Hochschild Mining plc
46 Albemarle Street
London W1S 4JL
United Kingdom
+44 (0) 207 907 2930
+44 (0) 207 907 2931
info@hocplc.com
www.hochschildmining.com
Annual Report & Accounts 2009
2009Delivering results...
i
H
o
c
h
s
c
h
i
l
d
M
n
n
g
p
l
c
A
n
n
u
a
l
i
R
e
p
o
r
t
&
A
c
c
o
u
n
t
s
2
0
0
9
About us…
About us...
Hochschild Mining is a leading
underground precious metals
producer operating in the
Americas with a primary focus
on silver and gold.
Financial & operational highlights
Revenue
$539.7m
Earnings per share
$0.31
Proposed total dividend
$0.04
Operating cash flow
$200.5m
Net profit
$98.1m
Forward looking statements
The constituent parts of this Annual Report, including those that make up the Directors’ Report, contain 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. These factors, risks and uncertainties are further discussed elsewhere in this Annual Report in
the section entitled Risk Management. 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 Annual Report. Except as required by the Listing Rules and
applicable law, the Board of Hochschild Mining plc does not undertake any obligation to update or change any forward-looking statements to reflect events occurring after
the date of this Annual Report. Nothing in this Annual Report should be construed as a profit forecast.
Designed and produced by Radley Yeldar www.ry.com
Printed by the Midas Press
This report is printed on Splendorgel EW which is
certified as FSC Mixed Sources and is completely
biodegradable and recyclable
Hochschild Mining plc Annual Report & Accounts 2009
What’s in this annual report?
At a glance
02 Our investment proposition
Growth strategy
Corporate responsibility
04 Chairman’s statement
08 Our three-part growth strategy
14 Q&A with management
16 Operating review
24 Market & geographic overview
26 Safety
28 Health
29 Corporate HR
30 Community relations
32 Environment
Financial review & risk
34 Financial review
40 Risk management
Governance
Accounts
42 Board of Directors
43 Senior management
44 Directors’ report
49 Corporate governance report
54 Directors’ remuneration report
60 Statement of directors’ responsibilities
61
Independent auditor’s report
63 Consolidated accounts
68 Notes to the consolidated accounts
134 Parent company accounts
137 Notes to the parent company accounts
Further information
153 Reserves and resources
159 Production
162 Glossary
163 Shareholder information
01
A
t
a
g
l
a
n
c
e
G
r
o
w
t
h
s
t
r
a
t
e
g
y
C
o
r
p
o
r
a
t
e
r
e
s
p
o
n
s
b
i
l
i
t
y
i
i
F
n
a
n
c
a
l
i
r
e
v
i
e
w
&
r
i
s
k
G
o
v
e
r
n
a
n
c
e
A
c
c
o
u
n
t
s
F
u
r
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
6
Canada
A strong asset
base and
project pipeline
ACQUISITIONS & INVESTMENTS
Lake Shore Gold 38%
Production start
Production target (silver equivalent)
Gold Resource Corporation 29%
Production start
Production target (silver equivalent)
Southwestern Resources 100%
Hectares
Prospects
6
2010
3.9moz
7
2010
4.2moz
8
282,000
38
EXPLORATION PROJECTS
Azuca
Deposit
Resources (inferred)
Crespo
Deposit
Resources (inferred)
Josnitoro
Deposit
Mosquito
Deposit
Victoria
Deposit
San Felipe
Deposit
Resources (inferred)
9
Silver/gold
3.7mt at 287.7g/t Ag
1.3g/t Au
10
Gold/silver
17.8mt at 38.8g/t Ag
and 0.7g/t Au
11
Gold/silver
12
Gold/silver
13
Gold/silver
14
Zinc
1.3 mt
14
5
Mexico
7
Peru
1
11,260koz
1,750 tpd
2
10,338koz
3,000 tpd
3
3,455koz
940 tpd
4
9,622koz
1,500 tpd
5
1,797koz
3,000 tpd
CURRENT OPERATIONS*
Arcata 100%
Silver equivalent production
Capacity
Pallancata 60%
Silver equivalent production
Capacity
Ares 100%
Silver equivalent production
Capacity
San Jose 51%
Silver equivalent production
Capacity
Moris 100%
Silver equivalent production
Capacity
11
2
9
10
8
3
1
Chile
13
* Silver equivalent production equals total gold production
multiplied by 60 (historical gold/silver ratio) added to the
total silver production.
Capacity is measured as tonnes per day (“tpd”).
Argentina
4
12
1
2
3
Current operations
Acquisitions & investments
Exploration projects
Other greenfield projects
Exploration offices
02
Hochschild Mining plc Annual Report & Accounts 2009
At a glance
Our investment proposition
We are committed to delivering long term, sustainable value for
shareholders and we are well placed to achieve this objective.
We have a clear strategy for growth focused on:
1 Current operations
2 Acquisitions & investments
3 Exploration projects
q For further details see p08
A
A
t
t
a
a
g
g
l
l
a
a
n
n
c
c
e
e
We have a solid track record: all production
targets and scheduled projects delivered since IPO
We have over 40 years’ experience in underground
mining and unrivalled regional knowledge of
the Americas
We have a significant and diverse asset base
and project pipeline
q For further details see p16
Attributable silver equivalent production moz
28.2moz
Revenue by product
$539.7m
23
1 Silver
2 Gold
26
26
28
63%
37%
2
2009
1
2006
2007
2008
2009
03
2009 financial & operational highlights
Gold production up
+3%156.8koz
Unit cost per tonne down
–11%$71.2 per tonne
Silver production up
+11%18.8moz
Revenue up
+24%$539.7m
Administrative expenses down
–26%$51.1m
Hochschild Mining plc Annual Report & Accounts 2009
Growth strategy
Chairman’s statement
Delivering on our promises
Production
Achieved 2009 target of 28 million attributable
silver equivalent ounces.
Acquisitions & investments
In Lake Shore Gold, Gold Resource Corporation,
Southwestern Resources and others.
Diversification
We now have operations and investments
in five countries in the Americas: Peru,
Argentina, Mexico, Canada and Chile.
Below: Arcata plant, Peru
04
G
r
o
w
t
h
s
t
r
a
t
e
g
y
After implementing a number of measures to deal with
challenging market conditions in 2008, we entered 2009 with a
firm focus on producing profitable ounces and a clear strategy
for growth. Now, 12 months later, I am proud to say that 2009
has been a year of delivery for Hochschild Mining. Our strategy
is supported by three pillars – organic, M&A, and exploration
growth and we have delivered in each area with record
production, continued strategic investments and an expanding
portfolio of assets.
Operationally, we are as strong as ever with five mines in three
countries, producing a total of 24.6 million ounces of silver and
211.6 thousand ounces of gold. Our results continue to benefit
from the plant expansions completed at the end of 2008, which
increased capacity by 29%. A continued focus on cost control
has resulted in an impressive 11% decrease in unit cost per
tonne at our underground mines, demonstrating management’s
ability to adapt quickly to changes in the price environment.
On the M&A side, we supported the merger between Lake
Shore Gold Corporation (“Lake Shore Gold”) and West
Timmins Mining (“WTM”) investing a further $91.1 million in
the enlarged company1 and bringing our ownership to 38% on
an outstanding basis. We have also delivered on our strategy
by continuing to invest in Gold Resource Corporation (“GRC”),
which started production in early 2010. The two companies have
impressive production targets and, in aggregate, have a market
capitalisation of $1,463.3 million, valuing Hochschild’s stakes at
$504.5 million2.
This has also been a year of delivery for our exploration team,
with Azuca doubling resources to 44.1 million silver equivalent
ounces and Crespo reporting resources of 44.7 million silver
equivalent ounces, following extensive drilling campaigns.
Azuca has the potential to be our next mine and an addition
to our Peruvian operational cluster. We are in the process of
initiating a scoping study at this project.
Resource life of mine (which includes reserves) for our three
main operations; Arcata, Pallancata and San José increased by
20% from 5.9 to 7.1 years, whilst reserve life of mine has been
maintained at 3.3 years. Our total attributable resource tonnage
including all our operations, main projects and investments3,
has more than doubled from 20.7 million to 43.6 million whilst
contained silver equivalent ounces, on an attributable basis,
increased from 313.4 million to 402.8 million.
We have delivered a strong set of financial results with revenue
for the year up 24% to $539.7 million. Operating profit more
than doubled to $153.6 million and, as a consequence, pre-
exceptional EPS has increased from $0.05 to $0.17.
Our results were also significantly impacted by $44.7 million
of exceptional items, including a one-off gain of $42.3 million
relating to the Lake Shore Gold/WTM transaction, bringing our
post exceptional EPS to $0.31. Higher realised prices combined
with lower costs allowed operating cash flow to more than
double to $200.5 million.
In October 2009, we successfully raised $260 million4 through
an equity placing and bond offering which provided us
with increased financial flexibility and funded some of the
investments mentioned above. Our ability to raise capital during
a time when financial markets have been relatively unstable
reflects investor support for our strategy and confidence in our
growth prospects.
We continue to enjoy a healthy balance sheet with a year end
cash balance of $77.8 million. This, in conjunction with cash
generated from our operations will allow us to pursue our
growth strategy going forward.
Organic growth
I am very proud to say that we have continued to deliver on our
production targets since the IPO. 2009 was our best year so far,
with record attributable production of 28.2 million attributable
silver equivalent ounces – consolidating our position as the
world’s third largest primary silver producer. Results were
particularly strong at Pallancata, where both silver and gold
production doubled year-on-year and at San José, where silver
and gold production increased 14% and 42% respectively.
Whilst we delivered on production, management were also
particularly focused on cost control, and as mentioned above,
unit cost per tonne decreased by 11% during the year. Including
Moris, our only open pit mine, the reduction was even more
impressive with a 15% saving. We have also lowered our
administrative expenses by $17.7 million, including a 28%
reduction in personnel expenses and a 34% decrease in
professional fees.
M&A growth
In 2009, we continued to execute our cluster consolidation
strategy by securing bolt-on acquisitions, joint ventures and
strategic investments in a number of key mining districts,
investing a total of $239.5 million during the year.
As I mentioned earlier, Lake Shore Gold and GRC are important
strategic investments for Hochschild and provide exposure to
impressive production potential and long-term growth.
05
1 Amount invested from December 2009 to March 2010 following completion of the
Lake Shore Gold/WTM transaction
2 As at 19 March 2010 on an outstanding basis
3 Arcata, Pallancata, San José, Moris, Ares, Azuca, Crespo, Lake Shore Gold, Inmaculada and
San Felipe
4 Gross proceeds
5 On a fully diluted basis, Hochschild’s equity interest at 31 December 2009 was 25.0%.
In addition, during 2010, $9.5 million has been invested, increasing Hochschild’s stake to
26.7%. On an outstanding basis, Hochschild´s interest increased from 27.0% to 28.7% in 2010
Hochschild Mining plc Annual Report & Accounts 2009
Growth strategy
Chairman’s statement
continued
Proposed total dividend
$0.04
We were fully supportive of Lake Shore Gold’s merger with
WTM which created the new large-scale, wholly-owned
Timmins West Gold Mine Complex, an extension of the
world-class Timmins gold mining trend. Lake Shore Gold
has announced an updated production target of 65,000 ounces
of gold (3.9 million silver equivalent ounces) in 2010, building
production over the following three years with the potential to
produce 350,000 ounces (21 million silver equivalent ounces)
by 2013.
To date, we have invested $63.5 million in GRC, increasing
our ownership to 29%5. Our investment in the company gives
us access to high grade, low cost ounces expanding our
operational cluster in southern Mexico, a mining friendly
country with significant mineral potential. GRC started
production in February 2010 with a production target of 70,000
ounces of gold (4.2 million silver equivalent ounces) in the first
12 months of operation.
During the year we have also completed the strategic
acquisition of Southwestern Resources Corp (“SWG”),
a Canadian mineral exploration company for $19.2 million.
The acquisition consolidated our position in southern Peru
by adding a number of early stage projects to our pipeline
including Crespo and Josnitoro.
Exploration growth
In addition to the exploration success achieved at our existing
operations, we are also confident about a number of projects
in our pipeline which are delivering positive results.
Azuca is a 3,000 hectare project located in southern Peru, only
50 kilometres northwest of Arcata and within Hochschild’s
operational cluster. During 2009, we undertook 26,240 metres
of drilling and doubled resources, with 3.7 million tonnes at
287.7 g/t Ag and 1.3 g/t Au. As mentioned above, Azuca has the
potential to be our next mine and in 2010 we have initiated a
scoping study, with a feasibility study to follow.
We have also made progress in Crespo, a low-grade gold/silver
disseminated deposit in our Peruvian cluster. Hochschild’s
drilling programme, which is focused on increasing resources,
has identified significant high-grade ore bodies and as at
31 December 2009, Crespo reported resources of 44.7 million
silver equivalent ounces, with 17.8 million tonnes at 38.8 g/t Ag
and 0.7 g/t Au.
In 2009, we also made progress at Victoria in northern Chile,
which is part of a partnership with Iron Creek Capital Corp.
During the year, 28 drill holes totalling 7,626 metres were
completed and anomalous gold and silver mineralisation was
encountered in all drill holes with significant intercepts.
Responsible mining
Efficient operations can only be achieved through good
community support and we are dedicated to maintaining the
highest standards of corporate and social responsibility. We are
committed to the safety of all our employees and have made
significant progress over the past year. In 2009, we reduced our
accident frequency rate by 9% compared to 2008. Nonetheless,
it is with deep regret that I report three mine fatalities in 2009.
We have addressed the underlying safety deficiencies that led to
the occurrence of these tragic events and we continue to view
any fatalities as unacceptable.
Board and management changes
During the year we welcomed a new Non-Executive Director,
Fred Vinton, to the Board. Fred has over 30 years’ banking and
commercial experience and brings a wide range of knowledge
and skills to Hochschild.
It is with sadness that the Board has accepted the resignation
of Miguel Aramburú, who wishes to step down as CEO for
personal reasons, with effect from 1 April 2010. I would like to
thank Miguel for his enormous contribution to the Company
over the last 15 years and particularly his successful tenure as
CEO. I also want to thank him for his dedication to the business
and, personally speaking, for his friendship over this period.
Ignacio Bustamante, COO, will succeed Miguel Aramburú as
CEO and as an Executive Director from 1 April 2010. Ernesto
Balarezo, currently head of our Peruvian operations will assume
the role of VP of Operations with effect from 1 April 2010.
The Board also regrettably announces that it has accepted the
resignation of Ignacio Rosado, CFO, who is leaving the Company
with effect from 31 May 2010 to develop his career further by
pursuing a CEO role. During his tenure as CFO, Ignacio has
played a key role in the execution of Hochschild’s strategy
ensuring a strong financial platform and the continued delivery
of the Company’s objectives. I would also like to thank Ignacio
for his significant contribution over the years and I wish him
well in his future career. Ignacio will be succeeded by Ramón
Barúa, currently CEO of Fosfatos del Pacifico and previously
General Manager of Hochschild’s Mexican operations.
I would also like to take this opportunity to thank all our
employees for the hard work that has enabled Hochschild
to progress its strategic goals.
Dividend
The Board recommends a final dividend of $0.02 per Ordinary
Share resulting in a total dividend for the year of $0.04 per
Ordinary Share. We will keep dividend policy under review
in accordance with the capital availability and requirements
of the business.
06
Delivering our
growth strategy R
Over the next few pages we explain our
three-part strategy for future growth.
Outlook
We entered 2010 with a solid foundation for continued growth
and a positive precious metals outlook. Our production target
for 2010 is 29 million silver equivalent ounces. Production from
existing operations is expected to be 26.3 million attributable
silver equivalent ounces comprising approximately 17.6 million
ounces of silver and 145,000 ounces of gold. The target also
includes 2.7 million silver equivalent ounces from our interests
in Lake Shore Gold and GRC.
In 2010, the Company expects Arcata’s silver grades to be at
similar levels to Q409 as accessible mine areas will continue
to have narrower veins and changing geotechnical conditions.
As anticipated, production and grades at the Company’s ageing
mine Ares will continue to decline, with closure expected in the
second half of 2010.
We take an extremely rigorous approach to managing costs
that are within our control and we are currently undertaking a
number of initiatives which will contribute to cost containment.
However, management expects an increase in unit cost per
tonne at our underground mines of around 10% in 2010, mostly
as a result of inflation related to labour and supply costs.
Below: Employees at Ares, Peru
At Ares, given the ageing nature of the deposit, operating costs
are expected to increase through to its expected closure in the
second half of 2010.
The Company is pleased to announce that it is significantly
increasing its exploration spend from $28.6 million in 2009
to $50 million in 2010. The exploration programme will focus
on extending the life of Hochschild’s existing operations and
identifying high-quality, early stage precious metal projects
which will provide cost effective growth.
With $77.8 million in cash at the end of 2009, we are in a sound
financial position and well placed to deliver our long-term
growth strategy. Our focus will continue to be on producing
profitable ounces and expanding the business through
appropriate investment and acquisition.
G
r
o
w
t
h
s
t
r
a
t
e
g
y
Eduardo Hochschild
Executive Chairman
23 March 2010
07
Hochschild Mining plc Annual Report & Accounts 2009
Growth strategy
Growth strategy:
1
Extracting the maximum
potential from our
current operations
Since our IPO in 2006, we have met all of our annual production targets,
entered new mineral rich regions and doubled the throughput capacity of
our current operations. We have a solid, profitable production base with five
operations in three countries producing 28.2 million attributable silver
equivalent ounces* in 2009. We are committed to maximising our life of
mine and invest in mine-site, brownfield exploration with the long-term
objective of achieving a minimum eight-year total resource life including
a four-year reserve life.
*469,339 attributable gold equivalent ounces
q For further details see p16
Right: San José plant, Argentina.
Far right: Employees at Arcata, Peru.
Opposite page: The Selene plant,
which processes ore from our
Pallancata mine in Peru.
08
Hochschild Mining plc Annual Report & Accounts 2009
Growth strategy
2010
Set production target
of 29 million silver
equivalent ounces
2009
Achieved record
production of 28.2 million
attributable silver
equivalent ounces
2008
Increased plant
capacity, up 29%
2007
Expanded from
three mines in one
country to six mines
in three countries
A
t
a
g
l
a
n
c
e
G
G
r
r
o
o
w
w
t
t
h
h
s
s
t
t
r
r
a
a
t
t
e
e
g
g
y
y
C
o
r
p
o
r
a
t
e
r
e
s
p
o
n
s
b
i
l
i
t
y
i
i
F
n
a
n
c
a
l
i
r
e
v
i
e
w
&
r
i
s
k
G
o
v
e
r
n
a
n
c
e
A
c
c
o
u
n
t
s
F
u
r
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
9
2010
Lake Shore Gold and GRC
to start production with
targets of 65 koz and
70 koz of gold respectively;
further investment in
GRC bringing ownership
to 29%
2009
Further strategic
investments with holdings
of 38% in Lake Shore
Gold, 27% in GRC and
100% of Southwestern
Resources
2008
Acquired initial stakes
in Lake Shore Gold
and GRC
2007
Focused on finding
new opportunities
in mineral-rich regions
in the Americas
Above left: Lake Shore Gold’s plant in
Timmins, Canada
Above right: GRC’s El Aguila plant in
Wahaca, Mexico
Opposite page: Crespo exploration project
in Peru, acquired as part of the Southwestern
Resources transaction
G
r
o
w
t
h
s
t
r
a
t
e
g
y
2
Growth strategy:
Realising growth
opportunities through
acquisitions & investments
We are focused on high-margin precious metals projects and continually
evaluate opportunities across the Americas including specific geological
regions; the highlands of southern Peru, the Argentine Patagonia, the
Timmins region in Canada, southern Mexico and northern Chile. We take
a highly selective, disciplined approach to ensure that all transactions are
value accretive in the long term. Our core skill is identifying companies with
positive growth potential and 2009 was a particularly active year for the Group,
with over $239.5 million invested in strategic acquisitions and investments.
q For further details see p20
11
Hochschild Mining plc Annual Report & Accounts 2009
Growth strategy
Growth strategy:
3
Securing our future
through exploration
Our exploration programme is focused on maximising the life of our existing
operations and also on bringing new, profitable precious metals projects
into production. We are extremely positive about the potential of our pipeline,
which currently comprises numerous projects in four countries. Projects are
at various stages of development and are subject to a rigorous evaluation
process to ensure that investment is targeted towards quality assets that
will ultimately contribute to the Group’s long-term growth.
q For further details see p22
Left: Laboratory testing at San José
in Argentina
Far left: Exploration project in Peru
Opposite page: Geologist at Pallancata
in Peru
12
G
r
o
w
t
h
s
t
r
a
t
e
g
y
2010
Exploration budget
increased by 75%
to $50 million
2009
Azuca project reported
resources of 3.7 million
tonnes at 288 g/t silver
and 1.3 g/t gold
2008
$24 million spent on
exploration, extending
project portfolio
2007
Attributable reserves
increased by 25%
Hochschild Mining plc Annual Report & Accounts 2009
Growth strategy
Questions & answers
with management
1. How have you delivered on your strategy in 2009?
4. What are the Company’s key goals for 2010?
2009 was a strong year for Hochschild. We actively pursued our
growth strategy: maximised our existing asset base, invested in
selective acquisitions and developed our exploration pipeline for
longer-term growth.
Regarding our asset base, we achieved our production target of
28 million attributable silver equivalent ounces, representing a
record year of production for Hochschild, up 8% on 2008.
We also exceeded our target of reducing unit cost per tonne
by 5%, achieving a decrease of 11% for the full year, in line with
our plan of producing profitable ounces.
Moving to acquisitions, we have delivered on our strategy of
securing selective, value added investments with over $239.5
million spent in 2009, supported by funds from the $260 million
we raised in October. We increased our ownership in strategic
partners Lake Shore Gold and Gold Resource Corporation
which are together adding 2.7 million silver equivalent ounces
to our 2010 target.
Finally, we continued to invest in exploration and we are pleased
to report that our brownfield programme generated solid
results at the Company’s key operations, supporting our long-
term goal of achieving a minimum eight-year total resource
life, including a four-year reserve life. In addition, we are
progressing projects in our pipeline, notably, our 100% owned
Peruvian projects Crespo and Azuca which have both reported
significant mineral potential. q For further details see p22
2. What was your greatest challenge in 2009?
Our greatest challenge was meeting our production target in a
year in which we had industrial action at our San José operation
in Argentina and at our mines in Peru. This was the first time in
over two decades that we experienced labour related stoppages
in Perú and it was a new and very challenging situation. We
continue to work closely with employees and unions to ensure
that we maintain good relations across our operations.
We have a number of goals in 2010. Operationally, we are
focused on achieving our production target of 29 million silver
equivalent ounces, up 4% year-on-year. This is a challenging
target, particularly in light of the lower production at Arcata
where we are experiencing higher dilution as a result of
narrower veins, but we are confident that we can deliver.
Other key operational areas will be cost management and
further improving health and safety.
We are also planning for future growth, with particular focus
on exploration, where we have announced an increase in spend
from $28.6 million in 2009 to $50 million in 2010. Lastly, we will
maintain our disciplined approach to acquisitions and evaluate
high-margin precious metals projects in existing operational
clusters and in new mineral rich regions of the Americas.
5. You mention costs, what is your outlook for 2010?
We implemented a cost reduction programme at the end of
2008 which delivered excellent results in 2009, achieving a 11%
reduction in unit cost per tonne, above our guidance of 5%.
Going forward, we are seeing inflationary pressure in labour
and supply costs. However, we are extremely experienced at
operating in different price environments and will continue to
rigorously manage the costs that are under our control.
6. Why do you have a lower life of mine than your competitors?
We specialise in narrow vein, underground mining and, due
to the geologic nature of our deposits, it is extremely costly
to prove up reserves and resources beyond a certain number
of years and not the most efficient use of financial resources.
Our expertise is knowing and understanding the geology in
the areas we operate. In 2009, we increased our resource life
from 5.9 to 7.1 years and continue to maintain an extremely
high conversion rate to reserves. We are confident about the
longevity of our three main operations and are investing in
brownfield exploration to extend their mine life.
3. The Company raised $260 million in October 2009, what was
the rationale for this?
7. Your production split is moving towards gold, do you see
yourselves as a gold or silver producer?
Following an extremely active 18 months, where we had
invested over $232 million in acquisitions, we raised additional
funds so that we could continue to pursue our growth strategy
and prepay existing debt. The $260 million gross proceeds
raised reflects our track record and we are pleased to say that
we have already delivered on our promise with further strategic
investments in Lake Shore Gold and Gold Resource Corporation
and the prepayment of $85.7 million of our debt.
Our production profile will change over time as new operations
and projects move into production. For example, the
contribution from our investments in gold producers, Lake
Shore Gold and GRC is likely to increase the proportion of
gold that we report. However, we very much see ourselves as
a precious metals company, focused on producing profitable
ounces in the Americas.
14
Delivering our
growth strategy R
The following pages explain how we are
delivering our strategy for future growth
8. How do you plan to compensate for your ageing mines,
Ares and Moris?
10. 2009 was a strong year for precious metals, what is your
view on future prices?
We have known that Ares and Moris are ageing mines for some
time and have therefore proactively identified and invested
in near-term production opportunities which will more than
replace their contribution to our production. For example, our
production target this year includes 2.7 million silver equivalent
ounces from Lake Shore Gold and GRC.
2009 was a very interesting year for gold and silver prices
which, following the downturn in 2008, increased by 27% and
57% respectively. Whilst we are positive about the prospects for
precious metals, our focus is on producing profitable ounces
over the long term.
G
r
o
w
t
h
s
t
r
a
t
e
g
y
9. What is your policy on hedging?
Our goal is to be 100% unhedged. However, in response to the
volatile market conditions in 2008, we sold forward a proportion
of our 2009 production to ensure stable cashflow to fund
acquisition opportunities. This enabled us to invest in Lake
Shore Gold and GRC which have delivered significant returns
and are also providing future growth potential.
Below: Employee at the Arcata plant, Peru
15
Hochschild Mining plc Annual Report & Accounts 2009
Growth strategy
Operating review
Production
Hochschild successfully achieved its full year production target,
producing a record 28.2 million attributable silver equivalent
ounces in 2009, representing an 8% increase year-on-year.
This comprises 18.8 million attributable ounces of silver,
up 11% and 156.8 thousand attributable ounces of gold, up 3%.
Attributable silver production was primarily driven by strong
performance at our main mines (Arcata, Pallancata and
San José), which benefited from the expansions successfully
completed in the second half of 2008. The increase in attributable
gold production was also primarily a result of the above,
partially offset by declining production at Ares.
Hochschild’s production target for 2010 is 29 million silver
equivalent ounces. Production from existing operations is
expected to be 26.3 million attributable silver equivalent ounces
comprising approximately 17.6 million ounces of silver and
145,000 ounces of gold. The target also includes 2.7 million
silver equivalent ounces from Hochschild’s 38% interest in
Lake Shore Gold and its 29% interest in GRC. Both investments
will be equity accounted in 2010 and will appear under the
associates line in the Group’s income statement.
In 2010, the Company expects higher production at San José
and Pallancata, offset by lower production at Arcata and Ares.
At Arcata, silver grades are expected to be at similar levels to
Q409 as accessible mine areas will continue to have narrower
veins and changing geotechnical conditions. As anticipated,
production and grades at the Company’s ageing mine Ares
will continue to decline, with closure expected in the second
half of 2010.
q To view our full production tables see p159-161
q To view our full reserve and resource tables see p154-158
Lake Shore Gold is progressing towards commercial gold
production at its Timmins Mine, expected during the fourth
quarter of 2010, and is advancing towards its objective of
becoming a mid-tier gold producer. Lake Shore Gold has
announced an updated production target of 65,000 ounces
of gold (3.9 million silver equivalent ounces) in 2010, building
production over the following three years with the potential
to produce 350,000 ounces (21 million silver equivalent
ounces) by 2013.
GRC commenced production from its El Aguila operation in
February 2010 and has a stated production target of 70,000
ounces of gold (4.2 million silver equivalent ounces) in the
first 12 months of operation.
Life of mine
Hochschild remains committed to maximising the life of its
main underground operations with the long-term objective of
achieving a minimum eight-year total resource life, including
a four-year reserve life6. To support this goal, the Company
is increasing its investment in brownfield exploration to
$20 million in 2010.
As at 31 December 2009, resource life of mine (which includes
reserves) increased by 20% from 5.9 to 7.1 years, whilst reserve
life of mine has been maintained at 3.3 years7. Our total
attributable resource tonnage including all our operations,
main projects and investments8, has more than doubled from
20.7 million to 43.6 million whilst contained silver equivalent
ounces, on an attributable basis, increased from 313.4 million
to 402.8 million.
6 Reserve life of mine relates to Hochschild’s three main underground operations:
Arcata, Pallancata and San José
7 Reserve life of mine relates to Hochschild’s three main underground operations:
Arcata, Pallancata and San José. 2008 numbers have been restated to reflect
2009 capacity
8 Arcata, Pallancata, San José, Moris, Ares, Azuca, Crespo, Lake Shore Gold,
Inmaculada and San Felipe
Resource life of mine – main operations
+20%
16
“ With a sound financial position,
experienced management and a
positive outlook for precious metals,
we are well placed to continue to
deliver our long-term growth strategy.”
Key performance indicators
Attributable silver production
koz
18,754koz
Attributable gold production
koz
157koz
Reserve life of mine
Years
2006
2007
2008
2009
11,604
13,588
2006
2007
2008
16,941
18,754
2009
196
2006
201
2007
2008
2009
153
157
3.3yrs
3.7
4.6
3.3
3.3
G
r
o
w
t
h
s
t
r
a
t
e
g
y
Attributable production is measured as the number of ounces
produced multiplied by our ownership interest at each mine and
summed together for all operations.
Attributable production is measured as the number of ounces
produced multiplied by our ownership interest at each mine and
summed together for all operations.
Life of mine is based on reserves and calculated by dividing the
number of reserve tonnes by the amount of ore forecast to be
processed during the following 12 month period. Life of mine
measures the extent to which we have expanded our reserve
base whilst taking into consideration capacity expansions.
2008 numbers have been restated to reflect 2009 capacity.
Below: Selene plant, Peru
17
Hochschild Mining plc Annual Report & Accounts 2009
Growth strategy
Operating review continued
Current operations
1
Main oPerations
Arcata: Peru
Production and sales
Arcata, Hochschild’s flagship silver mine, enjoyed another
successful year with silver and gold production up 6% and
19% respectively. These increases were driven primarily by the
plant expansion completed in 2008 which increased capacity
by 46% to 1,750 tonnes per day.
In 2009, Arcata’s concentrate production was sold to Cormin,
Louis Dreyfus, Teck, Korea Zinc, MRI Trading AG and a small
fraction to Doe Run.
Exploration
The drilling programme at Arcata delivered positive results
in 2009 with the discovery of three new mineralised structures
in close proximity to the property’s existing Mariana vein.
The Company continues to increase resources at the Ramal,
Julia and Soledad veins through diamond drilling.
The focus for the 2010 brownfield programme will be to
evaluate new targets and develop resources in areas where
potential mineralisation was identified in 2009.
Pallancata: Peru
Production and sales
Pallancata, which commenced production in 2007, is a joint
venture with International Minerals Corporation (“IMC”) in
which Hochschild controls 60% and is the mine operator.
Ore from Pallancata is transported 22 kilometres to the
Selene plant for processing, demonstrating the Company’s
cluster consolidation strategy.
Pallancata recorded strong results in 2009 with silver and
gold production doubling year-on-year to 8,420 koz of silver
and 31.97 koz of gold. This was mainly a result of the plant
expansion completed in 2008 which increased Selene’s processing
capacity from 2,000 to 3,000 tonnes per day, as well as the use
of Selene’s full capacity to process the ore from Pallancata.
In 2009 the silver/gold concentrate from Pallancata was sold
to Teck and Aurubis.
Exploration
At Pallancata in Peru, the Company is mainly focused on the
newly discovered eastern extension of the main Pallacata vein
and on the Virgen del Carmen vein. Wide spaced drilling at
the Pallancata east vein defined mineralisation with intercepts
including 3 metres at 829 g/t of silver and 2.5 g/t of gold.
Underground mine preparation is progressing well with the
Santa Angela ramp scheduled for completion in June 2010.
The focus for the 2010 brownfield programme will be to
define resources along the Pallancata east vein and to explore
new targets.
San José: Argentina
Production and sales
The Group’s operation in Argentina, San José, commenced
production in 2007 and is a joint venture with Minera Andes in
which Hochschild controls 51% and acts as the mine operator.
San José reported strong results in 2009, with production up
14% and 42% year-on-year, for silver and gold respectively. This
is mainly a result of the plant expansion undertaken in 2008,
which doubled capacity from 750 to 1,500 tonnes per day and
also due to the high grade Kospi vein, which was brought into
production at the end of June 2009. The Kospi vein contributed
over 80,000 tonnes of ore to the mine’s production and is
positively impacting the grade profile of the operation.
In 2009, the doré produced at San José was sold to Argor
Heraeus S.A. and Johnson Matthey Inc. The concentrate
produced at the operation was sold to Cormin, Aurubis and
LS-Nikko.
Exploration
In Argentina, the Company has discovered two new split
vein systems of the Kospi and Ayelen structures at San José
which are rapidly being drilled to increase the resource and
reserve base of the operation. Results included 1.5 metres at
1,376 g/t silver and 60.9 g/t gold and 1 metre at 655 g/t silver
and 5.8 g/t gold.
The focus for the 2010 brownfield programme will be to evaluate
the new Aguas Vivas target located 10 kilometres from the
San José operation, to develop resources at the Saavedra
target and to extend knowledge of the vein geology.
18
Selene: Peru
Production and sales
As previously reported, Selene’s mine ceased production at
the end of May 2009 due to the high level of capital expenditure
required to extract profitable ounces. Selene’s plant, which
was upgraded during the year, continues to process ore from
the Pallancata operation, which is located approximately 22
kilometres from Selene.
In 2009, approximately a quarter of Selene’s production was
converted into doré at the Ares plant and sold to Johnson
Matthey. The remaining production was treated as concentrate
and sold on a spot basis primarily to Aurubis and Teck.
q To view our full production tables see p159-161
q To view our full reserve and resource tables see p154-158
G
r
o
w
t
h
s
t
r
a
t
e
g
y
other oPerations
Ares: Peru
Production and sales
As anticipated and previously disclosed, the average reserve
grade at Ares is declining due to the geological nature of the
deposit and the ageing of the mine and, as a consequence,
gold and silver production decreased 34% and 41% respectively
year-on-year. In line with the Company’s focus on producing
profitable ounces, Ares is expected to close in the second
half of 2010.
Ares produces 100% doré, all of which was sold to
Johnson Matthey in 2009.
Moris: Mexico
Production and sales
Moris, which is 100% owned, is the Group’s only open pit
mine and provided a key stepping stone into Mexico, which is
of key strategic importance to the Group. Moris produced 97
thousand ounces of silver and 28.34 thousand ounces of gold
in 2009 and has an estimated one year mine life, with expected
closure in 2011.
In 2009, all of the gold/silver doré produced at Moris was sold
to Johnson Matthey.
Left: San José power lines, Argentina
Top: Underground ramp at San José, Argentina
19
Hochschild Mining plc Annual Report & Accounts 2009
Growth strategy
Operating review continued
Acquisitions & investments
2
a selective aPProach
Growth through investment and acquisition is a key element
of Hochschild’s strategy. The Company has maintained
its disciplined approach in 2009, focusing on high-grade,
underground precious metals assets in the Americas,
which have the potential to create long-term shareholder
value. The Company is continually evaluating opportunities
with particular interest in existing operational clusters: the
highlands of southern Peru, southern Mexico, the Argentine
Patagonia, northern Chile and the Timmins region in Canada,
as well as in other new mineral rich regions of the Americas.
In October 2009, the Company undertook a successful capital
raising to provide the increased financial flexibility to pursue
its acquisition strategy and during the year secured a number
of strategic investments with a total spend of $239.5 million:
Lake Shore Gold
In August 2009, Lake Shore Gold Corp. (“Lake Shore Gold”),
announced a definitive business combination agreement to
acquire all of the outstanding common shares of West Timmins
Mining Inc. (“WTM”). The transaction created the new large-
scale, wholly-owned Timmins West Gold Mine Complex, an
extension of the world-class Timmins gold mining trend
which has supplied approximately 70 million ounces of gold
over the last century. As a result of the business combination,
Hochschild’s 40% stake in Lake Shore Gold was diluted
to approximately 27% (on an outstanding basis).
In line with its stated strategy, Hochschild invested a further
$172.8 million9 in Lake Shore Gold following the announcement
of the WTM transaction, increasing its stake to 38% (36% on
a fully diluted basis). This included the purchase of WTM shares
totalling $63.8 million.
Lake Shore Gold is progressing towards commercial gold
production at its Timmins Mine, expected during the fourth
quarter of 2010, and is advancing towards its objective of
becoming a mid-tier gold producer. Lake Shore Gold has
announced an updated production target of 65,000 ounces
of gold (3.9 million silver equivalent ounces) in 2010, building
production over the following three years with the potential
to produce 350,000 ounces (21 million silver equivalent
ounces) by 2013.
Since its initial acquisition in February 2008, Hochschild has
invested a total of $336.9 million in Lake Shore Gold reflecting
its confidence in the significant production potential and long-
term growth of the company. Lake Shore Gold has a current
market capitalisation of approximately $936.4 million, valuing
Hochschild’s investment at $353.0 million.10
Below: GRC project in Wahaca, Mexico
Left: Lake Shore Gold’s operation in Timmins, Canada
20
Total invested in 2009
$239.5m
G
r
o
w
t
h
s
t
r
a
t
e
g
y
Lake Shore Gold is an important strategic investment
for Hochschild and it maintains three positions on the
company’s board.
Gold Resource Corp
In 2009, Hochschild invested $49.0 million in Gold Resource
Corporation (“GRC”), increasing its ownership from 5% to 27%
(on an outstanding basis). In March 2010, the Company further
increased its ownership to 29% bringing its total investment in
the Company to $63.5 million. GRC is an underground precious
metals mining company with a number of prime development
projects in Mexico’s southern state of Oaxaca, including a 100%
interest in five potential high-grade gold and silver properties.
This additional investment increases Hochschild’s exposure to
GRC’s high grade, low cost ounces and expands the Company’s
southern Mexico operational cluster.
GRC commenced production from its El Aguila operation in
February 2010 and has a stated production target of 70,000
ounces of gold (4.2 million silver equivalent ounces) in the
first year of operation. In addition, GRC is accelerating the
underground mine development at Arista, a gold and silver
polymetalic deposit which is one of three high-grade deposits
discovered to date at the El Aguila project.
GRC has a current market capitalisation of approximately
$526.9 million, valuing Hochschild’s investment at
$151.4 million10. GRC is also an important strategic
investment for Hochschild and it maintains one position
on the company’s board.
Southwestern Resources Corp
In March 2009, Hochschild completed the strategic acquisition
of Southwestern Resources Corp (“SWG”), a Canadian mineral
exploration company for $19.2 million. The acquisition
consolidated the Company’s position in southern Peru by
adding a number of early stage gold, silver and base metals
projects to its pipeline including 100% ownership of the Liam
property, of which the Company originally acquired a 50%
interest in August 2008. The 282,000 hectare land package is
in close proximity to Hochschild’s existing operational cluster:
Arcata, Ares and Pallancata and therefore enables the Group
to leverage existing infrastructure and knowledge of the
regional geology.
Hochschild’s exploration team is currently evaluating numerous
exploration targets at Liam as well as other properties included
in the acquisition, and is progressing drilling in areas which
have reported positive results, including Crespo and Cristo
Los Andes.
The SWG land package included an increased stake in
the Pacapausa project which comprises 7,933 hectares of
exploration concessions and is a potential satellite source of
material for Hochschild’s Pallancata operation as well as 50%
of Millo, a high-grade deposit located adjacent to Hochschild’s
100% owned Azuca project.
The SWG acquisition also included a 37% stake in Zincore
Metals Inc (“Zincore”), a listed mining exploration company with
zinc projects in Peru. On 5 March 2010, Hochschild divested its
interest in Zincore for total proceeds of C$10.3 million as it did
not constitute a core asset for the Company. The purchase of
SWG also included minor stakes in Empire Petroleum, Northern
Superior and Lara Exploration, which have a combined value
of $2.0 million11, as well as in copper projects Jasperoide
and Alpacocha.
Other acquisitions & investments
During the year, the Company also undertook a number
of smaller investments in early stage exploration companies
and joint ventures which provide the potential for cost effective
future growth.
In October 2009, Hochschild signed an agreement with Mariana
Resources in which it already holds an 11% stake following
its $1.5 million investment in December 2008. The agreement
builds on the relationship between the two companies and
provides Hochschild with additional exposure to a number
of Mariana’s projects.
Under the terms of the agreement, Hochschild has the right
to explore three adjoining prospective gold and silver properties
totalling 13,455 hectares, located in the Santa Cruz area in the
western sector of the Deseado Massif in southern Argentina.
These tenements consist of Mariana’s Amigos I and Amigos
II licence areas and Hochschild’s San Augustin joint venture
property with Iamgold which are located approximately
110 kilometres south of the Company’s San José operation.
Hochschild can increase its interest to 70% by committing
60% of the $3 million exploration budget within two years
and by taking the project to a pre-feasibility stage.
9 Amount invested from August 2009 to March 2010 following announcement
of the Lake Shore Gold/WTM merger. In 2009, the Company invested $168
million. In 2010, the Company invested $4.9 million.
10 As at 19 March 2010 on an outstanding basis
11 As at February 2010
21
Hochschild Mining plc Annual Report & Accounts 2009
Growth strategy
Operating review continued
Exploration review
3
strong Project PiPeline
Azuca
Exploration is a vital part of Hochschild’s growth strategy and
the Company continues to commit significant investment to
its geological programme. In 2009, the Company invested
$28.6 million in this area and is increasing spend to $50 million
in 2010.
Hochschild’s exploration is focused in two areas; mine-site
exploration & advanced projects (brownfield), which is aimed
at increasing reserves and resources at a low cost per ounce,
and early stage exploration (greenfield), which focuses on
finding new, high-quality deposits.
Azuca is a 100% owned project located in southern Peru, near
the Company’s existing operational cluster. Mineralisation is
present in intermediate sulfidation silver and gold epithermal
quartz veins. The Company is moving the project towards
a scoping study and during 2009 undertook 26,240 metres
of drilling achieving a significant increase in its resource
base to 3.7 million tonnes at 288 g/t silver and 1.3 g/t gold,
corresponding to 44.1 million silver equivalent ounces. Azuca’s
location, 50 kilometres from Hochschild’s Arcata operation,
could realise economies of scale due to the close proximity
of existing plant and transport infrastructure.
Brownfield exPloration
In addition to Hochschild’s mine-site exploration programme,
which is focused in and around the Company’s current mines,
the Company also invests in other advanced stage projects,
either located in or around one of the Group’s existing
clusters or in new mining friendly districts. The Company
currently has two projects located within its southern Peru
operational cluster:
Brownfield
Mines
Project development
Resource delineation
Drill targets
7 projects in 3 countries
Greenfield
Prospect
Numerous prospects in several countries
Generative
554,482 hectares in 4 countries
*Hochschild owns 38% of Lake Shore Gold and 29% of GRC (El Aguila)
22
KEY
Peru
Argentina
Chile
Mexico
Canada
CURRENT OPERATIONS
Ares
Arcata
Pallancata
San José
GRC – El Aguila*
Moris
Lake Shore Gold*
MAIN PROJECTS
Azuca
Inmaculada
Crespo
MAIN PROJECTS
Josnitoro
Victoria
Encrucijada
Mosquito
MAIN PROSPECTS
Los Pinos
Sabina
Mercurio
Crespo
Victoria
The Crespo project in southern Peru is 100% owned as a result
of the Southwestern acquisition in 2009. Crespo is a low-grade
gold and silver disseminated deposit with 17.8 million tonnes
at 38.8 g/t silver and 0.7 g/t gold, corresponding to 44.7 million
silver equivalent ounces. Hochschild’s drilling programme,
which is focused on increasing resources, reported the best
historical intercept of the project with 76 metres at 1.0 g/t Au
and 95 g/t Ag, including 7.4 metres at 11.9 g/t Au and 1,050
g/t Ag. Further drilling will be undertaken in 2010 to increase
resources along strike of this high-grade intercept. Underground
workings will help delineate the ore geometry, evaluate the high-
grade irregular ore bodies identified in the drilling and complete
metallurgical testing towards a scoping study.
In Q409, Hochschild reported positive drilling results at the
Vaquillas target in northern Chile, which is part of the Victoria
project with Iron Creek Capital Corp where Hochschild has
the right to earn-in 60% by completing $6 million of work
on the property. The project lies along the prolific Domeyko
fault zone in Region II, 120 kilometres east of the coastal town
of Taltal. During 2009, 28 drill holes totalling 7,626 metres
were completed which, together with previous drilling results,
suggest that the Vaquillas project has potential for high-grade
gold and silver veins, as well as bulk-tonnage low-grade gold
and silver mineralisation. In December 2009, the Victoria
project, which covers 29,050 hectares, was expanded to include
Iron Creek’s remaining properties in their adjoining porphyry
copper project, representing an additional 17,000 hectares.
G
r
o
w
t
h
s
t
r
a
t
e
g
y
greenfield exPloration
The Company is continually evaluating new opportunities
throughout Argentina, Chile, Mexico and Peru and has an
extremely active project pipeline.
Projects enter the Company’s pipeline either by way of internal
discovery or through joint venture and are subject to a strict
evaluation process to ensure that investment is targeted towards
quality assets that will ultimately be brought to production.
All opportunities are ranked and prioritised based on specific
criteria and any project that does not meet the Company’s
requirements is farmed out or dropped. Projects are either
100% owned or allow Hochschild to earn into majority
ownership over time.
Other
In addition, Hochschild will advance various early stage projects
in southern Peru, such as Josnitoro, Astana Farallón and Cerro
Blanco. In Argentina, the Company is focused in the Patagonia
region and commenced drilling at the La Flora project in late
2009 with the Mosquito and Los Pinos vein systems following
in 2010. In central Mexico, Hochschild is undertaking work in
early exploration projects and is expecting to complete a first
pass drilling programme at Mercurio.
Case study:
ISO 17025 Accreditation
Following a rigorous audit process, Hochschild’s
laboratories in Peru have been awarded ISO 17025
accreditation by the Standards Council of Canada,
in recognition of the high standards adopted by the
Company and its ability to consistently produce
valid results. ISO 17025 is an international standard
that specifies the general requirements for the
competence to carry out tests and/or calibrations,
including sampling.
23
Hochschild Mining plc Annual Report & Accounts 2009
Growth strategy
Market & geographic overview
2009 Market overview
Precious metals prices performed strongly in 2009, mainly due
to ongoing global economic and financial uncertainty, continued
inflationary concerns and weakness in the US dollar. Gold and
silver once again proved their safe haven status, with price
increases of 27% and 57% respectively.
Hochschild’s aim is to be a 100% hedge free company, however,
precious metals prices impact its financial results and in lower
price environments the Company may take short/medium-
term measures to ensure the production of profitable ounces.
Following volatile prices last year, Hochschild secured a zero
cost collar for 5.2 million ounces of its 2010 production with a
cap at $19.7/oz and a floor at $12.7/oz.
q For further details, please see page 37
Gold summary
2009 was a particularly strong year for gold which reached a
record high of $1,218/oz in December with an annual average
price of $972/oz, up 12% year-on-year. This was primarily driven
by strong investment demand with implied net investment
increasing by an impressive 483% to an estimated 1,375 tonnes.
Continued global economic uncertainty, inflationary concerns
and periods of dollar weakness supported investor interest
during the year, both in physical form via the ETF and also
through Comex and the OTC market.
Also providing support to the gold price was the significant
decline in government sales which were down to their lowest
level in a decade at 24 tonnes (2008: 212 tonnes), with a shift to
net purchasing in the second half of 2009. These effects offset
the 23% decrease in jewellery demand (2009: 1,687 tonnes),
which for the first time since 1980, was exceeded by total world
investment demand (includes all investment). On the supply
side, increased mine production and scrap supply which are
up 6% and 27% respectively, also partly offset strong demand.
Going into 2010, macro conditions remain supportive for
gold due to continued economic uncertainty and inflationary
concerns which are likely to offset any negative pressure from
the supply side. The speed at which the global economy moves
out of recession and into growth will have a significant impact
on future prices. Industry analysts, GFMS, have highlighted
the potential for further volatility with the possibility of gold
reaching $1,200/oz in the second quarter of 2010, driven by
high levels of investment demand.
24
2009 forecast gold demand
1 Jewellery
2 Other fabrication
3 Bar hoarding
4 Producer de-hedging
5 Identifiable investment
41%
16%
4%
6%
33%
2009 forecast gold supply
1 Mine production
2 Official sector sales
3 Scrap supply
62%
1%
37%
1
1
2
5
4
3
3
2
Drivers for gold in 2010
• Further fiscal and monetary loosening by major governments
may create inflationary pressure
• US Government borrowing and large fiscal deficit should
result in negative pressure on the dollar
• Increased demand from large, mainstream portfolio
managers who are diversifying into commodities i.e.
insurance companies and pension funds
• Strong retail demand for official coins, which is up an
estimated 29% to a 23 year high in 2009
• Global economic recovery should positively impact demand
for jewellery
2009 silver and gold performance
Silver Fix LBM Cash Cents/Troy Ounce 57%
Gold Bullion LBM U$/Troy Ounce
27%
Mar 09
May 09
Jul 09
Sep 09
Nov 09
Dec 09
200
180
160
140
120
100
80
60
40
20
0
Jan 09
200
180
160
140
120
100
80
60
40
20
0
Silver and gold performance 2009
Silver Fix LBM Cash Cents/Troy Ounce 57%
Gold Bullion LBM U$/Troy Ounce
27%
Jan 08
Mar 08
May 08
Jul 08
Sep 08
Nov 08
Jan 09
“We remain extremely confident about the
outlook for silver and gold with prices up
57% and 27% respectively in 2009.”
Silver summary
Following an extremely volatile 2008, silver made strong gains
in 2009, achieving record highs over $19/oz in December and
closing the year up 57% at $16.99/oz. The rally in the silver
price was a result of strong investment demand for the metal,
proving its strong correlation to gold and role as a store of value
during periods of macro economic uncertainty.
2009 forecast silver demand
1 Industrial
2 Jewellery and silverware
3 Investment
4 Photography
5 Coins
6 Producer de-hedging
39%
25%
15%
10%
9%
2%
G
r
o
w
t
h
s
t
r
a
t
e
g
y
6 1
5
2
1
4
3
3
2
2009 forecast silver supply
1 Mine production
2 Official sector sales
3 Scrap supply
78%
3%
19%
The significant increase in investment demand was partially
offset by a fall in fabrication demand, primarily as a result of
the global downturn which has negatively impacted industrial
demand. Other areas of fabrication remained steady in 2009,
including demand for jewellery and coins which are both expected
to increase marginally year-on-year. On the supply side, mine
production is forecast to increase by 2% partly counteracted
by a fall in scrap supply and lower government sales.
Silver’s unique industrial properties and its role as a store of
value mean that it is impacted by the drivers for both precious
and base metals. GFMS are predicting a double digit recovery
in industrial demand in 2010 and this, coupled with strong
investment demand, creates positive conditions for silver.
Supply is expected to remain broadly flat going forward with
lower government sales and scrap supply generally offsetting
increased mine production. GFMS are forecasting continued
price volatility with a ‘base case’ average price scenario of
around $14/oz in 2010.
Drivers for silver in 2010
• Silver’s link with gold as a safe haven asset
• Continued macro economic uncertainty which should support
investment demand
• Consumers’ improved economic outlook will have a positive
impact on fabrication demand, particularly for industrial
applications
• Substitution of gold for silver provides support to
jewellery demand
• Robust demand for coins from retail investors
• Continued decline in scrap supply due to drop in
photography recycling
25
geograPhic overview
Our strategy is focused in the Americas, a region with enormous
mineral potential and a long and supportive history of mining.
We are the third largest producer of silver and a mid-sized gold
company with operations, projects and investments in five of the
top 20 precious metal producing countries globally, including
Peru and Mexico which are the world’s two largest producers
of silver.
