Hochschild Mining plc
46 Albemarle Street
London W1S 4JL
United Kingdom
Tel: +44 (0) 207 907 2930
Fax: +44 (0) 207 907 2931
info@hocplc.com
www.hochschildmining.com
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Unlocking value
through exploration
Annual Report & Accounts 2010
Contents
How we performed
At a glance
02 Strong investment proposition
04 Chairman’s statement
Chief Executive Officer’s review
07 Growth strategy
Operating & exploration review
11 Current operations
Advanced projects
16
18
Exploration pipeline
24 Market & geographic overview
Corporate responsibility
27 Our approach
29 Safety
30 Health & hygiene
31 People
32 Community relations
34 Environment
Financial review & risk management
37
42 Risk management
Financial review
Governance
45 Board of Directors
46 Senior management
47 Directors’ report
52 Corporate governance report
57 Directors’ remuneration report
64 Statement of directors’ responsibilities
65
Independent auditor’s report
Financial statements
67 Consolidated income statement
68 Consolidated statement of comprehensive income
69 Consolidated statement of financial position
70 Consolidated statement of cash flows
71 Consolidated statement of changes in equity
72 Notes to the consolidated financial statements
132 Parent company statement of financial position
133 Parent company statement of cash flows
134 Parent company statement of changes in equity
135 Notes to the parent company financial statements
Further information
154 Profit by operation
155 Reserves and resources
161 Production
163 Glossary
164 Shareholder information
+39%
Revenue
$m
305
211
752
540
434
06
07
08
09
10
Cash flow from operating activities
$m
+51%
304
201
94
79
21
06
07
08
09
10
Attributable net profit
$m
82
95
47
53
16
06
07
08
09
10
Earnings per share
$
0.27
0.28
0.19
0.17
0.05
06
07
08
09
10
Proposed total dividend
$
0.09
0.04
0.04
0.05
0.01
06
07
08
09
10
+79%
+65%
+25%
Unlocking value through exploration
Introduction
Hochschild Mining plc
Annual Report & Accounts 2010
01
“ I am pleased to report that Hochschild
Mining has delivered a strong performance
in 2010. We have met our operational
expectations, strengthened our financial
position and undertaken some key strategic
steps which I firmly believe will secure
our future growth path and deliver further
value for our shareholders.”
Eduardo Hochschild
Executive Chairman
02
Strong investment proposition
Hochschild Mining plc
Annual Report & Accounts 2010
Well positioned
in the Americas.
5
Mexico
SOLID ASSET BASE*
Current operations:
1 Arcata
Peru
2 Pallancata
Peru
3 Ares
Peru
4 San José
Argentina
5 Moris
Mexico
Silver equivalent production
Capacity
9.7 moz
1,750 tpd
Silver equivalent production 12.3 moz
3,000 tpd
Capacity
Silver equivalent production
Capacity
2.7 moz
940 tpd
Silver equivalent production 10.4 moz
1,500 tpd
Capacity
Silver equivalent production
Capacity
1.4 moz
3,000 tpd
Advanced projects:
6 Inmaculada
Peru
7 Azuca
Peru
8 Crespo
Peru
Estimated silver equivalent
production p.a.
Estimated silver equivalent
production p.a.
Estimated silver equivalent
production p.a.
6.6 moz
3.5 moz
2.3 moz
EXTENSIVE PROJECT PIPELINE
Greenfield projects:
Peru
Ibel
Huacullo
Astana Farallón
Josnitoro
Sabina
Pariguanas
Argentina
Mosquito
Careli-Carmen
San Martin
Cerro Blanco
Apacheta
Pausi
Huachoja
Parihuana
La Flora
Cricket
Mexico
Chile
Corazon de Tinieblas
Mercurio
Encrucijada
Victoria
Valeriano
* 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”).
$70m
2011 exploration budget
Peru
2 3
1
6
7
8
Chile
4
Argentina
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
03
Our strategy is to create value through efficient
operation, aggressive exploration and opportunistic
acquisition of early stage projects.
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STRATEGY MODEL
q For further details see p07
Revenue by product
1. Silver
2. Gold
68%
32%
1
M&A
x p loration
E
CORE
ASSETS
Project p i p e li n e
M&A
$752m
2
2011 exploration budget
Greenfield breakdown
by country
2010 attributable production
Silver equivalent moz
26.4 moz
1. Greenfield
2. Brownfield
3. Advanced projects
49%
36%
15%
1. Peru
2. Chile
3. Mexico
4. Argentina
52%
19%
17%
12%
26
26
28
26
23
1
3
$70m
1
4
3
2
2
75Number of geologists
Brownfield & greenfield
+40%
Increase in exploration
budget in 2011
+34%
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08
09
10
Resource base
Silver equivalent moz
459
342
250
208
185
06
07
08
09
10
04
A transformational year
Chairman’s statement
Hochschild Mining plc
Annual Report & Accounts 2010
The Company’s consistent
operational efficiency
coupled with strong
gold and silver prices
delivered a robust
financial performance
with EBITDA up 59% at
$397.7 million and post-
exceptional EPS also up
strongly by some 48%
to $0.46 per share.
I am pleased to report that Hochschild Mining has delivered a
strong performance in 2010. What was once again a turbulent
year for the global economy was, however, one of the strongest
years in history for precious metals, particularly for the silver
price which rose 83%. In this environment, the Company met
its operational expectations, strengthened its financial position
and undertook some key strategic steps which I firmly believe
will secure our future growth path and deliver further value for
our shareholders.
The Company’s consistent operational efficiency coupled
with strong gold and silver prices delivered a robust financial
performance with EBITDA up 59% at $397.7 million and
post-exceptional EPS also up strongly by some 48% to $0.46 per
share. Consequently, the Board is delighted to announce that we
are proposing to increase the final dividend by 50% to $0.03 per
share which reflects our strong balance sheet position and the
anticipated healthy future cash flows of the Group. We believe
the proposed increase is in accordance with capital availability
and our desire to provide a yield to shareholders whilst
continuing to respect the growth requirements of the
business and the availability of capital.
During 2010, the Board appointed a new management team led
by Ignacio Bustamante as Chief Executive Officer and Ramón
Barúa as Chief Financial Officer. I believe that the realigned
Company focus on growth through exploration heralds the
beginning of a new era for Hochschild in which our excellent
asset base, combined with an immense talent pool, will unlock
consistent and profitable precious metal production growth.
The 40% increase in our exploration budget to $70 million for
2011 is firm evidence of our commitment to this strategy and
our confidence in the potential of our current project pipeline.
In addition, we now have over 70 geologists providing us with
the technical experience and expertise required to deliver a
steady stream of value accretive project opportunities.
Our management team has great confidence in the potential
of the Company to develop this aggressive exploration strategy
and, allied to this, they have promoted a disciplined approach
to the assessment of acquisitions. In this regard, the key
announcements in 2010 were the progression of our 100%
owned Azuca and Crespo projects and the acquisition of a
controlling stake in the Inmaculada project, all of which are
located at the core of our Southern Peru cluster.
+50%
Final dividend of 3 cents per share
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
05
Also noteworthy was the sale of our stake in Lake Shore Gold
Corp which represented a 34% gain on our original average
purchase price. The decision was made in light of our stated
commitment that acquisitions must not only deliver early stage
assets, strong geological potential and high value accretion but
also a clear path to control. The sale achieved a very profitable
return on our investment and has given us the financial strength
to reinvest in our near-term project pipeline. In addition, our
25% investment in Gold Resource Corp, in which we have
invested a total of $67 million, is currently valued at
approximately $349 million.
The silver market rose over 70% in the second half of 2010
boosted by strong fundamentals, unprecedented investment
demand and renewed focus on silver’s value as an alternative
to gold. Whilst the corresponding rise in Hochschild’s share
price can be explained partly by the buoyant precious metals
market, I firmly believe that an increasingly widespread market
acceptance of our shift in strategic focus as well as the positive
results achieved to date have also been major factors and will
continue to be so in the future.
During 2011, we can look forward to further crucial steps in the
development of our advanced projects at Inmaculada, Azuca and
Crespo which in total have the potential to add a minimum of
12 million profitable ounces per year to our current production
base from the end of 2013.
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Management is also confident that we are in a very strong
position to continue the investment in brownfield expansion at
our existing mines and to take advantage of any value enhancing
acquisitions and opportunities that arise which meet the strict
investment criteria I have described above.
We are committed to the safety of all our employees and have
made good progress during the past year. In 2010, we reduced
our accident frequency rate by 29% compared to 2009 and
continue to move forward with the implementation of the safety
management information system jointly developed with DNV.
Nonetheless, it is with deep regret that I report two fatalities in
2010. 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.
On behalf of the Board, I would like to thank our entire team
for their continued commitment in 2010 and I am confident
that such impressive execution will remain the focus in 2011.
Eduardo Hochschild
Executive Chairman
28 March 2011
Above: Geologist at the
Pallancata property.
Right: Highlands of Peru.
06
Chief Executive Officer’s review
Hochschild Mining plc
Annual Report & Accounts 2010
Chief Executive Officer’s review
07 Growth strategy
Unlocking value through exploration
Looking to the future
Chief Executive Officer’s review
Hochschild Mining plc
Annual Report & Accounts 2010
07
STRATEGY MODEL
M&A
x p loration
E
CORE
ASSETS
1
2
3
Project p i p e li n e
M&A
1
2
3
3 Optimise resource life
3 Improve productivity
Arcata
Pallancata
San José
3 Land package
3 People
3 Incentives
3 Budget
3 advanced projects
8 Company Makers
Solid pipeline
3 Early stage
3 Strong geological potential
3 Highly accretive
3 Control
Bolt-on M&A
Questions to the CEO:
What are the Company’s key
goals for 2011?
2010 was extremely active and we expect 2011 to
be another busy year. We are committed to achieving
our production target of 22.5 million attributable silver
equivalent ounces and on extending the resource life
of our core operations. Completing feasibility studies
at our advanced projects is a key objective for 2011
as well as the delivery of our extensive exploration
programme – I am 100% dedicated to ensuring that the
$70 million budget produces tangible results. We look
forward to updating you on our progress next year...
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Having joined Hochschild Mining over 19 years ago, it gives me
great pleasure to present my first set of results as CEO. I am
pleased to announce strong full year performance, reflecting
the continuing operational and financial strength of our business.
2010 has been a pivotal year for the Group. As a new
management team, we agreed, with the full support of the
Board, that focusing on an organic growth strategy, utilising
our strong exploration and project development skills, would be
the optimum strategy to continue generating value for all our
shareholders. With our unrivalled knowledge of the Americas,
premium land packages in many of the key geological areas and
extensive existing infrastructure, we are strongly positioned to
consolidate and grow our role as one of the leading mining
operators in the Americas.
Organic growth strategy
Our strategy for growth is based on three distinct pillars.
Firstly, we continue to optimise production and extend the life
of our core producing assets, Arcata, Pallancata and San José,
which are the bedrock of the Company. Last year, we committed
to increasing resources and I am pleased to say that we achieved
this, with resource life up 23% to 8.7 years in 2010. Particularly
good progress was made at San José, where we discovered nine
new veins and two extensions in the second half of 2010, thus
increasing total resource life at the property by 36% to 11.4 years
and at Arcata, where we have increased the resource life by 30%
to 9.6 years.
The second pillar is our exploration pipeline which currently
contains highly promising targets at various stages of
development across four key countries – Peru, Argentina,
Mexico and Chile. In 2010, we delivered some excellent results
particularly at our three advanced projects in our southern
Peru cluster – Inmaculada, Azuca and Crespo, which all moved
through scoping to pre-feasibility/feasibility stage. These three
projects combined have the potential to add a minimum of
12 million attributable silver equivalent ounces per year to our
production profile starting from the end of 2013. Furthermore,
we have increased the number of Company Maker prospects
which have the potential to deliver 20–30 million silver equivalent
ounces. To support our 2011 exploration programme, we have
once again significantly increased our budget by a further 40%
to $70 million, more than double 2009 levels. This will deliver an
extensive drill programme covering 335,000 metres at greenfield
and brownfield sites in our four target countries.
Finally, our corporate development team has a clear mandate
to pursue early stage, value accretive opportunities which
display significant geological potential and a clear path to
control. We saw this strategy in action in September 2010 with
the acquisition of a controlling stake in the Inmaculada project,
following the announcement of positive scoping results by our
joint venture partner International Minerals Corp (“IMZ”).
In Chile, we exercised our option to increase ownership in the
Victoria project to a controlling 60% stake and we also signed
an option agreement for a 100% stake in the Valeriano
property which is located in an extremely prospective location,
27 kilometres north of Barrick Gold Corporation’s Pascua
Lama project.
08
Looking to the future
Chief Executive Officer’s review
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
With Hochschild’s
highly talented team,
solid asset base
and extensive
project pipeline, I am
confident that we are
in a strong position
to create further
stakeholder value.
We have a proven track record of identifying early stage, value
accretive opportunities demonstrated by our investments in
Lake Shore Gold and Gold Resource Corp. The divestment of the
Lake Shore Gold stake at an attractive price allowed us to secure
funding for the development of our advanced projects as well as
for our exploration strategy.
2010 overview
Our operations delivered a robust performance in 2010 with
production of 26.4 million attributable silver equivalent ounces
comprised of 17.8 million ounces of silver and 144.4 thousand
ounces of gold. Pallancata and San José performed particularly
well with silver equivalent production up 19% and 8% year-on-
year respectively. The 6% year-on-year reduction in attributable
silver equivalent production was mainly driven by a lower
contribution from the Arcata operation where we made the
firm decision of mining reserve grades in order to achieve
a consistent and sustainable level of production.
As a result of the significant increase in precious metals prices
in the second half of 2010, our Ares mine in southern Peru
continued to operate for the full year, albeit at a declining rate.
We are monitoring the grade and cost profile of Ares and Moris,
our ageing open pit mine in Mexico, to ensure that they are in
line with our policy of producing profitable ounces. We expect
both operations to cease producing in 2011.
For 2011, we are targeting production of 22.5 million ounces
from current operations. We expect stable production at
Pallancata and San José and lower production at Arcata as
we move towards the reserve grade, as mentioned above.
There continues to be enormous potential at Arcata with
new high grade veins continuing to be found and resource
life now at a very solid 9.6 years.
2010 was not only a year of high prices but also of high cost
inflation. The management team has worked hard to contain
controllable costs. Unit costs at our underground operations
increased 16%, mainly due to local price inflation in Argentina,
higher royalties and the longer than anticipated mine life at the
high cost Ares operation. Looking ahead, we are forecasting
overall 2011 unit cost per tonne performance in Peru to be
broadly in line with industry cost inflation of around 10%, whilst
in Argentina we expect the rate to continue rising as a result
of ongoing local price inflation of around 25–30%.
Questions to the CEO:
When do you expect your
three advanced projects
to move to production?
Our three advanced projects in Peru, Inmaculada,
Azuca and Crespo, are scheduled to commence
production from the end of 2013. Together, the three
projects have the potential to contribute a minimum
of 12 million attributable silver equivalent ounces to
our annual production profile. We believe that this is a
base case estimate with drilling at the three properties
already delivering impressive results.
+23%
Increase in resource life of mine to 8.7 years
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
09
The business is in sound financial health reporting record revenue
of $752.3 million in 2010 up 39% year-on-year, underpinned by
higher realised silver and gold prices, which were up 83% and
30% year-on-year respectively. Attributable profit after tax rose
79% to $94.9 million (2009: $52.9 million) with pre-exceptional
EPS of $0.28 for the full year, up 65% on 2009.
At San José, I am also pleased that during 2010 we resolved the
lawsuit with our joint venture partner, Minera Andes Inc (“MAI”)
and we are fully committed to working together with MAI to
deliver the mine’s full potential.
We closed the year with an extremely substantial cash balance
of $525.5 million which enabled us to repay our entire existing
syndicated loan facility of $114.3 million in January 2011 and
announce a 50% increase in our final dividend. This strong cash
balance, together with healthy operating cash flow which is up
52% to $304.2 million in 2010, gives us the financial flexibility
to pursue our ambitious exploration programme in 2011 and
beyond. It also supports a full capital expenditure programme
(2010: $156.5 million) including investment in our existing
producing assets, mine development, advanced exploration
projects and equipment. Finally, our strong capital position
enables us to make selective, value accretive acquisitions
which are consistent with Group strategy.
Outlook
Mining is a long-term investment proposition and we have a
clear strategy for delivering long-term growth and value for
shareholders. 2011 is already proving to be another promising
year in this important phase of Hochschild’s evolution: targeted
production of 22.5 million attributable silver equivalent ounces,
key stage development at all three of our advanced projects
and an exploration programme which, with unprecedented
investment, will aim to make tangible progress in 2011 and
beyond. With Hochschild’s highly talented team, solid asset
base and extensive project pipeline set to deliver long-term
production growth, I am confident that we are in a strong
position to create further stakeholder value. I look forward
to updating you on our progress over the course of the year.
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Ignacio Bustamante
Chief Executive Officer
28 March 2011
Below: Selene processing plant.
More details on our operations...
10
Operating & exploration review
Hochschild Mining plc
Annual Report & Accounts 2010
Operating & exploration review
11 Current operations
16 Advanced projects
18 Exploration pipeline
24 Market & geographic overview
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
11
Meeting production targets
KEY PERFORMANCE INDICATORS
Attributable silver production*
moz
17.8 moz
18.8
17.8
16.9
13.6
11.6
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10
Attributable gold production*
koz
144 koz
196
201
153
157
144
06
07
08
09
10
Resource life of mine†
Years
8.7 years
8.7
7.1
5.5
5.8
3.6
06
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CURRENT OPERATIONS
Production
Hochschild delivered another solid performance in 2010, in
line with its stated target, achieving attributable production of
26.4 million silver equivalent ounces comprised of 17.8 million
ounces of silver and 144,403 ounces of gold (2009: 28.2 million
attributable silver equivalent ounces). Production was
particularly strong at the Company’s two newest mines,
Pallancata and San José, which now contribute approximately
half of the Company’s total attributable production, offset by
lower production at Arcata where the Company is moving
towards mining reserve grades in order to achieve a consistent
and sustainable level of production.
The Company has announced a production target of 22.5 million
attributable silver equivalent ounces for 2011, in line with its
mid-term forecast of 20–23 million attributable silver equivalent
ounces from current operations. Management expects stable
production at San José and Pallancata, offset by lower
production at Arcata, as the Company moves towards its long-
term goal of mining close to the average reserve grade at each
of its core operations as anticipated in 2009.
Costs
The Company reported an increase in unit cost per tonne at its
underground operations of 16% in 2010 to $82.3 (2009: $70.7)
primarily due to significant price inflation in Argentina, higher
royalties and longer than anticipated mine life at the high cost
Ares operation. Please see page 38 of the financial review for
further details on costs.
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* Attributable production is measured as the number of ounces
produced multiplied by our ownership interest at each mine and
summed together for all operations.
† Resource life of mine is based on resources of Hochschild’s core
operations and calculated by dividing the number of resource tonnes
by the amount of ore forecast to be processed during the following 12
month period.
Below: Employees at Pallancata.
Our core operations
delivered another
solid performance
in 2010.
12
Solid asset base
Operating & exploration review continued
Hochschild Mining plc
Annual Report & Accounts 2010
MAIN OPERATIONS
Arcata: Peru
Arcata
Production and sales Arcata,
which commenced production
in 1964, is a 100% owned
underground operation located
in the Department of Arequipa
in southern Peru.
During 2010, Arcata’s production
was impacted by lower silver
grades due to changing
geotechnical conditions at the accessible mine areas. In order
to ensure a consistent and sustainable level of production,
Arcata extraction grades were reduced during the year, moving
towards reserve grade level as anticipated in 2009. Consequently,
2010 silver production decreased by 15% to 8.1 million ounces
(2009: 9.5 million ounces). Gold production was 10% lower at
25,834 ounces (2009: 28,639 ounces).
As at 31 December 2010, the silver equivalent reserve grade
at Arcata was 431 g/t and the Company expects to mine around
this level in 2011, notwithstanding the 10–15% variability that
is typical with these types of deposits. The Company remains
positive about the geological potential at the Arcata property
and has made excellent progress with the extension of its
resource life which increased 30% in 2010 to 9.6 years.
Costs The Arcata operation reported a 15% increase in unit cost
per tonne in 2010, mainly as a result of higher metals prices
increasing the royalties paid by the Company and also due to
higher infrastructure costs relating to mine tunnels and stopes.
This was partly offset by efficiency measures leading to cost
reductions in contractors, explosives and maintenance.
A number of initiatives are planned for 2011 including the
construction of eight new stopes in order to optimise extraction
capacity as well as a programme to reduce energy consumption
through the replacement of existing energy pumps.
Resource life The resource life of Arcata currently stands at
9.6 years, up from 7.4 years in 2009 following an intensive drill
campaign focused on the Socorro, Sorpresa, Luz, Rita and
Barbara veins. A total of 76,506 metres of diamond drilling was
completed during the year (2009: 59,582 metres) with significant
intercepts including:
• Sorpresa DDH-831 0.8m at 5.3 g/t Au and 621 g/t Ag
DDH 823 0.9m at 1.9 g/t Au and 1,201 g/t Ag
• Socorro DDH-169 0.8m at 13.5 g/t Au and 130 g/t Ag
• Luz DDH- 780 0.8m at 3.77 g/t Au and 846 g/t Ag
DDH- 734 0.8m at 0.94 g/t Au and 784 g/t Ag.
The 2011 programme will employ geophysical methods in those
areas of the property with thick post-mineral cover and will also
drill for further potential in the Mariana and Socorro veins.
In addition, the Company will develop new resources in the
Socorro, Luz, and Sorpresa veins.
SOUTHERN PERU CLUSTER
Peru
Current operations
Advanced projects
APURIMAC
CUSCO
Azuca
Pallancata
Crespo
Inmaculada
Arcata
AYACUCHO
AREQUIPA
Ares
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
13
Pallancata: Peru
Pallancata
Production and sales The
Pallancata silver/gold property
is located in the Department
of Ayacucho in southern Peru,
approximately 160 kilometres from
the Arcata operation. Pallancata
commenced production in 2007
and is a joint venture with
International Minerals Corporation
(“IMZ”). Hochschild controls 60% of the joint venture and is the
mine operator. Ore from Pallancata is transported 22 kilometres
to the Selene plant for processing.
Pallancata continues to deliver strong results with record
silver equivalent production in 2010, up 19% to 12.3 million
silver equivalent ounces. Production was positively impacted
by increased treated tonnage which rose 16% year-on-year,
due to the Selene plant exclusively processing Pallancata’s ore.
As a result of these effects and a higher extracted silver grade
of 344 g/t (2009: 327 g/t) silver production increased 20%
to 10.1 million ounces (2009: 8.4 million ounces). Gold
production also increased in 2010, up 12% to 35,848 ounces
(2009: 31,975 ounces).
Following positive results from the ongoing drill programme at
Pallancata, the Company completed mine development in two
new areas in November 2010, Ranichico and Virgen del Carmen,
both of which have strong future potential. In 2011, the Company
will develop two further areas, San Javier and Pallancata East.
Costs Pallancata’s production cost is reported on a consolidated
basis with the Selene processing plant. The Pallancata operation
reported a 9% increase in unit cost per tonne year-on-year
mainly due to higher royalties paid by the Company as a result
of higher production and higher prices in 2010. Costs were also
impacted by investment in infrastructure including mine tunnels
and stopes and also in mine support facility upgrades. These
effects were partly offset by cost efficiencies resulting from the
wide vein structure of the deposit and higher production volume.
Cost initiatives undertaken during 2010 include the optimisation
of drilling and blasting procedures thus reducing the volume
of explosives used and the introduction of a new paste fill plant.
Plans for 2011 include the completion of a new tailings dam
and the implementation of a new washing circuit stage in the
treatment process which will help maintain the plant’s target
of 3,000 tpd capacity throughout the year.
Resource life The resource life of the Pallancata operation
currently stands at 6.9 years, up 11% compared to 2009.
During 2010, the Company continued to advance underground
development at the Mariana and Virgen del Carmen veins.
A total of 46,547 metres of diamond drilling was executed over
the course of the year (2009: 26,573 metres), mainly focused
on the Cimoide, Sofia; Pallancata West and East veins with
intercepts including:
• Cimoide DLPL-A605 1.3m at 1.5 g/t Au and 404 g/t Ag
• Pallancata West DLPL-A606 7.0m at 1.3 g/t Au and 446 g/t Ag
• Pallancata East DLPE- A47 2.75m at 0.75 g/t Au and 317 g/t Ag
• Sofia DLPL- 606 0.9m at 0.97 g/t Au and 274 g/t Ag.
The focus for the 2011 brownfield programme will be drilling at
the Huararani, Santa Angela, Pacapausa and Bolsa targets and
the development of new resources at the Rina, Paralela and
Pallancata West and South East veins.
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Leveraging
our southern Peru
cluster to drive
near-term growth.
Above: Employee at the Arcata plant.
14
Extending the life of our mines
Operating & exploration review continued
Hochschild Mining plc
Annual Report & Accounts 2010
San José: Argentina
Production and sales The San
José silver/gold mine is located
in Argentina, in the province of
Santa Cruz, 1,750 kilometres
southwest of Buenos Aires. San
José commenced production in
2007 and is a joint venture with
Minera Andes Inc (“MAI”) in which
Hochschild controls 51% and is
the mine operator.
San José
San José reported strong results in 2010, with silver production
up 7% to 5.3 million ounces (2009: 5.0 million ounces) and gold
production up 9% to 84,303 ounces (2009: 77,075 ounces).
This was mainly due to higher volumes from new mining
areas, including the high grade Kospi vein and also due to the
successful installation of a Merrill Crowe circuit in the mill to
process residual tailings recoveries. This project has exceeded
the Company’s initial recovery estimate of 500,000 silver
equivalent ounces with a one-off 665,280 silver equivalent
ounces recovered in 2010.
As expected, the grade profile of San José increased over the
course of the year following lower production in the first quarter
of 2010. As is common in the early stages of operation, grades
were lower as a result of the mix of material with lower grade
development mineral surrounding the high grade Kospi vein
which increased steadily as mining progressed. The Kospi vein
contributed over 188,803 tonnes of ore to the mine’s production
in 2010 and, as expected, has positively impacted results with
full year silver equivalent production up 8% to 10.4 million silver
equivalent ounces.
Additionally, in September 2010, the Company agreed to
settle the lawsuit with MAI, regarding the $65 million project
financing loan provided by Hochschild to the San José project.
The companies committed to a new repayment schedule for
both the project finance loan and the 2004 shareholder loan of
$50 million, over a maximum period of eight years with a fixed
interest rate of 7% per annum. Future payments on both
loans may be accelerated based on mine performance and
metal prices.
Argentina continues to be a challenging economic and
operating environment although the Company remains positive
about the high grade potential of the San José mine and
surrounding property.
Costs Local cost inflation in Argentina remains high and
consequently San José reported an increase in unit cost per
tonne of 29% in 2010. This was mainly due to higher personnel
expenses relating to an increase in the number of employees
at the operation and the associated transportation, catering
and maintenance costs, as well as a 25% increase in salaries.
The mine’s management team continues to introduce initiatives
and technology which improve productivity and reduce costs.
Resource life Following an intensive drill campaign in 2010
which resulted in the discovery of nine new high-grade gold/
silver veins and two extensions, the Company materially
increased the resource life of the San José property by 36%
to 11.4 years (2009: 8.4 years). A significant portion of the
San José property continues to be open at depth and laterally.
During 2010, 53,692 metres of diamond drilling was completed
focusing on the Ayelen, Micaela, Kospi and Ramal Kospi veins
with significant intercepts including:
• Ayelen SJD-816 1.9m at 2.3 g/t Au and 251 g/t Ag
SJD-799 3.5m at 3.0 g/t Au and 268.5 g/t Ag
• Micaela SJD-806 0.7m at 12.3 g/t Au and 2,389 g/t Ag
SJD-797 0.3m at 8.4 g/t Au and 485 g/t Ag
• Kospi SJD 594 0.9m at 4.8 g/t Au and 296 g/t Ag
• Ramal Kospi SJD 582 1.6m at 60.9 g/t Au and 1,376 g/t Ag.
The 2011 exploration programme at San José includes
developing resources at the newly discovered Susana vein
and the Saavedra West breccia. The Company is planning
to expand geophysical coverage (induced polarisation and
ground magnetics) to an additional 10,000 hectares south
of the mine area.
Questions to the CEO:
You have significantly increased
your resource life of mine in 2010,
do you expect this trend to continue
and do you have a target?
This was one of the key priorities for the new
management team and I am pleased to say that we
have made real progress with resource life up 23%
in 2010, including an impressive 36% increase at
San José where we made some significant new
discoveries during 2010. We are extremely confident
about the longevity of our three main operations and,
though we do not have a specific target in terms of
resource life, we would feel very comfortable with
10–12 years of resources ahead of us.
Resource life of San José
Years
+36%
11.4
8.4
5.9
6.2
4.0
2006 2007 2008
2009
2010
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
15
OTHER OPERATIONS
Ares: Peru
Ares
Production and sales The Ares
mine, which commenced
production in 1998, is a 100%
owned operation located
approximately 275 kilometres
from the city of Arequipa in
southern Peru. Following the
significant increase in prices in
the second half of 2010, the mine
continued to operate for the full year, albeit at a lower level,
producing 2.7 million silver equivalent ounces (2009: 3.5 million
silver equivalent ounces).
As previously announced, Ares is expected to close in the second
half of 2011. Management is monitoring the grade and cost
profile of the operation to ensure that it is in line with the
Company’s policy of producing profitable ounces.
Moris: Mexico
Moris
Production and sales The 100%
owned Moris mine, is the Group’s
only open pit mine and is located
in the district of Chihuahua,
Mexico. Moris provided a key
stepping stone into Mexico, which
is of key strategic importance to
the Group. As previously disclosed,
Moris is an ageing deposit with
a declining production profile. The operation produced 86,408
ounces (2009: 96,583 ounces) of silver and 21,532 ounces (2009:
28,344 ounces) of gold in 2010 or 1.4 million silver equivalent
ounces (2009: 1.8 million silver equivalent ounces).
Moris is scheduled for closure in 2011. Management is
monitoring the grade and cost profile of the operation to
ensure that it is in line with the Company’s policy of producing
profitable ounces.
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Above: Doré bar.
Left: Employees at the Arcata plant.
16
Delivering growth
Operating & exploration review continued
Hochschild Mining plc
Annual Report & Accounts 2010
ADVANCED PROJECTS
Inmaculada
Azuca
Crespo
The Company now has three
advanced projects, Inmaculada,
Azuca and Crespo, which have
the combined potential to add a
minimum of 12 million attributable
silver equivalent ounces per
annum to the Company’s profile
with production due to commence
at the end of 2013. Approximately
15% of the total 2011 exploration budget of $70 million will be
focused on resource development at these three projects to
ensure a stable mine life prior to commencing production.
Inmaculada: Peru
Inmaculada, a 20,000 hectare gold-silver project located in the
Company’s existing operational cluster in southern Peru, is 60%
owned and controlled by Hochschild, following the acquisition
of a controlling stake in October 2010. The remaining 40% is
held by the Company’s joint venture partner at Pallancata, IMZ.
Hochschild has progressed the project to feasibility which it
aims to complete by the end of 2011 with production planned
to commence by December 2013.
The scoping study published by IMZ in September 2010
estimated average annual total silver equivalent production
of 11 million ounces from the project’s Angela vein and total
resources of 115 million silver equivalent ounces (1.9 million
gold equivalent ounces). In February 2011, Hochschild published
a 12% increase in total resources to 128.3 million silver
equivalent ounces and a 29% increase in the silver equivalent
grade to 498 g/t, based on the 180 g/t cut-off used by IMZ in the
scoping study. When assuming the 98 g/t silver equivalent cut-off
grade which reflects the anticipated marginal cost of production,
KEY STAGES AND ESTIMATED PRODUCTION
resources increase further to 137.3 million silver equivalent
ounces, an increase of 20%. Summary results (on a 100% basis,
applying a 180 g/t silver equivalent cut-off grade and a silver to
gold ratio of 60:1) are as follows:
• Measured and indicated resources: 4.7mt at an average grade
of 5.2 g/t gold and 186 g/t silver containing approximately
795,000 ounces of gold and 28.3 million ounces of silver
• Inferred resources of 2.7mt at an average grade of 6.1 g/t gold
and 247 g/t silver containing approximately 521,000 ounces of
gold and 21.0 million ounces of silver.
Hochschild expects the results to significantly improve the
economics of the project detailed in the above mentioned 2010
scoping study. Furthermore, after applying the Company’s
marginal silver equivalent cut-off grade of 98 g/t, the resource
figures increase further. Updated project economics will be
published with the completion of the feasibility study.
The Company is moving forward with an exploration programme
at the property which consists of 40 mining concessions.
The main Angela vein remains open with significant additional
upside potential in several other structures and the joint venture
has committed to undertake a 20,000 metre drilling programme
annually for the first three years to further develop resources.
In 2011, the Company will undertake geophysical work at the
Jimena vein and at the north eastern extension of the Angela
vein in preparation for drilling later in the year.
Results from the scoping study indicated that at base case gold
and silver prices of $1,000/oz and $17/oz respectively, the project
could return a cumulative total pre-tax cash flow (undiscounted)
of approximately $660 million and a pre-tax internal rate
of return (“IRR”) of 41%. Using prices for gold and silver of
$1,400/oz and $34/oz respectively, the project could return
a cumulative total pre-tax cash flow (undiscounted) of
approximately $1,417 million and 74% IRR.
Project
Scoping
Feasibility
Construction
Production
Attributable annual silver
equivalent production
Inmaculada
(cid:22)
Q4 2011
2012/2013
Q4 2013
6.6 million ounces
Azuca
Crespo
(cid:22)
(cid:22)
Q1 2012
2012/2013
Q4 2013
3.5 million ounces
Q4 2011
2012/2013
Q4 2013
2.3 million ounces
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
17
Azuca: Peru
Crespo: Peru
In September 2010, the Company announced positive results
from the scoping study undertaken at its 100% owned Azuca
property, estimating initial average annual silver equivalent
production of 3.5 million ounces, which represents around
16% of Hochschild’s 2011 attributable production. At base
case gold and silver prices of $1,000/oz and $17/oz respectively,
the scoping study indicates that the project could return a
cumulative total pre-tax cash flow (undiscounted) of
approximately $107 million and 21% IRR. Using prices for
gold and silver of $1,400/oz and $34/oz respectively, the project
could return a cumulative total pre-tax cash flow (undiscounted)
of approximately $533.7 million and 95% IRR. The study, which
was completed by an independent third party, assumes plant
throughput of 750 tonnes per day with engineering designed
to easily accommodate future capacity increases.
Azuca has reached resources of 70.3 million silver equivalent
ounces as at 31 December 2010 and is now at pre-feasibility
stage with targeted completion in Q1 2012. The Company is
currently undertaking an intensive exploration programme at
the property with the aim of expanding the scale and profitability
of the project. In 2010, 59,811 metres of drilling was undertaken
(2009: 38,600 metres) with positive results at the Karla, Vivian,
Prometida and Prometida Ramal Techo veins including:
• Karla DAKA-A1007 0.9m at 1.3 g/t Au and 1,318 g/t Ag
DAKA-A1008 1.0m at 2.3 g/t Au and 946 g/t Ag
• Vivian DAVI-A1026 0.8m at 25.6 g/t Au and 2,567 g/t Ag; 0.5m
at 1.2 g/t Au and 651 g/t Ag; 0.6m at 0.7 g/t Au and 632 g/t Ag
• Prometida DAAW-A1007 2.1m at 2.6 g/t Au and 686 g/t Ag
• Prometida Ramal Techo DAAW-A1007 1.1m at 2.0 g/t Au
and 1,050 g/t Ag.
In January 2011, Hochschild reported positive results from a
scoping study completed by an independent company, Ausenco,
at the Company’s 100% owned Crespo project, located in the
Company’s existing operating cluster in southern Peru.
The scoping study is based on resources of 31.3 million silver
equivalent ounces (measured and indicated) and estimates
annual silver equivalent production of 2.3 million ounces
starting from 2014 and a mine life of 7.5 years.
Crespo, which is expected to be an open pit deposit, is one of a
number of properties acquired by the Company in 2008 as part
of the Liam JV/Southwestern Resources land package and is
the first of these to progress to pre-feasibility.
At base case gold and silver price assumptions of $1,000/oz and
$17/oz respectively, the project could return a cumulative total
pre-tax cash flow (undiscounted) of $53.5 million, with an IRR
of 19%. Using prices of $1,400/oz and $34/oz for gold and silver
respectively, the project could return a cumulative total pre-tax
cash flow (undiscounted) of approximately $230.8 million, with
an IRR for the project of approximately 60%.
During 2010, the Company completed 1,740 metres of drilling as
well as a 537 metre underground audit to confirm the resource
model. The 2011 drill programme is focused on converting
inferred resources to the indicated resource category and to
explore the Queshca target located a few kilometres away from
the main target.
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Below: Tunnel at the San José operation.
Our three advanced projects
have the potential to add at
least 12 million attributable
silver equivalent ounces per
annum to the Company’s
production profile.
18
Focused on exploration
Operating & exploration review continued
Hochschild Mining plc
Annual Report & Accounts 2010
We have an extensive
greenfield pipeline with
numerous highly
promising projects
across four target
countries.
EXPLORATION PIPELINE
Exploration is a key part of Hochschild’s growth strategy,
demonstrated by the significant increase in budget which has
more than doubled since 2009 to $70 million in 2011. A total of
300,086 metres of drilling was undertaken by the Company’s
local exploration teams in 2010 (2009: 149,99 metres), at both
existing sites and at new, greenfield projects in Peru, Argentina,
Mexico and Chile. The Company now has over 70 geologists
providing the technical experience and expertise required to
deliver a steady stream of value accretive opportunities.
The Company has achieved positive results particularly with
regards to its key objective of increasing the resource life of its
main operations and on expanding its project pipeline which now
includes three advanced projects and eight Company Makers
(projects with the potential to achieve 20–30 million silver
equivalent ounces per year).
The significant investment in 2011 will support the delivery of an
extensive and targeted drill programme covering 335,000 metres
across the four target countries mentioned above. The budget
will be split between exploration work at the Company’s existing
operations and on identifying and developing high-quality, early
stage projects which have the potential to move through the
pipeline to production.
GROWTH PYRAMID
CURRENT
OPERATIONS
3
3
3
3
3
ADVANCED
PROJECTS
7
7
7
7
7
NY
S
PA
R
E
M
K
O
A
C
M
DRILL
TARGETS
M
S
E
C
D
I
A
U
L
M
E
3
3
3
3
3
PROSPECTS
7
7
7
7
7
GENERATIVE
>1 MILLION HECTARES
Arcata: Peru •
Pallancata: Peru •
San José: Argentina •
Ares: Peru •
Moris: Mexico •
Inmaculada: Peru •
Azuca: Peru •
Crespo: Peru •
KEY TARGETS
Encrucijada: Chile •
Mosquito: Argentina •
La Flora: Argentina •
Cerro Blanco: Peru •
KEY PROSPECTS
Cricket: Argentina •
Astana: Peru •
Ibel: Peru •
San Martin: Peru •
KEY TARGETS
• Victoria: Chile
• Valeriano: Chile
• Parihuana: Peru
• Mercurio: Mexico
KEY PROSPECTS
• Josnitoro: Peru
• Apacheta: Peru
• Corazon de Tinieblas: Mexico
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
19
2011 exploration budget
1. Greenfield
2. Brownfield
1
3. Advanced projects
49%
36%
15%
3
$70m
2
335,000
Metres of drilling planned for 2011
Brownfield exploration
Approximately 49% of the 2010 budget was invested in
brownfield drilling in the areas immediately surrounding
Hochschild’s three main operations and resulted in a significant
23% increase in resource life to 8.7 years as at 31 December
2010 (2009: 7.1 years in 2009).
