Exploring for
Growth
ANNUAL REPORT & ACCOUNTS 2012
We are a leading
underground
precious metals
producer focused
on high grade silver
and gold deposits.
We have a solid
asset base, an
extensive project
pipeline and a
clear strategy.
CONTENTS
OUR LEADERSHIP TEAM DISCUSSES
THE YEAR AND THE FUTURE FOR
HOCHSCHILD MINING
An overview of our operational and fi nancial performance
in 2012 and the key drivers for the Company going forward
HOW WE CREATE LONG-TERM
VALUE FOR SHAREHOLDERS
To create long-term value for shareholders we have to
have a sustainable business model and key diff erentiators
WHAT OUR VISION AND STRATEGY
IS AND HOW WE MANAGE OUR
BUSINESS TO ACHIEVE THIS
It is important that we run our business with a clear
strategy that takes market conditions into account
HOW WE HAVE PERFORMED AND
HOW WE REWARD PERFORMANCE
WITHIN HOCHSCHILD
The evidence that our strategy is being successfully implemented
Discover more about ‘Exploring for growth’ online
(cid:353)(cid:3)Learn more about our history, our people and our strategy
(cid:353)(cid:3)Explore our operations and extensive project pipeline
(cid:353)(cid:3)Read more on our approach to sustainability
www.hochschildmining.com
DETAILED INFORMATION
www.hochschildmining.com
1
Chairman’s statement
Chief Executive’s review
Market overview
Eduardo Hochschild presents a
review of the year and the key events
and impacts on our business
Ignacio Bustamante presents
a summary of our performance
and priorities looking forward
An overview of the gold and silver
markets in 2012 and the potential
key drivers for the year ahead
p16
p18
p20
Hochschild at a glance
Our business model
An overview of where
we operate, our fi nancial,
and operational performance
throughout the year and our
exploration budget going forward
p4-7
How we create long-term value for our
shareholders and all our stakeholders
through our sustainable business model
p8
Our key diff erentiators
Why invest? The qualities of
Hochschild that set us apart and
represent a unique proposition
p9
Our vision and strategy
Exploration in action
Sustainability
Risk management
An overview of the core elements
of our strategy and how we
put our strategy into action
p10
An illustration of our operations
and substantial project pipeline
which are fundamental elements
of our strategy
p12
Our business success is due to
our approach of integrating the
many aspects of sustainability
into our decision-making and
across all of our operations
p42
An overview of the main
business risks aff ecting the
Company and the key steps
taken to mitigate these risks
p57
Key performance
indicators
Key fi nancial, operational and
sustainability performance
indicators for 2012
p4
Operating review
Highlights and performance
review from each of
our operations
p22
Financial review
Review of the fi nancial
performance of the
Company in 2012
p37
Overview
04 Key performance indicators
06 Where we operate
08 How we do it
10 How we are going to get there
12 Our exploration in action
Business review
16 Chairman’s statement
18 Chief Executive’s review
20 Market & geographic overview
22 Operating review
30 Exploration review
37 Financial review
42 Sustainability report
57 Risk management
Governance
64 Board of Directors
& Senior Management
66 Directors’ report
69 Corporate governance report
79 Supplementary information
82 Directors’ remuneration report
95 Statement of Directors’
responsibilities
102 Consolidated statement
of fi nancial position
103 Consolidated statement
of cash fl ows
104 Consolidated statement
of changes in equity
105 Notes to the consolidated
fi nancial statements
159 Parent company statement
96 Independent auditor’s report
of fi nancial position
Financial statements
100 Consolidated income
statement
101 Consolidated statement
of comprehensive income
160 Parent company statement
of cash fl ows
161 Parent company statement
of changes in equity
162 Notes to the parent company
fi nancial statements
Remuneration report
Details how we reward
performance within the
Company and amongst
our senior management
p82
Further information
174 Profi t by operation
175 Reserves and resources
181 Production
183 Glossary
184 Shareholder information
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2 Hochschild Mining plc Annual Report 2012
Exploring for growth
Inmaculada
The Inmaculada Advanced Project is set to deliver total annual
production of 12 million silver equivalent ounces.
View more information on Exploring for Growth online www.hochschildmining.com
www.hochschildmining.com
3
Overview
In this section
04 Key performance indicators
06 Where we operate
08 How we do it
10 How we are going to get there
12 Our exploration in action
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and continued to grow the
Project’s substantial 150 million
silver equivalent ounces resource
base as well as discovering new
veins with excellent mineralisation.
We have a comprehensive engineering,
construction and exploration programme
in place for Inmaculada in 2013.
12million
Silver equivalent ounces
per annum
We continued to make good
progress at Inmaculada in
2012, meeting our procurement,
engineering and construction targets,
and the project is on schedule for
commissioning in the second half of
2014. We were also pleased to announce
in October that the Peruvian Government
had approved the Environmental Impact
Study for the Project.
The exploration team at Inmaculada also
delivered positive results during the year
4 Hochschild Mining plc Annual Report 2012
Key performance indicators
In 2012 we delivered a strong production performance, reported promising
results from our record investment in exploration, and delivered a solid set
of fi nancial results.
Our Strategy overview, Operating and Exploration reviews and Sustainability
report provide more detail of our performance in relation to our key
strategic priorities.
REVENUE
$m
12
11
10
09
08
540
434
ADJUSTED EBITDA
$m
EARNINGS PER SHARE
$
818
752
988
385
398
563
12
11
10
09
08
250
142
12
11
10
09
0.19
0.17
08
0.05
0.49
0.28
PROPOSED TOTAL DIVIDEND
$
TOTAL SILVER CASH COSTS
$/oz Ag co-product
TOTAL GOLD CASH COSTS
$/oz Au co-product
12
11
10
09
08
LTIFR
12
11
10
09
08
0.06
0.06
0.05
0.04
0.04
12
11
10
09
08
14.2
13.0
9.3
7.1
7.1
12
11
10
09
08
781
613
535
476
469
ACCIDENT SEVERITY INDEX
COMMUNITY INVESTMENT
$m
3.33
3.63
3.70
5.22
5.75
12
11
10
09
08
1,058
910
777
1,485
543
12
11
10
09
08
7.7
6.5
6.7
6.0
4.6
Calculated as total number of accidents per
million labour hours.
Calculated as total number of days lost per
million labour hours.
For further details please see the
Sustainability report.
For more information visit
www.hochschildmining.com
www.hochschildmining.com
5
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SOLID PRODUCTION PERFORMANCE
We once again met our full year production target in 2012, producing 20.3 million attributable silver equivalent
ounces, comprised of 13.6 million ounces of silver and 111.8 thousand ounces of gold. In 2012 our net silver revenue
was $557.8 million and our net gold revenue, $259.6 million.
2012 REVENUE BY PRODUCT
2
1
1. Silver
2. Gold
69%
31%
$817m
2012 ATTRIBUTABLE
PRODUCTION
Silver equivalent moz
RESOURCE BASE
Silver equivalent moz
12
11
10
09
08
20.3
22.6
26.4
12
11
10
535
459
28.2
09
342
26.1
08
250
1,100
CREATING VALUE THROUGH EXPLORATION
Our investment in exploration reinforces our strategic focus on exploration at our core assets and our extensive portfolio
of projects that off er not only optionality but also considerable scope to create profi table growth. We have a team of 120
geologists and exploration offi ces in Peru, Chile, Argentina and Mexico.
EXPLORATION BUDGET
GREENFIELD BREAKDOWN BY COUNTRY
3
4
2
3
4
2
1
1. Greenfield
2. Brownfield
3. Advanced Projects
4. Other
44%
26%
14%
16%
$77m
1
1. Peru
2. Chile
3. Argentina
4. Mexico
46%
26%
5%
23%
6 Hochschild Mining plc Annual Report 2012
Where we operate
We have almost 50 years’ operating experience in the Americas and
currently have four underground mines in operation, three located in
southern Peru and one in southern Argentina. We also have an extensive
portfolio of Advanced Projects and exploration assets in Peru, Chile,
Argentina and Mexico.
CURRENT OPERATIONS1
1
2
3
4
5
Arcata
Peru
Pallancata2
Peru
San Jose3
Argentina
Ares
Peru
Moris
Mexico
ADVANCED PROJECTS1
Inmaculada4
6
Peru
7
8
9
Crespo
Peru
Azuca
Peru
Volcan
Chile
GREENFIELD PROJECTS
Peru
Argentina
Mexico
Chile
Silver equivalent production
Capacity
Silver equivalent production
Capacity
Silver equivalent production
Capacity
Silver equivalent production
Capacity
Silver equivalent production
Capacity
Estimated silver equivalent
production p.a.
Estimated silver equivalent
production p.a.
Estimated silver equivalent
production p.a.
Estimated silver equivalent
production p.a.
Ibel
Huacullo
Astana
Farallón
Josnitoro
Soranpampa
San Martin
Sipan
Santo Tomas
Fresia
Julieta
El Mosquito
Pomona
Baborigame
Corazon de Tinieblas
El Tanque
Victoria
Potrero
La Falda
6.6 moz
1,750 tpd
9.0 moz
3,000 tpd
11.1 moz
1,650 tpd
2.1 moz
1,000 tpd
0.6 moz
3,000 tpd
12 moz
2.7 moz
3.5 moz
n/a
Cuello Cuello
Coriwasi
Apacheta
Alpacocha (Cu)
Huachoja
Jasperoide (Cu)
Antay (Cu)
Millohuayco (Cu)
Numa
Mirafl ores
Ccellopunta
La Flora
Argenta
Mercurio
Moctezuma
Valeriano
Encrucijada
1 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”).
2 The Company has a 60% interest in Pallancata.
3 The Company has a 51% interest in San Jose.
4 The Company has a 60% interest in Inmaculada.
For more information visit
www.hochschildmining.com
www.hochschildmining.com
7
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MEXICO
KEY
Current Operations
Advanced Projects
PERU
2
6
8 7
1
4
9
CHILE
Discover more about where we operate
Visit the interactive map on our website for
more details of the location of our assets
www.hochschildmining.com
3
ARGENTINA
8 Hochschild Mining plc Annual Report 2012
How we do it
We believe that our sustainable business model and core strengths will not
only create long-term value for our shareholders and all our stakeholders but
also set Hochschild Mining apart, off ering a unique investment proposition.
We create value through our focus on exploration, supported by the strength of
our core assets, the depth of our experience in the Americas and underpinned
by our strong fi nancial position, the contribution of our people, and our
commitment to sustainability.
OUR BUSINESS MODEL
EXPERIENCE IN
THE AMERICAS
STRENGTH OF
CORE ASSETS
COMMITMENT TO
SUSTAINABILITY
FOCUS ON
EXPLORATION
OUR PEOPLE
For more information visit
www.hochschildmining.com
www.hochschildmining.com
9
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OUR UNIQUE PROPOSITION
We believe that the following qualities of Hochschild Mining set us apart and represent
a unique proposition.
EXPERIENCE IN THE AMERICAS
STRENGTH OF CORE ASSETS
FOCUS ON EXPLORATION
We have almost 50 years’ experience
operating across the Americas and
have a wealth of operating, exploration
and business development knowledge
and experience within our teams. We
are headquartered in Lima and have
exploration offi ces in Argentina, Chile
and Mexico.
Since our IPO in 2006 we have delivered
on all of our annual production targets
and achieved our resource life-of-mine
targets. Our substantial near-mine
and brownfi eld exploration programmes
continue to deliver positive results and in
2012 we have improved the quality of the
resource base at our core operations.
Our focus on exploration not only
delivers growth as we progress
projects through our extensive
project pipeline, but also ensures the
long-term sustainability of our core
producing assets as we maximise
their mine lives and the quality of
their resources through exploration.
$77m
2013 exploration budget
A view from the Crespo Advanced Project
Workers at San Jose
A geologist at Pallancata
COMMITMENT TO SUSTAINABILITY
OUR PEOPLE
We fi rmly believe that our business success is due to our
approach of integrating and eff ectively managing the social
and environmental business impacts in our decision-making
and across all of our operations. We take great pride in
managing our business in a way that ensures returns not
only to our shareholders, but to all stakeholders including our
employees and the communities surrounding our operations.
We value highly the depth of knowledge and experience
we have within our Company and we encourage all of
our employees to reach their full potential and ensure
that they are part of a leading team, with a culture of
operational excellence and high standards of social
responsibility and safety.
42
For more information please see our
Sustainability report on page 42
A member of the community near Arcata
10 Hochschild Mining plc Annual Report 2012
How we are going to get there
OPERATING
RESPONSIBLY
CORE ASSETS
EXPLORATION
ACQUISITIONS
OUR STRATEGY
Our strategy is to create value through optimising our current
operations, extensive exploration and opportunistic acquisitions.
Our strategy is underpinned by our commitment to ensuring a
safe and healthy workplace for all of our employees, to manage
and minimise the environmental impact of our operations and
to encourage sustainability by respecting the communities
surrounding our operations.
18
For more information on our strategy please
see our Chief Executive’s review on page 18
CORE ASSETS
Improve productivity
Optimise life-of-mine
At our core assets we are
focused on improving
operational productivity,
maximising the life-of-mine
and ensuring their long-term
sustainability. Since our IPO
we have doubled the overall
throughput capacity at our
operations and have achieved
all of our annual production
targets. We have also
consistently increased our
resource base and continue to
receive positive results from our
mines and brownfield exploration.
EXPLORATION
Land package
People
Incentives
Budget
Our substantial exploration
programme and extensive
project pipeline are
fundamental elements of
our strategy. We believe they
off er not only optionality, but
also considerable scope for
growth and creating value.
We have an extensive pipeline
of brownfi eld and greenfi eld
projects with drilling
campaigns in numerous
locations across four countries
in the Americas, as well as
over one million hectares
of premium geological land.
Our signifi cant spend on
exploration demonstrates
our strong strategic focus on
growth through exploration as
well as our confi dence in the
considerable potential of our
project pipeline.
Underpinning our exploration
strategy is our team of
over 120 geologists with
considerable technical
experience and expertise and
an unrivalled knowledge of the
Americas. We have exploration
offi ces in Peru, Chile, Argentina
and Mexico. In recognition of
the contribution that our
exploration team makes to
the long-term success of our
business, we have an incentive
programme to retain and attract
geologists, with direct economic
rewards for geological
discoveries. We also have
educational initiatives including
partnerships with local and
international universities and
a graduate trainee programme
where graduates from local
universities are trained and
recruited by the Company.
ACQUISITIONS
Early stage
Geological potential
Highly accretive
Control
Our Business Development
team has a clear mandate
to pursue opportunities that
are early stage, with strong
geological potential, highly
value accretive, but also with
a clear path to control.
We have a proven track
record of identifying early
stage, value accretive
opportunities, such as our
acquisition of a controlling
stake in the Inmaculada
project, and the recent
acquisition of Andina Minerals
that added to our project
pipeline, with the Volcan gold
deposit located in Chile.
www.hochschildmining.com 11
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OUR GROWTH PYRAMID
Our growth pyramid includes and categorises our projects, from current operations, to
Advanced Projects, to Company Maker and Medium Scale targets and prospects, and fi nally,
our premium land package. The pyramid also illustrates how these projects move up the
pipeline from prospects, to drill testing, to Advanced Projects through to producing operations.
Learn more about each stage of our exploration programme in Our Exploration in Action section.
Company Makers:
We currently have 16 potential ‘Company
Makers’ which are projects that have
the potential to achieve 20-30 million silver
equivalent ounces of production per year.
Medium scale:
We currently have 20 potential ‘Medium
Scale’ projects which have the potential to
achieve 5-10 million silver equivalent
ounces of production per year.
KEY
Argentina
Peru
Chile
Mexico
Volcan
KEY TARGETS
Encrucijada
Victoria
Valeriano
Soranpampa
Mercurio
Apacheta
Alpacocha (Cu)
Huachoja
La Falda
Potrero
Baborigame
KEY PROSPECTS
Coriwasi
Josnitoro
Corazon de Tinieblas
Antay (Cu)
Julieta
COMPANY MAKERS
CURRENT
OPERATIONS
ADVANCED PROJECTS
DRILL TESTING
PROSPECTS
LAND PACKAGE
M
E
D
I
U
M
S
C
A
L
E
22
12
For more information please see our Operating review and Exploration review on pages 22-36
See overleaf for an explanation of each stage of our growth pyramid in action
Ares
Arcata
Pallancata
San Jose
Moris
Inmaculada
Crespo
Azuca
KEY TARGETS
El Mosquito
La Flora
Jasperoide (Cu)
Argenta
Cuello Cuello
Farallon
San Martin
Astana
Huacullo
El Tanque
Ccellopunta
KEY PROSPECTS
Pomona
Ibel
Moctezuma
Numa
Mirafl ores
Fresia
Sipan
Millohuayco (Cu)
Santo Tomas
12 Hochschild Mining plc Annual Report 2012
Our exploration in action
We have a solid asset base and an extensive
project pipeline with projects across the
Americas. Our strategy is to create value
through optimising our current operations,
extensive exploration and opportunistic
acquisition of early stage projects.
3
3. DRILL TESTING
In order to progress the project in
the pipeline, drilling is conducted
to confi rm the potential for an
economic resource and possibly
delineate an inferred resource.
11
For more information
2
1
2. PROSPECTS
At the Prospects level, the goal is
to identify and defi ne the potential
of an ore body through geological
studies and surface sampling.
11
For more information
1. LAND PACKAGE
Hochschild Mining has an
extensive and highly-prospective
land package with more than one
million hectares of premium
geological land.
10
For more information
www.hochschildmining.com 13
MINE-SITES & BROWNFIELD EXPLORATION
Our mine-sites and brownfi eld exploration programme is focused in and around
our current mines and is aimed at optimising our core assets by increasing their
life-of-mine and improving the quality of their resources. Exploration work is
concentrated on the defi nition of new high grade structures and the incorporation
of high quality resources. We also invest in advanced stage projects located either
in or around the Company’s existing clusters, or in new mining-friendly districts.
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4. ADVANCED PROJECTS
The Company has four Advanced Projects:
Inmaculada, Crespo and Azuca in Peru, and the
Volcan gold deposit in Chile. See them in action:
p.2
Inmaculada
p.14
Crespo
p.62
Azuca
p.98
Volcan
5. CURRENT OPERATIONS
Our three core assets are currently ranked
amongst the 13 leading primary silver
mines globally. Since our IPO in 2006, we
have doubled the throughput capacity of
our operations and delivered on all of our
annual production targets.
Our strategy consists of:
(cid:353)(cid:3)Consistently improving operational
productivity and effi ciency
(cid:353)(cid:3)Optimising the resource base and
life-of-mine at our core operations
(cid:353)(cid:3)Safe and sustainable mining
Keep up to date with the latest information on our
current operations at www.hochschildmining.com
22
For more information
14 Hochschild Mining plc Annual Report 2012
Exploring for growth
Crespo
The Crespo Advanced Project will contribute an average
annual production of 2.7 million silver equivalent ounces.
View more information on Exploring for Growth online www.hochschildmining.com
www.hochschildmining.com 15
Business review
In this section
16 Chairman’s statement
18 Chief Executive’s review
20 Market & geographic overview
22 Operating review
30 Exploration review
37 Financial review
42 Sustainability report
57 Risk management
In 2012 we progressed the detailed
engineering for the mine and plant
and completed the fi nal engineering
for the camp layout and construction at
Crespo and we continue to anticipate
that production will commence in the
second half of 2014. We also saw good
progress in our community relations
initiatives at Crespo during the year. We
held a successful public hearing for the
Project’s Environmental Impact Study
and we also had both the surface water
study and land agreement approved by
the local community, all key steps in the
project’s permitting process.
In 2013 we will complete the detailed
engineering at Crespo and continue with
the extensive exploration programme at
the property.
2.7million
Silver equivalent ounces
per annum
16 Hochschild Mining plc Annual Report 2012
Chairman’s statement
“ 2012 provided the mining industry with a number of challenges to which
our team has responded with energy and confidence. In 2012, we produced
13.6 million attributable ounces of silver and 111.8 thousand attributable
ounces of gold, a total of approximately 20.3 million attributable silver
equivalent ounces.”
2012 Overview
2012 has provided the mining industry
with a number of challenges to which
I believe our team has responded
with energy and confidence. The
outperformance of the Company’s share
price over the course of the year was
evidence that a growing number of
stakeholders agreed that our organic
growth pipeline represents the best
opportunity to generate long-term
sustainable shareholder value. This
resilience in the face of continuing global
economic uncertainty is testament to our
achievements in meeting our production
targets once again, making considerable
progress with our Advanced Projects
despite the delays caused by changes
in the Peruvian permitting process and
identifying and executing acquisitions
such as Andina Minerals with
long-term potential for significant
value enhancement.
In 2012, we generated revenue of just over
$800 million leading to EBITDA in the
region of $400 million with earnings per
share of $0.19. The Board has decided
to maintain the total dividend at 6 cents
per share. This balances Hochschild’s
strong financial position and outstanding
near-term potential for significant
earnings growth with the Company’s
short-term capital expenditure
commitments as well as current
industry-wide pressures.
In November, we announced the purchase
of Andina Minerals, our first sizeable
acquisition since 2009. I am confident that
we have secured an attractive opportunity
at a purchase price significantly below
recent comparable transactions. The move
into large scale gold assets is entirely
consistent with our long-standing
‘Company Maker’ exploration strategy.
Our Board has already visited the site
and whilst there are undeniable potential
challenges in bringing the deposit into
production, the Volcan project represents
a viable option to diversify our asset base
by building a strong presence in a very
prospective area of Northern Chile in
the long term.
Our organic growth strategy continued
to unfold during 2012 and during the year
we approved two feasibility studies and
subsequently made excellent progress at
our two Advanced Projects with significant
targets met in procurement, engineering
and construction and also in both projects’
social development programmes. We
did experience delays in the process of
obtaining the final construction permits
but I remain excited by the potential of
these projects to increase our current
production levels by 50% and also the
significant exploration upside opportunity
at Inmaculada.
Our exploration-led strategy and the
current capital constrained industry
environment require that disciplined
resource allocation and effective risk
management be inherent in all our
initiatives across the four countries that
A worker at the Arcata mine
A view from the Crespo Advanced Project
www.hochschildmining.com 17
we explore. We have ensured that we are
not only focusing our exploration capital
on the most promising prospects, but
also that we retain the discipline to exit
or farm-out deposits or prospects that
do not clear a defi ned set of hurdles. The
year saw meaningful progress at many
of our projects both in the Company Maker
and Medium Scale categories, and I am
confi dent that we will begin to witness the
benefi ts of our greenfi eld investment as
well as further success in brownfi eld
exploration. I fi rmly believe this is the key
to creating long-term shareholder value.
Operating responsibly
Underpinning our strategy is our
commitment to operate responsibly.
During 2012, Hochschild Mining was
granted the ‘Socially Responsible
Company’ accreditation by Peru 2021,
an organisation that reviews companies’
eff orts in this crucial area. As a mining
company, we are conscious of the impact
our activities have on the environment.
To assist us, we seek to rely on leading
environmental reporting systems and
so I am delighted that an external audit
has confi rmed that systems at our
active operations remain compliant
with ISO14001.
We also advanced during the year with
the implementation of our Community
Relations strategy acknowledging our
social commitment to operate in long-
term harmony with our communities.
A notable initiative for the year was
‘Digital City’ where we dedicated
signifi cant fi nancial and human
resources to create a digital hub at
the town of Chalhuanca located close
to our operations at Pallancata. This
project sought to improve access to
education and to encourage economic
sustainability through the installation of
free internet access for the whole town.
Further details of all of these initiatives
will be provided in the Annual Report.
On the issue of safety, we continue to
make progress with an 8% reduction
in the Group’s accident frequency rate.
However, there is still a lot more work to
be done as, most regrettably, there were
four fatalities at our operations during
2012. In keeping with Group practice,
all mining activity was suspended
immediately after each incident while
investigations were carried out. We
consider each accident to be avoidable
and we therefore took the active decision
to re-emphasise management’s zero
tolerance policy on accidents by
designating 14th November 2012
as the Hochschild Safety Day when
production across all sites was
suspended and we conducted
Group-wide safety training sessions.
Outlook
Despite ongoing price volatility, long-term
precious metal fundamentals remain
robust as infl ation fears continue to drive
demand and resource scarcity restricts
supply. Looking ahead, our consistent
performance and our growth opportunities
clearly show that we are on the right
track and in 2013 we can expect further
progress on the development of our
Advanced Projects. In addition, there
is signifi cant potential and indeed the
fi nancial strength to continue to add
optionality to our extensive project pipeline
through organic development or further
value enhancing acquisitions.
Board composition
I am delighted that we were able to
announce during the year the appointment
of Enrico Bombieri as an Independent
Non-Executive Director. Enrico brings
a wealth of global capital markets
experience from his previous roles as
a senior member of management at
JP Morgan. I would also like to take this
opportunity to express my gratitude to
Sir Malcolm Field for agreeing to postpone
his retirement from the Board until the end
of 2013 allowing us to further benefi t from
his invaluable contribution.
On behalf of the Board, I would like to
thank the entire talented Hochschild
team for another year of strong
performance, and our shareholders
for your continued support.
Eduardo Hochschild
Executive Chairman
12 March 2013
TOTAL SHAREHOLDER RETURN (indexed to the Hochschild Mining plc share price since start 2008)
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2009
2010
2011
2012
FTSE 350 Index
Hochschild Mining plc
18 Hochschild Mining plc Annual Report 2012
Chief Executive’s review
“ I am pleased to report that Hochschild has delivered a robust set
of results in 2012 reflecting the successful achievement of our annual
production target, considerable progress with regard to our organic
growth pipeline and, towards the end of the year, the announcement
of the exciting purchase of Andina Minerals.
Despite further economic, financial and political difficulties continuing
to affect many markets in 2013, Hochschild remains in a strong position
to enter a critical delivery phase. We remain committed to the safe and
sustainable delivery of optimised production, complementing our value
enhancing growth potential.”
STRATEGIC HIGHLIGHTS
FROM 2012
(cid:353)(cid:3)Annual production target achieved
(cid:353)(cid:3)Overall unit cost performance in line
with guidance
(cid:353)(cid:3)Good progress at Inmaculada and
Crespo Advanced Projects
(cid:353)(cid:3)Excellent results from brownfield
exploration – core asset resource
base optimised
(cid:353)(cid:3)Addition of Volcan gold deposit to
long-term project pipeline
Strategic progress
The geological conditions at our main
operations continue to be extremely
promising and during 2012 our brownfield
exploration results have been significant
with high grade discoveries at all three
operations. Having previously exceeded all
our original life-of-mine targets, in 2012
we shifted the focus of our brownfield
exploration programme to improving
the quality of our resource base and
the results received have confirmed
the potential for continued high quality
resource additions in the future. As part of
this work, we have also completed a full
review of our resource base and have
been able to optimise the geological
models of our main operations.
Furthermore, in an effort to improve our
resource to reserve conversion ratios,
we have optimised our mine plans by
removing resources that although
economic at our stringent cut-off
threshold, are unlikely to be mined at
present. These include: resources that
necessitate high capex; inaccessible
resources from previous mining
campaigns; or those that still require
further evaluation before inclusion
in the mine plan. As a result we have
been able to maintain a life-of-mine
that is now supported by a more
robust resource base. I remain positive
about the exploration potential of these
outstanding mines and their ability
to continue producing high value
resources into the future.
The development of our project pipeline
remains a key pillar of our strategy and
during the year, our Advanced Projects,
which will increase our production levels
by 50%, made good progress. Following
the Board’s approval of both feasibility
studies in January, several key
procurement, engineering and
construction targets were achieved
throughout the year with the expected
start-up date for both projects now set
for the second half of 2014. We have
also made significant advances with
regards to the projects’ social development
programmes and environmental aspects,
as demonstrated by the approval of
Inmaculada’s Environmental Impact
Study in October.
Our ambitious greenfield programme also
continued in 2012 and I am pleased that
we have received further positive results
from our Company Maker pipeline, in
particular at Valeriano in Northern Chile
where initial drilling testing encountered
evidence of a mineralised porphyry copper
system at depth with significant copper
and gold mineralisation, capped by a
mineralised lithocap. Drilling continues
at the property to evaluate grades and the
size of a potential resource. We have again
affirmed our continuing commitment to
our exploration strategy with a $77 million
budget set for 2013 with almost half
assigned to the greenfield programme.
We have always stated that we will look
for opportunities to create value not only
from our project pipeline but also from
acquisitions that meet our disciplined
acquisition criteria. In this regard, the
announcement in November of the
purchase of Andina Minerals was
consistent with our strategic model,
providing Hochschild with further
long-term optionality as well as increased
geographical balance within our extensive
project pipeline. Its principal asset, the
Volcan project, is located in Chile, one
www.hochschildmining.com 19
received that more than off set the 6% rise
in year-on-year gold prices, as well as the
scheduled fall in production versus 2011.
EBITDA reached $385 million, in line
with the fall in revenue, as well as the
above mentioned cost infl ation, and
pre-exceptional EPS was $0.19 for
the full year. We continue to have
a strong cash balance of approximately
$359 million even after the payment for
86.7% of Andina Minerals, as well as just
over $250 million in minority investments.
Together with our healthy operating cash
fl ow, Hochschild retains the fl exibility to
begin full construction at the Inmaculada
and Crespo projects in the second half of
2013, execute our $77 million exploration
programme and, subject to satisfying the
Company’s strict criteria, further capitalise
on the signifi cant range of acquisition
opportunities in the current environment.
Outlook
The Company’s production target for
2013 is 20.0 million attributable silver
equivalent ounces driven by stable
production from our core Peruvian
operations and a continued decline in
contribution from our two ageing mines,
Ares in Peru and Moris in Mexico, off set
by the increased output from San Jose
following the capacity increase.
2013 promises to be an important year in
Hochschild’s development, as the expected
receipt of construction permits for our two
Advanced Projects in the second half will
signal the start of a key phase of capital
expenditure aiming to take the Company
smoothly to the next level of production.
Our core strategy is unchanged. We will
once again be focused on delivering on
our stated operational targets, begin the
detailed process of assessment at the
exciting Volcan project and continue
to develop our comprehensive project
pipeline supported by its $77 million
budget and further selective acquisitions.
We retain great confi dence in our
experienced workforce to deliver
operational improvements and
effi ciencies, while balancing increased
investment in the drivers of long-term
profi table growth with opportunities to
enhance returns. I am confi dent we can
continue to deliver signifi cant value for
all our stakeholders.
Ignacio Bustamante
Chief Executive Offi cer
12 March 2013
22
For more information about
our operating performance
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Workers at Pallancata
of the most attractive, mining-friendly
jurisdictions in the Americas. The
impressive size of the deposit necessitates
careful planning before committing any
development capital and therefore we
intend to conduct substantial geological
and technical evaluation work on
the deposit throughout 2013 and
are confi dent that our experienced
professionals will develop its strong
potential in the long term.
2012 Overview
Hochschild has established a reputation
for consistently meeting its annual
production targets and in 2012 our
operations once again delivered,
producing 20.3 million silver equivalent
ounces. The San Jose mine in Argentina
enjoyed another robust year, with full year
production up by 3% and can look forward
to an even stronger 2013 following a cost
eff ective 10% plant capacity expansion.
Our Peruvian operations continued
their policy of mining close to their
average reserve grades whilst
pursuing opportunities to optimise their
performance. For example, the Arcata
mine further capitalised on high silver
prices to process low grade previously
mined material, as well as completing
the value enhancing Dore project.
In 2012, Hochschild experienced
ongoing cost increases in Peru that were
consistent with industry-wide infl ation.
This trend is set to continue in 2013
with further labour cost increases and
currency appreciation currently forecast.
In Argentina, we were encouraged by
the Company’s ability to mitigate the
ongoing eff ects of high local infl ation
with increased year-on-year tonnages,
further helped by a degree of local
currency devaluation. We expect local
cost infl ation in Argentina to continue to
be high in 2013, but are confi dent that the
combination of increased tonnage from
the capacity increase with further currency
devaluation will provide a signifi cant off set.
Hochschild reported revenue of $818
million in 2012. This refl ected a fall of
almost 10% in the average silver price
20 Hochschild Mining plc Annual Report 2012
Market & geographic overview
2012 market overview
Precious metals prices remained at elevated levels
in 2012, driven mainly by investment demand. The
slowdown in Chinese economic growth and the recession
in Europe weighed on industrial demand for these metals
although lower prices did lead to a growth in jewellery
demand. Finally, investors became more price conscious
during 2012, largely buying on price dips.
2012 SILVER AND GOLD PERFORMANCE (INDEXED)
130
120
110
100
90
80
Jan 12 Mar 12 May 12 Jul 12 Sep 12 Nov 12 Dec 12
Gold
Silver
Geographic overview
Our strategy is focused in the Americas, a region with
enormous mineral potential and a long and supportive
history of mining.
Hochschild operates three of the 13 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 were the world’s largest
and third largest producers of silver in 2012 respectively.
Country production rankings
2012*
Silver
3
9
1
6
Gold
6
13
8
16
2011
Silver
3
9
1
5
Gold
6
12
8
14
Peru
Argentina
Mexico
Chile
* Forecast
Source: CPM Group LLC
Dore bars at San Jose
SILVER REVIEW
Overview
Silver prices trended lower in 2012, continuing a decline that began
in April 2011 after prices peaked above $48/oz. In 2012, silver prices
averaged $31.17/oz, down 11.7% from the record nominal annual
average high of $35.29/oz in 2011. A slowdown in industrial activity
across the globe, coupled with less momentous investment demand,
weighed on prices throughout the year; however, investors proved
resilient to declining silver prices, continuing to buy on price dips and
contributing to three price rallies that occurred throughout 2012.
Investors are estimated to have bought 130.8 million ounces of silver
in 2012, up from 125.0 million ounces in 2011. Silver exchange traded
product holdings increased by 9.1% or 51.4 million ounces in 2012.
Whilst coin demand declined an estimated 15% during the year,
purchases of silver investment bars increased, as bargain hunters
bought on price dips.
Silver fabrication demand growth increased to an estimated 2.8%
in 2012 from 1.1% in 2011 and accounted for almost 30% of silver
demand in 2012. Fabrication demand was buoyed by a 3.1% increase
in jewellery demand, which benefi ted from lower silver prices and as
an alternative to gold jewellery. Electronics and batteries demand
growth slowed to 3.2% in 2012 from 4.5% in 2011. Growth in the tablet
mobile device market weighed on demand for silver from this sector.
Tablets contain about one-tenth the amount of silver contained in
personal computers. Silver demand from solar panel manufacturers
dropped to 43.7 million ounces, down 24.6% from 57.9 million ounces
in 2011. This was the fi rst decline in silver demand from the industry
and was mostly due to aggressive thrifting of the metal in solar panel
GOLD REVIEW
Overview
Gold prices remained at historically elevated levels during 2012.
Prices moved between $1,526.70/oz and $1,798.10/oz during the year.
Gold prices were unable to reach the levels seen in September 2011,
but reached a record high annual average of $1,670.15/oz in 2012, up
from an annual average of $1,572/oz during 2011.
Continued investor demand, the most signifi cant factor infl uencing
prices, helped to maintain prices at high levels during 2012. However,
despite investor interest in gold remaining strong in 2012, investors
became more price sensitive, holding back when prices rose and
buying the metal when prices declined. This investor activity locked
prices into a range during 2012.
Central bank purchases continued to underpin gold prices during 2012.
On a net basis, central banks purchased 9.5 million ounces of gold in
2012. This was up from net purchases of 9.2 million ounces in 2011.
Global gold mine supply in 2012 is estimated at 76.7 million ounces,
lower than the 79.1 million ounces mined in 2011. A decline in South
African mine supply, with strike action impacting the industry in the
second half, was largely responsible for the lack of growth in global
gold mine supply during 2012. It is estimated that 42.3 million ounces
of gold was recovered from the secondary supply of gold during 2012,
up 4.2% from 2011. Increased secondary recovery of gold in India was
largely responsible for the increase in global scrap recovery.
Gold fabrication demand during 2012 is estimated at 70.8 million
ounces, up 1.4% from 2011. Jewellery demand accounted for almost
47% of gold demand in 2012. Jewellery demand from India fell during
www.hochschildmining.com 21
technologies. Photography demand declined an
estimated 4.6%, which was the slowest rate of
decline since 2004.
Total silver supply rose above one billion ounces for
the fi rst time in history, a 1.6% increase year-on-year.
Mine production rose by 2.1%, whilst scrap and other
secondary supply increased by a modest 0.3% and
accounted for 28% of supply in 2012. A decline in scrap
fl ows in the United States and China as well as a drop
in government disposals of silver was not able to off set
a 10.4 million ounce increase in Indian scrap in 2012.
Possible drivers for silver in 2013
(cid:353)(cid:3)Jewellery demand is expected to increase at a
stronger pace.
(cid:353)(cid:3)Electronics and batteries and solar panel
demand growth for silver are expected to improve
year-on-year.
(cid:353)(cid:3)Mine production is expected to expand at a faster
pace in 2013 relative to 2012. Secondary supply
is expected to decline more rapidly in 2013 relative
to 2012.
(cid:353)(cid:3)Investment demand is expected to be lower in 2013.
Investors are expected to continue to add silver to
their portfolios, but at a slower rate, and are expected
to be extremely price sensitive, buying on dips.
the fi rst half of the year as changes in regulations,
taxes, and a weak domestic currency against the
US dollar impacted demand. Indian demand did,
however, rise during the second half of the year,
mainly refl ecting pent-up demand and the festival and
wedding seasons. Chinese gold fabrication demand
rose to a record high in the fi rst quarter of 2012 and
edged lower, on a year-on-year basis, during the
second and third quarters of the year. However,
demand from China during these quarters remained
well above the levels seen in 2011.
Possible drivers for gold in 2013
(cid:353)(cid:3)Continued strength in Investment demand is
expected, although investors will remain price
sensitive, buying the metal only when prices decline.
(cid:353)(cid:3)Central banks are expected to remain large net
buyers of gold as they continue to diversify their
foreign exchange reserves, which should provide
support to prices.
(cid:353)(cid:3)Growth in the secondary supply of gold is likely to
soften in 2013 but remain at elevated levels, and mine
supply is likely to see a strong rise during the year.
(cid:353)(cid:3)Fabrication demand from the jewellery sector could
improve in 2013 as consumers become accustomed
to higher gold prices and Indian consumers fully
digest the higher taxes and the negative impact
of a possibly weak domestic currency.
2012 SILVER SUPPLY
3
2
2012 SILVER DEMAND
5
4
1
1
2
3
1. Mine production
2. Secondary supply†
3. Net exports from
transitional economies*
71.9%
28.0%
0.1%
1. Jewellery & silverware
2. Investment demand,
(excl coins)
3. Coin fabrication
4. Other industrial uses‡
5. Photography
29.7%
5.1%
7.9%
47.6%
9.7%
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electronics, dental alloys, spent chemical catalysts, solar panels, batteries, old coins,
jewellery, silverware, and decorative objects.
‡ Other industrial uses include electronics, solar panels, biocides, mirrors, batteries,
brazing alloys and solders, dental alloys, and chemical catalysts.
Source: CPM Group LLC
2012 GOLD SUPPLY
3
2
2012 GOLD DEMAND
4
3
2
1
1
1. Mine production
2. Secondary supply†
3. Net exports from
transitional economies*
60.0%
36.0%
5.0%
1. Jewellery
2. Electronics
3. Official sector purchases
4. Private investment
demand
46.9%
12.6%
12.4%
28.1%
† Secondary supply includes metal recovered from old jewellery, decorative objects,
statues, coins, scrapped electronics, and dental alloys.
* Exports from transitional economies: the export of silver and gold mine production from
countries including the former Soviet Union Republics, North Korea, Vietnam, and Cuba.
Source: CPM Group LLC
22 Hochschild Mining plc Annual Report 2012
Operating review
Core assets
In 2012 Hochschild once again met its full
year production target, producing 20.3 million
attributable silver equivalent ounces.
Costs1
In 2012, excluding mine royalties and
the cost impact of the increased dore
production at Arcata, (which is more
than compensated for by a reduction
in commercial discounts and selling
expenses), the Company reported a
17% increase in unit cost per tonne at
its main Peruvian operations, to
$70.9 per tonne (2011: $60.8). The increase
in unit cost per tonne excluding royalties,
including the cost impact of the dore
project, was 21% (from $60.8 per tonne
in 2011, to $73.3 in 2012). In Argentina,
unit cost per tonne excluding royalties
increased by 12% to $190.4 per tonne
(2011: $169.6). The Company expects
the increase in overall 2013 unit cost
per tonne in Peru to be approximately
15-20% excluding royalties and the
increased refi ning cost due to the eff ects
of the dore project at Arcata. In Argentina,
expected continuing local infl ation, partially
off set by local currency devaluation, is
anticipated to result in a unit cost per
tonne increase of 10-15%. Please see
page 38 of the Financial Review for
further details of costs.
2012 HIGHLIGHTS
(cid:353)(cid:3)Full year production of 20.3 million
attributable silver equivalent ounces,
in line with guidance
(cid:353)(cid:3)Good progress at Advanced Projects –
Inmaculada plant construction contract
awarded and EIS approved by Peruvian
government; detailed engineering and
construction continued at Inmaculada
and Crespo
(cid:353)(cid:3)Excellent results from brownfi eld
exploration programmes at core assets
Production
In 2012, Hochschild once again met its
full year production target, producing 20.3
million attributable silver equivalent ounces,
comprised of 13.6 million ounces of silver
and 111.8 thousand ounces of gold. The
Company has announced a production
target of 20.0 million attributable silver
equivalent ounces for 2013. Production
at each of the Company’s main operations
is expected to be in line with 2012. As
anticipated, production at the ageing Ares
mine will continue to decline, refl ecting
lower tonnages and grades. Production
at the Moris mine in Mexico is not
expected to be material.
A view of Arcata
OUR CORE ASSETS KEY PERFORMANCE INDICATORS
In 2012 we not only achieved our annual production target but we also received excellent results from our brownfi eld exploration
programme and maintained our life-of-mine which is also now supported by a more robust resource base.
ATTRIBUTABLE SILVER PRODUCTION
moz
ATTRIBUTABLE GOLD PRODUCTION
koz
RESOURCE LIFE-OF-MINE
Years
12
11
10
09
08
13.6
15.0
17.8
18.8
16.9
12
11
10
09
08
112
127
144
157
153
12
11
10
09
08
9.8
9.7
8.7
7.1
5.8
1 Following the revision of the mining royalty regime in Peru in 2011, the mine royalties levied on the output of the Pallancata and Ares units are now accounted
for as income tax, whereas previously, royalties for both units were treated as production costs. The eff ect of this change should be taken into account when comparing
the units’ production cost per tonne, cash costs and Adjusted EBITDA metrics in 2012 with those of 2011.
www.hochschildmining.com 23
Core assets
Arcata
Arcata, Peru
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KEY SITE INFORMATION
Silver production koz
5,526
Gold production koz
17.27
Silver equivalent production koz
6,562
The 100% owned Arcata underground
operation is located in the Department of
Arequipa in southern Peru. It commenced
production in 1964.
Production and sales
In 2012, full year silver equivalent
production at Arcata was 6.6 million
ounces (2011: 7.1 million ounces). There
was an increase in tonnage compared to
2011 mainly refl ecting a planned fourth
quarter increase in volumes processed
from the low grade Macarena Waste
Dam Deposit. This was achieved following
a 500 tonne per day capacity expansion
at the Arcata plant, completed in Q3
2012. The decrease in production was
also a result of lower grades, in line with
the Company’s policy of mining close
to the average reserve grade at its
core assets.
In addition, production at Arcata included
the decrease in ounces recovered as
a result of the ramping up of the dore
project. This initiative was completed in
the fourth quarter with 100% of Arcata’s
concentrate now being converted into dore,
resulting in signifi cant commercial savings
which more than off set the decrease in
ounces recovered from
the process. Excluding the eff ect of this
project, Arcata would have produced an
additional 234 thousand silver equivalent
ounces in the full year.
Contribution from Macarena
Waste Dam Deposit
Total
Tonnage
Average head
grade gold (g/t)
Average head
grade silver (g/t)
Macarena
Tonnage
Average head
grade gold (g/t)
Average head
grade silver (g/t)
Stopes and
developments
Tonnage
Average head
grade gold (g/t)
Average head
grade silver (g/t)
12 mths
2012
12 mths
2011
773,498
687,966
0.83
271
0.88
312
133,825
86,859
0.30
0.30
105
95
639,673
601,107
0.94
306
0.97
344
In 2012, the silver/gold concentrate
from Arcata was sold to Consorcio
Minero S.A, Korea Zinc Co and MRI
Trading AG. 47% of Arcata’s production
was processed into dore; all of which
was sold to Johnson Matthey in 2012.
Costs
Unit cost per tonne, excluding royalties
and the additional cost of increased dore
production increased by 9%. Including
the additional cost of increased dore
production, the unit cost increased by
17% to $82.0 (2011: $70.2). The main
drivers were higher mining costs resulting
from a higher proportion of production
from narrower veins, a 4% appreciation
in the Peruvian Sol and higher wage
costs, in line with industry infl ation.
These eff ects were partly off set by
economies of scale resulting from
an increase in treated tonnage.
1 Please note that all mineralised intersections in this report are quoted as down-hole lengths, not true widths.
Resource life and
Brownfi eld exploration
The resource life of Arcata stands at
11.7 years as at 31 December 2012.
During the year, exploration work at
Arcata focused on the defi nition of
new high grade structures and the
incorporation of high quality resources
from known vein systems, as well as to
provide further geological interpretation
of the area. Positive results included the
discovery of high grade resources in the
Tunel 4 area, the discovery of the new
Katty vein, and the extension of the
Alexia vein with the potential to increase
the life-of-mine and to improve the
average grade quality of the resource.
In total, 56,269 metres of diamond
drilling was completed during 2012
(2011: 94,656 metres) with signifi cant
intercepts including1:
(cid:353)(cid:3)Alexia
DDH-380: 2.00m at 4.56 g/t Au and 814g/t Ag
DDH-400: 9.34m at 3.34 g/t Au and 984 g/t Ag
(cid:353)(cid:3)Katty
DDH-354: 1.45m at 13.69 g/t Au and 1,965 g/t Ag
DDH-397: 1.50m at 47.01 g/t Au and 3,642 g/t Ag
(cid:353)(cid:3)Tunel 4
DDH-355: 2.24m at 4.68 g/t Au and 1,162 g/t Ag
DDH-306: 1.15m at 6.87 g/t Au and 2,387 g/t Ag
DDH-304: 1.33m at 3.48 g/t Au and 2,815 g/t Ag
(cid:353)(cid:3)Sandra
DDH-301: 1.18m at 2.06 g/t Au and 1,059 g/t Ag
In 2013, the exploration and drilling
programme of 34,000 metres at Arcata
will continue in the potential and near
mine exploration areas in the northern
part of the district surrounding the
Socorro, Alexia and Katty vein systems.
24 Hochschild Mining plc Annual Report 2012
Operating review continued
Core assets
Pallancata
Pallancata, Peru
Aurubis AG, LS-Nikko Copper Inc
and Consorcio Minero S.A.
Costs
Excluding mine royalties, unit
cost per tonne increased by 23%, to
$67.2 per tonne (2011: $54.5)1. Including
royalties, the increase in 2012 was
11%, to $67.2 per tonne (2011: $60.4).