Country production rankings
Country
2008 silver ranking
2008 gold ranking
Peru
Mexico
Chile
Canada
Argentina
Sources: GFMS, Silver Institute, Bloomberg
1
2
5
10
13
6
13
16
7
15
Hochschild Mining plc Annual Report & Accounts 2009
Corporate responsibility
Corporate responsibility
A committed ApproAch
During the year, the CSR Committee considered:
Since the Group’s listing in London in 2006, it has endeavoured
to maintain its corporate culture of fostering respect for
the wellbeing of its employees, the environment and the
communities in which it operates.
To achieve this objective, the Group has adopted a number
of policies demonstrating its commitment to:
• Take all necessary steps to ensure:
– A safe and healthy workplace
– The prevention of environmental contamination
– Respect for, and commitment to, the communities
in which it operates
• Comply with all relevant legislation and international
standards
• Promote continuous improvement in its management
systems incorporating best practice
• Adopt a proactive approach in preventing and, where this
is not possible, managing, the risks that may hinder
achievement of its CSR objectives
• Encourage employees to adopt the Group’s values through
the use of training and internal communications.
Management
The Board has ultimate responsibility for establishing Group
policies relating to CSR and ensuring that national and
international standards are met. The Corporate Social
Responsibility Committee has been established as a formal
committee of the Board with delegated responsibility for various
CSR issues, focusing on compliance with national and
international standards and ensuring that appropriate systems
and practices are in place Group-wide to ensure the effective
management of CSR-related risks. The CSR Committee is
chaired by Roberto Dañino (Deputy Chairman and Executive
Director) who has Board-level responsibility for CSR issues.
• The investigations into the fatalities that occurred during
the year and oversaw the implementation of associated
recommendations
• The execution of the yearly plan in each of the four areas
of CSR focused on by the Group
• The implementation of recommendations from external
consultants following health and safety, and environmental
audits at the Group’s operations
• Progress on the implementation of the safety-driven
management information system designed in conjunction
with Det Norske Veritas (‘DNV’) (detailed further in the Safety
section of this report on page 27)
• Detailed presentations on the management of community
and labour relations across the Group
• Revision of the Community Relations short-term and long-
terms plans.
To support the CSR Committee, a working group of relevant
personnel meets on a monthly basis to consider, at an operational
level, local health and safety policies and environmental
protection programmes and community relations matters.
These meetings are attended by the CEO and COO.
Monitoring performance
The Group continues to make progress in measuring its
performance against its CSR objectives. Accordingly,
performance indicators appear after each section of this
Report and, where Group-wide information is not available,
performance only in respect of the wholly-owned Peruvian
operations has been disclosed which represents almost 70%
of the Group’s attributable production.
26
“Our commitment to the health and
safety of our employees, respect for
the environment and active engagement
with local communities is an intrinsic
part of Hochschild’s culture”
Roberto Dañino, Chairman CSR Committee
1. WorkplAce
a) Safety
The Hochschild approach
Our people and their safety remain of paramount importance
for the Group and is reflected in everything that we do. Ensuring
safety of the Group’s employees is considered a vital element in
measuring the successful achievement of corporate strategy to
which the Board and management are committed.
The Group has continued to invest, during 2009, in operating
controls and processes to ensure that the highest standards
of safety are met. As a testament to the Group’s commitment
to achieving an internationally recognised level of health and
safety management, OHSAS18001 accreditation at all
operations was maintained during the year.
However, it is with sadness that there were three fatalities
during 2009. The Group has conducted investigations into the
circumstances leading to each occurrence with steps taken to
implement the associated recommendations.
Developments during the year
Notable developments during the year include:
• The attainment of Level 4 implementation of the DNV
management information system which provides a framework
to improve occupational health and safety performance
including risk and opportunity identification, analysis, target
setting, and measurement
• Following the successful launch of a Group-wide competition
in 2008 for the Luis Hochschild Safety Prize, ten of the
numerous practical suggestions to improve safety that were
submitted were implemented during 2009 in all mining units
• The launch of numerous Group-wide initiatives to encourage
safe working practices including:
– The commissioning of a safety video focusing on dealing
with hazards associated with particular aspects of the
mining process
– The award of two prizes every month at each mine to the
individual and group that exemplify the Group’s approach
to safety
– The production of a safe practices manual distributed to all
mining personnel in the organisation.
C
o
r
p
o
r
a
t
e
r
e
s
p
o
n
s
b
i
l
i
t
y
i
Below: A safety briefing at the Arcata plant, Peru
27
Hochschild Mining plc Annual Report & Accounts 2009
Corporate responsibility
Corporate responsibility
continued
Targets for 2010
• Safety Indices:
– A 10% reduction in LTIFR
– Severity index of less than 200
– Accidentability index of less than 1
• Achieving Level 5 of the DNV Management Information
System at the Peruvian and Argentinian operations
• The second launch of the Luis Hochschild Safety Prize.
Safety indicators
Fatalities
Accidents resulting in absence
of one day or more
LTIFR1
Accident Severity Index2
Accidentability Index3
2009
3
82
5.22
1485
7.76
2008
1
92
5.75
543
3.13
2007
5
105
7.59
2,883
21.8
1 Calculated as total number of accidents per million labour hours.
2 Calculated as total number of days lost per million labour hours.
3 Calculated as LTIFR x severity divided by 1000.
b) Health
The Hochschild approach
In the first instance, the Group strives to avoid occupational
illnesses by taking all necessary steps to provide a working
environment that does not pose any risk to the health of its
workers. Given the risks inherent in mining activities however,
the Group has a Health team charged with the provision
of medical and occupational health services to assure the
wellbeing of those employed by the Group as the need arises,
and on an on-going basis.
Developments during the year
Notable developments during the year include:
• Increased focus on the prevention of occupational health
illnesses through audits, conducted by dedicated personnel,
of the physical working environment (“the Hygiene Audit
Programme”). This has resulted in the production of a
baseline study in respect of the Group’s Peruvian operations
and an action plan to, amongst other things, prevent the
incidence of illnesses associated with dust, noise and
exposure to hazardous materials
Case study:
Mobile medical unit
The mobile medical unit commissioned by
the Group as a means of providing healthcare
services to remotely located communities.
28
• The launch of a pilot programme at the Peruvian operations
aimed at assuring the emotional wellbeing of workers (“the
Wellbeing Programme”). This initiative incorporates the use
of consultations and workshops to assist employees to deal
with issues relating to stress and work-life balance as well
as promoting personal skills
• The establishment of on-site clinical laboratories at the Peruvian
operations to perform occupational health examinations
• Group wide roll-out of routine occupational health
examinations of mineworkers at the start and end of their
employment and on an annual basis
• In partnership with the Community Relations team and
local authorities, a study was undertaken on the provision
of healthcare services to the communities located close to
the Group’s Peruvian operations which has led to the
commissioning of a mobile medical unit.
Targets for 2010
• Implementation of the Occupational Health module of SAP
• Implementing the Hygiene Audit Programme in Argentina
and Mexico
• Establishing a blueprint for the Wellbeing Programme for
roll-out to other parts of the Group.
c) Corporate HR
The Hochschild approach
The Corporate Human Resource Vice Presidency supports
the execution of the Group’s strategy by the recruitment and
retention of employees through the use of innovation and best
practice. The Group seeks to differentiate itself from its peers
by emerging as an employer of choice. By taking this approach,
the Group seeks to enhance its ability to attract and retain the
necessary skills.
Developments during the year
Notable developments during the year include:
• Development and implementation of a performance evaluation
process focusing not only on the required skills and the
achievement of objectives but also the practices employed
to achieve set targets
• Initiatives to increase the Group’s profile locally and
internationally through partnerships with universities including
the offer of scholarships at the Colorado School of Mining;
• The continuation of a graduate trainee programme where
16 of the best performing graduates from five Peruvian
universities with relevant degrees (such as mine engineering,
geology and chemistry) were trained and recruited by the Group.
Targets for 2010
• 5% improvement in the measurement of the working
environment as gauged by the “Organisational Climate” survey
C
o
r
p
o
r
a
t
e
r
e
s
p
o
n
s
b
i
l
i
t
y
i
2009
2008
2007
• Implementation of the Hochschild Mining Leadership
programme.
Health indicators
Average number of medical
attendances at Peruvian
operations and at San José
per month
Average number of medical
emergencies at Peruvian
operations and at San José
per month
Average number of
occupational health
examinations at the Group’s
wholly-owned Peruvian
operations and Moris per
month
2,690
2,8511
2,5052
64
53.422
89.582
406
2383
224
General HR indicators
General
Average number of Group
employees
training
Average number of hours of
training undertaken by each
employee1
Percentage of workforce
trained during the year1
labour relations
Number of production days
lost as a result of industrial
unrest
1 In respect of Peruvian operations only
2009
2008
2007
4,969
5,012
4,132
14.03
19.62
13.59
94%
83%
68%
40.5
0
1
1 These figures do not include attendances and emergencies at the Moris mine which have only
been monitored since August 2008.
2 These figures include attendances and emergencies at the Pallancata mine between May 2007
and December 2007 only.
3 Figures for Moris were not available for the whole of 2008 and hence have not been included.
29
Hochschild Mining plc Annual Report & Accounts 2009
Corporate responsibility
Corporate responsibility
continued
2. community relAtions (‘cr’)
The Hochschild approach
The Group strives to go beyond keeping a conflict-free relationship
with surrounding communities by supporting community based
organisations and interest groups in their many efforts aimed
at improving quality of life. Sustainability of activities within
the communities is continuously improved by promoting the
participation of additional development agencies to implement
local development plans. The Group’s CR policy ensures the
creation of new jobs at a local level and appropriate training
programmes with priority given to community members.
2009 has also seen the CR team focus on establishing an improved
long-term relationship with surrounding communities through
open communication and dialogue. In this sense, CR members
have promoted a closer relationship between operations personnel
within the mining units with members of the surrounding
communities and local authorities. Examples of this include
guided visits of local leaders to the Group’s mining operations,
Group employees participating in various forms of voluntary work,
by talks given by Engineers to school children on environmental
and other issues of community interest, sponsorship of and
participation at local and regional fairs, and organisation of trout
fishing contests.
In order to emphasise the long-term nature of the relationship
between the Group and the surrounding communities, five CR
strategic objectives have been formulated.
1. Consolidate a culture of mutual respect and life together
with communities;
2. Achieve and consolidate agreements that are mutually
beneficial;
3. Promote improved and sustainable income generation for
community inhabitants;
4. Contribute to the improvement of health, nutrition and
education in surrounding communities of direct influence; and
5. Consolidate good relationships and co-ordinate activities with
institutions for the promotion of sustainable development.
Developments during the year
a) Health and nutrition
After two years of working together with Caritas del Peru, a
specialised NGO, the Group is starting to witness significant
results. Caritas works both by strengthening the local health
institutions and by training community health promoters. As a
result, in certain of the communities surrounding our Peruvian
mines, the rate of acute diarrheic diseases in children under
three years old has halved over the past two years. Protection
against illnesses through vaccinations is also common practice
and the incidence of child malnutrition is subsiding.
The Group has supported the efforts of improving the diets of
families with young children living at very high altitude by
assisting the construction of family greenhouses. Training on
community and family hygiene practices range from maintenance
of community water systems to promoting smokeless kitchen
arrangements. The strategy of disease prevention through
training and promotion of healthy practices at the family level,
coupled with taking care of urgent health needs is the Group´s
approach to improving sustainability of interventions of this kind.
b) Education and training
Education, particularly of primary school children, is essential
for providing life opportunities to citizens at an early stage. The
Group’s school programme brings specialised training to school
teachers and directors so they can improve the level of education
they provide. School teachers received not only a variety of
methodological tools but also the possibility of obtaining official
diplomas through specialised courses. In addition, all supported
schools now have their own institutional plan as well as information
centres and other facilities. Moreover, teachers from different
schools have formed networks to exchange experiences and
facilitate self-learning. This collaboration has resulted in
significant improvements in the standard of mathematics
and integral communications skills achieved by the children.
The Group is also committed to assisting youngsters in
pursuing professional careers. In this regard, more than
70 young community members participated in training
programmes enabling them to apply for scholarships from
the Group to study at TECSUP.
30
C
o
r
p
o
r
a
t
e
r
e
s
p
o
n
s
b
i
l
i
t
y
i
This page: A selection of photographs from our
extensive range of community relations projects
31
Hochschild Mining plc Annual Report & Accounts 2009
Corporate social responsibility
Corporate responsibility
continued
TECSUP
The Group’s involvement in TECSUP has also continued during
the year. This establishment, founded and substantially funded
by the Hochschild Group is a leading non-profit technical
institute with over 5,000 graduates. TECSUP offers careers in
nine areas, including metallurgical and chemical processes,
electronics and industrial automation, maintenance of heavy
and industrial equipment, and agricultural technology. In 2008,
TECSUP received accreditations from the German Agency for
Accreditation of Engineering Education and from the European
Network for Accreditation of Engineering Education, which will
allow its graduates to pursue additional studies abroad.
c) Improving living conditions
Income generation activities range from fish farming,
agriculture, textile products manufacturing to alpaca breeding.
However, many community members are employed by the
Group and their work at the operation or exploration units is
their main source of income. In the case of Selene, despite the
closure of the mines section, the Group took extensive efforts to
ensure that all community jobs were maintained.
Due to the high altitude where the communities are located,
alpaca breeding is the most important non-mining income
generating activity followed by fish farming. The Group provides
support for both activities which has led to an increase in the
incomes of numerous families.
Apart from promoting income generation activities, the
Group has also endeavoured to better living conditions for
communities. This has been demonstrated by the installations
of over 100 solar panels at community schools, health centres
and many of the households during 2009. This sustainable
energy source brings new opportunities to improve living
conditions and access to communications.
Targets for 2010
• Zero “Loss of Production days” arising as a result of
community conflicts.
• To achieve tangible improvements in the level of education,
health and nutrition of local communities as assessed by
NGO partners.
Community relations indicators
Community
investment
Production days
lost as a result
of community
conflicts
2009
2008
2007
2006
2005
$6.0m $4.6m $4.3m $2.3m $1.2m
1.5
0
0
0
0
3. the environment
The Hochschild approach
The Group endeavours to minimise the impact of its business
on the environment and to facilitate the on-going sustainability
of the land where it develops operations and activities. In order
to support its efforts, the Group is committed to using the
highest standards of environmental management systems.
In addition to its primary responsibilities, the Environmental
Department works together with the operational teams,
community relations and the Legal Department on the
application for, and on-going compliance with, mining permits,
thereby assuring the continuity of operations.
Environmental management is facilitated through a reporting
structure at mine level with accountability to the Corporate
Environmental Manager reporting to the Chief Operating Officer.
The Group’s environmental teams focus on the following areas:
• Tailings management
• Waste rock management
• Safe disposal of domestic and industrial waste
• Water treatment (mine, industrial, domestic water)
• Storage and handling of hazardous materials, principally
cyanide
• Hydrocarbons management
• Management of new projects
• Closure and rehabilitation works
• Consumption of resources, principally water.
32
2009 community investment
$6.0m
Developments during the year
Notable developments during the year include:
• On-going certification of environmental management systems
at the Group’s operations at Ares, Arcata and Selene as ISO
14001 compliant
• Installation of internet-enabled equipment for the monitoring
of water data at the Ares mine;
• Construction of water treatment plant at the former mine
in Sipan;
• Implementation of key environmental procedures including:
– Environmental Management Plan procedure to improve
the time taken to obtain permits for new projects.
– Management of environmental incidents and accident
– Environmental Compliance Performance Indicators to
evaluate the performance of each mine and department
against their environmental objectives
• Environmental impact studies performed in connection with
proposed expansion programmes and in the planning of new
infrastructure projects, such as mine capacity increases and
new tailings dam
• Group-wide initiatives to raise the general awareness of
environmental issues amongst employees.
Targets for 2010
• Group Compliance Performance Indicator of at least 70%
• Zero material environmental incidents across entire
operations
• San José and Pallancata to achieve formal ISO 14001
certification.
Environmental indicators
Average monthly fresh
water consumption per
metric tonne of treated
ore (cubic metres)
Average monthly electricity
consumption per metric
tonne of treated ore (kWh)
Average monthly diesel
consumption per metric
tonne of treated ore
(gallons)
Average monthly wood
consumption per metric
tonne of treated ore (kg)
Number of material
environmental incidents
across entire operations
Estimated volume of
water withdrawn per day
(cubic metres)
Estimated proportion
of recycled water used
(cubic metres)
Estimated volume of
water discharged per day
(cubic metres)
20092
20081
20071
20061
0.63
0.55
2.72
1.58
53.32
90.3
102.01
134.28
1.23
3.14
1.62
1.36
10.31
18.33
17.13
14.36
0
0
0
0
29,668
Not available
27%
Not available
35,606
Not available
1 Figures relate to the Group’s mines in Ares, Arcata and Selene only, unless otherwise stated.
2 Figures relate to the Group’s mines in Ares, Arcata, Selene, Pallancata and San José unless
otherwise stated.
C
o
r
p
o
r
a
t
e
r
e
s
p
o
n
s
b
i
l
i
t
y
i
33
Hochschild Mining plc Annual Report & Accounts 2009
Financial review & risk
Financial review
Commercial discounts: Commercial discounts primarily refer to
refinery charges for processing mineral ore and are discounted
from revenue on a per tonne or per ounce basis. In 2009, the
Group recorded commercial discounts of $50.4 million, up $20.3
million on 2008. This was as a result of the capacity expansions
completed in 2008 which led to higher volumes and, consequently,
higher commercial discounts at Pallancata and San José. In
addition, the Company experienced higher treatment charges
at Arcata. Consequently, the ratio of commercial discounts to
gross revenue in 2009 increased to 8.5% (2008: 6.5%). For 2010,
the company has secured improved commercial terms relating
to concentrate sales.
Net revenue: Revenue from continuing operations, net of
commercial discounts, increased by 24% to $539.7 million,
comprising silver revenue of $341.5 million and gold revenue
of $198.0 million. In 2009, silver accounted for 63% and gold
37% of the Company’s consolidated revenue compared to 61%
and 39% respectively in 2008.
INTRODUCTION
The reporting currency of Hochschild Mining plc is US dollars.
In our discussion of financial performance we remove the effect
of exceptional items, unless otherwise indicated, and in our
income statement we show the results both pre and post such
exceptional items. Exceptional items are those items, which due
to their nature or the expected infrequency of the events giving
rise to them, need to be disclosed separately on the face of the
income statement to enable a better understanding of the
financial performance of the Group and to facilitate comparison
with prior years.
Revenue
Gross revenue: Gross revenue from continuing operations
increased 27% to $589.9 million in 2009 (2008: $463.4 million)
as a result of higher production and higher metal prices during
the year.
Silver: Gross revenue from silver increased 32% in 2009 to
$382.4 million (2008: $288.8 million) as a result of increased
production following the H208 capacity expansions at Arcata,
Pallancata and San José, as well as higher prices. The total
amount of silver ounces sold in 2009 was 23,563 koz
(2008: 20,593 koz).
Gold: Gross revenue from gold increased 19% in 2009 to
$207.5 million (2008: $174.6 million) also as a result of
increased production following capacity expansions at Arcata,
Pallancata and San José as well as higher prices. The total
amount of gold ounces sold in 2009 was 204.1 koz (2008:
198.3 koz).
Key performance indicators
$539.7m
Silver cash costs
$/oz Ag co-product
$7.11/oz
Gold cash costs
$/oz Au co-product
$476/oz
211.2
305.0
2006
2007
2008
539.7
2009
433.8
3.63
4.40
2006
2007
156
212
7.05
2008
7.11
2009
469
476
Defined as total cash costs multiplied by the percentage of
revenue from silver/gold, divided by the number of silver/gold
ounces sold. Cash costs include cost of sales, commercial
deductions and selling expenses before exceptional items less
depreciation included in cost of sales. This metric allows us to
benchmark ourselves versus our peer group in a consistent
manner over time.
Defined as total cash costs multiplied by the percentage of
revenue from silver/gold, divided by the number of silver/gold
ounces sold. Cash costs include cost of sales, commercial
deductions and selling expenses before exceptional items less
depreciation included in cost of sales. This metric allows us to
benchmark ourselves versus our peer group in a consistent
manner over time.
Revenue
$m
2006
2007
2008
2009
34
2009 revenue up
+24%
ReveNUe by mINe
Net average realised sale prices1
year
ended 31
December
2009
Year
ended 31
December
2008
%
change
141,816
119,284
19%
Gold ($/oz)
Silver ($/oz)
year
ended 31
December
2009
Year
ended 31
December
2008
$14.49
$12.82
$970.33
$853.28
%
change
13%
14%
US$(000) unless otherwise indicated
Silver revenue
Arcata
Ares
Selene
Pallancata
San José
Moris
13,038
8,805
139,125
78,352
1,245
38,196
29,168
48,207
52,942
992
Commercial discounts
(40,904)
(24,712)
Net silver revenue
Gold revenue
Arcata
Ares
Selene
Pallancata
San José
Moris
341,477
264,077
27,364
40,278
2,819
32,443
79,430
25,195
20,344
67,899
8,714
13,214
40,095
24,380
Commercial discounts
(9,492)
(5,423)
Net gold revenue
Other revenue1
Net revenue
198,037
169,223
227
479
539,741
433,779
1 Net average realisable prices include commercial discounts.
Costs
Hochschild is committed to producing profitable ounces and
diligently controlling costs. The Company committed to reducing
unit cost per tonne at its underground operations by 5% in 2009
and has exceeded this target with a full year reduction of 11%,
bringing unit cost from $79.7 in 2008 to $71.2 in 2009. Including
Moris, the Group’s only open pit mine, unit cost per tonne
decreased 15% to $51.1.
These savings are mainly a result of the economies of scale
achieved by the capacity expansions completed last year and
cost control measures implemented during the year, as well
as external factors such as the devaluation of local currencies.
Depreciation and amortisation within production cost increased
to $83.4 million (2008: $59.6 million) as a consequence of
higher capital expenditure and higher throughput related to
the significant expansions completed by the Group in the last
three years. During the year the depreciation calculations were
amended and the 2008 depreciation charge was restated.
(66%)
(70%)
189%
48%
26%
66%
29%
35%
(41%)
(68%)
146%
98%
3%
75%
17%
(53%)
24%
i
F
n
a
n
c
a
l
i
r
e
v
i
e
w
&
r
i
s
k
1 Other revenue includes revenue from base metal components in the concentrate sold from the
Arcata mine net of commercial discounts and revenue from sale of energy.
Adjusted EBITDA
$m
$249.9m
Cash flow from operating
activities $m
$200.5m
Pro forma earnings per share
$
$0.31
2006
2007
2008
2009
107.6
2006
94.0
147.6
142.3
2007
21.4
2008
78.6
0.17
2006
2007
2008
0.08
249.9
2009
200.5
2009
0.28
0.31
Calculated as profit from continuing operations before
exceptional items, net finance income/(cost), foreign exchange
(loss)/gain and income tax plus depreciation, amortisation and
exploration costs other than personnel and other expenses. This
provides an indication of the rate of earning’s growth achieved.
Defined as net cash flow from operating activities. This is cash
flow which can be used to fund dividend payments and invest in
the future growth and development of the business.
Defined as the per share profit (using the number of shares
outstanding of 338,085,226) available to the equity shareholders
of the Group from continuing operations and after exceptional
items. EPS provides a measure for the amount of attributable
profit available to equity shareholders of the Group taking into
account any changes in the number of shares outstanding.
2008 EPS figures have been restated to reflect changes in
the depreciation calculation (see note 3).
35
Hochschild Mining plc Annual Report & Accounts 2009
Financial review & risk
Financial review continued
2009 adjusted EBITDA
$249.9m
Cash costs
Co-product cash costs include cost of sales, commercial
deductions and selling expenses before exceptional items, less
depreciation included in cost of sales. Silver/gold cash costs
are total cash costs multiplied by the percentage of revenue
from silver/gold, divided by the number of silver/ gold ounces
sold in the year.
Selling expenses
Selling expenses increased to $21.0 million (2008: $11.3 million)
mainly as a result of the higher volume of concentrate sold
at San José and Pallancata. The increase was also a result
of higher export duties relating to higher production and metal
prices in San José (export duties in Argentina are levied at
10% of revenue for concentrate and 5% of revenue for doré).
Other income/expenses
Other income before exceptional items decreased marginally
from $5.0 million in 2008 to $4.5 million in 2009.
Other expenses before exceptional items increased to $19.3
million (2008: $8.2 million) and are mainly comprised of a non
cash $11.8 million increase in the provision for mine closure
relating to Selene and Sipan and other expenses such as
a labour contingency ($1.8 million), a loss on sale of other
assets ($1.6 million) and provision for obsolescence of
supplies ($1.1 million).
Profit from continuing operations
Profit from continuing operations before exceptional items, net
finance costs and income tax increased to $153.6 million (2008:
$70.1 million) as a result of the effects detailed above.
Impact of the Group’s investments in joint ventures
and associates
An associate is an entity in which Hochschild has significant
influence but not control. The Group accounts for the following
entities as associates: Lake Shore Gold (35.7%)1, GRC (25.0%)1,
Zincore (36.8%), Cabo Sur (51%) and Minas Pacapausa (80%).
The Group’s investments in associates are accounted for using
the equity method of accounting.
Hochschild’s share of the profit after tax of the associate
totalled $7.6 million in 2009 compared to an $8.2 million loss in
2008. The 2009 profit included a $9.2 million gain in Lake Shore
Gold mainly due to a progressive decrease in the statutory
income tax rate in Canada and the subsequent impact on the
deferred tax liability recognised on Hochschild’s acquisitions
of Lake Shore Gold and Lake Shore Gold’s acquisition of WTM.
This gain was partially offset by the share of net losses in GRC
($1 million) and Zincore ($0.4 million).
Silver and gold cash costs increased from $7.05 to $7.11 per
ounce and $469 to $476 per ounce respectively. The increase
was mainly explained by higher commercial discounts and
selling expenses and lower extracted grades.
By-product cash costs include cost of sales, commercial
deductions and selling expenses before exceptional items, less
depreciation included in cost of sales. Silver/gold cash costs are
total cash costs less revenue from gold/silver, divided by the
number of silver/gold ounces sold in the year. By-product cash
costs for the period were $2.43 per silver ounce (2008: $3.08 per
ounce) and ($576) per gold ounce (2008: ($256) per gold ounce).
Administrative expenses
Administrative expenses before exceptional items decreased
by 26% from $68.8 million to $51.1 million as a result of the
measures undertaken by management at the end of 2008 to
reduce expenses and preserve cash. These included a 28%
reduction in personnel expenses, which decreased from $35.5
to $25.4 million and a 34% reduction in professional fees,
decreasing from $10.0 to $6.6 million.
Exploration expenses
Exploration expenses, which primarily relate to greenfield
exploration, decreased to $19.9 million in 2009 (2008: $23.8
million) as a result of the Group’s decision to reduce expenditure
and preserve cash following the deterioration in market
conditions at the end of 2008.
In addition to exploration expenses, 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 2009, the Group capitalised
$8.6 million relating to brownfield exploration compared to
$6.7 million in 2008.
The Company is pleased to announce that it is significantly
increasing its total exploration planned expenditure (including
greenfield and brownfield investment) by 75% to $50 million in
2010. The exploration programme will focus on identifying
high-quality, early stage precious metal projects which will
provide cost effective growth and also on extending the life of
Hochschild’s existing operations.
36
Adjusted EBITDA
Adjusted EBITDA is calculated as profit from continuing
operations before exceptional items, net finance costs and
income tax excluding depreciation, amortisation and exploration
costs other than personnel and other expenses. Adjusted
EBITDA increased by 76% over the period to $249.9 million
(2008: $142.3 million) primarily driven by higher sales, lower
costs and lower administrative expenses, which were partially
offset by higher selling and other expenses.
The company recorded an interest expense of $15.6 million
related mainly to the outstanding syndicated loan ($114.3 million)
and the convertible bond issued in August 2009 ($115 million).
In July 2009, the Group fixed the interest rate on the syndicated
loan at 2.75%.
Foreign exchange losses
The Group recognised a foreign exchange loss of $0.3 million
(2008: $7.2 million loss) as a result of transactions in currencies
other than the functional currency.
year
ended 31
December
2009
Year
ended 31
December
2008
Income tax
The Company’s pre-exceptional effective tax rate decreased
to 36.8% in 2009 (2008: 54.7%) mainly as a result of:
%
change
Operating margin
28%
16%
153,600
70,101
119%
85,789
57,540
49%
on results of associates
i
F
n
a
n
c
a
l
i
r
e
v
i
e
w
&
r
i
s
k
(i)
A lower proportion of non-deductible expenses and non-
recognised tax losses to profit before income tax
(ii) A lower negative tax effect from the conversion of the tax
bases of local currencies to US dollars
(iii) A non taxable gain of $6.8 million in Hochschild’s share
(iv) A gain of $4.2 million as a result of tax restructuring
in Mexico
These effects were partially offset by:
(v) A $2.4 million provision related to tax credits in the Project
Finance loan in Santa Cruz. (See note 14, (7) for further
details).
(vi) A negative tax effect of $5.5 million due to lower expenses
allowed for double deductions in Argentina. (See note 14, (i)
for further details).
(vii) A negative impact of $3.5 million related to the increase in
mine closure provision.
In addition, the post-exceptional effective tax rate decreased to
21.6% (2008: 847.6%) primarily driven by a non-taxable income
of $74.4 million in 2009 including a $42.3 million gain from the
merger between Lake Shore Gold and WTM, a $12.1 million
gain on the exchange of WTM shares for Lake Shore Gold
shares, a $7.7 million gain on the Southwestern acquisition
and finance income of $7.4 million relating to GRC.
1 On a fully diluted basis.
US$(000) unless otherwise indicated
Profit from continuing
operations before exceptional
items, net finance cost, foreign
exchange loss and income tax
Depreciation and amortisation
in cost of sales
Depreciation and amortisation
in administrative expenses
Exploration expenses
Personnel and other
exploration expenses
Adjusted EBITDA
796
19,941
1,125
23,841
10,257
10,315
249,869
142,292
(29)%
(16)%
(1)%
76%
Adjusted EBITDA margin
46%
33%
Finance income
Finance income before exceptional items decreased by 32% to
$6.4 million (2008: $9.4 million) mainly as a result of the lower
rate of interest on the Company’s liquidity funds. In 2009, the
Company reported a weighted average annual effective interest
rate of 0.71% on these funds compared to 3.98% in 2008.
Finance costs
Finance costs before exceptional items of $46.0 million (2008:
$18.8 million) include a realised loss of $26.0 million relating
to the Group’s 2009 forward sales contracts. It also includes an
unrealised loss of $2.5 million relating to the Company’s 2010
‘zero cost collar’ which was secured in mid 2009 to ensure an
ongoing level of cash flow stability. The collar relates to 5.2 million
ounces of the Company’s 2010 silver production with an average
‘floor’ at $12.7/oz and an average ‘cap’ at $19.7/oz.
37
Hochschild Mining plc Annual Report & Accounts 2009
Financial review & risk
Financial review continued
Exceptional items
Exceptional items totalled $44.7 million after tax (2008: ($42.0 million). This mainly includes:
Positive exceptional items principally include:
$ million Description of main items
Impact of the Group’s
investments in joint ventures
and associates
39.6
Finance Income
22.3
In November 2009, Lake Shore Gold acquired all of the outstanding common shares
of WTM creating a new large-scale, wholly-owned Timmins West Gold Mine Complex.
As a consequence of this all-share transaction, Hochschild’s 40.0% stake in Lake Shore
Gold was diluted to approximately 26.1%. Upon completion of the business combination
between Lake Shore Gold and WTM, Lake Shore Gold’s equity value increased by
$386 million. As a result, Hochschild recognised an exceptional gain of $42.3 million
in 2009, reflecting its share of the increased equity value of Lake Shore Gold, net of the
loss on the dilution of Hochschild’s interest in Lake Shore Gold.
In December, after the Group acquired an additional interest in Lake Shore Gold of
3.9%, Lake Shore Gold issued a package of shares, options and warrants. As a result,
Hochschild’s stake of 36.1% was diluted to 35.7% and the Group recognised an
exceptional loss of $4.5 million.
The Company reported finance income of $28.7 million (2008: $13.3 million) due to the
$12.1 million gain generated from the exchange of shares held in West Timmins Mining
for shares in Lake Shore Gold and the $7.4 million gain realised from the exercise of
options held in GRC. (See note 13 for further details).
Other income
8.8 Other income increased to $13.3 million (2008: $5.3 million). This was mainly generated
due to a gain of $7.7 million arising from the acquisition of Southwestern Resources as
a result of the difference between the total acquisition cost of $19.3 million and the fair
value of the net assets of $26.9 million on the acquisition date.
Negative exceptional items principally include:
Impairment of fixed assets1
26.7
In 2009, Hochschild has recorded a total impairment charge before tax of $26.7 million,
mainly as a result of:
$ million Description of main items
Ares – The Group has impaired the carrying amount of the assets related to the Ares
mine by $15.3 million, due to the mine’s expected closure in the second half of 2010 and
the resulting revision to the remaining recoverable reserves and resources.
Liam – In the first half of 2009, the Liam property was written down by $10.0 million
following a reassessment of the value of the property which was acquired in August 2008
for a total consideration of $33.3 million.
Selene – As a result of the closure of the Selene mine in June 2009, the Company has
written down the remaining net book value of assets of $4.8 million.
Reversal of impairment – In June 2009, the Company reported an impairment charge
of $5.7 million for Moris due to the small reserve and resource base at the operation.
However, following the positive price environment during the year, this impairment has
been reversed and the Company is therefore reporting an exceptional gain of
$3.4 million.
After tax, the total impairment charge was $17.7 million representing an impact of
$0.06 on EPS.
Cost of sales
6.9 One-off bonus paid to workers at the Peruvian mines as a result of the negotiations with
workers which were successfully resolved in March 2009.
1 Impairment testing should be performed at an individual asset or cash-generating unit level. As required by IFRS, the Group conducts an impairment review on an annual basis every time any goodwill
was allocated to an asset and every time indicators of impairment exist. Impairment indicators include: declines in metal prices; increases in costs, royalties or taxes; falling grades; lower reserves;
production cut backs and significant project development over-runs. The presence of one or more indicators does not necessarily mean that the asset would be impaired but that it must be tested for
impairment. See notes 16 and 17 for further details.
38
Cash flow & balance sheet review:
Cash flow
year
ended 31
December
2009
Year
ended 31
December
2008
Net debt increased to $226.0 million (2008: $164.0 million) as
a result of the issuance of the $115 million convertible bond,
partially offset by the $85.7 million repayment of the Company’s
$200 million syndicated loan and lower cash balance as a
consequence of a strong M&A activity.
Change
Capital expenditure1
200,524
78,641
155%
(373,021)
(475,790)
(22%)
US$(000) unless otherwise indicated
$ thousands
Net cash generated from
operating activities
Net cash used in investing
activities
Cash flows generated/(used)
in financing activities
Net (decrease)/increase in
cash and cash equivalents
during the period
134,443
212,728
(37%)
(38,054)
(184,421)
(79%)
Total cash decreased to $38.1 million (2008: $184.4 million) driven
by significant M&A activity. This was partially offset by strong
operating cashflow as well as the capital raising undertaken in
October 2009.
Cash flow from operating activities increased 155% to $200.5
million (2008 $78.6 million) as a consequence of higher production
and prices and lower production costs and administrative expenses.
Cash outflows used in investing activities of $373.0 million
(2008: $475.8 million) were comprised of investment in M&A,
which totalled $239.5 million including $168.0 million in Lake
Shore Gold, $49.0 million in Gold Resource Corp and $19.2
million in Southwestern Resources. In addition, the Company
invested ($141.0 million) in PP&E.
Cash generated from financing activities increased to $134.4
million (2008: $212.7 million) as a result of the capital raising
completed in October 2009 which included gross proceeds of
$145 million from the equity placing and $115 million from the
convertible bond offering. This was partially offset by Hochschild’s
repayment of $85.7 million of its $200 million syndicated loan.
Working capital
$ millions
Trade and other receivables
Inventories
Derivative financial instruments
Income tax
Trade and other payables
Working capital
year
ended 31
December
2009
Year
ended 31
December
2008
168.0
45.8
(1.9)
(10.8)
(135.2)
66.0
162.0
51.9
5.6
14.3
(124.9)
108.8
The Company’s working capital position decreased to $66.0
million (2008: $108.8 million), primarily as a result of higher
trade and income tax payables.
Net debt
US$(000) unless otherwise indicated
Cash and cash equivalents
Long-term borrowings
Short-term borrowings less
pre-shipment loans
Net debt/(net cash)
39
As at 31
December
2009
As at 31
December
2008
77,844
219,681
116,147
231,692
84,158
225,995
48,410
163,955
Arcata
Ares
Selene
Pallancata1
San José1
Moris1
San Felipe1
Other
Total
year
ended 31
December
2009
Year
ended 31
December
2008
29,688
3,484
16,579
24,117
26,113
480
150
7,924
108,535
43,977
10,438
47,226
14,619
80,398
2,234
63,318
49,061
311,271
1 Includes additions in property, plant and equipment and evaluation and exploration assets and
excludes increases in closure of mine assets.
2009 capital expenditure of $108.5 million (2008: $311.3 million)
includes mine developments of $51.0 million, equipment of
$48.9 million and exploration of $8.6 million. The year-on-year
decrease is mainly explained by the completion of capacity
expansions at the Company’s Arcata, Pallancata and San José
operations in 2008.
Mine closure provision
The Group has updated its mine closure provision from
$39.0 million to $61.3 million, partly as a result of the plant
expansions completed in 2008 and also to ensure that it continues
to fully comply with government requirements. From the $22.3
million increase, $11.8 million refers to mines that are already
closed and is recorded under other expenses in the income
statement, whilst $15.2 million refers to current operations
and is recorded under provisions in the statement of financial
position. These effects were partially offset by the expenditure
in mine rehabilitation during the year and the change in
discount rate (see note 27 for further details).
Dividends
The Directors recommend a final dividend of $0.02 per Ordinary
Share which, subject to shareholder approval at the 2010 AGM,
will be paid on 27 May 2010 to those shareholders appearing on
the register on 30 April 2010. If approved, this will result in a
total dividend for the year of $0.04 per share. Dividends are
declared in US dollars. Unless a shareholder elects to receive
dividends in US dollars, they will be paid in pounds sterling
with the US dollar dividend converted into pounds sterling at
exchange rates prevailing at the time of payment. Our dividend
policy takes into account the profitability of the business and
the underlying growth in earnings of the Company, as well as
its capital requirements and cash flow.
Dividend dates
Ex-dividend date
Record date
Deadline for return of currency election forms
Payment date
2010
28 April
30 April
4 May
27 May
i
F
n
a
n
c
a
l
i
r
e
v
i
e
w
&
r
i
s
k
Hochschild Mining plc Annual Report & Accounts 2009
Financial review & risk
Risk management
OveRvIew
As with all businesses, management of the Group’s operations
and execution of the Group’s growth strategies are subject to
a number of risks, the occurrence of any one of which may
adversely affect the execution of growth strategies and hence
the performance of the Group. The Group has made significant
developments in the management of the Group’s risk environment
which seeks to identify and, where appropriate, implement
the controls to mitigate the impact of the Group’s significant
risks. This effort is supported by a Risk Committee with the
participation of the CEO, the Vice Presidents, the Country
General Managers and the head of the internal audit function.
The Risk Committee is responsible for implementing the
Group’s policy on risk management and internal control in
support of the Company’s business objectives, and monitoring
the effectiveness of risk management within the organisation.
A review of the most significant risks is carried out by the
Audit Committee, further details of which are given in the
Corporate Governance Report on pages 49 to 53.
The key business risks affecting the Group are set out in the
table below. The steps the Group has taken to mitigate these
risks, when they are within its control, are also described.
TyPe OF RISK
FINANCIAL RISKS
Commodity price risk
Credit
Liquidity
Foreign currency
Interest rate
DeSCRIPTION OF RISK
mITIGATING STePS
Adverse movements in precious metals'
prices could have a material impact on
the Group’s results of operations.
Loss of revenue resulting from
defaulting customers
The Group may be unable to raise funds
to meet its financial commitments as they
fall due.
The combination of US dollar denominated
sales and a cost base spread across local
currencies may impact the Group’s results
in the event of adverse currency movements
against the US dollar.
Movements in interest rates could impact the
Group’s results from financings.
Whilst committed to being unhedged,
management continuously monitors silver and
gold prices and, where appropriate, shall take
the necessary action, within Board approved
parameters.
As a result of the global economic downturn,
management has taken a number of steps
to protect the Group against defaulting
customers, by amending sales contracts to
provide for advance payment and delaying the
transfer of title to goods sold, by obtaining
parent company guarantees and implementing
risk profiling of key and new customers.
The Board and the Executive Committee
monitor the Group’s requirements for short-
and medium-term liquidity and access to
credit lines to ensure appropriate level of
financing. In 2009 the Group increased its
short-term bank lines by over 30% in addition
to accessing further long-term financing
through the issue of equity and convertible
bonds
The relationship between the US dollar and
local currencies, and gold and silver prices
provide the company with a natural hedge.
Management periodically reviews this
relationship to ensure the company is
properly protected.
Given the low interest rate environment,
management has taken measures to fix the
interest rate exposure of the Group stemming
from its debt balance.
Further information on financial risks can be found in note 38 to the Consolidated Financial Statements.
40
DeSCRIPTION
mITIGATING STePS
TyPe OF RISK
OPeRATIONAL RISKS
Costs
Business interruption
Reserve and resource replacement
Personnel
mACRO eCONOmIC RISKS
Political, legal and regulatory
Increase in production costs will impact on
the Group’s profitability.
Assets used in operations may break down and
insurance policies may not cover against all
forms of risks due to certain exclusions and
limitations.
The Group’s future profitability and operating
margins depend upon its ability to replenish
reserves with geological characteristics to
enable mining at competitive costs. Reserves
stated in this Annual Report are estimates.
Loss of key senior management and
personnel; in particular, highly skilled
engineers and geologists. Lack of availability
of individuals with relevant mining experience
situated in the locality of the Group’s operations,
or the inability of the Group to obtain all
necessary services or expertise locally or
to conduct operations on projects at
reasonable rates.
Costs associated with ensuring compliance
with all relevant laws and regulations are
substantial and future changes may require
additional expense, restrictions on or
suspensions of, the Group’s operations and
may result in delays in the development of
its properties.
CORPORATe SOCIAL ReSPONSIbILITy RISKS
Group employees working in the mines may
be exposed to health and safety risks. Failure
to manage these risks may result in a work
slowdown, stoppage or strike and/or may
damage the reputation of the Group and hence
its ability to operate.
The Group may be liable for losses arising
from environmental hazards associated with
the Group’s activities and production methods,
or may be required to undertake extensive
remedial clean-up action or pay for
governmental remedial clean-up actions.
Communities living in the localities of the
Group’s operations may oppose the activities
carried out by the Group at existing mines or
development projects and prospects which
may also impact on the Group’s ability to obtain
concessions for current or future projects.
Health and safety
Environmental
Social
41
The Group seeks to enter into long-term
supply contracts where possible, and at
favourable prices.
The Group has combined property damage
and business interruption insurance policies
for all operations, and adequacy of coverage
is regularly reviewed in conjunction with
consultants to ensure appropriate level of
cover for the industry and for operations in
Latin America. Contingency planning has also
led to the Group compiling stock of critical
parts and access to back-up power supplies
The Group has an annual drilling plan which
is revised on a quarterly basis. Exploration
targets are continuously being defined with
new targets incorporated.
The Group seeks to provide competitive
compensation arrangements and well-defined
career plans for positions of strategic
importance. In respect of mining personnel,
a dedicated labour relations strategy has
been developed to meet employees' needs
and to facilitate open dialogue between key
stakeholders.
Regional risk assessments are performed
when investment in new countries are
considered. These incorporate reviews of
political environments and likelihood of
changes in relevant royalties and taxes. Local
teams in each country of operation monitor
and react, as necessary, to policy changes
impacting on the business. Further mitigation
is achieved through broadening of the
geographic spread of the Group’s assets,
ensuring risk is diversified across a number
of countries.
Attainment of Level 4 of the DNV safety
management information system at all
operating units.
As part of the Group’s approach to environmental
risk management, periodic audits of the Group’s
operations are carried out with findings reported
to senior management, and corresponding
recommendations implemented under agreed
action plans. Air and water quality is monitored
on a weekly and monthly basis.
The Group’s Community Relations Department
maintains continuous dialogue and cooperation
with communities surrounding the Group’s
operations. New high impact plans have been
developed focusing on health, education and
technical assistance. Tailored risk matrices
are monitored on a monthly basis.
i
F
n
a
n
c
a
l
i
r
e
v
i
e
w
&
r
i
s
k
Hochschild Mining plc Annual Report & Accounts 2009
Governance
Board of Directors
ExEcutivE DirEctOrs
NON-ExEcutivE DirEctOrs
Eduardo Hochschild
Executive Chairman
Eduardo Hochschild joined Hochschild Mining in 1987 as
Safety Assistant at the Arcata unit, becoming Head of the
Hochschild Mining Group in 1998 and Chairman in 2006.
Eduardo has numerous directorships, amongst them,
Cementos Pacasmayo S.A.A., COMEX Peru, Banco de
Crédito del Perú and a number of positions with non-profit
entities such as the Sociedad Nacional de Minería y Petróleo
and the Conferencia Episcopal Peruana.
Roberto Dañino
Deputy Chairman and Executive Director
Roberto Dañino joined Hochschild Mining in 1995, where
he remained until 2001 when he left to serve in the Peruvian
Government as Prime Minister and later as Peru’s Ambassador
to the United States. From 2003 to 2006 he was Senior Vice
President and General Counsel of the World Bank Group and
Secretary General of ICSID. Previously, he was a partner of
Wilmer, Cutler & Pickering in Washington DC and founding
General Counsel of the Inter-American Investment Corporation.
Roberto is one of Hochschild’s representatives on the Board
of Lake Shore Gold Corp and is also a Non-Executive Director
of a number of companies including Gold Fields Limited.
Miguel Aramburú
Chief Executive Officer
Miguel Aramburú joined Hochschild in 1995 when he was
appointed General Manager of Compañia Minera Pativilca. He
was appointed Chief Financial Officer in 2002 and subsequently
served as General Manager of the Mining Division and, most
recently, as Chief Operating Officer. Miguel was appointed Chief
Executive Officer in January 2008 and an Executive Director from
January 2009. Miguel also serves as a director of Pacífico Vida.
Ignacio Rosado
Chief Financial Officer
Ignacio Rosado has been the Chief Financial Officer of the
Group since 2005 and an Executive Director since January 2009.
He is one of Hochschild’s representatives on the board of Lake
Shore Gold Corp. Prior to joining the Group, Ignacio was Senior
Engagement Manager for McKinsey & Company from 2000 to
2005. Ignacio began his career in banking, having worked for
Banco Wiese Sudameris in Peru between 1992 and 1994 and
at Banco de Crédito del Perú.
42
Sir Malcolm Field
Senior Non-Executive Director
Sir Malcolm Field is a Non-Executive Director of Petropavlovsk
plc and Ray Berndtson. Between 2002 and 2006 Sir Malcolm
served as Chairman of Tube Lines Limited, one of the London
Underground consortia, and from 2001 to 2006, as an external
policy adviser to the UK’s Department of Transport. Sir Malcolm
served as Group Managing Director of WH Smith plc between
1982 and 1993 and as Chief Executive from 1993 to 1996.
From 1996 to 2001 Sir Malcolm served as Chairman of the
Civil Aviation Authority. Sir Malcolm as has held non-executive
directorships with numerous companies, including Scottish
and Newcastle plc and Evolution Beeson Gregory.
Jorge Born Jr.
Non-Executive Director
Jorge Born Jr. joined Bomagra S.A. in 1997 initially as Chief
Executive Officer and since 2001, as President and Chief
Executive Officer. Jorge is also a Director of Caldenes S.A.,
a subsidiary of Bomagra. Previously, Jorge served as Head
of Bunge’s European operations from 1992 to 1997 and as
Head of Bunge’s UK operations from 1989 to 1992. He has been
a Director and Deputy Chairman of Bunge Limited since 2001
and a Director of Mutual Investment Limited since 1997 and
its Deputy Chairman since 2001. Jorge has also been a Director
of Dufry South America S.A. of Rio de Janeiro since 2006.
He is currently also President of the Bunge and Born
Charitable Foundation.
Nigel Moore
Non-Executive Director
Nigel Moore is a Chartered Accountant. He is currently Chairman
of TEG Environmental plc and a Non-Executive Director of The
Vitec Group plc, JKX Oil & Gas plc, Ascent Resources plc and
Production Services Network Ltd. Nigel was a Partner at Ernst
& Young from 1973 to 2003 during which time he served as
Managing Partner of the firm’s London office from 1985 to
1987, Senior Partner attached to the Chairman’s Office (Europe)
from 1987 to 1989, and Regional Managing Partner for Eastern
Europe and Russia from 1989 to 1996.
Dionisio Romero
Non-Executive Director
Dionisio Romero retired as Chairman and Chief Executive
Officer of the financial services holding company, Credicorp
Ltd in April 2009 after more than 13 years. Dionisio is a Director
of Banco de Credito e Inversiones de Chile and is President of
TECSUP Trujillo, a higher education institution.
Fred Vinton
Non-Executive Director
Fred Vinton holds directorships in a number of companies
including European Goldfields plc, Unipart Group of Companies
UK, MBA Latin America Opportunity Fund, GP Investments
Ltd, Dinamia SCR S.A. and EQMC Europe Development Capital
Fund plc. Between 1995 and 2006 Fred served as Chairman/
Chief Executive Officer of Electra Partners Limited and prior to
that he was Chief Executive of Quilvest Ltd between 1992 and
1995. Formerly, Fred spent 25 years at J.P. Morgan where he
was responsible for the bank’s business in Latin America, the
UK and Scandinavia before joining N M Rothschild & Sons Ltd
as Chief Operating Officer in 1988. Fred was appointed to the
Board from 1 August 2009.
José Augusto Palma
Vice President and General Counsel
José Augusto Palma joined Hochschild in July 2006 after
a 13 year legal career in the United States, where he was a
partner at the law firm of Swidler Berlin and subsequently,
at the World Bank. He also served two years in the Government
of Peru. José has Law degrees from Georgetown University
and the Universidad Iberoamericana in Mexico and is admitted
to practice as a lawyer in Mexico, New York and the District
of Columbia. Prior to his current role José served as Senior
Adviser to the Executive Committee.
Eduardo Villar
Vice President, Human Resources
Eduardo Villar has been with the Group since 1996. Prior to
his current position, he served as Human Resources Manager,
Deputy HR Manager and Legal Counsel. Eduardo holds a
Law Degree from the Universidad de Lima and an MBA from
the Universidad Peruana de Ciencias Aplicadas.
Senior management
Isac Burstein
VP Business Development
Isac Burstein joined the Group as a geologist in 1995. Prior
to his current position, Isac served as Manager for Project
Evaluation, Exploration Manager for Mexico, and Exploration
Geologist. He holds a BSc in Geological Engineering from the
Universidad Nacional de Ingenieria, an MSc in Geology from
the University of Missouri and an MBA from Krannert School
of Management, Purdue University. Isac is on the Board of
Gold Resource Corp.
Ignacio Bustamante
Chief Operating Officer
Ignacio Bustamante joined Hochschild in 1992 and assumed
his current role in January 2008. Previously, he has served as
General Manager of the Peruvian operations and between 1998
and 2003 as Chief Financial Officer of Cementos Pacasmayo.
Whilst at Cementos, Ignacio served as Chief Financial Officer
and Vice President of Business Development and later as
President at Zemex Corporation, a group subsidiary. Ignacio is
also one of Hochschild’s representatives on the Board of Lake
Shore Gold Corp. He holds a BSc in Business and a BSc in
Accounting from the Universidad del Pacífico in Peru and an
MBA from Stanford University.
Raymond Jannas
Vice President, Exploration & Geology
Raymond Jannas joined Hochschild in 2007 after working
for eight years at Gold Fields Limited where he served as
Worldwide Project Generation Manager between 2006 and 2007
and as South America Exploration Manager. Raymond has over
30 years’ experience as a geologist throughout the Americas.
He holds a BSc in Geology from the Universidad de Chile and
an MSc and PhD in Geology from Harvard University.
G
o
v
e
r
n
a
n
c
e
43
Hochschild Mining plc Annual Report & Accounts 2009
Governance
Directors’ report
The Directors have pleasure in presenting their report for the
year ended 31 December 2009.
DIRECTORS’ INTERESTS
PRINCIPAL ACTIVITIES AND BUSINESS REVIEW
Hochschild is a leading precious metals company with a
primary focus on the exploration, mining, processing and sale
of silver and gold.