The Company takes a very conservative approach to resource
delineation and is one of the few companies that applies the
same cut off grades to reserves and resources.
For full reserve and resource tables, please see pages 156–160.
Greenfield exploration
The Company continues to identify and develop early stage
opportunities in its four target countries, Peru, Argentina, Mexico
and Chile. Hochschild’s extensive greenfield pipeline is focused
on medium scale projects which have the potential to deliver
5–10 million silver equivalent ounces and Company Makers
which have the potential to deliver 20–30 million silver
equivalent ounces to its production profile.
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Above: Laboratory work at San José.
Left: Geologist at San José.
20
Drilling in key geological regions
Operating & exploration review continued
Hochschild Mining plc
Annual Report & Accounts 2010
COMPANY MAKERS
The Company continues to focus on Company Makers which are
projects with the potential to achieve 20–30 million silver
equivalent ounces per year. These are typically high sulphidation,
disseminated or gold/copper porphyry deposits and are generally
open pit operations. In 2010, $11.2 million was invested in finding
and developing such deposits and this has increased to $13.1
million in 2011. The Company currently has eight potential
Company Makers in the pipeline:
Victoria: Chile
In November 2010, the Company exercised its option to increase
its holding in the Victoria project in northern Chile to 60% by
incurring $6.0 million in exploration expenditure (Iron Creek
Capital hold the remaining 40%). Although still at an early stage,
exploration work is delivering positive results at the property
which covers 37 kilometres of continuous strike length at the
highly productive Domeyko Fault Zone. Drilling indicates
significant mineralisation with recent results including:
• VVQDD-10-035 78.5m at 0.9 g/t Au & 16.0 g/t Ag, including
1.2m at 18.8 g/t Au and 392 g/t Ag
• VVQDD-10-034 15.1m at 0.80 g/t Au and 6.5 g/t Ag
• VVQDD-10-036 21.0m at 0.6 g/t Au and 4.8 g/t Ag
• VVQDD-10-039 1.8m at 6.0 g/t Au and 12.7 g/t Ag
• VVQDD-10-032 101.9m at 0.91g/t Au and 57g/t Ag.
Drilling has extended the overall strike length of the mineralised
trend to approximately 1 kilometre. A large area of hydrothermal
alteration, including extensive local silicification and alunite at
Leña, in the southeast area of the property, was also discovered.
The programme included mapping of a quartz-vein stockwork
over an area of approximately 800 metres by 400 metres
associated with porphyry copper style alteration and supergene
turquoise mineralisation at the Picaron prospect on the west
side of Victoria.
The Company has also undertaken drilling at the Vida target
which appears to display many of the characteristics of a mafic
porphyry Au (+/-Cu) system, cross-cut by later, northwest
trending structures that are the focus of higher-grade gold
mineralisation. Three new RC holes covering a total of 946
metres have been drilled to date and revealed high-grade,
cross-cutting, sulphide-rich breccia/fault structures that are
oxidised near surface. Results include:
• VCNRC-10-004 8m at 10.5 g/t Au and 29 g/t Ag
• VCNRC-10-021 4m at 8.9 g/t Au and 38.8 g/t Ag from 240m
Total drilling of 10,000 metres is planned for the Victoria property
in 2011.
KEY GREENFIELD PROJECTS
Mercurio
Mexico
Corazon de Tinieblas
Peru
Chile
Josnitoro
Apacheta
Parihuana
Sabina
Victoria
Valeriano
Argentina
+40%
Increase in exploration budget in 2011
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
21
Valeriano: Chile
Josnitoro: Peru
In November 2010, Hochschild entered into an option agreement
with Sociedad Contractual Minera Valleno for the Valeriano
property which is located 27 kilometres north of Barrick Gold
Corporation’s Pascua Lama project. Valeriano covers an area
of 3,750 hectares in close proximity to the Argentinian border
and hosts both high-sulphidation as well as porphyry style,
disseminated gold mineralisation.
The property has been explored in the past by Phelps Dodge
(1989–1991) and Barrick (1995–1997), both of which completed
drill campaigns totalling 12,575 metres. No significant
exploration has been undertaken at the property since 1997.
A number of highly mineralised intercepts have been reported
from this drilling including:
Josnitoro is a 100% owned project located in Peru. The project
was acquired as part of the Southwestern Resources acquisition,
with visible gold mineralisation starting at surface. The Company
is working towards completing the necessary permits and
approval process.
Corazon de Tinieblas: Mexico
The Corazon de Tinieblas property in Mexico was acquired in
H1 2010 by the Company and is currently completing the permit
process. A number of areas have been defined for drill testing
and more detailed mapping is scheduled to better define the
controls to mineralisation and the overall lithologic stratigraphy
of the area which will reveal the structural setting.
• 100 metres at 1.37 g/t Au in typical shallow high sulphidation
style mineralisation starting at 19 metres depth
Apacheta: Peru
• 41 metres at 0.61 g/t Au, 12 g/t Ag and 0.30% Cu, porphyry type
mineralisation starting at 70 metres depth.
Exploration work commenced in January 2011 with a review of
the existing data set and re-interpretation of geophysical data
and drilling to test the deep porphyry-style target as well as
the near surface high-sulphidation system. Field work is also
underway including sampling and mapping surface exposures
and acquisition of deep IP and resistivity surveys. A 2,500 metre
drill campaign is scheduled to commence in H2 2011 to test
targets defined by this exploration campaign.
Mercurio: Mexico
Mercurio is a 100% owned, 36,388 hectare property in Mexico,
located between two high grade mines, approximately
43 kilometres from Sombrerete and 68 kilometres from
Fresnillo. During the year, 6,945 metres of drilling was
undertaken at the project with results including 86 metres
at 20 g/t Ag (0.2% Cu, 0.5% Pb, 1.4% Zn) and 3.5 metres at
300 g/t Ag (4.4% Cu, 1.2% Pb, 7.5% Zn).
Drilling focused on a system of low sulphidation veins which
have reported anomalous silver and base metal results.
Deeper drilling is planned for the first half of 2011.
At the 100% owned Apacheta project in Peru, the Company is
in the process of completing the permit process and is also
undertaking mapping, geochemical sampling and geophysics
to define drill targets within this extensive land package.
Parihuana: Peru
The Parihuana project is 100% owned by Hochschild and is
located in Peru. The project entered the pipeline in 2010 and
drill targets have been selected for testing in the first half of
2011. Alteration mineralogical studies indicate typical high-
sulphidation affiliation and clay mineralogy also indicates a
central zone of higher temperature and acid conditions.
Sabina: Peru
At the 100% owned Sabina project in Peru, drilling to date has
not reported significant mineralisation. However, a vertical
anomalous feeder system has been identified at the Chaquella
target with the intensity of the alteration system indicating a
powerful hydrothermal system and the Company therefore
plans to complete the current drill programme in 2011.
Below: Geologists in Mexico.
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Questions to the CEO:
You refer to ‘Company Makers’,
what are these?
Company Makers are projects which have the
potential to achieve production of 20–30 million silver
equivalent ounces per year. These projects are likely
to be high sulphidation disseminated type deposits,
typically mined as open pit. To increase the potential
for growth, we are increasing the number of projects
in this category and now have eight Company Makers
in the pipeline.
22
Extensive project pipeline
Operating & exploration review continued
Hochschild Mining plc
Annual Report & Accounts 2010
MEDIUM SCALE PROJECTS
The Company’s pipeline currently contains various medium
scale properties in the prospects and drill target categories
which each have the potential to deliver 5–10 million silver
equivalent ounces of production per year. These tend to be low
sulphidation epithermal gold/silver type deposits with varying
base metal content and are typically mined underground.
In 2010, $6.9 million was dedicated to finding and developing
medium scale projects and the Company plans to increase this
investment to $8.6 million in 2011. Positive results have been
reported at a number of these projects, particularly at La Flora
which has moved up the pipeline from prospect to drill target.
Two new properties also entering the pipeline in 2010 were the
Cricket prospect in Argentina as well as the more advanced
Pausi project in Peru which is now at ‘drill target’ stage.
La Flora: Argentina
At the La Flora project in Argentina, two large vein systems have
been identified since drilling commenced in H2 2010. The project
has progressed to “drill targets” and a detailed exploration
programme is underway. Logging of the drill holes indicated that
the anomalous gold mineralisation is associated with the upper
reaches of a hydrothermal system. In 2011, geophysical work
and deeper drilling will be undertaken to test the potential of
higher grade mineralisation.
Encrucijada: Chile
Three drill holes were completed at the Encrucijada property
(a joint venture with Andina Minerals) in 2010 focusing on the
San Bernardo Dome target with associated advanced argillic
alteration and tourmaline breccias. Alteration and mineralisation
indicates a possible copper porphyry system with anomalous
gold and molybdenum also reported from these intercepts:
• ENCRC10_23 From 65m depth – 43m at 3,556 ppm Cu
108 to 258m; 150m at 813 ppm Zn
• ENCRC10_24 From 90m depth – 211m at 828 ppm Cu
From 144m depth – 157m at 578 ppm Zn
• ENCRC10_25 From 94m depth – 106m at 739 ppm Cu
From 111m depth – 89m at 539 ppm Zn.
Mosquito: Argentina
The Company is making progress at the Mosquito project in
Argentina, where seven new vein targets have been identified.
A total of 9,984 metres was drilled in 2010 with results
pending. All targets have cut vein structures associated
with surface mapping.
Below: Exploration work in Mexico.
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
23
Astana Farallón: Peru
Astana Farallón is a 100% owned gold/silver epithermal vein
project in the Company’s southern Peru cluster. A 5,600 metre
drill programme is planned for H2 2011 which is designed to
test a known productive horizon at depth. Historic drilling at
shallow levels reported anomalous results reported in Au, Ag,
Pb, and Zn.
Pariguanas: Peru
In June 2010, the Company signed an agreement with Compañía
de Minas Buenaventura (“Buenaventura”) to create the
Pariguanas joint venture through the combination of
neighbouring properties of similar size owned by the two
companies. Hochschild holds 40% of the property which covers
4,437 hectares of land located approximately 18 kilometres from
the Company’s existing Ares operation. Buenaventura currently
holds the remaining 60% of the joint venture with the obligation
to achieve production by 2018.
Pariguanas is a low sulphidation, predominantly underground
vein system where up to five prospective areas have been
outlined. A total of 7,290 metres in 31 holes has been drilled by
Buenaventura to date, mainly focused on the San Pedro vein.
Positive results include:
• 2.7 metres at 0.7 g/t Au and 1,194 g/t Ag including 0.9 metres
at 1.6 g/t Au and 3,016 g/t Ag
• 4.4 metres at 3.1 g/t Au and 2,376 g/t Ag including 1.6 metres
at 7.4 g/t Au and 6,288 g/t Ag.
Questions to the CEO:
What is the most promising
prospect in your pipeline?
We currently have a number of exciting projects in
the pipeline including both Company Maker and
medium scale projects. We are reporting some
positive results at the Victoria project in Chile and,
as a result, we exercised our option to increase our
ownership to a controlling 60% in 2010. We are also
optimistic about the Valeriano property in Chile which
is located in an extremely prospective location, 27
kilometres north of Barrick Gold Corporation’s
Pascua Lama project.
In the event that Buenaventura does not commence production
by 2018, Hochschild will have the option to assume control of the
project by committing to certain payments linked to
Buenaventura’s investment.
COPPER PROJECTS
Following the acquisition of Southwestern Resources in 2008,
the Company currently holds a number of copper projects
located in the southern Andes within a highly prospective area
for copper deposits. The Company has committed approximately
4% of the total 2011 budget and a dedicated exploration team to
drilling at the properties in order to establish potential value.
GENERATIVE
The Company holds over 1 million hectares of prime land in key
geological regions across four countries and has committed
around 6% of the total 2011 budget to further expand its land
package in premium areas.
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Exploration budget
$m
+40%
70
50
35
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29
2007 2008 2009 2010
2011
1. Peru
2. Chile
3. Mexico
4. Argentina
52%
19%
17%
12%
Greenfield
breakdown
by country
1
4
3
2
24
Market & geographic overview
Hochschild Mining plc
Annual Report & Accounts 2010
2010 MARKET OVERVIEW
Precious metals prices increased significantly in 2010, mainly
due to ongoing global economic uncertainty including sovereign
debt issues, inflationary concerns and weakness in the US
dollar. Gold and silver once again proved their safe haven status,
with price increases of 30% and 83% respectively, mainly driven
by investment demand.
Possible drivers for gold in 2011
• Further fiscal and monetary loosening by major governments
potentially creating inflationary pressure
• Further diversification of investment demand with continuing
portfolio asset allocation towards commodities
• Further official sector purchases.
GOLD SUMMARY
2010 was another strong year for gold prices which reached
a record high of $1,424/oz in December with a closing price
of $1,421/oz, up 30% year-on-year. This was mainly driven by
investment demand which, though down 15% on 2009 in volume
terms, was up 9% in value terms to a record $63.7 billion.
Sovereign debt issues, low interest rates, inflationary concerns
and rising geopolitical tensions towards the end of the year
continued to support safe haven buying.
Investors increased exposure to gold ETFs with holdings up 18%
over the course of the year, 90% of which occurred in the second
quarter at the height of the Greek debt crisis and resulting
uncertainty in the entire Euro area.
Although it was certainly the key driver of prices, investment
demand was also supported by solid underlying fundamentals,
including the official sector’s significant shift from net seller to
net purchaser for the first time since 1988. Jewellery demand
also stabilised, compared to the previous year, increasing 16%
to 2,037 tonnes (2009: 1,758 tonnes) with India accounting for
87% of this gain. Bar hoarding also increased, particularly in
Europe, rising to a 21 year high of 144 tonnes.
On the supply side, demand was partly offset by the 3% increase
in mine production to 2,652 tonnes as new operations and
expansions came online during the year. Despite the significant
increase in prices, scrap supply fell 1.1% to 1,654 tonnes.
Going into 2011, macro conditions remain supportive for gold
due to continued economic uncertainty and inflationary concerns
allied to ongoing high levels of investment demand.
SILVER SUMMARY
Silver achieved an average annual price of $20/oz, up 38% on
2009, closing the year up 83% to $31/oz. This significant increase
was supported by robust investment demand which reached a
record of over 210 million ounces (including coins & medals).
With its close correlation and greater volatility, silver provides
investors a leveraged alternative to gold.
Strong fundamentals have also supported the demand for silver
with total fabrication demand projected to have recovered from
the fall in 2009 to a 10% increase in 2010. This was mainly due
to the estimated 18% rise in demand for industrial uses which
accounts for 46% of total silver demand. Other areas of
fabrication were also supportive with jewellery demand up 3%
as a result of the substitution effect and demand for coins, which
is estimated to have risen 23% in 2010 to a record all time high.
These effects were partly counteracted by the continued decline
in photographic demand, which is expected to have fallen by
around 11% as a result of the ongoing rise of digital photography.
Additionally, total supply is forecast to have increased by 5%
year-on-year partly due to increases in mine production, up
3% to 24 million ounces, scrap supply, up 10%, as well as
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. Continued investor appetite is expected in the
context of low interest rates, a weak dollar and a healthy gold
market. GFMS have forecasted a ‘likely’ rise in the silver price
above $30/oz resulting from increasing investment demand
coupled with strengthening industrial demand with an annual
average of $28 a more likely scenario.
2010 silver and gold performance
– Silver US$/Troy oz (+83%)
– Gold Bullion US/$ Troy oz (+30%)
200
180
160
140
120
100
80
JAN 10
MAR 10
MAY 10
JUL 10
SEP 10
NOV 10
DEC 10
25
46%
23%
13%
10%
8%
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
2010 forecast gold demand
1. Jewellery
4
3
5
1
6
2
2010 forecast gold supply
1
2
2. Other fabrication
3. Identifiable investment
4. Bar hoarding
5. Producer de-hedging
6. Official sector purchases
47%
16%
20%
11%
3%
2%
2010 forecast silver demand
1. Industrial
2. Jewellery and silverware
3. Investment
4. Coins
5. Photography
4
3
1
5
2
1. Mine production
2. Scrap supply
62%
38%
2010 forecast silver supply
1
3
2
1. Mine production
2. Scrap supply
3. Official sector sales
78%
20%
2%
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Possible drivers for silver in 2011
• Continued macro economic uncertainty providing further
support to investment demand
Geographic overview
Our strategy is focused in the Americas, a region with enormous
mineral potential and a long and supportive history of mining.
• Silver’s link with gold as a safe haven asset
• Consumer substitution of gold for silver providing support
to jewellery demand
• Robust demand for coins from retail investors.
Hochschild operates three of the 12 largest primary silver mines
globally and has projects and investments in four of the top 20
precious metal producing countries, including Peru and Mexico
which are the world’s two largest producers of silver.
Source: GFMS
2010 was another
strong year for precious
metals prices which
increased by 83%
and 30% for silver
and gold respectively.
COUNTRY PRODUCTION
RANKINGS
2009
silver ranking
2010
gold ranking*
Peru
Argentina
Mexico
Chile
* Forecast.
1
12
2
7
6
13
14
18
Source: GFMS
Sources: GFMS, Silver Institute, Bloomberg
26
Corporate responsibility
Hochschild Mining plc
Annual Report & Accounts 2010
Corporate responsibility
27 Our approach
29 Safety
30 Health & hygiene
31 People
32 Community relations
34 Environment
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
27
Committed to safe & sustainable mining
OUR APPROACH
Since our listing in London in 2006, we have endeavoured
to maintain and reinforce our corporate values of respecting
the wellbeing of our employees, the environment and the
communities in which we operate.
By actively interacting with our people and the communities
in which we operate, using natural resources efficiently and
putting safety first, we can build our reputation as a trusted
and responsible mining company, factors that we believe will
help us to grow.
What we mean by corporate responsibility
To ensure that our values are adhered to, we have adopted a
number of policies which demonstrate our commitment to:
• A safe and healthy workplace
• Managing and minimising the environmental impact of
our operations
• Encouraging sustainability by respecting the communities
in which we operate.
We prioritise these three areas in terms of resource
allocation, with respect to governance, policy development,
and measurement.
In its efforts to achieve the above objectives, we seek to:
– comply with all relevant legislation and leading
international standards
– promote continuous improvement of our management
systems with the aim of incorporating best practice
– adopt a proactive approach to preventing and managing,
the risks that may limit the achievement of our corporate
responsibility objectives
– encourage employees to adopt the Group’s values through
the use of training and internal communications.
Governance
The Board has ultimate responsibility for establishing Group
policies relating to Corporate Social Responsibility (“CSR”)
and ensuring that national and international standards are
met. The CSR 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 was
chaired during the year under review by Roberto Dañino who
had Board-level responsibility for CSR issues. Following Roberto
Dañino’s change in role to that of a Non-Executive Director with
effect from 1 January 2011, Eduardo Hochschild has taken on
the chair of the Committee from that date.
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Above:
Children from the local communities
attending the mobile medical unit
donated by the Group.
CR GOVERNANCE
BOARD OF DIRECTORS
CSR Committee
CSR Working Group
Community
Relations
Environment Health and
Hygiene
Human
Resources
Safety
28
Committed to safe & sustainable mining
Corporate responsibility continued
Hochschild Mining plc
Annual Report & Accounts 2010
A working group of relevant personnel meets on a monthly
basis to support the work of the CSR Committee and is tasked
to consider, at an operational level, local health and safety
policies, environmental programmes, community relations’
and employee matters. These meetings are chaired by the
Group’s Head of CSR and are attended by the VP of Operations,
Legal and HR.
Despite our on-going target of zero fatalities, the Committee
is saddened to report two incidents leading to loss of life
during 2010. The Board is committed to preventing accidents
at the Group’s operations and has overseen thorough
investigations into the cause of the fatalities as well as
the implementation of the associated recommendations.
The CSR Committee’s work in 2010
During the year, the CSR Committee:
• approved the 2009 CSR Report
• oversaw the investigations into the two fatalities that occurred
during the year and considered the action plans to implement
the associated recommendations
• monitored the execution of the yearly plan in each of the four
key areas of focus
• considered the on-going progress of the implementation
of the safety management information system designed
in conjunction with Det Norske Veritas (“DNV”)
• monitored the status of the Group-wide initiatives undertaken
by management to raise the profile of safe working practice
to assist with accident prevention and
• considered updates from the work done across the Group
to manage community and labour relations.
Engaging with the outside world
We recognise the potential to affect the people that work in,
and live near, our operations.
Within this report, we highlight the initiatives we have in place
to understand these stakeholders, and use this insight to inform
our approach to many of the issues discussed in this part of our
report, from safety to community engagement.
We also recognise that the mix of in-house tools, such as our
Organisational Climate Survey, and working in partnership with
trade bodies such as the Sociedad Nacional de Mineria (both of
which are referred to on pages 30–31), various governmental
authorities, charities and NGOs, provide invaluable insight for
our business and the best results for our stakeholders.
Performance indicators
We continue to make progress in measuring our performance
against our corporate responsibility objectives. Where Group-
wide information is not available, the Report gives performance
indicators in respect of the Peruvian operations, which represent
approximately 75% of the Group’s attributable production.
Below:
Members of the community close to Arcata
with a Hochschild sponsored doctor.
$6.7m2010 community investment
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
29
Assuring the safety of our employees
SAFETY
Our Approach
Our people and their safety remain of paramount importance for
the Group and this is reflected in everything that we do. Ensuring
the 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.
During 2010 the Group has continued to invest in operating
controls and processes to ensure that the highest standards
of safety are met.
It is with sadness that the Group reports two fatalities during the
year. In the first incident, a worker was fatally injured during the
cleaning of a tank. The second fatality, which also occurred at
the Ares mine, resulted from the injuries sustained by a loader
operator after the vehicle he was driving collided with a section
of the wall of a stope. Circumstances leading to these tragic
events have been investigated by management with the resulting
recommendations implemented.
After each accident, the Group suspends operations at the mine
to conduct an internal review of the relevant safety procedures
and to provide training.
Whilst management continually strives to achieve the corporate
goal of zero fatalities, it is encouraged to report that steps taken
to embed a safety-first culture across the Group are yielding
results with the accident frequency rate in 2010 reduced to less
than half of 2007 levels.
Safety indicators
Fatalities
Accidents leading to an absence
of one day or more
LTIFR1
Accident Severity Index2
Accidentability Index3
2010
2
66
3.70
777
2.88
2009
3
79
5.22
1,485
7.76
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 Accident Severity divided by 1,000.
Developments during 2010
• Progress made at Arcata, Pallancata and San José on the
implementation of the integrated risk management system
developed jointly with DNV
• In light of its ongoing success, the Group continued to offer
monthly awards at each mining unit for the best worker and
best group of workers demonstrating high safety standards
• Implementation of selected safety suggestions submitted by
employees for the Luis Hochschild Safety Innovation Award
• In conjunction with EXPECTRA, a leading South African
consultancy specialising in Occupational Health & Safety, the
Group designed and ran a safety training programme enabling
mine personnel to provide safety training to others.
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2010 performance
TARGET
STATUS
2011 targets
• 8% reduction in LTIFR Index.
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
operations
(cid:22)
(cid:26)
(cid:26)
(cid:22)
– the Argentinian
operations
The second launch
of the Luis Hochschild
Safety Innovation Award
ON-GOING TARGET
Zero fatalities
in
process
(cid:22)
(cid:22)
(cid:26)
29% reduction in LTIFR
achieved
These targets were not
achieved due to the two
fatalities during the year
Pallancata and Arcata
achieved Level 6
Ares expected to achieve
Level 5 in 2011
• In relation to the DNV Management Information System,
to achieve:
– Level 5 at Ares
– Level 6 at San José
– Level 7 at Arcata and Pallancata
• To continue offering the monthly safety awards
• To achieve OHSAS 18001 accreditation at Pallancata and San
José and recertify Ares, Arcata and the Selene plant as OHSAS
18001 compliant
• To provide Stage 2 training to emergency crews.
Read more about
how we mitigate social
and environmental
risks to our business
on pages 42 to 43.
30
Assuring the health of our employees
Corporate responsibility continued
Hochschild Mining plc
Annual Report & Accounts 2010
HEALTH AND HYGIENE
Our Approach
We believe that providing a safe working environment to our
employees is a basic right, and we therefore invest in reducing
the inherent risks associated with mining activities.
In the first instance, the Group strives to avoid occupational
illnesses by taking all necessary steps to provide a working
environment that minimises any risk to the health of its workers.
This area has been given increased focus during the year, hence
the renaming of the Health team to the Health & Hygiene team.
The Group also employs dedicated personnel who are charged
with the provision of medical and occupational health services
to assure the wellbeing of those employed by the Group on an
on-going basis.
The Health & Hygiene team at Hochschild look to incorporate
best practices adopted throughout the industry and, to support
this endeavour, the Group benefits from its membership of the
Sociedad Nacional de Minería, Petroleo y Energía (Sociedad
Nacional de Mineria) a trade association comprising
approximately 60 mining companies with operations in Peru.
As part of its mission, the Sociedad seeks to contribute to the
development of leading thinking in health management.
The Head of the Group’s Health & Hygiene team is a qualified
Doctor who also acts as Head of the Occupational Health Group
at the Sociedad Nacional de Mineria.
2010 performance
TARGET
Implement the Occupational Health & Hygiene
module of SAP in Peru and Argentina
Scheduled for
H2 2011
2010
2009
2008
2007
2,961
2,690
2,851
2,505
25.75
24.5
n/a
n/a
237
406
238*
224
Health indicators
Average number of
medical attendances at
Peruvian operations and
at San José per month
Average number of
work-related incidences
requiring medical attention
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
* Figure has been restated.
Developments during 2010
• In the area of promoting hygienic working practices to prevent
the incidence of occupational diseases:
– Continued progress was made in compiling a thorough audit
programme to assess occupational health risks
– Personnel were recruited and equipment procured
to improve the quality of incident reporting
STATUS
• X-ray equipment was acquired and personnel trained in its
use at the Group’s Mexican operations
• In conjunction with external consultants, the implementation
of the Health & Hygiene SAP module was commenced.
In process
2011 targets
• Complete implementation of the Health & Hygiene SAP
(cid:22)
module in Peru and Argentina
• Progress further with the incorporation of Hygiene-related
initiatives within the existing Health team
• Build upon the promising start made by the Wellbeing
Programme in 2009 and to consider the implementation
of the programme in Argentina.
Implement the Hygiene Programme
in Argentina and Mexico
Establish a blueprint for the Wellbeing
Programme (to support the psychological
wellbeing of workers) for roll-out to other
parts of the Group
Below: Health team using X-ray equipment
purchased during the year.
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
31
Training and developing our people
PEOPLE
Our Approach
We recognise that the quality of our employees contributes the
long-term success of our business, and we therefore seek to
recruit, develop and retain the high quality people we need to
deliver our corporate goals. The Group’s HR team supports this
corporate mission through personnel management driven by
innovation and best practice.
2010 performance
TARGET
Implementation of the Hochschild Mining
Leadership Programme
5% improvement in the measurement
of the working environment as gauged
by the “Organisational Climate” survey
STATUS
(cid:22)
(cid:26)
Developments during 2010
• Implementation of the Hochschild Mining Leadership
Programme, for senior and mid-management;
During the year the first leadership workshop for senior
management took place in Lima in conjunction with the
Centre for Creative Leadership (“CCL”). Members of senior
management participated in a one-week programme entitled
“Leadership at the peak” delivered by the CCL in Colorado,
USA. For mid-management, the “Developing leaders”
programme was designed and launched in Peru in January
2011 with a planned launch in Argentina later in the year.
• Organisational Climate Survey;
Every year the Group carries out an organisational climate
survey which in 2010 took place in August. The number
of employees giving a satisfaction rating to the Group’s
employment conditions increased by three percentage
points. Despite not achieving the stretching target of a 5%
improvement this is considered to be a commendable result
which reflects well on the initiatives implemented during the
year to improve the overall working environment at Hochschild
which include: the development of the leadership programmes,
the provision of recreational activities for mining personnel and
various programmes to enhance work-life balance.
2011 targets
• Implement development plans for all critical positions
• Continue with the Hochschild Mining Leadership programme
for senior management
• Complete the first stage of the “Developing Leaders”
programme for mid-management in Peru
• Launch the “Developing Leaders” programme for mid-
management in Argentina.
People 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.
2010
2009
2008
2007
5,776
4,969
5,012
4,132
17.83
14.03
19.62
13.59
92%
94%
83%
68%
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Below: Participants from one of the
mid-management leadership programmes
run by the Group during 2010.
92%Percentage of Peruvian workforce
trained during the year
32
Working together with local communities
Corporate responsibility continued
Hochschild Mining plc
Annual Report & Accounts 2010
COMMUNITY RELATIONS
Our Approach
We aim to work together with our local communities in order
to provide them with more positive living conditions, in terms
of economic development, health and education.
To do this, the Group’s primary objective is to maintain a
constructive relationship with communities and promote
development, guided by the following principles:
1. Encourage mutual respect and co-existence with
local communities
2. Achieving mutually beneficial agreements
3. Improving the quality of life of community residents
4. Improving the health, nutrition and education of members
of the local communities and
5. Fostering good relations and co-ordinating
activities with third party stakeholders to promote
sustainable development.
2010 performance
TARGET
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
STATUS
(cid:22)
(cid:22)
Community Relations
Operacion Sonrisa Peru
(Operation Smile)
The Group is a committed supporter of Operacion
Sonrisa. This charity was founded in 1999 to provide
free medical services to children with facial deformities
such as cleft lip and cleft palate. Through the Group’s
involvement, Operacion Sonrisa has treated a number
of children in the localities of its operations and projects
in Peru.
Developments during 2010
1. Encourage mutual respect and co-existence with local
communities
This is an overarching principle of the Group which has been
achieved through greater interaction and communication with our
local communities. This has enabled us not only to improve our
relationships but to foster trust and manage conflicts as well as
facilitate good relations with regional and municipal authorities.
The Group has participated in community fairs and celebrations,
and has also provided support in times of need. Such support
has included the provision of clothing and supplies after a fire
engulfed several houses in the town of Perito Moreno located
near the San José operation. In addition, the Group provided
materials to assist with the repair of the structural damage
that had been caused.
2. Achieving mutually beneficial agreements
During the year we concluded numerous agreements and
negotiations with diverse communities in respect of both
operating units and areas of exploration. Through our efforts we
have focused on establishing arrangements that are satisfactory
to both parties. Examples of such arrangements include a
Co-operation Agreement entered into by the Group with the
communities close to Selene and the Regional Government of
Apurimac to collaborate on issues relating to health, education
and initiatives to benefit the farming community.
3. Improving the quality of life of community residents
We believe that we can make a significant impact on quality
of life around our mines by providing work to local people and
we actively explore sourcing goods and services locally, and
sponsoring community projects which provide employment
opportunities. In addition to directly employing community
members within the mining operations, the Group seeks to
provide opportunities with other local employers including a road
maintenance company close to Selene and a building company
based near Pallancata.
We can report that at the end of 2010, our Peruvian operations
employed over 34% of the economically active population
residing in local communities. In addition, 25% of our Argentinian
workforce and 66% of our Mexican workforce came from
neighbouring communities.
Below: A mobile medical unit
donated by the Group being used
by the local community.
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
33
In Peru, the main economic activity in the highland regions is
the breeding of alpacas and, on a smaller scale, of vicuna and
llamas. The Group provides financial and technical support for
these activities as well as for small-scale agricultural activities
in lowland areas and to co-operatives formed by local women
which produce hand-woven garments made from Alpaca wool.
4. Improving the health, nutrition and education of members
of the local communities
The Group has expended much effort during the year in these
three crucial areas.
Education During the year we have worked to improve literacy
and numeracy as well as promoting lessons in natural and
social sciences. In addition to providing direct support to
preschools, primary and secondary schools, the Group has
joined with governmental institutions to build learning centres
and fund campaigns to promote adult education. We have
continued to develop our ties with various non-governmental
organisations, notably Caritas del Peru in providing free training
to school teachers and supplying computer equipment.
Health & Nutrition The Group has sponsored workshops which
have been organised in collaboration with local hospitals and
educational institutions to address issues of local concern.
The Group has also supported health campaigns aimed at
children, the elderly and expectant mothers. The Group has
continued to provide resources to combat child malnutrition
for example, by establishing allotments which are designed
to grow fresh produce even at very high altitude and which
significantly improve the nutritional intake of children and
expectant mothers.
The Group has also organised health campaigns to raise
awareness of the dangers of the cold climate and has also
provided treatment for children suffering from facial deformities
such as cleft lip. In addition, during 2010 the Group donated an
ambulance and medical equipment to the Santo Tomas hospital
close to the Group’s Azuca and Crespo projects.
5. Fostering good relations and co-ordinating activities with third
party stakeholders to promote sustainable development
The Group has sought to promote the participation of regional
and local authorities by facilitating agreements with local
communities and businesses. These arrangements have
resulted in resources being committed in the areas of education,
health, nutrition, culture and tourism. Examples of such work
undertaken at Perito Moreno, a town located close to the San
José mine, include funding of the construction of a School of
Arts and Crafts and financial support for an archeology museum.
The Group continues to work closely with local authorities to
identify and develop sustainable projects and is exploring a
potential partnership between the public sector and various
mining companies which operate in the region.
2011 targets
• On-going target: Zero loss of production days resulting from
community conflicts
• Continue identifying community and economic development
initiatives that promote sustainability
• Work with government agencies in health and education,
and implement meaningful measures of quantitative and
qualitative achievements
• Facilitate further collaborative projects involving the state and
private mining companies for the benefit of local communities
• To make further progress in providing adult education.
Community relations indicators
Community investment
$6.7m $6.0m $4.6m $4.3m
2010
2009
2008
2007
Production days
lost as a result of
community conflict
0
1.5
0
0
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Community Relations
Alpaca Breeding Programme
Most of our exploration and production units are
located at very high altitude, in some cases higher than
4.500 metres. This limits the potential of local people
to generate their own income. However, the breeding
of Alpacas is one of the few economic activities that
local communities at altitude are able to pursue which
can result in significant sustainable economic and
social benefits. The Group’s alpaca breeding project
provides support in four key areas, namely:
– exploring breeding techniques to raise the quality
of the wool produced
– developing the technical skills of participants by
providing training in various areas including
livestock and pasture management
– Supporting sales in order to maximise the revenue
of the breeders and
– Promoting sustainability by forging on-going
collaborative ventures.
34
Managing our environmental impact
Corporate responsibility continued
Hochschild Mining plc
Annual Report & Accounts 2010
ENVIRONMENT
Our 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. We recognise
that doing this brings benefits both in environmental terms, and
also enables us to increase the efficiency of our own operations.
In order to support its efforts, the Group is committed to
complying with the highest local and international standards.
These standards include ISO 14001, which we use as a benchmark
for environmental management, and for which we are currently
seeking accreditation across our sites.
6. Undertake periodic audits and inspections of
environmental systems
7. Plan for, and implement, the rehabilitation and closure of
mine structures and disturbed areas following mine closure.
The Environmental department works together with the
operational teams, community relations and the Legal
Department in 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 who reports to the VP of Operations.
The Group’s environmental team seeks to:
The Group’s environmental teams focus on the following areas:
1. Assure the efficient management, treatment and discharge
• Water management (mine, industrial, domestic water)
of water in conjunction with the operations team
2. Supervise the chemical and physical stability of the Group’s
mining structures
3. Implement efficient waste management
4. Identify and adhere to relevant legal requirements and other
environmental standards
5. Encourage the adoption of the Group’s environmental mission
by all third party stake-holders
• Tailings management
• Waste rock management
• Safe disposal of domestic and industrial waste
• Storage and handling of hazardous materials,
principally cyanide
• Hydrocarbons management
• Rehabilitation works in respect of disused structures
• Management of new projects
• Permitting.
Left:
Community members near the Ares
mine participating in water sampling.
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
35
2010 performance
TARGET
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
2011 targets
• Group Compliance Performance Indicators above 80%
• Obtain ISO 14001 certification for Arcata, Selene, Pallancata,
Ares and San José
• Submit Azuca, Crespo and Inmaculada Environmental
Impact Assessments
• Update mine closure plans for Ares, Arcata, Selene
and Pallancata.
Environmental indicators
STATUS
(cid:22)
(cid:22)
(cid:22)
Stage
One
Achieved
Developments during 2010
• On-going reimplementation of environmental management
systems at the Group’s operations at Ares, Arcata and Selene
as ISO 14001 compliant
Average monthly fresh
water consumption per
metric tonne of treated
ore (cubic metres)
20101
0.21
20091
0.63
20082
0.55
20072
2.72
57.75
53.32
90.3
102.01
0.97
1.23
3.14
1.62
12.47
10.31
18.33
17.13
0
0
0
0
30,628
29,668
Not available
32%
27%
Not available
37,538
35,606
Not available
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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)
1 Figures relate to the Group’s mines in Ares, Arcata, Selene (until its closure in June 2009),
Pallancata and San José unless otherwise stated.
2 Figures relate to the Group’s mines in Ares, Arcata and Selene only, unless otherwise stated.
• Stage 1 implementation of environmental management
systems at Pallancata and San José mines
• Environmental impact studies performed in connection with
proposed expansion programmes and in the planning of new
infrastructure projects, such as mine capacity increases and
a new tailings dam
• Group-wide initiatives to raise the general awareness of
environmental issues amongst employees
• To promote transparency, the Group arranges for discharge
levels to be monitored jointly with members of the local
communities. During these sessions, water samples are taken
from official monitoring points for analysis at laboratories
selected by community members and results shared with
all participants.
Environmental Management
Responsible mine closure
All operations are required to rehabilitate, and where
possible, enhance the land disturbed when extraction
activities cease. To ensure this happens, every
operation maintains a closure provision that is
reviewed annually. Further progress was made
in this area during the year.
Sipan
The Group’s Sipan mine was an open-pit mine which
was in operation for seven years until its closure in
2004. The process of preparing for the end of
operations began in 2001 and since that time, a
number of measures have been implemented to
reduce the environmental impact of closure, including:
– the construction of Acid Water Treatment Plants
which use lime and limestone to treat acid water in
disused structures and waste rock deposits and pits
– the engagement of a hydrology expert to evaluate
alternative courses of action in respect of specific
deposits and
– extensive works to rehabilitate the land to support
the growth of indigenous species.
36
Financial review & risk management
Hochschild Mining plc
Annual Report & Accounts 2010
Financial review & risk management
37 Financial review
42 Risk management
Unlocking value through exploration
Financial review
Hochschild Mining plc
Annual Report & Accounts 2010
37
The reporting currency of Hochschild Mining plc is US dollars.
In discussions of financial performance the Group removes the
effect of exceptional items, unless otherwise indicated, and in
the income statement results are shown both pre- and post-
such exceptional items. Exceptional items are those items,
which due to their nature or the expected infrequency of the
events giving rise to them, need to be disclosed separately
on the face of the income statement to enable a better
understanding of the financial performance of the Group
and to facilitate comparison with prior years.