This rise was principally due to an
increase in mine costs refl ecting the
higher proportion of production from
narrower veins as well as an increase
in mined areas and higher cement
consumption following the temporary
delays in the mine execution plan in the
fi rst half of the year, as mentioned above.
In addition, an increase in wage costs
resulting from industry infl ation and
a 4% appreciation of the Peruvian
Sol also contributed to the rise.
Resource life and
Brownfi eld exploration
The resource life of the Pallancata
operation stands at 7.4 years as at
31 December 2012. During 2012, a total
of 50,326 metres of diamond drilling was
carried out over the course of the year
(2011: 50,748 metres), focused on the
identifi cation of wider structures and the
incorporation of new resources. Drilling
in 2012 mainly focused on the Paola,
Luisa, Pallancata West, Huararani,
Rina, Yurika and Teresa veins with
intercepts including2:
(cid:353)(cid:3)Luisa
DLLU-A26: 3.79m at 4.44 g/t Au and 1,061 g/t Ag
DLLU-A88: 3.03m at 1.76 g/t Au and 523 g/t Ag
DLLU-A99: 1.20m at 12.17 g/t Au and 1,670 g/t Ag
(cid:353)(cid:3)Huararani
DLHU-A14: 3.01m at 3.61 g/t Au and 1,236 g/t Ag
(cid:353)(cid:3)Paola
DLLU-A28: 7.13m at 2.52 g/t Au and 279 g/t Ag
(cid:353)(cid:3)Pallancata East
DLPE-A87: 1.70m at 3.87 g/t Au and 473 g/t Ag
(cid:353)(cid:3)Yurika
DLTE-A11: 1.65m at 2.93 g/t Au and 451 g/t Ag
In 2013, the exploration programme
at Pallancata will focus on the defi nition
of structures with high quality resources
from known veins systems. The
drilling campaign will also concentrate
on identifying new high grade veins,
with 39,050 metres of drilling
planned in total.
KEY SITE INFORMATION
Silver production koz
7,441
Gold production koz
26.23
Silver equivalent production koz
9,014
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, in which Hochschild
holds a controlling interest of 60% and is
the mine operator, with International
Minerals Corporation (“IMZ”). Ore from
Pallancata is transported 22 kilometres
to the Selene plant for processing.
Production and sales
Full year production at Pallancata in 2012
was 9.0 million silver equivalent ounces
(2011: 10.8 million). The decrease in
production compared to 2011 was mainly
due to lower grades refl ecting the
Company’s policy of mining close to the
average reserve grade at its core assets,
as well as the processing of a higher
proportion of mineral from narrower
structures with higher mine dilution and
lower metallurgic recovery. In addition,
temporary delays in the mine execution
plan in the fi rst half of the year that led to
the treatment of a greater proportion of
lower grade material from the mine also
contributed to the decrease in production.
In 2012, the silver/gold concentrate from
Pallancata was sold to Teck Metals ltd.,
Workers at the Pallancata mine
1 Following the revision of the mining royalty regime in Peru in 2011, the mine royalties levied on the output of the Pallancata and Ares units are now accounted for as
income tax, whereas previously royalties for both units were treated as production costs. The eff ect of this change should be taken into account when comparing the
units’ production cost per tonne, cash costs and Adjusted EBITDA metrics in 2012 with those of 2011.
2 Please note that all mineralised intersections in this report are quoted as down-hole lengths, not true widths.
Core assets
San Jose
KEY SITE INFORMATION
Silver production koz
5,953
Gold production koz
85.77
www.hochschildmining.com 25
San Jose, Argentina
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Silver equivalent production koz
11,099
The San Jose silver/gold mine is located
in Argentina, in the province of Santa Cruz,
1,750 kilometres south-southwest of
Buenos Aires. San Jose commenced
production in 2007 and is a joint venture
with McEwen Mining Inc (formerly Minera
Andes Inc.). Hochschild holds a controlling
interest of 51% of the joint venture and
is the mine operator.
Production and sales
San Jose delivered another strong
performance in 2012, with silver
equivalent production of 11.1 million
ounces (2011: 10.7 million ounces). The
3% rise in production versus 2011 resulted
from an increase in overall tonnage due
to a greater availability of lower grade
economic development material as well as
operational effi ciencies that allowed for an
increase in mill throughput. The decrease
in silver grades refl ected this higher
proportion of development material as
well as the Company’s policy of mining
close to the average reserve grade at
each of its core operations.
San Jose experienced a temporary
accumulation of concentrate inventory
during Q2 2012 due to the impact of
industry-wide regulatory changes in
Argentina. However, exports resumed
at the end of Q2 and sales of this
inventory were completed in Q3 2012.
Workers at the San Jose mine
In 2012, the dore produced at San Jose
was sold to Argor Heraeus S.A. The
concentrate produced at the operation
was sold to Teck Metals ltd., Aurubis
AG, LS-Nikko Copper Inc and Consorcio
Minero S.A.
Costs
Unit cost per tonne at San Jose,
excluding royalties, increased by 12% to
$190.4 (2011: $169.6). Including royalties,
the increase in 2012 was 11%, at $202.2
per tonne (2011: $181.7). The key driver
was wage cost increases driven by local
infl ation in Argentina continuing to run
at between 25% and 30% in 2012. In
addition, this impacted energy costs.
These eff ects were partially off set by
a 10% devaluation of the Argentinian
peso, and economies of scale achieved
through an increase in tonnages
extracted and treated.
Resource life and
Brownfi eld exploration
The resource life of San Jose stands at
12.2 years as at 31 December 2012. The
Company received some excellent results
from the exploration programme at San
Jose in 2012, including the discovery of the
Emilia vein located within the San Jose
area, followed by the discovery of two
further high grade structures: the Rosario
1 Please note that all mineralised intersections in this report are quoted as down-hole lengths, not true widths.
and Kospi extension veins. During
the year, a total of 81,099 metres
(2011: 55,678 metres) of drilling was
carried out to incorporate further
resources and new economic areas.
Drilling focused on a number of veins
and signifi cant intercepts included1:
(cid:353)(cid:3)Kospi
SE SJM-217: 9.50m at 21.25 g/t Au and 3,404 g/t Ag
(cid:353)(cid:3)Emilia
SJD-496: 1.00m at 46.37 g/t Au and 6,951 g/t Ag
SJD-1246: 1.00m at 71.31 g/t Au and 3,579 g/t Ag
SJD-1264: 0.90m at 147.04 g/t Au and 1,276 g/t Ag
(cid:353)(cid:3)Chenque
SJD-1121: 1.70m at 11.05 g/t Au and 1,186g/t Ag
(cid:353)(cid:3)Frea
SJD-1319: 1.00m at 35.54 g/t Au and 267g/t Ag
(cid:353)(cid:3)Huevos Verdes
SJD-1322: 1.00m at 5.99 g/t Au and 1,632g/t Ag
(cid:353)(cid:3)Pilar
SJD-1052: 0.84m at 13.00 g/t Au and 2,275g/t Ag
In 2013, the exploration programme at
San Jose will include geological mapping
and a 32,000 metre drilling campaign
to continue exploration in and around the
San Jose mine and the Saavedra areas.
26 Hochschild Mining plc Annual Report 2012
Operating review continued
Core assets
Ares & Moris
Moris, Mexico
Ares, Peru
KEY SITE INFORMATION
Silver production koz
481
Gold production koz
26.28
Silver equivalent production koz
2,058
Ares: Peru
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.
Production and sales
Although production at Ares was expected
to end in 2011, the Company continues to
extract mineral from new veins and
production continued in 2012. Full
year production at Ares was 2.1 million
ounces (compared to 2.3 million ounces
in 2011). The Company continues to
monitor production closely at Ares to
ensure the extraction of profi table ounces
during the last stage of its life cycle, with
production expected to continue into
2013. The exploration programme is
continuing at the property and positive
results have already been received.
100% of Ares’ production is processed
into dore, all of which was sold to
Johnson Matthey in 2012.
Brownfi eld exploration
In 2012, a full geophysical survey was
conducted at Ares and as a result new
intersections at the Isabel vein were
discovered and new structural corridors
were detected. During the second half
of the year, near mine exploration
continued on the Apolo vein in the NW
corridor. In addition, several new
anomalies were detected and drilling was
carried out in the Rosario and Isabel veins
to defi ne new resources. During the year,
a total of 17,534 metres of drilling
was carried out at Ares. Positive
intercepts included1:
(cid:353)(cid:3)Isabel
AM-1515: 1.70m at 3.36 g/t Au & 578 g/t Ag
AM-1493: 1.35m at 9.83 g/t Au & 68 g/t Ag
AM-1482: 6.05m at 0.44 g/t Au & 155 g/t Ag
(cid:353)(cid:3)Olga
AM-1482: 2.65m at 0.13 g/t Au & 448 g/t Ag
(cid:353)(cid:3)Apolo
AM-1497: 0.70m at 0.10 g/t Au & 243 g/t Ag
In 2013, the exploration programme
and 2,800 metre drilling campaign at
Ares will focus on exploring the potential
extensions of known veins systems
and in new structures.
KEY SITE INFORMATION
Silver production koz
42
Gold production koz
8.79
Silver equivalent production koz
570
Moris: Mexico
The 100% owned Moris mine is an open
pit mine and is located in the district of
Chihuahua, Mexico.
Production and sales
Despite mine production at Moris having
ceased in September 2011, in 2012,
continued leaching of the pads produced
a further 570,000 silver equivalent ounces
(2011: 1.2 million ounces). The Company
expects to continue recovering mineral
from the pads in 2013, although this is
not expected to be material. Exploration
continues at the property.
In 2012, the gold/silver dore produced at
Moris was sold to Johnson Matthey.
Brownfi eld exploration
Exploration work at Moris during 2012
focused on identifying new economic
structures. During the year, 13,994 metres
of drilling was carried out in the La
Nopalera, Creston, Eureka, La Mexicana,
Los Alamos and San Luis areas. Positive
intercepts included1:
(cid:353)(cid:3)La Mexicana
DM-34: 1.72m at 4.97 g/t Au & 7 g/t Ag
DM-37: 4.91m at 2.56 g/t Au & 3 g/t Ag
DM-36: 5.85m at 1.74 g/t Au & 3 g/t Ag
During 2013, further mapping and
sampling will be carried out in order to
better defi ne the new resource areas.
1 Please note that all mineralised intersections in this report are quoted as down-hole lengths, not true widths.
www.hochschildmining.com 27
Advanced Projects
Inmaculada, Crespo,
Azuca & Volcan
Inmaculada,
Crespo, Azuca,
Peru &
Volcan, Chile
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The Company has four Advanced Projects:
Inmaculada, Crespo and Azuca in Peru and
the Volcan Gold project in Chile. In January
2012, Hochschild announced the
successful completion of the Inmaculada
and Crespo feasibility studies which are
forecast to contribute 10 million silver
equivalent ounces of attributable
production on average per annum. In
November 2012, the Company announced
that, following industry-wide delays in the
permitting process in Peru, it now expects
to receive the fi nal mill construction
permits for the Inmaculada and Crespo
projects in the second half of 2013 with
commissioning for both projects’ mills
scheduled for the second half of 2014. At
Azuca, the Company continued exploration
work at the project throughout 2012 in
order to consolidate resources and provide
a more comprehensive picture of the
complex vein structures in the area.
The Volcan Gold deposit was acquired
following the acquisition of Andina
Minerals Inc in November 2012.
Inmaculada: Peru
Inmaculada is a 20,000 hectare gold-silver
project located in the Company’s existing
operational cluster in southern Peru and 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, International
Minerals Corporation (‘IMZ’).
Following the substantial progress
made by the Company during 2012 with
regard to detailed engineering and also
procurement and construction contracts
for the Inmaculada project, the revised
total capital expenditure estimate
for the project is now expected to
be approximately $370 million for a
3,500 tonne per day (‘tpd’) underground
operation with average annual production
of 12 million silver equivalent ounces (7
million attributable ounces). The project is
due to be commissioned in the second half
of 2014. During the year, the Company also
continued to receive positive results from
the exploration programme at the property
which consists of 40 mining concessions
with resources which are currently
estimated at a total of 150 million silver
equivalent ounces.
In August 2012 the Company awarded
the contract for the construction of the
plant at Inmaculada, within budget, for
$142 million, and in September the
Environmental Impact Study (‘EIS’) for the
project was awarded, representing a key
step in the project’s permitting process.
Also during the year, the purchase of the
main plant equipment was completed and
the Company progressed with the detailed
plant engineering, as well as the detailed
engineering for the mine. In addition,
engineering for the camp facilities and for
the workshops, warehouses and offi ces
was completed. Construction of the water
treatment plant was also underway and
construction of the exploration tunnels
continued, with 2,920 metres completed
during the year. Finally, the contract for the
construction of the main access road to
the site was granted, with completion due
in H1 2013, and work also continued
on the construction of the electricity
transmission line during the year.
Exploration at Inmaculada in 2012 focused
on the defi nition and incorporation of
potential systems outside the current
resource area. During the year, fi ve drill
rigs were in operation and a total of 45,942
metres of drilling was carried out, focused
on the Tensional Lourdes, Tensional
Lourdes II, Martha and Angela and Juliana
veins, as well as the newly discovered
Susana and Mirella veins where assay
INMACULADA PROGRESS CHART
0%
38%
Infrastructure & access
50%
62%
100%
Electricity transmission line
26%
74%
Mine development (tunnels)
42%
58%
Engineering
52%
Permitting (water, land, licenses)
53%
EIS approval
100%
Contracts & procurement
51%
Construction (plant, dumps & tailings)
100%
48%
47%
49%
View of the Inmaculada Advanced Project
Completed
Remaining
Overall progress
27%
73%
1 Please note that all mineralised intersections in this report are quoted as down-hole lengths, not true widths.
also continued. Furthermore, on 28
December 2012, the surface water study
for the Crespo project was approved and
subsequently, on 11 January 2013, the
surface land agreement for the project
was approved by the local community.
Both of these are key steps in the project’s
approval process and the Company is
now in a position to submit the project’s
construction permit application.
The exploration programme at Crespo
continued to deliver positive results in
2012. During the year, lithological and
alteration models were completed
and a surface sampling campaign was
concluded. Exploration and infill drilling
at the Crespo and Queshca areas started
in September with three drill rigs in
operation. A total of 2,311 metres of
exploration drilling was completed during
the year as exploration focused on the
transition of inferred resources into
measured and indicated resources and
to test the extension of gold mineralisation
below the current pit. Positive results
were received from superficial levels
and in addition assay results from the
Queshca area confirmed a structural
domain mineralisation. Positive
intercepts included1:
(cid:353)(cid:3)Queshca area
DDHQS-1207: 22.50m at 2.86 g/t Au & 29 g/t Ag
DDHQS-1205: 1.60m at 1.93 g/t Au & 10 g/t Ag
DDHQS-1208: 24.00m at 8.93 g/t Au & 45 g/t Ag
In 2013, a surface exploration programme
will be carried out at Crespo.
Azuca: Peru
The 100% owned Azuca project is also
located in the Company’s southern Peru
cluster. In January 2012, the Company took
the decision to delay the feasibility study
at Azuca and continue exploration work
throughout 2012 in order to consolidate
resources and to provide a more
comprehensive picture of the vein
structures present in the area.
Moreover, the Company believes that the
geological potential of the Azuca property
may produce richer structures that could
further support the investment required
to develop the asset but could alter the
design and location of future mine and
CRESPO PROGRESS CHART
0%
50%
100%
Infrastructure & access
19%
81%
Electricity transmission line
15%
85%
Engineering
69%
Permitting (water, land, licenses)
49%
51%
EIS approval
70%
Contracts & procurement
30%
70%
Construction (mine, plant, pads)
100%
Overall progress
21%
79%
Completed
Remaining
31%
30%
28 Hochschild Mining plc Annual Report 2012
Advanced Projects continued
results showed excellent mineralisation.
Positive results included1:
(cid:353)(cid:3)Martha
MAR12-006: 0.85m at 51.77 g/t Au & 175 g/t Ag
(cid:353)(cid:3)Susana
MAR12-004: 1.03m at 17.15 g/t Au & 1,851 g/t Ag
MAR12-006: 2.52m at 4.97 g/t Au & 531 g/t Ag
(cid:353)(cid:3)Lourdes
LOU12-013: 1.13m at 18.23 g/t Au & 155 g/t Ag
LOU12-001: 3.50m at 7.12 g/t Au & 369 g/t Ag
(cid:353)(cid:3)Angela SW Cimoide
ASW12-016: 10.75m at 4.03 g/t Au & 188 g/t
Ag includes:
ASW12-016: 5.70m at 1.41 g/t Au & 312 g/t Ag
(cid:353)(cid:3)Mirella
LOU12-023: 1.60m at 8.54 g/t Au & 81 g/t Ag
LOU12-024: 1.23m at 8.26 g/t Au & 81 g/t Ag
In 2013, the 13,450 metre drilling
campaign will continue with near mine
and potential drilling to expand the current
resources at Inmaculada.
Crespo: Peru
Crespo is 100% owned by Hochschild
and is located in the Company’s existing
operating cluster in southern Peru. This
will be a relatively simple open pit project
with high gold recovery rates, and as with
the Inmaculada project will benefit from
operational synergies due to its proximity
to the Company’s existing operations.
The project has an estimated total capital
expenditure of approximately $110 million
for a 6,850 tpd operation with an average
annual production of 2.7 million silver
equivalent ounces from the second
half of 2014.
In 2012 the Company made good
progress at Crespo; the detailed
engineering for the mine and the plant
was in progress during the fourth quarter
and is expected to be completed in
the first half of 2013. In addition, the
final engineering for the camp design
and construction was completed
and work on the access road to the
project commenced.
In April 2012, the Company held a
successful public hearing in relation to the
project’s EIS permit, and during the year,
the Company continued the process of
responding to the relevant observations
with regard to the EIS permit, whilst
community relations support programmes
View of the Crespo Advanced Project
1 Please note that all mineralised intersections in this report are quoted as down-hole lengths, not true widths.
www.hochschildmining.com 29
acquisition of all of the outstanding
Andina Minerals Inc shares and therefore
indirectly owned 100% of the issued
and outstanding Andina Minerals Inc
shares. Andina Minerals Inc was delisted
from the TSX Venture Exchange on
22 February 2013.
This acquisition adds to the Company’s
extensive project pipeline, doubling the
current resource base, and is located in
Chile, one of the Company’s key targeted
mining jurisdictions. In addition, it is in line
with the Company’s long standing criteria
of acquiring highly value accretive, early
stage opportunities with strong geological
conditions and with full control. During
2013, the Company will commence an
extensive technical and geological
evaluation of the Volcan deposit and
continue with the relevant permitting
processes and applications.
In February 2011, Andina published
details of a Pre-Feasibility Study carried
out on the Volcan deposit disclosing initial
Proven and Probable mineral reserves
of 6.6 million ounces of gold. During the
process of evaluation mentioned above
Hochschild will re-classify the reported
reserves as resources.
The exploration programme at the
Volcan gold deposit in 2013 will focus
on a re-logging campaign to characterise
resource data and improve the geological
model of the property.
According to Andina’s February 2011 Pre-Feasibility Study, the project has the following
mineral resources:
Classifi cation
Measured
Indicated
Measured & Indicated
Inferred
Total In-pit resource
Tonnes
105,918,000
283,763,000
389,681,000
41,553,000
Gold grade
(g/t Au)
0.738
0.698
0.709
0.502
Contained
Gold Ounces
2,511,000
6,367,000
8,878,000
671,000
a. All quantities are rounded to the appropriate number of signifi cant fi gures, consequently sums may not add
due to rounding.
b. The estimate of mineral resources may be materially aff ected by environmental, permitting, legal, title, taxation,
socio-political, marketing or other relevant issues.
c. The quantity and grade of reported Inferred Resources in this estimation are conceptual in nature and there
has been insuffi cient exploration to defi ne these Inferred Resources as an Indicated or Measured Mineral
Resource. It is uncertain if further exploration will result in the upgrading of the Inferred Resources into an
Indicated or Measured Mineral Resource category.
d. The Volcan mineral resource estimate is eff ective as of 16 September 2010.
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A view of the Volcan gold project
plant infrastructure, tailings ponds and
other key equipment.
The focus of the exploration programme
at Azuca in 2012 was on the exploration
of new areas at the property with the
potential for high grade mineral structures,
as opposed to the addition of resources. As
of December 2012, the Azuca project has
Measured & Indicated resources totalling
7.05 million tonnes at 0.77 g/t of gold and
188 g/t of silver containing 173,500 ounces
of gold and 42.7 million ounces of silver.
Exploration at the site continued in 2012
with promising intercepts indicating the
presence of new higher grade veins.
Surface geology and detailed mapping
were conducted at Azuca and drilling
continued during the year with four drill
rigs in operation. A total of 29,488 metres
of drilling was carried out focused on
the Azuca West, Paralela, Colombiana,
Yanamayo, Esperanza and Prometida
veins. Assay results from the Azuca West
vein confi rmed the continuity of a high
grade mineral structure to the southwest.
Furthermore, the North-West Colombiana
vein intercepts also yielded excellent
results that indicate a new possible
orientation or new structures towards
the north. Positive results included1:
(cid:353)(cid:3)Yanamayo
NE DAYA-A1204: 1.20m at 3.65g/t Au & 764 g/t Ag
DAYA-A1205: 0.90m at 4.11g/t Au & 513 g/t Ag
(cid:353)(cid:3)Azuca West
DAAW-A1205: 2.80m at 1.90g/t Au & 854 g/t Ag
DAAW-A1205: 4.10m at 2.37g/t Au & 769 g/t Ag
(cid:353)(cid:3)Paralela
DAYA-A1209 1.50m at 1.57g/t Au & 439 g/t Ag
The 2013 drilling programme at Azuca
will focus on identifying new high grade
potential mineral structures, with a
programme of 17,100 metres planned.
Volcan gold deposit
On 8 November 2012, the Company
announced that it had made a
recommended cash off er of C$0.80 per
share for all of the issued and outstanding
common shares of Andina Minerals Inc.
(“Andina”). Andina owns the Volcan gold
project located in the prolifi c Maricunga
gold belt in Chile. Full details can be
found in the announcement.
On 20 February 2013, the Company
announced that it had completed the
1 Please note that all mineralised intersections in this report are quoted as down-hole lengths, not true widths.
30 Hochschild Mining plc Annual Report 2012
Exploration review
Exploration
The Company’s exploration programme in 2012
delivered some excellent results, especially in
the brownfi eld exploration at its current operations.
2012 HIGHLIGHTS
(cid:353)(cid:3)$97.5 million invested in exploration in
2012; 33% brownfi eld,17% Advanced
Projects and 38% greenfi eld1
(cid:353)(cid:3)Resource life of 9.8 years
(cid:353)(cid:3)Total resources of 527 million silver
equivalent ounces2
(cid:353)(cid:3)Increase in ‘Company Maker’ pipeline
from 13 to 16 projects
(cid:353)(cid:3)2013 exploration budget of $77 million;
26% brownfi eld at current operations,
14% Advanced Projects, 44% greenfi eld,
others and support 16%
Samples at Pallancata
Overview
In 2012, investment in exploration
totalled $97.5 million and 350,150
metres of drilling was completed at the
Company’s brownfi eld, Advanced Projects,
greenfi eld and copper projects. The 2013
budget, representing 154,700 metres, will
be split between exploration work at
the Company’s existing operations,
the Advanced Projects and greenfi eld
opportunities in Peru, Argentina,
Mexico and Chile.
The Company’s exploration programme
in 2012 delivered some excellent results,
especially in the brownfi eld exploration
at its current operations. The Company’s
greenfi eld exploration programme also
produced positive results and its project
pipeline was further expanded to include
16 Company Makers and 20 Medium
Scale projects.
In 2013, exploration work at the Company’s
core operations will be mainly focused on
identifying new potential and near mine
high grade areas to further improve the
resource quality. At the Inmaculada and
Crespo Advanced Projects, exploration
eff orts will be focused on identifying
new potential high grade areas, whilst at
Azuca Hochschild will concentrate on the
exploration of high quality resources that
better support a signifi cant investment.
At the Volcan gold deposit in Chile, the
Company will commence an extensive
technical and geological evaluation
of the deposit.
Exploration at the Company Maker
projects will include continued
drilling and further analysis, and at the
A geologist at the Crespo Advanced Project
1 Amount disclosed refers to expenditure from the Group’s exploration budget and does not include expenditure from the operational budget.
2 Total resources here exclude base metal resources, excluding Jasperoide, San Felipe and Volcan.
www.hochschildmining.com 31
Company’s Medium Scale projects work
will continue to develop those high quality,
early stage projects that have the potential
to move through the pipeline to production.
Work will also continue on the Company’s
generative programme to conduct further
exploration on the Company’s extensive
land package of premium properties.
In 2012, the number of geologists
employed by the Company was 120.
Brownfi eld exploration
Approximately 33% of the exploration
budget was invested in brownfi eld
exploration in 2012.
The geological conditions at the
Company’s main operations continue to
be extremely promising, and during 2012
brownfi eld exploration results have been
signifi cant, with high grade discoveries
at all three operations. Having previously
exceeded all of Hochschild’s original
life-of-mine targets, in 2012 the focus
was shifted to improving the quality of the
Company’s resource base and the results
received have confi rmed the potential for
continued high quality resource additions
in the future. As part of this work, a full
review of the resource base was also
completed and the Company has been
able to optimise the geological models
of the main operations. Furthermore,
in an eff ort to improve the resource to
reserve conversion ratios, the Company’s
mine plans have been optimised by
removing resources that, although
economic at Hochschild’s stringent cut-off
threshold, are unlikely to be mined. These
include: resources that necessitate high
capex; inaccessible resources from
previous mining campaigns; or those
that still require further evaluation before
inclusion in the mine plan. As a result,
life-of-mine has been maintained
and is now supported by a more
robust resource base.
175
For full reserve and resource tables
Greenfi eld exploration
In 2012 approximately 38% of
the 2012 exploration budget was
invested in the Company’s greenfi eld
programme, and in 2013 the proportion
will increase to 44%. In 2012, a total
of 53,188 metres was drilled at the
Company’s greenfi eld projects.
The Company conducted minimum
exploration work at its greenfi eld projects
in Argentina in 2012. Although exploration
and business development teams did
remain active in the country throughout
the year, a decision has been made
to suspend all exploration activities in
Argentina for the foreseeable future.
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32 Hochschild Mining plc Annual Report 2012
Exploration review continued
Exploration
Drill targets – Company Makers
Overview
The Company currently has 16 potential
‘Company Makers’. These are projects
with the potential to achieve production
of 20-30 million silver equivalent
ounces per year. They are typically high
sulphidation, disseminated or gold/copper
porphyry deposits. In 2012, $20.0 million
was invested in fi nding and developing
such deposits and the 2013 budget
is $17.9 million.
Valeriano: Chile
The Valeriano property in Chile is located
27 kilometres north of Barrick Gold
Corporation’s Pascua Lama project,
in close proximity to the border with
Argentina, and covers an area of
3,750 hectares. The property hosts both
high-sulphidation as well as porphyry
style disseminated copper and gold
mineralisation. The property has been
explored by a number of mining
companies in the past, including Phelps
Dodge (1989-1991) and Barrick (1995-
1997), which completed drill campaigns
totalling 12,575 metres. Hochschild’s
initial programme in 2012 was the fi rst
signifi cant exploration programme since
1997 and the Company has an option to
earn in 100% of the Valeriano property
through a mix of cash payments and
work commitments.
In 2012 a total of 5,294 metres of drilling
was carried out at Valeriano. Initial drill
testing at the property in early 2012
encountered evidence of a mineralised
porphyry copper system at depth with
signifi cant copper and gold mineralisation,
capped by a mineralised lithocap. During
2012, drilling was conducted to test the
upper epithermal and lower porphyry
levels. Near surface epithermal
mineralisation was encountered at
the property and positive intercepts
reported included1,2:
Baborigame
Mercurio
Corazon de
Tinieblas
MEXICO
(cid:353)(cid:3)VALDDH-12009
94.10m at 0.59% Cu Eq includes:
28.00m at 1.02% Cu Eq
20.00m at 0.86% Cu Eq and
599.90m at 0.54% Cu Eq includes:
284.00m at 0.66% Cu Eq
The current exploration programme at
Valeriano has been extended into the fi rst
half of 2013 to further test the porphyry
copper and gold mineralisation at depth.
Victoria: Chile
The Victoria project is located in northern
Chile and is 66% owned by Hochschild,
with the remaining 34% held by Iron
Creek Capital. The exploration programme
is delivering positive results at the
property which covers 46,100 hectares
of continuous strike length at the highly
productive Domeyko Fault Zone. A total of
7,586 metres of drilling was completed at
the deposit in 2012 in the Picaron Exotic,
Victoria II and Incahuasi areas. During the
year, a surface exploration programme
was carried out over the entire property
and geological interpretation of historical
exploration data was also completed,
with new drill targets being identifi ed
in the Victoria II and Incahuasi areas. In
addition, a detailed mapping programme
commenced, in order to defi ne targets
for the 2013 exploration season.
In 2013, additional compilation of
geophysical studies will be carried out
at Victoria and further mapping of the
northern area of the property will be
conducted to defi ne drill targets for
the year’s exploration programme.
Coriwasi
Julieta
Apacheta
Huachoja
Josnitoro
Soranpampa
PERU
Victoria
Encrucijada
Potrero
La Falda
Valeriano
CHILE
1 Please note that all mineralised intersections in this report are quoted as down-hole lengths, not true widths.
2 Results contain Au, Ag and Cu at current rates.
www.hochschildmining.com 33
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A drill rig in operation
large north east structural zone which
hosts a barite vein, to defi ne the extension
and continuity of mineralisation in these
silver-based vein corridors. Positive
intercepts included1,2:
(cid:353)(cid:3)DDHME 12-35
1.00m at 520.34 g/t Ag Eq
(cid:353)(cid:3)DDHME 12-36
2.45m at 315.78 g/t Ag Eq
(cid:353)(cid:3)DDHME 12-40
1.65m at 208.85 g/t Ag Eq
(cid:353)(cid:3)DDHME 12-44
1.21m at 144.65 g/t Ag Eq
(cid:353)(cid:3)DDHME 12-46
1.68m at 147.67 g/t Ag Eq
In 2013, drilling will continue at Mercurio
and will concentrate on the barite
structure zone.
Apacheta: Peru
At the 100% owned Apacheta project in
Peru, a total of 2,524 thousand metres of
drilling was completed in 2012. The initial
exploration programme at Apacheta 1 was
completed with no positive results. Work
continued on the process to obtain the
necessary social permits for Apacheta
2 in order to initiate the planned drilling
programme there.
Soranpampa: Peru
At the 100% owned Soranpampa project
in Peru, a total of 3,040 metres of drilling
was carried out in 2012. Drilling was
carried out on a geophysical anomaly area
in order to identify economic near-surface
gold mineralisation. In addition, further
detailed geophysical work carried out
during the year identifi ed targets in
and adjacent to the primary target and
exploration work was carried out on
these targets. No further exploration
work is planned for the Soranpampa
project in 2013.
Encrucijada: Chile
Following the acquisition of Andina
Minerals the Encrucijada property in
Chile is now 100% owned by Hochschild.
As a result of positive exploration results,
Encrucijada was re-categorised as a
Company Maker project in Q1 2012. During
the year, historical geological data was
compiled and integrated and a total of
1,674 metres was drilled at Encrucijada. In
addition, further geophysical interpretation
and targeting of the porphyry style
mineralisation below the San Bernardo
tourmaline breccias and dome complex,
and in the surrounding area, were carried
out. At the end of the year, mapping of
target areas to the east and north east of
the project commenced and initial results
identifi ed similar vein mineralisation to the
San Bernardo dome, with strongly
anomalous copper porphyry style
mineralisation. Results indicate that this
controlling structure is part of a major
caldera ring structure. Positive drilling
results included the following intercepts1,2:
(cid:353)(cid:3)ENCD11-026
68.00m at 0.20% Cu Eq
113.90m at 0.15% Cu Eq includes:
21.90m at 0.18% Cu Eq
(cid:353)(cid:3)ENCD12-030
241.20m at 0.13% Cu Eq includes:
82.95m at 0.17% Cu Eq
In 2013, a mapping programme will be
completed at Encrucijada to defi ne further
drill targets in the east and north east,
as well as throughout the south east
extension of the property.
Mercurio: Mexico
Mercurio is a 100% owned 36,388 hectare
property in Mexico, located between two
high grade mines, Sombrerete and
Fresnillo. In 2012, a total of 12,292 metres
of drilling was completed at the property
with results to date indicating strong
base metal, as well as moderate silver
mineralisation, associated with a large
vein system similar to Fresnillo.
The exploration programme at Mercurio
in 2012 focused on expanding the known
mineralisation and identifying new
mineralised structures. Geochemical
sampling continued at the property and
drilling was carried out on the Santa Rosa
and Virginia vein systems and along the
1 Please note that all mineralised intersections in this report are quoted as down-hole lengths, not true widths.
2 Results contain Au, Ag and Cu at current rates.
34 Hochschild Mining plc Annual Report 2012
Exploration review continued
A geologist at the Inmaculada property
La Falda: Chile
The La Falda property in northern Chile
is located close to the Company’s other
projects in the area and was acquired in
December 2011 as an earn-in project.
The target is a porphyry gold-copper
system, similar to other deposits in the
Maricunga belt. The drilling programme
at La Falda commenced in Q4 2012 and
totalled 3,009 metres, testing both lithocap
high sulphidation type mineralisation as
well as porphyry style gold mineralisation.
Drilling results indicated that gold
mineralisation does exist and is related
to the porphyry gold setting. Additional
targets were identified following continued
mapping and sampling programmes and
will be developed for drill testing in the
north west of the property. The target is
characterised by porphyry with banded
quartz veins. Positive intercepts from the
drilling programme at La Falda included1,2:
(cid:353)(cid:3)FLDRC-12002
4.00m at 10.38% g/t Au Eq
(cid:353)(cid:3)FLDRC-12004
8.00m at 0.43% g/t Au Eq
3.00m at 1.13 g/t Au Eq
3.00m at 0.55 g/t Au Eq
(cid:353)(cid:3)FLDRC-12007
6.00m at 0.51% g/t Au Eq
Potrero: Chile
The Potrero property is located in
northern Chile, close to the La Falda
property. Potrero was added to the
Company’s exploration pipeline in Q1 2012.
Following the completion of geochemical,
geological and geophysical mapping
programmes early in the year, a NE-SW
trend to mineralisation was confirmed. In
addition, results of a geochemical sampling
programme returned anomalies
associated with the central anomaly and
related to NE trending structures and an
increase in sheeted veining. The magnetic
survey also completed at the property
defined lineaments trending NE and NW,
with the intersection of these lineaments
defining the central area of the property
where the porphyry crops out. In
conjunction with this programme, a
surface mapping programme was
completed and identified mineralised
porphyries extending to the NE. In 2013, a
drill programme has been designed, to test
the porphyry target along the NE trend.
Baborigame: Mexico
The 51% owned Baborigame project is
located in Mexico, in the Chihuahua district.
The project was added to the project
pipeline in Q3 2012 and is a series of low
sulphidation veins with disseminated
mineralisation. A detailed mapping and
sampling programme was completed on
the Cebollas target which is considered to
be the most prospective area within the
property, a mining district with more than
20 kilometres of quartz veins. Two gold
anomalies were identified during the initial
exploration works, and in 2013 a drilling
programme will be carried out to test
the Cebolla target as well as classic
epithermal veins located elsewhere
on the property.
Other Company Maker projects
Coriwasi: Peru
This is a 9,800 hectare high sulphidation
epithermal and porphyry copper-gold type
target in northern Peru optioned from
a private party. During 2012, the Company
continued the process of completing
the relevant permits and approvals
process for the project and conducted an
airborne magnetic survey of the property
which identified a number of magnetic
lineaments that correspond with
surface gold anomalies.
Corazon de Tinieblas: Mexico
The Corazon de Tinieblas property
is located in Southern Mexico. The
Company is in the process of completing
the relevant permits and approvals
process for the property.
Huachoja: Peru
This is a 3,000 hectare, high sulphidation
epithermal target in southern Peru
optioned from Teck Peru SA. In 2012,
a total of 2,278 metres of drilling was
carried out at Huachoja to test four
targets. No significant mineralisation
was reported in 2012.
Josnitoro: Peru
The Josnitoro project is located in
Southern Peru. The Company continued
the process of obtaining the relevant
permit and approvals for the project
during 2012.
Julieta: Peru
The Julieta property is located in
Northern Peru. During 2012, the
Company conducted a geological survey
of the property and subsequent target
definition and commenced the relevant
permit and approval processes for the
drilling campaign.
1 Please note that all mineralised intersections in this report are quoted as down-hole lengths, not true widths.
2 Results contain Ag, Ag and Cu at current rates.
www.hochschildmining.com 35
Exploration
Drill targets – Medium Scale projects
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Astana/Farallón: Peru
Astana is a 100% owned project located
in the Company’s southern Peru cluster,
with high sulphidation of disseminated
gold/silver mineralisation. Historical
drilling at superfi cial levels reported
anomalous results in gold and silver
associated to pyrite with values of 200 to
390 g/t Ag eq. Farallon is a 100% owned
low sulphidation silver veins system,
located 1.5 km to the east of Astana.
Previous drilling at superfi cial levels
reported anomalous results in gold,
silver, lead and zinc.
In 2012 the Company continued the
process of attaining the relevant permits
and approvals for both projects and
received the necessary social permits.
At the Astana property, the testing of
anomalies was carried out whilst at
Farallon a drilling campaign commenced
during the year and a total of 518 metres
of drilling were carried out to test the
economic potential of the property.
Historical drilling has already identifi ed
moderate silver and gold mineralisation
with the current drilling programme
expected to continue in the fi rst
half of 2013.
San Martin: Peru
Work at the San Martin project in Peru
in 2012 was focused on obtaining the
relevant government and community
permits and approvals. In 2013, the
Company will fi nalise the social permit
application process and allow for the
exploration work to commence, with the
focus on defi ning potential mineralisation.
Huacullo: Peru
At the Huacullo project in Peru, in 2012, a
surface mapping programme commenced
to defi ne the extension of the principal
structures at the property where potential
economic mineralisation in low to
intermediate sulphidation veins were
identifi ed in previous drilling campaigns
conducted by other companies. In 2013,
Overview
The Company’s project pipeline also
contains various Medium Scale properties
in the target delineation and drill testing
categories. These are projects that each
have the potential to contribute 5-10
million silver equivalent ounces of
production per year and tend to be low
sulphidation epithermal gold/silver type
deposits with varying base metal content
and are typically mined underground.
In 2012, the Company assigned $7.8
million to fi nding and developing Medium
Scale projects, and in 2013 plans to invest
$5.4 million in this category. The Company
continued to receive positive results from
the exploration programmes at its Medium
Scale projects in 2012 and in addition
added the El Tanque property in Mexico
to the pipeline.
Cuello Cuello: Peru
At the Cuello Cuello project in Peru, the
relevant government and community
permits were received in December 2011
and at the end of H1 2012 the drilling
programme commenced with a total of
2,407 metres drilled during the year. Four
silica structures with high sulphide content
were identifi ed, and near surface gold and
silver structures were intersected in the
drilling campaign. The Company plans to
continue drilling at the property in 2013.
Positive intercepts from the 2012 drilling
campaign included1:
(cid:353)(cid:3)DDH-CC-12003
0.8m at 0.39 g/t Au & 1,159 g/t Ag 1.1m at 0.16
g/t Au & 596 g/t Ag
(cid:353)(cid:3)DDH-CC-12001
1.5m at 7.00 g/t Au & 56 g/t Ag
(cid:353)(cid:3)DDH-CC-0712
2.3m at 1.4 g/t Au & 375g/t Ag
(cid:353)(cid:3)DDH-CC-0912
2.2m at 0.1 g/t Au & 861g/t Ag
Geological samples
1 Please note that all mineralised intersections in this report are quoted as down-hole lengths, not true widths.
36 Hochschild Mining plc Annual Report 2012
Exploration review continued
A view of the Jasperoide property
the Company will finalise the relevant
permits application process and continue
exploration work at the property.
Other Medium Scale projects
El Tanque: Mexico
At the El Tanque project in Mexico,
following a drilling campaign totalling
2,734 metres in 2012, no significant
intercepts were reported to support a
relevant mineralised body. The Company
will not conduct further exploration work
at the property in 2013.
Ibel: Peru
At the Ibel project in Peru, work in
2012 continued on the completion of the
relevant government and community
permits and approval process. Geological
work and target definition were also
carried out in order to test potential
economic mineralisation in low to
intermediate sulphidation veins and
hydrothermal breccias located in
sedimentary rocks.
Copper projects
Following the acquisition of Southwestern
Resources in 2008, the Company currently
holds a number of copper projects
located in the southern Andes in Peru,
within a highly prospective area for
copper deposits.
Jasperoide: Peru
In 2012 a total of 1,906 metres of drilling
was carried out at Jasperoide, focused on
the already identified mineralised zone
and surrounding area to locate new
skarn blankets and to test for a potential
associated porphyritic system. The
Company is not planning to conduct
further exploration work at the property
in 2013.
Alpacocha: Peru
At the Alpacocha project an airborne
geophysical magnetometer survey was
completed and new targets were
generated. A total of 3,012 metres of
drilling was carried out during the year,
concentrated in the Paraiso target, next to
a known copper skarn porphyry target.
Results have indicated a weak to
moderately copper mineralised skarn and
porphyry system with the potential for
mineralisation to increase at depth.
Positive intercepts from the
drilling programme at Alpacocha
in 2012 included1,2:
(cid:353)(cid:3)PADDH12-01
18.20m at 0.99% Cu Eq
(cid:353)(cid:3)PADDH12-05
18.00m at 0.60% Cu Eq
(cid:353)(cid:3)PADDH12-03
3.60m at 0.70% Cu Eq
3.20m at 0.84% Cu Eq
(cid:353)(cid:3)PADDH12-06
2.00m at 0.66% Cu Eq
Antay: Peru
At the 100% owned Antay copper
project, in 2012 the Company continued
the process of obtaining the necessary
access permits for the project.
Generative
The Company holds over one million
hectares of prime land in key geological
regions across four countries and
continues to commit resources to
conduct further exploration in these
premium areas.
1 Please note that all mineralised intersections in this report are quoted as down-hole lengths, not true widths.
2 Results contain Au, Ag and Cu at current rates.
www.hochschildmining.com 37
ADJUSTED EBITDA
$m
CASH FLOW FROM OPERATING ACTIVITIES
$m
Financial review
KEY FINANCIAL HIGHLIGHTS
REVENUE
$m
12
11
10
09
08
540
434
818
752
988
385
398
563
12
11
10
09
08
250
142
12
11
10
09
08
255
304
201
79
EARNINGS PER SHARE
$
TOTAL SILVER CASH COSTS
$/oz Ag co-product
TOTAL GOLD CASH COSTS
$/oz Au co-product
12
11
10
09
0.19
0.17
08
0.05
0.49
0.28
12
11
10
09
08
14.2
13.0
9.3
7.1
7.1
12
11
10
09
08
613
535
476
469
464
781
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(before exceptional items, unless otherwise indicated)
13.41
Year ended
31 Dec
2012
817,952
13,550
112
$000 unless
otherwise indicated
Net Revenue1
Attributable silver production (koz)
Attributable gold production (koz)
Cash costs
($/oz Ag co-product)2
Cash costs
($/oz Au co-product)2
735
Adjusted EBITDA3
384,791
Profi t from continuing operations 128,581
Profi t from continuing
operations (post exceptional)
Earnings per share
(pre exceptional)
Earnings per share
(post exceptional)
Cash fl ow from
operating activities4
Resource life-of-mine (years)
254,879
9.8
126,866
$0.19
$0.19
Year ended
31 Dec
2011
987,662
14,980
127
11.96
561
563,403
268,919
272,338
$0.49
$0.50
464,110
9.7
%
change
(17)
(10)
(12)
12
31
(32)
(52)
(53)
(61)
(62)
(45)
1
1 Revenue presented in the fi nancial 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 Jose. Cash
costs are calculated to include cost of sales, treatment charges, and selling
expenses before exceptional items less depreciation included in cost of sales.
Please refer to paragraph below on the changes of accounting treatment.
3 Adjusted EBITDA is calculated as profi t from continuing operations before
exceptional items, net fi nance costs and income tax plus depreciation and
exploration expenses other than personnel and other exploration related fi xed
expenses.
4 Cash fl ow from operations is calculated as profi t for the year from continuing
operations after exceptional items, plus the add-back of non-cash items within
profi t 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.
The reporting currency of Hochschild Mining plc is US dollars. In
discussions of fi nancial performance the Group removes the
eff ect 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
fi nancial performance of the Group and to facilitate comparison
with prior years.
Following the revision of the mining royalty regime in Peru
in 2011 (as detailed in the Company’s 2011 Full Year Results
announcement), the mine royalties incurred by the Pallancata
and Ares units are now accounted for as income tax, whereas
previously, royalties for both units were treated as production
costs. The eff ect of this change should be taken into account
when comparing the units’ production cost per tonne, cash
costs and Adjusted EBITDA metrics in 2012 with those of 2011.
Revenue
Gross revenue
Gross revenue from continuing operations decreased 17%
to $869.1 million in 2012 (2011: $1,043.7 million) driven by
a decrease in production and a fall in the silver price, partially
off set by a rise in the gold price.
Silver
Gross revenue from silver decreased 21% in 2012 to $599.4
million (2011: $755.8 million) as a result of lower prices. The total
amount of silver ounces sold in 2012 decreased to 18,928 koz
(2011: 21,792 koz) mainly due to lower year-on-year production.
Gold
Gross revenue from gold decreased 6% in 2012 to $269.2 million
(2011: $287.8 million) also as a result of lower ounces produced
although off set to some extent by an increase in the received
gold price. The total amount of gold ounces sold in 2012
decreased to 159.8 koz (2011: 182.0 koz) mainly due to lower
year-on-year production.
38 Hochschild Mining plc Annual Report 2012
Financial review continued
Gross average realised sales prices
The following table provides figures for average realised
prices and ounces sold for 2012 and 2011:
Average realised prices
Silver ounces sold (koz)
Avg. realised silver price ($/oz)
Gold ounces sold (koz)
Avg. realised gold price ($/oz)
Year ended
31 Dec
2012
18,928
31.6
159.8
1,684
Year ended
31 Dec
2011
21,792
34.7
182.0
1,582
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 2012, the Group recorded
commercial discounts of $51.2 million (2011: $56.0 million). This
decrease resulted from a lower volume of concentrate sold in
2012, mainly due to the Arcata dore project. The ratio of
commercial discounts to gross revenue in 2012 increased to 6%
(2011: 5%).
Net revenue
Net revenue decreased by 17% to $818.0 million (2011: $987.7
million), comprising silver revenue of $557.8 million and gold
revenue of $259.6 million. In 2012 silver accounted for 68% and
gold 32% of the Company’s consolidated net revenue compared
to 72% and 28% respectively in 2011.
Revenue by mine
$000 unless otherwise indicated
Silver revenue
Arcata
Ares
Selene
Pallancata
San Jose
Moris
Commercial discounts
Net silver revenue
Gold revenue
Arcata
Ares
Selene
Pallancata
San Jose
Moris
Commercial discounts
Net gold revenue
Other revenue1
Net revenue
Year ended
31 Dec
2012
Year ended
31 Dec
2011
%
change
165,464
14,653
–
232,503
184,635
1,315
(40,784)
557,786
26,850
42,927
–
42,620
142,151
14,616
(9,528)
259,636
530
817,952
207,429
21,168
–
316,344
208,579
2,273
(47,465)
708,328
26,449
46,929
–
54,437
129,994
30,025
(8,584)
279,250
84
987,662
(20)
(31)
–
(27)
(11)
(42)
(14)
(21)
2
(9)
–
(22)
9
(51)
11
(7)
531
(17)
1 Other revenue includes revenue from (i) the sale of energy in Peru and, (ii)
administrative services in Mexico.