The Group has four underground mines in production
supported by fully developed infrastructure, three of which
are located in southern Peru and the fourth in Argentina.
The Group also has one open pit mine in Mexico and
numerous prospects at various stages of development.
A number of these projects and prospects are structured as
joint ventures or option arrangements with local or overseas
mining partners, whilst others are owned and operated
exclusively by the Group.
In addition, the Group has strategic investments in a number
of mining companies including Lake Shore Gold Corporation
and Gold Resource Corporation.
The “growth strategy”, “corporate responsibility” and
“financial review and risk” sections of this Annual Report on
pages 4 to 41 contain the information required to be
disclosed in this report under section 417 of the Companies
Act 2006 which, together with the Corporate Governance
Report, are incorporated into this report by reference.
RESULTS AND DIVIDEND
The Group’s adjusted EBITDA1 for the year amounted to
$249.9 million (2008: $142.3 million). Revenue for the year
was $539.7 million (2008: $433.8 million) and attributable
profit to equity shareholders after tax (before exceptional
items) was $52.9 million (2008: $15.8 million).
An interim dividend of $0.02 per share was paid to
shareholders of the Company on 22 September 2009.
The Directors recommend the payment of a final dividend
of $0.02 per share (2008: $0.02 per share). Subject to
shareholders approving this recommendation at the
forthcoming Annual General Meeting (“AGM”), the dividend
will be paid in UK pounds sterling on 27 May 2010 to
shareholders on the register at the close of business on
30 April 2010. Shareholders may elect to receive their
dividend in US dollars. The US dollar dividend will be
converted into UK pounds sterling at the exchange rate
prevailing at the time of payment.
DIRECTORS
The names and biographical details of the Directors serving
at the date of this report are given on page 42.
All directors were in office for the duration of the year under
review except for Fred Vinton who was appointed by the
Board on 1 August 2009. As such, Mr Vinton will stand for
election by shareholders at the forthcoming AGM in
accordance with the Company’s Articles of Association. In
addition, Eduardo Hochschild and Dionisio Romero will be
retiring by rotation at this year’s AGM and, being eligible,
offer themselves for re-election by shareholders.
1 Calculated as profit from continuing operations before exceptional items,
net finance income/cost and income tax plus depreciation, amortisation
and exploration expenses excluding “Personnel” and “Other” expenses.
44
Details of the interests of those Directors serving at
31 December 2009 in (i) the Company’s shares or (ii)
derivatives or financial instruments relating to such shares,
are shown below:
Eduardo Hochschild1
Roberto Dañino2
Miguel Aramburú
Ignacio Rosado
Sir Malcolm Field
Jorge Born Jr.
Nigel Moore
Dionisio Romero
Fred Vinton
No of ordinary
shares as at
31 December
2009
No of ordinary
shares as at
1 January
2009
182,415,206 181,350,426
1,725,000
1,725,000
0
0
14,285
0
14,285
100,000
0
0
0
14,285
0
14,285
100,000
0
1 Eduardo Hochschild holds an indirect interest in the Company through an
intermediate holding company which he controls and which owns the entire
issued share capital of Pelham Investment Corporation which, in turn, owns
shares in the Company.
2 Roberto Dañino’s interest is held by Navajo Overseas Corporation.
There have been no changes in the above interests in the
period from 31 December 2009 to 23 March 2010.
RELATIONSHIP AGREEMENT
Prior to the Company’s IPO, Pelham Investment Corporation,
Eduardo Hochschild and the Company (amongst others)
entered into a relationship agreement to regulate the
ongoing relationship between them (“the Relationship
Agreement”). The principal purpose of the Relationship
Agreement is to ensure that the Group is capable of carrying
on its business for the benefit of the shareholders of the
Company as a whole. Further details on the Relationship
Agreement are set out in the Corporate Governance Report
on pages 49 to 53.
CORPORATE SOCIAL RESPONSIBILITY (“CSR”)
The Directors are committed to ensuring the health and
safety of the Group’s employees, operating the Group’s
business with respect for the environment and by actively
engaging with local communities. The Group has sought
to reinforce this commitment by allocating resources and
undertaking numerous initiatives over many years.
The CSR Committee has continued to discharge its
responsibilities during the year by:
– monitoring the Group’s performance against agreed
policy on all CSR-related issues, particularly on safety
and occupational health, community relations, and
the environment;
– reviewing management’s investigation of incidents or
accidents that occur, in order to assess whether policy
improvements are required; and
G
o
v
e
r
n
a
n
c
e
A
c
c
o
u
n
t
s
– reviewing compliance with national and international
standards to ensure that effective systems of standards,
procedures and practices are in place at each of the
Company’s operations.
Further details on the Group’s activities in this area are given
in the corporate responsibility report on pages 26 to 33.
REHABILITATION OF LAND
The Company has a policy of closing mine facilities as the
lives of the mines progress in order to reduce liabilities at
the end of the mine life. Total current estimates of end-of-life
closure costs for the Group’s operations are about $61.3
million, which includes amounts estimated for ongoing
maintenance of sites. A provision for this amount was made
as at 31 December 2009 (2008: $38.9 million) which was
calculated following a review of the mines’ estimated closure
costs by external consultants and which has been updated
by management.
EMPLOYEES
Employees of Minera Santa Cruz, S.A. are voluntarily
affiliated to the Asociación Obrera Minera Argentina (the
Argentine Mineworkers Union). The Group’s employees at
the Peruvian operations became members of unions which
were formed during 2008. Details of how the Group engages
with its employees are provided in the corporate
responsibility report (on pages 26 to 33).
SUPPLIER PAYMENT POLICY
It is the Company’s policy that, subject to compliance with
trading terms by the supplier, payments to suppliers are
made in accordance with terms and conditions agreed
in advance.
At 31 December 2009, the Company had an average of
42 days’ purchases owed to trade creditors (2008: 23 days).
POLITICAL AND CHARITABLE DONATIONS
The Company does not make political donations. During the
year, the Group expended $6 million (2008: $4.6 million) on
social and community welfare activities surrounding its
mining units.
EVENTS SINCE THE BALANCE SHEET DATE
Details of events occurring since 31 December 2009 are
set out in note 39 to the Group’s financial statements on
page 133.
SHARE CAPITAL
The issued share capital of the Company as at 1 January 2009
was 307,350,226 Ordinary Shares of 25p each. During the year
to 31 December 2009 this increased by 30,735,000 Ordinary
Shares as a result of shares issued by way of a placing on
7 October 2009 at a price of 295p each.
SHARE REPURCHASE AUTHORITY
The Company obtained shareholder approval at the AGM held
in May 2009 for the repurchase of up to 30,735,022 Ordinary
Shares which represents 9.09% of the Company’s current
issued share capital (“the 2009 Authority”). Whilst no
purchases were made by the Company pursuant to the
2009 Authority, it is intended that shareholder consent will
be sought on similar terms at this year’s AGM when the 2009
Authority expires.
SUBSTANTIAL SHAREHOLDINGS
As at 23 March 2010 the Company had been notified of the
following interests in the Company’s Ordinary Share capital
in accordance with Chapter 5 of the Financial Services
Authority’s Disclosure Rules and Transparency Rules:
Eduardo Hochschild
Vanguard Group Inc.
Blackrock Global Funds
Number of
Ordinary
Shares
Percentage
of issued
share capital
182,415,206
27,840,000
15,442,182
53.96
8.23
4.57
Altima Global Special
Situations Master Fund Limited
12,003,175
3.55
RELATED PARTY TRANSACTIONS
Details of related party transactions undertaken during the
year under review are given in note 31 to the Group’s financial
statements on page 120.
ADDITIONAL STATUTORY INFORMATION
This section provides information as at 31 December 2009
which is required to be disclosed in the Directors’ report.
References below to “the Articles” are to the Company’s
Articles of Association as at the date of this report, copies
of which are available from the Registrar of Companies or
on request from the Company Secretary.
References below to “the Companies Act” are to the
Companies Act 2006.
(a) Structure of share capital
The Company has a single class of share capital which
is divided into Ordinary Shares of 25p each, which are in
registered form.
Further information on the Company’s share capital is
provided in note 38 to the Group financial statements.
(b) Rights and obligations attaching to shares
The rights attaching to the Ordinary Shares are described
in full in the Articles.
In summary, on a show of hands at a general meeting or
class meeting, every member present in person has one vote
for every Ordinary Share held and on a poll, every member
present in person or by proxy has one vote for every Ordinary
Share held.
45
G
G
o
o
v
v
e
e
r
r
n
n
a
a
n
n
c
c
e
e
A
A
c
c
c
c
o
o
u
u
n
n
t
t
s
s
Hochschild Mining plc Annual Report & Accounts 2009
Governance
Directors’ report continued
Members are entitled to appoint a proxy to exercise all or any
of their rights to attend and to speak and vote on their behalf
at a general meeting or class meeting. A member that is a
corporation is entitled to appoint more than one individual to
act on its behalf at a general meeting or class meetings as a
corporate representative.
– contains an undertaking by the Controlling Shareholders
that they will, and will procure that their Associates will,
abstain from voting on any resolution to approve a
transaction with a related party (as defined in the FSA
Listing Rules) involving the Controlling Shareholders
or their Associates.
(c) Transfer of shares
The relevant provisions of the Articles state that:
– registration of a transfer of an uncertificated share may
be refused in the circumstances set out in the CREST
Regulations and where, in the case of a transfer to joint
holders, the number of joint holders to whom the
uncertificated share is to be transferred exceeds four;
– the Directors may, in their absolute discretion, decline to
register any transfer of any share which is not a fully paid
share. The Directors may also decline to recognise any
instrument of transfer relating to a certificated share unless
the instrument of transfer: (i) is duly stamped (if required)
and is accompanied by the relevant share certificate(s) and
such other evidence of the right to transfer as the Directors
may reasonably require; and (ii) is in respect of only one
class of share. The Directors may, in their absolute
discretion, refuse to register a transfer if it is in favour
of more than four persons jointly; and
– the Directors may decline to register a transfer of any of
the Company’s shares by a person with a 0.25% interest
if such a person has been served with a notice under the
Companies Act after failure to provide the Company with
information concerning interests in those shares required
to be provided under the Companies Act.
(d) Restrictions on voting
No member shall be entitled to vote at any general meeting
or class meeting in respect of any shares held by him if any
call or other sum then payable by him in respect of that share
remains unpaid. Currently, all issued shares are fully paid.
In addition, no member shall be entitled to vote if he failed
to provide the Company with information concerning
interests in those shares required to be provided under
the Companies Act.
(e) Deadlines for voting rights
Votes are exercisable at the general meeting of the Company
in respect of which the business being voted upon is being
heard. Votes may be exercised in person, by proxy, or in
relation to corporate members, by a corporate representative.
Under the Articles, the deadline for delivering proxy forms
cannot be earlier than 48 hours (excluding non-working days)
before the meeting for which the proxy is being appointed.
(f) Shareholder Agreements
The Relationship Agreement entered into prior to the IPO
between, amongst others, the Major Shareholder (as
defined in the Relationship Agreement) and Eduardo
Hochschild (collectively “the Controlling Shareholders”)
and the Company:
– contains provisions restricting the Controlling
Shareholders’ rights to exercise their voting rights to
procure an amendment to the Articles that would be
inconsistent with the Relationship Agreement; and
(g) Appointment and replacement of Directors
Directors may be appointed by the Company by ordinary
resolution or by the Board. A Director appointed by the Board
holds office only until the next following AGM and is then
eligible for election by the shareholders but is not taken
into account in determining the Directors or the number
of Directors who are to retire by rotation at that meeting.
The Directors may from time to time appoint one or more
of their body to be the holder of any executive office for such
period (subject to the Companies Act) and on such terms as
they may determine and may revoke or terminate any such
appointment. Each Director is required to retire at the AGM
held in the third calendar year following the year in which he
was elected or last re-elected by the Company. Each Director
(other than the Chairman and any Director holding executive
office) shall retire at each AGM following the ninth
anniversary of the date on which he was elected by the
Company. The Company may, in accordance with and subject
to the provisions of the Companies Act by ordinary resolution
of which special notice has been given, remove any Director
before the expiration of his term of office. The office of
Director shall be vacated if: (i) he is prohibited by law from
acting as a Director; (ii) he resigns or offers to resign and
the Directors resolve to accept such offer; (iii) he becomes
bankrupt or compounds with his creditors generally; (iv) a
relevant order has been made by any court on the ground
of mental disorder; (v) he is absent without permission of
the Directors from meetings of the Board for six months
and the Directors resolve that his office be vacated; (vi) his
resignation is requested in writing by not less than three
quarters of the Directors for the time being; or (vii) in the
case of a Director other than the Chairman and any Director
holding an executive office, if the Directors shall resolve to
require him to resign and within 30 days of being given notice
of such notice he so fails to do.
In addition, under the terms of the Relationship Agreement:
– for as long as the Major Shareholder has an interest of 30%
or more in the Company, it is entitled to appoint up to two
Non-Executive Directors and to remove such Directors so
appointed; and
– for as long as the Major Shareholder has an interest of
15% or more of the Company, it is entitled to appoint up to
one Non-Executive Director and to remove such Director
so appointed.
(h) Amendment of Articles of Association
Any amendments to the Articles may be made inaccordance
with the provisions of the Companies Act by way of special
resolution.
(i) Powers of the Directors
Subject to the Company’s Memorandum of Association, the
Articles, the Companies Act and any directions given by
special resolution, the business and affairs of the Company
shall be managed by the Directors who may exercise all such
powers of the Company.
46
G
o
v
e
r
n
a
n
c
e
A
c
c
o
u
n
t
s
Subject to applicable statutes and other shareholders’ rights,
shares may be issued with such rights or restrictions as the
Company may by ordinary resolution decide, or in the
absence of any such resolution, as the Directors may decide.
Subject to applicable statutes and any ordinary resolution of
the Company, all unissued shares of the Company are at the
disposal of the Directors. At each AGM the Company puts in
place annual shareholder authority seeking shareholder
consent to allot unissued shares, in certain circumstances
for cash, in accordance with the guidelines of the Investor
Protection Committee.
(j) Repurchase of shares
Subject to authorisation by shareholder resolution, the
Company may purchase its own shares in accordance with
the Companies Act. Any shares which have been bought back
may be held as treasury shares or, if not so held, must be
cancelled immediately upon completion of the purchase,
thereby reducing the amount of the Company’s issued share
capital. The Company currently has authority to buy back up
to 30,735,022 Ordinary Shares and which will expire at the
2010 AGM. The minimum price which must be paid for such
shares is specified in the relevant shareholder resolution.
(k) Dividends and distributions
Subject to the provisions of the Companies Act, the Company
may by ordinary resolution from time to time declare
dividends not exceeding the amount recommended by the
Directors. The Directors may pay interim dividends whenever
the financial position of the Company, in the opinion of the
Directors, justifies its payment. If the Directors act in good
faith, they are not liable to holders of shares with preferred
or pari passu rights for losses arising from the payment of
interim dividends on other shares.
(l) Significant agreements
A change of control of the Company following a takeover bid
may cause a number of agreements to which the Company,
or any of its trading subsidiaries, is party, to take effect, alter
or terminate. Such agreements include commercial trading
contracts, joint venture agreements and banking
arrangements. Further details are given below of those
arrangements where the impact may be considered to be
significant in the context of the Group.
– Under the terms of the $200 million syndicated secured
term loan facility agreement dated 28 January 2008, a
change of control entitles JP Morgan Chase Bank N.A.
(“JPMCB”) (as the administrative agent) to take certain
actions. In summary, if so directed by a majority of the
lenders, JPMCB may cancel the facility and declare all
outstanding loans, together with accrued interest and
all other amounts accrued under the facility documentation
immediately due and payable. Furthermore, a change
of control entitles JPMCB to direct the enforcement of
all liens and security interests created under the
facility documentation.
– Under the terms and conditions of the $115,000,000 5.75%
Convertible Bonds due 2014, condition 5(a) sets out the
conversion rights of the holders of the bonds and the
calculation of the conversion price payable. The conversion
price will decrease if a “Change of Control” occurs.
“Change of Control” is defined in Condition 3 and Condition
5(b)(x) sets out the consequential adjustment to the
conversion price.
47
In summary, a Change of Control occurs if (i) an offer
is made to all (or as nearly as may be practicable all)
shareholders other than the offeror and/or any of its
associate to acquire all or a majority of the issued ordinary
shares of the Company or if any person proposes a scheme
with regard to such acquisition (other than an Exempt
Newco Scheme (as defined)) and (such offer or scheme
having become unconditional in all respects or having
become effective) the right to cast more than 50% of the
votes which may ordinarily be cast on a poll at a general
meeting of the Company (“Voting Rights”) has or will
become unconditionally vested in the offeror and/or an
associate (as defined) of the offeror; or (ii) the right to cast
more than 60% of the Voting Rights has or will become
unconditionally vested in the ultimate controlling
shareholder of the Company at the time of issue and/or an
associate (as defined); or (iii) the right to cast more than
50% of the Voting Rights has or will become unconditionally
vested in any person or persons acting together by reason
of the acquisition of the Company’s ordinary shares or
Voting Rights from the ultimate controlling shareholder of
the Company at the time of issue. Condition 6(d) of the
terms and conditions of the bonds gives bondholders an
early redemption option (early repayment at face value plus
accrued interest) upon a Change of Control occurring.
– Awards made under the Group’s Long-Term Incentive Plan
shall, upon a change of control of the Company, vest early
unless a replacement award is made. Vesting will be
prorated to take account of the proportion of the period
from the award date to the normal vesting date falling
prior to the change of control and the extent to which
performance conditions (and any other conditions) applying
to the award have been met.
– Certain arrangements in respect of derivative instruments
entered into by the Group would terminate on the
occurrence of a change of control thereby triggering
an event of default vis a vis the counterparty.
ESSENTIAL CONTRACTUAL AND OTHER ARRANGEMENTS
The Directors consider that the following are the contractual
and other arrangements to which group companies are
a party and which are considered to be essential to
the business:
– the mining concessions and operating permits granted
by the governmental authorities in the jurisdiction of the
Group’s operations; and
– collective agreements with trade unions in respect of the
workers at the Group’s mines in Peru.
POLICY ON FINANCIAL RISK MANAGEMENT
The Company’s objectives and policies on financial risk
management can be found in note 38 to the Group financial
statements. Information on the Company’s exposures to
foreign currency, commodity prices, credit, equity, liquidity,
interest rates and capital risks can be found in this note.
G
G
o
o
v
v
e
e
r
r
n
n
a
a
n
n
c
c
e
e
A
A
c
c
c
c
o
o
u
u
n
n
t
t
s
s
Hochschild Mining plc Annual Report & Accounts 2009
Governance
Directors’ report continued
DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE
AUDITORS
Since Directors are increasingly being added as defendants
in legal actions against companies, the Board believes that
the risk of Directors being placed at significant personal
financial risk is increasing. The Board also believes that
the provision of appropriate indemnities and the funding
of Directors’ defence costs as permitted by legislation are
reasonable protections for the Directors and are important
to ensure that the Company continues to be able to attract
and retain the highest calibre individuals as Directors.
Accordingly, the Articles contain a provision whereby each
of the Directors is indemnified by the Company in respect of
liability in relation to: (i) any negligence, default, breach of
duty or breach of trust relating to the Company or any
associated company; (ii) execution of their duties as Directors
of the Company; and (iii) the activities of the Company or any
associated company as trustee of an occupational pension
scheme. For these purposes, associated company has the
meaning given to it by section 256 of the Companies Act 2006.
However, a Director will not be indemnified for any liability
incurred by him to the Company or Group companies; any
criminal or regulatory fines; the costs of defending any
criminal proceedings in which he is convicted; or the costs
of defending any civil proceedings brought by the Company
in which judgement is given against him.
The Company has purchased and maintains liability
insurance for its Directors and officers as permitted by
section 233 of the Companies Act 2006.
CONFLICTS OF INTEREST
The Companies Act 2006 allows Directors of public
companies to authorise conflicts and potential conflicts
of interest of directors where the Company’s Articles of
Association contain a provision to that effect. Shareholders
approved amendments to the Company’s Articles of
Association at the AGM held on 9 May 2008 which included
provisions giving the Directors authority to authorise matters
which may result in the Directors breaching their duty to
avoid a conflict of interest.
The Board has established effective procedures to enable
the directors to notify the Company of any actual or potential
conflict situations and for those situations to be reviewed
and, if appropriate, to be authorised by the Board, subject
to any conditions that may be considered appropriate. In
keeping with the approach agreed by the Board, Directors’
conflicts were reviewed during the year under review.
Directors of the Company who have an interest in matters
under discussion at Board meetings are required to declare
this interest and to abstain from voting on the relevant
matters. Any related party transactions are approved by a
committee of the Board consisting solely of Independent
Directors. In addition, the Directors will be able to impose
limits or conditions when giving any authorisation, if they
think this is appropriate.
A resolution to reappoint Ernst & Young LLP as auditors
will be put to the members at the forthcoming AGM.
AGM
The fourth AGM of the Company will be held at 10 am on
26 May 2010 at the offices of Goldman Sachs, River Court,
120 Fleet Street, London EC4A 2QQ. The shareholder circular
incorporating the Notice of AGM is available at
www.hochschildmining.com
The shareholder circular contains details on, amongst other
things, the business to be considered at the meeting and the
biographical details of the Directors standing for re-election
at the AGM.
STATEMENT ON DISCLOSURE OF INFORMATION
TO AUDITORS
Having made enquiries of fellow Directors and of the
Company’s auditors, each Director confirms that to the
best of his knowledge and belief, there is no relevant audit
information of which the Company’s auditors are unaware.
Furthermore, each Director has taken all the steps that he
ought to have taken as a Director in order to make himself
aware of any relevant audit information and to establish
that the Company’s auditors are aware of that information.
This confirmation is given, and should be interpreted,
in accordance with the provisions of section 418(2) of
the Companies Act 2006.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors confirm that to the best of their knowledge:
– the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company and the undertakings included in the
consolidation taken as a whole; and
– the Management report includes a fair review of the
development and performance of the business and the
position of the Company and the undertakings included
in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that
they face.
DISCLAIMER
Neither the Company nor the Directors accept any liability
to any person in relation to this Annual Report except to
the extent that such liability could arise under English law.
Accordingly, any liability to a person who has demonstrated
reliance on any untrue or misleading statement or omission
shall be determined in accordance with section 90A of the
Financial Services and Markets Act 2000.
The names and functions of the current Directors of the
Company are set out on page 42 of this Annual Report.
GOING CONCERN
The Directors confirm that they are satisfied that the
Company has sufficient resources to continue in operation
for the foreseeable future. Accordingly, they continue
to adopt the going concern basis in preparing the
financial statements.
On behalf of the Board
Raj Bhasin
Company Secretary
23 March 2010
48
G
o
v
e
r
n
a
n
c
e
A
c
c
o
u
n
t
s
Corporate governance report
INTRODUCTION & STATEMENT OF COMPLIANCE
The Board of Hochschild Mining plc believes that its
participation in an established investment market carries
significant responsibility to manage the Company
transparently and in a manner appropriate to a successful
business. Accordingly, the Board fully supports good
corporate governance and intends to comply, wherever
possible, in the interests of shareholders and other
stakeholders, with the Combined Code on Corporate
Governance 2008 Edition (“the Code”) a copy of which is
available on the website of the Financial Reporting Council.
This report sets out how the Company has applied the
Main Principles set out in the Code in respect of the year
under review. The information required to be included in the
Corporate Governance Report in relation to share structure
pursuant to the Disclosure and Transparency Rules is
provided in the section of the Directors’ Report entitled
“Additional Statutory Information”.
The Board confirms that in respect of the year ended
31 December 2009, the Group complied fully with the
provisions contained in Section 1 of the Code.
THE BOARD
The Board is responsible for approving the Company’s
strategy and monitoring its implementation, for managing
the operations of the Company and for providing leadership
and support to the senior management team in achieving
sustainable added value for shareholders. It is also
responsible for enabling the efficient operation of the various
businesses by providing adequate financial and human
resources and an appropriate system of financial control
to ensure these resources are fully monitored and utilised.
The Board consists of four Executive Directors: Eduardo
Hochschild (Chairman), Roberto Dañino (Deputy Chairman),
Miguel Aramburú (Chief Executive Officer) and Ignacio
Rosado (Chief Financial Officer), and five Non-Executive
Directors: Sir Malcolm Field (Senior Independent Non-
Executive Director), Jorge Born Jr., Nigel Moore, Dionisio
Romero and Fred Vinton.
Eduardo Hochschild, who controls the major shareholder of
the Company, Pelham Investment Corporation (“the Major
Shareholder”), has considerable knowledge and experience
in the Latin American gold and silver mining industry. As a
result, it is the Board’s belief that Eduardo Hochschild’s
membership of the Board and participation in the
management of the Company is vital to its continued
success and growth. Prior to the Company’s Listing, the
Major Shareholder, its Controlling Shareholders at the
time including Eduardo Hochschild, and the Company,
entered into an agreement regulating their ongoing
relationship. Further details concerning this agreement
are set out on page 50.
There is an agreed schedule of matters reserved for the
Board which includes the approval of annual and half-yearly
results, the Group’s strategy, the annual budget and major
items of capital expenditure.
During the year under review, there were four scheduled
meetings of the Board and five ad hoc meetings which were
convened at short notice to deal with operational issues and
matters relating to the Company’s capital raising which was
completed in October 2009.
Attendance by Directors at the scheduled Board meetings
held during the year is summarised in the table below.
Director
Eduardo Hochschild
Roberto Dañino
Miguel Aramburú
Ignacio Rosado
Sir Malcolm Field
Nigel Moore
Jorge Born Jr.
Dionisio Romero
Fred Vinton
Possible
attendance
Actual
attendance
4
4
4
4
4
4
4
4
2
4
4
4
4
4
4
3
3
2
The principal matters considered by the Board during the
year included:
– the Group’s strategic plan and annual budget.
– corporate development opportunities.
– the raising of additional capital through a placing and issue
of convertible bonds.
– a review of directors’ conflicts of interest.
– various matters relating to health & safety, environmental
management and community relations.
Directors receive a full pack of papers for consideration
in advance of each Board meeting and, in the event that
a Director is unable to attend, comments are relayed to the
Chairman who seeks to ensure that all views are represented
on any given matter.
In addition, Directors are kept abreast of latest developments
through monthly reports on the Company’s operations and
financial situation.
CHAIRMAN AND CHIEF EXECUTIVE
In respect of the year under review, the Company was led
by Eduardo Hochschild as Executive Chairman, and Miguel
Aramburú, the Chief Executive Officer. A document setting
out the division of responsibilities between these postholders
is set out in writing and has been approved by the Board.
Eduardo Hochschild, as Chairman, is responsible for the
running and leadership of the Board and, in conjunction with
the Chief Executive Officer, for the formulation of the vision
and long-term corporate strategy of the Group. The approval
of the Group’s strategy is a matter for approval by the Board.
The Chief Executive Officer is responsible for leading an
executive team in the day-to-day management of the
Group’s business.
G
G
o
o
v
v
e
e
r
r
n
n
a
a
n
n
c
c
e
e
A
A
c
c
c
c
o
o
u
u
n
n
t
t
s
s
49
Hochschild Mining plc Annual Report & Accounts 2009
Governance
Corporate governance report continued
SENIOR INDEPENDENT DIRECTOR
Sir Malcolm Field has been appointed as the Senior
Independent Director and, as such, is available to meet with
major shareholders if their concerns have not been resolved
by the Chairman or the other Executive Directors.
BOARD BALANCE AND INDEPENDENCE
During 2009 the composition of the Board complied with
the provision of the Code which requires that a majority
of the Board (excluding the Chairman) should comprise
Non-Executive Directors who are considered by the Board
to be independent.
The Board believes that its membership during the year was,
and continues to be, well balanced and capable of managing
the Company in an effective and successful manner. Whilst
the Chairman is not considered to be independent, the Board
is satisfied that decisions can be made without any one
Director exercising undue influence. This sentiment has been
further reiterated by the views expressed as part of the board
evaluation process. The Board considers that Eduardo
Hochschild’s long-term relationship with the Company, and
his importance to it, make his presence on the Board of vital
importance and is in the best interests of the Company and
its shareholders generally.
Moreover, the undertakings given in the Relationship
Agreement by the Major Shareholder and Eduardo
Hochschild, ensure that the Company is managed in
accordance with the Code. Accordingly, the Board believes
that during the year under review, the Company was
structured so as to ensure that no individual had unfettered
powers of decision making.
The Board considers that all of the Non-Executive Directors
are independent of the Company as defined by the Code.
The Board is of the opinion that all five independent Directors
enhance the Board’s capacity to oversee and grow the
Company’s operations. This notwithstanding, the
membership of each main Board committee is reviewed by
the Board on an on-going basis as a matter of good practice.
In addition to their legal responsibilities as Directors, the
Non-Executive Directors are expected to contribute to issues
of strategy and management performance through the
application of their independent judgement and to scrutinise
management’s performance against objectives. To this end,
the Non-Executive Directors have held informal private
discussions with the Chairman.
Consistent with the Code, consideration of the remuneration
of the Non-Executive Directors is a matter reserved for
the Board.
RELATIONSHIP AGREEMENT
Prior to the Company’s IPO, the Major Shareholder and
its controlling shareholders at the time including Eduardo
Hochschild (collectively “the Controlling Shareholders”)
and the Company entered into an agreement regulating
their ongoing relationship. The principal purpose of the
Relationship Agreement is to ensure that the Company and
its subsidiaries are capable of carrying on their business
50
independently of the Controlling Shareholders and any
of their respective associates, and that transactions and
relationships with the Controlling Shareholders and any
of their respective associates are at arm’s length and on
normal commercial terms.
The Company and the Major Shareholder agree in the
Relationship Agreement that they will comply with the
applicable obligations under the Listing Rules and to exercise
their powers so far as they are able to ensure the Company is
managed in accordance with the Code. Under the agreement,
the Major Shareholder has the right to appoint up to two
Non-Executive Directors to the Board for so long as the
Major Shareholder holds an interest of 30% or more in the
Company and the right to appoint one Non-Executive Director
for so long as it has an interest of 15% or more in the
Company, and in each case to remove any such Director(s)
previously appointed. The Relationship Agreement continues
for so long as the Company’s shares are traded on the
London Stock Exchange or until such times as the
Controlling Shareholders (including Eduardo Hochschild)
cease to own or control in aggregate a minimum of 15%
or more of the issued share capital or voting rights of
the Company.
APPOINTMENTS TO THE BOARD AND RE-ELECTION
OF DIRECTORS
Board nominations are recommended to the Board by the
Nominations Committee which met during the year under
review to consider the appointment of Fred Vinton as a Non-
Executive Director of the Company.
In accordance with the provisions of the Articles of
Association, Fred Vinton will be subject to election by
shareholders at the forthcoming AGM. In addition, Eduardo
Hochschild and Dionisio Romero will retire by rotation
and, being eligible, offer themselves for re-election by
shareholders also at the forthcoming AGM. Biographical
details of these Directors are given on page 42.
BOARD DEVELOPMENT
The Directors receive regular briefings on their
responsibilities as Directors of a UK listed company,
particularly in light of the Companies Act 2006 and on
other relevant UK legal developments. In addition, the
Chairman has made arrangements to ensure that the
Directors have free access to the Company’s officers and
advisers and to visit the Company’s operations. An induction
programme for new Board appointees incorporates
meetings with the Company’s principal advisers and visits
to the Group’s operations.
It is the responsibility of the Chairman to ensure that the
Directors update their skills and are provided with the
necessary resources to continue to do so.
The Company has procedures by which members of the
Board may take independent professional advice at the
Company’s expense in the furtherance of their duties.
G
o
v
e
r
n
a
n
c
e
A
c
c
o
u
n
t
s
BOARD EVALUATION
The Board is committed to the process of self evaluation
as a means of ensuring continued improvement in fulfilling
its responsibilities. With this in mind, the approach to board
evaluation was refreshed for 2009 by replacing
questionnaires with one-on-one interviews undertaken by
the Senior Independent Director and the Company Secretary.
The questioning sought to elicit the Directors’ views on,
amongst other things, the workings of the Board,
Committees as well as board composition and process.
The findings were considered by the Chairman and the
Senior Independent Director and a number of
recommendations arising from the process were considered
and approved by the Board. The recommendations principally
relate to the continuation of efforts in respect of contingency
planning at Board level and Board process.
A section of the interviews carried out was dedicated to
evaluating the Chairman’s performance, the outcome of
which was collated by the Senior Independent Director and
collectively considered by the Non-Executive Directors before
the recommendations were relayed to the Chairman.
THE BOARD’S COMMITTEES
The Board has delegated authority to the following standing
committees which report regularly to the Board:
– the Audit Committee.
– the Remuneration Committee.
– the Nominations Committee.
During the year under review, there were four meetings of
the Audit Committee which were attended by all members
with the exception that Jorge Born Jr. was unable to attend
one meeting.
The following matters featured among those considered
by the Committee during the year:
– Financial reporting – The Audit Committee reviewed the
2008 Annual Report and Accounts and the 2009 Half-yearly
Report before recommending them to the Board for
approval. As part of its review of each, the Audit Committee
reviewed accounting policies, estimates and judgements
applied in preparing the relevant report and accounts
and the transparency and clarity of disclosures contained
within them.
– Risk management – Risk matrices detailing the significant
risks at each of the Group’s operations were considered
by the Audit Committee together with the accompanying
evaluation and action plans to manage the identified high
risk areas.
– Internal audit – The Audit Committee has continued to
oversee the Group’s adoption of a risk-based approach
to internal audit.
– Internal control – The Audit Committee has continued to
review, amongst other things, the adequacy of the Group’s
internal control environment. The Group continues to
operate arrangements under which staff may raise, in
confidence, concerns about possible improprieties in
matters of financial reporting or other matters and which
enables proportionate and independent investigation of any
such improprieties with suitable follow-up action.
– the Corporate Social Responsibility Committee.
– External audit – The Audit Committee considered the
The terms of reference for all the Board committees
are available for inspection on the Company’s website
at www.hochschildmining.com
AUDIT COMMITTEE
The role of the Audit Committee is to:
– monitor the integrity of the Company’s financial statements;
– monitor the effectiveness of the Company’s internal
controls and risk management systems;
– oversee the relationship with the Company’s external
auditors; and
– review the effectiveness of the external audit process.
The Audit Committee is chaired by Nigel Moore who has
extensive and substantial financial experience gained
whilst holding a number of senior appointments with
Ernst & Young and acts as Audit Committee Chairman
for four other listed companies. Further details are given
in the biography on page 42. During the year under review,
the other members of the Audit Committee were Sir Malcolm
Field and Jorge Born Jr., both of whom are considered to be
independent Directors.
The lead partner of the external auditors, the Executive
Directors and the Head of Internal Audit attend each Audit
Committee meeting by invitation.
reappointment of the Company’s external auditors before
making a recommendation to the Board that the same be
put to shareholders. The Audit Committee oversees the
relationship with the external auditors. As part of this
responsibility, the Audit Committee has reviewed the
findings of the external auditors, reviewed management
representation letters, approved audit plans, reviewed
and agreed audit fees and evaluated its performance.
The Audit Committee continues to oversee the
implementation of specific policies designed to safeguard the
independence and objectivity of the auditors including a policy
on the provision of non-audit services. This document
specifies those non-audit services that the external auditor
may provide (in the absence of any threat to its independence)
which include support in relation to M&A, and Joint Ventures
and tax advisory services which are not incompatible with the
auditors’ statutory responsibilities. The policy also sets out
those services which the auditors are prohibited from
rendering (and where it is not in the best interests of the
Group for the work to be undertaken by the external auditor).
Such services include management of, or significant
involvement in internal audit services, advice to the
Remuneration Committee and valuation services.
Details on the fees paid to the external auditors during the
year in respect of audit and non-audit work are provided in
note 32 to the consolidated financial statements.
G
G
o
o
v
v
e
e
r
r
n
n
a
a
n
n
c
c
e
e
A
A
c
c
c
c
o
o
u
u
n
n
t
t
s
s
51
Hochschild Mining plc Annual Report & Accounts 2009
Governance
Corporate governance report continued
REMUNERATION COMMITTEE
CORPORATE SOCIAL RESPONSIBILITY COMMITTEE
The role of the Remuneration Committee is to determine and
agree with the Board the broad policy for the remuneration of
executives and senior management as designated, as well as
specific remuneration packages, including pension rights and
any compensation payments.
The Remuneration Committee comprises the following
independent Non-Executive Directors: Jorge Born Jr.
(Committee Chairman until 1 June 2009), Sir Malcolm Field
(Committee Chairman from 1 June 2009) and Nigel Moore.
The Committee held three meetings during the year under
review at which all members were in attendance with the
exception that Jorge Born Jr. was unable to attend
one meeting.
Further details concerning the activities of the Remuneration
Committee are set out in the Directors’ remuneration report
on page 54.
NOMINATIONS COMMITTEE
The role of the Nominations Committee is to identify and
nominate candidates for the approval of the Board to fill
Board vacancies and make recommendations to the Board
on Board composition and balance. The Nominations
Committee also prepares the Chairman’s job description
including any other significant commitments which he should
be responsible for.
The members of the Nominations Committee are
Eduardo Hochschild (Chairman), Sir Malcolm Field and
Dionisio Romero.
All members of the Nominations Committee were present
at the three meetings held during the year under review.
The matters considered by the Nominations Committee
during the year were:
– the consideration of any potential conflicts of interests
relating to, and the subsequent appointment of, Fred Vinton
as a Non-Executive Director; and
– the relevant recommendations arising from the Board
evaluation process.
Mr Vinton was identified by the Board as an ideally suited
candidate for a non-executive directorship of the Company
in light of his extensive capital markets and Latin American
business experience. For these reasons, the Board did not
consider it necessary to either appoint an external search
consultancy nor to conduct open advertising in the search
for further candidates.
The role of the CSR Committee is to oversee and to make
all necessary recommendations to the Board in connection
with corporate social responsibility issues as they affect
the Company’s operations. In particular, it focuses on
compliance with national and international standards to
ensure that effective systems of standards, procedures and
practices are in place at each of the Company’s operations.
The CSR Committee is also responsible for reviewing
management’s investigation of incidents or accidents that
occur in order to assess whether policy improvements
are required.
The CSR Committee is chaired by Roberto Dañino and
its other members are Sir Malcolm Field and Eduardo
Hochschild. During the year, the CSR Committee held three
meetings which were attended by all members. In addition,
detailed updates on CSR related matters were presented
at two of the Board meetings held during the year.
Further details concerning the CSR Committee and the
Group’s activities in this area are set out in the corporate
responsibility report on pages 26 to 33.
INTERNAL CONTROL
Whilst the Board has overall responsibility for the Group’s
system of internal control (including risk management) and
for reviewing its effectiveness, responsibility for the periodic
review of the effectiveness of these controls has been
delegated to the Audit Committee. The system of internal
control is designed to manage rather than eliminate the risk
of failure to achieve business objectives and it must be
recognised that such a system can only provide reasonable
and not absolute assurance against material misstatement
or loss. These controls are managed by the use of formal
procedures designed to highlight financial, operational,
environmental and social risks and provide appropriate
information to the Board enabling it to protect effectively
the Company’s assets and, in turn, maintain shareholder
value. The process used by the Audit Committee to assess
the effectiveness of internal control includes:
– Review of budgets and reporting against budgets.
– Consideration of progress against strategic objectives.
– Monitoring the risks faced by the Group’s operations
through reports from the Head of the Internal Audit
function.
– Review of accounting and financial reporting processes
together with the internal control environment existing
at Group level.
G
o
v
e
r
n
a
n
c
e
A
c
c
o
u
n
t
s
52
Based on its review of the process, the Audit Committee is
reasonably satisfied that the internal controls are in place at
the operational level within the Group. In accordance with the
Revised Turnbull Guidance, the Board confirms that there is
an ongoing process for identifying, evaluating and managing
the significant risks faced by the Company, and that it has
been in place for the year under review and up to the date
of approval of this Annual Report. The Board, via the Audit
Committee, continues to monitor the internal control
environment of the Group alongside the development of risk
management processes further details of which are given in
the risk management section of this Annual Report.
Overall, the Board acknowledges that the steps taken to
initiate a risk management framework are appropriate to
the Group’s circumstances.
GOING CONCERN
A statement on the Directors’ position regarding the
Company as a going concern is contained in the Directors’
report on page 48.
COMPANY SECRETARY
The Company Secretary is appointed and removed by the
Board and is responsible for advising the Board on
governance matters and the provision of administrative and
other services to the Board. All the Directors have access to
the Company Secretary.
INVESTOR RELATIONS
The Company is fully committed to achieving an excellent
relationship with investors and contact with investors is
the responsibility of the Executive Directors, the Chief
Executive Officer, the Chief Financial Officer and the
Head of Investor Relations.
The Company announces its production results on a quarterly
basis and analysts are invited to briefings following release
of the annual and half-yearly results as well as to join
discussions on the quarterly production results.
The Executive Directors, Chief Executive Officer and the
Chief Financial Officer are available to discuss the concerns
of major shareholders at any time during the year.
The Chairman, Deputy Chairman and the Chief Executive
Officer, in particular, will be responsible for discussing
strategy with the Company’s shareholders and will
communicate the views of shareholders to the other
members of the Board.
The main means of communication with shareholders are
the Annual and Half-yearly Reports (which are available on
request). The Company also uses the AGM as an opportunity
to communicate with its shareholders.
Notice of the 2009 AGM was circulated to all shareholders at
least 20 working days prior to the meeting and the Chairmen
of the Audit, CSR, Remuneration and Nominations
Committees were available at the meeting to answer
questions. A poll vote was taken on each of the resolutions
put before shareholders. It is intended that this approach will
also be taken at the 2010 AGM with results of the voting at
the AGM announced and published on the Company’s website
as soon as possible after the meeting.
Further information on matters of particular interest to
investors is available on page 163 and on the Company’s
website at www.hochschildmining.com
G
G
o
o
v
v
e
e
r
r
n
n
a
a
n
n
c
c
e
e
A
A
c
c
c
c
o
o
u
u
n
n
t
t
s
s
53
Hochschild Mining plc Annual Report & Accounts 2009
Governance
Directors’ remuneration report
INTRODUCTION
This Directors’ remuneration report sets out information on the remuneration of the Directors of Hochschild Mining plc for
the year ended 31 December 2009. This report has been prepared in accordance with the relevant regulations made under
the Companies Act 2006 and the requirements of the Financial Services Authority’s Listing Rules.
As required by law, the information provided in the table in the section entitled “Long-Term Incentive Plan” and the table on
Directors’ total remuneration and accompanying notes has been audited by Ernst & Young LLP as it contains the information
upon which the auditors are required to report to the Company’s shareholders.
REMUNERATION COMMITTEE
The Remuneration Committee was chaired by Jorge Born Jr. until 1 June 2009 and, from that date by Sir Malcolm Field.
Jorge Born Jr. and Sir Malcolm Field served as members of the Committee throughout 2009, together with Nigel Moore.
All of the members of the Remuneration Committee are independent Non-Executive Directors.
The duties of the Remuneration Committee are to determine and agree with the Board the broad policy for the remuneration
of the Executive Directors, the other members of the Executive Committee and the Company Secretary, as well as their
specific remuneration packages including pension rights and, where applicable, any compensation payments. In determining
such policy, the Remuneration Committee shall take into account all factors which it deems necessary to ensure that
members of the senior executive management of the Group are provided with appropriate incentives to encourage strong
performance and are rewarded in a fair and responsible manner for their individual contributions to the success of the Group.
The composition of the Remuneration Committee and its terms of reference comply with the provisions of the Combined
Code and are available for inspection on the Company’s website at www.hochschildmining.com
The Remuneration Committee was advised during the year on remuneration matters generally by Kepler Associates who
did not provide any other services to the Group during the year.
REMUNERATION POLICY
The Remuneration Policy of the Group as applied by the Remuneration Committee did not change in the year under review.
The principal objectives of the Group’s policy are to attract, retain, and motivate its executives and senior management and to
align management incentives with the creation of shareholder value. The Group seeks to achieve this alignment over both the
short and long term through the use of annual performance-related bonuses which reward the achievement of a balanced
mix of financial and operational performance measures, and Total Shareholder Return (“TSR”) which measures performance
for the awards made under the Long-Term Incentive Plan. This policy will continue to be applied by the Remuneration
Committee in respect of the current financial year.
FIXED AND VARIABLE PAY
The following chart sets out the split between fixed and variable pay of the Executive Directors at both target and maximum
performance as at 31 December 2009. The maximum bonus percentages are set out in each Executive Director’s service
contract and/or as subsequently determined by the Remuneration Committee and have been set to ensure that the majority
of the remuneration is performance based.
Executive Director Pay Mix (% of total remuneration)
DATA TO BE SUPPLIED
Target
LTIP
Bonus
Maximum
Pension
Salary
100
90
80
70
60
50
40
30
20
10
0
Eduardo
Hochschild
Roberto
Dañino
Miguel
Aramburú
Variable
proportion:
67%
50%
71%
54
Ignacio
Rosado
66%
Eduardo
Hochschild
Roberto
Dañino
Miguel
Aramburú
73%
53%
77%
Ignacio
Rosado
71%
G
o
v
e
r
n
a
n
c
e
A
c
c
o
u
n
t
s
Components of fixed pay for the Executive Directors in office as at 31 December 2009:
Director
Eduardo Hochschild
Roberto Dañino
Miguel Aramburú
Ignacio Rosado
Annual Entitlements
Base Salary1
US$000
Pension
Supplement
US$000
800
600
3702
3002
200
200
0
0
Total
US$000
1,000
800
370
300
1 Eduardo Hochschild and Roberto Dañino each has service contracts with Hochschild Mining plc and Compañía Minera Ares S.A.C. (“Ares”), a Group subsidiary.
Salary paid by Ares includes all legal labour benefits and compensation such as, but not restricted to, family allowance, vacation salaries and compensation for
time services (ruled by Peruvian Legislative Decree 6500) but excludes legal profit sharing.
2 Miguel Aramburú and Ignacio Rosado each has a service contract with Ares. In both cases, salary includes all legal labour benefits and compensation such as,
but not restricted to, family allowance, vacation salaries but excludes legal profit sharing and compensation for time services (ruled by Peruvian Legislative
Decree 6500).
Note: Miguel Aramburú’s annual base salary was increased from $350,000 to the current level with effect from 1 April 2009.
BASE SALARIES
Eduardo Hochschild and Roberto Dañino have service contracts with Hochschild Mining plc and Compañía Minera Ares S.A.C.
(“Ares”), a Group subsidiary. Under these arrangements, one-fifth of their base salaries is paid by the Company and
fourfifths is paid by Ares.
As Miguel Aramburú and Ignacio Rosado have service contracts with Ares only, their base salaries are paid entirely by
that company.
SHORT-TERM INCENTIVES
Each year the Remuneration Committee approves objectives for each of the Executive Directors based on individual roles and
responsibilities and are intended to reward strong financial performance of the Group and achievement of key operational
targets within the individual’s scope of responsibilities. The level of bonus paid depends on performance against these
objectives and are subject to the discretion of the Remuneration Committee.
The maximum bonus opportunities (expressed as a percentage of the base salaries detailed in the table above) for the
Executive Directors in respect of the year under review are as follows:
Eduardo Hochschild – 175%
Roberto Dañino
– 150%
Miguel Aramburú
– 175%
Ignacio Rosado
– 80%
2009 BONUS AWARDS
A summary of the objectives set in respect of 2009 is given below:
– the Group’s total shareholder return ranked first relative to a comparator group;
– target EBITDA was exceeded, with 2009 seeing an increase of 76% year on year with strong cost control despite challenging
labour conditions;
– production target of 28m silver equivalent ounces was met;
– Reserves and Resources targets in respect of two out of three mines were met; and
– Acceptance by the Board of a clear strategic plan.
G
G
o
o
v
v
e
e
r
r
n
n
a
a
n
n
c
c
e
e
A
A
c
c
c
c
o
o
u
u
n
n
t
t
s
s
55
Hochschild Mining plc Annual Report & Accounts 2009
Governance
Directors’ remuneration report continued
For Miguel Aramburú and Ignacio Rosado, additional objectives relating to the raising of $260m through a convertible bond
issuance and equity placing were set and recognition given to its advantageous timing and terms, and the successful
execution of further ownership of Lake Shore Gold Corp and Gold Resource Corporation. For these achievements,
extraordinary bonuses were awarded as follows:
Miguel Aramburú – $165,000
Ignacio Rosado – $64,000
Roberto Dañino waived his entitlement to a bonus in respect of 2009 to support further the future development of the
communities located close to the Group’s operations.
The total bonuses paid to the Executive Directors in respect of the year under review are detailed in the table on page 59.
Pensions, statutory profit sharing and benefits-in-kind
The Group does not provide pension benefits to the Directors but does pay Eduardo Hochschild and Roberto Dañino with a
pension supplement of $200,000 each per year in lieu of pension. Of this supplement, $160,000 is paid by Ares and $40,000
is paid by the Company.
In addition, under Peruvian law, mining companies with more than 20 employees must pay to employees an annual share
of profits, in an amount equal to 8% of the company’s taxable income for the year.
The Group also provides all of the Executive Directors with medical insurance and, in the case of Eduardo Hochschild and
Roberto Dañino, allowances in respect of cars and personal security.
Performance graph
The following graph shows the TSR (Total Shareholder Return) for the Company compared to the FTSE 350 Index, assuming
£100 was invested on 3 November 2006, the date that conditional dealings in the Company’s shares commenced. The Board
considers that the FTSE 350 index currently represents the most appropriate of the published indices for these purposes as
it provides a view of performance against the broad equity market index of which the Company is a constituent.
Total shareholder return – value of hypothetical £100 holding
FTSE 350 Index
Hochschild Mining plc
£
200
180
160
140
120
100
80
60
40
20
0
Dec 06
Dec 07
Dec 08
Dec 09
Source: Bloomberg
LONG-TERM INCENTIVE PLAN (“LTIP”)
In order to achieve its policy objective to motivate Executive Directors and senior employees over the long-term, the Company
has adopted a cash-based LTIP which further aligns selected executives’ and senior employees’ long-term interests with
those of shareholders.
Awards made under the Plan to Executive Directors are subject to a normal limit, capping awards to an annual value not
exceeding six times salary at the date of grant (excluding interest on the deferred proportion of the award).
Details of LTIP awards held by Executive Directors as at 31 December 2009 are given in the table below.
Eduardo Hochschild
Miguel Aramburú
Ignacio Rosado
56
Interests in
the LTIP at
31/12/2008
Maximum
awards
made during
the year
Awards
vested
during the
year
Interests in
the LTIP at
31/12/2009
$4m
$1.8m
$1.5m
–
–
–
–
–
–
$4m
$1.8m
$1.5m
G
o
v
e
r
n
a
n
c
e
A
c
c
o
u
n
t
s
Going forward, the Committee intends to make LTIP awards on an annual basis in keeping with established market practice,
subject to the limit specified above.
The vesting of initial awards under the Plan is subject to the Company’s TSR over a three-year period to 31 December 2010,
relative to a tailored peer group of listed international gold and silver mining companies (“the Comparator Index”). At the
start of the plan, the comparator index comprised the following companies: Agnico-Eagle Mines Ltd, Alamos Gold, AngloGold
Ashanti Ltd, Apex Silver Mines Ltd, Barrick Gold Corp, Cia des Minas Buenaventura SA, Couer d’Alene Mines Corp, Eldorado
Gold Corp, Gold Fields Ltd, Goldcorp Inc, Highland Gold Mining Ltd, Iamgold Corp, Kinross Gold Corp, Minefinders Corp,
Newmont Mining Corp, PAN American Silver Corp, Petropavlovsk Plc, Polymetal and Silver Standard Resources Inc. During
the year, one of these companies, Apex Silver Mines was de-listed and was therefore removed from the comparator index.
25% of the maximum cash payment vests if the Company achieves median TSR performance, 75% of the maximum cash
payment vests at upper quartile TSR performance and the whole award vests at upper decile TSR performance. Vesting
occurs on a straight-line basis for TSR performance between median and upper quartile and between upper quartile and
upper decile.
Awards are subject to two clawbacks (in relation to a whole, or part of an, award); firstly, if based on a discretionary
assessment by the Remuneration Committee, the overall underlying business performance of the Company during the
performance period is not satisfactory; and secondly, if there are failures relating to safety, environment, community and
legal compliance that the Remuneration Committee considers would entitle it to exercise its discretion.