Revenue
Gross revenue: Gross revenue from continuing operations
increased 36% to $802.7 million in 2010 (2009: $589.9 million)
driven by higher metal prices during the year.
Silver: Gross revenue from silver increased 44% in 2010 to
$549.7 million (2009: $382.4 million) as a result of higher prices.
The total amount of silver ounces sold in 2010 decreased to
24,283 koz (2009 restated: 24,330 koz) mainly due to lower
year-on-year production.
Gold: Gross revenue from gold increased 22% in 2010 to
$253.0 million (2009: $207.5 million) also as a result of higher
prices. The total amount of gold ounces sold in 2010 decreased
to 199.9 koz (2009 restated: 207.8 koz) mainly due to lower
year-on-year production.
Gross average realised sales prices
As of December 2010, the Company discloses average realised
prices calculated as gross revenue divided by gross ounces
sold. Previously, the Company disclosed average realised
prices calculated as net revenue divided by net ounces sold.
Net revenue is calculated as gross revenue minus
commercial discounts.
The following table provides restated figures for average realised
prices and ounces sold for 2009 and 2010:
Average
realised prices
Silver ounces
sold (koz)
Avg. realised
silver price ($/oz)
Gold ounces
sold (koz)
Avg. realised
gold price ($/oz)
Year ended
31 Dec 2010
(restated)
Year ended
31 Dec 2009
(restated)
Year ended
31 Dec 2010
Year ended
31 Dec 2009
24,283
24,330
23,506
23,563
22.6
15.7
21.6
14.5
199.9
207.8
196.2
204.1
1,266
999
1,244
970
KEY PERFORMANCE INDICATORS
Revenue1
$m
Adjusted EBITDA3
$m
752
540
434
398
250
305
211
148
142
108
06
07
08
09
10
06
07
08
09
10
Silver cash costs2
$/oz Ag co-product
Cash flow from operating activities4
$m
8.7
7.0
7.1
4.4
3.6
06
07
08
09
10
304
201
94
06
21
07
79
08
09
10
Gold cash costs2
$/oz Au co-product
Earnings per share
$
469
480
504
212
156
0.27
0.28
0.19
0.17
0.05
06
07
08
09
10
06
07
08
09
10
1 Revenue presented in the financial statements is disclosed as net
revenue (in this Financial Review it is calculated as gross revenue less
commercial discounts).
2 Includes Hochschild’s main operations: Arcata, Pallancata and San José.
Cash costs are calculated to include cost of sales, treatment charges,
and selling expenses before exceptional items less depreciation included
in cost of sales.
3 Adjusted EBITDA is calculated as profit from continuing operations
before exceptional items, net finance costs and income tax plus
depreciation and exploration expenses other than personnel and other
exploration related fixed expenses.
4 Cash flow from operations is calculated as profit for the year from
continuing operations after exceptional items, plus the add-back of
non-cash items within profit for the year (such as depreciation and
amortisation, impairments and write-off of assets, gains/losses on sale
of assets, amongst others) plus/minus changes in liabilities/assets such
as trade and other payables, trade and other receivables, inventories,
net tax assets, net deferred income tax liabilities, amongst others.
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Financial review continued
Hochschild Mining plc
Annual Report & Accounts 2010
Commercial discounts: Commercial discounts refer to refinery
treatment charges, refining fees and payable deductions for
processing concentrates, and are discounted from gross
revenue on a per tonne basis (treatment charge), per ounce
basis (refining fees) or as a percentage of gross revenue (payable
deductions). In 2010, the Group recorded commercial discounts
of $50.5 million (2009: $50.4 million). The ratio of commercial
discounts to gross revenue in 2010 decreased to 6% (2009: 9%).
Net revenue: Increased by 39% to $752.3 million, comprising
silver revenue of $508.3 million and gold revenue of $243.9
million. In 2010, silver accounted for 68% and gold 32% of the
Company’s consolidated net revenue compared to 63% and
37% respectively in 2009.
Unit cost per tonne
The Company reported an overall increase in unit cost per
tonne at its underground operations of 16% in 2010 to $82.3
(2009: $70.7). This increase is mainly explained by higher
royalties as well as price inflation in Argentina.
In order to further increase transparency, the Company is
restating its unit cost per tonne figures to include certain indirect
operating expenses including health, safety and environmental
accreditations. In addition, Pallancata’s 2009 unit cost per tonne
has been restated to exclude the depreciation component of the
Selene plant processing fee. With these restatements, the unit
cost per tonne of the Company’s underground operations in 2009
reduces from $71.2 to $70.7.
NET REVENUE BY MINE
US$(000) unless otherwise indicated
Net silver revenue
Year ended
31 Dec 2010
Year ended
31 Dec 2009
% change
Arcata
Ares
Selene
Pallancata
San José
Moris
173,942
141,816
16,586
13
13,038
8,805
233,789
139,124
123,393
1,946
78,352
1,245
Commercial discounts
(41,392)
(40,904)
Net silver revenue
Net gold revenue
Arcata
Ares
Selene
Pallancata
San José
Moris
508,277
341,476
31,264
40,239
2
43,712
108,849
28,953
27,364
40,278
2,819
32,443
79,430
25,195
Commercial discounts
(9,079)
(9,492)
Net gold revenue
Other revenue1
Net revenue
243,940
198,037
105
228
752,322
539,741
23
27
(100)
68
57
56
1
49
14
0
(100)
35
37
15
(4)
23
(54)
39
1 Other revenue includes revenue from sale of energy in Peru, revenue from administrative
services in Mexico and revenue from base metal components in the concentrate sold from
the Arcata mine net of commercial discounts in 2009 only.
Costs
Total pre-exceptional cost of sales increased 24% to $345.7
million in 2010 (2009: $279.3 million) mainly as a result of the
increase in direct production cost of 21% to $225.2 million
(2009: $186.3 million). Direct production costs increased mainly
due to inflation in personnel, supplies and energy expenses,
particularly in Argentina. In addition, mining royalties
increased as a result of higher metal prices. Depreciation
and amortisation, which increased 23% to $102.7 million
(2009: $83.4 million), also contributed to higher cost of sales.
Unit cost per tonne by operation*:
Operating unit
($/tonne)
Peru
Arcata
Pallancata
Ares
Selene
Argentina
San José
Total
underground
Mexico
Moris
Total Company
Unit cost
per tonne
2010
(restated)
Unit cost
per tonne
2009
(restated)
%
change
Unit cost
per tonne
2010
Unit cost
per tonne
2009
%
change
66.2
71.1
51.8
107.5
n/a
59.9 10.6
62.0
47.3
82.7
95.1
14.7
9.3
29.9
n/a
64.0
68.3
50.5
103.3
n/a
60.8
59.6
53.0
81.0
92.1
5.2
14.6
(4.8)
27.5
n/a
152.3
118.5 28.5
152.3
118.5 28.5
152.3
118.5
28.5
152.3
118.5
28.5
82.3
16.3
16.3
61.3
70.7 16.4
13.8 18.1
13.8
18.1
50.7 21.0
80.5
16.3
16.3
60.1
71.2 13.0
13.5 20.7
13.5
20.7
51.1 17.5
* Unit cost per tonne is calculated by dividing mine and geology costs by extracted tonnage
and plant and other costs by treated tonnage. Dividing total production cost disclosed in the
segmental report on page 154 by treated tonnage reported in the production report provides
a good approximation for unit cost per tonne.
Cash costs
Cash costs include cost of sales, commercial deductions and
selling expenses before exceptional items, less depreciation
included in cost of sales.
Co-product 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. Silver and gold
cash costs increased from $7.1 to $9.3 per ounce and from $476
to $535 per ounce, respectively. Silver and gold cash costs from
main operations (Arcata, Pallancata and San José) increased
from $7.1 to $8.7 per ounce and from $480 to $504 per ounce,
respectively. The increase was mainly explained by higher
production costs and the lower average grades, mainly at
Arcata and Ares.
By-product 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 $3.0 per silver ounce (2009: $2.4 per silver ounce) and
($1,153) per gold ounce (2009: ($576) per gold ounce).
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
39
US$(000) unless otherwise indicated
Profit from continuing
operations before exceptional
items, net finance cost,
foreign exchange loss and
income tax
12 months
ended
31 Dec 2010
12 months
ended
31 Dec 2009
% change
266,626
153,600
74%
Operating margin
35%
28%
Depreciation and
amortisation in cost of sales
99,498
85,789
16%
Depreciation and
amortisation in
administrative expenses
Exploration expenses
Personnel and other
exploration related fixed
expenses
Adjusted EBITDA
2,048
41,537
796
19,941
(157%)
(108%)
(11,978)
(10,257)
397,731
249,869
(17%)
59%
Adjusted EBITDA margin
53%
46%
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 and is accounted for using the
equity method.
Hochschild’s pre-exceptional share of the profit/(loss) after tax
of associates totalled $(4.6) million in 2010 (2009: $7.6 million).
In 2010, the Company’s share in associates was mainly
explained by losses relating to its holdings in Gold Resource
Corp and Lake Shore Gold of $3.2 million and $1.4 million,
respectively. In 2009, the Company’s share in associates was
mainly explained by a gain of $9.2 million from Lake Shore Gold;
partially offset by a loss of $1.0 million in Gold Resource Corp.
Hochschild reduced its stake in Lake Shore Gold from 35% to
6% in November 2010. The divestment of the remaining 6%
stake in Lake Shore Gold, which took place in February 2011,
will be recorded in the Company’s 2011 accounts.
Hochschild also divested its holdings in Cabo Sur (89%) and
Zincore Metals Inc (37%) during the year. The Company
continues to hold a 25% stake in Gold Resource Corp.
Finance income
Finance income before exceptional items decreased by 36%
to $4.1 million (2009: $6.4 million) mainly driven by accounting
non-cash adjustments in Argentina ($2.5 million) in respect of
the discounting of San José’s VAT receivables.
Administrative expenses
Administrative expenses before exceptional items increased
by 30% to $66.2 million (2009: $51.1 million) mainly as a result
of: a 35% increase in personnel expenses to $34.3 million
(2009: $25.4 million) and a 45% increase in professional fees
to $9.6 million (2009: $6.6 million).
Personnel expenses increased primarily due to the provision
for a management long-term incentive plan, termination
benefits due to changes in management and higher salaries.
Professional fees increased mainly due to higher legal fees
mainly related to the Minera Andes dispute.
Exploration expenses
As a result of the Group’s decision to focus on organic growth
through exploration, exploration expenses, which primarily
relate to greenfield exploration, increased by 109% to
$41.5 million in 2010 (2009: $19.9 million). Further detail on this
programme can be found in the exploration section on page 18.
In addition, the Group capitalises part of its brownfield
exploration, which mostly relates to costs incurred converting
potential resource to the inferred or measured and indicated
category. In 2010, the Group capitalised $12.0 million relating
to brownfield exploration compared to $8.6 million in 2009
bringing the total investment in exploration for the full year 2010
to $53.5 million. In addition, $10.2 million was invested in the
Company’s advanced projects.
Selling expenses
Selling expenses increased to $26.9 million (2009: $21.0 million)
mainly due to higher export duties at San José, driven by the
increase in gold and silver prices (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 was $5.6 million
(2009: $4.5 million). Other income post exceptional items
was $82.8 million (2009: $13.3 million), mainly as a result of
the divestment in the Company’s stake in Lake Shore Gold
from 35% to 6%, which generated a gain of $63.7 million.
Other expenses before exceptional items reached $11.0 million
(2009: $19.3 million). There were no exceptional items related
to other expenses in 2010.
Profit from continuing operations
Profit from continuing operations before exceptional items,
net finance costs and income tax increased to $266.6 million
(2009: $153.6 million) as a result of the effects detailed above.
Adjusted EBITDA
Adjusted EBITDA increased by 59% over the period to
$397.7 million (2009: $249.9 million) driven primarily by higher
silver and gold prices. Adjusted EBITDA is calculated as profit
from continuing operations before exceptional items, net
finance costs and income tax plus depreciation and exploration
expenses other than personnel and other exploration related
fixed expenses.
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Financial review continued
Hochschild Mining plc
Annual Report & Accounts 2010
Finance costs
Finance costs decreased 36% to $29.5 million in 2010 (2009:
$46.0 million). Interest costs increased to $17.3 million in 2010
(2009: $15.6 million) mainly due to the refinancing of upcoming
syndicated bank loan maturities in November 2009 with a
longer-dated convertible bond at a higher interest rate.
Nonetheless, the reduction in recognised losses from the
use of derivatives in 2010 to $(9.1) million (2009: $28.4 million)
resulted in a decrease in finance costs.
Hochschild repaid, in full, its syndicated bank loan facility in
January 2011. In addition, the Company has no outstanding
currency or commodity hedge positions.
Foreign exchange losses
The Group recognised a foreign exchange gain of $0.3 million
(2009: $0.3 million loss) as a result of transactions in currencies
other than the functional currency.
Income tax
The Company’s pre-exceptional effective tax rate decreased
to 32.5% in 2010 (2009: 36.8%) mainly as a result of the reversal
in 2010 of a provision for tax credits of $4.8 million, which was
recognised at the end of 2009.
In addition, the post-exceptional effective tax rate increased to
24.7% (2009: 21.6%) primarily driven by a lower proportion of
non-taxable, exceptional gains to profit before income tax in
2010 compared to 2009, which represented a decrease in the
effective income tax rate of 8% in 2010 compared to 12% in 2009.
Exceptional items
Exceptional items in 2010 totaled $57.8 million after tax (2009:
($44.7 million). This mainly includes:
Positive exceptional items:
Main items
Other income
$000 Description of main items
77,197 Gain of $63.7 million related to
the reduction of the Company’s
stake in Lake Shore Gold from
35% to 6%. A gain of $7.5 million
related to the sale of Zincore
Metals which the Company
received as part of the acquisition
of Southwestern Resources Inc.
in 2008. A gain of $6.0 million
related to the exchange of
El Quevar property in Mexico
for Golden Minerals shares
Finance income
9,204 A gain of $5.8 million related
to the sale of Golden Minerals.
A gain of $3.0 million related
to the change in fair value of
the Golden Minerals warrants
held by the Company.
Negative exceptional items:
Main items
$000 Description of main items
Cost of sales
8,861 Negotiated compensation paid in
Impairment
and write-off
of assets
2010 to workers at the Peruvian
mines for 2009 exercise period
24,018 Mainly explained by:
i) impairment of the San Felipe
property by $14.7 million,
triggered by the conclusion
of the marketing process
conducted during H1 2010 (the
new value of San Felipe reflects
the Company’s estimate of the
fair value less cost to sell) and
ii) impairment of $6.7 million
related to the 100% doré
project in San José following
a decision to suspend the
project indefinitely
Cash flow and balance sheet review
Cash flow
$000
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
12 months
ended
31 Dec 2010
12 months
ended
31 Dec 2009
Change
304,232
200,524
103,708
198,963
(373,021)
571,984
(55,010)
134,443
(189,453)
448,185
(38,054)
486,239
Total cash generated increased from $(38.1) million in 2009
to $448.2 million in 2010 ($486.3 million difference). Operating
cash flow increased 51% to $304.2 million from $200.5 million
in 2009 ($103.7 million difference), mainly due to higher metal
prices. Net cash from investing activities increased to $199.0
million in 2010 from $(373.0) million in 2009, primarily due to
the reduction in the Company’s holding in Lake Shore Gold.
Finally, cash from financing activities decreased to $(55.0) million
from $134.4 million, primarily as a result of the higher dividend
paid to International Minerals Inc of $26 million in 2010,
compared to an equity issuance of $145 million in 2009.
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
41
Working capital
Capital expenditure1
US$(000)
Trade and other receivables
Inventories
Net other financial assets
Net Income tax payable
12 months
ended
31 Dec 2010
12 months
ended
31 Dec 2009
182,752
168,014
55,130
18,732
45,813
(1,945)
(10,977)
(10,751)
Trade and other payables incl. provisions
(246,781)
(135,163)
Working capital
(1,144)
65,968
The Company’s working capital position decreased to
$(1.1) million in 2010 from $66.0 million in 2009 as a result
of higher trade and other payables and provisions. This was
primarily explained by; payments to International Minerals Inc
relating to the Inmaculada acquisition ($54.8 million), workers
profit sharing ($21.3 million), higher commercial payables
($20.4 million) and a provision for the management long-term
incentive plan ($7.0 million).
Net debt
US$(000) unless otherwise indicated
Cash and cash equivalents
Long-term borrowings
Short-term borrowings*
Net debt/(net cash)
As at
31 Dec 2010
As at
31 Dec 2009
(525,482)
(77,844)
248,380
219,681
69,272
112,908
(207,830)
254,745
* Includes pre-shipment loans which were previously reported under working capital (2009
figures have been restated to reflect this change).
The Company reported net cash of $207.8 million as at
31 December 2010 (2009: $254.7 million). This was primarily
driven by the significant increase in cash and cash equivalents
from $77.8 million to $525.5 million during the year. In January
2011, the Company paid down its full syndicated loan facility of
$114.3 million, which will be recorded in its 2011 accounts.
The Convertible bond currently outstanding has a conversion
price of £3.98 and allows the Company to force conversion of
the bonds at anytime after 20 October 2012 if, during a 20 day
period, the Company’s stock price exceeds 130% of the
conversion price (£5.17).
US$(000) unless otherwise indicated
Arcata
Ares
Selene
Pallancata
San José
Moris
Other2
Total
12 months
ended
31 Dec 2010
12 months
ended
31 Dec 2009
30,230
5,422
5,839
38,116
55,183
2,728
18,965
29,688
3,484
16,579
24,117
26,113
480
8,074
156,4833
108,535
1 Includes additions in property, plant and equipment and evaluation and exploration assets
and excludes increases in closure of mine assets.
2 Other capex includes mainly Azuca ($13.8 million), Crespo ($2.7 million) and administrative
capex of ($1.5 million).
3 Capex does not include the $90.6 million additions in respect of the acquisition
of Inmaculada.
2010 capital expenditure of $156.5 million (2009: $108.5 million)
includes mine development of $71.5 million, equipment of
$53.8 million, capitalised exploration costs of $12.0 million
in respect of the Group’s operating mines and $16 million
capitalized in respect of advanced projects (Azuca and Crespo).
Dividends
The directors recommend a final dividend of $0.03 per ordinary
share which, subject to shareholder approval at the 2011 AGM,
will be paid on 7 June 2011 to those shareholders appearing on
the register on 13 May 2011. If approved, this will result in a total
dividend for the year of $0.05 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 pound 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
2011
11 May
13 May
17 May
7 June
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Risk management
Hochschild Mining plc
Annual Report & Accounts 2010
OVERVIEW
As with all businesses, management of the Group’s operations
and execution of its growth strategies are subject to a number of
risks. The occurrence of any of these risks may adversely affect
the execution of growth strategies and hence the performance
of the Group. The Group’s risk management framework is
premised on continued monitoring of the prevailing environment
and the risks posed by it as well as the management of risks
which, in light of either likelihood and/or impact on the business,
are categorised as significant risks.
A Risk Committee is responsible for implementing the Group’s
policy on risk management and monitoring the effectiveness of
controls in support of the Company’s business objectives.
It meets four times a year and more frequently if required.
The Risk Committee comprises the CEO, the Vice Presidents,
the Country General Managers and the head of the internal
audit function. A ‘live’ risk matrix is compiled and updated at
each Risk Committee meeting and the most significant risks
are reported to the Group’s Audit Committee which has
oversight of risk management on behalf of the Board. Further
details on the Audit Committee’s activities are provided in the
Corporate Governance Report on pages 52 to 56.
The key business risks affecting the Group are set out in the
table below. The steps taken by the Group to mitigate these
risks, when they are within its control, are also described.
TYPE OF RISK
DESCRIPTION OF RISK
MITIGATING STEPS
FINANCIAL RISKS
Commodity
price
Adverse movements in precious metals’
prices could have a material impact on the
Group’s results of operations
Credit
Loss of revenue resulting from
defaulting customers
Liquidity
The Group may be unable to raise funds
to meet its financial commitments as
they fall due
Silver and gold prices are continually monitored
and a Hedging Committee has been specifically
established which comprises Directors and
members of senior management to recommend
to the Board the appropriate course of action.
The Group has incorporated a number of measures
to protect against customer default including (i) the
provision in sales contracts for advance payment or
delaying transfer of title to goods sold, (ii) requiring
the provision of parent company guarantees where
possible (iii) implementing risk profiling of key and
new customers. In addition, the Group benefits from
a diversified customer base which further mitigates
the risk of default
Whilst the impact of this risk is mitigated by the
strength of the Company’s year-end balance sheet,
the Board and senior management continually
monitor the Group’s requirements for short and
medium-term liquidity, and the Company maintains
access to credit lines to ensure an appropriate level
of financing
Foreign currency
The combination of US dollar denominated
sales and some costs denominated in local
currencies may impact the Group’s results
in the event of adverse currency movements
against the US dollar
Management periodically reviews the relationship
between the US dollar and local currencies to ensure
the Company is properly protected. The Group’s
operations are located in different countries which
also mitigates the extent of foreign exchange risk
Interest rate
Movements in interest rates could impact
the Group’s results from financings
Given the low interest rate environment, during
the year, management fixed the interest rate
exposure of the Group stemming from its floating
debt balance. The impact of this risk has been
further reduced following the repayment of the
entire outstanding balance of the JPM-led
syndicated loan subsequent to the year-end
OPERATIONAL RISKS
Costs
Increase in production costs could impact on the
Group’s profitability
The Group seeks to enter into long-term supply
contracts where possible. Costs are monitored
by management on a monthly basis
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
43
TYPE OF RISK
Business
interruption
Reserve and
resource replacement
Personnel
DESCRIPTION OF RISK
MITIGATING STEPS
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 has combined property damage and
business interruption insurance policies for all
operations, and adequacy of coverage is regularly
reviewed with advisers. With the assistance of the
SAP Maintenance module, stock of critical parts
are maintained and monitored for ongoing
replenishment. During 2010 all operating units
benefited from access to contingent power supplies
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
The Group allocated $50m in 2010 to fund its
exploration and geology activities. The Group has an
annual drilling plan which is revised on a quarterly
basis with exploration targets continually defined
and new targets incorporated
(i) Loss of key senior management and
personnel in particular, highly skilled engineers
and geologists; (ii) the lack of availability of
individuals with relevant mining experience
in the vicinity of the Group’s operations; and
(iii) failure to maintain good labour relations
with workers and/or unions may result in work
slowdown, stoppage or strike
In respect of (i) the Group seeks to provide
competitive compensation arrangements and
well-defined career plans for positions of strategic
importance. In respect of (ii) and (iii) a labour
relations strategy has been developed to ensure
that employees’ needs are identified and met, and
to facilitate open dialogue between key stakeholders
including workers’ unions
MACRO ECONOMIC RISKS
Political, legal
and regulatory
Costs associated with ensuring compliance
with all relevant laws and regulations are
substantial. Future changes which may include
increases in taxes and/or royalties may result
in additional expense, restrictions on or
suspensions of, operations and may lead
to delays in the development of current
operations and early stage projects
CORPORATE SOCIAL RESPONSIBILITY RISKS
Health and safety
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
Environmental
Social
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 areas close to
Hochschild’s operations may oppose the
activities carried out by the Group at existing
mines or development projects and prospects
which may also impact the Group’s ability
to obtain concessions for current or
future projects
Further information on financial risks can be found in note 37 to the Consolidated Financial Statements.
Local teams in each country of operation monitor
and react, as necessary, to policy changes impacting
on the business. Regional risk assessments are
performed when investments in new countries are
considered. These incorporate reviews of political
environments and likelihood of changes in policy
that are likely to impact the Group’s results
from operations
Attainment of Level 6 of the DNV safety management
information system at Arcata and Pallancata and
Level 5 at San José. An action plan to achieve Level 5
at Ares during 2011 has been agreed. Numerous
initiatives were adopted during 2010 further
reinforcing the Group’s commitment in this area.
Additional details on the Group’s approach to
Health and Safety are provided in the Corporate
Responsibility Report on page 29
The Group has a dedicated team of professionals
with an allocated budget for environmental
management purposes. Monthly audits are carried
out to monitor the implementation of third-party
environmental recommendations and achievement
of targets. Air and water quality are monitored on
a quarterly and weekly basis respectively
The Group’s Community Relations department
maintains ongoing dialogue with local communities.
Action plans have been budgeted and are being
developed and progress is monitored on a
monthly basis
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Governance
Hochschild Mining plc
Annual Report & Accounts 2010
Governance
45 Board of Directors
46 Senior management
47 Directors’ report
52 Corporate governance report
57 Directors’ remuneration report
64 Statement of directors’ responsibilities
65
Independent auditor’s report
Unlocking value through exploration
Board of Directors
Hochschild Mining plc
Annual Report & Accounts 2010
45
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.
Jorge Born Jr.
Non-Executive Director
Jorge Born Jr. joined the Board in 2006. He is the President
and Chief Executive Officer of Bomagra S.A. and a Director of
Caldenes S.A., a Bomagra group company. 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 acts as a Director of Bunge Limited having previously served
as Deputy Chairman for 15 years. Jorge is a Director of Dufry A.G.
following its merger with Dufry South America S.A. of Rio de
Janeiro in May 2010. In addition, Mr Born is President of the
Bunge and Born Charitable Foundation.
Nigel Moore
Non-Executive Director
Nigel Moore joined the Board in 2006. He is a Chartered
Accountant and currently serves as Chairman of TEG
Environmental plc and as 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, as Senior Partner attached to the Chairman’s Office
(Europe) from 1987 to 1989, and as Regional Managing Partner
for Eastern Europe and Russia from 1989 to 1996.
Dionisio Romero
Non-Executive Director
Dionisio Romero joined the Board in 2006. He was formerly the
Chairman and Chief Executive Officer of the financial services
holding company, Credicorp Ltd, positions he retired from in
April 2009 after more than 13 years. Dionisio currently serves
as President of TECSUP Trujillo, a higher education institution.
Fred Vinton
Non-Executive Director
Fred was appointed to the Board on 1 August 2009. He holds
directorships of a number of companies including European
Goldfields plc, Unipart Group of Companies UK, GP Investments
Ltd and Dinamia SCR S.A. 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. Over the course of Fred’s 25 year career with J.P.
Morgan, Fred was responsible for the bank’s business in Latin
America, the UK and Scandinavia before he joined N M Rothschild
& Sons Ltd in 1988 as Chief Operating Officer.
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Ignacio Bustamante
Chief Executive Officer
Ignacio Bustamante joined the Board as CEO on 1 April 2010.
Prior to his appointment he has served as the General Manager
of the Peruvian operations and as Chief Operating Officer from
January 2008. Since joining Hochschild in 1992, Ignacio served
as Chief Financial Officer of Cementos Pacasmayo S.A.A between
1998 and 2003, a company he subsequently became a director of
in 2003 until 2007. Subsequently, Ignacio served as Chief Financial
Officer and Vice President of Business Development and later
as President of Zemex Corporation, a Cementos group company.
Ignacio is a graduate of Business and Accounting having studied
at the Universidad del Pacífico in Peru and holds an MBA from
Stanford University.
NON-EXECUTIVE DIRECTORS
Roberto Dañino
Deputy Chairman
Roberto Dañino joined the Board in 2006. He has been a Board
member with the Hochschild Group since 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 also a Non-Executive
Director of a number of companies including Gold Fields Limited.
Roberto served as an Executive Director of the Company from 2006
until the end of 2010. Roberto currently serves as Chairman of the
Board of Fosfatos del Pacifico S.A, part of the Cementos
Pacasmayo S.A.A. group of companies.
Sir Malcolm Field
Senior Non-Executive Director
Sir Malcolm Field joined the Board in 2006. He serves as 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 was Group Managing
Director of WH Smith plc between 1982 and 1993 and served as
Chief Executive from 1993 to 1996. From 1996 to 2001 Sir Malcolm
chaired the Civil Aviation Authority. Sir Malcolm has held non-
executive directorships with numerous companies, including
Scottish and Newcastle plc and Evolution Beeson Gregory.
46
Senior management
Hochschild Mining plc
Annual Report & Accounts 2010
Ramón Barúa
Chief Financial Officer
Ramón Barúa was appointed CFO of Hochschild Mining on 1 June
2010. He has most recently served as CEO of Fosfatos del Pacifico,
a mining project in nothern Peru owned by Cementos Pacasmayo,
an associate company of the Hochschild Group. During 2008,
Ramón was the General Manager for Hochschild Mining’s
Mexican operations, having previously worked as Deputy CEO and
CFO of Cementos Pacasmayo. Prior to joining Hochschild he was
a Vice President of Debt Capital Markets with Deutsche Bank in
New York for four years and a sales analyst with Banco Santander
in Peru. Ramón is an economics graduate from Universidad de
Lima and holds an MBA from Columbia Business School.
Ernesto Balarezo
Vice President, Operations
Ernesto Balarezo joined the Hochschild Group in 1997. Prior to
his appointment as Vice President of Operations in April 2010,
he served as General Manager of Hochschild’s Peruvian operations
from March 2008 and as General Manager of the Company’s
Mexican operations from January 2007. From 2003 to 2006, he
worked in Cementos Pacasmayo, an associate company of the
Hochschild Group, initially as CFO and later as Deputy CEO. Prior
to joining the Group, he worked at Productos Favel from 1994 to
1997. He also worked in the United States for three years, first at
the Texas A&M University and then at Nadisco Inc. Ernesto holds
an MSc in Industrial Management and a BSc in Industrial
Engineering from Texas A&M University.
Isac Burstein
Vice President, 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.
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.
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 practise
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.
Unlocking value through exploration
Directors’ report
Hochschild Mining plc
Annual Report & Accounts 2010
47
The Directors have pleasure in presenting their report for the
year ended 31 December 2010.
DIRECTORS’ INTERESTS
PRINCIPAL ACTIVITIES AND BUSINESS REVIEW
Details of the interests of those Directors serving at
31 December 2010 in the Company’s shares are shown below:
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
projects and 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 Gold Resource Corporation.
The “At a glance”,“Chief Executive Officer’s review” and
“Operating and exploration review” sections of this Annual
Report give an indication of the likely future developments
of the Company, and the “Operating and exploration review”,
“Corporate responsibility” and “Financial review and risk
management” sections of this Annual Report on pages 11 to 43
contain the information required to be disclosed in this report
under section 417 of the Companies Act 2006. These sections,
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
$397.7 million (2009: $249.9 million). Revenue for the year was
$752.3 million (2009: $539.7 million) and attributable profit to
equity shareholders after tax (before exceptional items) was
$94.9 million (2009: $52.9million).
An interim dividend of $0.02 per share was paid to
shareholders of the Company on 22 September 2010.
The Directors recommend the payment of a final dividend
of $0.03 per share (2009: $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 7 June 2011 to shareholders
on the register at the close of business on 13 May 2011.
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 45.
All directors were in office for the duration of the year under
review except for Ignacio Bustamante who was appointed
by the Board on 1 April 2010. Miguel Aramburú and Ignacio
Rosado resigned as Directors of the Company on 31 March
2010 and 31 May 2010 respectively.
Ignacio Bustamante, together with all other directors on the
Board, will be seeking re-election at the forthcoming AGM in
line with the recommendation of the UK Corporate
Governance Code.
1 Calculated as profit from continuing operations before exceptional items,
net finance costs and income tax plus depreciation and exploration expenses
other than personnel and other exploration related fixed expenses.
No of ordinary
shares as at
31 December
2010
No of ordinary
shares as at
1 January
2010 or date of
appointment, if
later
182,415,206
182,415,206
500,000
1,725,000
0
14,285
0
14,285
100,000
0
0
14,285
0
14,285
100,000
0
Eduardo Hochschild1
Roberto Dañino2
Ignacio Bustamante3
Sir Malcolm Field
Jorge Born Jr.
Nigel Moore
Dionisio Romero
Fred Vinton
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 International Holdings Ltd.
3 Ignacio Bustamante was appointed a Director of the Company on 1 April 2010.
In addition, during the year, Fred Vinton acquired an interest
in Convertible Bonds of the Company with a nominal value
of $500,000.
There have been no changes in the above interests in the
period from 31 December 2010 to 28 March 2011.
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 page 53.
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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:
–(cid:3)monitoring the Group’s performance against agreed
policy on all CSR-related issues, particularly on safety
and occupational health, community relations, and
the environment;
–(cid:3)reviewing management’s investigation of incidents or
accidents that occur, in order to assess whether policy
improvements are required; and
48
Directors’ report
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
–(cid:3)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 35.
REHABILITATION OF LAND
be sought on similar terms at this year’s AGM when the 2010
Authority expires.
SUBSTANTIAL SHAREHOLDINGS
As at 28 March 2011 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:
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 $62 million, which
includes amounts estimated for ongoing maintenance of sites.
A provision for this amount was made as at 31 December 2010
(2009: $61.3 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 35.
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 2010, the Company had an average of 24 days’
purchases owed to trade creditors (2009: 42 days).
POLITICAL AND CHARITABLE DONATIONS
The Company does not make political donations. During the
year, the Group expended $6.7 million (2009: $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 2010 are set
out in note 38 to the Consolidated financial statements on
page 131.
SHARE CAPITAL
The issued share capital of the Company as at 1 January 2010
was 338,085,226 Ordinary Shares of 25p each. No shares were
issued by the Company during the year to 31 December 2010.
SHARE REPURCHASE AUTHORITY
The Company obtained shareholder approval at the AGM held
in May 2010 for the repurchase of up to 33,808,522 Ordinary
Shares which represents 9.99% of the Company’s current
issued share capital (“the 2010 Authority”). Whilst no
purchases were made by the Company pursuant to the
2010 Authority, it is intended that shareholder consent will
Eduardo Hochschild
Vanguard Group Inc.
Prudential plc Group of Companies
Blackrock Global Funds
Altima Global Special
Situations Master Fund Limited
Number of
Ordinary Shares
Percentage
of issued
share capital
182,415,206
37,291,964
19,695,592
17,021,418
53.96
11.03
5.82
5.03
12,003,175
3.55
RELATED PARTY TRANSACTIONS
Details of related party transactions undertaken during the
year under review are given in note 30 to the Consolidated
financial statements on pages 119 and 120.
ADDITIONAL STATUTORY INFORMATION
This section provides information as at 31 December 2010
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 27 to the Consolidated 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 and on a poll at a general
meeting or class meeting, every member present in person or,
subject to the below, by proxy, has one vote for every Ordinary
Share held. However, in the case of a vote on a show of hands,
where a proxy has been appointed by more than one member
the proxy has one vote for and one vote against if the proxy has
been instructed by one or more members to vote for the
resolution and by one or more members to vote against the
resolution.
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.
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(c) Transfer of shares
The relevant provisions of the Articles state that:
–(cid:3)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;
–(cid:3)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
–(cid:3)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:
–(cid:3)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
–(cid:3) 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.
(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 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 subject to periodic re-election
by shareholders at intervals of no more than every three years.
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. Under law, the Company is entitled to adopt such
practices which are no less stringent than those set out in the
Articles. Accordingly, notwithstanding the above, the Board
has decided to adopt early the recommendation of the UK
Corporate Governance Code that all directors should seek
annual re-election by shareholders. 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:
–(cid:3)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
–(cid:3)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 in accordance
with the provisions of the Companies Act by way of special
resolution.
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Directors’ report
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
(i) Powers of the Directors
Subject to 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.
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
33,808,522 Ordinary Shares and which will expire at the 2011
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 financing
arrangements. Further details are given below of those
arrangements where the impact may be considered to be
significant in the context of the Group.
–(cid:3)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.
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.
–(cid:3)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.
–(cid:3)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:
–(cid:3)the mining concessions and operating permits granted by the
governmental authorities in the jurisdictions of the Group’s
operations; and
–(cid:3)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 Consolidated
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.
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Annual Report & Accounts 2010
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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.
GOING CONCERN
In light of cash flow forecasts prepared for the Board and the
year-end cash balance, 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.
A resolution to reappoint Ernst & Young LLP as auditors will
be put to shareholders at the forthcoming AGM.
AGM
The fifth AGM of the Company will be held at 10am on 2 June
2011 at the offices of Linklaters LLP. The shareholder circular
incorporating the Notice of AGM will be available at
www.hochschildmining.com
The shareholder circular contains details on, amongst other
things, the business to be considered at the meeting.
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:
–(cid:3)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
–(cid:3)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.
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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 45 of this Annual Report.
On behalf of the Board
Raj Bhasin
Company Secretary
28 March 2011
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Corporate governance report
Hochschild Mining plc
Annual Report & Accounts 2010
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 2010, the Group has complied with the provisions
contained in Section 1 of the Code with the exception that a
significant part of the Executive Chairman’s remuneration is
not performance-related.
As disclosed in the 2009 Annual Report, the remuneration
arrangements for the Executive Chairman were reviewed in
early 2010. In agreeing the structure, the Board agreed that the
arrangements should reflect the importance of his contribution
to the long-term strategic development of the Group, and his
current significant shareholding. For this reason, a package
comprising fixed elements only was considered to be the most
appropriate.
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 two Executive Directors: Eduardo
Hochschild (Chairman) and Ignacio Bustamante (Chief
Executive Officer), and six Non-Executive Directors:
Roberto Dañino (Deputy Chairman), 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, Eduardo Hochschild’s membership of the Board and
participation in the management of the Company is considered
by the Board to be 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 47.
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 three ad hoc meetings which
were convened at short notice to deal with matters relating
to Corporate Development.
Attendance of the Directors serving during the year at
scheduled Board meetings is summarised in the following
table:
Eduardo Hochschild
Roberto Dañino
Ignacio Bustamante¹
Sir Malcolm Field
Nigel Moore
Jorge Born Jr.
Dionisio Romero
Fred Vinton
Miguel Aramburú²
Ignacio Rosado³
Maximum
possible
attendance
Actual
attendance
4
4
3
4
4
4
4
4
1
2
4
4
3
4
4
4
4
4
1
1
1 Ignacio Bustamante was appointed a Director of the Company on 1 April 2010
2 Miguel Aramburú resigned as a Director of the Company on 31 March 2010
3 Ignacio Rosado resigned as a Director of the Company on 31 May 2010
The principal matters considered by the Board during the
year include:
–(cid:3)the appointments of Ignacio Bustamante and Ramon Barua
to the positions of CEO and CFO respectively;
–(cid:3)the Group’s strategic plan and annual budget.
–(cid:3)matters relating to corporate development including
divestment of the Group’s holdings in Zincore Metals Inc.
and Lake Shore Gold Corporation.
–(cid:3)Presentations on and regular updates with respect to,
progress of the Group’s exploration projects.
–(cid:3)a review of directors’ conflicts of interest.
–(cid:3)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.
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Annual Report & Accounts 2010
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CHAIRMAN AND CHIEF EXECUTIVE
Consistent with the Code, consideration of the remuneration of
the Non-Executive Directors is a matter reserved for the Board.
The Company is jointly led by the Executive Chairman,
Eduardo Hochschild, and the Chief Executive Officer.
Miguel Aramburú served as Chief Executive Officer until
31 March 2010 and was succeeded by Ignacio Bustamante.
A document setting out the division of responsibilities between
the Chairman and the CEO 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.
SENIOR INDEPENDENT DIRECTOR
Sir Malcolm Field acts as 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 2010 the composition of the Board complied with
the provision of the Code in that a majority of the Board
(excluding the Chairman) comprised 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 continues to be
reiterated by the views expressed by directors during the
annual 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
in office in 2010 were, and continue to be, independent of the
Company as defined by the Code. It is acknowledged that given
his previous role as an Executive Director, Roberto Dañino is
not regarded as an independent Non-Executive Director.