Costs
Total pre-exceptional cost of sales increased 4% to $420.3 million
in 2012 (2011: $404.3 million) resulting from an increase in
the direct production cost, an increase in depreciation and from
changes in inventory. These factors were partially offset by lower
workers’ profit sharing reflecting the decrease in production in
Peru and a lower silver price in 2012. The direct production cost
increased by 15% in 2012, to $301.5 million (2011: $261.2 million)
mainly as a result of an increase in the number of stopes, inflation
in labour and supplies and rising oil prices in Peru and Argentina.
Depreciation in 2012 was $121.2 million (2011: $103.7 million),
with the increase mainly due to full depreciation of the Ares
operation, depreciation of new tailings dams at Pallancata as well
as a higher future capex depreciation resulting from the increasing
cost to convert resources into reserves in all operating units and
higher depreciation ratios. Other items, which principally includes
workers’ profit sharing, was $15.4 million in 2012 (2011: $32.4
million) and change in inventories which was $(17.7) million
in 2012 (2011: $6.9 million).
Unit cost per tonne
The Company reported an overall increase in unit cost per tonne
at its main operations of 13% in 2012 to $103.2 (2011: $91.4).
The higher unit cost per tonne reported in 2012 includes the
effect of the Arcata dore project which in turn, provides significant
savings on commercial expenses. For further explanation of
the increase in unit cost per tonne please refer to page 22 of
the Operating review.
Unit cost per tonne by operation (including royalties)1
Operating unit ($/tonne)
Main operations
Peru
Arcata
Pallancata2
Argentina
San Jose
Others
Ares2
Total underground
Moris
Year ended
31 Dec
2012
103.2
75.1
86.3
67.2
202.2
202.2
138.4
138.4
107.8
–
Year ended
31 Dec
2011
91.4
67.1
77.0
60.4
181.7
181.7
120.6
120.6
95.3
17.9
%
change
13
12
12
11
11
11
15
15
13
–
Unit cost per tonne by operation (excluding royalties)2
Operating unit ($/tonne)
Main operations
Peru
Arcata
Pallancata2
Argentina
San Jose
Others
Ares2
Total underground
Moris
Unit cost
per tonne
2012
99.1
73.3
82.0
67.2
190.4
190.4
138.4
138.4
104.2
–
Unit cost
per tonne
2011
83.8
60.8
70.2
54.5
169.6
169.6
118.0
118.0
88.4
17.9
%
change
18
21
17
23
12
12
17
17
18
–
1 Unit cost per tonne is calculated by dividing mine and geology costs by extracted
tonnage and plant and other costs by treated tonnage.
2 Following the revision of the mining royalty regime in Peru in 2011, the mine
royalties levied on the output of the Pallancata and Ares units are now accounted
for as income tax, whereas previously, royalties for both units were treated as
production costs. The effect of this change should be taken into account when
comparing the units’ production cost per tonne, cash costs and Adjusted EBITDA
metrics in 2012 with those of 2011.
Cash costs
Cash costs include cost of sales, commercial deductions and
selling expenses before exceptional items, less depreciation
included in cost of sales.
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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 $13.0 to $14.2 per ounce and from
$613 to $781 per ounce, respectively. Silver and gold cash costs
from the Company’s main operations (Arcata, Pallancata and
San Jose) increased from $12.0 to $13.4 per ounce and from
$561 to $735 per ounce, respectively. The increase in silver cash
costs resulted from higher production costs and lower average
grades, partially off set by lower workers’ profi t sharing, lower
commercial discounts and a lower proportion of costs allocated
to silver as a result of lower silver prices.
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 $6.5 per silver ounce (2011:$4.9 per silver ounce) and
($1,293) per gold ounce (2011: ($1,987) per gold ounce).
Cash cost reconciliation1
$000 unless otherwise indicated
Group cash cost
(+) Cost of sales
(-) Depreciation in cost
of sales
(+) Selling expenses
(+) Commercial deductions
Gold
Silver
Revenue
Gold
Silver
Others
Ounces sold
Gold
Silver
Group cash cost ($/oz)
Co-product Au
Co-product Ag
By-product Au
By-product Ag
Year ended
31 Dec
2012
392,825
420,325
Year ended
31 Dec
2011
394,225
404,291
%
change
(0.4)
4
(117,627)
39,460
51,197
9,552
41,645
817,952
259,636
557,786
530
19,088
159.8
18,928
(105,085)
38,970
56,049
8,584
47,465
987,662
279,250
708,328
84
21,974
182.0
21,792
781
14.2
(1,293)
6.53
613
13.0
(1,987)
4.88
12
1
(9)
11
(12)
(17)
(7)
(21)
531
(13)
(12)
(13)
27
9
(35)
34
1 Cash costs are calculated to include cost of sales, treatment charges, and selling
expenses before exceptional items less depreciation included in cost of sales.
Cash costs are calculated based on pre-exceptional fi gures.
Co-product cash cost per ounce is the cash cost allocated to the
primary metal (allocation based on proportion of revenue), divided
by the ounces sold of the primary metal. By-product cash cost
per ounce is the total cash cost minus revenue and commercial
discounts of the by-product divided by the ounces sold of the
primary metal.
As detailed in the introduction to the Financial Review,
in calculating 2012 cash costs royalties at Pallancata and
Ares are now excluded from the cost of sales fi gure used.
Consequently, for comparison purposes, please see below
2011 Group cash costs adjusting the royalties eff ect.
Group cash cost ($/oz)
Co-product Au
Co-product Ag
By-product Au
By-product Ag
Year ended
31 Dec
2012
781
14.2
(1,293)
6.53
Restated
Year ended
31 Dec
2011
602
12.7
(2,026)
4.56
%
change
30
12
36
43
Administrative expenses
Administrative expenses before exceptional items increased
by 13% to $73.0 million (2011: $64.4 million) primarily due to
rises in personnel expenses mainly resulting from local infl ation
and the appreciation of local currencies. An increase in the
Company’s Long-term Incentive Plan (‘LTIP’) provision, refl ecting
the Company’s share price performance in 2012, also contributed
to the increase. These increases were partially off set by the
absence of voluntary contributions in 2012.
Exploration expenses
As a result of the Group’s decision to focus on organic growth
through exploration, exploration expenses, which primarily
relate to greenfi eld exploration, increased by 36% to $64.6 million
in 2012 (2011: $47.3 million). Further detail of the exploration
programme can be found in the Exploration section on page 30.
In addition, the Group capitalises part of its brownfi eld exploration,
which mostly relates to costs incurred converting potential
resource to the Inferred or Measured and Indicated category.
In 2012, the Group capitalised $15.9 million relating to
brownfi eld exploration compared to $13.2 million in 2011,
bringing the total investment in exploration for 2012 to
$80.5 million (2011: $60.6 million). In addition, $17.0 million
was invested in the Company’s Advanced Projects.
Selling expenses
Selling expenses were in line with 2011 at $39.5 million
(2011: $39.0 million) principally consisting of export duties
at San Jose (export duties in Argentina are levied at 10% of
revenue for concentrate and 5% of revenue for dore).
Other income/expenses
Other income before exceptional items was $8.7 million
(2011: $7.1 million), mainly refl ecting a $2.4 million export tax
credit in Argentina. Other expenses before exceptional items
reached $9.5 million (2011: $15.8 million), which included a
provision for obsolescence of supplies of $2.5 million.
Profi t from continuing operations
Profi t from continuing operations before exceptional items, net
fi nance costs, foreign exchange loss and income tax decreased
to $219.8 million (2011: $424.0 million) as a result of the factors
detailed above.
Adjusted EBITDA
Adjusted EBITDA decreased by 32% over the period to $384.8
million (2011: $563.4 million) driven primarily by lower silver
prices, lower production and higher costs.
Adjusted EBITDA is calculated as profi t from continuing
operations before exceptional items, net fi nance costs and
income tax plus depreciation and exploration expenses other
than personnel and other exploration-related fi xed expenses.
40 Hochschild Mining plc Annual Report 2012
Financial review continued
Adjusted EBITDA
$000 unless otherwise indicated
Profit from continuing
operations before exceptional
items, net finance cost, foreign
exchange loss and income tax
Operating margin
Depreciation and amortisation
in cost of sales
Depreciation and amortisation
in administrative expenses
Exploration expenses
Personnel and other
exploration related
fixed expenses
Adjusted EBITDA
Adjusted EBITDA margin
Year ended
31 Dec
2012
Year ended
31 Dec
2011
%
change
219,768
27%
423,973
43%
117,627
105,085
2,285
64,612
1,903
47,336
(19,501)
384,791
47%
(14,894)
563,403
57%
(48)
12
20
36
31
(32)
Impact of investment in associate
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 $6.5 million in 2012 (2011: $11.7 million),
a result of the Group’s share of the results of Gold Resource
Corporation. After exceptional items, the share of the profit/(loss)
after tax of associates totalled $5.1 million.
Finance income
Finance income before exceptional items of $2.0 million was
lower than that of 2011 (2011: $4.7 million) mainly due to the
absence in 2012 of interest income received from McEwen
Mining following the settlement of loans (2011: $1.7 million).
Finance costs
Finance costs before exceptional items decreased by 40%
to $12.9 million in 2012 (2011: $21.3 million) reflecting interest
costs associated with the prepayment of a shareholder loan
at San Jose during 2011 ($3.4 million), total prepayment of
short-term debt in Peru during 2011 ($2.1 million) and the
prepayment of a Syndicated loan in 2011 ($1.3 million).
The Group has no outstanding positions on currency or
commodity hedges.
Foreign exchange losses
The Group recognised a foreign exchange loss of $1.2 million
(2011: $1.6 million loss) as a result of exposures in currencies
other than the functional currency.
Income tax
The Group’s pre-exceptional effective tax rate increased to
40.0% in 2012 (2011: 35.6%). This increase is partly due to the
introduction of three new taxes in Peru in Q4 2011 – the New
Mining Royalty, the Special Mining Tax and the Special Mining
Assessment. Detailed information on these taxes (collectively
referred to as the ‘New Taxes’) is provided in the Company’s 2011
Preliminary Results announcement released on 20 March 2012.
In 2012, income tax included $8.1 million from the New Mining
Royalty and Special Mining Tax. Excluding these impacts, the
effective tax rate was 36.2% compared to 34.3% in 2011. The
increase in the tax rate mainly reflects lower profit before income
tax in the operating companies (due to lower sales) and higher
non-deductible expenses, mainly related to increases in the
exploration budget.
Exceptional items
Exceptional items in 2012 totalled ($1.7) million after tax
(2011: $3.4 million). This mainly comprises:
Positive exceptional items
Main items
Other income
Income tax
Negative exceptional items
Main items
Impairment and
write-off on assets
Share of post-tax
losses of associates
and joint ventures
accounted under
equity method
Finance cost
$000 Description of main items
1,099 Relates to the provision of
termination benefits due to
workers as a result of the
closure of the Moris mine
accrued in 2011 and partially
reversed in 2012.
141 Deferred taxation.
$000 Description of main items
(245) Corresponds to assets
write-off in Ares and MH Mexico.
Partially offset by the reversal of
the write-off recorded in 2010
related to the 100% dore project
at the San Jose mine.
(1,376) Loss resulting from dilution of
holding in Gold Resource Corp.
(1,334) Mainly corresponds to the
impairment of Iron Creek Capital
Corp, Brionor Resources and
Empire Petroleum Corp of
US$1,043,671, US$105,000 and
US$8,000 respectively.
Cash flow and balance sheet review
Cash flow
$000 unless otherwise indicated
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
Year ended
31 Dec
2012
Year ended
31 Dec
2011
Change
254,879
464,110
(209,231)
(427,869)
(139,898)
(287,971)
(94,842)
(221,901)
127,059
(267,832)
102,311
(370,143)
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Operating cashfl ow decreased by 44% to $254.9 million from
$464.1 million in 2011, mainly due to lower silver prices and
lower production. Net cash from investing activities increased
to $(427.9) million in 2012 from $(139.9) million in 2011, primarily
due to the acquisition of Andina Minerals Inc ($90.1 million) in
2012, the sale of Lake Shore Gold shares ($80.5 million) in 2011
and higher capex during 2012. Finally, cash used in fi nancing
activities decreased to $(94.8) million from $(221.9) million in
2011, primarily as a result of the prepayment of the syndicated
loan ($114.3 million), and lower dividend payments to IMZ
($22.0 million in 2012 compared to $54.0 million in 2011), partially
off set by higher dividends to McEwen Mining ($19.8 million in
2012 compared to $0.0 million in 2011). As a result, total cash
generated decreased from $102.3 million in 2011 to $(267.8)
million in 2012 ($(370) million diff erence).
Working capital
$000 unless otherwise indicated
Trade and other receivables
Inventories
Net other fi nancial assets/(liabilities)
Net Income tax receivable/(payable)
Trade and other payables and provisions
Working capital
Year ended
31 Dec
2012
174,786
76,413
(6,741)
(4,459)
(252,823)
(12,824)
Year ended
31 Dec
2011
175,672
53,032
(12,803)
(23,859)
(259,907)
(67,865)
The Company’s working capital position increased to $(12.8)
million in 2012 from $(67.9) million in 2011. This was primarily
explained by higher inventories ($23.4 million), from stockpiles
at San Jose and from dore in Peru (due to timing diff erences),
as well as lower income tax payable ($19.4 million) as a result
of a lower current tax provision in 2012.
Net cash
$000 unless otherwise indicated
Cash and cash equivalents
Long-term borrowings
Short-term borrowings1
Net cash
Year ended
31 Dec
2012
358,944
(106,850)
(6,973)
245,121
Year ended
31 Dec
2011
627,481
(104,866)
(46,334)
476,281
1 Includes pre-shipment loans which were previously reported under
working capital.
The Group reported net cash of $245.1 million as at 31 December
2012 (2011: $476.3 million). This was primarily driven by the net
decrease in cash generated in 2012 as well as the acquisition
of Andina Minerals Inc, partially off set by the repayment of
short-term borrowings, mainly at San Jose.
The Company’s long-term borrowings are only its convertible
bond that has a current conversion price of £3.90. Under its
terms, the Company is entitled to force conversion of the bonds
at any time after 20 October 2012 if, for a period of 20 out of 30
consecutive days, the average share price, calculated under the
terms of the bonds, exceeds 130% of the conversion price (£5.07).
Capital expenditure¹
$000 unless otherwise indicated
Arcata
Ares
Selene
Pallancata
San Jose
Moris
Inmaculada
Crespo
Azuca
Other
Sub-total
Andina Minerals
Total
Year ended
31 Dec
2012
52,791
7,476
1,152
55,719
71,188
846
96,060
17,984
12,476
18,062
333,754
86,631
420,385
Year ended
31 Dec
2011
33,040
2,673
4,570
50,489
62,994
555
19,447
10,232
31,641
2,306
217,947
–
217,947
1 Includes additions in property, plant and equipment and evaluation and
exploration assets (confi rmation of resources) and excludes increases in the
closure of mine assets.
2012 capital expenditure of $420.4 million (2011: $217.9 million)
includes operating capex of $182.5 million, capitalised exploration
costs of $15.9 million in respect of the Group’s operating mines,
$134.4 million capitalised in respect of the Advanced Projects
(Inmaculada, Crespo and Azuca) and administrative capex of
$1.0 million. Capital expenditure in 2012 also included $86.6
million relating to the acquisition of Andina Minerals Inc.
Capital expenditure at Arcata rose by $19.8 million in 2012
due to the construction of the Dore project and the plant
capacity increase.
Capital expenditure at San Jose increased by $8.2 million
in 2012, refl ecting local infl ation in mine development costs.
Other capex increased by $15.8 million, mainly due to the
acquisition of the Conenhua energy transmission line to
improve the energy supply to our operations in Peru, and the
construction of the energy transmission line for Inmaculada.
Dividends
The directors recommend a fi nal dividend of $0.03 per ordinary
share which, subject to shareholder approval at the 2013 AGM,
will be paid on 4 June 2013 to those shareholders appearing on
the register on 10 May 2013. If approved, this will result in a total
dividend for the year of $0.06 per share.
Dividends are declared in US dollars. Unless a shareholder elects
to receive dividends in US dollars, they will be paid in pounds
sterling with the US dollar dividend converted into pounds
sterling at exchange rates prevailing at the time of payment. Our
dividend policy takes into account the profi tability of the business
and the underlying growth in earnings of the Company, as well as
its capital requirements and cash fl ow.
Dividend dates
Ex-dividend date
Record date
Deadline for return of currency election forms
Payment date
2013
8 May
10 May
15 May
4 June
42 Hochschild Mining plc Annual Report 2012
Sustainability report
2012 HIGHLIGHTS
Hochschild safety day
see page 46
Digital Chalhuanca
see page 53
The Group’s first
carbon footprint study
see page 55
IN THIS SECTION
Safety
see page 46
Health & hygiene
see page 48
Our people
see page 50
Working together with
local communities
see page 52
Managing our
environmental impact
see page 55
Dear shareholder
I am pleased to introduce this section of the 2012
Annual Report in which we highlight how our
sustainability commitments have translated into
actions during 2012, and the challenges we have
set ourselves for the current financial year.
Our stakeholder approach to business is something
that we have always done, a long time before the
concept of sustainability was widely adopted across
the mining sector. This year, we have captured this
foundation upon which our strategy is formulated
through the phrase ‘Operating Responsibly’.
We are acutely aware of the perception of the industry and its potential impact on
communities and the environment and we are therefore keen to engage with all
interested groups so that expectations and needs can be managed and met.
We consider safety to be no less important than our strategic business priorities.
Despite our ongoing commitment, it is with deep regret that there were four fatalities
at our operations during the year. We remain steadfast in our view that every fatality
is avoidable and so we will continue to monitor and review our controls and invest in
training as required.
Key developments in 2012
We are very proud that during 2012, the Group joined a select number of companies in
Peru to have embedded sustainability policies and procedures within their businesses
and, in doing so, have received the Socially Responsible Company accreditation.
Workers at Arcata
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Management felt that safety needed to be tackled with increased vigour and, for this
reason, 14 November 2012 was designated the Group’s Safety Day. All mining activity
was suspended whilst briefi ngs and training sessions were held across all sites.
For me personally, nothing is more important than providing a safe workplace for all,
and so I was pleased to be able to participate in a video recording in which I reiterated
the Group’s commitment to the wellbeing of our people.
We launched a number of new initiatives during the year, most notably Digital
Chalhuanca. This, our fl agship project, led to the installation of internet facilities
in the town of Chalhuanca in Apurimac close to our Selene and Pallancata operations.
As detailed on page 53, the project aims to provide better communication facilities
to facilitate education and commerce. I am very proud that this initiative has received
recognition for its innovation and, moreover, has been replicated in other parts of Peru.
We commissioned the Group’s fi rst base line study to better understand our carbon
footprint. We all have a part to play in conserving the limited resources we have
access to and Hochschild Mining has started the process of understanding the level
of greenhouse gases produced by the Group and identifying the sources of opportunity
to reduce emissions.
We rely on the goodwill of the members of the local communities to be able to operate
and so it is imperative that we involve them closely in our planning processes in
order to address their needs and take account of their concerns. As stated in the
Environmental section of this report, this type of engagement represented the critical
milestones achieved during the year in the development of our Advanced Projects,
Inmaculada and Crespo.
Priorities for 2013
We will continue to focus our eff orts in pursuit of our objective of zero accidents and
the elimination of fatalities. We have already embarked on this journey with a series of
communications ensuring that the message of Safety First is adopted by all.
Reporting in this area will continue to evolve as this year we will be producing our fi rst
standalone Sustainability Report which will be compiled under the guidelines of the
Global Reporting Initiative.
Whilst we continue in our endeavours, our progress to date is testimony to the teams
of people who work across numerous functions and to them I wish to express my
gratitude for their support and dedication.
Eduardo Hochschild
Executive Chairman and Chairman of the CSR Committee
44 Hochschild Mining plc Annual Report 2012
Sustainability report continued
Governance
What is Hochschild Mining’s approach to Sustainability?
To ensure that our values are adhered to, we have adopted
a number of policies which demonstrate our commitment to:
(cid:353)(cid:3)a safe and healthy workplace
(cid:353)(cid:3)managing and minimising the environmental impact of
our operations
(cid:353)(cid:3)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 performance
measurement. In our efforts to achieve the above objectives,
we seek to:
to consider, at an operational level, local health and safety policies,
environmental programmes, community relations and employee
matters. These meetings are, also, attended by members of the
Group’s Legal and HR functions.
Whilst each area has its dedicated area of focus, they often
collaborate with each other as required, for example in the
provision of health services to the communities.
Terms of Reference of the CSR Committee
Under its terms of reference, the CSR Committee is tasked with:
(cid:353)(cid:3)evaluating the effectiveness of the Group’s policies and systems
for identifying and managing health, safety and environmental
risks within the Group’s operations;
(cid:353)(cid:3)comply with all relevant legislation and leading
international standards
(cid:353)(cid:3)promote continuous improvement of our management
systems with the aim of incorporating best practice
(cid:353)(cid:3)adopt a proactive approach to preventing and managing
the risks that may limit the achievement of our corporate
responsibility objectives
(cid:353)(cid:3)encourage employees to adopt the Group’s values through
the use of training and internal communications.
Management of Sustainability
The Board has ultimate responsibility for establishing Group
policies relating to sustainability and ensuring that national
and international standards are met. The Corporate Social
Responsibility (CSR) Committee has been established as a formal
committee of the Board with delegated responsibility for various
sustainability 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 sustainability-related risks. Eduardo Hochschild
has Board-level responsibility for sustainability issues.
A working group of relevant personnel meets on a monthly
basis to support the work of the CSR Committee and is tasked
(cid:353)(cid:3)assessing the policies and systems within the Group for
ensuring compliance with health, safety and environmental
regulatory requirements;
(cid:353)(cid:3)assessing the performance of the Group with regard to
the impact of health, safety, environmental and community
relations decisions and actions upon employees, communities
and other third parties. It shall also assess the impact of such
decisions and actions on the reputation of the Group;
(cid:353)(cid:3)receiving reports from management concerning all fatalities
and serious accidents within the Group and actions taken
by management following each incident;
(cid:353)(cid:3)evaluating and overseeing, on behalf of the Board, the
quality and integrity of any reporting to external stakeholders
concerning health, safety, environmental and community
relations issues; and
(cid:353)(cid:3)reviewing the results of independent audits commissioned
on the Group’s performance in regard to health, safety,
environmental or community relations matters; reviewing
any strategies and action plans developed by management
in response to issues raised and, where appropriate, making
recommendations to the Board concerning the same.
GOVERNANCE STRUCTURE FOR SUSTAINABILITY
BOARD OF DIRECTORS
CSR COMMITTEE
HR
WORKING GROUP
LEGAL
COMMUNITY
RELATIONS
ENVIRONMENT
HEALTH & HYGIENE
SAFETY
www.hochschildmining.com 45
The CSR Committee’s work in 2012
During the year, the CSR Committee:
(cid:353)(cid:3)reviewed the investigations into the four fatalities that
occurred during the year and the action plans formulated by
management to implement the associated recommendations;
(cid:353)(cid:3)approved the 2011 Corporate Responsibility Report;
(cid:353)(cid:3)considered updates from the work done across the Group to
manage community and labour relations.
In addition, during the year the full Board received presentations on:
(cid:353)(cid:3)the Group’s HR function and, looking ahead, the medium to long
term resourcing strategy to achieve our business goals; and
(cid:353)(cid:3)the social issues in Peru and their impact on the mining sector.
(cid:353)(cid:3)monitored the execution of the yearly plan in each of the four
key areas of focus;
(cid:353)(cid:3)considered the ongoing progress of the implementation of a
number of internationally accredited management information
systems to control and monitor sustainability related risks;
(cid:353)(cid:3)monitored the status of the Group-wide initiatives launched to
raise the profi le of safe working practices to assist with accident
prevention; and
61
82
Read more about how we mitigate social and environmental risks to
our business
Our commitment to Sustainability is refl ected in our Executive Remuneration
policy. For more details see the Directors’ remuneration report
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Workers at Arcata
46 Hochschild Mining plc Annual Report 2012
Sustainability report continued
Safety
2012 HIGHLIGHTS
Reduction in Accident
Frequency Index
9%
Launch of the
inaugural Hochschild
Safety Day across
entire operations
The Hochschild approach to safety
Mining has an inherently high risk profi le and safety is
our highest priority. Ensuring the safety of the Group’s
employees is considered crucial in measuring the successful
implementation of corporate strategy to which the Board
and management are committed.
The Group regrets that there were four fatalities during the year.
In the fi rst incident, a scoop operator at the Pallancata operation
was fatally injured after a water pump exploded. The second
fatality occurred, also at Pallancata after a scoop operator lost
control of his vehicle whilst reversing down a hill. The third
incident occurred at Arcata, where an assistant driller was
overwhelmed by noxious fumes and the fourth occurred at
Ares where a driller sustained injuries from a rockfall.
Circumstances leading to these tragic events have been
investigated by management, reported to the Board and 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 carry out safety briefi ngs.
CASE STUDY: HOCHSCHILD SAFETY DAY 14 NOVEMBER 2012
After the occurrence of the third fatality at the Group’s
operations, management felt that a concerted eff ort focused
on safety was required to highlight its importance. Operations
across the entire Group were stopped whilst a tailored
programme of briefi ngs, training sessions and roundtable
discussions was held.
During the day, a video of the Chairman was shown in which
he delivered a personal message in support of the initiative
and emphasised the importance of safe working both to the
employees and to their families.
Our achievements in 2012
(cid:353)(cid:3)Continued implementation of the DNV safety management
system at all operating units and Advanced Projects to
support the Group’s proactive approach to safety.
(cid:353)(cid:3)Compliance with the international standard, OHSAS
18001:2007, was certifi ed in respect of the Peruvian
and Argentinian operations.
(cid:353)(cid:3)Training has been a key focus in 2012 with:
– the design and roll out, in conjunction with DNV, of
a course entitled ‘Internal Audits and OHSAS 18001:2007’
for personnel at the operating units, Advanced Projects
and exploration projects;
– the strengthening of the theoretical-practical training
of brigades to intermediate level;
– the provision of the ‘Training the Trainer’ course at the
Selene unit on hazard identifi cation, risk assessment
and control in conjunction with Expectra, a leading risk
management consultancy based in South Africa
(cid:353)(cid:3)With Expectra’s support, the Group commenced the
implementation of the ‘Control of Fatal Risks’ software
which will assist the Group in developing its safety
strategy based on the integration of principles of
changing organisational behaviour;
(cid:353)(cid:3)The holding of the fi rst Hochschild Safety Day
on 14 November 2012 (see box below)
(cid:353)(cid:3)The holding of the Luis Hochschild Safety Innovation
Award which, in 2012, aimed to raise the bar on the
quality of proposals and, as a result, increase their
impact on safety.
Mine workers at a safety briefi ng session
www.hochschildmining.com 47
HOW WE PERFORMED AGAINST OUR 2012 OBJECTIVES
Target
6% reduction in LTIFR
Status
Commentary
A 9% reduction was achieved
The Company seeks to achieve the following with
respect to the DNV safety management system:
– Maintain and further develop current
levels of implementation at Peruvian and
Argentinian units
– Level 3 at the Inmaculada Project
To launch a safety awareness campaign highlighting
the potential impact on family life
To evaluate the eff ectiveness of the ‘Fatal Risk Control’
software at the Pallancata unit with a view to rolling it
out to other operating units
To provide training to the Group’s emergency brigades
to advanced level
Partial
Ares – Level 5
Arcata & Pallancata – Level 7
San Jose – Level 6
A campaign was launched highlighting
the importance of safety to all employees
(see details of the Hochschild Safety Day)
Initial evaluation was completed in 2012 with
a further assessment being undertaken in
2013 to fully understand its impact on safety
A training programme was commenced and
practical steps taken to equip the Group’s
emergency teams
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SAFETY INDICATORS
Fatal accidents
Accidents leading to an absence of one day or more
LTIFR1
Accident Severity Index2
Accidentability rate3
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.
2013 TARGETS
(cid:353)(cid:3)5% reduction in LTIFR
(cid:353)(cid:3)20% reduction in Accident Severity Rate
2012
4
81
3.33
1,058
3.52
2011
3
81
3.63
910
3.30
2010
2
66
3.70
777
2.88
2009
2
79
5.22
1,485
7.76
(cid:353)(cid:3) Achieve the following levels of implementation of the DNV software:
Ares
Arcata & Pallancata/Selene
San Jose
Inmaculada Project
– Level 6
– Upper Level 7
– Upper Level 6
– Upper Level 3 (internal certifi cation)
48 Hochschild Mining plc Annual Report 2012
Sustainability report continued
Health & hygiene
2012 HIGHLIGHTS
Reduction in work-related
incidences requiring
medical attention1
Continued focus
on physical as well as
psychological health
43%
1 In Peru and San Jose.
The Hochschild approach to health & hygiene
Underlining the importance we place on our people and their
wellbeing, the Group’s Health and Hygiene team is tasked
with providing an integrated approach to employee welfare.
Whilst the Health team has been established to ensure
that employees have access to the relevant services and
infrastructure to ensure that treatment can be provided, the
Hygiene team look to reinforce the importance of the quality
of life at work and seek to work in the prevention of
occupational illness.
Given the nature of the work, and the operation of two week
shifts requiring mineworkers to spend extended periods away
from their families, the Group recognises the importance
of ensuring the mental wellbeing of its employees. For this
reason, the Group’s Health & Hygiene teams are also trained
in occupational psychology.
Our achievements in 2012
(cid:353)(cid:3)The preparation of a baseline study to identify and evaluate the
health risks at two of the Group’s exploration projects in Peru;
(cid:353)(cid:3)Increased level of support provided to the Health & Safety
Co-ordinator for Exploration & Geology;
(cid:353)(cid:3)A baseline study was completed to evaluate the psychological
hazards present at exploration projects;
(cid:353)(cid:3)Supported the Community Relations team with a number
of projects including the Medico de Cabecera initiative.
A training session co-ordinated by the Health & Hygiene team on the Industrial Hygiene risks at the Apacheta exploration project in Peru
www.hochschildmining.com 49
HOW WE PERFORMED AGAINST OUR 2012 OBJECTIVES
Target
Status
Commentary
Complete the uploading of data onto the Health and
Hygiene SAP module
To establish a programme of monitoring occupational
disease for research purposes and ultimately improving
the provision of our service
To develop the psychology programme for our units and
Advanced Projects
HEALTH INDICATORS
Average number of medical attendances at Peruvian
operations and at San Jose, per month
Average number of work-related incidences requiring
medical attention at Peruvian operations and at San Jose,
per month
Average number of occupational health examinations at
the Group’s wholly-owned Peruvian operations and Moris,
per month
2013 TARGETS
(cid:353)(cid:3)To redefi ne health services provided at San Jose
Data was uploaded with respect to the
Peruvian and Argentinian operations and
will serve as a useful monitoring tool
A programme to monitor occupational
disease was established during the year in
Peru and Argentina
Occupational psychology programmes were
established at the units and Advanced Projects
2012
2011
2010
2009
3,376
3,065
2,961
2,690
18
441
32
396
26
237
25
406
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(cid:353)(cid:3)To be prepared to ensure continued compliance with relevant requirements in light of new Health & Hygiene regulations
expected to come into force in Peru in 2013
(cid:353)(cid:3)To implement the Health & Hygiene SAP module at the Inmaculada Project
Managing our talent
During the year, development plans for those holding critical
positions identifi ed as part of the Group’s Talent Inventory
Review (‘TIR’) were implemented.
Creating a better place to work
The Group continues to make use of an Organisational Climate
Survey (‘OCS’) which has embedded itself as a key tool to
measure levels of satisfaction amongst employees and
identifying opportunities for further development. The survey
held in 2010 resulted in over 360 recommendations with the
aim of improving the working environment.
The Company commissioned the 2012 OCS in collaboration with
the Hay Group which showed an overall increase in employee
satisfaction of 8%. The specifi c fi ndings of the survey will, after
evaluation, again result in an action plan for implementation
during the year.
Embedding a safety fi rst culture
Whilst the focus in the early part of 2012 was on reinforcing the
Group’s core corporate values through training, briefi ngs and
team events, the focus later in the year changed to one of
consolidating a safety fi rst culture which is set to continue.
Resourcing for the future
A global recruitment strategy was designed and established
across the Group during 2012. Implementation of the strategy
commenced in November 2012 with a visit to the University of
Arizona to recruit future mining engineers which will be followed
by similar initiatives in 2013.
50 Hochschild Mining plc Annual Report 2012
Sustainability report continued
Our people
2012 HIGHLIGHTS
Percentage of
workforce trained
90%
Average number of hours of
training per year per employee
52 hours
The Hochschild approach to our people
Training and development
The quality of our people is key to the success of the business in
achieving its strategic objectives and we therefore seek to attract
and retain the best people. The Group’s HR team adopts various
techniques to ensure that our people contribute to the Company’s
success which include the provision of competitive remuneration,
a positive working environment (through the Organisational
Climate Survey) and ongoing professional development.
Group values and labour relations
One of the primary responsibilities of the HR team is to ensure
the clear ongoing communication of the Group’s corporate values:
Integrity, Teamwork, Quality and Excellence, Responsibility and
Commitment to our People. These values are embodied in our
Code of Conduct which, amongst other things, sets out our
commitment to the fair treatment of all employees and the right
to be free of harassment or intimidation in the workplace. We
recognise the core labour rights principles and, in this respect,
support the right to freedom of association and collective
bargaining. Approximately 56% of our total workforce is
represented by a trade union or similar body.
Our achievements in 2012
The Group’s team of HR professionals has undertaken a
number of initiatives during 2012 to further their shared objective
of ensuring the Group is appropriately resourced for the future
challenges. The following highlights some of the work carried
out during the year.
Developing our people
The third leadership workshop for senior management took
place in Lima facilitated by IAE Business School.
For operational middle-management, the second stage of the
‘Developing Leaders’ programme was held in Peru and Argentina,
and, for operational managers, a tailored leadership workshop
was designed for delivery in 2013.
The exploration team continued with a programme entitled
‘High Performance Team’.
www.hochschildmining.com 51
HOW WE PERFORMED AGAINST OUR 2012 OBJECTIVES
Target
Status
Implement the development plans designed as part of the Talent Inventory Review
Continue with the entire leadership programme at all levels of management
Start the second stage of the ‘Developing Leaders’ programme for middle-management in Peru and Argentina
Achieve a three point increase in the Organisational Climate Survey against the results of the last survey
commissioned in 2010
Establish a global recruitment strategy
PEOPLE INDICATORS
General
Average number of Group employees and contractors
Training
Average number of hours of training undertaken per
employee during the year
Percentage of workforce trained during the year
Labour relations
Number of production days lost as a result of
industrial unrest
2013 TARGETS
2012
2011
2010
2009
7,557
6,395
5,776
4,969
52.03
90%
37.86
90%
16.86
87%
14.03
94%
7
28
1
40.5
(cid:353)(cid:3)Implement improved talent identifi cation process and continue with the implementation of development plans
(cid:353)(cid:3)Continue with the entire leadership programme for all levels of management
(cid:353)(cid:3)Implement the leadership programme for operational management
(cid:353)(cid:3)Establish alliances with leading universities as part of the Group’s recruitment strategy
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Members of middle management at the San Jose mine participating in the ‘Developing Leaders’ programme held during the year in collaboration with the Hay Group
52 Hochschild Mining plc Annual Report 2012
Sustainability report continued
Working together with local communities
The Hochschild approach to working with
our communities
We have, since the Group’s early days, shaped our community-
oriented activities to establish positive relationships with the
local communities and to contribute to their development. We
try to do this by applying the following principles:
(cid:353)(cid:3)foster mutual respect and co-existence with local communities
Elementary & Secondary Education – We worked with over
50 local elementary schools and over 2,000 students with
the goal of improving their basic literacy skills. We partnered
with local NGOs to deliver their established programmes
which also involved parents and community members in
the education of their children. In secondary education, we
delivered ‘Training of Young Entrepreneurs’ in partnership
with Junior Achievement Worldwide
(cid:353)(cid:3)achieve mutually benefi cial agreements
(cid:353)(cid:3)improve the quality of life of community residents
(cid:353)(cid:3)improve the health, education and nutrition of local
community members
(cid:353)(cid:3)encourage good relationships and co-ordination with
stakeholders to promote sustainable development
Community Relations strategic review
Hochschild has medium and long term visions of its
relationship with local communities focused on education,
health and economic development, and to provide the
residents of participating communities, especially of the
younger generation, with the tools and skills to play a
productive role and to enable them to chart their own paths.
Based on this goal, the Group developed several initiatives
in 2012 which were designed to improve the quality of life
of the people in the areas of direct and indirect infl uence of
the Group’s operations and projects as well as to improve
relations with residents.
To complement this vision, a socio-economic study of the
geographic areas where the Group’s operations are present
was commissioned in 2012 where, through interviews, surveys,
ethnographies and research of the area, a profi le of the needs of
the communities and related trends was identifi ed to fi ne-tune
the Group’s approach. Based on the fi ndings, programmes are
being designed for 2013 from the perspective of ‘Family Units’,
where tailored programmes will be developed taking into
account the needs of the families and their physical location.
Our achievements in 2012
Signifi cant progress was made in each of the key areas of
our Community Relations strategy.
Education
Maestro Líder – Hochschild worked directly with over
300 primary and secondary school teachers to improve
the education of children in the Group’s areas of infl uence.
These teachers received training and certifi cation in basic
skills programmes, entrepreneurship, leadership and
digital inclusion.
Leadership Skills for Teachers – in conjunction with the
technical education institute, TECSUP, workshops for teachers
from Arequipa and Ayacucho were held on various subjects
including social skills and eff ective communication to
enhance their roles.
Digital Inclusion – Continuing the programme launched
in 2011, where over 300 teachers were trained in the use of
technology as an educational tool, 2012 saw the delivery of
more advanced initiatives on class preparation. In addition, we
supported students in implementing projects through the use
of ICT for the benefi t of their communities.
Health
Medico de Cabecera – Continuing the programme launched
in 2011 to bring health services to the communities close to
the Group’s Peruvian operations, three mobile units served local
communities during 2012. Through this initiative, we worked
together with the Ministry of Health in organising promotional
activities and health prevention campaigns.
Socio-economic development
Digital Chalhuanca – The Group’s fl agship project using
technology and the internet to enhance education and promote
economic development. (see case study on opposite page)
Development of local skills – Through active participation,
Community Development Plans were agreed enabling local
communities to prioritise projects that will lead to sustainable
development with support from local and regional authorities.
Alpaca and trout programmes – To encourage revenue generation
and therefore economic independence, the Group continued to
provide technical support and infrastructure for the raising of
alpacas. Technical assistance to local fi sh farms resulted in the
Group sourcing local produce for the restaurants at its operations.
www.hochschildmining.com 53
CASE STUDY: DIGITAL CHALHUANCA
The fi rst digital community in Peru. This project was launched to provide
the community of Chalhuanca with access to new technology
to promote education and economic development.
The town, situated 500 km south-east of Lima in the
region of Apurimac, was selected because of its location in
the Group’s Area of Infl uence and its potential as a hub for
surrounding communities.
The project’s initial two-year phase focuses on meeting the
community’s initial needs in using the new technology and
launching initiatives in the following areas:
Digital Chalhuanca was made possible through extensive
public-private collaboration between numerous
organisations including the provincial and regional
authorities, the NGO Empresarios por la Educacion (‘EPE’)
and companies including Hochschild, Intel, HP and Lenovo.
Together, they installed wired and wireless internet access
and created a Digital Resource Centre equipped with the
latest technology. In addition, funds were committed for
educational programmes for students, teachers and the
general public designed on sustainable strategies
developed by EPE.
(cid:353)(cid:3)Education & Training – promoting the use of ICT as a
teaching resource for primary and secondary school
students. Training will also be provided to the general
public on basic IT literacy
(cid:353)(cid:3)E-Government – enhancing the website portal of the
municipal authority and holding training workshops for
local public sector employees
(cid:353)(cid:3)Economic Sustainability – training local producers and
traders in various subjects to promote business and
improve competitiveness
The next phase will include the supply of IT equipment to
schools, additional resources for teachers and the provision
of support personnel.
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54 Hochschild Mining plc Annual Report 2012
Sustainability report continued
Working together with local communities continued
HOW WE PERFORMED AGAINST OUR 2012 OBJECTIVES
Target
Status
Commentary
Ongoing target
Zero ‘Loss of Production days’ resulting from
community confl icts
Specifi c targets
To conclude all agreements envisaged in the mutually
approved annual plan
To make a measurable contribution to the improvement
of the quality of life of the communities living close to the
Group’s operations
COMMUNITY RELATIONS INDICATORS
All relevant agreements (comprising
permissions and social licences negotiated
with communities) were concluded
The Group undertook numerous activities
during the year with this objective. For further
details, see section on our achievements in
2012 (on previous page)
Community investment1
Production days lost as a result of community confl ict
2012
$6.5m
0
2011
$7.7m
1
2010
$6.7m
0
2009
$6.0m
1.5
1 Figures represent only the portion of expenditure on social and community welfare activities surrounding the Company’s mining units accounted for as
administrative expenses.
2013 TARGETS
(cid:353)(cid:3)To continue making improvements to the literacy skills of primary and secondary school children
(cid:353)(cid:3)To increase the level of engagement between the Group’s mining operations and local businesses
CASE STUDY: PERITO MORENO
The Group’s San Jose joint venture in Argentina has continued
to support the town of Perito Moreno located 80km from the
mine in the Santa Cruz province.
A total of $2.2 million was invested in social and welfare
activities during 2012 which included:
(cid:353)(cid:3)support for the construction of the ‘New Hope’ integration
centre for the disabled;
(cid:353)(cid:3)ongoing support for the fi rst technical Institute of the town
dedicated to providing training in the use of technology in
industrial activities;
(cid:353)(cid:3)the donation of equipment to the local hospital (see picture
opposite); and
(cid:353)(cid:3)scholarships for participants in an introductory
mining course.
Equipment was donated during the year to the Dr Oscar Natale hospital
in Perito Moreno
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www.hochschildmining.com 55
Managing our environmental impact
The Hochschild approach to
environmental management
We are committed to ensuring the sustainability of the
environment in which we develop our operations and
new projects. The Company has established an environmental
management system on a corporate level that seeks to
apply the best international practices available, as demonstrated
by the continued ISO 14001 certifi cation of our operations.
The Company recognises the importance of water in the
success of our operations and the ongoing sustainability of the
environment. Through responsible management of the water
resource we strive to assure effi cient water usage, maximise use
of recycled water and comply with Maximum Discharge Levels
and Environmental Quality Standards.
Hochschild Mining recognises that Environmental and Social
Responsibility extends beyond the life of our operations; Mine
Closure Plans are in place to restore disturbed areas where
mining activity has ceased, and to contribute to the socio-
economic sustainability of communities that have been
infl uenced by the operations.
Our achievements in 2012
(cid:353)(cid:3)Stemming from the Group’s commitment to sustainability,
the Environmental and Social Responsibility department
was created by combining the Environmental and Community
Relations teams
(cid:353)(cid:3)In May we joined the United Nations Global Compact,
embracing the Ten Principles of corporate responsibility
(cid:353)(cid:3)Approval of Inmaculada Environmental Impact Study
(‘EIS’) in September
(cid:353)(cid:3)Group Compliance Performance Indicators (CPI) above
90%, validated by an external entity
(cid:353)(cid:3)Maintained ISO 14001 certifi cation for the Group’s operations
in Ares, Arcata, Selene, Pallancata and San Jose
(cid:353)(cid:3)First carbon footprint study of the Group’s operations
(see case study below).
HOCHSCHILD ENVIRONMENTAL TEAM
CORPORATE ENVIRONMENTAL MANAGER
OPERATIONS
Implementing
standards, procedures
and best practice
ENVIRONMENTAL
CHIEF FOR
EXPLORATION
ENVIRONMENTAL
SUPERINTENDENT
FOR PROJECTS
ENVIRONMENTAL
SUPERINTENDENT
FOR OPERATIONS
ENVIRONMENTAL
SUPERINTENDENT
FOR CLOSURE AND
REHABILITATION
CLOSURE
Rehabilitation and
remediation of disturbed
areas where mining
activity has ceased
PERMITTING AND
NEW PROJECTS
Ensuring compliance with
local and international
regulations throughout
the mine life cycle
Through this structure, dedicated personnel in the environmental
team provide the services described adjacently:
The Environmental department works together with the operational
teams, community relations and the legal function in the application
for, and ongoing compliance with, mining permits, thereby assuring
continuity of operations.
EXPLORATION
Implementing
environmental controls
in greenfi eld and
brownfi eld projects
SOCIAL WORK
Communications,
training, support and
facilitating
the participation of
communities in
environmental
works
CASE STUDY: MEASURING OUR CARBON FOOTPRINT
We are committed to playing our part in mitigating the eff ects
of global climate change and calculating our carbon footprint
is the fi rst step in achieving this goal.
In 2012 we carried out the fi rst carbon footprint study in
collaboration with A2G Carbon Partners, which was prepared
in accordance with international guidelines and protocols, such
as the Greenhouse Gas Protocol, ISO14064.
This study will allow us to identify opportunities to reduce
emissions, optimise effi ciency as well as improve our
operation and environmental performance.
Opportunities
for Reduction
Boundaries
Monitoring Plan
Calculation
and Presentation
Data Collection
and Validation
Sources
Training
Emissions sources within our activities were identifi ed,
classifi ed and included within the scope and boundaries of
our study; awareness training was carried out and information
regarding Tiers I, II, and III of carbon footprint accounting
was gathered. These three tiers include direct emissions,
emissions related to purchased energy and other indirect
emissions. A verifi cation process was implemented to assure
data quality.
This will enable us to improve our environmental performance
and focus our eff orts to reduce emissions throughout the life
cycle of our operations.
The results of the study are in the latter stages of evaluation
and will be reported on in more detail in the Group’s fi rst
standalone Sustainability Report.
56 Hochschild Mining plc Annual Report 2012
Sustainability report continued
Managing our environmental impact continued
HOW WE PERFORMED AGAINST OUR 2012 OBJECTIVES
Target
Status
Commentary
Group Compliance Performance
Indicator above 89%
Maintain ISO14001 certifi cation
for Ares, Arcata, Selene,
Pallancata and San Jose
Submit Crespo and
Inmaculada Environmental
impact assessments
ENVIRONMENTAL INDICATORS1
Performance above 90% was achieved for all our operations and
was validated by a third party, Verum SAC
We have maintained certifi cation of our environmental management
system for all our underground operations, having been assessed by
the certifying entity ‘SGS del Perú’
Approval for the Inmaculada EIS was obtained in September 2012
With respect to Crespo, the necessary steps have been taken with the
relevant authorities and approval of the EIS is expected in the second
half of 2013
20122
2011
2010
2009
Average monthly fresh water consumption per metric
tonne of treated ore (cubic metres)
Electricity consumption per metric tonne of treated ore (Kw-h)
Diesel consumption per metric tonne of treated ore (gallons)
Number of material environmental incidents across
entire operations
Estimated volume of water withdrawn per day (cubic metres)
Estimated proportion of recycled water used
Estimated volume of water discharged per day (cubic metres)
1 Includes data for operations in Ares, Arcata, Selene, Pallancata and San Jose.
0.18
88.69
1.53
0
15,925
103%3
30,773
0.24
53.29
1.29
0
32,424
69%
37,979
0.21
57.75
0.97
0
30,628
32%
37,538
0.63
53.32
1.23
0
29,668
27%
35,606
2 2012 fi gures are based on guidelines and information gathered for the Company’s 2012 GRI Sustainability Report to be published later in the year.