On a change of control, awards made under the LTIP may vest early (unless a replacement award is made), but would be
pro-rated to take account of the proportion of the period from the award date to the normal vesting date completed prior
to the change of control, and the extent to which performance conditions applying to the award have been met.
In respect of the year under review, the Company’s TSR was above the median of that of the Comparator Index. In respect
of the period from 1 January 2008 to 31 December 2009, the Company’s TSR is below the median of the Comparator Index.
REVISED REMUNERATION ARRANGEMENTS FOR EDUARDO HOCHSCHILD
In early 2010, after the end of the financial year, the Remuneration Committee agreed revised remuneration arrangements
for Eduardo Hochschild. Under these new arrangements, Eduardo Hochschild is paid an annual base salary of $1.1m
(excluding any entitlement to statutory profit sharing under Peruvian law) and an annual pension supplement of $200,000.
In consideration for this increase in base salary, Eduardo Hochschild has agreed to waive his current and future participation
in the LTIP and entitlement to an annual bonus in respect of 2010 and subsequent years. These arrangements take effect
from 1 January 2010.
DIRECTORS’ SERVICE CONTRACTS
As previously described, the contractual arrangements for those Executive Directors appointed prior to the IPO in 2006 differ
to those for the Executive Directors appointed since the IPO.
Eduardo Hochschild and Roberto Dañino are employed under contracts of employment with the Company and Compañía
Minera Ares S.A.C. (“Ares”), a Group company, dated 16 October 2006 (as subsequently amended). The contracts have no
fixed terms and may be terminated on 12 months’ notice in writing. In setting the notice period for termination at 12 months,
the Remuneration Committee has reduced the likelihood of having to pay excessive compensation in the event of termination
at the Company’s behest and, to this end, a provision for immediate dismissal with no compensation payable in the event of
unsatisfactory performance is included in each Director’s contract.
Miguel Aramburú and Ignacio Rosado were appointed Directors of the Company with effect from 1 January 2009 and are
employed under contracts of employment with Ares effective 1 August 2002 and 25 January 2005 respectively. The contracts
are subject to Peruvian law and, as such, have no fixed term and may be terminated (i) by the executive on 30 days’ notice and
(ii) by Ares without notice. Under Peruvian law, termination by Ares other than termination for certain prescribed reasons
(such as gross negligence) gives rise to an entitlement to compensation of no less than 1.5 times the monthly base salary
for each year of service completed, up to a maximum of twelve months’ base salary.
G
G
o
o
v
v
e
e
r
r
n
n
a
a
n
n
c
c
e
e
A
A
c
c
c
c
o
o
u
u
n
n
t
t
s
s
57
Hochschild Mining plc Annual Report & Accounts 2009
Governance
Directors’ remuneration report continued
EXTERNAL APPOINTMENTS
The Group recognises that certain Executive Directors are, in addition, directors of other companies and that such
appointments can bring benefits to the Group. Fees received from external appointments are retained by the Directors.
Details of the directorships of those Executive Directors in office as at 31 December 2009 are given in the table below,
together with the amounts received by them during the year under review.
Name of Director
Company
Fees received
Eduardo Hochschild
Banco Crédito del Perú
Cementos Pacasmayo S.A.A.
Cementos Selva
Inversiones Pacasmayo SA
Roberto Dañino
AFP Integra
Cementos Pacasmayo S.A.A.
Grupo RPP
Mibanco
Lake Shore Gold Corporation
Gold Fields Limited
Gold Fields La Cima
Miguel Aramburú
Pacifico Vida
Peruvian Nuevo Sol (“PEN”) 300,725
(US$99,842)
PEN 2,116,5921 (US$702,720)
PEN 485,879 (US$161,314)
PEN 197,290 (US$65,501)
PEN 33,874 (US$11,246)
PEN 248,033 (US$82,348)
PEN 32,521 (US$10,797)
PEN 178,797 (US$59,362)
CAD 6,383 (US$5,589)
ZAR 233,056 (US$27,669)
PEN 45,850 (US$15,222)
US$3,000
Ignacio Rosado
Lake Shore Gold Corporation
CAD 32,325 (US$28,306)
1 The amount disclosed includes salary received by Eduardo Hochschild in his capacity as Executive Director of Cementos Pacasmayo S.A.A., a company of which
he is the controlling shareholder.
NON-EXECUTIVE DIRECTORS
The Group’s Non-Executive Directors serve under Letters of Appointment as detailed in the table below. In accordance
with their terms, the Non-Executive Directors serve for an initial period of three years which is automatically extended for
a further three years. Notwithstanding the foregoing, Non-Executive Directors like all Directors are subject to periodic
re-election by the Company in general meeting and the appointments of Non-Executive Directors may be determined
by the Board or the Director giving not less than three months’ notice.
The Non-Executive Directors’ fees have been set at a level to reflect the amount of time and level of involvement required
in order to carry out their duties as members of the Board and its committees.
The current fees for the Non-Executive Directors of the Company are as set out in the table below:
Letter of Appointment dated
Director’s fee
16 October 2006
16 October 2006
16 October 2006
16 October 2006
9 July 2009
£100,000 ($156,000)
£100,000 ($156,000)
£120,000 ($187,000)
£100,000 ($156,000)
£100,000 ($156,000)
Director
Sir Malcolm Field
Jorge Born Jr.
Nigel Moore
Dionisio Romero
Fred Vinton
58
G
o
v
e
r
n
a
n
c
e
A
c
c
o
u
n
t
s
TABLE OF DIRECTORS’ TOTAL REMUNERATION
The following table sets out the remuneration of the Directors serving during the year in respect of the years ended
31 December 2009 and 31 December 2008.
Base
salary/fees
US$000
Pension
supplement
US$000
Statutory
profit share
US$000
Benefits in
kind1
US$000
Performance
related bonus
US$000
800
600
393
324
156
156
187
156
65
200
200
0
0
0
0
0
0
0
16
18
18
13
0
0
0
0
0
244
50
4
3
0
0
0
0
0
1,400
5
0
7
813
9
304
9
0
0
0
0
0
Total
remuneration
from 1 January
2009 (or date of
appointment,
if later) to
31 December
2009
US$000
2,660
868
1,228
644
156
156
187
156
65
Total
remuneration
from 1 January
2008 to
31 December
2008
US$000
1,283
6
1,354
n/a
n/a
184
184
220
184
n/a
2,837
400
65
301
2,517
6,120
3,862
Director
Eduardo Hochschild2,3,4
Roberto Dañino2,3,4
Miguel Aramburú8
Ignacio Rosado8
Sir Malcolm Field
Jorge Born Jr.
Nigel Moore10
Dionisio Romero
Fred Vinton11
Total
1 Amounts disclosed include sums paid by way of expense allowances.
2 Eduardo Hochschild and Roberto Dañino each has a service contract with both Hochschild Mining plc and Compañía Minera Ares S.A.C., a Group subsidiary.
3 In respect of Eduardo Hochschild and Roberto Dañino, 20% of each of their base salaries is paid by the Company and the balance is paid by Compañía Minera
Ares S.A.C. In addition, $40,000 of their total annual pension supplements is paid by the Company and the balance is paid by Compañía Minera Ares S.A.C.
4 Salary paid by Compañía Minera Ares S.A.C. includes all legal labour benefits and compensation such as, but not restricted to, family allowance, vacation
salaries and compensation for time services (ruled by Peruvian Legislative Decree 6500) but excluding legal profit sharing.
5 Performance-related bonus is paid by the Company and Compañía Minera Ares S.A.C. in the proportion each company pays Eduardo Hochschild’s base salary.
6 Eduardo Hochschild waived his entitlement to a bonus in respect of 2008 – see section of the 2008 Remuneration Report entitled “2008 Bonus Awards”.
7 Roberto Dañino waived his entitlement to a bonus in respect of 2009 to support further the future development of the communities located close to the
Group’s operations.
8 Miguel Aramburú and Ignacio Rosado were appointed directors of the Company with effect from 1 January 2009. The base salaries disclosed above include all
legal labour benefits and compensation such as, but not restricted to, family allowance, vacation salaries and compensation for time services (ruled by
Peruvian Legislative Decree 6500) but excluding legal profit sharing.
9 The amounts disclosed comprise (i) an extraordinary bonus and (ii) an annual bonus with reference to performance against Group and personal objectives.
For further details see section of this Report entitled “2009 Bonus Awards”.
10 Nigel Moore’s fees are higher than those of the other Non-Executive Directors as it includes an additional element for services as Chairman of the
Audit Committee.
11 Fred Vinton was appointed a director of the Company with effect from 1 August 2009.
DIRECTORS’ INTERESTS IN SHARES
The interests of the Directors in the Company’s shares are set out in the Directors’ report on page 44.
APPROVAL
This report has been approved by the Board of Directors of Hochschild Mining plc and is signed on its behalf by:
Sir Malcolm Field
Chairman, Remuneration Committee
23 March 2010
59
G
G
o
o
v
v
e
e
r
r
n
n
a
a
n
n
c
c
e
e
A
A
c
c
c
c
o
o
u
u
n
n
t
t
s
s
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Statement of directors’ responsibilities
The Directors are responsible for preparing the Annual Report and the Group and parent company financial statements in
accordance with applicable United Kingdom law and those International Financial Reporting Standards (IFRS) adopted by the
European Union.
The Directors are required to prepare Group and parent company financial statements for each financial year which present
a true and fair view of the financial position of the Company and of the Group and the financial performance and cash flows
of the Company and of the Group for that period. In preparing those financial statements, the Directors are required to:
– select suitable accounting policies in accordance with IAS 8: “Accounting Policies, Changes in Accounting Estimates and
Errors” and then apply them consistently;
– present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
– provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to
understand the impact of particular transactions, other events and conditions on the Group and parent company’s financial
position and financial performance;
– state that the Group and parent company has complied with IFRS, subject to any material departures disclosed and
explained in the financial statements; and
– prepare the accounts on a going concern basis unless, having assessed the ability of the Group and the parent company
to continue as a going concern, management either intends to liquidate the entity or to cease trading, or have no realistic
alternative but to do so.
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time
the financial position of the Company and of the Group and enable them to ensure that the financial statements comply
with the Companies Acts 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets
of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and
other irregularities.
Under applicable UK law and regulations the Directors are responsible for the preparation of a Directors’ Report, Directors’
Remuneration Report and Corporate Governance Report that comply with that law and regulations. In addition the Directors
are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s
website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation
in other jurisdictions.
G
o
v
e
r
n
a
n
c
e
A
c
c
o
u
n
t
s
60
Independent auditor’s report
We have audited the group financial statements of Hochschild Mining plc for the year ended 31 December 2009 which
comprise the Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated
statement of financial position, the Consolidated statement of cash flows, the Consolidated statement of changes in equity
and the related notes 1 to 39. We have also audited the parent company financial statements of Hochschild Mining plc for
the year ended 31 December 2009 which comprise the Parent company statement of financial position, Parent company
statement of comprehensive income, Parent company statement of cash flows, Parent company statement of changes in
equity and the related notes 1 to 18. The financial reporting framework that has been applied in their preparation is applicable
law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent
company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies
Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are
required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work,
for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial
statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards
require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting policies are appropriate to the group’s and the parent company’s
circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting
estimates made by the directors; and the overall presentation of the financial statements.
Opinion on financial statements
In our opinion:
– the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at
31 December 2009 and of the group’s profit for the year then ended;
– the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
– the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the
European Union and as applied in accordance with the provisions of the Companies Act 2006; and
– the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and,
as regards the group financial statements, Article 4 of the IAS Regulation.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
– the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006;
– the information given in the Directors’ Report for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
– the information given in the Corporate Governance Statement set out in the Corporate Governance Report with respect
to internal control and risk management systems in relation to financial reporting processes and about share capital
structures is consistent with the financial statements.
G
G
o
o
v
v
e
e
r
r
n
n
a
a
n
n
c
c
e
e
A
A
c
c
c
c
o
o
u
u
n
n
t
t
s
s
61
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Independent auditor’s report continued
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
– adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or
– the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not
in agreement with the accounting records and returns; or
– certain disclosures of directors’ remuneration specified by law are not made; or
– we have not received all the information and explanations we require for our audit;
– a Corporate Governance Statement has not been prepared by the Company.
Under the Listing Rules we are required to review:
– the directors’ statement, set out in the Directors’ Report, in relation to going concern; and
– the part of the Corporate Governance Statement in the Corporate Governance Report relating to the company’s compliance
with the nine provisions of the June 2008 Combined Code specified for our review.
Richard Murray (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
23 March 2010
G
o
v
e
r
n
a
n
c
e
A
c
c
o
u
n
t
s
62
Consolidated income statement
For the year ended 31 December 2009
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Exploration expenses
Selling expenses
Other income
Other expenses
Impairment and write-off of assets (net)
Profit from continuing operations before
net finance income/(cost), foreign
exchange loss and income tax
Share of post tax profit/(losses) of
associates and joint ventures accounted
under equity method
Finance income
Finance costs
Foreign exchange loss
Profit/(loss) from continuing operations
before income tax
Income tax expense
Profit/(loss) for the year from continuing
operations
Attributable to:
Equity shareholders of the Company
Minority shareholders
Basic earnings per Ordinary Share from
continuing operations and for the year
(expressed in US dollars per share)
Diluted earnings per Ordinary Share
from continuing operations and for the
year (expressed in US dollars per share)
Year ended 31 December 2009
Year ended 31 December 2008
Before
exceptional
items
US$000
Exceptional
items
US$000
Notes
(Restated)1
Before
exceptional
items
US$000
(Restated)1
Exceptional
items
US$000
Total
US$000
(Restated)1
Total
US$000
4, 6
539,741
–
539,741
433,779
–
433,779
7
8
9
10
12
12
(279,298)
(6,918)
(286,216)
(256,608)
(234)
(256,842)
260,443
(6,918)
253,525
177,171
(234)
176,937
(51,068)
(19,941)
(21,005)
4,501
–
(1,049)
–
8,782
(51,068)
(20,990)
(21,005)
13,283
(19,330)
(1,247)
(20,577)
(68,751)
(1,127)
(69,878)
(23,841)
(11,257)
(69)
(23,910)
–
(11,257)
5,025
252
5,277
(8,246)
(1,984)
(10,230)
16,17
–
(26,713)
(26,713)
–
(30,212)
(30,212)
153,600
(27,145)
126,455
70,101
(33,374)
36,727
7,617
6,384
39,606
22,300
47,223
28,684
(46,040)
(1,256)
(47,296)
(256)
–
(256)
(8,214)
–
9,382
3,914
(8,214)
13,296
(18,833)
(18,088)
(36,921)
(7,161)
–
(7,161)
121,305
(44,688)
33,505
11,218
154,810
(33,470)
45,275
(47,548)
(2,273)
(24,767)
5,500
(19,267)
76,617
44,723
121,340
20,508
(42,048)
(21,540)
52,892
23,725
76,617
45,188
(465)
98,080
23,260
44,723
121,340
15,782
(40,500)
(24,718)
4,726
(1,548)
3,178
20,508
(42,048)
(21,540)
0.17
0.14
0.31
0.05
(0.13)
(0.08)
0.17
0.14
0.31
0.05
(0.13)
(0.08)
19
13
13
14
15
15
1 Certain figures shown here do not correspond to the 2008 financial statements and reflect adjustments made as detailed in note 3.
.
63
A
c
c
o
u
n
t
s
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Consolidated statement of comprehensive
income
For the year ended 31 December 2009
Profit for the year
Other comprehensive income
Exchange differences on translating foreign operations
Change in fair value of available-for-sale financial assets
Recycling of the gain on Fortuna Silver Mines
Change in fair value of cash flow hedges taken to equity
Share in gains directly recognised in equity by associates
Income tax relating to components of other comprehensive income
Other comprehensive income for the period, net of tax
Total comprehensive income for the year
Total comprehensive income attributable to
Equity shareholders of the Company
Minority interests
Notes
Year ended 31 December
2009
US$000
2008
US$000
121,340
(21,540)1
13(3)
25,707
4,313
(623)
(43,079)
(1,454)
(1,613)
(13)
–
71
–
620
664
29,455
150,795
(44,862)
(66,402)
127,558
23,237
150,795
(69,373)
2,971
(66,402)
1 The figure shown here does not correspond to the 2008 financial statements and reflects adjustments made as detailed in note 3.
64
Consolidated statement of financial position
As at 31 December 2009
ASSETS
Non-current assets
Property, plant and equipment
Evaluation and exploration assets
Intangible assets
Investments accounted under equity method
Available-for-sale financial assets
Trade and other receivables
Income tax receivable
Deferred income tax assets
Current assets
Inventories
Trade and other receivables
Income tax receivable
Financial assets at fair value through profit and loss
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Capital and reserves attributable to shareholders of the Parent
Equity share capital
Share premium
Other reserves
Retained earnings
Minority interest
Total equity
Non-current liabilities
Trade and other payables
Borrowings
Provisions
Deferred income tax liabilities
Current liabilities
Trade and other payables
Financial liabilities at fair value through profit and loss
Borrowings
Provisions
Income tax payable
Total liabilities
Total equity and liabilities
As at
31 December
2009
US$000
(Restated)1
As at
31 December
2008
US$000
(Restated)1
As at
1 January
2008
US$000
Notes
16
17
18
19
20
21
29
22
21
23
24
28
28
25
26
27
29
25
23
26
27
438,958
55,828
22,425
450,665
19,181
3,150
1,302
15,852
1,007,361
45,813
164,864
9,280
695
77,844
298,496
1,305,857
158,637
395,928
(212,921)
385,700
727,344
76,126
803,470
81
219,681
55,176
10,662
285,600
68,501
2,640
112,908
11,405
21,333
216,787
502,387
1,305,857
416,565
44,726
2,668
136,019
17,794
38,304
802
21,811
678,689
51,855
123,726
14,470
5,569
116,147
311,767
990,456
243,027
6,034
2,896
–
15,100
25,518
616
26,162
319,353
47,628
134,180
1,003
8,039
301,426
492,276
811,629
146,466
395,928
(250,831)
167,767
459,330
66,293
525,623
146,466
395,928
(205,556)
220,072
556,910
49,769
606,679
627
231,692
37,687
9,192
279,198
82,291
–
98,070
4,277
997
185,635
464,833
990,456
859
55,209
30,821
8,837
95,726
52,176
–
33,169
13,029
10,850
109,224
204,950
811,629
A
c
c
o
u
n
t
s
1 Certain figures shown here do not correspond to the 2008 financial statements and reflect adjustments made as detailed in note 3.
These financial statements were approved by the Board of Directors on 23 March 2010 and signed on its behalf by:
Ignacio Rosado
Chief Financial Officer
23 March 2010
65
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Consolidated statement of cash flows
For the year ended 31 December 2009
Cash flows from operating activities
Cash generated from operations
Interest received
Interest paid
Payments of mine closure costs
Tax paid
Net cash generated from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of evaluation and exploration assets
Acquisition of subsidiary
Investment in an associate
Purchase of available-for-sale financial assets
Purchase of intangibles
Proceeds from sale of available-for-sale financial assets
Proceeds from sale of property, plant and equipment
Other
Net cash used in investing activities
Cash flows from financing activities
Proceeds of borrowings
Repayment of borrowings
Transaction costs associated with borrowing
Acquisition of minority interest
Dividends paid
Proceeds from issue of ordinary shares under Global offer
Transaction costs associated with issue of shares
Capital contribution from minority shareholders
Cash flows generated from financing activities
Net decrease in cash and cash equivalents during the year
Exchange difference
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Year ended 31 December
2009
US$000
(Restated)1
2008
US$000
Notes
33
215,698
102,167
1,041
(12,902)
(2,831)
(482)
200,524
7,512
(4,302)
(1,476)
(25,260)
78,641
(116,009)
(296,027)
(8,636)
(19,246)
–
–
(216,943)
(164,211)
(1,857)
(16,330)
3,861
2,139
–
(19,240)
(37)
3,321
392
12
(373,021)
(475,790)
285,461
(277,185)
(3,568)
(1,500)
(20,048)
143,621
(3,453)
11,115
134,443
(38,054)
(249)
116,147
77,844
484,041
(257,300)
(2,408)
–
(28,531)
–
–
16,926
212,728
(184,421)
(858)
301,426
116,147
5(a)
5(b)
13, 20
5(c)
30
24
1 Certain figures shown here do not correspond to the 2008 financial statements and reflect adjustments made as detailed in note 3.
66
Consolidated statement of changes in equity
For the year ended 31 December 2009
Equity
share
capital
US$000
Share
premium
US$000
Notes
Unrealised
gain/(loss) on
available-for-sale
financial assets
and initial valuation
of hedging
US$000
Bond equity
component
US$000
Cumulative
translation
adjustment
US$000
Merger
reserve
US$000
Total
Other
reserves
US$000
Retained
earnings
US$000
Capital and
reserves
attributable to
shareholders
of the Parent
US$000
Minority
interest
US$000
Total
equity
US$000
Other reserves
Dividends
30
Balance at
1 January 2008
as reported
Adjustments due
to restatement of
financial
statements
Balance at
1 January 2008,
restated
Other
comprehensive
income/(loss)
Profit for the year
Total comprehensive
loss for 2008
Adjustment to
deferred
consideration1
Expiration of
dividends payable
Capital
contribution from
minority
shareholders
Balance at
31 December
2008, restated
Other
comprehensive
income/(loss)
Profit for the year
Total
comprehensive
loss/income for
2009
Transfer to
retained earnings
Issuance of
convertible bond
Purchase of
shares from
minority interest
Dividends declared
during the year
Dividends paid to
minority interest
Balance at
31 December 2009
146,466 395,928
1,862
–
–
–
146,466 395,928
1,862
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,272)
–
(2,272)
–
–
–
–
146,466 395,928
(410)
–
–
–
–
–
–
–
–
5(c)
30
30
–
–
–
–
–
–
–
–
–
3,736
–
3,736
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8,432
–
–
–
2,628
(210,046)
(205,556)
229,202
566,040
50,008 616,048
–
–
–
(9,130)
(9,130)
(239)
(9,369)
2,628
(210,046)
(205,556)
220,072
556,910
49,769 606,679
(43,003)
–
(43,003)
–
–
–
–
–
–
–
–
–
–
–
(45,275)
620
(44,655)
(207) (44,862)
–
(24,718)
(24,718)
3,178 (21,540)
(45,275)
(24,098)
(69,373)
2,971 (66,402)
–
(28,331)
(28,331)
– (28,331)
–
–
–
–
–
1,220
1,220
124
124
4
128
–
–
12,329
12,329
(40,375)
(210,046)
(250,831)
167,767
459,330
66,293 525,623
25,742
–
–
–
29,478
–
29,478
(23) 29,455
–
98,080
98,080
23,260 121,340
25,742
–
29,478
98,080
127,558
23,237 150,795
–
–
–
–
–
–
–
–
–
–
(127,997)
(127,997)
127,997
–
8,432
–
8,432
–
–
–
8,432
A
c
c
o
u
n
t
s
–
–
–
4,150
4,150
(5,650)
(1,500)
(12,294)
(12,294)
– (12,294)
–
–
(7,754)
(7,754)
Issuance of shares
28
12,171
127,997
127,997
–
140,168
– 140,168
158,637 395,928
3,326
8,432
(14,633)
(210,046)
(212,921)
385,700
727,344
76,126 803,470
1 This amount represents the increase in the minority interests share of the assets of Pallancata, following the Group’s investment during the year 2008 in
accordance with the agreement signed with Minera Oro Vega S.A.C.
67
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements
For the year ended 31 December 2009
1 CORPORATE INFORMATION
Hochschild Mining plc (hereinafter “the Company”) 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 46 Albemarle Street, London W1S 4JL, United Kingdom.
The ultimate controlling party of the Company is Mr Eduardo Hochschild whose beneficial interest in the Company and its
subsidiaries (together “the Group” or “Hochschild Mining Group”) is held through Pelham Investment Corporation, a Cayman
Islands company.
On 8 November 2006, the Company’s shares were admitted to the Official List of the UKLA (United Kingdom Listing Authority)
and to trading 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
(Ares, Arcata and Pallancata) and a plant (Selene used to treat ore from the Pallancata mine), located in southern Peru,
one operating mine (San José) located in Argentina and one operating mine (Moris) located in Mexico. The Group also has
a portfolio of projects located across Peru, Argentina, Mexico, Chile and Canada at various stages of development.
These consolidated financial statements were approved for issue by the Board of Directors on 23 March 2010.
The principal activities of the Company’s subsidiaries are as follows:
Company
Principal activity
Country of incorporation
Hochschild Mining (Argentina) Corporation S.A. (formerly
Hochschild Mining (Argentina) Corporation)
Holding company
Argentina
Hochschild Mining (Peru) S.A. (formerly Hochschild
Mining (Peru) Corporation)
Hochschild Mining Mexico, S.A. de C.V. (formerly
Hochschild Mining (Mexico) Corporation)
Hochschild Mining Holdings Limited
Holding company
Peru
Holding company
Mexico
Holding company
England & Wales
Compañía Minera Ares S.A.C.
Compañía Minera Arcata S.A.
Empresa de Transmisión Callalli S.A.C.
Asociación Sumac Tarpuy1
Pallancata Holding S.A.C. (formerly Compañía Minera
Coriorco S.A.)
Minera Suyamarca S.A.C.
Production of gold
& silver
Production of gold
& silver
Power transmission
Not-for-profit
Holding company
Production of gold
& silver
Peru
Peru
Peru
Peru
Peru
Peru
Equity interest
at 31 December
2009
%
100
100
100
100
100
96.8
100
–
100
60
2008
%
100
100
100
100
100
96.8
100
–
100
60
68
1 CORPORATE INFORMATION (CONTINUED)
Company
MH Argentina S.A.
Principal activity
Country of incorporation
Exploration office
Argentina
Minera Hochschild Chile S.C.M. (formerly Minera MH
Chile Ltda.).
Minera Hochschild Mexico, S.A. de C.V.
Minas Santa María de Moris, S.A. de C.V.
Moris Holding, S.A. de C.V.
Servicios Corporativos Hochschild
Mining Mexico, S.A. de C.V.
Exploration office
Exploration office
Production of gold
& silver
Holding company
Service company
Hochschild Mining (US) Inc. (formerly MH Nevada, Inc.)
Subsidiary
Minera Santa Cruz S.A.
Hochschild Mining Chile S.A.
HMX, S.A. de C.V.
Inmaculada Holdings S.A.C.
Liam Holdings S.A.C.
0848818 BC Ltd2
Southwestern Gold (Bermuda) Limited2
Southwest Mining Inc.2
Southwest Minerals Inc.2
Southwestern Gold (China) Inc.2
Cerro Mining Corp.2
Southwest Minerals (Yunnan) Inc.2
MInera del Suroeste S.A.C.2
Hochschild Mining Ares (UK) Ltd.
Minas Pacapausa S.A.C.
Minera Minasnioc S.A.C.
Production of gold
& silver
Holding company
Exploration office
Holding company
Holding company
Subsidiary
Holding company
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Exploration office
Chile
Mexico
Mexico
Mexico
Mexico
USA
Argentina
Chile
Mexico
Peru
Peru
Canada
Bermuda
Mauritius
Mauritius
Bahamas
Bahamas
China
Peru
Equity interest
at 31 December
2009
%
100
100
100
100
100
100
100
51
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
2008
%
100
100
100
70
100
100
100
51
100
100
100
100
–
–
–
–
–
–
–
–
100
50
100
Subsidiary
England & Wales
Exploration office
Subsidiary
Peru
Peru
1 Asociación Sumac Tarpuy is an unincorporated entity, which receives donations from Compañía Minera Ares S.A.C., and spends this money on the community
and social welfare activities around its mine units at the direction of Ares. As a result, the Group consolidates this entity.
2 Companies incorporated due to the purchase of shares of Southwestern Resources Group on 21 May 2009.
A
c
c
o
u
n
t
s
69
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
2 SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(IFRS) as adopted for use in the European Union (EU) and with the Companies Act 2006. The Group’s Financial Statements
are also consistent with IFRS issued by the IASB.
The basis of preparation and accounting policies used in preparing the consolidated financial statements for the years ended
31 December 2009 and 2008 are set out below. These accounting policies have been consistently applied, except for the
effects of adoption of new and amended accounting standards (refer to note 2(c)) and the retrospective restatement of
the depreciation calculation (refer to note 3).
The financial statements have been prepared on a historical cost basis, except for certain classes of property, plant and
equipment which were revalued at 1 January 2003 to determine the deemed cost (refer to note 2(f)), available-for-sale
financial instruments and financial assets at fair value through profit and loss which have been measured at fair value.
The financial statements are presented in US dollars ($) and all monetary amounts are rounded to the nearest thousand
($000) except when otherwise indicated.
Standards, interpretations and amendment to existing standards that are not yet effective and have not been early adopted
by the Group
Certain new standards, amendments and interpretations to existing standards have been published and are mandatory for
the Group’s accounting periods beginning on or after 1 January 2010 or later periods but which the Group has not early
adopted. Those that are applicable to the Group are as follows:
– IFRS 3 “Business Combinations (revised January 2008)”, applicable for annual periods beginning on or after 1 July 2009.
IFRS 3 introduces a number of changes in the accounting for business combinations occurring after this date that
will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs, and future
reported results.
– IAS 27 “Consolidated and Separate Financial Statements (revised January 2008)”, applicable for annual periods beginning
on or after 1 July 2009.
IAS 27 requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as an equity
transaction. Therefore, such transactions will no longer give rise to goodwill, nor will they give rise to gains or losses.
Furthermore, the amended standard changes the accounting for losses incurred by partially-owned subsidiaries as well
as the loss of control of a subsidiary.
– IFRIC 17 “Distributions of Non-cash Assets to Owners”, applicable for annual periods beginning on or after 1 July 2009.
This clarifies that a dividend payable should be recognised when the dividend is appropriately authorised and is no longer
at the discretion of the entity. It also clarifies that an entity should measure the dividend payable at the fair value of the net
assets to be distributed and that an entity should recognise the difference between the dividend paid and the carrying
amount of the net assets distributed in profit or loss.
– IAS 39 “Financial Instruments: Recognition and Measurement – Eligible Hedged Items”, applicable for annual periods
beginning on or after 1 July 2009.
The amendment addresses the designation of a one-sided risk in a hedged item, and the designation of inflation as a
hedged risk or portion in particular situations. It clarifies that an entity is permitted to designate a portion of the fair value
changes or cash flow variability of a financial instrument as a hedged item.
The Directors do not anticipate that the adoption of the above standards and interpretations will have a material impact on
the Group’s financial statements in the period of initial application. Other standards and interpretations not included above
are not expected to have an impact on the financial statements.
(b) Judgements in applying accounting policies and key sources of estimation uncertainty
Many of the amounts included in the financial statements involve the use of judgement and/or estimation. These judgements
and estimates are based on managements’ best knowledge of the relevant facts and circumstances, having regard to prior
experience, but actual results may differ from the amounts included in the financial statements. Information about such
judgements and estimates are contained in the accounting policies and/or the notes to the financial statements. The key
areas are summarised below.
70
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Significant areas of estimation uncertainty and critical judgements made by management in preparing the consolidated
financial statements include:
– Determination of functional currencies – note 2(e).
– Determination of useful lives of assets for depreciation and amortisation purposes – note 2(f).
– Determination of ore reserves and resources – note 2(h).
– Review of asset carrying values and impairment charges – notes 2(i), (l), (v) and note 16 and 17.
– Estimation of the amount and timing of mine closure costs – notes 2(p) and 27.
– Income tax – notes 2(t), 14 and 29.
– Contingent liabilities regarding claims from tax authorities – note 35.
– Judgement in deciding if a company is a subsidiary of the Group – note 2(d).
(c) Changes in accounting policy and disclosures
The accounting policies adopted are consistent with those of the previous financial year except for the adoption of new and
amended standards.
The Group has adopted the following new and amended IFRS and IFRIC interpretations during the year. Adoption of these
revised standards and interpretations did not have any effect on the financial performance or position of the Group.
– IFRS 8 “Operating Segments” applicable for annual periods beginning on or after 1 January 2009.
The Group concluded that the operating segments determined in accordance with IFRS 8 were different in comparison
with 2008 segments reported. The new segments are disclosed in note 4.
– IAS 23 Amendment, “Borrowing Costs”, applicable for annual periods beginning on or after 1 January 2009.
The Group has adopted the standard on a prospective basis. It did not have an impact on the financial position or
performance of the Group.
– IAS 1 “Presentation of Financial Statements”, applicable for annual periods beginning on or after 1 January 2009.
The most important change was the obligation to include the statement of comprehensive income.
– IFRS 2 “Amendment to IFRS 2 – Vesting Conditions and Cancellations”, applicable for annual periods beginning on or
after 1 January 2009.
This did not have an impact on the financial position or performance of the Group.
– IAS 32 and IAS 1 Amendment “Puttable Financial Instruments and Obligations Arising on Liquidation”, applicable for annual
periods beginning on or after 1 January 2009.
This did not have an impact on the financial position or performance of the Group.
– IFRS 1 and IAS 27 Amendment “Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate”, applicable for
annual periods beginning on or after 1 January 2009.
This did not have an impact on the financial position or performance of the Group.
– 2008 Annual Improvements to IFRS, applicable for annual periods beginning on or after 1 January 2009.
These amendments had no impact on the financial performance of the Group as they only affected the disclosure
of financial information.
– IFRIC 16 “Hedges of a Net Investment in a Foreign Operation”, applicable for annual periods beginning on or after
1 October 2008.
This did not have an impact on the financial position or performance of the Group.
A
c
c
o
u
n
t
s
– IFRS 7 “Financial Instruments: Disclosures”, applicable for annual periods beginning on or after 1 January 2009.
The main change was related to the disclosure of hierarchy of financial instruments at fair value. It is included in note 38 (d).
– IFRIC 13 “Customer Loyalty Programmes”, applicable for periods beginning on or after 1 July 2008.
This did not have an impact on the financial position or performance of the Group.
– IFRIC 15 “Agreements for the Construction of Real Estate”, applicable for periods beginning on or after 1 January 2009.
This did not have an impact on the financial position or performance of the Group.
71
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
– IFRIC 18 “Transfer of Assets from Customers”, applicable to assets transferred on or after 1 July 2009.
This did not have an impact on the financial position or performance of the Group.
– IAS 39 & IFRS 7 Amendments “Reclassification of Financial Instruments”, applicable for periods beginning on or
after 1 July 2008.
This did not have an impact on the financial position or performance of the Group.
– IAS 39 Amendment “Reclassification of Financial Assets: Effective Date and Transition”, applicable for periods beginning
on or after 1 July 2008.
This did not have an impact on the financial position or performance of the Group.
– IFRIC 9 & IAS 39 Amendments “Embedded Derivatives”, applicable for periods ending on or after 30 June 2009.
This did not have an impact on the financial position or performance of the Group.
(d) Basis of consolidation
The consolidated financial statements set out the Group’s financial position, performance and cash flows as at 31 December
2009 and 31 December 2008 and for the years then ended, respectively.
Subsidiaries are those enterprises controlled by the Group regardless of the amount of shares owned by the Group. Control
exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so
as to obtain benefits from its activities. However, minority shareholders’ rights to safeguard their interest are fully considered
in assessing whether the Group controls a subsidiary.
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from
the date on which control is transferred out of the Group. The purchase method of accounting is used to account for the
acquisition of subsidiaries by the Group. On acquisition of a subsidiary, the purchase consideration is allocated to the assets
and liabilities on the basis of their fair value at the date of acquisition. The excess of the cost of acquisition over the fair value
of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the
fair value of net assets of the entity acquired, the difference is recognised directly in the income statement.
The financial statements of subsidiaries are prepared for the same reporting periods as the Company, using consistent
accounting policies. All intercompany balances and transactions, including unrealised profits arising from intra-Group
transactions, have been eliminated on consolidation. Unrealised losses are eliminated in the same way as unrealised gains
except that they are only eliminated to the extent that there is no evidence of impairment.
Minority shareholders primarily represent the interests in Minera Santa Cruz, Compañía Minera Arcata and Minera
Suyamarca not held by the Company. In the event of a purchase of minority shareholders’ interest when the Group holds the
majority of shares of a subsidiary, any excess of the consideration given over the Group’s share of net assets is recorded in
retained earnings within equity.
(e) Currency translation
The functional currency for each entity in the Group is determined by the currency of the primary economic environment in
which it operates. For the holding companies and operating entities this currency is US dollars and for the other entities it is
the local currency of the country in which it operates. The Group’s financial information is presented in US dollars, which is
the Company’s functional currency.
Transactions denominated in currencies other than the functional currency of the entity are initially recorded in the functional
currency using the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign
currencies are remeasured at the rate of exchange ruling at the statement of financial position date. Exchange gains and
losses on settlement of foreign currency transactions which are translated at the rate prevailing at the date of the
transactions, or on the translation of monetary assets and liabilities which are translated at period-end exchange rates, are
taken to the income statement. Non-monetary assets and liabilities denominated in foreign currencies that are stated at
historical cost are translated to the functional currency at the foreign exchange rate prevailing at the date of the transaction.
Exchange differences arising from monetary items that are part of a net investment in a foreign operation are recognised in
equity and transferred to income on disposal of such net investment.
Subsidiary financial statements expressed in their corresponding functional currencies are translated into US dollars by
applying the exchange rate at period-end for assets and liabilities and the average exchange rate for income statement items.
The resulting difference on consolidation is included as cumulative translation adjustment in equity.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of
the foreign entity and translated at the closing rate.
The source of uncertainty is related to the change of exchange rates in the future. This change could affect the
Group’s results.
72
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f) Property, plant and equipment
Property, plant and equipment is stated at cost or deemed cost less accumulated depreciation and impairment losses.
Cost comprises its purchase price and directly attributable costs of acquisition or construction required to bring the asset
to the condition necessary for the asset to be capable of operating in the manner intended by management. Economical
and physical conditions of assets have not changed substantially over this period.
The cost less residual value of each item of property, plant and equipment is depreciated over its useful life. Each item’s
estimated useful life has been assessed with regard to both its own physical life limitations and the present assessment of
economically recoverable reserves and resources of the mine property at which the item is located. Estimates of remaining
useful lives are made on a regular basis for all mine buildings, machinery and equipment, with annual reassessments for
major items. Depreciation is charged to cost of production on a units of production (UOP) basis for mine buildings and
installations and plant and equipment used in the mining production process, or charged directly to the income statement
over the estimated useful life of the individual asset on a straight-line basis when not related to the mining production
process. Changes in estimates, which mainly affect units of production calculations, are accounted for prospectively.
Depreciation commences when assets are available for use. Land is not depreciated.
An asset’s carrying amount is written-down immediately to its recoverable amount if the asset’s carrying amount is greater
than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised
within other income/expenses, in the income statement.
The expected useful lives under the straight-line method are as follows:
Buildings
Plant and equipment
Vehicles
Years
3 to 33
5 to 10
5
Borrowing costs directly attributable to the acquisition or construction of an asset that necessarily takes a substantial period
of time to be ready for its intended use are capitalised as part of the cost of the asset. All other borrowing costs are expensed
where incurred. The Group capitalises borrowing costs for those assets where construction commenced on or after
1 January 2009 and continues to expense borrowing costs related to construction projects that commenced prior to 1 January
2009. For borrowings associated with a specific asset, the actual rate on that borrowing is used. Otherwise, a weighted
average cost of borrowing is used. The Group capitalises the borrowings cost related to qualifying assets with a value of
US$1,000,000 or more, considering that the substantial period of time to be ready is 6 or more months.
Mining properties and development costs
Expenditure on exploration of mining properties is expensed during the exploration phase of a project and capitalised during
their development phase when incurred. Purchased mining properties are recognised as assets at their cost of acquisition
or at fair value if purchased as part of a business combination. Costs associated with developments of mining properties
are capitalised.
Mine development costs are, upon commencement of commercial production, depreciated using the units of production
method based on the estimated economically recoverable reserves and resources to which they relate.
Construction in progress and capital advances
Assets in the course of construction are capitalised as a separate component of property, plant and equipment.
On completion, the cost of construction is transferred to the appropriate category. Construction in progress is
not depreciated.
Subsequent expenditure
Expenditure incurred to replace a component of an item of property, plant and equipment is capitalised separately with the
carrying amount of the component being written-off. Other subsequent expenditure is capitalised if future economic benefits
will arise from the expenditure. All other expenditure including repairs and maintenance expenditures are recognised in the
income statement as incurred.
A
c
c
o
u
n
t
s
73
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) Evaluation and exploration assets
Evaluation and exploration expenses shall be capitalised when the future economic benefit of the project can reasonably
be regarded as assured.
For this purpose, the future economic benefit of the project can reasonably be regarded as assured when any of the following
conditions are met:
– The Board authorises management to conduct the feasibility study of a project:
– Mine-site exploration is being conducted to convert resources into reserves; or
– Mine-site exploration is being conducted to confirm resources.
Projects in the development phase – Exploration and evaluation costs are capitalised as assets from the date that the Board
authorises the management to conduct a feasibility study.
Identification of resources – Costs incurred in converting inferred resources to indicated and measured resources (of which
reserves are a component) are capitalised as incurred. Costs incurred in identifying inferred resources are expensed
as incurred.
(h) Determination of ore reserves and resources
The Group estimates its ore reserves and mineral resources based on information compiled by internal competent persons.
Reports to support these estimates are prepared each year and are stated in conformity with the Joint Ore Reserves
Committee (JORC) code. It is the Group’s policy to have the report audited by a Competent Person.
Reserves and resources are used in the units of production calculation for depreciation as well as the determination of the
timing of mine closure cost and impairment analysis.
There are numerous uncertainties inherent in estimating ore reserves. Assumptions that are valid at the time of estimation
may change significantly when new information becomes available. Changes in the forecast prices of commodities, exchange
rates, production costs or recovery rates may change the economic status of reserves and may, ultimately, result in the
reserves being restated.
(i) Investment in associates
The Group’s investment in an associate is accounted for using the equity method of accounting. An associate is an entity
in which the Group has significant influence.
Under the equity method, the investment in the associate is carried in the statement of financial position at cost plus post
acquisition changes in the Group’s share of net assets of the associate. Goodwill relating to the associate is included in the
carrying amount of the investment and is not amortised or separately tested for impairment. The income statement reflects
the share of the results of operations of the associate. Where there has been a change recognised directly in the equity of the
associate, the Group recognises its share of any changes and discloses this, when applicable, in the statement of changes in
equity. Unrealised gains and losses resulting from transactions between the Group and the associate are eliminated to the
extent of the interest in the associate.
The share of profit of associates is shown on the face of the income statement. This is the profit attributable to equity holders
of the associate and therefore is profit after tax and minority interests in the subsidiaries of the associate.
The financial statements of the associate are prepared for the same reporting period as the parent company.
Where necessary, adjustments are made to bring the accounting policies in line with those of the Group.
After application of the equity method, the Group determines whether it is necessary to recognise an additional impairment
loss on the Group’s investment in its associates. The Group determines at each statement of financial position date whether
there is any objective evidence that the investment in the associate is impaired. If this is the case the Group calculates the
amount of impairment as the difference between the recoverable amount of the associate and its carrying value and
recognises the amount in the income statement.
(j) Interest in a joint venture
The Group has an interest in a joint venture which is a jointly controlled entity, whereby the venturers have a contractual
arrangement that establishes joint control over the economic activities of the entity. The Group recognises its interest in the
joint venture using the equity method of accounting and presents its aggregate share of the profit or loss of joint ventures on
the face of its income statement. The investment is presented as non-current assets on the face of the statement of financial
position. The financial statements of the joint venture are prepared for the same reporting period as the parent company.
Adjustments are made where necessary to bring the accounting policies in line with those of the Group.
74
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k) Intangible assets
Goodwill
Goodwill is included in intangible assets and represents the excess of the cost of an acquisition over the fair value of
the Group’s share of the net identifiable assets of the acquired entity at the date of acquisition. Separately recognised
goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses
on goodwill are not reversed.
Goodwill is allocated to cash-generating units for impairment testing purposes. The allocation is made to those cash-
generating units that are expected to benefit from the business combination in which the goodwill arose.
Right to use energy transmission line
Transmission line represents the investment made by the Group during the period of its use. This is an asset with a finite
useful life that is amortised applying the units of production method.
Other intangible assets
Other intangible assets are primarily computer software which are capitalised at cost and are amortised on a straight-line
basis over their useful life of three years.
(l) Impairment of non-financial assets
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment.
The carrying amounts of property, plant and equipment and evaluation and exploration assets are reviewed for impairment
if events or changes in circumstances indicate that the carrying value may not be recoverable. If there are indicators of
impairment, an exercise is undertaken to determine whether the carrying values are in excess of their recoverable amount.
Such review is undertaken on an asset by asset basis, except where such assets do not generate cash flows independent
of other assets, and then the review is undertaken at the cash generating unit level.
The assessment requires the use of estimates and assumptions such as long-term commodity prices, discount rates,
future capital requirements, exploration potential and operating performance. Changes in these assumptions will affect
the recoverable amount of the property, plant and equipment.
If the carrying amount of an asset or its cash-generating unit exceeds the recoverable amount, a provision is recorded
to reflect the asset at the lower amount. Impairment losses are recognised in the income statement.
Calculation of recoverable amount
The recoverable amount of assets is the greater of their value in use and fair value less costs to sell. Fair value is based on
an estimate of the amount that the Group may obtain in a sale transaction on an arm’s-length basis. In assessing value in
use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash
inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to
which the asset belongs. The Group’s cash generating units are the smallest identifiable groups of assets that generate cash
inflows that are largely independent of the cash inflows from other assets or groups of assets.
Reversal of impairment
An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount
that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
(m) Inventories
Inventories are valued at the lower of cost or net realisable value. Cost is determined using the weighted average method.
The cost of work in progress and finished goods (ore inventories) is based on the cost of production. When the production
process takes a substantial period of time, borrowing costs are included in the production cost.
For this purpose, the costs of production include:
– costs, materials and contractor expenses which are directly attributable to the extraction and processing of ore;
– depreciation of property, plant and equipment used in the extraction and processing of ore; and
– related production overheads (based on normal operating capacity).
Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable
selling expenses.
A
c
c
o
u
n
t
s
75
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(n) Trade and other receivables
Current trade receivables are carried at the original invoice amount less provision made for impairment of these receivables.
Non-current receivables are stated at amortised cost. A provision for impairment of trade receivables is established when
there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the
receivable which on average, do not exceed 30 days. The amount of the provision is the difference between the carrying
amount and the recoverable amount and this difference is recognised in the income statement.
(o) Share capital
Ordinary Shares are classified as equity. Excess to par value of shares received upon issuance of shares is classified as
share premium.
(p) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event. It is
probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the
amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the
expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where
appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of
time is recognised as a finance cost.
Mine closure cost
Provisions for mine closure costs are made in respect of the estimated future costs of closure and restoration and for
environmental rehabilitation costs (which include the dismantling and demolition of infrastructure, removal of residual
materials and remediation of disturbed areas) in the accounting period when the related environmental disturbance occurs.
The provision is discounted and the unwinding of the discount is included in finance costs. At the time of establishing the
provision, a corresponding asset is capitalised and is depreciated over future production from the mine to which it relates.
The provision is reviewed on an annual basis for changes in cost estimates, discount rates and operating lives.
Significant estimates and assumptions are made in determining the provision for mine closure costs as there are numerous
factors that will affect the ultimate liability payable. These factors include estimates of the extent and costs of rehabilitation
activities, technological changes, regulatory changes, cost increases, and changes in discount rates. Those uncertainties
may result in future actual expenditure differing from the amounts currently provided. The provision at year-end represents
management’s best estimate of the present value of the future rehabilitation costs required. Changes to estimated future
costs are recognised in the statement of financial position by adjusting the rehabilitation asset and liability. If, for mature
mines, the revised mine assets net of rehabilitation provisions exceeds the carrying value, that portion of the increase
is charged directly to expenses. For closed sites, changes to estimated costs are recognised immediately in the
income statement.
Workers’ profit sharing and other employee benefits
In accordance with Peruvian Legislation, companies in Peru must provide for workers’ profit sharing equivalent to 8% of
taxable income of each year. Mexican Law also requires Mexican companies to provide for workers’ profit sharing equivalent
to 10% of the profit of each year. This amount is charged to the income statement within personnel expenses (refer to note
11) and is considered deductible for income tax purposes. The Group has no pension or retirement benefit schemes.
Share based payments
The fair value of cash-settled share plans is recognised as a liability over the vesting period of the awards. Movements in that
liability between accounting dates are recognised as an expense. The fair value of the awards is taken to be the market value
of the shares at the date of award adjusted by a factor for anticipated relative Total Shareholder Return (“TSR”) performance.
Fair values are subsequently remeasured at each accounting date to reflect the number of awards expected to vest based on
the current and anticipated TSR performance.
Uncertainties in estimating the award include potential changes in the TSR, the number of participants in the plan, and levels
of interest rates.
Other
Other provisions are accounted for when the Group has a legal or constructive obligation for which it is probable there will be
an outflow of resources for which the amount can be reliably estimated.
(q) Contingencies
Contingent liabilities are not recognised in the financial statements and are disclosed in notes to the financial information
unless their occurrence is remote.
Contingent assets are not recognised in the financial statements, but are disclosed in the notes if their recovery is
deemed probable.
76
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(r) Revenue recognition
The Group is involved in the production and sale of gold and silver from doré and concentrate containing both gold and silver.
Concentrate is sold directly to customers. Doré bars are sent to a third party for further refining into gold and silver which is
then sold.
Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be
reliably measured.
Revenue associated with the sale of concentrate and gold and silver from doré is recognised in the income statement when
all significant risks and rewards of ownership are transferred to the customer, usually when title has passed to the customer.
Revenue excludes any applicable sales taxes.
The revenue is subject to adjustment based on inspection of the product by the customer. Revenue is initially recognised on
a provisional basis using the Group’s best estimate of contained gold and silver. Any subsequent adjustments to the initial
estimate of metal content are recorded in revenue once they have been determined.
In addition, certain sales are “provisionally priced” where the selling price is subject to final adjustment at the end of a period,
normally ranging from 15 to 90 days after the start of the delivery process to the customer, based on the market price at the
relevant quotation point stipulated in the contract. Revenue is initially recognised when the conditions set out above have
been met, using market prices at that date. The price exposure is considered to be an embedded derivative and hence
separated from the sales contract at each reporting date. The provisionally priced metal is revalued based on the forward
selling price for the quotational period stipulated in the contract until the quotational period ends. The selling price of gold
and silver can be measured reliably as these metals are actively traded on the international exchanges. The revaluation of
provisionally priced contracts is recorded as an adjustment to “revenue”.
Income from services provided to related parties (note 31) is recognised in income when services are provided.
(s) Finance income and costs
Finance income and costs comprise interest expense on borrowings, the accumulation of interest on provisions, interest
income on funds invested, gains and losses from the change in fair value of derivative instruments and gains and losses on
the disposal of available-for-sale investments.
Interest income is recognised as it accrues, taking into account the effective yield on the asset.
(t) Income tax
Income tax for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the
extent that it relates to items charged or credited directly to equity, in which case it is recognised in equity.
Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted at the statement
of financial position date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes, with the
following exceptions:
– Where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that
is not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.
– In respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures,
where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary
differences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is
realised or the liability is settled based on the tax rates (and tax laws) that have been enacted or substantively enacted at the
statement of financial position date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against
which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax
benefit will be realised.
A
c
c
o
u
n
t
s
Judgement is required in determining whether deferred tax assets are recognised on the statement of financial position.
Deferred tax assets, including those arising from unutilised tax losses require management to assess the likelihood that the
Group will generate taxable earnings in future periods, in order to utilise recognised deferred tax assets. Estimates of future
taxable income are based on forecast cash flows from operations and the application of existing tax laws in each jurisdiction.
To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Group to realise
the net deferred tax assets recorded at the statement of financial position date could be impacted.
Additionally, future changes in tax laws in the jurisdictions in which the Group operates could limit the ability of the Group to
obtain tax deductions in future periods.
77
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(u) Leases
Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased item,
are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the
minimum lease payments. Lease payments are apportioned between finance charges and the reduction of the lease liability
so as to achieve a constant periodic rate of interest on the remaining balance of the liability. Finance charges are reflected in
the income statement. The depreciation policy for leased assets is consistent with that for similar assets owned.
A lease is classified as an operating lease if it does not transfer substantially all of the risks and rewards incidental to
ownership. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over
the lease term.