The Board is of the opinion that each of its Non-Executive
Directors enhances 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.
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 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 Ignacio Bustamante as
Chief Executive Officer and a Director of the Company.
The UK Corporate Governance Code (“the CG Code”)
recommends that directors of FTSE350 companies seek
re-election by shareholders on an annual basis. Whilst the
Company is required to report against the CG Code from 2011,
the Board has decided to adopt annual Board re-election early.
Biographical details of the Directors are given on page 45.
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BOARD DEVELOPMENT
The Directors receive regular briefings on their responsibilities
as Directors of a UK listed company 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
has been designed to facilitate introductory 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.
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Annual Report & Accounts 2010
During the year under review, there were four meetings of the
Audit Committee which were attended by all members.
The following matters featured among those considered by the
Committee during the year:
–(cid:3)Financial reporting – The Audit Committee reviewed the 2009
Annual Report and Accounts and the 2010 Half-yearly Report
before recommending their adoption to the Board. As part of
its review, 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.
–(cid:3)Risk management – Risk matrices detailing the significant
risks facing the Group together with an accompanying
evaluation and action plan to manage the particularly high
risk areas.
–(cid:3)Internal audit – The Audit Committee has continued to
oversee the Group’s adoption of a risk-based approach
to internal audit.
–(cid:3)Internal control – The Audit Committee has continued to
review, amongst other things, the adequacy of the Group’s
internal control environment. Furthermore, during the year,
the Committee reviewed the adequacy of the arrangements
in place by which staff may raise, in confidence, concerns
about possible improprieties in matters of financial reporting
or other matters and which enable proportionate and
independent investigation of any such improprieties with
suitable follow-up action.
–(cid:3)External audit – The Audit Committee considered the
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 and as part of this
responsibility, the Audit Committee reviewed the findings
of the external auditors and management representation
letters, approved audit plans, reviewed and agreed audit
fees and evaluated the auditors’ performance.
The Audit Committee continues to oversee the implementation
of specific policies designed to safeguard the independence and
objectivity of the auditors including the 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 31
to the Consolidated financial statements.
BOARD EVALUATION
The Board is committed to the process of self evaluation
as a means of achieving continual improvement in fulfilling
its responsibilities. Given the success of the prior year’s
evaluation, the 2010 Board Evaluation process was undertaken
through one-to-one interviews conducted by the Senior
Independent Director and the Company Secretary.
The interviews sought to elicit the Directors’ views on, amongst
other things, the workings of the Board and Committees as
well as board composition and process. In addition, Directors
provided feedback on the performance of their peers.
The findings of both elements of the evaluation were considered
collectively by the Chairman and the Senior Independent
Director, and the resulting recommendations were discussed
and, where appropriate, approved by the Board. The
recommendations principally relate to Board composition,
suggested areas for Board discussion and succession planning.
A section of the Board interviews 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 conveyed.
THE BOARD’S COMMITTEES
The Board has delegated authority to the following standing
committees which report regularly to the Board:
–(cid:3)the Audit Committee.
–(cid:3)the Remuneration Committee.
–(cid:3)the Nominations Committee.
–(cid:3)the Corporate Social Responsibility Committee.
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:
–(cid:3)monitor the integrity of the Company’s financial statements;
–(cid:3)monitor the effectiveness of the Company’s internal controls
and risk management systems;
–(cid:3)oversee the relationship with the Company’s external
auditors; and
–(cid:3)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 a number of other
listed companies. Further details are given in the biography on
page 45.
The other members of the Audit Committee are Sir Malcolm
Field and Fred Vinton who was appointed to the Committee on
26 May 2010. Both Sir Malcolm and Fred Vinton are considered
to be independent Directors.
Jorge Born Jr stepped down as a member of the Audit
Committee on 25 May 2010.
The lead partner of the external auditors, the Executive
Directors and the Head of Internal Audit attend each Audit
Committee meeting by invitation.
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
55
REMUNERATION 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: Sir Malcolm Field
(Committee Chairman), Jorge Born Jr. and Nigel Moore.
The Committee held three meetings during the year under
review at which all members were in attendance.
Further details concerning the activities of the Remuneration
Committee are set out in the Directors’ remuneration report
on page 57.
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. In addition, the Nominations
Committee has been authorised by the Board to review
Directors’ external interests with regards to any actual,
perceived or potential conflicts of interests.
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 four meetings held during the year under review except
that Dionisio Romero was unable to attend one meeting.
The matters considered by the Nominations Committee during
the year were:
–(cid:3)the consideration of any potential conflicts of interests arising
in respect of a Director’s appointment to the Board of another
listed company;
–(cid:3)the consideration of any potential conflicts of interests
relating to, and the subsequent appointment of, Ignacio
Bustamante as Chief Executive Officer;
–(cid:3)the relevant recommendations arising from the Board
evaluation process; and
–(cid:3)matters relating to the change in Roberto Dañino’s role
from Executive Director to Non-Executive Director as his
appointment as Special Adviser to the Chairman and Senior
Management team.
CORPORATE SOCIAL RESPONSIBILITY
COMMITTEE
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.
During the year under review, the CSR Committee met four
times and was chaired by Roberto Dañino and counts Sir
Malcolm Field and Eduardo Hochschild as its other members.
Following Roberto Dañino’s appointment as a Non-Executive
Director on 1 January 2011, Eduardo Hochschild assumed the
chair of the Committee from that date.
The CEO and VP of Operations attend each CSR Committee
meeting by invitation.
Further details relating to the CSR Committee and the Group’s
activities in this area are set out in the corporate responsibility
report on pages 26 to 35.
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:
–(cid:3)Monitoring the risks faced by the Group’s operations through
reports from the Head of the Internal Audit function.
–(cid:3)Review of accounting and financial reporting processes
together with the internal control environment at Group level.
This involves the monitoring of performance and the taking
of relevant action through the monthly review of key
performance indicators and, where required, the production
of revised forecasts. The Group has adopted a standard
accounting manual to be followed by all finance teams which
is continually updated to ensure the consistent recognition
and treatment of transactions and production of the
consolidated financial statements.
–(cid:3)Review of budgets and reporting against budgets.
–(cid:3)Consideration of progress against strategic objectives.
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.
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Corporate governance report
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
GOING CONCERN
A statement on the Directors’ position regarding the Company
as a going concern is contained in the Directors’ report on
page 51.
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 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 Chairman,
Deputy Chairman, 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 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 2010 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 2011
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 164 and on the Company’s
website at www.hochschildmining.com
Unlocking value through exploration
Directors’ remuneration report
Hochschild Mining plc
Annual Report & Accounts 2010
57
INTRODUCTION
This Directors’ remuneration report sets out information on the remuneration of the Directors of Hochschild Mining plc for
the year ended 31 December 2010. 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 is chaired by Sir Malcolm Field and its other members are Jorge Born Jr. and 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 senior management 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
Members of senior management attend meetings at the invitation of the Committee. During the year, such members included
the Executive Chairman, the Chief Executive Officer and the Vice President of Human Resources. No Director or senior executive
is present at meetings when their own remuneration arrangements are considered by the Committee.
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 determines the vesting of
awards granted under the Long-Term Incentive Plan (“LTIP”). This policy will continue to be applied by the Remuneration
Committee in respect of the current financial year. Furthermore, as at the date of this report, the Committee is consulting major
shareholders on a proposal for an enhancement to the CEO’s LTIP award, as described in the following “CEO LTIP Plan” section.
FIXED AND VARIABLE PAY
The following chart illustrates the split between fixed and variable pay of the Executive Directors at both target and maximum
performance. The maximum bonus percentages are set out in each Executive Director’s service contract and/or as subsequently
determined by the Remuneration Committee and, except in relation to the Executive Chairman whose remuneration
arrangements were revised in early 2010 as detailed in the 2009 Directors’ Remuneration Report, have been set to ensure that
the majority of remuneration is performance-based.
Executive Director Pay Mix (% of total remuneration)
DATA TO BE SUPPLIED
Target
LTIP
Bonus
Maximum
Pension
Salary
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100
90
80
70
60
50
40
30
20
10
0
Variable
proportion:
Eduardo Hochschild
Ignacio Bustamante
Eduardo Hochschild
Ignacio Bustamante
0%
59%
0%
76%
58
Directors’ remuneration report
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
Components of fixed pay for the Executive Directors in office as at 31 December 2010:
Director
Eduardo Hochschild1
Roberto Dañino2
Ignacio Bustamante3
For the year ended 31 December 2010
For the year ending 31 December 2011
Base Salary
US$000
Pension
Supplement
US$000
Total
US$000
Base Salary/Fees
US$000
1,100
600
370
200
200
0
1,300
800
370
1,100
155
450
Pension
Supplement
US$000
200
0
0
Total
US$000
1,300
155
450
1 For the year ended 31 December 2010, Eduardo Hochschild and Roberto Dañino each had service contracts with Hochschild Mining plc and Compañía Minera Ares
S.A.C. (“Ares”), a Group subsidiary. Salary paid by Ares included all legal labour benefits and compensation such as, but not restricted to vacation salaries and
compensation for time services (ruled by Peruvian Legislative Decree 6500) but excludes legal profit sharing.
2 As announced by the Company in December 2010, Roberto Dañino assumed the role of Non-executive director and Special Adviser to the Chairman and senior
management team with effect from 1 January 2011. As a Non-executive director Mr Dañino receives the fee disclosed above of £100,000. In addition to this amount,
Mr Dañino receives an annual fee of £150,000 in respect of his role as Special Advisor to the Chairman and senior management team.
3 Ignacio Bustamante has a service contract with Ares. Base salary includes all legal labour benefits and compensation such as, but not restricted to, vacation
salaries but excludes legal profit sharing and compensation for time services (ruled by Peruvian Legislative Decree 6500). Further details on the increase in
Ignacio Bustamante’s base salary from 1 January 2011 are given in the “Base Salaries” section below.
BASE SALARIES
– Contractual Arrangements
In respect of the year under review, both Eduardo Hochschild and Roberto Dañino had 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 was
paid by the Company and fourfifths was paid by Ares.
Ignacio Bustamante has a service contract with Ares only, and as a result, his base salary is paid entirely by that company.
– 2010 Review of Executive Chairman’s Remuneration
As mentioned in the 2009 Directors’ Remuneration Report, the Remuneration Committee agreed revised arrangements in
respect of Eduardo Hochschild with effect from 1 January 2010. Under these arrangements, a higher base salary was agreed
and Mr Hochschild’s participation in bonus and long-term incentive plans were waived.
– 2011 Review of CEO’s Remuneration
Mindful of the competition amongst international mining companies to secure the employment of talented senior executives,
the Remuneration Committee is keen to ensure that Ignacio Bustamante’s remuneration is structured and set appropriately
to motivate and retain. With this objective in mind, the Committee increased Mr Bustamante’s base salary from $370,000
to $450,000 to take effect from 1 January 2011. Even at this revised level, the Committee considers Mr Bustamante’s salary
to be significantly below median for comparable roles at other mining companies of similar size.
The Committee takes into consideration the remuneration arrangements for the wider employee population in making its
decisions on remuneration for senior executives.
SHORT-TERM INCENTIVES
Each year the Remuneration Committee approves objectives for each of the Executive Directors based on individual roles
and responsibilities which include 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 is subject
to the discretion of the Remuneration Committee.
The maximum bonus opportunities of the directors in executive office as at 31 December 2010 (expressed as a percentage
of their respective base salaries) are as follows:
Roberto Dañino
– 100%
Ignacio Bustamante – 125%
2010 BONUS AWARDS
A summary of the objectives set in respect of 2010 and performance against them is given below:
–(cid:3)Achieving a level of production within the range set for the year;
–(cid:3)Generating a level of cashflow which exceeded the highest target;
–(cid:3)Achieving Earnings Per Share (on a pre-exceptional basis) which exceeded the highest target;
–(cid:3)Assuring the growth of the business through increasing Life of Mine and developing greenfield projects, in respect of which
the highest targets had been exceeded;
–(cid:3)Managing the progress of the Group’s corporate development strategy, the results of which met the Board’s objectives; and
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
59
–(cid:3)Improving safety across the Group as measured by the Accident Frequency Index, the result of which was a significant
improvement on the previous year,
In light of the Executives’ performance against their objectives, the Remuneration Committee has approved the levels of annual
bonuses as detailed in the table on page 63.
Pensions, statutory profit sharing and benefits-in-kind
The Group does not provide pension benefits to the Directors but in respect of the year under review it did pay Eduardo Hochschild
and Roberto Dañino a cash supplement of $200,000 each per year in lieu of pension (“Pension Supplement”). Of this supplement,
$160,000 was paid by Ares and $40,000 was 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 amount receivable under this entitlement
is determined with reference to seniority of the individual and length of service during the year.
The Group provided all of the Executive Directors serving during 2010 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
Dec 10
Source: Bloomberg
LONG-TERM INCENTIVE PLAN (“LTIP”)
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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 helps align selected executives’ and senior employees’ long-term interests with those
of shareholders.
For Executive Directors the maximum cash payment on vesting in any three-year period may not be more than six times salary
or eight times salary in exceptional circumstances (excluding interest on the deferred proportion of the Initial Awards (defined
below)).
– Initial Awards
Initial awards under the plan were granted in 2008 and will vest in May 2011 (“the Initial Awards”). Further awards were granted
during 2010 (“the 2010 Awards”) and, as signalled in last year’s report, the Company intends to make annual LTIP awards going
forward in keeping with established market practice.
The vesting of the Initial Awards 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 2008 Comparator Index”). At the start of the
plan, the 2008 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 2009, 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.
The Initial Awards vest in two equal tranches, on the third and fourth anniversaries of grant. Payment of the amount due on the
fourth anniversary will attract notional interest at the inter-bank lending rate from the end of the Performance Period until the
date of payment.
60
Directors’ remuneration report
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
LTIP 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.
– Calculation of Relative TSR Performance of Initial Awards
When calculated on a Common Currency basis, the Company’s TSR over the 2008 LTIP Performance Period was below the
median of the Comparator Index which results in nil vesting of the Initial Awards. However, the Committee does not consider
this to be a true reflection of the performance of the Group particularly in light of adverse foreign currency movements, and the
significant appreciation in the Company’s share price over the last two years of the Performance Period. Accordingly, subsequent
to the year-end, the Committee consulted with major shareholders on using domestic currency as the basis of calculating the
Company’s relative TSR performance. A number of the Company’s major shareholders expressed their support for this proposal.
Accordingly, the Committee has concluded that use of the domestic currency approach is fully justified and which results in the
vesting of 47% of the value of participants’ Initial Awards. Participants will receive 50% of their entitlement in May 2011 and the
balance, together with accrued notional interest, will be received in May 2012 subject to participants’ continued service with the
Group or otherwise in accordance with the rules of the plan.
– Subsequent LTIP Awards
The 2010 Awards are subject to principally the same terms as the Initial Awards, with the notable difference being that vesting
is not phased and, accordingly, the 2010 Awards will vest on the third anniversary of the date of grant, to the extent that the
performance conditions have been met.
In 2011, the Remuneration Committee intends to grant LTIP awards on broadly the same terms as the 2010 Awards.
The comparator index in respect of these awards will comprise the constituents of the 2008 Comparator Index (as subsequently
amended) supplemented by the addition of Fresnillo plc, Centamin Egypt Limited, African Barrick Gold plc and Randgold
Resources Ltd. Given the situation arising from the use of the common currency approach with respect to the Initial Awards,
the Committee intends to calculate the Company’s relative TSR performance using a combination of domestic and common
currencies. At the time of printing, shareholder consultation is ongoing and the Company therefore reserves the right to change
the policy in respect of the 2011 awards based on feedback from the consultation.
Details of the LTIP awards held by the Executive Directors serving during the year are given in the table below.
Eduardo Hochschild
Ignacio Bustamante
Miguel Aramburú3
Ignacio Rosado4
Value of maximum award
held at 31 December 2009 or
date of appointment, if later¹
Value of maximum
award granted
during the year
Value of awards
vested during
the year
Awards surrendered
or lapsed during the
year
Value of maximum
award held at
31 December 2010
$4m
$1.6m
$1.8m
$1.5m
–
$0.74m
–
–
–
–
–
–
$4m2
–
$1.8m
$1.5m
–
$2.34m
–
–
1 The vesting of LTIP awards held as at 31 December 2009 (or date of appointment if later) is subject to, amongst other things, the Company’s relative TSR performance
against a comparator index over the period from 1 January 2008 to 31 December 2010 (“the Performance Condition”). After consultation with the Company’s major
shareholders, the Remuneration Committee has applied its discretion to calculate the Company’s relative TSR performance on a domestic currency basis rather
than with reference to a common currency, principally in light of the Company’s share price appreciation in 2009 and 2010. Further details are given in the paragraph
headed “Calculation of Relative TSR Performance of Initial Awards” in the section of this report entitled “Long-Term Incentive Plan”.
2 As part of a review of the Executive Chairman’s remuneration arrangements undertaken in early 2010, Mr Hochschild agreed to surrender his Initial Award under
the LTIP.
3 The LTIP Award held by Miguel Aramburú lapsed on his resignation from the Group on 30 June 2010.
4 The LTIP Award held by Ignacio Rosado lapsed on his resignation from the Group on 31 May 2010.
CEO LTIP PLAN
As part of the CEO’s remuneration review referred to above, the Committee proposes in 2011 to grant enhanced LTIP awards to
Mr Bustamante that would vest over an extended performance period of six years. These awards will be subject to shareholder
approval at the forthcoming Annual General Meeting, further details of which can be found in the Notice of the 2011 AGM.
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
61
DIRECTORS’ SERVICE CONTRACTS
As previously described, the contractual arrangements for those Executive Directors in office as at 31 December 2010 and who
were appointed prior to the IPO in 2006 differ to those for the Executive Directors appointed subsequently.
In respect of the year under review, Eduardo Hochschild and Roberto Dañino were 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 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.
As announced by the Company in December 2010, Roberto Dañino stepped down from his role as an Executive Director of the
Company and became a Non-Executive Director with effect from 1 January 2011.
Ignacio Bustamante was appointed a Director of the Company with effect from 1 April 2010 and is employed under a contract of
employment with Ares dated 1 April 2007. The contract is subject to Peruvian law and, as such, has 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.
EXTERNAL APPOINTMENTS
The Board 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 2010 are given in the table below, together with the
amounts received by them during the year under review.
Name of Director
Company
Eduardo Hochschild
Banco Crédito del Perú
Cementos Pacasmayo S.A.A.1
Cementos Selva
Inversiones Pacasmayo SA
Fees received
PEN 282,334 (US$99,906)
PEN 5,588,534 (US$1,977,542)
PEN 588,152 (US$208,122)
PEN 1,991,285 (US$704,630)
Pacifico Peruano Suiza Cia. De Seguros
PEN 94,083 (US$33,292)
Roberto Dañino
AFP Integra
Cementos Pacasmayo S.A.A
Grupo RPP
Mibanco
Lake Shore Gold Corporation²
Gold Fields Limited
Gold Fields La Cima
PEN 44,336 (US$15,689)
PEN 433,981 (US$153,567)
PEN 30,496 (US$10,791)
PEN 245,678 (US$86,935)
CAD 37,100 (US$36,815 )
ZAR 226,085 (US$30,968)
PEN 56,480 (US$19,986)
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Ignacio Bustamante
Lake Shore Gold Corporation2
CAD 39,900 (US$39,593)
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
2 Roberto Dañino and Ignacio Bustamante resigned from the Board of Lake Shore Gold Corporation on 3 November 2010 following termination of the Strategic Alliance
Agreement between the Group and that company
62
Directors’ remuneration report
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
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 have been 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. As disclosed in the Directors’ Report, the Board has decided to adopt, with respect to
the 2011 AGM, the recommendation of the UK Corporate Governance Code that all directors should seek annual re-election
by shareholders.
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 fees payable to the Non-Executive Directors of the Company as at the date of this report are set out in the table below.
Each of the Non-Executive Directors was in office for the entire year under review with the exception of Roberto Dañino who
assumed a Non-Executive position on the Company’s board from 1 January 2011.
Director
Sir Malcolm Field1
Jorge Born Jr.
Nigel Moore1
Dionisio Romero
Fred Vinton
Roberto Dañino2
Letter of Appointment dated
Director’s fee
16 October 2006
16 October 2006
16 October 2006
16 October 2006
9 July 2009
11 January 2011
£120,000 ($186,000)
£100,000 ($155,000)
£120,000 ($186,000)
£100,000 ($155,000)
£100,000 ($155,000)
£100,000 ($155,000)
1 The fees payable to Sir Malcolm Field and Nigel Moore reflect the additional time commitment in their positions as Chairman of the Remuneration Committee and the
Audit Committee respectively
2 Roberto Dañino was appointed a Non-Executive Director of the Company with effect from 1 January 2011
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
63
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
2010 and 31 December 2009.
Director
Base
salary/fees
US$000
Pension
supplement
US$000
Statutory
profit share
US$000
Benefits in
kind¹
US$000
Performance
related bonus
US$000
Other
payments
US$000
Eduardo Hochschild2,3,4
1,104
Roberto Dañino2,3,4
Ignacio Bustamante9
Sir Malcolm Field
Jorge Born Jr.
Nigel Moore
Dionisio Romero
Fred Vinton
Former Directors
Miguel Aramburú11
Ignacio Rosado12
Total
6386
340
170
155
186
155
155
242
192
200
200
0
0
0
0
0
0
0
0
3,337
400
74
18
18
0
0
0
0
0
40
16
166
435
53
1
0
0
0
0
0
2
2
493
05
6007
463
0
0
0
0
0
300
240
1,603
0
0
0
0
0
0
0
0
435
195
630
Total
remuneration
from 1 January
2010 (or date of
appointment
if later) to
31 December
2010 (or date of
resignation,
if earlier)
US$000
1,813
1,509
822
170
155
186
155
155
1,019
645
6,629
Total
remuneration
from 1 January
2009 (or date of
appointment
if later) to
31 December
2009
US$000
2,660
8688
–
156
156
187
156
6510
1,228
644
6,120
1 Amounts disclosed include sums paid by way of expense allowances.
2 In respect of the year under review, Eduardo Hochschild and Roberto Dañino each had a service contract with both Hochschild Mining plc and Compañía Minera Ares
S.A.C., a Group subsidiary.
3 One-fifth of the base salaries of Eduardo Hochschild and Roberto Dañino were paid by the Company with the balance paid by Compañía Minera Ares S.A.C. In addition,
$40,000 of each of their total annual pension supplements was paid by the Company with the balance paid by Compañía Minera Ares S.A.C.
4 Salaries paid by Compañía Minera Ares S.A.C. 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 exclude legal profit sharing.
5 Following a review of Mr Hochschild’s remuneration conducted during the year, it was agreed that in consideration for an increase in base salary, Mr Hochschild
would not be entitled to participate in any Long Term Incentive Plan or Bonus Plans in respect of 2010 and subsequent years.
6 The amount disclosed includes the amount of CAD 37,100 (US$36,815) received by Mr Dañino during the year in his capacity as a Hochschild-nominated director
of Lake Shore Gold Corporation.
7 Roberto Dañino’s performance-related bonus was paid by the Company and Compañía Minera Ares S.A.C. in the proportion that each company pays his base salary.
8 Roberto Dañino’s total remuneration in 2009 does not include a performance-related bonus which was waived by Mr Dañino to support further the future development
of the communities located close to the Group’s operations.
9 Ignacio Bustamante was appointed a Director of the Company with effect from 1 April 2010. The amount of the base salary disclosed relates to the period from his
appointment and includes all legal labour benefits and compensation such as, but not restricted to, vacation salaries and compensation for time services (ruled by
Peruvian Legislative Decree 6500) but excludes legal profit sharing. The amount disclosed also includes the amount of CAD 39,900 (US$39,593) received by him during
the year in his capacity as a Hochschild-nominated director of Lake Shore Gold Corporation.
10 Fred Vinton was appointed a Director of the Company on 1 August 2009.
11 Miguel Aramburú resigned as a Director of the Company on 31 March 2010 and as an employee on 30 June 2010. “Other payments” includes an amount paid by
Compañía Minera Ares S.A.C. on termination of Mr Aramburú’s contract in recognition of his length of service to the Group.
12 Ignacio Rosado resigned as an employee and as a Director of the Company on 31 May 2010. The amount of Base Salary disclosed includes the amount of CAD 21,596
(US$21,430) received by him prior to his resignation from the Group in his capacity as a Hochschild-nominated director of Lake Shore Gold Corporation. “Other
payments” includes an amount paid by Compañía Minera Ares S.A.C. in recognition of Mr Rosado’s services to the Group.
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DIRECTORS’ INTERESTS IN SHARES
The interests of the Directors in the Company’s shares are set out in the Directors’ report on page 47.
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
28 March 2011
64
Statement of directors’ responsibilities
Hochschild Mining plc
Annual Report & Accounts 2010
The Directors are responsible for preparing the Annual Report and the Group and parent company financial statements in
accordance with applicable English 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:
–(cid:3)select suitable accounting policies in accordance with IAS 8: “Accounting Policies, Changes in Accounting Estimates and Errors”
and then apply them consistently;
–(cid:3)present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
–(cid:3)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;
–(cid:3)state that the Group and parent company has complied with IFRS, subject to any material departures disclosed and explained
in the financial statements; and
–(cid:3)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 Act 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 English 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 England governing the preparation and dissemination of financial statements may differ from legislation
in other jurisdictions.
Unlocking value through exploration
Independent auditor’s report
Hochschild Mining plc
Annual Report & Accounts 2010
65
We have audited the financial statements of Hochschild Mining plc for the year ended 31 December 2010 which comprise the
Group and Parent Company Statements of Financial Position, the Group Statement of Comprehensive Income, the Group and
Parent Company Statements of Cash Flow, the Group and Parent Company Statements of Changes in Equity and the related
notes. 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 auditor
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 and express an opinion
on 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 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:
–(cid:3)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 2010 and of the group’s profit for the year then ended;
–(cid:3)The group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and
–(cid:3)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
–(cid:3)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:
–(cid:3)The part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act
2006; and
–(cid:3)The information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent
with the financial statements.
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:
–(cid:3)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
–(cid:3)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
–(cid:3)Certain disclosures of directors’ remuneration specified by law are not made; or
–(cid:3)We have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review:
–(cid:3)The directors’ statement, in relation to going concern;
–(cid:3)The part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the June 2008
Combined Code specified for our review; and
–(cid:3)Certain elements of the report to shareholders by the Board on directors’ remuneration.
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Richard Murray (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
28 March 2011
66
Financial statements
Hochschild Mining plc
Annual Report & Accounts 2010
Financial statements
67 Consolidated income statement
68 Consolidated statement of comprehensive income
69 Consolidated statement of financial position
70 Consolidated statement of cash flows
71 Consolidated statement of changes in equity
72 Notes to the consolidated financial statements
132 Parent company statement of financial position
133 Parent company statement of cash flows
134 Parent company statement of changes in equity
135 Notes to the parent company financial statements
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
67
Consolidated income statement
For the year ended 31 December 2010
Year ended 31 December 2010
Year ended 31 December 2009
Before
exceptional
items
US$000
Exceptional
items
US$000
Before
exceptional
items
US$000
Exceptional
items
US$000
Total
US$000
Notes
Total
US$000
Impairment and write-off of assets (net)
15,16
–
(24,018)
(24,018)
–
(26,713)
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Exploration expenses
Selling expenses
Other income
Other expenses
Profit from continuing operations before net finance
income/(cost), foreign exchange loss and income tax
Share of post tax (losses)/profit of associates and joint
ventures accounted under equity method
Finance income
Finance costs
Foreign exchange loss
Profit from continuing operations before income tax
Profit for the year from continuing operations
Attributable to:
Equity shareholders of the Company
Non-controlling interests
Basic earnings per Ordinary Share from continuing
operations for the year (expressed in US dollars
per share)
Diluted earnings per Ordinary Share from continuing
operations for the year (expressed in US dollars
per share)
Income tax (expense)/benefit
13
(77,816)
–
752,322
539,741
–
539,741
3, 5
752,322
6
(345,667)
406,655
(66,221)
(41,537)
(26,920)
7
8
9
11
11
(8,861)
(8,861)
–
–
–
(354,528)
(279,298)
397,794
260,443
(66,221)
(51,068)
(6,918)
(6,918)
–
(41,537)
(19,941)
(1,049)
(26,920)
(21,005)
5,605
77,197
82,802
4,501
(10,956)
–
(10,956)
(19,330)
–
8,782
(1,247)
(286,216)
253,525
(51,068)
(20,990)
(21,005)
13,283
(20,577)
(26,713)
266,626
44,318
310,944
153,600
(27,145)
126,455
18
12
12
(4,607)
4,140
(29,542)
29
236,646
158,830
94,924
63,906
158,830
(1,473)
9,204
(6,080)
13,344
7,617
6,384
39,606
22,300
47,223
28,684
–
–
52,049
5,786
57,835
61,687
(3,852)
57,835
(29,542)
(46,040)
(1,256)
(47,296)
29
(256)
288,695
121,305
(72,030)
(44,688)
216,665
76,617
–
33,505
11,218
44,723
(256)
154,810
(33,470)
121,340
156,611
60,054
216,665
52,892
23,725
76,617
45,188
(465)
98,080
23,260
44,723
121,340
14
0.28
0.18
0.46
0.17
0.14
0.31
14
0.29
0.17
0.46
0.17
0.14
0.31
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Consolidated statement of comprehensive income
For the year ended 31 December 2010
Hochschild Mining plc
Annual Report & Accounts 2010
Profit for the year
Other comprehensive income
Recycling of the exchange differences on translating foreign operations due to Lake Shore Gold sale
Exchange differences on translating foreign operations
Change in fair value of available-for-sale financial assets
Recycling of the gain on available-for-sale financial assets
Change in fair value of cash flow hedges taken to equity
Recycling of the change in fair value of cash flow hedges taken to equity
Deferred 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
Non-controlling interests
Notes
Year ended 31 December
2010
US$000
2009
US$000
216,665
121,340
12(3)(4)
2,143
2,982
47,573
(5,915)
(2,346)
429
–
25,707
23,019
(19,329)
(4,736)
4,723
(7,189)
71
37,677
29,455
254,342
150,795
194,288
127,558
60,054
23,237
254,342
150,795
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
69
Consolidated statement of financial position
As at 31 December 2010
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
Other financial assets
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
Non-controlling interests
Total equity
Non-current liabilities
Trade and other payables
Borrowings
Provisions
Deferred income tax liabilities
Current liabilities
Trade and other payables
Other financial liabilities
Borrowings
Provisions
Income tax payable
Total liabilities
Total equity and liabilities
As at
31 December
2010
US$000
Notes
As at
31 December
2009
US$000
15
16
17
18
19
20
28
21
20
22
23
457,183
161,811
20,166
79,068
153,620
36,817
2,401
5,229
438,958
55,828
22,425
450,665
19,181
3,150
1,302
15,852
916,295
1,007,361
55,130
45,813
145,935
164,864
917
20,662
525,482
748,126
9,280
695
77,844
298,496
1,664,421
1,305,857
27
27
158,637
395,928
158,637
395,928
(175,244)
(212,921)
528,788
908,109
147,120
385,700
727,344
76,126
1,055,229
803,470
24
25
26
28
24
22
25
26
2,393
81
248,380
219,681
86,443
28,534
55,176
10,662
365,750
285,600
116,074
1,930
69,272
41,871
14,295
243,442
609,192
68,501
2,640
112,908
11,405
21,333
216,787
502,387
1,664,421
1,305,857
These financial statements were approved by the Board of Directors on 28 March 2011 and signed on its behalf by:
Ignacio Bustamante
Chief Executive Officer
28 March 2011
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Consolidated statement of cash flows
For the year ended 31 December 2010
Hochschild Mining plc
Annual Report & Accounts 2010
Cash flows from operating activities
Cash generated from operations
Interest received
Interest paid
Payment 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
Proceeds from sale of investment in associates
Acquisition of subsidiary
Dividends received from associates
Investment in associates
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
Net cash generated from/(used in) investing activities
Cash flows from financing activities
Proceeds of borrowings
Repayment of borrowings
Transaction costs associated with borrowing
Acquisition of non-controlling interests
Dividends paid
Proceeds from issue of ordinary shares under Global offer
Transaction costs associated with issue of shares
Capital contribution from non-controlling interests
Cash flows (used in)/generated from financing activities
Net increase/(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
Notes
2010
US$000
2009
US$000
32
351,261
215,698
1,749
1,041
(20,604)
(12,902)
26
(4,634)
(23,540)
(2,831)
(482)
304,232
200,524
(122,836)
(116,009)
(35,980)
(8,636)
383,614
–
–
(19,246)
2,633
–
(20,336)
(216,943)
(20,785)
(1,857)
(94)
(16,330)
11,915
832
3,861
2,139
198,963
(373,021)
37,650
285,461
(52,447)
(277,185)
(690)
–
(3,568)
(1,500)
29
(39,523)
(20,048)
–
–
–
143,621
(3,453)
11,115
(55,010)
134,443
448,185
(38,054)
(547)
(249)
77,844
116,147
23
525,482
77,844
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
71
Consolidated statement of changes in equity
For the year ended 31 December 2010
Equity
share
capital
US$000
Share
premium
US$000
Notes
Unrealised
gain/(loss)
on available-
for-sale
financial
assets
US$000
Unrealised
gain/(loss)
on cash flow
hedges
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
Non-
controlling
interests
US$000
Total
equity
US$000
Balance at
1 January 2009
Other
comprehensive
income/(loss)
Profit for the year
Total
comprehensive
income for 2009
Issuance of shares
Transfer to retained
earnings
Issuance of
convertible bonds
Purchase of shares
from
non-controlling
interests
Dividends declared
during the year
Dividends paid to
non-controlling
interests
Balance at
31 December 2009
Other
comprehensive
income
Profit for the year
Total
comprehensive
income for 2010
Capital contribution
from non-
controlling interest
Dividends declared
during the year
Dividends paid to
non-controlling
interests
Balance at
31 December 2010
(40,375)
(210,046)
(250,831)
167,767
459,330
66,293
525,623
25,742
–
25,742
–
–
–
29,478
–
29,478
(23)
29,455
–
98,080
98,080
23,260
121,340
29,478
98,080
127,558
23,237
150,795
127,997
127,997
–
140,168
(127,997)
(127,997)
127,997
–
8,432
–
8,432
–
–
–
140,168
–
8,432
146,466 395,928
(410)
–
–
–
–
27
12,171
–
–
–
–
–
29
29
–
–
–
–
–
–
–
–
–
3,749
–
(13)
–
3,749
(13)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8,432
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,150
4,150
(5,650)
(1,500)
(12,294)
(12,294)
–
(12,294)
–
–
(7,754)
(7,754)
158,637 395,928
3,339
(13)
8,432
(14,633)
(210,046)
(212,921)
385,700
727,344
76,126
803,470
–
–
–
–
–
–
–
–
–
–
–
–
34,469
(1,917)
–
–
34,469
(1,917)
–
–
–
–
–
–
–
–
–
–
–
–
5,125
–
5,125
–
–
–
29
29
–
–
–
–
–
–
37,677
–
37,677
–
37,677
–
156,611
156,611
60,054
216,665
37,677
156,611
194,288
60,054
254,342
–
–
–
–
–
36,940
36,940
(13,523)
(13,523)
–
(13,523)
–
–
(26,000)
(26,000)
158,637 395,928
37,808
(1,930)
8,432
(9,508)
(210,046)
(175,244)
528,788
908,109
147,120 1,055,229
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Notes to the consolidated financial statements
Hochschild Mining plc
Annual Report & Accounts 2010
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 and Chile at various stages of development.
These consolidated financial statements were approved for issue by the Board of Directors on 28 March 2011.
The principal activities of the Company’s subsidiaries are as follows:
Company
Hochschild Mining (Argentina) Corporation S.A. (formerly Hochschild
Mining (Argentina) Corporation)
Principal activity Country of incorporation
Holding company
Argentina
MH Argentina S.A.
Minera Santa Cruz S.A.
Cerro Mining Corp.1,2
Southwestern Gold (Bermuda) Limited1
Southwestern Gold (China) Inc.1,2
0848818 BC Ltd1
Hochschild Mining Chile S.A.
Minera Hochschild Chile S.C.M. (formerly Minera MH Chile Ltda.)
Southwest Minerals (Yunnan) Inc.1
Hochschild Mining Holdings Limited
Hochschild Mining Ares (UK) Limited
Southwest Mining Inc.1
Southwest Minerals Inc.1
Hochschild Mining Mexico, S.A. de C.V. (formerly Hochschild Mining
(Mexico) Corporation)
HMX, S.A. de C.V.
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.
Hochschild Mining (Peru) S.A. (formerly Hochschild Mining
(Peru) Corporation)
Compañía Minera Ares S.A.C.
Compañía Minera Arcata S.A.
Empresa de Transmisión Callalli S.A.C.
Asociación Sumac Tarpuy3
Exploration office
Production of gold & silver
Subsidiary
Holding company
Subsidiary
Subsidiary
Holding company
Exploration office
Subsidiary
Argentina
Argentina
Bahamas
Bahamas
Bahamas
Canada
Chile
Chile
China
Holding company
England & Wales
Subsidiary
England & Wales
Subsidiary
Subsidiary
Holding company
Exploration office
Exploration office
Production of gold & silver
Holding company
Service company
Holding company
Production of gold & silver
Production of gold & silver
Power transmission
Not-for-profit
Mauritius
Mauritius
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Peru
Peru
Peru
Peru
Peru
Peru
Peru
Pallancata Holding S.A.C. (formerly Compañía Minera Coriorco S.A.)4
Holding company
Minera Suyamarca S.A.C.
Production of gold & silver
Equity interest
at 31 December
2010
%
100
100
51
–
100
–
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
96.8
100
–
–
60
2009
%
100
100
51
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
96.8
100
–
100
60
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
73
1 CORPORATE INFORMATION (CONTINUED)
Company
Inmaculada Holdings S.A.C.
Liam Holdings S.A.C.
MInera del Suroeste S.A.C.1
Minera Quellopata S.A.C.5
Minas Pacapausa S.A.C.
Minera Minasnioc S.A.C.
Hochschild Mining (US) Inc. (formerly MH Nevada, Inc.)
Principal activity
Country of incorporation
Holding company
Holding company
Exploration office
Exploration office
Exploration office
Subsidiary
Subsidiary
Peru
Peru
Peru
Peru
Peru
Peru
USA
Equity interest
at 31 December
2010
%
100
100
100
60
100
100
100
2009
%
100
100
100
49
100
100
100
1 These companies were incorporated into the Hochschild Mining Group following the purchase of Southwestern Resources Group on 21 May 2009.
2 On 26 April 2010, Southwestern Gold (Bermuda) Limited absorbed Cerro Mining Corp. and Southwestern Gold (China) Inc.
3 Asociación Sumac Tarpuy is an unincorporated entity, which receives donations from Compañía Minera Ares S.A.C. (“Ares”), and spends this money, at the direction of
Ares, on the community and social welfare activities located close to its mine units. As a result, the Group consolidates this entity.
4 On 1 December 2010, Hochschild Mining (Peru) S.A. absorbed Pallancata Holding S.A.C.
5 On 1 November 2010, Compañia Minera Ares S.A.C. increased its interest in Minera Quellopata S.A.C. to 60%.
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 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 2010 and 2009 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)).