Data for previous years was calculated using diff erent criteria and is therefore not directly comparable with 2012.
3 Estimated proportion of recycled water for 2012 is greater than 100% for the following reason. GRI guidelines state that if a process requires two
cubic metres of water and this water is used for three cycles then total recycled water would be six cubic metres which for this example would
result in a 300% recycle ratio.
2013 TARGETS
(cid:353)(cid:3)Approval of Crespo EIS
(cid:353)(cid:3)Implementation of improved environmental Compliance Performance Indicators
(cid:353)(cid:3)Maintain ISO 14001 certifi cation for Ares, Arcata, Selene, Pallancata and San Jose
Risk management
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 which could adversely aff ect the
performance of the Group. The Group’s risk management
framework is premised on the continued monitoring of the
prevailing environment and the risks posed by it, and the
evaluation of potential actions to mitigate those risks.
The Risk Committee is responsible for implementing the Group’s
policy on risk management and monitoring the eff ectiveness
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 and the
head of the internal audit function. A ‘live’ risk matrix is compiled
and updated at each Risk Committee meeting and the most
signifi cant risks as well as potential actions to mitigate those
risks are reported to the Group’s Audit Committee which has
oversight of risk management on behalf of the Board.
Further details of the Audit Committee’s activities are provided in
the Corporate governance report on pages 73 to 75
RISK MANAGEMENT GOVERNANCE
www.hochschildmining.com 57
The key business risks aff ecting the Group set out in this
report diff er from those disclosed in the 2011 Risk Management
report in the following respects:
(cid:353)(cid:3)foreign currency risks in respect of the cost impact that arises
from changes in the value of local currencies (given that the
Group’s revenue is denominated in US dollars) has been
removed as it is no longer considered to be a principal risk;
(cid:353)(cid:3) the risk previously disclosed as ‘Costs’ has been
re-categorised as ‘Operational Performance’ to incorporate
the risk of failure to meet the Group’s production goals; and
(cid:353)(cid:3)the addition of ‘Delivery of Projects’, which has become
increasingly important to the Group in light of the
advancement of the Inmaculada and Crespo projects.
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RISK COMMITTEE
58 Hochschild Mining plc Annual Report 2012
Risk management continued
FINANCIAL RISKS
Risk
Impact
Mitigation
2012 commentary
COMMODITY PRICE
Adverse movements in precious
metals’ prices could have a
material impact on the Group’s
results of operations.
COUNTERPARTY
CREDIT RISK
Loss of revenue resulting
from defaulting customers.
The Group may lose fi nancial
resources through the failure
of fi nancial institutions.
LIQUIDITY
The Group may be unable to
raise funds to meet its financial
commitments as they fall due.
(cid:353)(cid:3) Constant focus on maintaining
low cost base and low
leverage policy
The Company maintained continued
focus on cost controls, reduced debt and
did not participate in any hedging activity.
(cid:353)(cid:3) Prices closely monitored by
management with oversight
by the Board
See Market & Geographic Overview on
pages 20 and 21 for further details
(cid:353)(cid:3) Sales contracts for concentrate
incorporate various protection
measures including provision
for advance payment, delaying
transfer of title on non-payment
(cid:353)(cid:3) Parent company guarantees
are sought, where appropriate
(cid:353)(cid:3) Risk profi ling of key and new
customers and active review
of accounts receivables
(cid:353)(cid:3) Surplus cash invested with
a diverse list of select highly rated
fi nancial institutions
within investment limits
set by the Board
(cid:353)(cid:3) The Board receives regular
reports on the management
of cash
(cid:353)(cid:3) Board and senior management
continually monitor the Group’s
requirements for short- and
medium-term liquidity
(cid:353)(cid:3) The Company maintains a
cash position, strong banking
relationships, and access
to credit lines, and limits
indebtedness to ensure an
appropriate level of fi nancing
The Company completed the signifi cant
investment at its Arcata mine to
convert its entire production into
dore thereby reducing its exposure to
counterparty risk (since the sale of dore,
as opposed to concentrates, is settled
almost immediately).
Management has continued to operate
its policy with oversight by the Board
without any change during the year.
The Company benefi ts from considerable
balance sheet strength with a year-end
cash balance of $359 million1 and no debt
except for the Convertible Bonds.
OPERATIONAL RISKS
Risk
Impact
Mitigation
2012 commentary
OPERATIONAL
PERFORMANCE
Failure to meet production
targets and manage the cost
base could adversely impact the
Group’s profitability
(cid:353)(cid:3) Close monitoring by management
of operational performance,
costs and capital expenditure
(cid:353)(cid:3) Negotiation of long-term supply
contracts where appropriate
(cid:353)(cid:3) Exploration to increase high
quality resources
As stated in the Operating and Financial
Reviews there has been a considerable
increase in unit costs during the year
primarily due to the increasingly
challenging geological conditions of
ageing assets, labour infl ation and
the cost of raw materials.
1 Includes payment for 86.7% of Andina Minerals Inc.
www.hochschildmining.com 59
OPERATIONAL RISKS CONTINUED
Risk
Impact
Mitigation
2012 commentary
DELIVERY OF
PROJECTS
Delays in delivering projects
such as Inmaculada and
Crespo could have several
negative consequences
including delaying cash infl ows
and increasing capital costs
which could ultimately
reduce profi tability
(cid:353)(cid:3) Teams comprising specialist
personnel and world class
consultants are involved in
all aspects of project planning
and execution including
the commissioning of an
Independent feasibility study
and the securing of permits
and fi nancing
(cid:353)(cid:3) Project teams meet on
a weekly basis to monitor
on-going progress against
project schedules with a
Procurement Committee
ensuring timely sourcing
of materials and services
to meet project schedules
BUSINESS
INTERRUPTION
Assets used in operations
may break down and insurance
policies may not cover all
forms of risk
(cid:353)(cid:3) Adequate insurance coverage
(cid:353)(cid:3) Management reporting systems
to support appropriate levels
of inventory
EXPLORATION &
RESERVE AND
RESOURCE
REPLACEMENT
The Group’s operating margins
and future profi tability depend
upon its ability to fi nd mineral
and to replenish reserves
Reserves stated in this
Annual Report are estimates
(cid:353)(cid:3) Annual inspections by
insurance brokers and
insurers with recommendations
addressed in order to
mitigate operational risks
(cid:353)(cid:3) Availability of contingency power
supplies at all operating units
(cid:353)(cid:3) Retain and incentivise world-
class geologists
See mitigation in respect of Personnel risks
overleaf for further details
(cid:353)(cid:3) Implementing and maintaining
an annual exploration
drilling plan
(cid:353)(cid:3) Ongoing evaluation of acquisition
and joint-venture opportunities to
acquire additional ounces
(cid:353)(cid:3) Develop internal expertise and
processes in managing mineral
reserves and resources
(cid:353)(cid:3) Engagement of independent
experts to undertake annual
audit of mineral reserve and
resource estimates.
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Notable project milestones achieved
for Inmaculada include the completion
of the feasibility study, approval of the
Environmental Impact Study (‘EIS’),
awarding of the EPC contract and the
start of construction of the necessary
infrastructure for a dedicated
electricity supply.
With respect to Crespo, the feasibility
study was completed, the EIS was
submitted and agreement reached
for the requisite power supply.
Delivery of projects is also exposed
to risks relating to Community
Relations and the Political, Legal
& Regulatory environment.
See how we mitigate these risks in the separate
sections overleaf
A third-party review was completed
to ensure that appropriate and
adequate property damage and
business interruption insurance
policies are in place for all operations.
Management reporting systems ensured
that an appropriate level of inventory
of critical parts is maintained. Adequate
preventative maintenance programmes,
supported by the SAP Maintenance
Module, are in place at the operating units.
The Group allocated $90 million in
2012 to fund its exploration and geology
activities. The 2013 budget has been
set at $77 million.
The 2012 drilling plan was revised
on a quarterly basis with exploration
targets continually evaluated and new
targets incorporated.
The Group engaged P&E Consultants to
undertake the annual audit of mineral
reserve and resource estimates
See page 175 for further details
60 Hochschild Mining plc Annual Report 2012
Risk management continued
OPERATIONAL RISKS CONTINUED
Risk
Impact
Mitigation
2012 commentary
PERSONNEL
Inability to retain or attract
personnel either through a
shortage of skilled personnel or
the commencement of mining
operations in the vicinity of the
Group’s core operations
or projects
(cid:353)(cid:3) Implementation of the
Group’s HR recruitment and
retention strategies which
incorporate the provision of
competitive compensation
packages, well-defined
career plans and training &
development opportunities
Failure to maintain good labour
relations with workers and/or
unions may result in work
slowdown, stoppage
or strike
(cid:353)(cid:3) A tailored labour relations
strategy focusing on profi t
sharing, working conditions,
management style, development
opportunities, motivation
and communication
In addition to the Long Term Incentive Plan
the Group continued to operate the
Exploration Incentive Plan which provides
additional rewards for geologists based on
the mineral content discovered at
a given project.
A series of specially commissioned
courses for employees across the
organisation were conducted in 2012
to develop leadership and eff ective
management skills.
In addition to the annual negotiations
with unions on pay and benefi ts, monthly
meetings with workers and unions were
held during 2012 to ensure a complete
and accurate understanding of matters
of concern and requirements.
See pages 50 and 51 of the Sustainability report
for specifi c examples of how the Group has
invested in its people and plans to develop its
recruitment strategy
MACRO-ECONOMIC RISKS
Risk
Impact
Mitigation
2012 commentary
POLITICAL, LEGAL AND
REGULATORY RISKS
(cid:353)(cid:3) Local specialised personnel
continually monitor and react,
as necessary, to policy changes
(cid:353)(cid:3) Active dialogue with
Governmental authorities
(cid:353)(cid:3) Participation in local
industry organisations
Changes in the legal, tax and
regulatory landscape could
result in signifi cant additional
expense, restrictions on or
suspensions of operations
and may lead to delays in
the development of current
operations and projects.
Implementation of exchange
controls could impede the
Group’s ability to convert or
remit hard currency out of its
operating countries
Following the election of the new
administration in Peru in 2011, new
obligations impacting mining companies
were enacted including:
(cid:353)(cid:3) a law requiring the prior consultation
of indigenous communities as part of
the planning of mining activities; and
(cid:353)(cid:3) the creation of new protected
nature reserves.
Whilst the Company remains in dialogue
with the relevant authorities, the
procedures required to comply with
these new requirements have not yet
been offi cially established.
The authorities of Argentina and Peru
levied new taxes and royalties on mining
companies during the year. In addition,
in Argentina, the Federal Government
imposed foreign exchange controls which
have aff ected the Company’s ability to
access and remit hard currency abroad.
Further information on financial risks can be found in note 36 to the Consolidated Financial Statements.
www.hochschildmining.com 61
SUSTAINABILITY RISKS
Risk
Impact
Mitigation
2012 commentary
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 accidents, a work slowdown,
stoppage or strike and/or may
damage the reputation of the
Group and hence its ability
to operate
During the year, the Group maintained
Level 7 of the DNV safety management
information system at Arcata and
Pallancata-Selene and Level 6 at
San Jose. In addition, Level 3 was
achieved at the Inmaculada project.
Following the occurrence of fatalities at
the Group’s mine, a Safety Day was held to
raise awareness among employees of the
importance of safety. A video recording of
the Chairman addressing all employees
on safety was produced and broadcast
across all operating sites.
The internal competition for the Luis
Hochschild Safety Innovation Award
was once again held in 2012.
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(cid:353)(cid:3) Health & Safety operational
policies and procedures refl ect
the Group’s zero tolerance
approach to accidents
(cid:353)(cid:3) Use of world-class DNV
safety management systems
(cid:353)(cid:3) Dedicated personnel not only
assure the safety of employees
at the operations but, through
the Health & Hygiene team,
there is continued focus on the
prevention of accidents and
occupational illness
(cid:353)(cid:3) Rolling programme of training,
communication campaigns and
other initiatives promoting safe
working practices
(cid:353)(cid:3) Use of reporting and
management information
systems to monitor the
incidence of accidents and
enable preventative measures
to be implemented
ENVIRONMENTAL
COMMUNITY
RELATIONS
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 or be subject
to fi nes and/or penalties
(cid:353)(cid:3) The Group has a dedicated and
specialised team of professionals
with an allocated budget for
environmental management
(cid:353)(cid:3) Robust procedures and
policies have been adopted to
monitor and limit the Group’s
environmental impact
(cid:353)(cid:3) Investment in leading
environmental management
information systems
(cid:353)(cid:3) Constructive engagement and
management of relationships
with local communities
(cid:353)(cid:3) Community Relations strategy
focuses on promoting education,
health & nutrition, and
sustainable development
(cid:353)(cid:3) Allocation of budget and
personnel for the provision of
community support activities
(cid:353)(cid:3) Policy to actively recruit workers
from local communities
Communities living in the
areas surrounding Hochschild’s
operations may oppose the
activities carried out by the
Group at existing mines or, with
respect to development projects
and prospects, may invoke their
rights to be consulted under
new laws enacted during the
year. These actions may result in
longer lead times and additional
costs in bringing assets into
production and lead to an
adverse impact on the Group’s
ability to obtain the relevant
permissions for current or
future projects.
During the year:
(cid:353)(cid:3) the Group achieved compliance with
over 90% of its internal Compliance
Performance Indicators, which was
validated by an external third party;
(cid:353)(cid:3) the operations in Peru and Argentina
maintained their ISO14001 certifi cation;
(cid:353)(cid:3) the Group obtained the approval of the
Environmental Impact Study for the
Inmaculada project; and
(cid:353)(cid:3) the Group completed the fi rst carbon
footprint study of its operations.
The Group launched the Digital
Chalhuanca initiative in Apurimac.
See case study on page 53 for further details
Other initiatives during the year include
the continuation of the ‘Maestro Líder’
campaign, a training programme for
community teachers, and ‘Médico de
Cabecera’, a programme taking
healthcare to the rural populations.
A database of all agreements with
communities was maintained and
updated on a monthly basis to ensure
that all social commitments were met.
Further details of the Group’s activities to mitigate
Sustainability risks can be found in the
Sustainability report on pages 42 to 56
62 Hochschild Mining plc Annual Report 2012
Exploring for growth
Azuca
Our 100% owned Azuca Advanced Project is
located in our Southern Peru operating cluster.
View more information on Exploring for Growth online www.hochschildmining.com
www.hochschildmining.com 63
Governance
In this section
64 Board of Directors
& Senior Management
66 Directors’ report
69 Corporate governance report
79 Supplementary information
82 Directors’ remuneration report
95 Statement of Directors’ responsibilities
96 Independent auditor’s report
In January 2012 we took the decision
to delay the feasibility study at Azuca
in order to continue exploration work
to consolidate resources and to provide
a more comprehensive picture of the
dispersed vein structures present in the
area that we believe have considerable
geological potential.
In 2012 exploration work continued at
Azuca and promising new intercepts
were reported that suggest the presence
of further higher grade veins and
the continuity of high grade mineral
structures. In 2013 we will continue
exploration at Azuca, focusing on
identifying further high grade potential
mineral structures.
As of December 2011, the Azuca project
has Measured and Indicated resources
totalling 7.05 tonnes at 0.77 g/t of gold
and 188 g/t of silver containing 173,500
ounces of gold and 42.7 ounces of silver.
7.05tonnes
Measured and
Indicated resources
64 Hochschild Mining plc Annual Report 2012
Board of Directors and Senior Management
BOARD OF DIRECTORS
EXECUTIVE DIRECTORS
NON-EXECUTIVE DIRECTORS
Eduardo Hochschild
Executive Chairman
Ignacio Bustamante
Chief Executive Officer
Roberto Dañino
Deputy Chairman
Sir Malcolm Field
Senior Independent Director
Dr Graham Birch
Non-Executive Director
Eduardo Hochschild joined the
Hochschild Group 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 TECSUP, the
Sociedad Nacional de Minería y
Petróleo and the Conferencia
Episcopal Peruana. In addition,
Eduardo serves as Chairman of
the Board of the Universidad de
Ingeniería y Tecnología.
Ignacio Bustamante joined the
Board as CEO in April 2010. He
previously served as Chief
Operating Officer (from January
2008) and prior to that as
General Manager of the
Group’s Peruvian operations.
Ignacio served as Chief
Financial Officer of Cementos
Pacasmayo S.A.A, an affiliate of
the Company between 1998
and 2003, and as a Board
member from 2003 to 2007.
Ignacio is a graduate of
Business and Accounting
having studied at the
Universidad del Pacífico in Peru
and he holds an MBA from
Stanford University.
Committee membership
CSR Committee (Chairman)
Committee membership
None
Nominations Committee
(Chairman)
Roberto Dañino joined the
Dr Graham Birch joined the
Board in 2006 as an Executive
Director and became a Non-
Executive Director on 1 January
2011. In 2001 Roberto served in
the Peruvian Government as
Prime Minister and thereafter
as the country’s Ambassador
to the United States. Between
2003 and 2006 Roberto 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 the US and
founding General Counsel of
the Inter-American Investment
Corporation. Roberto is
Chairman of Fosfatos del
Pacifico S.A. part of the
Cementos Pacasmayo Group
of companies, among various
other boards. He is a graduate
of Harvard Law School and
Universidad Catolica.
Committee membership
CSR Committee
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.
Committee membership
Audit Committee
CSR Committee
Nominations Committee
Remuneration Committee
(Chairman)
Board in July 2011. Prior to his
retirement in 2009, Graham
was a Director of BlackRock
Commodities Investment
Trust plc and manager of
BlackRock’s World Mining Trust
and Gold and General Unit
Trust. Previously he worked
at Kleinwort Benson Securities
and Ord Minnett/Fleming Ord
Minnett before joining Mercury
Asset Management in 1993,
where he launched a number
of mining and natural
resources funds. In 1997,
Mercury Asset Management
was acquired by Merrill Lynch
Investment Managers which
was itself eventually acquired
by BlackRock in 2006. Graham
has a PhD in mining geology
from Imperial College, London
and is currently Senior
Non-Executive Director
of Petropavlovsk Plc.
Committee membership
Audit Committee
The Board is collectively responsible for the long-term success of
the Company by monitoring the implementation of the Group’s
strategic objectives and, through their collective experience,
providing leadership and support to the senior management team
to achieve sustainable added value for all stakeholders.
BOARD COMPOSITION
LENGTH OF TENURE OF INDEPENDENT
NON-EXECUTIVE DIRECTORS
2
3
3
33
1
1
1
1
1
1. Independent
2. Non-Independent
22
2
2
1. 0-3 Years
2. 3-6 Years
3. 6 Years +
www.hochschildmining.com 65
Enrico Bombieri
Non-Executive Director
Jorge Born Jr.
Non-Executive Director
Nigel Moore
Non-Executive Director
Rupert Pennant-Rea
Non-Executive Director
Fred Vinton
Non-Executive Director
Enrico Bombieri joined the
Board on 1 November 2012.
He previously served as Head
of Investment Banking for
Europe, Middle East and Africa
(‘EMEA‘) at JP Morgan. After
joining JP Morgan in 1989,
Enrico held a variety of
positions in the London and
Milan offices. In addition to
acting as Head of Investment
Banking for EMEA, Enrico also
served as a member of JP
Morgan’s Executive Committee,
the Investment Bank’s
Operating Committee and the
European Management
Committee. Prior to joining
JP Morgan, Mr Bombieri
worked for Guinness Mahon in
London and Lehman Brothers
in New York and London.
Committee membership
Audit Committee
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 and
Deputy Chairman of Bunge
Limited and Mutual Investment
Limited. In addition, Jorge is a
Director of Dufry AG, Zurich
and President of the Bunge and
Born Charitable Foundation.
Nigel Moore joined the Board
in 2006. He is a Chartered
Accountant and currently
serves as Chairman of JKX Oil
& Gas plc and as a Non-
Executive Director of The Vitec
Group plc and Ascent
Resources plc. Nigel was a
Partner at Ernst & Young from
1973 to 2003 during which
time he was responsible in
particular, with respect to the
provision of audit services, for
several of the firm’s significant
clients. He also served as the
firm’s Regional Managing
Partner for Eastern Europe and
Russia from 1989 to 1996.
Committee membership
Nominations Committee
Committee membership
Audit Committee (Chairman)
Remuneration Committee
Remuneration Committee
Rupert Pennant-Rea joined the
Board in September 2011. He
is Chairman of Henderson
Group plc and of the Economist
Group and is a Non-Executive
Director of Go-Ahead Group plc,
Gold Fields Limited (South
Africa) and Royal London
Group. He was Deputy
Governor of the Bank of
England from 1993 to 1995,
prior to which he spent 16
years with The Economist,
where he was editor from 1986
to 1993. Rupert served on the
Board of First Quantum
Minerals Limited between 2001
and 2011 and various other
companies including British
American Tobacco p.l.c.
(between 1998 and 2007), Rio
Narcea Gold Mines, Ltd
(between 2003 and 2007).
Committee membership
Remuneration Committee
Fred was appointed to the
Board in August 2009. He holds
directorships of a number of
companies including Unipart
Group of Companies UK, GP
Investments Ltd and Dinamia
SCR S.A. He was a director of
European Goldfields Limited
until its acquisition by Eldorado
Gold Corporation in February
2012. Between 1995 and 2006
Fred served as Chairman/Chief
Executive Officer of Electra
Partners Limited and prior to
that as Chief Executive of
Quilvest Ltd between 1992 and
1995. Over the course of his 25
year career with J.P. Morgan,
Fred was responsible for the
bank’s business in the UK, Latin
America and Scandinavia
before joining N M Rothschild &
Sons Ltd in 1988 as Chief
Operating Officer.
Committee membership
Audit Committee
SENIOR MANAGEMENT
César Aguirre
Vice President,
Exploration & Geology
Ramón Barúa
Chief Financial Officer
Isac Burstein
Vice President, Business
Development
José Augusto Palma
Vice President, Legal &
Corporate Affairs
Eduardo Villar
Vice President,
Human Resources
César Aguirre joined
Hochschild Mining as VP
of Exploration & Geology in
April 2011. César has over 20
years’ experience in exploration
and project management in
South America, principally in
Peru, Argentina and Chile. Prior
to joining Hochschild, he
worked for Newcrest Mining,
Yanacocha, Noranda Inc. and
Barrick Gold Corp. César holds
a BSc in Geological Engineering
from the Universidad Nacional
de Ingeniería and an MSc in
Economic Geology from the
University of Tasmania.
Ramón Barúa was appointed
CFO of Hochschild Mining on
1 June 2010. Prior to his
appointment, he served as CEO
of Fosfatos del Pacifico S.A,
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 Ramon
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 of Universidad de
Lima and holds an MBA from
Columbia Business School.
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.
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 Ingeniería, 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.
José Augusto Palma joined
Hochschild in July 2006 after
a 13 year legal career in the
United States, where he was
a partner at the law firm of
Swidler Berlin, and
subsequently at the World
Bank. He also served two
years in the Government of
Peru. José has Law degrees
from Georgetown University
and the Universidad
Iberoamericana in Mexico
and is admitted to practice as
a lawyer in Mexico, New York
and the District of Columbia.
Prior to his current role José
served as Senior Adviser to
the Executive Committee.
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66 Hochschild Mining plc Annual Report 2012
Directors’ report
The Directors have pleasure in presenting their report for the
year ended 31 December 2012.
Principal activities
Hochschild is a leading precious metals company with a
primary focus on the exploration, mining, processing and sale
of silver and gold.
Information incorporated by reference
This Directors’ Report should be read in conjunction with the
following parts of the Annual Report which are incorporated by
reference to satisfy the relevant disclosure requirements.
Business review
The information required to be disclosed in the Business Review
can be located as summarised below.
Section
Pages
Requirement
Chairman’s statement
Chief Executive’s review
Market & geographic
overview
Operating review &
Exploration review
16 and 17
18 and 19
20 and 21
22 to 36
Financial review
Sustainability report
37 to 41
42 to 56
Risk management
57 to 61
Main trends
and factors likely to
affect the Group
Review of
performance (with
KPIs), development of
the Group’s business,
year-end position
and prospects
Information on
employees,
environmental and
social matters
Principal risks
and uncertainties
Corporate Governance Statement
The requirements for a Corporate Governance Statement are
fulfilled by the Corporate Governance report on pages 69 to 78.
Results and dividend
The Group’s adjusted EBITDA1 for the year amounted to
$384.8 million (2011: $563.4 million). Revenue for the year was
$818.0 million (2011: $987.7 million) and attributable profit to
equity shareholders after tax (before exceptional items) was
$64.8 million (2011: $165.9 million).
An interim dividend of $0.03 per share was paid to shareholders
of the Company on 20 September 2012. The Directors
recommend the payment of a final dividend of $0.03 per share
(2011: $0.03 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
4 June 2013 to shareholders on the register at the close of
business on 10 May 2013. 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.
The trustee of the Hochschild Mining Employee Share Trust
(‘the Employee Trust‘) has waived dividends declared by the
Company on shares held by the Employee Trust.
Directors
The names and biographical details of the Directors serving at
the date of this report are given on pages 64 and 65.
All Directors were in office for the duration of the year under
review except for Enrico Bombieri who was appointed by the
Board as a Non-Executive Director with effect from 1 November
2012. Dionisio Romero retired from the Board at the conclusion
of the Annual General Meeting on 23 May 2012.
Each of the Directors will be retiring at the forthcoming
Annual General Meeting and seeking re-election by
shareholders in line with the recommendation of the UK
Corporate Governance Code.
Directors’ interests
Details of the interests of the Directors in the Company’s shares
are shown below:
Ordinary
shares as at 31
December 2012
182,415,206
200,000
26,944
14,285
10,000
0
0
14,285
7,000
25,000
Ordinary
shares as at
1 January 2012 or
date of appointment,
if later
182,415,206
200,000
14,054
14,285
0
0
0
14,285
7,000
25,000
Eduardo Hochschild1
Roberto Dañino2
Ignacio Bustamante
Sir Malcolm Field
Graham Birch
Enrico Bombieri3
Jorge Born Jr.
Nigel Moore
Rupert Pennant-Rea
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 Enrico Bombieri was appointed a Director of the Company on 1 November 2012.
In addition, Fred Vinton has 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 2012 to 13 March 2013.
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’).
1 Calculated as profit from continuing operations before exceptional items, net finance income/(cost) and income tax plus depreciation and exploration expenses other
than personnel and other exploration related fixed expenses.
www.hochschildmining.com 67
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,
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.
Further details of the Relationship Agreement with regard
to the conduct of the Major Shareholder are set out in the
Corporate Governance report on page 70 and with regard
to the right to appoint Directors to the Board are set out
on page 72.
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 2012, the Company had an average of 22 days’
purchases owed to trade creditors (2011: 31 days).
Political and charitable donations
The Company does not make political donations. During
the year, the Group expended $6.5 million (2011: $7.7 million)1
on social and community welfare activities surrounding its
mining units.
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 147 and 148.
Essential contractual and other arrangements
The Directors consider that the following are the contractual and
other arrangements with customers, suppliers or contracts to
which Group companies are a party and which are considered
to be essential to the business:
(cid:2)(cid:3) the mining concessions and operating permits granted by
governmental authorities in the jurisdictions of the Group’s
operations; and
(cid:2)(cid:3) the 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 36 to the Consolidated
financial statements. Information on the Company’s exposures
to foreign currency, commodity prices, credit, equity, liquidity,
interest rate and capital risks can be found in this note.
Directors’ and officers’ liability insurance
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 law.
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
This Annual Report provides details of the Company’s business
activities, its financial position and a description of the
Company’s objectives, policies and processes for managing its
capital; its financial risk management objectives; details of its
financial instruments and hedging activities (with respect to
interest rate risks); and its exposures to credit and liquidity risks.
The Company benefits from considerable financial resources
and long-term relationships with a number of customers and
suppliers across different geographic areas. These factors,
together with the general macroeconomic outlook which
supports gold and silver prices, provide the Directors with
reassurance that the Company is well placed to manage its
business risks successfully.
1 Please refer to the Sustainability report for further details.
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Directors’ report continued
Having regard to the Financial Reporting Council’s document
entitled ’Going Concern and Liquidity Risk: Guidance for
Directors of UK Companies 2009‘, the Directors have considered
a five year cash flow forecast presented by management which,
amongst other things, reflects the financial requirements of
the Group’s ongoing exploration programme and the Group’s
Advanced Projects, Inmaculada and Crespo. Consequently,
the Directors have arrived at a reasonable expectation that
the Company has adequate resources to continue in operational
existence for the foreseeable future. Thus they continue to adopt
the going concern basis of accounting in preparing the annual
financial statements.
AGM
The seventh AGM of the Company will be held at 9.30 am on
30 May 2013 at the offices of Linklaters LLP. The shareholder
circular incorporating the Notice of AGM will be sent separately
to shareholders or, for those who have elected to receive
electronic communications, will be available for viewing at
www.hochschildmining.com
The shareholder circular contains details of the business to
be considered at the meeting.
Auditors
A resolution to reappoint Ernst & Young LLP as auditors will be
put to shareholders at the forthcoming AGM.
Statement on disclosure of information to auditors
Having made enquiries of fellow Directors and of the Company’s
auditors, each Director confirms that to the best of his
knowledge and belief, there is no relevant audit information of
which the Company’s auditors are unaware. Furthermore, each
Director has taken all the steps that he ought to have taken as
a Director in order to make himself aware of any relevant audit
information and to establish that the Company’s auditors are
aware of that information.
This confirmation is given, and should be interpreted, in
accordance with the provisions of section 418(2) of the
Companies Act 2006.
Statement of Directors’ responsibilities
The Directors confirm that to the best of their knowledge:
(cid:2)(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 of the
Company and the undertakings included in the consolidation
taken as a whole; and
(cid:2)(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.
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 pages 64 and 65 of this Annual Report.
On behalf of the Board
Raj Bhasin
Company Secretary
12 March 2013
Corporate governance report
www.hochschildmining.com 69
IN THIS REPORT
The Board, its workings and
how it performed in 2012
see page 70
Audit Committee
see page 73
Nominations Committee
see page 76
Corporate Social
Responsibility Committee
see page 77
Remuneration Committee
see page 77
The terms of reference for each Board
committee is available for inspection
on the Company’s website at
www.hochschildmining.com
Dear shareholder
Your Board recognises the importance of
applying the highest standards of governance
as they establish strong foundations for the
creation of shareholder value. We are committed
to fulfilling our responsibilities for overseeing
the Group’s progress in achieving its strategic
objectives through effective leadership and with
the appropriate framework of internal controls
and a managed level of risk.
I am pleased to able to report on the governance developments that have taken place
during 2012.
Continuous learning
As Chairman, it is my responsibility to ensure that we, as Directors, are equipped with
the requisite knowledge and skills to fulfil our roles. This was achieved in various ways
during 2012.
We sought to gain a better understanding of the ever-changing social landscape in
which the Group operates by listening to regional academic experts. We learnt of the
resourcing challenges faced by the Group’s HR function and how it plans to steer a
course through a fiercely competitive labour market. Market commentators gave us
an insight into the demands of investors. In addition, and perhaps most crucially, the
Board was given the opportunity to see a potential source of significant future growth,
the Volcan project in Chile, following the Group’s acquisition of Andina Minerals.
Board evaluation
The Board evaluation process continued to bring significant benefits to the way we are
able to discharge our responsibilities. Amongst them was the addition to the annual
Board calendar of two further meetings which ensured we remain close to relevant
developments. We also improved the linkage between the Board and its Committees.
Board appointment
I am delighted that we were able to complement the skills represented on the Board
through the appointment of Enrico Bombieri as a Non-Executive Director who brings
a wealth of global capital markets experience.
I am pleased to be able to introduce and endorse this Corporate Governance report
and would welcome your feedback.
Eduardo Hochschild
Executive Chairman
12 March 2013
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70 Hochschild Mining plc Annual Report 2012
Corporate governance report continued
Introduction and statement of compliance
This report, together with the Directors’ Remuneration Report,
sets out how the Company has applied the Main Principles
set out in the UK Corporate Governance Code (‘the Code’)
(2010 edition) a copy of which is available on the website of
the Financial Reporting Council (’FRC’) at www.frc.org.uk
Disclosures to be included in the Corporate Governance report
in relation to share structure, shareholder agreements and the
Company’s constitutional provisions pursuant to the Disclosure
and Transparency Rules are provided in the Supplementary
Information section on pages 79 to 81.
The Board confirms that in respect of the year ended
31 December 2012, the Group has complied with the
provisions contained in Section 1 of the Code except that
a significant part of the Executive Chairman’s remuneration
is not performance-related.
As previously disclosed, the remuneration arrangements for
the Executive Chairman were reviewed in early 2010. In
agreeing the structure, the Board felt that the arrangements
should reflect the importance of the Chairman’s 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 continues to be of this opinion.
The Board
The Board is responsible for approving the Company’s strategy
and monitoring its implementation, for overseeing the
management of operations 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 Group by providing
adequate financial and human resources and an appropriate
system of financial control to ensure these resources are fully
monitored and utilised.
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.
Composition
As at the date of this report, the Board comprises two Executive
Directors; the Chairman and the Chief Executive Officer, and
eight Non-Executive Directors.
Chairman and Chief Executive
The Company is jointly led by the Executive Chairman, Eduardo
Hochschild, and the Chief Executive Officer, Ignacio Bustamante.
The division of responsibilities between the Chairman and
the CEO has been set out in writing and has been approved
by the Board.
The Chairman and the Chief Executive Officer are collectively
responsible for the formulation of the vision and long-term
corporate strategy of the Group, the approval of which is a
matter for the Board.
The Chief Executive Officer is responsible for leading
an executive team in the day-to-day management of the
Group’s business.
Whilst the Chairman is not considered to be independent,
the Board is satisfied that given its structure, decisions can
be made without any one Director exercising undue influence.
This matter is the subject of discussion as part of the annual
Board Evaluation process which in 2012 reaffirmed this view.
Additional safeguards come in the form of the Relationship
Agreement entered into by Eduardo Hochschild, Pelham
Investment Corporation (‘the Major Shareholder’) and the
Company prior to the IPO in November 2006, which seeks 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.
Furthermore, 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.
Senior Independent Director
Sir Malcolm Field acts as Senior Independent Director and, as
such, acts as a sounding board for the Chairman as necessary.
Sir Malcolm is also available to meet with major shareholders
if their concerns have not been resolved by the executive
management team.
Non-Executive Directors
All of the Company’s Non-Executive Directors hold, or have held,
senior positions in the corporate sector and bring their
experience and independent perspective to enhance the
Board’s capacity to help develop proposals on strategy and to
oversee and grow the operations within a sound framework
of corporate governance.
Details of the tenure of appointment of Non-Executive Directors
are provided in the Directors’ Remuneration Report.
www.hochschildmining.com 71
Independence of the Non-Executive Directors
The Board considers that, except Roberto Dañino in
light of his previous role as an Executive Director and his
ongoing role as Special Adviser to the Chairman and senior
management team, all of the Non-Executive Directors
are independent of the Company.
In reaching this conclusion, the Board took into account the
following circumstances which were not considered to be of
a nature to materially interfere with the exercise of the relevant
director’s independent judgement:
(cid:2)(cid:3) Enrico Bombieri’s previous employment with JP Morgan,
one of the Company’s corporate brokers;
(cid:2)(cid:3) Dr Graham Birch’s previous positions, until January 2009,
as Director of BlackRock Commodities Investment Trust plc,
and manager of Blackrock’s World Mining Trust and Gold
and General Unit Trust given BlackRock’s status as one of
the Company’s largest shareholders;
(cid:2)(cid:3) Dr Graham Birch and Sir Malcolm Field both serve on the
Board of Petropavlovsk Plc; and
Senior executives of the organisation are invited to attend
board meetings and to make presentations on their areas
of responsibility.
Principal matters considered by the Board during 2012 include:
Financial
(cid:2)(cid:3) the 2011 Annual Report and the 2012 Half-Yearly Report;
(cid:2)(cid:3) dividend and cash management;
(cid:2)(cid:3) the 2013 Budget.
Strategy
(cid:2)(cid:3) the Group’s strategic plan.
Acquisitions
(cid:2)(cid:3) the acquisition of Andina Minerals Inc.
Business Performance
(cid:2)(cid:3) status of the Group’s portfolio of assets;
(cid:2)(cid:3) approving the feasibility studies for the Group’s
Advanced Projects and receiving updates on its
progression towards construction;
(cid:2)(cid:3) Roberto Dañino and Rupert Pennant-Rea both serve on the
Board of Gold Fields Limited.
(cid:2)(cid:3) presentations on a number of business
development initiatives;
Board Meetings held in 2012
There were ten Board Meetings held in 2012 comprising five
scheduled meetings, four unscheduled meetings and one
meeting which was convened at short notice to deal with a
matter relating to the Andina Minerals acquisition.
Attendance at these meetings has been summarised in the
following table.
Eduardo Hochschild
Roberto Dañino
Dr Graham Birch
Enrico Bombieri1
Jorge Born Jr.
Ignacio Bustamante
Sir Malcolm Field
Nigel Moore
Rupert Pennant-Rea
Dionisio Romero2
Fred Vinton
Maximum
possible
attendance
Actual
attendance
10
10
10
3
10
10
10
10
10
2
10
9
8
9
2
6
10
9
8
8
2
8
(cid:2)(cid:3) a presentation on the Group’s HR function and its strategy.
Risk/Governance
(cid:2)(cid:3) the strategic risks faced by the Group;
(cid:2)(cid:3) in addition to the regular updates, the Board received
a detailed presentation from the Company Secretary focusing
on relevant developments in Corporate
Governance and relevant obligations under the UK
Listing Rules;
(cid:2)(cid:3) an update on the implementation of the 2011 Board
Evaluation recommendations and the outcome of the
2012 Board Evaluation process;
(cid:2)(cid:3) the annual review of Directors’ conflicts of interest and
the assessment of independence of each of the
Non-Executive Directors;
(cid:2)(cid:3) the appointment of Enrico Bombieri as a
Non-Executive Director.
Operating Responsibly
(cid:2)(cid:3) a presentation by a speaker from the Institute for Peruvian
Studies on the socio-political climate in Peru;
(cid:2)(cid:3) the results of the Organisational Climate Survey; and
1 Enrico Bombieri was appointed a Director of the Company on 1 November 2012.
(cid:2)(cid:3) detailed reports on the fatalities occurring during the year.
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Of the unscheduled Board meetings, one meeting was
convened to consider the feasibility studies of the Group’s
Advanced Projects and four were convened in connection with
the acquisition of Andina Minerals.
Directors receive a full pack of papers for consideration at least
five working days in advance of each Board meeting and, in the
event that a Director is unable to attend, comments are fed
back to the Chairman who seeks to ensure that all views are
represented on any given matter.
In between Board meetings, Directors are kept abreast of latest
developments through monthly reports on the Company’s
operations, exploration activity and financial situation.
72 Hochschild Mining plc Annual Report 2012
Corporate governance report continued
Appointments 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 Enrico Bombieri as
a Non-Executive Director of the Company.
The Code recommends that directors of FTSE 350 companies
seek re-election by shareholders on an annual basis, a practice
that was adopted by the Company in 2011. Biographies of the
Directors are can be found on pages 64 and 65.
Under the terms of the Relationship 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.
To date, the Major Shareholder has not exercised this right.
Board development
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. This is achieved through various means.
Induction
New Board appointees are offered the opportunity to meet
with key management personnel and the Company’s principal
advisers as well as undertake visits to the Group’s operations.
This process is currently being reviewed to ensure the provision
of a comprehensive and structured introduction to the Group.
Briefings
The Directors receive regular briefings from the Company
Secretary on their responsibilities as Directors of a UK listed
company and on relevant developments in the corporate
governance landscape. In addition, the Chairman has made
arrangements to ensure that the Directors have ongoing
access to the Company’s officers and advisers.
2012 Volcan visit
In November 2012, the Company organised a visit to the
Volcan project acquired recently by the Group following the
purchase of Andina Minerals. The visit to the project, located
in the Maricunga belt in Chile, incorporated a presentation
from Andina’s Vice President of Project Development and
the opportunity to meet with personnel on-site.
Advice
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.
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.
Board evaluation
The Board is committed to the process of continuous
improvement which is achieved in particular by the internally
led Board evaluation process.
Implementation of 2011 Board evaluation
A number of steps were taken during the year to implement
the recommendations arising from the 2011 Board
evaluation process.
These actions included:
(cid:2)(cid:3) the addition to the Board calendar of two further meetings
with a view to ensuring that Directors were kept updated
on developments between scheduled meetings;
(cid:2)(cid:3) a more active role assumed by the Nominations
Committee to support succession planning with respect
to the Non-Executive Directors, the CEO and senior
management positions;
(cid:2)(cid:3) enhancements to processes with the aim of improving
linkages between the Board and its Committees;
(cid:2)(cid:3) the introduction to the standing agenda for the May Board
Meeting of a detailed Corporate Governance briefing;
(cid:2)(cid:3) changes in the form of reporting with respect to the Group’s
exploration activities; and
(cid:2)(cid:3) a Board visit to the Volcan project which was acquired after
the year-end, following the purchase of Andina Minerals.
2012 Board evaluation
In keeping with past practice, the 2012 Board Evaluation
process was undertaken through one-to-one interviews
conducted by the Senior Independent Director assisted by
the Company Secretary. Given the timing of his appointment
to the Board, Enrico Bombieri did not participate in the process.
The interviews were structured to seek Directors’ views on
a number of subject areas (see box below).
2012 Board Evaluation – Areas of focus
The Board
(cid:2)(cid:3) Composition of the Board, focusing in particular on skills
required to complete the Board profile;
The Committees
(cid:2)(cid:3) Composition and general workings;
(cid:2)(cid:3) How effectively responsibilities under the respective
Terms of Reference are discharged.
(cid:2)(cid:3) Board process;
(cid:2)(cid:3) Topics for future Board discussion.
Strategy
(cid:2)(cid:3) With particular focus on:
–(cid:3) Reporting and monitoring of exploration strategy; and
–(cid:3) the Group’s approach to strategic planning
www.hochschildmining.com 73
In addition to the above, Directors were requested to provide
feedback on the performance of fellow Board members. A
part of the evaluation was dedicated to the performance of
Nigel Moore and Jorge Born, both of whom had completed two
three-year terms as Non-Executive Directors. Sir Malcolm Field,
who has also been on the Board since 2006, was not included in
this evaluation given his intention to retire from the Board at the
end of 2012. Subsequent to the year end, however, Sir Malcolm
agreed to postpone his retirement until the end of 2013 to
oversee a smooth transition to those succeeding him as
Senior Independent Director and Chairman of the
Remuneration Committee.
The findings relating to the evaluation of the Board and the
Committees 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 outcome of the Chairman’s performance evaluation was
collated by the Senior Independent Director and considered by
the Non-Executive Directors collectively before being relayed
to the Chairman.
The principal recommendations arising from the 2012 Board
Evaluation process are:
(cid:2)(cid:3) the continued search for a Non-Executive Director with
a relevant operational mining background;
(cid:2)(cid:3) enhancements to the annual strategy review including;
–(cid:3) facilitating the participation of Non-Executive Directors
in designing the framework for Board discussion;
–(cid:3) alternative means of monitoring the execution of exploration
strategy; and
(cid:2)(cid:3) the scheduling of presentations on specific Group functions,
precious metal markets and Investor Relations in the annual
Board calendar.
External Board evaluation
The Directors consider that the annual internally-led evaluation
process has resulted in many enhancements to the way the
Board and its Committees discharge their responsibilities. The
benefits of a periodic external evaluation as recommended by
the Code are, however, acknowledged and, as a result, meetings
were held with a number of evaluation firms subsequent to the
year end with a view to agreeing engagement terms for the
2013 review.
The Board’s committees
The Board has delegated authority to the Audit Committee,
Corporate Social Responsibility Committee, Nominations
Committee and Remuneration Committee. Reports from each
of these committees on their activities during the year appear
on the following pages.
AUDIT COMMITTEE
Dear Shareholder
The functions of the Audit Committee are driven
by two fundamental principles – preserving
shareholder value and transparency. I am
delighted to set out in this part of the Corporate
Governance report, the activities undertaken
by the Committee during the year and how
management responded to specific objectives
set for the first time in respect of 2012
with a view to ensuring that the Committee
discharges its responsibilities fully and diligently.
Nigel Moore
Committee Chairman
Members
Nigel Moore
(Committee Chairman)
Dr Graham Birch
(Non-Executive Director)
Enrico Bombieri
(Non-Executive Director)
Sir Malcolm Field
(Non-Executive Director)
Fred Vinton
(Non-Executive Director)
Maximum
possible
attendance
Actual
attendance
4
4
1
4
4
4
4
1
4
4
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Key roles and responsibilities
(cid:2)(cid:3) To monitor the integrity of the Company’s financial
statements;
(cid:2)(cid:3) To monitor the effectiveness of the Company’s internal
controls and risk management systems;
(cid:2)(cid:3) To review, on behalf of the Board, the Company’s procedures
for detecting fraud and the Company’s systems and controls
for the prevention of bribery, and to receive reports on
non-compliance;
(cid:2)(cid:3) Oversight of the internal audit function and review of its
annual work plan;
(cid:2)(cid:3) To oversee the relationship with the Company’s external
auditors; and
(cid:2)(cid:3) To review the effectiveness of the external audit process.
74 Hochschild Mining plc Annual Report 2012
Corporate governance report continued
Membership
The Audit Committee is chaired by Nigel Moore who has
extensive and substantial financial experience gained in his
previous role as a partner with Ernst & Young. In addition,
Nigel acts as Audit Committee Chairman for a number of
other listed companies.
Enrico Bombieri joined the Committee following his
appointment to the Board on 1 November 2012.
All Committee members are considered to be independent
Directors. Their biographical details can be found on pages
64 and 65.
Attendees
The lead partner of the external auditors, Ernst & Young LLP,
the Chairman of the Company, the Chief Executive Officer, the
Chief Financial Officer and the Head of Internal Audit attend
each Audit Committee meeting by invitation.
The Company Secretary acts as Secretary to the Committee.
Activity during the year
The following matters featured among those considered by
the Committee during the year:
(cid:2)(cid:3) Financial reporting – The 2011 Annual Report and
Accounts and the 2012 Half-Yearly Report were reviewed
by the Committee 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:2)(cid:3) Audit plans – In line with its usual practice, the Committee
considered reports from the external auditors on the scope
and structure of the forthcoming review of the half-yearly
results and audit of the annual results.
(cid:2)(cid:3) Risk management – Consideration and challenge of risk
management assessments which incorporate a risk matrix
detailing (i) the most significant risks facing the Group; (ii) an
evaluation reflecting the likelihood of the occurrence of the
risk and the extent of the potential impact on the Group, and
(iii) commentary on the steps taken to manage each specific
risk. See pages 57 to 61 for a description of the principal risks
and uncertainties faced by the Group.