(v) Financial instruments
Financial assets and liabilities are recognised when the Group becomes party to the contracts that give rise to them and are
classified as loans or borrowings, receivables, payables, financial instruments fair valued through profit and loss, available-
for-sale financial assets or as derivatives designated as hedging instruments in an effective hedge (refer to note 2(aa)), as
appropriate. The Group determines the classification of its financial assets and liabilities at initial recognition and, where
allowed and appropriate, re-evaluates this designation at each financial year-end. When financial assets and liabilities are
recognised initially, they are measured at fair value, being the transaction price plus, in the case of financial assets not at fair
value through profit or loss and borrowings, directly attributable transaction costs. The Group considers whether a contract
contains an embedded derivative when the entity first becomes a party to it. The embedded derivatives are separated from the
host contract if it is not measured at fair value through profit or loss and when the economic characteristics and risks are not
closely related to those of the host contract. Reassessment only occurs if there is a change in the terms of the contract that
significantly modifies the cash flows that would otherwise be required.
All regular way purchases and sales of financial assets are recognised on the trade date, being the date that the Group
commits to purchase or sell the asset. Regular way transactions require delivery and receipt of assets within the timeframe
generally established by regulation or convention in the marketplace. The subsequent measurement of financial assets
depends on their classification, as follows:
Financial assets at fair value through profit and loss
Financial assets at fair value through profit and loss includes financial assets held for trading and financial assets designated
upon initial recognition as at fair value through profit and loss.
The Group considers whether a contract contains an embedded derivative when the entity first becomes a party to it.
Embedded derivatives are separated from the host contract which is not measured at fair value through profit and loss when
the analysis shows that the economic characteristics and risks of embedded derivatives are not closely related to those of the
host contract.
Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives,
including separated embedded derivatives are also classified as held for trading unless they are designated as effective
hedging instruments or a financial guarantee contract. Gains or losses on financial assets held for trading are recognised in
the income statement.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market, do not qualify as trading assets and have not been designated as either fair value through profit and loss or
available-for-sale. Such assets are carried at amortised cost using the effective interest method if the time value of money
is significant. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or
impaired, as well as through the amortisation process.
Available-for-sale financial assets
Available-for-sale financial assets are those non-derivative financial assets that are designated as such or are not classified
as loans and receivables, held-to-maturity investments or financial assets at fair value through profit and loss. After initial
recognition, available-for-sale financial assets are measured at fair value with unrealised gains or losses being recognised
as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired
at which time the cumulative gain or loss previously reported in equity is included in the income statement.
Loans and borrowings
Borrowings are recognised initially at fair value. After initial recognition, interest bearing loans and borrowings are
subsequently measured at amortised cost using the effective interest rate method.
Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the
amortisation process.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability
for at least 12 months after the statement of financial position date.
78
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair values
The fair value of quoted investments is determined by reference to bid prices at the close of business on the statement of
financial position date. Where there is no active market, fair value is determined using valuation techniques. These include
using recent arm’s length market transactions; reference to the current market value of another instrument which is
substantially the same; discounted cash flow analysis and pricing models.
The Group assesses at each statement of financial position date whether a financial asset or group of financial assets
is impaired.
Assets carried at amortised cost
If there is objective evidence that an impairment loss on assets carried at amortised cost has been incurred, the amount of
the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash
flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest
rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced, through the
use of an allowance account.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an
event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent
reversal of an impairment loss is recognised in the income statement, to the extent that the carrying value of the asset does
not exceed its amortised cost at the reversal date. In relation to trade receivables, a provision for impairment is made when
there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the
Group will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount of
the receivable is reduced through use of an allowance account. Impaired debts are derecognised when they are assessed
as irrecoverable.
Assets carried at cost
If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value
because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of
such an unquoted equity instrument, has been incurred, the amount of the loss is measured as the difference between the
asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return
for a similar financial asset.
Available-for-sale financial assets
If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment
and amortisation) and its fair value is transferred from equity to the income statement. Reversals of impairment losses on
debt instruments are reversed through the income statement, if the increase in fair value of the instrument can be objectively
related to an event occurring after the impairment loss was recognised in profit or loss. Reversals in respect of equity
instruments classified as available-for-sale are not recognised in the income statement.
Derecognition of financial instruments
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is
derecognised when:
– the rights to receive cash flows from the asset have expired; or
– the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received
cash flows in full without material delay to a third party under a “pass-through” arrangement; and either: (a) the Group has
transferred substantially all the risks and rewards of the asset; or (b) the Group has neither transferred nor retained
substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through
arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred
control of the asset, a new asset is recognised to the extent of the Group’s continuing involvement in the asset.
Continuing involvement that takes the form of a guarantee over the transferred asset, is measured at the lower of the original
carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
A financial liability is generally derecognised when the contract that gives rise to it is discharged or cancelled or expires.
Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms
of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the
original liability and the recognition of a new liability, such that the difference in the respective carrying amounts together
with any costs or fees incurred are recognised in profit or loss.
A
c
c
o
u
n
t
s
79
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(w) Dividend distribution
Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the
period in which the dividends are approved by the Company’s shareholders.
(x) Cash and cash equivalents
Cash and cash equivalents are carried in the statement of financial position at cost. For the purposes of the statement of
financial position, cash and cash equivalents comprise cash on hand and deposits held with banks that are readily convertible
into known amounts of cash within three months or less and which are subject to insignificant risk of changes in value.
For the purposes of the cash flow statement, cash and cash equivalents, as defined above, are shown net of outstanding
bank overdrafts.
(y) Exceptional items
Exceptional items are those significant items which, due to their nature or the expected infrequency of the events giving rise
to them, need to be disclosed separately on the face of the income statement to enable a better understanding of the
financial performance of the Group and facilitate comparison with prior years. Exceptional items mainly include:
– Impairments of assets, including goodwill, assets held for sale, property, plant and equipment and evaluation and
exploration assets.
– Gains or losses arising on the disposal of subsidiaries, investments or property, plant and equipment.
– Fair value gains or losses arising on financial instruments not held in the normal course of trading.
– Any gain or loss resulting from any restructuring within the Group.
– The related tax impact of the above items.
(z) Comparatives
Where applicable, certain comparatives have been reclassified to present them in a comparable manner to the current
period’s figures.
(aa) Hedging
The Group uses interest rate swaps to hedge its interest rate risks. These derivative financial instruments are initially
recognised at fair value on the date on which the derivative contract is entered into and are subsequently remeasured at fair
value. The fair value of interest rate swap contracts is determined by reference to market values for similar instruments.
For the purpose of hedge accounting, these hedges are classified as cash flow hedges as they are hedging the Group’s
exposure to variability in cash flows that is attributable to a particular risk associated with a highly probable forecast
transaction.
At the inception of a hedging relationship, the Group formally designates and documents the hedge relationship to which the
Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The
documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being
hedged and how the entity will assess the hedging instrument's effectiveness in offsetting the exposure to changes in the
hedged item's fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in
offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine their effectiveness in the
financial reporting periods for which they were designated.
Where the interest rate swaps meet the strict criteria for hedge accounting, the effective portion of the gain or loss on
the hedging instrument is recognised directly in equity, while any ineffective portion is recognised immediately in the
income statement.
Amounts taken to equity are transferred to the income statement when the hedged transaction affects profit or loss, such
as when the hedged financial income or financial expense is recognised or when a forecast transaction or firm
commitment occurs.
If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognised in equity
are transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without
replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in
equity until the forecast transaction or firm commitment occurs.
80
3 RETROSPECTIVE RESTATEMENT FOR CHANGE TO DEPRECIATION CALCULATION
The Group applies the unit of production depreciation methodology in the calculation of depreciation of its mine assets.
When this approach was adopted in connection with the Group's listing during 2006, as the future capital expenditure
associated with developing the undeveloped reserves and resources was not significant to the calculation, these depreciation
calculations included only the future costs of converting resources to reserves. Since the listing, the Group has extended both
the life, and throughput, of certain mines, and has opened, and subsequently expanded, two new mines. These actions, which
were completed in 2009, have led to an increase in the amount of undeveloped resources, and a disproportionate increase in
the associated future capital expenditure required to develop and access these reserves and resources.
As a result of these changed circumstances, during the year management identified that the existing depreciation calculations
were no longer effectively matching costs to production in the manner in which the unit of production approach is designed.
Consequently, the depreciation calculations were revised to include all the future capital expenditure associated with
developing these reserves and resources. Management believes that this revision will enable improved matching of costs
to production in the relevant period, and thereby will better reflect the Group's economic performance.
As required by IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”, the Group has retrospectively
applied this revised depreciation methodology by adjusting the comparative financial information contained in these financial
statements. The effect of this prior year, non-cash restatement on each of the primary financial statements is as follows:
Pre-exceptional consolidated income statement
Continuing operations
Cost of sales
Gross profit
Profit from continuing operations before net finance income/(cost), foreign exchange
(loss)/gain and income tax
Profit from continuing operations before income tax
Income tax expense
Profit/(loss) for the year from continuing operations
Attributable to:
Equity shareholders of the Company
Minority shareholders
Basic and diluted earnings per ordinary share from continuing operations and for the
year (expressed in US dollars per share)
Consolidated income statement
Continuing operations
Cost of sales
Gross profit
Impairment of property, plant and equipment
Profit from continuing operations before net finance income/(cost), foreign exchange
(loss)/gain and income tax
Profit/(loss) from continuing operations before income tax
Income tax expense
Loss for the year from continuing operations
Attributable to:
Equity shareholders of the Company
Minority shareholders
Basic and diluted earnings per ordinary share from continuing operations and for the
year (expressed in US dollars per share)
(Reported)
Year ended
31 December
2008
US$000
(Restated)
Year ended
31 December
2008
US$000
Effect of
restatement
US$000
(240,441)
193,338
(256,608)
177,171
(16,167)
(16,167)
86,268
61,442
(29,762)
31,680
70,101
45,275
(24,767)
20,508
(16,167)
(16,167)
4,995
(11,172)
24,643
7,037
15,782
4,726
(8,861)
(2,311)
0.08
0.05
(0.03)
(Reported)
Year ended
31 December
2008
US$000
(Restated)
Year ended
31 December
2008
US$000
Effect of
restatement
US$000
(240,675)
193,104
(34,706)
(256,842)
176,937
(30,212)
(16,167)
(16,167)
4,494
48,400
9,400
(22,914)
(13,514)
36,727
(2,273)
(19,267)
(21,540)
(11,673)
(11,673)
3,647
(8,026)
(19,003)
5,489
(24,718)
3,178
(5,715)
(2,311)
(0.06)
(0.08)
(0.02)
A
c
c
o
u
n
t
s
81
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
3 RETROSPECTIVE RESTATEMENT FOR CHANGE TO DEPRECIATION CALCULATION (CONTINUED)
Consolidated statement of financial position
ASSETS
Non-current assets
(Reported)
As at
31 December
2008
US$000
(Restated)
As at
31 December
2008
US$000
Effect of
restatement
US$000
Property, plant and equipment (including evaluation and exploration assets)
488,984
461,291
(27,693)
Deferred income tax assets
Total non-current assets
Current assets
Inventories
Total current assets
Total assets
EQUITY AND LIABILITIES
Capital and reserves attributable to shareholders of the Parent
Retained earnings
Minority interest
Total equity
Non-current liabilities
Deferred income tax liabilities
Total equity and liabilities
Consolidated statement of financial position
ASSETS
Non-current assets
20,795
21,811
1,016
705,366
678,689
(26,677)
49,220
51,855
309,132
311,767
2,635
2,635
1,014,498
990,456
(24,042)
182,612
167,767
(14,845)
68,843
66,293
(2,550)
543,018
525,623
(17,395)
15,839
9,192
(6,647)
1,014,498
990,456
(24,042)
(Reported)
As at
1 January
2008
US$000
(Restated)
As at
1 January
2008
US$000
Effect of
restatement
US$000
Property, plant and equipment (including evaluation and exploration assets)
263,062
249,061
(14,001)
Deferred income tax assets
Total non-current assets
Current assets
Inventories
Total current assets
Total assets
EQUITY AND LIABILITIES
Capital and reserves attributable to shareholders of the Parent
Retained earnings
Minority interest
Total equity
Non-current liabilities
Deferred income tax liabilities
Total equity and liabilities
82
22,400
26,162
3,762
329,592
319,353
(10,239)
47,012
47,628
491,660
492,276
616
616
821,252
811,629
(9,623)
229,202
220,072
(9,130)
50,008
49,769
(239)
616,048
606,679
(9,369)
9,091
8,837
(254)
821,252
811,629
(9,623)
3 RETROSPECTIVE RESTATEMENT FOR CHANGE TO DEPRECIATION CALCULATION (CONTINUED)
Consolidated statement of comprehensive income
Loss for the year
Total comprehensive income for the year
Total comprehensive income attributable to
Equity shareholders of the Company
Minority interest
(Reported)
Year ended
31 December
2008
US$000
(Restated)
Year ended
31 December
2008
US$000
(13,514)
(21,540)
(58,376)
(66,402)
(63,658)
(69,373)
5,282
2,971
Effect of
restatement
US$000
(8,026)
(8,026)
(5,715)
(2,311)
This restatement was non-cash in nature, and therefore had no impact on the consolidated cash flow statement.
The impact on the Consolidated statement of changes in equity is set out in that statement.
4 SEGMENT REPORTING
The Group’s activities are principally related to mining operations which involve the exploration, production and sale of gold
and silver. Products are subject to the same risks and returns and are sold through the same distribution channels. The
Group has a number of activities that exist solely to support mining operations including power generation and services.
Transfer prices between segments are set on an arm’s length basis in a manner similar to that used for third parties.
Segment revenue, segment expense and segment results include transfers between segments. Those transfers are
eliminated on consolidation.
For internal reporting purposes, management takes decisions and assesses the performance of the Group through
consideration of the following reporting segments:
– Operating unit – Ares, which generates revenue from the sale of gold and silver
– Operating unit – Arcata, which generates revenue from the sale of gold, silver and concentrate
– Operating unit – Selene, which generates revenue from the sale of gold, silver and concentrate (the Selene mine was closed
in June 2009. The Selene plant continues to process the ore from Pallancata).
– Operating unit – Pallancata, which generates revenue from the sale of concentrate
– Operating unit – San José, which generates revenue from the sale of gold, silver and concentrate
– Operating unit – Moris, which generates revenue from the sale of gold and silver
– Exploration, which explores and evaluates areas of interest in brownfield and greenfield sites with the purpose of extending
the life of mine of existing operations and to assess the feasibility of new mines. The exploration segment includes expenses
reflected through profit and loss and capitalised as assets.
The Group’s administration, financing, other activities (including other income and expense), and income taxes are managed
at a corporate level and are not allocated to operating segments.
Segment information is consistent with the accounting policies adopted by the Group. Management evaluates the financial
information based on International Financial Reporting Standards (IFRS) as adopted for use in the European Union.
The Group measures the performance of its operating units by the segment profit or loss that comprises gross profit and
selling expenses.
Segment assets include the items that could be allocated directly to the segment.
A
c
c
o
u
n
t
s
83
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
4 SEGMENT REPORTING (CONTINUED)
(a) Reportable segment information
Ares
US$000
Arcata
US$000
Selene
US$000
Pallancata
US$000
San José
US$000
Moris
US$000
Exploration
US$000
Other
US$000
Adjustment
and
eliminations
US$000
Total
US$000
53,312 141,574 10,757
160,416
147,102
26,440
–
–
–
–
–
–
53,312 141,574 10,757
160,416
147,102
26,440
–
–
–
140
–
539,741
3,027
3,167
(3,027)
(3,027)
–
539,741
18,907
74,922
(2,874)
84,810
41,767
7,674
(24,558)
(54,560)
8,722
154,810
Year ended
31 December 2009
Revenue for external
customers
Inter segment
revenue
Total revenue
Profit/(loss) from
continuing operations
before impairment
and income tax1,2
Other segment
information
Depreciation3
(5,362) (19,292)
(8,235)
(15,324)
(29,510)
(4,868)
(202)
(1,129)
Non-cash expenses
–
–
–
Impairment of
assets
Assets
(15,263)
–
(4,805)
Current assets
5,239
21,004
2,708
3,484
29,688 16,579
–
–
–
–
–
–
(6,185)
3,446
(10,091)
–
51,228
24,117
33,190
26,113
8,307
480
–
5,778
1,118
2,296
Capital expenditure
Other non-current
assets4
Total segment assets
Not reportable
assets
3,630
43,291 43,995
31,765
174,057
9,009
91,322
11,265
12,353
93,983 63,282
107,110
233,360
17,796
97,100
14,679
–
–
–
–
–
–
–
666,194
–
–
–
–
–
–
–
(83,922)
(6,185)
(26,713)
122,794
108,535
408,334
639,663
666,194
–
– 1,305,857
Total assets
12,353
93,983 63,282
107,110
233,360
17,796
97,100
680,873
1 The profit for each operating segment does not include administrative expenses of US$51,068,000, other income of US$13,283,000, other expenses of
US$20,577,000, impairment of property, plant and equipment of US$26,713,000, share of gains of associates and joint ventures of US$47,223,000, finance
income of US$28,684,000, finance cost of US$47,296,000, foreign exchange loss of US$256,000 and the positive effect of others of US$2,160,000.
2 The profit for the operating segments Ares, Arcata, Selene and Pallancata includes an exceptional item in cost of sales of US$6,918,000 (refer to note 7(1)).
3 Includes US$11,000 of depreciation capitalised in Minera Hochschild Mexico S.A. de C.V. due to the San Felipe project.
4 Includes the goodwill of San José unit amounting to US$2,091,000.
84
4 SEGMENT REPORTING (CONTINUED)
(a) Reportable segment information (continued)
Ares
US$000
Arcata
US$000
Selene
US$000
Pallancata
US$000
San José
US$000
Moris
US$000
Exploration
US$000
Other
US$000
Adjustments
and
eliminations
US$000
Total
US$000
Year ended
31 December 2008
Revenue for external
customers
Inter segment
revenue
105,998
119,945 37,142
56,307
88,891
25,372
–
–
163
1,381
22,805
–
Total revenue
105,998
119,945 37,305
57,688
111,696
25,372
–
–
–
124
–
433,779
5,270
(29,619)
–
5,394
(29,619)
433,779
Profit/(loss) from
continuing operations
before impairment
and income tax1,2,3
Other segment
information
Depreciation3,4
Non-cash expenses
Impairment of
assets3
Assets
Capital expenditure
Other non-current
assets3,5
Total segment assets
Not reportable
assets
–
–
–
–
–
–
–
–
–
(60,529)
(23,975)
(30,212)
99,203
311,271
152,111
562,585
427,871
990,456
44,936
60,045
4,358
18,544
31,751
2,314
(24,077) (139,308)
(836)
(2,273)
(5,381)
(16,842)
(6,837)
(9,428)
(15,763)
(5,013)
(111)
(1,154)
–
–
–
–
–
(9,157)
–
–
–
–
–
–
(23,975)
(5,652)
(15,403)
–
Current assets
9,149
22,944
6,859
10,438
43,977 47,226
27,671
14,619
26,580
80,398
4,867
2,234
–
1,133
63,386
48,993
9,271
15,010 12,681
22,745
106,102
7,354
11,714
(32,766)
28,858
81,931 66,766
65,035
213,080
14,455
75,100
17,360
–
–
–
–
–
–
– 427,871
Total assets
28,858
81,931 66,766
65,035
213,080
14,455
75,100 445,231
1 The profit for each operating segment does not include administrative expenses of US$69,878,000, other income of US$5,277,000, other expenses of
US$10,230,000, impairment of assets of US$30,212,000, share of losses of associates and joint ventures of US$8,214,000, finance income of US$13,296,000,
finance cost of US$36,921,000, foreign exchange loss of US$7,161,000 and the positive effect of others of US$4,735,000.
2 The profit for the operating segments Ares, Arcata, Selene and Pallancata includes an exceptional item in cost of sales of US$234,000 (refer to note 7(1)).
3 The amounts presented have been restated due to the retrospective restatement for change to depreciation calculation disclosed in note 3.
4 Includes US$111,000 of depreciation capitalised in Minera Hochschild Mexico S.A. de C.V. due to the San Felipe project.
5 Includes the goodwill of San José unit amounting to US$2,091,000.
A
c
c
o
u
n
t
s
85
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
4 SEGMENT REPORTING (CONTINUED)
(b) Geographical segment reporting
Based on the entity-wide disclosure stated in IFRS 8, the revenue for the period based on the country in which the customer
is located is as follows:
External customer
USA
Peru
Mexico
Belgium
Canada
Germany
Switzerland
United Kingdom
Korea
Chile
Total
Inter-segment
Peru
Mexico
Total
Year ended 31 December
2009
US$000
2008
US$000
130,126
159,339
–
–
98,960
84,121
57,549
1,925
7,721
–
539,741
130,631
125,171
15
6,011
50,465
54,570
66,883
–
–
33
433,779
1,161
1,866
542,768
25,164
4,455
463,398
In the periods set out below, certain customers accounted for greater than 10% of the Group’s total revenues as detailed in
the following table:
Year ended 31 December 2009
Year ended 31 December 2008
US$000 % Revenue
Segment
US$000 % Revenue
Segment
International Commodities Inc
61,979
11%
Teck Metals Ltd. (formerly Teck Cominco Metals Ltd)
98,960
18%
Consorcio Minero S.A.
155,182
29%
Aurubis AG (formerly Nordeutsche Affinerie AG)
84,121
16%
Ares,
Arcata,
Selene,
Moris
Arcata,
Selene,
Pallancata
Arcata,
Pallancata,
San José
Selene,
Pallancata,
San José
Ares,
Arcata,
Selene,
Moris
Arcata,
Selene,
Pallancata
Arcata,
Pallancata
Selene,
Pallancata,
San José,
Ares
18,729
4%
50,465
12%
87,281
20%
54,570
13%
86
4 SEGMENT REPORTING (CONTINUED)
Based on the entity-wide disclosure requirements set out in IFRS 8, non-current assets, excluding financial instruments and
income tax assets, were allocated based on the geographical area where the assets are located as follows:
Peru
Argentina
Mexico
Chile
Canada
USA
United Kingdom
Total non-current segment assets
Available-for-sale financial assets
Trade and other receivables
Deferred income tax assets
Income tax receivable
Total non-current assets
5 ACQUISITIONS
As at 31 December
2009
US$000
242,170
200,384
49,328
54
24,902
–
451,038
967,876
19,181
3,150
15,852
1,302
(Restated)
2008
US$000
228,466
186,646
47,979
59
–
26
136,802
599,978
17,794
38,304
21,811
802
1,007,361
678,689
(a) Acquisition of subsidiaries
Southwestern Resources Corporation
On 21 May 2009, the Group acquired a 100% interest of Southwestern Resources Corp. (“Southwestern”), a mineral
exploration company with a number of gold, silver and base metals projects adjacent to the Group’s operations in southern
Peru. The acquisition has been accounted for using the purchase method of accounting.
As at 30 June 2009, net assets were determined on a provisional basis. During the second half of 2009 the determination
of fair value has been finalised and adjustments have been made to the balances previously reported.
The net assets acquired in the transaction and the negative goodwill arising were as follows:
Cash and cash equivalents
Available-for-sale financial assets
Investment in associate
Property, plant and equipment
Other assets
Deferred income tax liability
Other current liabilities
Net assets
Negative goodwill arising on acquisition (refer to note 12)
Total acquisition cost
Provisional
fair value
US$000
5,349
949
1,669
24,266
360
(2,959)
(581)
29,053
(9,807)
19,246
Adjustments
to fair value
US$000
Updated fair
value
US$000
–
–
(1,308)
5,349
949
361
–
24,266
(160)
(704)
59
200
(3,663)
(522)
(2,113)
26,940
2,113
–
(7,694)
19,246
A
c
c
o
u
n
t
s
The total acquisition cost of US$19,246,000 comprised a cash payment of US$19,056,000 and cost of US$190,000 directly
attributable to the acquisition.
The revenue of the entity, if the acquisition date was the start of the period, was nil.
The loss of the entity, if the acquisition date was the start of the period, was US$75,073.
87
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
5 ACQUISITIONS (CONTINUED)
(b) Acquisition of associates
Lake Shore Gold Corp.
During 2008, the Group acquired a 39.99% interest in Lake Shore Gold Corp. (“Lake Shore Gold”), a gold mining company
listed on the Toronto Stock Exchange for a total consideration of US$163,997,000. The acquisition was made in the following
tranches:
– 19.99% acquired through a share issue on 19 February 2008 for US$64,806,000.
– 15.00% acquired through a share issue on 13 June 2008 for US$78,029,000.
– 5.00% acquired from a third party on 23 June 2008 for US$21,162,000.
The interest in Lake Shore Gold gives the Group the right to exercise significant influence over that company. In compliance
with the Group’s policy and IAS 28, the investment has been treated as an associate and accounted for using the equity
method.
On 9 March 2009 the Group acquired 14,900,000 shares of Lake Shore for US$18,003,000 as part of its commitment to
participate in the bought-deal financing agreement entered into by Lake Shore. After completion of the transaction, the
Group’s ownership in Lake Shore was maintained at 39.99%.
On 6 November 2009 Lake Shore Gold acquired all of the outstanding common shares of West Timmins Mining Inc. (“West
Timmins”) by issuing 103,951,125 common shares and 8,550,264 options and warrants. At the date of the transaction the
Group held an interest of 18.40% in West Timmins (acquired between August and November of 2009 for a total consideration
of US$63,782,000). As a consequence of the transaction the Group’s interest in Lake Shore Gold was diluted from 39.99% to
26.10% and a net gain of US$42,279,000 was recognised as an exceptional item in the consolidated income statement within
the caption “Share on post tax profit/loss of associates” (refer to note 19 (a)). On the same day, 28.3 million shares held by the
Group in West Timmins were converted into 20.7 million shares in Lake Shore Gold, increasing the Group’s interest in Lake
Shore Gold to 32.20%.
During December 2009 the Group acquired an additional interest of 3.88% in Lake Shore Gold for a total consideration of
US$86,168,000. Also, at 31 December 2009 the accumulated interest held by the Group of 36.09% was diluted to 35.69% due
to the issuance of a package of shares, options and warrants by Lake Shore Gold. The total loss recognised in connection with
the dilution of US$4,493,000 is recognised as an exceptional item in the consolidated income statement within the caption
“Share on post tax profit/loss of associates” (refer to note 19 (a)).
Gold Resource Corporation
In connection with the Strategic Alliance Agreement signed with Gold Resource Corporation, an underground precious
metals mining company with a number of development projects in Mexico, the Group purchased 1,670,000 common shares
(4.9%) for US$5,010,000 on 5 December 2008. The Group also acquired an option to purchase a further 4,330,000 common
shares for US$12,990,000 (US$3 per share).
On 25 February 2009, the Group exercised its option to purchase a further 4,330,000 common shares. As a result of the
acquisition of the second tranche, the Group held a 13.6% interest in Gold Resource Corporation and appointed one of the
four directors, giving the Group significant influence over that company. In compliance with the Group’s policy and IAS 28,
the investment has been treated as an associate and accounted for using the equity method since 25 February 2009.
On 30 June 2009, the Group exercised its option to purchase an additional 5,000,000 common shares for a total cash
consideration of US$20,000,000.
The purchase was completed in two tranches: US$5,000,000 which closed on 30 June 2009 and a second tranche of
US$15,000,000 which closed on 20 July 2009.
On 16 December 2009, the Group purchased 1,954,795 common shares for a total cash consideration of US$16,000,000.
As at 31 December 2009 the Group owns a 25.0% interest in Gold Resource Corporation.
(c) Acquisition of minority interest
Minas Santa Maria de Moris
On 5 June 2009, the Group acquired the remaining 30% interest in Minas Santa Maria de Moris from its former partner
Exmin S.A. de C.V., obtaining full ownership of its subsidiary for a total cash consideration of US$1,500,000.
In compliance with the Group’s accounting policy, the difference between the consideration paid of US$1,500,000 and
the carrying value of the minority interest at the acquisition date of US$5,650,000 has been recognised as an increase
of retained earnings.
The revenue of the entity in the period, if the acquisition date was the start of the period was US$26,440,000.
The profit of the entity in the period, if the acquisition date was the start of the period was US$9,074,000.
88
6 REVENUE
Gold (from doré)
Silver (from doré)
Concentrate
Services
Total
The concentrate sold contained:
Gold
Silver
Other minerals
Total concentrate
As at 31 December
2009
US$000
2008
US$000
107,521
71,546
360,534
140
539,741
124,772
98,738
210,145
124
433,779
As at 31 December
2009
US$000
90,516
269,930
88
2008
US$000
44,451
165,339
355
360,534
210,145
Included within revenue is a gain of US$27,538,526 relating to provisional pricing adjustments representing the change in the
fair value of embedded derivatives (2008: loss of US$14,561,723) arising on sales of concentrates and doré (refer to notes 2(r)
and 23(3)).
The total volumes of gold and silver sold are as follows:
Total in thousands of ounces:
Gold
Silver
7 COST OF SALES
Included in cost of sales are:
As at 31 December
2009
2008
204
23,563
198
20,593
Depreciation
Personnel expenses1
Mining royalty
Change in products in process and finished goods
Year ended 31 December 2009
Year ended 31 December 2008
Before
exceptional
items
US$000
Exceptional
items
US$000
83,426
51,284
9,458
8,066
–
6,918
–
–
(Restated)
Before
exceptional
items
US$000
59,559
47,286
5,935
7,291
Total
US$000
83,426
58,202
9,458
8,066
Exceptional
items
US$000
(Restated)
Total
US$000
–
59,559
234
47,520
–
–
5,935
7,291
A
c
c
o
u
n
t
s
1 The exceptional item corresponds to a one-off bonus paid to the mining workers in Peru (2008: The exceptional item corresponds to termination benefits paid to
employees due to the restructuring undertaken by the Group at the end of 2008).
89
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
8 ADMINISTRATIVE EXPENSES
Personnel expenses1
Professional fees
Social and community welfare expenses2
Lease rentals
Travel expenses
Communications
Indirect taxes
Depreciation
Amortisation of software licences
Contribution to Peruvian Government
Technology and systems
Security
Supplies
Other
Total
Year ended 31 December 2009
Year ended 31 December 2008
Before
exceptional
items
US$000
25,381
6,637
5,971
1,653
1,435
125
2,283
485
311
870
1,192
286
303
4,136
51,068
Exceptional
items
US$000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Before
exceptional
items
US$000
35,504
10,012
4,635
1,447
2,696
732
3,159
859
266
944
1,204
587
466
6,240
Exceptional
items
US$000
1,127
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
US$000
36,631
10,012
4,635
1,447
2,696
732
3,159
859
266
944
1,204
587
466
6,240
68,751
1,127
69,878
Total
US$000
25,381
6,637
5,971
1,653
1,435
125
2,283
485
311
870
1,192
286
303
4,136
51,068
1 The exceptional item corresponds to termination benefits paid to employees due to the restructuring undertaken by the Group at the end of 2008.
2 Represents amounts expended by the Group on social and community welfare activities surrounding its mining units.
90
9 EXPLORATION EXPENSES
Mine site exploration1
Arcata
Ares
Selene
Pallancata
San José
Moris
Prospects2
Peru
Argentina
Mexico
Chile
Generative3
Peru
Argentina
Mexico
Chile
China
Mining rights
Personnel4
Other
Total
Year ended 31 December 2009
Year ended 31 December 2008
Before
exceptional
items
US$000
Exceptional
items
US$000
Before
exceptional
items
US$000
Exceptional
items
US$000
Total
US$000
1,345
–
–
701
451
–
2,497
93
1,016
222
1,501
2,832
3,142
122
580
280
231
4,355
537
6,085
3,635
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,049
–
1,345
1,333
–
–
701
451
–
869
859
151
547
527
2,497
4,286
93
1,016
222
1,501
2,832
3,142
122
580
280
231
4,355
537
7,134
3,635
286
193
2,676
2,450
5,605
501
126
902
1,708
–
3,237
398
6,498
3,817
19,941
1,049
20,990
23,841
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
69
–
69
Total
US$000
1,333
869
859
151
547
527
4,286
286
193
2,676
2,450
5,605
501
126
902
1,708
–
3,237
398
6,567
3,817
23,910
1 Mine-site exploration is performed with the purpose of identifying potential minerals within an existing mine-site, with the goal of maintaining or extending the
mine’s life. Once an inferred resource has been identified, costs incurred converting it to indicated and measured resources are capitalised.
2 Prospects expenditure relates to detailed geological evaluations in order to determine zones which have mineralisation potential that is economically viable for
exploration. Exploration expenses are generally incurred in the following areas: detail mapping, detail sampling, geophysics, identification of local targets and
reconnaissance drilling.
3 Generative expenditure is very early stage exploration expenditure related to the basic evaluation of the region to identify prospects areas that have the
geological conditions necessary to contain mineral deposits. Related activities include regional and field reconnaissance, satellite images, compilation of public
information and identification of exploration targets.
4 The exceptional item corresponds to the termination benefits paid to the workers of the companies of the Southwestern Group (2008: corresponds to
termination benefits paid to employees due to the restructuring undertaking by the Group at the end of 2008).
A
c
c
o
u
n
t
s
91
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
9 EXPLORATION EXPENSES (CONTINUED)
The following table lists the liabilities (generally payables) outstanding at the year end, which relate to the exploration
activities of Group companies engaged only in exploration. Liabilities related to exploration activities incurred by Group
operating companies are not included since it is not possible to separate the liabilities related to the exploration activities
of these companies from their operating liabilities.
Liabilities related to exploration activities
Cash flows of exploration activities are as follows:
Payments
10 SELLING EXPENSES
Transportation of doré, concentrate and maritime freight1
Sales commissions
Personnel expenses
Warehouse services2
Other
Total
1 Increase compared to 2008 mainly due to more tonnes of concentrate sold.
2 Increase compared to 2008 mainly due to more tonnes of concentrate sold and higher prices, leading to higher export duties paid.
As at 31 December
2009
US$000
2008
US$000
965
1,247
As at 31 December
2009
US$000
2008
US$000
7,469
8,304
As at 31 December
2009
US$000
2008
US$000
7,493
1,145
270
10,223
1,874
21,005
4,636
1,144
97
4,022
1,358
11,257
92
11 PERSONNEL EXPENSES
Salaries and wages1
Workers’ profit sharing2
Other legal contributions3
Termination benefits4
Statutory holiday payments
Executive Long-Term Incentive Plan (note 27(2))
Other
Total
As at 31 December
2009
US$000
2008
US$000
67,770
2,073
8,859
3,989
3,867
–
6,804
93,362
65,984
4,273
12,873
4,096
3,683
302
3,260
94,471
1 Included in salaries and wages is the Directors’ remuneration (refer to note 31(b)) and defined pension contributions of US$440,169 (2008: US$524,869).
2 In accordance with Peruvian Legislation, companies in Peru must provide for workers’ profit sharing equivalent to 8% of taxable income of each year.
Mexican Law also requires Mexican companies to provide for workers’ profit sharing equivalent to 10% of the profit of each year.
3 Corresponds to legal obligations as the deposit of compensation for services rendered, pension plans and contributions to Government entities.
4 The amount includes US$1,049,000 termination benefits paid to the workers of the companies of the Southwestern Group (2008: Includes US$1,430,000
termination benefits paid to employees due to the restructuring undertaking by the Group at the end of 2008).
Personnel expenses are distributed as follows:
As at 31 December
2009
US$000
2008
US$000
58,202
25,381
7,134
270
2,375
93,362
47,520
36,631
6,567
97
3,656
94,471
As at 31 December
2009
2,282
838
158
13
8
2008
2,084
699
217
21
12
3,299
3,033
A
c
c
o
u
n
t
s
Cost of sales (refer to note 7)
Administrative expenses (refer to note 8)
Exploration expenses (refer to note 9)
Selling expenses (refer to note 10)
Property, plant and equipment
Total
Average number of employees for 2009 and 2008 were as follows:
Peru
Argentina
Mexico
Chile
United Kingdom
Total
93
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
12 OTHER INCOME AND OTHER EXPENSES
Year ended 31 December 2009
Year ended 31 December 2008
Other income:
Export incentive (refer to note 21(2))
Gain on recovery of expenses
Gain on sale of property, plant and equipment
Lease rentals
Recovery of impairment of deposits in Kaupthing,
Singer and Friedlander Bank1
Negative goodwill on acquisition of subsidiary
(refer to note 5)
Reversal of Electroperú contingency2
Other
Total
Other expenses:
Increase in provision for mine closure3
Impairment of deposits in Kaupthing,
Singer and Friedlander Bank1
Electroperú contingency2
Cost of maintenance of equipment
Termination benefits4
Loss on sale of other assets
Compensation claims provision5
Provision for obsolescence of supplies6
Impairment of trade receivables7
Other
Total
Before
exceptional
items
US$000
Exceptional
items
US$000
Before
exceptional
items
US$000
Exceptional
items
US$000
Total
US$000
1,921
2,622
–
–
153
–
584
7,694
351
–
472
153
302
584
7,694
351
1,806
8,782
13,283
225
–
217
–
–
–
1,961
5,025
Total
US$000
2,622
225
252
217
–
–
–
1,961
5,277
–
–
252
–
–
–
–
–
252
–
–
–
–
(662)
–
–
(585)
–
(11,526)
(3,216)
–
(3,216)
–
–
–
(662)
(1,635)
(1,850)
(1,713)
(1,116)
(2,075)
–
–
(1,165)
–
–
(354)
(634)
(336)
(2,541)
(1,292)
(1,292)
(692)
–
–
–
–
–
–
–
(692)
(1,165)
–
–
(354)
(634)
(336)
(2,541)
1,921
472
–
302
–
–
–
1,806
4,501
(11,526)
–
–
–
–
(1,635)
(1,850)
(1,128)
(1,116)
(2,075)
(19,330)
(1,247)
(20,577)
(8,246)
(1,984)
(10,230)
1 Most of those funds were recovered during 2009 and therefore an exceptional gain recognised to reverse part of the impairment recorded during 2008.
In 2008, this amount represented the impairment of cash deposits with Kaupthing, Singer and Friedlander Bank which went into administration in
October 2008.
2 Compañía Minera Ares has a dispute with Electroperú S.A. regarding the electric power during November and December 2002, and January, February and
March 2003 which was simultaneously billed by Electroperú and Sociedad Eléctrica del Sur Oeste S.A. (SEAL). Compañía Minera Ares has filed a claim with
Osinergim (the Peruvian power regulator) claiming that the billing should be only for the actual power consumed by the company and that Electroperú and
SEAL should each have half the billing. Electroperú has filed an administrative court action against the resolution issued by Osinergim and initiated an
arbitration process seeking to additionally collect S/.832,135 (US$264,842) plus interest. Management, having consulted legal counsel, considered that there
was a reasonable possibility that the outcome of these proceedings would not be favourable for Compañía Minera Ares, and accordingly had provided in full for
the claim during 2008. At the end of 2009 the calculation was updated, determining a reversal of US$351,000 to reflect the actual estimation of the claim amount.
3 In 2009 corresponds to changes in the estimated mine closure costs of closed operations in Peru of US$11,800,000 (2008: US$2,288,000), refer to note 27 (1);
net of the gain generated due to the change in the discount rate of US$274,000 (2008: loss of US$928,000).
4 Represents the termination benefits paid to the employees due to the closing of the Selene mine.
5 Corresponds to compensation claims provisions related to the Peruvian companies.
6 Mainly corresponds to the write-off of supplies at the Sipan mine that could not be sold or used in the other mining units of Peru and the obsolescence of
supplies at the Selene mine due to the closure of the mine.
7 Mainly corresponds to the impairment of a trade receivable from a customer in Peru. In 2008, mainly corresponds to the amount accrued for impairment
of other receivables.
94
13 FINANCE INCOME AND FINANCE COSTS
Finance income:
Interest on time deposits1
Gain from changes in the fair value of financial
instruments2
Gain on sale of available-for-sale financial assets3
Gain on exchange of available-for-sale financial assets4
Interest on loans to minority shareholders (note 21)
Change in discount rate5
Interest on loans to third parties
Other
Total
Finance costs:
Interest on bank loans and long-term debt
Interest on convertible bond (note 26)
Unwind of discount rate6
Loss from changes in the fair value of forward
contracts7
Loss from changes in the fair value of financial
instruments8
Impairment of available-for-sale financial assets9
Premium paid on purchase of available-for-sale
financial assets10
Other
Total
Year ended 31 December 2009
Year ended 31 December 2008
Before
exceptional
items
US$000
Exceptional
items
US$000
Before
exceptional
items
US$000
Exceptional
items
US$000
Total
US$000
Total
US$000
819
–
819
5,934
–
5,934
–
–
–
9,045
623
9,045
623
12,632
12,632
2,609
2,837
–
119
–
–
–
–
2,609
2,837
–
119
304
–
–
2,623
–
47
474
2,301
1,613
–
–
–
–
–
2,605
1,613
–
2,623
–
47
474
6,384
22,300
28,684
9,382
3,914
13,296
(13,976)
(1,663)
(278)
(25,962)
–
–
–
–
(13,976)
(1,663)
(278)
(25,962)
(2,452)
(1,256)
(3,708)
–
–
–
–
–
–
(13,387)
–
(4,590)
–
–
–
–
(1,709)
(1,709)
(856)
–
–
–
–
(13,387)
–
(4,590)
–
(6,246)
(6,246)
(11,421)
(11,421)
(421)
–
(421)
(856)
(46,040)
(1,256)
(47,296)
(18,833)
(18,088)
(36,921)
1 Mainly corresponds to interest on liquidity funds (refer to note 24).
2 In 2009, the amount mainly corresponds to the gain realised upon the exercise of an option over shares in Gold Resource Corp. on 25 February 2009 of
US$5,493,000, the gain of the option contract to buy 3,750,000 shares of Gold Resource Corp. of US$1,912,500 and the change in the fair value of Fortuna Silver
Mine Inc. warrants of US$1,639,000. In 2008, the amount corresponds to the change in the fair value of the option over 4,330,000 shares of Gold Resource
Corp. of US$2,301,000 and a gain of US$304,000 due to changes in the fair value of derivative instruments according to the contracts signed in December 2008
with Citibank and INTL Commodities Inc. with the intention of removing the risk of fluctuations in metal prices (refer to note 23(4)).
3 In 2009, corresponds to the sale of 3,287,570 shares in Fortuna Silver Mines Inc. resulting in a realised gain of US$623,000 which has been recycled from
equity into the income statement. In 2008, corresponds to the sale of 1,660,150 shares in Fortuna Silver Mines Inc. at a price of CAD$2 per share for a total
consideration of CAD$3,320,300 (US$3,321,450) resulting in a realised gain of US$1,613,000 which has been recycled from equity into the income statement.
4 Mainly corresponds to the gain from change in the fair value of West Timmins Mining Inc. shares. Between August and November of 2009 the Group acquired
18.4% interest in West Timmins Mining Inc. for a total consideration of US$63,782,000. These shares were subsequently exchanged for Lake Shore Gold
shares on 6 November 2009 realising a gain of US$12,129,000 (includes transaction costs of US$394,000). In addition includes the gain for receiving shares of
Dia Bras Exploration due to the merger with EXMIN Resources Inc. of US$391,000 and for receiving shares of Lara Exploration Ltd. due to the merger with
Maxy Gold Corp. of US$112,000.
5 Corresponds to the gain arising on the reduction in the discount rate used to the calculation of the recoverable amount of VAT of Minera Santa Cruz of
US$2,837,000 (2008: Nil).
6 In 2009, corresponds to the unwind of the discount on the provision for mine closure of US$278,000. In 2008 corresponds to the unwind of the discount on the
provision for mine closure of US$669,000 (refer to note 27) and the unwind of discount on VAT of Minera Santa Cruz of US$3,921,000.
7 Corresponds to the realised loss due to changes in the fair value of derivative instruments, being the future contracts of gold and silver signed with Citibank,
JP Morgan and INTL Commodities Inc. with the intention to remove the risk of the fluctuations in metal prices.
8 In 2009, corresponds to the loss due to changes in the fair value of the zero cost collar contracts signed by Cia. Minera Ares during the period. These contracts
relate to 5,200,000 ounces of silver, with a cap of US$17/oz for 1,400,000 ounces, US$19.5/oz for 400,000 ounces and US$19.95/oz for 400,000 ounces, and a
floor of US$11.00/oz and contracts with a cap of US$20.92/oz and floor of US$13.80/oz for 1,500,000 ounces, and a cap of US$21/oz and a floor of US$14/oz
for 1,500,000 ounces. The contracts expire between January and December 2010. In addition it includes a loss of US$1,256,000 relating to the fair value of the
swap contract signed with BBVA and Citibank to fix the interest rate of the JP Morgan led syndicated loan in 1.75% (refer to note 26). In 2008, mainly
corresponds to the change in fair value of warrants in Fortuna Silver Mines Inc. of US$6,245,000 (refer to note 23(1)).
9 Corresponds to the impairment of the investment in the shares of EXMIN (US$8,229,000), Mirasol Resources Inc. (US$323,000), Electrum Capital Inc.
(US$2,637,000), Fortuna River (US$157,000) and Ventura Gold Corp. (US$75,000).
10 Corresponds to the premium paid on the acquisition of the shares of Iron Creek Capital Corp. and Mariana Resources Ltd. amounting to US$173,000 and
A
c
c
o
u
n
t
s
US$248,000 respectively.
95
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
13 FINANCE INCOME AND FINANCE COSTS (CONTINUED)
Interest income and expense from assets and liabilities that are not at fair value through the profit and loss are as follows:
Interest income from financial assets that are not at fair value through the profit and loss
Interest expense from financial liabilities that are not at fair value through the profit and loss
Total
14 INCOME TAX EXPENSE
As at 31 December
2009
US$000
2008
US$000
3,428
(15,639)
(12,211)
8,604
(13,387)
(4,783)
Current tax:
Current tax charge from continuing operations
Deferred taxation:
Origination and reversal of temporary differences from
continuing operations (note 29)
Withholding taxes
Year ended 31 December 2009
Year ended 31 December 2008
Before
exceptional
items
US$000
Exceptional
items1
US$000
Before
exceptional
items
US$000
Exceptional
items
US$000
Total
US$000
Total
US$000
30,946
30,946
(2,275)
(2,275)
28,671
28,671
13,058
13,058
(56)
(56)
13,002
13,002
12,486
12,486
1,256
(8,943)
(8,943)
–
3,543
3,543
1,256
10,814
(5,444)
10,814
(5,444)
895
–
5,370
5,370
895
Total taxation charge in the income statement
44,688
(11,218)
33,470
24,767
(5,500)
19,267
1 This amount corresponds to the related tax impact of exceptional items (refer to note 2(y)). This principally relates to a current tax credit of US$2,076,000 in
connection with the one-off bonus paid to the mining workers in Peru (2008: Nil) and US$9,048,000 deferred tax credit in connection with an impairment loss
recognised in the period (2008: US$3,736,000).
The weighted average statutory income tax rate was 30.1% for 2009 and 7.5% for 2008. This is calculated as the average of
the statutory tax rates applicable in the countries in which the Group operates, weighted by the profit/(loss) before tax of the
Group companies in their respective countries as included in the consolidated financial statements.
The change in the weighted average statutory income tax rate is due to a change in the weighting of profit/(loss) before tax
in the various jurisdictions in which the Group operates.
96
14 INCOME TAX EXPENSE (CONTINUED)
The total taxation charge on the Group’s profit before tax differs from the theoretical amount that would arise using the
weighted average tax rate applicable to the consolidated profits of the Group companies as follows:
Profit from continuing operations before income tax
At average statutory income tax rate of 30.1% (2008: (7.5)%)
Expenses not deductible for tax purposes
Non-taxable income
Non-taxable negative goodwill1
Deferred tax recognised on special investment regime2
Recognition of previously unrecognised deferred tax assets3
Non-taxable share of (gains)/losses of associates
Net deferred tax assets generated in the year not recognised
Change in tax regime4
Change in statutory Income Tax Rate5
Foreign exchange rate effect6
Derecognition of deferred tax assets previously recognised7
Other
At average effective income tax rate of 21.62% (2008: 847.65%)
Taxation charge attributable to continuing operations
Total taxation charge in the income statement
As at 31 December
2009
US$000
154,810
46,702
2,049
(6,662)
(2,308)
(629)
(4,222)
(13,276)
11,204
(2,002)
(786)
25
4,790
(1,415)
33,470
33,470
33,470
(Restated)
2008
US$000
(2,273)
171
5,315
(2,055)
–
(6,063)
(1,102)
2,534
13,871
(1,544)
786
7,731
–
(377)
19,267
19,267
19,267
1 Corresponds to non-taxable negative goodwill on acquisition of Southwestern Group.
2 Corresponds to the deferred tax income asset recognised for the additional tax losses generated during the year arising from the double deduction claimed
for tax purposes by Minera Santa Cruz during the year (refer to note (i)).
3 Increase in 2009 mainly corresponds to recognised tax losses upon tax restructuring in Mexican companies of US$7,392,000 and the use of previously
unrecognised tax losses in 2009 of US$7,687,000. In 2008, mainly corresponds to the tax effect of certain mine closure expenses which are now expected
to be deductible against taxable income, when incurred.
4 Corresponds to the effect of the change in the Mexican tax regime (refer to note (ii)).
5 Corresponds to an increase in the statutory corporate income tax rate for the Arcata mining unit from 30% to 32% with effect from 1 January 2009.
This increase was reversed during 2009 as the Group opted out of certain clauses of the stability agreement, including the increase of 2% in income tax
(refer to note 36).
6 Mainly corresponds to the foreign exchange effect from converting tax bases and monetary items from local currency to the functional currency.
7 Relates to the reversal of a deferred tax asset previously recognised as the ability to utilise this potential deferred tax asset against future taxable profits
is now uncertain.
A
c
c
o
u
n
t
s
97
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
14 INCOME TAX EXPENSE (CONTINUED)
(i) Special investment regime
Minera Santa Cruz benefits from a special investment regime that allows for a double deduction in the calculation of its
corporate income tax liability for all costs relating to prospecting, exploration and metallurgical analysis, pilot plants and
other expenses incurred for the feasibility studies for mining projects. The investment recognised under this regime
amounted to US$1,800,000 in 2009 (2008: US$17,300,000). No significant further deduction under this special investment
regime is expected in 2010 and subsequent years.
(ii) Change in Mexican tax regime
On 28 September 2007, the Mexican Government enacted a bill for tax reform that significantly changed the current income
tax structure in Mexico. Effective from 1 January 2008, the tax reform requires companies to pay tax equal to the greater of
the tax charge calculated under the new flat rate business tax (“IETU” as abbreviated in Spanish) or the tax charge calculated
under the current income corporate tax regime (“ISR” as abbreviated in Spanish).
The Group has performed an analysis of the future impact of this tax reform on its Mexican companies and has determined
that Santa Maria de Moris S.A. de C.V. (the operator of the Moris mine) will be required to pay ISR Tax instead of IETU in each
period until the end of the mine’s life. Therefore, at 31 December 2009 the Group reversed the deferred tax liability of
US$2,002,000 recognised at 31 December 2008 in connection with IETU.
15 BASIC AND DILUTED EARNINGS PER SHARE
Earnings per share (“EPS”) is calculated by dividing profit for the year attributable to equity shareholders of the Company
by the weighted average number of ordinary shares issued during the year.
The Company has dilutive potential ordinary shares.
