared in the six months ended 30 June 2015 or 2016. The Directors of the Company declared an interim dividend in respect of the six months ended 30 June 2016 of 1.38 US cents per share (totalling US$7,000,000) (30 June 2015: US$nil) which will be paid to shareholders on 22 September 2016 to those shareholders appearing on the register on 2 September 2016. These financial statements do not reflect this dividend payable.

 

 

18   Related party transactions

On 17 May 2016, Asociación Sumac Tarpuy was sold to Inversiones ASPI S.A. generating a gain on disposal of US$811,000 (note 7). The Group made a donation of US$1,000,000 to the Universidad de Ingenieria y Tecnología ("UTEC") with the proceeds from the sale of this entity.

 

There were no other significant transactions with related parties during the six months period ended 30 June 2016.

 

 

19   Notes to the statement of cash flows

 

 

Six- months ended 30 June

 

 

2016

 (Unaudited)
US$000

 

2015

 (Unaudited)
US$000

Reconciliation of gain/(loss) for the period to net cash generated from operating activities

 

 

 

 

Profit/(loss) for the period

 

37,744

 

(43,885)

Adjustments to reconcile Group loss to net cash inflows from operating activities

 

 

 

 

Depreciation

 

88,420

 

57,095

Amortisation of intangibles

 

785

 

684

Write-off of assets (net)

 

498

 

-

Impairment of assets

 

-

 

5,917

Gain on sale of available-for-sale financial assets

 

(38)

 

-

Gain on sale of property, plant and equipment

 

(33)

 

(68)

Provision for obsolescence of supplies

 

267

 

-

Gain on sale of subsidiary

 

(751)

 

-

Finance income

 

(1,404)

 

(581)

Finance costs

 

17,430

 

16,122

Income tax expense

 

22,553

 

509

Other

 

2,063

 

3,808

Increase/(decrease) of cash flows from operations due to changes in assets and liabilities

 

 

 

 

Trade and other receivables

 

2,587

 

2,867

Income tax receivable

 

(754)

 

13,098

Other financial assets and liabilities

 

(6,490)

 

(184)

Inventories

 

10,845

 

(1,153)

Trade and other payables

 

(18,483)

 

(12,649)

Provisions

 

3,588

 

2,923

Cash generated from operations

 

158,827

 

44,503

 

20   Commitments

a)        Mining rights purchase options

During the ordinary course of business, the Group enters into agreements to carry out exploration under concessions held by third parties.  Generally, under the terms of these agreements, the Group has the option to acquire the concession or invest in the entity holding the concession.  In order to exercise the option the Group must satisfy certain financial and other obligations over the agreement term.  The option lapses in the event that the Group does not meet the financial requirements.  At any point in time, the Group may cancel the agreements without penalty, except in certain specific circumstances.

 

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

 

 

 

As at
30 June 2016 US$000

 

As at
31 December 2015 US$000

Less than one year

750

 

550

More than one year

5,850

 

6,450

 

6,600

 

7,000

         

 

 

 

b)    Capital commitments

The future capital commitments of the Group are as follows:

 

As at
30 June 2016 US$000

 

As at
31 December 2015 US$000

Peru

16,820

 

7,684

Argentina

3,498

 

4,509

 

20,318

 

12,193

         

 

 

21   Subsequent events

a)     On 4 July 2016 the Group repaid US$35,000,000 of short-term credit lines with BBVA Bank and obtained two short-term loans with Interbank amounting to US$30,000,000 at an annual interest rate of 1.5%. 

 

 

   

Profit by operation¹

(Segment report reconciliation) as at 30 June 2016

 

Company (US$000)

 

Arcata

Inmaculada

Consolidation adjustment and  others

 

 

Revenue

 

60,009

28,915

110,651

139,537

165

339,277

 

 

Cost of sales (pre-consolidation)

 

(46,506)

(28,451)

(74,461)

(88,892)

(438)

(238,748)

 

 

Consolidation adjustment

 

47

(91)

-

(394)

438

-

 

 

Cost of sales (post-consolidation)

 

(46,459)

(28,542)

(74,461)

(89,286)

-

(238,748)

 

 

Production cost excluding

Depreciation

 

(34,119)

(18,790)

(48,548)

(37,580)

-

(139,037)

 

 

                Depreciation in production cost

 

(10,779)

(9,085)

(22,362)

(46,290)

-

(88,516)

 

 

                Other items

 

151

150

(179)

(44)

-

78

 

 

                Change in inventories

 

(1,712)

(817)

(3,372)

(5,372)