(cid:2)(cid:3) Internal audit – The Audit Committee continued to
oversee the Group’s adoption of a risk-based approach
to internal audit.
(cid:2)(cid:3) Internal control – Through the processes described on the
following page, the Audit Committee reviewed the adequacy
of the Group’s internal control environment and risk
management systems.
(cid:2)(cid:3) Whistleblowing – The Audit Committee reviewed the
adequacy of the Group’s Whistleblowing Policy which was
given increased visibility during the year following the launch
of an online whistleblowing tool accessible from the
Company’s corporate website.
(cid:2)(cid:3) Fraud & Bribery Act – The Audit Committee continued to
review the actions taken by management to promote ethical
and transparent working practices.
(cid:2)(cid:3) External audit – The Audit Committee considered the
reappointment of the Company’s external auditors before
making a recommendation to the Board that a resolution
seeking their reappointment 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, and reviewed and
agreed audit fees.
The Audit Committee evaluates the auditors’ performance
each year with reference to written feedback prepared by
the CFO, the Group Financial Controller and relevant finance
managers from the operations. The issues raised are
considered in detail at the Audit Committee meeting held
mid-year and results in an action plan, the execution of which
is assessed in the following year’s auditor evaluation.
(cid:2)(cid:3) Committee Objectives – In late 2011, the Committee set
management a number of objectives with the view of
ensuring the diligent fulfilment of its responsibilities.
These objectives included:
–(cid:3) the preparation of an Assurance Map which prompted a
review of the various internal and external assurance
processes sought to be relied upon by the Audit Committee
and which resulted in:
–(cid:3) enhancements to the year-end reporting process on
internal controls;
–(cid:3) a review of the Group’s anti-fraud audit approach; and
–(cid:3) the commissioning of a review of the internal
audit function.
–(cid:3) a review of the disclosures in the Group’s Annual Report
in light of the FRC’s discussion paper, ’Cutting Clutter’. As a
result, the Group’s annual governance disclosures were
redesigned and a number of financial disclosures identified
as superfluous were eliminated from the 2011 Annual
Report & Accounts;
–(cid:3) closer liaison between the external auditors and the internal
audit function; and
–(cid:3) more extensive reporting of whistleblowing and fraud.
During the year, the Committee members held meetings
with the external auditors without executive management
to discuss matters relating to the 2011 annual audit and the
2012 half-yearly report.
www.hochschildmining.com 75
Auditor independence
The Audit Committee continues to oversee the implementation
of specific policies designed to safeguard the independence and
objectivity of the auditors which includes the Group’s policy on
the provision of non-audit services.
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.
Policy on the use of Auditors for non-audit services
This policy lists 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.
Safeguards
Additional safeguards to ensure auditor objectivity and
independence include:
(cid:2)(cid:3) Any permitted assignment over $100,000 may only be
awarded after competitive tender;
(cid:2)(cid:3) Six monthly reports to the Audit Committee from the auditors
analysing the fees for non-audit services rendered; and
(cid:2)(cid:3) An annual assessment, by the Committee, of the auditors’
objectivity and independence in light of all relationships
between the Company and the audit firm.
2012 Audit and non-audit fees
Details of fees paid to the external auditors are provided in
note 31 to the Consolidated financial statements.
Internal control and risk management
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. Notwithstanding this delegation of authority,
the Board continues to monitor the strategic risks to which the
Company is exposed.
The process used by the Audit Committee to assess the
effectiveness of risk management and internal control
systems includes:
(cid:2)(cid:3) reports from the Head of the Internal Audit function;
(cid:2)(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:2)(cid:3) review of budgets and reporting against budgets; and
(cid:2)(cid:3) consideration of progress against strategic objectives.
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.
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 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
NOMINATIONS COMMITTTEE
Dear Shareholder
During 2012, the Nominations Committee
focused its efforts on ensuring that the Board
is equipped with the right set of skills to oversee
the implementation of the Group’s strategy and
on planning for the succession of Board and key
senior positions.
Eduardo Hochschild
Committee Chairman
Members
Eduardo Hochschild
(Committee Chairman)
Jorge Born1
(Non-Executive Director)
Sir Malcolm Field
(Non-Executive Director)
Dionisio Romero1
(Non-Executive Director)
Maximum
possible
attendance
Actual
attendance
3
2
3
1
3
2
3
1
1 Jorge Born was appointed a member of the Committee following Dionisio
Romero’s retirement from the Board on 23 May 2012
Key roles and responsibilities
(cid:2)(cid:3) Identify and nominate candidates for Board approval;
(cid:2)(cid:3) Make recommendations to the Board on composition
and balance;
(cid:2)(cid:3) Oversee the succession planning of Board and senior
management positions; and
(cid:2)(cid:3) Review the Directors’ external interests with regards to
actual, perceived or potential conflicts of interest.
Membership
Jorge Born was appointed to the Committee following Dionisio
Romero’s retirement from the Board on 23 May 2012.
The Company Secretary acts as Secretary to the Committee.
Activity during the year
The principal matters considered during the year were:
(cid:2)(cid:3) Succession Planning
–(cid:3) a matrix detailing the skills brought to the Board by the
Non-Executive Directors, identifying any gaps that currently
exist and likely to arise in the future given the retirement
of Directors and the need to refresh the composition of
the Board;
–(cid:3) succession to the roles of Senior Independent Director and
the chairmanship of the Remuneration Committee as a result
of Sir Malcolm Field’s planned retirement from the Board;
–(cid:3) succession to the role of CEO and, in particular, the
development plans in place to ensure the readiness of the
identified successors;
(cid:2)(cid:3) Board Appointment
–(cid:3) the appointment of Enrico Bombieri to the Board as a Non-
Executive Director;
(cid:2)(cid:3) Performance Evaluation
–(cid:3) the performance evaluations of Nigel Moore and Jorge Born
(‘the Directors’) both of whom completed two three-year
terms as Non-Executive Directors. Having considered the
unanimously positive feedback from the other members of
the Board and the need for progressive refreshing of the
composition of the Board, the Nominations Committee made
a recommendation to the Board that the Directors be invited
to serve a third three-year term;
(cid:2)(cid:3) Board Evaluation Process
–(cid:3) the format of the internally led review held during the
year; and
–(cid:3) a review of the firms shortlisted for interview to undertake
an external evaluation of the Board and its Committees
during 2013.
Appointments to the Board
Policy
In seeking candidates for appointment to the Board, regard is
given to relevant experience and the skills required to complete
the composition of a balanced Board. The benefits of Board
diversity, including gender diversity, are acknowledged by the
Directors; however, decisions on appointments to the Board
will continue to be taken on merit. For this reason, the Board
does not consider the setting of specific measurable targets
to be appropriate.
Enrico Bombieri
Enrico Bombieri’s appointment as a Non-Executive Director
was made in light of his significant and relevant global capital
markets experience through having served in a number of
senior management positions with JP Morgan.
For these reasons, neither open advertising nor external search
consultancies were used in connection with his appointment.
www.hochschildmining.com 77
CORPORATE SOCIAL RESPONSIBILITY COMMITTEE
REMUNERATION COMMITTEE
Dear Shareholder
We take our commitments as a Responsible
Operator extremely seriously – not least our
aim to provide a safe workplace for all. We
have undertaken numerous and wide-ranging
initiatives during 2012 in acknowledgment of
our social licence to operate, further details of
which are set out in the Sustainability report
on pages 42 to 56.
Eduardo Hochschild
Committee Chairman
Members
Eduardo Hochschild
(Committee Chairman)
Sir Malcolm Field
(Non-Executive Director)
Roberto Dañino
(Non-Executive Director)
Maximum
possible
attendance
Actual
attendance
3
3
3
3
3
3
Key roles and responsibilities
(cid:2)(cid:3) Evaluate the effectiveness of the Group’s policies for
identifying and managing health, safety and environmental
risks within the Group’s operations;
(cid:2)(cid:3) Assess the performance of the Group with regard to the
impact of health, safety, environmental and community
relations decisions and actions upon employees,
communities and other third parties. It also assesses the
impact of such decisions and actions on the reputation
of the Group;
(cid:2)(cid:3) Receive reports from management concerning all fatalities
and serious accidents within the Group and actions taken
by management following each incident; and
(cid:2)(cid:3) Evaluate and oversee, on behalf of the Board, the quality and
integrity of any reporting to external stakeholders concerning
health, safety, environmental and community relations issues.
Membership
There were no changes to the Committee’s membership
during the year.
The CEO and VP of Operations attend each CSR Committee
meeting by invitation.
The Company Secretary acts as Secretary to the Committee.
Activity during the year
Details relating to the CSR Committee and the Group’s activities
in this area are set out in the Sustainability report on pages
42 to 56.
Dear Shareholder
We seek to implement a fair and responsible
remuneration policy which incentivises value
creation and aligns executive remuneration
with the successful achievement of strategic
objectives – all underpinned by our commitment
to operate responsibly.
Sir Malcolm Field
Committee Chairman
Members
Sir Malcolm Field
(Committee Chairman)
Jorge Born Jr.
(Non-Executive Director)
Nigel Moore
(Non-Executive Director)
Rupert Pennant-Rea
(Non-Executive Director)
Maximum
possible
attendance
Actual
attendance
2
2
2
2
2
2
2
2
Key roles and responsibilities
(cid:2)(cid:3) Determine and agree with the Board the broad policy for the
remuneration of the Executive Directors, other members of
senior management and the Company Secretary, as well as
their specific remuneration packages;
(cid:2)(cid:3) Regularly review the ongoing appropriateness and relevance
of the remuneration policy;
(cid:2)(cid:3) Approve the design of, and determine targets for, any
performance related pay schemes operated by the Company
and approve the total annual payments made under
such schemes;
(cid:2)(cid:3) Ensure that contractual terms on termination, and any
payments made, are fair to the individual and the Company,
that failure is not rewarded, and that the duty to mitigate loss
is fully recognised; and
(cid:2)(cid:3) Review and note annually the remuneration trends across
the Company or Group.
Membership
There were no changes to the Committee’s membership
during 2012.
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 his own
remuneration arrangements are considered by the Committee.
Activity during the year
Details of the Remuneration Committee’s activities during the
year are provided in the Directors’ Remuneration report on
pages 82 to 94.
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Corporate governance report continued
Shareholder relations
Overview
The Company is fully committed to achieving an excellent
relationship with shareholders.
Responsibility for communications with shareholders
on strategy and business performance rests with the
Chief Executive Officer, the Chief Financial Officer and the Head
of Investor Relations. Communications with shareholders with
respect to the administration of shareholdings and matters of
governance are co-ordinated by the Company Secretary.
Shareholder contact in 2012
The following table summarises the principal means by which
management communicated with investors during the year:
Date
Event
January,
April, July,
October
January
February
March
June
August
September
Conference calls following the Quarterly
Production Reports (and Interim Management
Statements, when appropriate)
Advanced Projects Workshop & UK Roadshow
Consultation by the Remuneration Committee
Chairman with major shareholders on the
proposed CEO LTIP
2012 Annual Results presentation
UK, European and North American Roadshow
Annual General Meeting
2012 Half-Yearly results presentation
UK, European and North American Roadshow
In addition, an extensive Investor Relations schedule resulted in
management holding over 168 investor meetings as well as
presenting at 11 sector specific conferences in Canada, the US,
Europe and South America.
Principal Shareholder Contacts
The Chairman, Deputy Chairman, Chief Executive Officer and
the Chief Financial Officer are available to discuss the concerns
of major shareholders. Alternatively, shareholders may discuss
any matters of concern with Sir Malcolm Field, as the
Company’s Senior Independent Director.
The Chairman and the Chief Executive Officer in particular are
responsible for discussing strategy with the Company’s
shareholders and conveying their views to the other members
of the Board.
2012 AGM
Notice of the 2012 AGM was circulated to all shareholders at
least 20 working days prior to the meeting and the Chairmen
of the Board Committees were available at the meeting to
answer questions. A poll vote was taken on each of the
resolutions put to shareholders with results announced shortly
after the meeting and published on the Company’s website.
Further information on matters of particular interest to
investors is available on page 184 and on the Company’s
website at www.hochschildmining.com
Supplementary information
www.hochschildmining.com 79
Introduction
References in this section 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 in this section to ’the Companies Act‘ are to the
Companies Act 2006.
Share capital
Issued share capital
The issued share capital of the Company as at 1 January 2012
was 338,085,226 ordinary shares of 25 pence each. No
shares were issued by the Company during the year to
31 December 2012.
The Hochschild Mining Employee Share Trust (‘the Trust‘) is
an employee share trust established during the year to hold
ordinary shares of the Company on trust for the benefit of
employees within the Group. The Trustee of the Trust has
absolute discretion to vote or abstain from voting in relation
to the ordinary shares held by it from time to time and in doing
so may take into account the interests of current and future
beneficiaries and other considerations.
Substantial shareholdings
As at 31 December 2012 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:
Number of
ordinary shares
Percentage
of voting rights
(indirect)
Percentage
of voting rights
(direct)
Eduardo Hochschild 182,415,206
Vanguard Group Inc. 37,291,964
Prudential plc
Group of Companies* 22,277,961
BlackRock
Global Funds**
Altima Global Special
Situations Master
Fund Limited***
15,200,000
12,003,175
53.95%
11.03%
0.18%
6.59%
4.49%
3.55%
n/a
*
In addition to the holding disclosed above, Prudential plc Group of Companies
has notified the Company of an interest in 931,666 ordinary shares through a
holding of the Company’s Convertible Bonds
** In addition to the holding disclosed above, BlackRock Global Funds has notified
the Company of an interest in 1,579,236 ordinary shares through a holding of
the Company’s Convertible Bonds
*** Notwithstanding the above (which is based on information received by the
Company in June 2009), the Company is aware that Altima no longer has an
interest in the Company’s shares which is notifiable under the Disclosure Rules
and Transparency Rules
The Company has not been notified of any changes in the above
interests as at 12 March 2013.
Current share repurchase authority
The Company obtained shareholder approval at the AGM held
in May 2012 for the repurchase of up to 33,808,522 ordinary
shares which represents 10% of the Company’s issued share
capital (‘the 2012 Authority‘). Whilst no purchases were made by
the Company pursuant to the 2012 Authority, it is intended that
shareholder consent will be sought on similar terms at
this year’s AGM when the 2012 Authority expires.
Additional share capital information
This section provides additional information as at
31 December 2012.
(a) Structure of share capital
The Company has a single class of share capital which is
divided into ordinary shares of 25 pence 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.
(c) Transfer of shares
The relevant provisions of the Articles state that:
(cid:2)(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:2)(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
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Supplementary information continued
(cid:2)(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 or her if any
call or other sum then payable by him or her 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 or she
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.
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:2)(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:2)(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.
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:2)(cid:3) Under the terms and conditions of the $115 million 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.
(cid:2)(cid:3) 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 offer or and/or any of its associates 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 offer or and/or an associate (as defined) of the
offer or; 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:2)(cid:3) Awards made under the Group’s Long Term Incentive Plan
and Enhanced 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:2)(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.
www.hochschildmining.com 81
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.
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.
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
minimum price which must be paid for such shares is specified
in the relevant shareholder resolution.
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.
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Summary of constitutional and other provisions
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 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:2)(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:2)(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.
82 Hochschild Mining plc Annual Report 2012
Directors’ remuneration report
Dear shareholder
“In 2012 we continued
our focus on ensuring the
implementation of a fair
remuneration policy that
incentivises value creation”
I am pleased to present the Directors’ remuneration report for 2012.
The year saw the Remuneration Committee maintain its focus on ensuring that
the Group continued to offer competitive remuneration arrangements and as a
result, reviews of the annual bonus plan and long-term incentive arrangements
were commissioned.
In addition to ensuring the appropriate level of remuneration at executive level, the
Committee is very keen to see that a consistent approach is taken across the wider
organisation. This consistency is achieved through its oversight responsibilities with
respect to the remuneration packages of members of management below Board level
and, in addition, by seeking to implement incentive schemes, where possible, to as
wide a group as possible. I am particularly proud that this alignment has been
achieved with the Long Term Incentive Plan which has seen the number of award
holders more than double since its introduction in 2007.
Given the high-risk nature of the mining industry, the Committee is resolute in
ensuring that our commitments as a Responsible Operator flow through to our
remuneration policy. For this reason, clawback provisions operate in both the Annual
Bonus and Long Term Incentive Plans in the event of an adverse occurrence in the
areas of Health & Safety, the Environment and Community Relations.
I have the utmost confidence in management’s efforts to foster a culture of safety
amongst our employees as evidenced by the year-on-year reduction in the annual
accident frequency rate. However, we are collectively disappointed by the four fatalities
that occurred during 2012. As a sign of our determination to secure a safe working
environment, the Committee and the executive team have agreed that 2012 bonuses
to senior management and relevant personnel will be reduced.
As an organisation, we are firmly committed to communicating with our stakeholders
transparently and so I am pleased to report that we have decided to adopt early
some of the changes currently being consulted on by the UK Government with respect
to the reporting of executive remuneration. We hope that you find the additional
information helpful.
I welcome your thoughts on our report.
Sir Malcolm Field
Chairman of the Remuneration Committee
12 March 2013
www.hochschildmining.com 83
Overview
Introduction
This Directors’ remuneration report sets out information on the remuneration of the Directors of Hochschild Mining plc for the year
ended 31 December 2012. 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 tables in the sections entitled ‘CEO’s LTIP awards’ and ‘CEO’s Enhanced LTIP
award’ and the table on Directors’ total remuneration and accompanying notes has been audited by Ernst & Young LLP as they
contain the information upon which the auditors are required to report to the Company’s shareholders.
Remuneration Committee
Membership
The Remuneration Committee is chaired by Sir Malcolm Field and its other members are Jorge Born Jr., Nigel Moore and
Rupert Pennant-Rea. All of the members of the Remuneration Committee are independent Non-Executive Directors.
The composition of the Remuneration Committee and its terms of reference comply with the provisions of the UK Corporate
Governance 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 when his own remuneration arrangements are considered by the Committee.
The Committee’s Terms of Reference
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.
Meetings & activities during the year
The Committee met twice during the year under review and undertook the items of business noted below.
March 2012
(cid:2)(cid:3) Considered the 2011 performance evaluations of the CEO and CFO (who is not a member of the Board) and approved
the associated bonus payments. In addition, the Committee noted the performance of, and bonus payments to, the Group’s
Vice Presidents;
(cid:2)(cid:3) Approved the 2011 Directors’ remuneration report;
(cid:2)(cid:3) Considered and approved the 2012 objectives for the CEO and CFO;
(cid:2)(cid:3) Reviewed alternative performance conditions to be incorporated in the Long Term Incentive Plan;
(cid:2)(cid:3) Approved the grant of 2012 LTIP awards subject to an additional TSR-based performance condition; and
(cid:2)(cid:3) With respect to a number of Peru-resident senior managers, including the CEO, the Committee approved the re-denomination of
salaries (from US dollars to Peruvian Soles) and increases in those salaries by up to 8% as a result of the sustained appreciation
of the Peruvian Sol.
November 2012
(cid:2)(cid:3) Considered the outcome of a benchmarking study of the remuneration of the Company’s senior executives including the CEO
and approved salary increases with effect from 1 March 2013;
(cid:2)(cid:3) Considered a provisional assessment of the CEO’s and CFO’s 2012 performance;
(cid:2)(cid:3) Conducted a review of the Group’s Annual Bonus Plan;
(cid:2)(cid:3) Considered the proposed 2013 objectives for the CEO’s and CFO;
(cid:2)(cid:3) Noted an update with respect to the Company’s TSR performance for the purposes of the LTIP awards made in 2010, 2011
and 2012;
(cid:2)(cid:3) Considered a provisional proposal for the grant of 2013 LTIP awards; and
(cid:2)(cid:3) Received an update on the proposals from the Department for Business, Innovation and Skills on changes to the reporting
of executive remuneration.
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84 Hochschild Mining plc Annual Report 2012
Directors’ remuneration report continued
Shareholder engagement
As part of the Group’s policy of engaging actively with stakeholders, the Remuneration Committee consulted with shareholders
during the year on matters within its scope of responsibilities.
In early 2012, the Committee Chairman wrote to the Company’s largest shareholders to consult on the introduction of a new
performance condition in the Long Term Incentive Plan. In addition, meetings were offered to discuss any matter arising out of
the 2011 Directors’ Remuneration Report (‘the 2011 DRR’).
The table below shows the results of the advisory vote on the 2011 DRR at the May 2012 AGM.
Votes
% of votes cast
% of issued
share capital
For
Against Abstentions
99.02
0.98
4.2
Whilst the Company is not aware of the specific reasons for the level of abstentions, the Company can only surmise that they
relate to the 8% increase in the CEO’s salary due to currency re-denomination (discussed on the earlier page) and the changes
to the structure of the LTIP in 2012 which, in addition to introducing a second TSR measure, reduced the threshold for full vesting
in respect of 70% of the award from 90th to 80th percentile to be more in line with market practice.
The Committee will continue to engage with shareholders to facilitate a better understanding of the Company, the environment
in which it operates and how this translates into the Group’s executive remuneration policy.
Advisers
Kepler Associates, appointed in 2007, acted as the independent remuneration adviser to the Committee during the year. Kepler
reports directly to the Committee Chairman and complies with the Code of Conduct for Remuneration Consultants (which can
be found at www.remunerationconsultantsgroup.com). During the year, Kepler received payment totalling £30,286 (US$47,852).
Kepler also provided LTIP performance monitoring for the Company. Kepler provided no other services during the year.
Policy
Remuneration policy
The Remuneration Committee continued to apply its stated remuneration policy in the year under review, the principal objectives
of which are to:
(cid:2)(cid:3) attract, retain, and motivate the Group’s executives and senior management;
(cid:2)(cid:3) provide management incentives that align with and support the Group’s business strategy; and
(cid:2)(cid:3) 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, operational and other relevant performance measures,
and the use of a Long Term Incentive Plan (‘LTIP’) which is linked to relative Total Shareholder Return (‘TSR‘).
This policy continued to be applied by the Committee in respect of the current financial year. However, as stated in the section
entitled ‘2013 Bonus plan’ below, the Committee has set fewer and more focused objectives for the senior management for 2013.
An additional incentive has been designed specifically for the Chief Executive Officer in the form of the Enhanced LTIP, which was
approved by shareholders at the 2011 Annual General Meeting.
The Committee takes into consideration the remuneration arrangements for the wider employee population in making its decisions
on remuneration for senior executives. Remuneration decisions are also driven by external considerations, in particular relating to
the global demand for talent in the mining sector.
Termination payments
The Company’s policy is to limit severance payments on termination to pre-established contractual arrangements. In the event
that the employment of an Executive Director is terminated, any compensation payable will be determined in accordance with
the terms of the service contract between the Company and the employee, as well as the rules of any incentive plans.
www.hochschildmining.com 85
In the event an executive leaves for reasons of ill-health, death, redundancy, or retirement in agreement with the Company, then
the vesting of LTIP (and Enhanced LTIP in the case of the CEO) awards will be pro-rated for time and will vest on the normal vesting
date subject to performance over the full performance period. Upon a change of control of the Company, LTIP awards will be
pro-rated for time and will vest early subject to performance to date, unless a replacement award is made.
For all other leavers, outstanding LTIP awards will lapse. The Committee retains discretion to alter these provisions on a
case-by-case basis following a review of circumstances and to ensure fairness for both shareholders and participants.
Details of maximum termination payments payable to the Executive Directors are provided in the ‘Directors’ contractual
arrangements’ section below.
Fixed and variable pay
The following chart illustrates the remuneration that the CEO could be expected to receive at below target, target and maximum
levels of performance (as the only Executive Director eligible to receive variable elements of remuneration). His maximum annual
bonus entitlement and LTIP and Enhanced LTIP awards have been set at such a level to ensure that the majority of his
remuneration is performance-based.
CEO TOTAL REMUNERATION
(US$0001)
Enhanced LTIP
LTIP
Annual bonus
Total benefits
Salary
Base salary2
Pension & benefits3
Annual bonus
LTIP
Enhanced LTIP4
1,516
10%
17%
34%
2%
37%
Target
$558k
$35k
100% of salary
25% vesting
25% vesting
593
6%
94%
Below target
0% of salary
Nil vesting
Nil vesting
2,871
Maximum
125% of salary
100% vesting
100% vesting
21%
36%
22%
1%
20%
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Components of fixed pay for the Executive Directors are detailed in the following table.
Director
Eduardo Hochschild
Ignacio Bustamante
Base salary2
US$000
Pension supplement
US$000
1,100
558
200
0
Benefits3
US$000
485
35
1 Converted from PEN to USD using the 12-month average exchange rate over 2012 of USD $1 = PEN 2.638.
2 Inclusive of compensation for time services.
3 Includes benefits-in-kind and profit share.
4 Note that the Enhanced LTIP has been annualised over the vesting period and is calculated to have an equivalent face value of 117.5% of salary in 2013.
The charts above exclude the effect of any Company share price appreciation. For this reason, were the CEO’s LTIP and Enhanced LTIP shares to vest in full, his actual
total remuneration may exceed the USD value shown in the chart above.
Elements of remuneration – Objectives and strategic linkage
The Committee considers that the Remuneration Policy it seeks to apply to Executive Directors and senior management is
well-aligned with the long-term interests of shareholders and supports the achievement of key strategic objectives. The following
table indicates how this alignment is achieved with reference to each component of remuneration:
86 Hochschild Mining plc Annual Report 2012
Directors’ remuneration report continued
Component of Remuneration
Base salary
Objectives
To support recruitment and retention
Details
(cid:2)(cid:3) Aims to pay salaries that are competitive and
Benefits
To provide benefits in line with market
practice in relevant geographies
Annual bonus
See pages 87 to 89 for further details
To achieve alignment with the
Group’s strategy and commitment to
operating responsibly
Maximising core assets
Optimisation of life-of-mine and production
Exploration & project development
To develop a pipeline of high
quality projects
Mergers & Acquisitions
To seek early stage value accretive
opportunities with strong geological
potential with a clear path to control
Committed to operating responsibly
Long Term Incentive Plan
See pages 89 to 91 for further details
To directly incentivise sustained
shareholder value creation through
operational performance and to support
the recruitment of senior positions and
longer-term retention
Committed to operating responsibly
relevant to the global mining sector, with reference
to the relative cost of living
(cid:2)(cid:3) The Executive Directors receive compensation for
time services and profit share, both of which are
provided for by Peruvian law as well as allowances
for medical insurance, the use of a car and driver,
and personal security. In addition, a cash
supplement in lieu of pension is paid to the
Executive Chairman
(cid:2)(cid:3) Numerous measures focusing on the delivery of
sustainable production targets and levels of
profitability (primarily through EBITDA)
(cid:2)(cid:3) Non-financial objectives rewarding quality and
quantity of exploration pipeline (greenfields) and
quantitative targets for the addition of resources
and discovery of economic targets (brownfields)
(cid:2)(cid:3) Specific targets for managed progression of
Advanced Projects
(cid:2)(cid:3) Non-financial objectives set requiring the
identification and, where appropriate, execution
of M&A opportunities
(cid:2)(cid:3) Stretching targets seeking to achieve reductions in
the Group’s accident frequency and severity rates
(cid:2)(cid:3) Non-financial objectives to minimise turnover
in key positions
(cid:2)(cid:3) Remuneration Committee has discretion to
reduce payment on occurrence of an adverse
event related to health and safety, the environment
or community relations
(cid:2)(cid:3) Underpinned by relative Total Shareholder Return,
the LTIP indirectly rewards sustained increases in
operational performance relative to peers over
three-year periods
(cid:2)(cid:3) The Committee can reduce or prevent vesting in
the event of the occurrence of an adverse event
related to health & safety, the environment or
community relations
Enhanced Long Term
Incentive Plan
See pages 91 and 92 for further details
To support retention over a longer-term
horizon and to achieve stronger alignment
with shareholder interests through the use
of conditional shares
(cid:2)(cid:3) Underpinned by relative Total Shareholder Return,
the Plan indirectly rewards sustained increases in
operational performance over four-, five- and
six-year periods.
Shareholding guidelines
Alignment of executives’ interests
with those of shareholders through a
sustained accumulation, over time, of
the Company’s shares
(cid:2)(cid:3) Senior executives in receipt of LTIP awards granted
from 2011 are required to invest between 10% and
20% of the cash amount received on vesting in the
Company’s shares until a holding equivalent to a
specified multiple of salary has been acquired.
www.hochschildmining.com 87
Single figure total remuneration
The following table illustrates the total single figure remuneration for each Executive Director calculated in accordance with the
recommendations of the Financial Reporting Council.
Executive
Salary
Benefits
Pension
Eduardo Hochschild
Ignacio Bustamante
1,100
532
477
25
200
–
US$000
Annual
bonus
–
560
LTIP
–
725
Enhanced
LTIP
Profit share
Total
remuneration
–
–
8
10
1,785
1,852
Elements of remuneration
Base salaries
Payment of base salaries
Eduardo Hochschild has service contracts with Hochschild Mining plc and Compañía Minera Ares S.A.C. (‘Ares’), a Group subsidiary.
Under these arrangements, one-fifth of his base salary is paid by the Company and fourfifths is paid by Ares.
Ignacio Bustamante has a service contract with Ares only and therefore his base salary is paid entirely by that company.
2013 Salary review
Following discussions with the Company Chairman and having regard to a benchmarking review commissioned by the
Committee on senior executive remuneration, an increase in Ignacio Bustamante’s base salary of 3.5% was agreed with effect
from 1 March 2013 (to PEN 1,358,140 (US$514,840)). No salary increase was awarded to the Company Chairman.
Short-term incentives
Overview
The Committee is responsible for setting the objectives for the CEO and the CFO based on individual roles and responsibilities
which include the 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 Committee.
Adjustments to reflect underlying business performance
In line with the Committee’s usual practice, a review of the quality of earnings is conducted to determine whether any adjustments
should be made to the reported profit for the purpose of bonus outcomes. This ensures that bonus outcomes are not impacted by
unbudgeted non-recurring or one-off items, or circumstances outside of management’s control such as increased commodity
prices that could distort the overall quality of earnings.
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Directors’ remuneration report continued
CEO’s 2012 Bonus award
Ignacio Bustamante, being the only Executive Director entitled to an annual bonus, has a maximum bonus opportunity of 125%
of salary.
Objectives for the 2012 bonus were set by the Committee at the beginning of the year and a provisional assessment of
performance during the year was undertaken at the November 2012 Committee meeting.
A summary of the objectives set for Ignacio Bustamante for the year, their weightings and performance against each one is
given below:
Objective
Target Weighting
Performance Assessment
Greenfields exploration
Production
Reduction in accident frequency rate
Championing leadership and development
Progress of specific projects
Capital expenditure
Assuring future growth through incorporation of mineral resources
Initiatives relating to investor relations
Business development initiatives
Adjusted cash cost
Adjusted EBITDA
Organisational improvements
12%
10%
10%
10%
10%
7%
7%
7%
7%
7%
7%
6%
Target
Maximum
Maximum
Maximum
Target
Maximum
Maximum
Maximum
Target
Threshold
Threshold
Maximum
The determination of the bonus payout is at the discretion of the Committee, taking into account performance during the year
against the above scorecard. Each objective in the scorecard has a ‘threshold’, ‘target’ and ‘maximum’ performance target,
achievement of which translates into a score for each objective.
Objectives which are considered critical to the Group are given higher weightings, such that outperformance in these areas
contributes more significantly to the overall bonus outcome.
The weighted average of the scores is calculated, which is translated into a bonus outcome of between 0% and 125% of salary.
The Committee can exercise discretion to increase or decrease the actual bonus awarded.
The Committee assessed the CEO’s performance in 2012 which resulted in an entitlement to the maximum bonus opportunity
of 125% of salary. However, despite having achieved the maximum target set for reducing the accident frequency index, the
Committee and the executive team agreed to reduce, by between 10% and 20%, bonus payments to senior management and
relevant personnel in light of the four fatalities occurring during the year.
www.hochschildmining.com 89
2013 Bonus plan
With respect to 2013, the Committee has approved a smaller number of objectives for the CEO, focused on business growth,
profitability, safety and leadership. As a result, the weightings for the specific targets relating to production, EBITDA and, most
notably, safety, have been increased. In addition, specific targets have been set in respect of the Advanced Projects and minimising
turnover within key positions in the organisation.
Pensions, statutory profit sharing and benefits-in-kind
The Group does not provide pension benefits to the Executive Directors, though a cash supplement of $200,000 is payable
to Eduardo Hochschild in lieu of pension. Of this supplement, $160,000 is payable by Ares and $40,000 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 and length of service.
The Group provides the Executive Directors with medical insurance and allowances for the use of a car and driver, and
personal security.
Long Term Incentive Plan (‘LTIP’)
Introduction
As part of its policy to motivate the CEO and senior employees over the long term, the Company has adopted a cash-based LTIP
which helps align selected executives’ long-term interests with those of shareholders.
LTIP Awards were initially granted in 2008 with the intention that awards would be made every three years. In 2010, the Committee
reviewed the plan and it was felt that the retention and motivational aspects of the plan would be enhanced through the grant of
annual awards. The rules of the plan provide that maximum cash payments to participating Executive Directors 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 2008 LTIP Award). The equivalents of these upper limits also apply to annual awards, i.e. an annual grant limit of
no more than two times salary in normal circumstances.
2012 LTIP Awards are subject to two TSR-based performance conditions; 70% of awards will vest based on the Company’s TSR
relative to a tailored comparator group of international mining companies, and 30% will vest on TSR relative to the constituents
of the FTSE350 Mining Index at the start of the performance period.
2010 LTIP awards
Subsequent to the year end, the Committee considered the extent to which the performance condition attached to the 2010 LTIP
Award has been satisfied. The Committee’s advisers, Kepler Associates, confirmed that the Company’s Total Shareholder Return
in the performance period between 1 January 2010 and 31 December 2012 ranked third amongst the companies in the relevant
comparator group which results in a vesting of 98% of an award holder’s maximum entitlement. This entitlement arises on vesting
of the award in May 2013 subject to any determination of the Remuneration Committee under the terms of the clawback, and the
award holder’s continued employment on that date.
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Directors’ remuneration report continued
Summary of Terms of Subsisting Awards
The following is a summary of the performance targets and other information with respect to the LTIP awards subsisting as at the
date of this report.
Performance period
Date of grant of award
Vesting¹
Performance condition(s)
Plan
2010 LTIP
2011 LTIP
2012 LTIP
1 January 2010 to
31 December 2012
(98% vested)
25 May 2010
1 January 2011 to
31 December 2013
1 January 2012 to
31 December 2014
28 April 2011
31 March 2012
3rd anniversary of date of grant
100% of the Award:
Relative TSR Performance vs.
Tailored Peer Group
(“the 2010 Comparator Group”)2
Full Vesting: Upper Decile
75% Vesting: Upper Quartile
25% Vesting: Median
Straight line between lower
and mid thresholds, and mid
and upper thresholds
3rd anniversary of date of grant
100% of the Award:
Relative TSR Performance vs.
2010 Comparator Group,
together with Fresnillo plc,
Centamin Egypt Limited,
African Barrick Gold plc and
Randgold Resources Ltd
3rd anniversary of date of grant
70% of the Award:
Relative TSR Performance vs.
2010 Comparator Group,
together with Fresnillo plc,
Centamin Egypt Limited,
African Barrick Gold plc and
Randgold Resources Ltd
Full Vesting: Upper Decile
75% Vesting: Upper Quartile
25% Vesting: Median
Full Vesting: Upper Quintile
75% Vesting: Upper Tercile
25% Vesting: Median
Straight line between lower
and mid thresholds, and mid
and upper thresholds
Straight line between lower
and mid thresholds, and mid
and upper thresholds
30% of the Award:
Relative TSR Performance vs.
Constituents of FTSE350
Mining Index
Full Vesting: Median TSR+
10% p.a.
25% Vesting: Median TSR
Straight line between lower
and upper thresholds
Other information
–(cid:3)Basis of TSR calculation of
Comparator Group
–(cid:3)Clawback provision3
–(cid:3)Shareholding requirement4
Common currency
Average of local and
common currencies
Average of local and
common currencies
Yes
No
Yes
Yes
Yes
Yes
1 Subject to meeting the relevant performance condition(s).
2 The 2010 Comparator Group comprised the following companies: Agnico-Eagle Mines Ltd, Alamos Gold, AngloGold Ashanti Ltd, Barrick Gold Corp, Cia des Minas
Buenaventura SA, Couer d’Alène 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.
3 Potential clawback if, before vesting, the Committee determines either that (i) the overall underlying business performance of the Company is not satisfactory or (ii) an
unacceptable position has occurred regarding safety, the environment, community relations, and/or compliance with legal obligations of the Company.
4 In relation to the 2011 and 2012 LTIP awards, selected award holders are required to invest a designated percentage of any cash amount received on the vesting of an
award in the Company’s shares.
www.hochschildmining.com 91
CEO’s LTIP awards
Details of the LTIP awards held by Ignacio Bustamante, being the only Executive Director eligible to participate in the plan are given
in the table below.
Plan
2008 LTIP1
2010 LTIP2
2011 LTIP3
2012 LTIP4
Value of maximum
award held at
31 December 2011
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 2012
$0.376m
$0.74m
$0.9m
–
–
–
–
$0.9m
$0.384m
–
–
–
–
–
–
–
–
$0.74m
$0.9m
$0.9m
1 The performance conditions attached to the 2008 LTIP award are summarised on page 82 of the 2011 Annual Report in the section entitled ‘Subsisting awards’. The
rules governing the award provide for equal vesting on the third and fourth anniversaries of the date of grant of the award with the latter subject only to continued
employment with the Group. Accordingly, Ignacio Bustamante became entitled to receive $376k on 9 May 2011 and to the same amount, together with notional interest
of $7,956, on 9 May 2012. The figure representing the value of the award vesting during the year includes the notional interest.
2 The performance conditions attached to the 2010 LTIP award (summarised in the table on the previous page) have been satisfied to the extent that 98% of the
maximum value of the award will vest in May 2013 and will be payable on that date subject to any determination of the Remuneration Committee under the terms of
the clawback, and the CEO’s continued employment.
3 The performance conditions attached to the 2011 LTIP award are summarised in the table on the previous page. Ignacio Bustamante is required to invest at least 20%
of any amount paid to him upon vesting of the 2011 LTIP award in the Company’s shares until such time as he has accumulated a shareholding with a value of two
times salary.
4 The performance conditions attached to the 2012 LTIP award are summarised in the table on the previous page. Ignacio Bustamante is required to invest in the
Company’s shares at least 20% of any amount paid to him upon vesting of the 2012 LTIP award until such time as he has accumulated a shareholding with a value
of two times salary.
Proposed 2013 LTIP awards
The Committee intends to grant awards under the LTIP to the CEO in line with the 2012 LTIP Award.
Enhanced LTIP
Introduction
In 2011, an enhancement was made to the CEO’s 2011 LTIP award to reinforce his alignment with shareholder interests and
to ensure his total remuneration package remains competitive.
The Enhanced LTIP award is in the form of Conditional Shares with a value, on the date of grant, equivalent to six times the CEO’s
salary that vests over an extended performance period of four, five and six years.
Summary of Terms
A summary of the performance targets and other information relating to the Enhanced LTIP award subsisting at the date of this
report is given below.
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Performance periods
Vesting¹
Performance condition
TSR comparator group
Other information
–(cid:3)Basis of TSR calculation of
Comparator Group
–(cid:3)Clawback provision2
–(cid:3)Shareholding requirement
1 January 2011 to 31 December 2014 in respect of 25% of the Award
1 January 2011 to 31 December 2015 in respect of 25% of the Award
1 January 2011 to 31 December 2016 in respect of 50% of the Award
28 April 2015 in respect of 90,549 Shares
28 April 2016 in respect of 90,549 Shares
28 April 2017 in respect of 181,098 Shares
Relative TSR Performance
Full Vesting: Upper Decile
75% Vesting: Upper Quartile
25% Vesting: Median
Straight line between lower and mid thresholds, and mid and upper thresholds
As for the 2011 LTIP Awards
Average of local and common currencies
Yes
50% of the after-tax vested shares is required to be retained until an overall beneficial
shareholding equal to two times’ salary has been achieved
1 Subject to meeting the relevant performance condition.
2 Potential clawback if, before vesting, the Remuneration Committee determines either that (i) the overall underlying business performance of the Company is
not satisfactory or (ii) an unacceptable position has occurred regarding safety, the environment, community relations, and/or compliance with legal obligations
of the Company.
92 Hochschild Mining plc Annual Report 2012
Directors’ remuneration report continued
CEO’s Enhanced LTIP award
Details of the Conditional Shares held by Ignacio Bustamante under the Enhanced LTIP are provided in the table below.
Number of
Conditional
Shares at
31 December
2011
362,1961
Number of
Conditional
Shares granted
during the year
Number of
Conditional
Shares vesting
during the year
Number of
Conditional
Shares lapsing
during the year
Number of
Conditional
Shares held at
31 December
2012
0
0
0
362,196
Market Value of
each share at
date of award
(pence)
Vesting of
Awards
428
See note 2
Exercise
Price
Nil
1 Details of the performance conditions attached to the award of Conditional Shares are provided in the table on the previous page.
2 Details on the timing of vesting of awards are provided in the table on the previous page.
Change of control
Awards made under the Group’s Long Term Incentive Plan and the Enhanced LTIP shall, upon a change of control of the Company,
vest early unless a replacement award is made. Vesting will be pro-rated 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.
Other information
Performance graph
The following graph shows the TSR (Total Shareholder Return) for the Company compared to the FTSE350 Index, assuming £100
was invested on 31 December 2007. The Board considers that the FTSE350 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.
£100 INVESTED IN HOCHSCHILD AND FTSE350 INDEX ON 31 DECEMBER 2007
£180
£120
£60
0
31 Dec 07
31 Dec 08
31 Dec 09
31 Dec 10
31 Dec 11
31 Dec 12
FTSE350 Index
Hochschild Mining plc
Source: Bloomberg
Directors’ contractual arrangements
Executive Directors
As previously described, the contractual arrangements for the Chairman who was appointed prior to the IPO in 2006 differ from
those for the CEO who was subsequently appointed.
Eduardo Hochschild is 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 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 the
Director’s contract.
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 12 months’ base salary.
www.hochschildmining.com 93
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, all Directors are subject to annual re-election by the Company in general meeting in line with
the UK Corporate Governance Code, and the appointments of Non-Executive Directors may be determined by the Board or the
Director giving not less than three months’ notice.
The Non-Executive Directors’ fees have been set at a level to reflect the amount of time and level of involvement required in order
to carry out their duties as members of the Board and its committees.
The 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 Enrico Bombieri who was appointed
during the year, as detailed in the footnote accompanying the table below.
Director
Jorge Born Jr.
Sir Malcolm Field1
Nigel Moore1
Fred Vinton
Roberto Dañino
Dr Graham Birch
Rupert Pennant-Rea
Enrico Bombieri2
Letter of Appointment dated
16 October 2006
16 October 2006
16 October 2006
9 July 2009
11 January 2011
20 June 2011
30 August 2011
20 October 2012
Director’s fee per annum
£100,000 ($158,000)
£120,000 ($190,000)
£120,000 ($190,000)
£100,000 ($158,000)
£100,000 ($158,000)
£100,000 ($158,000)
£100,000 ($158,000)
£100,000 ($158,000)
1 The fees payable to Sir Malcolm Field and Nigel Moore reflect the additional time commitment required, given their positions as Chairman of the Remuneration
Committee and the Audit Committee, respectively.
2 Enrico Bombieri was appointed a Non-Executive Director of the Company with effect from 1 November 2012.
External appointments
The Board recognises that Executive Directors may, in addition, serve as directors of other companies which can bring benefits
to the Group. The table below details the fees received by Eduardo Hochschild during the year, in respect of his other directorships,
which are retained by him.
Name of Director
Eduardo Hochschild
Company
Banco Crédito del Perú
Inversiones Pacasmayo SA and
affiliated companies
Pacifico Peruano Suiza Cia. De Seguros
Fees received
PEN 263,225 ($99,782)
PEN 15,359,631 ($5,822,453)1
PEN 120,600 ($45,716)
1 The amount disclosed comprises (i) Board fees, (ii) salary received by Eduardo Hochschild in his capacity as Executive Chairman of Cementos Pacasmayo S.A.A. and (iii)
fees received by him in his capacity as a consultant to Inversiones Pacasmayo SA, companies of which he is the controlling shareholder.
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94 Hochschild Mining plc Annual Report 2012
Directors’ remuneration report continued
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
2012 and 31 December 2011.
Base
salary/fees
US$000
Pension
supplement
US$000
Statutory
profit share
US$000
Benefits-
in-kind¹
US$000
Performance
related
bonus
US$000
LTIP
US$000
Other
payments
US$000
Total
remuneration
from
1 January
2012 (or
date of
appointment
if later) to
31 December
2012
(or date of
resignation,
if earlier)
US$000
Total
remuneration
from
1 January
2011 (or date
of appointment
if later) to
31 December
2011
US$000
1,100
158
532
26
190
158
158
190
158
158
63
2,891
200
0
0
0
0
0
0
0
0
0
0
200
8
0
10
0
0
0
0
0
0
0
0
18
477
546
25
0
0
0
0
0
0
0
0
556
0
0
560
0
0
0
0
0
0
0
0
560
0
0
3848
0
0
0
0
0
0
0
0
384
0
2387
0
0
0
0
0
0
0
0
0
238
1,785
450
1,511
26
190
158
158
190
158
158
63
4,847
1,778
456
1,120
–
192
8010
160
192
5311
160
160
4,351
Director
Eduardo Hochschild2,3,4,5
Roberto Dañino
Ignacio Bustamante4
Enrico Bombieri9
Sir Malcolm Field
Dr Graham Birch
Jorge Born Jr.
Nigel Moore
Rupert Pennant-Rea
Fred Vinton
Former Director
Dionisio Romero12
Totals
1 Amounts disclosed include sums paid by way of expense allowances.
2 Eduardo Hochschild has a service contract with both Hochschild Mining plc and Compañía Minera Ares S.A.C., a Group subsidiary.
3 One-fifth of Eduardo Hochschild’s salary was paid by the Company with the balance paid by Compañía Minera Ares S.A.C. In addition, US$40,000 of his annual pension
supplement 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 650) but exclude legal profit sharing.
5 Following a review of Eduardo Hochschild’s remuneration in 2010, it was agreed that he would not be entitled to participate in any Long Term Incentive Plan or
Bonus Plans in respect of 2010 and subsequent years.
6 Benefits-in-kind relate to the benefits provided to Mr Dañino pursuant to his engagement as a Special Adviser to the Chairman and Senior Management team
(see note 7 below for further details) which include transportation and out-of-pocket expenses.
7 The amount represents the fee of £150,000 per annum payable to Mr Dañino in respect of his engagement as Special Adviser to the Chairman and the Senior
Management team pursuant to a contract between Mr Dañino and Compañia Minera Ares S.A.C. (‘Ares’) dated 28 December 2010. The contract provides for a one-year
term which renews automatically for further one-year periods and can be terminated by either party on 30 days’ written notice. In the event that Ares terminates the
contract before 31 December 2015, Mr Dañino is entitled to receive 30% of the fee payable to him in the period from the date of termination until 31 December 2015.
8 Represents the amount received by Ignacio Bustamante in 2012 following the vesting of the 2008 LTIP award which, under the relevant terms and conditions, accrued
notional interest of $7,956.