As at 31 December 2009 and 2008, EPS has been calculated as follows:
Profit/(loss) for the year and from continuing operations attributable
to equity holders of the Company US$000
Weighted average number of ordinary shares in issue (thousands)
Weighted average number of ordinary shares in issue and dilutive potential ordinary shares
(thousands)
Basic and earning/(loss) per share from:
Before exceptional items US$
Exceptional items US$
Total for the year and from continuing operations US$
Diluted earning/(loss) per share from:
Before exceptional items US$
Exceptional items US$
Total for the year and from continuing operations US$
As at 31 December
2009
2008
98,080
314,043
(24,718)
307,350
317,607
307,350
0.17
0.14
0.31
0.17
0.14
0.31
0.05
(0.13)
(0.08)
0.05
(0.13)
(0.08)
98
Transfers and other movements
(2,192)
30,748
68,535
Mining
properties
and
development
costs
US$000
Land and
buildings
US$000
Plant and
equipment1
US$000
Vehicles
US$000
Mine
closure
asset
US$000
Construction
in progress
and capital
advances
US$000
Total
US$000
157,711
65,435
105,946
2,824
38,288
14,021
384,225
79,496
4,253
9,375
–
–
–
–
–
–
–
–
–
(120)
(24)
–
2,960
(125)
(32)
–
–
–
–
(43)
(467)
(69)
77
–
(158)
–
–
746
–
–
–
149,759
242,960
3,113
–
–
280
–
–
–
–
–
(97,837)
–
–
–
–
–
(10)
3,113
(278)
(24)
280
–
2,960
(125)
(621)
237,818
100,393
183,245
3,420
41,681
65,933
632,490
50,027
14,001
64,028
37,918
5,582
–
–
(12)
–
12,858
31,749
–
12,858
7,697
754
–
31,749
13,729
6,286
–
–
–
2
(54)
(4)
–
(78)
860
–
860
455
105
(84)
–
–
(30)
31,703
–
31,703
730
943
–
–
–
–
–
–
–
–
788
–
–
–
–
127,197
14,001
141,198
60,529
14,458
(138)
(4)
(12)
(106)
107,516
21,311
51,628
1,306
33,376
788
215,925
130,302
79,082
131,617
2,114
8,305
65,145
416,565
A
c
c
o
u
n
t
s
16 PROPERTY, PLANT AND EQUIPMENT
Year ended 31 December 2008
Cost
At 1 January 2008
Additions
Change in discount rate
Disposals
Write-off
Change in mine closure estimate
Transfers from Evaluation and exploration
assets
Sales during preoperating stage in Minera
Santa Cruz
Foreign exchange
At 31 December 2008
Accumulated depreciation and impairment
At 1 January 2008
Restatement of depreciation
At 1 January 2008, as restated
Depreciation for the year
Impairment2
Disposals
Write-off
Sales during preoperating stage in Minera
Santa Cruz
Foreign exchange
At 31 December 2008
Net book amount at
31 December 2008, as restated
99
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
16 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Year ended 31 December 2009
Cost
At 1 January 2009
Additions
Acquisition of subsidiary
Change in discount rate
Disposals
Write-off
Change in mine closure estimate
Reclassification to intangibles
Transfers and other movements
Transfer to Evaluation and exploration
assets
Foreign exchange
At 31 December 2009
Accumulated depreciation and impairment
At 1 January 2009
Depreciation for the year
Write-off2
Impairment3
Disposals
Reclassification to intangibles
Foreign exchange
At 31 December 2009
Net book amount at
31 December 2009
Mining
properties
and
development
costs
US$000
Land and
buildings
US$000
Plant and
equipment1
US$000
Vehicles
US$000
Mine
closure
asset
US$000
Construction
in progress
and capital
advances
US$000
Total
US$000
237,818
100,393
183,245
3,420
41,681
65,933
632,490
381
16,032
50,969
23,800
–
(1,148)
–
–
–
(27,718)
(1,894)
–
–
–
–
–
10,244
(1,921)
2,087
–
3
347
–
(1,639)
(5,496)
–
(5,891)
28,433
–
546
160
119
–
(96)
(162)
–
–
255
–
12
–
–
(1,770)
–
–
15,220
–
–
–
–
32,357
–
–
(169)
99,899
24,266
(1,770)
(3,052)
62
(35,208)
–
–
(38,932)
15,220
(5,891)
–
–
33
(1,921)
2,681
283,887
109,127
215,577
3,708
55,131
59,284
726,714
107,516
45,229
(26,666)
9,671
–
–
–
21,311
13,719
(1,147)
4,390
–
51,628
23,345
(2,924)
5,093
(956)
(606)
(1,559)
–
141
1,306
33,376
788
215,925
375
(80)
50
(110)
–
–
1,254
130
2,172
–
–
–
–
–
83,922
(30,687)
310
21,686
–
–
–
(1,066)
(2,165)
141
135,750
37,667
74,768
1,541
36,932
1,098
287,756
148,137
71,460
140,809
2,167
18,199
58,186
438,958
1 The carrying value of plant and equipment held under finance leases at 31 December 2009 was US$11,177,000 (2008: US$7,482,000). Additions during the year
included US$6,058,000 (2008: US$7,872,000) of plant and equipment under finance leases. Leased assets are pledged as security for the related finance lease.
2 As a result of the cessation of mining activities at the Selene mine unit, the remaining net book value of assets of US$4,523,000 was written off.
3 The amount of impairment losses recognised in profit and loss during the period was US$21,686,000. As a result of the impairment testing, the Group has
impaired the Ares mine unit by US$15,041,000, the Liam property by US$10,091,000 and reversed the impairment loss of the Moris unit of US$3,446,000.
The trigger for the impairment was the proximity of the closing of Ares and the resulting revision to the remaining recoverable reserves and resources.
In addition the company reassessed the fair value of the Liam properties, following the acquisition of Southwestern (refer to note 5). The Group tested for
impairment the following mining units: Ares, San José and Moris. In assessing whether impairment is required to the carrying value of the assets related to
each mining unit, its carrying value is compared with its recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell
and the value in use. The recoverable amount used in assessing the impairment charges described below is value in use. The Group generally estimates value
in use using a discounted cash flow model for each mining unit covering its remaining useful life. During the year ended 31 December 2008, the Group
recognised impairments totalling US$14,458,000, related to the Selene mine unit (US$8,208,000), the Moris mine unit (US$5,652,000) and the San Felipe project
(US$598,000). These impairments were triggered primarily by the effect of the economic environment at that time, and the significantly reduced gold, silver
and zinc prices.
There were no borrowing costs capitalised in property, plant and equipment as no significant qualifying assets were constructed during 2009.
100
16 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
The calculation of value in use is most sensitive to the following assumptions:
– (cid:2)Commodity prices – Commodity prices of gold and silver are based on external market consensus forecasts. Gold prices
range from $1,015/oz to $837.5/oz (2008: from $750/oz to $879/oz) and silver prices range from $16.0/oz to $13.22/oz
(2008: from $11.84/oz to $13/oz).
– (cid:2)Estimation of reserves and resources – Reserves and resources are based on management’s estimates using appropriate
exploration and evaluation techniques.
– (cid:2)Production volumes and grades – Tonnage produced was estimated at plant capacity with 19 days of maintenance per year
(2008: 12 days).
– (cid:2)Capital expenditure – The cash flows for each mining unit include capital expenditures to maintain the mine and to convert
resources to reserves.
– (cid:2)Operating costs – Costs are based on historical information from previous years and current mining conditions.
– (cid:2)Discount rates – The cash flows are discounted at real pre-tax rates that reflect the current market assessments of the
time value of money and the risks specific to the cash-generating unit. These rates are based on the weighted average cost
of capital specific to each cash-generating unit.
Mining unit
Ares
San José
Moris
Mining unit
Ares
San José
Moris
2009 Real
pre-tax
discount
rate
%
3.21
14.3
5.43
2008 Real
pre-tax
discount
rate
%
28.5
17.0
5.97
2009 Real
post-tax
%
3.21
8.43
3.91
2008 Real
post-tax
%
5.1
9.2
4.3
Cash flows used for impairment tests were based on the annual 2010 budget presented and approved by the board in
December 2009. The starting point in all cases was January 2010. Individual cash flows are based on the annual 2010 budget
and an estimated set of reserves and resources as of December 2009 provided by Explorations and Operations. In addition,
for the following years, the Group includes any conservative adjustment to reflect the nature of each operation in an accurate
manner. In the case of revenue, production figures were estimated considering reserve grade (after extracted tonnage) and
full capacity. In the case of operating expenses, all figures are based on the 2010 budget and the main assumption was that
any change in the foreign exchange rate would be offset by a change in the inflation rate. Future capital expenditure is based
on the 2010 budget, excluding one off expenses and considering operation’s view on developments and infrastructure,
according to the estimated set of reserves and resources.
A
c
c
o
u
n
t
s
101
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
17 EVALUATION AND EXPLORATION ASSETS
At 1 January
Additions
Impairments1
Write-off
Transfers and other movements
Foreign exchange
At 31 December
2009
US$000
44,726
2008
US$000
6,034
8,636
68,311
(222)
(284)
(15,754)
–
1,921
(2,960)
1,051
55,828
(10,905)
44,726
1 The amount of impairment losses recognised in profit and loss during the period was US$222,000. As a result of the impairment testing, the Group has
impaired the Ares mine unit by US$222,000. The trigger for the impairment was the proximity of the closing of Ares and the resulting revision to the remaining
recoverable reserves and resources. The Group tested for impairment the following mining units: Ares, San José and Moris. In assessing whether impairment
is required to the carrying value of the assets related to each mining unit, its carrying value is compared with its recoverable amount. The recoverable amount
is the higher of the asset’s fair value less costs to sell and the value in use. The recoverable amount used in assessing the impairment charges is value in use.
The Group generally estimates value in use using a discounted cash flow model for each mining unit covering its remaining useful life. During the year ended
31 December 2008, the Group recognised impairments totalling US$15,754,000, related to the Selene mine unit (US$949,000) and the San Felipe project
(US$14,805,000). Refer to note 16 for the assumptions considered in the impairment calculation.
2 There were no borrowing costs capitalised in evaluation and exploration assets.
3 From the net book value at 31 December 2009, US$37,825,000 corresponds to the investment in San Felipe (2008: US$36,552,000) (refer to note 39).
18 INTANGIBLE ASSETS
Cost
Balance at 1 January 2008
Additions
Balance at 31 December 2008
Additions
Reclassification
Balance at 31 December 2009
Accumulated amortisation
Balance at 1 January 2008
Amortisation for the year
Foreign exchange difference
Balance at 31 December 2008
Amortisation for the year
Reclassification
Foreign exchange difference
Balance at 31 December 2009
Net book value as at 31 December 2008
Net book value as at 31 December 2009
Goodwill
US$000
Transmission
line
US$000
Software
licences
US$000
Total
US$000
2,967
37
3,004
16,342
5,891
876
37
913
76
–
989
25,237
71
266
(1)
336
311
–
–
647
577
342
71
266
(1)
336
2,389
87
–
2,812
2,668
22,425
2,091
–
2,091
–
–
2,091
–
–
–
–
–
–
–
–
2,091
2,091
–
–
–
16,266
5,891
22,157
–
–
–
–
2,078
87
–
2,165
–
19,992
The carrying amount of goodwill is reviewed annually to determine whether it is in excess of its value-in-use. The value-in-
use is determined at the cash-generating unit level, in this case being the San José mine, by discounting the expected cash
flows estimated by management over the life of the mine. The Group has tested the San José mining unit for impairment,
refer to note 16(3) for the key assumptions used in calculating the mine’s value in use.
102
18 INTANGIBLE ASSETS (CONTINUED)
Management believes that the following changes to the main assumptions would cause the carrying value of the goodwill
to equal its recoverable amount. Therefore, any higher deviation would cause the carrying value of goodwill to exceed its
recoverable amount and an impairment provision would be required.
Assumption
Gold price
Silver price
Reserves and resources
Costs
Discount rates
19 INVESTMENTS ACCOUNTED UNDER EQUITY METHOD
Lake Shore Gold Corp(a)
Minas Pacapausa S.A.C.(b)
Cabo Sur(c)
Gold Resource Corp.(d)
Zincore Metals Inc.(e)
Total
Variation
(6.8)%
(6.3)%
(17.0)%
7.9%
4.3%
Year end 31 December
2009
US$000
386,190
2008
US$000
136,376
–
(57)
62,467
2,065
450,665
(170)
(187)
–
–
136,019
(a) Lake Shore Gold Corp
The following table summarises the financial information of the Group’s investment in Lake Shore Gold Corp:
Share of the associate’s statement of financial position:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Goodwill on acquisition
Carrying amount of the investment
Share of the associate’s revenue and losses:
Revenue
Profit/(losses)1
Carrying amount of the investment
Year ended 31 December
2009
US$000
2008
US$000
47,520
345,948
(7,663)
(50,758)
335,047
51,143
386,190
–
46,951
386,190
29,217
128,913
(5,839)
(28,428)
123,863
12,513
136,376
–
(3,925)
136,376
A
c
c
o
u
n
t
s
1 Share of the associate’s profit in 2009 includes (1) a gain of US$101,503,000 from the Group’s share in Lake Shore Gold’s acquisition of 100% of West Timmins’
net assets, (2) a gain from the Group’s share in the results of the period of Lake Shore Gold of US$9,165,000, (3) a loss from dilution of the Group’s interest
from 39.99% to 26.1% at 6 November 2009 of US$59,224,000, and (4) a loss from dilution of the Group’s interest from 36.09% to 35.69% at 31 December 2009
of US$4,493,000.
103
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
19 INVESTMENTS ACCOUNTED UNDER EQUITY METHOD (CONTINUED)
(b) Minas Pacapausa S.A.C.
On 21 June 2005, Minera Oro Vega S.A.C. (“Minorva”, the partner of the Group’s Minera Suyamarca S.A.C. subsidiary) and
Minera del Suroeste (“Misosa”) entered into an option and joint venture agreement (“Framework Agreement”) in respect
of the Pacapausa properties located in Peru.
On 16 November 2007, Minera Suyamarca S.A.C. (“Suyamarca”) signed an amendment to the Framework Agreement
with Misosa and Minorva, incorporating the terms under which Suyamarca would acquire Minorva’s contractual position.
Under the arrangement, Suyamarca paid US$200,000 to Minorva in exchange for its contractual position in the Framework
Agreement. The new joint venture company, Minas Pacapausa S.A.C. (“Pacapausa”), was incorporated on 4 March 2008
and Suyamarca contributed US$1,200,000 (solely funded by the Group) in exchange for a 50% interest in Pacapausa.
Subsequently, Minorva transferred to Pacapausa all technical reports and other assets obtained as a result of its exploration
activities in the properties in exchange for a cash payment of US$1,200,000.
In compliance with the Group’s policy, Pacapausa recognises all expenses related to the project within exploration expenses
as the project has not yet reached the inferred mineral resource category.
On 21 May 2009, the Group acquired a 100% interest of Southwestern Resources Corp., the parent company of Misosa and
consequently, started to consolidate the financial results of Pacapausa.
The following table summarises the financial information relating to the Group’s investment in Pacapausa:
Share of the joint venture’s statement of financial position:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Share of the joint venture’s revenue and loss:
Revenue
Loss
Carrying amount of the investment
Year ended 31 December
2009
US$000
2008
US$000
–
–
–
–
–
10
–
(180)
–
(170)
–
(131)
–
–
(2,132)
(170)
(c) Cabo Sur
On 21 February 2007, the Group signed an option and joint venture agreement with Mirasol Resources Ltd. (“Mirasol”).
Under the terms of the agreement, the Group has the right to acquire a 51% interest in the Claudia project by investing,
over a period of four years, at least US$6,000,000 and making payments to Mirasol of US$650,0000 within four years.
On 13 March 2007, Mirasol incorporated Cabo Sur S.A. (“Cabo Sur”) and during 2008 transferred all the rights of the Claudia
property into Cabo Sur. Until the exercise of the Claudia’s option, Mirasol and the Group will own 99% and 1% of Cabo Sur,
respectively. However, the Group exercises joint control over Cabo Sur as the strategic financial and operating decisions
require the consent of both parties. Accordingly, in compliance with the Group’s policy and IAS 31, the investment has been
treated as a jointly controlled entity accounted for using the equity method.
In compliance with the Group’s policy, Cabo Sur recognises all expenses related to the project within exploration expenses
as the project has not yet reached the inferred mineral resource category.
104
19 INVESTMENTS ACCOUNTED UNDER EQUITY METHOD (CONTINUED)
The following table summarises the financial information of the Group’s investment in Cabo Sur:
Share of the joint venture’s statement of financial position:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Share of the joint venture’s revenue and loss:
Revenue
Loss
Carrying amount of the investment
Year ended 31 December
2009
US$000
2008
US$000
6
6
(69)
–
(57)
–
(61)
(57)
32
2
(221)
–
(187)
–
(2,157)
(187)
(d) Gold Resource Corp.
The following table summarises the financial information of the Group’s investment in Gold Resource Corp:
Share of the joint venture’s statement of financial position:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Goodwill on acquisition
Share of the joint venture’s revenue and loss:
Revenue
Loss
Carrying amount of the investment
Year ended 31 December
2009
US$000
2008
US$000
5,671
46,873
(181)
(11,609)
40,754
21,713
–
(1,240)
62,467
–
–
–
–
–
–
–
–
–
(e) Zincore Metals Inc.
On 21 May 2009 the Group acquired 100% of Southwestern Resources Corporation. Within the assets of the group was
38,100,000 shares of Zincore Metals Inc. equivalent to a 48.2% interest. On September 2009 Zincore Metals Inc. issued
24,060,000 shares resulting in a dilution of the Group’s interest to 36.8%. Zincore Metals Inc. raised US$5,596,000 that
generated a Group gain of US$2,065,000.
The following table summarises the financial information of the Group’s investment in Zincore Metals Inc:
Share of the joint venture’s statement of financial position:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Share of the joint venture’s revenue and profit:
Revenue
Profit
Carrying amount of the investment
105
A
c
c
o
u
n
t
s
Year ended 31 December
2009
US$000
2008
US$000
2,110
67
(96)
(16)
2,065
–
1,704
2,065
–
–
–
–
–
–
–
–
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
20 AVAILABLE-FOR-SALE FINANCIAL ASSETS
Beginning balance
Additions1
Increase in value of available-for-sale financial assets due to merger of companies2
Fair value change recorded in equity
Impairment recorded in the income statement3
Foreign exchange
Disposals4
Reclassification to investments accounted under equity method5
Ending balance
Year ended 31 December
2009
US$000
17,794
70,022
357
22,592
–
427
(4,749)
(87,262)
19,181
2008
US$000
15,100
18,902
–
(2,914)
(9,442)
(519)
(3,333)
–
17,794
1 The amount represents the fair value of shares at the date of acquisition and mainly includes the purchase of shares of Fortuna Silver Mines Inc. of
US$3,196,000, Ventura Gold Corp. of US$158,000, Pembrook Mining Corp. of US$1,857,000, West Timmins Mining Inc. of US$63,782,000, Northern Superior
Resources Inc. of US$705,000, Empire Petroleum Corp. of US$82,000, and Maxy Gold Corp at of US$243,000.
2 Corresponds to the transfer of shares due to the merger between EXMIN Resources Inc. and Dia Bras Exploration (US$325,000) and the merge between
Maxy Gold Corp. and Lara Explorations Ltd. (US$32,000). The net effect was recognised in profit and loss.
3 The amount corresponds to the decrease in the fair value of the investment in the shares of EXMIN Resources Inc., Ventura Gold Corp., Fortuna River and
Mirasol Resources Inc. assessed as an impairment loss during the year and consequently transferred from equity to the income statement (refer to note 13).
It also includes the impairment of the shares of Electrum Capital Inc. of US$2,637,000.
4 Corresponds to the sale of 3,287,570 shares in Fortuna Silver Mines Inc. (refer to note 13).
5 Corresponds to the reclassification to investments accounted under the equity method of the West Timmins Mining Inc. shares of US$82,252,000 and
Gold Resource Corp. of US$5.010,000 on the date they became associates of the Group.
Available-for-sale financial assets include the following:
Equity securities – quoted Canadian companies
Equity securities – quoted US companies
Equity securities – quoted British companies
Equity securities – unquoted1
Bonds
Total
1 Includes Pembrook Mining Corp and Electrum Capital Inc. shares.
Year ended 31 December
2009
US$000
4,225
119
3,086
11,743
8
19,181
2008
US$000
1,631
5,845
422
9,888
8
17,794
106
20 AVAILABLE-FOR-SALE FINANCIAL ASSETS (CONTINUED)
The breakdown of the investments in equity securities held is as follows (number of shares):
Number
of shares
held at
1 January
2008
Number
of shares
held at
31 December
2008
Additions
Disposals
663,600
2,472,365
500,000
18,387,487
100,000
–
–
–
–
– 5,714,286
– 1,670,000
– 4,205,462
– 2,000,000
– 11,002,948
–
200,000
–
663,600
–
812,215
1,660,150
500,000
–
5,714,286
–
1,670,000
–
4,205,462
–
2,000,000
–
– 11,002,948
– 18,387,487
300,000
–
–
–
Additions
Disposals
Transfer
Number
of shares
held at
31 December
2009
663,600
–
– (3,287,570)
2,475,355
500,000
–
–
–
6,825,397
–
–
1,111,111
–
–
(1,670,000)
–
4,205,462
–
–
–
2,000,000
–
–
–
– 11,002,948
–
–
–
–
– (18,387,487)
1,000,000
–
–
–
700,000
28,331,500 (28,331,500)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10,053,007
1,333,333
3,961,600
–
–
–
–
(3,961,600)
3,751,047
495,200
– 10,053,007
1,333,333
–
–
–
3,751,047
–
495,200
–
Fortuna River
Rio Fortuna Silver Mine
Mirasol Resources Ltd
Pembrook Mining Corp1
Gold Resource Corp2
Electrum Capital Inc3
Iron Creek Capital Corp4
Mariana Resources Ltd5
EXMIN Resources Inc6
Ventura Gold Corp7
West Timmins Mining Inc8
Northern Superior
Resources Inc9
Empire Petroleum Corp10
Maxy Gold Corp11
Dia Bras Exploration6
Lara Explorations Ltd11
1 The investment in Pembrook Mining Corp. (6.2%), a privately held exploration company with projects in Peru and Canada, relates to the purchase of 1,111,111
common shares on 15 September 2009. In 2008 the Group acquired (5.6%) relating to the purchase of 2,857,143 common shares on 14 May 2008 and 2,857,143
common shares on 11 September 2008.
2 The investment in Gold Resource Corp. (25.0%), an underground precious metals mining company with a number of prime development projects in Mexico,
relates to the transfer of shares to investments in associates, due to the Group’s significant influence following its increased investment in Gold Resource
Corp. in February 2009. In 2008, the Group acquired (4.9%) relating to the purchase of common shares on 5 December 2008 in connection with the Strategic
Alliance Agreement signed with Gold Resource Corp.
3 The investment in Electrum Capital Inc. (11.5%), a privately held exploration company with projects in Brazil, Mexico, Peru and Argentina, relates to the
purchase of 1,538,462 common shares on 25 April 2008 and 2,667,000 common shares on 22 October 2008.
4 The investment in Iron Creek Capital Corp. (14.8%) relates to the purchase of common shares on 24 September 2008 in connection with the Letter of Intent
signed with the company for an Option and Joint Venture Agreement to develop the Vaquillas project in Chile (refer to note 34(b)).
5 The investment in Mariana Resources Ltd. (9.4%), an exploration company with projects in Argentina, Chile and Ecuador, relates to the purchase of common
shares on 12 December 2008 for US$495,000.
6 In 2009 the Group received shares from Dia Bras Exploration in exchange of EXMIN Resources Inc. shares, due to the merger of these companies.
This investment is treated as an available-for-sale financial asset on the basis that the Group does not have significant influence over the company.
7 On 19 December 2008 Ventura Gold Corp. exercised its option to acquire 51% in the Inmaculada project (refer to note 34(b)) generating the obligation to issue
1,000,000 shares to the Group. As at 31 December 2009, Ventura Gold Corp. issued 1,000,000 shares (2008: 300,000 shares). In 2008, the Group has recognised
US$103,000 in Other income relating to the right to receive 700,000 shares.
8 The investment in West Timmins Mining Inc. (Nil), relates to the purchase of common shares during 2009 and the transfer due to the agreement with Lake
Shore Gold.
9 The investment in Northern Superior Resources Inc. (13.6%), relates to the purchase of common shares on 21 May 2009 from Southwestern Resources Corp.
10 The investment in Empire Petroleum Corp. (2.3%), relates to the purchase of common shares on 21 May 2009 from Southwestern Resources Corp.
11 The investment in Maxy Gold Corp. relates to the purchase of common shares on 21 May 2009 from Southwestern Resources Corp. In addition, during 2009,
the Group receives shares from Lara Explorations Ltd. in exchange of Maxy Gold Corp. shares, due to the merger between these companies.
During the period there were no reclassifications between quoted and unquoted investments.
The fair value of the listed shares is determined by reference to published price quotations in an active market.
The investments in unlisted shares (Pembrook Mining Corp. and Electrum Capital Inc.) were recognised at their acquisition
cost given that there is not an active market for these investments. The investment in Electrum Capital Inc. was impaired in
2008 resulting in a loss of US$2,637,000 recorded in profit and loss. The investment in Pembrook Mining Corp. is measured
at the latest purchase price in Canadian dollars, updated for the foreign exchange difference. The Company did not asses for
impairment its investment of US$11,743,000 in Pembrook Mining Corp. as at 31 December 2009 as there was no indicator
of it.
A
c
c
o
u
n
t
s
107
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
20 AVAILABLE-FOR-SALE FINANCIAL ASSETS (CONTINUED)
Available-for-sale financial assets are denominated in the following currencies:
Canadian dollars
US dollars
Pounds sterling
Total
21 TRADE AND OTHER RECEIVABLES
Trade receivables1
Advances to suppliers
Credit from exports2
Loan to minority shareholder3
Due from minority shareholder4
Receivables from related parties (note 31)
Loans to employees
Interest receivable5
Receivable from Kaupthing, Singer and Friedlander Bank (refer to note 12(3))
Other
Provision for impairment6
Financial assets classified as receivables
Prepaid expenses
Value Added Tax (VAT)7
Total
The fair values of trade and other receivables approximate their book value.
2009
US$000
15,968
127
3,086
19,181
2008
US$000
11,519
5,853
422
17,794
As at 31 December
Non-
current
US$000
–
–
465
30,331
–
–
607
–
–
–
–
31,403
412
6,489
38,304
2008
Current
US$000
47,348
7,097
1,444
6,502
11,116
1,048
336
141
1,292
1,581
(1,987)
75,918
2,652
45,156
123,726
Non-
current
US$000
–
–
–
–
–
–
1,276
–
–
22
–
1,298
516
1,336
3,150
2009
Current
US$000
76,981
5,436
3,587
39,443
–
996
1,585
38
965
720
(2,443)
127,308
5,454
32,102
164,864
1 At 31 December 2009, trade accounts receivable mainly comprised amounts receivable from Consorcio Minero S.A. (US$21,628,000), Teck Cominco Metals Ltd
(US$17,481,000), Aurubis AG (US$29,040,000), MRI Trading AG (US$2,078,000), LS Nikko (US$4,922,000), Doe Run Perú SRL (US$1,108,000), Johnson Matthey
Inc (US$605,000), and Argor Heraus S.A. (US$116,000). At 31 December 2008, trade accounts receivable mainly comprised amounts receivable from Consorcio
Minero S.A. (US$16,382,000), Teck Cominco Metals Ltd (US$13,902,000) and Louis Dreyfus Perú S.A. (US$7,143,000). Trade receivables are denominated in the
following currencies:
– US dollars 76,978,000 (2008: 47,330,000)
– Peruvian nuevos soles 3,000 (2008: 18,000)
2 Corresponds to the credits due on exports of Minera Santa Cruz. This credit is calculated as 1% of total sale of concentrate and 2% of total sale of doré
delivered through the Patagonico Port in Argentina.
3 This relates to loans to Minera Andes Inc. The effective interest rate was between 7.86% and 8.21% in 2009 (between 7.86% and 8.21% in 2008) (refer to note
38(f)).
4 Mainly corresponds to capital contributions due from a minority shareholder of Minera Santa Cruz S.A. (Minera Andes) of US$Nil (2008: US$11,115,000).
5 Mainly corresponds to interest receivable on JP Morgan liquidity funds (refer to note 24(1)).
6 Includes provision for impairment of other receivables of US$2,443,000 as at 31 December 2009 (2008: US$1,987,000). It mainly corresponds to the impairment
of deposits in Kaupthing, Singer and Friedlander Bank of US$798,000 (2008: US$1,292,000) (refer to note 12(3)) and trade receivable from a customer in Peru of
US$1,108,000 (2008:Nil).
7 This includes an amount of US$20,838,000 (2008: US$32,220,000) of value added taxes paid in the development and plant expansion of the San José project that
will be recovered through the future sales of gold and silver by Minera Santa Cruz S.A. It also includes the VAT of Minera Suyamarca of US$4,091,000 (2008:
US$12,741,000) and Minas Santa María de Moris of US$5,628,000 (2008: US$2,369,000). The value added tax is valued at its recoverable amount.
108
21 TRADE AND OTHER RECEIVABLES (CONTINUED)
Movements in the provision for impairment of receivables:
At 1 January 2008
Charge for the year
Utilised
At 31 December 2008
Charge for the year
Utilised
At 31 December 2009
As at 31 December, the ageing analysis of trade receivables is as follows:
Individually
impaired
US$000
Collectively
impaired
US$000
548
1,628
(189)
1,987
1,116
(660)
2,443
–
–
–
–
–
–
–
Total
US$000
548
1,628
(189)
1,987
1,116
(660)
2,443
Past due but not impaired
Year
2009
2008
22 INVENTORIES
Finished goods
Products in process
Raw materials
Supplies and spare parts
Provision for obsolescence of supplies
Total
Neither
past
due nor
impaired
US$000
75,873
Total
US$000
75,873
47,348
47,348
Less than
30 days
US$000
–
–
30 to 60
days
US$000
–
–
61 to 90
days
US$000
–
91 to 120
days
US$000
–
–
–
Over
120 days
US$000
–
–
As at
31 December
2009
US$000
6,074
12,538
1,002
28,610
48,224
(2,411)
45,813
As at
31 December
2008
US$000
2,968
23,710
1,741
24,437
52,856
As at
1 January
2008
US$000
3,551
30,418
494
13,563
48,026
(1,001)
(398)
51,855
47,628
Finished goods include ounces of gold and silver and concentrate. Doré is an alloy containing a variable mixture of silver, gold
and minor impurities delivered in bar form to refiners and is considered a product in process. The refined products are then
sold to the customers and/or refiners. Concentrate is a product containing sulphides with variable content of base and
precious metals and is sold to smelters.
The amount of doré on hand at 31 December 2009 included in products in process is US$2,977,000 (2008: US$4,632,000).
As part of the management’s short-term financing policies, the Group acquires pre-shipment loans which are guaranteed
by the inventory (refer to note 26(a)).
A
c
c
o
u
n
t
s
109
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
23 FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT AND LOSS
Warrants in Fortuna Silver Mines Inc.1
Option over shares of Gold Resource Corp.2
Embedded derivatives3
Swap contracts4
Total assets
Embedded derivatives3
Zero cost collar contracts5
Swap contracts6
Total liabilities
As at 31 December
2009
US$000
2008
US$000
–
–
695
–
695
175
2,452
13
2,640
745
2,301
2,219
304
5,569
–
–
–
–
1 At 31 December 2008, this item represented a balance of 2,475,355 warrants of Fortuna Silver Mines Inc. The expiry dates of the warrants were 27 June 2010
and 17 November 2010 (for 862,117 and 1,613,238 warrants respectively). Warrants were fair valued using the Black-Scholes option pricing model.
These warrants were executed during 2009.
2 At 31 December 2009, the Group had executed the options over shares of Gold Resource Corp. At 31 December 2008 this item represented the option over
4,330,000 shares of Gold Resource Corp. with an expiry date of 2 March 2009. Options are fair valued using the Black-Scholes option pricing model.
3 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 doré 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” (refer to note 6).
4 The Group holds contracts of derivative instruments with the intention to remove the risk of fluctuations in metal prices. As at 31 December 2008, the Company
did not meet all the criteria stated in IAS 39 to account for the derivative instruments as cash flow hedges. Accordingly, the Group recognised a gain of
US$304,000 due to the changes in the fair value occurring during 2008, which is recognised within “finance income” (refer to note 13(2)). The fair value of the
forward contracts is calculated based on spot prices plus forward points estimated using SIFO (Silver Forward Mid Rates) and GOFO (Gold Forward Offered
Rates) for silver and gold, respectively, as published by the London Bullion Market Association at 31 December 2008.
5 The Group entered into zero cost collar contracts covering 5,200,000 ounces of silver in 2010, at an average cap price of US$19.7 and an average floor price
of US$12.7. These contracts expire from January to December 2010.
6 At the end of 2009 the Group signed a swap contract with Citibank and BBVA to fix the interest rate of the JP Morgan led syndicate loan of US$114,320,000
(refer to note 26).
24 CASH AND CASH EQUIVALENTS
Cash at bank
Liquidity funds1
Current demand deposit accounts2
Time deposits3
Cash and cash equivalents considered for the statement of cash flows
As at 31 December
2009
US$000
2008
US$000
1,430
28,294
40,447
7,673
77,844
171
93,131
14,567
8,278
116,147
The fair value of cash and cash equivalents approximates their book value. The Group does not have undrawn borrowing
facilities available in the future for operating activities or capital commitments.
1 The liquidity funds are mainly invested in certificate of deposit, commercial paper and floating rate notes with a weighted average annual effective interest rate
of 0.71% and a weighted average maturity between 30 to 55 days as at 31 December 2009 (2008: 3.98% and between 30 and 54 days) (refer to note 38(f)).
2 Relates to bank accounts which are freely available and do not bear interest.
3 The effective interest rate as at 31 December 2009 was 3.00% (2008: 2.67%). These deposits have an average maturity from 1 to 30 days (2008: 1 to 30 days)
(refer to note 38(f)).
110
25 TRADE AND OTHER PAYABLES
Trade payables1
Professional fees
Interest payable
Taxes and contributions
Salaries and wages payable
Mining royalty (note 37)
Dividends payable2
Accrued expenses
Guarantee deposits
Swap contract3
Other
Total
2009
Current
US$000
29,026
1,179
114
9,061
13,275
2,192
336
6,304
1,307
4,337
1,370
68,501
As at 31 December
Non-
current
US$000
–
–
–
543
–
–
–
84
–
–
–
2008
Current
US$000
50,904
1,260
421
9,622
11,955
1,012
228
2,158
2,745
–
1,986
627
82,291
Non-
current
US$000
–
–
–
–
–
–
–
81
–
–
–
81
The fair value of trade and other payables approximate their book values.
1 Trade payables relate mainly to the acquisition of materials, supplies and contractors services. These payables do not accrue interest and no guarantees have
been granted. Trade payables are denominated in the following currencies:
US dollars
Peruvian nuevos soles
Argentinian pesos
Mexican pesos
Pounds sterling
Chilean pesos
Canadian dollars
Australian dollars
Total
2009
US$000
13,783
9,298
5,006
374
140
375
50
–
2008
US$000
20,935
14,112
15,128
390
68
213
49
9
29,026
50,904
2 Corresponds to dividends payable to minority shareholders of Compañía Minera Arcata S.A. of US$336,000 (2008: US$228,000).
3 Corresponds to the amount payable related to the contracts signed with Citibank, JP Morgan and INTL Commodities Inc. with the intention to remove the risk of
fluctuations in metal prices. As these contracts were closed, the Group transferred the balance previously classified as a financial liability at fair value through
profit and loss to other payables.
A
c
c
o
u
n
t
s
111
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
26 BORROWINGS
Secured bank loans (note 26(a))
Amount due to minority shareholders (note 26(b))
Convertible bond payable (note 26(c))
Amounts due to related parties (note 31)
Total
(a) Secured bank loans
As at 31 December 2009, the balance corresponds to:
2009
Current
US$000
34,773
75,570
1,663
902
112,908
As at 31 December
Non-
current
US$000
202,094
29,598
–
–
2008
Current
US$000
56,625
40,409
–
1,036
231,692
98,070
Non-
current
US$000
115,854
–
103,827
–
219,681
i. Pre-shipment loans for a total amount of US$8,750,000 in Compañía Minera Ares and US$20,000,000 in Minera Santa Cruz
S.A. These obligations accrue an effective annual interest rate ranging from 1.05% to 4.75% and are guaranteed by the
inventories and the trade receivables of the company (refer to note 22). Pre-shipments are credit lines given by the Banks
to pay obligations related to the exports of the Group.
ii. Leasing agreement with Banco de Credito for an amount of US$5,693,000 in Compañía Minera Ares. This obligation
accrues an effective annual interest rate ranging from 6.80% to 7.60%.
iii. Leasing agreement with BIF for an amount of US$3,016,000 in Compañía Minera Ares. This obligation accrues an effective
annual interest rate ranging from 7.15% to 8.25%.
iv. Leasing agreement with Interbank for an amount of US$296,000 in Compañía Minera Ares. This obligation accrues an
effective annual interest rate of 9.01%.
The following table demonstrates the present value and maturity of future minimum lease payments as at 31 December 2009:
Not later than one year
Between 1 and 2 years
Between 2 and 5 years
Total
As at 31 December
2009
US$000
2008
US$000
4,406
3,664
935
9,005
2,705
2,604
1,898
7,207
The following table demonstrates the reconciliation between the total minimum lease payments and the present value as at
31 December 2009 and 2008:
Present value of leases
Future interest
Total minimum lease payments
As at 31 December
2009
US$000
2008
US$000
9,005
718
9,723
7,207
728
7,935
The carrying amount of net lease liabilities approximate their fair value.
v. Loan facility with a syndicate of lenders with JP Morgan Chase Bank N.A. acting as the Administrative Agent. Total secured
term loan facility of US$200,000,000 that accrues an effective interest rate of LIBOR +1% and is guaranteed by all the equity
share capital, free and clear of any liens, of Compañía Minera Ares S.A.C. The balance as at 31 December 2009 is comprised
of the secured term loan facility of US$114,320,000 plus accrued interest of $1,787,000 and net of transaction costs of
US$3,235,000. During 2009 the Group signed a swap contract with BBVA and Citibank to fix the interest rate at 1.75%.
112
26 BORROWINGS (CONTINUED)
The Company has granted the following guarantees on its $114,320,000 bank syndicated loan:
– Pledge of all shares in Compañía Minera Ares (wholly-owned subsidiary).
– Subsidiary guarantees by certain wholly-owned subsidiaries whereby these subsidiaries guarantee with their cash flows
the repayment of the loan.
The main administrative and financial covenants that the Company and Compañía Minera Ares must comply with during
the term of the syndicated loan are as follows:
– (cid:2)Quarterly unaudited and annual audited financial statements for Hochschild Mining plc and Compañía Minera Ares.
– (cid:2)Investments in restricted and unrestricted subsidiaries based on an agreed upon limit (unlimited within restricted
subsidiaries).
– It is intended for every wholly-owned subsidiary to participate in the subsidiary guarantee.
– (cid:2)Maintain the following ratios (at a consolidated and Compañía Minera Ares level) beginning on the date of execution
of the agreement and during the term of effect of the loan:
– Interest expense coverage ratio greater than 3:1.
– Debt to EBITDA ratio lower than 2.5:1 from 2009 onwards.
Compliance with the restrictive covenants described in the preceding paragraph is overseen by Compañía Minera Ares
management and the Administrative Agent. The Group and Compañía Minera Ares have complied with the commitments
and financial covenants mentioned in the syndicated loan agreement.
As at 31 December 2008, the balance corresponded to:
– Pre-shipment loans for a total amount of US$18,380,000 in Compañía Minera Ares, US$11,280,000 in Compañía Minera
Suyamarca S.A.C. and US$20,000,000 in Minera Santa Cruz S.A. These obligations accrue an effective annual interest rate
ranging from 5.55% to 8.70% and are guaranteed by the inventories of the Company (refer to note 22).
ii. Leasing agreement with Banco de Credito for an amount of US$7,207,000 in Compañia Minera Ares. This obligation
accrues an effective annual interest rate ranging from 6.80% to 7.45%.
iii. Loan facility with a syndicate of lenders with JP Morgan Chase Bank N.A. acting as the Administrative Agent. Total secured
term loan facility of US$200,000,000 that accrues an effective interest rate of LIBOR + 1% and is guaranteed by all the equity
share capital, free and clear of any liens, of Compañia Minera Ares S.A.C. The balance as at 31 December 2008 is comprised
of the secured-term loan facility of US$200,000,000 plus accrued interests of US$4,260,000 and net of transaction costs of
US$2,408,000.
(b) Amounts due to minority shareholders
As at 31 December 2009 the balance mainly corresponds to a loan from Minera Andes Inc. to Minera Santa Cruz S.A. for
an amount of US$67,124,000 (2008: US$62,105,000) with interests rates between 7.86% and 12%. There is also a loan of
US$8,446,000 to Minera Santa Cruz S.A. from Minera Andes S.A. (2008: US$7,902,000) with an interest rate of 12% (refer
to note 38(f)).
(c) Convertible bond payable
Placement of US$115,000,000 of senior unsecured convertible bonds, due 2014, which are convertible into ordinary shares
of Hochschild Mining plc. The bonds have a coupon of 5.75% per annum payable semi-annually on 28 January and 28 July of
each year. The issuer has the option to call the bonds on or after 20 October 2012 and until maturity, in the event the trading
price of the ordinary shares exceed 130% of the conversion price over a certain period. In addition, the Group has the right to
redeem the bonds if at any time the aggregate principal amount of the bonds outstanding is equal to or less than 15% of the
aggregate principal amount of the bonds initially issued.
The following information has to be considered for the conversion into ordinary shares:
– Conversion premium: 35% above the Reference Share Price
– Reference Share Price: GBP 2.95
– Initial Conversion Price: GBP 3.9825
– Fixed Exchange Rate: US$1.59/GBP 1.00
The balance as at 31 December 2009 is comprised of the principal of US$115,000,000 plus accrued interest of US$1,663,000
and net of transaction costs of US$2,741,000 and the bond equity component of US$8,432,000.
The maturity of non-current borrowings is as follows:
A
c
c
o
u
n
t
s
113
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
26 BORROWINGS (CONTINUED)
Between 1 and 2 years
Between 2 and 5 years
Total
2008
US$000
As at 31 December
2009
US$000
31,586
188,095
219,681
81,284
150,408
231,692
The carrying amount of short-term borrowings approximates their fair value. The carrying amount and fair value of the
non-current borrowings are as follows:
Bank loans
Secured
Amounts due to minority interest and related parties (fixed rates)
Convertible bond payable
Total
Carrying amount
as at 31 December
2009
US$000
2008
US$000
Fair values
as at 31 December
2009
US$000
2008
US$000
115,854
–
103,827
219,681
202,094
29,598
–
231,692
116,358
–
126,331
242,689
213,408
33,263
–
246,671
114
27 PROVISIONS
At 1 January 2008
Increase to existing provision
Accretion resulting from unwinding of discount rate
Change in discount rate
Change in estimate
Payments
Foreign exchange
At 31 December 2008
Less current portion
Non-current portion
At 1 January 2009
Increase to existing provision
Accretion resulting from unwinding of discount rate
Change in discount rate
Change in estimate
Payments
Foreign exchange
Other
At 31 December 2009
Less current portion
Non-current portion
Provision
for mine
closure1
US$000
32,150
2,105
669
4,042
1,409
(1,476)
–
38,899
(1,379)
37,520
38,899
–
278
(2,045)
27,020
(2,831)
–
–
61,321
6,640
54,681
Workers’
profit
sharing
US$000
9,195
4,273
–
–
–
(13,248)
641
861
(861)
–
861
2,073
–
–
–
(948)
(78)
88
1,996
1,996
–
Contributions
to Peruvian
Government
US$000
1,434
944
–
–
–
(1,368)
(19)
991
(991)
–
991
870
–
–
–
(956)
(12)
893
893
–
Executive
long-term
incentive
plan2
US$000
799
302
–
–
–
(1,101)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Other
US$000
272
962
–
–
–
(21)
–
1,213
(1,046)
167
1,213
1,499
–
–
–
(371)
30
2,371
1,876
495
Total
US$000
43,850
8,586
669
4,042
1,409
(17,214)
622
41,964
(4,277)
37,687
41,964
4,442
278
(2,045)
27,020
(5,106)
(60)
88
66,581
11,405
55,176
1 The provision represents the discounted values of the estimated cost to decommission and rehabilitate the mines at the expected date of depletion of each of
the deposits. The present value of the provision has been calculated using a real pre-tax annual discount rate, based on a US Treasury bond of an appropriate
tenure as at 31 December 2009 and 2008 respectively, and the cash flows have been adjusted to reflect the risk attached to these cash flows. Uncertainties in
the timing for using this provision includes changes in the future that could impact the time of closing the mines, as new resources and reserves are
discovered. During 2009 the Group made an internal review of the provision for mine closure for all its mining units. Consequently, at 31 December 2009
an increase of US$27,020,000 has been recognised in the provision mainly related to changes in the waste dam and tailing dam closure plans, increased
contractors’ costs and the construction of a new water treatment plant in Sipan mining unit. From the total amount, US$15,220,000 has been recognised as
an increase in the mine closure asset (refer to note 16) and the remaining US$11,800,000 has been recognised within other expenses (refer to note 12 (3)).
This increase in estimate relates to Ares unit (US$2,212,000), Selene unit (US$5,864,000), Sipan unit (US$5,976,000), Arcata unit (US$4,903,000), Pallancata
unit (US$5,038,000), Moris unit (US$990,000), San José unit (US$2,075,000), net by a decrease in the provision of San Felipe project (US$38,000).
2 The 2007 Executive Long-Term incentive plan was replaced by a new plan with different variables. To terminate the first plan, the Group paid to the employees
under the plan an amount of US$1,101,000, during the first semester of 2008, recognising administrative expenses of US$275,000 and exploration expenses
of US$27,000.
The new plan reduces the number of variables and only considers Total Shareholder Return (“TSR”). The plan comprises an amount to be paid in cash to
participants depending on the achievement of the three-year performance measures during the performance period which ends on 31 December 2010.
The cash award will be held for an additional period and delivered 50% on 9 May 2011 and the remaining 50% on 9 May 2012, accumulating notional interest at
the prevailing inter-bank interest rate. Only employees who remain with the Company until these dates will have the right of the benefit, with some exemptions
that have to be approved by the Remuneration Committee of the Board. The provision represents the discounted values of the estimated cost of the long-term
employee benefit. There is no provision in 2009 and 2008 as TSR over the period did not reach the performance level required under the rules of the plan.
A
c
c
o
u
n
t
s
115
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
28 EQUITY
(a) Share capital and share premium
Authorised and issued share capital
The authorised and issued share capital of the Company as at 31 December 2009 is as follows:
Authorised
Issued
Class of shares
Ordinary shares
Number
Amount
500,000,000 £125,000,000 338,085,226 £84,521,307
Number
Amount
The authorised and issued share capital of the Company as at 31 December 2008 is as follows:
Class of shares
Ordinary shares
Authorised
Issued
Number
Amount
Number
Amount
500,000,000 £125,000,000 307,350,226 £76,837,557
At 31 December 2009 and 2008, all issued shares with a par value of 25p (2009: weighted average of US$0.469, 2008: weighted
average of US$0.476 per share) each were fully paid.
Rights attached to ordinary shares:
At general meetings of the Company, on a show of hands, every member who is present in person and by proxy has one
vote and, on a poll, every member who is present in person or by proxy has one vote for every share of which they are the
holder/proxy.
The changes in share capital are as follows:
Shares issued as at 1 January 2008
Shares issued as at 31 December 2008
Shares issued and paid pursuant to the placing of shares dated 12 October 2009
Shares issued as at 31 December 2009
Number
of shares
Share
capital
US$000
Share
Premium
US$000
307,350,226
146,466
395,928
307,350,226
146,466
30,735,000
338,085,226
12,171
158,637
395,928
–
395,928
On 12 October 2009 a share placement was completed and 30,735,000 shares with an aggregate nominal value of
US$12,171,000 were issued for a cash consideration of US$140,168,000 net of transaction costs of US$3,453,000. The share
placement was effected through a structure which resulted in the excess of the net proceeds received over the nominal value
of the share capital issued being transferred to retained earnings.
(b) Other reserves
Unrealised gain/loss on available-for-sale financial assets
Under IAS 39, the Group classifies its investments in listed companies as available-for-sale financial assets and are carried
at fair value. Consequently, the increase in carrying values, net of the related deferred tax liability, is taken directly to this
account where it will remain until disposal or impairment of the investment, when the cumulative unrealised gains and
losses are recycled through the income statement.
Unrealised gain/loss in the initial valuation of derivative instruments classified as hedging instruments
Correspond to the effective portion of the gain or loss on the hedging instrument (refer to note 2 (aa))
Cumulative translation adjustment
The cumulative translation adjustment account is used to record exchange differences arising from the translation of
the financial statements of subsidiaries with a functional currency different to the reporting currency of the Group.
Merger reserve
The merger reserve represents the difference between the value of the net assets of the Cayman Holding Companies
(Ardsley, Garrison, Larchmont and Hochschild Mining (Peru)) acquired under the Share Exchange Agreement and the
nominal value of the shares issued in consideration of such acquisition.
116
29 DEFERRED INCOME TAX
The changes in the net deferred income tax assets/(liabilities) are as follows:
Beginning of the year
Income statement (debit)/credit
Deferred income tax arising on net unrealised gains on available-for-sale financial assets recognised
in equity
Initial balance of deferred tax liability of Southwestern Group
Foreign exchange effect
End of the year
As at 31 December
2009
US$000
12,619
(3,543)
71
(3,663)
(294)
5,190
(Restated)
2008
US$000
17,325
(5,370)
664
–
–
12,619
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the deferred income tax assets and liabilities relate to the same fiscal authority.
The movement in deferred income tax assets and liabilities before offset during the year is as follows:
Differences
in cost
of PP&E
US$000
Mine
development
US$000
Financial
instruments
US$000
Others
US$000
Total
US$000
Deferred income tax liabilities:
At 1 January 2008 (restated)
Income statement (credit) charge (restated)
Net deferred income tax from unrealised gain on available-for-sale
financial assets
At 31 December 2008 (restated)
Income statement (credit) charge
Net deferred income tax from unrealised gain on available-for-sale
financial assets
Foreign exchange
Arising on acquisition
At 31 December 2009
5,192
(851)
–
4,341
1,186
–
–
–
5,527
–
11,679
4,977
–
294
3,663
20,613
5,069
6,610
3,305
(1,405)
2,829
(523)
–
2,306
(664)
1,236
(366)
(1,447)
(71)
–
–
799
–
–
–
859
16,395
3,831
(664)
19,562
4,350
(71)
294
3,663
27,798
Differences
in cost
of PP&E
US$000
Provision
for mine
closure
US$000
Mine
development
US$000
Tax
losses
US$000
Interest
payable
US$000
Others
US$000
Total
US$000
Deferred income tax assets:
At 1 January 2008 (restated)
Income statement credit (charge) (restated)
At 31 December 2008 (restated)
Income statement credit (charge)
At 31 December 2009
4,107
(2,059)
2,048
7,759
9,807
4,855
887
5,742
(770)
4,972
1,849
(1,849)
–
–
–
14,152
(2,593)
11,559
(8,789)
2,770
3,628
3,640
7,268
942
8,210
4,910
654
5,564
1,665
7,229
33,501
(1,320)
32,181
807
32,988
A
c
c
o
u
n
t
s
117
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
29 DEFERRED INCOME TAX (CONTINUED)
The amounts after offset, as presented on the face of the statement of financial position, are as follows:
Deferred income tax assets
Deferred income tax liabilities
Tax losses expire in the following years:
Recognised1:
Expire in one year
Expire in two years
Expire in three years
Expire in four years
Expire after four years
Unrecognised:
Expire in one year
Expire in two years
Expire in three years
Expire in four years
Expire after four years
Total tax losses (recognised and unrecognised)
As at 31 December
2009
US$000
15,852
(10,662)
(Restated)
2008
US$000
21,871
(9,192)
As at 31 December
2009
US$000
2008
US$000
1,100
763
607
849
6,044
9,363
543
1,411
3,137
2,667
53,231
60,989
70,352
–
4,598
6,458
20,080
2,360
33,496
1,625
1,646
2,280
4,035
41,355
50,941
84,437
1 Deferred tax assets have been recognised in respect of tax losses to the extent that they are expected to be offset against taxable profits arising in future
periods, based on the profit forecasts prepared by management.
Other unrecognised deferred income tax assets comprises (gross amounts):
Provision for mine closure1
Impairments of available-for-sale financial assets
Interest expense and exchange difference loss2
As at 31 December
2009
US$000
2008
US$000
44,611
–
13,686
20,641
11,421
–
1 This relates to provision for mine closure expenditure which is expected to be incurred in periods in which it is expected that there will not be taxable profits
against which the expenditure can be offset.
2 Corresponds to interest expense and exchange difference loss in respect of the project finance loan payable to Minera Andes Inc. (refer to note 14(8)).
Unrecognised deferred tax liability on retained earnings
Due to the statutory tax regime in the countries in which the Group’s operating companies are tax residents, there are
no temporary differences in respect of undistributed reserves for which a deferred tax liability should be recognised.