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 2011 or later periods but which the Group has not early adopted.
Those that are applicable to the Group are as follows:
–(cid:3)IAS 24 “Related Party Disclosures (Amendment)”, applicable for annual periods beginning on or after 1 July 2011.
This standard clarified the definition of a related party to simplify the identification of such relationships and to eliminate
inconsistencies in its application. The revised standard introduced a partial exemption of disclosure requirements
for government-related entities. The Group does not expect the adoption of this standard to impact its financial position or
performance. Early adoption is permitted for either the partial exemption for government-related entities or for the entire
standard.
–(cid:3)IAS 32 “Financial Instruments: Presentation — Classification of Rights Issues”, applicable for annual periods beginning
on or after 1 February 2010.
This standard changed the definition of a financial liability in order to classify rights issues (and certain options or
warrants) as equity instruments in cases where such rights are given pro rata to all of the existing owners of the same
class of an entity’s non-derivative equity instruments, or to acquire a fixed number of the entity’s own equity instruments
for a fixed amount in any currency. The adoption of this standard will have no impact on the Group after initial application.
–(cid:3)IFRS 9 “Financial Instruments: Classification and Measurement”, applicable for annual periods beginning on or after
1 January 2013.
As part of the IASB’s project to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’, in November 2009,
the IASB issued the first phase of IFRS 9 ‘Financial Instruments’, dealing with the classification and measurement of
financial assets. In October 2010, the IASB updated IFRS 9 by incorporating the requirements for the accounting for
financial liabilities. However, the Group has determined that the effect shall be quantified in conjunction with the other
phases, when issued, to present a comprehensive picture.
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Notes to the consolidated financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
–(cid:3)IAS 12 “Income Taxes”, applicable for annual periods beginning on or after 1 January 2012.
Under IAS 12, an entity is to measure the deferred tax relating to an asset depending on whether the entity expects to
recover the carrying amount of the asset through use or sale. The amendment introduces a presumption that recovery
of the carrying amount will normally be through sale. The amendment is deemed to have no impact on the financial
statements of the Group.
–(cid:3)IFRIC 14 “Prepayments of a minimum funding requirement (Amendment)”, applicable for annual periods beginning on or after
1 January 2011.
The amendment provides guidance on assessing the recoverable amount of a net pension asset. The amendment permits
an entity to treat the prepayment of a minimum funding requirement as an asset. The amendment is deemed to have no
impact on the financial statements of the Group.
–(cid:3)IFRIC 19 “Extinguishing Financial Liabilities with Equity Instruments”, applicable for annual periods beginning on or after
1 July 2010.
The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as
consideration paid. The equity instruments issued are measured at their fair value. In case this cannot be reliably
measured, they are measured at the fair value of the liability extinguished. Any gain or loss is recognised immediately
in profit or loss. The adoption of this interpretation will have no effect on the financial statements of the Group.
–(cid:3)“Improvements to IFRSs (issued in May 2010)”, applicable for annual periods beginning on or after 1 July 2010 or 1 January 2011.
The IASB issued Improvements to IFRSs, an omnibus of amendments to its IFRS standards.
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.
Significant areas of estimation uncertainty and critical judgements made by management in preparing the consolidated financial
statements include:
–(cid:3)Determination of functional currencies – note 2(e).
–(cid:3)Determination of useful lives of assets for depreciation and amortisation purposes – note 2(f).
–(cid:3)Determination of ore reserves and resources – note 2(h).
–(cid:3)Review of asset carrying values and impairment charges – notes 2(i), (l), (v) and note 15 and 16.
–(cid:3)Estimation of the amount and timing of mine closure costs – notes 2(p) and 26.
–(cid:3)Income tax – notes 2(t), 13 and 28.
–(cid:3)Contingent liabilities regarding claims from tax authorities – note 34.
–(cid:3)Judgement in deciding if a company is a subsidiary of the Group – note 2(d).
–(cid:3)Judgement in deciding if a transaction has to be recognised as an acquisition of assets or business combination – note 4(b)
–(cid:3)Recognition of evaluation and exploration assets and transfer to development costs – note 2(g).
(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.
–(cid:3)IFRS 3 “Business Combinations (revised January 2008)”, applicable for annual periods beginning on or after 1 July 2009.
The revised standard will have an impact on the profit or loss reported in the period of an acquisition, the amount
of goodwill recognised in a business combination and the profit or loss reported in future periods. IFRS 3 applies
prospectively to business combinations occurring after 1 July 2009 and had no impact on the financial statements.
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
75
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
–(cid:3)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 a transaction with owners in their capacity as owners. The Group has changed the reference ‘minority interest’ to
‘non-controlling interest’, in accordance with the standard.
–(cid:3)IFRIC 17 “Distributions of Non-cash Assets to Owners”, applicable for annual periods beginning on or after 1 July 2009.
This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to
shareholders either as a distribution of reserves or as dividends. The interpretation had no effect on the financial position
or performance of the Group.
–(cid:3)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. The amendment had no effect on the financial position or performance
of the Group.
–(cid:3)IFRS 2 ‘Group Cash-settled Share-based Payment Arrangements’, applicable for annual periods beginning on or after
1 January 2010.
The standard has been amended to clarify the accounting for group cash-settled share-based payment transactions,
where a subsidiary receives goods or services from employees or suppliers but the parent or another entity in the group
pays for those goods or services. IFRIC 8 and IFRIC 11 have been withdrawn. This amendment had no effect on the
financial position or performance of the Group.
–(cid:3)Improvements to International Financial Reporting Standards (issued 2009).
Includes 15 amendments to 12 standards.
Applicable for annual periods beginning on or after 1 July 2009: IFRS 2 Share-based Payment, IAS 38 Intangible Assets,
IFRIC 9 Reassessment of Embedded Derivatives, IFRIC 16 Hedges of a net Investment in a Foreign Operation.
Effective immediately on issue date in April 2009: IAS 18 Revenue.
Applicable for annual periods beginning on or after 1 January 2010: IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations, IFRS 8 Operating Segments, IAS 1 Presentation of Financial Statements, IAS 7 Statement of
Cash Flows, IAS 17 Leases, IAS 36 Impairment of Assets, IAS 39 Financial Instruments: Recognition and Measurement.
These improvements had no 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 2010
and 31 December 2009 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, non-controlling interests’ rights to safeguard their interest are fully considered in assessing
whether the Group controls a subsidiary.
Basis of consolidation from 1 January 2010
Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control, and continue
to be consolidated until the date that such control ceases. Control comprises the power to govern the financial and operating
policies of the investee so as to obtain benefit from its activities and is achieved through direct or indirect ownership of voting
rights; currently exercisable or convertible potential voting rights; or by way of contractual agreement.
A change in the ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction. If the Group
loses control over a subsidiary, it (i) derecognises the assets (including goodwill) and liabilities of the subsidiary; (ii) derecognises
the carrying amount of any non-controlling interest; (iii) derecognises the cumulative translation differences, recorded in equity;
(iv) recognises the fair value of the consideration received; (v) recognises the fair value of any investment retained; (vi) recognises
any surplus or deficit in profit or loss; (vii) reclassifies the parent’s share of components previously recognised in other
comprehensive income to profit or loss or retained earnings, as appropriate.
Non-controlling interests represent the equity in a subsidiary not attributable, directly and indirectly, to the parent company and is
presented separately within equity in the consolidated balance sheet, separately from equity attributable to owners of the parent.
Losses within a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance.
Basis of consolidation prior to 1 January 2010.
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Notes to the consolidated financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Certain of the above-mentioned requirements were applied on a prospective basis. The following differences, however,
are carried forward in certain instances from the previous basis of consolidation:
Non-controlling interest represent the portion of profit or loss and net assets in subsidiaries that is not held by the group and
is presented separately within equity in the consolidated balance sheet, separately from parent shareholder’s equity.
For acquisitions of non-controlling interests, prior to 1 January 2010, the difference between the consideration and the book value
of the share of the net assets acquired were recognised in retained earnings.
Losses incurred by the Group were attributed to the non-controlling interest until the balance was reduced to nil. Any further
excess losses were attributed to the parent, unless the non-controlling interest had a binding obligation to cover these. Losses
prior to 1 January 2010 were not reallocated between non-controlling interest and the parent shareholders.
Upon loss of control, the Group accounted for the investment retained at its proportionate share of net asset value at the date
control was lost.
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.
Non-controlling interests primarily represent the interests in Minera Santa Cruz, Compañía Minera Arcata, Minera Suyamarca
and Minera Quellopata S.A.C. not held by the Company. In the event of a purchase of non-controlling interests 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.
Business combinations from 1 January 2010
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate
of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the
acquiree. The choice of measurement of non-controlling interest, either at fair value or at the proportionate share of the
acquiree's identifiable net assets is determined on a transaction by transaction basis. Acquisition costs incurred are expensed
and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition
date. This includes the separation of embedded derivatives in host contracts by the acquiree.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent
changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in
accordance with IAS 39 either in profit or loss or in other comprehensive income. If the contingent consideration is classified
as equity, it should not be remeasured until it is finally settled within equity.
Goodwill is initially measured at cost being the excess of the aggregate of the acquisition date fair value of the consideration
transferred and the amount recognised for the non-controlling interest (and where the business combination is achieved in
stages, the acquisition date fair value of the acquirer's previously held equity interest in the acquiree) over the net identifiable
amounts of the assets acquired and the liabilities assumed in exchange for the business combination. Assets acquired and
liabilities assumed in transactions separate to the business combinations, such as the settlement of pre-existing relationships
or post-acquisition remuneration arrangements are accounted for separately from the business combination in accordance with
their nature and applicable IFRSs. Identifiable intangible assets, meeting either the contractual-legal or separability criterion are
recognised separately from goodwill. Contingent liabilities representing a present obligation are recognised if the acquisition
date fair value can be measured reliably.
If the aggregate of the acquisition date fair value of the consideration transferred and the amount recognised for the non-
controlling interest (and where the business combination is achieved in stages, the acquisition date fair value of the acquirer's
previously held equity interest in the acquiree) is lower than the fair value of the assets, liabilities and contingent liabilities and
the fair value of any pre-existing interest held in the business acquired, the difference is recognised in profit and loss.
Business combinations prior to 1 January 2010
Business combinations were accounted for using the purchase method. Transaction costs directly attributable to the acquisition
formed part of the acquisition costs. The minority interest is accounted for using the parent entity extension method, whereby the
difference between the consideration paid and the book value of the share in net assets acquired is recognised in goodwill.
Goodwill is initially measured at cost being the excess of the cost of business combination over the Group’s interest in the net fair
value of the identifiable assets, liabilities and contingent liabilities. If the net fair value of the acquired entity’s identifiable assets,
liabilities and contingent liabilities is greater than the cost of the investment, the difference is recognised in profit and loss.
Contingent consideration was recognised if, and only if, the Group had a present obligation, the economic outflow was more likely
than not and a reliable estimate was determinable. Subsequent adjustments to the contingent consideration were recognised as
part of goodwill.
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Hochschild Mining plc
Annual Report & Accounts 2010
77
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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.
(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 borrowing costs 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 six 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.
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Notes to the consolidated financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
(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:
–(cid:3)The Board authorises management to conduct the feasibility study of a project.
–(cid:3)Mine-site exploration is being conducted to convert resources into reserves; or
–(cid:3)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 statement of
comprehensive income of the associate, the Group recognises its share of any changes and discloses this, when applicable,
in the statement of comprehensive income. 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 non-controlling 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.
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2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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.
(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:
–(cid:3)costs, materials and contractor expenses which are directly attributable to the extraction and processing of ore;
–(cid:3)depreciation of property, plant and equipment used in the extraction and processing of ore; and
–(cid:3)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.
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Notes to the consolidated financial statements
Continued
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Annual Report & Accounts 2010
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. Any excess above the par value of shares received upon issuance of those 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 10)
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.
(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.
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2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 international exchanges. The revaluation of provisionally priced contracts is
recorded as an adjustment to “revenue”.
Income from services provided to related parties (note 30) 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:
–(cid:3)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:3)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.
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.
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Notes to the consolidated financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
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.
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.
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.
Impairment of financial assets
The Group assesses at each statement of financial position date whether a financial asset or group of financial assets is impaired.
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2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
For available-for-sale financial investments, the Group assesses at each reporting date whether there is objective evidence that
an investment or a group of investments is impaired.
In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged
decline in the fair value of the investment below its cost, where ‘significant’ is estimated to be around 30% of the original cost
of the investment and ‘prolonged’ is no more than 12 months. In addition, the Group analyses any case taking into account the
portfolio of projects of the Company, the key technical personnel and the viability of the Company to finance its projects. 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:3)the rights to receive cash flows from the asset have expired; or
–(cid:3)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.
(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.
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Notes to the consolidated financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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.
Liquidity funds are classified as cash equivalents if the amount of cash that will be received is known at the time of the initial
investment and the risk of changes in value is considered insignificant.
(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:
–(cid:3)Impairments of assets, including goodwill, assets held for sale, property, plant and equipment and evaluation and exploration
assets.
–(cid:3)Gains or losses arising on the disposal of subsidiaries, investments or property, plant and equipment.
–(cid:3)Fair value gains or losses arising on financial instruments not held in the normal course of trading.
–(cid:3)Any gain or loss resulting from any restructuring within the Group.
–(cid:3)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.
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Annual Report & Accounts 2010
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3 SEGMENT REPORTING
The Group’s activities are principally related to mining operations which involve the exploration, production and sale of gold
and silver. Products are subject to the same risks and returns and are sold through the same distribution channels. The Group
undertakes a number of activities solely to support mining operations including power generation and services. Transfer prices
between segments are set on an arm’s-length basis in a manner similar to that used for third parties. Segment revenue, segment
expense and segment results include transfers between segments. 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:
–(cid:3)Operating unit – Ares, which generates revenue from the sale of gold and silver.
–(cid:3)Operating unit – Arcata, which generates revenue from the sale of gold, silver and concentrate.
–(cid:3)Operating unit – Selene, which until June 2009 generated revenue from the sale of gold, silver and concentrate. The operating
unit is no longer considered a reporting segment.
–(cid:3)Operating unit – Pallancata, which generates revenue from the sale of concentrate.
–(cid:3)Operating unit – San José, which generates revenue from the sale of gold, silver and concentrate.
–(cid:3)Operating unit – Moris, which generates revenue from the sale of gold and silver.
–(cid:3)Exploration, which explores and evaluates areas of interest in brownfield and greenfield sites with the aim of extending the life
of mine of existing operations and to assess the feasibility of new mines. The exploration segment includes expenses reflected
through profit and loss and capitalised as assets.
–(cid:3)Other – for the year 2010 the amount disclosed includes the profit or loss generated by Empresa de Transmision Callalli S.A.C.
(a power generation company), Servicios Corporativos Hochschild Mining Mexico S.A. de C.V. (a service company in Mexico),
and the Selene mine that closed in 2009 which, as a consequence, was not considered to be a reportable segment. For the year
2009 the amount disclosed includes the profit or loss generated by Empresa de Transmision Callalli S.A.C., Servicios
Corporativos Hochschild Mining Mexico S.A. de C.V. and Compañía Minera Arcata S.A.
The Group’s administration, financing, other activities (including other income and expense), and income taxes are managed
at a corporate level and are not allocated to operating segments.
Segment information is consistent with the accounting policies adopted by the Group. Management evaluates the financial
information based on International Financial Reporting Standards (IFRS) as adopted for use in the European Union.
The Group measures the performance of its operating units by the segment profit or loss that comprises gross profit,
selling expenses and exploration expenses.
Segment assets include the items that could be allocated directly to the segment.
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Hochschild Mining plc
Annual Report & Accounts 2010
3 SEGMENT REPORTING (CONTINUED)
(a) Reportable segment information
Ares
US$000
Arcata
US$000
Pallancata
US$000
San José
US$000
Moris
US$000
Exploration
US$000
Other¹
US$000
Adjustment
and
eliminations
US$000
Total
US$000
Year ended
31 December 2010
Revenue for external customers
56,824
181,778
261,877
220,825
30,899
Inter segment revenue
Total revenue
–
–
–
–
–
56,824
181,778
261,877
220,825
30,899
–
–
–
119
6,992
7,111
–
752,322
(6,992)
–
(6,992)
752,322
Segment profit/(loss)2
15,053
104,677
158,528
92,804
766
(49,277)
5,030
1,756
329,337
Others3
Profit/(loss) from continuing operations
before income tax
Other segment information
Depreciation4
Amortisation
Non-cash expenses
Assets
Capital expenditure
Current assets
Other non-current assets5
Total segment assets
Not reportable assets6
Total assets
(2,788)
(18,214)
(33,939)
(34,730)
(10,865)
(218)
(1,692)
–
–
(42)
(1,328)
–
(102)
(2,067)
(6,728)
–
–
–
(15,464)
(301)
(354)
5,422
30,230
43,955
55,183
2,728
108,218
2,305
4,661
9,670
20,934
69,968
39,739
82,983
127,869
210,010
14,331
103,917
197,837
249,749
–
–
–
–
7,295
1,428
8,723
–
11
1,926
194,111
12,939
194,122
14,865
–
880,877
14,331
103,917
197,837
249,749
8,723
194,122
895,742
(40,642)
288,695
(102,446)
(2,368)
(24,018)
248,041
144,534
639,010
783,544
880,877
1,664,421
–
–
–
–
–
–
–
–
–
1 “Other” revenue primarily relates to revenues earned by Servicios Corporativos Hochschild Mining Mexico S.A. de C.V. for services provided to the Moris mine, and the
Mexican exploration activities.
2 Segment profit for the operating segments Ares, Arcata, Selene and Pallancata includes an exceptional item in cost of sales of US$8,861,000 (refer to note 6(1)).
3 Comprised of administrative expenses of US$66,221,000, other income of US$82,802,000, other expenses of US$10,956,000, impairment of assets of US$24,018,000,
share of loss of associates and joint ventures of US$6,080,000,, finance income of US$13,344,000, finance cost of US$29,542,000, and foreign exchange gain of
US$29,000.
4 Includes US$61,000 of depreciation capitalised in Minera Hochschild Mexico S.A. de C.V. due to the San Felipe project.
5 Includes goodwill in respect of San José amounting to US$2,091,000.
6 Not reportable assets are comprised of intangibles of US$150,000, investments accounted under the equity method of US$79,068,000, available-for-sale financial
assets of US$153,620,000, other receivables of US$93,348,000, income tax receivable of US$3,318,000, deferred income tax assets of US$5,229,000, other financial
assets of US$20,662,000 and cash and cash equivalents of US$525,482,000.
Unlocking value through exploration
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Annual Report & Accounts 2010
87
3 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
Other¹
US$000
Adjustment
and
eliminations
US$000
Total
US$000
Year ended
31 December 2009
Revenue for external
customers
53,312
141,574
10,757
160,416
147,102
26,440
Inter segment revenue
–
–
–
–
–
–
Total revenue
53,312
141,574
10,757
160,416
147,102
26,440
–
–
–
140
3,027
3,167
–
539,741
(3,027)
(3,027)
–
539,741
Segment profit/(loss)2
18,907
74,922
(2,874)
84,810
41,767
7,674
(24,558)
2,160
8,722
211,530
Others3
Profit/(loss) from continuing
operations before income
tax
Other segment information
Depreciation4
(5,362)
(19,292)
(8,235)
(15,324)
(29,510)
(4,868)
(202)
(1,129)
Non-cash expenses
(15,263)
–
(4,805)
–
–
3,446
(10,091)
(6,185)
Assets
Capital expenditure
3,484
29,688
16,579
24,117
26,113
480
5,778
2,296
Current assets
Other non-current assets5
5,239
7,114
21,004
2,708
51,228
33,190
72,979
60,574
55,882
200,170
8,307
9,489
–
1,118
97,100
13,561
Total segment assets
12,353
93,983
63,282
107,110
233,360
17,796
97,100
14,679
Not reportable assets6
–
–
–
–
–
–
–
666,194
Total assets
12,353
93,983
63,282
107,110
233,360
17,796
97,100
680,873
(56,720)
154,810
(83,922)
(32,898)
108,535
122,794
516,869
639,663
666,194
1,305,857
–
–
–
–
–
–
–
–
1 “Other” revenue primarily relates to revenues earned by Servicios Corporativos Hochschild Mining Mexico S.A. de C.V. for services provided to the Moris mine, and the
Mexican exploration activities.
2 Segment 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 6(1)).
3 Comprised of 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, and
foreign exchange loss of US$256,000.
4 Includes US$11,000 of depreciation capitalised in Minera Hochschild Mexico S.A. de C.V. due to the San Felipe project.
5 Includes goodwill in respect of San José amounting to US$2,091,000.
6 Not reportable assets are comprised of intangibles of US$342,000, investments accounted under the equity method of US$450,665,000, available-for-sale financial
assets of US$19,181,000, other receivables of US$91,033,000, income tax receivable of US$10,582,000, deferred income tax assets of US$15,852,000, other financial
assets of US$695,000 and cash and cash equivalents of US$77,844,000.
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Continued
Hochschild Mining plc
Annual Report & Accounts 2010
3 SEGMENT REPORTING (CONTINUED)
(b) Geographical information
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
Canada
Germany
Switzerland
United Kingdom
Korea
Total
Inter-segment
Peru
Mexico
Total
Year ended 31 December
2010
US$000
2009
US$000
147,701
130,126
158,540
159,339
137,713
128,834
88,457
38,802
52,275
98,960
84,121
57,549
1,925
7,721
752,322
539,741
882
6,110
1,161
1,866
759,314
542,768
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 2010
Year ended 31 December 2009
US$000 % Revenue
Segment
US$000 % Revenue
Segment
Consorcio Minero S.A.
158,464
21%
Teck Metals Ltd. (formerly Teck Cominco Metals Ltd)
137,713
18%
Aurubis AG (formerly Nordeutsche Affinerie AG)
128,834
17%
Johnson Matthey Inc.
79,384
11%
International Commodities Inc.
42,853
6%
Arcata
San José
Arcata
Pallancata
Selene
Pallancata
San José
Ares
Arcata
San José
Moris
Ares
Arcata
Moris
155,182
29%
98,960
18%
84,121
16%
47,375
9%
61,979
11%
Arcata
Pallancata
San José
Arcata
Selene
Pallancata
Selene
Pallancata
San José
Ares
Arcata
Selene
San José
Moris
Ares
Arcata
Selene
Moris
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
89
3 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
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
4 ACQUISITIONS
As at 31 December
2010
US$000
399,905
210,265
28,699
68
–
79,291
718,228
153,620
36,817
5,229
2,401
2009
US$000
242,170
200,384
49,328
54
24,902
451,038
967,876
19,181
3,150
15,852
1,302
916,295
1,007,361
(a) Acquisition of associates
Lake Shore Gold Corp.
On 9 March 2009 the Group acquired 14,900,000 shares of Lake Shore Gold Corp. (“Lake Shore Gold”) for US$18,003,000 as part
of its commitment to participate in the bought-deal financing agreement entered into by Lake Shore Gold. After completion of the
transaction, the Group’s ownership in Lake Shore Gold 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 18 (a)). On the same day, 28,300,000 shares held by the Group in West
Timmins were converted into 20,700,000 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 18 (a)).
On 16 February 2010 the Group acquired 1,273,036 shares of Lake Shore Gold for CAD$5,130,000 (US$4,813,000). After
completion of this transaction, the Group’s ownership in Lake Shore Gold increased from 35.69% to 35.92%.
At 6 October 2010 the Group diluted its interests in Lake Shore Gold to 32.7%.
On 14 October 2010 the Group entered into an agreement with RBC Dominion Securities Inc., BMO Nesbitt Burns Inc. and CIBC
World Markets Inc. to dispose of 109,000,000 shares held in Lake Shore Gold (approximately 27.3%) pursuant to a bought deal
transaction, at a price of CAD$3.60 per share. The sale was completed on 3 November 2010. After this transaction the Group
holds approximately a 5.4% interest, no longer has Board representation and no longer exercises significant influence over Lake
Shore Gold (refer to note 38(c)).
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Continued
Hochschild Mining plc
Annual Report & Accounts 2010
4 ACQUISITIONS (CONTINUED)
Gold Resource Corporation
In connection with the Strategic Alliance Agreement signed with Gold Resource Corporation (“GRC”), 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 GRC 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.
Between 26 January 2010 and 5 February 2010 the Group acquired 440,500 shares of its associate GRC for US$4,351,000 in the
open market. In addition, on 8 March 2010 the Group signed a subscription agreement with GRC by which the Group acquired
600,000 shares for a total consideration of US$5,172,000.
In addition, on 27 May 2010 the Group acquired 631,579 shares of GRC for a total consideration of US$6,000,000.
Following completion of this purchase, the Group’s ownership in GRC increased to 25.28% on a fully diluted basis
as at 31 December 2010.
(b) Acquisition of assets
Minera Quellopata S.A.C.
On 13 August 2007, the Group and Ventura Gold Corp. (“Ventura”) entered into a letter of agreement by which the Group granted
the option to Ventura to earn in an initial interest of 51% in the Inmaculada property (located in Peru). Under the agreement,
Ventura was required to drill a minimum of 15,000m and issue 1,000,000 shares of Ventura within a three year period. Also, to
maintain the option, Ventura was required to issue a further 2,000,000 additional shares to the Group between 2011 – 2015.
On 19 December 2008, Ventura exercised its option to acquire an initial 51% interest in the project after completing the initial
drilling and issuing 1,000,000 shares to the Group (which was effectively completed during 2009).
Pursuant to the letter of agreement, the Group and International Minerals corporation (“IMZ”) (which acquired 100% of Ventura
and became party to the letter of agreement) formed a Peruvian company called Minera Quellopata S.A.C. ("Quellopata"), owned
51% by IMZ and 49% by the Group and entered into a Shareholders agreement on October 2009 (the “Quellopata Shareholders
Agreement”). The Group contributed the Inmaculada Property and IMZ contributed all the exploration studies, in respect of the
Inmacualada property, to Quellopata.
Ventura had the option to acquire an additional 19% interest in the project (totalling 70%) in exchange for funding the feasibility
study within 6 years.
On 12 October 2010, the Group signed a Framework Agreement with IMZ, through which the Group acquired an additional 30%
interest in the Inmaculada project (totalling 60%) in exchange for: (i) the purchase of US$20,000,000 of common shares in IMZ by
way of a private placement, (ii) a payment of US$15,000,000, (iii) a commitment to fund the first US$100,000,000 needed to plan,
develop and construct a mining operation within the Inmaculada property, (iv) the transfer of Minera del Suroeste S.A.C.’s
ownership in Minas Pacapausa S.A.C. to Minera Suyamarca S.A.C. Minera Oro Vega which will transfer to Quellopata, together
with the Puquiopata project. The Group will be the operator of the new venture pursuant to a separate Management Agreement
similar in form and substance to the Pallancata management agreement.
On 23 December 2010 (“effective date”), the Group signed a new joint venture agreement with IMZ which details the approved
structure and plan for the Inmaculada project and terminates the Quellopata Shareholders Agreement and the Pallancata Joint
Venture Agreement.
This transaction has been accounted for as an asset acquisition as on the basis that Quellopata has no existing processes.
As a result of the acquisition, the Group obtained control over Quellopata and has consolidated it as a subsidiary. The net assets
received in the asset acquisition were US$91,782,000 and the Non-Controlling Interest generated by the transaction was
US$36,940,000. The Group recognised a contingent consideration of US$39,243,000 and an obligation to IMZ of US$15,594,000
as disclosed in the notes 26 and 24 respectively.
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
91
4 ACQUISITIONS (CONTINUED)
(c) 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.
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
Total acquisition cost
Fair value
US$000
5,349
949
361
24,266
200
(3,663)
(522)
26,940
(7,694)
19,246
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.
(d) Acquisition of non-controlling 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 non-controlling interest at the acquisition date of US$5,650,000 has been recognised as an increase of retained
earnings.
5 REVENUE
Gold (from doré)
Silver (from doré)
Concentrate
Services
Total
The concentrate sold contained:
Gold
Silver
Other minerals
Total concentrate
As at 31 December
2010
US$000
2009
US$000
125,613
107,521
98,431
71,546
528,173
360,534
105
140
752,322
539,741
As at 31 December
2010
US$000
118,327
409,846
–
2009
US$000
90,516
269,930
88
528,173
360,534
Included within revenue is a gain of US$60,473,436 relating to provisional pricing adjustments representing the change in the
fair value of embedded derivatives (2009: gain of US$27,538,526) arising on sales of concentrates and doré (refer to notes 2(r)
and 22(3)).
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Continued
Hochschild Mining plc
Annual Report & Accounts 2010
5 REVENUE (CONTINUED)
The total volumes of gold and silver sold are as follows:
Total in thousands of net ounces:
Gold
Silver
6 COST OF SALES
Included in cost of sales are:
As at 31 December
2010
2009
196
204
23,506
23,563
Depreciation and amortisation
Personnel expenses1
Mining royalty
Change in products in process and finished goods
Year ended 31 December 2010
Year ended 31 December 2009
Before
exceptional
items
US$000
Exceptional
items
US$000
Before
exceptional
items
US$000
Exceptional
items
US$000
Total
US$000
102,705
88,194
15,091
(3,609)
–
102,705
8,861
–
–
97,055
15,091
(3,609)
83,426
51,284
9,458
8,066
–
6,918
–
–
Total
US$000
83,426
58,202
9,458
8,066
1 The exceptional item corresponds to a one-off bonus paid to the mining workers in Peru. In 2010 the pre exceptional amount also includes an additional bonus to the
mining workers in Peru of US$6,851,000.
7 ADMINISTRATIVE EXPENSES
Personnel expenses
Professional fees
Social and community welfare expenses1
Lease rentals
Travel expenses
Communications
Indirect taxes
Depreciation
Amortisation of software licences
Contribution to Peruvian Government
Technology and systems
Security
Supplies
Other
Total
1 Represents amounts expended by the Group on social and community welfare activities surrounding its mining units.
Year ended 31 December
2010
US$000
34,337
9,557
6,686
1,176
1,756
133
2,008
1,747
301
1,814
1,354
437
250
4,665
66,221
2009
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
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Hochschild Mining plc
Annual Report & Accounts 2010
93
8 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 2010
Year ended 31 December 2009
Before
exceptional
items
US$000
Exceptional
items
US$000
Before
exceptional
items
US$000
Exceptional
items
US$000
Total
US$000
Total
US$000
2,476
–
–
3,742
2,153
–
8,371
5,292
2,767
1,485
7,607
17,151
3,356
46
460
175
–
4,037
1,194
7,851
2,933
41,537
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,476
1,345
–
–
3,742
2,153
–
–
–
701
451
–
8,371
2,497
5,292
2,767
1,485
7,607
17,151
93
1,016
222
1,501
2,832
3,356
3,142
46
460
175
–
4,037
1,194
7,851
2,933
122
580
280
231
4,355
537
6,085
3,635
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,049
–
1,345
–
–
701
451
–
2,497
93
1,016
222
1,501
2,832
3,142
122
580
280
231
4,355
537
7,134
3,635
41,537
19,941
1,049
20,990
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 employees of the companies of the Southwestern Group.
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
As at 31 December
2010
US$000
1,117
2009
US$000
965
As at 31 December
2010
US$000
21,036
2009
US$000
7,469
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Notes to the consolidated financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
9 SELLING EXPENSES
Transportation of doré, concentrate and maritime freight
Sales commissions
Personnel expenses
Warehouse services
Other
Total
10 PERSONNEL EXPENSES
Salaries and wages1
Workers’ profit sharing2
Other legal contributions3
Termination benefits4
Statutory holiday payments
Executive Long-Term Incentive Plan
Other
Total
As at 31 December
2010
US$000
2009
US$000
7,559
1,466
296
15,146
2,453
26,920
7,493
1,145
270
10,223
1,874
21,005
As at 31 December
2010
US$000
77,803
22,830
15,215
2,768
5,406
6,975
14,307
145,304
2009
US$000
67,770
2,073
8,859
3,989
3,867
–
6,804
93,362
1 Included in salaries and wages is the Directors’ remuneration (refer to note 30(b)) and defined pension contributions of US$283,681 (2009: US$440,169).
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 for the deposit of compensation for services rendered, pension plans and contributions to Government entities.
4 The 2010 amount includes termination benefits paid to management of US$1,170,140. The 2009 amount includes US$1,049,000 termination benefits paid to the
employees of the companies of the Southwestern Group.
Personnel expenses are distributed as follows:
Cost of sales (refer to note 6)
Administrative expenses (refer to note 7)
Exploration expenses (refer to note 8)
Selling expenses (refer to note 9)
Property, plant and equipment
Total
Average number of employees for 2010 and 2009 were as follows:
Peru
Argentina
Mexico
Chile
United Kingdom
Total
As at 31 December
2010
US$000
97,055
34,337
7,851
296
5,765
2009
US$000
58,202
25,381
7,134
270
2,375
145,304
93,362
As at 31 December
2010
2,323
1,083
160
19
9
2009
2,282
838
158
13
8
3,594
3,299
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
95
11 OTHER INCOME AND OTHER EXPENSES
Year ended 31 December 2010
Year ended 31 December 2009
Before
exceptional
items
US$000
Exceptional
items
US$000
Before
exceptional
items
US$000
Exceptional
items
US$000
Total
US$000
Total
US$000
Other income:
Export incentive
Gain on recovery of expenses
Gain on sale of property, plant and equipment
Lease rentals
Gain on sale of investment in El Quevar1
Gain on sale of investment in Zincore Metals Inc. 2
Gain on sale of investment in Lake Shore Gold3
Recovery of impairment of deposits in Kaupthing, Singer and
Friedlander Bank
Negative goodwill on acquisition of subsidiary
Reversal of ElectroPeru contingency
Other
Total
Other expenses:
Increase in provision for mine closure4
Write off of value added taxes
Termination benefits5
Loss on sale of property, plant and equipment
Loss on sale of other assets
Compensation claims provision6
Provision for obsolescence of supplies7
Impairment of trade receivables8
Other
Total
1,843
210
–
151
–
–
–
135
–
–
3,266
5,605
(3,839)
(949)
–
(93)
(373)
(378)
(1,252)
(241)
(3,831)
(10,956)
–
–
–
–
6,010
7,533
1,843
210
–
151
6,010
7,533
63,654
63,654
–
–
–
–
77,197
135
–
–
3,266
82,802
1,921
472
–
302
–
–
–
–
–
–
1,806
4,501
(3,839)
(11,526)
(949)
–
(93)
(373)
(378)
(1,252)
(241)
(3,831)
–
–
–
(1,635)
(1,850)
(1,128)
(1,116)
(2,075)
–
–
–
–
–
–
–
–
–
–
–
–
153
–
–
–
–
584
7,694
351
–
1,921
472
153
302
–
–
–
584
7,694
351
1,806
8,782
13,283
–
–
(662)
–
–
–
(585)
–
–
(11,526)
–
(662)
–
(1,635)
(1,850)
(1,713)
(1,116)
(2,075)
(10,956)
(19,330)
(1,247)
(20,577)
1 Corresponds to the gain generated due to the sale of the Group´s interest in the El Quevar project in Argentina 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.
2 Corresponds to the gain generated by the sale of the Group´s interest in Zincore Metals Inc. to Inversiones Pacasmayo S.A., a related party of the Group.
3 Corresponds to the gain generated by the sale of 109,000,000 Lake Shore Gold shares on 3 November 2010 (refer to note 4(a)).
4 In 2010 corresponds to changes in the estimated mine closure costs of closed operations in Peru of US$3,691,000 (2009: US$11,800,000), refer to note 26 (1); together
with the loss generated due to the change in the discount rate of US$148,000 (2009: net of gain of US$274,000).
5 In 2009 represents the termination benefits paid to the employees due to the closing of the Selene mine.
6 Corresponds to compensation claims provisions related to the Peruvian companies.
7 In 2010 mainly includes the provision of obsolescence of supplies in Compañia Minera Ares and Minera Suyamarca of US$319,000, Minas Santa María de Moris of
US$426,000 and Minera Santa Cruz of US$ 486,000. In 2009 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.
8 In 2010 corresponds to the impairment of an account receivable in Compañia Minera Ares. In 2009 mainly corresponds to the impairment of a trade receivable from a
customer in Peru.
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Notes to the consolidated financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
12 FINANCE INCOME AND FINANCE COSTS
Year ended 31 December 2010
Year ended 31 December 2009
Before
exceptional
items
US$000
Exceptional
items
US$000
Before
exceptional
items
US$000
Exceptional
items
US$000
Total
US$000
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 non-controlling interests (note 20)
Change in discount rate5
Other
Total
Finance costs:
Interest on bank loans and long-term debt (note 25)
Interest on convertible bond (note 25)
Unwind of discount rate6
Loss from changes in the fair value of forward contracts7
Loss from changes in the fair value of financial instruments8
Other
Total
350
–
–
–
2,514
283
993
4,140
(8,744)
(8,588)
(538)
(3)
(9,091)
(2,578)
(29,542)
–
3,289
5,713
202
–
–
–
350
3,289
5,713
202
2,514
283
993
9,204
13,344
819
–
–
–
2,609
2,837
119
6,384
Total
US$000
819
9,045
623
–
9,045
623
12,632
12,632
–
–
–
2,609
2,837
119
22,300
28,684
–
–
–
–
–
–
–
(8,744)
(8,588)
(538)
(13,976)
(1,663)
(278)
(3)
(25,962)
–
–
–
–
(9,091)
(2,578)
(2,452)
(1,709)
(1,256)
–
(13,976)
(1,663)
(278)
(25,962)
(3,708)
(1,709)
(29,542)
(46,040)
(1,256)
(47,296)
1 Mainly corresponds to interest on liquidity funds (refer to note 23).
2 In 2010 the amount corresponds to the gain from change in the fair value of Golden Minerals and Iron Creek warrants of US$2,972,000 and US$168,000 respectively.
In addition includes US$149,000 related to the fair value adjustment in acquisition of International Minerals shares on November 2010. 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.
3 In 2010 corresponds to the gain on sale of Golden Minerals and Fortuna River shares of US$5,833,000 and US$53,000 respectively, net of the loss generated by the
sale of Dia Bras Exploration and Lara Explorations Ltd shares of US$152,000 and US$21,000 respectively. 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.
4 In 2010 corresponds to the gain for receiving shares of International Minerals Corporation due to the merger with Ventura Gold Corp. In 2009 mainly corresponds to
the gain from change in the fair value of West Timmins Mining Inc. shares due to their exchange for additional Lake Shore Gold shares. The 2009 amount also includes
the gain on receipt of shares of Dia Bras Exploration due to the merger with EXMIN Resources Inc. of US$391,000 and on receipt of 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 calculate the recoverable amount of VAT of Minera Santa Cruz of US$283,000
(2009: US$2,837,000)
6 Corresponds to the unwind of the discount on the provision for mine closure costs of US$538,000 (2009: US$278,000).
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 fluctuations in metal prices.
8 Corresponds to the loss due to changes in the fair value of the zero cost collar contracts signed by Cia. Minera Ares in 2009. These contracts were over 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
expired between January and December 2010. In addition, this includes a loss of US$1,495,000 (2009: 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 at 1.75% (refer to note 25).