9 Enrico Bombieri was appointed a Director of the Company on 1 November 2012.
10 Dr Graham Birch was appointed a Director of the Company on 1 July 2011.
11 Rupert Pennant-Rea was appointed a Director of the Company on 1 September 2011.
12 Dionisio Romero retired from the Board on 23 May 2012.
Directors’ interests in shares
The interests of the Directors in the Company’s shares are set out in the Directors’ report on page 66.
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
12 March 2013
Statement of Directors’ responsibilities
www.hochschildmining.com 95
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:2)(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:2)(cid:3) present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
(cid:2)(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:2)(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:2)(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 has 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.
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96 Hochschild Mining plc Annual Report 2012
Independent auditor’s report to the members of
Hochschild Mining plc
We have audited the financial statements of Hochschild Mining plc for the year ended 31 December 2012 which comprise the
Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated statement of financial
position, the Consolidated statement of cash flows, the Consolidated statement of changes in equity and the related notes 1 to 36.
We have also audited the Parent company financial statements of Hochschild Mining plc for the year ended 31 December 2012
which comprise the Parent company statement of financial position, the Parent company statement of cash flows, the Parent
company statement of changes in equity and the related notes 1 to 14. 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 set out on page 95, 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. In addition, we read all the financial and non-financial information in the
Annual Report and Accounts 2012 to identify material inconsistencies with the audited financial statements. If we become aware
of any apparent material misstatements or inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion:
(cid:2)(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 2012 and of the Group’s profit for the year then ended;
(cid:2)(cid:3) the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
(cid:2)(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:2)(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:2)(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:2)(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.
www.hochschildmining.com 97
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:2)(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:2)(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:2)(cid:3) certain disclosures of Directors’ remuneration specified by law are not made; or
(cid:2)(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:2)(cid:3) the Directors’ statement, set out on pages 67 and 68, in relation to going concern;
(cid:2)(cid:3) the part of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the
UK Corporate Governance Code specified for our review; and
(cid:2)(cid:3) certain elements of the report to shareholders by the Board on Directors’ remuneration.
Steven Dobson
Senior statutory auditor
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
12 March 2013
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Notes:
1 The maintenance and integrity of the Hochschild Mining plc website is the responsibility of the Directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they
were initially presented on the website.
2 Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
98 Hochschild Mining plc Annual Report 2012
98 Hochschild Mining plc Annual Report 2012
Exploring for growth
Volcan
The Volcan gold deposit is located in Chile,
one of our key targeted mining jurisdictions.
View more information on Exploring for Growth online www.hochschildmining.com
www.hochschildmining.com 99
www.hochschildmining.com 99
Financial statements
In this section
100 Consolidated income statement
101 Consolidated statement
of comprehensive income
102 Consolidated statement
of fi nancial position
103 Consolidated statement
of cash fl ows
104 Consolidated statement
of changes in equity
105 Notes to the consolidated
fi nancial statements
159 Parent company statement
of fi nancial position
160 Parent company statement
of cash fl ows
161 Parent company statement
of changes in equity
162 Notes to the parent company
fi nancial statements
optionality and increased geographical
balance within our project pipeline.
We will commence a full geological and
technical evaluation of the project in 2013
and we remain excited by the project
and are confi dent that our experienced
geological and operational teams will
develop its signifi cant potential.
9.5
million contained gold
ounces of resources
In November 2012 the Company
announced the acquisition of Andina
Minerals, with the Volcan gold deposit
located in the prolifi c Maricunga gold
belt in Northern Chile. The acquisition not
only met our disciplined criteria but also
boosted our extensive project pipeline,
doubling our current resource base and
providing us with further long-term
100 Hochschild Mining plc Annual Report 2012
Financial statements
Consolidated income statement
For the year ended 31 December 2012
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Exploration expenses
Selling expenses
Other income
Other expenses
Impairment and write-off of assets
(net)/(reversal)
Profit from continuing operations
before net finance income/(cost),
foreign exchange loss and income tax
Share of post-tax profit/(losses)
of associates and joint ventures
accounted under equity method
Finance income
Finance costs
Foreign exchange loss
Profit from continuing
operations before income tax
Income tax (expense)/benefit
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)
Year ended 31 December 2012
Year ended 31 December 2011
Before
exceptional
items
US$000
Exceptional
items
US$000
Notes
3,5 817,952
6 (420,325)
397,627
(72,995)
7
(64,612)
8
(39,460)
9
8,733
11
(9,525)
11
–
–
–
–
–
–
1,099
–
Total
US$000
817,952
(420,325)
397,627
(72,995)
(64,612)
(39,460)
9,832
(9,525)
Before
exceptional
items
US$000
Exceptional
items
US$000
987,662
(404,291)
583,371
(64,354)
(47,336)
(38,970)
7,062
(15,800)
–
–
–
–
–
–
–
(1,408)
Total
US$000
987,662
(404,291)
583,371
(64,354)
(47,336)
(38,970)
7,062
(17,208)
11
–
(245)
(245)
–
1,210
1,210
219,768
854
220,622
423,973
(198)
423,775
11,18
11,12
11,12
6,456
1,988
(12,870)
(1,212)
(1,376)
–
(1,334)
–
5,080
1,988
(14,204)
(1,212)
11,707
4,689
(21,331)
(1,562)
(261)
5,989
(2,111)
–
11,446
10,678
(23,442)
(1,562)
214,130
(85,549)
13
(1,856)
141
212,274
(85,408)
417,476
(148,557)
3,419
–
420,895
(148,557)
128,581
(1,715)
126,866
268,919
3,419
272,338
64,830
63,751
128,581
(1,759)
44
(1,715)
63,071
63,795
126,866
165,890
103,029
268,919
2,826
593
3,419
168,716
103,622
272,338
14
0.19
14
0.19
–
–
0.19
0.49
0.01
0.50
0.19
0.49
0.01
0.50
Financial statements
Consolidated statement of comprehensive income
For the year ended 31 December 2012
www.hochschildmining.com 101
Profit for the year
Other comprehensive income
Exchange differences on translating foreign operations
Change in fair value of available-for-sale financial assets
Recycling of the loss/(gain) on available-for-sale financial assets
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
Year ended 31 December
2012
US$000
2011
US$000
Notes
126,866
272,338
19
13
268
(9,269)
266
–
615
(8,120)
(1,143)
(33,078)
(6,836)
1,930
7,164
(31,963)
118,746
240,375
54,951
63,795
118,746
136,689
103,686
240,375
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Financial statements
Consolidated statement of financial position
As at 31 December 2012
As at
31 December
2012
US$000
As at
31 December
2011
US$000
Notes
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
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
Treasury shares
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
15
16
17
18
19
20
28
636,555
396,557
43,903
78,188
30,609
8,613
856
1,195,281
21
20
22
23
76,413
166,173
23,023
150
358,944
624,703
461,554
274,507
18,772
83,201
40,769
8,741
–
887,544
53,032
166,931
601
28
627,481
848,073
1,819,984 1,735,617
27
27
27
158,637
395,928
(898)
(214,946)
720,011
158,637
395,928
(898)
(207,117)
677,218
1,058,732 1,023,768
195,299
1,323,250 1,219,067
264,518
8
104,866
68,430
68,152
241,456
117,037
12,831
46,334
74,432
24,460
24
25
26
28
24
22
25
26
–
106,850
76,550
95,715
279,115
149,585
6,891
6,973
26,688
27,482
217,619
496,734
275,094
516,550
1,819,984 1,735,617
These financial statements were approved by the Board of Directors on 12 March 2013 and signed on its behalf by:
Ignacio Bustamante
Chief Executive Officer
12 March 2013
Financial statements
Consolidated statement of cash flows
For the year ended 31 December 2012
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
Acquisition of subsidiary
Dividends received from associates
Purchase of available-for-sale financial assets
Proceeds from deferred income
Proceeds from sale of available-for-sale financial assets
Proceeds from sale of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Purchase of treasury shares
Dividends paid
Capital contribution from non-controlling interests
Cash flows used in financing activities
Net (decrease)/increase 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
www.hochschildmining.com 103
Year ended 31 December
2012
US$000
2011
US$000
Notes
32 344,119
2,614
(9,987)
(3,667)
(78,200)
26
520,262
13,690
(29,474)
(4,113)
(36,255)
254,879
464,110
4(a)
24(3)
(297,537)
(46,903)
(96,332)
8,454
–
4,000
–
449
(140,004)
(73,010)
(15,594)
6,603
(491)
–
82,485
113
(427,869)
(139,898)
53,500
(93,221)
–
(62,467)
7,346
117,670
(272,379)
(898)
(74,285)
7,991
29
(94,842)
(221,901)
(267,832)
(705)
627,481
102,311
(312)
525,482
23 358,944
627,481
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Financial statements
Consolidated statement of changes in equity
For the year ended 31 December 2012
Other reserves
Equity
share
capital
US$000
Share
premium
US$000
Treasury
shares
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
Cumulative
translation
adjustment
US$000
US$000
Merger
reserve
US$000
Share-
based
payment
reserve
US$000
Total
Other
reserves
US$000
Retained
earnings
US$000
Capital and
reserves
attributable
to
shareholders
of the Parent
US$000
Non-
controlling
interests
US$000
Total
equity
US$000
Balance
at 1 January 2011
Other
comprehensive
income/(loss)
Profit for the year
Total
comprehensive
income for 2011
Capital contribution
from non-
controlling interest
CEO LTIP
Treasury shares
Dividends declared
during the year
Balance
at 31 December
2011
Other
comprehensive
(loss)/income
Profit for the year
Total
comprehensive
income for 2012
Capital contribution
from non-
controlling interest
CEO LTIP
Expiration of
dividends
Dividends declared
during the year
Balance
at 31 December
2012
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(32,750)
–
1,930
–
–
(32,750)
1,930
–
–
(898)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,207)
–
(1,207)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
154
–
–
(32,027)
–
– 168,716
(32,027)
64
168,716 103,622
(31,963)
272,338
(32,027) 168,716
136,689 103,686
240,375
–
154
–
–
–
–
–
154
(898)
7,991
–
–
7,991
154
(898)
–
(20,286)
(20,286)
(63,498)
(83,784)
29
158,637 395,928
(898)
5,058
–
8,432
(10,715)
(210,046)
154
(207,117) 677,218 1,023,768 195,299 1,219,067
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(8,388)
–
–
(8,388)
–
–
–
–
–
–
–
–
29
158,637 395,928
(898)
(3,330)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
268
–
268
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
291
–
–
(8,120)
–
–
63,071
(8,120)
–
63,071 63,795
(8,120)
126,866
(8,120)
63,071
54,951 63,795
118,746
–
291
–
–
–
–
– 39,568
–
291
39,568
291
–
733
733
–
(20,278)
(20,278)
(34,877)
(55,155)
8,432
(10,447)
(210,046)
445 (214,946) 720,011 1,058,732 264,518 1,323,250
Financial statements
Notes to the consolidated financial statements
www.hochschildmining.com 105
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 Jose) located in Argentina and one plant (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 12 March 2013.
The Group´s subsidiaries are as follows:
Equity interest at
31 December
Company
Hochschild Mining (Argentina) Corporation S.A.
(formerly Hochschild Mining (Argentina) Corporation)
MH Argentina S.A.
Minera Santa Cruz S.A.
Southwestern Gold (Bermuda) Limited
0848818 BC Ltd
1710503 Alberta Ltd1
Andina Minerals Inc.2
Quintovac Mining Company Ltd. 2
Andina Holdings Inc. 2
Hochschild Mining Chile S.A.
Minera Hochschild Chile S.C.M.
(formerly Minera MH Chile Ltda.)
Andina Minerals Chile Ltd. 2
Sociedad Contractual Minera Victoria
Southwest Minerals (Yunnan) Inc.
Hochschild Mining Holdings Limited
Hochschild Mining Ares (UK) Limited
Southwest Mining Inc.
Southwest Minerals Inc.
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.
Principal activity
Country of
incorporation
Holding company
Exploration office
Production of gold & silver
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Argentina
Argentina
Argentina
Bahamas
Canada
Canada
Canada
Canada
Canada
Chile
Exploration office
Exploration office
Exploration office
Exploration office
Holding company
Administrative office
Exploration office
Exploration office
Chile
Chile
Chile
China
England & Wales
England & Wales
Mauritius
Mauritius
Holding company
Service company
Exploration office
Production of gold & silver
Mexico
Mexico
Mexico
Mexico
2012
%
100
100
51
100
100
100
86.7
86.7
86.7
100
100
86.7
60
100
100
100
100
100
100
100
100
100
2011
%
100
100
51
100
100
–
–
–
–
100
100
–
–
100
100
100
100
100
100
100
100
100
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Financial statements
Notes to the consolidated financial statements continued
1 Corporate information (continued)
Company
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
Minera Suyamarca S.A.C.
Empresa de Transmisión Aymaraes S.A.C. 4
Inmaculada Holdings S.A.C.
Liam Holdings S.A.C.
Minera del Suroeste S.A.C.
Minera Minasnioc S.A.C.5
Hochschild Mining (US) Inc. (formerly MH Nevada, Inc.)
Principal activity
Holding company
Production of gold & silver
Production of gold & silver
Power transmission
Not-for-profit
Production of gold & silver
Power transmission
Holding company
Holding company
Exploration office
Exploration office
Holding company
Equity interest at
31 December
Country of
incorporation
Peru
Peru
Peru
Peru
Peru
Peru
Peru
Peru
Peru
Peru
Peru
USA
2012
%
100
100
99.1
100
–
60
50
100
100
100
–
100
2011
%
100
100
99.1
100
–
60
–
100
100
100
100
100
1 On 5 November 2012, 1710503 Alberta Ltd was incorporated as a subsidiary of the Group.
2 The Group purchased an 86.7% interest (81.4% on a fully diluted basis) in Andina Minerals Inc. on 28 December 2012.
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 Although the Group does not have more than a 50% interest, this company is considered as a subsidiary according to IAS 27 because its financial and operating policies
are governed by the Group.
5 On 12 July 2012 Minera Minasnioc S.A.C. was wound up.
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 2012 and 2011 are set out below. These accounting policies have been consistently applied, except for the effects
of the adoption of new and amended accounting standards (refer to note 2(c)).
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 amendments to existing standards that are not yet effective and have not been
previously 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 2013 or later periods but which the Group has not previously
adopted. Those that are applicable to the Group are as follows:
•(cid:3) IFRS 9 ‘Financial Instruments: Classification and Measurement’, applicable for annual periods beginning on or after
1 January 2015
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. The Group has
determined however that the effect shall be quantified in conjunction with the other phases, when issued, to present a
comprehensive picture.
www.hochschildmining.com 107
2 Significant accounting policies (continued)
•(cid:3) IFRS 7 ‘Disclosures – Offsetting Financial Assets and Financial Liabilities – Amendments to IFRS 7’, applicable for annual periods
beginning on or after 1 July 2013
These amendments require an entity to disclose information about rights to set-off and related arrangements. The disclosures
would provide users with information that is useful in evaluating the effect of netting arrangements on an entity´s financial position.
The new disclosures are required for all recognised financial instruments that are set off in accordance with IAS 32 ‘Financial
Instruments: Presentation.’ The disclosures also apply to recognised financial instruments that are subject to an enforceable
master netting arrangement or similar agreement, irrespective of whether they are set off in accordance with IAS 32. Based
on the preliminary analysis, these amendments have no impact on the Group’s financial position or performance.
•(cid:3) IFRS 10 ‘Consolidated Financial Statements’, applicable for annual periods beginning on or after 1 January 2014
IFRS 10 replaces the portion of IAS 27 ‘Consolidated and separate financial statements’ that addresses the accounting for
consolidated financial statements. It also includes the issues raised in SIC-12 ‘Consolidation-special purposes entities’. IFRS 10
establishes a single control model that applies to all entities including special purpose entities. Based on the preliminary analysis,
no material impact is expected.
•(cid:3) IFRS 11 ‘Joint arrangements’, applicable for annual periods beginning on or after 1 January 2014
IFRS 11 replaces IAS 31 ‘Interests in joint ventures’ and SIC-13 ‘Jointly-controlled entities non-monetary contributions by venturers’.
Instead, jointly-controlled entities that meet the definition of a joint venture must be accounted for using the equity method. Based
on the preliminary analysis, the application of this new standard has no impact on the Group’s financial position
or performance.
•(cid:3) IFRS 12 ‘Disclosure of involvement with other entities’, applicable for annual periods beginning on or after 1 January 2014
IFRS 12 applies to an entity that has an interest in subsidiaries, joint arrangements, associates and/or structured entities. Many of
the disclosure requirements of IFRS 12 were previously included in IAS 27, IAS 31, and IAS 28. A number of new disclosures are
also required. The standard affects disclosure only and has no impact on the Group’s financial position or performance.
•(cid:3) IFRS 13 ‘Fair value measurement’, applicable for annual periods beginning on or after 1 January 2013
IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an
entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is
required or permitted. Based on the preliminary analysis, no material impact is expected.
•(cid:3) IAS 1 ‘Financial statements presentation – Presentation of items in other comprehensive income’, applicable for annual periods
beginning on or after 1 July 2012
The amendments to IAS 1 change the grouping of items presented in other comprehensive income. Items that could be reclassified
(or recycled) to profit and loss at a future point in time would be presented separately from items that will never be reclassified.
The amendment affects presentation only and has no impact on the Group’s financial position and performance.
•(cid:3) IAS 19 ‘Employee benefits (amendment)’, applicable for annual periods beginning on or after 1 January 2013
The IASB has issued numerous amendments to IAS 19. These range from fundamental changes such as removing the corridor
mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording. Based on the preliminary
analysis, the application of this new standard has no impact on the Group’s financial position or performance.
•(cid:3) IFRIC 20 ‘Stripping costs in the production phase of a surface mine’, applicable for annual periods beginning on or after
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This interpretation would apply to waste removal (stripping) costs incurred in surface mining activity, during the production phase
of the mine. There can be two benefits accruing to the entity from the stripping activity: usable ore that can be used to produce
inventory and improved access to further quantities of material that will be mined in future periods. When the benefit from the
stripping activity is the production of inventory, an entity would be required to account for the stripping activity costs as part of the
cost of inventory. When the benefit is the improved access to ore, the entity would recognise these costs as a non-current asset
only if certain criteria are met, which is referred to as the stripping activity asset. The amendment has no material impact on the
Group’s financial position and performance.
108 Hochschild Mining plc Annual Report 2012
Financial statements
Notes to the consolidated financial statements continued
2 Significant accounting policies (continued)
•(cid:3) IAS 28 ‘Investments in Associates and Joint Ventures (as revised in 2011)’, applicable for annual periods beginning on or after
1 January 2014
IAS 28 ‘Investments in Associates’, has been renamed IAS 28 ‘Investments in Associates and Joint Ventures’, and describes the
application of the equity method to investments in joint ventures in addition to associates. Based on the preliminary analysis, the
amendment has no impact on the Group´s financial position or performance.
•(cid:3) IAS 32 ‘Offsetting Financial Assets and Financial Liabilities – Amendment to IAS 32’, applicable for annual periods beginning on or
after 1 January 2014
These amendments clarify the meaning of ‘currently has a legally enforceable right to set-off’. The amendments also clarify the
application of the IAS 32 offsetting criteria to settlement systems which apply gross settlement mechanisms that are not
simultaneous. Based on the preliminary analysis, no material impact is expected.
•(cid:3) ‘Improvements to IFRSs (issued in May 2012)’, applicable for annual periods beginning on or after 1 January 2013
The IASB issued improvements to IFRSs, including IAS 1 Presentation of Financial Statements, IAS 16 Property Plant and
Equipment, IAS 32 Financial Instruments, Presentation, and IAS 34 Interim Financial Reporting. Based on the preliminary analysis,
no material impact is expected.
(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 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 estimates is 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:
Significant estimates:
•(cid:3) Determination of useful lives of assets for depreciation and amortisation purposes – note 2(f).
Estimates are required to be made by management as to the useful lives of assets. For depreciation calculated under the unit-of-
production method, estimated recoverable reserves are used in determining the depreciation and/or amortisation of mine-specific
assets. This results in a depreciation/amortisation charge proportional to the depletion of the anticipated remaining life-of-mine
production. Each item’s life, which is assessed annually, has regard to both its physical life limitations and to present assessments
of economically recoverable reserves of the mine property at which the asset is located. These calculations require the use of
estimates and assumptions, including the amount of recoverable reserves. Changes are accounted for prospectively.
•(cid:3) Determination of ore reserves and resources – note 2(h).
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.
•(cid:3) Review of asset carrying values and impairment charges – notes 2(i), (k), (v) and note 15 and 16.
The assessment of asset carrying values 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.
The impairment testing of goodwill is based on significant judgements and assumptions made by the management when
performing the annual impairment testing. Changes to be made to these assumptions may alter the results of the impairment
testing, the impairment charges recorded in profit or loss and the resulting carrying values of the non-current assets tested.
www.hochschildmining.com 109
2 Significant accounting policies (continued)
•(cid:3) Estimation of the amount and timing of mine closure costs – notes 2(o) and 26.
The Group assesses its mine closure cost provision annually. Significant estimates and assumptions are made in determining the
provision for mine closure cost 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, mine life
and changes in discount rates. Those uncertainties may result in future actual expenditure differing from the amounts currently
provided. The provision at the balance sheet date represents management’s best estimate of the present value of the future closure
costs required. Changes to estimated future costs are recognised in the balance sheet by adjusting the mine closure cost liability
and the related asset originally recognised. If, for mature mines, the revised mine assets net of mine closure cost provisions exceed
the recoverable value, that portion of the increase is charged directly to expense. For closed sites, changes to estimated costs are
recognised immediately in the income statement.
Judgements:
•(cid:3) Determination of functional currencies – note 2(e).
The determination of functional currency requires management judgement, particularly where there may be several currencies in
which transactions are undertaken and which impact the economic environment in which the entity operates.
•(cid:3) Income tax – notes 2(t), 13, 28 and 34.
Judgement is required in determining whether deferred tax assets are recognised on the balance sheet. Deferred tax assets,
including those arising from un-utilised 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 balance sheet date could be impacted.
•(cid:3) Recognition of evaluation and exploration assets and transfer to development costs – note 2(g).
Judgement is required in determining when the future economic benefit of a project can reasonably be regarded as assured,
at which point evaluation and exploration expenses are capitalised. This includes the assessment of whether there is sufficient
evidence of the probability of the existence of economically recoverable minerals to justify the commencement of capitalisation
of costs; the timing of the end of the exploration phase and the start of the development phase and the commencement
of the production phase. For this purpose, the future economic benefit of the project can reasonably be regarded as assured
when the Board authorises management to conduct a feasibility study, mine-site exploration is being conducted to convert
resources to reserves or mine-site exploration is being conducted to confirm resources, all of which are based on supporting
geological information.
•(cid:3) Acquiring a subsidiary or a group of assets – note 4(a).
In identifying a business combination (note 2(d)) or acquisition of assets the Group considers the underlying inputs, processes and
outputs acquired as a part of the transaction. For an acquired set of activities and assets to be considered a business there must be
at least some inputs and processes that have the capability to achieve the purposes of the Group. Where significant inputs and
processes have not been acquired, a transaction is considered to be the purchase of assets. For the assets and assumed liabilities
acquired the Group allocates the total consideration paid (including directly attributable transaction costs) based on the relative fair
values of the underlying items.
In accounting for the Group´s commitment to acquire any remaining non-controlling interest, the Group applies IAS 32 ‘Financial
instruments: Presentation’. The business combination or asset purchase is accounted for on the basis that the underlying shares
have been acquired. Consequently, no non-controlling interest is recognised in the consolidated financial statements.
(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:
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Financial statements
Notes to the consolidated financial statements continued
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) IFRS 7 ‘Financial Instruments: Disclosures – Enhanced derecognition disclosure requirements’, applicable for annual periods
beginning on or after 1 July 2011
The amendment requires additional disclosure about financial assets that have been transferred but not derecognised to enable
the user of the Group´s financial statements to understand the relationship with those assets that have not been derecognised and
their associated liabilities. In addition, the amendment requires disclosures about the entity’s continuing involvement in
derecognised assets to enable the users to evaluate the nature of, and risks associated with, such involvement. The amendment
affects disclosure only and has no impact on the Group’s financial position or performance.
(d) Basis of consolidation
The consolidated financial statements set out the Group’s financial position, performance and cash flows as at 31 December 2012
and 31 December 2011 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 (‘NCI’); (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.
NCI 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 attributable to the NCI even if that results in a deficit balance.
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 NCI in the acquiree. The choice of
measurement of NCI, 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 NCI (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 the 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.
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2 Significant accounting policies (continued)
If the aggregate of the acquisition date fair value of the consideration transferred and the amount recognised for the NCI (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.
(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 transaction date 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.
(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:
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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.
112 Hochschild Mining plc Annual Report 2012
Financial statements
Notes to the consolidated financial statements continued
2 Significant accounting policies (continued)
Mining properties and development costs
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.
When a mine construction project moves into the production stage, the capitalisation of certain mine construction costs ceases and
costs are either regarded as part of the cost of inventory or expensed, except for costs which qualify for capitalisation relating to
mining asset additions or improvements, underground mine development or mineable reserve development.
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 are capitalised when the future economic benefit of the project can reasonably be regarded
as assured.
Projects in the development phase – Exploration and evaluation costs are capitalised as assets from the date that the Board
authorises management to conduct a feasibility study.
Expenditure is transferred to mine development costs once the work completed to date supports the future development of the
property and such development receives appropriate approval.
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.
(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 and gains and losses arising on dilution of the Group’s interest resulting from share issues by
the associate. Where there have been other changes recognised directly in the statement of comprehensive income or statement
of changes in equity of the associate, the Group recognises its share of any changes and discloses this, when applicable, in the
statement of comprehensive income or statement of changes in equity respectively. 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 NCI 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
www.hochschildmining.com 113
2 Significant accounting policies (continued)
impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount
in the income statement.
(j) 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
equal to that of the mine to which it relates and that is amortised applying the units of production method for that mine.
Water permits
Water permits represent the cost of water use that allow the holder to withdraw a specified amount of water from the ground for
reasonable, beneficial uses. This is an asset with an indefinite useful life.
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.
(k) 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.
(l) 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.
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).
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Financial statements
Notes to the consolidated financial statements continued
2 Significant accounting policies (continued)
Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.
(m) 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.
(n) 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.
(o) 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.
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 (note 10) and is considered
deductible for income tax purposes. The Group has no pension or retirement benefit schemes.
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.
(p) Share-based payments
Cash-settled transactions
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.
Equity-settled transactions
The cost of equity-settled transactions is recognised, together with a corresponding increase in other reserves in equity, over the
period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled
transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s
best estimate of the number of equity instruments that vest. The income statement expense for a period represents the movement
in cumulative expense recognised as at the beginning and end of that period and is recognised in personnel expenses (note 10).
During 2011, the Group approved an equity-settled scheme for its CEO.
(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.
www.hochschildmining.com 115
2 Significant accounting policies (continued)
(r) Revenue recognition
The Group is involved in the production and sale of gold and silver from dore and concentrate containing both gold and silver.
Concentrate and dore bars are sold directly to customers. In addition, dore bars are sent to a third-party for further refining into
gold and silver which is then sold.
Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be
reliably measured.
Revenue associated with the sale of concentrate and gold and silver from dore 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.
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Financial statements
Notes to the consolidated financial statements continued
2 Significant accounting policies (continued)
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.
(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.
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2 Significant accounting policies (continued)
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.
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.
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Financial statements
Notes to the consolidated financial statements continued
2 Significant accounting policies (continued)
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.
(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; and
•(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 has used 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.
www.hochschildmining.com 119
2 Significant accounting policies (continued)
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.
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 – Pallancata, which generates revenue from the sale of concentrate
•(cid:3) Operating unit – San Jose, which generates revenue from the sale of gold, silver, concentrate and dore
•(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 – includes the profit or loss generated by Empresa de Transmisión Callalli S.A.C. (a power generation company), HMX,
S.A. de C.V. (a service company in Mexico), and the Selene mine, that closed in 2009 and which, as a consequence, is not
considered to be a reportable segment.
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 items that could be allocated directly to the segment.
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Financial statements
Notes to the consolidated financial statements continued
3 Segment reporting (continued)
(a) Reportable segment information
Ares
US$000
Arcata
US$000
Pallancata
US$000
San Jose
US$000
Moris
US$000
Exploration1
US$000
Other2
US$000
Adjustment
and
eliminations
US$000
Total
US$000
Year ended
31 December 2012
Revenue for
external customers
Inter segment revenue
57,580
–
175,802 257,725
–
–
310,384
–
Total revenue
57,580
175,802 257,725
310,384
15,931
–
15,931
–
–
–
530
6,501
– 817,952
–
(6,501)
7,031
(6,501) 817,952
Segment profit/(loss)
Others3
Profit from continuing
operations before
income tax
Other segment
information
Depreciation4
Amortisation
Assets
Capital expenditure
8,635
82,020 132,305
127,015
7,697
(72,024)
3,565
4,342 293,555
(81,281)
212,274
(4,073)
–
(23,124)
–
(40,327)
–
(53,801)
(1,452)
(7)
–
(860)
–
(2,969)
(77)
–
–
(125,161)
(1,529)
7,476
52,791
56,871
71,188
846
213,380
17,833
– 420,385
Current assets
Other non-current assets5
Total segment assets
Not reportable assets6
Total assets
12,569
11,035
14,374
54,078
127,091 156,199
72,605
251,813
7,459
839
3,239
500,599
524
29,439
23,604
141,465 210,277
324,418
8,298
503,838
29,963
–
–
–
–
–
–
578,121
23,604 141,465 210,277 324,418
8,298 503,838 608,084
– 164,848
– 1,077,015
– 1,241,863
– 578,121
– 1,819,984
1 Includes the asset acquisition of Andina Minerals Group (refer to note 4(a)).
2 ‘Other’ revenue primarily relates to revenues earned by HMX S.A. de C.V. for services provided to the Moris mine, and the Mexican exploration activities.
3 Comprised of administrative expenses of US$72,995,000, other income of US$9,832,000, other expenses of US$9,525,000, impairment of assets of US$245,000, share of
gains of associates and joint ventures of US$5,080,000, finance income of US$1,988,000, finance expense of US$14,204,000, and foreign exchange loss of US$1,212,000.
4 Includes US$18,000 of depreciation capitalised in Minera Santa Cruz S.A.
5 Includes goodwill in respect of San Jose amounting to US$2,091,000.
6 Not reportable assets are comprised of investments accounted under the equity method of US$78,188,000, available-for-sale financial assets of US$30,609,000, other
receivables of US$86,351,000, income tax receivable of US$23,023,000, deferred income tax assets of US$856,000, other financial assets of US$150,000 and cash and
cash equivalents of US$358,944,000.
www.hochschildmining.com 121
3 Segment reporting (continued)
(a) Reportable segment information (continued)
Ares
US$000
Arcata
US$000
Pallancata
US$000
San Jose
US$000
Moris
US$000
Exploration
US$000
Adjustment
and
eliminations
US$000
Other1
US$000
Total
US$000
Year ended
31 December 2011
Revenue for
external customers
Inter segment revenue
68,097 209,239
–
–
352,642
–
325,302
–
Total revenue
68,097 209,239
352,642
325,302
32,298
–
32,298
–
–
–
84
7,966
8,050
(7,966)
(7,966)
20,297 125,209
230,281
160,017
9,086
(50,048)
6,864
(4,641)
Segment profit/(loss)
Others2
Profit from continuing
operations before
income tax
Other segment
information
Depreciation3
Amortisation
Assets
Capital expenditure
(1,291)
–
(22,502)
–
(34,923)
–
(43,343)
(1,454)
(1,929)
–
(383)
–
(1,903)
(100)
2,673
33,040
55,059
62,994
555
61,629
1,997
Current assets
Other non-current assets4
Total segment assets
Not reportable assets5
Total assets
4,798
10,971
31,826
94,583
62,348
141,635
59,064
231,757
15,769 126,409
203,983
290,821
–
–
–
–
7,338
–
7,338
–
276
255,473
2,761
20,414
255,749
23,175
–
812,373
15,769 126,409
203,983
290,821
7,338
255,749
835,548
1 ‘Other’ revenue primarily relates to revenues earned by HMX S.A. de C.V. for services provided to the Moris mine, and the Mexican exploration activities.
2 Comprised of administrative expenses of US$64,354,000, other income of US$7,062,000, other expenses of US$17,208,000, reversal of impairment of assets of
US$ 1,210,000, share of gains of associates and joint ventures of US$11,446,000, finance income of US$10,678,000, finance expense of US$23,442,000, and foreign
exchange loss of US$1,562,000.
3 Includes US$28,000 of depreciation capitalised in Minera Hochschild Mexico S.A. de C.V. due to the San Felipe project.
4 Includes goodwill in respect of San Jose amounting to US$2,091,000.
5 Not reportable assets are comprised of investments accounted under the equity method of US$83,201,000, available-for-sale financial assets of US$40,769,000, other
receivables of US$60,293,000, income tax receivable of US$601,000, deferred income tax assets of US$Nil, other financial assets of US$28,000 and cash and cash
equivalents of US$627,481,000.
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–
987,662
497,065
(76,170)
420,895
–
–
–
–
–
–
–
–
(106,274)
(1,554)
217,947
168,411
754,833
923,244
812,373
1,735,617
122 Hochschild Mining plc Annual Report 2012
Financial statements
Notes to the consolidated financial statements continued
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
Mexico
Total
Inter-segment
Peru
Mexico
Total
Year ended 31 December
2012
US$000
2011
US$000
118,409
63,769
104,509
75,202
154,200
40,664
260,719
480
153,301
82,223
148,023
185,447
152,612
50,540
215,516
–
817,952
987,662
1,324
5,177
667
7,299
824,453
995,628
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 2012
Year ended 31 December 2011
US$000 % Revenue
Segment
US$000
% Revenue
Segment
LS Nikko
234,066
29%
Teck Metals Ltd. (formerly
Teck Cominco Metals Ltd)
Argor Heraus
Aurubis AG (formerly
Nordeutsche Affinerie AG)
104,509
13%
121,122
75,202
15%
9%
Pallancata
and San Jose
Pallancata
and San Jose
San Jose
Pallancata
and San Jose
176,397
18%
148,023
15%
96,060
185,447
10%
19%
Pallancata
and San Jose
Pallancata
and San Jose
San Jose
Pallancata
and San Jose
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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
United Kingdom
Total non-current segment assets
Available-for-sale financial assets
Trade and other receivables
Deferred income tax assets
Total non-current assets
As at 31 December
2012
US$000
684,471
251,935
27,075
113,387
78,335
1,155,203
30,609
8,613
856
1,195,281
2011
US$000
496,395
231,892
26,224
146
83,377
838,034
40,769
8,741
–
887,544
4 Acquisitions and disposals
(a) Acquisition of assets
Minera Quellopata S.A.C.
On 12 October 2010, the Group signed a Framework Agreement with International Minerals Corporation (‘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, and (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
transferred to Minera Quellopata S.A.C. (‘Quellopata’), together with the Puquiopata project. The Group is the operator of the new
venture pursuant to a separate management agreement similar in form and substance to the Pallancata management agreement.
This transaction has been accounted for as an asset acquisition on the basis that Quellopata has no existing processes.
As a result of the acquisition, the Group obtained control over Quellopata and consolidated it as a subsidiary. The net assets
received in the asset acquisition were US$91,782,000 and the IMZ interest generated by the transaction was US$36,940,000. At 31
December 2010, the Group recognised a contingent consideration of US$39,243,000 and an obligation to IMZ of US$15,594,000.
During 2011 the Group paid to IMZ its obligation of US$15,594,000.
Andina Minerals Inc
On 8 November 2012, the Group made a CAD$0.80 per share all-cash offer for all of the issued and outstanding common
shares of Andina Minerals Inc (‘Andina’), a TSX-V listed gold exploration company with projects in Chile, for a total consideration
of C$103,416,870. The Board of Directors of Andina unanimously recommended that their shareholders vote in favour of
the transaction.
Andina’s major asset, the 100% owned Volcan project, includes the Dorado area. Andina also has a 49% share in the Group’s
Encrucijada project, and this acquisition would bring the Group´s interest to 100%.
Andina is based in Alberta, Canada and is 100% owner of Quitovac Mining Company Limited and Andina Holdings Inc, both based
in Canada. Andina Holdings Inc owns 99.99% of Andina Minerals Chile Limitada, based in Santiago, Chile. The Chilean company
owns two properties: Encrucijada and Volcan and 50% of Sociedad Contractual Minera Pampa Buenos Aires.
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Financial statements
Notes to the consolidated financial statements continued
4 Acquisitions and disposals (continued)
At 31 December 2012, the Group had paid US$90,156,869, for 112,124,252 common shares of Andina, representing an 81.4%
interest on a fully diluted basis (basic 86.7%). As a result of the acquisition the Group incurred directly attributable transaction costs
of US$11,441,742. The Group recognised a liability of US$13,787,427 in respect of the Group´s commitment to acquire 17,146,835
remaining shares as at 31 December 2012.
The fair value total cost of assets acquired and liabilities assumed comprise the following:
Cash and cash equivalents
Trade and other receivables
Evaluation and exploration assets
Property, plant and equipment
Water permits
Total assets
Accounts payable and other liabilities
Total liabilities
Net assets acquired
Cash consideration
Liability to acquire non-controlling interests
Transaction costs
Total
Cash paid to acquire controlling interest
Transaction costs paid
Less cash acquired
Net cash flow on acquisition
US$000
3,190
543
86,301
330
26,583
116,947
1,559
1,559
115,388
90,157
13,788
11,443
115,388
90,157
9,365
(3,190)
96,332
Based on the Group´s ownership interest as at 31 December 2012, the Group was deemed to have control over Andina and has
therefore consolidated it as a subsidiary undertaking. The transaction has been recognised as an asset acquisition. The fair value
of the net assets received was US$115,388,000.
The balance of US$13,787,427 was paid between January (US$4,268,605) and February 2013 (US$9,518,822). The Group completed
the acquisition on 20 February 2013. The total consideration was settled in cash.
(b) Disposal of shares
Lake Shore Gold Corp.
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 common 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
held an interest of approximately 5.4%, no longer had the right to Board representation and no longer exercised significant
influence over 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 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$6,385,878
was recognised in 2011 in respect of the disposal.
5 Revenue
Gold (from dore bars)
Silver (from dore bars)
Gold (from concentrate)
Silver (from concentrate)
Services
Total
www.hochschildmining.com 125
Year ended 31 December
2012
US$000
124,581
153,509
135,055
404,277
530
817,952
2011
US$000
144,812
155,122
134,438
553,206
84
987,662
Included within revenue is a loss of US$4,015,265 relating to provisional pricing adjustments representing the change in the fair
value of embedded derivatives (2011: gain of US$12,395,086) arising on sales of concentrates and dore (refer to note 2(r) and
footnote 1 of note 22).
6 Cost of sales
Included in cost of sales are:
Depreciation and amortisation
Personnel expenses (note 10)
Mining royalty (note 35)
Change in products in process and finished goods
7 Administrative expenses
Personnel expenses
Professional fees
Social and community welfare expenses1
Lease rentals
Travel expenses
Communications
Indirect taxes
Depreciation and amortisation
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
2012
US$000
124,387
121,775
9,672
(17,708)
2011
US$000
105,897
109,011
17,950
6,893
Year ended 31 December
2012
US$000
40,006
6,180
6,459
1,510
2,443
990
3,723
2,285
828
991
238
7,342
72,995
2011
US$000
32,376
6,256
7,717
1,088
1,878
823
3,147
1,903
565
457
453
7,691
64,354
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Financial statements
Notes to the consolidated financial statements continued
8 Exploration expenses
Mine site exploration1
Arcata
Ares
Sipan
Pallancata
San Jose
Moris
Prospects2
Peru
Argentina
Mexico
Chile
Generative3
Peru
Argentina
Mexico
Chile
Personnel
Others
Total
Year ended 31 December
2012
US$000
2011
US$000
4,467
1,507
1,415
4,062
5,788
313
17,552
4,795
1,028
6,605
9,580
22,008
4,798
141
497
115
5,551
13,865
5,636
64,612
4,512
2
–
2,917
1,612
–
9,043
2,952
3,534
2,419
6,558
15,463
7,093
117
562
164
7,936
10,882
4,012
47,336
1 Mine-site exploration is performed with the purpose of identifying potential minerals within an existing mine-site, with the goal of maintaining or extending
the mine’s life.
2 Prospects expenditure relates to detailed geological evaluations in order to determine zones which have mineralisation potential that is economically viable
for exploration. Exploration expenses are generally incurred in the following areas: mapping, sampling, geophysics, identification of local targets and
reconnaissance drilling.
3 Generative expenditure is 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.
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
2012
US$000
2,082
2011
US$000
1,808
As at 31 December
2012
US$000
2011
US$000
27,285
22,708
9 Selling expenses
Transportation of dore, concentrate and maritime freight
Sales commissions
Personnel expenses
Warehouse services
Taxes
Other
Total
10 Personnel expenses1
Salaries and wages
Workers’ profit sharing
Other legal contributions
Statutory holiday payments
Long Term Incentive Plan
Termination benefits
Other
Total
www.hochschildmining.com 127
Year ended 31 December
2012
US$000
5,745
2,264
374
3,918
23,323
3,836
39,460
2011
US$000
5,215
3,300
340
2,526
24,625
2,964
38,970
Year ended 31 December
2012
US$000
129,208
18,487
21,084
7,600
7,891
975
13,079
198,324
2011
US$000
90,061
31,444
17,780
6,202
2,574
2,232
12,170
162,463
1 Personnel expenses are distributed in cost of sales, administrative expenses, exploration expenses, selling expenses and capitalised as property plant and equipment
amounting to US$121,775,000 (2011: US$109,011,000), US$40,006,000 (2011: US$32,376,000), US$13,865,000 (2011: US$10,882,000), US$374,000 (2011: US$340,000)
and US$22,304,000 (2011: US$9,854,000) respectively.
Average number of employees for 2012 and 2011 were as follows:
Peru
Argentina
Mexico
Chile
United Kingdom
Total
As at 31 December
2012
3,011
1,226
135
40
12
4,424
2011
2,402
1,188
148
28
11
3,777
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128 Hochschild Mining plc Annual Report 2012
Financial statements
Notes to the consolidated financial statements continued
11 Pre-tax exceptional items
Other income
Termination benefits1
Total
Other expenses
Termination benefits1
Total
Impairment and write-off of assets (net)
Impairment and write-off of assets
Reversal of write-off of assets2
Total
Share of post-tax losses of associates and joint ventures accounted under equity method3
Total
Finance income
Gain on sale and exchange of available-for-sale financial assets4
Total
Finance costs
Loss from changes in the fair value of financial instruments5
Total
Year ended
31 December
2012
US$000
Year ended
31 December
2011
US$000
1,099
1,099
–
–
–
–
(1,408)
(1,408)
(484)
239
(245)
(1,376)
(1,376)
–
–
–
1,210
1,210
(261)
(261)
5,989
5,989
(1,334)
(1,334)
(2,111)
(2,111)
1 Relates to the provision of termination benefits due to workers as a result of the closure of Moris mine accrued in 2011 and reversed in 2012. As at 31 December 2012
the restructuring plan agreed at 31 December 2011 was not in effect, as Moris is still in operation.
2 Corresponds to the reversal of the write-off recorded in 2010 related to the 100% dore project at the San Jose mine.
3 Corresponds to the loss from dilution related to Gold Resource Corp. investment (note 18).
4 The 2011 amount corresponds to the gain on sale of the remaining Lake Shore Gold shares held of US$6,386,000, net of the loss generated by the sale of Golden
Minerals Company shares of US$397,000.
5 Mainly corresponds to the impairment of Iron Creek Capital Corp, Brionor Resources and Empire Petroleum Corp of US$1,043,671, US$105,000 and US$8,000
respectively. In 2011, mainly corresponds to the fair value adjustment of the Golden Minerals Company and Iron Creek Capital Corp warrants of US$1,563,000 and
US$139,000 respectively. In addition the amount includes the impairment of Brionor Resources and Empire Petroleum Corp of US$380,000 and US$50,000 respectively.
12 Finance income and finance costs before exceptional items
Finance income
Interest on deposits and liquidity funds
Interest on loans to non-controlling interests (note 20)
Interest income
Other
Total
Finance costs
Interest on secured bank loans and long-term debt (note 25)
Interest on convertible bond (note 25)
Interest expense
Unwind of discount rate
Loss from changes in the fair value of financial instruments
Other
Total
Year ended
31 December
2012
Before
exceptional
items
US$000
Year ended
31 December
2011
Before
exceptional
items
US$000
1,429
123
1,552
436
1,988
2,225
2,352
4,577
112
4,689
(1,924)
(8,956)
(6,517)
(8,760)
(10,880)
(15,277)
(731)
–
(1,259)
(1,684)
(1,810)
(2,560)
(12,870)
(21,331)
www.hochschildmining.com 129
13 Income tax expense
Year ended 31 December 2012
Year ended 31 December 2011
Current corporate income tax from
continuing operations
Current corporate income tax charge
Current mining royalty charge (note 35)
Current special mining tax charge (note 35)
Withholding taxes
Deferred taxation
Origination and reversal of temporary differences
from continuing operations (note 28)
Recognition of deferred tax not
previously recognised following
a change in estimate/outlook (note 28)
Total taxation charge in the income statement
Before
exceptional
items
US$000
Exceptional
items
US$000
Before
exceptional
items
US$000
Exceptional
items
US$000
48,285
3,834
4,256
1,571
57,946
–
–
–
–
–
Total
US$000
48,285
3,834
4,256
1,571
57,946
86,154
2,536
3,002
4,963
96,655
28,627
(141)
28,486
54,277
(1,024)
27,603
85,549
–
(141)
(141)
(1,024)
27,462
85,408
(2,375)
51,902
148,557
Total
US$000
86,154
2,536
3,002
4,963
96,655
54,277
(2,375)
51,902
148,557
–
–
–
–
–
–
–
–
–
The weighted average statutory income tax rate was 32.4% for 2012 and 31.8% for 2011. 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:
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
2012
US$000
2011
US$000
(615)
(615)
(7,164)
(7,164)
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130 Hochschild Mining plc Annual Report 2012
Financial statements
Notes to the consolidated financial statements continued
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 32.4% (2011: 31.8%)
Expenses not deductible for tax purposes
Non-taxable income1
Utilisation of losses in respect of deferred tax not previously recognised2
Non-taxable share of gains of associates
Net deferred tax assets generated in the year not recognised
Deferred tax recognised on special investment regime
Derecognition of deferred income tax assets
Adjustment of tax base of Minera Quellopata S.A.C.
Withholding tax
Special mining tax and mining royalty3
Foreign exchange rate effect4
Other
At average effective income tax rate of 40.2% (2011: 35.3%)
Taxation charge attributable to continuing operations
Total taxation charge in the income statement
As at 31 December
2012
US$000
2011
US$000
212,274
68,814
4,163
(275)
(1,024)
(1,181)
6,795
(2,481)
615
–
1,571
8,090
(1,303)
1,624
85,408
85,408
85,408
420,895
133,881
2,742
(3,096)
(2,375)
(3,033)
8,636
(2,092)
5,981
(2,692)
4,963
5,538
4,532
(4,428)
148,557
148,557
148,557
1 Mainly corresponds to the reversal of accrued non deductible personnel expenses recorded in 2011 (2011: Mainly corresponds to the non-taxable gain on the sale of
Lake Shore Gold shares of US$1,692,000).