-

(11,273)

 

 

Gross profit

 

13,503

464

36,190

50,645

(273)

100,529

 

 

Administrative expenses

 

-

-

-

-

(22,172)

(22,172)

 

 

Exploration expenses

 

-

-

-

-

(4,043)

(4,043)

 

 

Selling expenses

 

(693)

(365)

(5,509)

(510)

-

(7,077)

 

 

Other income/expenses

 

-

-

-

-

9,104

9,104

 

 

Operating profit before impairment

 

12,810

99

30,681

50,135

(17,384)

76,341

 

 

Impairment and write-off of assets

 

-

-

-

-

(498)

(498)

 

 

Finance income

 

-

-

-

-

1,442

1,442

 

 

Finance costs

 

-

-

-

-

(17,430)

(17,430)

 

 

Foreign exchange

 

-

-

-

-

442

442

 

 

Profit/(loss) from continuing operations before income tax

 

12,810

99

30,681

50,135

(33,428)

60,297

 

 

Income tax

 

-

-

-

-

(22,553)

(22,553)

 

 

Profit/(loss) for the year from continuing operations

 

12,810

99

30,681

50,135

(55,981)

37,744

 

                     

 

 

 

1On a post-exceptional basis.

 

 

 

 

SHAREHOLDER INFORMATION

 

Company website

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

 

Registrars

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

personal details:

 

BY POST

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

 

BY TELEPHONE

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

 

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

 

Currency option and dividend mandate

Shareholders wishing to receive their dividend in US dollars should contact the Company's registrars to request a currency election form. This form should be completed and returned to the registrars by 5 September 2016 in respect of the 2016 interim dividend. 

 

The Company's registrars can also arrange for the dividend to be paid directly into a shareholder's UK bank account. To take advantage of this facility in respect of the 2016 interim dividend, a dividend mandate form, also available from the Company's registrars, should be completed and returned to the registrars by 5 September 2016. This arrangement is only available in respect of dividends paid in UK pounds sterling.  Shareholders who have already completed one or both of these forms need take no further action.

 

Financial Calendar

Dividend dates

2016

Ex-dividend date

1 September

Record date

2 September

Deadline for return of currency election forms

5 September

Payment date

22 September

 

23 Hanover Square

London

W1S 1JB

United Kingdom

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1Revenue presented in the financial statements is disclosed as net revenue (in the Financial Review it is calculated as gross revenue less commercial discounts)

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

3On a pre-exceptional basis

4All-in sustaining cost per silver equivalent ounce ("AISC"): Calculated before exceptional items and includes cost of sales less depreciation and change in inventories, administrative expenses, brownfield exploration, operating capex and royalties divided by silver equivalent ounces produced using a gold/silver ratio of 74:1 

5All equivalent figures assume the average gold/silver ratio for 2015 of 74:1 unless otherwise stated

6All-in sustaining cash cost per silver equivalent ounce: Calculated before exceptional items includes cost of sales less depreciation and change in inventories, administrative expenses, brownfield exploration, operating capex and royalties divided by silver equivalent ounces produced using a ratio of 74:1 (Au/Ag). Also includes commercial discounts and selling expenses divided by silver equivalent ounces sold using a ratio of 74:1 (Au/Ag). 

 

7Commercial discounts do not include those associated with dore sales which have already been considered in the gross revenue figures.

8Unit cost per tonne is calculated by dividing mine and geology costs by extracted tonnage and plant and other costs by treated tonnage.

9Cash costs are calculated to include cost of sales, treatment charges, and selling expenses before exceptional items less depreciation included in cost of sales.  

10All-in sustaining cash cost per silver equivalent ounce: Calculated before exceptional items includes cost of sales less depreciation and change in inventories, administrative expenses, brownfield exploration, operating capex and royalties divided by silver equivalent ounces produced using a ratio of 74:1 (Au/Ag). Also includes commercial discounts and selling expenses divided by silver equivalent ounces sold using a ratio of 74:1 (Au/Ag).

11AISC for Pallancata includes capex for developing the Pablo vein. Excluding this capex, AISC for the operation was $13.5 per silver equivalent ounce. The total operational AISC excluding the Pablo capex was $10.6 per ounce.

12New royalties included in income tax line

13Includes pre-shipment loans and short term interest payables.

14Includes additions in property, plant and equipment and evaluation and exploration assets (confirmation of resources) and excludes increases in the expected closure costs of mine assets

15Inmaculada was accounted for as a project in H1 2015 and therefore is not included in the calculation of operations capital expenditure for H1 2015


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