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
97
12 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
13 INCOME TAX EXPENSE
As at 31 December
2010
US$000
2,864
(17,332)
(14,468)
2009
US$000
3,428
(15,639)
(12,211)
Current tax:
Current tax charge from continuing operations
Deferred taxation:
Origination and reversal of temporary differences from continuing
operations (note 28)
Withholding taxes
Year ended 31 December 2010
Year ended 31 December 2009
Before
exceptional
items
US$000
Exceptional
items1
US$000
Before
exceptional
items
US$000
Exceptional
items
US$000
Total
US$000
50,138
50,138
(2,659)
(2,659)
47,479
47,479
30,946
30,946
(2,275)
(2,275)
27,165
27,165
513
(3,127)
(3,127)
–
24,038
24,038
513
12,486
12,486
1,256
(8,943)
(8,943)
–
Total
US$000
28,671
28,671
3,543
3,543
1,256
Total taxation charge in the income statement
77,816
(5,786)
72,030
44,688
(11,218)
33,470
1 This amount mainly relates to a current tax credit of US$2,659,000 in connection with the one-off bonus paid to the mining workers in Peru (2009: US$2,076,000), and
a US$3,127,000 deferred tax credit in connection with a write-off recognised in the period (US$9,048,000 in connection with an impairment loss recognised in 2009).
The weighted average statutory income tax rate was 31.4% for 2010 and 30.1% for 2009. This is calculated as the average of the
statutory tax rates applicable in the countries in which the Group operates, weighted by the profit/(loss) before tax of the Group
companies in their respective countries as included in the consolidated financial statements.
The change in the weighted average statutory income tax rate is due to a change in the weighting of profit/(loss) before tax in the
various jurisdictions in which the Group operates.
The tax related to items charged or credited to equity is as follows:
Current tax:
Current tax charge from continuing operations
Deferred taxation:
Deferred income tax relating to fair value gains on available-for-sale financial assets
Total tax charge in the statement of other comprehensive income
As at 31 December
2010
US$000
2009
US$000
–
–
7,189
7,189
7,189
–
–
(71)
(71)
(71)
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Notes to the consolidated financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
13 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 31.4% (2009: 30.1%)
Expenses not deductible for tax purposes
Non-taxable income1
Non-taxable negative goodwill2
Deferred tax recognised on special investment regime
Recognition of previously unrecognised deferred tax assets3
Non-taxable share of losses/(gains) of associates
Net deferred tax assets generated in the year not recognised
Change in tax regime
Change in statutory Income Tax Rate
Foreign exchange rate effect4
Derecognition of deferred tax assets previously recognised5
Other
At average effective income tax rate of 25.0% (2009: 21.62%)
Taxation charge attributable to continuing operations
Total taxation charge in the income statement
As at 31 December
2010
US$000
2009
US$000
288,695
154,810
90,594
2,250
(17,976)
–
–
(14,525)
1,702
8,179
–
–
(430)
–
2,236
72,030
72,030
72,030
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
1 Mainly corresponds to the non taxable gain on the sale of Lake Shore Gold shares of US$17,743,000.
2 In 2009, corresponds to non-taxable negative goodwill on acquisition of the Southwestern Group.
3 Mainly corresponds to the use of previously unrecognised tax losses in 2010 of US$15,736,000 (US$7,687,000 in 2009), recognised tax losses upon tax restructuring
of the Mexican companies of US$6,329,000 (US$7,392,000 in 2009), the reversal of the write-off of tax credits of US$4,790,000, previously written off in 2009, following
certain steps taken to increase the probability of the assets being available in the future, and the non taxable gain on sale of Zincore Metals Inc. shares of
US$2,586,000.
4 Mainly corresponds to the foreign exchange effect from converting tax bases and monetary items from local currency to the functional currency.
5 Relates to the reversal of a deferred tax asset previously recognised, as the ability to utilise this potential deferred tax asset against future taxable profits
is now uncertain.
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
99
14 BASIC AND DILUTED EARNINGS PER SHARE
Earnings per share (“EPS”) is calculated by dividing profit for the year attributable to equity shareholders of the Company by the
weighted average number of ordinary shares issued during the year.
The Company has dilutive potential ordinary shares.
As at 31 December 2010 and 2009, EPS has been calculated as follows:
Basic and earnings per share from continuing operations:
Before exceptional items (US$)
Exceptional items (US$)
Total for the year and from continuing operations (US$)
Diluted earnings per share from continuing operations:
Before exceptional items (US$)
Exceptional items (US$)
Total for the year and from continuing operations (US$)
As at 31 December
2010
2009
0.28
0.18
0.46
0.29
0.17
0.46
0.17
0.14
0.31
0.17
0.14
0.31
Net profit from continuing operations before exceptional items and attributable to equity holders of the parent is derived
as follows:
Profit for the year from continuing operations (US$000)
Less non-controlling interests (US$000)
Profit attributable to equity holders of the parent – continuing operations (US$000)
Exceptional items after tax – attributable to equity holders of the parent (US$000)
As at 31 December
2010
2009
216,665
121,340
(60,054)
(23,260)
156,611
98,080
(61,687)
(45,188)
Profit from continuing operations before exceptional items attributable to equity holders of the parent (US$000)
Interest on convertible bond (US$000)
94,924
8,588
Diluted profit from continuing operations before exceptional items attributable to equity holders of the parent (US$000)
103,512
52,892
1,663
54,555
The followings reflects the share data used in the basic and diluted earnings per share computations:
Basic weighted average number of ordinary shares in issue (thousands)
Dilutive potential ordinary shares related to convertible bond
Diluted weighted average number of ordinary shares in issue and dilutive potential ordinary shares (thousands)
As at 31 December
2010
2009
338,085
314,043
18,161
3,564
356,246
317,607
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Notes to the consolidated financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
15 PROPERTY, PLANT AND EQUIPMENT
Year ended 31 December 2009
Cost
At 1 January 2009
Additions
Acquisition of subsidiary
Change in discount rate
Disposals
Write-off2
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
237,818
100,393
183,245
3,420
41,681
50,969
23,800
–
(1,148)
(27,718)
–
–
–
(1,921)
2,087
381
16,032
–
–
–
(1,894)
–
–
10,244
–
3
347
–
(1,639)
(5,496)
–
(5,891)
28,433
–
546
160
119
–
(96)
(162)
–
–
255
–
12
–
–
(1,770)
–
–
15,220
–
–
–
–
65,933
32,357
–
–
(169)
62
–
–
(38,932)
–
33
Total
US$000
632,490
99,899
24,266
(1,770)
(3,052)
(35,208)
15,220
(5,891)
–
(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
–
(606)
–
51,628
23,345
(2,924)
5,093
(956)
(1,559)
141
135,750
148,137
37,667
71,460
74,768
140,809
1,306
33,376
788
215,925
375
(80)
50
(110)
–
–
1,541
2,167
1,254
130
2,172
–
–
–
–
–
83,922
(30,687)
310
21,686
–
–
–
(1,066)
(2,165)
141
36,932
18,199
1,098
287,756
58,186
438,958
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
101
15 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Year ended 31 December 2010
Cost
At 1 January 2010
Additions
Acquisition of subsidiary
Change in discount rate
Disposals
Transfer of leases
Write-off2
Change in mine closure estimate
Transfers and other movements
Transfer from evaluation and exploration assets
Foreign exchange
At 31 December 2010
Accumulated depreciation and impairment
At 1 January 2010
Depreciation for the year
Write-off2
Disposals
Transfer of leases
Foreign exchange
At 31 December 2010
Net book amount at 31 December 2010
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
283,887
109,127
215,577
3,708
71,473
80
14,138
–
–
–
–
(934)
–
273
4,249
1,096
–
–
–
–
(2,705)
–
5
–
(1,498)
(717)
(7,624)
–
14,438
15,068
–
8
–
(61)
14
–
–
(448)
–
(43)
–
366
–
9
55,131
1,081
–
989
–
–
–
59,284
39,572
726,714
126,358
–
–
–
–
5
989
(1,946)
(717)
(6,803)
(18,109)
(1,108)
–
(1,108)
–
–
–
(30,145)
–
17
–
4,249
1,069
360,044
120,948
234,888
3,606
56,093
61,925
837,504
135,750
54,027
37,667
17,976
74,768
26,201
(201)
(2,657)
(5,911)
–
–
–
–
–
1
(648)
(123)
45
189,576
170,468
52,987
67,961
94,332
140,556
1,541
408
(24)
(373)
–
10
1,562
2,044
36,932
3,834
–
–
–
–
1,098
–
–
–
–
–
287,756
102,446
(8,793)
(1,021)
(123)
56
40,766
15,327
1,098
60,827
380,321
457,183
1 The carrying value of plant and equipment held under finance leases at 31 December 2010 was US$7,936,000 (2009: US$11,177,000). Additions during the year
included US$1,239,000 (2009: US$6,058,000) of plant and equipment under finance leases. Leased assets are pledged as security for the related finance lease.
2 Mainly comprises the effects of the result of the physical verification exercise performed every three years at the Peruvian mine units which resulted in a write-off in
the Ares mine unit of US$1,727,000 and in the Pallancata mine unit of US$102,000. In addition, 2010 includes a write off of US$12,000 in México, US$747,000 in Peru
related to the Crespo project and US$6,728,000 in Argentina related to the proposed conversion of San José’s production to doré only. In 2009, due to 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 During 2010 the Group tested its mine units Arcata, San José and Moris for impairment and determined that there was no impairment to be recorded in profit and
loss. At 31 December 2009, the Group recognised impairments totalling US$21,686,000, which included (i) a charge of US$15,041,000 in respect of the Ares mine unit;
(ii) a charge of US$10,091,000 in respect of the Crespo project; and (iii) a reversal of the impairment loss in respect of the Moris unit of US$3,446,000. The trigger for
the impairment of Ares was the proximity of the closing and the resulting revision to its remaining recoverable reserves and resources. In assessing whether an
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.
There were no borrowing costs capitalised in property, plant and equipment as no significant qualifying assets were constructed during 2010.
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Notes to the consolidated financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
15 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
For the 2009 impairment tests the Group utilised the following assumptions:
–(cid:3)(cid:5)Commodity prices – Commodity prices of gold and silver are based on external market consensus forecasts. Gold prices range
from $837.5/oz to $1,015/oz and silver prices range from $13.22/oz to $16/oz.
–(cid:3)(cid:5)Estimation of reserves and resources – Reserves and resources are based on management’s estimates using appropriate
exploration and evaluation techniques.
–(cid:3)(cid:5)Production volumes and grades – Tonnage produced was estimated at plant capacity with 19 days of maintenance per year.
–(cid:3)(cid:5)Capital expenditure – The cash flows for each mining unit include capital expenditure to maintain the mine and to convert
resources to reserves.
–(cid:3)(cid:5)Operating costs – Costs are based on historical information from previous years and current mining conditions.
–(cid:3)(cid:5)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
16 EVALUATION AND EXPLORATION ASSETS
Cost
Balance at 1 January 2009
Additions
Write-off
Foreign exchange
Transfers and other movements
Balance at 31 December 2009
Additions1
Foreign exchange
Transfers and other movements
Balance at 31 December 2010
Accumulated impairment
Balance at 1 January 2009
Impairment2
Foreign exchange
Balance at 31 December 2009
Impairment2
Foreign exchange difference
Balance at 31 December 2010
Net book value as at 31 December 20093
Net book value as at 31 December 20103
2009
Real pre-tax
discount rate
%
3.21
14.30
5.43
Total
US$000
60,480
8,636
(284)
1,606
1,921
72,359
122,764
3,058
(4,249)
193,932
15,754
222
555
16,531
14,702
888
32,121
55,828
161,811
1 Mainly comprises the increase in evaluation and exploration assets due to the acquisition of the subsidiary Minera Quellopata S.A.C. of US$91,507,000
2 The Group has impaired the San Felipe property by US$14,702,000. The impairment was triggered by the conclusion of the marketing process conducted during
the year and reflects the Company’s estimate of the recoverable amount. The recoverable amount was based on fair value less cost to sell. As observable market
prices are not available, this was calculated using a discounted cash flow methodology taking account of assumptions that would be made by market participants.
In 2009, the Group also impaired the Ares mine unit by US$222,000. The trigger for this impairment was the proximity of the closing of Ares and the resulting revision
to the remaining recoverable reserves and resources.
3 Of the net book value at 31 December 2010, US$25,874,000 corresponds to the investment in San Felipe (2009: US$37,825,000), US$20,241,000 corresponds to the
Azuca project (2009: US$7,079,000), US$91,507,000 corresponds to the Inmaculada project in Peru (2009: Nil) and the balance relates to amounts capitalized in respect
of converting inferred resources to indicated and measured resources at the Group´s unit mines.
There were no borrowing costs capitalised in evaluation and exploration assets.
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
103
17 INTANGIBLE ASSETS
Cost
Balance at 1 January 2009
Additions
Reclassification
Balance at 31 December 2009
Additions
Balance at 31 December 2010
Accumulated amortisation
Balance at 1 January 2009
Amortisation for the year
Reclassification
Balance at 31 December 2009
Amortisation for the year
Foreign exchange difference
Balance at 31 December 2010
Net book value as at 31 December 2009
Net book value as at 31 December 2010
Goodwill
US$000
Transmission
line
US$000
Software
licences
US$000
2,091
–
–
2,091
–
–
16,266
5,891
22,157
–
913
76
–
989
111
Total
US$000
3,004
16,342
5,891
25,237
111
2,091
22,157
1,100
25,348
–
–
–
–
–
–
–
2,091
2,091
–
2,078
87
2,165
2,067
–
4,232
19,992
17,925
336
311
–
647
301
2
950
342
150
336
2,389
87
2,812
2,368
2
5,182
22,425
20,166
The carrying amount of goodwill is reviewed annually to determine whether it is in excess of its value-in-use. The value-in-use
is determined at the cash-generating unit level, in this case being the San José mine, by discounting the expected cash flows
estimated by management over the life of the mine.
The calculation of value-in-use is most sensitive to the following assumptions:
–(cid:3)Commodity prices – Commodity prices of gold and silver are based on prices considered in the Group’s 2011 budget (2009: 2010
budget) and external market consensus forecasts. The prices considered in the 2010 (2009) impairment tests were:
Year
2010
2011
2012
2013
2014
2015
2016
2017-2022
2010 – Gold – US$/oz
2010 – Silver – US$/oz
2009 – Gold – US$/oz
2009 – Silver – US$/oz
–
–
25.0
1,000.0
1,015.0
16.0
15.8
1,300.0
1,367.50
1,300.0
1,200.0
1,175.0
1,175.0
1,000.0
26.3
990.0
15.0
23.8
900.0
14.5
21.7
900.0
14.5
21.7
837.5
13.2
23.5
837.5
13.2
16.9
–
–
–(cid:3)Estimation of reserves and resources – Reserves and resources are based on management’s estimates using appropriate
exploration and evaluation techniques.
–(cid:3)(cid:5)Production volumes and grades – Tonnage produced was estimated at plant capacity with 12 days of maintenance per year
(2009: 19 days).
–(cid:3)Capital expenditure – The cash flows for each mining unit include capital expenditures to maintain the mine and to convert
resources to reserves.
–(cid:3)Operating costs – Costs are based on historical information from previous years and current mining conditions.
–(cid:3)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. The pre-tax discount rate used in the 2010 impairment test was 16.63% (2009:14.30%).
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Notes to the consolidated financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
17 INTANGIBLE ASSETS (CONTINUED)
Management believes that the following changes to the main assumptions would cause the carrying value of the cash generating
unit (including 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
2010
Variation
(13.1)%
(10.7)%
2009
Variation
(6.8)%
(6.3)%
(52.9)%
(17.0)%
11.9%
107.0%
7.9%
4.3%
Headroom for the 2010 and 2009 impairment tests were US$61,523,000 and US$16,732,000 respectively.
Cash flows used for impairment tests were based on the annual 2011 budget presented and approved by the Board in December
2010. The starting point in all cases was January 2011. Individual cash flows are based on the annual 2011 budget and an
estimated set of reserves and resources as of December 2010 provided by the Explorations and Operations teams. In addition,
in respect of subsequent years, the Group makes the necessary conservative adjustments to accurately reflect the nature of each
operation. In the case of revenue, production figures were estimated assuming reserve grade (after extracted tonnage) and full
capacity. In the case of operating expenses, all figures are based on the 2011 budget. Future capital expenditure is based on the
2011 budget, excluding one-off expenses and considering the Operations team’s view on developments and infrastructure,
according to the estimated set of reserves and resources.
18 INVESTMENTS ACCOUNTED UNDER EQUITY METHOD
Lake Shore Gold Corp(a)
Cabo Sur(b)
Gold Resource Corp.(c)
Zincore Metals Inc.(d)
Total
(a) Lake Shore Gold Corp
The following table summarises the financial information of the Group’s investment in Lake Shore Gold Corp:
Year end 31 December
2010
US$000
–
–
79,068
–
2009
US$000
386,190
(57)
62,467
2,065
79,068
450,665
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
(Losses)/profit1
Carrying amount of the investment
Year ended 31 December
2010
US$000
2009
US$000
–
–
–
–
–
–
–
47,520
345,948
(7,663)
(50,758)
335,047
51,143
386,190
–
(9,785)
–
46,951
–
386,190
1 Share of the associate’s loss in 2010 includes (1) a pre-exceptional loss from the Group’s share in the results of the period of Lake Shore Gold of US$1,430,000,
(2) an exceptional loss from dilution of the Group’s interest from 35.9% to 35.7% on 30 June 2010 of US$2,021,000, (3) an exceptional gain from dilution of the Group’s
interest from 35.7% to 33.6% on 10 September 2010 of US$3,817,000 and (4) an exceptional loss from dilution of the Group’s interest from 33.6% to 32.7% on 6 October
2010 of US$10,151,000. 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% on 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% on 31 December 2009
of US$4,493,000.
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
105
18 INVESTMENTS ACCOUNTED UNDER EQUITY METHOD (CONTINUED)
On 3 November 2010 the Group disposed 109,000,000 shares held in Lake Shore Gold (approximately 27.3% interest) for a total
consideration of US$374,016,000 generating a gain of US$63,654,000. After of this transaction the Group no longer has significant
influence over Lake Shore Gold.
(b) Cabo Sur
During 2010 the Group sold its interest in Cabo Sur to Mirasol Resources Ltd. for 6,300 Argentinian Pesos (approximately
US$2,000). As a result of this transaction the Group no longer has significant influence over this company.
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
(c) Gold Resource Corp.
The following table summarises the financial information of the Group’s investment in Gold Resource 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
Share of the associate’s revenue, profit and loss:
Revenue
Profit/(losses) 1
Carrying amount of the investment
Year ended 31 December
2010
US$000
2009
US$000
–
–
–
–
–
–
(6)
–
6
6
(69)
–
(57)
–
(61)
(57)
Year ended 31 December
2010
US$000
2009
US$000
15,087
56,065
(1,632)
5,671
46,873
(181)
(14,808)
(11,609)
54,712
24,356
3,730
3,711
79,068
40,754
21,713
–
(1,240)
62,467
1 Share of the associate’s profit in 2010 includes (1) a pre-exceptional loss from the Group’s share in the results of the period of Gold Resource Corp. of US$3,171,000
(2009: US$995,000) and (2) an exceptional gain from dilution of US$6,882,000 (2009: loss of US$245,000).
(d) Zincore Metals Inc.
On 21 May 2009, the Group acquired Southwestern Resources Corporation, which resulted in the acquisition of 38,100,000 shares
of Zincore Metals Inc. equivalent to a 48.2% interest. In September 2009, Zincore Metals Inc. issued 24,060,000 shares resulting
in a dilution of the Group’s interest to 36.8%, which generated a gain by the Group of US$2,065,000.
On 5 March 2010, the Group sold its 36.8% to Inversiones Pacasmayo S.A., a related party of the Group, at a price of C$0.27 per
share (a total of C$10,287,000) representing a 11.6% premium over the 20 day average closing price, realising a gain on disposal
of US$7,533,000. As a result of the transaction, the Group no longer has an interest in Zincore.
The disposal was approved on behalf of Hochschild by a committee comprising solely independent Non-Executive Directors
(“the Independent Committee”). The Independent Committee was advised by Canaccord Adams Limited that the terms of the
disposal were fair and reasonable as far as shareholders are concerned.
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Notes to the consolidated financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
18 INVESTMENTS ACCOUNTED UNDER EQUITY METHOD (CONTINUED)
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
19 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
Disposals3
Reclassification to investments accounted under equity method4
Reclassification from investments accounted under equity method5
Ending balance
Year ended 31 December
2010
US$000
2009
US$000
–
–
–
–
–
–
–
–
2,110
67
(96)
(16)
2,065
–
1,704
2,065
Year ended 31 December
2010
US$000
19,181
25,786
4
47,573
(11,924)
2009
US$000
17,794
70,022
357
23,019
(4,749)
–
(87,262)
73,000
–
153,620
19,181
1 The amount represents the fair value of shares at the date of acquisition and mainly includes the purchase of shares of: (i) International Minerals for US$20,150,000, (ii)
Golden Minerals for US$5,000,000, (iii) Iron Creek Capital Corp for US$67,000 and (iv) Brionor Resources for US$568,000 (2009: mainly includes the purchase of shares
of: (i) Fortuna Silver Mines Inc. for US$3,196,000, (ii) Ventura Gold Corp. for US$158,000, (iii) Pembrook Mining Corp. for US$1,857,000, (iv) West Timmins Mining Inc. for
US$63,782,000, (v) Northern Superior Resources Inc. for US$705,000, (vi) Empire Petroleum Corp. for US$82,000, and (vii) Maxy Gold Corp for US$243,000).
2 In 2010 corresponds to the transfer of shares due to the merger between Ventura Gold Corp. and International Minerals. In 2009 corresponds to the transfer of shares
due to the merger between EXMIN Resources Inc. and Dia Bras Exploration (US$325,000) and the merger between Maxy Gold Corp. and Lara Explorations Ltd.
(US$32,000). The net effect was recognised in profit and loss.
3 In 2010 corresponds to the sale of (i) 663,600 shares of Fortuna River, (ii) 3,751,047 shares of Dia Bras Exploration, (iii) 495,200 shares of Lara Explorations Ltd. and
(iv) 400,000 shares of Golden Minerals. In 2009 corresponds to the sale of 3,287,570 shares in Fortuna Silver Mines Inc. (refer to note 12).
4 Corresponds to the reclassification to investments accounted under the equity method of the West Timmins Mining Inc. shares of US$82,252,000 and of Gold Resource
Corp. of US$5,010,000 on the date’s they became associates of the Group.
5 Corresponds to the reclassification of the Group’s Lake Shore Gold shares from investments accounted under equity method to available-for-sale financial assets
as at 31 December 2010. The Group does not have significant influence over this company.
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
2010
US$000
131,603
39
8,397
13,581
–
2009
US$000
4,225
119
3,086
11,743
8
153,620
19,181
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Hochschild Mining plc
Annual Report & Accounts 2010
107
19 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
2009
663,600
Fortuna River1
Additions
Transfers
Disposals
Number
of shares
held at
31 December
2009
Additions
Transfers
Disposals
–
–
663,600
(3,287,570)
–
–
–
–
–
–
–
Fortuna Silver Mines Inc.2
812,215 2,475,355
Mirasol Resources Ltd
500,000
–
Pembrook Mining Corp3
5,714,286
1,111,111
Gold Resource Corp4
Electrum Capital Inc
Iron Creek Capital Corp5
Mariana Resources Ltd
EXMIN Resources Inc6
1,670,000
4,205,462
2,000,000
11,002,948
18,387,487
–
–
–
–
(1,670,000)
–
–
–
– (18,387,487)
Ventura Gold Corp7
300,000
700,000
–
West Timmins Mining Inc8
– 28,331,500 (28,331,500)
Northern Superior
Resources Inc9
Empire Petroleum Corp10
Maxy Gold Corp11
Dia Bras Exploration6,12
Lara Explorations Ltd11,13
International Minerals7
Brionor Resources14
Golden Minerals Company15
Lake Shore Gold Corp.16
– 10,053,007
1,333,333
–
–
–
–
–
–
–
–
3,961,600
(3,961,600)
–
–
–
–
–
–
3,751,047
495,200
–
–
–
–
2,000,000
280,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,000,000)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,730,000
400,000
500,000
6,825,397
–
4,205,462
–
–
–
–
–
– 11,002,948
–
–
–
–
1,000,000
–
– 10,053,007
–
–
–
–
–
–
–
–
1,333,333
–
3,751,047
495,200
–
–
–
–
Number
of shares
held at
31 December
2010
–
–
500,000
6,825,397
–
4,205,462
2,280,000
(663,600)
–
–
–
–
–
–
– 11,002,948
–
–
–
–
–
–
– 10,053,007
–
–
(3,751,047)
(495,200)
1,333,333
–
–
–
100,000
–
–
–
–
100,000
2,730,000
(400,000)
–
– 21,540,992
– 21,540,992
1 The investment in Fortuna River was sold by the Group on 28 April 2010.
2 At 31 December 2009 the Group had sold its total interest in Fortuna Silver Mine.
3 Pembrook Mining Corp. (5.7%) is a privately held exploration company with projects in Peru and Canada. Additions in 2009 relates to the purchase of 1,111,111
common shares on 15 September 2009.
4 The investment in Gold Resource Corp., 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 the Company in February 2009.
5 The investment in Iron Creek Capital Corp. (8.6%) relates to the purchase of 280,000 common shares on 1 March 2010.
6 In 2009 the Group received shares from Dia Bras Exploration in exchange for its holding 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 As at 31 December 2009, Ventura Gold Corp. had issued 1,000,000 shares to the Group. On 12 January 2010 the Group received 100,000 shares of International
Minerals in exchange for its holding of 1,000,000 Ventura Gold Corp. shares due to the merger of these companies.
8 The investment in West Timmins Mining Inc. (Nil), relates to the purchase of common shares during 2009 which were subsequently transferred under the terms
of its business combination with Lake Shore Gold.
9 The investment in Northern Superior Resources Inc. (6.8%), resulted from the acquisition of Southwestern Resources Corp. on 21 May 2009.
10 The investment in Empire Petroleum Corp. (1.6%), resulted from the acquisition of Southwestern Resources Corp. on 21 May 2009.
11 The investment in Maxy Gold Corp. resulted from the acquisition of Southwestern Resources Corp. on 21 May 2009. In addition, during 2009, the Group received
shares from Lara Explorations Ltd. in exchange for its holding of Maxy Gold Corp. shares, due to the merger between these companies.
12 On 12 July 2010 the Group sold its interest in Dia Bras Exploration.
13 Between April and August 2010 the Group sold its interest in Lara Explorations Ltd.
14 The investment in Brionor Resources (9.7%) relates to the purchase of shares between March and June 2010.
15 Corresponds to the shares received in exchange for the sale of the Group´s interest in the El Quevar project in Argentina. Between November and December 2010
the Group sold 400,000 shares of Golden Minerals.
16 Corresponds to the reclassification from investment in associates of the Lake Shore Gold shares.
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Notes to the consolidated financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
19 AVAILABLE-FOR-SALE FINANCIAL ASSETS (CONTINUED)
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.
Available-for-sale financial assets are denominated in the following currencies:
Canadian dollars
US dollars
Pounds sterling
Total
20 TRADE AND OTHER RECEIVABLES
Trade receivables1
Advances to suppliers
Credit from exports2
Loan to non-controlling interests3
Receivables from related parties (note 30)
Loans to employees
Interest receivable
Receivable from Kaupthing, Singer and Friedlander Bank
Other
Provision for impairment4
Financial assets classified as receivables
Prepaid expenses
Value Added Tax (VAT)5
Total
2010
US$000
145,184
39
8,397
2009
US$000
15,968
127
3,086
153,620
19,181
As at 31 December
Non-
current
US$000
–
–
–
–
–
1,276
–
–
22
–
2009
Current
US$000
76,981
5,436
3,587
39,443
996
1,585
38
965
720
(2,443)
1,298
127,308
516
1,336
5,454
32,102
3,150
164,864
Non-
current
US$000
–
–
578
32,165
–
2,128
–
–
25
–
34,896
933
988
36,817
2010
Current
US$000
89,404
9,050
4,004
9,393
1,609
3,297
4
648
1,027
(2,533)
115,903
4,252
25,780
145,935
The fair values of trade and other receivables approximate their book value.
1 At 31 December 2010, trade accounts receivable mainly comprised of amounts receivable from Consorcio Minero S.A. (US$11,577,000), Teck Metals Ltd.
(US$30,274,000), Aurubis AG (US$24,802,000), MRI Trading AG (US$6,380,000), LS Nikko (US$10,691,000), Doe Run Peru SRL (US$1,108,000), Johnson Matthey Inc
(US$4,313,000), Traxis Peru S.A.C. (US$34,000) and Argor Heraus S.A. (US$215,000). At 31 December 2009, trade accounts receivable mainly comprised of 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 Peru SRL (US$1,108,000), Johnson Matthey Inc (US$605,000), and Argor Heraus S.A. (US$116,000). Trade receivables are
denominated in the following currencies:
– US dollars 89,394,000 (2009: 76,978,000)
– Peruvian nuevos soles 10,000 (2009: 3,000)
2 Corresponds to the credits due on exports of Minera Santa Cruz.
3 This relates to loans to Minera Andes Inc. The effective interest rate was between 7.86% and 8.21% until the renegotiation of the terms of those loans on 17 September
2010 resulting in a change in the interest rate to 7% (between 7.86% and 8.21% in 2009) (refer to note 37(g)).
4 Includes the provision for impairment of trade receivable from a customer in Peru of US$1,108,000 (2009: US$1,108,000), the impairment of deposits in Kaupthing,
Singer and Friedlander of US$648,000 (2009: US$798,000) and other receivables of US$777,000 (2009: US$537,000).
5 This includes an amount of US$14,593,000 (2009: US$20,838,000) 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$2,282,000 (2009: US$4,091,000)
and Minas Santa María de Moris of US$2,456,000 (2009: US$5,628,000). The value added tax is valued at its recoverable amount.
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Annual Report & Accounts 2010
109
20 TRADE AND OTHER RECEIVABLES (CONTINUED)
Movements in the provision for impairment of receivables:
At 1 January 2009
Provided for during the year
Released during the year
At 31 December 2009
Provided for during the year
Released during the year
At 31 December 2010
Individually
impaired
US$000
Collectively
impaired
US$000
1,987
1,116
(660)
2,443
241
(151)
2,533
–
–
–
–
–
–
–
Total
US$000
1,987
1,116
(660)
2,443
241
(151)
2,533
As at 31 December, the ageing analysis of trade and other receivables net of impairment is as follows:
Year
2010
2009
21 INVENTORIES
Finished goods
Products in process
Raw materials
Supplies and spare parts
Provision for obsolescence of supplies
Total
Past due but not impaired
Neither
past
due nor
impaired
US$000
150,799
128,606
Less than
30 days
US$000
–
–
Total
US$000
150,799
128,606
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
2010
US$000
As at
31 December
2009
US$000
4,601
17,620
255
33,788
56,264
(1,134)
55,130
6,074
12,538
1,002
28,610
48,224
(2,411)
45,813
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 2010 included in products in process is US$4,995,000 (2009: US$2,977,000).
As part of the management’s short-term financing policies, the Group acquires pre-shipment loans which are guaranteed by the
sales contracts.
The amount of expense recognised in profit and loss related to the inventory is US$67,907,000 (2009: US$59,215,000).
The amount of the expense related to the increase of the inventory provision is US$1,252,000 (2009: US$1,713,000).
The amount of income relating to the reversal of the inventory provision is US$Nil (2009: US$181,000).
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Notes to the consolidated financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
22 OTHER FINANCIAL ASSETS AND LIABILITIES
Other financial assets
Warrants in Golden Minerals Company1
Warrants in Iron Creek Capital Corp.2
Embedded derivatives3
Total financial assets at fair value through profit or loss
Other financial liabilities
Embedded derivatives3
Total financial liabilities at fair value through profit or loss
Zero cost collar contracts4
Swap contracts5
Total derivatives designated as hedge instruments
Total financial liabilities
As at 31 December
2010
US$000
2009
US$000
3,982
168
16,512
20,662
–
–
–
1,930
1,930
1,930
–
–
695
695
175
175
2,452
13
2465
2,640
1 At 31 December 2010, this item represents a balance of 300,000 warrants of Golden Minerals Company. The expiry date of the warrants is 7January 2013. Warrants
were fair valued using the Black-Scholes option pricing model.
2 At 31 December 2010, this item represents a balance of 280,000 warrants of Iron Creek Capital Corp. The expiry date of the warrants is 1 March 2012. Warrants were
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 5).
4 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 expired during 2010.
5 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 syndicated loan of US$114,320,000 (refer to
note 25).
23 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
2010
US$000
694
424,049
44,346
56,393
525,482
2009
US$000
1,430
28,294
40,447
7,673
77,844
The fair value of cash and cash equivalents approximates their book value. The Group does not have undrawn borrowing facilities
available in the future for operating activities or capital commitments.
1 The liquidity funds are mainly invested in certificates of deposit, commercial paper and floating rate notes with a weighted average annual effective interest rate of
0.26% and a weighted average maturity between 33 to 56 days as at 31 December 2010 (2009: 0.71% and between 30 and 55 days) (refer to note 37(g)).
2 Relates to bank accounts which are freely available and bear interest between 0.03% and 1.1%.
3 The effective interest rate as at 31 December 2010 was 1.95% (2009: 3.00%). These deposits have an average maturity from 1 to 30 days (2009: 1 to 30 days) (refer to
note 37(g)).
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Annual Report & Accounts 2010
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24 TRADE AND OTHER PAYABLES
Trade payables1
Professional fees
Interest payable
Taxes and contributions
Salaries and wages payable2
Mining royalty (note 36)
Dividends payable
Accrued expenses
Guarantee deposits
Swap contract3
Other4
Total
As at 31 December
Non-
current
US$000
–
–
–
–
2,385
–
–
8
–
–
–
2010
Current
US$000
49,407
1,247
88
11,157
21,120
3,537
339
3,777
2,697
–
22,705
Non-
current
US$000
–
–
–
–
–
–
–
81
–
–
–
2009
Current
US$000
29,026
1,179
114
9,061
13,275
2,192
336
6,304
1,307
4,337
1,370
2,393
116,074
81
68,501
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
Total
2 Salaries and wages payable were as follows:
Remuneration payable
Board members remuneration
Executive long term incentive plan
Total
2010
US$000
18,841
20,697
8,295
610
279
590
95
2009
US$000
13,783
9,298
5,006
374
140
375
50
49,407
29,026
2010
US$000
16,633
947
5,925
2009
US$000
10,956
2,319
–
23,505
13,275
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.
4 Mainly includes an account payable to Internationl Minerals due to the Minera Quellopata transaction of US$15,594,000 (refer to note 4 (b)), the account payable to
Iron Creek Capital Corp. of US$615,000 by Minera Hochschild Chile S.C.M. and the account payable related to the zero cost collar contracts of US$4,179,000 (refer to
note 12(8)).
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Notes to the consolidated financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
25 BORROWINGS
Secured bank loans (a)
Amount due to non-controlling interests (b)
Convertible bond payable (c)
Amounts due to related parties (note 30)
Total
(a) Secured bank loans
As at 31 December 2010, the balance corresponds to:
As at 31 December
Non-
current
US$000
85,525
59,028
2010
Current
US$000
Non-
current
US$000
53,030
115,854
11,074
–
103,827
5,145
103,827
–
23
–
2009
Current
US$000
34,773
75,570
1,663
902
248,380
69,272
219,681
112,908
i. Pre-shipment loans for a total amount of US$20,000,000 in Minera Santa Cruz S.A. These obligations accrue an effective
annual interest rate ranging from 1.60% to 2.40% and are guaranteed by the inventories and the trade receivables of the company
(refer to note 21). Pre-shipment loans 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$3,714,000 in Compañía Minera Ares. This obligation accrues
an effective annual interest rate of 3.25%.
iii. Leasing agreement with BIF for an amount of US$1,363,000 in Compañía Minera Ares S.A.C. This obligation accrues an
effective annual interest rate of 5.5%.
The following table demonstrates the present value and maturity of future minimum lease payments as at 31 December 2010
and 2009:
Not later than one year
Between 1 and 2 years
Between 2 and 5 years
Total
As at 31 December
2010
US$000
2009
US$000
3,774
1,279
24
5,077
4,406
3,664
935
9,005
The following table reconciles the total minimum lease payments and their present values as at 31 December 2010 and 2009:
Present value of leases
Future interest
Total minimum lease payments
As at 31 December
2010
US$000
2009
US$000
5,077
155
5,232
9,005
718
9,723
The carrying amount of net lease liabilities approximate their fair value.
iv. 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 2010 is comprised of the
secured term loan facility of US$114,320,000 plus accrued interest of $2,393,000 and net of transaction costs of US$3,235,000.
During 2010 and 2009 the Group has a swap contract with BBVA and Citibank to fix the interest rate of the loan at 1.75%.
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Annual Report & Accounts 2010
113
25 BORROWINGS (CONTINUED)
The schedule of payments is as follows:
Date
13 July 2011
15 January 2012
15 July 2012
13 January 2013
Total payments
US$000
28,560
28,560
28,560
28,640
114,320
The Company has granted the following guarantees on its $114,320,000 syndicated loan:
–(cid:3)Pledge of all shares in Compañía Minera Ares S.A.C. (“CMA”) (wholly-owned subsidiary).
–(cid:3)Subsidiary guarantees by certain wholly-owned subsidiaries whereby these subsidiaries guarantee the repayment of the loan
with their cash flows.
The main administrative and financial covenants that the Company and CMA must comply with during the term of the syndicated
loan are as follows:
–(cid:3)(cid:5)Provision of quarterly unaudited and annual audited financial statements for Hochschild Mining plc and CMA.
–(cid:3)(cid:5)Investments in restricted and unrestricted subsidiaries based on an agreed limit (unlimited within restricted subsidiaries).
–(cid:3)(cid:5)Maintain the following ratios (at a consolidated and CMA 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 CMA management and the
Administrative Agent. The Group and CMA have complied with the commitments and financial covenants mentioned in the
syndicated loan agreement.
The balance as at 31 December 2009 corresponds to:
i. Pre-shipment loans for a total amount of US$8,750,000 in CMA 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 21).
ii. Leasing agreement with Banco de Credito for an amount of US$5,693,000 in CMA. 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 entered into by CMA. 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 entered into by CMA. This obligation accrues an effective
annual interest rate of 9.01%.
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 CMA. 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 of the loan at 1.75%
(b) Amounts due to non-controlling interests
The balance as at 31 December 2010 mainly corresponds to a loan from Minera Andes Inc. to Minera Santa Cruz S.A. for an
amount of US$64,070,000 (2009: US$67,124,000) with interest rate of 7% (2009: between 7.86% and 12%). There is a further loan
of US$6,032,000 advanced to Minera Santa Cruz S.A. by Minera Andes S.A. (2009: US$8,446,000) with an interest rate of 7% (2009:
12%) (refer to note 37(g)).
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Notes to the consolidated financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
25 BORROWINGS (CONTINUED)
(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 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 conversion of the bonds into ordinary shares:
–(cid:3)Conversion premium: 35% above the Reference Share Price.
–(cid:3)Reference Share Price: GBP 2.95.
–(cid:3)Initial Conversion Price: GBP 3.9825.
–(cid:3)Fixed Exchange Rate: US$1.59/GBP 1.00.