2 The amount for 2012 mainly corresponds to the utilisation of losses in Minas Santa Maria de Moris (2011: mainly corresponds to the recognition of a previously
unrecognised mine closure provision of US$8,278,000).
3 Corresponds to the impact of the new mining royalty and special mining tax (note 35).
4 Mainly corresponds to the foreign exchange effect from converting tax bases and monetary items from local currency to the functional currency.
www.hochschildmining.com 131
14 Basic and diluted earnings per share
Earnings per share (‘EPS’) is calculated by dividing profit for the year attributable to equity shareholders of the Company by the
weighted average number of ordinary shares issued during the year.
The Company has dilutive potential ordinary shares.
As at 31 December 2012 and 2011, EPS has been calculated as follows:
Basic and earnings per share from continuing operations
Before exceptional items (US$)
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
2012
2011
0.19
–
0.19
0.19
–
0.19
0.49
0.01
0.50
0.49
0.01
0.50
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)
Profit from continuing operations before exceptional items attributable to equity holders
of the parent (US$000)
Interest on convertible bond (US$000)1
Diluted profit from continuing operations before exceptional items attributable to equity
holders of the parent (US$000)
The following 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 (thousands)1
Diluted weighted average number of ordinary shares in issue and dilutive potential
ordinary shares (thousands)
As at 31 December
2012
2011
126,866
(63,795)
63,071
1,759
272,338
(103,622)
168,716
(2,826)
64,830
–
165,890
8,760
64,830
174,650
As at 31 December
2012
2011
338,022
–
338,022
18,161
338,022
356,183
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1 The potential ordinary shares related to the convertible bond have not been included in the calculation of diluted EPS for 2012 as they have an anti dilutive effect.
132 Hochschild Mining plc Annual Report 2012
Financial statements
Notes to the consolidated financial statements continued
15 Property, plant and equipment
Year ended 31 December 2012
Cost
At 1 January 2012
Additions
Change in discount rate
Disposals
Write-offs
Change in mine closure estimate
Transfers and other movements
Transfers from evaluation and
exploration assets
Foreign exchange
At 31 December 2012
Accumulated depreciation
and impairment
At 1 January 2012
Depreciation for the year
Write-offs
Disposals
Foreign exchange
At 31 December 2012
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
382,556
148,148
–
–
–
–
455
9,165
–
143,764
4,337
–
(62)
–
–
31,901
264,948
34,469
–
(5,135)
(1,289)
–
20,429
–
–
–
35
4,614
98
–
(314)
(31)
–
991
–
2
63,185
688
–
–
3,483
–
–
–
70,836
103,319
–
–
–
–
(54,774)
929,903
290,371
688
(5,511)
(1,320)
3,483
(998)
–
–
9,165
37
540,324
179,940
313,457
5,360
67,356 119,381 1,225,818
233,103
73,340
–
–
–
70,750
16,975
–
(46)
–
118,832
31,974
(811)
(3,190)
18
306,443
87,679
146,823
2,091
701
(18)
(200)
–
2,574
2,786
42,637
2,171
–
–
–
936
–
–
–
–
468,349
125,161
(829)
(3,436)
18
44,808
936 589,263
22,548 118,445 636,555
Net book amount at 31 December 2012
233,881
92,261
166,634
1 The carrying value of plant and equipment held under finance leases at 31 December 2012 was US$991,230 (2011: US$5,741,000). Additions during
the year included US$Nil (2011: US$900,000) of plant and equipment under finance leases. Leased assets are pledged as security for the related finance lease.
There were no borrowing costs capitalised in property, plant and equipment as no significant qualifying assets were constructed during 2012 and 2011.
www.hochschildmining.com 133
15 Property, plant and equipment (continued)
Mining
properties
and
development
costs
US$000
Land and
buildings
US$000
Plant and
equipment1
US$000
Vehicles
US$000
299,871
79,284
–
–
(6,379)
–
509
9,269
2
120,948
5,806
–
–
–
–
17,040
234,888
16,345
–
(1,867)
(321)
–
16,028
–
(30)
–
(125)
3,606
9
–
(155)
(21)
–
1,192
–
(17)
Mine
closure
asset
US$000
Construction
in progress
and capital
advances
US$000
56,093
782
2,884
–
–
3,318
–
61,925
43,654
–
–
–
–
(34,769)
Total
US$000
777,331
145,880
2,884
(2,022)
(6,721)
3,318
–
–
108
–
26
9,269
(36)
382,556
143,764
264,948
4,614
63,185
70,836
929,903
Year ended 31 December 2011
Cost
At 1 January 2011
Additions
Change in discount rate
Disposals
Write-offs
Change in mine closure estimate
Transfers and other movements
Transfers from evaluation and
exploration assets
Foreign exchange
At 31 December 2011
Accumulated depreciation
and impairment
At 1 January 2011
Depreciation for the year
Write-offs
Disposals
Transfers to evaluation and
exploration assets
Foreign exchange
At 31 December 2011
179,672
59,830
(6,379)
–
52,987
17,763
–
–
94,332
26,329
(261)
(1,500)
(22)
2
–
–
–
(68)
233,103
70,750
118,832
Net book amount at 31 December 2011
149,453
73,014
146,116
1,562
664
(15)
(104)
–
(16)
2,091
2,523
40,766
1,871
–
–
–
–
1,098
(183)
–
–
–
21
370,417
106,274
(6,655)
(1,604)
(22)
(61)
42,637
936
468,349
20,548
69,900
461,554
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134 Hochschild Mining plc Annual Report 2012
Financial statements
Notes to the consolidated financial statements continued
16 Evaluation and exploration assets
Cost
Balance at 1 January 2011
Additions
Foreign exchange
Transfers to property, plant and equipment
Balance at 31 December 2011
Additions
Foreign exchange
Transfers from/(to) property plant and
equipment
Azuca
US$000
Crespo
US$000
Inmaculada
US$000
San Felipe
US$000
Dorado
US$000
Others
US$000
Total
US$000
28,339
30,014
–
–
58,353
12,326
–
55,771
9,927
(280)
–
65,418
1,777
276
91,507
16,920
62
188
108,677
8,085
–
56,824
39
(913)
–
55,950
–
–
–
–
–
–
–
86,301
–
21,664
254,105
15,949
–
(9,457)
28,156
21,525
–
72,849
(1,131)
(9,269)
316,554
130,014
276
125
144
–
–
–
(8,509)
(8,240)
Balance at 31 December 2012
70,804
67,615
116,762
55,950
86,301
41,172 438,604
Accumulated impairment
Balance at 1 January 2011
Transfers from property, plant and
equipment
Balance at 31 December 2011
Balance at 31 December 2012
–
9,904
22
22
22
–
9,904
9,904
–
–
–
–
Net book value as at 31 December 2011
58,331
55,514
108,677
Net book value as at 31 December 2012
70,782
57,711
116,762
There were no borrowing costs capitalised in evaluation and exploration assets.
30,950
–
1,171
42,025
–
30,950
30,950
25,000
25,000
–
–
–
–
–
22
1,171
42,047
1,171
42,047
26,985
274,507
86,301
40,001 396,557
www.hochschildmining.com 135
Goodwill
US$000
Transmission
line1
US$000
Water
permits2
US$000
Software
licences
US$000
Total
US$000
2,091
22,157
–
–
2,091
–
–
–
–
22,157
–
–
–
–
–
–
26,583
–
1,100
25,348
161
(1)
1,260
5
72
161
(1)
25,508
26,588
72
2,091
22,157
26,583
1,337
52,168
–
–
–
–
–
2,091
2,091
4,232
1,454
5,686
1,452
7,138
16,471
–
–
–
–
–
–
15,019
26,583
950
100
1,050
77
1,127
210
210
5,182
1,554
6,736
1,529
8,265
18,772
43,903
17 Intangible assets
Cost
Balance at 1 January 2011
Additions
Foreign exchange difference
Balance at 31 December 2011
Additions
Transfer
Balance at 31 December 2012
Accumulated amortisation
Balance at 1 January 2011
Amortisation for the year3
Balance at 31 December 2011
Amortisation for the year3
Balance at 31 December 2012
Net book value as at 31 December 2011
Net book value as at 31 December 2012
1 The transmission line is amortised using the units of production method. At 31 December 2012 the remaining amortisation period is 12 years.
2 Corresponds to the acquisition of water permits of Andina Minerals Group (refer to note 4(a)).
3 The amortisation for the period is included in cost of sales and administrative expenses in the income statement.
The carrying amount of goodwill is reviewed annually to determine whether it is in excess of its recoverable amount. The value-in-
use is determined at the cash-generating unit level, in this case being the San Jose mine, by discounting the expected cash flows
estimated by management over the life of the mine.
The calculation of value-in-use is most sensitive to the following assumptions:
•(cid:3) Commodity prices – Commodity prices of gold and silver are based on prices considered in the Group’s 2013 budget (2011: 2012
budget) and external market consensus forecasts. The prices considered in the 2012 (2011) impairment tests were:
Year
2012
2013
2014
2015
2016
2017
2018
2019-2023
2012 – Gold – US$/oz
2012 – Silver – US$/oz
2011 – Gold – US$/oz
2011 – Silver – US$/oz
1,823.0
35.0
1,750.0
35.0
1,723.0
31.0
1,500.0
29.6
1,550.0
29.0
1,400.0
30.0
1,411.0
26.0
1,324.6
25.5
1,411.0
26.0
1,323.1
25.4
1,411.0
26.0
1,300.0
25.0
1,411.0
26.0
1,300.0
25.0
1,825.0
40.0
•(cid:3) Estimation of reserves and resources – Reserves and resources are based on management’s estimates using appropriate
exploration and evaluation techniques;
•(cid:3) Production volumes and grades – Tonnage produced was estimated at plant capacity with 12 days of maintenance per year
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•(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 2012 impairment test was 25.59% (2011: 24.18%).
136 Hochschild Mining plc Annual Report 2012
Financial statements
Notes to the consolidated financial statements continued
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
2012
Variation
2011
Variation
(19.3)%
(15.5)%
(109.6)%
17.7%
99.4%
(37.1)%
(27.1)%
(67.9)%
35.3%
292.3%
Headroom for the 2012 and 2011 impairment tests were US$92,349,000 and US$193,591,000 respectively.
Cash flows used for impairment tests were based on the annual 2013 budget presented and approved by the Board, subject to
a number of conditions, in November 2012. The starting point in all cases was January 2013. Individual cash flows are based on
the annual 2013 budget and an estimated set of reserves and resources as of December 2012 provided by the Exploration 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 2013 budget. Future
capital expenditure is based on the 2013 budget, excluding one-off expenses and considering the Operations team’s view of
developments and infrastructure, according to the estimated set of reserves and resources.
18 Investments accounted under equity method
Gold Resource Corp.
The Group has a 24.8% interest on a fully diluted basis in Gold Resource Corp., which is involved in the exploration for and
production of gold and silver in Mexico. The company is organised under the laws of the State of Colorado, USA, where the principal
executive offices are located. The operations are conducted through two wholly-owned subsidiaries, located in Mexico,
Don David Gold S.A. de C.V. and Golden Trump Resources S.A. de C.V.
Based on publicly available information, at 31 December 2012, the capital and reserves were US$112,254,000 (31.12.2011:
US$132,582,000), and US$2,035,000 (31.12.2011: US$3,978,000) (loss on currency translation) respectively.
The profit for the period was US$26,056,000 (2011: US$46,464,000).
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
Profit1
Carrying amount of the investment
Year ended 31 December
2012
US$000
2011
US$000
17,872
51,002
(3,742)
(11,300)
53,832
24,356
20,258
57,919
(7,605)
(11,727)
58,845
24,356
33,737
5,080
78,188
26,496
11,446
83,201
1 Share of the associate’s profit in 2012 includes (1) a pre-exceptional gain from the Group’s share in the results of the period of Gold Resource Corp. of US$6,456,000
(2011: US$11,707,000) and (2) an exceptional loss from dilution of US$1,376,000 (2011: US$261,000).
19 Available-for-sale financial assets
Beginning balance
Additions1
Impairment
Fair value change recorded in equity
Disposals2
Ending balance
www.hochschildmining.com 137
Year ended 31 December
2012
US$000
40,769
–
(891)
(9,269)
–
30,609
2011
US$000
153,620
2,910
(198)
(33,078)
(82,485)
40,769
1 The 2011 amount represents the fair value of shares at the date of acquisition and mainly includes: (i) the conversion of Golden Minerals Company warrants into shares
of U$2,419,000, (ii) the conversion of Iron Creek Capital Corp warrants into shares of US$83,000 and the purchase of shares of Iron Creek Capital Corp. for US$408,000.
2 Sale of: (i) 21,540,992 shares of Lake Shore Gold Corp, and (ii) 104,889 shares of Golden Minerals Company.
Available-for-sale financial assets include the following:
Equity securities – quoted Canadian companies1
Equity securities – quoted US companies
Equity securities – quoted British companies
Equity securities – unquoted2
Total
Year ended 31 December
2012
US$000
17,800
23
777
12,009
30,609
2011
US$000
27,175
31
1,722
11,841
40,769
1 Mainly includes International Minerals Corporation shares of US$15,169,000 (2011: US$21,414,000).
2 Includes Pembrook Mining Corp and ECI Exploration and Mining Inc. shares.
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 ECI Exploration and Mining Inc.) were recognised at cost given
that there is not an active market for these investments. The investment in ECI Exploration and Mining Inc. is fully impaired.
Available-for-sale financial assets are denominated in the following currencies:
Canadian dollars
US dollars
Pounds sterling
Total
2012
US$000
29,809
23
777
30,609
2011
US$000
39,016
31
1,722
40,769
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Financial statements
Notes to the consolidated financial statements continued
20 Trade and other receivables
Trade receivables (note 36(c))
Advances to suppliers
Credit due from exports of Minera Santa Cruz
Due from non-controlling interests1
Receivables from related parties (note 30)
Loans to employees
Interest receivable
Receivable from Kaupthing, Singer and Friedlander Bank
Other
Provision for impairment2
Financial assets classified as receivables
Prepaid expenses
Value Added Tax (VAT)3
Total
As at 31 December
2012
Non-current
US$000
Current
US$000
Non-current
US$000
2011
Current
US$000
115,379
13,008
964
1,025
932
1,350
711
515
1,986
(2,406)
88,435
17,916
2,578
2,224
1,017
1,608
85
361
6,575
(3,819)
–
–
5,413
–
–
2,051
–
–
23
–
116,980
7,487
133,464
10,237
38,956
526
728
6,305
27,162
8,613
166,173
8,741
166,931
–
–
5,609
–
–
2,276
–
–
102
–
7,987
626
–
The fair values of trade and other receivables approximate their book value.
1 Corresponds to an amount receivable from Iron Creek Capital Corp. (2011: loan to International Minerals Corporation).
2 Includes the provision for impairment of trade receivable from a customer in Peru of US$1,108,000 (2011: US$1,108,000), the impairment of deposits in Kaupthing,
Singer and Friedlander of US$361,000 (2011: US$515,000) and other receivables of US$2,350,000 (2011: US$783,000).
3 This includes an amount of US$18,736,000 (2011: US$16,315,000) VAT paid related to the San Jose project that will be recovered through future sales of gold and silver
by Minera Santa Cruz S.A. It also includes the VAT of Minera Suyamarca of US$6,388,000 (2011: US$3,040,000), Compañía Minera Ares S.A.C. of US$8,574,000 (2011:
US$6,503,000) and Minas Santa María de Moris of US$2,445,000 (2011: US$1,256,000). The VAT is valued at its recoverable amount.
Movements in the provision for impairment of receivables:
At 1 January 2011
Provided for during the year
Released during the year
At 31 December 2011
Provided for during the year
Released during the year
At 31 December 2012
Individually
impaired
US$000
2,533
76
(203)
2,406
1,567
(154)
3,819
Total
US$000
2,533
76
(203)
2,406
1,567
(154)
3,819
As at 31 December, the ageing analysis of financial assets classified as receivables net of impairment is as follows:
Year
2012
2011
Past due but not impaired
Neither past
due nor
impaired
US$000
Total
US$000
124,967 124,967
140,951
140,951
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
–
–
–
–
–
–
–
–
–
–
21 Inventories
Finished goods
Products in process
Raw materials
Supplies and spare parts
Provision for obsolescence of supplies
Total
www.hochschildmining.com 139
As at
31 December
2012
US$000
As at
31 December
2011
US$000
4,874
28,162
1
49,021
82,058
(5,645)
76,413
1,791
13,537
5
40,240
55,573
(2,541)
53,032
Finished goods include ounces of gold and silver, dore and concentrate. Dore 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 a variable content of base and precious
metals and is sold to smelters.
The amount of dore on hand at 31 December 2012 included in products in process is US$9,370,000 (2011: US$1,379,000).
As part of the Group’s short-term financing policies, it acquires pre-shipment loans which are guaranteed by the sales contracts.
The amount of expense recognised in profit and loss related to the consumption of inventory of supplies, spare parts and raw
materials is US$85,651,000 (2011: US$72,105,000).
Movements in the provision for obsolescence comprise the amount of the expense related to the increase of the provision
of US$3,608,000 and the reversal of US$504,000 relating to the sale of supplies and spare parts, that had been provided for
(2011: US$695,000).
The amount of income relating to the reversal of the inventory provision is US$nil (2011: US$21,000).
22 Other financial assets and liabilities
Other financial assets
Warrants in Iron Creek Capital Corp.
Bonds
Total financial assets at fair value through profit or loss
Other financial liabilities
Embedded derivatives1
Total financial liabilities at fair value through profit or loss
As at 31 December
2012
US$000
2011
US$000
1
149
150
28
–
28
6,891
6,891
12,831
12,831
1 Sales of concentrate and certain gold and silver volumes are provisionally priced at the time the sale is recorded. The price is then adjusted after an agreed period of
time (usually linked to the length of time it takes for the smelter to refine and sell the concentrate or for the refiner to process the dore into gold and silver), with the
Group either paying or receiving the difference between the provisional price and the final price. This price exposure is considered to be an embedded derivative in
accordance with IAS 39 ‘Financial Instruments: Recognition and Measurement’. The gain or loss that arises on the fair value of the embedded derivative is recorded
in ‘Revenue’ (refer to note 5).
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Financial statements
Notes to the consolidated financial statements continued
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 flows4
As at 31 December
2012
US$000
322
72,803
61,654
224,165
2011
US$000
349
370,021
45,030
212,081
358,944
627,481
The fair value of cash and cash equivalents approximates their book value. The Group does not have undrawn borrowing facilities
available in the future for operating activities or capital commitments.
1 The liquidity funds are mainly invested in certificates of deposit, commercial papers and floating rate notes with a weighted average maturity of 5 days as at
31 December 2012 (2011: average of 18 days). In addition, liquidity funds include US Treasury bonds amounting to US$49,967,000 (2011: US$199,924,000) (note 36(g)).
2 Relates to bank accounts which are freely available and bear interest.
3 These deposits have an average maturity of 36 days (2011: Average of 32 days) (refer to note 36(g)).
4 Funds deposited in Argentinean institutions are effectively restricted for transfer to other countries and are invested locally. Included within cash and cash equivalents
at 31 December 2012 is US$25,452,000 (2011: US$nil), which is not readily available for use in subsidiaries outside of Argentina.
24 Trade and other payables
Trade payables1
Salaries and wages payable2
Dividends payable
Taxes and contributions
Accrued expenses
Guarantee deposits
Mining royalty (note 35)
Deferred income3
Amount payable to non-controlling interest4
Accounts payable to related parties (note 30)
Other
Total
As at 31 December
Non-
current
US$000
–
–
–
–
–
–
–
–
–
–
–
–
2012
Current
US$000
76,012
31,935
2,242
9,077
383
6,325
1,630
4,000
13,787
–
4,194
149,585
Non-
current
US$000
–
–
–
–
8
–
–
–
–
–
–
8
2011
Current
US$000
57,720
24,748
9,797
6,302
7,004
4,197
1,205
–
–
32
6,032
117,037
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.
2 Salaries and wages payable were as follows:
Remuneration payable
Board members’ remuneration
Executive Long Term Incentive Plan
Total
2012
US$000
26,404
581
4,950
31,935
2011
US$000
21,039
652
3,057
24,748
3 The deferred income represents an advance receipt in respect of an option granted to a third party to acquire the Group´s San Felipe project in Mexico.
4 Amount payable to complete the purchase of Andina Minerals Inc non-controlling shareholders’ interests (note 4(a)).
www.hochschildmining.com 141
25 Borrowings
Secured bank loans (a)
•(cid:3) Pre-shipment loans in Minera Santa Cruz
(note 21)
•(cid:3) Leasing agreement with Banco de Credito
del Peru
•(cid:3) Leasing agreement with Banco
Interamericano de Finanzas
Convertible bond payable (b)
Total
As at 31 December
2012
Effective
interest rate
Non-
current
US$000
Current
US$000
Effective
interest rate
Non-
current
US$000
2011
Current
US$000
–
3.5%
6%
5.75%
–
–
– 1.3% to 6.0%
3.25% to
3.5%
336
–
38,500
336
760
–
106,850
106,850
24
6,613
6,973
5% to 6%
5.75%
24
104,506
104,866
461
6,613
46,334
(a) The following table demonstrates the present value and maturity of future minimum lease payments as at 31 December 2012
and 2011:
Not later than one year
Between 1 and 2 years
Between 2 and 5 years
Total
As at 31 December
2012
US$000
360
–
–
360
2011
US$000
1,221
360
–
1,581
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142 Hochschild Mining plc Annual Report 2012
Financial statements
Notes to the consolidated financial statements continued
25 Borrowings (continued)
The following table reconciles the total minimum lease payments and their present values as at 31 December 2012 and 2011:
Present value of leases
Future interest
Total minimum lease payments
The carrying amount of net lease liabilities approximate their fair value.
(b) Convertible bond payable
As at 31 December
2012
US$000
360
4
364
2011
US$000
1,581
40
1,621
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 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 Price (before adjustment for the recommended 2012 final dividend): GBP 3.90;
•(cid:3) Fixed Exchange Rate: US$1.59/GBP 1.00.
The balance as at 31 December 2012 is comprised of the principal of US$115,000,000 (2011: US$115,000.000) plus accrued
interest of US$9,636,000 (2011: US$7,292,000), net of transaction costs of US$2,741,000 (2011: US$2,741,000) and the bond equity
component of US$8,432,000 (2011: 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
2012
US$000
106,850
–
–
2011
US$000
1,039
103,827
–
106,850
104,866
The carrying amount of current borrowings approximates their fair value. The carrying amount and fair value of the non-current
borrowings are as follows:
Secured bank loans
Convertible bond payable
Total
Carrying amount
as at 31 December
Fair value
as at 31 December
2012
US$000
2011
US$000
2012
US$000
2011
US$000
–
106,850
106,850
360
–
104,506 112,867
375
116,413
104,866 112,867
116,788
www.hochschildmining.com 143
26 Provisions
At 1 January 2011
Additions
Accretion
Change in discount rate
Change in estimate5
Payments
Foreign exchange
At 31 December 2011
Less current portion
Non-current portion
At 1 January 2012
Additions
Accretion
Change in discount rate
Change in estimate5
Payments
Amounts transferred to payables
Foreign exchange
At 31 December 2012
Less current portion
Non-current portion
Provision
for mine
closure1
US$000
62,026
782
533
3,541
10,856
(4,113)
–
73,625
(9,791)
63,834
73,625
–
123
769
3,362
(3,667)
–
2
74,214
Workers’
profit
sharing2
US$000
21,307
31,444
–
–
–
(23,398)
478
29,831
(29,831)
–
29,831
18,487
–
–
–
(30,893)
–
1,124
18,549
(4,105)
(18,549)
70,109
–
Contributions
to Peruvian
Government
US$000
Long Term
Incentive
Plan3
US$000
Contingent
consideration4
US$000°
1,820
38
–
–
–
(1,776)
(82)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,061
2,594
–
–
–
–
–
3,655
–
3,655
3,655
7,322
–
–
–
–
(4,950)
–
6,027
(1,211)
4,816
39,243
–
204
313
7
(7,389)
–
32,378
(32,378)
–
32,378
–
–
–
–
(32,222)
–
(156)
–
–
–
Other
US$000
2,857
1,000
–
–
–
(484)
–
3,373
(2,432)
941
3,373
1,041
–
–
–
–
–
34
4,448
(2,823)
1,625
Total
US$000
128,314
35,858
737
3,854
10,863
(37,160)
396
142,862
(74,432)
68,430
142,862
26,850
123
769
3,362
(66,782)
(4,950)
1,004
103,238
(26,688)
76,550
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 adjusted
for the impact of quantitative easing as at 31 December 2012 and 2011 respectively, and the cash flows have been adjusted to reflect the risk attached to these cash
flows. Uncertainties on the timing for use of this provision include changes in the future that could impact the time of closing the mines, as new resources and reserves
are discovered.
2 Corresponds to the legal and voluntary workers’ profit sharing of the Group. Legal workers’ profit sharing represents 8% of taxable income of Peruvian companies.
Voluntary workers’ profit sharing is determined by the Group taking into account the market conditions of employment. The balance of the provision as at 31 December
2012 is: (i) Legal US$5,788,000 (2011: US$21,584,000), (ii) Voluntary US$12,761,000 (2011: US$8,247,000).
3 Corresponds to the provision related to awards granted under the Long Term Incentive Plan to designated personnel of the Group. Includes the following benefits: (i)
2012 awards, granted in March 2012, payable in March 2015, (ii) 2011 awards, granted in April 2011, payable in April 2014, and (iii) Exploration incentive plan awards, in
respect of Brownfield projects, granted in January 2011, payable 50% in March 2013 and 50% in March 2014. Only employees who remain in the Group’s employment
on the vesting date will be entitled to a cash payment, 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 2012 there is a provision of US$7,322,000 (2011: US$2,594,000) that is disclosed under
administrative expenses US$5,420,000 (2011: US$1,467,000), exploration expenses US$843,000 (2011: US$146,000) and capitalised as evaluation and exploration
expenses US$1,059,000 (2011: US$981,000). The amount of US$4,950,000 corresponds to the 2010 award and was transferred to salary and wages payable as the
performance period ended at 31 December 2012 (note 24(2)).
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 mining operations within the Inmaculada property. The amount of US$32,222,000 was settled as a capital contribution from non-
controlling interest (refer to consolidated statement of changes in equity).
5 Based on the 2012 internal review of mine rehabilitation budgets, an increase of US$3,362,000 was recognised. During 2011 the Group conducted an external review of
the provision for mine closure costs for all its mining units. Consequently, at 31 December 2011 an increase of US$10,856,000 in this provision was recognised.
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144 Hochschild Mining plc Annual Report 2012
Financial statements
Notes to the consolidated financial statements continued
27 Equity
(a) Share capital and share premium
Issued share capital
The issued share capital of the Company as at 31 December 2012 and 2011 is as follows:
Class of shares
Ordinary shares
Issued
Number
Amount
338,085,226 £84,521,307
At 31 December 2012 and 2011, all issued shares with a par value of 25 pence each were fully paid (2012: weighted average of
US$0.469 per share, 2011: weighted average of US$0.469 per share).
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.
(b) Treasury shares
Treasury shares represent the cost of Hochschild Mining plc shares purchased in the market and held by the trustee of the
Hochschild Mining Employee Share Trust to satisfy the award of conditional shares under the Group’s Enhanced Long Term
Incentive Plan granted to the CEO (note 2(p)). During 2011, the Group purchased 126,769 shares for the purposes of the plan,
for a total consideration of £561,477.91 (equivalent to $898,000). No shares were purchased by the Group in 2012.
(c) 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(b)). 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.
Share-based payment reserve
Is used to recognise the value of equity-settled share-based payment transactions provided to employees, as a part of
their remuneration.
28 Deferred income tax
The changes in the net deferred income tax assets/(liabilities) are as follows:
Beginning of the year
Income statement charge
Deferred income tax arising on net unrealised gains on available-for-sale financial assets recognised
in equity
Foreign exchange effect
End of the year
www.hochschildmining.com 145
As at 31 December
2012
US$000
(68,152)
(27,462)
615
140
(94,859)
2011
US$000
(23,305)
(51,902)
7,164
(109)
(68,152)
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:
Deferred income tax liabilities
At 1 January 2011
Income statement charge/(credit)
Net deferred income tax from unrealised gain
on available-for-sale financial assets
Foreign exchange
At 31 December 2011
Income statement (credit)/charge
Net deferred income tax from unrealised loss
on available-for-sale financial assets
Foreign exchange
Differences
in cost
of PP&E
US$000
Mine
development
US$000
Financial
instruments
US$000
15,554
16,433
–
–
31,987
(105)
34,952
38,289
–
109
73,350
35,210
11,615
(6,560)
(5,055)
–
–
2,724
Others
US$000
Total
US$000
905
280
–
–
1,185
(751)
63,026
48,442
(5,055)
109
106,522
37,078
–
–
–
(140)
(615)
–
–
–
(615)
(140)
At 31 December 2012
31,882
108,420
2,109
434
142,845
Deferred income tax assets
At 1 January 2011
Income statement credit/(charge)
Net deferred income tax from
unrealised loss on available-for-sale
financial assets
At 31 December 2011
Income statement credit
At 31 December 2012
Differences
in cost
of PP&E
US$000
Provision
for mine
closure
US$000
11,680
5,653
6,454
3,647
–
17,333
6,082
23,415
–
10,101
1,079
11,180
Tax
losses
US$000
6,616
(5,973)
–
643
92
735
Interest
payable
US$000
Financial
instruments
US$000
Others
US$000
Total
US$000
5,142
(5,142)
–
–
9,829
(1,645)
39,721
(3,460)
–
–
–
–
2,109
2,109
1,039
3,148
–
8,184
1,324
9,508
2,109
38,370
9,616
47,986
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146 Hochschild Mining plc Annual Report 2012
Financial statements
Notes to the consolidated financial statements continued
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
2012
US$000
856
(95,715)
2011
US$000
–
(68,152)
As at 31 December
2012
US$000
2011
US$000
–
–
–
–
1,855
1,855
1,486
3,428
4,632
6,384
92,010
2,449
2,449
1,033
1,993
3,706
4,260
106,075
117,067
107,940
119,516
109,795
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 comprise (gross amounts):
Provision for mine closure1
Impairments of assets2
As at 31 December
2012
US$000
36,090
14,702
2011
US$000
38,822
14,702
1 This relates to provision for mine closure expenditure which is expected to be incurred in periods in which taxable profits are not expected against which the expenditure
can be offset.
2 Corresponds to the impairment of the San Felipe project recognised in 2010.
Unrecognised deferred tax liability on retained earnings
At 31 December 2012, there was no recognised deferred tax liability (2011: 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.
29 Dividends paid and proposed
Declared and paid during the year
Equity dividends on ordinary shares:
Final dividend for 2011: US$0.03 (2010: US$0.03)
Interim dividend for 2012: US$0.03 (2011: US$0.03)
Dividends declared to non-controlling interests: US$0.18 and US$0.08 (2011: US$0.55)
Dividends declared and paid
Dividends declared to non-controlling interests: US$0.08 (2011: US$0.06)
Dividends declared and not paid
Total dividends declared
Proposed for approval by shareholders at the AGM
Final dividend for 2012: US$0.03 (2011: US$0.03)
www.hochschildmining.com 147
2012
US$000
2011
US$000
10,139
10,139
32,690
52,968
2,187
2,187
10,143
10,143
53,999
74,285
9,499
9,499
55,155
83,784
10,139
10,139
Dividends per share
The dividends declared in August 2012 were US$10,138,718 (US$0.03 per share). A dividend in respect of the year ending
31 December 2012 of US$0.03 per share, amounting to a total dividend of US$10,138,754 is to be proposed at the Annual General
Meeting on 30 May 2013. 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 2012 and 2011. The
related parties are companies owned or controlled by the main shareholder of the parent company, joint ventures or associates.
Current related party balances
Cementos Pacasmayo S.A.A.
Gold Resource Corp (note 18)
Total
Accounts receivable
as at 31 December
Accounts payable
as at 31 December
2012
US$000
2011
US$000
2012
US$000
2011
US$000
139
878
1,017
222
710
932
–
–
–
32
–
32
As at 31 December 2012 and 2011, 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
Dividend recognised for Gold Resource Corp. investment (note 18)
Revenue recognised for services provided to Gold Resource Corp
Expenses
Expense recognised for the rental paid to Cementos Pacasmayo S.A.A.
Transactions between the Group and these companies are on an arm’s length basis.
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3
Year ended
2012
US$000
2011
US$000
10,093
–
7,313
35
(164)
(170)
148 Hochschild Mining plc Annual Report 2012
Financial statements
Notes to the consolidated financial statements continued
30 Related-party balances and transactions (continued)
(b) Compensation of key management personnel of the Group
Compensation of key management personnel (including Directors)
Short-term employee benefits
Termination benefits
Long Term Incentive Plan
Workers’ profit sharing
Others
Total compensation paid to key management personnel
As at 31 December
2012
US$000
6,742
–
2,789
44
556
10,131
2011
US$000
6,504
–
1,200
184
950
8,838
This amount includes the remuneration paid to the Directors of the parent company of the Group of US$5,467,700 (2011:
US$4,816,370), out of which US$199,606 (2011: US$199,660) relates to pension payments.
31 Auditor’s remuneration
The auditor’s remuneration for services provided to the Group during the years ended 31 December 2012 and 2011 is
as follows:
Audit fees pursuant to legislation1
Audit-related assurance services
Taxation compliance services
Taxation advisory services
Services relating to corporate finance transactions
Total
Amounts paid
to Ernst & Young
in the year ended
31 December
Amounts paid
to others
in the year ended
31 December
2012
US$000
2011
US$000
2012
US$000
2011
US$000
1,372
160
44
118
–
1,694
1,292
156
53
141
110
1,752
20
–
–
–
20
1
–
–
–
1
1 The total audit fee in respect of local statutory audits of subsidiaries is US$909,000 (2011: US$844,000).
In 2012 and 2011, all fees are included in administrative expenses, with the exception of 2011 fees related to the sale of shares in
Lake Shore Gold which were deducted from the gain on the sale of Lake Shore Gold shares and not disclosed within administrative
expenses (note 4(b)).
www.hochschildmining.com 149
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 (note 3(a))
Amortisation of intangibles
Impairment and write-off of assets (net)
Gain on sale of available-for-sale financial assets
Provision for obsolescence of supplies
Share of post-tax gains of associates and joint ventures accounted under equity method
Provision for mine closure
Finance income
Finance costs
Income tax expense
Other
Increase/(decrease) of cash flows from operations due to changes in assets and liabilities
Trade and other receivables
Income tax receivable
Other financial assets and liabilities
Inventories
Trade and other payables
Provisions
As at 31 December
2012
US$000
2011
US$000
126,866
272,338
125,143
1,529
491
–
3,608
(5,080)
(4,171)
(1,988)
14,204
85,408
1,786
3,869
–
(6,239)
(26,989)
29,540
(3,858)
106,246
1,554
31
(5,989)
1,270
(11,446)
8,728
(4,689)
23,442
148,557
(2)
(30,522)
2,717
27,125
828
(22,919)
2,993
Cash generated from operations
344,119
520,262
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:
Offset of income tax payable with value added tax receivable
As at 31 December
2012
US$000
–
2011
US$000
43,413
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150 Hochschild Mining plc Annual Report 2012
Financial statements
Notes to the consolidated financial statements continued
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
2012
US$000
3,363
32,188
2011
US$000
4,064
19,200
(i) Teck Peru S.A. (Huachoja Project)
On 9 August 2011 the Group entered into an option agreement with Teck Peru S.A. (‘Teck’) to explore and develop minerals in the
Huachoja property located in Peru.
Under the agreement, the Group will have the right to acquire a 60% interest in the property by investing US$4,000,000 and by
drilling 4,000 metres at the property before 31 August 2015. The Group had a binding commitment for the first US$500,000 (the
‘Committed Expenditures’) and for the first 1,500 metres of drilling (the ‘Committed Drilling’) before 31 August 2012. As at 31
December 2012 the Group has funded US$1,591,000.
(ii) Minera Coriwasi S.A. (Incognitas Project)
On 27 June 2011 the Group entered into an exploration and option agreement with Minera Coriwasi S.A. (‘Minera Coriwasi’) to
explore and develop minerals in the Incognitas properties located in Peru. Upon signing of the agreement the Group paid
US$70,000 to Minera Coriwasi.
Under the agreement, the Group will have the right to acquire a 100% interest in the property by making payments of US$940,000
and by committing to spend US$1,300,000 on exploration within four years. The Group can withdraw from the agreement at any
time without incurring any further expenditures or penalties. As at 31 December 2012 the Group has funded US$522,000.
(iii) 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 the right to purchase 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 expenditure necessary to vest the option. At 31 December 2012 the Group had invested US$968,000 in
the project.
(iv) Compañía Minera Terciario S.A. de C.V. & Minera Fumarola S.A. de C.V. (Baborigame)
On 6 August 2012, the Group entered into a purchase option agreement with Compañía Minera Terciara S.A. de C.V. and Minera
Fumarola S.A. de C.V. to earn the right to purchase 100% of the properties in the ‘Baborigame Project Area’, located in Chihuaha,
Mexico. Upon the signing of the purchase option agreement the Group paid US$100,000 to Compañía Minera Terciara S.A. de C.V.
and Minera Fumarola S.A. de C.V.
In order to exercise the option, the Group is required to make a total payment of US$1,900,000 and incur exploration expenditure of
US$3,700,000 within five years by 5 August 2015. The Group is entitled to withdraw from the agreement at any time prior to
incurring the exploration expenditure necessary to vest the option. At 31 December 2012 the Group had invested US$198,000.
www.hochschildmining.com 151
33 Commitments (continued)
(v) Jorge Demetrio Tafich Canavati (El Tanque)
On 2 February 2012, the Group entered into an exploration and purchase option agreement with Jorge Demetrio Tafich Canavati to
explore and develop minerals in ‘El Ramón’, ‘Cobriza del Ojo de Agua’ and ‘Nuevo Monterrey’ properties located in Zacatecas, Mexico.
Upon signing the purchase option agreement the Group paid US$100,000 to Jorge Demetrio Tafich Canavati.
In order to exercise the option, the Group is required to make a total payment of US$350,000 and incur exploration expenditure of
US$1,000,000 within four years by 31 December 2015. The Group is entitled to withdraw from the agreement at any time prior to
incurring the exploration expenditure necessary to vest the option. At 31 December 2012 the Group had invested US$697,000.
(vi) Ing. Miguel Jaime Orozco Fararoni (Elefante)
On 13 June 2012, the Group entered into an exploration and purchase option agreement with Miguel Jaime Orozco Fararoni to
explore and develop minerals in ‘MJSA 1’ properties located in Veracruz, Mexico. Upon signing the purchase option agreement the
Group paid US$10,000 to Miguel Jaime Orozco Fararoni.
In order to exercise the option, the Group is required to make a total payment of US$900,000 and incur exploration expenditure of
US$560,000 within five years by 13 June 2017. The Group is entitled to withdraw from the agreement at any time prior to incurring
the exploration expenditure necessary to vest the option. At 31 December 2012 the Group had invested US$10,000.
(vii) William Vicente Mendoza Cerna & Cesar Augusto Zafra (Julieta Oeste)
On 28 May 2012, the Group entered into an exploration and purchase option agreement with Willian Vicente Mendoza Cerna to earn
the right to purchase 100% of the properties in the ‘Apostol Santiago CCZ 3’ area, located in La Libertad.
In order to exercise the option, the Group is required to make a total payment of US$770,000 and incur exploration expenditure of
US$1,000,000 within three years by 15 June 2015. The Group is entitled to withdraw from the agreement at any time prior to
incurring the exploration expenditure necessary to vest the option. At 31 December 2012 the Group had invested US$70,000.
(viii) Sociedad Hormazabal y Masso Limitada (La Falda)
On 21 December 2011, the Group entered into a purchase option agreement with Sociedad Hormazabal y Masso Ltda. to earn the
right to purchase 100% of the properties and explore and develop minerals in the ‘La Falda Project’ located in Chile. Upon signing
the purchase option agreement the Group paid US$100,000 to Sociedad Hormazabal y Masso Ltda.
In order to exercise the option, the Group is required to make a total payment of US$10,300,000 and incur exploration expenditure
of US$6,600,000 within five years by 20 December 2016. The Group is entitled to withdraw from the agreement at any time prior to
incurring the exploration expenditure necessary to vest the option. At 31 December 2012 the Group had invested US$2,096,000.
(ix) Minera Caracal Gold Chile Ltda. (Potrero)
On 1 March 2012, the Group entered into an exploration and option to enter a joint venture agreement with Minera Caracal Gold
Chile Ltda. to earn the right to purchase 70% of the properties in the ‘Potrero’ area, located in Chile.
In order to exercise the option, the Group is required to make a total payment of US$2,800,000. The Group is entitled to withdraw
from the agreement at any time prior to incurring the exploration expenditure necessary to vest the option. At 31 December 2012
the Group had invested US$417,000.
(b) Operating lease commitments
The Group has a number of operating lease agreements, as lessee.
The lease expenditure charged to the income statement during the years 2012 and 2011 are included in production costs (2012:
US$9,688,000, 2011: US$6,699,000), administrative expenses (2012: US$1,510,000, 2011: US$1,088,000) and selling expenses
(2012: US$115,000, 2011:US$115,000).
As at 31 December 2012 and 2011, the future aggregate minimum lease payments under the operating lease agreements are
as follows:
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3
Not later than one year
Later than one year and not later than five years
For the year ended
31 December
2012
US$000
7,630
2,224
2011
US$000
1,306
520
152 Hochschild Mining plc Annual Report 2012
Financial statements
Notes to the consolidated financial statements continued
33 Commitments (continued)
(c) Capital commitments
Peru
Mexico
Argentina
For the year ended
31 December
2012
US$000
22,805
5,665
11,907
40,377
2010
US$000
39,472
51
3,472
42,995
34 Contingencies
As at 31 December 2012, 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. As at 31 December 2012, the
Group had exposures totalling US$42,245,000 (2011: US$29,243,000) which are assessed as ‘possible’, rather than ‘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 in which 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.
35 Mining royalties
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 have been calculated with rates ranging from 1% to 3% of the value of mineral
concentrate or equivalent, based on quoted market prices.
In October 2011 changes came into effect for mining companies, with the following features:
a) Introduction of a Special Mining Tax (‘SMT’), levied on mining companies at the stage of exploiting mineral resources. The new tax
is calculated by applying a progressive scale of rates ranging from 2% to 8.4%, of the quarterly operating profit. This new tax is in
addition to existing mining royalties.
b) Modification of the mining royalty calculation, which consists of applying a progressive scale of rates ranging from 1% to 12%, of
the quarterly operating profit. The former royalty was calculated on the basis of monthly sales value of mineral concentrates.
The SMT and modified mining royalty are accounted for as an income tax in accordance with IAS 12.
c) For companies that have mining projects benefiting from tax stability regimes, mining royalties are calculated and recorded as
they were previously, applying an additional new special charge on mining that is calculated using progressive scale rates, ranging
from 4% to 13.12% of quarterly operating profit. This was the case for the Arcata mine unit.
www.hochschildmining.com 153
35 Mining royalties (continued)
As at 31 December 2012, the amount payable as under the former mining royalty (for the Arcata mining unit), the new mining
royalty (for the Ares and Pallancata mining units), and the SMT amounted to US$835,000 (2011: US$709,000), US$1,089,000 (2011:
US$1,261,000), and US$1,051,000 (2011: US$1,394,000) respectively. The former mining royalty is recorded as ‘Trade and other
payables’, and the new mining royalty and SMT as ‘Income tax payable’ in the Statement of Financial Position. The amount recorded
in the income statement was US$3,224,000 comprising the former mining royalty, disclosed as cost of sales (2011: US$11,921,000),
and US$3,834,000 (2011: US$2,536,000) of new mining royalty and US$4,256,000 (2011: US$3,002,000) of SMT, both disclosed as
income tax.
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 Jose, the mining royalty was originally fixed at 1.85% of the pit-head value of the production
where the final product is dore and 2.55% where the final product is mineral concentrate or precipitates. In October 2012 a new
provincial law was passed, which increased the mining royalty applicable to dore and concentrate to 3% of the pit-head value. As of
November 2012 Minera Santa Cruz S.A. is paying the increased 3% royalty although it has filed an administrative claim against the
new law. As at 31 December 2012, the amount payable as mining royalties amounted to US$795,000. The amount recorded in the
income statement as cost of sales was US$6,448,000.
36 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, and the head of the internal audit function. The Risk Committee is
responsible for implementing the Group’s policy on risk management and internal control in support of the Company’s business
objectives, and monitoring the effectiveness of risk management within the organisation.
(a) 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; therefore, the Group’s profitability is ensured through the control of its cost base and the efficiency of its operations.
The Group is committed to remain hedge free. However, management continuously monitors silver and gold prices and reserves
the right to take the necessary action, where appropriate and within Board approved parameters, to mitigate the impact of this risk.
The Group has embedded derivatives arising from the sale of concentrate and dore which were provisionally priced at the time the
sale was recorded (refer to notes 5 and 22(1)). For these derivatives, 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
2012
2011
Increase/
decrease price of
ounces of:
Effect on
profit before tax
US$000
Gold +/-10%
Silver +/- 10%
Gold +/–10%
Silver+/–10%
+/-48
+/-354
+/–523
+/–716
(b) Foreign currency risk
The Group produces silver and gold which are typically priced in US dollars. A proportion of the Group’s costs are incurred in
pounds sterling, Peruvian nuevos soles, Canadian dollars, Argentinian pesos and Mexican pesos. Accordingly, the Group’s financial
results may be affected by exchange rate fluctuations between the US dollar and the local currency. The long-term relationship
between commodity prices and currencies in the countries in which the Group operates provides a certain degree of natural
protection. The Group does not use derivative instruments to manage its foreign currency risks.
The following table demonstrates the sensitivity of financial assets and liabilities, at the reporting date, denominated in their
respective currencies, to a reasonably possible change in the US dollar exchange rate, with all other variables held constant,
of the Group’s profit before tax and the Group’s equity.
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Financial statements
Notes to the consolidated financial statements continued
36 Financial risk management (continued)
Year
2012
Pounds sterling
Argentinian pesos
Mexican pesos
Peruvian nuevos soles
Canadian dollars
Chilean pesos
2011
Pounds sterling
Argentinian pesos
Mexican pesos
Peruvian nuevos soles
Canadian dollars
Increase/
decrease in
US$/other
currencies’
rate
Effect
on profit
before tax
US$000
Effect
on equity
US$000
+/–78
+/–10%
–/+36
–
+/–10% –/+2,622
–
+/–10%
+/–358
+/–10% +/–4,107
–
+/–10% +/–1,006 +/–2,942
–
+/–677
+/–10%
+/–10%
+/–1
+/–10% –/+1,049
+/–110
+/–10%
+/–10% –/+4,414
+/–10%
+/–172
–
–
–
+/–22 +/–3,882
(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 trade receivables, embedded derivatives and cash balances
in banks as at 31 December 2012 and 31 December 2011:
Summary commercial partners – Trade receivables
LS Nikko
Teck Metals Ltd (formerly Teck Cominco Metals Ltd.)
Consorcio Minero S.A.
Argor Heraus S.A.