118
30 DIVIDENDS PAID AND PROPOSED
Year ended 31 December 2008
Total dividends paid or provided for during the year1
Total dividends declared after year-end and not provided for2
Year ended 31 December 2009
Total dividends paid during the year3
Total dividends declared after year-end and not provided for
Amount
US$000
28,531
6,147
20,048
13,523
1 Corresponds to dividends paid and provided during 2008 of US$22,184,667 and US$6,147,005, and the payment of accrued dividends as at 31 December 2007
of US$200,000 to Dona Limited for dividends declared in 2006.
2 Corresponds to dividends declared after 31 December 2008 to Pelham Investment Corporation, Navajo Overseas Corporation and public shareholders
(“Parent company’s shareholders”).
3 Corresponds to dividends paid and provided during 2009 of US$6,147,005 and US$6,147,005, and dividends paid to minority shareholders of US$7,754,000.
Dividends per share
The dividends declared in August 2009 were US$6,147,005 (US$0.020 per share). A dividend in respect of the year ending
31 December 2009 of US$0.04 per share, amounting to a total dividend of US$13,523,409 is to be proposed at the Annual
General Meeting on 26 May 2010. These financial statements do not reflect this dividend payable.
31 RELATED-PARTY BALANCES AND TRANSACTIONS
(a) Related-party accounts receivable and payable
The Group had the following related-party balances and transactions during the years ended 31 December 2009 and 2008. The related
parties are companies owned or controlled by the main shareholder of the parent company, joint ventures or associates.
Other
Fosfatos del Pacífico S.A.
Compañía Minera Corianta S.A.
Cementos Selva S.A.
Joint ventures
Cabo Sur
Minas Pacapausa S.A.C.
Loans
Cementos Pacasmayo S.A.A.
Total
Current related party balances
Total
Accounts receivable
at 31 December
Accounts payable
at 31 December
2009
US$000
2008
US$000
2009
US$000
2008
US$000
28
–
–
28
968
–
968
–
–
996
996
996
–
–
–
–
1,005
2
1,007
41
41
1,048
1,048
1,048
–
–
–
–
902
–
902
–
–
902
902
902
–
1
43
44
992
–
992
–
–
1,036
1,036
1,036
A
c
c
o
u
n
t
s
As at 31 December 2009 and 2008 all other accounts are, or were, non-interest bearing.
No security has been granted or guarantees given by the Group in respect of these related party balances.
119
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
31 RELATED-PARTY BALANCES AND TRANSACTIONS (CONTINUED)
Principal transactions between affiliates are as follows:
Income
Recovery of expenses
Expenses
Purchase of supplies
Services received
As at 31 December
2009
US$000
2008
US$000
–
–
–
34
39
2
During 2008, in addition to the normal arrangements the Group has with its related parties, the Group purchased a building
from Cementos Pacasmayo, a company under common control to that of the Group, for US$3,622,000 representing an arm’s
length purchase price.
Transactions between the Group and these companies are on an arm’s length basis.
(b) Compensation of key management personnel of the Group
Key management personnel include the members of the senior management team and Directors who receive remuneration.
Salaries and bonuses
Total compensation paid to key management personnel
As at 31 December
2009
US$000
2008
US$000
8,596
8,596
8,718
8,718
This amount includes the remuneration paid to the Directors of the parent company of the Group of US$5,870,520 (2008:
US$3,847,865), out of which US$399,117 (2008: US$463,218) relates to pension payments.
The Group made a loan to one of the Directors of US$200,000 with an interest rate of 7.45% until 30 April 2009, 3.50% from
1 May 2009 to 31 July 2009 and 3.00% from 1 August 2009. The balance as at 31 December was US$227,214, composed of
principal of US$200,000 and interest of US$27,214. The Group did not collect any amount of this loan.
(c) Participation in placing by Pelham Investment Corporation (“Pelham”)
Pelham, a company controlled by Eduardo Hochschild, participated in a placing of the Company’s Ordinary Shares (“Shares”)
in October 2009 by subscribing for 1,064,780 Shares at a price of 295p per Share.
32 AUDITOR’S REMUNERATION
The auditor’s remuneration for services provided to the Group during the years ended 31 December 2009 and 2008
is as follows:
Audit fees pursuant to legislation1
Other services relating to taxation
Services relating to corporate finance transactions
Other services
Total
Ernst & Young
year ended
31 December
2009
US$000
1,443
206
94
–
1,743
2008
US$000
2,332
410
263
106
3,111
Others
year ended
31 December
2009
US$000
2008
US$000
30
–
–
–
30
7
–
–
–
7
1 Includes US$703,000 (2008: US$1,178,000) relating to the audit fees of the parent company together with a proportion of the fees in relation to the consolidated
Group audit which has been incurred by the parent company.
In 2009, US$1,650,000 are included in administrative expenses, within the “professional fees” caption (refer to note 8).
US$66,910 are capitalised due to the Southwestern acquisition and US$55,815 are capitalised within the transactions costs
related to the convertible bond issuance. In 2008, all fees are included in administrative expenses, within the “professional
fees” caption (refer to note 8).
120
33 NOTES TO THE STATEMENT OF CASH FLOWS
Reconciliation of profit for the year to net cash generated from operating activities
(Loss)/profit for the year
Adjustments to reconcile Group operating profit to net cash inflows from operating activities:
Depreciation (note 2(f))
Amortisation of software licences
Impairment and write-off of assets (net)
Negative goodwill generated in acquisition of subsidiary
(Gain)/loss on sale/disposal of property, plant and equipment
Impairment of available-for-sale financial assets
Premium paid on purchase of available-for-sale financial assets
Gain on sale of available-for-sale financial assets
Share of post tax losses of associates and joint ventures accounted under equity method
Increase in provision for mine closure
Finance income
Finance costs
Income tax expense
Provision for obsolescence of supplies
Other
Increase (decrease) of cash flows from operations due to changes in assets and liabilities:
Trade and other receivables
Income tax receivable
Derivative financial instruments
Inventories
Trade and other payables
Provisions
Cash generated from operations
Transactions that did not affect cash flows
The main transactions that did not affect cash flows were the following:
Purchase of property, plant and equipment through leasing
As at 31 December
2009
US$000
(Restated)
2008
US$000
121,340
(21,540)
83,911
311
26,713
(7,694)
(153)
–
–
–
(47,223)
11,526
(28,684)
47,296
33,470
1,535
63
(19,045)
4,690
(22,831)
4,507
3,771
2,195
60,418
266
30,212
–
(252)
11,421
421
(1,613)
8,214
3,216
(11,683)
25,079
19,267
654
(3,687)
(9,306)
(14,269)
(1,171)
(4,861)
20,016
(8,635)
215,698
102,167
As at 31 December
2009
US$000
6,058
2008
US$000
7,872
A
c
c
o
u
n
t
s
121
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
34 COMMITMENTS
(a) Gold and silver future contracts
Silver
Organisation
INTL Commodities Inc
Total
Gold
Organisation
INTL Commodities Inc
Total
Quantity as at
31 December 2009
2009
(ounces)
2008
(ounces)
Type of
contract
Quotation
(US$/oz)
–
–
157,300
Forward
10.19
157,300
Quotation period
From
January
2009
to
–
Quantity as at
31 December 2009
2009
(ounces)
2008
(ounces)
Type of
contract
Quotation
(US$/oz)
–
–
2,950
Forward
815.06
2,950
Quotation period
From
January
2009
To
–
The contracts mentioned above are not fair valued in the books as they were entered into for the purpose of the delivery of a
non-financial item in accordance with the Group’s expected sales requirements.
(b) 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 these options the Group must satisfy certain financial and
other obligations during the term of the agreement. The options lapse in the event that the Group does not meet its financial
requirements. At any point in time, the Group may cancel the agreements without penalty, except where specified below.
The Group continually reviews its requirements under the agreements and determines, on an annual basis, whether to
proceed with its financial commitment. Based on management’s current intention regarding these projects, the
commitments at the statement of financial position date are as follows:
Commitment for the subsequent 12 months
More than one year
As at 31 December
2009
US$000
560
10,436
2008
US$000
1,293
19,192
Some of the significant transactions are explained below:
(i) Ventura Gold Corp.
On 8 January 2007, the Group granted an option to Ventura Gold Corp (“Ventura”) for the acquisition of an interest in the
Inmaculada property, located in Peru. Under the option and joint venture agreement signed on 13 August 2007, in order
to acquire an initial 51% controlling interest, Ventura was required to complete a total of 15,000 metres of drilling at the
property and issue a total of 1,000,000 common shares to the Group within a three-year period.
On 19 December 2008 Ventura exercised its option to acquire 51% of the project having completed its drilling requirement.
From the 1,000,000 common shares required to be issued to the Group, only 300,000 shares have been issued as at
31 December 2008 and the remaining 700,000 have been issued during 2009. The total shares received by the Group
are disclosed as “Available-for-sale financial assets”.
During 2009, the Group decided not to exercise its option to become the operator of the project and to buy back 11% for a
payment to Ventura of three times the total investment made in drilling and related exploration work. Following the Group’s
decision, as stipulated in the contract, Ventura elected to increase its controlling interest by an additional 19%, upon the
completion of a feasibility study on the project before 23 October 2013.
122
34 COMMITMENTS (CONTINUED)
(ii) IAMGOLD
On 20 December 2007, the Group entered into an option and joint venture agreement with IAMGOLD Corporation (“IAMGOLD”)
to explore and develop minerals in the two groups of properties located in Argentina, which comprise the projects “Santa
Cruz-Río Negro” and “Cañón del Moro”.
Under the arrangements, the Group will have the right to acquire a 70% interest in each group of properties by investing
US$200,000 and US$1,500,000 within two years and completing a pre-feasibility study on the properties before the end of the
seventh and sixth year for Santa Cruz and Cañón del Moro, respectively. The Group can withdraw from the agreement without
incurring any further expenditures or penalties.
(iii) Andina Minerals Chile Limitada (Encrucijada Project)
On 31 January 2008, the Group entered into an option and joint venture agreement with Andina Minerals Chile Ltda.
(“Andina”) to earn a 51% interest in respect of the Encrucijada project located in Chile. A payment of US$500,000 was made to
Andina upon signing of the agreement.
Under the arrangements, the Group will have the right to acquire a 51% interest in the project by investing US$3,000,000
within three years. The Group cannot withdraw from the agreement without investing a minimum of US$800,000 in the
project. At 31 December 2009, the Group has invested US$2,296,000 (US$1,165,000 at 31 December 2008).
(iv) Santos Bahamondes Latorre (Casualidad Project)
On 4 March 2008, the Group entered into an option agreement with Santos Bahamondes Latorre Compañía Minera in order
to acquire the mining rights of three groups of properties (Juana I, Juana II and Casualidad) located in Chile.
Under the arrangements, the Group will have the right to acquire the mining rights by making payments of US$1,000,000,
US$1,000,000 and US$1,500,000 for Juana I, Juana II and Casualidad, respectively. If the Group exercises its option it shall
pay a 1.5% Net Smelter Return once commercial production begins. The Group can withdraw from the agreement without
incurring any further expenditures or penalties.
(v) Iron Creek Capital Corp. (Vaquillas Project)
On 24 September 2008, the Group signed a letter of intent with Iron Creek Capital Corp. (“Iron Creek”) in respect of an option
and joint venture agreement to earn a 60% interest in the Vaquillas project, located in Chile. A payment of US$750,000 was
made to Iron Creek upon signing of the letter of intent.
Under the arrangements, the Group will have the right to acquire a 60% interest by incurring expenditure on exploration
activities of US$6,000,000 over a five-year period and has to invest at least US$750,000 before withdrawing from the venture.
At 31 December 2009 the Group has invested US$1,668,000 (no investment at 31 December 2008).
In addition, the Group participated in a private placement whereby the Group subscribed for shares in Iron Creek for a cash
consideration of US$1,000,000, the proceeds of which will be invested in a specific area of the project (the Porphiry Area) in
the two year period from the closing of the private placement.
(vi) IAMGOLD and Minera Mariana Argentina S.A. (Los Amigos)
On 5 November 2009, the Group entered into an option and joint venture agreement with IAMGOLD Corporation (“IAMGOLD”)
and Minera Mariana Argentina S.A. (“Mariana”) to explore and develop minerals in the two groups of properties located in
Argentina, which comprise the project “Los Amigos”.
Under the arrangements, the Group will have the right to acquire a 51% interest in each group of properties by investing
US$1,500,000 within two years. The Group can withdraw from the agreement without incurring any further expenditures
or penalties.
(c) Operating lease contract
The Group has a number of operating lease agreements.
The lease expenditure charge to the income statement during the years 2009 and 2008 are included in the production costs
and administrative expenses.
As at 31 December 2009 and 2008, the future aggregate minimum lease payments under the operating lease agreements
are as follows:
For the year ended 31 December
A
c
c
o
u
n
t
s
Not later than one year
Later than one year and not later than five years
123
2009
US$000
1,777
2,431
2008
US$000
1,365
1,593
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
34 COMMITMENTS (CONTINUED)
(d) Finance lease contract
During 2009 Compañía Minera Ares signed lease agreements for equipment with Banco de Crédito del Perú, Interbank and
Banco Interamericano de Finanzas. During 2008 Compañía Minera Ares S.A.C. signed lease agreements for equipment with
Banco de Credito del Perú (refer to note 16 and 26).
As at 31 December 2009 and 2008, the future aggregate minimum lease payments under the operating lease agreements are
as follows:
Not later than one year
Later than one year and not later than five years
(e) Capital commitments
Peru
Mexico
Argentina
35 CONTINGENCIES
For the year ended
31 December
2009
US$000
4,898
4,825
2008
US$000
3,157
4,778
For the year ended
31 December
2009
US$000
147,378
247
14,900
162,525
2008
US$000
31,860
19
14,112
45,991
As at 31 December 2009, the Group had the following contingencies:
(a) Taxation
Fiscal periods remain open to review by the tax authorities for four years in Peru and five years in Argentina and Mexico,
preceding the year of review. During this time the authorities have the right to raise additional tax assessments including
penalties and interest. Under certain circumstances, reviews may cover longer periods.
Because a number of fiscal periods remain open to review by the tax authorities, coupled with the complexity of the Group
and the transactions they have undertaken, there remains a risk that significant additional tax liabilities may arise.
Notwithstanding this risk, the Directors believe that management’s interpretation of the relevant legislation and assessment
of taxation is appropriate and that it is probable that the Group’s tax and customs positions will be sustained in the event of a
challenge by the tax authorities. Consequently, the Directors consider that they have made adequate provision for any future
outflow of resources and no additional provision is required in respect of these claims or risks.
(b) Other
The Group has conducted its operations in the ordinary course of business in accordance with its understanding and
interpretation, and based on advice of legal counsel, of applicable legislation in the countries where the Group has
operations. In certain specific transactions, however, the relevant authorities could have a different interpretation of those
laws and regulations that could lead to contingencies or additional liabilities for the Group. Having consulted legal counsel,
management believes that it has reasonable grounds to support its position.
The assessment of contingencies inherently involves exercise of significant judgement and estimates of the outcome of future
events. Uncertainties in estimating the liability includes changes in the legal interpretation that the authorities could make in
respect of the Group’s transactions.
124
36 GUARANTEES AND TAX STABILITY AGREEMENTS
(a) Compañía Minera Ares
Ares Unit
On 28 October 1999, the Ministry of Energy and Mines granted legal stability for the Ares operating unit, starting 1 January
1999 for a 10-year term, expiring on 31 December 2008.
Under this agreement, the Peruvian Government is obliged to guarantee legal stability to the Ares operating unit of the
Company covering the following areas:
– (cid:2)Free trade of its products
– (cid:2)Removal of currency restrictions
– (cid:2)Stability of tax rates
– (cid:2)Fixed rate on the annual validity fee or “good standing” payment for mining concessions
As a result of the Ares stability agreement, Ares paid income tax in Peru at a rate of 30% in respect of income generated by
the Ares operating unit, and the annual validity fee or “good standing” payment for mining concessions were fixed at the rate
of US$2.00 per hectare per year. The Ares operating unit was exempt from paying the governmental royalties covered by Law
28258 – Mining Royalties Law with respect to revenues generated at the Ares operating unit for so long as the stability
agreement remains in effect.
The expiration of the agreement results in the Ares unit being subject to the actual tax law and Mining Royalties law from
1 January 2009. The current tax rate is 30%, therefore there is no effect related to the expiration of the stability agreement.
Arcata Unit
On 31 July 2007, the Ministry of Energy and Mines granted legal stability to Compañía Minera Ares for the Arcata operating
unit, starting 1 January 2009 for a 10-year term.
As a result of the stability agreement Compañía Minera Ares will pay income tax in Peru at a rate of 32% in respect of income
generated by the Arcata operating unit. The Peruvian Government is obliged to guarantee stability of the tax regime that was
in effect as at 5 February 2007, during the period of 10 years.
On 8 June 2009, Compañía Minera Ares resigned only the stability of tax rates, in conclusion the rate of 30% will be applied
in respect of income generated by the Arcata operating unit.
(b) Minera Santa Cruz
Minera Santa Cruz has been granted with two tax stability certificates in relation to provincial and national taxes in Argentina
in respect of the San José project. The stability certificates run for a 30-year period commencing on 21 November 2005.
Under these certificates, Minera Santa Cruz’s tax stability in respect of the San José operating unit covers, among others,
the following areas:
– (cid:2)The mining royalty cannot exceed 3% of the pit-head value of the production; however, it must be noted that the Provincial
Government may not agree with such construction and, on the contrary, may argue that the tax stability does not cover the
mining royalty. So far, in accordance with such 3% cap, the Provincial Government fixed the mining royalty applicable to the
San José operating unit at: (i) 1.85% of the pit-head value of the production when the final product is doré; and (ii) 2.55% of
the pit-head value of the production when the final product is mineral concentrate or precipitates.
– (cid:2)The National Export tax is 5% when the final product is doré and 10% when the final product is gold or silver concentrate
although rebates are available for the first three years, if shipped from port (3%, 2% and 1% rebate for years 2007, 2008
and 2009, respectively).
– (cid:2)Income tax rate not higher than 35%.
A
c
c
o
u
n
t
s
125
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
37 MINING ROYALTY
Peru
In accordance with Peruvian legislation, owners of mining concessions must pay a mining royalty for the exploitation of
metallic and non-metallic resources. Mining royalties are calculated with rates ranging from 1% to 3% of the value of mineral
concentrate or equivalent, based on the quoted market prices. As at 31 December 2009, the amount payable as mining
royalties for the mining units of Ares, Arcata, Selene, and Pallancata amounted to approximately US$1,988,000 (Selene,
Arcata and Pallancata amounted to US$876,000 at 31 December 2008), and is recorded under the caption “Trade and other
payables” in the statement of financial position. Management, having consulted with legal counsel, is of the opinion that the
Ares mining unit has not been affected by this law and therefore need not make any royalty payments or provisions for such
payments until 31 December 2008 due to the fact that it has the legal stability agreement (refer to note 36).
Argentina
In accordance with Argentinian legislation, Provinces (being the legal owners of the mineral resources) are entitled to
request royalties from mine operators. For San José, the mining royalty is fixed at 1.85% of the pit-head value of the
production where the final product is doré and 2.55% where the final product is mineral concentrate or precipitates.
As at 31 December 2009, the amount payable as mining royalties amounted to US$204,000 (2008: US$136,000).
38 FINANCIAL RISK MANAGEMENT
The Group is exposed to a variety of risks and uncertainties which may have a financial impact on the Group and which also
impact the achievement of social, economic and environmental objectives. These risks include strategic, commercial,
operational and financial risks and are further categorised into risk areas to facilitate consolidated risk reporting across
the Group.
The Group has made significant developments in the management of the Group's risk environment which seeks to identify
and, where appropriate, implement the controls to mitigate the impact of the Group’s significant risks. This effort is
supported by a Risk Committee with the participation of the CEO, the Vice Presidents, the Country General Managers and
the head of the internal audit function. The Risk Committee is responsible for implementing the Group’s policy on risk
management and internal control in support of the Company’s business objectives, and monitoring the effectiveness of
risk management within the organisation.
(a) Foreign currency risk
The Group principally produces silver and gold which are typically priced in US dollars. A proportion of the Group’s costs are
incurred in pounds sterling, Peruvian nuevos soles, Argentine pesos and Mexican pesos. Accordingly, the Group’s financial
results may be affected by exchange rate fluctuations between the US dollar and the local currency. The long-term
relationship between commodity prices and currencies in the countries in which the Group operates provides a certain
degree of natural protection. The Group does not use derivative instruments to manage its foreign currency risks.
The following table demonstrates the sensitivity to a reasonably possible change in the US dollar exchange rate, with all
other variables held constant, of the Group’s profit before tax and the Group’s equity.
Year
2009
Pounds sterling
Argentinian pesos
Mexican pesos
Peruvian nuevos soles
2008
Pounds sterling
Argentinian pesos1
Mexican pesos
Peruvian nuevos soles
Canadian dollars
Increase/
decrease in
US$/other
currencies
rate
Effect
on profit
before tax
US$000
Effect
on equity
US$000
+/–10%
+/–194
+/–10%
+/–22
+/–10%
+/–400
+/–10% –/+3,431
+/–10%
+/–430
+/–10% +/–1,362
+/–10%
–/+48
+/–10% –/+1,161
–
–
–
–
–
–
–
–
+/–10%
–/+75
+/–205
1 Minera Santa Cruz, one of the Group’s subsidiaries which is the legal owner of the San José mine, had debts denominated in US dollars. As Minera Santa
Cruz’s functional currency was the peso during 2008, the translation of this loan into pesos created a loss. Following the commencement of operations the
Group was required to change the functional currency of Minera Santa Cruz to US dollars and, as a result, these loans were no longer being exposed to foreign
currency risk.
126
38 FINANCIAL RISK MANAGEMENT (CONTINUED)
(b) Commodity price risk
Silver and gold prices have a material impact on the Group’s results of operations. Prices are significantly affected by
changes in global economic conditions and related industry cycles. Generally, producers of silver and gold are unable
to influence prices directly; thus, the Group’s profitability is ensured through the control of its cost base and the efficiency
of its operations.
Whilst committed to being un-hedged, management continuously monitors silver and gold prices but shall take the
necessary action, where appropriate and within Board approved parameters, to mitigate the impact of this risk.
As a result of the financial crisis, the Company found itself constrained in its ability to use its cash balance given uncertainty
surrounding commodity prices. Authorisation was granted to hedge a portion of the Group's 2009 and 2010 production
schedule in order to allow the Company to free-up its cash balance in order to pursue higher growth opportunities through
acquisition and strategic investments.
The Group also has embedded derivatives arising from the sale of concentrate and doré which were provisionally priced at
the time the sale is recorded (refer to notes 6 and 23(3)). For these derivatives (sales price adjustments and hedges), the
sensitivity of the fair value to an immediate 10% favourable or adverse change in the price of gold and silver (assuming all
other variables remain constant), is as follows:
Year
2009
2008
Increase/
decrease
price of
ounces of:
Gold
+/–10%
Silver
+/–10%
Gold
+/–10%
Silver
+/–10%
Effect
on profit
before tax
US$000
+/–550
–1,534
+766
–/+157
–/+2,063
(c) Credit risk
Credit risk arises from debtors’ inability to make payment of their obligations to the Group as they become due (without
taking into account the fair value of any guarantee or pledged assets). The Group is primarily exposed to credit risk as a
result of commercial activities and non-compliance, by counterparties, in transactions in cash which are primarily limited
to cash balances deposited in banks and accounts receivable at the statement of financial position date.
Counterparty credit exposure based on commercial activities, cash balances in banks and hedging activities as at
31 December 2009:
Summary commercial partners
Consorcio Minero S.A. – Cormin
Teck Cominco Metals Ltd
Doe Run Perú S.R.L.
Aurubis AG (formerly Nordeutsche Affinerie AG)
LS Nikko.
MRI Trading AG
Johnson Matthey Inc.
Argor Heraus S.A.
Others
127
As at
31 December
2009
US$000
Credit
rating or %
collected as
at 23 March
2009
21,628
17,481
1,108
29,040
4,922
2,078
605
116
3
76,981
92%
BB+
0%
91%
A1
98%
100%
100%
NA
A
c
c
o
u
n
t
s
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
38 FINANCIAL RISK MANAGEMENT (CONTINUED)
Counterparty credit exposure based on commercial activities, cash balances in banks and hedging activities as at
31 December 2008:
As at
31 December
2008
US$000
16,382
13,902
7,143
6,606
3,129
186
47,348
Credit
rating
NA
BBB
NA
NA
NA
NA
As at
31 December
2009
US$000
As at
31 December
2008
US$000
(2,032)
–
(420)
(2,452)
490
(186)
–
304
As at
31 December
2009
Credit
US$000
rating
13,024 A -1 +(S&P)
40,348 A -1(S&P)
5,350
F1(FR)
11,691
1,072
A(S&P)
1,001 A -1(S&P)
199 A -1 +(S&P)
67 A - 3(S&P)
818
B(S&P)
4,274
77,844
F2(FR)
NA
Summary commercial partners
Consorcio Minero S.A. – Cormin
Teck Cominco Metals Ltd
Louis Dreyfus Perú S.A.
Nordeutsche Affinerie AG
Sudamericana Trading S.R.L.
Others
Hedging counterparties
Citibank
INTL Commodities Inc.
JP Morgan
Total
Financial counterparties
JP Morgan
Citibank
Banco Nacional de México
Banco de Crédito del Perú
Banco de la Nación (Peru)
Banco Santander
Banco Bilbao Vizcaya Argentaria
Scotiabank
HSBC
Others (including Cash in hand)
Total
128
38 FINANCIAL RISK MANAGEMENT (CONTINUED)
JP Morgan
Citibank
Banamex
Banco de Crédito del Perú
Banco Bilbao Viscaya Argentaria
Banorte
Others (including Cash in hand)
Total
As at
31 December
2008
US$000
93,131
8,061
5,460
2,966
745
66
5,718
116,147
Credit
rating
Aa1
A1
Aa3
Baa2
Aa1
BBB
NA
As a result of the recent and ongoing financial crisis, the Group has evaluated and introduced additional efforts to try to
mitigate credit risk exposure.
To manage the credit risk associated with commercial activities, the Group has implemented the following options:
– (cid:2)Active use of prepayment/advance clauses in sales contracts.
– (cid:2)Delaying delivery of title and/or advance payments to reduce exposure timeframe (potential delay in sales recognition).
– (cid:2)Obtaining parent guarantees to shore up the credit profile of the customer (where possible).
– (cid:2)Maintaining a diversified portfolio of clients (as diversified as possible).
– (cid:2)Evaluating the credit worthiness of customers.
– (cid:2)Limiting delivery of product (to the extent possible) based on open exposures.
To manage credit risk associated with cash balances deposited in banks, the Group has implemented the following options:
– (cid:2)Increasing banking relationships with large, established and well-capitalised institutions in order to secure access to credit
and to diversify credit risk.
– (cid:2)Investing cash (to the extent possible) with counterparties with whom the Group has debt outstanding.
– (cid:2)Investing cash in short-term, highly liquid and low risk instruments (money market accounts).
– (cid:2)Maintaining excess cash abroad in hard currency.
Receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not
significant. The maximum exposure is the carrying amount as disclosed in note 21.
A
c
c
o
u
n
t
s
129
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
38 FINANCIAL RISK MANAGEMENT (CONTINUED)
(d) Equity risk on financial instruments
The Group acquires financial instruments in connection with strategic alliances with third parties. The Group constantly
monitors the fair value of these instruments in order to decide whether or not it is convenient to dispose of these
investments. The disposal decision is also based on management’s intention to continue with the strategic alliance,
the tax implications and changes in the share price of the investee.
The following table demonstrates the sensitivity to reasonable movements in the share price of available-for-sale financial
assets and derivative financial instruments (excluding embedded derivatives from provisionally priced sales), with all other
variables held constant:
Year
2009
2008
Increase/
decrease in
prices
+10%
Effect
on profit
before tax
US$000
–
Effect
on equity
US$000
+1,917
–10%
+10%
–10%
–
–1,917
+1,615
–1,391
+730
–730
As at 31 December 2009, the Group held the following financial instruments measured at fair value:
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.
Assets measured at fair value
Financial assets at fair value through profit and loss
Embedded derivatives (refer to note 23(3))
Available-for-sale financial assets (refer to note 20)
Equity shares
Debt securities
Liabilities measured at fair value
Financial liabilities at fair value through profit and loss
Embedded derivatives (refer to note 23(3))
Zero cost collars contracts (refer to note 23(5))
Swap contracts (refer to note 23(6))
31 December
2009
US$000
Level 1
US$000
Level 2
US$000
Level 3
US$000
695
–
19,173
8
7,430
8
175
2,452
13
–
–
–
–
–
–
–
2,452
13
695
11,743
–
175
–
–
During the period ending 31 December 2009, there were no transfers between these levels.
(e) Liquidity risk
Liquidity risk arises from the Group’s inability to obtain the funds it requires to comply with its commitments, including the
inability to sell a financial asset quickly enough and at a price close to its fair value. Management constantly monitors the
Group’s level of short and medium-term liquidity, and their access to credit lines, in order to ensure appropriate financing is
available for its operations. In 2009 the Group increased its short term bank lines by over 30% in addition to accessing further
long-term financing through the issue of equity and convertible bonds.
130
38 FINANCIAL RISK MANAGEMENT (CONTINUED)
The table below categorises the Group’s financial liabilities into relevant maturity groupings based on the remaining period
as at the statement of financial position to the contractual maturity date:
At 31 December 2009
Trade and other payables
Borrowings
Total
At 31 December 2008
Trade and other payables
Borrowings
Total
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
Less than
1 year
US$000
68,501
123,412
191,913
81
39,819
39,900
–
209,178
209,178
82,359
402
292
102,705
98,800
161,792
185,064
99,202
162,084
–
–
–
–
–
–
68,582
372,409
440,991
83,053
363,297
446,350
(f) Interest rate risk
The Group has financial assets and liabilities which are exposed to interest rate risk. Changes in interest rates primarily
impact loans and borrowings by changing either their fair value (fixed rate debt) or their future cash flows (variable rate debt).
The Group does not have a formal policy of determining how much of its exposure should be at fixed or at variable rates.
However, at the time of taking new loans or borrowings, management applies its judgement to decide whether it believes
that a fixed or variable rate borrowing would be more favourable to the Group over the expected period until maturity.
It is important to note that currently all existing financial obligations are either at fixed rates or have been fixed with the
use of derivatives.
As at 31 December 2009
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
Within
1 year
US$000
1,430
7,673
39,443
(75,570)
–
–
–
–
–
–
–
–
(84,268)
(34,773)
(31,586)
(1,663)
–
(103,827)
12,994
–
–
–
–
–
–
–
–
–
1,430
7,673
39,443
(75,570)
(150,627)
(105,490)
12,994
A
c
c
o
u
n
t
s
Fixed rate
Cash at bank (note 24)
Time deposits (note 24)
Loans to minority shareholders (note 21)
Amounts due to minority shareholders (note 26)
Secured bank loans (note 26)
Convertible bond payable (note 26)
Floating rate
Liquidity funds (note 24)
131
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the consolidated financial statements continued
38 FINANCIAL RISK MANAGEMENT (CONTINUED)
Fixed rate
Cash at bank (note 24)
Time deposits (note 24)
Loans to minority shareholders (note 21)
Amounts due to minority shareholders (note 26)
Secured bank loans (note 26)
Floating rate
Liquidity funds (note 24)
Secured bank loans (note 26)
As at 31 December 2008
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
Within
1 year
US$000
171
8,278
6,502
–
–
–
–
22,269
8,062
(40,409)
(22,248)
(7,350)
(52,365)
(2,604)
(1,898)
93,131
–
–
(4,260)
(56,432)
(141,160)
–
–
–
–
–
–
–
171
8,278
36,833
(70,007)
(56,867)
93,131
(201,852)
Interest on financial instruments classified as floating rate is re-priced at intervals of less than one year. Interest on financial
instruments classified as fixed rate is fixed until the maturity of the instrument. The other financial instruments of the Group
that are not included in the above tables are non-interest bearing and are therefore not subject to interest rate risk.
The following table demonstrates the sensitivity to a reasonable movement in the interest rate, with all other variables held
constant, of the financial instruments with a floating rate. The Group is exposed to the fluctuation of rates expressed in
US dollars. This assumes that the amount remains unchanged from that in place at 31 December 2009 and 2008 and that
the change in interest rates is effective from the beginning of the year. In reality, the floating rate will fluctuate over the year
and interest rates will change accordingly.
Year
2009
2008
Increase/
decrease
interest
rate
+/–50bps
+/–50bps
Effect
on profit
before tax
US$000
–/+490
–/+520
(g) Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to
provide returns for shareholders, benefits for other stakeholders, and to maintain an optimal capital structure to reduce the
cost of capital. Management considers as part of its capital, the financial sources of funding from shareholders and third
parties (refer to notes 26 and 28). In order to ensure an appropriate return for shareholders’ capital invested in the Company,
management thoroughly evaluates all material projects and potential acquisitions and approves them at its Executive
Committee before submission to the Board for ultimate approval, where applicable.
In addition to such controls, management and the Board have decided to secure commodity prices in 2010 in order to
guarantee an appropriate capital level and shareholder return.
132
39 SUBSEQUENT EVENTS
(a) On 6 May 2006, the Group signed an agreement with Silex Argentina S.A. (“Silex”), a wholly owned subsidiary of Golden
Minerals Company (“Golden Minerals”) to explore and develop minerals in a group of properties located in Argentina, which
comprise the project “El Quevar”. The initial interest held by the Group was 35%, which was subsequently reduced to 20% in
exchange for Silex funding the feasibility study.
On 30 December 2009, the Group entered into an agreement with Golden Minerals and Silex to sell its interest in the project
in exchange for 400,000 common shares and a warrant to purchase 300,000 common shares of Golden Minerals at a price
per share of US$15. The agreement was subject to certain conditions precedent that did not take place until 7 January 2010.
(b) On 16 February 2010, the Group acquired 1,273,036 shares of its associate Lake Shore for CAD$5,130,000 (approximately
US$4,920,000). After completion of the transaction, the Group’s ownership in Lake Shore increased from 35.69% to 35.92%.
(c) Between 26 January 2010 and 5 February 2010 the Group acquired 440,500 shares of its associate Gold Resource Corp.
for US$$4,322,000 in the open market. In addition, on 8 March 2010 the Group signed a subscription agreement with Gold
Resource Corp. by which the Group acquired 600,000 shares for a total consideration of US$5,172,000. Following completion
of these purchases, the Group’s ownership in its associate increased from 25% to 26.7%.
(d) On 9 February 2010, the Group signed an engagement letter with BMO Capital Markets Limited (“BMO”) for the sale of the
San Felipe project, the Group’s zinc project located in northern Mexico.
(e) On 5 March 2010, Inversiones Pacasmayo S.A., a related party of the Group, purchased Hochschild Mining plc’s 36.9%
stake in Zincore at a price of C$0.27 per share representing a 11.6% premium over the 20 day average closing price.
Inversiones Pacasmayo S.A. paid a total cash consideration of C$10,287,000. As a result of the transaction, Hochschild Mining
plc has no further interest in Zincore.
The disposal was approved on behalf of the Hochschild board by a committee comprising solely independent Non-Executive
Directors (“the Independent Committee”). The Independent Committee has been advised by Canaccord Adams Limited that
the terms of the disposal are fair and reasonable as far as shareholders are concerned.
(f) On 11 March 2009 the Group has filed suit in the New York State Supreme Court asking that Minera Andes Inc. (“MAI”)
and its subsidiary Minera Andes SA (“MASA”) be required to execute the formal loan agreement documents in respect of the
US$65 million project finance loan. This facility was provided by the Group to one of its subsidiaries Minera Santa Cruz S.A.
for the development of the San José operation in Argentina.
The law suit lists the following causes of action: (i) a decree by the court requiring MASA and its parent company to execute
formal loan agreement documents with the Group consistent with the previous agreements between the two companies,
(ii) it asks that MAI and MASA be enjoined from further interference in the repayment of the project finance loan, (iii) asks
the court to order payment to the Group of benefits derived by MAI and MASA as a result of the loan, and (iv) requests an
order declaring that other shareholder loans are subordinate to the project finance loan.
A
c
c
o
u
n
t
s
133
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Parent company statement of financial position
As at 31 December 2009
ASSETS
Non-current assets
Property, plant and equipment
Investments in subsidiaries
Investments in associates
Available-for-sale financial assets
Current assets
Other receivables
Income tax receivable
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Equity share capital
Share premium
Other reserves
Retained earnings
Total equity
Non-current liabilities
Borrowings
Current liabilities
Trade and other payables
Financial liabilities at fair value through profit and loss
Borrowings
Income tax payable
Total liabilities
Total equity and liabilities
As at 31 December
2009
US$000
2008
US$000
Notes
316
426
4
5 1,350,395 1,133,589
–
6
4,651
–
57
7
1,355,362 1,134,072
8
9
3,878
40
5,581
726
8
83,946
9,499
84,680
1,364,861 1,218,752
10
10
158,637
416,154
356,185
146,466
416,154
347,766
208,327
104,201
1,139,303 1,014,587
12
215,082
215,082
197,592
197,592
11
13
12
7,183
13
3,280
–
10,476
2,313
–
4,260
–
6,573
225,558
204,165
1,364,861 1,218,752
The accompanying accounting policies and notes on pages 137 to 153 are an integral part of these financial statements.
The financial statements on pages 134 to 136 were approved by the Board of Directors on 23 March 2010 and signed on its
behalf by:
Ignacio Rosado
Chief Financial Officer
23 March 2010
134
A
c
c
o
u
n
t
s
Parent company statement of cash flows
For the year ended 31 December 2009
Reconciliation of (loss)/profit for the year to net cash used in operating activities
(Loss)/profit for the year
Adjustments to reconcile Company operating profit to net cash outflows
from operating activities:
Depreciation
Impairment of investments in subsidiaries
Impairment of available-for-sale financial assets
Income tax expense
Finance income
Finance costs (excluding impairment of available-for-sale financial assets)
Foreign exchange gain
Increase (decrease) of cash flows from operations due to changes in assets and liabilities:
Other receivables
Derivative financial instruments
Trade and other payables
Provision for Executive Long-Term Incentive Plan
Cash used in operating activities
Interest received
Interest paid
Tax paid
Net cash used in operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Investments in subsidiaries
Investment in associates
Loan to Minas Santa María de Moris S.A. de C.V.
Repayment of loan from Minera Hochschild Chile, S.C.M.
Net cash used in investing activities
Cash flows from financing activities
Proceed of borrowing
Repayment of borrowings
Transaction costs associated with borrowing
Dividends paid
Proceeds from issue of ordinary shares
Transaction costs associated with issue of shares
Cash flows generated from/(used in) financing activities
Net decrease in cash and cash equivalents during the year
Foreign exchange gain
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
135
Year ended 31 December
2009
US$000
2008
US$000
Notes
(11,577)
(977,844)
4
5
7
14
115
–
–
(11)
(1,049)
8,584
(3,183)
(726)
(1,256)
4,841
–
(4,262)
1,148
(8,127)
29
(11,212)
89
967,630
323
21
(4,915)
5,332
(1,534)
151
–
(855)
(32)
(11,634)
5,900
(1,050)
(168)
(6,952)
4
5
6
(5)
(430)
(216,806)
(366,388)
(4,651)
(2,500)
–
–
–
1,885
(223,962)
(364,933)
12(1)
12(1)
12(1)
16
10
10
9
115,000
(85,680)
(3,568)
(12,294)
143,621
(3,453)
153,626
(81,548)
3,183
83,946
5,581
200,000
–
(2,408)
(28,331)
–
–
169,261
(202,624)
1,534
285,036
83,946
A
c
c
o
u
n
t
s
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Parent company statement of changes in equity
For the year ended 31 December 2009
Balance at 1 January 2008
Loss for the year
Total recognised loss for 2008
Transfer
Dividends
Balance at 31 December 2008
Equity share
capital
US$000
Share
premium
US$000
146,466
416,154
–
–
–
–
–
–
–
–
146,466 416,154
Net fair value gains on available-for-
sale financial assets
Recycling of realised fair value gains
on available-for-sale financial assets
Unrealised gain/(loss) in the initial
valuation of derivative instruments
classified as hedging instruments
Net loss recognised directly in equity
Loss for the year
Total comprehensive loss for 2009
–
–
–
–
–
–
Issuance of shares
Transfer
Issuance of convertible bonds
12,171
–
–
–
–
–
–
–
–
–
–
–
Dividends
Balance at 31 December 2009
–
–
158,637 416,154
Unrealised
gain/(loss)
on
available-
for-sale
financial
assets and
initial
valuation of
hedging
US$000
–
–
–
–
–
–
654
(654)
(13)
(13)
–
(13)
–
–
–
–
(13)
Bond
equity
component
US$000
Merger
reserve
US$000
Total other
reserves
US$000
Retained
earnings
US$000
Total equity
US$000
– 1,315,396 1,315,396 142,746 2,020,762
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(977,844)
(977,844)
–
(977,844)
(977,844)
(967,630)
(967,630) 967,630
–
–
–
(28,331)
(28,331)
347,766
347,766 104,201 1,014,587
–
–
–
–
–
–
654
(654)
(13)
(13)
–
–
–
–
654
(654)
(13)
(13)
–
(11,577)
(11,577)
(13)
(11,577)
(11,590)
127,997
127,997
–
140,168
(127,997)
(127,997) 127,997
–
8,432
–
8,432
–
8,432
–
8,432
–
347,766
–
(12,294)
(12,294)
356,185 208,327 1,139,303
A
c
c
o
u
n
t
s
136
Notes to the parent company financial statements
For the year ended 31 December 2009
1 CORPORATE INFORMATION
Hochschild Mining plc (hereinafter “the Company”) is a public limited company incorporated on 11 April 2006 under the
Companies Act 2006 as a Limited Company and registered in England and Wales with registered number 05777693.
The Company’s registered office is located at 46 Albemarle Street, London W1S 4JL, United Kingdom. The Company was
incorporated to serve as a holding company to be listed on the London Stock Exchange. The Company acquired its interest
in a group of companies to constitute the Hochschild Mining Group (“the Group”) pursuant to a share exchange agreement
(“Share Exchange Agreement”) dated 2 November 2006.
The ultimate controlling party of the Company is Mr Eduardo Hochschild whose beneficial interest in the Company and its
subsidiaries (together “the Group” or “Hochschild Mining Group”) is held through Pelham Investment Corporation, a Cayman
Islands company.
On 8 November 2006, the Company’s shares were admitted to the Official List of the UKLA (United Kingdom Listing Authority)
and to trading on the London Stock Exchange.
2 SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of preparation
The Company’s financial statements have been prepared in accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union and are also consistent with IFRS issued by the IASB, as applied in accordance with
the Companies Act 2006.
The financial statements of the Company have been prepared on a historical cost basis, except for derivatives and available-
for-sale financial instruments which have been valued at fair value. The financial statements are presented in US dollars
(US$) and all monetary amounts are rounded to the nearest thousand ($000) except when otherwise indicated.
(b) Exemptions
The Company’s financial statements are included in the Hochschild Mining Group consolidated financial statements for the
year ended 31 December 2009 and 31 December 2008. As permitted by section 408 of the Companies Act 2006, the Company
has not presented its own profit and loss account.
(c) Judgements in applying accounting policies and key sources of estimation uncertainty
Certain amounts included in the financial statements such as the recoverability of accounts receivable and the valuation of
investments in subsidiaries involve the use of judgement and/or estimation. These judgements and estimates are based on
management’s best knowledge of the relevant facts and circumstances, having regard to prior experience, but actual results
may differ from the amounts included in the financial statements. Information about such judgements and estimation is
contained in the accounting policies and/or the notes to the financial statements.
(d) Changes in accounting policy and disclosures
The accounting policies adopted are consistent with those of the previous financial year except as follows:
Adoption of new and amended standards
The Group has adopted the following new and amended IFRS and IFRIC interpretations during the year. Adoption of these
revised standards and interpretations did not have any effect on the financial performance or position of the Group.
– IFRS 8 “Operating Segments” applicable for annual periods beginning on or after 1 January 2009.
– IAS 23 Amendment, “Borrowing Costs”, applicable for annual periods beginning on or after 1 January 2009.
– IAS 1 “Presentation of Financial Statements”, applicable for annual periods beginning on or after 1 January 2009.
– IFRS 2 “Amendment to IFRS 2 – Vesting Conditions and Cancellations”, applicable for annual periods beginning
on or after 1 January 2009.
– IAS 32 and IAS 1 Amendment “Puttable Financial Instruments and Obligations Arising on Liquidation”, applicable for
annual periods beginning on or after 1 January 2009.
– IFRS 1 and IAS 27 Amendment “Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate”, applicable
for annual periods beginning on or after 1 January 2009.
– 2008 Annual Improvements to IFRS, applicable for annual periods beginning on or after 1 January 2009.
– IFRIC 16 “Hedges of a Net Investment in a Foreign Operation”, applicable for annual periods beginning on or after
1 October 2008.
– IFRS 7 “Financial Instruments: Disclosures”, applicable for annual periods beginning on or after 1 January 2009.
A
c
c
o
u
n
t
s
137
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the parent company financial statements continued
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
– FRIC 13 “Customer Loyalty Programmes”, applicable for periods beginning on or after 1 July 2008.
– IFRIC 15 “Agreements for the Construction of Real Estate”, applicable for periods beginning on or after 1 January 2009.
– IFRIC 18 “Transfer of Assets from Customers”, applicable to assets transferred on or after 1 July 2009.
– IAS 39 & IFRS 7 Amendments “Reclassification of Financial Instruments”, applicable for periods beginning on or after
1 July 2008.
– IAS 39 Amendment “Reclassification of Financial Assets: Effective Date and Transition”, applicable for periods beginning
on or after 1 July 2008.
– IFRIC 9 & IAS 39 Amendments “Embedded Derivatives”, applicable for periods ending on or after 30 June 2009.
Certain new standards, amendments and interpretations to existing standards have been published and are mandatory
for the Group’s accounting periods beginning on or after 1 January 2010 or later periods but which the Group has not early
adopted. A list of these items is included in note 2(a) of the Group financial statements.
(e) Currency translation
The functional currency of the Company is the US dollar and is determined by the currency of the primary economic
environment in which it operates.
Transactions denominated in currencies other than the functional currency of the Company are initially recorded in the
functional currency using the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated
in foreign currencies are remeasured at the rate of exchange ruling at the balance sheet date. Exchange gains and losses on
settlement of foreign currency transactions which are translated at the rate prevailing at the date of the transactions, or on
the translation of monetary assets and liabilities which are translated at period-end exchange rates, are taken to the income
statement. Non-monetary assets and liabilities denominated in foreign currencies that are stated at historical cost are
translated to the functional currency at the foreign exchange rate prevailing at the date of the transaction.
(f) Investments in subsidiaries
Subsidiaries are entities over which the Company controls operating and financial policies, generally by owning more than
50% of voting rights. Investments in subsidiaries are recognised at acquisition cost less any provision for impairment.
The investment is reviewed for impairment if there are indications that the carrying value may not be recoverable.
(g) Investment in associates
An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor an interest in a
joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but
is not control or joint control over those policies. Investments in associates are accounted at acquisition cost.
(h) Dividends
The dividends are recognised when the Company’s right to receive payments is established. Dividends received are recorded
in the income statement.
(i) Other receivables
Current receivables are carried at the original amount less provision made for impairment of these receivables. A provision
for impairment of receivables is established when there is objective evidence that the Company will not be able to collect all
amounts due according to the original terms of the receivable. The amount of the provision is the difference between the
original carrying amount and the recoverable amount and this difference is recognised in the income statement.
A
A
c
c
c
c
o
o
u
u
n
n
t
t
s
s
(j) Cash and cash equivalents
Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the balance sheet, cash and cash
equivalents comprise cash on hand and deposits held with banks that are readily convertible into known amounts of cash
within three months or less and which are subject to insignificant risk of changes in value. For the purposes of the cash flow
statement, cash and cash equivalents as defined above are shown net of outstanding bank overdrafts.
(k) Share capital
Ordinary Shares issued by the Company are recorded at the net proceeds received, which is the fair value of the consideration
received less costs that are incurred in connection with the share issue. The nominal par value of the shares issued is taken
to the share capital account and any excess is recorded in the share premium account, including the costs that were incurred
with the share issue.
138
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l) Provisions
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event,
it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the
amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the
expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where
appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of
time is recognised as a finance cost.
Share based payments
The fair value of cash-settled share plans is recognised as a liability over the vesting period of the awards. Movements in that
liability between accounting dates are recognised as an expense. The fair value of the awards is taken to be the market value
of the shares at the date of award adjusted by a factor for anticipated relative Total Shareholder Return (“TSR”) performance.
Fair values are subsequently remeasured at each accounting date to reflect the number of awards expected to vest based on
the current and anticipated TSR performance.
(m) Finance income and costs
Finance income and costs mainly comprise interest income on funds invested, interest expense on borrowings, foreign
exchange gains and losses, gains and losses from the change in fair value of derivative instruments and gains and losses
on the disposal of available-for-sale investments.
Interest income and costs are recognised as they accrue, taking into account the effective yield on the asset and
liability, respectively.
(n) Income tax
Income tax for the year comprises current and deferred tax. Income tax is recognised in the income statement except
to the extent that it relates to items charged or credited directly to equity, in which case it is recognised in equity.
Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted at the balance
sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes:
– (cid:2)Where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction
that is not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.
– (cid:2)In respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures,
where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary
differences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset
is realised or the liability is settled based on the tax rates (and tax laws) that have been enacted or substantively enacted
at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against
which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related
tax benefit will be realised.
(o) Financial instruments
Financial assets and liabilities are recognised when the Company becomes party to the contracts that give rise to them and
are classified as loans or borrowings, receivables, payables, financial instruments at fair value through profit and loss or as
available-for-sale financial assets, as appropriate. The Company determines the classification of its financial assets and
liabilities at initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year-end.
When financial assets and liabilities are recognised initially, they are measured at fair value, being the transaction price plus,
in the case of financial assets not at fair value through profit or loss and borrowings, directly attributable transaction costs.
The Company considers whether a contract contains an embedded derivative when the entity first becomes a party to it.
The embedded derivatives are separated from the host contract if it is not measured at fair value through profit or loss and
when the economic characteristics and risks are not closely related to those of the host contract. Reassessment only occurs
if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.
All regular way purchases and sales of financial assets are recognised on the trade date, being the date that the Company
commits to purchase or sell the asset. Regular way transactions require delivery and receipt of assets within the timeframe
generally established by regulation or convention in the marketplace. The subsequent measurement of financial assets
depends on their classification, as follows:
A
c
c
o
u
n
t
s
139
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the parent company financial statements continued
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial assets at fair value through profit and loss
Financial assets at fair value through profit and loss includes financial assets held for trading and financial assets designated
upon initial recognition as at fair value through profit and loss.
The Company considers whether a contract contains an embedded derivative when the entity first becomes a party to it.
Embedded derivatives are separated from the host contract which is not measured at fair value through profit or loss when
the analysis shows that the economic characteristics and risks of embedded derivatives are not closely related to those of the
host contract.
Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives,
including separated embedded derivatives are also classified as held for trading unless they are designated as effective
hedging instruments or a financial guarantee contract. Gains or losses on financial assets held for trading are recognised
in the income statement.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market, do not qualify as trading assets and have not been designated as either fair value through profit and loss or
available-for-sale. Such assets are carried at amortised cost using the effective interest method if the time value of money
is significant. Gains and losses are recognised in the income statement when the loans and receivables are derecognised
or impaired, as well as through the amortisation process.
Available-for-sale financial assets
Available-for-sale financial assets are those non-derivative financial assets that are designated as such or are not classified
as loans and receivables, held-to-maturity investments or financial assets at fair value through profit and loss. After initial
recognition, available-for-sale financial assets are measured at fair value with unrealised gains or losses being recognised
as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired
at which time the cumulative gain or loss previously reported in equity is included in the income statement.
Loans and borrowings
Borrowings are recognised initially at fair value. After initial recognition, interest bearing loans and borrowings are
subsequently measured at amortised cost using the effective interest rate method.
Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the
amortisation process.
Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the
liability for at least 12 months after the balance sheet date.
Fair values
The fair value of quoted investments is determined by reference to bid prices at the close of business on the balance sheet
date. Where there is no active market, fair value is determined using valuation techniques. These include using recent arm’s
length market transactions; reference to the current market value of another instrument which is substantially the same;
discounted cash flow analysis and pricing models.