The balance as at 31 December 2010 is comprised of the principal of US$115,000.000 (2009: US$115,000,000) plus accrued
interest of US$5,145,000 (2009: US$1,663,000) and net of transaction costs of US$2,741,000 (2009: US$2,741,000) and the bond
equity component of US$8,432,000 (2009: US$8,432,000).
The maturity of non-current borrowings is as follows:
Between 1 and 2 years
Between 2 and 5 years
Over 5 years
Total
As at 31 December
2010
US$000
59,265
2009
US$000
31,586
136,951
188,095
52,164
–
248,380
219,681
The carrying amount of current 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 non-controlling interests and related parties (fixed rates)
Convertible bond payable
Total
Carrying amount
as at 31 December
Fair value
as at 31 December
2010
US$000
2009
US$000
2010
US$000
2009
US$000
85,525
59,028
103,827
248,380
115,854
–
84,728
80,184
116,358
–
103,827
121,709
126,331
219,681
286,621
242,689
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Hochschild Mining plc
Annual Report & Accounts 2010
115
26 PROVISIONS
At 1 January 2009
Additions
Accretion
Change in discount rate
Change in estimate
Payments
Foreign exchange
Other
At 31 December 2009
Less current portion
Non-current portion
At 1 January 2010
Additions
Accretion
Change in discount rate (refer to note 11(4)
and 15)
Change in estimate
Payments
Foreign exchange
At 31 December 2010
Less current portion
Non-current portion
Workers’
profit
sharing2
US$000
Contributions
to Peruvian
Government
US$000
Long-term
Incentive
Plan³
US$000
Contingency
Consideration4
US$000
Provision
for mine
Closure¹
US$000
38,899
–
278
(2,045)
27,020
(2,831)
–
–
861
2,073
–
–
–
(948)
(78)
88
61,321
1,996
(6,640)
(1,996)
54,681
61,321
–
1,996
991
870
–
–
–
(956)
(12)
893
(893)
–
893
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Bonus to
mining
workers
US$000
–
6,918
–
–
–
Other
US$000
1,213
1,499
–
–
–
Total
US$000
41,964
11,360
278
(2,045)
27,020
(6,918)
(371)
(12,024)
–
–
–
–
–
–
30
(60)
88
2,371
66,581
(1,876)
(11,405)
495
2,371
378
–
–
–
–
55,176
66,581
73,776
538
1,137
2,583
(16,221)
1,081
14,487
1,814
1,061
39,243
15,712
538
1,137
2,583
–
–
–
(4,634)
(2,001)
–
(40)
62,026
14,442
(10,592)
(14,442)
–
–
–
(725)
(162)
1,820
(1,820)
51,434
–
–
1,061
–
–
–
–
–
–
–
–
–
–
–
–
(8,861)
14
108
(80)
1,061
39,243
6,865
2,857
128,314
–
(5,859)
33,384
(6,865)
(2,293)
(41,871)
–
564
86,443
1 The provision represents the discounted values of the estimated cost to decommission and rehabilitate the mines at the expected date of closure of each of the mines.
The present value of the provision has been calculated using a real pre-tax annual discount rate, based on a US Treasury bond of an appropriate tenure as at
31 December 2010 and 2009 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 2010 the Group
made an internal review of the provision for mine closure for all its mining units. Consequently, at 31 December 2010 an increase of US$3,664,000 (addition in estimate
of US$1,081,000 plus change in estimate of US$2,583,000) has been recognised mainly related to five additional years of water treatment at the Sipan mine unit.
Of the total amount, US$1,108,000 has been recognised as a decrease in the mine closure asset, US$1,081,000 as an addition (refer to note 15) and the remaining
US$3,691,000 has been recognised within other expenses (refer to note 11 (4)). This increase in estimate relates to the Sipan (US$3,819,000), Moris (US$176,000),
Crespo (US$620,000), Azuca (US$461,000), net of a decrease at Ares (US$38,000), Selene (US$128,000), Arcata (US$4,000), Pallancata (US$194,000), and San José
(US$1,048,000).
2 Corresponds to the workers profit sharing of Compañía Minera Ares S.A.C. (US$3,235,000) and Minera Suyamarca S.A.C. (US$11,207,000).
3 In May 2010, a grant of awards under the Group’s cash based Long-Term Incentive Plan was made. The awards will rest on satisfaction of a TSR-based performance
condition relative to a comparator group comprising international silver and gold mining companies over a three-year performance period. The performance period
runs from 1 January 2010 to 31 December 2012 and should awards vest a cash payment will be made to participants in May 2013. Only employees who remain in the
Group’s employment until this date will be entitled to a cash payment on vesting subject to exceptions approved by the Remuneration Committee of the Board. The
provision represents the discounted values of the estimated cost of the long-term employee benefit. In 2010 there is a provision of US$1,061,109 that is disclosed
under administrative expenses (US$909,154) and exploration expenses (US$151,955).
4 This contingent consideration provision relates to International Minerals Corporation’s discounted share of Hochschild’s commitment to fund the first $100,000,000
needed to plan, develop and construct a mining operations within the Inmaculada property (refer to note 4(b)).
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Notes to the consolidated financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
27 EQUITY
(a) Share capital and share premium
Issued share capital
The issued share capital of the Company as at 31 December 2010 is as follows:
Class of shares
Ordinary shares
The issued share capital of the Company as at 31 December 2009 is as follows:
Class of shares
Ordinary shares
Number
Issued
Amount
338,085,226
£84,521,307
Number
Issued
Amount
338,085,226
£84,521,307
At 31 December 2010 and 2009, all issued shares with a par value of 25p (2010: weighted average of US$0.469, 2009: weighted
average of US$0.469 per share) each were fully paid.
Rights attached to ordinary shares:
At general meetings of the Company, on a show of hands and on a poll, every member who is present in person or subject to the
below, by proxy, has one vote for every share of which they are the holder/proxy. However in the case of a vote on a show of hands
where a proxy has been appointed by more than one member, the proxy has one vote for and one vote against if the proxy has
been instructed by one or more members to vote for the resolution and by one or more members to vote against the resolution.
The changes in share capital are as follows:
Shares issued as at 1 January 2009
Shares issued and paid pursuant to the placing of shares on 12 October 2009
Shares issued as at 31 December 2009
Shares issued as at 31 December 2010
Number
of shares
307,350,226
30,735,000
338,085,226
338,085,226
Share
capital
US$000
146,466
12,171
158,637
158,637
Share
Premium
US$000
395,928
–
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 on cash flow hedges
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 and associates 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.
Bond equity component
Represents the equity component of the Convertible bond issued on 20 October 2009 (refer to note 25(c). When the initial carrying
amount of a compound financial instrument is allocated to its equity and liability components, the equity component is assigned
the residual amount after deducting the fair value of the instrument as a whole the amount separately determined for the
liability component.
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Annual Report & Accounts 2010
117
28 DEFERRED INCOME TAX
The changes in the net deferred income tax assets/(liabilities) are as follows:
Beginning of the year
Income statement (charge)/credit
Deferred income tax arising on net unrealised gains on available-for-sale financial assets recognised in equity
Initial balance of deferred tax asset of Minera Quellopata S.A.C.
Reclassification of withholding tax
Initial balance of deferred tax liability of Southwestern Group
Foreign exchange effect
End of the year
As at 31 December
2010
US$000
5,190
(24,038)
(7,189)
1,762
1,208
–
(238)
(23,305)
2009
US$000
12,619
(3,543)
71
–
–
(3,663)
(294)
5,190
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 2009
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
Income statement (credit) charge
Net deferred income tax from unrealised gain on available-for-sale financial
assets
Reclassification of withholding tax
Foreign exchange
At 31 December 2010
4,341
1,186
–
–
–
5,527
10,027
–
–
–
11,679
4,977
–
294
3,663
20,613
14,101
–
–
238
1,236
(366)
2,306
(1,447)
19,562
4,350
(71)
–
–
799
3,627
7,189
–
–
–
–
–
859
1,254
–
(1,208)
–
905
(71)
294
3,663
27,798
29,009
7,189
(1,208)
238
63,026
15,554
34,952
11,615
Deferred income tax assets:
At 1 January 2009 (restated)
Income statement credit (charge)
At 31 December 2009
Income statement credit (charge)
Arising on acquisition
At 31 December 2010
Differences
in cost
of PP&E
US$000
Provision
for mine
closure
US$000
Tax
losses
US$000
Interest
payable
US$000
Others
US$000
Total
US$000
2,048
7,759
9,807
1,873
–
11,680
5,742
(770)
4,972
1,482
–
6,454
11,559
(8,789)
2,770
3,846
–
7,268
942
8,210
(3,068)
–
6,616
5,142
5,564
1,665
7,229
838
1,762
9,829
32,181
807
32,988
4,971
1,762
39,721
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Notes to the consolidated financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
28 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
2010
US$000
2009
US$000
5,229
15,852
(28,534)
(10,662)
As at 31 December
2010
US$000
2009
US$000
–
–
–
–
23,789
23,789
624
2,997
2,548
4,592
55,416
66,177
88,313
1,100
763
607
849
6,044
9,363
543
1,411
3,137
2,667
53,231
60,989
70,352
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 assets2
Interest expense and exchange difference loss3
As at 31 December
2010
US$000
39,350
14,702
2009
US$000
44,611
–
–
13,686
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 the impairment of the San Felipe project recognised in 2010.
3 Corresponds to interest expense and exchange difference loss in respect of the project finance loan payable to Minera Andes Inc.
Unrecognised deferred tax liability on retained earnings
At 31 December 2010, there was no recognised deferred tax liability (2009: nil) for taxes that would be payable on the unremitted
earnings of certain of the Group’s subsidiaries, or its associate or joint venture as the intention is that these amounts are
permanently reinvested.
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Annual Report & Accounts 2010
119
29 DIVIDENDS PAID AND PROPOSED
Declared and paid during the year:
Equity dividends on ordinary shares:
Final dividend for 2009: US$0.02 (2008: US$0.02)
First interim for 2010: US$0.02 (2009: US$0.02)
Dividends paid to non-controlling interest: US$0.40 (2009: US$8.63 and US$0.23)
Dividends paid
Proposed for approval by shareholders at the AGM:
Final dividend for 2010: US$0.03 (2009: US$0.02)
2010
US$000
2009
US$000
6,762
6,761
26,000
39,523
6,147
6,147
7,754
20,048
10,143
6,762
Dividends per share
The dividends declared in August 2010 were US$6,761,704 (US$0.02 per share). A dividend in respect of the year ending
31 December 2010 of US$0.03 per share, amounting to a total dividend of US$10,142,557 is to be proposed at the Annual General
Meeting on 2 June 2011. These financial statements do not reflect this dividend payable.
30 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 2010 and 2009. 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.
Cementos Pacasmayo S.A.A.
Gold Resource Corp (refer to note 18(c))
Joint ventures
Cabo Sur
Total
Current related party balances
Total
Accounts receivable
at 31 December
Accounts payable
at 31 December
2010
US$000
2009
US$000
2010
US$000
2009
US$000
28
291
1,290
1,609
–
–
1,609
1,609
1,609
28
–
–
28
968
968
996
996
996
–
23
–
23
–
–
23
23
23
–
–
–
–
902
902
902
902
902
As at 31 December 2010 and 2009 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.
Principal transactions between affiliates are as follows:
Income
Gain on sale of Zincore Metals Inc. shares to Inversiones Pacasmayo S.A. (refer to note 18(d))
Dividend recognised for Gold Resource Corp. investment (refer to note 18(a))
Revenue recognised for services performed to Gold Resource Corporation
Transactions between the Group and these companies are on an arm’s-length basis.
As at 31 December
2010
US$000
2009
US$000
7,533
2,633
29
–
–
–
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Notes to the consolidated financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
30 RELATED-PARTY BALANCES AND TRANSACTIONS (CONTINUED)
(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
2010
US$000
11,121
11,121
2009
US$000
8,679
8,679
This amount includes the remuneration paid to the Directors of the parent company of the Group of US$6,996,557 (2009:
US$5,931,185), out of which US$239,975 (2009: US$399,117) relates to pension payments.
Compensation of key management personnel (including directors)
Short term employee benefits
Termination benefits
Long term incentive plan
Workers profit sharing
Others
Total compensation
As at 31 December
2010
US$000
6,751
1,170
2,348
205
647
11,121
2009
US$000
7,971
63
–
99
546
8,679
In 2009, 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 2010 was nil (2009: US$227,214,
composed of principal of US$200,000 and interest of US$27,214).
(c) Participation in placing by Pelham Investment Corporation (“Pelham”)
Pelham, a company controlled by the Executive Chairman, 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.
(d) Purchase of additional interest in Inmaculada project
During the year, the Group acquired an additional interest in the Inmaculada project effectively diluting the interest of its joint-
venture partners, International Minerals Corporation (“IMZ”). This acquisition qualified as a small related party transaction under
the UKLA Listing Rules in light of IMZ’s 40% interest in the Pallancata Joint-Venture. See note 4(b) for further details.
31 AUDITOR’S REMUNERATION
The auditor’s remuneration for services provided to the Group during the years ended 31 December 2010 and 2009 is as follows:
Audit fees pursuant to legislation1
Other services pursuant to legislation
Other services relating to taxation
Services relating to corporate finance transactions
Total
Ernst & Young
year ended
31 December
2010
US$000
1,250
150
139
241
2009
US$000
1,255
188
206
94
1,780
1,743
Others
year ended
31 December
2010
US$000
2009
US$000
38
–
–
–
38
30
–
–
–
30
1 Includes US$408,000 (2009: US$515,000) 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 2010 all fees are included in administrative expenses, within the “professional fees” caption (refer to note 7).
In 2009, US$1,650,000 are included in administrative expenses, within the “professional fees” caption (refer to note 7), 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.
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Annual Report & Accounts 2010
121
32 NOTES TO THE STATEMENT OF CASH FLOWS
Reconciliation of profit for the year to net cash generated from operating activities
Profit for the year
Adjustments to reconcile Group operating profit to net cash inflows from operating activities:
Depreciation (refer to note 15)
Amortisation of intangibles
Impairment and write-off of assets (net)
Write-off of other receivables
Write-off of value added tax
Negative goodwill generated in acquisition of subsidiary
Loss/(gain) on sale/disposal of property, plant and equipment
Loss/(gain) on sale of other assets
Transfer of lease contract
Gain on sale of available-for-sale financial assets
Gain on sale of investment in associates
Share of post tax losses/(gains) of associates and joint ventures accounted under equity method
Increase in provision for mine closure
Unwind of discount of value added taxes
Finance income
Finance costs
Income tax expense
Provision for obsolescence of supplies
Compensation claims provision
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
As at 31 December
2010
US$000
2009
US$000
216,665
121,340
102,446
2,368
24,018
241
949
–
93
373
594
(5,915)
(77,197)
6,080
3,838
(283)
83,911
311
26,713
–
–
(7,694)
(153)
–
–
–
–
(47,223)
11,526
–
(7,146)
(28,684)
29,542
72,030
1,252
378
469
47,296
33,470
1,535
–
63
(42,239)
(19,045)
7,264
(27,389)
(10,095)
31,140
21,785
4,690
(22,831)
4,507
3,771
2,195
351,261
215,698
Transactions not affecting cash flows
The main transactions that did not affect cash flows and which are not disclosed elsewhere in the financial statements are:
Compensation of income tax payable with value added tax
As at 31 December
2010
US$000
31,065
2009
US$000
–
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Notes to the consolidated financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
33 COMMITMENTS
(a) Mining rights purchase options
During the ordinary course of business, the Group enters into agreements to carry out exploration under concessions held by
third parties. Generally, under the terms of these agreements, the Group has the option to acquire the concession or invest in the
entity holding the concession. In order to exercise 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 obligations. 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
Some of the significant transactions are explained below:
As at 31 December
2010
US$000
1,208
5,760
2009
US$000
560
10,436
(i) 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 had the right to acquire a 51% interest in the project by investing US$3,000,000 within three
years. At 31 December 2010, the Group completed the investment and exercised its option to acquire a 51% interest in the project.
(ii) 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 is obliged to invest at least US$750,000 before withdrawing from the venture.
At 31 December 2010 the Group completed the investment of US$6,000,000 (31 December 2009 US$1,668,000) and exercised its
option to obtain a 60% interest over the project.
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.
(iii) 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 “Los Amigos” project (part of the La Flora property). At 31 December 2010 the Group invested US$607,000 in
the project.
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 at any time without incurring any further
expenditures or penalties.
(iv) Sociedad Contractual Minera Valleno (Valeriano)
On 10 November 2010, the Group entered into a purchase option agreement with Sociedad Contractual Minera Valleno amongst
others (“Minera Valleno”) to earn in a right to 100% of the properties in the “Valeriano Project Area” located in Chile, currently
owned by Minera Valleno. Upon signing of the agreement the Group paid US$500k to Minera Valleno.
In order to exercise the option, the Group is required to incur exploration expenditure of US$3,000,000 within three years and is
required to undertake exploration works comprising 2,000 metres of drilling by 31 December 2011 and 7,600 metres of drill holes
by 31 December 2013. The Group is able to withdraw from the agreement at any time prior to incurring the required exploration
work expenditure to vest the option but after having funded the first US$1,000,000 in exploration expenditure. As at 31 December
2010 the Group has a provision of US$1,000,000 disclosed in “Trade and other payables”, under the caption “Accrued Expenses”.
(v) Minera Zalamera S.A. de C.V. (Corazón de Tinieblas)
On 18 December 2010, the Group entered into a purchase option agreement with Minera Zalamera S.A. de C.V. (“Minera
Zalamera”) to earn in a right to 100% of the properties in the “Corazón de Tinieblas Project Area” located in Guerrero, Mexico,
currently owned by Minera Zalamera. Upon signing of the letter of intent the Group paid US$10,000 and upon signing the
purchase option agreement the Group paid US$25,000 to Minera Zalamera.
In order to exercise the option, the Group is required to make a total payment of US$2,100,000 and incur exploration expenditure
of US$4,000,000 within five years by 31 October 2015. The Group is entitled to withdraw from the agreement at any time prior to
incurring the exploration work expenditure necessary to vest the option.
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Hochschild Mining plc
Annual Report & Accounts 2010
123
33 COMMITMENTS (CONTINUED)
(b) Operating lease contract
The Group has a number of operating lease agreements.
The lease expenditure charged to the income statement during the years 2010 and 2009 are included in the production costs
and administrative expenses.
As at 31 December 2010 and 2009, the future aggregate minimum lease payments under the operating lease agreements are
as follows:
For the year ended 31 December
Not later than one year
Later than one year and not later than five years
2010
US$000
2,245
1,490
2009
US$000
1,777
2,431
(c) Finance lease contract
During 2009 Compañía Minera Ares S.A.C. signed lease agreements for equipment with Banco de Crédito del Peru, Interbank and
Banco Interamericano de Finanzas (refer to note 25).
(d) Capital commitments
Peru
Mexico
Argentina
For the year ended
31 December
2010
US$000
39,490
34
6,200
45,724
2009
US$000
34,089
247
14,900
49,236
34 CONTINGENCIES
As at 31 December 2010, 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 undertaken by it, there remains a risk that significant additional tax liabilities may arise. At 31 December 2010,
the Group has exposures totalling US$26,760,000 which are assessed as “possible”, rather that “probable”. No amounts have
been provided in respect of these items.
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.
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Notes to the consolidated financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
35 GUARANTEES AND TAX STABILITY AGREEMENTS
(a) Compañía Minera Ares S.A.C. (“CMA”)
Arcata Unit
On 31 July 2007, the Ministry of Energy and Mines granted legal stability to CMA for the Arcata operating unit, starting 1 January
2009 for a 10-year term.
Under the terms of the arrangement, the Peruvian Government is obliged to guarantee stability of the tax regime that was
in effect as at 5 February 2007, for a period of 10 years.
On 8 June 2009, CMA effectively resigned part of the stability agreement as the actual income tax rate (30%) was lower than the
rate included in the stability agreement (32%).
(b) Minera Santa Cruz S.A. (“MSC”)
MSC has been granted with tax stability certificates in relation to provincial and national taxes in Argentina in respect of the
San José mine. The stability certificates run for a 30-year period commencing on 21 November 2005.
Under these certificates and the Mining Investment Law No 24,196, MSC’s tax stability in respect of the San José operating unit
covers, among others, the following areas:
–(cid:3)(cid:5)The mining royalty cannot exceed 3% of the pit-head value of the production. 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
where the final product is doré; and (ii) 2.55% of the pit-head value of the production where the final product is mineral
concentrate or precipitates.
–(cid:3)(cid:5)The National Export tax is 5% where 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:3)(cid:5)Income tax rate no higher than 35%.
36 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 2010, the amount payable as mining royalties for the mining
units of Ares, Arcata and Pallancata amounted to approximately US$2,946,000 (Ares, Arcata, Selene, and Pallancata amounted to
US$1,988,000 as at 31 December 2009), and is recorded under the caption “Trade and other payables” in the Statement of
Financial Position. The amount recorded in the Income Statement was US$11,223,000 (2009: US$7,287,000).
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 2010, the
amount payable as mining royalties amounted to US$591,000 (2009: US$204,000). The amount recorded in the income statement
was US$3,868,000 (2009: US$2,171,000).
37 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.
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Annual Report & Accounts 2010
125
37 FINANCIAL RISK MANAGEMENT (CONTINUED)
(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, Argentinian 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 of financial assets and liabilities, at the reporting date denominated in their
respective currencies, 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
2010
Pounds sterling
Argentinian pesos
Mexican pesos
Peruvian nuevos soles
Canadian dollars
2009
Pounds sterling
Argentinian pesos
Mexican pesos
Peruvian nuevos soles
Canadian dollars
Increase/
decrease in
US$/other
currencies’
rate
Effect
on profit
before tax
US$000
+/–10%
+/–10%
+/–10%
+/–10%
–/+107
–/+227
+/–679
+/–852
Effect
on equity
US$000
+/–840
–
–
–
+/–10%
+/–415
+/–14,519
+/–10%
+/–194
+/–309
+/–10%
+/–22
+/–10%
+/–400
+/–10%
–/+3,431
–
–
–
+/–10%
–
+/–1,596
(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.
During 2008, 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 5 and 22(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
2010
2009
Increase/
decrease
price of
ounces of:
Gold
+/–10%
Silver
+/–10%
Gold
+/–10%
Silver
+/–10%
Effect
on profit
before tax
US$000
+/–713
+/–5,334
+/–550
–1,534
+766
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Notes to the consolidated financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
37 FINANCIAL RISK MANAGEMENT (CONTINUED)
(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, including embedded derivatives, cash balances in banks and
hedging activities as at 31 December 2010 and 31 December 2009:
Summary commercial partners – Trade receivables
Teck Metals Ltd (formerly Teck Cominco Metals Ltd.)
Aurubis AG (formerly Nordeutsche Affinerie AG)
Consorcio Minero S.A.
LS Nikko.
MRI Trading AG
Johnson Matthey Inc.
Doe Run Peru S.R.L.
Argor Heraus S.A.
Traxys Peru S.A.C.
Others
Summary commercial partners – Embedded derivatives
Teck Metals Ltd (formerly Teck Cominco Metals Ltd.)
Consorcio Minero S.A.
LS Nikko.
Aurubis AG (formerly Nordeutsche Affinerie AG)
MRI Trading AG
Argor Heraus S.A.
Traxys Peru S.A.C.
As at
31 December
2010
US$000
Credit
rating or %
collected as
at 24 March
2011
As at
31 December
2009
US$000
Credit
rating or %
collected as
at 23 March
2010
30,274
24,802
11,577
10,691
6,380
4,313
1,108
215
34
10
89,404
BBB
99%
82%
A1
92%
100%
0%
100%
0%
0%
17,481
29,040
21,628
4,922
2,078
605
1,108
116
–
3
76,981
BB+
91%
92%
A1
98%
100%
0%
100%
–
NA
As at
31 December
2010
US$000
Credit
rating or %
collected as
at 24 March
2011
As at
31 December
2009
US$000
Credit
rating or %
collected as
at 23 March
2010
6,464
4,347
2,916
2,498
245
24
18
16,512
BBB
82%
A1
99%
92%
100%
0%
497
58
(187)
248
(96)
–
–
520
BB+
92%
A1
91%
98%
–
–
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Annual Report & Accounts 2010
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37 FINANCIAL RISK MANAGEMENT (CONTINUED)
Financial counterparties
JP Morgan
Citibank
Banco Nacional de México
Banco de Crédito del Peru
Banco de la Nación (Peru)
Banco Bilbao Vizcaya Argentaria
Banorte
TD Canada Trust
Banco Santander
HSBC
Bank of Montreal
Scotiabank
Others (including cash in hand)
Total
As at
31 December
2010
US$000
As at
31 December
2009
US$000
Credit
rating1
Credit
rating1
380,887
92,406
–
A+
A
–
30,474
BBB
–
–
5,426
1,519
956
900
618
598
74
11,624
525,482
–
AA
BBB–
–
AA
AA
A+
AA–
NA
13,024 A –1 +(S&P)
40,348 A –1(S&P)
5,350
11,691
1,072
F1(FR)
F2(FR)
A(S&P)
199 A –1 +(S&P)
–
–
–
–
1,001 A –1(S&P)
818
–
B(S&P)
–
67 A –3(S&P)
4,274
77,844
NA
1 As at 31 December 2010, the Group included the long term credit rating. As at 31 December 2009, the Group included the short term credit rating.
As a result of the recent financial crisis, the Group evaluated and introduced additional efforts to try to mitigate credit risk
exposure.
To manage the credit risk associated with commercial activities, the Group took the following steps:
–(cid:3)(cid:5)Active use of prepayment/advance clauses in sales contracts.
–(cid:3)(cid:5)Delaying delivery of title and/or requiring advance payments to reduce exposure timeframe (potential delay in sales recognition).
–(cid:3)(cid:5)Obtaining parent guarantees to shore up the credit profile of the customer (where possible).
–(cid:3)(cid:5)Maintaining as diversified a portfolio of clients as possible.
–(cid:3)(cid:5)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 took the following steps:
–(cid:3)(cid:5)Increasing banking relationships with large, established and well-capitalised institutions in order to secure access to credit and
to diversify credit risk.
–(cid:3)(cid:5)Investing cash (to the extent possible) with counterparties with whom the Group has debt outstanding.
–(cid:3)(cid:5)Investing cash in short-term, highly liquid and low risk instruments (money market accounts).
–(cid:3)(cid:5)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 20.
There are no exposures related to loans to non-controlling interest.
(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.
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Notes to the consolidated financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
37 FINANCIAL RISK MANAGEMENT (CONTINUED)
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
2010
2009
Increase/
decrease in
prices
+25%
–25%
+10%
–10%
Effect
on profit
before tax
US$000
+1,895
–2,066
–
–
Effect
on equity
US$000
+38,405
–38,300
+1,917
–1,917
(e) Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation
technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either
directly or indirectly.
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable
market data.
As at 31 December 2010 and 2009, the Group held the following financial instruments measured at fair value:
Assets measured at fair value
Embedded derivatives (refer to note 22(3))
Equity shares (refer to note 19)
Warrants
Liabilities measured at fair value
Swap contracts (refer to note 22(5))
Assets measured at fair value
Embedded derivatives (refer to note 22(3))
Equity shares (refer to note 19)
Debt securities (refer to note 19)
Liabilities measured at fair value
Embedded derivatives (refer to note 22(3))
Zero cost collars contracts (refer to note 22(4))
Swap contracts (refer to note 22(5))
31 December
2010
US$000
Level 1
US$000
Level 2
US$000
16,512
–
153,620
140,039
4,150
1,930
–
–
–
–
4,150
1,930
31 December
2009
US$000
695
19,173
8
175
2,452
13
Level 1
US$000
–
7,430
8
–
–
–
Level 2
US$000
–
–
–
–
2,452
13
During the period ending 31 December 2010 and 2009, there were no transfers between these levels.
The reconciliation of the financial instruments categorised as level 3 is as follows:
Balance at 31 December 2009
Gain from the period recognised in revenue (refer to note 5)
Fair value change through equity
Balance at 31 December 2010
Embedded
derivatives
assets
US$000
Embedded
derivatives
liabilities
US$000
695
15,817
–
16,512
(175)
175
–
–
Level 3
US$000
16,512
13,581
–
–
Level 3
US$000
695
11,743
–
175
–
–
Equity
shares
US$000
11,743
–
1,838
13,581
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Hochschild Mining plc
Annual Report & Accounts 2010
129
37 FINANCIAL RISK MANAGEMENT (CONTINUED)
(f) 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. In 2010 the Group has maintained these short term bank lines.
The table below categorises the undiscounted cash flows of 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. Interest cash flows have been
calculated using the spot rate at year end.
At 31 December 2010
Trade and other payables
Swap contracts
Borrowings
Provisions
Total
At 31 December 2009
Trade and other payables
Swap contracts
Borrowings
Total
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
102,220
2,393
1,938
75,133
5,895
–
69,978
34,105
–
–
–
–
104,613
1,938
163,634
66,068
374,813
1,095
–
41,095
185,186
106,476
164,729
66,068
522,459
58,133
13
123,412
181,558
81
–
–
–
39,819
209,178
39,900
209,178
–
–
–
–
58,214
13
372,409
430,636
(g) 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 2010
Fixed rate
Cash at bank (note 23)
Time deposits (note 23)
Loans to non-controlling interests (note 20)
Amounts due to non-controlling interests (note 25)
Secured bank loans (note 25)
Convertible bond payable (note 25)
Floating rate
Liquidity funds (note 23)
Within
1 year
US$000
694
56,393
9,393
(11,074)
(53,030)
(5,145)
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
–
–
1,173
(1,668)
–
–
–
–
2,047
28,945
(5,196)
(52,164)
(70,102)
(57,597)
(27,928)
–
(103,827)
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US$000
694
56,393
41,558
–
–
–
(138,555)
(108,972)
380,887
380,887
–
–
130
Notes to the consolidated financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
37 FINANCIAL RISK MANAGEMENT (CONTINUED)
Fixed rate
Cash at bank (note 23)
Time deposits (note 23)
Loans to non-controlling interests (note 20)
Amounts due to non-controlling interests (note 25)
Secured bank loans (note 25)
Convertible bond payable (note 25)
Floating rate
Liquidity funds (note 23)
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
–
–
–
–
–
–
–
–
(31,586)
(84,268)
–
–
(103,827)
–
–
–
–
–
–
–
–
1,430
7,673
39,443
(75,570)
(150,627)
(105,490)
12,994
Within
1 year
US$000
1,430
7,673
39,443
(75,570)
(34,773)
(1,663)
12,994
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 2010 and 2009 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
2010
2009
Increase/
decrease
interest
rate
Effect
on profit
before tax
US$000
+/–50bps
+/–1,904
+/–50bps
–/+490
(h) 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 25 and 27). Even though management aims to maintain the Group´s debt free position in order to offer
shareholders maximum exposure to commodity prices, other than for the use of short term pre-shipment financing (financing of
commercial accounts receivables and finished goods inventory), management reserves the right to raise financial debt in order to
fund new future operations and/or mergers’ and acquisitions’ activity. Should such an event occur, financial leverage would be
kept within an appropriate level:
–(cid:3)Less than 2.5x EBITDA (2010: 0.77x)
–(cid:3)Less than 20% of Capital Structure (Debt plus Market Capitalisation) (2010: 0.08x)
All leverage incurred beyond the use of short-term pre-shipment credit lines, is reviewed and approved by the Board.
Management also retains the right to fund operations (fully owned and joint ventures) with a mix of equity and joint venture
partners’ debt. Debt financing provided by joint venture partners is not included within the thresholds described above.
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
131
38 SUBSEQUENT EVENTS
(a) Repayment of syndicated loan facility led by JP Morgan
On 28 January 2011, the Group repaid the total outstanding principal amount of US$114,320,000 plus interest of US$383,448
under the syndicated loan facility led by JP Morgan. In addition, on 31 January 2011, the Group cancelled the two interest rate
swap contracts signed with Citibank and BBVA related to this facility. The amount paid to cancel these contracts was
US$1,667,500.
(b) Payment of Project Finance Loan interest and receipt of interest from Minera Andes Inc (“MAI”)
In January 2011, Minera Santa Cruz S.A. paid US$9,120,786 of interest that had arisen under the Project Finance Loan from MAI.
In addition, the Group collected the same amount from MAI, representing interest on the Project Finance Loan advanced by the
Group to MAI.
(c) Sale of remaining interest in Lake Shore Gold
On 2 December 2010 the Group entered into a Block Trade Letter Agreement (“the Agreement”) with RBC Capital Markets to
dispose of the Group’s remaining 21,540,992 common shares in Lake Shore Gold (approximately 5.4% interest in Lake Shore Gold
on a fully diluted basis) at a price of CAD$3.70 per share raising total net proceeds of CAD$79,701,670. Due to the size of the
combined sales (the initial disposal of 27.3% of Lake Shore Gold in November 2010 and the subsequent disposal of the remaining
5.4%), the second transaction was subject to shareholder approval which was granted on 8 February 2011. The transaction closed
on the same date and a gain of US$4,950,000 will be recognised in 2011 in respect of the disposal.
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Parent company statement of financial position
As at 31 December 2010
Hochschild Mining plc
Annual Report & Accounts 2010
ASSETS
Non-current assets
Property, plant and equipment
Investments in subsidiaries
Investments in associates
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
Trade and other payables
Borrowings
Provisions
Current liabilities
Trade and other payables
Other financial liabilities
Borrowings
Total liabilities
Total equity and liabilities
As at 31 December
Notes
2010
US$000
2009
US$000
4
5
6
8
9
223
316
2,319,649
1,350,395
–
4,651
2,319,872
1,355,362
3,128
–
1,191
4,319
3,878
40
5,581
9,499
2,324,191
1,364,861
10
10
158,637
158,637
416,154
416,154
1,321,898
356,185
177,661
208,327
2,074,350
1,139,303
11
12
13
11
14
12
223
–
188,049
215,082
44
–
188,316
215,082
25,194
1,930
34,401
61,525
7,183
13
3,280
10,476
249,841
225,558
2,324,191
1,364,861
The financial statements on pages 132 to 152 were approved by the Board of Directors on 28 March 2011 and signed on its
behalf by:
Ignacio Bustamante
Chief Executive Officer
28 March 2011
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Hochschild Mining plc
Annual Report & Accounts 2010
133
Parent company statement of cash flows
For the year ended 31 December 2010
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
Reversal of impairment of subsidiary
Gain on sale of associates
Income tax expense
Finance income
Finance costs (excluding impairment of available-for-sale financial assets)
Foreign exchange loss/(gain)
Increase (decrease) of cash flows from operations due to changes in assets and liabilities:
Other receivables
Trade and other payables
Provision for 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
Receipts on sale of associates
Loans to subsidiaries
Net cash generated from/(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 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
Year ended 31 December
Notes
2010
US$000
2009
US$000
950,487
(11,577)
4
93
(967,630)
(4,947)
8
(55)
12,389
52
814
(439)
44
(9,184)
40
(8,249)
–
115
–
–
(11)
(1,049)
8,584
(3,183)
(726)
4,841
–
(3,006)
1,148
(9,383)
29
(17,393)
(11,212)
–
(5)
(1,624)
(216,806)
9,598
(9)
(4,651)
(2,500)
7,965
(223,962)
18,613
115,000
–
–
(85,680)
(3,568)
(13,523)
(12,294)
–
–
5,090
(4,338)
(52)
5,581
1,191
143,621
(3,453)
153,626
(81,548)
3,183
83,946
5,581
4
5
6
16
10
10
9
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Parent company statement of changes in equity
For the year ended 31 December 2010
Hochschild Mining plc
Annual Report & Accounts 2010
Balance at 1 January 2009
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 valuation of cash
flow hedges
Other comprehensive income
Loss for the year
Total comprehensive loss for 2009
Issuance of shares
Transfer
Issuance of convertible bonds
Dividends
Equity share
capital
US$000
Share
premium
US$000
146,466
416,154
–
–
–
–
–
–
12,171
–
–
–
–
–
–
–
–
–
–
–
–
–
Unrealised
gain/(loss)
on
available-
for-sale
financial
assets and
valuation of
cash flow
hedges
US$000
Bond equity
component
US$000
Merger
reserve
US$000
Total other
reserves
US$000
Retained
earnings
US$000
Total equity
US$000
–
654
(654)
(13)
(13)
–
(13)
–
–
–
–
–
–
–
–
–
–
–
–
–
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
–
(12,294)
(12,294)
Balance at 31 December 2009
158,637
416,154
(13)
8,432
347,766
356,185
208,327
1,139,303
Unrealised gain/(loss) in the valuation of cash
flow hedges
Recycling of the change in fair value of cash
flow hedges
Other comprehensive income
Profit for the year1
Total comprehensive loss for 2010
Transfer1
Dividends
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,346)
429
(1,917)
–
(1,917)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,346)
429
(1,917)
–
–
–
(2,346)
429
(1,917)
–
950,487
950,487
(1,917)
950,487
948,570
967,630
967,630
(967,630)
–
–
–
(13,523)
(13,523)
Balance at 31 December 2010
158,637
416,154
(1,930)
8,432
1,315,396
1,321,898
177,661
2,074,350
1 The profit for the year includes the reversal of the impairment of the investment in subsidiaries of US$967,630,000 (refer to note 5). This amount has subsequently
been transferred from retained earnings to the merger reserve.
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
135
Notes to the parent company financial statements
For the year ended 31 December 2010
1 CORPORATE INFORMATION
Hochschild Mining plc (hereinafter “the Company”) is a public limited company incorporated on 11 April 2006 under the
Companies Act 1985 as a Limited Company and registered in England and Wales with registered number 05777693.
The Company’s registered office is located at 46 Albemarle Street, London W1S 4JL, United Kingdom. The Company was
incorporated to serve as a holding company to be listed on the London Stock Exchange. The Company acquired its interest
in a group of companies to constitute the Hochschild Mining Group (“the Group”) pursuant to a share exchange agreement
(“Share Exchange Agreement”) dated 2 November 2006.
The ultimate controlling party of the Company is Mr Eduardo Hochschild whose beneficial interest in the Company and its
subsidiaries (together “the Group” or “Hochschild Mining Group”) is held through Pelham Investment Corporation, a Cayman
Islands company.
On 8 November 2006, the Company’s shares were admitted to the Official List of the UKLA (United Kingdom Listing Authority)
and to trading on the London Stock Exchange.
2 SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of preparation
The Company’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union and are also consistent with IFRS issued by the IASB, as applied in accordance with the
Companies Act 2006.
The financial statements of the Company have been prepared on a historical cost basis, except for derivatives and available-for-
sale financial instruments which have been valued at fair value. The financial statements are presented in US dollars (US$) 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 2010 and 31 December 2009. 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 impairment 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 for the adoption of new and
amended standards:
The Company 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 Company.
–(cid:3)IFRIC 17 “Distributions of Non-cash Assets to Owners”, applicable for annual periods beginning on or after 1 July 2009.
This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to
shareholders either as a distribution of reserves or as dividends. The interpretation had no effect on the financial position
or performance of the Company.
–(cid:3)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. The amendment had no effect on the financial position or performance of the Company.
–(cid:3)IFRS 2 “Group Cash-settled Share-based Payment Arrangements”, applicable for annual periods beginning on or after
1 January 2010.
The standard has been amended to clarify the accounting for group cash-settled share-based payment transactions, where a
subsidiary receives goods or services from employees or suppliers but the parent or another entity in the group pays for those
goods or services. IFRIC 8 and IFRIC 11 have been withdrawn. This amendment had no effect on the financial position or
performance of the Company.