Aurubis AG (formerly Nordeutsche Affinerie AG)
Standard Bank
Doe Run Peru S.R.L.
MRI Trading AG
Korea Zinc Co., Ltd
Johnson Matthey Inc.
Others
As at
31 December
2012
US$000
Credit
rating or %
collected as at
11 March
2013
As at
31 December
2011
US$000
Credit
rating or %
collected as at
16 March
2012
32,001
16,186
14,261
12,975
7,077
4,591
1,108
78
–
–
158
88,435
A1
BBB
85%
100%
71%
100%
0%
100%
–
–
–
36,972
22,025
1,475
6,672
18,848
4,713
1,108
4,135
19,091
318
22
115,379
A1
BBB
80%
97%
90%
100%
0%
98%
AA
100%
0%
www.hochschildmining.com 155
As at
31 December
2012
US$000
Credit
rating or %
collected as at
11 March
2013
As at
31 December
2011
US$000
Credit
rating or %
collected as at
16 March
2012
(2,963)
(1,844)
(1,279)
(706)
(99)
–
–
(6,891)
As at
31 December
2012
US$000
89,094
64,690
49,967
43,716
49,502
40,552
3,046
1,940
–
–
16,437
358,944
A1
BBB
85%
100%
71%
–
–
Credit
rating1
BBB
BBB
–
A
A-
A+
LTLC
BBB
–
–
NA
(5,097)
(3,129)
(461)
(200)
(1,437)
(2,447)
(61)
(12,832)
As at
31 December
2011
US$000
3,101
8,669
199,924
141,398
32,080
186,883
–
1,298
40,000
300
13,828
627,481
A1
BBB
80%
97%
90%
AA
98%
Credit
rating1
AA- S&P
A-3 S&P
–
A-1 S&P
A S&P
A+ S&P
–
BBB-
A-1 S&P
BBB S&P
NA
36 Financial risk management (continued)
Summary commercial partners – Embedded derivatives
LS Nikko
Teck Metals Ltd (formerly Teck Cominco Metals Ltd.)
Consorcio Minero S.A.
Argor Heraus S.A.
Aurubis AG (formerly Nordeutsche Affinerie AG)
Korea Zinc Co., Ltd
MRI Trading AG
Financial counterparties
Banco Bilbao Vizcaya Argentaria
Banco de Crédito del Peru
US Treasury bonds
JP Morgan
Citibank
HSBC
Royal Bank of Canada
Banorte
Deutsche Bank
Interbank
Others (including cash in hand)
Total
1 The long-term credit rating.
To manage the credit risk associated with commercial activities, the Group took the following steps:
•(cid:3) Active use of prepayment/advance clauses in sales contracts.
•(cid:3) Delaying delivery of title and/or requiring advance payments to reduce exposure timeframe (potential delay in sales recognition).
•(cid:3) Obtaining parent guarantees or contracting directly with parent company to shore up the credit profile of the customer
(where possible).
•(cid:3) Maintaining as diversified a portfolio of clients as possible.
To manage credit risk associated with cash balances deposited in banks, the Group took the following steps:
•(cid:3) Increasing banking relationships with large, established and well-capitalised institutions in order to secure access to credit
and to diversify credit risk.
•(cid:3) Limiting exposure to financial counterparties according to Board approved limits.
•(cid:3) Investing cash in short-term, highly liquid and low risk instruments (money market accounts, term deposits, US Treasuries).
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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Financial statements
Notes to the consolidated financial statements continued
36 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
2012
2011
Increase/
decrease in
prices
+25%
–25%
+25%
–25%
Effect on
profit before
tax
US$000
–
–9,285
–
–604
Effect
on equity
US$000
+7,652
–3,757
+10,192
–9,867
(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 2012 and 2011, the Group held the following financial instruments measured at fair value:
Assets measured at fair value
Equity shares (note 19)
Warrants
Bonds
Liabilities measured at fair value
Embedded derivatives (note 22(1))
Assets measured at fair value
Equity shares (note 19)
Warrants
Liabilities measured at fair value
Embedded derivatives (note 22(1))
31 December
2012
US$000
30,609
1
149
Level 1
US$000
18,600
–
–
Level 2
US$000
–
1
149
Level 3
US$000
12,009
–
–
(6,891)
–
–
(6,891)
31 December
2011
US$000
40,769
28
Level 1
US$000
28,928
–
Level 2
US$000
–
28
Level 3
US$000
11,841
–
12,831
–
–
12,831
During the period ending 31 December 2012 and 2011, there were no transfers between these levels.
The reconciliation of the financial instruments categorised as level 3 is as follows:
Embedded
derivatives
assets
US$000
Embedded
derivatives
liabilities
US$000
Balance at 1 January 2011
Loss from the period recognised in revenue (note 22(1))
Fair value change through equity
Balance at 31 December 2011
Gain from the period recognised in revenue (note 22(1))
Fair value change through equity
Balance at 31 December 2012
16,512
(16,512)
–
–
–
–
–
–
(12,831)
–
(12,831)
5,940
–
Equity
shares
US$000
13,581
–
(1,740)
11,841
–
168
(6,891)
12,009
www.hochschildmining.com 157
36 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 2012 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 2012
Trade and other payables
Embedded derivative liability
Borrowings
Provisions
Total
At 31 December 2011
Trade and other payables
Embedded derivative liability
Borrowings
Provisions
Total
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
Less than
1 year
US$000
130,183
6,891
6,978
1,211
–
–
112,129
3,353
–
–
–
1,552
1,552
145,263
115,482
106,538
12,831
46,660
32,378
198,407
8
–
6,977
2,726
9,711
–
–
112,129
997
113,126
–
–
–
–
–
–
–
–
–
–
130,183
6,891
119,107
6,116
262,297
106,546
12,831
165,766
36,101
321,244
(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. All currently existing financial obligations
are at fixed rates.
Fixed rate
Cash at bank (note 23)
Time deposits (note 23)
Liquidity funds (note 23)
Secured bank loans (note 25)
Convertible bond payable (note 25)
Floating rate
Liquidity funds (note 23)
As at 31 December 2012
Within
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
322
224,165
49,967
(360)
(6,613)
–
–
–
–
(106,850)
22,836
–
–
–
–
–
–
–
–
–
–
–
–
–
322
224,165
49,967
(360)
(113,463)
22,836
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Financial statements
Notes to the consolidated financial statements continued
36 Financial risk management (continued)
Fixed rate
Cash at bank (note 23)
Time deposits (note 23)
Loans to non-controlling interests (note 20)
Liquidity funds (note 23)
Secured bank loans (note 25)
Convertible bond payable (note 25)
Floating rate
Liquidity funds (note 23)
As at 31 December 2011
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
–
–
–
–
(360)
(679)
–
–
–
–
–
(103,827)
–
–
–
–
–
–
349
212,081
1,025
199,924
(40,081)
(111,119)
Within
1 year
US$000
349
212,081
1,025
199,924
(39,721)
(6,613)
170,097
–
–
–
170,097
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 2012 and 2011 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
2012
2011
Increase/
decrease
interest
rate
+/–50bps
+/–50bps
Effect
on profit
before tax
US$000
+/–114
+/–850
(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 (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.
Management also retains the right to fund operations (fully owned and joint ventures) with a mix of equity and joint venture
partners’ debt.
Financial Statements
Parent company statement of financial position
As at 31 December 2012
www.hochschildmining.com 159
ASSETS
Non-current assets
Property, plant and equipment
Investments in subsidiaries
Current assets
Other receivables
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Equity share capital
Share premium
Treasury shares
Other reserves
Retained earnings
Total equity
Non-current liabilities
Borrowings
Provisions
Current liabilities
Trade and other payables
Borrowings
Total liabilities
Total equity and liabilities
As at 31 December
Notes
2012
US$000
2011
US$000
147
4
5 2,319,649
176
2,319,649
2,319,796
2,319,825
6
7
13,995
3,466
17,461
3,903
1,671
5,574
2,337,257
2,325,399
8 158,637
8 416,154
(898)
8
1,324,273
100,819
158,637
416,154
(898)
1,323,982
138,445
1,998,985
2,036,320
10 106,850
219
11
107,069
9 224,590
6,613
10
231,203
338,272
104,506
123
104,629
177,837
6,613
184,450
289,079
2,337,257
2,325,399
The financial statements on pages 159 to 174 were approved by the Board of Directors on 12 March 2013 and signed on its
behalf by:
Ignacio Bustamante
Chief Executive Officer
12 March 2013
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Financial Statements
Parent company statement of cash flows
For the year ended 31 December 2012
Reconciliation of loss for the year to net cash used in operating activities
Loss for the year
Adjustments to reconcile Company operating profit to net cash outflows from
operating activities
Depreciation
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
Net cash used in operating activities
Cash flows from investing activities
Loans to subsidiaries
Net cash (used in)/generated from investing activities
Cash flows from financing activities
Proceed of borrowing
Repayment of borrowings
Dividends paid
Purchase of treasury shares
Cash flows generated from financing activities
Net increase in cash and cash equivalents during the year
Foreign exchange (loss)/gain
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Year ended 31 December
2012
US$000
2011
US$000
Notes
(17,348)
(18,930)
4
13
8
7
29
–
(116)
8,980
349
193
(3,461)
387
(10,987)
9
(6,612)
47
1
(10)
11,917
(197)
(3,314)
815
233
(9,438)
64
(8,869)
(17,590)
(18,243)
(10,178)
(10,178)
2,485
2,485
50,190
–
(20,278)
–
151,545
(114,320)
(20,286)
(898)
29,912
16,041
2,144
(349)
1,671
3,466
283
197
1,191
1,671
Financial Statements
Parent company statement of changes in equity
For the year ended 31 December 2012
www.hochschildmining.com 161
Other reserves
Unrealised
gain/
(loss) on
available-
for-sale
financial
assets and
valuation
of cash
flow
hedges
US$000
Equity
share
capital
US$000
Share
premium
US$000
Treasury
Shares
US$000
Notes
Share-
based
payment
reserve
US$000
Bond equity
component
US$000
Merger
reserve
US$000
Total other
reserves
US$000
Retained
earnings
US$000
Total equity
US$000
158,637 416,154
–
(1,930)
8,432
–
1,315,396
1,321,898 177,661
2,074,350
–
–
–
1,930
Balance at
1 January
2011
Recycling of
the change in
fair value of
cash flow
hedges
Other
comprehensive
income
Loss for the
year
Total
comprehensive
loss for 2011
Treasury
shares
CEO LTIP
Dividends
8
13
Balance at
31 December
2011
Other
comprehensive
income
Loss for the
year
Total
comprehensive
loss for 2012
CEO LTIP
Dividends
13
158,637 416,154
(898)
–
–
–
–
–
–
–
–
–
–
–
–
(898)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at
31 December
2012
158,637 416,154
(898)
–
–
–
–
–
–
–
–
–
–
154
–
–
1,930
1,930
–
–
1,930
1,930
–
–
–
–
–
–
(18,930)
(18,930)
–
(18,930)
(17,000)
–
154
–
–
–
(20,286)
(898)
154
(20,286)
8,432
154
1,315,396
1,323,982 138,445
2,036,320
–
–
–
–
–
–
–
–
291
–
–
–
–
–
–
–
–
–
–
(17,348)
(17,348)
–
291
–
(17,348)
–
(20,278)
(17,348)
291
(20,278)
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445 1,315,396 1,324,273 100,819 1,998,985
1,930
–
1,930
–
–
–
–
–
–
–
–
–
–
162 Hochschild Mining plc Annual Report 2012
Financial Statements
Notes to the parent company financial statements
For the year ended 31 December 2012
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. The financial statements are presented
in US dollars (US$) and all monetary amounts are rounded to the nearest thousand ($000) except when otherwise indicated.
The ability for the Company to continue as a going concern is dependent on Hochschild Mining Holdings Limited providing
additional funding to the extent that the operating inflows of the Company are insufficient to meet future cash requirements.
As Hochschild Mining Holdings Limited has committed to provide this support, is itself a going concern and can provide financial
support if necessary, the Directors have prepared the financial statements for the Company on the going concern basis.
(b) Exemptions
The Company’s financial statements are included in the Hochschild Mining Group consolidated financial statements for the years
ended 31 December 2012 and 31 December 2011. 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:
•(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 Company.
•(cid:3) IFRS 7 ‘Financial Instruments: Disclosures – Enhanced derecognition disclosure requirements’, applicable for annual periods
beginning on or after 1 July 2011
The amendment requires additional disclosure about financial assets that have been transferred but not derecognised to enable
the user of the Group´s financial statements to understand the relationship with those assets that have not been derecognised
and their associated liabilities. In addition, the amendment requires disclosures about the entity´s continuing involvement in
derecognised assets to enable the users to evaluate the nature of, and risks associated with, such involvement. The amendment
affects disclosure only and has no impact on the Company´s financial position or performance.
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 2013 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.
www.hochschildmining.com 163
1 Corporate information (continued)
(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 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.
(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 periods, 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.
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Financial statements
Notes to the parent company financial statement continued
For the year ended 31 December 2012
2 Significant accounting policies (continued)
(h) Dividends receivable
Dividends are recognised when the Company’s right to receive payments is established. Dividends received are recorded in the
income statement.
(i) Other receivables
Current receivables are carried at the original amount less provision made for impairment of these receivables. A provision for
impairment of receivables is established when there is objective evidence that the Company will not be able to collect all amounts
due according to the original terms of the receivable. The amount of the provision is the difference between the original carrying
amount and the recoverable amount and this difference is recognised in the income statement.
(j) 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 in hand and deposits held with banks that are readily convertible into known
amounts of cash within three months or less and which are subject to insignificant risk of changes in value. For the purposes of
the cash flow statement, cash and cash equivalents as defined above are shown net of outstanding bank overdrafts.
(k) Share capital
Ordinary shares issued by the Company are recorded at the net proceeds received, which is the fair value of the consideration
received less costs that are incurred in connection with the share issue. The nominal par value of the shares issued is taken to the
share capital account and any excess is recorded in the share premium account, including the costs that were incurred with the
share issue.
(l) Provisions
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is
probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount
of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future
cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the
risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised
as a finance cost.
(m) Share-based payments
Cash-settled transactions
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.
Equity-settled transactions
The cost of equity-settled transactions is recognised, together with a corresponding increase in other reserves in equity, over the
period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled
transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the
Group´s best estimate of the number of equity instruments that vest.
The income statement expense for a period represents the movement in cumulative expense recognised as at the beginning
and end of that period and is recognised in personnel expenses. During 2011, the Company approved an equity-settled scheme
for its CEO.
www.hochschildmining.com 165
2 Significant accounting policies (continued)
(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.
(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 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:
•(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.
(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.
A detailed description of this policy is included in the Group’s financial statements (note 2(v)).
(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’.
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Financial statements
Notes to the parent company financial statement continued
For the year ended 31 December 2012
2 Significant accounting policies (continued)
The convertible bond is a compound financial instrument that includes a financial liability and an equity instrument.
At initial recognition, the Company determines the fair value of the liability component, and the equity component as a residual
amount that is never remeasured after initial recognition.
Derecognition of the convertible bond issued by the Company will be done when the debt is cancelled.
3 Profit and loss account
The Company made a loss attributable to equity shareholders of US$17,348,000 (2011: loss of US$18,930,000).
4 Property, plant and equipment
Year ended 31 December 2011
Cost
At 1 January 2011 and 31 December 2011
Accumulated depreciation
At 1 January 2011
Depreciation
At 31 December 2011
Net book value at 31 December 2011
Year ended 31 December 2012
Cost
At 1 January 2012 and 31 December 2012
Accumulated depreciation
At 1 January 2012
Depreciation
At 31 December 2012
Net book value at 31 December 2012
5 Investments in subsidiaries
Year ended 31 December 2011
Cost
At 1 January 2011
At 31 December 2011
Accumulated impairment
At 1 January 2011
At 31 December 2011
Net book value at 31 December 2011
Year ended 31 December 2012
Cost
At 1 January 2012
At 31 December 2012
Accumulated impairment
At 1 January 2012
At 31 December 2012
Net book value at 31 December 2012
Office building
US$000
Equipment
US$000
Total
US$000
277
267
544
74
28
102
175
247
19
266
1
321
47
368
176
277
267
544
102
28
130
147
266
1
267
–
368
29
397
147
Total
US$000
2,319,649
2,319,649
–
–
2,319,649
2,319,649
2,319,649
–
–
2,319,649
www.hochschildmining.com 167
5 Investments in subsidiaries (continued)
The breakdown of the investments in subsidiaries is as follows:
Name
Hochschild Mining Holdings Limited
Total
As at 31 December 2012
As at 31 December 2011
Country of
incorporation
Equity
interest %
Carrying
value
US$000
Country of
incorporation
Equity
interest %
Carrying
value
US$000
England &
Wales
100% 2,319,649
2,319,649
England &
Wales
100% 2,319,649
2,319,649
The list of subsidiaries of the Group is presented in note 1 (Corporate information) of the notes to the consolidated financial
statements.
6 Other receivables
Amounts receivable from subsidiaries (note 12)
Prepayments
Receivable from Kaupthing, Singer and Friedlander
Other debtors
Provision for impairment1
Total
Year ended 31 December
2012
US$000
13,792
70
330
133
14,325
(330)
13,995
2011
US$000
3,479
324
421
100
4,324
(421)
3,903
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$330,000 accrued in 2008 and partially recovered in 2012
(2011: US$421,000).
Movements in the provision for impairment of receivables:
At 1 January 2011
Amounts recovered
At 31 December 2011
Amounts recovered
At 31 December 2012
Total
US$000
461
(40)
421
(91)
330
As at 31 December, the ageing analysis of other receivables is as follows:
Year
2012
2011
Past due but not impaired
Neither
past
due nor
impaired
US$000
13,995
3,903
Total
US$000
13,995
3,903
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
–
–
–
–
–
–
–
–
–
–
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Financial statements
Notes to the parent company financial statement continued
For the year ended 31 December 2012
7 Cash and cash equivalents
Bank current account1
Time deposits2
Cash and cash equivalents considered for the cash flow statement
1 Relates to bank accounts which are freely available and bear interest.
2 These deposits have an average maturity of 1 day (2011: 3 days).
8 Equity
(a) Share capital and share premium
Issued share capital
The issued share capital of the Company as at 31 December 2012 and 2011 is as follows:
Class of shares
Ordinary shares
Year ended 31 December
2012
US$000
588
2,878
3,466
2011
US$000
850
821
1,671
Issued
Number
Amount
338,085,226 £84,521,307
At 31 December 2012 and 2011, all issued shares with a par value of 25 pence (2012: weighted average of US$0.469, 2011:
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.
(b) Treasury shares
Treasury shares represent the cost of Hochschild Mining plc shares purchased in the market and held by the trustee of the
Hochschild Mining Employee Share Trust to satisfy the award of conditional shares under the Company’s Enhanced Long Term
Incentive Plan granted to the CEO (note 2(m)). During 2011, the Company purchased 126,769 shares for the purposes of the plan, for
a total consideration of £561,477.91 (equivalent to $898,000). No shares were purchased by the Company in 2012.
(c) 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.
Bond equity component
Represents the equity component of the Convertible bond issued on 20 October 2009. 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.
Share-based payment reserve
Is used to recognise the value of equity-settled share-based payment transactions provided to employees, as a part of their
remuneration.
www.hochschildmining.com 169
As at 31 December
2012
Non-current
US$000
Current
US$000
Non-current
US$000
–
–
–
–
–
–
–
–
1,710
222,216
–
430
–
–
234
224,590
–
–
–
–
–
–
–
–
2011
Current
US$000
28
176,619
102
358
403
138
189
177,837
9 Trade and other payables
Trade payables
Payables to subsidiaries (note 12)
Professional fees
Remuneration payable
Audit fees
Accrued expenses
Taxes and contributions
Total
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.
10 Borrowings
Convertible bond payable
Total
As at 31 December
2012
Non-current
US$000
Current
US$000
Non-current
US$000
106,850
106,850
6,613
104,506
6,613
104,506
2011
Current
US$000
6,613
6,613
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 Price (before adjustment for the recommended 2012 Final Dividend): GBP 3.90
•(cid:3) Fixed Exchange Rate: US$1.59/GBP 1.00
The balance as at 31 December 2012 is comprised of the principal of US$115,000,000 (2011: US$115,000,000) plus accrued interest of $9,636,000 (2011: US$7,292,000),
net of transaction costs of US$2,741,000 (2011: US$2,741,000) and the bond equity component of US$8,432,000 (2011: 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
2012
US$000
106,850
–
106,850
2011
US$000
679
103,827
104,506
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
Convertible bond payable
Total
Carrying amount
As at 31 December
Fair values
As at 31 December
2012
US$000
2011
US$000
2012
US$000
2011
US$000
106,850
106,850
104,506 112,867
104,506 112,867
116,413
116,413
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Financial statements
Notes to the parent company financial statement continued
For the year ended 31 December 2012
11 Provisions
Beginning balance
Increase in provision
At 31 December
Less current portion
Non-current portion
As at 31 December
2012
US$000
2011
US$000
123
96
219
–
219
44
79
123
–
123
1 Corresponds to the provision related to awards granted under the Long Term Incentive Plan to designated personnel of the Company. Includes the following benefits:
(i) Long Term Incentive Plan, granted March 2012, payable March 2015, and (ii) Long Term Incentive Plan, granted April 2011, payable April 2014. Only employees who
remain in the Company’s employment until the vesting date will be entitled to a cash payment, 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.
12 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 2012 and 31
December 2011.
Subsidiaries
Compañía Minera Ares S.A.C.1
0848818 BC (formerly Southwestern Resources)2
Southwestern Gold Bermuda3
1710503 Alberta Ltd4
Andina Minerals Chile Ltd. 5
Hochschild Mining Holdings Ltd.6
Other subsidiaries
Total
As at 31 December 2012
As at 31 December 2011
Accounts
receivable
US$000
Accounts
payable
US$000
Accounts
receivable
US$000
Accounts
payable
US$000
122
–
–
4,632
5,635
3,361
42
1,218
–
600
–
–
220,373
25
117
–
–
–
–
3,338
24
2,631
3,182
600
–
–
170,183
23
13,792
222,216
3,479
176,619
1 Mainly relates to the services performed by Compañía Minera Ares S.A.C. to Hochschild Mining plc during 2012 of US$1,258,000 (2011: US$1,284,000).
2 Mainly relates to the purchase of 38,100,000 shares of Zincore Metals Inc. made on 10 September 2009. The amount outstanding at 31 December 2012 and 2011 was
CAD$Nil and CAD$2,651,544 respectively, equivalent to US$ Nil and US$2,607,263 respectively. In addition, during 2011, 0848818 BC made payments on behalf of
Hochschild Mining plc amounting to US$507,464.
3 Relates to collection of an account receivable by Hochschild Mining plc on behalf of Southwestern Gold Bermuda.
4 Relates to the payments made by Hochschild Mining plc on behalf of 1710503 Alberta Ltd, for the acquisition of Andina Minerals Inc shares (4(a)).
5 Corresponds to a loan to Andina Minerals Chile Ltd, under the agreement regarding the acquisition of Andina Minerals Inc shares.
6 Relates to loans receivable by and payable to Hochschild Mining Holdings Ltd. The loan payable is repayable on demand and is free of interest.
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.
www.hochschildmining.com 171
12 Related-party balances and transactions (continued)
(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$1,811,894
(2011: US$1,567,083), out of which US$39,935 (2011: US$39,900) relates to cash supplements in lieu of pension contributions.
Compensation of key management personnel (including directors)
Short-term employee benefits
Long Term Incentive Plan
Total compensation
13 Dividends paid and proposed
Declared and paid during the year
Equity dividends on ordinary shares:
Final dividend for 2011: US$0.03 (2010: US$0.03)
Interim dividend for 2012: US$0.03 (2011: US$0.03)
Dividends paid
Proposed for approval by shareholders at the AGM
Final dividend for 2012: US$0.03 (2011: US$0.03)
As at 31 December
2012
US$000
1,521
291
1,812
2011
US$000
1,413
154
1,567
2012
US$000
2011
US$000
10,139
10,139
20,278
10,143
10,143
20,286
10,139
10,139
Dividends per share
The dividends declared in August 2012 were US$10,138,718 (US$0.03 per share). A dividend in respect of the year ending 31
December 2012 of US$0.03 per share, amounting to a total dividend of US$10,138,754 is to be proposed at the Annual General
Meeting on 30 May 2013. These financial statements do not reflect this dividend payable.
14 Financial risk management
The Company is exposed to a variety of risks and uncertainties which may have an impact on the achievement of financial and
economic objectives. These risks include strategic, operational and financial risk and are further categorised into risk areas to
facilitate risk assessment.
(a) Foreign currency risk
Due to the operations of the Company, it has cash and cash equivalents and trade payables denominated in pounds sterling and
Canadian dollars. Accordingly, the financial results of the Company may be affected by exchange rate fluctuations. The Company
does not use derivative instruments to manage its foreign currency risks. The following table demonstrates the sensitivity of
financial assets and liabilities, at the reporting date denominated in their respective currencies, to a reasonably possible change in
the US dollar exchange rate, with all other variables held constant, of the Company’s profit before tax and the Company’s equity.
Year
2012
Pound sterling
Canadian dollar
2011
Pound sterling
Increase/
decrease in
US$/other
currencies
rate
Effect
on profit
before tax
US$000
Effect
on equity
US$000
+/–10%
+/–10%
–/+566
+/–951
+/–10%
–/+503
–
–
–
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172 Hochschild Mining plc Annual Report 2012
Financial statements
Notes to the parent company financial statement continued
For the year ended 31 December 2012
14 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 statement of financial position date.
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) increasing banking relationships with large, established and well-capitalised institutions in order to secure access to credit and to
diversify credit risk;
•(cid:3) investing cash (to the extent possible) with counterparties with whom the Company has debt outstanding;
•(cid:3) investing cash in short-term, highly liquid and low risk instruments (money market accounts);
•(cid:3) 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 note 6.
(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 2012 of US$3,466,000 (2011: US$1,671,000)
and US$90,849,000 (2011: US$526,247,000) 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 2012
Trade and other payables
Borrowings
Provisions
At 31 December 2011
Trade and other payables
Borrowings
Provisions
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
224,356
6,613
–
–
112,129
145
–
–
79
177,648
6,613
–
–
6,613
97
–
112,129
29
– 224,356
– 118,742
224
–
–
–
–
177,648
125,355
126
www.hochschildmining.com 173
14 Financial risk management (continued)
(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.
Fixed rate
Bank current account (note 7)
Time deposits (note 7)
Convertible bond payable (note 10)
Fixed rate
Bank current account (note 7)
Time deposits (note 7)
Convertible bond payable (note 10)
As at 31 December 2012
Within
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
588
2,878
(6,613)
–
–
(106,850)
–
–
–
–
–
–
588
2,878
(113,463)
As at 31 December 2011
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
–
–
(679)
–
–
(103,827)
–
–
–
850
821
(111,119)
Within
1 year
US$000
850
821
(6,613)
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 2012 and 2011 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
2012
2011
Increase/
decrease in
interest rate
Effect on
profit before
tax US$000
+/–50bps
+/–50bps
–
–
(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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Further information
Profit by operation1
(Segment report reconciliation) as at 31 December 2012
Company (US$000)
Ares
Arcata
Pallancata
San Jose
Moris
Revenue
Cost of sales (Pre consolidation)
Consolidation adjustment
Cost of sales (Post consolidation)
Production cost
excluding depreciation
Depreciation in production cost
Other items
Change in inventories
Gross profit
Administrative expenses
Exploration expenses
Selling expenses
Other income/expenses
57,580
(48,846)
674
(49,520)
175,802
(91,401)
2,459
(93,860)
257,725
(121,863)
(2,878)
(118,985)
(47,191)
(3,744)
(4,024)
5,439
8,734
–
–
(99)
–
(65,522)
(25,129)
(6,691)
3,482
84,401
–
–
(2,381)
–
(72,101)
(40,298)
(4,686)
(1,900)
135,862
–
–
(3,557)
–
310,384
(149,912)
(186)
(149,726)
(106,621)
(51,978)
–
8,873
160,472
–
–
(33,457)
–
15,931
(8,234)
–
(8,234)
(7,811)
(7)
–
(416)
7,697
–
–
–
–
Consolidation
adjustment
and others
530
(69)
(69)
–
Total/HOC
817,952
(420,325)
–
(420,325)
(2,230)
–
–
2,230
461
(301,476)
(121,156)
(15,401)
17,708
397,627
(72,995)
(64,612)
34
307
(72,995)
(64,612)
(39,460)
307
Operating profit before impairment
8,635
82,020
132,305
127,015
7,697
(136,805)
220,867
Impairment of assets
Investments under equity method
Finance income
Finance costs
FX loss
Profit/(loss) from continuing
operations before income tax
Income tax
Profit/(loss) for the year from
continuing operations
1 On a post exceptional basis.
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(245)
5,080
1,988
(14,204)
(1,212)
(245)
5,080
1,988
(14,204)
(1,212)
8,635
82,020
132,305
127,015
7,697
(145,398)
212,274
(85,408)
(85,408)
8,635
82,020
132,305
127,015
7,697
(230,806)
126,866
Further information
Reserves and resources
www.hochschildmining.com 175
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 176 to 180 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 2012, 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$1,200 per ounce and Ag Price: US$20 per ounce.
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176 Hochschild Mining plc Annual Report 2012
Further information
Reserves and resources continued
Attributable metal reserves as at 31 December 2012
Reserve category
MAIN OPERATIONS¹
Arcata
Proved
Probable
Total
Pallancata
Proved
Probable
Total
San Jose
Proved
Probable
Total
Main operations total
Proved
Probable
Total
OTHER OPERATIONS
Ares
Proved
Probable
Total
ADVANCED PROJECTS
Inmaculada2
Proved
Probable
Total
Group total
Proved
Probable
TOTAL
Proved and
probable
(t)
885,968
1,368,615
2,254,583
1,332,846
631,282
1,964,128
423,482
480,408
903,890
2,642,296
2,480,305
5,122,601
200,844
70,992
271,836
2,304,000
2,376,000
4,680,000
5,147,140
4,927,297
10,074,437
Ag
(g/t)
Au
(g/t)
Ag
(moz)
Au
(koz)
Ag Eq
(moz)
304
294
298
276
269
273
470
471
470
316
322
319
127
175
140
106
134
120
215
229
222
1.0
0.9
0.9
1.3
1.3
1.3
6.7
6.2
6.4
2.1
2.0
2.0
3.1
1.6
2.7
3.4
3.3
3.4
2.7
2.6
2.7
8.7
12.9
21.6
11.8
5.5
17.3
6.4
7.3
13.7
26.9
25.6
52.5
27.5
39.7
67.2
56.3
25.6
81.9
91.6
95.5
187.2
175.5
160.9
336.4
0.8
0.4
1.2
20.0
3.7
23.8
10.3
15.3
25.6
15.2
7.0
22.2
11.9
13.0
24.9
37.4
35.3
72.7
2.0
0.6
2.6
7.9
10.2
18.1
35.6
36.3
71.8
254.8
254.7
509.5
450.3
419.3
869.6
23.2
25.5
48.7
62.6
61.4
124.0
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.
2 Inmaculada reserves as published in the Feasibility Study released on 11 January 2012. Prices used for reserves calculation: Au: $1,100/oz and Ag: $18/oz.
www.hochschildmining.com 177
Attributable metal resources as at 31 December 2012
Tonnes
(t)
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)
Resource category
MAIN
OPERATIONS
Arcata
Measured
Indicated
Total
Inferred
Pallancata
Measured
Indicated
Total
Inferred
San Jose
Measured
Indicated
Total
Inferred
1,299,637
1,658,155
2,957,792
4,239,373
464 1.45
407 1.25
432 1.34
342 1.35
1,984,973
715,484
2,700,457
2,000,762
358 1.69
338 1.58
352 1.66
338 1.41
657,578
1,579,868
2,237,446
1,070,352
559(cid:3) 8.15
453 6.56
484 7.03
476 7.37
Main
operations total
Measured
Indicated
Total
Inferred
3,942,188
3,953,507
7,895,695
7,310,487
426 2.69
413 3.44
420 3.06
360 2.25
OTHER
OPERATIONS
Ares
Measured
Indicated
Total
Inferred
522,495
174,308
696,803
381,185
173 5.85
191 2.92
177 5.12
170 3.93
Other
operations total
Measured
Indicated
Total
Inferred
522,495
174,308
696,803
381,185
173 5.85
191 2.92
177 5.12
170 3.93
ADVANCED
PROJECTS
Inmaculada1
Measured
Indicated
Total
Inferred
1,970,058
2,269,691
4,239,749
2,962,666
128 4.10
159 4.05
144 4.07
152 3.91
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
551
483
513
423
459
433
452
422
1,049
847
906
918
19.4
21.7
41.1
46.6
22.8
7.8
30.6
21.7
11.8
23.0
34.8
16.4
60.7 23.0
66.8 25.8
127.6 48.8
183.8 57.6
107.6 29.3
36.4 10.0
144.0 39.2
90.7 27.2
172.4 22.2
333.3 43.0
505.8 65.2
253.5 31.6
54.0
588
619
52.5
603 106.5
84.7
495
340.7 74.5
436.6 78.7
777.3 153.2
528.0 116.4
524
367
484
405
524
367
484
405
374
402
389
387
2.9
1.1
4.0
2.1
2.9
1.1
4.0
2.1
8.8
98.3
2.1
16.4
114.6 10.8
5.0
48.1
98.3
16.4
8.8
2.1
114.6 10.8
5.0
48.1
8.1
11.6
19.7
14.5
259.7 23.7
295.4 29.3
555.0 53.0
372.0 36.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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178 Hochschild Mining plc Annual Report 2012
Further information
Reserves and resources continued
Attributable metal resources as at 31 December 2012 (continued)
Ag
(g/t)
Tonnes
(t)
Resource category
Au
(g/t)
Pb
(%)
Zn
(%)
Cu
(%)
Ag Eq
(g/t)
Ag
(moz)
Au
(koz)
Ag Eq
(moz)
Zn
(kt)
Pb
(kt)
Cu
(kt)
ADVANCED
PROJECTS
CONTINUED
Crespo2
Measured
Indicated
Total
Inferred
Azuca
Measured
Indicated
Total
Inferred
Volcan3
Measured
Indicated
Total
Inferred
Advanced
Projects total
Measured
Indicated
Total
Inferred
OTHER
PROJECTS
Jasperoide4
Measured
Indicated
Total
Inferred
San Felipe
Measured
Indicated
Total
Inferred
Other
projects total
Measured
Indicated
Total
Inferred
GRAND TOTAL
5,211,058
17,298,228
22,509,286
775,429
47 0.47
38 0.40
40 0.42
46 0.57
190,602
6,858,594
7,049,197
6,946,341
244 0.77
187 0.77
188 0.77
170 0.89
105,918,000
283,763,000
389,681,000
41,553,000
113,289,719
310,189,513
423,479,232
52,237,436
– 0.738
– 0.698
– 0.709
– 0.502
5 0.78
7 0.71
7 0.73
32 0.75
–
–
–
12,187,270
–
–
–
–
–
–
– 0.32
1,393,716
1,354,261
2,747,977
1,257,731
69 0.02 7.12
82 0.06 6.14
76 0.04 6.64
84 0.05 6.18
1,393,716
1,354,261
2,747,977
13,445,001
69 0.02 7.12
82 0.06 6.14
76 0.04 6.64
8 0.30 0.58
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3.10
2.73
2.92
2.26
3.10
2.73
2.92
0.21
0.04
0.01
0.02
0.04
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.32
0.39
0.31
0.35
0.19
0.39
0.31
0.35
1.22
0.00
0.00
0.00
0.22
75
62
65
80
290
233
234
223
44
42
43
30
52
50
50
77
–
–
–
147
315
295
305
283
315
295
305
160
7.9
21.0
28.8
1.1
1.5
41.2
42.7
37.9
78.6
222.5
301.0
14.2
4.7
168.8
173.5
199.5
12.6
34.3
46.9
2.0
1.8
51.3
53.1
49.9
–
–
–
–
2,511.0
6,367.0
8,878.0
671.0
150.7
382.0
532.7
40.3
17.5
73.7
91.2
53.6
2,853.9 188.7
7,053.7 496.9
9,907.6 685.7
1,256.7 129.0
–
–
–
126.8
–
–
–
57.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 161.2
0.9
2.4
3.3
1.9
14.1 99.3 43.1
12.9 83.2 37.0
27.0 182.4 80.1
11.5 77.8 28.5
5.5
4.2
9.7
2.3
0.9
2.4
3.3
128.6
5.5
14.1 99.3 43.1
4.2
12.9 83.2 37.0
27.0 182.4 80.1
9.7
69.0 77.8 28.5 163.6
–
–
–
–
3.1
3.6
6.7
3.4
3.1
3.6
6.7
3.4
Measured
Indicated
Total
Inferred
119,148,118
315,671,590
434,819,708
73,374,109
20 0.86 0.08
13 0.74 0.03
15 0.77 0.04
61 0.83 0.11
3,293.8 286.1 99.3 43.1
75
77.5
58 130.9
7,509.1 590.6 83.2 37.0
63 208.4 10,802.9 876.7 182.4 80.1
135 143.8
5.5
4.2
9.7
1,961.4 319.3 77.8 28.5 (cid:20)(cid:25)(cid:22)(cid:17)(cid:25)
2 Prices used for resources calculation: Au: $1,300/oz and Ag: $23/oz.
3 Resources reported in the NI 43-101 Technical Report published by Andina Minerals, January 2011. Price used for resources calculation: Au: $950/oz.
4 The silver equivalent grade (147 g/t Ag Eq) has being calculated applying the following ratios, Cu/Ag=96.38 and Au/Ag=60
www.hochschildmining.com 179
Change in total reserves and resources
Ag equivalent content (million ounces)
Arcata
Pallancata
San Jose
Main operations total
Ares
Other operations total
Inmaculada
Crespo
Azuca
Volcan
Advanced Projects total
Jasperoide
San Felipe
Other projects total
TOTAL
Category
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
December
2011
Production¹ Movements²
December
2012
Net
difference
% change
112.3
29.3
116.0
41.0
172.1
42.9
400.4
113.2
14.3
2.4
14.3
2.4
149.7
–
58.3
–
103.0
–
–
–
310.9
–
57.6
–
38.5
–
96.0
–
821.7
115.6
–
8.0
–
11.3
–
13.2
–
32.4
–
2.4
–
2.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5.9)
4.3
(5.3)
7.3
17.6
19.1
6.4
30.6
1.5
2.7
1.5
2.7
–
81.1
(9.4)
–
–
–
572.9
–
563.5
81.1
–
–
–
–
–
–
106.4
25.6
110.7
37.0
189.7
48.8
406.8
111.4
15.8
2.6
15.8
2.6
149.7
81.1
48.9
–
103.0
–
572.9
–
874.5
81.1
57.6
–
38.5
–
96.0
–
(5.9)
(3.7)
(5.3)
(4.0)
17.6
5.9
6.4
(1.8)
1.5
0.2
1.5
0.2
–
81.1
(9.4)
–
–
–
572.9
–
563.5
81.1
–
–
–
–
–
–
(5.3)
(12.6)
(4.6)
(9.8)
10.2
13.8
1.6
(1.6)
10.2
10.4
10.2
10.4
–
–
(16.1)
–
–
–
–
–
181.2
–
–
–
–
–
–
–
–
34.9
571.4
114.4
1,393.1
195.1
571.4
79.5
69.5
68.8
1 Depletion: reduction in reserves based on ore delivered to the mine plant.
2 Variation in reserves and resources due mainly to mine site exploration but also to price changes.
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180 Hochschild Mining plc Annual Report 2012
Further information
Reserves and resources continued
Change in attributable reserves and resources
Ag equivalent content (million ounces)
Category
Arcata
Pallancata
San Jose
Main operations total
Ares
Other operations total
Inmaculada
Crespo
Azuca
Volcan
Advanced Projects total
Jasperoide
San Felipe
Other projects total
TOTAL
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Percentage
attributable
December
2012
100%
60%
51%
100%
60%
100%
100%
100%
100%
100%
December
2011
Att.¹
December
2012
Att.¹
Net
difference
% change
112.3
29.3
69.6
24.6
87.8
21.9
269.7
75.8
14.3
2.4
14.3
2.4
89.8
–
58.3
–
103.0
–
–
–
251.1
–
57.6
–
38.5
–
96.0
–
106.4
25.6
66.4
22.2
96.8
24.9
269.5
72.7
15.8
2.6
15.8
2.6
89.8
48.7
48.9
–
103.0
–
572.9
–
814.6
48.7
57.6
–
38.5
96.0
–
(5.9)
(3.7)
(3.2)
(2.4)
9.0
3.0
(0.1)
(3.1)
1.5
0.2
1.5
0.2
–
48.7
(9.4)
–
–
–
572.9
–
563.5
48.7
–
–
–
–
–
(5.3)
(12.6)
(4.6)
(9.8)
10.2
13.8
(0.0)
(4.1)
10.2
10.4
10.2
10.4
(cid:3)
–
(16.1)
–
–
–
–
–
224.4
–
–
–
–
–
–
631.1
78.2
1,196.0
124.0
564.9
45.8
89.5
6.3
1 Attributable reserves and resources based on the Group’s percentage ownership of its joint venture projects.
Further information
Production
2012 Total Group production1
Silver production (koz)
Gold production (koz)
Total silver equivalent (koz)
Total gold equivalent (koz)
Silver sold (koz)
Gold sold (koz)
www.hochschildmining.com 181
Year ended
31 December
2012
19,443
164.34
29,304
488.40
18,928
159.8
Year ended
31 December
2011
% change
21,363
180.51
32,193
536.56
21,792
182.0
(9)
(9)
(9)
(9)
(13)
(12)
1 Total production includes 100% of all production, including production attributable to joint venture partners at San Jose and Pallancata.
Attributable Group production2
Silver production (koz)
Gold production (koz)
Attributable silver equivalent (koz)
Attributable gold equivalent (koz)
Year ended
31 December
2012
13,550
111.82
20,260
337.7
Year ended
31 December
2011
% change
14,980
127.29
22,617
377.0
(10)
(12)
(10)
(10)
2 Attributable production includes 100% of all production from Arcata, Ares and Moris, 60% from Pallancata and 51% from San Jose.
Production by mine
Arcata
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
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)
Year ended
31 December
2012
Year ended
31 December
2011
% change
773,498
271
0.83
5,526
17.27
6,562
5,236
15.9
687,966
312
0.88
6,081
17.38
7,124
5,979
16.7
12
(13)
(6)
(9)
(1)
(8)
(12)
(5)
Year ended
31 December
2012
Year ended
31 December
2011
% change
336,426
54
2.65
481
26.28
2,058
473
25.8
344,085
61
2.90
581
29.03
2,323
598
29.7
(2)
(11)
(9)
(17)
(9)
(11)
(21)
(13)
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182 Hochschild Mining plc Annual Report 2012
Further information
Production continued
Pallancata1
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 Jose2
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)
2 The Company has a 51% interest in San Jose.
Moris
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)
Year ended
31 December
Year ended
31 December
2012
2011
% change
1,094,250 1,070,466
301
1.33
8,767
33.88
10,800
9,064
33.9
256
1.09
7,441
26.23
9,014
7,280
25.1
2
(15)
(18)
(15)
(23)
(17)
(20)
(26)
Year ended
31 December
Year ended
31 December
2012
2011
% change
509,851
417
5.79
5,953
85.77
11,099
5,897
84.3
462,825
444
5.86
5,870
80.95
10,727
6,087
82.4
10
(6)
(1)
1
6
3
(3)
2
Year ended
31 December
Year ended
31 December
2012
–
–
–
42
8.79
570
42
8.7
2011
% change
858,028
5.02
0.96
64
19.26
1,220
64
19.3
–
–
–
(34)
(54)
(53)
(34)
(55)
www.hochschildmining.com 183
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 tonnes
ktpa
Thousand 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 25 pence 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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Further information
Glossary
Ag
Silver
Adjusted EBITDA
Adjusted EBITDA is calculated as profit from continuing
operations before exceptional items, net finance costs and
income tax plus depreciation and exploration expenses other
than personnel and other exploration related fixed expenses.
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.
Au
Gold
Average head grade
Average ore grade fed into the mill
Board
The Board of Directors of the Company
CAD$
Canadian dollar
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.
Dore
Dore bullion is an impure alloy of gold and silver and is
generally the final product of mining and processing; the dore
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 tonne
Investor relations
For investor enquiries please contact our Investor Relations
team by writing to the London Office address (see below),
by phone on 020 7907 2933 or via the website by visiting the
‘Contact Us’ section.
Financial calendar
Ex-dividend date
Record date
Deadline for return
of currency election form
Final dividend payable
Half-yearly results announced
8 May 2013
10 May 2013
15 May 2013
4 June 2013
August 2013
London Office and Registered Office address
46 Albemarle Street
London
W1S 4JL
United Kingdom
Company Secretary
R D Bhasin
184 Hochschild Mining plc Annual Report 2012
Shareholder information
Annual General Meeting (‘AGM’)
The AGM will be held at 9:30am on 30 May 2013 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
By fax
+44 (0)1484 600 911
Currency option and dividend mandate
Shareholders wishing to receive their dividend in US dollars
should contact the Company’s registrars to request a currency
election form. This form should be completed and returned
to the Registrars by 15 May 2013.
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 15 May 2013. 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.
Advice to shareholders concerning Boiler Room Scams
In recent years, many companies have become aware that their shareholders have received unsolicited phone calls or correspondence concerning investment matters.
These are typically from overseas based ‘brokers’ who target UK shareholders, offering to sell them what often turn out to be worthless or high risk shares in US or UK
investments. These operations are commonly known as ‘boiler rooms’. These ‘brokers’ can be very persistent and extremely persuasive, and a 2006 survey by the
Financial Services Authority (FSA) has reported that the average amount lost by investors is around £20,000.
It is not just the novice investor that has been duped in this way; many of the victims had been successfully investing for several years. Shareholders are advised to be very
wary of any unsolicited advice, offers to buy shares at a discount or offers of free company reports. If you receive any unsolicited investment advice:
(cid:2)(cid:3) Make sure you get the correct name of the person and organisation
(cid:2)(cid:3) Check that they are properly authorised by the FSA before getting involved by visiting www.fsa.gov.uk/register/home.do and contacting the firm using the details on
the register
(cid:2)(cid:3) Report the matter to the FSA either by calling 0845 606 1234 or by visiting www.moneyadviceservice.org.uk
(cid:2)(cid:3) If the calls persist, hang up
If you deal with an unauthorised firm, you will not be eligible to receive payment under the Financial Services Compensation Scheme. The FSA can be contacted by
completing an online form at www.fsa.gov.uk/pages/doing/regulated/law/alerts/overseas.shtml
Details of any share dealing facilities that the Company endorses will be included in Company mailings.
More detailed information on this or similar activity can be found on the Money Advice Services website at www.moneyadviceservice.org.uk
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 fi nancial 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 diff erent from any future results, performance or achievements expressed or
implied by such forward-looking statements. Factors that could cause or contribute to
diff erences between the actual results, performance or achievements of Hochschild Mining
plc and current expectations include, but are not limited to, legislative, fi scal and regulatory
developments, competitive conditions, technological developments, exchange rate fl uctuations
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
fi nancial adviser.
The forward-looking statements refl ect 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 refl ect events occurring after the date of this Annual Report.
Nothing in this Annual Report should be construed as a profi t forecast.
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