Impairment of financial assets
The Company assesses at each balance sheet date whether a financial asset or group of financial assets is impaired.
Assets carried at amortised cost
If there is objective evidence that an impairment loss on assets carried at amortised cost has been incurred, the amount of
the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash
flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest
rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced, through the
use of an allowance account.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an
event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent
reversal of an impairment loss is recognised in the income statement, to the extent that the carrying value of the asset does
not exceed its amortised cost at the reversal date. In relation to trade receivables, a provision for impairment is made when
there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the
Company will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount
of the receivable is reduced through use of an allowance account. Impaired debts are derecognised when they are assessed
as irrecoverable.
A
A
c
c
c
c
o
o
u
u
n
n
t
t
s
s
140
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Assets carried at cost
If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value
because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery
of such an unquoted equity instrument, has been incurred, the amount of the loss is measured as the difference between the
asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return
for a similar financial asset.
Available-for-sale financial assets
If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment
and amortisation) and its fair value is transferred from equity to the income statement. Reversals of impairment losses on
debt instruments are reversed through the income statement, if the increase in fair value of the instrument can be objectively
related to an event occurring after the impairment loss was recognised in profit or loss. Reversals in respect of equity
instruments classified as available-for-sale are not recognised in the income statement.
Derecognition of financial instruments
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets)
is derecognised when:
– (cid:2)the rights to receive cash flows from the asset have expired; or
– (cid:2)the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the
received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either:
(a) the Company has transferred substantially all the risks and rewards of the asset; or (b) the Company has neither
transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through
arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred
control of the asset, a new asset is recognised to the extent of the Company’s continuing involvement in the asset.
Continuing involvement that takes the form of a guarantee over the transferred asset, is measured at the lower of the
original carrying amount of the asset and the maximum amount of consideration that the Company could be required
to repay.
A financial liability is generally derecognised when the contract that gives rise to it is discharged or cancelled or expires.
Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the
terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the
original liability and the recognition of a new liability, such that the difference in the respective carrying amounts together
with any costs or fees incurred are recognised in profit or loss.
(p) Dividends distribution
Dividend distribution to the Company’s shareholders is recognised as a liability in the Company’s financial statements
in the period in which the dividends are approved by the Company’s shareholders.
(q) Convertible bond
The relevant standards within the accounting framework governing the treatment of this transaction are: (a) IAS 32 –
Financial Instruments: Presentation and (b) IAS 39 – Financial Instruments: Recognition and Measurement.
The convertible bond is a compound financial instrument that includes a financial liability and an equity instrument.
At initial recognition the Company determines the fair value of the liability component, and the equity component
as a residual amount that is never remeasured after initial recognition.
Derecognition of the convertible bond issued by the Company will be done when the debt is cancelled.
3 PROFIT AND LOSS ACCOUNT
The Company made a loss attributable to equity shareholders of US$11,577,000 (2008: loss of US$977,844,000).
A
c
c
o
u
n
t
s
141
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the parent company financial statements continued
4 PROPERTY, PLANT AND EQUIPMENT
Year ended 31 December 2008
Cost
At 1 January 2008
Additions
At 31 December 2008
Accumulated depreciation
At 1 January 2008
Depreciation
At 31 December 2008
Net book amount at 31 December 2008
Year ended 31 December 2009
Cost
At 1 January 2009
Additions
At 31 December 2009
Accumulated depreciation
At 1 January 2009
Depreciation
At 31 December 2009
Net book amount at 31 December 2009
5 INVESTMENTS IN SUBSIDIARIES
Beginning balance
Additions
Disposals
Impairment loss
Ending balance
Office
Building
US$000
Equipment
US$000
Total
US$000
–
277
277
–
18
18
109
153
262
24
71
95
259
167
277
–
277
18
29
47
230
262
5
267
95
86
181
86
109
430
539
24
89
113
426
539
5
544
113
115
228
316
As at 31 December
2009
US$000
2008
US$000
1,133,589 1,734,831
366,388
216,806
–
–
–
(967,630)
1,350,395 1,133,589
A
A
c
c
c
c
o
o
u
u
n
n
t
t
s
s
In 2008, the Company tested its investments in subsidiaries for impairment and recognised an impairment of the investment
in Hochschild Mining Holdings Ltd. of US$967,629,582. This impairment reflected the reduction in value of these investments
since recognition. The recoverable value of the investment in Hochschild Mining Holdings Ltd. using a fair value less cost to
sell approach, was determined by reference to the market capitalisation of the Group adjusted for the value of the Company.
142
5 INVESTMENTS IN SUBSIDIARIES (CONTINUED)
The breakdown of the investments in subsidiaries is as follows:
Name
Hochschild Mining Holdings Limited
Total
Country of
incorporation
England
and Wales
As at 31 December 2009
Equity
interest
%
Carrying
value
US$000
100% 1,350,395
1,350,395
Country of
incorporation
England
and Wales
As at 31 December 2008
Equity
interest
%
Carrying
value
US$000
100 1,133,589
1,133,589
The list of subsidiaries of the Group is presented in note 1 (Corporate information) of the notes to the Consolidated Financial
Statements.
During 2008, the Company subscribed for 4,800 shares of £1.00 each in HM Holdings through capital contributions paid
in cash of US$366,388,304.
During 2009, the Company subscribed for 1,800 shares of £1.00 each in HM Holdings through capital contributions paid
in cash of US$216,805,529.
6 INVESTMENTS IN ASSOCIATES
Zincore Metals Inc.
Total
Year ended 31 December
2009
US$000
4,651
4,651
2008
US$000
–
–
On 10 September 2009 the Company purchased 38,100,000 shares of Zincore Metals Inc. at CAD 0.165 per share with a
discount of 20%. The total cash consideration paid was CAD 5,029,200 equivalent to US$4,651,507. At 31 December 2009,
the interest of the Company was 36.9% (refer to note 18)
7 AVAILABLE-FOR-SALE FINANCIAL ASSETS
Beginning balance
Fair value change recorded in equity
Disposals1
Impairment recorded in the income statement2
Ending balance
Year ended 31 December
2009
US$000
57
654
(711)
–
–
2008
US$000
380
–
–
(323)
57
1 At 31 December 2009, the Company has sold its investment in Mirasol Resources Ltd. to Hochschild Mining Holdings Ltd. for a total cash consideration
of US$711,000.
2 At 31 December 2008, the investment in Mirasol Resources Ltd. was impaired. The impairment of US$323,000 was recorded under “Finance costs”.
A
c
c
o
u
n
t
s
143
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the parent company financial statements continued
8 OTHER RECEIVABLES
Amounts receivable from subsidiaries (note 15)
Prepayments
Accrued income
Receivable from Kaupthing, Singer and Friedlander
Other debtors
Provision for impairment1
Total
Year ended 31 December
2009
US$000
3,214
362
35
667
100
4,378
(500)
3,878
2008
US$000
62
526
138
758
–
1,484
(758)
726
The fair values of other receivables approximate their book values.
1 Corresponds to the balance of the impairment of cash deposits with Kaupthing, Singer and Friedlander of US$500,000 accrued in 2008 and partially recovered
in 2009 (2008: US$758,000 recorded under “Other expenses”).
Movements in the provision for impairment of receivables:
At 1 January 2008
Charge for the year
At 31 December 2008
Charge for the year
Amounts recovered
At 31 December 2009
As at 31 December, the ageing analysis of other receivables is as follows:
Individually
impaired
US$000
Collectively
impaired
US$000
Total
US$000
–
758
758
–
(258)
500
–
–
–
–
–
–
758
758
–
(258)
500
Past due but not impaired
Year
2009
2008
9 CASH AND CASH EQUIVALENTS
Neither
past
due nor
impaired
US$000
3,711
Total
US$000
3,878
726
726
Less than
30 days
US$000
–
–
30 to
60 days
US$000
–
–
61 to
90 days
US$000
–
91 to
120 days
US$000
167
Over
120 days
US$000
–
–
–
–
A
A
c
c
c
c
o
o
u
u
n
n
t
t
s
s
Bank current account
Liquidity funds1
Cash and cash equivalents considered for the cash flow statement
Year ended 31 December
2009
US$000
330
5,251
5,581
2008
US$000
285
83,661
83,946
1 The liquidity funds are mainly invested in certificate of deposit, commercial papers and floating rate notes with a weighted average annual effective interest
rate of 0.71% and a weighted average maturity between 30 to 55 days as at 31 December 2009 (2008: 3.98% and between 30 to 54 days) (refer to note 17(d)).
The liquidity funds generated interest of US$301,000 (2008: US$4,867,000).
144
10 EQUITY
(a) Share capital and share premium
Authorised and issued share capital
The authorised and issued share capital of the Company as at 31 December 2009 is as follows:
Authorised
Class of shares
Ordinary Shares
Number
Number
500,000,000 £125,000,000 338,085,226
Amount
Issued
Amount
£84,521,307
The authorised and issued share capital of the Company as at 31 December 2008 is as follows:
Class of shares
Ordinary Shares
Authorised
Number
Amount
Number
Issued
Amount
500,000,000 £125,000,000 307,350,226
£76,837,557
At 31 December 2009 and 2008, all issued shares with a par value of 25p (2009: weighted average of US$0.469, 2008: weighted
average of US$0.476 per share) each were fully paid.
Rights attached to ordinary shares
At general meetings of the Company, on a show of hands, every member who is present in person and by proxy has one
vote and, on a poll, every member who is present in person or by proxy has one vote for every share of which they are the
holder/proxy.
The changes in share capital are as follows:
Shares issued as at 1 January 2008
Shares issued as at 31 December 2008
307,350,226
307,350,226
Shares issued and paid pursuant to the placing of shares dated 12 October 2009
Shares issued as at 31 December 2009
30,735,000
338,085,226
146,466
146,466
12,171
158,637
416,154
416,154
–
416,154
Number of
shares
Equity share
capital US$000
Share premium
US$000
On 12 October 2009, a share placement was completed and 30,735,000 shares with an aggregate nominal value of
US$12,171,000 were issued for a cash consideration of US$140,168,000 net of transaction costs of US$3,453,000. The share
placement was effected through a structure which resulted in the excess of the net proceeds received over the nominal value
of the share capital issued being transferred to retained earnings.
(b) Other reserves
Merger reserve
The merger reserve represents the difference between the value of the net assets of the Cayman Holding Companies
acquired under the Share Exchange Agreement and the nominal value of the shares issued in consideration of such
acquisition.
A
c
c
o
u
n
t
s
145
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the parent company financial statements continued
11 TRADE AND OTHER PAYABLES
Trade payables
Loan from subsidiary (note 15)
Professional fees
Board members’ remuneration
Remunerations payable
Audit fees
Accrued expenses
Taxes and contributions
Total
As at 31 December
2009
US$000
2008
US$000
509
5,337
106
320
132
544
103
132
167
1,055
227
42
160
522
100
40
7,183
2,313
Trade payables mainly relate to the purchase of third-party services. These payables do not accrue interest and no
guarantees have been granted. The fair value of trade and other payables approximate their book values.
Trade payables are denominated in the following currencies:
Pounds sterling
US dollar[s]
Canadian dollar[s]
Australian dollar[s]
Total
12 BORROWINGS
2009
US$000
2008
US$000
140
366
3
–
509
61
96
1
9
167
Secured bank loans1
Convertible bond payable2
Total
1 Secured bank loans
As at 31 December 2009, the balance corresponds to:
As at 31 December
2009
Current
US$000
1,617
1,663
3,280
Non-current
US$000
197,592
–
2008
Current
US$000
4,260
–
197,592
4,260
Non-current
US$000
111,255
103,827
215,082
A
A
c
c
c
c
o
o
u
u
n
n
t
t
s
s
– (cid:2)Loan facility with a syndicate of lenders with JP Morgan Chase Bank N.A. acting as the Administrative Agent. Total secured
term loan facility of US$200,000,000 that accrues an effective interest rate of LIBOR + 1% and is guaranteed by all the equity
share capital, free and clear of any liens, of Compañía Minera Ares S.A.C. The balance as at 31 December 2009 is comprised
of the secured term loan facility of US$114,320,000 plus accrued interest of US$1,787,000 and net of transaction costs of
US$3,235,000. During 2009, the Group signed a swap contract with BBVA and Citibank to fix the interest rate at 1.75%
The Company has granted the following guarantees on its US$114,320,000 bank syndicated loan:
– (cid:2)Pledge of all shares in Compañía Minera Ares (wholly-owned subsidiary).
– (cid:2)Subsidiary guarantees by certain wholly-owned subsidiaries whereby these subsidiaries guarantee with their cash flows
the repayment of the loan.
146
12 BORROWINGS (CONTINUED)
The main administrative and financial covenants that the Company and Compañía Minera Ares must comply with during
the term of the syndicated loan are as follows:
– (cid:2)Quarterly unaudited and annual audited financial statements for the Company and Compañía Minera Ares.
– (cid:2)Investments in restricted and unrestricted subsidiaries based on an agreed upon limit (unlimited within restricted
subsidiaries).
– It is intended for every wholly-owned subsidiary to participate in the subsidiary guarantee.
– (cid:2)Maintain the following ratios (at a consolidated and Compañía Minera Ares level) beginning on the date of execution of
the agreement and during the term of the loan:
– Interest expense coverage ratio greater than 3:1.
– Debt to EBITDA ratio lower than 2.5:1 from 2009 onwards.
Compliance with the restrictive covenants described in the preceding paragraph is overseen by Compañía Minera Ares’
management and the Administrative Agent. The Group and Compañía Minera Ares have complied with the commitments
and financial covenants mentioned in the syndicated loan agreement.
As at 31 December 2008, the balance corresponds to:
– (cid:2)Loan facility with a syndicate of lenders with JP Morgan Chase Bank N.A. acting as the Administrative Agent. Total secured
term loan facility of US$200,000,000 that accrues an effective interest rate of LIBOR + 1% and is guaranteed by all the
equity share capital, free and clear of any liens, of Compañía Minera Ares S.A.C. The balance as at 31 December 2009 is
comprised of the secured term loan facility of US$200,000,000 plus accrued interest of US$4,260,000 and net of transaction
costs of US$2,408,000.
2 Convertible bond payable
Placement of US$115,000,000 of senior unsecured convertible bonds, due 2014, which are convertible into ordinary shares
of Hochschild Mining plc. The bonds have a coupon of 5.75% per annum payable semi-annually on 28 January and 28 July of
each year. The issuer has the option to call the bonds on or after 20 October 2012 and until maturity, in the event the trading
price of the ordinary shares exceeds 130% of the conversion price over a certain period. In addition, the Group has the right to
redeem the bonds if at any time the aggregate principal amount of the bonds outstanding is equal to or less than 15% of the
aggregate principal amount of the bonds initially issued.
The following information has to be considered for the conversion into ordinary shares:
– Conversion premium: 35% above the Reference Share Price
– Reference Share Price: GBP 2.95
– Initial Conversion Price: GBP 3.9825
– Fixed Exchange Rate: US$ 1.59/GBP 1.00
The balance as at 31 December 2009 is comprised of the principal of US$115,000,000 plus accrued interest of $1,663,000 and
net of transaction costs of US$2,741,000 and the bond equity component of US$8,432,000.
A
c
c
o
u
n
t
s
147
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the parent company financial statements continued
12 BORROWINGS (CONTINUED)
The maturity of non-current borrowings is as follows:
Between 1 and 2 years
Between 2 and 5 years
As at 31 December
2009
US$000
2008
US$000
27,922
187,160
215,082
56,432
141,160
197,592
The carrying amount of short-term borrowings approximates their fair value. The carrying amount and fair value of the non-
current borrowings are as follows:
Bank loans
Secured
Convertible bond payable
Total
13 FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT AND LOSS
Swap contracts1
Total liabilities
Carrying amount
As at 31 December
2009
US$000
2008
US$000
Fair values
As at 31 December
2009
US$000
2008
US$000
111,255
197,592
110,967
208,429
103,827
–
126,331
–
215,082
197,592
237,298
208,429
As at 31 December
2009
US$000
2008
US$000
13
13
–
–
1 At the end of 2009 the Company signed a swap contract with Citibank and BBVA to fix the interest rate of the JP Morgan led syndicate loan of US$114,320,000
(refer to note 12).
The Company 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.
As at 31 December 2009, the Company held the following financial instruments measured at fair value:
A
A
c
c
c
c
o
o
u
u
n
n
t
t
s
s
Liabilities measured at fair value
Financial liabilities at fair value through profit and loss
Swap contracts (refer to note 23(6) of the Group financial statements)
13
–
13
–
During the period ending 31 December 2009, there were no transfers between these levels.
31 December
2009
US$000
Level 1
US$000
Level 2
US$000
Level 3
US$000
148
14 INCOME TAX
The income tax of the Company is as follows:
Current tax charge
Deferred tax credit
Withholding taxes
The changes in the net deferred income tax assets are as follows:
Beginning of the year
Income statement charge
End of the year
15 RELATED-PARTY BALANCES AND TRANSACTIONS
Year ended 31 December
2009
US$000
2008
US$000
(29)
–
18
(11)
–
21
–
21
As at 31 December
2009
US$000
2008
US$000
–
–
–
21
(21)
–
(a) Related-party accounts receivable and payable
The Company had the following related-party balances and transactions during the years ended 31 December 2009 and
31 December 2008.
Subsidiaries
Compañía Minera Ares S.A.C.
0848818 BC (formerly Southwestern Resources)
Hochschild Mining (Argentina) S.A. (formerly Hochschild Mining
(Argentina) Corporation)
Hochschild Mining (Mexico), S.A. de C.V. (formerly Hochschild Mining
(Mexico) Corporation)
Hochschild Mining Holdings Ltd.
Minas Santa María de Moris S.A. de C.V.
Hochschild Mining (Peru) S.A. (formerly Hochschild Mining (Peru) Corporation)
As at 31 December 2009
Accounts
Accounts
payable
receivable
US$000
US$000
As at 31 December 2008
Accounts
receivable
US$000
Accounts
payable
US$000
–
–
–
–
710
2,504
–
3,214
2,629
2,678
–
1
25
–
4
5,337
62
1,047
–
–
–
–
–
–
–
3
1
–
–
4
62
1,055
1 Corresponds to a loan of US$2,500,000 granted to Minas Santa María de Moris S.A. de C.V. on 4 December 2009 with an annual interest rate of 2%.
The fair values of the receivables and payables approximate their book values. Transactions between the Company and these
companies are on an arm’s length basis.
A
c
c
o
u
n
t
s
(b) Compensation of key management personnel of the Company
Key management personnel include the Directors who receive remuneration. The amount of this remuneration totals
US$1,457,000 (2008: US$1,314,000).
(c) Participation in placing by Pelham Investment Corporation (“Pelham”)
Pelham, a company controlled by Eduardo Hochschild, participated in a placing of the Company’s Ordinary Shares (“Shares”)
in October 2009 by subscribing for 1,064,780 Shares at a price of 295p per Share.
149
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the parent company financial statements continued
16 DIVIDENDS PAID AND PROPOSED
Year ended 31 December 2008
Total dividends paid or provided for during the year1
Total dividends declared after year-end and not provided for2
Year ended 31 December 2009
Total dividends paid or provided for during the year3
Total dividends declared after year-end and not provided for
Amount
US$000
28,331
6,147
12,294
13,523
1 Corresponds to dividends paid and provided during 2008 of US$22,184,667 and US$6,147,005.
2 Corresponds to dividends declared after 31 December 2008 to Pelham Investment Corporation, Navajo Overseas Corporation and public shareholders
(“Parent company’s shareholders”).
3 Corresponds to dividends paid and provided during 2009 of US$6,147,005 and US$6,147,005.
Dividends per share
The dividends declared in August 2009 were US$6,147,005 (US$0.020 per share). A dividend in respect of the year ended
31 December 2009 of US$0.04 per share, amounting to a total dividend of US$13,523,409 is to be proposed at the Annual
General Meeting on 26 May 2010. These financial statements do not reflect this dividend payable.
17 FINANCIAL RISK MANAGEMENT
The Company is exposed to a variety of risks and uncertainties which may have an impact on the achievement of financial and
economic objectives. These risks include strategic, operational and financial risk and are further categorised into risk areas
to facilitate risk assessment.
(a) Foreign currency risk
A proportion of the Company’s costs are incurred in pounds sterling and Canadian dollars. Accordingly, the Company’s
financial results may be affected by exchange rate fluctuations between the US dollar, pounds sterling and Canadian dollars.
The Company does not use derivative instruments to manage its foreign currency risks. The following table demonstrates the
sensitivity to a reasonably possible change in the US dollar exchange rate, with all other variables held constant, of the
Company’s profit before tax and the Company’s equity.
Increase/
decrease in
US$/other
currencies
rate
Effect
on profit
before tax
US$000
Effect
on equity
US$000
+/–10%
+/–174
+/–10%
+/–433
–
–
A
A
c
c
c
c
o
o
u
u
n
n
t
t
s
s
Year
2009
Pounds sterling
2008
Pounds sterling
150
17 FINANCIAL RISK MANAGEMENT (CONTINUED)
(b) Credit risk
Credit risk arises from debtors’ inability to meet their payment obligations to the Company as they become due (without
taking into account the fair value of any guarantee or pledged assets). The Company is primarily exposed to credit risk in
transactions in cash which are primarily limited to cash balances deposited in banks and accounts receivable at the balance
sheet date.
As a result of the recent and ongoing financial crisis, the Company has evaluated and introduced additional efforts to try
to mitigate credit risk exposure.
To manage credit risk associated with cash balances deposited in banks, the Company is using/implementing the
following options:
– (cid:2)Increasing banking relationships with large, established and well-capitalised institutions in order to secure access to credit
and to diversify credit risk.
– (cid:2)Investing cash (to the extent possible) with counterparties with whom the Group has debt outstanding.
– (cid:2)Investing cash in short-term, highly liquid and low risk instruments (money market accounts).
– (cid:2)Maintaining excess cash abroad in hard currency.
Credit risk concentrations exist when changes in economic, industrial or geographic factors take place, affecting in the same
manner the Company’s counterparties whose added risk exposure is significant to the Company’s total credit exposure.
Receivable balances are monitored on an ongoing basis with the result that the Company’s exposure to bad debts is not
significant. The maximum exposure is the carrying amount as disclosed in notes 8 and 9.
(c) Liquidity risk
Liquidity risk arises from the Company’s inability to obtain the funds it requires to comply with its commitments, including
the inability to sell a financial asset quickly enough and at a price close to its fair value. Management constantly monitors the
Company’s level of short- and medium-term liquidity and their access to credit lines on reasonable terms in order to ensure
appropriate financing is available for its operations.
The table below analyses the Company’s financial liabilities into relevant maturity groupings based on the remaining period
to the contractual maturity date:
At 31 December 2009
Trade and other payables (refer to note 11)
Borrowings
At 31 December 2008
Trade and other payables (refer to note 11)
Borrowings
Less than
1 year
US$000
Between
1 and 2
years
US$000
Between
2 and 5
years
US$000
Over
5 years
US$000
Total
US$000
7,183
7,118
2,313
4,260
–
–
35,957
208,214
–
–
71,000
151,523
–
–
–
–
7,183
251,289
2,313
226,783
(d) Interest rate risk
The Company has financial assets which are exposed to interest rate risk. Changes in interest rates impact primarily
loans and borrowings by changing either their fair value (fixed rate debt) or their future cash flows (variable rate debt).
The Company does not have a formal policy of determining how much of its exposure should be at fixed or at variable rates.
However, at the time of taking new loans or borrowings management uses its judgement to decide whether it believes
that a fixed or variable rate borrowing would be more favourable to the Company over the expected period until maturity.
It is important to note that currently all existing financial obligations are either at fixed rates or have been fixed with
the use of derivatives.
A
c
c
o
u
n
t
s
151
Hochschild Mining plc Annual Report & Accounts 2009
Accounts
Notes to the parent company financial statements continued
17 FINANCIAL RISK MANAGEMENT (CONTINUED)
Fixed rate
Bank current account (refer to note 9)
Amounts receivable from subsidiaries (refer to note 15)
Secured bank loans (refer to note 12)
Convertible bond payable (refer to note 12)
Floating rate
Liquidity funds (refer to note 9)
Fixed rate
Bank current account (refer to note 9)
Floating rate
Liquidity funds (refer to note 9)
Secured bank loans (refer to note 12)
(1,617)
(27,922)
Between
1 and 2
years
US$000
Between
2 and 5
years
US$000
As at 31 December 2009
Over
5 years
US$000
Total
US$000
–
–
–
–
–
–
(83,333)
(103,827)
–
–
–
–
–
–
330
2,504
(112,872)
(105,490)
5,251
As at 31 December 2008
Between
1 and 2
years
US$000
Between
2 and 5
years
US$000
Over
5 years
US$000
–
–
–
–
4,260
56,432
141,160
Total
US$000
285
83,661
201,852
–
–
–
Within
1 year
US$000
330
2,504
(1,663)
5,251
Within
1 year
US$000
285
83,661
Interest on financial instruments classified as floating rate is re-priced at intervals of less than one year. Interest on financial
instruments classified as fixed rate is fixed until the maturity of the instrument. The other financial instruments of the
Company that are not included in the above tables are non-interest bearing and are therefore not subject to interest rate risk.
The table below demonstrates the sensitivity to a reasonably possible change in the interest rate, with all other variables
held constant, of the financial instruments with a floating rate. This assumes that the amount remains unchanged from that
in place at 31 December 2009 and 2008 and that the change in interest rates is effective from the beginning of the year.
In reality, the floating rate will fluctuate over the year and interest rates will change accordingly:
Year
2009
2008
Increase/
decrease in
interest rate
+/–50bps
+/–50bps
Effect on
profit before
tax US$000
–/+530
–/+570
(e) Capital risk management
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in
order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to
reduce the cost of capital. Management considers as part of its capital, the financial sources of funding from shareholders
and third parties. In order to ensure an appropriate return for shareholders’ capital invested in the Company, management
monitors capital thoroughly and evaluates all material projects and potential acquisitions and approves them at its Executive
Committee before submission to the Board for ultimate approval, where applicable.
18 SUBSEQUENT EVENTS
On 5 March 2010, Executive Chairman, Eduardo Hochschild purchased Hochschild Mining plc’s 36.9% stake in Zincore at a
price of C$0.27 per share representing a 11.6% premium over the 20 day average closing price. The shares were purchased
through Inversiones Pacasmayo SA. for a total cash consideration of C$10,287,000. As a result of the transaction, Hochschild
Mining plc has no further interest in Zincore.
The disposal was approved on behalf of the Hochschild board by a committee comprising solely independent Non-Executive
Directors (“the Independent Committee”). The Independent Committee has been advised by Canaccord Adams Limited that
the terms of the disposal are fair and reasonable as far as shareholders are concerned.
152
A
A
c
c
c
c
o
o
u
u
n
n
t
t
s
s
Reserves and resources
ORE RESERVES AND MINERAL RESOURCES ESTIMATES
Hochschild Mining plc reports its mineral resources and reserves estimates in accordance with the Australasian Code for
Reporting of Exploration Results, Mineral Resources and Ore Reserves 2004 edition (“the JORC Code”). This establishes
minimum standards, recommendations and guidelines for the public reporting of exploration results and mineral resources
and reserves estimates. In doing so it emphasises the importance of principles of transparency, materiality and confidence.
The information on ore reserves and mineral resources on pages 154 to 158 were prepared by or under the supervision of
Competent Persons (as defined in the JORC Code). Competent Persons are required to have sufficient relevant experience
and understanding of the style of mineralisation, types of deposits and mining methods in the area of activity for which they
are qualified as a Competent Person under the JORC Code. The Competent Person must sign off their respective estimates
of the original mineral resource and ore reserve statements for the various operations and consent to the inclusion of that
information in this report, as well as the form and context in which it appears.
Hochschild Mining plc employs its own Competent Person who has audited all the estimates set out in this report. Hochschild
Mining Group companies are subject to a comprehensive programme of audits which aim to provide assurance in respect of
ore reserve and mineral resource estimates. These audits are conducted by Competent Persons provided by independent
consultants. The frequency and depth of an audit depends on the risks and/or uncertainties associated with that particular
ore reserve and mineral resource, the overall value thereof and the time that has lapsed since the previous independent third
party audit.
The JORC Code requires the use of reasonable economic assumptions. These include long-term commodity price forecasts
(which, in the Group’s case, are prepared by ex-house specialists largely using estimates of future supply and demand and
long-term economic outlooks).
Ore reserve estimates are dynamic and are influenced by changing economic conditions, technical issues, environmental
regulations and any other relevant new information and therefore these can vary from year to year. Mineral resource
estimates can also change and tend to be influenced mostly by new information pertaining to the understanding of the
deposit and secondly the conversion to ore reserves.
The estimates of ore reserves and mineral resources are shown as at 31 December 2009, unless otherwise stated.
Mineral resources that are reported include those mineral resources that have been modified to produce ore reserves.
All tonnage and grade information has been rounded to reflect the relative uncertainty in the estimates; there may therefore
be small differences. The prices used for the reserves calculation were: Au Price: US$810 per ounce and Ag Price:
US$13.50 per ounce.
153
F
u
r
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Hochschild Mining plc Annual Report & Accounts 2009
Further information
Reserves and resources continued
RESERVES AND RESOURCES
ATTRIBUTABLE METAL RESERVES AS AT 31 DECEMBER 2009
Reserve category
MAIN OPERATIONS¹
Arcata
Proved
Probable
Total
Pallancata
Proved
Probable
Total
San José
Proved
Probable
Total
Main operations total
Proved
Probable
Total
OTHER OPERATIONS
Ares
Proved
Probable
Total
Moris
Proved
Probable
Total
Other operations total
Proved
Probable
Total
Group total
Proved
Probable
TOTAL
Proved
(t)
Probable
(t)
Proved and
probable
(t)
Ag
(g/t)
Au
(g/t)
Ag
(moz)
Au
(koz)
Ag Eq
(moz)
947,644
1,734,541
921,244
1,868,888
610,964
2,345,505
315,324
460,175
2,997,510
1,992,382
775,499
4,989,892
239,102
857,646
56,740
295,842
84,384
942,030
1,096,748
141,124
1,237,872
4,094,258
2,133,506
6,227,764
441
393
417
370
307
354
457
452
454
402
380
393
95
74
91
4
4
4
24
32
25
301
357
320
1.39
1.23
1.31
1.62
1.25
1.52
7.66
7.09
7.32
2.18
2.59
2.34
5.25
4.16
5.04
1.47
1.45
1.47
2.29
2.54
2.32
2.21
2.59
2.34
13.4
11.6
25.1
20.7
6.0
42.5
36.4
78.9
90.1
24.5
26.7
114.6
4.6
6.7
77.7
104.8
11.3
182.5
38.7
24.3
63.1
210.2
165.8
376.0
0.7
0.1
0.9
0.1
0.0
0.1
0.9
0.1
1.0
40.3
7.6
47.9
40.5
3.9
44.5
80.9
11.5
92.4
16.0
13.8
29.8
26.0
7.5
33.5
9.3
13.0
22.3
51.3
34.3
85.6
3.1
0.6
3.7
2.6
0.2
2.8
5.7
0.8
6.5
39.6
291.1
24.5
64.1
177.3
468.4
57.0
35.1
92.2
Note: Where reserves are attributable to a joint venture partner, reserve figures reflect the Company’s ownership only. Includes discounts for ore loss
and dilution.
1 Main operations were audited by P&E Consulting.
F
u
r
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
154
ATTRIBUTABLE METAL RESOURCES AS AT 31 DECEMBER 2009
Measured
(t)
Indicated
(t)
Measured
and
indicated
(t)
Inferred
(t)
Ag
(g/t)
Au
(g/t)
Zn
(%)
Pb
(%)
Cu
(%)
Ag Eq
(g/t)
Ag
(moz)
Au
(koz)
Zn
(kt)
Pb
(kt)
Cu
(kt)
Resource category
MAIN OPERATIONS¹
Arcata
Measured
Indicated
Total
Inferred
Pallancata
Measured
Indicated
Total
Inferred
San José
Measured
Indicated
Total
Inferred
Main operations total
Measured
Indicated
Total
Inferred
OTHER OPERATIONS
Ares
Measured
Indicated
Total
Inferred
Moris
Measured
Indicated
Total
Inferred
Other operations total
Measured
Indicated
Total
Inferred
ADVANCED PROJECTS
Azuca
Measured
Indicated
Total
Inferred
Crespo
Measured
Indicated
Total
Inferred
155
1,310,666
2,017,132
1,024,287
2,334,953
2,227,956
1,000,005
3,017,137
378,861
969,658
1,348,519
950,743
914,296
3,706,659
2,993,950
6,700,609
4,092,994
543,826
145,638
689,464
1,205,895
1,749,721
103,265
1,309,160
248,903
1,998,624
362,138
415,689
777,826
–
–
–
1,303,461
8,224,590
9,528,050
3,745,984
288
1.31
53
38
40
38
0.69
0.56
0.58
0.74
8,315,845
514
464
492
417
439
379
419
376
527
445
468
314
475
429
454
385
144
124
140
167
4
4
4
5
48
74
51
80
–
–
–
1.60
1.42
1.52
1.32
1.91
1.57
1.80
1.51
8.62
6.58
7.15
4.51
2.48
3.14
2.78
2.08
5.45
4.19
5.18
3.91
1.30
1.31
1.30
1.22
2.59
3.00
2.64
2.47
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
610
21.7
549
15.3
67.4
46.8
584
37.0
114.2
496
29.9
94.5
553
28.5
123.6
473
12.2
50.6
527
40.6
174.2
466
11.5
46.3
– 1,044
6.4
105.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
839
13.9
205.0
897
20.3
310.0
585
9.2
132.6
624 56.6
296.0
618 41.3
302.4
621 97.9
598.4
509 50.6
273.4
471
376
451
402
82
82
82
78
203
254
209
229
2.5
0.6
95.2
19.6
3.1
114.8
1.9
45.6
0.2
0.0
0.2
0.1
50.3
4.4
54.7
16.3
2.7
145.5
0.6
24.0
3.3
169.5
2.0
61.9
–
–
–
–
–
–
–
–
–
366
34.6
157.4
94
71
2.2
28.8
9.9
147.5
74
12.1
176.3
82
10.1
198.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
F
u
r
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Hochschild Mining plc Annual Report & Accounts 2009
Further information
Reserves and resources continued
ATTRIBUTABLE METAL RESOURCES AS AT 31 DECEMBER 2009 (CONTINUED)
Resource category
Measured
(t)
Indicated
(t)
Measured
and
indicated
(t)
Inferred
(t)
Ag
(g/t)
Au
(g/t)
Zn
(%)
Pb
(%)
Cu
(%)
Ag Eq
(g/t)
Ag
(moz)
Au
(koz)
Zn
(kt)
Pb
(kt)
Cu
(kt)
San Felipe
Measured
Indicated
Total
Inferred
Advanced projects total
Measured
Indicated
Total
Inferred
OTHER INVESTMENTS
Timmins (Lake Shore)²
Measured
Indicated
Total
Inferred
Inmaculada (IMZ)³
Measured
Indicated
Total
Inferred
Other investments total
Measured
Indicated
Total
Inferred
TOTAL
Measured
Indicated
Total
Inferred
1,393,716
1,354,261
2,747,977
1,257,731
2,697,176
9,578,851
12,276,027
69
82
76
84
61
44
48
0.02
7.12
3.10
0.39
0.06
6.14
2.73
0.31
0.04
6.64
2.92
0.35
0.05
6.18
2.26
0.19
0.34 3.68 1.60
0.20
0.49 0.87 0.39
0.04
0.46 1.49 0.65
0.08
13,319,559
112
0.84 0.58 0.21
0.02
1,158,465
1,158,465
319,158
606,620
606,620
2,296,140
1,765,085
1,765,085
0
0
0
0
0
122
122
147
0
42
42
2,615,298
129
0.00
8.56
8.56
5.74
0.00
3.90
3.90
3.40
0.00
6.96
6.96
3.69
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8,153,557
14,586,789
22,740,345
20,805,678
246
123
167
167
1.80 1.22 0.53
0.07
1.86 0.57 0.25
0.03
1.84 0.80 0.35
0.04
1.50 0.37 0.14
0.01
315
295
305
283
208
103
126
181
0
513
513
344
0
354
354
350
459
459
350
396
254
305
269
3.1
3.6
6.7
3.4
0.9
99.26 43.15
5.50
2.4
83.18 36.97
4.24
3.3 182.45 80.12
9.74
1.9
77.76 28.47
2.34
5.3
29.7
99.26 43.15 5.50
13.5
150.0
83.18 36.97 4.24
18.8
179.7 182.45 80.12 9.74
48.2
357.7
77.76 28.47 2.34
0.0
0.0
0.0
318.7
0.0
318.7
0.0
58.9
0.0
2.4
2.4
0.0
75.5
75.5
10.8
250.9
0
0.0
0.0
2.4
394.9
2.4
394.9
10.9
309.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
64.5
471.2
99.26 43.15 5.50
57.8
871.2
83.18 36.97 4.24
122.4 1342.4 182.45 80.12 9.74
111.6 1002.9
77.76 28.47 2.34
Note: Resources include undiscounted reserves, where resources are attributable to a joint venture partner, resources figures reflect the Company’s ownership
only. No ore loss or dilution has been included, and stockpiled ore excluded.
1 Main operations were audited by P&E Consulting.
2 Hochschild owns a 38% interest in Lake Shore Gold.
3 Hochschild owns a 49% interest (IMZ owns the remaining 51%). IMZ can earn a 70% interest (diluting Hochschild to 30%) by completing a feasibility study
by September 2013 at its sole cost and issuing to Hochschild 200,000 IMZ shares.
A
c
c
o
u
n
t
s
156
CHANGE IN TOTAL RESERVES AND RESOURCES
Ag equivalent content (million ounces)
Category
December
2008
Production¹
Movements²
Arcata
Pallancata
San José
Main operations total
Ares
Moris
Other operations total
Azuca
Crespo
San Felipe
Advanced projects total
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Timmins (Lake Shore Gold)3
Resource
Inmaculada (IMZ)4
Other investments total
Total
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
87.2
33.1
90.9
63.1
96.0
52.3
274.2
148.5
17.5
8.6
7.8
5.2
25.3
13.8
23.3
0.0
0.0
0.0
38.5
0.0
61.7
0.0
64.8
49.6
45.6
0.0
110.4
49.6
471.6
211.9
12.3
12.3
11.4
36.0
3.8
3.2
7.0
0.0
0.0
0.0
0.0
0.0
0.0
(7.8)
9.0
18.0
5.1
14.0
2.8
24.1
16.9
(2.9)
(1.1)
(3.3)
0.8
(6.1)
(0.3)
20.8
0.0
44.7
0.0
0.0
0.0
65.5
0.0
(1.3)
(0.8)
21.3
0.0
20.0
(0.8)
43.0
103.5
15.8
December
(7.8)
(3.3)
2009 Net difference
79.4
29.8
108.9
55.9
110.0
43.7
298.3
18.0
14.0
24.1
(8.6)
(7.2)
129.4
14.7
3.7
4.5
2.8
19.2
6.5
44.1
0.0
44.7
0.0
38.5
0.0
127.3
0.0
63.5
48.7
66.9
0.0
130.4
48.7
575.0
184.6
(19.1)
(2.9)
(4.9)
(3.3)
(2.4)
(6.1)
(7.3)
20.8
0.0
44.7
0.0
0.0
0.0
65.5
0.0
(1.3)
(0.8)
21.3
0.0
20.0
(0.8)
103.5
(27.2)
% change
(9.0)%
(10.0)%
19.8%
(11.4)%
14.5%
(16.5)%
8.8%
(12.9)%
(16.4)%
(56.5)%
(42.0)%
(46.1)%
(24.2)%
(52.6)%
89.5%
–
–
–
0.0%
–
106.2%
–
(2.0)%
(1.7)%
46.7%
–
18.1%
(1.7)%
21.9%
(12.8)%
1 Depletion: reduction in reserves based on ore delivered to the mine plant.
2 Increase in reserves and resources due mainly to mine site exploration but also to price increases.
3 Hochschild owns a 38% interest in Lake Shore Gold.
4 Hochschild owns a 49% interest (IMZ owns the remaining 51%). IMZ can earn a 70% interest (diluting Hochschild to 30%) by completing a feasibility study
by September 2013 at its sole cost and issuing to Hochschild 200,000 IMZ shares.
157
F
u
r
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Hochschild Mining plc Annual Report & Accounts 2009
Further information
Reserves and resources continued
CHANGE IN ATTRIBUTABLE RESERVES AND RESOURCES
Ag equivalent content (million ounces)
Arcata
Pallancata
San José
Main operations total
Ares
Moris
Other operations total
Azuca
Crespo
San Felipe
Advanced projects total
Timmins (Lake Shore Gold)2
Inmaculada (IMZ)3
Other investments total
Total
Category
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Percentage
attributable
100%
60%
51%
100%
100%
100%
100%
100%
35.7%
49%
December
2008
Att.¹
December
2009
Att.¹ Net difference % change
87.2
33.1
54.6
37.9
49.0
26.7
190.7
97.6
17.5
8.6
5.4
3.6
23.0
12.2
23.3
0.0
0.0
0.0
38.5
0.0
61.7
0.0
25.2
19.3
22.3
0.0
47.6
19.3
79.4
29.8
65.3
33.5
56.1
22.3
200.8
85.6
14.7
3.7
4.5
2.8
19.2
6.5
44.1
0.0
44.7
0.0
38.5
0.0
127.3
0.0
22.7
17.4
32.8
0.0
55.4
17.4
402.7
109.6
(7.8)
(3.3)
10.8
(4.3)
7.1
(4.4)
10.1
(9.0)%
(10.0)%
19.8%
(11.4)%
14.5%
(16.5)%
5.3%
(12.0)
(12.3)%
(2.9)
(4.9)
(0.9)
(0.8)
(3.8)
(5.7)
20.8
0.0
44.7
0.0
0.0
0.0
65.5
0.0
(2.6)
(1.9)
10.4
0.0
7.9
(1.9)
79.7
(16.4)%
(56.5)%
(17.1)%
(23.0)%
(16.5)%
(46.6)%
89.5%
–
–
–
0.0%
–
106.2%
–
(10.2)%
(9.9)%
46.7%
–
16.5%
(9.9)%
24.7%
(19.6)
(15.2)%
100%
323.0
129.2
1 Attributable reserves and resources based on the Group’s percentage ownership of its joint venture projects.
2 Hochschild owns a 38% interest in Lake Shore Gold.
3 Hochschild owns a 49% interest (IMZ owns the remaining 51%). IMZ can earn a 70% interest (diluting Hochschild to 30%) by completing a feasibility study
by September 2013 at its sole cost and issuing to Hochschild 200,000 IMZ shares.
158
F
u
r
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Production
TOTAL GROUP PRODUCTION1
Silver production (koz)
Gold production (koz)
Total silver equivalent (koz)
Total gold equivalent (koz)
Silver sold (koz)
Gold sold (koz)
Year ended
31 December
2009
24,585
211.64
37,283
621.38
23,563
204.09
Year ended
31 December
2008
% change
20,782
193.97
32,421
540.34
20,593
198.32
18
9
15
15
14
3
1 Total production includes 100% of all production, including production attributable to joint venture partners at San José and Pallancata.
ATTRIBUTABLE GROUP PRODUCTION1
Silver production (koz)
Gold production (koz)
Attrib. silver equivalent (koz)
Attrib. gold equivalent (koz)
Year ended
31 December
2009
18,754
156.77
28,160
469.34
Year ended
31 December
2008
% change
16,941
152.86
26,113
435.22
11
3
8
8
1 Attributable production includes 100% of all production from Arcata, Ares and Moris, 60% from Pallancata and 51% from San José.
2009 PRODUCTION BY MINE
Arcata
Product
Ore production (tonnes)
Average head grade silver (g/t)
Average head grade gold (g/t)
Concentrate produced (tonnes)
Silver grade in concentrate (kg/t)
Gold grade in concentrate (kg/t)
Silver produced (koz)
Gold produced (koz)
Silver sold (koz)
Gold sold (koz)
159
Year ended
31 December
2009
643,059
503
1.56
22,352
13.36
0.04
9,542
28.64
8,748
26.02
Year ended
31 December
2008
557,870
571
1.53
20,639
13.94
0.04
9,032
24.04
8,564
22.36
% change
15
(12)
2
8
(4)
–
6
19
2
16
F
u
r
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Hochschild Mining plc Annual Report & Accounts 2009
Further information
Production continued
Ares
Product
Ore production (tonnes)
Average head grade silver (g/t)
Average head grade gold (g/t)
Doré total (koz)
Silver produced (koz)
Gold produced (koz)
Silver sold (koz)1
Gold sold (koz)2
1 Total sale figures for Ares in 2008 include the sale of 746 koz of silver precipitates from San José.
2 Total sale figures for Ares in 2008 include the sale of 11.14 koz of gold precipitates from San José.
Year ended
31 December
2009
341,273
96
4.17
947
900
42.59
873
41.82
Year ended
31 December
2008
347,910
157
6.06
1,608
1,538
64.16
2,398
77.44
Pallancata1
Product
Ore production (tonnes)
Average head grade silver (g/t)
Average head grade gold (g/t)
Concentrate produced (tonnes)
Silver grade in concentrate (kg/t)
Gold grade in concentrate (kg/t)
Silver produced (koz)
Gold produced (koz)
Silver sold (koz)
Gold sold (koz)
1 The Company has a 60% interest in Pallancata.
Selene1
Product
Ore production (tonnes)
Average head grade silver (g/t)
Average head grade gold (g/t)
Concentrate produced (tonnes)
Silver grade in concentrate (kg/t)
Gold grade in concentrate (kg/t)
Silver produced (koz)
Gold produced (koz)
Silver sold (koz)
Gold sold (koz)
1 Selene was closed on 28 May 2009.
160
Year ended
31 December
2009
922,521
327
1.43
7,684
34.09
0.13
8,420
31.97
8,147
29.77
Year ended
31 December
2008
468,125
312
1.49
4,265
30.54
0.12
4,188
16.16
3,852
14.81
Year ended
31 December
2009
109,893
217
1.09
1,057
18.55
0.09
628
3.02
636
2.96
Year ended
31 December
2008
269,150
210
1.21
3,201
15.04
0.08
1,579
8.50
1,929
9.93
% change
(2)
(39)
(31)
(41)
(41)
(34)
(64)
(46)
% change
97
5
(4)
80
12
8
101
98
112
101
% change
(59)
3
(10)
(67)
23
13
(60)
(64)
(67)
(70)
A
A
c
c
c
c
o
o
u
u
n
n
t
t
s
s
San José1
Product
Ore production (tonnes)
Average head grade silver (g/t)
Average head grade gold (g/t)
Silver produced (koz)
Gold produced (koz)
Silver sold (koz)
Gold sold (koz)
1 The Company has a 51% interest in San José.
Moris
Product
Ore production (tonnes)
Average head grade silver (g/t)
Average head grade gold (g/t)
Silver produced (koz)
Gold produced (koz)
Silver sold (koz)
Gold sold (koz)
Year ended
31 December
2009
460,971
398
6.19
4,998
77.08
5,072
77.22
Year ended
31 December
2009
1,282,461
5.02
1.38
97
28.34
87
26.29
Year ended
31 December
2008
295,963
559
6.69
4,381
54.26
4,588
57.70
Year ended
31 December
2008
876,148
5.71
1.57
65
26.85
68
28.01
% change
56
(29)
(7)
14
42
11
34
% change
46
(12)
(12)
49
6
28
(6)
161
F
u
r
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Hochschild Mining plc Annual Report & Accounts 2009
Further information
Glossary
Ag
Silver
Adjusted EBITDA
Adjusted EBITDA is calculated as profit from continuing
operations before exceptional items, net finance costs and
income tax plus depreciation, amortisation and exploration
expenses other than personnel and other expenses
Au
Gold
Attributable after tax profit
Profit for the year before dividends attributable to the equity
shareholders of Hochschild Mining plc from continuing
operations before exceptional items and after minority
interest
Average head grade
Average ore grade fed into the mill
Board
The Board of Directors of the Company
Company
Hochschild Mining plc
CSR
Corporate social responsibility
Cu
Copper
Directors
The Directors of the Company
Doré
Doré bullion is an impure alloy of gold and silver and is
generally the final product of mining and processing; the
doré bullion will be transported to be refined to high purity
metal
Dollar or $
United States dollars
Effective Tax Rate
Income tax expense as a percentage of profit from continuing
operations before income tax
EPS
The per-share (using the weighted average number of shares
outstanding for the period) profit available to equity
shareholders of the Company from continuing operations
after exceptional items
eq
equivalent
Exceptional item
Events that are significant and which, due to their nature or
the expected infrequency of the events giving rise to them,
need to be disclosed separately
g/t
Grammes per metric tonne
162
GAAP
Generally Accepted Accounting Principles
Group
Hochschild Mining plc and subsidiary undertakings
IAS
International Accounting Standards
IASB
International Accounting Standards Board
IFRS
International Financial Reporting Standards
JV
Joint venture
koz
Thousand ounces
kt
Thousand metric tonnes
ktpa
Thousand metric tonnes per annum
Listing or IPO (Initial Public Offering) or Global Offer
The listing of the Company’s Ordinary Shares on the London
Stock Exchange on 8 November 2006
LTI
Lost Time Injury, meaning an occupational injury or illness
that results in days away from work
LTIFR
Lost Time Injury Frequency Rate = LTI x 1,000,000/hours
worked
moz
Million ounces
Ordinary Shares
Ordinary Shares of £0.25 each in the Company
Pb
Lead
Spot or spot price
The purchase price of a commodity at the current price,
normally this is at a discount to the long-term contract price
t
tonne
tpa
tonnes per annum
tpd
tonnes per day
Zn
Zinc
A
c
c
o
u
n
t
s
Shareholder information
Annual General Meeting (‘AGM’)
The AGM will be held at 10am on 26 May 2010 at the offices of Goldman Sachs, River Court, 120 Fleet Street, London
EC4A 2QQ.
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
Shareholder Services Department, Capita Registrars, Northern House, Woodsome Park, Fenay Bridge, Huddersfield,
HD8 0GA
– By telephone
If calling from the UK: 0871 664 0300 (Calls cost 10p per minute plus network extras, lines are open 8.30am – 5.30pm
Mon to Fri)
If calling from overseas: +44 20 8639 3399
– By fax
+44 (0)1484 600 911
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 4 May 2010.
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, a dividend mandate form, also available from the Company’s registrars, should be completed and
returned to the registrars by 4 May 2010. 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.
Investor relations
For investor enquiries please contact: Jane Flynn, Investor Relations Associate by writing to the London Office address
(see below), by phone on 020 7907 2933 or by email at jane.flynn@hocplc.com.
28 April 2010
30 April 2010
4 May 2010
27 May 2010
26 May 2010
August 2010
Financial calendar
Dividend payments
Ex-dividend date
Record date
Deadline for return of currency election form
Final dividend payable
Other dates
Annual General Meeting
Half-yearly results announced
London Office
(and Registered Office address)
46 Albemarle Street
London
W1S 4JL
United Kingdom
Company Secretary
R D Bhasin
163
F
u
r
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
About us…
About us...
Hochschild Mining is a leading
underground precious metals
producer operating in the
Americas with a primary focus
on silver and gold.
Financial & operational highlights
Revenue
$539.7m
Earnings per share
$0.31
Proposed total dividend
$0.04
Operating cash flow
$200.5m
Net profit
$98.1m
Forward looking statements
The constituent parts of this Annual Report, including those that make up the Directors’ Report, contain 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. These factors, risks and uncertainties are further discussed elsewhere in this Annual Report in
the section entitled Risk Management. 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 Annual Report. Except as required by the Listing Rules and
applicable law, the Board of Hochschild Mining plc does not undertake any obligation to update or change any forward-looking statements to reflect events occurring after
the date of this Annual Report. Nothing in this Annual Report should be construed as a profit forecast.
Designed and produced by Radley Yeldar www.ry.com
Printed by the Midas Press
This report is printed on Splendorgel EW which is
certified as FSC Mixed Sources and is completely
biodegradable and recyclable
Hochschild Mining plc
46 Albemarle Street
London W1S 4JL
United Kingdom
+44 (0) 207 907 2930
+44 (0) 207 907 2931
info@hocplc.com
www.hochschildmining.com
Annual Report & Accounts 2009
i
H
o
c
h
s
c
h
i
l
d
M
n
n
g
p
l
c
A
n
n
u
a
l
i
R
e
p
o
r
t
&
A
c
c
o
u
n
t
s
2
0
0
9
Delivering results...