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Notes to the parent company financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
–(cid:3)Improvements to International Financial Reporting Standards (issued 2009)
Includes 15 amendments to 12 standards.
Applicable for annual periods beginning on or after 1 July 2009: IFRS 2 Share-based Payment, IAS 38 Intangible Assets, IFRIC 9
Reassessment of Embedded Derivatives, IFRIC 16 Hedges of a net Investment in a Foreign Operation.
–(cid:3)Effective immediately on issue date in April 2009: IAS 18 Revenue.
Certain new standards, amendments and interpretations to existing standards have been published and are mandatory for
the Company’s accounting periods beginning on or after 1 January 2011 or later periods but which the Company 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) Property, plant and equipment
Property, plant and equipment is stated at 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 its own physical life. Estimates of remaining useful lives are made on a
regular basis for all buildings, machinery and equipment, with annual reassessments for major items. Depreciation is charged
to administrative expenses over the estimated useful life of the individual asset on a straight-line basis. Changes in estimates
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.
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 Company 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 Company 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 six or more months.
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 expenditure are recognised in the income
statement as incurred.
(g) 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 Company
assesses investments for impairment whenever events or changes in circumstances indicate that the carrying value of an
investment may not be recoverable. If any such indication of impairment exists, the company makes an estimate of its recoverable
amount. Where the carrying amount of an investment exceeds its recoverable amount, the investment is considered impaired
and is written down to its recoverable amount. If, in 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 profit and loss account,
to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.
Unlocking value through exploration
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Annual Report & Accounts 2010
137
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h) 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.
(i) Dividends receivable
Dividends are recognised when the Company’s right to receive payments is established. Dividends received are recorded in the
income statement.
(j) 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.
(k) 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.
(l) 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.
(m) 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.
Uncertainties in estimating the award include potential changes in the TSR, the number of participants in the plan, and levels
of interest rates.
Where the Company is remunerating employees of its subsidiaries through a share based payment, the costs of the
transactions are recorded as capital contributions in the subsidiaries.
(n) 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.
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Notes to the parent company financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(o) 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:3)(cid:5)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:3)(cid:5)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.
(p) 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:
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.
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
139
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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
For available-for-sale financial assets, the Company assesses at each reporting date whether there is objective evidence that
an investment or a group of investments is impaired.
In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged
decline in the fair value of the investment below its cost, where ‘significant’ is estimated to be around 30% of the original cost
of the investment and ‘prolonged’ is no more than 12 months. In addition, the Company analyses each case, taking into account
the portfolio of projects of the Company, the key technical personnel and the viability of the Company to finance its projects.
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:3)(cid:5)the rights to receive cash flows from the asset have expired; or
–(cid:3)(cid:5)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.
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Notes to the parent company financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
(q) 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.
(r) 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 gain attributable to equity shareholders of US$950,487,000 (2009: loss of US$11,577,000).
4 PROPERTY, PLANT AND EQUIPMENT
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 value at 31 December 2009
Year ended 31 December 2010
Cost
At 1 January 2010 and 31 December 2010
Accumulated depreciation
At 1 January 2010
Depreciation
At 31 December 2010
Net book value at 31 December 2010
Office
Building
US$000
Equipment
US$000
Total
US$000
277
–
277
18
29
47
230
262
5
267
95
86
181
86
277
267
47
27
74
203
181
66
247
20
539
5
544
113
115
228
316
544
228
93
321
223
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Annual Report & Accounts 2010
141
5 INVESTMENTS IN SUBSIDIARIES
Year ended 31 December 2009
Cost
At 1 January 2009
Additions
At 31 December 2009
Accumulated Impairment
At 1 January 2009
At 31 December 2009
Net book value at 31 December 2009
Year ended 31 December 2010
Cost
At 1 January 2010
Additions
At 31 December 2010
Accumulated impairment
At 1 January 2010
Reversal of impairment
At 31 December 2010
Net book value at 31 December 2010
Total
US$000
2,101,219
216,806
2,318,025
967,630
967,630
1,350,395
2,318,025
1,624
2,319,649
967,630
(967,630)
–
2,319,649
The breakdown of the investments in subsidiaries is as follows:
Name
Hochschild Mining Holdings Limited
Total
As at 31 December 2010
Country of
incorporation
England &
Wales
Equity
interest
%
100%
Carrying
value
US$000
As at 31 December 2009
Country of
incorporation
Equity
interest
%
Carrying
value
US$000
2,319,649 England &
100%
1,350,395
Wales
2,319,649
1,350,395
The list of subsidiaries of the Group is presented in note 1 (Corporate information) of the notes to the Consolidated Financial
Statements.
During 2009, the Company subscribed for 1,800 shares of £1.00 each in Hochschild Mining Holdings Limited through capital
contributions paid in cash totalling US$216,805,529.
During 2010, the Company subscribed for 100 shares of £1.00 each in Hochschild Mining Holdings Limited through capital
contributions paid in cash totalling US$1,623,454.
The Company reversed in 2010 the impairment recognised in 2008 of US$967,629,582, following the significant improvements in
the commodity markets during 2010, and the resulting impact on the value of the Group´s operations and investments.
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Notes to the parent company financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
6 INVESTMENTS IN ASSOCIATES
Zincore Metals Inc.
Total
Year ended 31 December
2010
US$000
2009
US$000
–
–
4,651
4,651
On 10 September 2009 the Company purchased 38,100,000 shares of Zincore Metals Inc. (“Zincore”) 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%.
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 (a total of C$10,287,000 (US$9,978,390)) representing a 11.6% premium over the 20 day
average closing price, realising a gain on disposal of US$4,947,000. 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 comprised solely by independent Non-Executive
Directors (“the Independent Committee”). The Independent Committee was advised by Canaccord Adams Limited that the terms
of the disposal are fair and reasonable as far as shareholders are concerned.
7 AVAILABLE-FOR-SALE FINANCIAL ASSETS
Beginning balance
Fair value change recorded in equity
Disposals1
Ending balance
Year ended 31 December
2010
US$000
2009
US$000
–
–
–
–
57
654
(711)
–
1 At 31 December 2009, the Company had sold its investment in Mirasol Resources Ltd. to Hochschild Mining Holdings Ltd. for a total cash consideration of US$711,000.
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Annual Report & Accounts 2010
143
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
2010
US$000
2009
US$000
2,773
3,214
255
–
461
100
3,589
(461)
3,128
362
35
667
100
4,378
(500)
3,878
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$461,000 accrued in 2008 and partially recovered in 2010
(2009: US$500,000).
Movements in the provision for impairment of receivables:
At 1 January 2009
Charge for the year
Amounts recovered
At 31 December 2009
Amounts recovered
At 31 December 2010
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
–
(258)
500
(39)
(461)
–
–
–
–
–
–
758
–
(258)
500
(39)
(461)
Past due but not impaired
Year
2010
2009
9 CASH AND CASH EQUIVALENTS
Neither
past
due nor
impaired
US$000
3,128
3,711
Total
US$000
3,128
3,878
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
–
–
–
–
–
–
–
167
–
–
Bank current account
Liquidity funds1
Cash and cash equivalents considered for the cash flow statement
Year ended 31 December
2010
US$000
2009
US$000
43
1,148
1,191
330
5,251
5,581
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
0.26% and a weighted average maturity between 33 to 56 days as at 31 December 2010 (2009: 0.71% and between 30 to 55 days) (refer to note 17(d)). The liquidity funds
generated interest of US$4,000 (2009: US$301,000).
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Notes to the parent company financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
10 EQUITY
(a) Share capital and share premium
Issued share capital
The issued share capital of the Company as at 31 December 2010 is as follows:
Class of shares
Ordinary Shares
The issued share capital of the Company as at 31 December 2009 is as follows:
Class of shares
Ordinary Shares
Number
Issued
Amount
338,085,226
£84,521,307
Number
Issued
Amount
338,085,226
£84,521,307
At 31 December 2010 and 2009, all issued shares with a par value of 25p (2010: weighted average of US$0.469, 2009: weighted
average of US$0.469 per share) each were fully paid.
Rights attached to ordinary shares
At general meetings of the Company, on a show of hands and on a poll, every member who is present in person or subject to the
below by proxy, has one vote for every share of which they are the holder/proxy. However in the case of a vote on a show of hands
where a proxy has been appointed by more than one member, the proxy has one vote for and one vote against if the proxy has
been instructed by one or more members to vote for the resolution and by one or more members to vote against the resolution.
The changes in share capital are as follows:
Shares issued as at 1 January 2009
Shares issued and paid pursuant to the placing of shares on 12 October 2009
Shares issued as at 31 December 2009
Shares issued as at 31 December 2010
Number of shares
307,350,226
30,735,000
338,085,226
338,085,226
Equity share
capital
US$000
Share premium
US$000
146,466
12,171
158,637
158,637
416,154
–
416,154
416,154
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 fair 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.
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Annual Report & Accounts 2010
145
11 TRADE AND OTHER PAYABLES
Trade payables
Payables to subsidiaries (note 15)
Professional fees
Board members’ remuneration
Remuneration payable
Audit fees
Accrued expenses
Taxes and contributions
Total
As at 31 December
2010
Non-current
US$000
Current
US$000
Non-current
US$000
–
–
–
–
223
–
–
–
784
23,019
95
120
465
497
86
128
223
25,194
–
–
–
–
–
–
–
–
–
2009
Current
US$000
509
5,337
106
320
132
544
103
132
7,183
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.
12 BORROWINGS
Secured bank loans1
Convertible bond payable2
Total
As at 31 December
2010
Non-current
US$000
Current
US$000
Non-current
US$000
84,222
103,827
188,049
29,256
111,255
5,145
103,827
34,401
215,082
2009
Current
US$000
1,617
1,663
3,280
1 Secured bank loans
As at 31 December 2010, the balance corresponds to:
–(cid:3)(cid:5)A 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 2010 is comprised
of the secured term loan facility of US$114,320,000 plus accrued interest of US$2,393,000 and net of transaction costs of
US$3,235,000. During 2010 and 2009, the Company has 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:3)(cid:5)Pledge of all shares in Compañía Minera Ares S.A.C. (“CMA”) (wholly-owned subsidiary).
–(cid:3)(cid:5)Subsidiary guarantees by certain wholly-owned subsidiaries whereby these subsidiaries guarantee the repayment of the loan
with their cash flows.
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Notes to the parent company financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
12 BORROWINGS (CONTINUED)
The main administrative and financial covenants that the Company and Compañía Minera Ares S.A.C. (“CMA”) must comply with
during the term of the syndicated loan are as follows:
–(cid:3)(cid:5)Quarterly unaudited and annual audited financial statements for Hochschild Mining plc and CMA.
–(cid:3)(cid:5)Investments in restricted and unrestricted subsidiaries based on an agreed upon limit (unlimited within restricted subsidiaries).
–(cid:3)(cid:5)Maintain the following ratios (at a consolidated and CMA level) beginning on the date of execution of the agreement and during
the term of the loan:
–(cid:3)Interest expense coverage ratio greater than 3:1.
–(cid:3)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 CMA’ management and the
Administrative Agent. The Group and CMA have complied with the commitments and financial covenants mentioned in the
syndicated loan agreement.
As at 31 December 2009, the balance corresponds to:
–(cid:3)(cid:5)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 CMA. 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.
2 Convertible bond payable
This relates to the 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:
–(cid:3)Conversion premium: 35% above the Reference Share Price
–(cid:3)Reference Share Price: GBP 2.95
–(cid:3)Initial Conversion Price: GBP 3.9825
–(cid:3)Fixed Exchange Rate: US$1.59/GBP 1.00
The balance as at 31 December 2010 is comprised of the principal of US$115,000,000 (2009: US$115,000,000) plus accrued
interest of $5,145,000 (2009: US$1,663,000) and net of transaction costs of US$2,741,000 (2009: US$2,741,000) and the bond equity
component of US$8,432,000 (2009: US$8,432,000).
The maturity of non-current borrowings is as follows:
Between 1 and 2 years
Between 2 and 5 years
As at 31 December
2010
US$000
2009
US$000
56,318
27,922
131,731
187,160
188,049
215,082
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Hochschild Mining plc
Annual Report & Accounts 2010
147
12 BORROWINGS (CONTINUED)
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 PROVISIONS
Beginning balance
Increase of provision
At 31 December 2010
Less current portion
Non-current portion
Carrying amount
As at 31 December
Fair values
As at 31 December
2010
US$000
2009
US$000
2010
US$000
2009
US$000
84,222
111,255
83,351
103,827
103,827
121,709
188,049
215,082
205,060
110,967
126,331
237,298
As at 31 December
2010
US$000
2009
US$000
–
44
44
–
44
–
–
–
–
–
1 In May 2010, a grant of awards under the Company’s cash based Long-Term Incentive Plan was made. The awards will vest on satisfaction of a TSR-based
performance condition relative to a comparator group comprising international silver and gold mining companies over a three-year performance period. The
performance period runs from 1 January 2010 to 31 December 2012 and should awards vest a cash payment will be made to participants in May 2013. Only employees
who remain in the Company’s employment until this date will be entitled to a cash payment on vesting subject to exceptions approved by the Remuneration Committee
of the Board. The provision represents the discounted values of the estimated cost of the long-term employee benefit. In 2010 there is a provision of US$44,000
included in administrative expenses.
14 OTHER FINANCIAL LIABILITIES
Swap contracts1
Total liabilities
As at 31 December
2010
US$000
1,930
1,930
2009
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 2010, the Company held the following financial instruments measured at fair value:
Liabilities measured at fair value
Swap contracts (refer to note 22(5) of the Consolidated financial statements)
1,930
–
1,930
–
During the period ending 31 December 2010, there were no transfers between these levels.
31 December
2010
US$000
Level 1
US$000
Level 2
US$000
Level 3
US$000
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Notes to the parent company financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
15 RELATED-PARTY BALANCES AND TRANSACTIONS
(a) Related-party accounts receivable and payable
The Company had the following related-party balances and transactions during the years ended 31 December 2010 and
31 December 2009.
Subsidiaries
Compañía Minera Ares S.A.C. 1
Minera Hochschild Chile S.C.M.
0848818 BC (formerly Southwestern Resources) 2
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 (Chile) S.A.
Servicios Corporativos Hochschild Mining Mexico S.A. de C.V.
Moris Holding S.A. de C.V.
Hochschild Mining Ares (UK) Ltd
Hochschild Mining Holdings Ltd. 3
Minas Santa María de Moris S.A. de C.V. 4
Hochschild Mining (Peru) S.A. (formerly Hochschild Mining (Peru) Corporation)
As at 31 December 2010
As at 31 December 2009
Accounts
receivable
US$000
Accounts
payable
US$000
Accounts
receivable
US$000
Accounts
payable
US$000
1
1
–
1
1
1
1
1
1
1,484
–
2,894
2
1
–
–
–
–
–
–
–
–
–
–
–
–
–
209
2,554
2
18,638
–
–
710
2,504
–
2,629
–
2,678
–
1
–
–
–
–
25
–
4
2,773
23,019
3,214
5,337
1 Mainly relates to the services performed by Compañía Minera Ares S.A.C. to Hochschild Mining plc during 2010 of US$1,562,455 (2009: US$1,580,000).
2 Mainly relates to the purchase of 38,100,000 shares of Zincore Metals Inc. made on 10 September 2009 (refer to note 6). The amount outstanding as at 31 December
2010 and 2009 was CAD 2,809,799, equivalent to US$2,825,056 and US$2,678,000 respectively.
3 Relates to loans receivable by and payable to Hochschild Mining Holdings Ltd. The loan payable is repayable on demand and is free of interest.
4 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.
During 2010 the Company made the following transactions with related parties:
–(cid:3)Sale of Zincore Metals Inc. shares to Inversiones Pacasmayo S.A. (refer to note 6)
–(cid:3)The Company made capital contributions to Hochschild Mining Holdings Ltd. totalling to US$1,623,454 (refer to note 5).
(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$1,322,000 (2009: US$1,457,000), out of which US$79,975 (2009: US$79,994) relates to cash supplements in lieu of pension
contributions.
Compensation of key management personnel (including directors)
Short term employee benefits
Total compensation
As at 31 December
2010
US$000
2009
US$000
1,322
1,322
1,457
1,457
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Hochschild Mining plc
Annual Report & Accounts 2010
149
15 RELATED-PARTY BALANCES AND TRANSACTIONS (CONTINUED)
(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.
16 DIVIDENDS PAID AND PROPOSED
Declared and paid during the year:
Equity dividends on ordinary shares:
Final dividend for 2009: US$0.02 (2008: US$0.02)
First interim for 2010: US$0.02 (2009: US$0.02)
Dividends paid
Proposed for approval by shareholders at the AGM:
Final dividend for 2010: US$0.03 (2009: US$0.02)
2010
US$000
2009
US$000
6,762
6,761
6,147
6,147
13,523
12,294
10,143
6,762
Dividends per share
The dividends declared in August 2010 were US$6,761,704 (US$0.02 per share). A dividend in respect of the year ended
31 December 2010 of US$0.03 per share, amounting to a total dividend of US$10,142,557 is to be proposed at the Annual General
Meeting on 2 June 2011. These financial statements do not reflect this dividend payable.
17 FINANCIAL RISK MANAGEMENT
The Company is exposed to a variety of risks and uncertainties which may have an impact on the achievement of financial and
economic objectives. These risks include strategic, operational and financial risk and are further categorised into risk areas
to facilitate risk assessment.
(a) Foreign currency risk
Due to the operations of the Company, it has cash and cash equivalents and trade payables denominated in Pounds sterling and
Canadian Dollars. According the financial results of the Company may be affected by exchange rate fluctuations. The Company
does not use derivative instruments to manage its foreign currency risks. The following table demonstrates the sensitivity
of financial assets and liabilities, at the reporting date denominated in their respective currencies, to a reasonably possible
change in the US dollar exchange rate, with all other variables held constant, of the Company’s profit before tax and the
Company’s equity.
Year
2010
Canadian dollars
Pounds sterling
2009
Canadian dollars
Pounds sterling
Increase/
decrease in
US$/other
currencies
rate
Effect
on profit
before tax
US$000
Effect
on equity
US$000
+/–10%
+/–10%
–/+289
–/+335
+/–10%
+/–10%
–/+
268
+/–174
–
–
–
–
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Notes to the parent company financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
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.
In 2008, as a result of the recent financial crisis, the Company 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 the following options:
–(cid:3)(cid:5)Increasing banking relationships with large, established and well-capitalised institutions in order to secure access to credit
and to diversify credit risk.
–(cid:3)(cid:5)Investing cash (to the extent possible) with counterparties with whom the Company has debt outstanding.
–(cid:3)(cid:5)Investing cash in short-term, highly liquid and low risk instruments (money market accounts).
–(cid:3)(cid:5)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 Company is funded by Hochschild Mining Holdings Ltd. through loans in order to meet its obligations. Liquidity is supported
by the balance of cash in the Company and Hochschild Mining Holdings at 31 December 2010 of US$1,190,314 and
US$391,552,096 respectively. The Company also serves as principal funding conduit for the group's capital raising activities such
as equity and debt issuances.
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 2010
Trade and other payables
Swap contracts
Borrowings
Provisions
At 31 December 2009
Trade and other payables
Swap contracts
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
25,066
1,938
35,961
–
7,051
13
7,118
223
–
–
–
63,041
146,856
–
–
–
45
–
–
35,957
208,214
–
–
–
–
–
–
–
25,289
1,938
245,858
45
7,051
13
251,289
(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.
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Hochschild Mining plc
Annual Report & Accounts 2010
151
17 FINANCIAL RISK MANAGEMENT (CONTINUED)
As at 31 December 2010
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)
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)
Within
1 year
US$000
43
2,554
Within
1 year
US$000
330
2,504
(1,617)
(1,663)
Between
1 and 2
years
US$000
Between
2 and 5
years
US$000
Over
5 years
US$000
–
–
–
–
(29,256)
(56,318)
(27,904)
(5,145)
–
(103,827)
1,148
–
–
As at 31 December 2009
Between
1 and 2
years
US$000
Between
2 and 5
years
US$000
Over
5 years
US$000
–
–
–
–
(27,922)
(83,333)
–
(103,827)
5,251
–
–
Total
US$000
43
2,554
(113,478)
(108,972)
1,148
Total
US$000
330
2,504
(112,872)
(105,490)
5,251
–
–
–
–
–
–
–
–
–
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 2010 and 2009 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
2010
2009
Increase/
decrease in
interest rate
Effect on
profit before
tax US$000
+/–50bps
+/–50bps
+/–10
–/+530
(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 before submission to the Board for ultimate approval,
where applicable.
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Notes to the parent company financial statements
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
18 SUBSEQUENT EVENTS
(a) Repayment of syndicated loan facility led by JP Morgan
On 28 January 2011, the Company repaid the total outstanding principal amount of US$114,320,000 plus interest of US$383,448
of the syndicated loan facility provided by JP Morgan. In addition, on 31 January 2011, the Company cancelled the two interest rate
swap contracts signed with Citibank and BBVA related to this syndicated loan facility. The amount paid for the cancellation of both
contracts was US$1,667,500.
(b) Collection of Minas Santa María de Moris S.A. de C.V. loan receivable
On 8 February 2011, the Company collected the capital of US$2,500,000 plus interest of US$49,465 related to the loan granted
by the Company to Minas Santa María de Moris S.A. de C.V. in 2009.
Unlocking value through exploration
Further information
Hochschild Mining plc
Annual Report & Accounts 2010
153
Further information
154 Profit by operation
155 Reserves and resources
161 Production
163 Glossary
164 Shareholder information
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Profit by operation1
(Segment report reconciliation) as at December 2010
Hochschild Mining plc
Annual Report & Accounts 2010
Company (US$000)
Revenue
Ares
Arcata
Pallancata
San José
Moris
Consolidation
adjustment
Total
56,824
181,778
261,877
220,825
30,899
119
752,322
Cost of sales (pre-consolidation)
(41,652)
(74,526)
(99,812)
(107,282)
(30,133)
(1,123)
(354,528)
Consolidation adjustment
Cost of sales (post-consolidation)
Production cost w/o depreciation
Depreciation in production cost
Other items
Change in inventories
Gross profit
Administrative expenses
Exploration expenses
Selling expenses
Other income/expenses
(53)
(286)
289
(1,123)
(989)
(99,759)
(106,996)
(30,422)
55
(41,707)
(32,018)
(2,649)
(6,658)
(382)
129
(74,655)
(46,017)
(18,991)
(9,146)
(501)
(56,345)
(34,409)
(12,454)
3,449
(71,711)
(34,664)
(2,227)
1,606
15,172
107,252
162,065
113,543
–
–
–
–
–
–
–
–
(119)
(2,575)
(3,537)
(20,739)
–
–
–
–
(19,065)
(10,865)
–
(492)
766
–
–
–
–
–
–
–
–
–
(353,539)
(225,156)
(101,578)
(30,485)
3,680
(1,004)
397,794
(66,221)
(66,221)
(41,537)
(41,537)
50
(26,920)
71,846
71,846
Operating profit before impairment
15,053
104,677
158,528
92,804
766
(36,866)
334,962
Impairment of assets
Investments under equity method
Finance income
Finance costs
FX gain/(loss)
Profit/(loss) from continuing operations before
income tax²
Income tax
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(24,018)
(24,018)
(6,080)
(6,080)
13,344
13,344
(29,542)
(29,542)
29
29
15,053
104,677
158,528
92,804
–
–
–
–
766
–
(83,133)
288,695
(72,030)
(72,030)
Profit/(loss) for the year from continuing operations
15,053
104,677
158,528
92,804
766
(155,163)
216,665
1 On a post exceptional basis.
2 Hochschild profit before income tax reflected in 2010 annual report.
Unlocking value through exploration
Reserves and resources
Hochschild Mining plc
Annual Report & Accounts 2010
155
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 156 to 160 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 2010, 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$900 per ounce and Ag Price: US$15 per ounce.
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Reserves and resources
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
ATTRIBUTABLE METAL RESERVES AS AT 31 DECEMBER 2010
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 and
probable
(t)
Ag
(g/t)
Au
(g/t)
Ag
(moz)
Au
(koz)
Ag Eq
(moz)
998,441
1,105,447
2,103,888
2,012,015
315,662
2,327,677
363,389
385,769
749,158
3,373,845
1,806,878
5,180,723
111,771
39,133
150,904
94,401
330,007
424,408
206,172
369,140
575,312
3,580,017
2,176,018
5,756,035
375
356
365
308
313
308
511
394
451
349
357
352
99
109
102
5
5
5
56
16
30
333
299
320
1.11
1.09
1.10
1.48
1.35
1.46
7.26
5.45
6.33
1.99
2.06
2.02
4.72
3.02
4.28
1.48
1.54
1.52
3.23
1.69
2.25
2.06
2.00
2.04
12.0
12.7
24.7
19.9
3.2
23.1
6.0
4.9
10.9
37.9
20.7
58.6
0.4
0.1
0.5
0.0
0.1
0.1
0.4
0.2
0.6
35.5
38.6
74.1
95.8
13.7
109.5
84.8
67.6
152.5
216.1
120.0
336.10
17.0
3.8
20.8
4.5
16.3
20.8
21.4
20.1
41.5
38.3
20.9
59.2
237.5
140.0
377.6
14.2
15.0
29.1
25.7
4.0
29.7
11.1
8.9
20.0
50.9
27.9
78.8
1.4
0.4
1.7
0.3
1.0
1.3
1.7
1.4
3.1
52.5
29.3
81.8
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.
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
157
ATTRIBUTABLE METAL RESOURCES AS AT 31 DECEMBER 2010
Resource category
MAIN OPERATIONS¹
Ag (g/t) Au (g/t)
Zn (%)
Pb (%) Cu (%) Ag Eq (g/t) Ag (moz) Au (koz) Ag Eq (Moz) Zn (kt) Pb (kt) Cu (kt)
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
OTHER PROJECTS¹
Azuca
Measured
Indicated
Total
Inferred
Crespo
Measured
Indicated
Total
Inferred
1,411,118
1,241,366
2,652,484
3,282,100
2,561,183
377,990
2,939,173
1,441,039
527,951
1,029,953
1,557,904
1,522,859
4,500,252
2,649,309
7,149,561
6,245,998
452,204
124,667
576,871
285,782
281,909
375,383
657,292
26,335
489
451
472
402
390
345
385
329
570
426
475
373
443
426
437
379
161
145
157
183
4.1
4.9
4.5
3.7
734,113
101
500,050
1,234,163
40
76
312,117
168
0
2,048,718
2,048,718
5,945,438
2,966,294
13,922,275
16,888,568
8,872,647
0
226
226
206
51
31
34
11
1.47
1.34
1.41
1.40
1.82
1.48
1.78
1.35
8.10
6.14
6.80
5.96
2.45
3.22
2.74
2.50
6.02
3.78
5.54
3.03
1.12
1.44
1.30
1.13
4.14
2.02
3.28
2.87
0.00
0.96
0.96
1.07
0.65
0.55
0.57
0.42
578
532
556
486
500
434
491
410
22.2
18.0
40.2
42.5
66.6
53.3
120.0
147.5
32.1
150.0
4.2
36.3
15.3
18.0
168.0
62.5
1,056
9.7
137.5
14.1
23.8
18.3
203.3
340.8
291.8
26.2
21.2
47.4
51.3
41.1
5.3
46.4
19.0
17.9
26.3
44.2
35.8
795
883
731
589
620
601
528
522
372
489
365
71
91
83
71
349
161
273
340
0
284
284
270
90
63
68
37
64.0
36.3
354.1
274.6
100.4
628.7
76.0
501.8
85.3
52.8
138.1
106.1
2.3
0.6
2.9
1.7
0.0
0.1
0.1
0.0
2.4
0.6
3.0
1.7
0.0
14.9
14.9
39.3
4.8
13.7
18.5
87.5
15.1
102.7
27.8
10.1
17.4
27.5
1.0
97.7
32.5
130.2
28.8
0.0
63.0
63.0
204.9
62.1
245.8
307.9
3.2
121.1
7.6
1.5
9.1
3.3
0.6
1.1
1.7
0.1
8.2
2.6
10.8
3.4
0.0
18.7
18.7
51.6
8.6
28.4
37.0
10.4
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Reserves and resources
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
ATTRIBUTABLE METAL RESOURCES AS AT 31 DECEMBER 2010 (CONTINUED)
Resource category
Inmaculada
Measured
Indicated
Total
Inferred
San Felipe
Measured
Indicated
Total
Inferred
Other projects total
Measured
Indicated
Total
Inferred
TOTAL
Measured
Indicated
Total
Inferred
Ag (g/t) Au (g/t)
Zn (%)
Pb (%) Cu (%) Ag Eq (g/t) Ag (moz) Au (koz) Ag Eq (M oz) Zn (kt) Pb (kt) Cu (kt)
656,374
2,710,576
3,366,949
2,131,994
1,393,716
1,354,261
2,747,977
1,257,731
5,016,383
20,035,829
25,052,213
125
177
167
199
69
82
76
84
66
74
72
18,207,809
102
10,250,749
23,185,188
33,435,937
24,765,924
234
113
150
172
4.65
4.65
4.65
4.97
0.02
0.06
0.04
0.05
1.00
1.11
1.09
1.14
1.86
1.37
1.52
1.51
7.12
6.14
6.64
6.18
1.98
0.42
0.73
0.43
0.97
0.36
0.55
0.31
3.10
2.73
2.92
2.26
0.86
0.18
0.32
0.16
0.42
0.16
0.24
0.11
0.39
0.31
0.35
0.19
0.11
0.02
0.04
0.01
0.05
0.02
0.03
0.01
405
456
446
498
315
295
305
283
194
155
163
184
379
208
260
273
2.6
15.4
18.1
13.7
3.1
3.6
6.7
3.4
10.6
47.6
58.1
59.5
98.2
405.6
503.7
340.7
0.9
2.4
3.3
1.9
161.2
716.8
878.0
668.6
8.5
39.8
48.3
34.1
14.1
99.3
12.9
83.2
43.1
37.0
27.0 182.4
80.1
11.5
77.8
28.5
31.2
99.3
43.1
99.7
83.2
130.9 182.4
37.0
80.1
107.6
77.8
28.5
77.0
613.0
124.7
99.3
43.1
84.5 1023.9
155.1
83.2
161.5 1636.9
279.8 182.4
37.0
80.1
137.2 1199.1
217.1
77.8
28.5
5.5
4.2
9.7
2.3
5.5
4.2
9.7
2.3
5.5
4.2
9.7
2.3
1 Main operations and other projects (excluding San Felipe) were audited by P&E Consulting.
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.
Unlocking value through exploration
Hochschild Mining plc
Annual Report & Accounts 2010
159
CHANGE IN TOTAL RESERVES AND RESOURCES
Ag equivalent content (million ounces)
Category
December
2009
Production¹
Movements²
2010 Net difference % change
December
Arcata
(cid:3)
Pallancata
(cid:3)
San José
(cid:3)
Main operations total
(cid:3)
Ares
(cid:3)
Moris
(cid:3)
Other operations total
(cid:3)
Azuca
(cid:3)
Crespo
(cid:3)
Inmaculada
San Felipe
(cid:3)
Other projects total
(cid:3)
Total
(cid:3)
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
79.4
29.8
108.9
55.9
110.0
43.7
298.3
129.4
14.7
3.7
4.5
2.8
19.2
6.5
44.1
0.0
44.7
0.0
66.9
0.0
38.5
0.0
194.2
0.0
511.6
135.9
12.9
15.2
12.7
40.8
2.9
2.4
5.3
0.0
0.0
0.0
0.0
0.0
46.1
19.4
12.2
0.1
8.7
47.0
8.3
66.5
29.2
(2.2)
0.9
(2.7)
0.9
(4.9)
1.9
26.2
0.0
2.7
0.0
70.4
0.0
0.0
0.0
99.3
0.0
160.8
31.0
98.7
29.1
109.0
49.4
156.9
39.2
364.7
117.8
12.4
1.7
1.8
1.3
14.2
3.1
70.3
0.0
47.4
0.0
137.3
0.0
38.5
0.0
293.5
0.0
672.4
120.8
19.4
(0.7)
0.1
(6.5)
47.0
(4.5)
66.5
(11.6)
(2.2)
(2.0)
(2.7)
(1.5)
(4.9)
(3.4)
26.2
0.0
2.7
0.0
24.4%
(2.4)%
0.1%
(11.6)%
42.7%
(10.2)%
22.3%
(8.9)%
(15.3)%
(54.5)%
(59.8)%
(53.6)%
(25.8)%
(52.6)%
59.4%
–
6.0%
–
70.4
105.3%
0.0
0.0
0.0
99.3
0.0
160.8
(15.1)
–
0.0%
–
51.1%
–
31.4%
(11.1)%
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.
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Reserves and resources
Continued
Hochschild Mining plc
Annual Report & Accounts 2010
CHANGE IN ATTRIBUTABLE RESERVES AND RESOURCES
Ag equivalent content (million ounces)
Arcata
(cid:3)
Pallancata
(cid:3)
San José
(cid:3)
Main operations total
(cid:3)
Ares
(cid:3)
Moris
(cid:3)
Other operations total
(cid:3)
Azuca
(cid:3)
Crespo
(cid:3)
Inmaculada
San Felipe
(cid:3)
Other total
(cid:3)
Total
(cid:3)
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
Percentage
attributable
100%
60%
51%
100%
100%
100%
100%
49% – 60%²
100%
100%
December
2009
Att.¹
December
2010
Att.¹ Net difference
% change
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
32.8
0.0
38.5
0.0
160.1
0.0
380.1
92.1
98.7
29.1
65.4
29.7
80.0
20.0
244.2
78.8
12.4
1.7
1.8
1.3
14.2
3.1
70.3
0.0
47.4
0.0
82.4
0.0
38.5
0.0
238.5
0.00
497.0
81.8
19.4
(0.7)
0.1
(3.9)
23.9
(2.3)
43.4
(6.9)
(2.2)
(2.0)
(2.7)
(1.5)
(4.9)
(3.5)
26.2
0.0
2.7
0.0
24.4%
(2.4)%
0.1%
(11.6)%
42.7%
(10.2)%
21.6%
(8.0)%
(15.3)%
(54.5)%
(59.8)%
(53.6)%
(25.8)%
(54.1)%
59.4%
–
6.0%
–
49.6
151.3%
0.0
0.0
0.0
78.4
0.0
116.9
(10.4)
–
0.0%
–
49.0%
–
30.8%
(11.3)%
1 Attributable reserves and resources based on the Group’s percentage ownership of its joint venture projects.
2 The Company increased its holdings in the Inmaculada project to 60% in 2010.
Unlocking value through exploration
Production
2010 TOTAL GROUP PRODUCTION1
Silver production (koz)
Gold production (koz)
Total silver equivalent (koz)
Total gold equivalent (koz)
Silver sold (koz)
Gold sold (koz)
Hochschild Mining plc
Annual Report & Accounts 2010
161
Year ended
31 December
2010
Year ended
31 December
2009
% change
24,430
200.05
36,434
607.23
24,283
199.9
24,585
211.64
37,283
621.38
23,563
204.09
(1)
(5)
(2)
(2)
3
(2)
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
2010
Year ended
31 December
2009
% change
17,768
144.40
26,432
440.53
18,754
156.77
28,160
469.34
(5)
(8)
(6)
(6)
1 Attributable production includes 100% of all production from Arcata, Ares and Moris, 60% from Pallancata and 51% from San José.
PRODUCTION BY MINE
Arcata
Product
Ore production (tonnes)
Average head grade silver (g/t)
Average head grade gold (g/t)
Silver produced (koz)
Gold produced (koz)
Silver equivalent produced (koz)
Silver sold (koz)
Gold sold (koz)
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 equivalent produced (koz)
Silver sold (koz)
Gold sold (koz)
Year ended
31 December
2010
Year ended
31 December
2009
645,974
643,059
439
1.40
8,099
25.83
9,649
8,095
24.95
503
1.56
9,542
28.64
11,261
9,138
27.17
Year ended
31 December
2010
Year ended
31 December
2009
301,726
341,273
92
3.58
822
786
32.53
2,738
810
32.70
96
4.17
947
900
42.59
3,455
873
41.82
% change
0
(13)
(10)
(15)
(10)
(14)
(11)
(8)
% change
(12)
(4)
(14)
(13)
(13)
(24)
(21)
(7)
(22)
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Production
Continued
Pallancata1
Product
Ore production (tonnes)
Average head grade silver (g/t)
Average head grade gold (g/t)
Silver produced (koz)
Gold produced (koz)
Silver equivalent produced (koz)
Silver sold (koz)
Gold sold (koz)
1 The Company has a 60% interest in Pallancata.
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 equivalent 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 equivalent produced (koz)
Silver sold (koz)
Gold sold (koz)
Hochschild Mining plc
Annual Report & Accounts 2010
Year ended
31 December
2010
Year ended
31 December
2009
1,071,617
922,521
344
1.41
10,135
35.85
12,286
9,998
33.7
327
1.43
8,420
31.97
10,339
8,405
30.7
Year ended
31 December
2010
Year ended
31 December
2009
461,134
460,971
397
6.14
5,324
84.30
10,382
5,284
84.96
398
6.19
4,998
77.08
9,622
5,174
78.80
Year ended
31 December
2010
Year ended
31 December
2009
1,148,826
1,282,461
4.44
1.14
86.41
21.53
1,378
95.07
23.54
5.02
1.38
96.58
28.34
1,797
86.69
26.29
% change
16
5
(1)
20
12
19
19
10
% change
0
0
(1)
7
9
8
2
8
% change
(10)
(11)
(17)
(11)
(24)
(23)
10
(10)
Unlocking value through exploration
Glossary
Hochschild Mining plc
Annual Report & Accounts 2010
163
Ag
Silver
Adjusted EBITDA
Adjusted EBITDA is calculated as profit from continuing operations
before exceptional items, net finance costs and income tax plus
depreciation 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
DNV
Det Norske Veritas is an independent foundation with the purpose
of safeguarding life, property and the environment
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
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 25p 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
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Shareholder information
Hochschild Mining plc
Annual Report & Accounts 2010
Annual General Meeting (‘AGM’)
The AGM will be held at 10am on 2 June 2011 at the offices of
Linklaters LLP, One Silk Street, London, EC2Y 8HQ.
Company website
Hochschild Mining plc Interim and Annual Reports and results
announcements are available via the internet on our website at
www.hochschildmining.com. Shareholders can also access the
latest information about the Company and press
announcements as they are released, together with details of
future events and how to obtain further information.
Registrars
The Registrars can be contacted as follows for information
about the AGM, shareholdings, dividends and to report changes
in personal details:
– By post
Capita Registrars, The Registry, 34 Beckenham Road,
Beckenham, Kent BR3 4TU
– 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
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.
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
11 May 2011
13 May 2011
17 May 2011
7 June 2011
2 June 2011
August 2011
London Office and Registered Office address
46 Albemarle Street
London
W1S 4JL
United Kingdom
– By fax
+44 (0)1484 600 911
Company Secretary
R D Bhasin
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 17 May 2011.
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 17 May 2011. 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.
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 stock which is certified
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biodegradable and recyclable
Hochschild Mining plc
46 Albemarle Street
London W1S 4JL
United Kingdom
Tel: +44 (0) 207 907 2930
Fax: +44 (0) 207 907 2931
info@hocplc.com
www.hochschildmining.com